STATE OF MAINE	Docket No. 2002-162
PUBLIC UTILITIES COMMISSION
	August 6, 2002
Public Utilities Commission Procedures for Conservation Program Planning
PROPOSED ORDER ESTABLISHING GOALS, OBJECTIVES and STRATEGIES FOR CONSERVATION PROGRAMs IMPemented Pursuant to P.L. 2001, ch. 624

 

WELCH, Chairman; NUGENT and DIAMOND, Commissioners

 

I.          SUMMARY

 

            This Proposed Order proposes the goals, objectives, and strategies to govern the selection of permanent energy efficiency programs to be implemented pursuant to PL 2001, ch. 624.  The Maine Public Utilities Commission (Commission) issues this Proposed Order to solicit comments from interested persons on all issues, procedures, and conclusions contained in the Proposed Order.  At some points, we have requested comments on specific items, but parties should feel free to comment on other sections of the document as well.  Comments are due by August 21, 2002, with a public hearing to follow.  After reviewing comments, we will issue a final Order establishing goals, objectives, and strategies. 

 

 

II.         BACKGROUND

 

PL 2001, ch. 624 (The Conservation Act or the Act),[1] enacted during the second session of the 120^th Legislature, establishes the terms that govern an electric energy conservation program in Maine.  Section 4 of ch. 624, which enacts 35-A M.R.S.A. § 3211-A, directs the Commission to “…develop and, to the extent of available funds, implement conservation programs….”  Section 4 also states:  “The commission shall establish and, on a schedule determined by the commission, revise objectives and an overall energy strategy for conservation programs.  Conservation programs implemented by the commission must be consistent with the objectives and an overall energy strategy developed by the commission….”

 

            The Conservation Act contains a number of other directives that we must achieve through the statewide program.  Section 4 of the Act enacts 35-A M.R.S.A. §3211-A.  Subsection 2 of section 3211-A states:

 

Conservation programs implemented by the commission must be… cost effective, as defined by the commission by rule or order.

 

Subsection 2(A) further states:

 

The commission shall consider, without limitation, conservation programs that:

 

1.      Increase consumer awareness of cost effective options for conserving energy;

2.      Create more favorable market conditions for the increased use of efficient products and services; and

3.      Promote sustainable economic development and reduced environmental damage.

 

Finally, subsection 2(B) states:

 

The commission shall:

 

1.   Target at least 20% of available funds to programs for low-income residential consumers, as defined by the commission by rule;

2.   Target at least 20% of available funds to programs for small business consumers, as defined by the commission by rule; and

3.   To the greatest extent practicable, apportion the remaining available funds among customer groups and geographic areas in a manner that allows all other customers to have a reasonable opportunity to participate in one or more conservation programs. 

 

 

III.        OVERVIEW

 

To carry out our responsibilities under the Conservation Act, we propose

first to determine appropriate overall goals that energy conservation programs

will be designed to accomplish.  Next, we will determine measurable or

observable objectives that support the goals.  Finally, we will determine strategies or activities that will, in the aggregate, meet the goals and objectives.[2]

 

We propose adopting each of the Act’s directives as a goal, objective or strategy, depending on the focus of the directive.   

 

The Act sets out cost effectiveness as a threshold requirement for conservation programs, but not the sole requirement.  In developing goals, objectives, and strategies, we propose three broad principles.  First, the portfolio of programs must be cost effective.[3]  Second, the portfolio of programs must create sustainable improvements in energy efficiency.  Finally, the portfolio must meet the Act’s requirements on targeting programs to customer groups and geographic areas.  We discuss these principles in further detail below.

 

Cost effectiveness would be the only relevant criterion if we were attempting to purchase (i.e., realize an absolute reduction in consumption of) the most kilowatt-hours at the lowest price.  Purchasing least-cost kWhs is the overall goal of many utility and state conservation programs (including Maine’s in earlier years). In those programs, prospects would likely be prioritized and chosen based on their level of cost  effectiveness, from the utility or state perspective.  However, the Act contains a variety of goals.  In many instances, accomplishing one of these goals in the most effective manner will conflict with maximizing overall cost effectiveness.  For example, a program that targets low-income customers or that emphasizes consumer awareness may be less cost effective than other programs.  To ensure that none of the Act’s goals are sacrificed, we propose that cost effectiveness be a hurdle that programs must meet before we consider their effectiveness in meeting other goals.  If a program passes the hurdle – i.e., is cost effective – we will turn to the other goals to choose the portfolio of programs that comprise the statewide program.  We will use this approach to select energy efficiency activities for primary-effect programs,[4] for secondary-effect programs where appropriate, and for the portfolio of programs as a whole.  We recognize that, for some secondary-effect programs (such as education, public awareness, R&D, or codes and standards programs), cost effectiveness may be difficult to quantify.  We intend to ensure that, while individual programs may be selected even though the size of the “benefit” side of the cost effectiveness test is uncertain, the portfolio as a whole produces quantifiable benefits substantially in excess of overall costs.

 

 

 

 

This approach will enable us to meet the Act’s long-term goals:

 

The commission shall consider, without limitation, conservation programs that:

 

1.   Increase consumer awareness of cost effective options for conserving energy;

2.   Create more favorable market conditions for the increased use of efficient products and services; and

3.   Promote sustainable economic development and reduced environmental damage.[5]

 

Long-term benefits are achieved if the programs cause self-sustaining changes in the marketplace.  During conversations among stakeholders and policy makers, there has been much discussion and occasional confusion about the term “market transformation.”  Market transformation simply means the creation of conditions which cause an increased proportional share of energy efficient products, services or practices to be manufactured, sold, and/or implemented without programmatic market stimuli or subsidies.  When this state is attained, it may be possible to terminate ratepayer funding.  We propose to consider the longer-term goal of sustainable improvement in the use of energy efficiency – i.e., market transformation – as a strategic principle in our program design.

 

    

IV.       GOALS

 

            A.        Proposed Program Goals

 

The Commission proposes that the goals of Maine’s energy conservation programs shall be to:

 

Ø                  Improve the efficiency of electric energy use by Maine residential consumers, businesses and other organizations;

Ø                  Increase consumer awareness of cost effective options for conserving energy;

Ø                  Create more favorable, sustainable market conditions for the increased use of efficient products and services;

Ø                  Promote sustainable economic development; and,

Ø                  Reduce environmental damage associated with energy use.

 

B.        Discussion

 

The first goal establishes that each program need not necessarily cause an absolute reduction in electrical use.  Rather, programs should improve end use efficiency  - i.e., programs should eliminate wasteful use of energy and improve efficiency for the same level of end use work or comfort, rather than simply reduce kilowatt-hours regardless of the impacts on life-style or the economy.  The distinction is important when evaluating the effectiveness of a program in reaching the variety of goals established by the Act.  For example, sustainable economic development is supported when a customer’s electric bill is permanently reduced through lower electrical use, but it is also supported when a customer’s business processes are revised in a manner that increases output – an action that might require increased electrical use.  Indeed, enhancing the energy efficiency of Maine businesses should increase these businesses’ prospects for success and the likelihood that they will continue to support the electrical grid over the long term, thus benefiting all ratepayers.  Similarly, improving the indoor air quality or the environmental comfort of an office building or school might require a net increase in electrical use, but if that increase is accomplished in the most energy efficient manner, it should be considered a successful action. 

 

The second and third goals are contained in the Act.  When taken together, these goals cause energy efficiency to become a permanent part of residential and business operations – i.e., they aid in permanent market transformation. 

 

The fourth and fifth goals are contained in the Act.  The goals are societal needs, established by Maine’s Legislature, that will be supported if electricity is used more efficiently. 

 

We will consider whether some efficiency measures (e.g., peak shaving) will reduce environmental damage caused by emissions from generating plants more effectively than others.  We propose to balance superior environmental impacts with other goals and objectives when choosing a portfolio of programs.[6]  

 

 

V.        OBJECTIVES 

 

            A.        Proposed Program Objectives

 

The following objectives are observable or measurable:

 

Ø                  Implement a portfolio of conservation programs pursuant to a Maine energy conservation plan.

Ø                  Implement an organizational model for administration and management of energy conservation programs.

Ø                  Review existing utility programs and implement a transition plan by the end of 2003.

Ø                  Create an awareness of the conservation programs and the value of energy efficiency among the general public.

Ø                  Increase the availability of energy efficient products and services through Maine businesses.  

Ø                  Save a pre-defined number of kWhs through program implementation by December 2003.

 

B.        Discussion

 

            While perhaps obvious, the first observable objective of the statewide plan is to implement a portfolio of programs that conforms to the plan that we are developing through Docket No. 2002-162.  This plan represents our blueprint for transition from a set of utility programs and interim state programs to a more permanent state effort. Each program will be designed to meet goals and objectives of the statewide plan, and the portfolio as a whole will result in the goals being met.  The plan will include means for evaluating that goals and cost effectiveness criteria have been met and that results are reportable to the public and to policy makers.

 

            A variety of organizational structures exist nationwide to develop and deliver conservation programs.  Most notably, Oregon and Vermont have funded independent organizations to carry out most of the planning and delivery process.  New York and Wisconsin have tasked state agencies to oversee energy conservation efforts. Other states have vested electric utilities with planning and delivery authority.  The Maine Legislature has given the Commission the responsibility of ensuring that planning and delivery occur, while leaving us considerable flexibility in setting up an organizational structure.  We will develop the initial statewide permanent plan with Commission staff.  We are inclined to believe that close Commission oversight will be prudent until programs become more mature.  However, we will consider a long-term organizational structure and develop a recommendation through this proceeding.

 

            Current utility programs continue to operate during the interim period.  While the Act does not prohibit utility-run programs, it requires the Commission to determine whether utilities are the most appropriate delivery mechanism.  We will examine each utility program and allow it to continue, modify its design and delivery, or phase it out altogether. 

 

            The fourth and fifth objectives are more concrete expressions of the second and third goals, discussed earlier in this Proposed Order.  Together, they contribute significantly to creating an environment for sustained market transformation.  The fourth objective – creating public awareness of conservation programs and the value of efficiency – may be measured through surveys.  The fifth objective – increasing the availability of products and services – may be measured through baseline and follow-up surveys with retail providers. 

 

Finally, the sixth objective – to save  a targeted number of kWhs by programs implemented in 2002 and 2003 – is a measure of the most direct and easily understood short-term result of the statewide program.  It will be measured primarily through metering and engineering estimates associated with each program.  When coupled with sustainable market transformation and evaluations that indicate cost effectiveness, this objective completes a measurement of statewide program success.  We propose to set savings targets as our program designs are developed later in our planning process. We invite all interested persons who comment on this Proposed Order to suggest reasonable methods for determining kWh savings targets.    

           

 

VI.       STRATEGIES

 

A.        Proposed Program Strategies  

 

We have discussed two strategic principles – cost effectiveness and self-sustaining markets – above.  In addition, the Commission proposes to employ the following strategic activities to ensure that the portfolio of energy conservation programs meets the goals and objectives of the energy conservation plan.

 

Ø                  Market assessment

o       Conduct market assessment studies as needed to expand our knowledge and understanding of the markets for energy efficient products and services in Maine.  Coordinate our market assessment efforts with others in the region where possible.

o       Develop market baseline measurements for efficient products and services as needed to support program design and evaluation.

 

Ø                  Program design and implementation

o       Implement a portfolio of programs that allows all major customer groups a reasonable opportunity to participate in one or more programs.

o       Implement programs targeted at traditionally “hard-to-reach” markets. Target 20% of funds to programs for low-income customers, and 20% of funds to programs for small business customers.

o       Design programs that balance immediate primary results (cost effective kW and kWh savings) with longer-term secondary results (self-sustaining markets, economic development, environmental benefits).

o       Encourage the development of an energy efficiency infrastructure, resources, and skills in Maine.  Use existing market channels for program delivery, where possible.

o       Assess current utility programs and their fit with our program plan, phase out those no longer needed, and re-design those to be carried forward.

o       Integrate customer educational efforts into all programs to promote changes in buying habits and energy usage behaviors.

o       Implement an overall marketing effort that develops a clear brand image for our programs, supports program implementation, and increases public awareness of the benefits of energy efficiency.

o       Adopt or adapt regional or national programs or programs from other states, if they will provide benefits to Maine’s citizens and are consistent with these goals, objectives, and strategies.

 

Ø                  Monitoring and evaluation

o       Develop tracking and evaluation criteria and procedures for each program. Coordinate our tracking and evaluation efforts with others in the region where possible.

o       Evaluate programs to a level sufficient for business decision-making.

 

Ø                  Funding

o       Implement an accounting and reporting system to track revenues by source and expenditures by program and category, in sufficient detail to support evaluation and reporting needs.

o       Leverage ratepayer funds with funds from other sources where possible.  Seek additional sources of funding from state, federal, and private sources, where such funding would enhance and support this plan.

o       Set incentive levels at the minimum needed to accomplish program objectives.

 

Ø                  Communication, coordination, and reporting

o       Implement a process for ongoing public stakeholder communication.

o       Coordinate our efforts with other state agencies with energy-related responsibilities.

o       Monitor national and regional activities and participate in such activities when beneficial.

o       Report to the Legislature by December 1, 2003, describing the Commission’s activities, programs implemented or planned, the likely cost effectiveness of programs, the financial condition of the conservation funds, and any recommended changes to the Conservation Act.

 

B.        Discussion – Market Assessment Strategies

 

            A market assessment estimates the potential for energy savings in a particular market (e.g., the potential for replacement of particular motors).  The assessment may facilitate broad budgeting decisions – is there sufficient potential to justify spending a particular budget on programs?  An assessment may also facilitate targeted program design – where is the greatest potential for savings and therefore where should we target our efforts?  As we stated in our Order Establishing Procedure and Schedule for Conservation Programs Implemented Pursuant to P.L. 2001, ch. 624 in Docket No. 2002-162, we will not perform an overall market assessment at this time, since others are currently undertaking that task.  However, we will consider an overall market assessment as we continue program development, and we will conduct targeted market assessments when insufficient data or experience lead us to believe that information on a market must be gathered.

 

            A baseline study determines the current market status of a technology or end use.  Knowing this information before offering a program is sometimes necessary to evaluate the success of the program, over time. 

 

            C.        Discussion – Program Design and Implementation Strategies

 

            The first program design and implementation strategy – to implement a portfolio of programs that allows all major customer groups a reasonable opportunity to participate in one or more programs – is an important strategy to address the concern that all customers contribute to the Conservation Fund, but only program participants directly benefit from the Fund (even though all Maine citizens could benefit indirectly through environmental, economic development and other indirect benefits).  If only small numbers of customers receive direct benefits from the programs, the public is highly likely to consider the statewide conservation program to be an unfair and unnecessary expense.  Indeed, we would share this concern.  One way to avoid this concern is to implement a wide enough variety of programs that all customers will have a reasonable opportunity to participate.[7]  This approach is followed in many other states, and the Legislature directed us to adopt it in Maine.  See 35-A M.R.S.A. §3211-A(2)(B)(3).

 

            The second program design and implementation strategy – to target hard-to-reach customers – reinforces the first strategy.  In all states, certain customer groups such as the smallest business customers have typically not received, or implemented, the benefits of energy efficiency.  An effective statewide program therefore must explicitly address the reasons for those groups’ lack of participation.  The strategy highlights the two hard-to-reach groups that are targeted by the Conservation Act (low-income residential customers and small business customers).[8]  However, we will also consider and address other hard-to-reach groups as we identify them.

 

            The third program design strategy – to balance immediate primary results with longer-term secondary results – explicitly recognizes the conflict that may occur between the two strategic principles discussed earlier in this Proposed Order.  We propose to balance the direct, short-term principle of cost effective kWh savings with the longer-term, less quantifiable principle of sustainable market transformation in every program we design.  As we discussed in Section III, we will consider cost effectiveness to be a hurdle requirement that programs must have a reasonable likelihood of meeting.  We will then turn to the other goals and objectives required of the portfolio, including components of the program that will encourage the development of markets for energy efficient products and services that are self-sustaining, without the assistance of our programs.  

 

            The fourth program design strategy – encourage the development of an energy efficiency infrastructure in Maine – is necessary to meet the broad principle of transforming the market, so that efficient products are sold and used in Maine without programmatic stimuli or subsidies.  Only with a healthy local infrastructure of knowledge, resources, and skills can efficient products and service organizations be available to sell and service those products.  Relying on local entities to deliver sales and service also provides a form of economic development that is supported by the Act.[9] 

 

            As discussed earlier in this Proposed Order, current utility programs will continue to operate during the interim period, during which we will determine whether each program is using the most appropriate delivery mechanism and revise its design and delivery or phase it out altogether.

 

            Educating customers about the existence and operation of energy efficient products and giving customers the knowledge to evaluate the costs and savings of their electrical processes is a fundamental requirement of a program that aims to create a sustainable market transformation.  In general, a program that offers only education is considerably less effective than a program that links education with direct action, and we will limit the level of funding allocated to purely educational programs.  Instead, we propose that all programs include an education component that complements the program activity that is undertaken to reduce (or otherwise improve the efficiency of) kWh use. 

 

            One of the necessary preconditions to influencing customers’ energy-related buying and usage habits is to increase their awareness of energy efficient products and services, and opportunities to save energy in daily activities.  An overall consumer-awareness approach, through a clear “brand image” and consistent message, will increase participation in individual programs and will increase the knowledge and awareness of energy efficiency by individual citizens.

 

            Coordination of conservation efforts with other states is encouraged by the Act.[10]  Maine is a small state, and its conservation budget is not as large and its programs not as mature as in some other New England states.  By participating in regional activities, we can use approaches and materials that have already been developed and work elsewhere, and we can benefit from relationships that regional program participants have developed with retail chains that do business in Maine.  Some costly activities, such as developing advertising material, evaluating programs, and assessing markets, may be accomplished at less cost to Maine if many entities share in the expense.  We propose to do so when we consider it in the best interests of Maine consumers.  Simultaneously, we will remain mindful of the Act’s directive[11] to “encourage the development of resources, infrastructure and skills within the State by giving preference to in-state service providers” when practicable.

 

D.        Discussion – Monitoring and Evaluation Strategies

 

                        Tracking and evaluation criteria include information necessary to determine whether a program is cost effective and meets the other objectives specified in its program design.  For each program, we will develop indicators to measure a program’s performance against its stated objectives.  These indicators will necessarily vary among programs and could include kWh usage before and after implementation, capital costs (e.g., the cost of a new appliance), administrative costs, costs and savings of other resources and customers’ operational savings.[12]  If the program is intended to meet additional objectives (e.g., raising customer awareness), we will put in place a mechanism to measure the effect.  We will implement means for gathering this data during the program design phase, so data necessary to evaluate each program will be gathered as soon as the program is implemented.

 

                        Many costs and benefits are difficult to determine precisely, either because historic data are not available, because measurement is prohibitively expensive, or because the data being measured are not easily quantifiable.  Historically, considerable time has been spent gathering data, and the results have been subject to ongoing controversy.  We wish to avoid expending the limited funds available on unnecessary precision.  Thus, we propose to gather data at a level needed to make reasonable business decisions.  We will often estimate energy use before or after program implementation through reasonable engineering assumptions, and will require special metering only when estimation is impossible or when the electrical use is extremely large.  When data is gathered through interviews with program participants, we may sample only a portion of participants.  Finally, precise estimates of free riders and spillover effects[13] can be difficult to determine.  We will develop such estimates to the level needed to assess program performance or improve program design and will avoid, where possible, the costly statistical studies often done in the past.

 

            E.        Discussion – Funding

 

                        Accounting for revenues and expenditures is necessary to ensure that ratepayers’ money is accounted for in a fiscally responsible manner, that utility rates appropriately reflect Conservation Fund activity, and that there are funds available to meet contractual agreements.  We are currently concluding discussions of procedures for monthly tracking of the conservation program assessment and the amount of revenue customers contribute through their rates.  Reconciliation of the assessments paid (which will be based on estimated sales) and actual assessments, as well as reconciliation of the assessments and the amounts collected in rates, will occur at regular (although not necessarily identical) intervals.  Additional accounting procedures will be implemented to track and predict cash flow and to track expenditures on each program as well as on costs not attributable to individual programs.  We will maintain the ability to report this information comprehensively for public or legislative review.

 

                        Many governmental and non-profit agencies have access to matching funds or can use our funds to better utilize funding from other sources.  We will consider the value of such leveraging.  In addition, organizations offer grants for energy conservation activities.  To extend the effectiveness of the Energy Conservation Fund, we propose to supplement with such grants when we identify them.

 

Program incentives typically include rebates, funded assistance, or some other financial incentive offered to customers to encourage participation in the program.  The most efficient financial incentive is large enough to cause the customer to participate, but no larger.  Initially, we propose to consider experience in Maine and other states, the cost differential between efficient and mainstream measures, and payback periods to determine appropriate incentives.  As each program proceeds, we will continually re-evaluate and revise its incentive.  An important part of this re-evaluation is the determination of an exit strategy, whereby we end incentives altogether as the market matures and is able to operate without intervention.

 

            F.         Discussion – Communication, Coordination and Reporting

 

                        Ongoing public stakeholder communication will ensure that all the State’s expertise is used to advantage and will improve public acceptance of the statewide program.  As discussed in our July 23 Order Establishing Procedure and Schedule for Conservation Programs Implemented Pursuant to P.L. 2001, ch. 624 in Docket No. 2002-162, we will use the non-adjudicatory procedures we are currently employing to obtain stakeholder input to plan development and program design decisions.  Under these procedures, we obtain written and oral comments through public hearings, informal meetings, and responses to proposed orders.  However, as these formal procedures end, we propose to establish a systematic means for obtaining continuing input.  The Public Advocate, representing a variety of interested persons, has urged us to convene an Advisory Council.  We will consider this proposal and will establish an ongoing procedure for input to program review and revision as part of our plan development.

 

                        Many other state agencies carry out activities that supplement or complement our conservation activities.  In many cases, coordination will attain benefits that exceed the sum of the individual activities.  We are taking advantage of the benefits of coordination among agencies as we develop our interim programs,[14] and we are members of the Energy Resources Council established by P.L. 2001, ch. 630.  We propose to take further advantage of coordinated approaches as we better understand existing State activities. 

 

                        Monitoring and participating in regional activities is allowed by the Act[15] and, as discussed earlier in this Proposed Order, allows less costly development of program designs and materials, allows Maine to benefit from the experience of other states, and leverages activities targeted to regional retail chains.  We propose to monitor regional activities to allow us to use their benefits to Maine’s advantage.

 

                        As required by the Act,[16] we will submit a report to the Legislature by December 1, 2002, describing our activities.  We intend to include comprehensive discussions of the reasons for our choices and actions, outcomes or potential problems associated with our choices and with the Act, and suggestions for issues that the legislature might consider.

 

 

VII.      PROCEDURE FOR REACHING DECISIONS

 

            The Commission issues this Proposed Order to obtain comments from interested persons regarding the goals, objectives, and strategies for permanent electric energy conservation programs that we will implement pursuant to P.L. 2001, ch. 624.  Interested persons should submit written comments to the Commission’s Administrative Director, 242 State St., State House Station 18, Augusta, Maine 04333, no later than August 21, 2002.  Comments should refer to Docket No. 2002-162.

 

            A public hearing will be held on August 27, 2002, at 9:30 a.m., at the Commission’s offices at 242 State Street, Augusta.  At the hearing, the Commission will pursue topics introduced in the written comments,[17] and persons may comment on additional issues related to goals, objectives, and strategies for permanent conservation programs and for the portfolio of programs as a whole.  Follow-up written comments may be submitted no later than September 3.  Please notify the Commission if reasonable special accommodations are needed to make the hearing accessible to you, by calling 1-287-1396 or TTY 1-800-437-1220 at least 48 hours before the hearing.    

 

The Commission will consider the comments and will issue a final Order establishing goals, objectives and strategies for electric energy conservation programs in early September.

 

 

Dated at Augusta, Maine this 6^th day of August, 2002.

 

BY ORDER OF THE COMMISSION

 

 

______________________________

Dennis L. Keschl

Administrative Director

 

 

COMMISSIONERS VOTING FOR: Welch

                                                                        Nugent

                                                                        Diamond