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1 IN THE MATTER OF THE POTOMAC EDISON COMPANY D/B/A ALLEGHENY POWER S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 IN THE MATTER OF BALTIMORE GAS AND ELECTRIC COMPANY S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 IN THE MATTER OF POTOMAC ELECTRIC POWER COMPANY S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 IN THE MATTER OF DELMARVA POWER & LIGHT COMPANY S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 BEFORE THE PUBLIC SERVICE COMMISSION OF MARYLAND CASE NO CASE NO CASE NO CASE NO IN THE MATTER OF SOUTHERN MARYLAND ELECTRIC COOPERATIVE S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 IN THE MATTER OF WASHINGTON GAS LIGHT COMPANY S ENERGY EFFICIENCY, CONSERVATION AND DEMAND RESPONSE PROGRAMS PURSUANT TO THE EMPOWER MARYLAND ENERGY EFFICIENCY ACT OF 2008 CASE NO CASE NO Natural Gas Efficiency Goals Commission Staff January 28, 2016

2 The Natural Gas-Electric Efficiency Coordination Work Group 1 ( the Work Group ) was directed by Commission Order No ( the Order ) to file proposed natural gas usage reduction goals for year 2017 and the subsequent program cycle consistent with the guidance provided within the Order. 2 The guidance included establishing the goals in conjunction with three-year program cycles, at the gross wholesale level, utility-wide, and formulated as a percentage of retail sales using a consistent baseline 3. The Work Group met to discuss the natural gas savings goals within the terms specified by the Order. The Work Group took the directives of the Commission into consideration along with research conducted by various stakeholders to best determine what the savings goals could look like in Maryland. These savings goals are understood by the Work Group to encourage the most efficient measures and uses of natural gas without deterring growth in the natural gas sector in the state. The goals are not meant to reduce natural gas consumption overall, but to encourage efficiency with consumers and in the market. Consensus could not be reached by the Work Group. The proposal below outlines several different options by the various stakeholders, along with the discussion of several closely related topics including the baseline structure and when the goals should start. Planning and Goal Start Dates The Work Group examined the current state of natural gas programs in Maryland along with the savings goals established in other states to formulate an appropriate structure for natural gas savings goals in the state. The EmPOWER planning cycles have been established in three year terms since the program began in The Commission expressed in the Order that the natural gas savings goals should be established in conjunction with the three year plan cycles. There are currently natural gas programs offered by WGL and some gas offerings from BGE and Columbia. Although the Commission directed the Work Group to provide recommendations for natural gas goals for 2017 and the subsequent program cycle, there was not agreement among Work Group participants on when these savings goals should be implemented. Below are the views on of the different parties on when these goals should begin. Staff and BGE Staff and BGE recommend implementing natural gas goals with the program cycle, given that it will take some time for the current natural gas utilities to develop full programs or expand upon current offerings and for non-participating natural gas utilities to develop plans. It would be difficult to get new programs approved and operating in time to meet 1 The Work Group included various stakeholders. Research and comments were provided by Public Service Commission Technical Staff ( Staff ), the Office of People s Counsel ( OPC ), Baltimore Gas and Electric Company ( BGE ), Columbia Gas of Maryland ( Columbia ), Washington Gas Light Company ( WGL ), Chesapeake Utilities ( Chesapeake ), and Natural Resources Defense Council ( NRDC ), American Council for an Energy Efficient Economy ( ACEEE ), National Housing Trust ( NHT ), and National Consumer Law Center (together, NRDC et al ). 2 Mail Log No Commission Order No at p Id. 1

3 a goal in By starting with the next program cycle, there is reasonable time for utilities to develop plans, for those plans to be reviewed, and for those plans to be approved as the new goals begin. Staff believes that it will be challenging for utilities that do not have existing programs to get new programs approved and operating by 2017 to meet a goal that year. By starting with the next program cycle, there is reasonable time for utilities to develop plans, for those plans to be reviewed, and for those plans to be approved as the new goals begin. BGE BGE further recommends that the utilities and other parties, during the second half of 2016, be afforded the opportunity to further study specific gas measures and to provide information on the costs of achieving specified results. Each utility can then submit specific programs for the Commission s consideration. In this manner the Commission will have the basis for considering which programs are cost-effective and appropriate. Programs approved by the Commission can be implemented in Any ramp-up of gas energy efficiency goals can then be considered at that time. Columbia Columbia maintains that gas savings goals should not apply to natural gas utilities with fewer than 100,000 customers. It is Columbia s position that customers of utilities with fewer than 100,000 total customers would bear the unreasonable burden of program costs. Consequently, the program costs would exceed the program benefits. The costs required to implement a program to achieve the proposed targets are to be shouldered by a customer base of only 33,000 customers. Prior to implementing an energy efficiency plan to meet the energy efficiency goals, each natural gas utility should undertake an analysis to determine that the proposed plan yields benefits that exceed the estimated cost of the plan. Specifically, each natural gas utility s energy efficiency plan should be cost effective according to Commission required cost effectiveness standards. In addition, Columbia notes that it needs to do further analysis to determine if the goals are attainable with respect to cost effectiveness. Columbia maintains that gas savings goals should not apply to natural gas utilities with fewer than 100,000 customers. However, if these goals are to be implemented for all gas utilities, Columbia supports BGE s recommendation. Chesapeake Chesapeake supports Columbia s position that the goals not apply to small companies, at least in the initial phases. It is Chesapeake s position that the cost of compliance impacts smaller customer bases and companies disproportionately, smaller companies do not have as many inhouse resources to run the programs, and gas companies face heightened competitive risk from alternative fuels such as propane and fuel oil, which are not as environmentally friendly as natural gas. 2

4 WGL WGL advocates for a modest 2017 goal, allowing for ramp up of existing programs and implementing a portfolio of new programs in 2017 that will lead into a program plan. OPC, NRDC, ACEEE, NHT, and NCLC (together, The Responding Parties ) The Responding Parties recommend that companies currently offering natural gas programs (WGL, BGE and Columbia) be required to file revised plans that exhibit a ramp up in program activities aligned with gas savings goals. These stakeholders see no reason for a delay to the next program planning cycle, and instead encourage the Commission to set an earlier 2017 goal, as discussed by the Commission, to take advantage of cost effective natural gas savings opportunities, particularly for customers of utilities currently offering programs. Baseline Staff, BGE, Columbia 4 and the Responding Parties believe that there should be consistency between the natural gas and electricity savings goals. This eliminates potential confusion for the goals across the different fuels and across different utilities. Therefore, Staff, BGE, and the Responding Parties recommend the baseline be the same year for the natural gas goals as it is for the electricity goals. If a goal is established for 2017, the baseline would be weather-normalized 2013 gas use. The baseline would be weather-normalized 2016 gas use. Columbia and WGL recommend a 2013 baseline be used for the goals for If a different baseline is necessary for the program cycle, WGL would prefer to establish a baseline prior to 2016 to prevent any limitations in program design for the next program cycle. Columbia would be amenable to a 2016 baseline for Further comments on the topic are as follows. Staff, BGE, Columbia, and WGL There are some concerns from Staff, BGE, Columbia, and WGL over the impact of other programs within EmPOWER on the electricity side which create more demand for natural gas, such as the Combined Heat and Power ( CHP ) and Natural Gas Conversion programs. Staff, BGE, and Columbia do not want the natural gas utilities to be penalized for the success of the efficiency programs of other fuels. Therefore, Staff, BGE, Columbia, and WGL recommend that demand created by the CHP and Natural Gas Conversion programs be removed from the natural gas goal baseline. 4 Columbia maintains that gas savings goals should not apply to natural gas utilities with fewer than 100,000 customers. However, if these goals are implemented for all gas utilities, Columbia supports this recommendation. 3

5 BGE Any gas goal can be initially established as a % of sales savings. However, the implementation of such a goal should not be aimed at an actual reduction in gas sales compared to a baseline. Rather, the goal should be translated to or expressed as an evaluated savings goal. That is, there should be a specified number of therms to be saved over a given period of time based on efficient measures installed (relative to the therm use that would have otherwise occurred if measures installed just met code requirements). These program and measure goals will incent the use of the most efficient gas appliances and processes. That is, rather than a reduction in gas sales compared to a baseline, there should be a specified level of gas savings leading to lower therm use as compared to what would have otherwise occurred. BGE agrees with Columbia (see the following section) that gas sales attributable to CHP, gas conversions, and new customer load (such as gas expansion to new localities and use of gas for Natural Gas Vehicles) should be excluded in determining whether gas utilities have met the energy efficiency goals. Columbia The baseline for natural gas usage should be individualized for each gas utility by using a baseline from the weather normalized revenue year Average usage and weather impacts for each utility should be factored into goal setting. Evaluators have found that the higher the customer usage the greater the opportunity for savings. Conversely, if a customer has lower usage, the opportunity for savings decreases. Furthermore, the cost to reduce usage increases as baseline usage decreases. On average, Columbia s customer consumption has decreased by nearly 16% since 1994 without the offering of broad based energy efficiency programs to all customer classes beyond the low income sector. The real impact of natural gas expansion, including CHP, conversion and new housing developments, requires consideration in determining whether the natural gas utilities meet the energy efficiency goals as they ramp up. That is, continued development of CHP, and initiatives to expand the availability of natural gas in unserved and underserved areas of Maryland, will impact natural gas utilities ability to meet the energy efficiency goals when compared to the 2016 baseline. Indeed, gas reduction requirements and current initiatives to promote the expanded use of natural gas are inconsistent with each other. However, this inconsistency can be addressed if the volumes of gas associated with CHP, gas conversions, and new customer load are excluded in determining whether gas utilities have met the energy efficiency goals. This is especially appropriate in light of the Maryland Energy Administration ( MEA ) and the Administration s support for promoting the expanded availability and use of natural gas. WGL WGL suggests either keeping the 2013 baseline or determining a new baseline for the program cycle that is prior to Waiting until the end of 2016 to conduct a program design process for the program cycle will constrain program implementation 4

6 throughout Conducting a comprehensive program design to achieve goals for 2017 and would be more efficient. The Responding Parties The Responding Parties do not consider there to be a problem with CHP and Natural Gas Conversion programs being included in the baseline or with the ability of the utilities to reach goals based upon the baseline. Indeed, as more customers convert various end uses to natural gas from other fuels it should become easier for the gas utilities to achieve savings goals because there will be more opportunities for gas efficiency. For example, residential and commercial buildings that convert from electricity to natural gas for heating present new opportunities for building shell improvements and heating system efficiency improvements that will save gas. These increased opportunities should be reflected by including converted loads in the baselines used to establish goals, rather than excluding them from consideration as has been suggested by Staff and other parties. Further, the structure of the savings goal proposed by the Work Group does not penalize the utilities for increased gas consumption. Rather, it is based on the evaluated savings of the programs and services being offered. The Responding Parties expect that, like electric savings goals, gas goals will be established as a specified level of gas savings from efficiency improvements that lead to lower therm usage than would have otherwise occurred, as opposed to a measured reduction in gas sales. The Responding Parties note that they continue to disagree with the use of EmPOWER funding to pay for natural gas conversion programs for residential and commercial customers. NRDC et al could, under certain circumstances, support the use of EmPOWER funds for CHP. 5 Goal Structure The Work Group wants the natural gas savings goals to encourage savings and assist Maryland in becoming one of the leaders in natural gas efficiency. Due to the limited number and scope of natural gas efficiency programs currently available in the State, the goals should also be structured to allow time for the natural gas utilities to reasonably develop successful programs. Based on these principles, the recommendations of the stakeholders of the Work Group are below. Staff Staff recommends a 1.0% savings goal based on weather normalized natural gas sales. There should be a ramp up period of 0.2% per year until the 1.0% is reached. This would further the consistency between the natural gas and electricity goals. If the first year for natural gas goals is 2018, as recommended by Staff and BGE, 0.2% would be a good starting point. This would allow for program ramp-up time as the new cycle begins. The subsequent years would be 0.4% for 2019, 0.6% for 2020, 0.8% for 2021, and 1.0% for 2022 and every year after. 5 Since OPC focuses on programs serving residential ratepayers, it does not have a position on the use of EmPOWER funds for CHP. 5

7 BGE BGE cannot at this time support the ramp-up to a 1% goal. BGE can support a therm savings based upon a.2% sales goal for 2018 translated into an evaluated savings goal as described above. However, beyond that, no additional ramp-up should be recommended at this time. There is no basis for the goal of 1% without a better understanding of the costs, likely participants, baselines and economically feasible measures. Specifically, the 1% goal is arbitrary without any substantial basis of what is feasible and cost-effective. BGE recommends a balanced approach with respect to costs and potential savings. Columbia Columbia maintains that gas savings goals should not apply to natural gas utilities with fewer than 100,000 customers. However, if these goals are to be implemented for all gas utilities, Columbia recommends a goal structure of 0.5% with a ramp up period. To the extent a natural gas utility is unable to develop an energy efficiency plan to reach the proposed energy efficiency goals in a cost effective manner, Columbia requests that the Maryland PSC permit the natural gas utility to propose alternative goals. The natural gas utility would need to propose a cost effective alternative energy efficiency plan, which will result in promoting reduced consumer consumption. Columbia also submits that if a volumetric goal is set it should be based on weather normalized volumes from the baseline year. To the extent that Columbia s recommendation is not accepted, Columbia would support the recommendation of BGE. WGL WGL conducted an extensive study to determine what was it could reach as a goal. Based on that research 6, the lowest achievable goal was 0.3% and the highest was 0.6%. WGL is not recommending one specific goal at this time. The Responding Parties The Responding Parties recommend a 1.0% 7 gross savings goal based on weather normalized natural gas sales. The recommended ramp up is to establish a goal of 0.4% for 2017, 0.6% for 2018, 0.8% for 2019, and 1.0% for 2020 and every year thereafter. However, the Commission should first determine whether the currently approved gas efficiency plans would achieve more than 0.4% savings in If the answer is yes, then an appropriate goal should be established based on some amount of savings above what they currently propose. As a first step in this determination, the Commission should require the natural gas utilities to file a table depicting the forecasted gross therm savings for 2017 as a percentage of their respective 2013 gross retail sales. This is consistent with the methodology the Commission used for establishing 2017 electric savings goals and accounts for the fact that natural gas utilities energy efficiency programs are at various stages of maturity. The utilities should file this table within 30 days of the Commission s order. 6 See Appendix E for further details

8 Further Suggestions and Comments A variety of related topics to the natural gas goals were discussed by the Work Group. The following suggestions are a result of that discussion. The Work Group The natural gas efficiency goal should be formulated as a percentage of retail sales using a specified baseline, and the goal should be translated to or expressed as an evaluated savings goal. That is, there should be a specified number of therms to be saved over a given period of time based on efficient measures installed (relative to the therm use that would have otherwise occurred if measures installed just met code requirements). These program and measure goals will incent the use of the most efficient gas appliances and processes. Thus the goal is specifically an energy savings target such that there are measurable efficiency gains; the goal is not a reduction in gas use. BGE First, BGE suggests the Commission require the utilities to enhance their programs and increase the number and range of high-efficiency gas measures offered in such programs. Second, BGE recommends that the Commission instead focus on program and measure goals to incent the use of the most efficient gas appliances and processes, rather than setting specific gas energy savings goals. Finally, BGE notes that it will have to file for a recovery mechanism in order to support any natural gas therm savings programs for its business customers. Columbia The Maryland PSC should clearly state that natural gas utilities are permitted full and timely recovery of all program costs through an energy efficiency rider. The costs to be recovered through the rider are all costs associated with developing, implementing and administering the energy efficiency plans. In addition, Columbia requests that the Maryland PSC undertake an investigation of alternative ratemaking methodologies, including revenue decoupling. This investigation is necessary to recognize the impact energy efficiency has on the ability of natural gas utilities to recover fixed costs. The investigation could also evaluate the appropriateness of providing incentives to utilities to encourage customers to reduce usage. To the extent that Columbia s recommendation is not accepted, Columbia would support the recommendation of BGE and WGL. WGL Washington Gas concurs that a goal based on a unit (therm or MCF) rather than a percentage of retail sales is preferable. Any natural gas goal should not be a disincentive from choosing gas, in which the direct use is more efficient and results in fewer emissions than alternative fuel sources. Furthermore, with the advent of more distributed energy technologies fueled by natural gas, such as Combined Heat and Power (CHP), any goal as a percentage of 7

9 sales would conflict with market trends and act against Maryland having a more resilient and sustainable energy infrastructure. The Responding Parties Establishing natural gas savings goals utilizing the framework established for electric program savings reduces confusion and provides an opportunity for more effective coordination between gas and electric utilities. Utilities should examine and deploy the most cost effective methods for achieving gas and electric savings for Maryland s ratepayers. Therefore, the Responding Parties recommend that serious consideration is given to joint management of efficiency programs. Some examples of joint management include statewide programs managed by multiple utilities (e.g., MassSave, CT Home Energy Solutions with Home Performance), nonutility third-party administrators of efficiency surcharges which report to the Public Service Commission (e.g., Efficiency Vermont, New Jersey Clean Energy Program), and program coordination between two utilities (e.g., ComEd and Nicor Gas Home Energy Savings program, AEP Ohio and Columbia Gas EfficiencyCrafted New Homes program). While joint management is not without its hurdles, experience in other states has shown that offering combined gas and electric efficiency programs reduces overall costs and increases customer satisfaction and energy savings. 8 Coordinated program delivery could go a long way to alleviating the concerns expressed by some of the utilities about program cost burdens. Given that new gas programs are just now being introduced and there is a strong likelihood of additional programs as a result of these savings goals, it is the optimal time to implement an oversight and delivery structure that provides the most benefits to Maryland ratepayers for the least cost. The Responding Parties recommend that discrete limited-income goals for natural gas should be ordered by the Commission along with limited-income electric energy efficiency goals. Those goals should be part of the Maryland Department of Housing & Community Development s ( DHCD ) responsibility and not the utilities. The Responding Parties believe that natural gas efficiency goals for limited-income ratepayers will help assure that these customers have sufficient access to the benefits of energy efficiency. The Responding Parties further recommend that the natural gas efficiency goal is stated as a portfolio level goal, but that the Commission should expect the utilities to provide programs that are available to all customer classes. It would not be acceptable for a gas utility to target all of its programs to large industrial customers, for example, in order to meet a savings goal. Conclusion The Work Group conducted research 9, held discussions, and exchanged ideas to come up with the structure and correlated ideas outlined in this proposal. The Work Group is prepared to continue working on the natural gas savings goals and related topics based on the Commission s decision on this matter. 8 Successful Practices in Combined Gas and Electric Utility Energy Efficiency Programs, August See the attached appendices for research presented by the various stakeholders. 8

10 Appendix A: Staff Natural Gas Goal Research: Natural Gas Goal Structures by State State Natural Gas Goal Structure Baseline Arizona 6% for natural gas by Annual targets set for each year. Estimate the level of gas demand and consumption and the associated costs that would have occurred in the absence of a Arkansas Incremental natural gas savings of 0.5% of retail sales for 2015 Illinois Cumulative savings. 2% total by 2015, 7.1% by 2019 and 1.5% additional annually after 2019 Iowa Natural gas savings of 0.7% - 1.2% of annual sales, but it varies by utility. Maine 30% by 2020, annual targets average 0.2% Massachusetts Natural gas savings of 1.14% of annual gas sales in Specific goals set by utility. Michigan Natural gas savings of 0.75% of annual sales Minnesota Rhode Island Natural gas savings of 1.5% of annual sales Annual targets set in three year increments. Proposals for range from 1%-1.1%. DSM program Energy Sales 2011 natural gas sales Potential Study 2007 Baseline Annual goals set as % of that year's natural gas sales. Savings percentage of the previous year's total amount of natural gas delivered to retail customers Goal based on average sales. Average sales are calculated based on the most recent three-year weather-normalized average Baseline Sources: Arizona: Arkansas: Illinois: Iowa: Maine: Massachusetts: Michigan: =getobject&objectname=mcl Minnesota: Rhode Island: 14.pdf

11 Appendix B: NRDC et al: Pages from ComEd Ex. 1.0 EE & DR Plan

12 Appendix B: NRDC et al: Pages from ComEd Ex. 1.0 EE & DR Plan 11

13 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 12

14 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 13

15 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 14

16 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 15

17 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 16

18 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 17

19 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 18

20 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 19

21 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 20

22 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 21

23 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 22

24 Appendix C: NRDC et al: Creating a One-Stop-Shop for Resource Efficiency: A Public-Private Partnership in the Delivery of Energy and Water Efficiency Programs 23

25 Appendix D: NRDC et al: Comments of Natural Resources Defense Council regarding Natural Gas Savings Goals for Maryland Comments of Natural Resources Defense Council regarding Natural Gas Savings Goals for Maryland December 18, 2015 In its Order No the Maryland Public Service Commission clearly laid out its requirements for the framework of the natural gas goals, including the following: goals should be established in conjunction with three-year program cycles; at the gross wholesale level; and utility-wide. the natural gas usage reduction goal should be formulated as a percentage of retail sales using a consistent sales baseline. The Commission states further that While the parties may rely on external tools such as a potential study to derive this percentage, we concur with the Coalition that the completion of such a study should not be a barrier to establishing targets for EmPOWER. Instead, the parties are encouraged to look to other sources, such as achieved reductions by existing EmPOWER natural gas measures, and natural gas usage reduction goals adopted by leading states in our region. In the same Order the Commission also addressed protocols for assessing the cost-effectiveness of EmPOWER energy efficiency efforts, stating that the societal viewpoint is the primary orienting framework intended by the General Assembly. and that a positive result from the SCT shall be recognized as a cost-effective outcome. Consistent with the societal perspective, the Commission also stated that it is appropriate at this time to adopt the business-as-usual value equivalents of the Itron quantified NEBs for the categories of air emissions, comfort, C&I O&M, and reduced customer arrearages. Therefore it is reasonable to conclude that the Commission would desire that corresponding natural gas values for these categories of non-energy benefits should be determined and included in cost-effectiveness testing. Therefore, the only task in front of this working group pursuant to the Commission s order is to file proposed natural gas usage reduction goals for year 2017 and the subsequent program cycle. Developing these goals, which the Commission directed should be expressed as a percentage of retail sales, will require each of the gas utilities to report to the working group the total 2013 retail gas sales volumes that flowed through their distribution systems. These sales figures will then need to be weather-normalized and we recommend that this is done following a methodology that has either been approved or developed by the state-wide evaluator, using the approach used to determine the electric goals as a model. The 2013 weather-normalized volumetric gas sales will set the baselines against which 2017 savings goals will determined using a percentage of sales reduction as described by the Commission. Goals for will be set relative to a baseline of 2016 weather-normalized sales volumes. In the comments it filed regarding goal-setting on January 30, 2015, the Maryland Energy Efficiency Advocates stated that As reported by ACEEE in The 2014 State Energy Efficiency Scorecard, the ten leading states in gas energy efficiency achieved between 0.73% and 1.47% of savings as a percentage of commercial and residential retail sales, with the five top states achieving 24

26 Appendix D: NRDC et al: Comments of Natural Resources Defense Council regarding Natural Gas Savings Goals for Maryland over 1.0% savings. Based on these findings, the Advocates contend that there is a strong basis for the Commission to issue orders for a three-year initial ramp up of gas programs such that they achieve 1.0% savings as a percentage of commercial/industrial and residential retail sales in the third year of program operations. This would position Maryland as a leader in natural gas energy efficiency, in line with its proposed achievements in electric energy efficiency. In the subsequently produced 2015 Scorecard the top ten gas programs achieved efficiency savings between 0.76% and 1.37% of sales with a median of 1.04% of sales and an average of 1.03% of sales. It is important to note that ACEEE assumes that the reported gas savings that it collects for its study are net, rather than gross savings. In cases where states reported gross savings ACEEE adjusted those down to 90% of reported to reflect an approximation of net savings. Given that the Commission has ordered that gas goals be established at the gross level these figures should all be adjusted upward to reflect gross savings. Making this adjustment would result in a 2015 Scorecard median of 1.16% gross savings as a percent of retail sales and an average of 1.15%. Mr. Baatz of ACEEE also provided the working group with additional information from a Bay State Gas filing in Massachusetts showing that it expected to achieve annual savings averaging 1.22% of sales for the period, consistent with Massachusetts savings shown above in the ACEEE table. 25

27 Appendix D: NRDC et al: Comments of Natural Resources Defense Council regarding Natural Gas Savings Goals for Maryland Based upon these two years of State Scorecard reported data, and Bay State s filing, NRDC finds that goals that ramp up to 1.0% of volumetric sales would position Maryland at the low end of the top ten states in terms of gas savings, or, looked at another way, in the middle of the pack of national leaders in natural gas efficiency, consistent with its position and goals for electric efficiency. An efficiency goal of 1.0% of sales, under the framework of societal costeffectiveness testing at the sub-portfolio level, should be achievable with focused, but not unreasonable efforts, and will provide significant benefits to Maryland gas customers. Unfortunately, NRDC [et al] is not aware of reports that establish historical achievement of gas savings in Maryland to use as a basis for determining a ramp-up schedule. Staff are urged to request these data from the gas utilities to the extent they are available. If historic savings data are not available, in the absence of other information NRDC [et al] proposes a 2017 gas savings goal of 0.4% of sales, with a 0.2% per year ramp up until 1.0% is reached. 26

28 Appendix E: Washington Gas Light Company: Natural Gas Goal Comments EmPOWER Maryland Natural Gas Goal Order Washington Gas Comments Washington Gas followed the Commission s directive to work with the Natural Gas Electric Energy Efficiency Coordination Work Group and provide comments on the Natural Gas Goal by February 1, The Company has participated in EmPOWER MD working groups for several years and had a portfolio of residential and commercial programs approved prior to January 1, The parameters of Natural Gas Goal are: Three-year program cycles; Gross wholesale level; Utility-wide (rather than sector-specific); and Formulated as a percentage of retail sales using a consistent sales baseline (2013) In response to Order from the Maryland Public Service Commission and in the absence of a potential study, Washington Gas conducted research to determine reasonable achievable natural gas savings for 2017 and the subsequent program cycle ( ). Washington Gas assessed regionally and nationally relevant energy efficiency program data, including natural gas benchmarking studies and natural gas potential studies that were publicly available. Furthermore, an assessment of other utilities energy efficiency portfolios was conducted to evaluate the success of these programs compared to the respective state or utility goals. These three areas of review were: Collection of historical EE spending and savings data for natural gas and combination utilities, with an emphasis on climate-zone relevance as available. Review of EE potential studies to acquire future potential EE spending and savings data for natural gas and combination utilities, with an emphasis on climate-zone relevance as available. Data aggregation, analysis, and extrapolation over a four-year ramp-up period, Sector-level (Residential vs. C&I) savings were analyzed independently. Findings and comments: Maryland is Climate Zone 4, as determined by the International Energy Conservation Code (IECC). See Figure 1 for the Climate Zone Map. As annual customer natural gas usage rates are an important factor in efficiency measure savings, payback and cost effectiveness, climate zone indication is critical in benchmarking and goal setting. Residential gas usage is particularly coupled with local climate. Residential gas customers in Zone 5 & 6 have annual gas usage rates roughly 25 percent higher than those in Zone 4. NRDC and VEIC comments relied on ACEEE reports and did not explicitly take into account these factors when making their recommendations. Gas utilities with available energy efficiency performance data that were also in Climate Zone 27

29 Appendix E: Washington Gas Light Company: Natural Gas Goal Comments 4 were Puget Sound Energy (WA), Ameren (IL) and Questar Gas. Furthermore, potential study data for utilities in Climate Zone 4 were Louisville Gas & Electric (KY), the state of Delaware, and Ameren (IL). Many gas and combined gas-electric utilities in other climate zones throughout the United States were also assessed in the benchmarking process conducted by Washington Gas. Washington Gas concurs that a goal based on a unit (therm or MCF) rather than a percentage of retail sales is preferable. Any natural gas goal should not be a disincentive from choosing gas, in which the direct use is more efficient and results in fewer emissions than alternative fuel sources. Furthermore, with the advent of more distributed energy technologies fueled by natural gas, such as Combined Heat and Power (CHP), any goal as a percentage of sales would conflict with market trends and act against Maryland having a more resilient and sustainable energy infrastructure. Washington Gas also advocates for a modest 2017 goal, allowing for ramp up of existing programs and implementing a portfolio of new programs in 2017 that will lead into a program plan. The Company suggests either keeping the 2013 baseline or determining a new baseline for the program cycle that is prior to 2016, as recommended by VEIC. Waiting until the end of 2016 to conduct a program design process for the program cycle will constrain program implementation throughout Conducting a comprehensive program design to achieve goals for 2017 and would be more efficient. Washington Gas s research resulted in three scenarios for utility: o Achievable Low: 0.30% o Achievable Medium: 0.45% o Achievable High: 0.60% Washington Gas also assessed the following two stretch scenarios given previous stakeholder comments that leaned toward higher targets: o Stretch Goal No. 1: 0.75% o Stretch Goal No. 2: 1.00% The three achievable scenarios were determined by our research and analysis, as explained above. The highest achievable scenario was determined to be 0.60% of retail sales. Given the previous stakeholder comments, we also assessed the two stretch goals which rival the goals of gas utilities in Climate Zones 5 & 6 where average gas usage is considerable higher. In order to provide some insight into the ramp up of the scenarios, below is the projected ramp up of the Achievable High Scenario, Stretch Goal No. 1 Scenario, and Stretch Goal No. 2 Scenario. These are the projected ramp up scenarios if implementation began in The stretch goals scenarios are not necessarily achievable; however, the ramp up scenarios provide some context of where Washington Gas would need to be in terms of 28

30 Appendix E: Washington Gas Light Company: Natural Gas Goal Comments energy savings at the end of each program year in order to be on track to achieve or exceed 2020 targets. High Achievable Scenario (0.60%) Residential 0.18% 0.46% 0.61% 0.61% C&I 0.12% 0.45% 0.59% 0.59% Total 0.30% 0.45% 0.60% 0.60% Stretch Goal No. 1 Scenario (0.75%) Residential 0.21% 0.56% 0.76% 0.76% C&I 0.14% 0.55% 0.74% 0.74% Total 0.35% 0.55% 0.75% 0.75% Stretch Goal No. 2 Scenario (1.00%) Residential 0.26% 0.72% 1.01% 1.01% C&I 0.18% 0.71% 0.98% 0.98% Total 0.44% 0.72% 1.00% 1.00% Washington Gas looks forward to continuing to work with the Natural Gas Electric Energy Efficiency Coordination Work Group and Commission Staff to determine the specific Natural Gas Goal and individual utility targets. The Company is not recommending one specific goal at this time but is providing these comments and findings to the further the discussion of setting the Natural Gas Goal. Figure 1: IECC Climate Zone Map 29

31 Appendix F: Chesapeake Utilities: Natural Gas Goal Comments EmPOWER Maryland Natural Gas Goal Structure Order Chesapeake Utilities Comments Chesapeake Utilities supports Columbia Gas of Maryland s recommendation that the goals not apply to small companies at least in the initial phases. The cost of compliance disproportionately impacts a smaller customer base and smaller companies generally have fewer in-house resources to dedicate to the incremental administrative requirements. In addition, gas companies (and especially small gas companies) face a heightened competitive risk with the additional cost of energy efficiency programs because there are widely available alternative fuels that can substitute for natural gas. The alternative fuels, such as propane and fuel oil, are not as environmentally friendly as natural gas yet the alternative fuel providers will not be subject to the same requirements for energy efficiency programs. Chesapeake s average gas use for residential customers in Maryland has decreased by over 25% over the last 15 years (weather normalized) without the additional cost of utilityfunded programs. Formal, mandatory programs and goals may be unnecessary because stricter building codes and higher efficiency appliances are already providing meaningful energy savings. In addition, as Chesapeake is finding through its participation in a similar initiative in Delaware, the historically low wholesale natural gas prices (especially in the mid-atlantic region), which are predicted to stay low for the foreseeable future, produce a low avoided cost level for the Company. The low avoided cost, when coupled with the high cost of the programs (including extensive EM&V requirements), makes it difficult to design a cost efficient program. After the larger gas companies (many of whom have experience on the electric side) have designed, developed and implemented cost effective programs, then it may be appropriate for the smaller companies to propose similar programs, if they are also cost effective when the costs are spread over a smaller customer base. 30