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Why Is a Utility Paying Customers? by Kate Galbraith New York Times, January 23, 2010

FOUR decades ago, when Sid Erwin began his career as an inspector at the Idaho Power Company, a string of new hydroelectric plants was pumping out power faster than locals could buy it. Soon enough, Mr. Erwin recalls, the utility began sending representatives to rural areas, urging farmers to use more electricity when irrigating their crops.

These days, Idaho's farmers are being paid to stop using power.

Sitting at a cluttered kitchen table in his home, Mr. Erwin -- now a farmer himself -- waved a bill showing that last July he received a credit of more than $700 from Idaho Power for turning off his power-guzzling pumps on some summer afternoons.

"It's a total turnabout," says Mr. Erwin, who lives in Bruneau, about 60 miles southeast of here. "I'm almost 70 years old and this has been a lifelong education to me."

As saving energy becomes a rallying cry for utilities and the government, Idaho Power is in the vanguard. Since 2004, it has been paying farmers like Mr. Erwin to cut power use at crucial times, resulting in drop-offs of as much as 5.6 percent of peak power demand.

In a related program, it pays homeowners to turn off their air-conditioners briefly at times of high demand.

Other efficiency initiatives by the utility, including one promoting attic insulation, have saved about 500,000 megawatt-hours of power since 2002, according to the company -- roughly equal to the amount used by 5,000 gadget-filled homes over eight years.

To pay for these and other energy-saving measures, Idaho customers -- individuals and companies -- are charged a 4.75 percent "energy efficiency" rider on their electric bills, one of the highest percentage charges of this kind in the country.

"It's clearly iconic in terms of a utility that's turned the corner," says Tom Eckman, the manager of conservation resources with the Northwest Power and Conservation Council, a planning group created by Congress. "They have gone from pretty much ground zero to a fairly aggressive program level."

The company's efforts are especially striking given that the push for energy efficiency is generally associated with coastal states like California and Massachusetts, not with a state whose electric rates are among the lowest in the country.

But the concept has rung true for Idaho's farmers, anglers and snowbirds -- outdoor types who have helped keep the state nearly free of coal plants. They have been largely receptive to the utility's arguments that it is cheaper to save energy than to build new power plants.

"Every time they would build a plant, it would raise our rates," says Terry Ketterling, a farmer in Mountain Home, Idaho, who grows sugar beets, corn, wheat and alfalfa and who, like Mr. Erwin, participates in the irrigation payment program.

Energy experts say Idaho Power's efforts can be replicated by other power companies across the country. Steve Nadel, executive director of the American Council for an Energy-Efficient Economy, an advocacy group, estimates that about half of utilities now run programs that pay customers to cut use during peak periods. And companies like Enernoc, based in Boston, have sprung up that help utilities by outfitting stores and other businesses with devices to turn off lights or reduce power in other ways during a power squeeze.

But most utilities spend a much lower proportion of their revenue on saving energy than Idaho Power, says Ralph Cavanagh, a senior lawyer at the Natural Resources Defense Council, an environmental group.

LaMont Keen, the C.E.O. of Idaho Power, acknowledges that the company, with its large cohort of farmers, has a different customer base than most other power companies. Still, he argues that the success of his programs shows that even utilities with large industrial loads can adapt.

"With the right incentives, people can and will modify their behavior in ways that are beneficial," he says.

The utility also has its share of critics: Big businesses sometimes wince at paying the efficiency charge. And some say the utility has dragged its feet when it comes to renewable energy -- other than that generated by huge dams. Some detractors refer to Idaho as the "hole in the doughnut" on wind power -- because most of its neighbors, like Oregon, Washington and Wyoming, have built far more wind farms.

"Very little has been developed in Idaho in the past six or seven years, whereas all the states around us have blossomed," says Kiki Tidwell, a self-described "Republican soccer mom" near Hailey, Idaho. Ms. Tidwell helped push through a shareholders' resolution to urge Idaho Power to plan for a low-carbon future.

To the surprise of even Ms. Tidwell, it passed last May, with 52 percent of the votes.

Mr. Keen notes that hydro is a clean resource and says Idaho Power -- a subsidiary of the publicly listed Idacorp that serves parts of Oregon as well as most of Idaho -- is working to ramp up wind production and reduce the carbon intensity of its operations.

IDAHO POWER has been used to getting its way: it's an old joke around Boise that Idaho is the only state named for a power company.

Until recently, getting its way meant adding power, which was cheap and plentiful, thanks in part to several new dams completed in the late 1950s and '60s. (One of them, called Hells Canyon, was where Mr. Erwin spent his younger days checking on cables and fittings during construction.)

A nasty shock arrived in 2000 and 2001, when peak-time energy prices on the open market rose about tenfold -- not counting steeper, temporary spikes. The Western energy crisis was under way, with market manipulation woes in California compounded by a dry stretch for Idaho's dams.

"Everything turned a full 180," Ric Gale, the utility's vice president for regulatory affairs, said in an interview in Idaho Power's blocklike Boise headquarters, which is itself undergoing a floor-by-floor green retrofit.

Idaho Power and regulators held emergency meetings, and customers were soon hit with a temporary rate increase of about 44 percent. The utility paid big irrigators to shut down their electric pumps for the summer of 2001, figuring it would be cheaper than buying the power at high prices. An enormous phosphate plant in Pocatello was also in effect paid to temporarily shut down one of its energy-guzzling furnaces. The move hurt sales, and the company, FMC, decided later that year to close the plant permanently.

To avoid being caught short again, Idaho Power decided to give energy-saving measures a try. Another push came from the state's Public Utilities Commission, which ordered Idaho Power in 2001 to refocus on energy efficiency -- something the utility had dabbled in during the 1990s.

PERHAPS more than any other group, Idaho's farmers have experienced at first hand the effects of the utility's transformation. Though Idaho's economy has diversified in recent years, more than a fifth of its land is devoted to farming -- not only to grow Idaho's world-famous potatoes, but also crops like alfalfa, triticale and oat hay, all of which Mr. Erwin grows.

Vast amounts of energy are required to pump water up to the state's plains from the Snake River or from wells. The largest farms can use as much electricity as several thousand homes. During the summer, big farms keep their pumps on nearly 24 hours a day, seven days a week.

Until the 1970s, many farmers used gas-powered engines to force water uphill, according to Mr. Erwin. But by offering steep discounts, Idaho Power convinced many of them to put in electric pumps and use them to move water up even taller slopes; the discounts are still in effect. Irrigation accounts for 12 percent of Idaho Power's electricity load over all -- and 23 percent during peak periods.

That's why, in recent years, Idaho Power decided that farmers could help it reduce the load on sunny summer days, when air-conditioners and other gadgets are on, by turning off their pumps for up to 15 hours a week.

This concept, called demand response, has gained traction in utility circles. In essence, it involves paying users to make small sacrifices when there is an urgent need for extra power (the "peak"). The utility can then rely on cutting some demand on its system at crucial times -- and, in theory, avoid the cost of building a new plant just to meet those peak needs.

Over the course of the day, Mr. Gale says, "you can actually see the peak drop off when the program kicks in."

For farmers, however, this process isn't easy. Workers must be dispatched to turn the pumps on and off, and there is a risk of crop damage. "I may save on power, but it may cost me some on crop," says Mr. Ketterling, who pumps water up more than 600 feet from the Snake River. He spends about $1.8 million a year on electricity and estimates he shaved more than 30 percent off his bill over a six-week period last year by participating in the program.

Ordinary consumers have also been called upon to help with efficiency. These days, most utilities enclose fliers with monthly bills that offer energy-saving tips for appliances and light bulbs, but Idaho Power seems to have taken the campaign to an extreme.

Just before Christmas, the utility bought ads in newspapers flagging "naughty or nice" holiday gifts: an electric charger for a mobile device, for example, was "naughty," but a solar charger was "nice." Last October, Idaho Power offered free classes to Boise residents featuring energy-saving tips for cooking (ever tried a solar oven?) and demonstrations on sealing ducts.

Another program, begun last June after a yearlong pilot version, pays individuals 15 cents for each square foot of insulation they put in their attics. "That was a no-brainer," said Courtney Washburn, a Boise resident who works for the Idaho Conservation League and who received a letter from Idaho Power promoting the insulation rebate.

Ms. Washburn also participates in the utility's "demand response" program for air-conditioners. More than 32,000 Idaho Power households (out of nearly 407,000 total) have allowed the utility to control their air-conditioners at crucial times.

On a hot summer day, Idaho Power can in essence push a switch that causes devices installed on participating air-conditioning units, like Ms. Washburn's, to cycle on and off for intervals as long as 15 minutes. Ms. Washburn says she has noticed no difference in temperature, even though a sweltering day is exactly when people want their air-conditioning most. Executives say the program lowers use during peak periods by about 1 percent. Participants are paid $7 a month during the summer.

Ms. Washburn says her electric bill has dropped by about 30 percent as a result of the attic insulation and the $7 credit.

FACED with a fast-growing population, Idaho Power has been unable to avoid building new power plants altogether; a new natural gas plant is in the works. But executives are pressing ahead with efficiency measures. The utility is asking regulators to make permanent a pilot program started in 2007 that allows Idaho Power to raise rates to make up for selling less power.

(This concept is known as decoupling and is celebrated by energy-efficiency advocates; Idaho was one of the first states to adopt it, after California, though Idaho Power's large industrial customers are so far exempt from the rate adjustments.)

But the aggressive pursuit of efficiency has prompted concerns in some quarters. Ray Stark, senior vice president of the Boise Metro Chamber of Commerce, says that not long ago a few companies, including a chemical producer, that had been considering operations in the state were told by Idaho Power that there was insufficient capacity to accommodate their power needs.

"That concerns us a great deal because we want to be competitive for economic development projects," said Mr. Stark, adding that he supports the efficiency push.

Mr. Gale said that capacity constraints were unrelated to the drive to save energy and that utilities can't always quickly accommodate a big new customer.

The rising efficiency charges have also raised corporate eyebrows. Don Sturtevant, the energy manager for the J. R. Simplot Company, the potato processor, said he cringed when Idaho Power raised the charge last June to 4.75 percent from 2.5 percent, though he said the company benefited from the program.

If the utility raises the charge again, Mr. Sturtevant said, "it's going to be a challenge."