DR 98-129
EnergyNorth Natural Gas, Inc.
1998/1999 Demand-Side Management Program
Order Approving Settlement Agreement
O R D E R N O. 23,047
October 27, 1998
APPEARANCES: McLane, Graf, Raulerson & Middleton by
Richard A. Samuels, Esq. on behalf of EnergyNorth Natural Gas,
Inc.; the Office of the Consumer Advocate by Kenneth E. Traum on
behalf of residential ratepayers; and Michelle A. Caraway for the
Staff of the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On July 14, 1998, EnergyNorth Natural Gas, Inc. (ENGI)
filed with the New Hampshire Public Utilities Commission
(Commission) its 1998/1999 Demand-Side Management (DSM) Program
proposal. The filing was made in compliance with Order No.
22,635 (July 1, 1997) and Order No. 22,731 (September 23, 1997)
which required ENGI to file one DSM program proposal encompassing
both residential and commercial and industrial (C&I) programs by
July 15, 1998. The program year is October 1, 1998 through
September 30, 1999 with the Conservation Charges proposed to take
effect November 1, 1998.
By an Order of Notice issued August 25, 1998, the
Commission scheduled a Prehearing Conference for September 11,
1998, set deadlines for intervention requests and objections
thereto, and outlined a proposed procedural schedule. No party
filed for intervention. The Office of the Consumer Advocate
(OCA) is a statutorily recognized intervenor. On September 21,
1998, the Commission issued Order No. 23,020 approving the
procedural schedule.
Pursuant to the approved procedural schedule, ENGI and
Staff engaged in formal discovery. On September 24, 1998, Staff
requested an extension to file testimony due to delays in
discovery. On September 25, 1998, Staff filed the direct
testimony of Michelle A. Caraway, Utility Analyst III. On
September 30, 1998, ENGI, the OCA and Staff participated in a
Settlement conference. On October 2, 1998, the Commission
granted Staff's request for an extension of time to file
testimony.
Subsequent to the Settlement conference, ENGI, the OCA
and Staff entered into a Settlement Agreement (Settlement). The
Settlement resolves all of the issues in this proceeding. The
Settlement was filed with the Commission on October 5, 1998. On
October 6, 1998, a hearing was held before the Commission at
which time testimony supporting the Settlement was presented to
the Commission.
On October 9, 1998, consistent with the original filing
and the terms of the Settlement, ENGI filed an updated
calculation of the residential Conservation Charge.
II. POSITIONS OF THE PARTIES AND STAFF
A. EnergyNorth Natural Gas, Inc.
For residential customers, ENGI proposes to implement
the ENERGYWI$E Program at a budget of $240,000. ENGI proposes to
continue to offer cash rebates of $450 to promote the
installation of high efficiency heating systems. ENGI will
provide rebates to approximately 500 residential customers who
install natural gas fueled central heating equipment with
efficiencies substantially above the minimum federal standards.
The Total Resource Cost (TRC) test, the method currently accepted
by the Commission to evaluate the cost-effectiveness of DSM
programs in New Hampshire, resulted in a ratio of 1.04 using an
assumption of 33 percent free-ridership.
ENGI proposes to eliminate other conservation measures
(domestic hot water measures, energy audits, attic insulation
installations, and set-back clock thermostats) because of the
high overhead costs associated with administering those measures.
As filed, the proposed residential Conservation Charge
was $0.0063 per therm, a decrease of $0.0030 per therm from the
rate currently in effect. The projected annual cost to the
average residential heating customer for the ENERGYWI$E Program
was estimated to be $6.30.
ENGI stated in its July 14, 1998 filing that it would
submit a supplemental filing on October 9, 1998 with an updated
calculation of the residential Conservation Charge so that the
surcharge could be derived using as much known data as possible.
On October 9, 1998, consistent with the original filing and the
terms of the Settlement, ENGI filed an updated calculation of the
residential Conservation Charge. The revised Conservation Charge
is $0.0050 per therm, or a decrease of $0.0043 per therm from
current residential Conservation Charges. On October 22, 1998,
Staff submitted a recommendation to the Commission stating that
it had reviewed ENGI's supplemental filing and had found the
revised residential Conservation Charge to be consistent with the
terms of the original filing and the Settlement.
ENGI does not propose to collect a performance
incentive related to the 1998/1999 DSM Program. ENGI estimates
that there will be approximately $55,965 of Lost Net Margins
associated with residential programs that ENGI is entitled to
recover.
ENGI proposes to continue its C&I program at an
estimated budget level of $95,000 and as it was approved by the
Commission last year and subsequently modified during the program
year to eliminate the 10 percent participant co-payment. ENGI
requests that the program continue until September 30, 1999 or
until the current overcollection is eliminated, whichever occurs
first. In the event that the current overcollection is not
eliminated by September 30, 1999, ENGI proposes that any
remaining overcollection be applied to the winter Cost of Gas
Adjustment and returned to all customers in the winter 1999/2000
period.
The proposed C&I program will feature two components.
The technical services component will feature energy audits
(either a walk-though or comprehensive audit depending upon the
needs and usage of the customer) and technical reports, which are
provided to ENGI customers by a consulting engineering firm
providing natural gas conservation audits. The second component
features rebates for the purchase of equipment which increases
the energy efficiency of natural gas usage. Rebates are limited
to set-back thermostats at a rebate level of $75.
ENGI did not perform a TRC test on the C&I program;
however, based on results of previous monitoring and evaluation,
ENGI believes that the TRC test would result in a ratio of less
than 1.0. ENGI stated that it evaluated the option of returning
the overcollection through a credit Conservation Charge but
considered it more appropriate to continue the program which may
be useful for some customers.
ENGI does not propose to recover any Lost Net Margins
or a performance incentive associated with the C&I program. The
proposed surcharge for the 1998/1999 program year is $0.0000 per
therm.
B. Office of the Consumer Advocate
The OCA did not file testimony in this proceeding;
however, the OCA did participate in the Settlement Conference and
expressed its concern that ENGI's low-income residential
customers may not be able to afford to participate in the
ENERGYWI$E Program.
C. Commission Staff
Staff's testimony dealt primarily with ENGI's recovery
of Lost Net Margins associated with conservation measures
installed for new customers, the cost-effectiveness of the
ENERGYWI$E Program, and whether ENGI should continue to offer a
DSM program. Staff recommended that ENGI not be entitled to
collect Lost Net Margins associated with measures installed for
new customers. By Order No. 19,905 (August 7, 1990), the
Commission allowed electric utilities to collect lost revenues
related to "reduced sales due directly to utility C&LM programs."
Staff interpreted this phrase to refer to "a utility's existing
customer base and not to DSM programs which have the effect of
increasing sales" (Ex. 3, pp. 3-4). Staff's testimony conveyed
its concern that ENGI's DSM program could be having the opposite
effect intended by DSM programs; i.e., load-building.
Staff also testified that the ENERGYWI$E Program was
screened for cost-effectiveness using avoided costs that were
neither approved nor rejected by the Commission (DR 95-189).
Staff recommended that should ENGI propose to continue its DSM
Program into the 1999/2000 program year, then ENGI should file an
avoided cost study within its Integrated Resource Plan, Docket
DR 98-134, by May 15, 1999 so that the study could be reviewed
and the results incorporated into the benefit-cost analysis for
the upcoming year.
Although ENGI's ENERGYWI$E Program appears to be
marginally cost-effective at best, Staff recommended that the
Commission approve the current filing, provided that ENGI revises
its filing to eliminate recovery of Lost Net Margins associated
with measure installations for new customers and provided that
ENGI uses the 1998/1999 program year to phase out its DSM Program
unless ENGI can redesign its program to be cost-effective. Staff
concluded its written testimony by stating that it "questions the
value of the continuation of DSM programs in a deregulated energy
market, especially programs which are marginally cost-effective
and which serve to increase the load on a utility's system"
(Ex. 3, p. 7).
III. SETTLEMENT AGREEMENT
ENGI, the OCA and Staff agree that ENGI's DSM Program
proposal, as set forth in the Company's July 14, 1998 filing, is
in the public interest and should be approved, subject to the
following modifications:
1. ENGI, the OCA and Staff expect that this will be ENGI's last year
to offer its DSM Programs. However, should ENGI propose to
continue its DSM Programs into the 1999/2000 Program Year, then
ENGI shall file updated avoided costs so that the programs can be
properly screened for cost-effectiveness. If necessary, the
avoided cost study will be filed in ENGI's Integrated Resource
Plan docket (DR 98-134) on or before May 15, 1999 so that Staff
and other interested parties will have an adequate opportunity to
review and comment upon the study before the results are
incorporated into the 1999/2000 DSM Program filing which would be
due July 15, 1999. Otherwise, ENGI, the OCA and Staff will
discuss the appropriate manner in which any over- or
under-recoveries of DSM costs should be treated at the time of
the Winter 1999/2000 Cost of Gas Adjustment filing.
2. ENGI, the OCA and Staff recognize that while low-income
residential customers are assessed the DSM surcharge the same as
any other residential customers, they may not be as likely to
take advantage of the proposed high efficiency heating system
rebate program. In part for this reason, ENGI, the OCA and Staff
have agreed to assign $16,000 of the proposed DSM Program budget
of $240,000 to low-income customers. In order to minimize ENGI's
administrative costs, the funds will be made available to
Community Action Programs (CAPs) serving ENGI's service territory
to install certain DSM measures. The CAPs will be reimbursed
their costs by ENGI for the installation of approved measures at
rates up to those shown on Exhibit A in low-income residences
served by ENGI where the measures would reduce natural gas usage.
It is ENGI's, the OCA's and Staff's understanding that the CAPs
assess an administrative fee per dwelling unit. The
administrative fees are included in the $16,000 budget allotted
to the CAPs.
If after six months into the Program Year the CAPs are unable to
efficiently spend the funds allotted to them, ENGI may reallocate
those funds to the heating system rebate program upon
consultation with the OCA and Staff.
3. ENGI, the OCA and Staff agree that ENGI shall reduce the amount
requested for Lost Net Margins in the 1998/1999 Program Year by
43%. This reduction reflects ENGI's experience that 43% of
heating system rebates have gone to customers representing new
load on ENGI's system. This adjustment does not impact any Lost
Net Margins previously approved by the Commission in the
1996/1997 and 1997/1998 Program Years.
4. ENGI, the OCA and Staff agree that ENGI shall file a revised
Schedule 3 of the filing to reflect changes to the proposed
Conservation Charges necessitated by the following:
a) A revision to the estimated Lost Net Margins for the
1998/1999 Program Year in accordance with Paragraph 3 above;
b) The updated over/underrecovery for residential customers
based on actual revenues and expenses through August 1998
and estimated revenues and expenses for September and
October 1998; and
c) Updated sales forecasts based on ENGI's internal preliminary
1999 fiscal year operating budget.
The above information shall be submitted to the Commission on or
before October 9, 1998 to allow Staff adequate time to review the
materials and to make a recommendation to the Commission so that
a supplemental order approving the revised Conservation Charges
can be issued for bills-rendered on or after November 1, 1998.
5. ENGI, the OCA and Staff agree that ENGI shall continue to file
its monthly reports for the 1998/1999 Program Year in accordance
with Order No. 22,731.
6. The Conservation Charges shall go into effect November 1, 1998
and shall stay in effect through October 31, 1999. ENGI, the OCA
and Staff recommend that the Commission waive N.H. Admin. Rules,
Puc 1203.05(a) to the extent that it may apply to implementation
of the DSM Program, so that the Conservation Charges may be
implemented on a bills-rendered basis effective as of November 1,
1998.
IV. COMMISSION ANALYSIS
After careful review of the record in this docket, we
find that the Settlement Agreement filed by ENGI, the OCA and
Staff is reasonable and is in the public good. We will approve
ENGI's 1998/1999 DSM Program as outlined in the Settlement
Agreement.
We find that the Settlement accurately addresses the
issue of recovery of Lost Net Margins associated with measure
installations for customers who represent new load to ENGI's
distribution system. DSM programs were implemented as part of
Integrated Resource Plan filings so that demand side and supply
side options could be analyzed to "determine the optimal mix of
resources that will provide ratepayers' energy service needs at
the least cost consistent with the reliable supply..." (Order
No. 19,052 dated April 7, 1998). It was the Commission's
intention that these programs would be used to conserve energy
and would not be used as potential marketing tools to build load
on a utility's system at other ratepayers' expense, a concern
heightened by the move to increased competition in energy
markets.
The Settlement modifies ENGI's DSM Program proposal by
setting aside $16,000 for low-income customers. Although ENGI's
currently approved program has a low-income aspect to it, the
proposal for the 1998/1999 program year did not. We agree with
testimony offered at the hearing that low-income customers may
not be able to afford to participate in the proposed ENERGYWI$E
Program which provides a rebate for the incremental portion only
of upgrading to a high efficiency heating system. Therefore, the
$16,000 allocated to the CAPs to install conservation measures in
accordance with Exhibit A of the Settlement Agreement ensures
that those customers, while funding ENGI's DSM program, will not
be unintentionally barred from DSM Program participation due to
their financial situation which may restrict their ability to
install higher cost heating systems.
The most notable aspect of the Settlement is the
anticipated use of the 1998/1999 program year to phase out ENGI's
DSM programs for both residential and C&I customers. When asked
the reasons behind the phase out, Staff stated that the programs
were marginally cost-effective, if at all. Staff also stated
that the measures traditionally offered by ENGI are low cost
measures that can be found in the marketplace at competitive
prices (Tr. at 16).
ENGI agreed with Staff that the measures are readily
available and do not require continued subsidization by ENGI's
customers (Tr. at 18). ENGI stated that it wanted to continue
the DSM program for another year to gradually phase out the
program and to provide rebates to customers that had expected to
receive the rebates before the funding was depleted in the
current year.
The OCA generally agreed with the comments made by
Staff and ENGI and continued to state there is an open docket
addressing unbundling for natural gas and that the role of DSM in
a competitive market may or may not be appropriate. The OCA also
stated that it is concerned how low-income residential customers
will fare in a retail choice environment and that if a DSM
Program can be cost-effective in a deregulated market, that is an
option that should be evaluated for low-income customers (Tr. at
20).
Given that the parties and Staff believe that the
measures traditionally offered by ENGI are commercially
available, and given some concern that the heating system rebate
program may be building load on the distribution system, it may
be appropriate, as recommended by ENGI and the Staff, for ENGI to
phase out its DSM Program during the 1998/1999 program year.
However, the record before us does not permit a firm conclusion
to that effect. It may be that improved program designs could be
adopted, for example, to capture more savings from measures and
contributions from customers, and which are more carefully
tailored to respond to the specific market barriers facing gas
customers in the changing natural gas markets. On the other hand,
updated avoided costs may prove to be lower than the earlier
estimates on which the upcoming year's program have been
evaluated. The concerns raised by Staff about the role of gas DSM
in a competitive marketplace are also important and must be
carefully weighed in any decision on ENGI's future plans for DSM.
We note that the Settlement agreement does not bind the
company to phasing out the program, but merely recites ENGI's
expectation that it will do so. We approve the Settlement's
treatment of 1998/1999 program proposals, but refrain from
deciding at this time whether ENGI should phase out its DSM
programs by 1999/2000. We also note that the Settlement properly
provides that should ENGI decide to continue its DSM Program into
the 1999/2000 program year, ENGI must file an updated avoided
cost study to show that its future DSM programs are
cost-effective, thereby justifying continued funding by ENGI's
ratepayers.
We expect that in the course of the proceedings of the
Energy Efficiency Working Group and discussions of interested
persons concerning the gas unbundling docket, further insight
into the issues raised by the settling parties here will be
available to inform ENGI's decisionmaking concerning the role of
DSM in its service area beyond the 1998/1999 program year.
Finally, we waive the application of N.H. Admin. Rules,
Puc 1203.05(a), which requires generally that rate changes be
implemented on a service-rendered basis, and will allow ENGI to
implement its Conservation Charges on a bills-rendered basis.
This waiver, pursuant to Puc 201.05, produces a result consistent
with the principles embodied in Puc 1203.05(b), which sets forth
exceptions for allowing rate changes on a bills-rendered basis,
and is in the public interest because it eliminates consumer
confusion and reduces administrative costs.
Based upon the foregoing, it is hereby
ORDERED, that ENGI's 1998/1999 DSM Program proposal, as
filed on July 14, 1998 and as modified by the Settlement
Agreement, is APPROVED; and it is
FURTHER ORDERED, that ENGI's Conservation Charges of
$0.0050 per therm for the Residential Class and $0.0000 per therm
for the C&I Class are approved effective November 1, 1998 on a
bills-rendered basis; and it is
FURTHER ORDERED, that ENGI shall file compliance tariff
pages no later than November 2, 1998.
By order of the Public Utilities Commission of New
Hampshire this twenty-seventh day of October, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary