ORDER NO * * * * * * * In this Order, we approve for implementation a series of energy efficiency and

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1 ORDER NO 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 * * * * * * * BEFORE THE PUBLIC SERVICE COMMISSION OF MARYLAND CASE NO In this Order, we approve for implementation a series of energy efficiency and demand response programs proposed by Baltimore Gas & Electric Company ( BGE or Company ). As we explain below, we are persuaded that BGE s current proposals have addressed the cost and program design concerns we articulated in our letter order of August 18, 2008, 1 and that the current proposals design and budget are consistent with the energy savings and cost-effectiveness directives contained in the EmPOWER Maryland Energy Efficiency Act of 2008 ( Act ). 2 Moreover, unlike their predecessors, the new programs are designed to permit every single BGE customer to participate and save money well in excess of the cost of the programs. We emphasize this point because it is a crucial one: we have criticized proposals that impose surcharges on all customers while permitting few to participate, but BGE s redesigned programs provide opportunities for every customer to save energy and money, and we hope that all will take advantage. 1 Commission Letter Order to BGE dated August 18, 2008; Item#10, 6/18/08 Administrative Meeting; Maillog # ( BGE Letter Order ). 2 Chapter 131, Laws of Maryland, The Act amends Section of the Public Utility Companies Article.

2 The programs are not perfect. We have struggled with some, particularly the appliance rebate programs, 3 primarily because there is minimal recent, reliable data regarding the presence and penetration of appliances and other energy efficiency measures in Maryland, and thus no way for us to know that the incentives will, in fact, incent the social and market changes the Act seeks. To some extent, then, approving these programs for implementation at this time requires a leap of faith. On balance, we are willing now to make the leap for two reasons: first, any hope of achieving the Act s aggressive consumption and demand reduction goals requires us to start now, and second, by conducting a request for proposals ( RFP ) in advance of this filing, BGE reduced its administrative costs by 35% and outside services costs by 43%, while increasing program incentives by 27% and expanding the programs to allow more ratepayers to participate. We can and will monitor the programs closely to determine whether and to what extent they are achieving energy consumption and demand reductions in a cost-effective manner, and we direct BGE to begin implementing them immediately and to provide us and our Staff with frequent status reports, as outlined below. I. Background This is one of a series of cases we opened, pursuant to the Act, to examine and, as appropriate, approve utility-run energy efficiency and demand response programs. The Act directs the Commission to require each affected electric company to provide ratepayers cost-effective energy efficiency and conservation ( EE&C ) programs and services designed to achieve targeted per capita energy reductions of at least 5% by the 3 For the reasons explained below, Commissioners Williams and Brogan would not approve the appliance rebate programs. 2

3 end of 2011 and 10% by the end of 2015 compared to 2007 per capita energy consumption and, to the extent that the Commission determines that cost-effective EE&C programs and services are available, the Act directs the Commission to approve those programs for implementation. The Act also requires each electric company to implement a cost-effective demand response ( DR ) program designed to achieve a targeted reduction in per capita peak electricity demand of at least 5% by the end of 2011, 10% by the end of 2013, and 15% by the end of 2015 compared to per capita peak electricity demand in the electric company s service territory in Together, the EE&C and DR programs are known as Demand Side Management ( DSM ) programs. On September 29, 2008, BGE filed its EmPOWER Maryland Plan ( Plan ), 4 which contains DSM programs for residential, commercial, and industrial sectors, including low-income and low-to-moderate-income communities. The Company also included its estimated energy savings and demand reductions for the three year period ending in 2011 as well as anticipated reductions through These filings followed the Commission s August 18, 2008 Order rejecting BGE s initial attempts to address the Act s goals, citing its concerns about the cost-effectiveness of the proposed programs. Specifically, the Commission found that the programs devoted a disproportionate share of costs to overhead and administrative expenses rather than rebates or other items that directly reduce or incent reductions in energy consumption. Following the September 29, 2008 filing, the submission of numerous intervenors comments, a hearing on BGE s Plan on November 25, 2008, and the 4 On September 2, 2008, BGE filed its Plan relative to large commercial and industrial customers. Its September 29, 2008 filing included these Plans, as well as those for residential and small commercial customers. 3

4 consolidated hearing regarding the Maryland Energy Administration ( MEA ) proposals on December 9, 2008, 5 the Commission carefully analyzed each proposed Plan program or measure to determine its cost-effectiveness. As required by the Act, the Commission also considered the Plan s impact on rates, jobs, and the environment. 6 After careful review of all the filings, including comments and proposals from the MEA, 7 the Commission approves the entire portfolio of EE&C programs proposed by BGE and directs the Company to move forward with implementation. The Commission will hold an additional hearing early in 2009 to discuss BGE s proposal regarding amortization and to address cost recovery issues more broadly. II. BGE s EmPOWER Maryland Plan BGE s EmPOWER Maryland Plan contains a number of EE&C proposals, as well as its already-approved demand response programs. 8 Together, BGE s Plan is designed to achieve 232% of the 2011 peak demand reduction target but only 52% of the 2011 energy savings goal. 9 This translates to an estimated reduction in peak demand of approximately 1,190 MW for 2011 and a 2011 reduction in energy consumption of approximately 1,059,116 MWh, if all of the Company s proposals are implemented On December 9, 2008, the Commission held a consolidated hearing with the five utilities that filed EmPOWER Maryland Plans, in order to consider, among other things, MEA s proposal for a Statewide low-income program coordinated by MEA, a Statewide Home Performance with Energy Star program coordinated by MEA, and a Statewide evaluation, measurement and verification component for all EE&C programs coordinated by MEA. 6 Section (i)(1). 7 The Act requires the Commission to consider MEA s findings. 8 The Commission s citations to BGE s Plan are based upon the Company s September 29, 2008 filing (unless noted otherwise), which contains final Plan revisions. See Docket No Revised Table ES-2 (filed November 10, 2008). BGE s 2011 demand reduction goal is 513 megawatts ( MW ) while the 2011 energy reduction goal is 2,052,948 megawatt hours ( MWh ). 10 Revised Table ES-2 (filed November 10, 2008). 4

5 A. EE&C Programs BGE proposes six residential, two small commercial, and three large commercial, industrial, and institutional EE&C programs that, as currently designed, are projected to save over 1,024,416 megawatt hours of consumption in They represent almost 97% of the projected 2011 energy savings in BGE s Plan. Each of these programs must be evaluated for cost-effectiveness, as the statute advises the Commission to approve only those cost-effective energy efficiency and conservation programs and services. 12 This analysis requires a critical examination of each program s anticipated costs and projected electricity savings. 13 With few exceptions, the intervening parties, Staff, MEA, and the Maryland Office of People s Counsel ( OPC ) enthusiastically support the Company s Plan. 14 They note that all of BGE s proposed EE&C programs, including the low-income program, pass the Total Resource Cost ( TRC ) cost-effectiveness test. 15 As articulated in the August 18, 2008 Order, [t]he Commission views cost-effectiveness as requiring a real rate of return on ratepayers investment, measured by meaningful bill savings for all ratepayers, 16 and we do not view the outcomes of the TRC or other California Manual 11 Revised Table ES-2 (filed November 10, 2008). 12 Section 7-211(g)(1) (emphasis added). See also 7-211h(6) and 7-211(i)(1). 13 Section 7-211(h)(5). 14 The exceptions are Washington Gas Energy Services ( WGES ) and the Maryland Energy Group ( MEG ). In brief comments, WGES asserts, without much support, that the competitive market can provide these services. MES takes issue with the manner in which BGE grouped together programs, and therefore costs, for large commercial, industrial and institutional customers. Washington Gas Light ( WGL ) Company recommends approval of those programs that do not have implications for alternate fuel usage and corresponding increases in electricity usage caused by the payment of the incentives in this Plan. WGL requests that the Commission direct the parties to discuss and develop a natural gas conservation pilot program as expeditiously as possible. Although the Commission anticipates further inquiry into fuel-switching proposals, it neither approves nor disapproves WGL s request at this time. 15 The Total Resource Cost ( TRC ) test, also known as the All Ratepayers Test, is included as one of several cost-effectiveness tests used to evaluate demand side management programs and is based on the cost-effectiveness analysis established by the California Standard Practice Manual. The TRC measures the net cost of the program, including the cost to both the participants and the utility. 16 BGE Letter Order at 2. 5

6 tests as dispositive or binding. Additionally, programs should achieve an appropriate share of the State s ambitious conservation goals. 17 The mere fact that an EE&C program might pass certain commonly-utilized tests does not, in itself, compel us to commit millions of dollars to such programs. 18 Accordingly, the analysis of costeffectiveness will be informed by the impact of these programs on ratepayers utility rates and bills, as well as the allocation of costs and the achievement of energy savings, but at the end of the day we must be persuaded that the individual and collective benefits are worth the ratepayers investment Non-Residential EE&C Programs BGE proposes five non-residential EE&C programs that are targeted at two different groups: Small Commercial customers 20 and Large Commercial, Industrial and Institutional customers. 21 The two Small Commercial programs are the Direct Install/Prescriptive Program and the Multifamily Program. The Direct Install/Prescriptive Program features two delivery methodologies. The Direct Install, or retrofit, element involves the replacement of existing electrical and mechanical equipment, where the equipment continues to function but is outdated and energy inefficient. This program will identify cost-effective efficiency retrofit opportunities and provides direct installation, incentives and other strategies to encourage early replacement of existing equipment with high efficiency alternatives. The traditional Prescriptive Program offers customers the opportunity to receive incentives for 17 Id. 18 Id. 19 Id. 20 For purposes of the Plan, BGE defines Small Commercial customers as nonresidential customers consuming fewer than 60kWs monthly. Plan at BGE is the only utility that has segregated the non-residential customers. 6

7 end-of-life replacement of (usually) single systems or pieces of equipment. 22 In light of the BGE Letter Order, BGE redesigned the incentive levels offered for this program, increasing the Direct Install incentives to 80% of the incremental cost to attract customers who are not contemplating a purchase because their existing equipment has failed. BGE proposes to spend just over $17 million on this program through 2011 and anticipates 88,051 MWh in annual energy savings by The Multifamily Program represents one of BGE s innovative responses to the concerns raised in the Commission s BGE Letter Order and marks the only utility effort to address this unique sector of the customer base. 23 The Multifamily Program targets property owners and managers of multifamily residential facilities with four or more dwellings per building. The program will offer free energy audits of common areas, and if possible, at least one unit within the building, to identify potential opportunities for prescriptive measures, specifically basic common area lighting measures. 24 This program will result in 23,351 MWh saved, with a cost of $1.5 million. Collectively, BGE s Small Commercial programs are designed to save approximately 111,402 MWh of energy in This represents approximately 10.5% of estimated 2011 energy savings in BGE s Plan and approximately 5.4% of the 2011 EmPOWER energy savings goal. Program costs for the Small Commercial programs are $18.6 million for the three year period , or 12.5% of the total program costs Id. at In other orders being released this same day, the Commission will be recommending that other utilities consider a similar program. 24 Plan at Revised Table ES-2 (submitted November 10, 2008). 26 Table ES-3. 7

8 BGE has also proposed three programs for the Large Commercial, Institutional, and Industrial customers: 27 the Prescriptive Program, the Custom Program, and the Re- Commissioning Program. The Prescriptive Program is designed to provide customers with on-site audits for the purpose of identifying energy efficiency opportunities and providing incentive payments for the purchase of specified equipment. BGE anticipates spending approximately $35 million on this program by 2011 and expects to achieve 254,256 MWh in annual savings. The Custom Incentive ( Custom ) Program is designed to promote cost-effective energy efficiency measures customized to the specific needs of a business customer. BGE anticipates co-funding (up to 50%) a limited number of studies designed to identify energy savings. If the customer implements measures that achieve over 50% of the identified savings, the customer may receive a partial or full refund for its share of the study s cost. Technical assistance and incentives towards specific measures will also be provided. 28 The cost of the Customer Program through 2011 is expected to be almost $12 million, with resulting savings of 153,419 MWh. Finally, the Re-Commissioning Program seeks to help customers identify and implement low cost tune-ups and adjustments that improve the efficiency of existing buildings operating systems by returning them to intended operation or design specifications, with a focus on building controls and HVAC systems. The program would offer technical and financial assistance to identify and implement low cost tuneups and adjustments that improve the efficiency of building operating systems BGE defines this group as the Schedule GL and Schedule P customers. 28 Plan at Plan at

9 BGE s Large Commercial, Industrial and Institutional EE&C programs are designed to save approximately 501,995 MWh of energy in This represents 47.4% of estimated 2011 energy savings in BGE s Plan and 24.5% of the 2011 EmPOWER energy savings goal. Program costs represent just over $54.6 million for the Large Commercial, Industrial and Institutional programs for the three year period , 31 or 36.6% of the total program costs. When all five non-residential programs are taken as a whole (the approach adopted by the other utilities), the programs are designed to save 613,397 MWh of energy in This represents almost 60% of the estimated 2011 energy savings in BGE s Plan and almost 30% of the 2011 EmPOWER energy savings goal. Program costs of $73.3 million for the non-residential programs represent about half of the total program costs. 32 BGE estimates that by year end 2011, 7.8% of eligible participants will have participated in the Multifamily Program, while 3.9% will have participated in the Small Commercial Direct Install/Prescriptive Programs. 33 With regard to the Large 30 Revised Table ES-2 (filed November 10, 2008). 31 Plan at 19, Table ES-3. This figure excludes start-up and general awareness costs. 32 Although the Commission does not rely, and has not relied, on the traditional cost-effectiveness tests and life-cycle cost measures as dispositive measures of cost-effectiveness under the Act, we note that BGE estimates life-cycle costs for for the non-residential EE&C programs ranging between 1.1 ($ 0.011) per KWh saved for the Custom Program and Multifamily Program and 4.1 per KWh saved for the Small Customer Direct Install/Prescriptive Program. Life-cycle costs for the Large Customer Prescriptive Program are 3.0 per KWh saved and 1.4 per KWh saved for the Re-Commissioning Program. By comparison, BGE s standard offer service ( SOS ) supply rate is per KWh. The TRC results for BGE s non-residential programs are as follows: Small Direct Install/Prescriptive Program TRC 1.62 Multifamily Program TRC 5.57 Large Prescriptive Program TRC 2.00 Custom Program TRC 5.30 Re-Commissioning Program TRC BGE Slide Presentation, November 25, 2008, at 42 ( Docket Entry No. 41) ( BGE Slides ). 9

10 Commercial, Industrial and Institutional customers, BGE projects that 19.7% will have participated in one of the three programs by the end of Based on the record developed in this proceeding, the Commission concludes that BGE s five non-residential energy efficiency and conservation programs are costeffective and likely to provide total program benefits to commercial, industrial and institutional customers that exceed the cost of the programs. Combined, it is anticipated that they will achieve almost 60% of BGE s energy reduction proposal for 2011, which equates to one-fourth of BGE s EmPOWER Maryland energy reduction goal for If they perform as planned, these programs will represent significant achievements, although they do not fully satisfy the Act s requirements. The Commission is particularly impressed with the Custom Program and the Multifamily Program, as well as the Re- Commissioning Program, and directs BGE to explore methods to expand customer participation in these beneficial programs. 35 As noted above, the Maryland Energy Group ( MEG ) argues that BGE has not complied with the statutory language of the Act requiring that the Commission only approve those EE&C programs that are cost-effective for each affected class. 36 Rather, by grouping Schedule P and Schedule GL customers together in the Large Commercial, Industrial, and Institutional category, MEG argues that BGE has failed to evaluate the cost-effectiveness of the proposed programs for each class of customer. BGE rejects MEG s interpretation of the statutory language, noting that the word class in the Act is an undefined term and there are no grounds to adopt MEG s interpretation. 34 BGE Slides at page We direct BGE to report back to the Commission regarding potential program enhancements within 90 days of this Order. 36 Initial Comments of the Maryland Energy Group filed November 6,

11 The Commission agrees with BGE. The term class is not defined in the Act. Had the legislature intended the Commission to ensure that each program was independently cost-effective for each rate schedule, it could have used those specific terms. It did not. Additionally, as Staff points out, MEG fails to draw a meaningful distinction between Schedule P and Schedule GL customers; BGE s programs are targeted towards both groups and it is appropriate to group them together. Accordingly, the Commission rejects MEG s request to reject the non-residential programs and notes that each rate schedule pays the proportionate amount of direct and indirect costs that its rate schedule incurs Residential EE&C Programs BGE proposes six residential EE&C programs and anticipates that they will achieve annual total energy savings in 2011 of 411,019 MWh. 38 The Company proposes to spend $68,426,309 between , not including general awareness costs, to achieve these results. 39 Under BGE s Plan, the residential programs account for 40% of the projected energy savings and approximately 45% of the cost. The Commission takes 37 BGE has requested that the Commission approve its electric revenue decoupling for its large commercial customers under Schedule GL and Schedule P, as it has already done for BGE s residential and small commercial customers. According to the Company, without approval of this mechanism, BGE would be in the awkward position of promoting energy efficiency programs which would significantly reduce revenue. The Commission notes that an insufficient record was developed on this issue during BGE s hearing. In light of the fact that BGE has filed a revised rider that will be considered by the Commission separately, this Order will not address BGE s decoupling request. 38 Table ES-2 (filed November 10, 2008). 39 Table ES-3 (filed November 10, 2008). Additionally, the average life-cycle costs per kwh saved for are as follows: 2.9 for L & A Program, 4.9 for HPwES Program, 9.0 for New Construction Program, 6.8 for the Low-Income Program, 7.4 for HVAC Program and 0.9 for Multifamily Tenant Program. The residential program TRCs are as follows: Lighting and Appliance TRC 2.37 HPwES TRC 1.45 New Construction TRC 1.23 Low-Income TRC 1.07 Residential HVAC TRC 1.22 Multifamily Tenant TRC

12 note of this close correlation between savings and spending and will direct the other utilities to strive for a similar ratio when submitting their final program budgets for approval. This ratio is critical to the finding that the residential programs are costeffective. Because residential customers will be paying a surcharge for these programs from the moment that the programs are approved, the Commission will review each proposed program carefully and require additional information, as specified. 40 The Lighting and Appliance ( L&A ) Program is designed to increase the use of ENERGY STAR lighting, clothes washers, window air conditioners, and refrigerators sold through retail sales channels through incentives. BGE proposes incentives of $1.50 per single-unit Energy Star bulb and $3.00 per multi-pack Energy Star CFL bulb. The proposed appliance incentives are $10.00 for Energy Star lighting fixtures, $50.00 for Energy Star Clothes Washers (MEF up to and including 2.0), $50.00 for Energy Star refrigerators, and $25.00 for Energy Star Room Air Conditioners (at least 10.8 EER). The program also offers a $50.00 bounty payment for each refrigerator and freezer that is turned in. The program will promote retailer participation by using both a markdown approach and rebate coupons. 41 BGE anticipates spending almost $24 million on this program through 2011, with an anticipated energy reduction of 344,368 MWh. This is the greatest projected energy savings of any of BGE s plans the Company estimates that about 90,000 MWh more will be saved through the L&A Program than the largest non-residential program, even though it is projected to cost $11 million less The commercial, industrial and institutional customers also pay the surcharge from the inception of the programs. 41 BGE Slides at Revised Table ES-2 and Table ES-3 (filed November 10, 2008). 12

13 The Commission approves the L&A Program, albeit narrowly and with some very real trepidation. 43 The CFL measures have historically been very successful and offer a significant opportunity for substantial energy savings. But the Commission is less confident in the effectiveness and cost-effectiveness of the appliance rebate programs, for at least two reasons. First, there is ample reason including the real life experiences of two Commissioners and at least one other Commission employee to fear the rebates may benefit too great a percentage of free-riders, i.e., customers who would have purchased energy efficient appliances without any incentive. Second, there is only minimal recent, reliable or meaningful data from Maryland on which BGE, any other utility, or this Commission can base precise judgments regarding the levels of incentives offered for each appliance. The theory of the rebates to cover somewhere between 25% and 75% of the incremental cost of buying a qualifying appliance is rational and reflects the conventional wisdom and experience of similar programs in other states. But we can t be certain that theory and experience elsewhere will translate to results here: BGE offers minimal data documenting the existing market penetration of efficient appliances in Maryland and no data confirming that the proposed incentive levels really will work (particularly in this economy, where people may be even less likely than ever to purchase new appliances). 44 We identify these issues not to criticize BGE only minimal data exists anywhere for Maryland ratepayers since energy efficiency programs stopped in the wake of 43 For the reasons detailed in this paragraph and the next, Commissioners Williams and Brogan would not approve the appliance rebate programs, and they dissent from this portion of the Commission s decision. 44 Commissioners Williams and Brogan would find that the incentive amounts are not high enough to incent consumer behavior. Additionally, they are concerned that only those customers at the higher ends of the economic spectrum can afford to purchase energy efficient models. 13

14 restructuring but to point out the difficult decision these programs presented us. We are able, narrowly, to approve them here only because we are persuaded that BGE s RFP has yielded substantially reduced cost figures for these programs and because a majority is persuaded that the imprecision of the rebates and projections is outweighed, if perhaps barely, by the General Assembly s direction that our utilities achieve aggressive energy savings by Although we approve the programs as proposed, we will monitor the results of the programs closely and will evaluate critically whether the programs are justifying their cost and/or whether the incentives need to be modified. And in that same regard, we are not convinced that there is independent virtue or benefit in requiring consistency among the utilities either as to the roster of appliances eligible for rebates or the rebate levels themselves. Instead, we will permit each utility to set its own incentive levels and determine which appliances to incentivize, then to report the effectiveness of their decisions to us for further analysis and, if appropriate, modification. The results of this varied approach may reveal important information about the effectiveness of different measures and/or varying rebate levels. The Home Performance with ENERGY STAR ( HPwES ) Program represents an area of impressive innovation by BGE and ensures that every ratepayer can participate, free of charge, in a program designed to offset, in energy savings, the surcharge imposed as a result of the conservation efforts. As proposed by BGE, the HPwES offers customers several different levels of participation at different price points. The most expensive and comprehensive option is the full home audit, for which a customer will pay between $350 and $450 for a trained contractor to conduct an analysis and make recommendations for modifications and updates to improve the home s energy 14

15 efficiency. BGE will offer customers a direct incentive of 15% of the cost of eligible measures installed in a pre-approved home performance project or BGE will use that 15% to buy down the interest rate on a loan to finance the eligible measures. 45 The Home Performance audits are conducted by trained contractors. BGE is also proposing reimbursement for up to 75% of the cost of the certification of the contractor, as well as an incentive for production based on the value of the jobs provided and an advertising partnership with the contractors. The second option, which may be the most attractive to the majority of customers, is the Quick Home Energy Check-Up, which costs $40. However, if the homeowner agrees to have the contractor install certain energy saving measures (which are done free of charge), such as CFL bulbs, and faucet aerators, the $40 fee is waived. Finally, BGE will establish an on-line audit system, whereby customers can receive suggestions regarding energy efficiency based on information provided on-line. 46 BGE anticipates that the entire Home Performance with Energy Star Program will cost approximately $14 million and will result in 18,742 MWh in energy consumption savings. 47 BGE anticipates 2,200 customers will participate in the full audit, and 2,500 customers will participate in the Quick Home Energy Audit by However, during the November 25, 2008 hearing, BGE assured the Commission that it would be able to provide a Quick Home Energy Audit to every BGE customer who requests one. The ability of all BGE customers to participate in this program is critical to our decision to approve these programs, and we cannot recommend strongly enough that every BGE customer take 45 BGE Slides at Id. 47 Revised Table ES-2 and Table ES-3 (filed November 10, 2008). 15

16 advantage of this opportunity. And this point is worth stating to BGE s ratepayers in all capitals: IF YOU REQUEST A QUICK HOME ENERGY AUDIT AND ALLOW BGE TO INSTALL THESE STRAIGHTFORWARD ENERGY EFFICIENCY MEASURES IN YOUR HOME, YOU WILL SAVE MORE THAN YOU WILL PAY IN SURCHARGES, EVEN IF YOU DO NOTHING ELSE. Accordingly, the Commission approves the HPwES Program and will direct the other utilities to review its design, specifically the Quick Home Energy Audit and the online offering, and resubmit their HPwES Programs, modeled after BGE s, for the Commission s consideration. MEA has proposed a joint MEA/utility HPwES program, in which MEA would provide Statewide services/coordination and funding for: (1) training, certification and mentoring of contractors; (2) Statewide general awareness of the program; (3) quality assurance; and (4) EM&V of the program. The Commission appreciates and welcomes MEA s continued participation in the training, certification and mentoring of contractors, as well as its assistance with the general awareness campaign about the Home Performance with Energy Star program, and hopes and expects that MEA will play an important role in the implementation of the Home Performance with Energy Star program. However, the Commission declines to centralize control and coordination of all utility HPwES programs in MEA, as MEA proposes, or to create a separate steering committee to oversee these programs. The utilities are better equipped to administer and implement the programs than MEA is at this point, and to move more quickly than MEA can to get the programs running. We agree with MEA that there will be opportunities for coordination and economies of scale if MEA and the utilities work together on the 16

17 HPwES programs, most notably in connection with general awareness campaigns, quality assurance and EM&V, and we encourage BGE and the other utilities to work with MEA to maximize these efficiencies. BGE has also proposed a Residential New Construction Program in order to accelerate the penetration of ENERGY STAR qualified homes in BGE s service territory. Under this program, BGE will offer incentives to homebuilders, ranging from $400 to $1,000, for meeting certain energy efficiency ratings. 48 For those homes that are already under construction, BGE is including an Advanced Lighting Package, with incentives for the builder. This program is anticipated to cost approximately $5.5 million by 2011 and result in 6,085 MWh in savings. 49 The Commission finds the New Construction Program to be cost-effective and approves this program offering. BGE s low-income offering proposes to expand, by 50%, the number of customers participating in the Company s Low-Income Program that the Commission approved in August. 50 BGE anticipates 4,600 participants in its Low-Income Program between 2009 and BGE plans to achieve this increased participation by making additional efforts to reach community organizations and networks that work directly with low-income customers. BGE also proposes contracting for additional service delivery capacity, including those contractors enrolled in the HPwES program, so that more customers can be served. 48 BGE Slides at Revised Table ES-2 and Table ES-3 (filed November 10, 2008). 50 When the Commission approved BGE s Low-Income Program in its August Order, it ordered the Company to file a more aggressive program that provides benefits to a greater number of Maryland households. 17

18 BGE s Low-Income Program is designed to examine all aspects of residential structure, energy systems, and energy use from a holistic perspective. Accordingly, its Low-Income Program is a customized program that encompasses weatherization, health and safety, and appliance replacement. Conservation measures proposed include weatherization (air sealing, weather stripping, foam, and caulking), distribution of compact fluorescent lights, water heater wraps, faucet aerators, efficient flow shower heads, and appliance replacement. All Low-Income Program energy efficiency assessments, energy education and retrofit services will be provided free to qualified program participants. BGE anticipates a $5,000 cap for each customer. BGE has budgeted over $8 million in incentives and $800,000 in education, outreach, and communication. 51 The Company anticipates that the Low-Income Program will save 11,809 MWh annually, and cost approximately $10.6 million through The Commission approves BGE s Low-Income Program. The Act requires utilities to design programs to meet the needs of low-to-moderate-income individuals; 53 BGE s model does just that, by offering a whole-home analysis, with measures installed at no cost to the customer. 54 The Commission will encourage the other utilities to utilize BGE s model when they resubmit their low-income programs for approval. The Commission shares the concerns articulated by some participants that the measures installed in the homes benefit the low-income residents, rather than merely providing an 51 BGE Slides at Revised Table ES-2 and Table ES-3 (filed November 10, 2008). 53 Although the Quick Home Audit program is not limited to low- or moderate-income customers, we find that it will benefit both groups and encourage customers in all income strata to participate. 54 The Commission was disappointed to learn that the Low Income Program approved in the August Order has not been implemented at all to date, and expects that BGE will implement the Low Income Program as now approved with all possible speed. 18

19 upgrade to a landlord who will then rent the property at a higher rate. The Commission notes the efforts described by MEA to contract with landlords to prevent such abuses from taking place. The Commission orders BGE to continue to communicate and work together with the other utilities and MEA to develop best practices in targeting those individuals who would benefit from this program and preventing any abuses of the program offerings from taking place. MEA proposed a joint MEA/utility Assisted Home Performance with Energy Star program targeted at low-income individuals, which incorporates program uniformity among the five utilities participating in EmPOWER Maryland. MEA suggests that lowincome individuals receive grants of up to $5,000 for home energy retrofits. 55 The suggested retrofits would be developed after a home energy audit, performed by a certified Home Performance contractor. Pursuant to MEA s proposal, MEA would provide Statewide services/coordination and funding for: (1) training, certification and mentoring of contractors; (2) Statewide general awareness of the program; (3) customer contact and income verification (through various state agencies); (4) incentives; 56 (5) quality assurance; and (6) EM&V of the program. Again, the Commission appreciates and welcomes MEA s continued participation in the training, certification and mentoring of contractors, as well as its assistance with the general awareness campaign about the 55 MEA recommends a cap of $8,000 if an HVAC system must be replaced. These grants would be funded through the EmPOWER Plans. 56 MEA has proposed funding grants of $1,500 per customer for those customers who reside outside of the BGE, Pepco, Delmarva, Allegheny Power, and SMECO service territories. Nothing in this Order should be interpreted to prevent MEA from implementing this proposal and in fact, the Commission applauds MEA s efforts in this regard. MEA does not propose funding incentives for those customers who reside within the BGE, Pepco, Delmarva, Allegheny Power, and SMECO service territories. See, e.g., Transcript from December 9, 2008 hearing at 53-54: Commissioner Brogan: The utility s ratepayers would be funding the incentive portion. Mr. Woolf: Correct. 19

20 low-income program, and directs BGE to work with the other utilities and MEA to coordinate and maximize potential economies of scale in connection with these programs, but declines to appoint a Steering Committee or centralize control and coordination of these programs in MEA. Additionally, below we discuss the convening of a General Awareness Workgroup to promote a Statewide messaging campaign, including informing low-income customers of programs. The Commission directs BGE to coordinate with the other utilities, as well as Staff, OPC, and MEA, regarding the implementation of the Low-Income Programs, to ensure that the desired effects are being achieved. The residential Gas and Electric HVAC Program is designed to increase the energy efficiency of central air conditioning and heat pump equipment that will be installed in BGE s service area. The program will promote both improved equipment efficiency and improved installation practices. 57 BGE will offer incentives ranging from $175 to $400 per unit for high efficiency units, as well as incentives for quality installation, repair and duct sealing. 58 BGE anticipates that the HVAC Program will save 17,346 MWh and is projected to cost $13.6 million. 59 The Commission finds this Program cost-effective and approves it. BGE also includes the tenant-focused portion of its Multifamily Program in its residential suite of programs. Under this element of the Program, BGE will target renters (in addition to landlords) to address the issue of how to motivate renters to make improvements to homes they do not own. BGE anticipates spending $1 million on this 57 BGE Slides at BGE Slides at Revised Table ES-2 and Table ES-3 (filed November 10, 2008). 20

21 program and realizing 12,670 MWh in savings. 60 The Commission finds this program cost-effective and approves it. The Commission directs BGE to investigate whether low-interest or no-interest loans for the measures contained in the Programs above would encourage more customers (or different customer segments) to participate in energy efficiency programs, whether for appliance or HVAC, than incentive payments. Although the Commission is aware of the challenging credit markets, we direct BGE to investigate and propose a credit-subsidy program within ninety days of the date of this Order. As noted above, the Commission notes with great satisfaction the changes that BGE made to its Plan in light of the BGE Letter Order. Since its initial filing, BGE completed two competitive solicitation processes for implementation contractors for the residential and commercial programs. A single vendor, ICF International, ended up winning both bids. One of the strengths of BGE s Plan is its use of hard numbers, rather than estimates, for its implementation costs, as well as significant reductions in certain expenses: Administration costs were reduced 35% and Outside Services costs were reduced by 43%, while Incentives were increased by 27%. With regard to cost recovery, the Commission will continue to evaluate ways in which the burden on ratepayers can be reduced. In that vein, BGE has proposed that the Commission authorize recovery of 2009 costs over a twelve-month recovery period, rather than the five-year period previously authorized. This would decrease the interest charges that would be incurred. BGE has also requested that the Commission delay a decision on amortization of costs until later in Id. 21

22 In order to evaluate this request, the Commission asked BGE to submit additional information, which it has done. Based on a five-year amortization schedule, the average monthly efficiency charge for residential electric customers in 2009 would be $ If the Commission permits the 2009 costs to be recovered in a twelve-month period, the average monthly efficiency charge for residential electric customers in 2009 would be $ While this appears to be a sizable increase, twelve-month recovery would result in significant savings over the long-term. BGE estimates the savings at $16 million between compared to a five-year payback, and $9 million compared to a three-year payback. 63 The Commission will review these options in greater detail and will schedule a hearing on the amortization request and other cost-recovery issues in early B. General Awareness Program The Company asserts that its General Awareness Program will complement BGE s program-specific marketing efforts, reaching broad audiences with messages about the importance of energy efficiency, the no-cost and low-cost ways to be energy efficient at home and at work, and the informational and other resources available to them. 64 BGE will utilize a variety of outreach methodologies, but will direct customers either to BGE s website, BGESmartEnergy.com or its Call Center, for additional 61 Attachment 4a (filed November 10, 2008). 62 Letter from BGE dated December 15, Id. 64 Plan at

23 information. Additionally, the Company will coordinate its awareness campaigns with other regions of Maryland to maximize campaign effectiveness. The Company estimates annual communications costs of $2,500, The Commission hereby approves BGE s General Awareness Campaign. However, it notes that Statewide uniformity in the general messaging regarding energy efficiency and conservation will be critical to reaching the greatest number of customers and decreasing consumer confusion. Accordingly, the Commission hereby convenes a General Awareness Workgroup, to be comprised of representatives from BGE, as well as the other utilities filing Plans, Staff, OPC, MEA, and other interested parties. The General Awareness Workgroup is charged with developing a Statewide messaging campaign focused on educating consumers about the benefits of energy efficiency and conservation, influencing consumers to make decisions that reduce their energy consumption, and advising customers of what steps they can take to offset the surcharge. The Workgroup should also focus on messaging aimed specifically at low-income customers, 66 as well as promoting programs that are available to all customers, such as the Quick Home Energy Audit. The Workgroup shall develop uniform messages to be used throughout the state, as well as a Statewide plan for disseminating the messages. The Workgroup shall submit a proposed plan to the Commission by March 31, C. Demand Response ( DR ) Programs The energy impacts for BGE s demand response programs, Peak Rewards, Legacy Residential/Commercial Rider 5, Residential Rider 6, Interruptible Load for 65 Table ES-4 (filed November 10, 2008). 66 BGE may consider advertisements on mass transit, as well as other innovative and unconventional avenues in order to reach as many consumers as possible. 23

24 Reliability (ILR-Rider 24), and BGE s Smart Energy Pricing, are included in the Tables BGE provided. However, no further information was included with the filing, as PeakRewards and Rider 24 have already been approved by the Commission and Smart Energy Pricing is in the pilot phase. 67 BGE has not provided any further information, since the PeakRewards and Rider 24 provide sufficient demand reduction to meet the 15% per capita demand reduction goal. This leaves us nothing further to approve at this juncture, but to the extent BGE believes it could obtain cost-effective demand response above and beyond what we already have approved, the Commission will look favorably upon any such programs, whether in the context of this case or the Gap RFP proceeding. 68 D. Other As a result of the successful DSM programs to be implemented pursuant to this Order, the Commission anticipates that BGE will bid demand reduction into subsequent PJM auctions, beginning in May 2009 (and similar to what it has already done). The Commission is anxious to see the payment streams from those auctions used to offset the surcharge to the consumer. Accordingly, within sixty days of each PJM auction, BGE shall file a report with the Commission, advising the results of the demand reduction bid, the anticipated income stream, and the manner in which said income will be used to offset the surcharge. Moreover, although we will address the mechanics and details of cost recovery at a future date, we note for now that we expect the proceeds from bidding any energy efficiency resources generated by these programs into PJM s capacity auctions to offset the costs of the programs to ratepayers. And once the rules for bidding 67 Plan at Case No

25 EE&C savings into the PJM capacity markets are established by FERC, we direct BGE to apprise the Commission of its efforts to prepare for and participate in bidding of EE&C savings into the PJM capacity market, and the extent of EE&C savings BGE has bid into each forthcoming capacity auction. We will, at an appropriate time, consider whether BGE should share in an appropriate portion of any such proceeds as an incentive, as it does in connection with its approved demand response programs, but we expect ratepayers to be the primary and far greater beneficiary of those proceeds. The Commission is also cognizant of MEA s proposal for a Statewide evaluation, measurement and verification ( EM&V ) component for all EE&C programs to be coordinated by MEA. During the course of these proceedings, discussion has emerged of EM&V efforts on a regional, statewide and utility specific basis. The Commission is currently awaiting the utility s response to a regional EM&V approach as advocated by the EM&V Forum. Additionally, the Commission notes that any EM&V approach must be consistent with that required for PJM for participation in the auctions. Therefore, it is premature at this time to decide on a specific EM&V approach, and the Commission shall defer a decision on this until a later date. IT IS THEREFORE, this 31st day of December, in the year Two Thousand Eight, by the Public Service Commission of Maryland, ORDERED: (1) That Baltimore Gas and Electric Company s energy efficiency and conservation programs, as outlined in the September 29, 2008 filing, are approved. (2) That Baltimore Gas and Electric Company s General Awareness Program is approved, as modified in this Order. 25

26 (3) That Baltimore Gas and Electric Company provide additional information, as specified in the Order, within ninety days of the date of this Order. (4) That Baltimore Gas and Electric provide an analysis of its Lighting and Appliance Program, by individual measure, to the Commission by December 31, (5) That all motions not specifically granted are denied. /s/ Douglas R.M. Nazarian /s/ Harold D. Williams * /s/ Allen M. Freifeld /s/ Susanne Brogan * /s/ Lawrence Brenner Commissioners * For the reasons detailed in the Order, Commissioners Williams and Brogan do not approve the appliance rebate programs and they dissent from that portion of the Commission s decision. 26