DR 98-142
Northern Utilities, Inc.
1998/1999 Demand Side Management Program
Order Approving Program
O R D E R N O. 23,068
November 23, 1998
APPEARANCES: LeBoeuf, Lamb, Greene & MacRae, L.L.P. by
Paul B. Dexter, Esq. for Northern Utilities, Inc. and Larry S.
Eckhaus, Esq. for the Staff of the New Hampshire Public Utilities
Commission.
I. PROCEDURAL HISTORY
On August 3, 1998, Northern Utilities, Inc. (Northern)
filed with the New Hampshire Public Utilities Commission
(Commission) a petition for approval of its 1998/1999 Demand Side
Management (DSM) Program for the period November 1, 1998 through
October 31, 1999. The filing was made in compliance with Order
No. 22,846 (February 4, 1998). Northern proposes to continue
offering its currently approved DSM programs for an additional
year.
By an Order of Notice issued August 13, 1998, the
Commission scheduled a prehearing conference for September 1,
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 9,
1998, the Commission issued Order No. 23,014 approving the
procedural schedule.
Pursuant to the approved procedural schedule, Northern
and Staff engaged in formal discovery. On September 23, 1998,
Northern filed a request to reschedule the technical session and
to extend filing of Staff's testimony. On October 1, 1998, Staff
requested an extension to the deadline for the filing of Staff's
testimony due to delays in discovery. Staff also requested to
reschedule the settlement conference. On October 2, 1998, the
Commission granted the requested changes to the procedural
schedule.
On October 6, 1998, Staff filed the direct testimony of
Michelle A. Caraway, Utility Analyst III and the joint testimony
of Stephen P. Frink, Assistant Finance Director, and Robert F.
Egan, Utility Analyst III. On October 20, 1998, Staff filed a
request to extend the date established for the filing of a
settlement agreement and also to reschedule the hearing on the
merits due to a scheduling conflict identified by Northern's
counsel. On October 21, 1998, the Commission granted Staff's
request.
On October 26, 1998, Staff notified the Commission that
Northern and Staff were unable to reach a final resolution to the
issues raised in the docket and would not be filing a settlement
agreement. Staff stated that the primary issues to be raised at
the hearing were whether Northern should continue to sponsor DSM
programs and whether Northern should be entitled to recover Lost
Net Revenues associated with measures installed for new
customers. On October 26, 1998, a hearing was held before the
Commission at which time testimony was offered by Northern's
witness Paul Smith, Manager, Demand Side Management and Staff's
witnesses Michelle Caraway, Stephen Frink and Robert Egan.
On November 2, 1998, the Commission issued Order No.
23,059 that suspended Northern's proposed Conservation Charges
and required Northern to continue to offer its DSM programs and
to collect the Conservation Charges as approved in Order No.
22,846 until the final order in this docket was issued. On
November 10, 1998, Staff sent Northern a letter asking Northern
to revise the Conservation Charges to reflect the effects on the
proposed Conservation Charges of continuing the 1997/1998
Conservation Charges for an additional month and the forecasted
therm sales for the remaining eleven-month period. Although the
revised Conservation Charges would still be based on estimates,
Staff believed that the Commission should have the opportunity to
approve Conservation Charges based on the best information
available to date.
II. POSITIONS OF NORTHERN AND STAFF
A. Northern Utilities, Inc.
For Residential Water Heating and Residential Heating
customers, Northern proposes to implement its programs with
direct program budgets of $3,128 and $102,367, respectively. The
water heating program offers a 100% incentive for the domestic
hot water (DHW) package which includes hot water heater wraps,
low flow showerheads, faucet aerators, hot water pipe insulation,
and DHW temperature turndown. The heating program provides for a
pre-installation audit to identify if a customer needs any of the
DHW measures listed above or qualifies for attic insulation,
clock thermostats, duct or pipe insulation, or an incremental
incentive for the installation of a high efficiency heating
system. The incentive level varies depending on whether the
participant is low-income qualified, a renter or an
owner/landlord. 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
ratios of 1.32 and 1.02, respectively. Based on an impact
evaluation, the cost-effectiveness analysis was calculated using
a 57% realization rate applied to the engineering estimates of
the therm savings.
Northern proposes to offer its Small Commercial
customers more standardized services at a direct program budget
of $359,276. These services include a computer generated audit,
contractor arranging, and incentives for all measures that are
cost-effective for a particular customer. Measures may include
DHW measures, attic insulation, wall insulation, clock
thermostats, duct or pipe insulation, a premature heating system
replacement, an incremental incentive for the installation of a
high efficiency heating system, and heat recovery. The direct
incentives offered to these customers consist of a buydown to a
2.5 year payback or 50% of the cost for an early replacement
measure, whichever is less, with a maximum incentive of $30,000.
The TRC ratio for this program is 1.35 using a 76% realization
rate based on a recent impact evaluation.
For its Large Commercial customers, Northern provides
more customized services by typically offering a walk-through
energy audit to identify potential energy savings opportunities.
The proposed direct program budget is $71,861. Northern proposes
to pay a minimum of 75% of the cost of an engineering study and
the customer would pay the remainder. Direct incentives would
consist of a buydown to a 2.5 year payback or 50% of the cost for
early replacement measures, whichever is less. The maximum
incentive that Northern provides to buy down to a payback of 2.5
years is $30,000 or 50% of the cost for the early replacement
measure, whichever is less. No incentive will be paid for any
measure with less than a 2.5 year payback. Prior to providing a
financial incentive, Northern requires a customer to install any
measure with a payback less than 2.5 years, unless there is a
viable technical or operational reason why such measure should
not be installed. The TRC ratio for this program is 2.32 using a
76% realization rate based on a recent impact evaluation.
Northern anticipates substantial undercollections for
its Residential Heating and Small Commercial customers for the
end of the current program year. Northern explained that the
undercollections were due to negative Conservation Charges (i.e.,
credits) that were in effect during the first three months of the
1997/1998 program year, i.e., the high use winter months, and
also to warmer than normal weather resulting in decreased sales.
Northern had been extremely late in filing its 1997/1998 DSM
program, making the filing on October 24, 1997 as opposed to
August 1, 1997 as required by Order No. 22,516 (March 3, 1997).
The Commission suspended the proposed Conservation Charges
associated with the 1997/1998 program year by Order No. 22,780
(November 3, 1997). The Commission acknowledged the effect on
rates in Order No. 22,846 which stated: "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." Thus, Northern proposes that the
undercollections be recovered through the Conservation Charges
effective in the 1998/1999 program year.
At the hearing, Northern's witness Mr. Smith testified
that Northern and Staff had agreed to revise the Conservation
Charges to reflect the removal of the prospective Shared Savings
Incentive of $58,270 related to the upcoming 1998/1999 program
year. Mr. Smith stated that any incentive earned by Northern for
the 1998/1999 program year would be reconciled in the 1999/2000
DSM program filing (Tr. at 7-8).
Mr. Smith testified that he disagreed with Staff's
prefiled testimony regarding disallowing recovery of Lost Net
Revenues associated with new customers for two reasons. First,
Mr. Smith stated that the purpose of Lost Net Revenues was to
make Northern whole so that it was not at a disadvantage when it
delivers conservation services to its customers. If Northern was
not entitled to recover Lost Net Revenues associated with
measures installed for new customers, Mr. Smith stated that
Northern would be disadvantaged because it would be expecting a
certain revenue stream that would not materialize. Additionally,
Mr. Smith testified that applying Staff's recommendation
retrospectively was not a fair proposal (Tr. at 13-14).
Mr. Smith also testified that Northern does not propose
that the 1998/1999 program year be used to phase out its DSM
programs. He stated that it is appropriate for Northern to file
an updated avoided cost study so that the results can be
incorporated into the development and proposal of future DSM
programs (Tr. 18-20).
B. Staff
Staff's prefiled testimony dealt primarily with
Northern's recovery of Lost Net Revenues associated with
conservation measures installed for new customers, financial
discrepancies in Northern's supporting schedules, the historic
cost-effectiveness of Northern's DSM programs, the need for
updated avoided costs, and whether Northern should continue to
offer DSM programs. Staff recommended that Northern not be
entitled to collect Lost Net Revenues 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 Northern's DSM program could
be having the opposite effect intended by DSM programs; i.e.,
load-building. In particular, Staff questioned whether the
rebates for new heating systems were generating new customers for
Northern similar to the experience of EnergyNorth Natural Gas,
Inc. (ENGI). Data produced for ENGI's recent DSM proceeding
(Docket DR 98-129) showed that 43% of heating system rebates were
provided to new customers, either from new construction or
switching from an alternate fuel source.
Staff testified that Northern's DSM programs were
screened for cost-effectiveness using avoided costs that were
neither approved nor rejected by the Commission (Docket
DR 95-107). Staff recommended that should Northern propose to
continue its DSM program into the 1999/2000 program year, then
Northern should file an avoided cost study within its Integrated
Resource Plan (Docket DR 98-135), by May 15, 1999, so that the
study could be reviewed and the results incorporated into the
benefit-cost analysis for the upcoming year.
Staff also testified that Northern's DSM programs have
not been cost-effective for the 1996/1997 and to date 1997/1998
program years when the realization rates are incorporated in the
cost-effectiveness analysis. Staff's witnesses stated their
belief that the avoided costs, when filed, will be lower than
those used to prepare this filing. Given new peaking sources and
the new supply portfolio that will be available to Northern from
the Wells Tank, the Portland Natural Gas Pipeline, and Maritimes
& Northeast Pipeline, L.L.C., Staff believes that the avoided
costs used to prepare the cost-effectiveness analysis will be
lower, thus reducing the TRC ratios that have been presented in
this filing. Staff testified that these options will reduce the
cost of supplemental gas which drives the savings or benefits of
the DSM programs. Northern will be avoiding its peaking costs,
which are the most expensive supplies and therefore the benefits
derived from the DSM program will be considerably less (Tr. 79
and 86). Staff stated that because the DSM programs have not
been cost-effective for the last two years and the avoided costs
used to prepare the 1998/1999 filing may be producing TRC ratios
that are higher than should be, it is their recommendation that
Northern's DSM programs be phased out during the 1998/1999
program year. Staff is not supportive of DSM programs which have
not been proven to be cost-effective and which do not provide any
benefits to non-participants.
III. COMMISSION ANALYSIS
Staff testimony at the hearing focused primarily on two
issues: (1) whether Northern should be denied Lost Net Revenues
associated with measures provided to new customers and (2)
whether Northern should phase out its entire DSM program over
this coming program year. Based on the evidence and the
arguments presented, we will approve Northern's DSM program
proposal, subject to the removal of the prospective Shared
Savings Incentive of $58,270 related to the upcoming 1998/1999
program year and subject to the elimination of the Lost Net
Revenues associated with prospective DSM services to new
customers. The Commission will not require that Lost Net
Revenues associated with such services be eliminated on a
retrospective basis. 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, 1988). It was the Commission's
intention that these programs 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.
Consistent with our decision in the order addressing
ENGI's 1998/1999 DSM Program (docket DR 98-129), we believe it is
premature to decide whether gas utility-sponsored DSM programs
should be phased out. Staff presented evidence that suggests
that Northern's TRC ratios may be lower for the programs now
being offered, given changes in the determinants of its avoided
costs in recent months. Northern has agreed to file an updated
avoided cost study if it wishes to justify further ratepayer-
funded DSM programs after this year. However, it may be that
improvements to program design could increase the retention rates
for the programs, or otherwise increase the cost-effectiveness of
the programs. Thus, we will not prejudge at this time whether
DSM for Northern should be continued past this program year. We
note, however, the need to make such a determination in a timely
fashion, before customer expectations are raised or lowered
unnecessarily. It is particularly important for Northern to make
timely filings of its avoided cost study within the IRP docket on
or before May 15, 1999, and make its proposals for DSM for
program year 1999/2000 on or before July 15, 1999.
We believe that removal of the prospective Shared
Savings Incentive is consistent with previous Commission orders
for the electric utilities regarding performance incentives
related to conservation programs and with Order No. 21,881
(October 30, 1995) regarding Northern's 1995/1996 DSM program,
which stated: "Northern may collect a Performance Incentive as a
result of the DSM programs... to be calculated and collected in
the next Program Year."
On November 12, 1998, Northern submitted revised
Conservation Charges in response to a request made by Staff. We
believe that these revised Conservation Charges reflect our
decisions regarding Lost Net Revenues and Shared Savings
Incentives, and are based on the best information to date.
Therefore, we will approve the following Conservation Charges:
for Residential Water Heating, $0.0090/therm; for Residential
Heating, $0.0203/therm; for Small Commercial, $0.0382/therm; and
for Large Commercial, $0.0078/therm.
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 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 Northern's 1998/1999 DSM Program
proposal, as filed at the hearing held October 26, 1998, and as
revised by our analysis detailed above, is APPROVED; and it is
FURTHER ORDERED, that the following Conservation
Charges are APPROVED effective December 1, 1998 on a
bills-rendered basis: for Residential Water Heating,
$0.0090/therm; for Residential Heating, $0.0203/therm; for Small
Commercial, $0.0382/therm; and for Large Commercial,
$0.0078/therm; and it is
FURTHER ORDERED, that Northern shall file properly
annotated tariff pages in compliance with this Order no later
than 15 days from the issuance date of this Order, as required by
N.H. Admin. Rules, Puc 1603.
By order of the Public Utilities Commission of New
Hampshire this twenty-third day of November, 1998.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary