DR 98-177
                                
                 Granite State Electric Company
                                
              1999 Demand Side Management Program
                                
                    Order Approving Program
                                
                    O R D E R   N O.  23,097
                                
                        January 4, 1999
     
       APPEARANCES: Carlos A. Gavilondo, Esq., for Granite
     State Electric Company; David W. Marshall, Esq., for the
     Conservation Law Foundation; Wynn E. Arnold, Esq. for the
     Governor's Office of Energy and Community Services; Andrew
     Bodnarik for the New Hampshire Department of Environmental
     Services, Air Resources Division; Kenneth E. Traum for the
Office
     of the Consumer Advocate for residential ratepayers; and
Robert
     J. Frank, Esq. for the Staff of the New Hampshire Public
     Utilities Commission.
     
          I.   PROCEDURAL HISTORY
               On October 5, 1998, Granite State Electric Company
     (GSEC) filed with the New Hampshire Public Utilities
Commission
     (Commission) a petition for approval of its 1999 Demand Side
     Management (DSM) Program Proposal effective for the period
     January 1, 1999 through December 31, 1999.  GSEC sought
approval
     of a DSM budget of $2,283,900 with a projected shareholders'
     incentive of $298,589.  GSEC proposed to continue its
currently
     approved DSM programs, with some modifications.  GSEC also
     proposed to introduce a new Efficient Clothes Washer
(TumbleWash)
     Program and to establish a $100,000 set-aside for
initiatives
     recommended by the New Hampshire Energy Efficiency Working
Group
     (Working Group).    
               By an Order of Notice issued October 9, 1998, the
     Commission scheduled a prehearing conference for October 29,
     1998, set deadlines for intervention requests and objections
     thereto, outlined a procedural schedule, and required the
Parties
     and Commission Staff (Staff) to summarize their positions
with
     regard to the filing for the record.  On October 19, 1998,
the
     Conservation Law Foundation (CLF) filed a Petition to
Intervene. 
     On October 26, 1998, the Governor's Office of Energy and
     Community Services (ECS) filed a Motion for Full
Intervention.  
     The New Hampshire Department of Environmental Services, Air
     Resources Division (DES) appeared at the October 29, 1998
     prehearing conference and announced that it would be filing
its
     motion to intervene within a couple of days.  On October 30,
     1998, DES filed a late Motion for Full Intervention.  There
were
     no objections to CLF's and ECS' motions to intervene.  No
party
     objected to DES' motion at the prehearing conference or
     subsequently through a filing with the Commission.  The
Office of
     the Consumer Advocate (OCA) is a statutorily recognized
     intervenor.  
               On November 13, 1998, the Commission issued Order
No.
     23,067 approving the procedural schedule and the petitions
to
     intervene.  On November 24, 1998, Commission Staff requested
     changes to the approved procedural schedule due to the
     Commission's rescheduling of the hearing on the merits.  All
     Parties concurred with the request.  On December 3, 1998,
the
     Commission approved the requested changes to the procedural
     schedule.
               Pursuant to the approved procedural schedule,
GSEC, the
     intervenors and Staff engaged in formal discovery.  On
December
     1, 1998, ECS filed the direct testimonies of Deborah
Schachter,
     Director, and Heidi Kroll, Energy Policy Analyst; DES filed
the
     direct testimony of Andrew M. Bodnarik, Administrator II;
and
     Staff filed the direct testimony of Michelle A. Caraway,
Utility
     Analyst III.  On December 10, 1998, GSEC, CLF, ECS, DES and
OCA
     (collectively the Parties) and Staff participated in a
Settlement
     Conference.  
               Subsequent to the Settlement Conference, the
Parties
     and Staff entered into an Offer of Partial Settlement
(Partial
     Settlement).  The Partial Settlement would resolve some of
the
     issues in this proceeding and describes contested issues on
which
     the Parties and Staff were unable to achieve consensus.  The
     Partial Settlement was filed with the Commission on December
16,
     1998.  On December 16, 1998, a hearing was held before the
     Commission at which time testimony supporting the Partial
     Settlement and detailing positions on the contested issues
was
     presented to the Commission.
          II.  OFFER OF PARTIAL SETTLEMENT
               As it pertains to the resolved issues, the Parties
and
     Staff agree that GSEC's DSM proposal, as set forth in its
October
     5, 1998 filing, is in the public interest and should be
approved,
     subject to the following modifications:  
     Residential Programs     
     
          The Residential programs shall be implemented as
proposed in the
     October 5, 1998 filing, modified as follows:
     
          1.   Home Energy Management (HEM) Program.  GSEC will
close its
          Interruptible Credits program (IC-1 and IC-2),
including the HEM
          program, to new customers effective January 1, 1999,
but will
          allow existing customers to continue to receive the
credits during
          1999.  During 1999, GSEC will evaluate the form of the
credits,
          e.g., separate credits for transmission/distribution
and
          generation portions of service, and assess the
appropriateness of
          continuing them beyond 1999.  In its filing for the
2000 program
          year, GSEC shall propose modifications to the IC-1 and
IC-2
          credits that are appropriate as a result of its
evaluation.  
          Aside from the foregoing modifications, GSEC will
implement the
          HEM program in 1999 as set forth in the October 5, 1998
filing,
          including the proposed budget level for the HEM
program.    
     
          2.   Energy Efficiency Working Group Fund --
Residential. GSEC will
          withdraw its proposal to set aside $50,000 in its
Residential
          program budget to fund initiatives that may be
identified by the
          Working Group for implementation in 1999.  Withdrawal
of this
          funding proposal shall not preclude GSEC from
petitioning the
          Commission during the 1999 program year for additional
funding in
          order to implement any new residential initiatives
which may be
          recommended by the Working Group during 1999. 
       
          3.   TumbleWash.  The Parties and Staff agree that
GSEC's proposal to
          implement the TumbleWash program in 1999 as set forth
in the
          October 5, 1998 filing, including the proposed budget
level for
          that program, should be approved.  In addition, the
Parties and
          Staff agree that in the event the Commission requires
or approves
          additional disclosure requirements relative to the
TumbleWash
          promotional materials in Docket DR 98-174, relating to
the 1999
          Conservation and Load Management Program of Public
Service Company
          of New Hampshire (PSNH), GSEC shall implement a program
to provide
          substantially similar disclosure information as is
required for
          PSNH in Docket DR 98-174.       
     
     Commercial and Industrial Programs
     
          The Commercial and Industrial (C/I) programs shall be
implemented
     as proposed in the October 5, 1998 filing, modified as
follows:
     
          4.   Small C/I Co-Pay.  GSEC will introduce a
twenty-percent (20%) co-
          pay in its Small C/I program for the 1999 program year. 
The co-
          pay will not result in a change in the proposed budget
for the
          Small C/I program.  With the exception of the
twenty-percent co-
          pay, the Small C/I program will be implemented as set
forth in the
          October 5, 1998 filing.  In the event that introduction
of the 20%
          co-pay negatively affects the performance of the Small
C/I program
          in 1999, GSEC or any other Party shall be free to
propose
          reduction or elimination of the co-pay for subsequent
program
          years.  
     
          5.   Energy Efficiency Working Group Fund -- C/I.  GSEC
will withdraw
          its proposal to set aside $50,000 in its C/I program
budget to
          fund initiatives that may be identified by the Working
Group for
          implementation in 1999.  Withdrawal of this funding
proposal shall
          not preclude GSEC from petitioning the Commission
during the 1999
          program year for additional funding in order to
implement any new
          C/I initiatives which may be recommended by the Working
Group
          during 1999.  
     
          6.   Cooperative Interruptible Service (CIS) Program. 
The Parties and
          Staff agree that GSEC may continue to offer its CIS
program to
          those currently participating CIS-1 customers that
remain on
          transition service during the 1998-1999 CIS program
year. 
          Specifically, the Parties and Staff agree that GSEC
should base
          the 1998-1999 CIS-1 credits upon the schedule of
credits and
          charges ultimately approved by the Commission in
connection with
          GSEC's 1998-1999 CIS-1 program in Docket DR 98-178; and
the
          Parties and Staff further agree that to the extent an
existing
          CIS-1 customer leaves transition service, such customer
shall no
          longer be eligible for the CIS-1 program.  In the event
the
          Commission adopts the schedule of credits and charges
previously
          approved for the 1997-1998 CIS-1 program for use in the
1998-1999
          CIS-1 program, funding for the CIS program shall be as
set forth
          in the October 5, 1998 filing.  To the extent the
Commission
          approves a different schedule of credits and charges
for the CIS-1
          program as part of its consideration in Docket DR
98-178, GSEC's
          1998-1999 CIS program budget will be revised
accordingly.  Nothing
          in this Partial Settlement shall be construed to limit
the
          position any of the Parties or Staff may take with
respect to the
          CIS program in Docket DR 98-178, or for future program
years. 
     
          7.   Design 2000 and Energy Initiative.  The Parties
and Staff agree
          that GSEC's proposal to implement the Design 2000 and
Energy
          Initiative programs in 1999 as set forth in the October
5, 1998
          filing, including the proposed budget levels for those
programs,
          should be approved.  
     
     Program Budgets and Adjustment Factors
     
          8.   Program Budgets.  The budgets for the Residential
and C/I programs
          agreed upon by the Parties and Staff are $338,700 and
$1,735,000,
          respectively, for a total of $2,073,700.  GSEC's final
DSM budget
          for the 1999 program year will depend upon how the
Commission
          decides the contested issues. 
     
          9.   Adjustment Factors.  The Residential and C/I
adjustment factors
          shall be designed to collect the amounts necessary to
fund the
          1999 DSM programs ultimately approved by the
Commission, as well
          as GSEC's 1998 shareholders' incentive, subject to
evaluation and
          reconciliation to actual performance. The factors
ultimately
          approved by the Commission shall remain in effect
throughout the
          1999 program year, subject to adjustment in the event
the
          Commission approves any new initiatives recommended by
the Working
          Group for implementation during the program year.  GSEC
shall not
          seek recovery of any expenditures of its 1999 DSM
Program which
          exceed the overall budget ultimately approved by the
Commission.
     
                    Pursuant to the Commission's authority under
N.H. Admin.
          Rules, Puc 201.05, the Parties and Staff request waiver
of Puc
          1203.05(a), which requires that rate changes generally
be
          implemented on a service-rendered basis, and instead
permit GSEC
          to implement the final 1999 DSM adjustment factors on a
bills-
          rendered basis consistent with the principles embodied
in Puc
          1203.05(b).  The Parties and Staff request that the new
adjustment
          factors ultimately approved by the Commission become
effective for
          bills rendered on and after January 1, 1999.   
     
          III. CONTESTED ISSUES
               The Parties and Staff were unable to reach
agreement
     with respect to certain aspects of GSEC's proposed 1999 DSM
     programs and other initiatives identified in the testimony
of the
     intervenors and Staff.  Specifically, the Parties and Staff
were
     unable to achieve consensus with respect to: GSEC's
Residential
     Lighting Program for 1999; the implementation of enhanced
     building codes initiatives; and support for the WasteCap
Resource
     Conservation NetWork (ReCon) program administered by the
Business
     and Industry Association of New Hampshire (BIA). 
                    A.   Granite State Electric Company
               GSEC stated at the hearing that if the Commission
would
     approve a retail rebate for compact fluorescent light (CFL)
bulbs
     at $9.00, the rebate level currently offered by GSEC's
     affiliates, then GSEC would continue to offer this aspect of
its
     Residential Lighting Program.  GSEC said it was not able to
     benefit from the economies of scale of a joint utility
effort
     with its affiliates because the CFL bulb retail rebate for
1998,
     $8.00, was different in New Hampshire.
               GSEC proposes to participate in the energy codes
effort
     for 1999.  For a total of $20,000, GSEC estimates expending
     $10,000 to participate in a baseline study of current C/I
     building practices, $5,000 to assist through C/I seminars 
for
     builders, architects and design engineers, and another
$5,000 to
     assist with training for the implementation of the new
     residential energy code which is to go into effect in March
1999.
               GSEC also proposes supporting the WasteCap ReCon
     program at a budget of $10,000.  GSEC's assistance would be
     limited to technical assistance to identify electrical
savings. 
     GSEC testified that the type of assistance that will be
offered
     through the WasteCap ReCon effort is similar to services
already
     being provided by existing C/I DSM programs. 
                    B.   Governor's Office of Energy and
Community Services
               ECS recommends that GSEC continue CFL bulb retail
     rebates through its Residential Lighting Program and to
modify
     its Starlights Catalog distribution approach from the bill
     stuffer approach to the direct mail approach.  ECS believes
that
     the direct mail approach could improve the market
transformation
     potential of the program by stimulating greater consumer
     awareness of, knowledge about, and demand for affordable and
     attractive energy efficient lighting.
               ECS supports GSEC's proposal to support energy
code
     activities.  In addition to the $10,000 proposed by GSEC for
the
     WasteCap ReCon program, ECS requested at the hearing that
GSEC
     provide a $2,000 to $3,000 cash contribution to the WasteCap
     ReCon program.  GSEC agreed to the cash contribution of
ratepayer
     funds.
                    C.   Department of Environmental Services
               DES submitted prefiled testimony in the proceeding
but
     did not offer testimony at the hearing.  DES cross-examined
     witnesses and requested that the Commission take
administrative
     notice of its prefiled testimony.
      
                    D.   Office of the Consumer Advocate
               OCA did not prefile testimony in the proceeding
and did
     not offer testimony at the hearing.  OCA did cross-examine
     witnesses.
                    E.   Conservation Law Foundation
               CLF believes that GSEC's budget should consist of
the
     following components: all programs included in the Partial
     Settlement; continuation of the Residential Lighting Program
with
     the CFL bulb retail rebate of $9.00; mailing of the
Starlights
     catalog to all residential customers; energy code education
and
     implementation efforts; and support for the WasteCap ReCon
     program.
                    F.   Commission Staff
               Staff recommends that GSEC eliminate its
Residential
     Lighting Program.  Based partly on GSEC's statement that a
recent
     study indicated significant market awareness and substantial
     penetration in the market, Staff believes that the CFL
market is
     mature and no longer needs subsidies in the form of
ratepayer-
     funded lighting programs.  Staff states that the program
promotes
     a product that by GSEC's own definition has effectively met
the
     goal of market transformation.  
               Staff identified its concern that dollars spent on
the
     WasteCap ReCon program may be used to fund efforts beyond
energy
     conservation; i.e., waste reduction, pollution prevention
and
     water conservation.  Although Staff does not question the
value
     of the program, Staff questions whether electric ratepayers
     should fund non-utility related programs.  Additionally,
Staff
     testified that any corporate contribution donated directly
to
     WasteCap ReCon by GSEC would normally be treated as a
"below-the-
     line" expense along with any dollars spent by GSEC on
outside
     consultants needed to fulfill the utility's obligations to
the
     WasteCap ReCon effort. 
               Regarding energy codes, it is Staff's opinion that
     current funding levels within the Commission's overall
budget are
     adequate for code-related training activities and that
additional
     funding by ratepayers for this purpose is unwarranted.
          IV.  COMMISSION ANALYSIS
               After careful review of the record in this docket,
we
     find that the Offer of Partial Settlement filed by the
Parties
     and Staff is reasonable and is in the public good and,
therefore,
     we will approve it.  The Partial Settlement resolved a
number of
     issues in this docket and outlined the issues that the
Parties
     and Staff were not able to resolve. 
               Before addressing the contested issues, the
Commission
     notes that it intends to review the continuation of
shareholder
     incentives associated with DSM programs.  Although no Party
or
     Staff contests either the recovery of an incentive or the
     particular level, the Commission believes that it is
appropriate
     for the Energy Efficiency Working Group, convened in Docket
     DR 96-150, to address whether these types of shareholder
     incentives continue to be appropriate as New Hampshire moves
     forward to a restructured electric environment.  
               The shareholder incentive has been in place since
the
     Commission originally approved it for GSEC in Order No.
19,905
     (August 7, 1990).  In accordance with its decision on GSEC's
     settlement (Order No. 23,041 dated October 7, 1998) and the
     establishment of the Energy Efficiency Working Group earlier
this
     year, the Commission believes that it is appropriate to
direct
     the Working Group, to the extent that they have not already
     focused on it, to evaluate shareholder incentive programs
like
     the one currently used by GSEC and recommend whether such
     incentives continue to be appropriate, and if so, whether
the
     specific incentive formula in place for GSEC requires
     modification. 
               Overall, the shareholder incentive is a
significant
     portion of GSEC's DSM budget.  GSEC projects a shareholder
     incentive of approximately $300,000 in relation to the
direct
     program budget of $2.28 million.  The Commission will allow
     recovery of the shareholder incentive for 1998,
preliminarily
     estimated to be $255,859, but withhold judgment on the 1999
     shareholder incentive until the Working Group has an
opportunity
     to review the shareholder incentive issue and to provide a
     recommendation to the Commission.
               In response to a proposal from ECS, GSEC proposed
to
     spend $20,000 for energy codes -- $15,000 for a baseline
study
     and training related to C/I building codes and an additional
     $5,000 for residential training.  Having reviewed the
     responsibilities imposed on the Commission by RSA 155-D for
the
     implementation of the code and training, the Commission will
     approve what has been identified as additional spending for
     building codes but specifically direct that any spending be
     coordinated with the Commission's Energy Conservation
     Coordinator. 
               GSEC ultimately agreed to continue the CFL bulb
rebates
     within its Residential Lighting Program with an incremental
     budget of $10,800.  GSEC proposed a CFL bulb rebate of $9.00
to
     be consistent with the rebate level its affiliates offer in
Rhode
     Island and Massachusetts.  We will approve the Residential
     Lighting Program, as described in GSEC's October 5, 1998
filing,
     with the addition of the $9.00 CFL bulb rebate.  The rebates
     encourage customers to shop for CFL bulbs in existing retail
     outlets and promote a market-oriented approach to
expenditures on
     energy efficiency products.        
               Three options were described at the hearing in
relation
     to the Starlights Catalog offered through the Residential
     Lighting Program: Staff recommended discontinuing it; GSEC
     proposed a targeted direct mail to 5,000 customers; and ECS
     proposed a direct mail to all of GSEC's residential
customers. 
     We will approve mailing the catalog to 5,000 customers and,
of
     the 5,000, we direct GSEC to target approximately 1,000
catalogs
     to each of four different customer groups (rural,
mid-income,
     renters and low-income customers) so that the Commission can
     examine the impact of the target mailing on the four
different
     types of customers.
               In response to ECS, GSEC proposed at the hearing
to
     spend $10,000 towards the WasteCap ReCon program and provide
an
     additional $2,000 cash contribution directly to WasteCap
ReCon. 
     Overall, the dollars earmarked for this program are
relatively
     small.  Beyond other services, the program will assist
businesses
     in identifying energy efficiency opportunities and will use
a
     "business-to-business model, which relies on volunteers from
     within the business community to provide assistance to their
     peers."  We believe that the budget allocated to WasteCap
ReCon
     for 1999 is appropriate but we will require GSEC to report
in its
     2000 DSM program year filing on the exact amount of funds
     expended and the impact on energy savings associated with
the
     program.  A legitimate concern raised at the hearing was
whether
     the funds would actually be spent on energy conservation
matters. 
     The filing should address this concern.  The Commission also
     expects GSEC to report on the EPA grant which is part of the
     WasteCap ReCon program.  
               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 GSEC
to
     implement its DSM adjustment factors on a bills-rendered
basis. 
     This waiver, pursuant to Puc 201.05, produces a result in
this
     circumstance that is 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 Offer of Partial Settlement and our deliberations
described
     above, are hereby APPROVED; and it is
               FURTHER ORDERED, that the following DSM adjustment
     factors shall be effective January 1, 1999 on a
bills-rendered
     basis:  Residential, $0.00165 per kilowatt-hour (kWh) and
C/I,
     $0.00389 per kWh; and it is
               FURTHER ORDERED, that the motions to intervene by
CLF,
     ECS and DES are granted; and it is
               FURTHER ORDERED, that GSEC shall 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 January, 1999.
     
     
     
     
                                                                  
   
           Douglas L. Patch       Susan S. Geiger     Nancy
Brockway
               Chairman           Commissioner         
Commissioner
     
     
     Attested by:
     
     
                                      
     Thomas B. Getz
     Executive Director and Secretary