STATE OF NEW JERSEY
BOARD OF PUBLIC UTILITIES

IN THE MATTER OF THE FILING OF THE                     )	BPU Docket Nos.
COMPREHENSIVE RESOURCE ANALYSIS                   )	EX99050347, EO99050348,
OF ENERGY PROGRAMS PURSUANT TO                     )	EO99050349, EO99050350,
SECTION 12 OF THE ELECTRIC DISCOUNT                 )	EO99050351, GO99050352,
AND ENERGY COMPETITION ACT OF 1999                )	GO99050353, GO99050354

COMMENTS ON THE NEW JERSEY CLEAN ENERGY COLLABORATIVE’S PRESENTATIONS TO THE BOARD OF PUBLIC UTILITIES
ON JUNE 5 AND JUNE 13, 2002

PREPARED BY DR. DAVID NICHOLS ON BEHALF OF
THE NEW JERSEY DIVISION OF THE RATEPAYER ADVOCATE

          Seema M. Singh, Esq.
                                    Acting Director and Ratepayer Advocate
                   31 Clinton Street, 11th Floor
   P.O. Box 46005
                    Newark, New Jersey 07101

 

Dated: July 8, 2002

COMMENTS ON NEW JERSEY CLEAN ENERGY COLLABORATIVE’S PRESENTATIONS TO THE BOARD OF PUBLIC UTILITIES
ON JUNE 5 AND JUNE 13, 2002

Prepared by Dr. David Nichols on Behalf of the
New Jersey Division of the Ratepayer Advocate

1.  Summary

On June 5 and 13, 2002, the Board of Public Utilities (BPU or the Board) held open meetings to take comments from the New Jersey Clean Energy Collaborative (NJCEC or the Collaborative). The Collaborative presented briefings concerning the status of the Comprehensive Resource Analysis (CRA) programs and the Collaborative’s plans for the programs. The meetings occurred against the backdrop of the Board’s consideration of the Davies Associates Incorporated (DAI) Report of April 2002 (the Report). My present comments result from considerations raised by representatives of the Collaborative and by Commissioners of the Board at the two presentation meetings.

 The Ratepayer Advocate filed my Comments and Reply Comments on the DAI Report on June 7 and June 24, respectively. My comments here aim to amplify and extend points made in those previously filed Comments, in the light of information and issues raised at the Collaborative’s presentations to the BPU. A summary of my conclusions follows.

• Administration. The presentations confirmed that there are good reasons for the Davies Report’s concern about the need for more clear and consistent data on the incurrence of administrative and other categories of costs by the utilities.
  
• Renewable energy program. The presentations underscored the barriers to successfully marketing small renewable energy systems to residential customers. Therefore, the incentives for renewable energy systems less than 10 kW in size should be increased substantially.
  
• Residential energy efficiency programs. The present “residential retrofit” and residential  “Energy Star products” programs are having little discernable market impact. They should now be replaced with new residential programs: the comprehensive audit-based residential retrofit program I described in my Reply Comments; a program of incentives to promote high-efficiency room air conditioners; and a program incenting customers to allow their operable refrigerators or freezers to be disposed of (recycled) in an environmentally responsible way. Implementing these changes will increase the measurable energy savings and peak demand reductions from CRA programs.

• Nonresidential energy efficiency programs. The Collaborative’s presentations confirm that there should be a ready market for the nonresidential pay-for-savings program I recommended in my Reply Comments, as well as for the small C&I direct installation program I described there. Adding these programs to the CRA portfolio will increase measurable energy savings and peak demand reductions from CRA programs.

None of the changes recommended here imply a change in the total Board-ordered CRA budget for (a) renewable energy and (b) energy efficiency programs. New initiatives would be funded through application of underspent budget, and reduction in budget for existing CRA programs through a combination of phase out of some program components and economies in the administration of all programs. The overall intent is to fully apply the Board-ordered budget in ways that increase the impact of CRA programs on energy use and on the markets for renewable and energy-efficient products and services. In Sections 2 through 6, I explain my conclusions and recommendations in more detail.

2.  Administration Issues

At the briefings the Collaborative explained the incurrence of program costs by category: administration, grants and implementation contractors, marketing, training, sales, and other (June 5, pages 52-54). According to NJCEC presentation slides, reported “grants and implementation contractor expenditures” were 73% of costs in 2001 and 79% in the first quarter of 2002. President Fox asked a number of cost-related questions, including how much program consultants cost, and what is included in administration costs. Fred Lynk of the Collaborative explained that the 6.6 percent reported “administration” costs are limited to utility labor and overhead, that other utility labor and overhead costs are also included in the “sales” and “marketing” cost categories, and that administrative type costs incurred by contractors are not included in reported “administration” costs (June 5, page 53). These questions and answers seem to underscore the need for the Board to have a more accurate report of administrative costs, including a break-out of what contractors are paid to do. This information should be provided on a regular basis as part of the CRA reporting protocol.

3.  Renewable Energy Program

The Collaborative’s presentation on the customer-sited renewable energy program (the “Clean Energy Program”) highlighted the difference in market impact among commercial and residential facilities. Nonresidential customers have participated in the program to a moderate degree, installing larger solar photovoltaic cell systems (PVs) and natural gas fuel cells (NGFCs). But, according to Elaine Bryant of the Collaborative, participation among residential customers who would install smaller renewable energy systems such as rooftop PVs of under 10 kW has been below expectations to date, despite intensive marketing outreach (June 13, pages 5-13). Ms. Bryant also indicated that the market price of residential size renewable energy systems is less likely to decline than the price for commercial sizes of systems (June 13, pages 13-14). Based on these considerations, I suggest that the incentives for small sized systems (below 10 kW) be increased substantially.

The Clean Energy Program incentive structure sets out four blocks of capacity. When the number of MW in the first block have been filled by program participants, the program moves on to the second block. When the number of MW in the second block have been subscribed, the third block becomes operative, and when the MW in the third block are subscribed by participants, the program moves to the fourth and final block. In general, incentives decrease as the program moves through the blocks. The incentives are defined differently for different sizes of renewable system. Each size category is called a “tier”. Tier 1 are the smallest systems, under 10 kW. For tier 1 systems, the very first block is not nearly filled. Currently, Tier I incentives for blocks 1, 2, 3, and 4 are $5, $5, $4, and $3 per Watt, respectively. Moreover, the incentives are currently limited to 60, 50, 40, and 30% of the cost of the renewable energy system for blocks 1, 2, 3, and 4 respectively. The need is to provide stronger incentives for the uptake of small renewable energy systems. I suggest that for Tier 1 the incentives should be increased to $7, $6, $5, and $4 per Watt for blocks 1, 2, 3, and 4; and that for Tier 1 projects only, the incentives be capped at 80, 60, 50, and 40% of system cost, respectively.[1]

The Collaborative’s presentation included information on the amount of renewable program funding taken by natural gas fuel cells (NGFCs) to date, compared to other technologies. Mr. Ambrosio argued that the fraction of funds taken by NGFCs in the future could be controlled by the structuring of the program (June 13, pages 30-31). My suggestion, however, is that NGFCs be removed from the program and from the CRA, for reasons explained in my Comments on the DAI Report. Once that is done, the issue of structuring the program to control their share will become moot.

4.  Residential Efficiency Programs

There is no general residential retrofit program in the current portfolio of CRA programs. As Chris Siebens of the Collaborative succinctly explained, the existing “residential retrofit is a name for the on-line energy audit” (June 5, page 40, emphasis added). In my Reply Comments, I proposed the establishment of a comprehensive, audit-based residential efficiency program. This program would have the following features:

• On-site survey (or “audit”) of a home to estimate the contributions of its equipment and building shell characteristics to household energy bills, identify potential efficiency improvements that the householder could pursue, and rank efficiency recommendations according to their costs and savings to the household.
• Installation, at the time of the on-site survey, of lower-cost efficiency measures which can economically be installed “on the spot.”
• Assistance in arranging for contractors to install higher-cost recommendations that the householder wishes to implement. Installation contractors would be pre-qualified and their work guaranteed by the program operator.
• A pre-arranged financing component whereby, through parallel home equity credit, householders who own their homes can finance major efficiency improvements such as insulation, windows, HVAC system upgrade, etc.

Models for this program exist, for example in the Massachusetts Energy Conservation Service. This program would fill a void in the CRA offerings. The existing residential “retrofit” program should be phased out to help provide funding for the more substantial program proposed here.

The presentations to the Board revealed that the market impact of the “New Jersey for Energy Star®” program is quite uncertain. This is the residential program to promote compact fluorescent lighting (CFL), efficient windows, and appliances (such as refrigerators, dishwashers, washing machines and room air conditioners). There is evidence of increased sales of CFLs in New Jersey, but the effect of the CRA program is mixed in with the effect of retailer programs and marketing by the U.S. Environmental Protection Agency (EPA). On June 13, Elaine Bryant stated that “the EPA has targeted the national retailers as their first priority and has had great success in enrolling many of those in promoting the Energy Star label.” (June 13, page 44.) Federal government agencies have hired marketing consultants to promote voluntary efficiency programs like Energy Star products and the Compressed Air Challenge throughout the country, including of course New Jersey. In considering how to add value to these ongoing and already funded promotional efforts, it is important that CRA dollars not be expended on educational and public relations efforts that are unlikely to produce measurable incremental market impacts.[2]

 Based on information raised at the Collaborative briefings and reconsidering the likely impacts of this program, I believe it should be shifted to new approaches that the EPA is not pursuing and that are likely to have more measurable market impacts. This would be consistent with the interest that President Fox showed in seeing market impacts expressed at numerous points in the June 5 meeting. I therefore recommend consideration be given to two new program components, as follows:

• Incentives for high efficiency room air conditioners (RACs). On June 5, the Commissioners expressed interest in more efficient RACs, particularly in view of their ability to help reduce residential summer peak demand. In the past, incentives for efficient RACs may not have been warranted. But now, the number of RACs in use New Jersey is growing. Some very high efficiency models have become available in the market. The energy consumption of the most efficient new RACs can be half that of older models from a decade ago. During the June 5 meeting, President Fox and other Commissioners expressed interest in ways to reduce summer peak electric demand (June 5, pages 66-71). An RAC program should be developed which uses financial incentives to shift the market in the State.

• Appliance recycling. The appliance recycling approach provides incentives to customers to allow their operable refrigerators or freezers to be disposed of. Appliance recycling has been operated successfully in several regions, and its operating procedures are well developed and the electricity savings well documented. A recycling company is contracted to collect the appliances and dispose of them in an environmentally responsible way. The electricity savings result from the fact that the average stock of refrigerators and freezers now in use consumes more than twice the electricity of the new units available on the market today. This differential is the result of several waves of federal appliance efficiency standards. Appliance recycling programs provide savings whether they remove operating second refrigerators that are in use as spares, or primary appliances that are then replaced. They have proven quite cost-effective. In addition to saving energy, they also contribute to reducing residential summer peak demand.

5.  Non-Residential Efficiency Programs

During the June 5 meeting, President Fox discussed the number of energy efficiency service provider contractors involved in delivering CRA programs for the Collaborative. She stated to the Collaborative, “What I want you to think about over the next month or so is, is there a way of getting more business to more companies …” (June 5, pages 37-38). In this context, I would like to underscore the proposal for a major new energy efficiency program that I made in my Reply Comments. I proposed a pay-for-performance program in which contractors --who are energy efficiency service provider companies-- are paid on the basis of electricity and gas savings from new efficiency projects at non-residential facilities. Such a program is open to all vendors and its structure is particularly suited to generating incremental business for companies who specialize in energy efficiency.

 Also on June 5, Chris Siebens of the Collaborative observed that the amount of participation in the major nonresidential program, energy-efficient commercial and industrial construction, has been surprisingly strong in recent months (June 5, pages 11-12). It appears that customers and energy service vendors are beginning to understand that they can pursue energy efficiency retrofits projects through this program (which is also called “New Jersey SmartStart Buildings®”). This is consistent with experience with pre-CRA demand-side management programs at several utilities, which showed that there is a ready market for nonresidential retrofit programs in New Jersey. We should move to serve this market more aggressively by establishing the new pay-for-savings program that I recommended in my Reply Comments. With its different approach to incenting efficiency projects, the new program will complement the existing C&I program and the two together will synergistically increase the overall amount of efficiency retrofit activity.

6.  Table of Recommendations on Energy Efficiency Programs

 In the table below I summarize my recommendations regarding continuation or change in CRA programs. The table refines similar tables in my Comments and Reply Comments, in order to be more precise and, in particular, to take account of my conclusions arising from the BPU meetings of June 5 and 13.