STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS
PUBLIC UTILITIES COMMISSION
IN RE: NARRAGANSETT ELECTRIC COMPANY
CONSERVATION AND LOAD MANAGEMENT
ADJUSTMENT PROVISION
DOCKET NO. 1939
On November 24, 1997, the Narragansett Electric Company ("Narragansett" or "Company") filed with the Public Utilities Commission ("Commission") a stipulation [1 This Stipulation is attached as Appendix A, and incorporated by reference.] executed by the members of the Rhode Island Collaborative ("Collaborative") [2 The Collaborative consists of representatives of the Company, the Division of Public Utilities and Carriers ("Division"), the Conservation Law Foundation ("CLF"), and The Energy Council-Rhode Island ("TEC-RI"). It met regularly throughout 1997 to discuss and evaluate Narragansett's C&LM programs.] resolving all issues amongst themselves and describing their joint proposal for the Company's 1998 Conservation and Load Management ("C&LM") Program.
The Utility Restructuring Act of 1996 ("Act") mandates an annual charge of $.0023 per kWh to fund demand-side management programs and renewable energy resources for a five-year period beginning on January 1, 1997. Although the Act provides for the funding of the programs, the Collaborative still has an important role to play in the design and implementation of C&LM programs, particularly by continuing to increase customer contributions to conservation projects and to increase the efficiency levels of the equipment eligible for rebates. The Collaborative also has a strong interest in renewable energy resources.
The filing projects that $27,210,000 in energy, capacity, and transmission and distribution savings would be realized from the expenditure of $12,349,600 collected through the C&LM factor.
The following appearances were entered:
FOR NARRAGANSETT: Craig L. Eaton, Esq.
FOR THE DIVISION: Elizabeth A. Kelleher
Special Assistant Attorney General
FOR CLF: Mark E. Bennett, Esq.
FOR THE COMMISSION: Adrienne G. Southgate
General Counsel
Public comment was received from Stephen Woerner, Coordinator of the Providence Clean Cities Program. Mr. Woerner stated that he was looking for funds to promote Clean Cities, which seeks to increase the awareness of citizens as to measures which can be used to clean the air and reduce energy consumption. He suggested that $100,000 was an appropriate funding level for Clean Cities, and proposed that an additional $500,000 be allocated to advanced energy research at state universities and colleges. John Migliaccio, a member of the Clean Cities Committee, also spoke. Finally, Associate Dean of Engineering Harold Knickle of the University of Rhode Island discussed the University's desire for research funding for renewables projects.
A panel of witnesses testified in support of the C&LM proposal, including Narragansett's Shannon Larsen; the Division's consultant, Jonathan Raab; TEC-RI's William Gilmore; and CLF's Cort Richardson. [3 The Company had intended to call a witness to support the renewables portion of the settlement. The witness had emergency surgery on December 8, and was unable to attend.] Ms. Larsen gave an overview of the 1998 programs, which have a benefit/cost ratio of 2.21 under revisions to the benefit/cost formula agreed to by the parties.
Ms. Larsen explained that the Collaborative was proposing some "market transformation" programs. In effect, these are programs designed to introduce a lasting change in the market for energy efficient products or services, so that eventually rebates or other customer incentives are no longer necessary. The residential lighting program has been quite successful in this regard; energy efficient lighting products are now carried in supermarkets and home supply stores, and customers purchase these products even without rebates. The two major market transformation initiatives proposed for 1998 are the Efficient Clothes Washer ("ECW") program, and the Energy Home Appliance Program, which leverages a national program sponsored by the Department of Energy and the Environmental Protection Agency.
Ms. Larson noted three other significant changes in the 1998 proposal. First, the Collaborative has chosen to abandon the lost base revenue mechanism which was in place during the 1997 program year. Although a return to a shareholder incentive mechanism is proposed, it is somewhat different from the method previously used. There is a lower threshold, and a new cap of $475,000. The incentives for certain programs will be calculated based upon performance metrics rather than energy savings. Second, certain demand side management costs which were formerly paid through New England Power Company tariffs will now be covered through the Company's 1998 program budget. These include the Home Energy Management program, as well as program design, planning and evaluation expenses.
Finally, there is a new regional Renewable Energy Collaborative ("REC"), composed of the Narragansett and EUA C&LM Collaborative members, the Pascoag Fire District, and the Rhode Island Energy Office as well as additional representatives from Massachusetts. The REC has conducted four major research studies and issued a Request for Proposals to solicit bids for renewable energy projects. Fourteen proposals were received, and have now been evaluated. The REC selected two projects which, in the REC's view, have the best change of commercial viability. Both projects are also highly leveraged, using money other than that contributed through the C&LM factor, and each is rated as cost effective. One is a photovoltaic project which is primarily for residential customers and also includes an element for photovoltaic interruptible power sources, e.g. back-up for computer or telecommunications systems. The budget for this project is $250,000 over two years; this would be matched by $125,000 from the Department of Energy, and over $1,000,000 from customers and from the project managers. The managers include two manufacturers and a power marketer. The second project is also a two-year project with a budget of up to $500,000 for wind power. The first year would be used for feasibility studies; turbine installation would take place in the second year. The developers of this project will be contributing $1,500,000. Other projects are still being evaluated. Two which look promising are a fuel cell project and a landfill gas project. The proposed renewables budget of $800,000 would be used to fund the initial stages of those projects as well as other suitable projects from the RFP. The REC is also considering a targeted RFP for specific technologies or applications, such as commercial photovoltaics.
Dr. Raab observed that the market transformation initiatives are regional, including utilities in New England as well as New Jersey and New York. The Collaborative has worked with the New England Energy Project and the Consortium for Energy Efficiency in building these larger programs. The ECW program has been implemented in the Pacific Northwest, with stunning success.
Mr. Richardson for CLF and Mr. Gilmore for TEC-RI added their support to the programs described in the settlement.
During subsequent questioning, a number of record requests were posed. The Company responded on December 15, 1997.
At an open meeting conducted on December 17, 1997, the docket was discussed at length. The Commission has supported C&LM in Rhode Island for many years, and that support has mitigated capacity problems through implementation of cost-effective programs. Indeed, the Collaborative has a proud record of innovative program development. These programs have significant costs. If incentives are included to make C&LM more palatable to the incumbent utility, it is essential to verify the kWh savings. This leads to higher administrative costs.
The Commission noted that the settlement process has produced an "all or nothing" package,
[4 However, on December 29, 1997, the parties amended the Stipulation to withdraw the requirement that the Commission accept the Stipulation in full.] which contains many excellent and time-tested C&LM programs. However, some programs may require further development; and in other cases, additional information will be required before funds can be allocated for those programs.
To give the parties as much direction as possible, the Commission identified those programs which it could unequivocally support, anticipating continued discussion and specific feedback early in 1998 so that all constituencies can agree upon the best array of C&LM programs.
The Commission agreed that the Clean Cities Program is not appropriately funded through C&LM dollars. However, the Collaborative is encouraged to contact the University of Rhode Island and other institutions within the state to invite their involvement in future discussions, particularly with regard to research and development on renewables.
The Commission also felt that the threshold set for the Narragansett incentive is too low. While the cap is important, it is also necessary that the threshold be appropriately set. Moreover, giving incentives for performance goals rather than for savings does not comport with the Commission's previous directives in this docket.
In light of the record, the Commission found the proposed C&LM factor of $.0023 to be in compliance with the Act. The commercial and industrial C&LM programs, the previously approved residential programs (including all proposed low-income programs), [5 These include Residential Lighting; Multifamily Retrofit (re-named Energy Wise in 1997); Residential Space Heating (re-named Energy Wise in 1997); Energy Crafted Home Program (included in New Construction); and Ground Source Heat Pumps (included in New Construction).] and the photovoltaic and wind renewables projects, all described in the Stipulation, are reasonable, in the best interests of the rate payers, and supported by the evidence. The following programs or budget items require future Commission approval before implementation:
- Renewables: specific program spending for $640,000 of the proposed $800,000 budget
- Residential Programs: Energy Star Appliance Program; Energy Star component of New Construction Program; Clothes Washer Initiative
- Incentives: Threshold levels; non-energy savings performance measures.
Accordingly, it is
1. The Stipulation of the Parties delineating Narragansett Electric's 1998 C&LM Programs, as modified by the Commission during open meeting, is hereby approved.
2. The Narragansett Electric Company's proposed Conservation and Load Management Adjustment factor of $.0023 per kilowatt-hour is hereby approved for application in the billing months of January through December, 1998.
3. The Parties shall act in accordance with all other findings and instructions contained within this Report and Order.
EFFECTIVE AT PROVIDENCE ON JANUARY 1, 1998, PURSUANT TO AN OPEN MEETING DECISION ON DECEMBER 17, 1997. WRITTEN ORDER ISSUED FEBRUARY 17, 1998
PUBLIC UTILITIES COMMISSION
James J. Malachowski, Chairman
Kate F. Racine, Commissioner
Brenda K. Gaynor, Commissioner
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STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS
PUBLIC UTILITIES COMMISSION
In Re: The Narragansett Electric Company
1998 Conservation and Load
Management Adjustment Provision
Docket No. 1939
STIPULATION OF PARTIES
November 24, 1997
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS
PUBLIC UTILITIES COMMISSION
In Re: The Narragansett Electric Company
1998 Conservation and Load
Management Adjustment Provision
Docket No. 1939
STIPULATION OF PARTIES
This Stipulation (Stipulation) is jointly submitted and entered into by the Division of Public Utilities and Carriers (Division), The Energy Council of Rhode Island (TEC-RI), Conservation Law Foundation (CLF), and The Narragansett Electric Company (Narragansett or Company), hereinafter together the "Parties", and resolves all issues among the Parties concerning the Company's 1998 Demand-Side Management (DSM) and Renewable Energy Resource Program. No other party has intervened in this proceeding.
The Stipulation is the result of discussions and negotiations which have taken place during the year-long effort of both the Rhode Island DSM Collaborative (DSM Collaborative), and the Rhode Island Renewable Energy Collaborative (Renewable Energy Collaborative), of which all Parties are members. [1 The Renewable Energy Collaborative has additional members as well, including Blackstone Valley Electric Company, Newport Electric Corporation, and Pascoag Fire District. There are also non-voting participants such as the Rhode Island State Energy Office and the Massachusetts Department of Public Utilities.] The DSM Collaborative has been meeting regularly since 1991 to analyze, monitor, and propose ways of improving the Company's DSM programs and, through this Stipulation, has reached a consensus about the Company's proposed 1998 DSM Program. The Renewable Energy Collaborative has been meeting since late 1996 to review the potential of and to develop policies to promote renewable energy resources in Rhode Island. During 1997, the Renewable Energy Collaborative oversaw a scoping study which reviewed thirteen renewable technologies as well as a market development study of photovoltaic opportunities. It also conducted an RFP process through which renewable resource developers provided direct feedback on the potential availability of renewable technologies and projects for Rhode Island. These efforts are documented in Attachment 1.
The Parties have documented their jointly sponsored proposals for the 1998 DSM and Renewable energy programs here and request the Commission approve this Stipulation as the final resolution of all issues in this matter.
The Collaboratives have been given statutory direction for program funding through Section 39-2-1.2(b) of the Rhode Island Utility Restructuring Act of 1996, as amended, (the Act) which mandates the Company to include an annual charge of 2.3 mills per kilowatt-hour (kWh) delivered to fund DSM programs and renewable energy resources for a five year period beginning on January 1, 1997. The allocation of the revenue between DSM programs and renewable energy resources was not specified by the legislation and is subject to the approval of the Commission. The Act also states that the Commission has the discretion to increase the sums for DSM and renewable energy resources during the aforementioned five-year period upon notice and a public hearing.
Though the Act provides the statutory direction on DSM and renewable energy funding, there remains a role for the Collaboratives in addressing many important issues within the legislative parameters. Foremost, the DSM Collaborative needs to ensure that the DSM programs continue to meet the criteria which have been laid out in earlier settlements; that they are as cost-effective as possible; that they serve a large number and broad mix of Narragansett's customers; that they maximize the long-term savings; that they minimize adverse ratepayer impact; and that they promote market transformation. Additionally, with the creation of the Renewable Energy Collaborative, various parties are actively addressing renewable energy resources. The Collaboratives will continue to adapt and modify the DSM and Renewable energy programs to succeed in the changing electric utility industry. The Parties believe that the Company's 1998 DSM and renewable energy programs build on the Company's experience, are consistent with the Act, and provide a framework which can be continued at least through the legislatively-mandated funding period.
The Commission approved the Company's proposed 1997 DSM and Renewable energy Program with an overall DSM budget of $13.4 million and an overall Renewable energy Resources budget of $100,000. [2 Commission approval of the proposed 1997 DSM and Renewable energy programs was effective on January 1, 1997, pursuant to Open Meeting decisions on December 11, December 18, and December 20, 1996, and January 30, 1997.] The Company's 1997 DSM Program now consists of six Residential and three Commercial and Industrial (C&I) programs. [3 The Commission approved termination of the Heat Pump Water Program on October 22, 1997, reducing the number of residential DSM programs being offered by the Company in 1997 from seven to six.] As of the date of this Stipulation, it is projected that the Company's 1997 DSM Programs will reach 96% of targeted spending, including projected commitments to spend [4 This projection is based on nine months actual data, 3 months projected data for spending plus the year-end projection for commitments to spend.]; achieve 88% of targeted annual demand savings and 70% of targeted annual energy savings by year end. Attachment 2 shows the projections of year-end spending for DSM and Renewable energy and the Design 2000 and Energy Initiative commitments projected for year-end. The projected 1997 C&LM fund balance is also shown in Attachment 2.
A. Overview
Throughout 1997, the Parties have studied many aspects of the Company's DSM Program, and have agreed that certain modifications will both enhance and improve them in 1998. The Parties, therefore, propose that the Commission approve for 1998 a portfolio of DSM and renewable energy resources programs with an overall budget of $14.3 million and the modifications contained in this Stipulation. As shown in Attachment 3, the proposed 1998 total budget including all components is higher than the total approved 1997 budget. However, it is important to note that the amount available for DSM programs in 1998 is actually less than in 1997 because other budget components such as renewable energy funding has increased.
In 1998, certain DSM costs formerly paid for by the Company's affiliate, New England Power Company (NEP), through NEP's tariffs at the Federal Energy Regulatory Commission, are proposed to be included in the Company's overall budget. Because of the restructuring of the electric utility industry ongoing in Rhode Island, Narragansett has filed with the FERC to terminate its all-requirements contract with NEP and will therefore no longer be paying for electricity accordingly to NEP's tariffs. With funding through the NEP tariffs no longer available, these costs associated with the Company's DSM programs will be included in Narragansett's program budget. These are the costs of designing, evaluating, and reporting on the programs; and the costs of maintaining the system of Home Energy Management devices (HEM) currently installed to control customers' water heaters. [5 Another cost formerly paid for through NEP's tariffs is the cost of the Company's Cooperative Interruptible Service options (CIS). However, we are not proposing to include these costs in the overall DSM budget because the Company has asked for approval to eliminate the CIS options in its filing in Docket 2631, the Standard Offer Pricing proceeding, which is currently before the Commission.] These costs are shown in Attachment 3.
B. 1998 DSM Budget
The proposed 1998 DSM budget of $12.4 million, including additional commitments, is 7.5 percent, or about $1.0 million, less than the Company's 1997 DSM budget. A table comparing the approved 1997 program budgets with proposed 1998 program budgets and a table showing the components of 1998 budgets are provided in Attachment 3.
C. 1998 Renewable Energy Resources Budget
The Parties are proposing up to $800,000 be spent to continue to study and acquire renewable energy resources in 1998. This is described in Attachment 1 and the budget amount proposed is shown in Attachment 3. The Parties also propose that the Commission allow the Division to be able to approve the transfer of 10% of the funds between the renewable energy resources budget and the DSM program budget without seeking Commission approval, in a manner similar to the Division's current authorization to approval limited budget transfers between DSM programs. [6 In the October 19, 1994 Stipulation settling all issues associated with the Company's 1995 DSM programs, approved by the Commission on December 9, 1994 in Order No. 14602, the Company and the Division were allowed some flexibility to manage the DSM budgets. Specifically, "...With approval from the Division, the Company shall be allowed to reallocate up to 10% of any C&I program budget to other C&I programs without seeking Commission approval. With approval from the Division, the Company shall be allowed to reallocate up to 10% of any Residential program budget to other Residential programs without seeking Commission approval."]
D. 1998 DSM and Renewable Energy Resource Program Funding
The budget and revenue components of the 1998 DSM/renewable energy program are shown in Attachment 4. The Parties propose that the 1998 budget be funded with monies from several sources:
1. 1998 C&LM Factor
The 1998 budget will be funded by the revenues projected from the 1998 C&LM Adjustment Factor, which is set by the Act at $0.0023 per kWh for application in the billing months of January through December 1998. The amount projected from this source, $11.154 million, is shown in Line 9 of Attachment 4.
2. Carryover of the 1997 Fund Balance
Consistent with prior years, the Parties propose that the year-end 1997 C&LM fund balance be used to augment the 1998 budget. [7 As approved by the Commission, the Parties have used monies from the C&LM fund balance to supplement the Company's DSM budgets in each of the past several years. For instance, in addition to using the funds generated during 1997 by the C&LM Factor, the 1997 DSM budget was supplemented by $1,015,786 from the 1996 fund balance. The 1996 DSM budget was supplemented by $5,021,502 from the 1995 fund balance. The 1995 DSM budget was supplemented by $3,139,838 from the 1994 fund balance.] As of December 31, 1997, the projected C&LM Fund balance at year end will be approximately $1.047 million. This amount is shown in Line 12 on Page 2 of Attachment 2 and Line 10 of Attachment 4.
3. Fund Interest Earned and Small C&I Program Copayments
For the reasons described below, beginning in 1998, the Parties propose that the interest earned on the C&LM fund during 1998 be used to augment the overall 1998 budget. We also propose that Small C&I program copayments collected during 1998 be used to directly augment the 1998 Small C&I program budget in order to fund additional Small C&I installations. These projected amounts are shown in Lines 11 and 12 of Attachment 4.
In past years, the funds received by the Company over the course of a year from the interest earned annually by the C&LM Fund and through copayments collected from Small C&I program participants were added into the C&LM fund and, at year-end, included in the C&LM fund balance. For example, as shown in Lines 2 and 9 on Page 2 of Attachment 2, some $766,379, or 73% of the projected year-end 1997 C&LM fund balance is from 1997 Small C&I program copayments and interest earned on the fund during 1997. As described earlier, in past years, some or all of the year-end fund balance has been used to augment the next year's DSM budget. Using the interest earned and Small C&I copayments collected during the year to augment the 1998 budget is similar. Earlier sections described the 1998 DSM budget as being tighter than in prior years. The Parties feel that using the money collected through the Small C&I copayments and interest earned in 1998 to supplement the tight 1998 DSM budget is appropriate.
4. True-Up Projections with Actual Results
It is important to note that the projected 1998 budget for DSM and Renewable energy is dependent on a number of projections for 1997 including a projection of year-end 1997 Design 2000 and Energy Initiative commitments, a projection of year-end 1997 spending, and a projection of 1997 lost base revenues. As described earlier, there is less money available for DSM in 1998 and therefore, there is a need for the most accurate budget possible. Accordingly, the Parties propose truing up with actual year-end numbers each of the components of the budget calculation which are currently projected. The true-up will occur in about February when year-end actuals are available. The true-up will result in more or less money being available for the 1998 DSM and renewable energy budgets. The Parties will then discuss how the budget should be reallocated to match the new total. To the extent that the resulting reallocation of the 1998 budget is ten percent or less, the Parties request that the Division be allowed to approve the reallocated budget. If the resulting reallocation of the 1998 budget is greater than ten percent, the Parties would submit the proposed reallocated budget to the Commission for approval.
E. Market Transformation Initiatives
The goal of many of the DSM program design changes recommended by the Parties and approved by the Commission over the last several years has been to promote the transformation of the market for that energy efficient product or equipment. A 1995 study conducted on behalf of the Company, its affiliates, and four other New England utilities defines a market transformation program as one which "induces a lasting change in the structure of an energy product or service market or the behavior of market actors that results in greater adoption and penetration of energy-efficient technologies and practices." [8 This study, the Spillover Scoping Study, was prepared for New England Power Service Company, Boston Edison, Northeast Utilities, EUA Service Corporation, and Commonwealth Electric Company by XENERGY, Inc. and Eaton Consultants. The final report was issued in January 1995. Representatives of the Division and the CLF participated in the development and design of the study.] As was described in detail in Attachment 11 of the November 1, 1996 Stipulation of the Parties in this docket, market transformation initiatives are strategic efforts by utilities and other organizations to induce lasting structural or behavioral changes in the marketplace that result in the increased adoption of energy efficient technologies, services, and/or practices. Often these initiatives are intended to reduce or eliminate market barriers to energy efficiency in a lasting manner, to the point where the nature of the market intervention can be changed or the level of the intervention can be reduced or even eliminated.
It has been the goal of the DSM Collaborative to promote market transforming DSM programs because such programs leverage ratepayer investment to achieve more conservation in the long run and build a conservation infrastructure that is more likely to thrive with less utility intervention. The Commission has recognized the need for market transformation initiatives through its ongoing direction to the Company and the DSM Collaborative members to work with other parties in the region such as the EUA affiliates in order to achieve more from joint programs than can be achieved through the efforts of a single utility. For example, in the past several years, the Company implemented a joint promotional program for residential lighting fixtures with Blackstone Valley and Newport Electric. Additionally, Narragansett participates in programs with the Consortium for Energy Efficiency (CEE) [9 CEE is a non-profit corporation that forms partnerships between private and public interests to: accelerate the development and availability of energy saving technologies; enhance environmental quality; maintain customer satisfaction; and facilitate aggressive and strategic utility DSM programs.], the Northeast Energy Efficiency Partnership (NEEP) [10 NEEP is a non-profit organization founded to promote educational outreach and cooperative efforts to increase energy efficiency in the Northeast through statewide and regional market transformation initiatives and government policies.], the U.S. Department of Energy/Environmental Protection Agency ENERGY STAR(R) initiative (DOE/EPA ENERGY STAR(R)) [11 ENERGY STAR(R) is the national energy efficiency trademark being promoted by a joint effort of the USDOE and the EPA. The ENERGY STAR(R) trademark will identify, or "brand" efficient home appliances, home energy rating systems, and lighting products.], and other such organizations to explore opportunities to further expand market transforming activities. The Parties have agreed to continue coordinating efforts with other utilities and organizations.
This year, the Parties are proposing to commit more resources to specific market transformation initiatives than they have in the past because of the continued and growing success of such efforts. The Parties are proposing several major residential market transformation efforts including a DOE/EPA ENERGY STAR(R) retailer program as well as several strategic efforts through the Design 2000 and Energy Initiative programs with CEE and NEEP. The Company, the Division, and CLF are proposing an efficient clothes washer initiative to be implemented in conjunction with NEEP. Each of these will be described in detail in later sections of this stipulation.
Traditionally, the Company's incentive has been based on achievement of energy savings. The Parties are proposing that the Company be rewarded for residential market transformation efforts through performance measure-based incentives other than energy savings. These performance measure-based incentives are described in Section III.K.
F. Residential Programs
In 1997, the Residential DSM programs were restructured to respond to changing markets and build on past program success. The goals of restructuring the Residential DSM Programs were to increase support of the market transformation of specific residential technologies and appliances and to streamline customer communication and marketing efforts. The Residential programs were grouped into three initiatives: 1) comprehensive In-Home Services which we propose expanding to include services targeted at low-income customers through the Energy Wise program; 2) market-driven/market transformation efforts targeting Energy Efficient Home Products; and 3) market-driven/market transformation efforts targeting New Construction and Remodeling. There are several new market transformation initiatives proposed for 1998 as well as other changes which are described in Attachment 5. The budget of $2.069 million proposed for residential programs in 1998 is about the same as the 1997 budget.
G. Commercial and Industrial Programs
The three C&I programs are: Design 2000, which encourages efficiency in new construction, renovations, remodeling, and replacement of failed equipment; Energy Initiative, which encourages the replacement of existing equipment with more efficient equipment; and Small C&I Program, which installs conservation measures in the facilities of C&I Customers with average monthly demand of less than 100 kilowatts (kW) or annual energy use of less than 300,000 kWh. The design and implementation of the C&I programs will remain essentially the same in 1998 as in 1997. However, the budgets proposed for Design 2000 and Energy Initiative are less than the comparable 1997 budgets. Given the continued ability to transfer funds among programs described earlier, the Company will continue to do its best to manage the various program budgets with the guidance of the Division and the other Collaborative members.
The Parties propose that several strategic C&I market transformation initiatives be implemented in 1998 through the Design 2000 and Energy Initiative programs. One of the goals of these initiatives is to develop and implement consistent DSM programs among the utilities in the New England region. Another is to move beyond using rebates to promote energy-efficient equipment to implementing programs to help the design and installation practices themselves become more efficient. Several of these initiatives, those promoting premium efficiency motors and high efficiency air conditioning, will be implemented in collaboration with CEE and NEEP. One of the initiatives related to high efficiency air conditioning will consist of a pilot to improve the installation practices of technicians. Beyond the market transformation efforts conducted with CEE and NEEP, the Company will be leading several other market transformation endeavors. These will consist of a commercial lighting design practices initiative; an operations and maintenance (O&M) training program; an effort to improve the energy efficiency section of the commercial building code; and an effort to work with various institutions to reduce the rapid growth of halogen torchieres which are inefficient lighting fixtures and also potential fire hazards.
1. Design 2000
The $4.922 million budget proposed for the 1998 Design 2000 program, including funds for additional commitments, is about 3.3 percent less than the originally approved comparable 1997 budget and about 14.1 percent less than the 1997 budget adjusted for the recently approved transfer of funds from Energy Initiative.
A list of the few minor changes proposed for Design 2000 in 1998 is provided in Attachment 6.
The Company will continue to strive to achieve higher levels of participation, comprehensiveness, and quality control in Design 2000 projects.
2. Energy Initiative
Including funds available for additional commitments, the proposed 1998 Energy Initiative budget of $3.071 million is 20.3 percent lower than the comparable budget originally approved in 1997 and 9.7 percent lower than the 1997 budget adjusted for the transfer of funds to Design 2000.
Except for a few minor changes, the overall program design of Energy Initiative will remain the same. A list of these changes is provided in Attachment 7. The Energy Initiative program will continue to build customer and trade ally awareness of energy efficient techniques and measures during 1998.
3. Small C&I Program
In 1997 the required customer copayment was increased to 30% from 25%. As of the date of this Stipulation, the program is projected to achieve its energy saving goals and meet its targeted spending level. The Parties agree that, if the annual 1997 participation rate is 62% or above, the Company will increase the customer copayment requirement to 35% in 1998 from the current 30%. [12 The participation rate (i.e., the percentage of customers who receive audits and actually install measures) was 66% in 1995 with a 20% customer copayment, 69% in 1996 with a 25% copayment, and 59% to date in 1997 with a 30% copayment.] The Parties further agree that if this change in the copayment requirement is made, any associated increase in the customer copayments collected during 1998 will be used to serve additional customers in this program.
Finally, as described in Section III.D.3, the Parties have proposed that all money collected during 1998 from copayments of Small C&I participants will be used to augment the 1998 Small C&I budget. Based on current projections, this amount will be $360,000. If the actual amount of customer copayments collected during 1998 is more or less than $360,000, the Small C&I budget will be adjusted accordingly.
H. Renewable Energy Resources Program
As described earlier, the Act requires that a portion of the 2.3 mill charge be used for renewable energy resources. The Act defines renewable energy resources as power generation technologies that produce electricity from wind energy, small scale hydropower plants, solar energy, and sustainably-managed biomass. [13 The Renewable Energy Collaborative has included fuel cells in its technology studies. If funds are allocated to the technology, the amount will be transferred from the Renewable energy budget to the DSM budget as the Act defines fuel cells as demand-side management.]
As described earlier and in detail in Attachment 1, the Renewable Energy Collaborative has overseen the completion of a scoping study in which technical assessments of thirteen renewable technologies were conducted. A summary of the results is provided in Attachment 8. The Renewable Energy Collaborative has also conducted an in-depth market development study for the photovoltaic industry. Building on these research efforts, the Renewable Energy Collaborative has conducted a Request for Proposals to solicit renewable energy projects within the state. Fourteen responses to the RFP were received. The fourteen responses proposed projects representing a broad range of technologies. The proposed 1998 budget of $800,000 will be used to continue research and implement selected projects, which are described in Attachment 1.
I. Cost Effectiveness
The Collaborative proposes continuing the use of benefit/cost ratios as one benchmark to evaluate program performance. The Collaborative also uses other factors to refine program designs and set program budgets, such as promoting market transformation, maintaining equity among customer groups, expanding program comprehensiveness, and capturing lost conservation opportunities. In 1997 the Parties agreed to and the Commission approved several adjustments to the cost-effectiveness test used by the Company to screen DSM measures and programs. Using this revised test, referred to as the Rhode Island Benefit/Cost test, the 1998 overall projected benefit/cost ratio is 2.21. [14 The Parties have also agreed to include the direct savings of program participants who purchased additional efficient equipment or appliances without payments or rebates.] The 1998 benefit/cost ratios for each program are shown in Attachment 9.
Also shown in Attachment 9 are the benefit/cost ratios for the programs using a societal-based benefit/cost test. This benefit/cost test differs from the Rhode Island Benefit/Cost test in that it includes certain difficult-to-quantify benefits (such as environmental benefits) and non-electric benefits as well as customer costs from both participants and from spillover (i.e., non-participants who install measures in large part due to the influence of the program). This is not the test we are recommending for Rhode Island, but it is a test used in some other jurisdictions. It is one of two tests proposed by Massachusetts Electric Company, Narragansett's affiliate, to express the cost-effectiveness of its programs. [15 The other benefit/cost test proposed by Massachusetts Electric is almost identical to the Rhode Island Benefit/Cost test.] We have included it for your information only.
The 1998 projected benefit/cost ratio using this test is 2.06 which is lower than the results using the Rhode Island Benefit/Cost test. However, benefit/cost ratios for Design 2000 and most of the residential programs appear slightly more cost-effective with this test.
Attachment 10 shows the Company's 1998 plans for evaluation activities, which will determine the final value of the Company's 1997 DSM programs.
J. Avoided Generation and Distribution Costs
As described above, in determining the cost-effectiveness of its various DSM programs, the Company considers the energy and capacity purchases that they displace, reductions in losses on the system that they create, and the investment in new distribution facilities that they avoid. [16 It should be noted that, while Narragansett no longer directly benefits from avoided generation costs, Rhode Island ratepayers do continue to benefit. For this reason, we include the value of avoided generation in the benefit/cost test.] The parameters used to value each of these components are shown in Attachment 11.
In past years, the value of avoided generation was set at the price for tailblock, or incremental, kilowatts and kilowatthours under NEP's Tariff 1, the price which Narragansett paid for that capacity and energy. However, Narragansett will no longer be buying power at the tailblock rate and the price which Narragansett will be paying is unknown at this time. Additionally, once the competitive market for electricity is more fully developed, the price of electricity and the related costs of avoiding generation will be set by market forces and are also unknown at this time. Accordingly, the Parties have agreed to use an externally prepared forecast of generation avoided costs to value DSM savings. This forecast was developed by the Massachusetts Division of Energy Resources who reviewed several different, independent, regional forecasts and developed a consensus forecast of avoided generation costs agreed to by diverse parties in Massachusetts. [17 The diverse parties included utilities, various stakeholder and intervenor groups and other agencies. They agreed to the consensus forecast of avoided generation costs for DSM planning and evaluation purposes only.] Attachment 11 includes the report which describes the derivation of the consensus avoided generation costs forecast.
Historically, the Company has calculated avoided distribution costs on the basis of a marginal distribution cost study. For 1998, the Parties agree that the Company shall continue to value avoided distribution costs at $37.86 per kW-Year at primary and $79.39 per kW-Year at secondary, values which fall within the reasonable range of values acceptable to all Parties. These are the same as last year.
K. Savings- and Performance-Based Incentives
For 1998, the Parties propose an incentive mechanism which provides the Company with the opportunity to earn a reward for successfully implementing the DSM programs. While the Parties endorsed the Company's proposal to recover its distribution lost base revenues (LBR) for 1997, they are proposing to return to an incentive for the Company in 1998. The primary reason for the proposed change is that the LBR mechanism cannot readily compensate the Company for promoting market transformation initiatives; and, as described earlier, we anticipate more emphasis on regional, multi-party market transformation initiatives over time. A secondary reason is to provide a reward to the Company for achieving its goals rather than simply compensating it for lost revenues. A further reason is to make Narragansett's incentive mechanism consistent with that of Blackstone Valley Electric Company and Newport Electric Corporation. [18 Based on its discussions with Blackstone Valley and Newport, the Division expects that those companies will also be proposing to move to an incentive from an LBR mechanism.]
The proposed incentive mechanism for five programs and one component of a sixth program is based on the achievement of energy savings goals. [19 The energy savings based incentive is proposed for the three C&I programs (Design 2000, Energy Initiative, and Small C&I programs), the Residential Lighting program, the Residential New Construction and Remodeling program, and the non-income eligible portion of the Energy Wise program.] The proposed incentive mechanism for two programs and a component of a third is based on the achievement of pre-specified performance goals other than energy savings. [20 The programs for which the Company's incentive would be based on non-energy-saving performance measures are the Efficient Clothes Washer program, the ENERGY STAR program, and the income-eligible component of the Energy Wise program. As shown in Attachment 12, the performance standards for each of these recognize specific achievement of program goals such as providing rebates for a certain number of efficient clothes washers; enrolling a certain number of retailers in the ENERGY STAR program; and serving a certain number of income eligible customers.] The energy savings specifically attributable to certain market transformation initiatives such as the ones were are proposing may be particularly difficult to measure, relatively expensive to measure, or both. Additionally, because market transformation initiatives tend to produce permanent change over a longer time period, it is possible that there will be no measurable energy savings in the first stages of such an initiative. More importantly, other factors may better track progress toward market transformation than the energy saved by program participants. In summary, the Parties agree that it is more appropriate that these programs have performance measure-based incentives.
The proposed incentive mechanism is shown in Attachment 12. The target incentive for the Company in 1998 is capped at $475,000. The incentive for each program is also capped.
A threshold of performance below which the Company will earn no incentive is set at 37.5 percent of the target savings and the performance standards. Incentives are earned in a linear fashion for each kWh or performance measure over the threshold until the cap is reached.
There are two circumstances which would necessitate the recalculation of the threshold and the incentive rate for a particular program. First, if money is transferred from one program budget to another (with Division or Commission approval, as appropriate), the threshold and incentive rate for both programs will be readjusted as would each of the caps (i.e., cap, threshold, and incentive rate would decrease for one and increase for the other). [21 The total maximum incentive of $475,000 for all 1998 programs will remain the same.] Second, an adjustment will be made at the end of the year in both Design 2000 and Energy Initiative to adjust the threshold and incentive rate, but not the per program cap, by any change in the ratio of spending budgets to commitments budgets from those filed in this stipulation.
Most of the Company's possible incentive, about 95 percent of the maximum $475,000, will still be earned through the achievement of traditional energy savings targets with the remaining 5 percent of the possible maximum incentive to be earned by achieving other program performance metrics.
The Company will make informal quarterly reports to the Division on program performance. The Company will file with the Commission its 1998 Mid-year DSM report on or about September 1, 1998; its 1998 Year-End Report on or about March 1, 1999; and its 1998 Performance Report on or about July 15, 1999.
The Parties agree that the DSM Collaborative agenda for 1998 shall include at least the items listed in Attachment 13.
A. Other than as expressly stated herein, this Stipulation establishes no principles and shall not be deemed to foreclose any Party from making any contention in any future proceeding or investigation.
B. Other than as expressly stated herein, the approval of this Stipulation by the Commission shall not in any respect constitute a determination as to the merits of any issue in any other proceeding.
C. This Stipulation is submitted on the condition that it be approved in full by the Commission and on further condition that if the Commission does not approve this Stipulation in its entirety, this Stipulation shall be deemed withdrawn.
The Parties respectfully request the Commission approve this Stipulation as a final resolution of all issues in this proceeding.
Dated as of this 24th day of November, 1997.
Respectfully submitted,
NARRAGANSETT ELECTRIC COMPANY
Craig L. Eaton, Esq.
DIVISION OF PUBLIC UTILITIES
AND CARRIERS
Elizabeth A. Kelleher, Esq.
THE ENERGY COUNCIL OF RHODE ISLAND
Glenn Lampinski
William Gilmore
CONSERVATION LAW FOUNDATION
Kevin D. Heitke, Esq.
Mark Bennett, Esq.
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