Will the Granite State fail the Granite State Test?
Updated: Dec 7, 2020
Just about a year ago -- on December 30, 2019 -- the New Hampshire Public Utilities Commission (PUC) made a little-noticed but really important decision.
The three commissioners then in office -- newly confirmed Chairwoman Dianne Martin; the senior Commissioner, Kathryn Bailey, appointed to her post in 2015 after 25 years on the agency's professional staff; and Commissioner Michael Giaimo, who first became involved in utility regulation as a lobbyist for the Business and Industry Association (BIA) -- unanimously approved a new "cost-benefit test" for determining when it is okay to use ratepayer money to subsidize energy efficiency measures installed in New Hampshire's homes and commercial establishments.
Known as the Granite State Test and developed over the preceding year via stakeholder working group that consisted of folks from the state's utilities, environmental organizations, government agencies (including me, as head of the Office of the Consumer Advocate (OCA) acting on behalf of residential customers) and efficiency-related businesses -- the new cost-benefit screening standard was designed to bring years of blarney and argument to an end by adopting a really simple principle. To be subsidized via charges on everyone's electric and natural gas bills, an energy efficiency program has to save money for all customers.
In other words, if the ratepayer-funded NHSaves programs administered by the state's six electric and natural gas utilities helps you pay for the lightbulbs in your living room or the insulation in your walls or the motors at your factory, it doesn't matter how much you save on your energy bill. What matters is how much everyone saves via the efficiency-induced reductions in costs payable by all customers. If these system-wide savings are greater than the amount of subsidy, then the measures deserve a place in the state's ratepayer-funded energy efficiency programs.
This has profound implications for New Hampshire's Energy Efficiency Resource Standard (EERS) -- the public policy program approved by the PUC in 2016 which calls on NHSaves to seek "all cost-effective energy efficiency." New Hampshire is dead last in the northeast when it comes to energy efficiency, according to the highly respected annual scorecard of the American Council for an Energy Efficient Economy -- at least until you get to Delaware. But the Granite State Test means we can redouble our commitment to ratepayer-funded efficiency, and redouble it again, secure in the knowledge that whatever ratepayer funds we investment in efficiency will pay off.
So, a year later, I could not be more depressed in my capacity as the state's ratepayer advocate. In my judgment, energy efficiency is the single most valuable thing I can deliver to the constituency I represent. The principle is so straightforward that even our utilities have adopted it: "Energy efficiency is emission free and the lowest-cost resource available to utilities, customers, and states."
And yet, as we prepare to begin hearings at the PUC on December 10 to consider the proposed new three-year plan for the NHSaves program, ratepayer-funded energy efficiency in New Hampshire faces its biggest threat in decades.
It's an odd situation. When the hearings convene, every single party to the PUC proceeding will be asking the Commission to approve the plan. All four utilities, Clean Energy New Hampshire, Conservation Law Foundation, The Way Home (a low-income advocacy organization), Southern New Hampshire Services, and the OCA -- have signed a settlement agreement that improves the plan from the version initially filed in September and seeks an ok for the Triennial Plan, as improved. The Department of Environmental Services did not sign, but filed written testimony supporting the "overall approval" of the Triennial Plan. (An additional party, the regional clean energy group Acadia Center, has been supportive but its participation seems to have fizzled out.)
So why is the Triennial Plan in trouble?
Strike One was a letter filed with the PUC on November 10 by the BIA. It matters not that during the collaborative process conducted by stakeholders last summer to develop the Triennial Plan, the BIA representative voted in favor of the proposal on August 10. Now the BIA claims -- referring to the System Benefits Charge (SBC) that pays for efficiency on electric bills -- that "the projected savings resulting from SBC increases do not outweigh the negative effect of their costs. This is especially true given economic uncertainty brought on by the coronavirus pandemic."
Strike Two was another letter to the PUC, this one signed by Speaker of the House Dick Hinch and eight members of his caucus, all veteran members of the House Science, Technology & Energy Committee. "The increase in SBC charges will impact everyone differently, but some of the state's largest manufacturers (and other high energy users) will pay hundreds of thousands and in some cases millions of dollars more in their electric bills every year," wrote the legislators. "This represents possibly a 10-15% increase on electricity costs at a time when many businesses, especially restaurants and other entertainment venues, which are high electricity and gas users, are managing substantial reductions in their revenue streams."
Strike Three is the PUC's own Staff, which participates in proceedings before the Commission as if it were a party. Staff refused to sign the settlement agreement and filed testimony urging the Commission to dial back the Triennial Plan's proposed increases in cost-effective investment in energy efficiency. They, too, mentioned the effects of the COVID-19 pandemic.
Elsewhere (via my column on the news web site IndepthNH.org) I have already explained my disagreement with the legislators' missive, including my separation-of-powers concerns about lawmakers attempting to influence the outcome of PUC proceedings. One of the legislators, Rep. Michael Vose of Epping, did me the honor of publicly responding and I will let him have the last word.
As for the BIA, it's difficult to fathom why it clings to such fervent, ideological opposition to ratepayer-funded energy efficiency given that among its most prominent members are (1) major businesses that have taken full and laudable advantage of available opportunities, and (2) the state's major utilities. In fact the top New Hampshire-based executives of both Eversource and Unitil are members of the executive committee of the BIA board of directors. "BIA believes the projected savings resulting from SBC increases do not outweigh the negative effect of their costs," the organization wrote to the PUC. But believing something does not make it so.
Finally, there the Staff of the PUC. The Commission's Electric Division has long maintained a skeptical if not hostile stance with respect to ratepayer-funded energy efficiency in New Hampshire. Thus, the division's representatives have consistently acted as if its role is to reign in the NHSaves programs, especially when, as here, there is broad consensus in favor of an aggressive approach among utility and ratepayer interests alike.
In some respects, it's a rogue operation. In most state agencies, division directors, staff analysts, and all other professional employees of whatever function consider it their responsibility to advance the policy agenda of agency leadership. For example, the Air Bureau of the Department of Environmental Services (DES) frequently appears in PUC proceedings; before taking any positions of significance, these folks always check with the DES commissioner or one of his direct reports. But that's not how the PUC works.
The PUC's commissioners are quasi-judicial decisionmakers and thus they tend to act like judges, striving to remain neutral and isolated from casual contact with those who have business before them. Because the agency treats its employees as if they were a party, the Commissioners are largely cut off from their employees and don't purport to supervise or influence the advocacy positions Staff takes in the hearing room. This leaves PUC Staff, particularly the division directors, free to pursue their personal policy agendae in ways their counterparts at other agencies cannot.
As I said, it is odd.
Specifically, consider this scenario: Imagine you're a plaintiff who files a $1 million personal injury lawsuit in Superior Court. The defendant denies all liability. But, in the spirit of compromise, the parties agree to settle the case by having the defendant pay the plaintiff $500,000. If the Superior Court were like the PUC, the judge might reject the settlement nevertheless because her law clerk did not care for the outcome. Much the same situation is likely to play out as the Commission considers the triennial energy efficiency plan; even though the parties to the case have settled their differences and reached a compromise, the compromise might go down in flames because forces within and without the decisionmaking authority wish it so.
Such, I suppose is the difference between a public dispute and a private one. This is fundamentally a political controversy and, regardless of what the PUC decides there is every reason to suppose that the fracas over the Triennial Plan is but a prelude to efforts in the General Court during 2021 to bring ratepayer-funded energy efficiency to its knees. Three years ago, many of the letter-writing legislators were arguing that the System Benefits Charge is really a tax -- and, thus, that if the SBC is to increase only the Legislature (and most assuredly not the PUC) should be allowed to do it. The SBC is not, in fact, a tax -- it's a rate, approved as "just and reasonable" by the PUC, that (like every other PUC-approved rate) pays for a utility-provided service, in this case energy efficiency. But enough lawmakers bought the "tax" argument in 2017 that a compromise was struck: The Legislature would take back the right to set the energy efficiency portion of the SBC itself, but not until 2024, i.e., not during the upcoming triennium. In effect, whatever SBC is in effect on December 31, 2023 will be frozen forever, if only because getting New Hampshire legislators to approve rate increases seems about as likely as getting them to endorse an income tax.
What this means is that if the foes of energy efficiency succeed in reigning in the 2021-2023 triennial plan it will have longterm impacts. Specifically, it will likely consign New Hampshire to lagging well behind our neighbors -- the states with which we compete for workers and economic activity -- on energy efficiency in perpetuity.
The flash point in all of this is the energy efficiency charges that would apply to commercial and industrial customers of Eversource during the upcoming triennium. The original plan called for them to escalate substantially over the three years, hitting more than 2.4 cents per kilowatt-hour in 2023. That's more than double the proposed energy efficiency charge that would have applied to Eversource's residential customers in three years.
Why, you might ask, would we fans of energy efficiency stick it to commercial and industrial customers in such fashion? Well, there are two reasons. First, as I've already explained, an SBC increase doesn't "stick it" to anyone because every cent paid by every customer for energy efficiency saves every customer money. Second, we proposed ramping up the energy efficiency charge for commercial and industrial customers for the same reason that Willy Sutton robbed banks. Just as it pays to stick up a financial institution rather than a lemonade stand because a bank is where the money is, most of the energy efficiency potential these days is in commercial establishments. To figure out why, look up! Chances are that whatever light you are using to read this is shed by an energy efficient LED bulb. The low-hanging fruit -- residential lighting -- has largely been picked and it is time to target our energy efficiency subsidies to the business sector with vigor.
Thus our settlement agreement gives ourselves a haircut in two senses. First, we agreed to trim the proposed energy efficiency charge for Eversource's commercial and industrial customers by 4.3 percent in 2021, 19.1 percent in 2022, and a full 26 percent in 2023. And we agreed to ramp up the energy efficiency charge to Eversource's residential customers somewhat, to even things out. Alas, the two do not offset each other and we've been forced to scale back the original, ambitious goal -- saving a full 5 percent of Eversource's electric sales over the three years -- to a more tempered 4.5 percent. That's still a big step forward.
The OCA's witness in the upcoming hearings is Philip Mosenthal, a respected energy efficiency analyst based in Vermont. His written rebuttal testimony, submitted alongside the settlement agreement, explains that SBC increases are "simply a natural result of improving overall efficiency and reducing overall customer costs and benefiting the economy."
"Any short-term rate increases are more than compensated for by these overall lower costs, and ultimately lead to lower rates by avoiding more expenses resources," Mosenthal explains to the PUC commissioners. "If one's goal were to pursue lower rates, the best strategy would be to encourage as much energy waste and inefficiency as possible. . . . This perverse outcome would increase costs to all ratepayers collectively, as well as increasing environmental damage and damaging the overall New Hampshire economy. Even worse, it would lead to higher rates in the long term by forcing utilities (and other load-serving entities) to purchase more supply resources while incurring additional financial obligations related to capacity and transmission charges."
Foes of ratepayer-funded energy efficiency are using the pandemic, and the economic devastation it has wrought, as their excuse for urging the PUC to pull back on energy efficiency as opposed to moving forward. The Mosenthal testimony explains why this is misguided.
"To the contrary, I believe that the economic harm from the COVID-19 pandemic makes it more important than ever to pursue robust energy efficiency," he explains to the PUC. "Under the proposed energy efficiency plan, those with the greatest energy burden -- low income customers -- will receive efficiency upgrades for free. For others struggling in this economy a combination of incentives, technical assistance, and low-cost financing will enable those customers to reduce their energy cost burden significantly. The fact that more customers are currently struggling to pay utility bills makes it more -- not less -- important to help them reduce energy use."
Mosenthal also points to "a large and growing body of research indicating significant macro-economic benefits from efficiency spending." He mentioned an analysis of efficiency spending in Illinois by the big, mainstream consulting firm Guidehouse. According to Mosenthal, extrapolating those findings to New Hampshire suggests that the original version of the Triennial Plan, filed in September, would have added $3.5 billion of increased economic output beyond direct savings to customers installing the efficiency improvements at their homes and businesses.
Given these realities, it is ironic indeed to treat the pandemic as a pretext for staging a retreat on energy efficiency. The vaccine cavalry appears to be on its way, which means that as we move through 2021 we will increasingly be in post-pandemic rebuild mode. In such conditions, New Hampshire will be in dire need of economic stimulus. What better way to provide it than via a program that will actually save everyone money?
If you agree with me, this would be a great time to make your voice heard. Write to email@example.com. Mention "Docket No. DE 20-092" in the subject line. Explain to the Public Utilities Commission why this is precisely the right time to redouble our commitment to energy efficiency. And send a copy to HouseScienceTechnologyandEnergy@leg.state.nh.us so that the opponents of energy efficiency in the House of Representatives know you're watching.