BEFORE THE PUBLIC UTILITIES COMMISSION OF COLORADO IN THE MATTER OF THE PROPOSED ) RULES REGARDING NATURAL GAS ) Docket No. 07R-371G DEMAND-SIDE MANAGEMENT ) Reply (#2) Comments of Ronal W. Larson and Randy Kuehn on behalf of Ratepayers United of Colorado (RUC) November 20, 2007 Introduction and Background. Ratepayers United of Colorado (RUC) is a public interest non-profit organization dedicated to promoting both renewable energy and energy efficiency / demand side management (EE/DSM) in Colorado. RUC is motivated by health, jobs, environmental, future supply restrictions, and rate impact considerations. We have supplied one previous set of comments dated 6 November, focusing on bonus computations and two previous sets of comments in the preceding investigatory docket. On November 15, we supplied a first set of reply comments (misdated Nov. 16), restricting ourselves in that reply to the November 9 comments from Public Service of Colorado (PSCo). This present reply covers the five other comments found at http://www.dora.state.co.us/puc/rulemaking/RecentRulemakingActivity.htm#07R371G . We note that the very important November 9 PSCo comments were still not at this site as of 20 November. RUC can forward them to interested parties who contact us (email@example.com) 1. Aquila (ref. http://www.dora.state.co.us/puc/rulemaking/Comments/07R- 371G_Aquila11-09-07InitialComments.pdf) (10 pages) The first 4.5 pages seem to be implying that the draft rules of this Docket are in some sort of constitutional conflict – especially as they relate to utilities providing a DSM opportunity to all ratepayers. As we are non-lawyers, we shall stay out of this, but we note that Aquila has nowhere referred to recently-passed SBO7 – 022, dealing with low- income rate-payers. We like the special emphasis in the OCC response below - taking the opposite legal position on this inclusion topic. The final half of the Aquila comments begins with a plea for multi-year plans. We note that the language of HB07-1037 states on p5 (re 40-3.2-103(c)(I): “….ALL SUCH COSTS SHALL BE RECOVERED THROUGH A COST ADJUSTMENT MECHANISM THAT IS SET ON AN ANNUAL BASIS, OR MORE FREQUENTLY IF DEEMED APPROPRIATE.” (emphasis added). The key words clearly are “set” (and this can only mean the Commission) and “annual”. We are surprised that Aquila (and PSCo and all other utilities apparently) would want this important decision made in the absence of their annual plans. But even if the gas utilities discount the importance of cost adjustment mechanisms, it is difficult to believe that the required annual report cannot contain a short description of what might reasonably change in a following year (NOT the year in which the report is due). The “imposition” of a required plan is the wrong way to look at planning. Since it is absolutely clear that an annual DSM report is mandated, it is only necessary that this report contains enough also of a planning character to update the 2-, 4- or even 10-year plans on which the utilities choose to stake their reputations. Multiple year plans need not be inconsistent with annual updates. Aquila next states a concern about a lack of flexibility – which we don’t understand, since the only example given is that of Rule 4750 (General), which deals again with the “Constitutional” issue of the first 4.5 pages on providing ratepayers access to DSM measures. As noted above, to us, this is a question of equity and therefore should have nothing to do with flexibility. We urge Commission rejection of this utility position until a more concrete example of rule inflexibility is presented. Refer to other RUC replies in this document rejecting this non-equitable approach. Aquila also rejects rule 4750 wording “adoption potential, market transformation capability and ability to replicate in the service territory while; considering the overall rate impact of …” referring to PUC direction on DSM planning. As elsewhere stated, we think this is counter-productive advice. 2. Colorado Energy Efficiency Business Coalition (CEEBC) (a 3 page Word document directly opening in Word) RUC finds this newest corporate entry to the DSM discussion to be exceedingly valuable. We concur with all but one of their main points. We specifically endorse their comments about Rules 4753 (criteria – resource assessment, stating early, and aggressive goal), 4756 (non-energy benefits (NEBs) quantification, buildings, patterning after NYSERDA) and 4757 (bonus computations). Our small objection is to suggesting it appropriate for PSCo to expend 20% of their funds to quantify the NEBs. We believe there are numerous studies in the DSM evaluation literature (especially that of NYSERDA and several Colorado evaluation companies [ex. Skumatz, Summit Blue]) who can lead Commission staff to the appropriate quantification literature. If necessary, there can be appreciable leniency in such quantification, if it becomes apparent that the Bonus will be based on expenditures, rather than benefits. RUC has come to the same conclusion as CEEBC on bonuses – as reported on 9 November in our own first comments. 3. Energy Outreach Colorado (EOC) http://www.dora.state.co.us/puc/rulemaking/Comments/07R-371G_EOC11-01- 07Comments.pdf (2 pp) RUC agrees with EOC in all parts of their comments – which of course concentrate on the appropriate level of DSM attention to low income ratepayers. We believe intuitively that extra attention with this sector will be proven highly justified if there is inclusion of realistic non-energy benefits for all rate payers (and that will be larger for low-income customers). The imaginative exclusion of low-income ratepayers from the G-DSMCA seems justified in light of the language in HB 1037 and SB 22. We guess that this zero-cost-adjustment would be supported by a majority of Colorado voters and ratepayers. Inclusion of low-income ratepayers in DSM programs will save money for EOC and other organizations (Xcel included), which raise funds to pay utility bills for these individuals. In a good economy, funds can be raised, but in bad times, utilities will be forced to raise rates to cover unpaid bills. 4.Office of Consumer Counsel (OCC). A zip file. (4pp directed at about 8 small modifications of the rules). RUC generally agrees with the proposed modifications. We especially like the OCC emphasis on equity. The recommendation to ensure a possible third category of customer is well worth considering, as it goes along well with the EOC comments discussed above. However, in particular, the low-income recipient/payer of DSM programs could be in a terrible situation if they are established as a separate class. We therefor recommend new language following 4753(c) – so as to read (as first modified by EOC with “shall”): “The utility shall propose one or more DSM programs that are targeted to low-income customers. The DSM costs for this class shall be borne by the other rate payer classes, in proportion to their usage of natural gas and the availability of DSM programs therein, as established by the Commission.” The justification for this last RUC proposal is several-fold. We understand that this is the roughly the case now, as the only existing gas DSM program (E$P) is for low-income – and those costs are borne by all ratepayers – definitely not by the low income customers alone. RUC views this as something like a life-line or inverted-block rate as used in many jurisdictions – in part for equity reasons. The justification for having a lower energy “tax” for low-income is much like that for the graduated income tax - that has been the Colorado and US norm from the beginning – one of equity. This goes a little further by exempting the low-income rate payer from any DSM charge (much as many low-income taxpayers pay no income tax). Low-income consumers are generally not going to be able to participate in the program at all - for reasons of being renters or simply not having cash for something even with a one-year payback. We could understand a modification of the DSM applications in which those who absolutely benefited having some repayment out of those monthly bill savings that could be directly attributed to the DSM program. For example, if monthly bills could be shown to drop in half because of several thousand dollars of DSM investment, perhaps half of the half could be put back into the system for others. Of course, efforts should be made to ensure that real estate value accruing to a landlord from DSM program funds is similarly tracked and recovered where possible. We guess that this sort of DSM program would be much preferred by most ratepayers over the present system of paying bills for housing units that are badly inefficient (while understanding that emergency lifeline bill payment is sometimes the only option). The last OCC modification re rule 4760 (bonus) is headed in the right direction, but we would make both columns much simpler (always 20% in the right column) - as justified in our first comments. But we think the following final comment (with emphasis added) can be misinterpreted. “…. the OCC recommends that the maximum bonus be earned for the same level of outstanding achievement, under either the percent of economic benefits measurement or the percent of expenditure measurement.” The legislation is clear that the lesser of the two bonus computations is to be used. We think this is the appropriate choice – as both bonuses are very generous, if not overly so. We urge the OCC to rethink their position. We also note as we talk about bonuses with various interested parties that there is considerable confusion over how the bonus is to be computed. Therefore, we welcome examples from any party that thinks they know how to calculate both (not just one based on benefits or expenses alone, and not by simply assuming a benefit to cost ratio). We should like to see some examples dealing with both program and customer costs, the total benefits, and attribute lifetimes. 5. Howard Geller for the Southwest Energy Efficiency Project (Ref. http://www.dora.state.co.us/puc/rulemaking/Comments/07R-371G_SWEEP11-01- 07Comments.pdf (6 pp) The first 1.5 pages argue for less complexity and a longer period between plans. We have addressed this in earlier remarks – stating that we are for simpler rules, but that annual statements about plans seem to be valuable - because the goals and bonus payments need to be provided every year by the Commission (as emphasized by SWEEP on p 3). SWEEP argues on p2 for a utility ability to exceed budgets by up to 30%. We concur – but would argue for a larger (possibly unlimited) upper limit, as long as the utility felt it could justify prudency. The expenditure and benefit goal setting by the Commission should almost force larger goal expenditures, as we read the proposed rules (which we would make more lenient). On page 3, SWEEP recommends specific near-term goals (rising to 1% of utility gross sales. RUC would rather focus on the Governor’s Climate Action Plan (released after the Sweep comments) – and let the budgets be dictated by the degree to which it seems possible to meet the proposed 20% reduction of greenhouse gases. There is a useful annual target here of 20,000 decatherms per million-dollar expenditure. Inverting, one finds about $50 per decatherm (or MMBtu) per year. Assuming a twenty-year average investment lifetime, this gives about $2.50 per MMBtu – clearly a good bargain these days. Again, Dr. Geller is emphasizing that this is a Commission determined target goal. As 1 MMBtu approximately equals 1000 cuft, and combustion turns that amount of methane into about 120 pounds of CO2, this $2.50 investment per MMBtu equates to a CO2 cost of more than $40 per tonne. Thus, we can’t promote CO2 reduction via DSM of natural gas use as a practical cost-effective means of keeping CO2 from the atmosphere. Rather, this is primarily a means of saving on monthly average bills. Nevertheless, this amount needs to be compared to the $20 per tonne CO2 “ERP penalty cost”, that PSCo announced on 15 November would be used in resource planning and that is presumably going to be used to compare DSM against new gas plants in competitive electric all-source bid evaluations. On page 4, Dr. Geller provides comments on Rule sections 4754, 4755, and 4756, in all of which RUC agrees. Under 4754, he points out the need for an additional rule under which the utilities shall report on costs per tonne of each pollutant, per the enabling legislation. Rule 4755 (funding) begins on p 5, with a recommendation to remove a specific sentence limiting incremental expenditures; RUC agrees. More specifically, we think that the bonus structure will eventually be seen to be sufficiently remunerative that there will be utility agreement to greatly increase DSM activities, and RUC favors that path. We cannot agree with all the remarks about Rule 4758 on bonus structures – as we have said several times earlier about this bonus rule. We cannot concur that one or the other bonus can take precedence over the other as is implied here. We look forward to someone providing example computations that illuminate Dr. Geller’s last sentence dealing with a natural limiting optimum. Rather, we perceive that there is a “magic” B/C ratio of 2.25 for selecting the required 20% or 25% bonus amount. But the dollar bonus amounts seem to (monotonically) increase even for B/C ratios less that 2.25 (net benefits less than 1.25), as long as B/C stays above unity. That is, it is difficult to imagine a “normal” case (B/C > 1, which is required) where benefits don’t increase when expenditures increase. More exact examples are needed. . In sum, the SWEEP remarks are cogent and excellent, with the few exceptions noted above.
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