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					                        STATE OF CONNECTICUT


                   DEPARTMENT OF PUBLIC UTILITY CONTROL
                          TEN FRANKLIN SQUARE
                          NEW BRITAIN, CT 06051



DOCKET NO. 03-01- DPUC REVIEW OF THE CONNECTICUT LIGHT AND
01RE01            POWER COMPANY'S AND THE UNITED ILLUMINATING
                  COMPANY'S        CONSERVATION     AND     LOAD
                  MANAGEMENT PROGRAMS AND BUDGET FOR YEAR
                  2002 AND 2003 -- REOPENING: REVIEW OF HOT SHOT
                  SETTLEMENT AGREEMENT




                                    March 29, 2006

                           By the following Commissioners:


                                  John W. Betkoski, III
                                  Anthony J. Palermino
                                  Anne C. George




                                      DECISION


I.    INTRODUCTION

A. SUMMARY

        In this Decision, the Department of Public Utility Control (Department) approves
the Settlement Agreement that has been reached among Northeast Utilities Service
Company (NUSCO), The Connecticut Light and Power Company (CL&P or Company),
Nyle Corporation (Nyle Corp.), Nyle Special Products, LLC (NSP) and STK Electronics,
Inc., d/b/a Airotronics (STK) regarding the heat pump for domestic hot water systems
known as the “Hot Shot.”
Docket No. 03-01-01RE01                                                                          Page 2


B. BACKGROUND

      CL&P administers a number of conservation and load management (C&LM)
programs. Providing rebates, technical and installation support for a heat pump
technology for domestic hot water systems is among CL&P’s past C&LM initiatives.
The heat pump that was installed under this program is known as “Hot Shot.”

       In 2001, Hot Shot units began to fail at an unacceptable rate. CL&P discontinued
the program, and sought relief from the Hot Shot manufacturers for costs incurred under
the program. This Decision addresses the Settlement Agreement that was reached by
and among NUSCO and CL&P and the manufacturers of the Hot Shot, Nyle Corp., NSP
and STK.

C. CONDUCT OF THE PROCEEDING

       Pursuant to the Decision dated January 25, 2006, the Department reopened the
instant proceeding to review the Settlement Agreement.

D. PARTICIPANTS

      Participants to the original proceeding retained their status in this reopended
proceeding.

II.       DEPARTMENT ANALYSIS

A. HISTORY OF THE HOT SHOT PROGRAM

        A Hot Shot heat pump water heater (HPWH) is designed as an add-on unit for a
conventional electric water heater. It reduces water heating costs by removing heat
energy from the air surrounding a water heater tank and transferring it to the storage
tank. The technology was developed from an Electric Power Research Institute
prototype. During the late 1990s, CL&P worked closely with a manufacturer to assure
that the technology would perform well in the New England climate to insure satisfaction
with customers and installation contractors. The goal of the Hot Shot program was to
transform the residential water heating market to incorporate heat pump technology into
the standard design of electric hot water heaters. The technology has the potential for
significant electric savings. As a result, the Department approved the Hot Shot program
in 1998. See Decision dated March 25, 1998, in Docket No. 97-10-23, DPUC Review of
The Connecticut Light and Power Company’s 1998 and 1999 Conservation and Load
Management Program, Budgets and Conservation Adjustment Mechanism,
pp. 12 and 13.

         In 2000, CL&P reported average annual savings of 2,700 kWhs and
approximately $270 per customer from the Hot Shot program. The Company also
reported that it had installed 840 ‘CrispAire’ units in 1999.1 Based on results from the
initial program offering, CL&P significantly increased its goals for the number of units to

1   CrispAire was the HPWH that was installed prior to the installation of the Nyletherm-1 HPWH. Refer to
     the response to Interrogatory Nos. EL-5 and EL-6 in Docket No. 03-01-01.
Docket No. 03-01-01RE01                                                             Page 3


be installed in year 2000, setting a target of 3,000 units. At that time, CL&P began
working with a newly-identified manufacturer, NSP, to develop an improved product. In
addition, CL&P worked to increase the number of qualified installers and to expand the
program to other utilities in the region. Based on the success of the program in
reducing energy consumption and in lowering customer bills, the Department approved
CL&P’s expanded program offering and ordered the Company to work with The United
Illuminating Company (UI) to establish a joint program for this technology. See Decision
dated May 10, 2000, in Docket No. 99-09-30, DPUC Review of The Connecticut Light
and Power Company’s Conservation and Load Management Programs for 2000,
pp. 18-20.

       Through year 2000, the Hot Shot program demonstrated continued success. In
2001, CL&P began installing the Nyletherm-1 HPWH and worked with UI to integrate
this program into UI’s C&LM initiatives. Based on the success of the program, the
Department authorized that it continue. See Decision dated September 19, 2001, in
Docket No. 01-01-14, DPUC Review of The Connecticut Light and Power Company and
The United Illuminating Company Conservation and Load Management Programs and
Budgets for 2001, p. 7.

       In 2001, the HPWH units were not commercially available. As a result, and
based on the increased demand for Hot Shots, CL&P purchased an inventory of
Nyletherm-1 HPWHs in order to have units available for installation. However, after
CL&P began installing the Nyletherm-1 units, these HPWHs began to experience a
variety of problems, resulting in an unsatisfactory failure rate. Based on the nature of
the problems, in October 2002 CL&P stopped installing Nyletherm-1 HPWHs and
undertook an evaluation of the units. Based on its evaluation, CL&P concluded that it
was appropriate to terminate the Hot Shot program. At that time, CL&P had
approximately 2,000 Nyletherm-1 units in its inventory. CL&P began negotiating with
NSP regarding the disposition of the units it held in inventory as well as the cost
associated with maintenance or removal of units that had been installed. See Decision
dated May 28, 2003, in Docket No. 03-01-11, DPUC Review of The Connecticut Light
and Power Company’s and The United Illuminating Company’s Conservation and Load
Management Programs and Budgets for Year 2003 and 2004, pp. 25-27.

B. PROBLEMS WITH THE NYLETHERM-1 HPWHS

       CL&P described the nature of the problems with the Nyletherm-1 HPWHs as
follows:

1.   Control module malfunction or failure;
2.   Condensate removal system malfunction or failure;
3.   Reconnection problems during water heater replacement;
4.   Internal piping or component failures; and
5.   Winter operation concerns.

Control Modules

        CL&P indicates that the problem most often reported was malfunction or total
failure of the control module. The majority of control module failure reports are simply “it
Docket No. 03-01-01RE01                                                            Page 4


fails to operate” or “it makes a loud buzzing/clicking noise and the red light is on….
Customers occasionally reported units smoking and emitting noxious odors.” During the
period April, 2001 through January, 2004, CL&P’s submitted eight HPWHs reported as
“burned-up” to forensic engineering companies for examination. The purpose of the
examinations was to determine the reason for control module failures and to assess the
potential for these failures to cause a safety related problem external to the HPWH.
Response to Interrogatory EL-2.

       Seven HPWHs that were reported to have “burned-up” were sent to a
Connecticut forensic engineering company for examination. Examination reports
confirmed that the “burn-up” was confined to within the unit and that a contributing
cause was determined to be failure of high voltage relay(s) embedded within the control
module while the unit was in service. Heat generated as a result of the failure was
responsible for visible damage to adjacent wiring inside the HPWH. None of the
examination reports suggested that any safety related problems would occur external to
the HPWH as a result of control module failures. CL&P states that three of the HPWHs
that were submitted for examination are maintained in safe storage at the Connecticut
forensic engineering company. Id.

       Two of the HPWHs that were reported to have “burned-up” were sent to a
Massachusetts forensic engineering company for examination. Examination report
findings were similar to the Connecticut forensic engineering company’s findings. The
Massachusetts report indicated that it is considered unlikely that the electrical failures
would initiate a larger event outside the confines of the HPWH. Id.

Condensate Problems

       CL&P states that another problem frequently reported is associated with the
HPWH condensate removal system malfunction or failure. Typically, this problem is
caused by either the internal drip pan drain being clogged with debris or failure of the
associated condensate removal pump that pumps the condensate to a remote drain
location. Either failure will result in condensate overflowing the drip pan and draining
down through the internals of the HPWH and onto the floor. This occurs because the
HPWH design does not provide an automatic shut-off or alarm to mitigate this failure
mode and alert the customer to the problem. Several customers have complained
about resultant “flood” damage to their basements. Id.

Reconnection Issues

       CL&P also states that nearly every customer with a HPWH will contact CL&P’s
C&LM personnel for reconnection service upon replacement of their domestic water
heater. The reason is that a typical plumber is not qualified to install or reconnect the
HPWH and will correctly decline to accommodate a customer’s request for reconnection
service. The qualified individual must have a plumber’s license, an electrician’s license,
as well as training on the specific manufacturer’s HPWH installation and maintenance
requirements. It is very important that a qualified individual perform the reconnection
because, if performed improperly, serious damage to the new water heater controls may
result. Typically, the potential damage is generally not covered by the customer’s water
heater warranty. Some customers report that they have been unsuccessful in
Docket No. 03-01-01RE01                                                         Page 5


attempting to reconnect the HPWH on their own. Many customers have complained
that HPWH reconnection service should be provided to them at no cost. Most
customers reporting this problem will request removal of their HPWH to avoid the
reconnection fee charged by a qualified individual. Id.

Internal Piping

        Additionally, some customers report that the HPWH water coil, piping, or pipe
fittings are leaking domestic water onto the floor. Customers have also reported
problems with the refrigerant compressor or associated refrigerant piping leaks. To
mitigate these failures, the customer is advised to place their HPWH in “bypass” mode
and shut the isolation valves located in the hoses that connect the unit to their water
heater. The majority of customers with this category of failure request immediate
removal of their HPWH. Id.

Winter Operation

       The Company also notes that some customers report concerns with their HPWH
when they are preparing to sell their home. Frequently, the customer’s realtor or
prospective buyers have advised them to remove the HPWH to facilitate the sale by
eliminating a potential future problem. Finally, CL&P reports that some customers state
that the HPWH makes their basement too cold during the winter. Customers report that
they place the HPWH in “Bypass” until spring arrives to mitigate this condition. Energy
savings calculations associated with any future implementation of this technology as an
energy conservation measure in northern climates will need to consider this attribute.
Id.

C. CL&P ACTIONS REGARDING NYLETHERM-1 HPWHS

       CL&P states that the majority of customers who contacted the NUSCO Customer
Service Department regarding HPWH problems requested repair service for their units.
The NUSCO Customer Service representatives were provided with instructions to refer
customers with Nyletherm-1 Hot Shot HPWHs to C&LM’s Hot Shot Senior Program
Administrator for resolution. Customers who reported HPWH problems during the
period July 2003 to May 2004 were provided with the following two options:

1.     Customers who were dissatisfied with their HPWH and elected removal of the
       unit from their residence were provided with removal service at no cost.
       Subsequent to the removal, the customer was provided with a letter and
       accompanying $150 reimbursement check for their contribution to the initial
       installation cost; and

2.     Customers who desired to keep their HPWH and sought repairs at their own
       expense were provided with a letter and a waiver release form for their review
       and consideration. Upon the NUSCO Customer Service’s receipt of the signed
       waiver release form, the customer was provided with a letter and accompanying
       $150 reimbursement check for their contribution to the installation cost.
       Response to Interrogatory EL-3.
Docket No. 03-01-01RE01                                                           Page 6


        Customers who reported problems with their HPWH during the period May          2004
to December 2005 were provided with the same two options minus the                     $150
reimbursement of their contribution to the installation cost. Reimbursements           were
suspended in May 2004 because, by that date, all customers’ HPWHs had                  been
installed for more than two years. Therefore, the initial $150 installation cost had   been
recovered through electrical energy savings. Id.

       The Company notes that customers reporting problems after January 1, 2006 are
advised to place their HPWH in the “bypass mode” and await receipt of a customer
post-settlement notification letter. Exceptions are made for those customers who report
problems requiring immediate removal of their HPWH. CL&P further indicates that
HPWH removals are performed by one of three qualified contractors as assigned by the
Hot Shot Senior Program Administrator. The assigned contractors are the same
individuals previously qualified to install HPWHs when the program was actively
promoting the technology prior to mid-2002. Id.

        CL&P reports that customer responses varied widely between the two options
that were provided. In most instances, customers indicated that they were generally
satisfied with their HPWH until it stopped working. However, when provided with the
option of keeping the HPWH and seeking repairs at their own expense, customers
usually opted for no-cost removal rather than make an investment in repairs. Many
customers expressed disappointment that the Hot Shot program was closed because
they expected no cost repair or replacement of their inoperative HPWH. CL&P states
that several of these customers had been previously provided with one or more no-cost
replacements of a failed HPWH. Customers who had unsatisfactory experiences with
their HPWH units such as “burned-up” control modules or condensate “flooding” were
usually pleased to receive expedited no-cost removal of the defective HPWH from their
homes.

       CL&P also provided the following information. The 822 customers that reported
HPWH problems to C&LM’s Hot Shot Program Senior Program Administrator during the
period July 2003 to December 2005 made the following elections:

         545 (approximately 66%) requested and were provided no-cost removal of
          their HPWH;

         152 (approximately 19%) returned signed waiver release forms to keep their
          HPWH and seek repair service at their own expense; and

         125 (approximately 15%) did not respond to C&LM letters explaining the two
          options available.

       Finally, CL&P states that as of December 31, 2005, the one customer who
elected to keep the HPWH and obtained installation of a new control module at his own
expense reported that the new control module had failed. This customer subsequently
requested removal of the HPWH.
Docket No. 03-01-01RE01                                                            Page 7


D. THE SETTLEMENT AGREEMENT

        As stated previously, CL&P’s customers began reporting problems and failures
with their HPWHs via email and telephone in the spring of 2001. At that time, the
failures did not appear to present safety issues. In April 2001, CL&P received a report
that a unit experienced a significant failure, including burning of the control module
wiring. CL&P received a report that a second unit experienced a similar failure in July
2001. At that time, CL&P suspended installation of additional units until it could address
customers’ issues with NSP. In October 2001, NSP reported to CL&P that it had
determined how to remedy the units, and CL&P permitted NSP to implement this
remedy at NSP’s expense. In May 2002, CL&P received reports that units that had
been remedied were failing. In June 2002, CL&P ceased active marketing of the units.
CL&P also took over handling customer calls about the Hot Shots, and performed
necessary servicing through its own contractors. In October 2002, NUSCO made
demand on NSP for reimbursement of its costs in connection with the Hot Shot
program. Thereafter, the parties (represented by counsel) engaged in settlement
discussions, but were unable to resolve their disputes.

       In September of 2003, CL&P filed suit against Nyle Corp. and NSP, asserting
that the Hot Shots were defective and that Nyle Corp. and NSP were responsible for the
losses caused by the defective units. NSP also filed suit against NUSCO to recover
unpaid fees for storage of the units, and for damages caused by NUSCO’s refusal to
allow Nyle Corp. to repair or replace the defective units. The lawsuits were removed to
the Connecticut federal court and consolidated.

      The parties participated in several mediation sessions conducted by the United
States District Court for the District of Connecticut. The mediation began in December
2003 and the parties continued settlement discussions throughout 2004 and into 2005.
In August of 2005, the parties reached a settlement agreement (Settlement Agreement)
which was submitted to the Department in December for its review and approval.

    Among the terms of the Settlement Agreement, the provisions that concern
NUSCO, CL&P and the Hot Shot customers include the following:

     NSP to release NUSCO from all claims including storage fees for units being
      stored in Maine. Upon transfer of title, NSP shall be responsible for storage,
      removal, disposal, and any other costs associated with Hot Shot units at all
      storage facilities;

     NUSCO to transfer title of approximately 1,400 Nyle Hot Shots and
      approximately 900 Crispaire Hot Shots being stored in Bangor, Maine, along with
      inoperative (removed by NUSCO) Hot Shot units in storage at various contractor
      locations, to NSP;

     STK will provide up to 5,000 new and upgraded controllers to NSP at no cost to
      NSP to replace the controllers in units already installed in the homes of
      customers of CL&P and Western Massachusetts Electric Company as well as
      those that are in storage;
Docket No. 03-01-01RE01                                                          Page 8


    NSP to provide to all Hot Shot customers a written warranty that extends the
     term of the current NSP warranty from five (5) to six (6) years from the date of
     purchase of the unit by the customer, for all problems other than controller
     failures. For controller failures, NSP will warranty the replacement controllers for
     three (3) years from the date of installation for those customers who have a Nyle-
     trained technician install the new controller, and three (3) years from the date of
     delivery of the new controller for those customers who opt to install the new
     controller themselves; and any replacement controllers that fail during the
     warranty term will be replaced by NSP at no charge to the customer or NUSCO;

    NSP to remove/dispose of Hot Shot units for customers who decline to accept
     new controller and elect to have their units removed at no charge;

    NSP to take over the Hot Shot program in its entirety and maintain a dedicated
     customer service telephone number for all inquires. The phone number will be
     answered by a trained customer service representative during regular business
     hours, and customers will hear an informative recording and be permitted to
     leave a message during non-business hours;

    NSP to complete repairs and upgrades of customers’ units within 12 months of
     Settlement Agreement execution, giving priority to customers who report
     inoperative units;

    NSP to provide for distribution to all customers, stickers to be placed on the Hot
     Shots. The stickers will contain appropriate NSP contact information and remind
     customers to call NSP, not CL&P, when service is required;

    NUSCO to provide NSP with the names, last known address and telephone
     number(s) of the customers with installed units, along with the dates their units
     were purchased, which information NSP will use solely for the purposes of
     implementing the terms of the Settlement Agreement. NSP agrees not to contact
     any of the listed customers before NUSCO communicates the terms of the
     Settlement Agreement to such customers;

    NUSCO has eight (8) months from date of Settlement Agreement to obtain the
     Department’s approval of it;

    Notification letters to be sent to customers explaining that NSP will be
     responsible for units along with the new stickers, and waiver forms to all
     customers with Nyletherm-1 Hot Shots installed upon the Department’s approval
     of the Settlement Agreement and receipt of the new stickers from NSP;

    NSP to provide new and upgraded controllers to all Hot Shot customers, at no
     charge. As to those customers who request that NSP install the new controllers
     within 21 days of notice from NUSCO, NSP will have the new controllers installed
     by local, Nyle-trained technicians, at a charge not to exceed $40; if after 21 days,
     at a charge not to exceed $60. All other costs and expenses of installation shall
     be borne by NSP and Nyle Corp. NSP will make its best efforts to complete the
     repairs and upgrades of the units installed in customers’ homes within 12 months
Docket No. 03-01-01RE01                                                           Page 9


      of the Department’s approval of the Settlement Agreement. As to those
      customers who elect to install the new controllers on their own, NSP will provide
      the controller and directions for its installation to the customers at no charge.
      NSP will obtain from each such customer and deliver to NUSCO an original,
      signed letter waiving all claims against NUSCO, and agreeing to indemnify
      NUSCO for all losses claimed in connection with the Hot Shot unit;

     NSP to provide NUSCO with certificates of completion for customers that elect
      new controllers installed by NSP, and for customers that elect to install them on
      their own;

     STK to pay NUSCO $100,000 for cover legal costs and expenses involved in
      litigation. Out of that $100,000, $30,000 to go into escrow to ensure performance
      by NSP;

     The Nyle Corp. and NSP shall be solely responsible for and shall indemnify and
      save NUSCO and CL&P and their affiliates from and against any and all costs or
      liabilities for bodily injury, personal injury, damage to property or any unlawful
      employment practice of the Nyle Corp. and NSP that is caused by the acts or
      omissions of the Nyle Corp. and NSP, their employees, agents, subcontractors,
      or out of or connected with the performance of the Settlement Agreement; and

     The Nyle Corp. and NSP to maintain comprehensive personal injury and property
      damage insurance. All insurance shall be endorsed to provide that: CL&P and
      NUSCO shall be included as additional insureds; the interests of CL&P and
      NUSCO shall not be invalidated by any action or inaction of NSP and Nyle Corp.
      and shall insure CL&P and NUSCO regardless of any breach or violation by the
      Nyle Corp. and NSP, that the insurance company waives all rights of subrogation
      against CL&P and NUSCO.

       The Department oversees CL&P’s conservation initiatives and has been aware of
all aspects of the Hot Shot program since its inception in 1997, including issues
surrounding the Nyletherm-1 HPWHs. While CL&P was negotiating its Settlement
Agreement with Nyle Corp. and NSP, the Department believes that CL&P took
reasonable measures to address customer safety-related concerns as well as customer
satisfaction issues. As a result, the Department finds that CL&P acted prudently with
regard to the Hot Shot program and issues surrounding these units.

        This matter has been in litigation for several years before reaching a settlement
agreeable to the parties. The Department has reviewed the Settlement Agreement and
finds it to be reasonable and that the terms of the Settlement Agreement are in the best
interests of ratepayers and the Connecticut Energy Efficiency Fund. Therefore, the
Department hereby approves the Settlement Agreement.
DOCKET NO. 03-01-01RE01       DPUC REVIEW OF THE CONNECTICUT LIGHT AND
                              POWER    COMPANY'S   AND    THE   UNITED
                              ILLUMINATING COMPANY'S CONSERVATION AND
                              LOAD MANAGEMENT PROGRAMS AND BUDGET
                              FOR YEAR 2002 AND 2003 -- REOPENING:
                              REVIEW    OF   HOT   SHOT    SETTLEMENT
                              AGREEMENT

This Decision is adopted by the following Commissioners:




                   John W. Betkoski, III


                   Anthony J. Palermino


                   Anne C. George




                            CERTIFICATE OF SERVICE

        The foregoing is a true and correct copy of the Decision issued by the
Department of Public Utility Control, State of Connecticut, and was forwarded by
Certified Mail to all parties of record in this proceeding on the date indicated.




                                                                March 30, 2006
                         Louise E. Rickard                      Date
                         Acting Executive Secretary
                         Department of Public Utility Control

				
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