DR 98-174
Public Service Company of New Hampshire
1999 Conservation and Load Management Pre-Approval Filing
Order Approving C&LM Budgets and Programs
O R D E R N O. 23,172
March 25, 1999
APPEARANCES: Gerald M. Eaton, Esq., and Catherine E.
Shively, Esq., for Public Service Company of New Hampshire; Gary
Milbury and Andrew M. Budnarik, for the New Hampshire Department
of Environmental Services, Air Resources Division; Assistant
Attorney General Wynn Arnold, Esq., for the Governor's Office of
Energy and Community Services; David W. Marshall, Esq., for the
Conservation Law Foundation; William Homeyer for the Office of
the Consumer Advocate on behalf of residential ratepayers; and
Michelle A. Caraway and James J. Cunningham, Jr. for the Staff of
the New Hampshire Public Utilities Commission.
I. PROCEDURAL HISTORY
On October 1, 1998, Public Service Company of New
Hampshire (PSNH) filed with the New Hampshire Public Utilities
Commission (Commission) its 1999 Conservation and Load Management
(C&LM) Pre-Approval Filing in accordance with Commission Order
No. 22,905 (April 28, 1998). PSNH sought approval for a C&LM
budget of $3,206,196, of which $200,000 represented recovery of
Lost Fixed Cost Revenues. PSNH proposed to continue the same
programs that were approved by the Commission by Order No. 22,905
and expanded by Order No. 22,999 (August 17, 1998), along with
the addition of a New Regional Initiatives Program. PSNH
requested Commission approval of program modifications and
funding sources. PSNH currently has $1,697,196 in base rates for
C&LM funding; it sought additional funding of $739,000,
representing the annualized increment in the budget authorized by
Order No. 22,999. PSNH proposed to use the carry-over of unspent
1998 funding and applicable interest to fund the remainder of the
budget.
On November 13, 1998, we granted petitions to intervene
filed by the Conservation Law Foundation (CLF), the Governor's
Office of Energy and Community Services (ECS), and the New
Hampshire Department of Environmental Services, Air Resources
Division (DES). The Office of the Consumer Advocate (OCA) is a
statutorily recognized intervenor.
We held hearings on December 21, 1998, January 12,
1999, and January 26, 1999.
II. POSITIONS OF THE PARTIES
A. Summary
A number of parties presented evidence and argument
about the specific proposal of the Company, and the future of
C&LM for PSNH, particularly as we move towards greater
competition in the electricity services markets. To the extent
there were differences in the positions advanced before us, they
centered on the following issues: (a) the overall level of
spending for C&LM, including whether to annualize and continue
the incremental budget approved by the Commission in Docket DR
98-005 on August 17, 1998, (b) the calculation of lost fixed cost
recovery (LFCR) and its applicability to certain program efforts,
(c) whether C&LM programs should be funded via a reconcilable
surcharge, (d) the relative emphasis in C&LM effort between
residential and commercial programs, (e) the value of certain
program proposals and proposals by intervenors, and suggestions
from the bench for consideration of additional proposals.
B. PSNH
PSNH's initial filing sought approval for a 1999 budget
of $3,206,000, including $200,000 in LFCR. Its most recent
filings show a budget of $3,404,999 reflecting a carryforward
from 1998 of $653,000 ($273,000 lower than the estimate available
as of the hearings). This budget reflects program spending of
$2,642,220, of which $1,178,120 is for residential programs and
$1,464,100 is for non-residential programs. In addition, the
Company's budget reflects $682,779 in LFCR, and $80,000 in
administration costs. The Company stated that if the $739,000
reflecting the annualized amount of the incremental spending
authorization approved in Docket DR 98-005 were not approved, it
would have to cut that amount from programs, including
eliminating some programs altogether (Tr. I, p. 54).
C. ECS
The Governor's Office of Energy and Community Services
(ECS) proposed a program budget of $3,012,500. The differences
between this program budget and that of the Company include
$200,000 in increased effort in the Residential Conservation
Program, $151,380 additional funding for the TumbleWash program,
and $18,900 for further effort in the non-residential New
Initiatives programs. ECS, along with Conservation Law
Foundation (CLF) and the New Hampshire Department of
Environmental Services (DES) supported the inclusion of the
annualized increment in the PSNH C&LM budget, and generally
supported a higher level of spending than proposed by the
Company. In response to inquiries from the bench, the
intervenors recommend that introduction of any Pay As You Save
methods for obtaining increased copayment from participants not
be ordered in this docket, but be referred to the Energy
Efficiency Working Group, established in Docket DR 96-150, for
consideration.
D. OCA
The Office of Consumer Advocate urged that the
Commission weigh the value in C&LM programs against their impact
on the already extraordinary high rates of residential customers,
and recommended that we maintain existing rate levels, and only
use residential funds available from current base rates, carry
overs and interest (Tr. III, p. 187). OCA also urged that
programs further the transformation of efficiency markets, and
noted that the lighting catalog and TumbleWash programs are not
as successful in achieving that goal as are other efforts (id.).
However, in light of the Commission's recent approval of these
two programs, OCA limited its position to the recommendation that
the catalog and TumbleWash efforts be turned into pure education
programs, without rebates (Tr. III, pp. 187-188). In response to
a question from the Commission, OCA's representative stated that
the Pay As You Save option for obtaining copayments from
participants is definitely worth further examination, and has
potential application to the whole array of energy efficient
products, particularly if it is not limited to catalogs but is
offered to customers at the point of sale in retail stores (Tr.
III, p. 189). Finally, with respect to LFCR, OCA argued that
instituting statewide administration of C&LM programs would
provide an opportunity to revisit the basis for allowing LFCR
(Tr. III, p. 190).
E. Staff
Staff testimony proposed an overall budget limited to
$2,806,000, the sum of amounts currently in rates, carry overs,
and interest. Staff recommended a class-specific C&LM surcharge
for any incremental budgets approved by the Commission. Staff
recommended that equity in spending between residential and
non-residential sectors be restored, that LFCR be denied for
measures to customers whose installations represent new load,
that New Regional Initiatives not be funded, and that promotion
of TumbleWash and the SmartLivingTM catalog clearly advise
customers that ratepayers pay the rebates provided to
participants (Exh. 29). In final comments, Staff urged the
Commission in reviewing proposed budgets to consider which
programs have failed the traditional total resource cost analysis
of costs and benefits (Tr. III, p. 191). Staff also noted that
recovery in rates of any incremental costs above the amount
currently in rates should be specifically established by the
Commission(id.).
III. Commission Analysis
Given that the Energy Efficiency Working Group has not
yet made its recommendation to the Commission, we wish to remind
the parties, as we did in Order No. 22,999 in DR 98-005, that
this order should not be construed "as establishing precedent
regarding any of the issues brought forth in this proceeding or
to be addressed by the Working Group." Nevertheless, during this
period of transition, we are guided in our consideration of these
matters by a number of principles. First, programs should
provide incremental benefits that outweigh their costs.
Educational efforts and those directed to low-income customers
may have benefits that are hard to quantify, and merit
independent consideration. Second, the relative investment in
efficiency among various customer groups should not deviate
excessively from the relative electricity sales to the various
customer sectors. Third, the Company should have a reasonable
opportunity to recover its costs for programs prudently
implemented. Fourth, C&LM programs should not duplicate services
available and generally obtained in the open market, but rather
should provide opportunities for efficiency gains that will not
realistically be present in the market. This principle is
particularly important as we move towards greater competition in
energy services markets.
In addition, given the pendency of the rate case and of
the Commission's review of the Working Group's efforts, major
changes in the level of effort for C&LM and the funding structure
should not be instituted at this time. Finally, mindful of the
high rates borne by PSNH customers, care should be taken to
minimize the burdens on non-participating customers by the
expenditures on cost-effective conservation and load management.
Consistent with these principles, C&LM is an important tool in
providing comprehensive services to New Hampshire consumers and
fostering a more sustainable use of available resources.
A. Lost Fixed Cost Recovery and Administrative Costs
The Company revised its calculation of projected lost
fixed cost revenues for 1999 during the course of the
proceedings. The initial filing estimated that LFCR would amount
to $200,000. At the hearings, the Company revised the estimate
to $682,779 (Exh. 26). Staff urges the Commission to deny LFCR
for programs serving new load, and OCA argues that LFCR would not
be appropriate if in the future the C&LM programs were
administered on a statewide basis. As we held in Order No. 23,047
(October 27, 1998) and Order No. 23,068 (November 23, 1998)
addressing ENGI's and Northern's 1998/1999 DSM Program filings,
respectively, LFCR is not appropriate for savings associated with
new load. The Company has eliminated LFCR associated with the
Energy Star Home program at Staff's suggestion. On the record
before us, it is not possible to isolate all the new-load-related
LFCR from the programs we approve today. The record likewise
does not make clear what the LFCR estimates would be given the
revised program budgets we approve today.
We also note that the Energy Efficiency Working Group
is considering the place of LFCR in energy efficiency cost
recovery under a restructured industry, and that we have recently
indicated our intention to review the basis for and calculation
of LFCR and shareholder incentives. Order No. 23,047 (October 27,
1998) and Order No. 23,068 (November 23, 1998), supra, and
Granite State Electric Company (GSEC), DR 98-177, Order No.
23,097, January 4, 1999. For all these reasons, we will defer
the question of the amount of LFCR recovery to the base rate
case. The question of the recovery of LFCR in a restructured
industry will be determined after reviewing the work of the EEWG.
At the present, we will allow the Company to recompute its
estimate of LFCR based on the program determinations made in this
Order, and to submit this estimate into the record of the base
rate case.
In addition, we will approve the balance of the "Other"
category in the proposed budget, or $80,000, representing
administration costs.
B. Commercial and Industrial Programs
There was little disagreement among the parties with
respect to the proposed programs for commercial and industrial
customers. The Company proposed the following programs and
budgets:
Company Non-Residential Program Budget Proposal
EnergyCheck
$530,000.00
Energy Savings Program(ESP)
$860,000.00
Education
$45,000.00
New Initiatives
$29,100.00
Subtotal Non-residential
$1,464,100.00
The Company proposes to relax slightly the incentive
caps on the EnergyCHECK audit and incentive program, and to
extend Energy Services Program audits and prescriptive rebates to
smaller non-residential customers (Tr. I, p. 46-47). These minor
adjustments are reasonable, and we approve them. We also find
that given the strong benefit/cost ratios for these two programs
(1.1 and 1.5 respectively, Exh. 8), and the support of the
intervenors, the Company's proposals for these programs should be
approved.
The Company made no specific proposal for the New
Initiatives programs, but noted a list of five possibilities that
could be adopted (Exh. 5; Tr. II, p. 98). The Governor's Office
of Energy and Community Services proposed to add roughly $18,000
to the New Initiatives programs, for a total of $48,000. The ECS
proposed New Initiatives budget would comprise $5,000 for
training related to the roll-out of the new state building codes,
$25,000 to help fund a baseline study of current non-residential
building design and construction efficiency practices (Exh. 26,
Tr. II, p. 159-160), and $18,000 for WasteCap Recon (Tr. III, pp.
30-32).
WasteCap Recon is a peer-to-peer technical assistance
program sponsored by the Business and Industry Association that
fosters waste reduction and resource conservation, including
energy efficiency. We recently approved a similar contribution
to this program on the part of GSEC, Order No. 23,097, and
approve it as well for PSNH. As in the case of GSEC, electric
customer C&LM funds must be used to procure electricity
efficiency. We will allow the Company to determine the optimal
mix of cash and in-kind contributions (Tr. III, pp. 101-102).
With respect to building code issues, Commission staff
testified that funding for Commission training of local builders
and building inspectors is adequate to the task. We agree, and
do not approve the incremental $5,000 for such purposes.
However, we agree with ECS' witness that a baseline study of
current practices could assist in determining whether the current
commercial building codes are ripe for upgrading to promote more
up-to-date efficiency practices. We will approve an increment of
$25,000 for this study, bringing the total New Initiatives budget
for non-residential programs to $43,000.
Finally, we approve the Company's proposed continuation
of its budget of $45,000 for energy efficiency educational
efforts.
Approved Non-Residential Program Budget
EnergyCheck
$530,000.00
Energy Savings Program(ESP)
$860,000.00
Education
$45,000.00
New Initiatives
$43,000.00
Subtotal Non-residential
$1,478,000.00
C. Residential Programs
Turning to residential programs, the following table
shows the differences between the Company's budget and that
proposed by ECS:
Residential Program Budget Proposals
Program
PSNH Proposal
ESC Proposal
Res. Conservation Program(RCP)
$250,000.00
$450,000.00
Energy Star Home (ESH)
$200,000.00
$200,000.00
SmartLivingTM Catalog
$500,000.00
$500,000.00
TumbleWash
$228,120.00
$379,500.00
Subtotal residential
$1,178,120.00
$1,529,500.00
We find that it is reasonable to budget the amount
recommended by the Company for residential programs, but some
adjustments are necessary to the specific programs and associated
budgets.
We will approve the Energy Star Home program, but only
up to a budget ceiling of $100,000, to accommodate commitments
that may be in the pipeline since the beginning of this year.
This program has a benefit/cost ratio below 1 (Tr. II, p. 71).
The program is also limited in its scope to customers
contemplating new home construction, a relatively narrow segment
of customers, thus reducing its value as an educational tool.
Given these factors, we will limit the budget for this program in
1999. In addition, we direct the Company to utilize these funds
in such a manner as to enable at least 8 customers to participate
in this program (PSNH C&LM filing, Exh. 1, p. 8). If the Company
proposes to continue this program, it will have to present
information supporting a conclusion that the benefit-cost ratio
can be increased.
ECS recommended that we increase the Company's
TumbleWash budget from $228,120 to $379,500. TumbleWash is a
program under which the Company provides $100 point-of-sale
rebates to customers who purchase high-efficiency washers and
dryers. We are concerned that the TumbleWash program has a very
poor benefit/cost ratio, 0.2 (Tr. II, p. 71). Given the very
high cost of the measures remaining after the rebate, the program
is also susceptible to a relatively larger freight of so-called
"free riders", customers who would have adopted the energy
efficient product without the incentive provided under the
program.
We note also that the program has already been
successful in its market transformation goal of encouraging
retailers to stock the energy-efficient front-loaders, and
educating customers of their availability. Maintaining the
budget to the level proposed by the Company will enable the
Company to fulfill its current commitments to this regional
effort.
With respect to the SmartLivingTM catalog, we are not
persuaded that the catalog approach is the best way to deliver
efficient lighting opportunities to residential customers. Also,
contrary to the Company's assertions, we question whether the
Catalog actually provides significant education to all customers
who receive the catalog.
In addition, we question whether subsidized prices in a
utility-sponsored catalog is an effective way to develop a retail
market for energy efficient products. As noted by the New
Hampshire Electric Cooperative in its letter of January 27, 1999,
commenting on the SmartLivingTM Catalog proposal, restriction of
residential consumer opportunities for incentives to purchase
lighting efficiency measures through a catalog is not consistent
with market transformation. It would be preferable to provide
consumers opportunities to obtain such efficient lighting
products through vendors in retail stores as well, and thus
encourage the development of that more widely-available market.
See also the comments of LighTech, Inc., February 2, 1999.
Despite these concerns, we will allow the Company to proceed with
a limited distribution of the catalog as discussed below.
We recently directed GSEC to perform a target marketing
of its lighting catalog to a demographic cross-section of its
customers. Order No. 23,097. We are concerned that providing
lighting efficiency services through a catalog will prevent a
wide variety of PSNH's customers from effective participation in
the program, even if they receive a catalog in the mail as
proposed by ECS. Accordingly, we will limit the budget for the
SmartLivingTM lighting catalog to $300,000, and direct that in
lieu of the recommended mailing of the catalog to all customers,
the Company either to rely on bill inserts and other less costly
means of reaching potential catalog purchasers to inform
customers of the availability of the catalog, or to do a target
mailing of the catalog to appropriate customers, or a combination
of both.
ECS showed persuasively that additional services to be
offered under the RCP program, particularly the weatherization
piggyback services, can be effective in providing efficiency
services, including services to low-income customers who
otherwise would be unable to participate to the same extent as
other residential customers.
We will therefore approve an increase in the RCP budget
to $350,000. We will require two modifications to the proposed
RCP program design. First, we will not approve the Company's
proposal in this docket to pay the $1,300 thermal storage
installation costs needed for low income customers to participate
in Heat Smart, the Company's 40% discounted residential
interruptible rate. As the ECS pointed out, there are
uncertainties regarding whether the discounts will be available
under restructuring (Tr. III, p. 46). In addition, the Company
did not demonstrate the cost-effectiveness to the system of such
installations, and the record shows that only two Heat Smart
customers were interrupted in 1998 (Exh. 10). Both interruptions
were during the summer peak (id.), thus calling into question the
incremental value of electric space heat thermal storage under
the plan. If the Company wishes to offer such units to its
customers as a Pay-As-You-Save measure, discussed below, it may
do so.
We note, also, that a significant portion of the
expense of the piggyback program reflects the proposal to provide
free refrigerators to low-income consumers. While such
refrigerators can save significant amounts of inefficiently-used
electricity, the evidence showed that it may be possible to
structure a copayment program such that even low-income customers
could contribute to the cost of such major items without reducing
participation or exacerbating split incentive problems in the
case of tenants. Thus, if the Company would like to offer the
refrigerator component of this program in 1999, it may do so in
the event that it elects to use Pay-As-You-Save copayment for
this aspect of the RCP.
Under a Pay-As-You-Save approach, the customer receives
the measure and in return agrees to pay a portion of the cost of
the measure over time as a component of the bill. In response to
questions from the Commission, the Company provided analysis to
the effect that such an approach can be effective in a number of
situations. It has been successfully used, in the "lease fee"
version, by Burlington Electric Department (BED) and Texas
Utilities Electric Company (Tr. III, pp. 8-11, and Exh. 21). For
example, the BED "SmartLight" program offers compact fluorescent
lightbulbs to customers for a monthly "lease" of 20 cents per
bulb per month, for 60 months. The overall penetration rate
under the BED program is an average of 2 bulbs for every
residential customer. Exh. 21. Although limited to the
lightbulb example, at 2 bulbs for each of 350,000 residential
customers (Tr. II, p. 22), PSNH would have to place 700,000 CFLs
under its SmartLivingTM catalog to achieve a comparable
penetration of these electricity-savings measures.
Pay-As-You-Save is designed to overcome the market
barriers of insufficient up-front capital and lack of access to
credit, to produce a high penetration of measures (Exh. 21). It
appears to turn a transaction that relies on customers receiving
subsidies into one that taps the customers' natural desire to
achieve bill savings, and their willingness to pay for measures
that will provide those savings. By so doing, it should support
consumer commitment to the success of the measures in achieving
savings (Exh. 21, p. 2). Even low-income customers can
participate, as they do not need to cover high up-front payments
for catalog items.
Pay As You Save copayment approaches offer the
possibility of expanding the ability of retail vendors to make
sales to customers who cannot overcome the higher up front costs
associated with energy efficiency measures, such as the
TumbleWash machines, and compact fluorescent lights (Tr. 189).
In addition, in a time of constrained budgets and rate impact
concerns, this approach may have the potential to expand the
level of energy efficiency improvements without putting
additional pressure on non-participant bills.
The Company urged the Commission not to require such an
approach for 1999, citing the different focus of the SmartLivingTM
catalog. The Company also noted the cost and time needed to
amend its billing systems, and the priority of Y2K and
restructuring demands on its information systems resources (Exh.
21). While the Company's preliminary estimate of time and cost
to institute necessary billing changes is far in excess of the
cost to at least one other major utility that has adopted such a
copayment approach (id. at Att. 1, p. 3), it would not be
desirable to require the Company to adopt PAYS at this time for
any of its programs.
We will, however, approve $200,000 in spending on
PAYS-type residential C&LM programming in 1999, should the
Company decide to proceed with such efforts. If the Company
decides to initiate one or more PAYS programs, it should consult
closely with Staff as it develops its PAYS initiatives. As noted
above, a refrigerator component of the RCP could be included if
it were offered as a PAYS product. The Company may also provide
its Heat Smart measures as Pay-As-You-Save offerings.
D. Summary
The total budget approved in this Order is as follows:
Program Name
Budget Authorized
RCP
$350,000.00
ESH
$100,000.00
SmartLivingTM
$300,000.00
TumbleWash
$228,000.00
PAYS Initiatives
$200,000.00
RESIDENTIAL SUBTOTAL
$1,178,000.00
EnergyCheck
$530,000.00
ESP
$860,000.00
Education
$45,000.00
New Initiatives
$43,000.00
NON-RESIDENTIAL SUBTOTAL
$1,478,000.00
TOTAL PROGRAM BUDGETS
$2,656,000.00
To this must be added the appropriate level of LFCR,
and the amounts approved for program administration.
We note, that as we determined in Order No. 22,999,
C&LM costs should be recovered in a separate surcharge, and
displayed in an unbundled fashion on customer bills. We will
defer to the PSNH base rate case, DE 97-150, the specification of
such a charge for PSNH. With respect to the recovery of any
amounts not presently in rates, we will not institute a separate
surcharge in this docket, but we will address the issue of the
Company's recovery mechanism in the pending base rate case, DR
97-159. The rate case is on schedule to be completed this
summer. There is little risk that program spending authorized
here will outstrip funds presently in rates before the issue of
the surcharge is settled in that case. Also, institution of a
surcharge now that may be changed shortly would create
unnecessary customer confusion.
Based upon the foregoing, it is hereby
ORDERED, that the proposed PSNH C&LM programs, as
amended by our deliberations described above, are hereby
APPROVED.
By order of the Public Utilities Commission of New
Hampshire this twenty-fifth day of March, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Claire D. DiCicco
Assistant Secretary