MEIC's USB Comments

Comments of Patrick Judge, Montana Environmental Information Center (MEIC)
on the Universal System Benefits (USB) Program
Submitted to the Energy and Telecommunications Interim Committee
February 23, 2004
       MEIC appreciates this opportunity to comment to the Committee and its staff on issues relating to Montana's Universal System Benefits Program. MEIC has long been a supporter of the USB program and all of the public purposes it funds. Conservation, renewable energy, and low-income assistance all offer broad benefits to society, and are all indispensable components of a fair and clean energy future for Montana. As the principle vehicle for advancing these objectives, the USB program deserves strong continued support. MEIC applauds the Committee's recommendation (November 20, 2003) to extend the USB program through the end of 2009.
        At the same time, MEIC has been a constant voice that the USB program has a number of serious flaws that constrain its effectiveness. We would like to take this opportunity to offer our suggestions on how this program ought to be improved.

Overall Funding Level -- Electric USB
   Since 1997, it has been MEIC's position that the appropriate level of funding for Montana's USB program is the one agreed to by the Comprehensive Review of the Northwest Energy System (http://www.nwcouncil.org/library/1996/cr96-26.htm#E9E5). The Comprehensive Review recommended a 3% funding level for conservation, renewables, and low-income weatherization, with additional money for low-income bill assistance. Early drafts of SB 390 specified a 3% level, which was subsequently lowered to 2.4%. (Note too that Montana's 2.4% is inclusive of low-income bill assistance, rendering it that much smaller.) It is clear that the recent dramatic increases in energy bills have created an increased need for quality programs to assist low-income customers. Significant additional funds to meet that need could be made available by setting an appropriate overall funding level. To meet a 3% funding level, the typical homeowner would be asked to pay a mere $3 extra annually.
MEIC also believes that considerable extra assistance can be made available to low income customers within the current 2.4% level. Just as important as the overall funding level are several provisions of the USB statute that establish different standards and conditions for different customer classes and utilities. In short, numerous inconsistencies and inefficiencies limit the USB program's ability to effectively accomplish its objectives. The rules of the game should be clearly defined, logical, simple, consistent, and enforced. Numerous comments made at the recent AARP energy summit (February 2, 2004, Helena) called for increased reporting, oversight, and accountability in the program. Ensuring the responsible use of existing funds and equitable contributions by all parties must be our first priorities in reforming the USB.

Overall Funding Level -- Natural Gas USB
      MEIC strongly believes that the natural gas USB should be increased at the earliest possible time. By far, the greatest rate impact to the typical residential customer (and low-income household) has been on the natural gas portion of the bill. As most Montanans depend on natural gas as their primary heating fuel, these increases have been particularly threatening. The current strategy for meeting the increased need for low-income heating assistance has been to lean heavily on the USB electric funds, including funds originally earmarked for non-low income activities. While last year's transfer of funds made sense in the short-term, a long-term solution must also be identified and implemented. It is simply unfair to continue to ask electric customers to subsidize gas customers as a matter of ongoing policy. There should also exist greater consistency between the funding levels required of different utilities. The universal system benefits program ought to truly be universal.

Funding Allocation
      Since last summer, MEIC has been active in a coalition of groups dedicated to preserving all of the public purposes currently supported by USB. Conservation, renewable energy, and low-income assistance all provide indispensable benefits to society. While the need for additional low-income assistance is manifest, it would be both reckless and divisive to sacrifice other valuable programs to meet that need. In its comments to this committee on November 19, 2003 (see attached), the USB Coalition made numerous suggestions on how to accomplish the twin goals of "providing greater assistance to low-income customers, while still preserving our present commitment to conservation and renewable energy." The two major approaches that were identified were 1) to increase the overall funding levels for natural gas and/or electric USB, and 2) to remove the disparities that currently exist so that all customers and all utilities pay their fair share.
        Since that time, a third option has also emerged. Last month, NorthWestern Energy (NWE) submitted its Electric Default Supply Resource Procurement Plan to the Montana Public Service Commission. In accordance with the PSC's Default Electric Supplier Procurement Guidelines (ARM 38.5.8201), the plan proposed a significant investment in demand supply management (DSM) as part of its default supply portfolio. Specifically, NWE planned to acquire a 100 aMW conservation resource over a 20 year period (at a cost of just $18 / MWH, compared to an average portfolio cost of $36 / MWH). Both the commission and the company acknowledge cost-effective DSM to be a legitimate component of the default supply portfolio. Incorporating DSM into the portfolio will free-up additional funds that can be used to supplement NWE's current low-income programs on an ongoing basis. Note that there will continue to be some need for USB conservation dollars for those customers who have left the default supply but continue to pay their USB charge. Also, according to NWE, not all USB conservation programs meet the more rigorous cost-effectiveness test applied to power procurement (home energy audits, for example). Finally, it needs to be stressed that this approach does not apply to USB supported renewables. NWE's renewable energy program funds distributed renewable energy systems that are not yet cost-effective on a purely financial basis. These systems should not be confused with the central-station, utility-scale wind projects that are contemplated for the portfolio.
       Note that changes in allocation associated with this proposal, or with other approaches do not require any legislative action. The statute requires a minimum of 17% of USB electric funds to go to low-income assistance. That level is currently met or exceeded by all utilities in the state. Changes in the allocation of NWE's USB funds can be accomplished by PSC order. NWE should formulate all proposed changes in the context of its USB Advisory Committee.
    Finally, it should be noted that Montana's clean energy advocates have demonstrated considerable flexicbility in accomodating the concerns of policymakers, and in addressing the issues facing low-income customers. The conservation and renewable energy community did not oppose the reallocation of $1.7 million in unspent USB dollars last year, and has worked hard to steer the renewable energy program toward projects overlapping public benefits. On January 22, the Renewable Energy Subcommittee of NWE's USB Advisory Committee approved a budget for 2004 that includes only $48,603 for residential solar electric demonstration compared with $194,057 for fire hall projects and $248,649 for schools and other public buildings. An additional $200,550 is budgeted for renewable projects for senior centers.

Large Customers -- Funding Level
As mentioned earlier, MEIC believes there are a number of provisions in the USB statute that dilute the effectiveness of the program, and raise serious equity concerns. Since the inception of the program, MEIC has opposed the separate, reduced rates granted to large customers. While NorthWestern Energy's residential customers currently pay a USB rate of 1.334 mills per kilowatt-hour, large industrial customers pay the lesser of 0.9 mills (not even 70% of the residential rate!) or $500,000. In order for a company to take advantage of the $500,000 option, it would have to use 63 aMW. Only one customer in the state has the ability to use that much power -- Columbia Falls Aluminum Company. At full capacity, CFAC uses 340 aMW. For that load, $500,000 translates to 0.17 mills -- about 1 / 8th the rate paid by homeowners. Clearly, large industries are not paying their fair share. If NWE's large customers were to pay the same rate as its residential customers, roughly $1 million extra would be raised each year (based on 2002 figures).

Large Customers -- Self-Direction
       Large customers are granted other special provisions that exacerbate this problem, including the ability to "self-direct" their USB funds. Mostly, those funds are directed to internal energy-efficiency activities. While the USB law specifies that utilities must spend at least 17% of their USB dollars on low-income activities, there is no similar requirement pertaining to large customers. In fact, they're paying FAR less than their share for low-income assistance. According to NWE's 2002 USB report, less than 3% of large customer USB funds were spent on low-income. In contrast, 30% of all other USB funds were spent on low-income. Applying the 17% minimum to NWE's large customers would have raised an additional $345,000 for low-income programs in 2002.
In general, MEIC would like to see a far greater level of scrutiny regarding large-customer self-directed energy-efficiency funds. Specific standards for cost-effectiveness should be issued, to ensure the biggest bang for the buck. At the same time, self-directed DSM credits should focus on activities that otherwise would not have occurred because of market barriers of some type. It is important for us to have a system that engenders public confidence that the USB program is delivering real benefits that otherwise would not exist.
     Greater reporting and agency oversight are also desperately needed. Credits should not automatically be assumed valid, as is currently the case. Nor should the burden of reviewing these credits and determining their validity rest entirely on the shoulders of private citizens.

Power Purchase Credits
The concern over obtaining real benefits with USB also exists with respect to the power purchase credits that can be claimed by cooperative utilities and large customers. According to the Montana Electric Cooperatives' Association "2002 USBP Pool Report," power purchases account for a full 82% of the co-ops' USB funds ($3,317,201.99 / $4,039,880.14) and 87% of their funding obligation ($3,317,201.99 / $3,806,609.90). In other words, nearly 90% of the coops' USB obligation is met with power purchases they would have to make anyway. MEIC opposes the ability to claim "amortized or nonamortized portions of expenditures for the purchase of power at retail or wholesale" toward USB. The practice of crediting power purchases fails to guarantee that these dollars will be used for new projects that occur within Montana's borders. Helping to retire old debt on a conservation project performed in the I-5 corridor, for example, should not count toward the Montana USB requirement. The report prepared by Barbara Alexander for the AARP Energy Summit also took issue with the ability to credit power purchases, stating "Such an approach does not result in any incremental dollars or programs delivered to Montana's electric customers."

The Barbara Alexander Report
    MEIC would briefly like to voice its general support for the findings of Barbara Alexander in her recent report to AARP. In particular, MEIC supports the recommendations calling for better reporting, greater oversight & accountability, more efficient use of existing funds, and uniform procedures & guidelines (including guidelines for acceptable levels of administrative costs, education, outreach, arrears forgiveness, etc.).

Concluding Remarks
      Despite its limitations, the universal system benefits program has proven to be a popular, successful, and necessary tool for achieving vital public purpose objectives. MEIC's suggestions for improving the program should not be misconstrued to overshadow our continuing support for the core values and underlying purposes of the USB.

Attachment 1:
Statement of the USB Coalition
Energy & Telecommunications Interim Committee
November 19, 2003

Chairman Olson and Members of the Committee,

   My name is Patrick Judge, and I am the Energy Policy Director of the Montana Environmental Information Center. I'm speaking today on behalf of a coalition of public interest groups who share a common vision for a clean and affordable energy future for Montana. We also have a common interest in the Universal System Benefits Program as a major vehicle for advancing that vision. Our coalition formed this summer to participate in discussions regarding USB that took place before the Governor's Energy Consumer Protection Task. We delivered two statements to the Task Force, which I've attached to my testimony.

Because all of the meritorious programs supported by USB come out of the same pot of money, an undesirable situation can develop whereby the various programs can become pitted against one another to compete for funds. Our coalition vigorously resists that approach. The need for additional assistance for low-income customers in light of the recent rate hikes is undisputable. All of our groups are supportive of additional dollars being made available to meet that need. However, we do not believe it is either necessary or wise to sacrifice cost-effective conservation and renewable energy programs in the process. Note that our coalition did not oppose the one-time reallocation of $1.7 million in unspent USB dollars that took place earlier this fall, but on the condition that it would not be considered precedent-setting.

        We understand that this committee may consider proposals that would increase the statutory minimum amount of money that is directed to low-income programs. Again, because conservation, renewables, and low-income assistance all come from the same pot of money, by definition, increasing the portion of money going to one category necessarily decreases support for the others. Our coalition would strongly urge the committee not to take this approach. All of the programs supported by USB are worthwhile, and deserve continued support. We should not be robbing Peter to pay Paul.

There are at least two different approaches that could accomplish the same goal of providing greater assistance to low-income consumers, while still preserving our present commitment to conservation and renewable energy. In 1997, many of our groups testified in favor of a 3%+ USB, consistent with the recommendations of the Comprehensive Review of the Northwest Energy System. That report was commissioned and signed by the Governors of the four Northwest states, including Governor Racicot. Montana instead adopted a 2.4% level. Bringing the level up to 3% would allow us additional room to increase the minimum share going to low-income, without impacting conservation and renewables.

     The second approach would be to reform the way the USB currently operates. Significant additional money could be obtained without changing either the overall funding level or the minimum percentage figure, if we were to bring a greater degree of consistency and accountability to the program. Currently, Montana's USB program has vastly differing standards and rules for different customer classes and utilities. We believe that these disparities should be addressed so that all customers and all utilities pay their fair share.

     Finally, our coalition would also suggest that the committee not focus exclusively on USB electric funds, when the increased need for low-income assistance is coming primarily from increased natural gas costs. There is a large discrepancy between the relative funding levels for the electric and gas USB programs. USB gas is assessed at a much lower level, and raises far fewer funds. The committee should consider addressing this unbalance.
    In summary, USB is a critically important program, but there are areas in need of improvement. If there is one, overarching message we would like to convey to you today, it is to ask you not to move hastily in formulating your recommendations. The next regular session of the legislature remains more than a year away. As we all know, the electric utility industry is a fast-moving enterprise, with many unexpected developments that can occur in a year's time. At a minimum, we would encourage the committee to delay making recommendations until it has had a chance to explore the issues more fully.

Kathy Hadley

Executive Director
National Center for Appropriate Technology

Elizabeth Andrews

        Montana Representative
National Environmental Trust

    Ralph Cavanagh
Energy Program Director
Natural Resources Defense Council

Attachment 2:
Comments of Patrick Judge, Montana Environmental Information Center
Montana AARP Energy Consumer Summit
February 2, 2004
    First, a heart-felt thank-you to Pat Harper and Montana-AARP for all of the hard work they do on behalf of Montana's energy consumers, and for making this important summit happen. I'd also like to thank the major presenters, Barbara Alexander and Roger Colton, for making the trip to Montana to share their valuable insights with us. Sometimes a fresh perspective from the outside is precisely what's needed.
      Since its inception in 1997, USB has been a mainstay of Montana energy policy. Legislation to extend the program is continually supported by a broad array of utilities and stakeholders, and continually passes with overwhelming bipartisan majorities The benefits and accomplishments of the program have been substantial -- energy audits for thousands of homes and businesses each year, energy assistance for tens-of-thousands of low-income families annually, rebates on energy-efficient appliances & commercial lighting projects, and the installation of well over a hundred renewable energy systems, on homes and businesses, farms and ranches, schools and firehalls across the state. While the program is far from perfect, it has been, on balance, a refreshing success story in the often-turbulent world of energy policy and politics in Montana.
But it hasn't been easy. From the beginning, the program has attracted its share of attention and scrutiny. While I think most everyone would agree that the program ought to continue in some form, there would certainly be disagreement as to the particulars. The most recent debate has centered on the allocation of resources between the principle areas of energy conservation, renewable energy, and low-income bill assistance and weatherization. It's an unfortunate reality that these tremendously worthwhile programs all compete for funding out of the same pot of money.
As many of you know, this summer a coalition of conservation, consumer, and low-income groups came together to voice a common message of support for the "global" USB vision. A lot of the focus recently has been on the low-income bill assistance portion of the program, and rightly so. The combination of Montana's harsh winter environment, rapidly escalating utility bills, and unacceptably high poverty rates underscores the need for additional money to help low-income customers manage their monthly energy bills. Our coalition offered specific suggestions on how to meet that increased need, while preserving our commitment to the other worthwhile USB programs.
     The difficult but essential challenge before us is how to best balance the pressing need for short-term relief with long-term solutions that get at the underlying sources of the problem. While weatherizing a low-income home can cost more money up front, the savings will continue to accrue month-after-month, year-after-year, fostering long-term energy independence. Weatherization also has significant benefits for the natural environment, in that it helps us create a more efficient / less-wasteful society.
        I think everyone in the room would probably agree that programs providing long-term, short-term, and crisis solutions all must be part of the mix. It's finding the right balance between them that is the tricky part. Part of the solution lies with innovative projects that have overlapping benefits. An example would be the Gold Dust Apartments, a low-income housing project in Missoula that now bosts the largest solar electric system in the state (15 kW), thanks to a 2003 USB grant. In 2002, a similar 6300 Watt system was installed at the Ptarmigan Apartments here in Helena. Low-income families across the state are benefiting from numerous other solar electric & solar thermal projects. And just a couple weeks ago, NWE's USB Advisory Committee approved funding for a conservation and renewable energy program for senior centers, which provide low-cost meals to fixed-income senior citizens.