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.
               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
               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.
          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
          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
     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
        Company Non-Residential Program Budget Proposal
     Energy Savings Program(ESP)
     New Initiatives
     Subtotal Non-residential
               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
               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.
               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
            Approved Non-Residential Program Budget
     Energy Savings Program(ESP)
     New Initiatives
     Subtotal Non-residential
          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
          PSNH Proposal
          ESC Proposal
     Res. Conservation Program(RCP)
     Energy Star Home (ESH)
     SmartLivingTM Catalog
     Subtotal residential
               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
               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
               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
               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
     PAYS Initiatives
     New Initiatives
               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
               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