DR 98-177 Granite State Electric Company 1999 Demand Side Management Program Order Approving Program O R D E R N O. 23,097 January 4, 1999 APPEARANCES: Carlos A. Gavilondo, Esq., for Granite State Electric Company; David W. Marshall, Esq., for the Conservation Law Foundation; Wynn E. Arnold, Esq. for the Governor's Office of Energy and Community Services; Andrew Bodnarik for the New Hampshire Department of Environmental Services, Air Resources Division; Kenneth E. Traum for the Office of the Consumer Advocate for residential ratepayers; and Robert J. Frank, Esq. for the Staff of the New Hampshire Public Utilities Commission. I. PROCEDURAL HISTORY On October 5, 1998, Granite State Electric Company (GSEC) filed with the New Hampshire Public Utilities Commission (Commission) a petition for approval of its 1999 Demand Side Management (DSM) Program Proposal effective for the period January 1, 1999 through December 31, 1999. GSEC sought approval of a DSM budget of $2,283,900 with a projected shareholders' incentive of $298,589. GSEC proposed to continue its currently approved DSM programs, with some modifications. GSEC also proposed to introduce a new Efficient Clothes Washer (TumbleWash) Program and to establish a $100,000 set-aside for initiatives recommended by the New Hampshire Energy Efficiency Working Group (Working Group). By an Order of Notice issued October 9, 1998, the Commission scheduled a prehearing conference for October 29, 1998, set deadlines for intervention requests and objections thereto, outlined a procedural schedule, and required the Parties and Commission Staff (Staff) to summarize their positions with regard to the filing for the record. On October 19, 1998, the Conservation Law Foundation (CLF) filed a Petition to Intervene. On October 26, 1998, the Governor's Office of Energy and Community Services (ECS) filed a Motion for Full Intervention. The New Hampshire Department of Environmental Services, Air Resources Division (DES) appeared at the October 29, 1998 prehearing conference and announced that it would be filing its motion to intervene within a couple of days. On October 30, 1998, DES filed a late Motion for Full Intervention. There were no objections to CLF's and ECS' motions to intervene. No party objected to DES' motion at the prehearing conference or subsequently through a filing with the Commission. The Office of the Consumer Advocate (OCA) is a statutorily recognized intervenor. On November 13, 1998, the Commission issued Order No. 23,067 approving the procedural schedule and the petitions to intervene. On November 24, 1998, Commission Staff requested changes to the approved procedural schedule due to the Commission's rescheduling of the hearing on the merits. All Parties concurred with the request. On December 3, 1998, the Commission approved the requested changes to the procedural schedule. Pursuant to the approved procedural schedule, GSEC, the intervenors and Staff engaged in formal discovery. On December 1, 1998, ECS filed the direct testimonies of Deborah Schachter, Director, and Heidi Kroll, Energy Policy Analyst; DES filed the direct testimony of Andrew M. Bodnarik, Administrator II; and Staff filed the direct testimony of Michelle A. Caraway, Utility Analyst III. On December 10, 1998, GSEC, CLF, ECS, DES and OCA (collectively the Parties) and Staff participated in a Settlement Conference. Subsequent to the Settlement Conference, the Parties and Staff entered into an Offer of Partial Settlement (Partial Settlement). The Partial Settlement would resolve some of the issues in this proceeding and describes contested issues on which the Parties and Staff were unable to achieve consensus. The Partial Settlement was filed with the Commission on December 16, 1998. On December 16, 1998, a hearing was held before the Commission at which time testimony supporting the Partial Settlement and detailing positions on the contested issues was presented to the Commission. II. OFFER OF PARTIAL SETTLEMENT As it pertains to the resolved issues, the Parties and Staff agree that GSEC's DSM proposal, as set forth in its October 5, 1998 filing, is in the public interest and should be approved, subject to the following modifications: Residential Programs The Residential programs shall be implemented as proposed in the October 5, 1998 filing, modified as follows: 1. Home Energy Management (HEM) Program. GSEC will close its Interruptible Credits program (IC-1 and IC-2), including the HEM program, to new customers effective January 1, 1999, but will allow existing customers to continue to receive the credits during 1999. During 1999, GSEC will evaluate the form of the credits, e.g., separate credits for transmission/distribution and generation portions of service, and assess the appropriateness of continuing them beyond 1999. In its filing for the 2000 program year, GSEC shall propose modifications to the IC-1 and IC-2 credits that are appropriate as a result of its evaluation. Aside from the foregoing modifications, GSEC will implement the HEM program in 1999 as set forth in the October 5, 1998 filing, including the proposed budget level for the HEM program. 2. Energy Efficiency Working Group Fund -- Residential. GSEC will withdraw its proposal to set aside $50,000 in its Residential program budget to fund initiatives that may be identified by the Working Group for implementation in 1999. Withdrawal of this funding proposal shall not preclude GSEC from petitioning the Commission during the 1999 program year for additional funding in order to implement any new residential initiatives which may be recommended by the Working Group during 1999. 3. TumbleWash. The Parties and Staff agree that GSEC's proposal to implement the TumbleWash program in 1999 as set forth in the October 5, 1998 filing, including the proposed budget level for that program, should be approved. In addition, the Parties and Staff agree that in the event the Commission requires or approves additional disclosure requirements relative to the TumbleWash promotional materials in Docket DR 98-174, relating to the 1999 Conservation and Load Management Program of Public Service Company of New Hampshire (PSNH), GSEC shall implement a program to provide substantially similar disclosure information as is required for PSNH in Docket DR 98-174. Commercial and Industrial Programs The Commercial and Industrial (C/I) programs shall be implemented as proposed in the October 5, 1998 filing, modified as follows: 4. Small C/I Co-Pay. GSEC will introduce a twenty-percent (20%) co- pay in its Small C/I program for the 1999 program year. The co- pay will not result in a change in the proposed budget for the Small C/I program. With the exception of the twenty-percent co- pay, the Small C/I program will be implemented as set forth in the October 5, 1998 filing. In the event that introduction of the 20% co-pay negatively affects the performance of the Small C/I program in 1999, GSEC or any other Party shall be free to propose reduction or elimination of the co-pay for subsequent program years. 5. Energy Efficiency Working Group Fund -- C/I. GSEC will withdraw its proposal to set aside $50,000 in its C/I program budget to fund initiatives that may be identified by the Working Group for implementation in 1999. Withdrawal of this funding proposal shall not preclude GSEC from petitioning the Commission during the 1999 program year for additional funding in order to implement any new C/I initiatives which may be recommended by the Working Group during 1999. 6. Cooperative Interruptible Service (CIS) Program. The Parties and Staff agree that GSEC may continue to offer its CIS program to those currently participating CIS-1 customers that remain on transition service during the 1998-1999 CIS program year. Specifically, the Parties and Staff agree that GSEC should base the 1998-1999 CIS-1 credits upon the schedule of credits and charges ultimately approved by the Commission in connection with GSEC's 1998-1999 CIS-1 program in Docket DR 98-178; and the Parties and Staff further agree that to the extent an existing CIS-1 customer leaves transition service, such customer shall no longer be eligible for the CIS-1 program. In the event the Commission adopts the schedule of credits and charges previously approved for the 1997-1998 CIS-1 program for use in the 1998-1999 CIS-1 program, funding for the CIS program shall be as set forth in the October 5, 1998 filing. To the extent the Commission approves a different schedule of credits and charges for the CIS-1 program as part of its consideration in Docket DR 98-178, GSEC's 1998-1999 CIS program budget will be revised accordingly. Nothing in this Partial Settlement shall be construed to limit the position any of the Parties or Staff may take with respect to the CIS program in Docket DR 98-178, or for future program years. 7. Design 2000 and Energy Initiative. The Parties and Staff agree that GSEC's proposal to implement the Design 2000 and Energy Initiative programs in 1999 as set forth in the October 5, 1998 filing, including the proposed budget levels for those programs, should be approved. Program Budgets and Adjustment Factors 8. Program Budgets. The budgets for the Residential and C/I programs agreed upon by the Parties and Staff are $338,700 and $1,735,000, respectively, for a total of $2,073,700. GSEC's final DSM budget for the 1999 program year will depend upon how the Commission decides the contested issues. 9. Adjustment Factors. The Residential and C/I adjustment factors shall be designed to collect the amounts necessary to fund the 1999 DSM programs ultimately approved by the Commission, as well as GSEC's 1998 shareholders' incentive, subject to evaluation and reconciliation to actual performance. The factors ultimately approved by the Commission shall remain in effect throughout the 1999 program year, subject to adjustment in the event the Commission approves any new initiatives recommended by the Working Group for implementation during the program year. GSEC shall not seek recovery of any expenditures of its 1999 DSM Program which exceed the overall budget ultimately approved by the Commission. Pursuant to the Commission's authority under N.H. Admin. Rules, Puc 201.05, the Parties and Staff request waiver of Puc 1203.05(a), which requires that rate changes generally be implemented on a service-rendered basis, and instead permit GSEC to implement the final 1999 DSM adjustment factors on a bills- rendered basis consistent with the principles embodied in Puc 1203.05(b). The Parties and Staff request that the new adjustment factors ultimately approved by the Commission become effective for bills rendered on and after January 1, 1999. III. CONTESTED ISSUES The Parties and Staff were unable to reach agreement with respect to certain aspects of GSEC's proposed 1999 DSM programs and other initiatives identified in the testimony of the intervenors and Staff. Specifically, the Parties and Staff were unable to achieve consensus with respect to: GSEC's Residential Lighting Program for 1999; the implementation of enhanced building codes initiatives; and support for the WasteCap Resource Conservation NetWork (ReCon) program administered by the Business and Industry Association of New Hampshire (BIA). A. Granite State Electric Company GSEC stated at the hearing that if the Commission would approve a retail rebate for compact fluorescent light (CFL) bulbs at $9.00, the rebate level currently offered by GSEC's affiliates, then GSEC would continue to offer this aspect of its Residential Lighting Program. GSEC said it was not able to benefit from the economies of scale of a joint utility effort with its affiliates because the CFL bulb retail rebate for 1998, $8.00, was different in New Hampshire. GSEC proposes to participate in the energy codes effort for 1999. For a total of $20,000, GSEC estimates expending $10,000 to participate in a baseline study of current C/I building practices, $5,000 to assist through C/I seminars for builders, architects and design engineers, and another $5,000 to assist with training for the implementation of the new residential energy code which is to go into effect in March 1999. GSEC also proposes supporting the WasteCap ReCon program at a budget of $10,000. GSEC's assistance would be limited to technical assistance to identify electrical savings. GSEC testified that the type of assistance that will be offered through the WasteCap ReCon effort is similar to services already being provided by existing C/I DSM programs. B. Governor's Office of Energy and Community Services ECS recommends that GSEC continue CFL bulb retail rebates through its Residential Lighting Program and to modify its Starlights Catalog distribution approach from the bill stuffer approach to the direct mail approach. ECS believes that the direct mail approach could improve the market transformation potential of the program by stimulating greater consumer awareness of, knowledge about, and demand for affordable and attractive energy efficient lighting. ECS supports GSEC's proposal to support energy code activities. In addition to the $10,000 proposed by GSEC for the WasteCap ReCon program, ECS requested at the hearing that GSEC provide a $2,000 to $3,000 cash contribution to the WasteCap ReCon program. GSEC agreed to the cash contribution of ratepayer funds. C. Department of Environmental Services DES submitted prefiled testimony in the proceeding but did not offer testimony at the hearing. DES cross-examined witnesses and requested that the Commission take administrative notice of its prefiled testimony. D. Office of the Consumer Advocate OCA did not prefile testimony in the proceeding and did not offer testimony at the hearing. OCA did cross-examine witnesses. E. Conservation Law Foundation CLF believes that GSEC's budget should consist of the following components: all programs included in the Partial Settlement; continuation of the Residential Lighting Program with the CFL bulb retail rebate of $9.00; mailing of the Starlights catalog to all residential customers; energy code education and implementation efforts; and support for the WasteCap ReCon program. F. Commission Staff Staff recommends that GSEC eliminate its Residential Lighting Program. Based partly on GSEC's statement that a recent study indicated significant market awareness and substantial penetration in the market, Staff believes that the CFL market is mature and no longer needs subsidies in the form of ratepayer- funded lighting programs. Staff states that the program promotes a product that by GSEC's own definition has effectively met the goal of market transformation. Staff identified its concern that dollars spent on the WasteCap ReCon program may be used to fund efforts beyond energy conservation; i.e., waste reduction, pollution prevention and water conservation. Although Staff does not question the value of the program, Staff questions whether electric ratepayers should fund non-utility related programs. Additionally, Staff testified that any corporate contribution donated directly to WasteCap ReCon by GSEC would normally be treated as a "below-the- line" expense along with any dollars spent by GSEC on outside consultants needed to fulfill the utility's obligations to the WasteCap ReCon effort. Regarding energy codes, it is Staff's opinion that current funding levels within the Commission's overall budget are adequate for code-related training activities and that additional funding by ratepayers for this purpose is unwarranted. IV. COMMISSION ANALYSIS After careful review of the record in this docket, we find that the Offer of Partial Settlement filed by the Parties and Staff is reasonable and is in the public good and, therefore, we will approve it. The Partial Settlement resolved a number of issues in this docket and outlined the issues that the Parties and Staff were not able to resolve. Before addressing the contested issues, the Commission notes that it intends to review the continuation of shareholder incentives associated with DSM programs. Although no Party or Staff contests either the recovery of an incentive or the particular level, the Commission believes that it is appropriate for the Energy Efficiency Working Group, convened in Docket DR 96-150, to address whether these types of shareholder incentives continue to be appropriate as New Hampshire moves forward to a restructured electric environment. The shareholder incentive has been in place since the Commission originally approved it for GSEC in Order No. 19,905 (August 7, 1990). In accordance with its decision on GSEC's settlement (Order No. 23,041 dated October 7, 1998) and the establishment of the Energy Efficiency Working Group earlier this year, the Commission believes that it is appropriate to direct the Working Group, to the extent that they have not already focused on it, to evaluate shareholder incentive programs like the one currently used by GSEC and recommend whether such incentives continue to be appropriate, and if so, whether the specific incentive formula in place for GSEC requires modification. Overall, the shareholder incentive is a significant portion of GSEC's DSM budget. GSEC projects a shareholder incentive of approximately $300,000 in relation to the direct program budget of $2.28 million. The Commission will allow recovery of the shareholder incentive for 1998, preliminarily estimated to be $255,859, but withhold judgment on the 1999 shareholder incentive until the Working Group has an opportunity to review the shareholder incentive issue and to provide a recommendation to the Commission. In response to a proposal from ECS, GSEC proposed to spend $20,000 for energy codes -- $15,000 for a baseline study and training related to C/I building codes and an additional $5,000 for residential training. Having reviewed the responsibilities imposed on the Commission by RSA 155-D for the implementation of the code and training, the Commission will approve what has been identified as additional spending for building codes but specifically direct that any spending be coordinated with the Commission's Energy Conservation Coordinator. GSEC ultimately agreed to continue the CFL bulb rebates within its Residential Lighting Program with an incremental budget of $10,800. GSEC proposed a CFL bulb rebate of $9.00 to be consistent with the rebate level its affiliates offer in Rhode Island and Massachusetts. We will approve the Residential Lighting Program, as described in GSEC's October 5, 1998 filing, with the addition of the $9.00 CFL bulb rebate. The rebates encourage customers to shop for CFL bulbs in existing retail outlets and promote a market-oriented approach to expenditures on energy efficiency products. Three options were described at the hearing in relation to the Starlights Catalog offered through the Residential Lighting Program: Staff recommended discontinuing it; GSEC proposed a targeted direct mail to 5,000 customers; and ECS proposed a direct mail to all of GSEC's residential customers. We will approve mailing the catalog to 5,000 customers and, of the 5,000, we direct GSEC to target approximately 1,000 catalogs to each of four different customer groups (rural, mid-income, renters and low-income customers) so that the Commission can examine the impact of the target mailing on the four different types of customers. In response to ECS, GSEC proposed at the hearing to spend $10,000 towards the WasteCap ReCon program and provide an additional $2,000 cash contribution directly to WasteCap ReCon. Overall, the dollars earmarked for this program are relatively small. Beyond other services, the program will assist businesses in identifying energy efficiency opportunities and will use a "business-to-business model, which relies on volunteers from within the business community to provide assistance to their peers." We believe that the budget allocated to WasteCap ReCon for 1999 is appropriate but we will require GSEC to report in its 2000 DSM program year filing on the exact amount of funds expended and the impact on energy savings associated with the program. A legitimate concern raised at the hearing was whether the funds would actually be spent on energy conservation matters. The filing should address this concern. The Commission also expects GSEC to report on the EPA grant which is part of the WasteCap ReCon program. 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 GSEC to implement its DSM adjustment factors on a bills-rendered basis. This waiver, pursuant to Puc 201.05, produces a result in this circumstance that is 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 the proposed DSM programs, as amended by the Offer of Partial Settlement and our deliberations described above, are hereby APPROVED; and it is FURTHER ORDERED, that the following DSM adjustment factors shall be effective January 1, 1999 on a bills-rendered basis: Residential, $0.00165 per kilowatt-hour (kWh) and C/I, $0.00389 per kWh; and it is FURTHER ORDERED, that the motions to intervene by CLF, ECS and DES are granted; and it is FURTHER ORDERED, that GSEC shall file compliance tariff pages within ten days of the date of this order. By order of the Public Utilities Commission of New Hampshire this fourth day of January, 1999. Douglas L. Patch Susan S. Geiger Nancy Brockway Chairman Commissioner Commissioner Attested by: Thomas B. Getz Executive Director and Secretary