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.
               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
               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.
          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
               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
               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 $0.0000 per
          B.   Office of the Consumer Advocate
               The OCA did not file testimony in this proceeding;
     however, the OCA did participate in the Settlement Conference and
     expressed its concern that ENGI's low-income residential
     customers may not be able to afford to participate in the
     ENERGYWI$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).
               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,
               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
               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
               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
               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
               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