Saving Grace* - Energy Efficiency in New Hampshire – Part 2

In my last post, I looked at the big picture of energy supply and consumption in New Hampshire, as well as some gross measures of energy efficiency (EE), viz., energy intensity and energy use per capita. The data indicated that we are making progress, but that we have a long, long way to go before we can consider ourselves energy efficient. In this post, I take a look at NH’s EE ranking and some important policy developments that will help promote EE in the state.  

The American Council on an Energy Efficient Economy (ACEEE) produces an annual scorecard that ranks the states on their EE initiatives and progress. The map below shows the state rankings in the most recent scorecard report. The ranking is done by grading each state’s utility EE programs, transportation initiatives, building energy codes, state government initiatives, and combined heat and power programs. NH’s ranking is in the midrange at # 21: we are surrounded by New England states with much better rankings, including Massachusetts, which, along with California, hold the number 1 spot.  

A closer look at the NH’s scorecard is enlightening. The figure below shows specific data regarding various scorecard components compared with those of NH’s immediate neighbors.

As you can see, NH’s scores were run-of-the-mill in the areas of utility programs, building codes, and state initiatives, and poor in transportation, appliance, and combined heat and power initiatives. The scorecard report does note that the state took a big step forward by approving new energy-savings targets for 2018 to 2020, but also remarked that NH could improve considerably in the transportation and combined heat and power sectors. Our neighbors are clearly doing more in almost all categories.

When it comes to EE, it is my view that there are three main drivers, as indicated below.

The first, and most important, are government-mandated EE programs. These include building codes, appliance efficiency standards, and fuel-economy standards for motor vehicles. These are often Federal standards, but sometimes state-specific requirements may exceed or fill in for a lack of Federal standards. Producers of the goods and services affected by such mandates are required by law to ensure that their products meet these requirements; we, as consumers, indirectly participate in EE by purchasing these goods.

The other type of EE initiatives are those in which we voluntarily participate by making non-mandated but important EE decisions; for example, the replacement of an incandescent or CFL lightbulb with a more expensive but more energy-efficient LED bulb.

The third driver for EE is energy prices. We are very basic creatures and respond to financial incentives, so if energy prices are high, be it electricity, natural gas, or gasoline, we generally take active measures to reduce our energy expenditure by driving less, buying more fuel-efficient vehicles, or putting on a sweater and turning down the thermostat. One might argue that high energy prices are just a driver of our voluntary actions; however, I see them as different because there is often an altruistic/it’s good for the planet/right-thing-to-do component to voluntary action. And if you can save boatloads of money by doing the right thing for the planet, more power to you. (Or perhaps that should be less power to you?)

For the remainder of this post, I review utility-run EE programs in NH. These are a combination of mandated and voluntary actions. The utilities are mandated to offer them, but we, as home or business owners, voluntarily participate in them, but, in doing so, we also have to open our wallets to pay for our part of these investments.

Since 2002, NH has had a formal utility-run program to promote EE investments in NH, known as the Core Energy Efficiency Program. This is a New Hampshire Public Utility Commission (NHPUC)-mandated program with required participation by the electrical and natural gas utilities. The utilities collaborate in their efforts to provide savings, information, incentives, and assistance in the implementation of EE investments to their ratepayers, which include municipalities, homeowners, and industrial and commercial operations. Information about the program is reported on the NHSaves website, which is a good place to start looking for information about energy savings and EE if you are a NH ratepayer. The program is directed at both the electrical and natural gas utilities and requires savings in both.

The NHSaves program has many features and offers a lot of services to realize energy savings. Quoting directly from the 2017 New Hampshire Statewide Energy Efficiency Plan, the elements of the program include:

• “Working with Home Energy Raters and building contractors, to incent the construction of highly efficient homes that use 15-30 percent less energy than a standard new home. 
•  Incentivizing insulation, air-sealing and other weatherization measures performed by qualified private contractors to reduce a homeowner’s heating fuel use by more than 15 percent on average.
• Providing insulation, air-sealing and other weatherization measures to low-income families, saving them hundreds of dollars per year on energy costs, though a collaboration with the NH Office of Energy and Planning’s Weatherization Assistance Program and New Hampshire’s six Community Action Agencies.
• Partnering with over 100 New Hampshire appliance retailers and suppliers across the state to help customers purchase highly efficient appliances such as refrigerators, clothes washers and room air conditioners, saving 10-20 percent of the energy they would have used if they had purchased standard efficiency models.
•  Partnering with over 100 lighting retailers and suppliers across the state to reduce the barriers for New Hampshire customers to purchase energy efficient lighting measures that can save between $30 to $80 over the lifetime of a single product.
• Working with qualified private contractors to help businesses and non-profits identify and install more efficient lighting, controls, motors, HVAC equipment, air compressors and industrial process equipment. 
• Focusing on municipalities to help save energy in public buildings, reducing overall costs to taxpayers and making public spaces a model for efficiency improvements.”

To date, the goals of the NH program have been modest and the annual energy savings have been small—of the order of 0.5% of NH total energy consumption. Our neighboring states have been more aggressive in their savings; for example, in 2015, RI, MA, VT, and ME had savings of 2.91%, 3.74%, 2.01%, and 1.53% of their 2015 retail sales, respectively.

Even though NH’s annual savings have been relatively small, these small savings, year on year, have accumulated over time. It has been estimated that, since the start of the Core program, customers have saved over $1.9 billion and reduced electricity consumption by 12 billion kWh and natural gas use by 24.5 million MMBtus (million BTUs). The Core program, by most measures, has been a successful one.

These accumulated savings are great, but there is a cost for the program that NH ratepayers fund. The 2016 budget was ~$24 million for the electrical EE programs and ~$7 million for the gas programs. The electrical component has been funded by part of the Systems Benefit Charge (SBC) paid by each electrical ratepayer (in 2017, the  EE portion will be 0.198 cents/kWh of the 0..354 cents/kWh SBC charge averaged across the four utilities), money from the Regional Greenhouse Gas Initiative (RGGI) auctions that are distributed to the NE states, and from the ISO-NE capacity market. The natural gas savings program has been funded through the local distribution adjustment charge (LDAC) paid by natural gas users. Typically, the split in funding for the electrical program has been 70% from SBC funds, 19% from RGGI, 10% from the forward capacity market, and  1% from carryover and interest, whereas the natural gas savings program is funded completely from the LDAC charge.

It is important to appreciate that all ratepayers pay their share towards the program, but only those that elect to participate benefit directly and reap the big savings. To actively benefit from this program and reap the rewards requires you, as the ratepayer, to make an upfront EE investment. The amount that you have to pay depends on your utility, class of service, and particular type of EE investment. Even though there is a requirement for an upfront investment, the utility-run EE programs have been popular: there have been waiting lists and money to fund EE investments has run out before the end of each year.

Even if you don’t participate directly, you, along with other non-participating ratepayers, benefit indirectly because reduced energy consumption, regardless where it comes from, benefits us all. It improves the resiliency of our energy-delivery systems because less energy has to be sourced, it keeps our costs down because fewer power plants have to be built, our resources last longer, less pollution results, greenhouse gas emissions are reduced, local jobs are created, and, as noted in my previous post, there is a cascade of other benefits that results from EE investments.

The Core program is well run and carefully administered, and a great deal of effort is expended in evaluating its effectiveness. It is overseen by the NHPUC, but is run by the electrical and natural gas utility companies that are required to submit a joint annual plan and budget. The joint administration and shared marketing resources through the NHSaves program ensures consistency and best practice implementation across all utilities. Each utility is required to provide quarterly and annual reports and is subject to annual financial audits and independent certification of savings.   The program is a serious endeavor and is continually reviewed. THE NHPUC has over 130 reports evaluating the effectiveness of EE programs in NH and NE. I consider this to be an important and well-run, documented, audited, and verified initiative.

As part of their administration of the EE program, the utilities carefully vet the projects that are considered and each undergoes a thorough cost-effective screening. Each program is required to have a benefit-to-cost ratio above one. The costs and benefits are over the lifetime of the project (which vary depending on the nature of the project); costs include both the utility and ratepayer contributions. The specific benefit:cost goals laid out in the 2017 plan are shown in the table  below.

  

As mentioned, the utilities report annually on their EE programs, recording what was spent and what the benefits were. I have summarized some key findings from the 2015 reports in the table and bullet points below:

• Eversource, with the largest number of customers in NH, spent the most on EE programs.
• There are variations from utility to utility, but the end users (homeowners, commercial, industrial and municipal) are paying, on average, 45% of the costs of EE investment; the utility pays the other 55% out of their funds allocated for EE.
• Homeowners are paying, on average, 37% of their EE investments.
• The lifetime benefit/cost ratio is an average of 2.2, which means that, for every $ invested in EE, NH reaps over $2 in benefits in terms of energy savings.

Overall, the cost of EE investments in NH through the Core program has been estimated to be 3.7 cents/kWh. If we had spent this money on just buying more electricity, we would have paid the retail price of about 16 cents/kWh. The natural gas savings are similar: $0.336/therm for EE vs. $0.81/therm for purchase. In short, investing in EE is a bargain.

The challenge with the Core program is that, while it has been popular, funding has been limited and a lot of deserving EE projects have not yet been implemented. To support more EE savings and meet the objectives of  NH’s 10-year Energy Strategy, the NHPUC  has recently approved a new statewide utility-run EE policy, known as the Energy Efficiency Resource Standard (EERS). This program boosts the annual goals for energy efficiency and increases funding available for EE investments. It kicks in at the start of 2018 and requires utilities to increase their annual energy savings.  The EERS program was developed with significant stakeholder involvement, ranging from environmental lobbying groups, utilities, state representation, community action groups, and other energy-related non-profits. The program will be overseen by NHPUC with input from stakeholders and will be jointly administered by the utilities, as with the Core program.

The annual goals for the new EERS program, and how they compare with the recent Core program goals, are shown in the figure below.

It is good to see the annual savings increase: over the next four years (2017 to 2020), there will be a cumulative savings of 3.1% of electricity and 2.25% of natural gas (compared with 2014 consumption). But, again, I need to note that, compared with our neighbors, these goals are rather humble: the average annual electrical savings increases are 2.1% for Vermont, 2.9% for Massachusetts, 2.4% for Maine, and 2.6% for Rhode Island. 

The EERS plan also has the following features:

• Instead of the two-year planning and implementation cycles used in the Core program, the EERS program will use a three-year cycle.
• Funding for EE investments will more than double over the next few years. In 2016, the budget for EE investments was $31 million; in 2020, it proposed to be $74 million.
• The money for these increased EE investments will come from an increase in the SBC and LDAC components of the utility bill. The average SBC and LDAC in 2017 will be 0..354 cents/kWh and 4.95 cents/therm, increasing to 0.821 cents/kWh and 6.91 cents/therm in 2020, respectively. This will result in a $2.70 monthly increase in the electrical bill for a ratepayer using 600 kWh per month. Overall, the EERS program will contribute to a 2 to 3% increase  in NH utility bills from 2017 to 2020.
• To compensate utilities for the lower energy sales and lost revenue associated with EE, a lost revenue adjustment mechanism (LRAM) will be implemented. This is new and is built into the SBC rate increase.
• As with the Core program, there are built-in performance incentives to encourage utilities to make these investments. Basically, the utilities will earn a bonus for achieving above-budget energy savings.
• The EESE Board, which is a multi-stakeholder committee that works with the NHPUC to promote energy efficiency and sustainable energy in the state, will serve as a review and advisory council.
• Evaluation, monitoring, and verification will be carried out by independent consultants.
• The low-income assistance portion of the program will increase from 15.5% to 17% of the total EE budget for the first three years.

There are, of course, objections to the EERS program. It will increase the bills of all ratepayers across the state, but big savings only accrue to those who participate and have the funds to foot their part of the investment. However, bear in mind that if your neighbor makes a big investment in EE and significantly reduces her monthly cost, you indirectly benefit from improved energy system resiliency, lower long-term energy costs, less pollution, etc. This is similar to the benefits that an SUV driver might derive from drivers of EE vehicles: those drivers of EE vehicles extend the lifetime of oil resources, reduce pollution, and keep oil prices down.  Ultimately, it is your choice whether to pour your dollars into your gas tank or into inefficient energy use in your home, but keep in mind that you do benefit from the EE activities of others.

  

Should you find yourself agitated by the increase in utility rates associated with the EERS program, I encourage you to take direct action that undo that increase. Go through your home and find three old style incandescent ightbulbs and change them to LED bulbs (which can be purchased for $2/bulb). The annual energy savings from these bulbs (assuming you have changed to  10W LEDs,  burning for 4 hours a day and your average electricity use per month is 600 W) will save you 2.7% of your electricity bill which more than relieves that phased SBC increase.

It must also be appreciated that EE presents a problem to regulated utility companies. They are in business to sell electricity or natural gas and thereby earn a return on their investments to pass on to their investors. (And before you get all self-righteous about money-grabbing investors, look at the companies in your retirement investments: you will mostly likely find some utility companies in your portfolio, making you one of those investors. Utility company shares have proved to be extraordinarily reliable investments with steady returns.) When utilities are obligated to make investments in EE, this reduces the amount of electricity or natural gas they sell, reduces revenue and profits, and limits opportunities to make infrastructure investments on which they can earn a return. Moreover, they have to administer these EE investments, employ staff to run these programs, and incur costs. Generally, the utilities would not be in favor of these programs so they need to be incentivized to participate. This is done by compensating them for the lost sales and costs associated with the EE program, which is built into the SBC or LDAC charges. In essence, the utilities get to sell less of their energy commodity at higher prices.

This post has covered NH’s middle-ranking EE. We are way behind our New England neighbors in EE, but the saving grace* is that that NH is in the process of transitioning from the Core to the EERS program, which is an important step forward.  Required annual energy savings will increase and EE investment budgets will more than double. This will have utility-cost implications because NH ratepayers will see a 2 to 3% increase in their utility bills over the 2017–2020 period as a result of these changes. However, these are good programs that make a difference and we all benefit and, by our implementing our own simple EE actions, like changing over to LED lightbulbs, we can cancel out the effect of the rate increase. It is a far better idea to make EE investments now that reduce our exploitation of fuel resources and reduce energy infrastructure investments. This will reduce energy cost increases in the future. 

However, to fully benefit from these programs requires action and investment on our part. This is something that we don’t always do—even when we know it is the right thing. I will discuss this lack of action in my next post. In the meantime, do your bit for energy efficiency and turn off the lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

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(*Saving Grace: A fabulous tune with a great driving groove by one of my favorites: Tom Petty. From the Highway Companion album released in 2006. Enjoy Saving Grace.)