STATE OF MAINE Docket No. 2002-473
PUBLIC
UTILITIES COMMISSION
November
6,
2002
PUBLIC
UTILITIES COMMISSION
Electric
Energy Conservation Programs
(Chapter
380)
ORDER
ADOPTING RULE
AND
STATEMENT OF
FACTUAL
AND POLICY BASIS
WELCH,
Chairman; DIAMOND and NUGENT, Commissioners
I. SUMMARY
In this Order we approve revisions to
Chapter 380 of the Maine Public Utilities Commission’s (Commission’s)
Rules. The revisions implement portions
of the requirements of the Conservation Act, enacted by the Maine Legislature
as P.L. 2002, ch. 624. Through the
revisions, we define “low-income residential consumers” and” small business
consumers” and establish the test for cost effectiveness, as directed in the
Conservation Act. In addition, we
include certain terms of the Act that will allow Chapter 380 to be a
comprehensive compendium of the most significant requirements of the statewide
electric conservation program
II. BACKGROUND
Current Chapter 380 (Chapter 380-O) of
the Commission’s Rules was promulgated in response to An Act to Secure
Environmental and Economic Benefits, enacted as P.L. 1999, ch. 336. This Act amended 35-A M.R.S.A. § 3211 and
authorized the State Planning Office (SPO) to coordinate the development of a
state energy policy and to guide the development of statewide conservation
programs to be implemented by transmission and distribution (T&D)
utilities. The SPO’s duties included
creating overall objectives and strategies, reviewing and approving utility
implementation plans, and monitoring and evaluating T&D utility
programs. The amended section 3211
required the Commission to establish total conservation program expenditures
for each T&D utility and to assess T&D utilities to fund the efforts of
the SPO. We adopted existing Chapter
380 to implement the provisions of section 3211.
During the second session of the 120th
Legislature, the Legislature passed An Act to Strengthen Energy Conservation
(the Conservation Act, or the Act)[1]
that became P.L. 2001, ch. 624, when the Governor signed the Act on April 5,
2002. The Conservation Act repeals
section 3211 and replaces it with section 3211-A, which establishes new terms
that govern an electric energy conservation program in Maine. The Act directs the Commission to develop
and implement electric energy conservation programs that are consistent with
the goals and objectives of an overall energy conservation program strategy
that the Commission must establish. The
programs must be cost effective, according to a definition that the Commission
also must establish by order or rule.
Finally, the Act requires the Commission to define “low-income
residential consumers” and “small business consumers” by rule.
In anticipation of the rulemaking to
revise Chapter 380 to reflect the Conservation Act, we opened an Inquiry, Docket No. 2002-272, to receive comments and
suggestions on the definitions of “low income residential consumers” and “small
business consumers.”[2] In addition, in Docket No. 2002-161, we implemented interim
conservation programs. As part of that
process, we established a cost effectiveness test for interim programs, after
proposing a test and receiving comments from interested persons. We used comments we received in the
inquiry and in the development of the interim programs to develop a draft rule,
which we issued through a Notice of Rulemaking (NOR) on August 20, 2002.
Consistent with the Notice of
Rulemaking, we held a public hearing on the proposed rule on September 19,
2002. Office of the Public Advocate
(OPA), Maine Community Action Association (MCAA), Bangor Hydro-Electric Company
(BHE), Central Maine Power Company (CMP), and Maine Public Service Company
(MPS) testified at the public hearing.
The Notice of Rulemaking set
September 30, 2002, as the deadline for written comments on the proposed
rule. Maine Energy Efficiency Coalition[3]
(MEEC), OPA, MCAA, BHE, and CMP submitted written comments.
We discuss the comments we received
during this rulemaking throughout the remainder of this Order.
III. DISCUSSION OF INDIVIDUAL SECTIONS
A. Section
1: Purpose
Section 1 establishes that the purpose of
Chapter 380 is to implement portions of the Conservation Act. No commenter proposed a revision to this
section of the proposed rule, and the change we made in the final rule is
non-substantive.
B. Section 2: Definitions
1. Definition
Section. Section 2 contains the
definitions of terms used in the final rule.
Many of the definitions are derived directly from 35-A M.R.S.A. § 3211-A. The only terms over which the Commission may
exercise any degree of discretion are “low-income residential consumers” and
“small business consumers.” Each of
these groups must be the target of at least 20% of the conservation program
funding developed and implemented by the Commission.
2. Subsection
D - Definition of Low-income Residential Consumer. In our inquiry, every commenter but one
suggested that we adopt the criteria for receiving benefits under the Low
Income Home Energy Assistance Program (LIHEAP) as the definition for low-income
consumers within this Chapter.
Generally, these commenters asserted that adoption of the LIHEAP
criteria will ease the administrative burden associated with low-income programs
because community action agencies (CAPs) already take applications and certify
eligibility based upon consistent statewide criteria. The criteria are established annually through a planning and
rulemaking procedure carried out by the Maine State Housing Authority (MSHA),
which receives input from a wide range of low-income stakeholders. In addition, the criteria – or, more
specifically, acceptance for LIHEAP assistance – are used for a variety of
low-income assistance programs such as Telephone Lifeline and Linkup programs
and the utilities’ Electric Low-income Program (ELP). Commenters asserted that this uniform approach will reduce
confusion and is consistent with other utility-sponsored electric
programs.
SESCO, Inc. submitted
the only comments advocating a different definition for low-income
consumers. According to SESCO, the
LIHEAP criteria will restrict the group of customers for whom these special
conservation programs should be implemented.
Because LIHEAP-qualified customers already have other energy efficiency
programs available to them, SESCO asserted that using the same eligibility for
Commission-sponsored programs unfairly duplicates the effects of the existing
programs. SESCO urged a wider
definition, so that a larger number of customers would be eligible. Specifically, SESCO supported definitions
that include:
1) a
wider group of assistance recipients, including LIHEAP, TANF, food stamps, and
housing subsidies;
2) residents
in neighborhoods representing the poorest 20% of the state by per capita
income; or
3) households
at a greater percentage of federal poverty guidelines, in order to include
“working poor” families – suggested at or below 250% of federal poverty
guidelines, with renters and senior citizens qualifying at up to 300%.
The proposed rule
defined “low-income consumer” using the LIHEAP criteria.
We
are persuaded that consistency with existing State programs will produce
significant administrative savings and will eliminate potential confusion by
those who are administering or benefiting from the program. Further, we expect
our program designs to complement, rather than compete with, current programs
such as LIHEAP and therefore do not see any conflict with these programs.
The final rule does not
require a consumer to become certified for LIHEAP benefits to be considered a
low-income consumer. The rule simply
states that the statewide LIHEAP criteria apply for purposes of this rule. As a practical matter, specific programs may
require that a consumer be certified as eligible before he or she may receive
the benefits of the program.
In
their comments in this rulemaking, OPA and MCAA support the definition of
“low-income consumer.” MCAA notes that the definition “provides for the
broadest eligibility for low-income people while retaining a standard of
measuring eligibility that is used to determine eligibility for a wide variety
of low-income programs.” MCAA comments
that the group of customers eligible for LIHEAP (and thus considered low-income
within the rule) is far larger than the group actually receiving LIHEAP and
asserts that very few low-income customers would not be LIHEAP-eligible.[4] OPA and MCAA both comment that the
definition will resolve administrative issues, reduce confusion, and facilitate
provision of services to the appropriate customers. No other comments were received and we have made no changes to
the definition in the final rule.
However,
in response to questions by Commission staff at the public hearing, MCAA and
CMP discussed the advantage of targeting a low-income program to an entire
neighborhood, despite the possibility that the neighborhood might contain both
low-income and non-low-income citizens.
MCAA commented that raising the value of all houses in a low-income
neighborhood improves the entire neighborhood and can serve as a demonstration
that spurs other neighborhoods to carry out the same improvements. CMP commented that offering a program to a
neighborhood lowers the perceived inequity of treating neighbors differently from
one another. In its written comments,
MEEC cites statutory authority under which the Commission may target pilot
programs to entire neighborhoods. MEEC
comments that a “whole neighborhood” approach is acceptable if the number of
ineligible customers is limited, and suggests that Section 4(B), allowing
programs with unquantifiable benefits, might also allow this approach. Thus, despite the concerns we expressed in
the NOR, we conclude that we will consider such a delivery approach when
developing low-income programs. We will attempt to estimate the number of
low-income customers (as opposed to non-low-income customers) who participate,
but we will consider it acceptable to offer a program to all customers in the
neighborhood, rather than preclude non-low-income persons. No revision to the final rule is necessary
to allow this approach.
3. Subsection
H - Definition of Small Business Consumer. In our inquiry, suggestions for the definition generally fell
into two categories. The first focused
on the number of employees and the revenue generated, which are criteria used
to access other governmental programs, notably those administered by the
Finance Authority of Maine (FAME) and the Department of Economic and Community
Development (DECD). FAME and DECD
target businesses with fewer than 50 employees or less than $5 million in
revenues, while the Small Business Development Centers suggested targeting
businesses with fewer than 100 employees and maintaining uniformity
statewide. We understand that 98% of
Maine businesses have fewer than 100 employees, while 96% of Maine businesses
employ fewer than 50 people.
The
second approach focused on electricity usage, in particular T&D utility
rate classifications. Each
investor-owned T&D utility contains a rate classification for business customers
with a maximum monthly kW load below a particular level.[5] Some commenters asserted that this
breakpoint is convenient and verifiable because a customer’s electric delivery
bill contains the customer’s rate class.
Using the utility rate class breakpoint is consistent with activities
delivered by T&D utilities.
In
establishing a proposed definition of small business consumer, we considered
two principles. First, we intended to
choose a definition that would cause the statutory 20% funding target to reach
customers who traditionally have not benefited from conservation programs. Second, we intended to coordinate our
conservation efforts with other State initiatives that assist small business
consumers.
With
these goals in mind, the proposed rule defined a small business consumer to be
a business with fewer than 50 employees.
This definition is consistent with that used by the State’s business
development community, allowing our programs to complement the economic
development and loan programs offered by other State government entities. We chose 50 (rather than 100) employees
because this definition is consistent with criteria used by more State
organizations with which we are certain to interact as we implement our
programs. We rejected a suggested
definition of 20 or fewer employees, because these levels could exclude some
small businesses that have been underserved by previous programs. We did not propose to include company
revenue as part of our definition, despite its inclusion in many agencies’
criteria, because a revenue criterion might be difficult to obtain and confirm
for the hundreds of customers who will participate in our programs.
Utility
rate class definitions are convenient when utilities are implementing the
programs, but are less convenient when that is no longer the case. Further, utility rate class definitions are
not consistent across the state, which could complicate program marketing and
implementation. We also rejected
utility rate class definitions because electricity use may be a poor indicator
for the customers that the Act intended to assist through its 20% target
requirement. There may be customers
with electricity-intensive business processes who have limited staff to address
issues of energy efficiency. It is arguably
more important to provide assistance to these customers than to customers with
lower electricity use. A definition
that depends on employment level will allow such customers to benefit from
programs targeted to small businesses.
The
proposed definition clarified the treatment of part-time employees and seasonal
businesses. As discussed elsewhere in
this order, we consider it important to maintain the flexibility to consider
unique situations. With this in mind,
the final rule broadens our ability to consider the appropriate treatment of
businesses with varying employment levels.
In
addition, the definition stated that, if a company has businesses in multiple
locations, the number of employees in all locations shall be combined when
determining the number of employees to be used under this definition. This provision excludes some smaller
locations that are owned by larger chains, thereby limiting small business
assistance to businesses that do not have access to the energy expertise that
may be present through ownership by a regional or national organization.[6]
In
its comments in the rulemaking, OPA supports the proposed definition of “small
business consumer,” commenting that this approach will resolve administrative
issues, reduce confusion, and facilitate provision of services to the
appropriate customers. No person
commented on our concern that treatment of businesses with multiple locations
would be inconsistent with their treatment by other agencies.[7]
OPA
also cautions that the level of overall funding will necessitate that programs
be targeted to narrowly defined niches within the broad definition. We agree, and do not consider the Act’s
requirement to target 20% of funding to small business customers to limit our
ability to target specific programs to smaller groups. Indeed, the definition of small business
within this rule defines the group of customers to whom we must target 20% of
total funding pursuant to the Act. It
does not define the customers who are eligible for any individual program. For example, a program might be available to
all businesses and government organizations, regardless of size. When tracking the performance of the
program, we would put in place a mechanism for determining the portion of
funding that benefited “small business consumers” as they are defined in this
rule.
C. Section 3: Conservation Programs
Section 3 of the rule
incorporates the terms in the Conservation Act that require the Commission to
establish goals for the conservation programs.
We include a substantial portion of the Act so that Chapter 380 will be
a comprehensive compendium of the basic State conservation program
requirements.
Subsection A of section 3 restates the criteria, in the form of high
level goals, that the Commission must consider in selecting its portfolio of
programs.
Subsection B states that the Commission shall establish goals,
objectives, and strategies that will govern selection of conservation
programs. We completed the first phase
of that process by issuing our Order Establishing Goals, Objectives and
Strategies for Conservation Programs on September 24, 2002, in Docket No.
2002-162. In that order, we state that
the Act directs the Commission to develop an “overall energy strategy.” We further state that, in our view, it is
not appropriate or reasonable for the Commission to develop a statewide energy
policy that encompasses all fuels, nor is it necessary for successful
implementation of the Act. It is more
appropriate that we develop a group of goals, objectives, and strategies that
will govern an electricity conservation program portfolio in a comprehensive
manner. Subsection B reflects this
approach, by requiring us to determine goals, objectives, and strategies for
the statewide program.
Subsection B also establishes the immediate and longer-term processes
the Commission will follow to establish and revise goals, objectives, and
strategies for conservation programs.
The Act directs us to determine a schedule to revise our objectives and
overall energy strategy. In the final
rule, we changed the timeframe within which we must review goals and objectives
from two years to three. During the
early years of the program, all aspects will be under continuous review, and we
expect that some goals, objectives, or strategies will be revised in less than
two years. However, we do not wish to
interrupt the effort that will be required to complete ongoing program design
to thoroughly review all goals, objectives, and strategies. Thus, we have increased the time requirement
for doing so.
Subsection C summarizes the requirements in the Act that the statewide
portfolio of conservation programs must be cost effective, must attain the
goals, objectives, and strategies determined by the Commission, and must be delivered
without exceeding the assessed funds.
No person suggested changes to Section 3. However, at the public hearing, MCAA expressed the concern that
citizens in rural areas worry that they are “perceived to be unimportant.” MCAA presents this concern as being generic
in nature, rather than specific to the conservation program being considered
here. However, MCAA suggests that, when
possible, we craft programs that are smaller than a “one size fits all”
approach that might be appealing administratively, to allow programs to reach
all segments of the population. To
further address this concern, MCAA suggests that the Commission ensure that
there is a means by which citizens or groups may inform the Commission when
they are not well-represented by the portfolio of programs.
The Act requires that program funds be apportioned among customer groups
and geographic areas in a manner that allows all customers to have a reasonable
opportunity to participate in conservation programs.[8] We will actively incorporate this
requirement into our program planning.
Indeed, we have already done so by expanding the Building Operator
Certification program to include Northern Maine consumers. We have been thorough in allowing any
interested group to provide input into all our decisions, and we will continue
to do so. We will follow the practice
of many other states, by monitoring our portfolio with geographic and
demographic diversity in mind. Thus,
while we have not expanded section 3 in the final rule for this purpose, we
consider the provision and our own actions to be responsive to MCAA’s
concern. In addition, when, in Docket
No. 2002-162, we consider ongoing procedures for program development, we will
remain mindful of MCAA’s comments.
Finally, we add a sentence to subsection (3)(C), based upon comments on
cost effectiveness tests, described below.
D. Section 4: Cost Effectiveness Criteria
1. Background. In Docket No. 2002-161, we discussed the
background of, and offered options for, determining the cost effectiveness of
interim programs.[9] In that proceeding, we decided to rely on
the framework established in the current version of Chapter 380 (Ch. 380-O) to
determine the cost effectiveness of individual interim programs and of the
portfolio of programs. Under that
framework, we rely on the All Ratepayers Test to screen for cost effectiveness,
but we also consider whether a program or group of programs is likely to have a
significant impact on T&D utility rates.
Cost effectiveness
testing for conservation programs has a long history before this
Commission. Twenty-five years ago, the
Electric Rate Reform Act authorized the Commission to order electric utilities
to submit programs for implementing energy conservation techniques.[10] Throughout this time period, we have
periodically considered how to test whether proposed conservation measures are
likely to minimize electricity costs.
The debate typically is framed in terms of which of various cost
effectiveness tests should be applied.
That debate is generally reducible to a debate over our goals in
adopting conservation programs.
Historically,
the Commission has considered three cost effectiveness tests. The primary test has been the All Ratepayers
Test (ART), which measures whether a conservation program provides the same
level of end use amenity (e.g. lighting or hot water) at a lower overall net
cost to utilities and ratepayers taken together. The ART generally measured savings in terms of avoided generation
and delivery costs. The second test has
been the Rate Impact Test, which measures the impact of a program on the
average electric utility rate. Finally,
the Societal Test is an expansion of the ART, in that it includes environmental
and other social benefits external to the transaction between the utilities and
their customers.
The Commission’s use of
these tests was prescribed in earlier versions of Chapter 380. Chapter 380 was developed in the 1980’s and
remained substantially unchanged until 1999, when legislation associated with
electric restructuring shifted the responsibilities for conservation programs
within the State. During the 1980’s and
1990’s, the purpose of Chapter 380 was to provide a set of rules under which
utilities could implement conservation measures without seeking Commission
approval. However, Chapter 380 allowed
utilities to seek approval for programs that did not meet the three tests.[11] Thus, the tests were not absolute
limiters. The Commission could exercise
its judgment in approving additional programs if it determined that such
programs exhibited benefits not captured in the three cost effectiveness
tests.
The current Conservation Act is
broad in scope and includes goals that extend well beyond savings associated
with generation and delivery costs.
Increased consumer awareness, sustainable economic development, reduced
environmental impact, the creation of more favorable market conditions for
efficient products, a 20% funding target for low-income and small business
consumers, and geographic and income diversity are all statutory goals that are
likely to be difficult to accomplish under a strict cost effectiveness
test. At the public hearing, the Public
Advocate urged the Commission to be flexible in its use of cost effectiveness
tests. In the Public Advocate’s view,
the Legislature has encouraged the Commission to “come to its own conclusions
about a fair distribution of benefits.”
He comments that “there’s no way to avoid the exercise of judgment in
the design of cost effectiveness screens.”
We agree that our decisions regarding cost effectiveness criteria must
include the flexibility to balance all the goals in the Conservation Act –
whether strictly quantifiable and related to electrical generation and
delivery, or less quantifiable and related to broader goals in the Act. At a minimum, we must retain the flexibility
the Commission had under earlier provisions of Chapter 380. To comply with the Act, we must have as much
flexibility as possible while retaining a consistent, economically rational
approach to program design.
Currently, most other states – and
particularly Northeast states -- use variations of the ART, variously called
Total Resource Cost Test, Modified Total Resource Cost Test, Societal Test, or
Modified Societal Test. These tests are
distinguished by the fact that they include costs or benefits associated with
”non-electric” resources (e.g., increased use of gas or water), customer
O&M expenses (e.g., reduced maintenance), and improved ability to pay
electric bills. They may include “spillover
effects” (e.g., adoption of additional efficiency measures by customers outside
of the efficiency program). Societal Tests may include costs and benefits
accruing outside of Maine, such as environmental effects. Some states attempt to include economic
development and job creation benefits.
On the other hand, some states consider cost effectiveness from the
participant’s perspective or from the utility’s perspective.
Quantification of some of these
costs and benefits is difficult. Some
states solve this problem by creating a percentage adder to represent
environmental or other non-quantifiable costs.
In general, these adders are not meant to represent a measured level of
benefit, but are meant to acknowledge that some benefit exists and should be
recognized.
Appendix A contains a summary of
the most common costs and benefits included in commonly considered cost
effectiveness tests. Appendix B
contains a summary of our understanding of other states’ cost effectiveness tests.
2. Subsection
A – Modified Societal Test. In
subsection A of the proposed rule, we defined a Modified Societal Test (MST) as
the cost effectiveness test that will be used for ongoing (as opposed to
interim) conservation programs. The
proposed rule defined the MST as the ratio between benefits and costs.
OPA supports the MST, but suggests
that it be expressed as the difference (rather than a ratio) between benefits
and costs. OPA comments that the
magnitude of this difference (using a net present value calculation) is the
“true economic value provided by the conservation measure or program” and that
the MST should at least consider the net difference. In earlier comments and at the public hearing, OPA emphasized
that, regardless of whether a ratio or a “net benefits” approach is used, the
test should not be so rigid as to eliminate the Commission’s ability to use
judgment in balancing goals.
In our view, the choice of using a
ratio approach (as in the proposed rule) or a net benefits approach (as
suggested by OPA) will have very little influence on our choice of programs, if
any at all. For a fixed budget, each
approach would yield the identical decision.
Absent a fixed budget, implementing programs with the greatest net
benefit might focus funding on a small segment of the population, thereby
conflicting with our efforts to offer programs to a wide variety of
consumers. In either event, we agree
with OPA’s opinion that we should not choose programs rigidly based on the
level of a ratio or net benefits.
Notwithstanding these comments, we conclude that expressing the MST in
terms of absolute dollars might make a program’s effect more intuitively
understandable without changing the intent or the impact of the proposed
rule. Thus, we have revised subsection
4(A) and subsection 4(B)(1) of the final rule to express the MST as a net
benefit measurement. We expect that we
will express the results of the MST in terms of both dollars and a ratio, to
retain the advantage of each.
The proposed rule included in the
MST all costs and benefits that are reasonably quantifiable, regardless of who
pays or experiences the cost or benefit.
This approach is generally consistent with the All Ratepayer Test
approach taken in years past, but expands the approach to include all impacts
that clearly result from the programs.
We recognize that some factors will continue to be difficult to
quantify. We do not establish a
percentage adder to represent those factors.
Rather, we intend to quantify when possible and simply report program
effects when quantification is not possible.
Subsection 4(A)(1) lists benefits
to be included in the cost effectiveness calculation. Avoided electric generation costs will be estimated using
regional prices. The proposed rule states that an average generation cost is
adequate, but that more precise estimates based on time differentiation may be
used when appropriate. Avoided T&D
costs will rely on T&D utilities’ marginal cost estimates, which also may
be averages or time differentiated estimates.
In the inquiry, utilities commented that their marginal cost estimates
are imprecise. However, they are the
most appropriate quantities available.
Avoided fuel savings will include reduced use of oil, gas, or any other
fuels saved. The rule does not specify a method for
calculating fuel savings – we will use the best estimate available. Similarly, avoided costs of water, sewer, or
any other resource will be estimated as accurately as is possible and
reasonable. Finally, subsection (e)
establishes that any other benefit that we can reasonably quantify will be
included in the cost effectiveness test.
We conclude that these benefits are important outcomes of conservation
programs – sometimes by design and sometimes by good fortune – and they should
be acknowledged whenever possible.
Subsection 4(A)(2) lists costs to
be included in the cost effectiveness calculation. Direct program costs listed in subsection (a) and capital costs
associated with the purchase and installation of appliances or equipment,
listed in subsection (b), are traditional costs included in cost effectiveness
tests. Subsection (c) lists other costs
such as increased customer operation and maintenance costs. Considering such costs is consistent with
considering all benefits that can be recognized as resulting from a program.
In
its comments in the rulemaking, BHE suggests that we consider lost utility
profits as a program cost, noting that lost utility revenue is a societal cost
and will ultimately result in higher rates.
We reject BHE’s suggestion. To
the extent that a utility’s rates exceed its marginal delivery costs, a utility
will lose revenue if a conservation program lowers total kWh use. That loss is a transfer-payment from the
utility’s stockholders (in the short term) to program participants. The utility’s monetary loss is offset by
participants’ economic gains (whether through lower costs for similar
productivity or through increased productivity at a lower price than would have
occurred absent the program). At the
heart of the economic tests used in most states and in Maine has been the
policy decision that lowering society’s overall expense of using electricity
without lowering productivity level is a desirable goal. Historically, a transfer of funds has
occurred under Total Resource Cost Tests, All-Ratepayer Tests, and Societal
Tests, and has been mitigated by offering a wide range of programs to all
ratepayers. Currently, very few
programs that reduce kWh use would pass a test that included lost utility
profits as a cost. It is unlikely that
the Legislature intended us to establish a cost effectiveness test that
excluded virtually all programs that reduce kWhs. Thus, our final rule treats lost utility profits in the manner
they have been treated historically in cost effectiveness tests.
We
note, moreover, that conservation programs will not always lower kWh use. The Act includes many goals, including the
goals that programs “create more favorable market conditions for the increased
use of efficient products and services” and “promote sustainable economic
development.” We have incorporated
those goals into our goals, objectives, and strategies, and have also stated
that programs shall “improve the efficiency of electric energy use by Maine
residential consumers, businesses and other organizations.”[12] In our Order Approving Goals, Objectives,
and Strategies, we assert that programs will not reduce kWhs per se, but will
improve electric efficiency. Programs
that meet these goals may increase utility sales, thereby improving, not
harming, a utility’s profits.
CMP
suggests that we include the Rate Impact Test in a manner similar to its use in
Chapter 380-O. According to CMP, under
this approach the Commission would consider a program’s impact on rates,
rejecting the program if the impact exceeded a pre-defined level. CMP suggests that the 1% specified in
Chapter 380-O would be reasonable.
We
agree that we should consider the impact on rates from the portfolio of
programs, and would do so as a matter of our normal approach to utility
matters. However, we reject setting a
specific rate impact that would automatically require program rejection. As discussed earlier in the order, the 1%
level in Chapter 380-O only prohibited the utility from implementing a program
without Commission approval. The
Commission still retained the flexibility to use its judgment in balancing the
rate impact with the program benefits.
The breadth of the Act requires us to consider even more goals than we
did under Chapter 380-O, and we intend to retain that flexibility to do
so. Thus, in subsection 3(C) of the
final rule we have added the provision that we must consider the likely impact
of the full portfolio of conservation programs on a utility’s rates, but we do
not specify a level that would trigger program rejection and we do not state
any action that must be taken based on our consideration. Under the final rule, we will weigh the
program benefits with the harm to utilities and their ratepayers given the conditions
at the time.
BHE
and CMP comment that “non-electric benefits”[13]
should not be included in the MST. CMP
advocates using the methods used in the All Ratepayers Test, which CMP asserts
did not include such benefits as increased amenities and decreased operating
expenditures not related to electricity use.
CMP contends that quantifiable externalities may be considered as
program benefits, but only if an All Ratepayers Test is first satisfied. BHE advocates capping non-electric
participant benefits to participant costs, and capping non-electric benefits at
some portion of total benefits. CMP
notes that the All Ratepayers Test emphasized avoided cost benefits, while the
MST is overly expansive. CMP quotes Commissioner
Diamond in his separate concurring statement to the June 13 Order in Docket No.
2002-161 as asserting that it is difficult if not impossible to measure
non-electric benefits such as environmental benefits. Both utilities comment that the programs are funded by electric
ratepayer money and should be targeted to electric savings. On the other hand, OPA supports inclusion of
non-electric benefits in the MST. OPA
states that the Legislature has given the Commission a new mandate to
“consider, without limitation” programs that promote sustainable economic
development and reduce environmental damage.
The OPA believes that a strict All Ratepayers Test is “neither necessary
nor feasible” under the new mandate, and that it is appropriate to consider
both quantifiable externalities and non-ratepayer specific benefits that result
from a conservation program.
We
agree that programs should be targeted to savings associated with how a
customer uses and obtains electricity.
However, we disagree that savings such as reduced operating expenses and
alternative fuel savings should be excluded from the cost effectiveness
test. As long as such savings result
from the electric efficiency measure, they are a savings of the program and
should be considered in a cost effectiveness test. We disagree with an implication that Commissioner Diamond asserted
that all non-electric benefits are difficult to quantify; indeed many
will be easily quantified. The Act
allocates ratepayer funds to implement programs that are beneficial for reasons
that extend far beyond avoided generation and T&D utility costs. The Act targets economic development and
environmental benefits in particular.
The Act directs the Commission to make an investment decision on behalf
of the citizens of Maine. When making
an investment decision, one considers all savings associated with the
investment. While we agree that a
program must focus primarily on electric use, we see no reason to ignore a
subset of savings that result when the electricity measure is undertaken. Thus, the final rule retains the
“non-electric” benefits contained in the proposed rule.
Having
stated our decision regarding the cost effectiveness test that is required
before we will fund a program, we turn to a different decision – namely, the
amount of funds we will commit to customer incentives within a program. We acknowledge that non-electric savings
such as reduced maintenance and non-fuel costs benefit only the participant,
while avoided generation and T&D costs generally benefit all electric
users. This becomes relevant because we
desire that the program portfolio benefit as many consumers as possible. With this concern in mind, we are initially
inclined to limit the incentive we award participants to the level of savings
attained through avoided generation and T&D delivery costs. This approach would address many of BHE’s
and CMP’s concerns. We decline to adopt
a rigid provision that requires imposing this limitation. Rather, we will judge each situation on its
merits. Thus, in Section 4(A)(6) of the
final rule, we have added the sentence that the Commission consider the value
of the program savings associated with electrical production and delivery when
setting incentive values.
In
addition, we observe that environmental benefit in the form of reduced
emissions has, for many years, been considered by some to be an important
benefit of conservation programs. The
current law is no exception. The Act
contains a goal of attaining environment benefits, yet program proposals made
to us have contained no estimates – either quantified or not -- of environmental
impact. While it is difficult to
determine precise quantification of this benefit, it is not impossible to
produce estimations. We ask persons who
view environmental improvement to be important to submit program suggestions
that explicitly target environmental improvement. For example, a program that reduces energy use or demand at a
time when the marginal generating units produce high emissions would help us
fulfill the Act’s environmental goal.
We also ask all persons submitting program proposals to provide, if
possible, information on the environmental impact of the program. Finally, we intend to issue a solicitation,
separate from this order, that requests proposals for conservation programs that
explicitly target environmental improvement as a primary goal. These actions will allow us to include
programs in our portfolio that may reasonably be considered to meet the
environmental goal of the Act.
Finally,
BHE and CMP recommend that the Commission reject non-quantifiable benefits in
the MST. CMP comments that the All
Ratepayers Test was a “simple, objective, mathematical test” while the MST is
imprecise and encourages disputes and second-guessing. In our view, the Act clearly rejects a
“simple, objective, mathematical” view of cost effectiveness by including a
variety of broad and difficult-to-quantify goals. As pointed out by the Public Advocate in his comments, the Act
requires that the Commission exercise judgment when determining cost
effectiveness and when balancing goals. The fear of less than perfect precision should not cause us to
ignore important benefits that are consistent with the intent of the Act. The proposed rule used terms such as “reasonably
identifiable costs” (subsection 4(2)(a)) and “to the extent such costs can be
reasonably quantified and valued” (subsection 4(2)(c)). We consider these phrases to be adequate
protection against disputes or abuse and have not changed them in the final
rule.
In
the proposed rule, subsection 4(A)(3) established guidelines for the discount
rate to be used in cost effectiveness calculations. We commented that the cost effectiveness of a program is
calculated from the perspective of Maine consumers as a whole (as opposed to
only the participant). Thus, the
discount rate should be a societal discount rate. Long-term treasury securities yields are reasonable for this
purpose.
In its comments in the rulemaking,
BHE suggests that, for each program, the Commission choose a discount rate that
reflects the risk profile of the program.
BHE points out that some measures are short-lived and that some costs
and benefits cannot be predicted with certainty. In our view, establishing a discount rate to use when evaluating
most programs establishes consistency and predictability and creates a result
that is reasonably accurate. However,
consistent with comments made earlier in this order, this rule should not limit
our ability to exercise judgment. We
acknowledge that variability in certainty and measure life exists. Thus, while we decline to state a prescribed
method for linking risk to the discount rate, in subsection 4(A)(3) of the
final rule we have introduced the flexibility to consider alternative discount
rates when conditions warrant doing so.
Subsection 4(A)(4) establishes
that costs and benefits will all be measured on a comparable, net present
value, basis. This is a traditional,
established calculation method. No
person suggested changing this subsection.
Consistent with our intent to
consider all costs and benefits that can be recognized, subsection 4(A)(5)
establishes that costs and benefits will be estimated for as many years in the
future as seems reasonable.
3. Subsection
B – Non-Quantifiable Cost Effectiveness Test. Subsection B of section 4 accommodates programs that satisfy
statutory or Commission-established goals but whose benefits cannot be
quantified. While we will measure costs
and benefits whenever possible, we conclude that there are programs that will
benefit consumers in Maine, or that meet statutory criteria, but whose benefits
cannot be reliably estimated. Indeed,
there may be requirements of the Act that cannot be met if all programs must
pass the Modified Societal Test. In
particular, it may be impossible to spend 20% of total funds on low-income or
small business programs and it may be impossible to conduct energy education as
the Act contemplates, unless programs with non-quantifiable benefits are
considered. The subsection includes
three criteria, all of which must be met, before a program can be implemented
without passing the Modified Societal cost effectiveness test. Subsection 4(B)(1) allows a program with
non-quantifiable benefits to be implemented, while subsection 4(B)(2)
establishes that the program must meet statutory or Commission-established
goals and subsection 4(B)(3) establishes that the entire portfolio must be
substantially cost effective.
This subsection creates the
possibility that a program whose benefit-to-cost ratio is quantifiable
but is less than one, and that meets particular goals, cannot be
implemented. However, a program whose
benefit-to-cost ratio is not quantifiable, and meets the same goals, may
be implemented.
In its comments in the rulemaking,
MCAA supports the inclusion of a non-quantifiable cost effectiveness criteria,
calling the provision “forward-looking.”
MCAA comments that this provision will allow the Commission to implement
“cutting edge” ideas to determine whether they are successful. BHE expresses the concern that subsection
4(B) could result in abuse and reiterates the suggestion that non-quantifiable
benefits be limited to a portion of total benefits. While we decline to specify such a percentage, as a practical
matter we expect to limit our funding of programs with non-quantifiable benefits.
In the inquiry, we invited
interested persons to express their views on whether there should be a
quantitative standard for the distribution of benefits. To elaborate, the MST looks at benefits and
costs in the aggregate. We wondered
whether the Commission also should be required to find that benefits will
exceed costs for some minimum percentage of Maine consumers. For example, if it were determined that for
a particular portfolio of programs the benefits will exceed the costs in the
aggregate (i.e., the portfolio passes the Modified Societal Test) but that only
20% of consumers will actually receive more in benefits than they pay in costs,
should that portfolio be deemed cost effective?
The OPA does not support this
approach, commenting that, given limited resources, it would foreclose many
programs, particularly those in smaller service territories. BHE comments that resources should not be
diverted from high benefit programs in favor of high penetration programs. We did not introduce such a provision in the
final rule.
In the inquiry, we also welcomed
comments on whether the existence of statutory requirements that certain
percentages of the spending be directed at specified groups and that all groups
be given the opportunity to participate warrants the conclusion that the
Legislature did not expect the Commission to deal further with distributional
equity issues. Even if one answers this
question in the negative, we asked whether it is realistic to expect the
Commission to be able to determine the percentage of ratepayers who will have a
benefit-to-cost ratio in excess of 1 (or a net benefit greater than 0) for a
particular program or portfolio of programs.
Finally, given the Commission’s conclusion that the Rate Impact Test is
not feasible in a restructured environment, which means that some and perhaps
many ratepayers may have costs in excess of benefits from these programs, we
inquired whether the Commission should suggest to the Legislature that it may
want to reexamine the statute.[14]
The OPA suggests that, in the Act,
the Legislature has already determined the distributional equity it considers
to be appropriate. The Commission
should not delve further into the issue.
BHE suggests that the Act should be re-evaluated. We made no change in the final rule based on
these comments.
E. Section
5: Funding Level
Section 5 of the
proposed rule restates the terms in the Conservation Act that establish a
funding mechanism for the conservation programs. We include this restatement of law so that Chapter 380 will be a
comprehensive compendium of the basic State conservation program
requirements. Subsection A directly
quotes the Act, and describes the upper and lower bounds of the amounts the Commission
will assess T&D utilities to fund the programs. Subsections C and D directly quote the Act, and describe the
means by which the Commission will categorize the budget and spending of the
funds assessed. Subsection B is not
contained in the Act. It establishes
broad guidelines for determining the dollar amount that we will assess as time
goes by. It states that the
Commission’s periodic assessment will be based on projections of the factors[15]
that determine the assessment, but that reconciliation will occur to ensure
that the assessment over time comports with the actual values of those factors.
No
person suggested changes to Section 5 and we have made no changes in the final
rule.
F. Section
6: Waiver or Exemption
Section
6 contains terms governing waiver or exemption from the Chapter. These terms are standardized throughout the
Commission’s rules. No person suggested changes to Section 6 and we have
made no changes in the final rule.
IV. RULEMAKING
PROCEDURES
Pursuant to 35-A M.R.S.A. § 1311-A
(10), this rule is considered to be a “routine technical rule” as defined in
Title 5, chapter 375, subchapter II-A.
V. FISCAL IMPACT
5 M.R.S.A. § 8057-A(1) requires the
Commission to estimate the fiscal impact of this Chapter. In the NOR, we indicated that there is no
fiscal impact through the rule, but that there is a fiscal impact associated
with enactment of the Conservation Act, as described by the fiscal note
attached to LD 420. No person commented
on the fiscal impact.
Accordingly, we
O R D E R
1. That the attached Chapter 380 “Electric Energy Conservation
Programs” is hereby adopted;
2.
That
the Administrative Director shall file the adopted rule and related materials
with the Secretary of State; and
3. That the Administrative Director shall
notify the following that the Commission has adopted the attached rule:
a. All
transmission and distribution utilities in the State;
b. All
persons who have filed with the Commission within the past year a
written request for copies of this or any other
notices of Rulemaking;
c. The
Office of the Public Advocate; and
d. The
service list in this docket and all interested persons in Docket Nos. 2002-161,
2002-162 and 2002-272.
4. That the Public Information Coordinator shall post a copy of
this Order and rule on the Commission’s World Wide Web page
(http://www.state.me.us.mpuc).
5. That the Administration Division shall send copies of this
Order and the attached rule to: Executive Director of the Legislative Council,
115 State House Station, Augusta, ME
04333-0115 (20 copies).
Dated
at Augusta, Maine, this 6th day of November, 2002.
BY
ORDER OF THE COMMISSION
_______________________________
Dennis
L. Keschl
Administrative
Director
COMMISSIONERS
VOTING FOR: Nugent
Diamond
Welch
