DR 97-228

                           NORTHERN UTILITIES, INC.

                    1997/98 Demand Side Management Program

                   Order Approving Stipulation and Agreement

                           O R D E R  N O.  22,846 

                               February 4, 1998

          APPEARANCES:  LeBoeuf, Lamb, Greene & MacRae, L.L.P. by
Paul B. Dexter, Esq. for Northern Utilities, Inc.; and Todd M.
Bohan and Stephen P. Frink for the Staff of the New Hampshire
Public Utilities Commission.
          By letter filed October 24, 1997, Northern Utilities,
Inc. (Northern or the Company) requested that the New Hampshire
Public Utilities Commission (Commission) approve its Demand Side
Management (DSM) Program filing for the period November 1, 1997
through October 31, 1998.  Northern proposed to continue offering
its current DSM programs approved in Order No. 22,516 (March 3,
1997) and requested authorization to begin to participate in
regional and national market transformation efforts.  Northern's
October 24, 1997 DSM Program filing contained direct program
costs of $418,918 and total costs to be recovered of $565,778. 
$52,541 of the total costs is the result of prior period
          Northern also requested authorization to revise its
Conservation Charges (CCs) which are designed to recover
projected program costs, Lost Net Base Revenues (LNBR) and a
performance incentive referred to as a Shared Savings Incentive
(SSI).  Northern requested a waiver from Puc Rule 1203.05(a) so
that any changes to the CCs ordered in this case would be
implemented on a bills-rendered basis. 
          By an Order of Notice issued October 29, 1997, the
Commission scheduled a Prehearing Conference for November 10,
1997, set deadlines for intervention requests and objections
thereto, outlined a procedural schedule and required all parties
and Commission Staff (Staff) to summarize their positions with
regard to the filing for the record.  No party filed for
intervention.  The Office of the Consumer Advocate (OCA) is a
statutorily recognized intervenor. 
          On November 3, 1997, the Commission issued Order No.
22,780 suspending the Company's tariff page NHPUC No. 8 - Gas,
Fifth Revised Page 36 which was submitted as part of the
Company's filing.  The Company was also ordered to continue to
offer its DSM programs and to collect the CCs as approved by the
Commission in Order No. 22,516 until the final order was issued
in this docket.
          The Commission issued Order No. 22,789 on November 18,
1997, which set a procedural schedule.  On December 23, 1997,
Northern filed a proposed amended procedural schedule which the
Commission approved on December 26, 1997.  Staff filed testimony
on January 9, 1998.  On January 20, 1998, the Company and Staff
participated in a settlement conference.
          As a result of the technical sessions held between
Staff and the Company, Northern submitted a revised DSM budget
for the 1997/1998 Program Year to reflect the actual cost
experience in the Small C&I Program for the 1996/1997 Program
Year and to correct the prior period undercollection.
          Subsequent to the settlement conference, the Company
and Staff entered into a Stipulation and Agreement (Agreement)
which resolves all of the issues in this proceeding.  The
Agreement was filed with the Commission on January 28, 1998.  A
hearing was held on January 30, 1998.  At the hearing, testimony
supporting the Agreement was presented to the Commission by Paul
Smith, Manager, Demand Side Management for Northern.
          Northern and Staff agree that Northern will continue to
offer the DSM programs approved by the Commission in Order No.
22,516 except for the following changes:
1.   Northern shall continue to offer the DSM programs that were
     approved by the Commission in Order No. 22,516 in DR 96-334. 
     Northern shall continue to collect DSM related costs (i.e.,
     program costs, LNBR and performance bonus incentives) as
     previously approved, through the Conservation Charges.

2.   The direct DSM program costs to be recovered for the
     November 1, 1997 through October 31, 1998 program year shall
     be $489,299.  Of the $489,299 total budget, $3,649 is
     allocated to the Residential Water Heating Program, $125,432
     to the Residential Heating Program, $296,389 to the Small
     C&I Program and $63,829 to the Large Commercial Program. 
     Total costs to be recovered are $800,385 of which $94,319 is
     for LNBR and $216,767 for prior period undercollections.

3.   Northern shall charge the following conservation rates:     Residential Water Heating - credit of $0.0014/therm,
                                                                 Residential Heating       - charge of $0.0130/therm,   
                                                                 Small C&I                 - charge of $0.0177/therm,   
                                                                 Large C&I                 - charge of $0.0136/therm.

4.   The proposed CCs are designed to collect the 1997/1998
     Program Year costs and carry-over costs from the 1996/1997
     Program Year less $23,600 of the SSI and $55,300 of costs
     both of which are associated with the Small C&I Program.    

5.   The rebates offered for the Early Heating Replacement
     measure in the Small C&I program for the 1997/1998 Program
     Year will be limited to the lesser of the amount needed to
     provide the customer with a 2.5 year payback or 50 percent
     of the measure installation costs.

6.   The following spending controls will be effective for the
     1997/1998 Program Year:

          a.   Any spending over 15 percent of the approved
               budget for any individual program will not be
               charged to ratepayers.

          b.   Northern shall be granted the option of shutting
               down any DSM program when spending for any
               individual program exceeds the approved budget by
               15 percent.

          c.   Northern shall be granted the opportunity to
               petition the Commission for program revisions if,
               during the Program Year, spending for any
               individual program is projected to exceed the
               approved budget by more than 15 percent.

7.   Northern will bill the CCs for its DSM Program to sales and
     transportation customers effective with bills rendered
     pursuant to meter readings taken on or after February 1,
  After careful review of the Stipulation and Agreement,
supporting testimony at the January 30, 1998 hearing and the
exhibits, we find that Northern's proposed DSM programs, as
modified by the Agreement, are reasonable and in the public good.
  The revised direct program costs of $489,299 as
detailed on Appendix II of the Agreement are reasonable and are
sufficient to enable the Company to provide cost-effective DSM
programs to its customers.  The total costs to be recovered are
$800,385 which includes LNBR of $94,319 and prior period
undercollections of $216,767.  The undercollections resulted from
higher than anticipated expenses and customer participation. 
Although the increase in expenses did reduce the cost
effectiveness of the measures, the measures are still cost
effective.  A net benefit to customers, therefore, will result
from the overspending in the long run.
  When the Commission approves a budget, we expect that a
company will make every effort to comply with the spending limits
contained within that budget.  Northern, for various reasons, did
not stay within the spending parameters established for the
1996/1997 DSM Program Year.  The result was a substantial
underrecovery.  The Company has agreed, therefore, to forego
recovery of $78,900 of 1996/1997 DSM expenses that it may have
been eligible for recovery under the current DSM program design,
a position we believe is reasonable and is in the best interests
of Northern's customers.     
  The substantial overspending, approximately 70 percent
of the 1996/1997 Program Year budget, remains a concern of the
Commission.  We are satisfied that the Company's internal
investigation into the matter and redesign of the specific
program measure that was primarily responsible for the
overspending should prevent this problem from occurring in the
future.  In addition, the Agreement restricts the amount of
overspending that can be charged to ratepayers at 15 percent of
the approved budget.  We expect the Company to abide by the
approved budget and promptly notify the Commission of any
material accounting problems which arise. 
       We will also comment on the timeliness of the filing
and the effect on our order and the program implementation.  The
Company was nearly three months late in filing its 1997/1998 DSM
Program proposal.  As a result of the late filing, this order is
being issued three months into the Program Year.  In order to
lessen the rate impact to Northern's customers which would result
from compacting recovery of the total DSM costs into the
remaining nine months of the Program Year and to enable the
Company to implement the proposed CCs on February 1, 1998, any
over/undercollection associated with the first three months of
the 1997/1998 Program Year will be addressed in Northern's
1998/1999 DSM filing.  To avoid a recurrence of this situation,
the Company is directed to file its 1998/1999 DSM Program
proposal by August 1, 1998.
  Finally, we waive the application of Puc 1203.05(a),
which requires generally that rate changes be implemented on a
service rendered basis, and will allow Northern 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 the proposed DSM programs, as amended by
the Stipulation and Agreement, are hereby APPROVED; and it is
  FURTHER ORDERED, that Northern's Conservation Charges
shall be effective February 1, 1998 on a bills rendered basis;
and it is
  FURTHER ORDERED, that Northern shall file its 1998/1999
DSM Program proposal on or before August 1, 1998; and it is
  FURTHER ORDERED, that Northern 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 February 1998. 

  Douglas L. Patch      Bruce B. Ellsworth     Susan S. Geiger
      Chairman             Commissioner          Commissioner

Attested by:

Thomas B. Getz
Executive Director and Secretary