AARP COMMENTS ON PROPOSED RULE FOR ENERGY EFFICIENCY

Attached are comments that were filed with the Oklahoma Corporation Commission today from AARP Oklahoma on proposed rules relating to “Demand Programs” to promote energy efficiency and conservation. There will be a public hearing on December 20 at 9:30 am at the OCC in Conference Room 301 if you’re interested in attending or want to participate. Sean W. Voskuhl Associate State Director AARP Oklahoma 126 N. Bryant Avenue Edmond, OK 73034 405-715-4475 swvoskuhl@aarp.org BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA IN THE MATTER OF A RULEMAKING BY THE OKLAHOMA CORPORATION COMMISSION AMENDING OAC 165:35, ELECTRIC UTILITY RULES ) ) ) ) CAUSE RM NO.200700007 COMMENTS OF AARP ON PROPOSED RULES RELATING TO “DEMAND PROGRAMS” TO PROMOTE ENERGY EFFICIENCY AND CONSERVATION November 19, 2007 AARP submits the following comments in the above referenced docket. AARP is a nonprofit, nonpartisan membership organization with over 430,000 members in Oklahoma. AARP is dedicated to making life better for people 50 and over. We provide information and resources and engage in legislative, regulatory and legal advocacy. AARP has been active before the Oklahoma state legislature and the Corporation Commission in advocating on behalf of our members who are concerned about rising energy and telecommunications bills. The Commission has proposed a new rule relating to demand and energy efficiency programs, and cost recovery. This is an important step for Oklahoma. By 2030 natural gas consumption in the US is projected to grow by a fifth and electricity use by half. Such growth will produce higher prices and greater price volatility. Both the energy industry and all consumers have much to gain from the adoption and implementation of energy efficiency programs that help consumers lower their monthly energy usage as well as reduce their monthly energy bills. Indeed, policymakers in most states have adopted or are considering various approaches to promote energy efficiency in the utility sector. AARP supports development of affordable, cost-effective energy efficiency programs. Energy efficiency programs that are designed to reduce usage without impacting comfort, convenience or productivity are a good investment for consumers at a time of rising energy prices. Energy efficiency also benefits the environment by reducing emissions. According to the American Council for an Energy Efficient Economy (“ACEEE”), Oklahoma stands at 44th out of 50 states and the District of Columbia ranked on energy efficiency policies and programs, including expenditures on energy efficiency, building codes, appliance standards, tax incentives and conservation by state agencies. 1 Thus, a properly designed DSM rule has great potential to both reduce usage and lower consumers’ energy bills. While AARP supports the Commission’s efforts to increase energy efficiency in Oklahoma, we are not fully in support of the proposed rule. Specifically, AARP recommends 1) the rule require at least 25% of expenditures on energy efficiency be targeted to low income households; 2) the proposed provisions on cost recovery should be revised to ensure cost recovery is open and transparent and that only reasonable costs directly related to the programs are recovered from ratepayers; 3) “advanced meters” and dynamic pricing for the residential class should not be a permitted program under this rule. AARP supports the proposed customer protections that would be provided to customers who participate in the utility-provided energy efficiency programs and urges that the protections not be weakened. In addition, AARP reserves the right to make additional comments on these and other provisions of the proposed rule at the scheduled technical conferences or public hearings. I. The Rule Should Include a Target for Serving Low Income Households Energy bills are a significant burden on low income Oklahoma families. According to analysis of U.S. Census data conducted by the public finance and economics consulting firm of Fisher, Sheehan & Colton, the very poorest households in the state (below 50% of the Federal Poverty level) pay 54.6% of their annual income for home energy bills. The analysis of energy affordability also found that home heating and cooling bills are unaffordable for households at incomes of 185% of poverty and below and that Oklahoma’s federal LIHEAP allocation covers only a small portion of the need.2 In other research the Applied Public Policy Research Institute for Study and Evaluation (“APPRISE”) found that utility energy efficiency programs targeted at low income customers resulted in energy savings and most were a cost-effective investment of resources. 3 The research, co-sponsored by AARP, energy assistance providers and several utilities, also revealed that in addition to reducing energy usage, these programs can have an impact on the health, safety and comfort of low-income customers. For example, the evaluation of one program found a lower level of unsafe use of a stove or oven for heat, as participants were better able to afford their utility bills. Although low income households can obviously benefit from energy efficiency programs, they may not be able to participate in utility-sponsored programs that are aimed at the general body of ratepayers. For example, programs that offer customers rebates on purchases of new energy efficient appliances are unlikely to be utilized by low income households who could not afford to make the purchase, even with a rebate. That is why many states include specific requirements for utilities to target some percentage of energy efficiency programs and/or funding to serve low income customers. In fact, both PSO and OG&E indicated at the April Technical Conference on DSM that they currently offer at least some energy efficiency programs aimed at low income households. Therefore, AARP recommends that at least 25% of the expenditures on residential energy efficiency programs should be set aside for programs targeted at low income households, earning 185% of poverty or less. The rules should also encourage the utilities to work with the agencies administering LIHEAP funds in referring qualified customers and coordinating provision of services. II. Cost Recovery Should be Open and Transparent and Linked to Performance In adopting any energy efficiency program, the Commission should ensure that ratepayers will see smaller utility bills if they consume less energy. In other words, programs must be cost effective, program costs must be reasonable and cost recovery should not be automatic. The following provisions of the proposed rule impact the overall cost to consumers and whether or not they will see bill savings as well as energy savings: Sec 165:-41-2. General program elements. This section states that electric utilities “shall administer programs designed to lower energy bills and or usage”. Thus, the language envisions ratepayers lowering usage but their bills remaining the same, or even increasing. The goal should be to lower both usage and bills, otherwise ratepayers will see no benefit and reject energy efficiency programs and educational efforts. AARP recommends the word “or” be stricken from the sentence referenced above. Sec. 165:35-41-8. Cost-effectiveness standard. In this section the proposed rule sets forth a cost-effectiveness standard and states that the present value of project benefits would be calculated annually. AARP does not disagree with the cost-effectiveness standard proposed. However, calculating the value of energy saved is open to interpretation. For example, the energy efficiency programs may displace the need for a new plant or a new purchased power contract. Obviously, there are many variables in potential cost for a new plant or a new purchased power contract. It would be inappropriate to base the value of saved energy on the highest possible estimation of what a future plant or contract might have cost ratepayers. High cost estimates on the generation side would cause some programs to look “cost-effective” when in reality they are not. The Commission should establish the value of energy saved in a proceeding open to all interested parties. Sec. 165:35-41-10. Utility administration. AARP endorses the limitation of administrative expenses to 10% of total program costs and that inspection and verification by an independent expert should be included in the administrative expenses. Ten percent is a reasonable percentage of “overhead” for the utility and ensures the maximum number of program dollars will go toward serving ratepayers. Sec. 165:35-41-11 Cost recovery. The proposed rule allows a utility to recover costs through a rider, and it appears the rider would change quarterly. There is a limit on expenditures of .25% of nonfuel revenue, although the limit could be exceeded. The only review of expenses comes from staff. AARP supports the limitation on total expenses, but believes the cap should be a firm cap with no exception. In addition, AARP does not support the use of a rider as the first choice in a cost recovery mechanism. It more fair to consumers to include program costs in rates. That is because use of a cost recovery rider distorts the traditional regulatory structure by isolating the costs of one program or category of expense and recovering those costs separately and independent of any other cost changes occurring within the utility’s operations. A rider amounts to piecemeal ratemaking. When rates are reviewed in a rate case, the Commission considers costs that are rising, as well as aspects of the company’s operations where costs may have held steady or decreased. A rider that tracks only cost increases looks at only one side of the equation. AARP recommends the rule require that costs for programs would be recovered in rates as part of a general rate case. In addition, and regardless of whether cost recovery is done through a rider or in a rate case, cost recovery should be an open and transparent process involving other parties in addition to staff. As troubling as the method of cost recovery are the proposed bonuses to be earned by the utility for spending under budget and for exceeding to the energy savings goal. First, the rule proposes that funds not spent within a given year shall be retained by the utility if the year’s goals are met. This provision is an invitation to short cuts and inflated savings estimates. Measurement and evaluation is done by the utility itself and may not be subject to independent review unless ordered by the Commission.4 When consumers bills rise with a cost recovery rider they should at least be assured that all of the money they pay is going to help reduce energy usage, not add to utility profits. AARP recommends that any unspent funds should be carried over to the next year to be spent on approved programs. Second, the proposed rule would allow a utility that exceeds the target for the year to keep 50% of the net benefit attributable to the demand programs for that reporting year. Again, because measurement and evaluation may not or may not be independently audited, this provision is another invitation to inflated results. AARP recommends this provision should be deleted. Should the Commission wish to give the utility a bonus for exceeding the target, it should be done only after the independent measurement and verification expert confirms the target has indeed been exceeded. III. “Advanced Meters” and Dynamic Pricing for the Residential Class Should not be a Permitted Program Under this Rule Both PSO and OG&E have identified time of use rates or other types of “dynamic pricing” as energy efficiency programs. 5 Advanced metering infrastructure is both costly and controversial.6 Further, time of use rates and dynamic pricing programs will raise rates significantly for those households who already use a minimal amount of power, or for health and safety reasons cannot shift usage off peak. Such households include those that are of low income and those that include very young children, elderly, retired, ill and/or the disabled among their members. Although advanced meters and dynamic pricing for the residential class have being proposed in several jurisdictions, there is in fact little data on the impact of these pricing structures on vulnerable customers. Cost benefit analyses show a benefit from advanced meters primarily from reductions in work force (meter readers) rather than from savings to customers through dynamic pricing. AARP recommends that costly advanced meters and dynamic pricing program should be carefully scrutinized in a contested case proceeding. Although PSO recently won approval for a time of use pilot, once again there is no assurance that important data about impacts on low use and other vulnerable households will be collected. . IV. Customer Protections Must be Not Be Weakened The proposed rule at 165:3-41-14 outlines customer protections available to customers of a program under this rule. The protections relate to disclosures given the customer and certain information that should be included in a contract offered to the customers. AARP believes these protections are essential and supports their inclusion in the rule. However, we note there are several typographical errors in this section. For example, (a)(1)(C) is labeled as (a)(1)(D) and the current (a)(1)(D) refers to provisions of (a)(3) when it should refer to (a)(2), as there is no section (a)(3). V. Conclusion For the reasons stated above AARP respectfully requests the Commission adopt the suggested amendments to the proposed rule. Respectfully Submitted: Sean W. Voskuhl AARP Oklahoma Associate State Director