Order 15543 - Blackstone Valley Elec.: Conservation Cost Adjustment Clause

The Parties propose that the Commission approve for 1998 a budget to fund C&LM and renewable energy resources activities of $3,370,857 for Blackstone and of $1,401,070 for Newport. The details of the proposed budgets can be found in Attachment #1 to this Stipulation. A table comparing 1997 revised and originally approved C&LM budgets with the proposed 1998 C&LM and renewables budget is also provided in Attachment #1. The Parties also agree in this Stipulation to provide the Companies with Performance Incentives for effectively managing their C&LM investments. We propose that Blackstone be given the opportunity to earn up to $136,358 and that Newport be given the opportunity to earn up to $61,460 in Performance Incentives. Attachment #2 shows that the proposed 1998 budgets for C&LM and renewables along with Performance Incentives requires funding based on the $0.0023/kWh factor along with the projected 1997 fund balance.

The Parties propose that the Commission approve the proposed 1998 C&LM and renewable energy resource programs contained in this Stipulation. For the 1998 C&LM programs, the Parties have worked together to modify and improve upon the C&LM programs currently offered by the Companies. All of the C&LM programs proposed for 1998 are designed to promote energy conservation services in the marketplace that, without the Companies' intervention, would not be available to customers because of existing market barriers or that would be underutilized by customers. All of the Companies' programs should help to transform markets for energy efficiency products and services. Each of the C&LM programs, new initiatives, renewable energy resource plans, and modifications that impact the overall program are described below.

A. Residential C&LM Programs

The Companies propose implementing C&LM programs and services that address efficiency opportunities in the residential retrofit, residential construction, and residential lighting market sectors, along with three new programs: a program to serve the Companies' low-income customers, a program to encourage customers to purchase energy efficient appliances, and a customer education program. Each of these programs is described below.

1. Residential Efficiency Services

The purpose of the Residential Efficiency Services Program is to reduce both energy consumption and peak demand through the installation of energy conservation improvements in existing single family and multifamily homes with electric heat. General use customers with higher than typical consumption levels will also receive energy conservation improvements through this program.

The Companies have identified additional measures that they can provide cost-effectively to their residential customers and are proposing to replace their Residential Retrofit Program with this enhanced Residential Efficiency Services Program. In this enhanced program, electric heat customers who have been previously served in the Single Family Retrofit, Multifamily Retrofit, or Residential Retrofit programs will be encouraged to install programmable electronic thermostats and hardwired compact fluorescent fixtures. Customers with heat pumps will be offered the opportunity to "tuneup" their heat pumps and to insulate duct work in their home. General use customers with high use will have the opportunity to install hardwired compact fluorescent fixtures and, where applicable, duct insulation to improve the efficiency of central air conditioning systems. Both customers with electric heat and general use customers with high use will have the opportunity to remove and replace excessively inefficient refrigerators [4 The Companies' implementation contractor will meter the use of the customer's refrigerator to identify those models that are excessively inefficient and which should be replaced. The contractor will dispose of removed inefficient refrigerators in way that complies with environmental laws and regulations. Customers with second refrigerators will be encouraged to allow the contractor to remove that refrigerator too.] from their homes with an energy efficient model at discounted prices. In addition, if any untreated customers with electric heat are identified, the implementation contractor will install "immediate savings" measures, electric water heating measures (if applicable), and weatherization measures in addition to the measures described above.

Customers receiving electronic thermostats,  [5 No customer contribution will be required when a multifamily customer installs electronic thermostats.] compact fluorescent fixtures, refrigerators, heat pump measures and duct insulation will share in the cost of those measures.

2. Residential Construction

The Companies have been working with other utilities to reformulate the process that is used to encourage energy efficiency in residential construction. This new effort builds on the Energy Star Home concept that is promoted by the Environmental Protection Agency (EPA). New construction and major renovations will be addressed through this program.

The EPA's Energy Star Homes standards will be used as the baseline qualification for new construction projects. This standard is 30% better than the currently applicable 1993 CABO Model Energy Code. A Home Energy Rating (HERS)  [6 A Home Energy Rating is a method of measuring and rating the relative energy efficiency of any house, regardless of its size, age, location, construction type, or fuel use. It evaluates the performance of the thermal envelope, glazing, siting, HVAC system, hot water system, and other factors and is obtained by on-site inspection. HERS calculations include estimates of annual energy performance and costs, and can provide insight into cost-effective, energy-efficiency opportunities. The HERS rating can be used by participants to qualify for energy efficient mortgages from participating lenders. Lenders who offer these products recognize the value of savings from energy efficiency when they determine the size and other terms of a loan for the homeowner.] will be calculated for participating homes. The HERS rating must exceed threshold levels to qualify for incentives in this program. Participation in the renovation portion of the program will be contingent on the installation of a geothermal heat pump and will require a HERS rating above levels required for fossil-heated homes.

A program delivery contractor will continue to be employed to evaluate construction plans, to provide inspection services, and to market the program. This contractor  [7 The implementation contractor for this revamped residential construction program will continue to be paid based on the size of the completed home and heating fuel type.] will also be responsible for ensuring that all efficiency upgrades required to meet program standards are delivered at a reasonable cost to the homebuilder/owner. EPA builder partners will construct residential dwellings that meet Energy Star guidelines. Licensed contractors will provide renovation services for home owners. Participants installing geothermal heat pumps will be required to meet more stringent guidelines for shell construction than homes built with fossil heating systems.

3. Residential Efficient Lighting

The Companies' Residential Efficient Lighting Program will be strengthened in 1998 through participation in a regional effort to transform this market. Over the past year, the Companies have been working with other New England utilities through the Northeast Energy Efficiency Partnerships (NEEP), the Consortium for Energy Efficiency (CEE), and the DOE/EPA Energy Star Program to develop a common set of qualifying products, marketing materials, and common rebate levels that can be used in a coordinated effort to encourage residential consumers to purchase and install efficient lamps and fixtures. The joint utilities are also conducting a baseline study of the residential lighting market in the Northeast. This study will establish a market baseline for residential lighting products and will assess consumer behaviors about purchases and use of lighting products.

The program contractor will continue to implement both retail rebate and mail order promotions of efficient lighting products (compact fluorescent lamps, fluorescent fixtures, and adaptors). Each participating customer will be eligible to purchase up to six lamps and six fixtures per year at a discount. Lamp incentives will be set at $10 per lamp whether purchased through the mail order component of the program or purchased through the retail rebate component. Fixture incentives will remain at $20 per fixture for both mail order and retail rebate components. We propose that these incentive levels may be adjusted in consultation with the Parties and agreement by the Division, based on customer response during the year.

4. C&LM For Low-Income Residential Customers

The Companies propose to implement an energy conservation program targeted to low-income residential customers in their service territories, the Energy Assistance Program. This will be done through an alliance with local weatherization assistance agencies and will include customer education and the installation of measures that result in the improved use of electricity in the home. The program design proposed here by the Companies has been developed in consultation with weatherization assistance agencies in Massachusetts and has benefitted from market research with RI low-income advocates and consumers that Narragansett Electric Company performed in 1997 and shared with the Companies. Eligible measures will be determined based upon the site specific needs of the customer and may include the replacement of excessively inefficient refrigerators,  [8 The Companies' implementation contractor will meter the use of the customer's refrigerator to identify those models that are excessively inefficient and which should be replaced. The contractor will dispose of removed inefficient refrigerators in a way that meets environmental laws and regulations. Customers with second refrigerators will be encouraged to allow the contractor to remove that refrigerator.] efficient lighting products, and measures to improve the efficiency of electric heat and electric water heating.

Customer education will be a prominent component of the services provided in this program. The implementation contractor will provide the customer with information about costs for using various appliances, will review the participant's energy use with him or her, and will identify for the customer actions that can be undertaken to manage use in the home. Program education materials will be provided in English and other languages that are commonly spoken by customers that are targeted in this program. In addition, the Companies will sponsor workshops with the CAP agencies for customers who do not wish to invite Energy Assistance representatives into their homes.

5. Efficient Appliances

The Companies have been participating in a regional effort through NEEP with input from CEE and the DOE/EPA Energy Star Program to research and develop a program to promote the purchase of clothes washing machines (this is a current NEEP initiative), efficient refrigerators, and dishwashers by consumers. This program is being designed with others in the region who have similar objectives and will include customer incentives, possibly distributor incentives, and customer education. Appliances that qualify to receive the Energy Star rating will be promoted in this effort to influence consumers at the time of initial purchase or when replacing an existing appliance. This program is expected to begin in the Spring of 1998.

6. Computer-Based Home Energy Audit Pilot Program

Customer education is a fundamental component of the Companies' plans to influence the marketplace so that energy efficiency becomes a consideration within the home. To support this effort, the Companies propose to offer customers on a pilot basis software that they can use in their homes to develop an understanding of energy use and actions that can be taken to improve the efficiency of energy use, including participation in the Companies' other C&LM programs. The Companies are working with a contractor who is developing this software and who will be responsible for the production of CD-ROMS that will be distributed to customers at no charge. This contractor will also provide customer service/support to customers that may not understand how to load and use the software. The Companies will be responsible for marketing this program directly to customers and on the Eastern Utilities home page on the World Wide Web. The Companies will also attempt to distribute this software to local libraries with personal computers so that customers who do not own a personal computer will have access to this tool.

The Companies will request that participating customers register with the contractor as users of the product. As a follow-up, customers will be contacted and asked their opinion about the ease of use and helpfulness of the product, and also what, if any, measures were taken by customers as a result of using the software. Additional evaluation of the pilot will be proposed in 1999.

B. Commercial & Industrial C&LM Programs

In 1998, the Companies will continue to provide C&LM services to their commercial and industrial customers through three programs: the Large Commercial & Industrial Retrofit Program, the Small/Medium Commercial & Industrial Retrofit Program, and the Commercial & Industrial Efficient Construction Program. Each of these programs is described below.

1. Large Commercial & Industrial Retrofit Program ("Large C&I")

The Large C&I Program will be available to all existing commercial, industrial, and institutional customers who have a monthly demand of at least 500 kW. This program continues to promote market transformation by increasing customer demand for, and accelerating the introduction and market acceptance of, high efficiency commercial and industrial technologies.

Eligible customers (or their Energy Service Company) are encouraged to submit proposals for site-specific retrofit projects. The Companies will review proposals and will commit to cost-effective projects until the budget for incentives is fully committed.

Where appropriate, technical assistance, operation and maintenance (O&M) services, and commissioning services will be offered to customers. These services will be used to promote consideration of comprehensive energy efficiency opportunities, and are an effective means by which the Companies can ensure quality installations that will provide long-term savings for participants. The Companies will pre-qualify engineering firms to provide these services which will be provided to customers.

Incentives will be available for both technical assistance and for measure installations. If technical assistance is provided, the Companies and the participating customer will initially split the cost of the required engineering study 50:50. However, if the customer goes through with the recommended installations, the Companies will refund the customer's half of the engineering study cost.

The Companies and the participating customer will also share in the installation cost of pre-approved measures. The required customer contribution will be the greater of two-years worth of energy savings, 50% of the installed cost of the pre-approved measures, or the installed cost minus the value of the energy and demand savings expected to result from the installation. Incentives per customer site per year will be capped at $100,000.

The Companies will work with participating customers to help them obtain financing of their customer contribution and of opportunities that go beyond the incentive cap of $100,000.

Once a pre-approved project is completed, the Companies will post-inspect the installation to verify that measures were installed as pre-approved. Upon verification of the installation, the Companies will pay the customer 50% of the pre-approved incentive. Upon verification of actual energy savings in the facility, the Companies will pay the remaining incentive.  [9 The Companies may prorate the final incentive if savings are less than 75% of expected levels.]

2. Small/Medium Commercial & Industrial Retrofit ("Small/Medium C&I")

The Small/Medium C&I Program has been designed to serve the needs of existing commercial, industrial, and institutional customers who have a monthly demand less than 500 kW.

A Prime Contractor will be responsible for performing audits, identifying and installing pre-approved measures, providing a one-year warranty on all installed measures, and for program tracking. Participating customers may have measures installed by the Prime Contractor, their own staff, or by an approved Independent Contractor.

The Companies pay participating customers incentives for the installation of approved prescriptive and custom retrofit measures. All energy audits are provided at no direct charge to the participating customer.

Participating customers and the Companies will share in the installation cost of pre-approved measures. In 1998, the Companies propose that the required customer contribution be the greater of the following: 30% of the installed cost or the installed cost minus the value to the Companies of the proposed savings for non-lighting measures, and 40% of the installed cost or the installed cost minus the value to the Companies of the proposed savings for lighting measures. This reflects an increase in the required customer contribution for lighting measures from 30% in 1997. Incentives per customer site per year will be capped at $60,000. The Companies will continue to track this program's effectiveness in reaching the customers that it has been designed to serve.

The Companies will offer a financing option for customer contributions. The standard finance term of loans will be 6 months longer than the expected customer payback.  [10 The interest rate for this financing option will be calculated in accordance with FERC's regulation 18 C.F.R.35.19.a. Interest is equal to the average prime rate for the 2nd, 3rd, and 4th months preceding the date of the calculation.]  The amount financed by the Companies may not exceed $25,000, an increase over the $20,000 limit in place during 1997.

3. Commercial & Industrial Efficient Construction ("C&I Construction")

The C&I Construction Program provides incentives and technical assistance to promote energy efficiency in the design and construction of new commercial, industrial, institutional, and multifamily facilities. It also addresses efficiency at the time of substantial reconstruction, renovation, major remodeling of existing buildings, and the installation of efficient equipment at the time of initial installation or when the existing equipment reaches the end of its useful life. All "time dependent" C&I opportunities are considered through this program.

Program implementation staff attempt to identify projects that are in the design or permitting stages so that opportunities to install efficient equipment during construction, remodeling, or equipment failure are not missed. Both prescriptive and custom measures are available through this program, making it possible to consider all electrical equipment in the facility.

Incentives for technical assistance and equipment incentives are available under this program. Equipment incentives are based on the incremental cost of the high efficiency measure compared to the cost of the standard efficiency measure that would have been installed if this program did not exist. Technical assistance will be available to offset the expense of additional facility design work that may be required to incorporate the higher levels of efficiency that are promoted through this program.

For projects up to $20,000, the equipment incentive will be the lower of the full incremental cost or the net value of expected energy and demand savings. After the first $20,000 in equipment incentives per customer site per year, the incentive is based on the lower of a required customer contribution of twelve-months' worth of energy savings toward the submitted measure cost or the net regional value of expected energy and demand savings.

Where appropriate, the Companies will offer technical assistance, O&M and commissioning services to participants in this program. Technical assistance will be offered to customers who do not have access to technical resources that can provide a comprehensive evaluation and identification of potential energy efficiency opportunities within the customer's facility. The Companies will pre-qualify engineering firms to provide technical assistance and will provide the customer with a list of pre-qualified engineering firms from which he may choose. The Companies will pay 50% of the engineering study fee and the customer will pay 50% of the engineering study fee. If the customer successfully implements the project, the Company will reimburse the customer his portion of the engineering study fee.

The Companies are continuing to work with motor distributors and dealers to promote the purchase of premium efficiency motors. This market transformation effort with trade allies is intended to influence the efficiency of motors that are purchased when an existing motor fails or when a motor is purchased initially. This effort will be coordinated with other regional utilities with similar market transformation objectives with assistance from NEEP.

The Companies are also working with other regional utilities through NEEP to evaluate specification practices for premium efficiency motors and packaged HVAC equipment. The results of these efforts are expected to be used to develop a consistent approach among the utilities for addressing premium efficiency motors and packaged HVAC in their C&LM efforts. This consistent approach should be effective in promoting market transformation for these end-uses.

D. Renewable Resources

In 1997, the Companies joined with Narragansett Electric, the Division, and other interested parties (together, the RI Renewables Collaborative) to conduct research to support an effort to promote renewable energy resources in the state of Rhode Island. The RI Renewables Collaborative conducted three studies in 1997: 1) a scoping study to identify renewable energy technologies that could be developed in RI including their operating characteristics and their costs; 2) a "value-chain" analysis to identify the key players that must be brought together in a market development plan for photovoltaics (PVs); and, 3) a Request for Proposals to identify projects that could be pursued in 1998. The Renewables Collaborative has identified two projects which at this time we believe are appropriate for funding in 1998 and 1999. The first is a residential rooftop PV project and the second is a wind turbine project. The budget for the PV project would be up to $90,000 in 1998 for installation of up to 100 systems, with further funding up to $250,000 for 400 installations in 1999, paid primarily on a per installation basis. Total project costs are estimated at $1.6 million. For the wind project, there would first be an extensive evaluation of sites. The budget is $70,000 for 1998 for research and permitting and up to $430,000 in 1999 for turbine installation out of a total project cost of $2.1 million. Thus in both cases monies from the fund would be highly leveraged. The Collaborative is currently reviewing several other potential projects from the RFP, including a fuel cell project, the expansion of a landfill gas project, and PV applications for business customers. Further research is anticipated in 1998. At this time, the Commission is asked to approve a 1998 renewable energy budget for Blackstone of $459,657 and for Newport of $91,170.

E. Program Evaluation Activities

Program evaluation activities provide information about the effectiveness of program delivery and estimates of net energy and demand savings. The Parties agree that for long-standing programs, evaluations do not need to be conducted on an annual cycle. In 1997, the Companies completed an impact evaluation of the non-lighting measures installed in the Large C&I Retrofit and C&I Construction Programs, a persistence study of measures installed through the Large C&I Retrofit and C&I Construction Programs, and an impact evaluation and persistence study of the Residential Efficient Lighting Program.

In 1998, the Companies will focus on studies to measure market characteristics so that success in meeting market transformation objectives may be gauged. Targeted assessments of new technologies will also be pursued.

F. Program Cost Effectiveness

For 1998, the Parties propose to continue to use the cost-effectiveness test approved by the Commission in 1997. In this test, the expected value of conserved energy and demand from the Companies' programs is compared with the utility costs to achieve those savings. In the past, the Companies derived avoided costs based on a projection of resources that would be required to serve its load over time. Since the Companies are distribution companies, they will no longer be responsible for providing generation resources to meet their customers' total load. In place of traditional avoided costs, the Companies propose to use as their benchmark for determining the value of energy and demand savings the "Avoided Generation Component." The Avoided Generation Component is essentially an average of several forecasts of the cost of energy and capacity in the New England region.

A summary of the benefit/cost ratios for each 1998 program is included in Attachment #3. This shows that all of the planned programs, with the exception of the Residential Construction Program and the Energy Assistance Program, are expected to provide direct benefits in excess of costs using the test described above.

The Parties and the Companies recognize that the market transformation initiatives that they are pursuing and the Energy Assistance Program produce benefits that go beyond the direct and immediate value of energy and demand savings in the region. Those benefits include but are not limited to reduced customer operation and maintenance expenses, providing customers with the ability to divert resources to more productive and essential uses, environmental benefits, water savings, and fossil fuel savings. Since these difficult-to-quantify benefits exist, the Companies propose to implement these initiatives even if direct benefits do not exceed costs based on the benefit/cost test used here. The Parties expect that these programs may well be more cost-effective over time. For the Residential Construction Program, the Parties request that the Companies be allowed to continue to market this program that addresses time-dependent efficiency opportunities that exist when residential construction is undertaken. This is an important market transformation initiative, that, along with codes and standards, can help to make high levels of energy efficiency common practice. The Parties also request that the Companies be allowed to implement the proposed Energy Assistance Program despite its having a benefit/cost ratio below 1.0. This program provides needy customers with increased discretionary income. In addition, other jurisdictions have found that programs like the one proposed by the Companies improve the ability of customers to pay their bills. A reduction in bad debt expense leads to potential rate savings for all consumers. These and other expected benefits are difficult to quantify and have not been included in the assessment of program benefits and costs. Therefore, the Parties believe that the true benefit/cost ratio is greater than shown in Attachment #3.

Please note that the analysis of benefits and costs for the Efficient Appliances Program and for the Computer Based Home Energy Audit Pilot Program have not been included in Attachment #3. The Efficient Appliances Program is not presently defined in enough detail to support this assessment. The Companies will review this program with the Division in advance of implementation and will commence implementation with Division agreement. For the Computer Based Home Energy Audit Pilot Program, the Companies do not at this time possess information that can be used to judge customer response to this service. As noted earlier, evaluation will follow issuance of the software.

The Parties agree that it is appropriate to reward the Companies for effectively implementing the C&LM initiatives described in this Stipulation. The Parties and the Companies have defined Performance thresholds for the initiatives at 37.5% of program energy savings goals. Attachment #4 shows the threshold performance that the Companies must achieve in order to begin to earn a Performance Incentive and the maximum incentive that may be earned in 1998, $136,358 for Blackstone, and $61,460 for Newport. Incentives are earned for each program in a linear fashion for each kWh over the threshold until the cap is reached.

The Parties recognize that customer acceptance in any one C&LM or renewable energy resource initiative may cause participation to be higher or lower than is currently predicted. To encourage the Companies to fully utilize the C&LM and renewable energy resource funds that the Commission approves, the Parties propose that the Companies be allowed to rebenchmark the level of incentives that may be earned from the performance in any given program to reflect budget transfers that are made in consultation with the Division or that are made upon Commission approval if the transfer is greater than 10%. In no case will the maximum incentive exceed 4.75% of the approved year-end C&LM program budgets excluding program evaluation expenses.

The Companies have quantified a remaining 1996 fund balance and have projected a 1997 fund balance related to approved expenditure levels for C&LM and renewable energy resources. The 1996 C&LM and renewable energy resource fund balance is $816,110 for Blackstone and $164,219 for Newport (see Attachment #5). This fund balance remains because projects were actually completed below committed levels or were ultimately canceled. The Parties propose that the Companies refund to customers the remaining 1996 fund balance.

The projected fund balance for 1997 is $593,215 for Blackstone and $213,330 for Newport (see Attachment #5). The Parties propose that the year-end 1997 C&LM fund balance be used to augment the 1998 budget. We believe that with the ramp-up of renewables, this money could productively be used for the purposes for which it was intended.