2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

Transcription

1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission's Own Motion, regarding the regulatory reviews, Case No. U- revisions, determinations, and/or approvals necessary for DTE Gas Company to fully comply with Public Act of 0, as Volume amended by Public Act of. / CROSS-EXAMINATION Proceedings held in the above-entitled matter before Lauren G. VanSteel, Administrative Law Judge with MAHS, at the Michigan Public Service Commission, West Saginaw, Lake Michigan Room, Lansing, Michigan, on Thursday, December,, at : a.m. APPEARANCES: ANDREA HAYDEN, ESQ. DTE ENERGY One Energy Plaza, WCB Detroit, Michigan On behalf of DTE Gas Company LYDIA BARBASH-RILEY, ESQ. Olson Bzdok & Howard, PC East Front Street Traverse City, Michigan On behalf of Natural Resources Defense Council and National Housing Trust AMIT T. SINGH, Assistant Attorney General West Saginaw Highway, Floor Lansing, Michigan On behalf of Michigan Public Service Commission Staff Metro Court Reporters, Inc..0.

2 I N D E X WITNESS PAGE JOHN R. BOLADIAN Direct and Rebuttal Testimony bound in JASON R. KUPSER Direct and Rebuttal Testimony bound in KENNETH RANDAZZO Direct Testimony bound in NICK HALL Direct Testimony bound in GEORGE H. CHAPEL Direct Testimony bound in KENNETH L. SLATER Direct Testimony bound in CHRIS NEME Corrected Direct Testimony bound in ANNIKA BRINK Direct Testimony bound in BRAD B. BANKS Direct Testimony bound in KAREN M. GOULD Direct Testimony bound in DAVID S. WALKER Direct Testimony bound in Metro Court Reporters, Inc..0.

3 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A- Program Portfolio A- Pilot & Education Program Description A- Net Energy Savings Adjustment A- Portfolio Costs and Savings Summary A- Pilot, Education & Evaluation, Measurement and Verification (EM&V) Costs and Energy Savings A- Customer Class Cost Allocation Percentages A- Cost Effectiveness Test Results A- Performance Incentive A- Residential Portfolio, Program Descriptions, Measures and Incentives A- Residential and Low Income Portfolio Summary A- Residential Customer Class Costs A- C&I Program Descriptions, Measures, and Incentives A- C&I Portfolio Summary A- C&I Customer Class Costs A- Sch -Nick Hall Qualifications Sch -Summary Gas Evaluation Plans A- Market Outlook - Weather Normalized Sales by Rate Class A- Market Outlook - Projected Average Number of Customers A- Rate Schedule Historical Volume Normalization Metro Court Reporters, Inc..0.

4 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A- Imputed Supply Cost as a percent of Total EUT Revenue A- Total Revenue Requirement Summary 0 0 of All Classes A- Total Revenue Requirement by Year 0 0 A- Calculation of Low Income Percentage 0 0 for the C&I/EUT Exploratory Program A- Calculation of EWR Surcharges 0 0 A- Proposed EWR Surcharge Tariff Sheet 0 0 A- Benchmarking Electric Behavior Program NRD- Chris Neme CV NRD- Report by Optimal Energy and Energy Futures Group NRD- Discovery Response NRDC-.a NRD- Discovery Response NRDC-. with Attachment U--. NRD- Discovery Response NRDC-.ci NRD- Discovery Response NRDC-.a NRD- Discovery Response NRDC-. with Attachment U--NRDC-. Pilot List-Gas.xlsx NHT- CV of Annika Brink NHT- Discovery Response NHTDG-.a NHT- Discovery Response NHTDG-. NHT- Mosental, P. and Socks, M., Potential for Energy Savings... Metro Court Reporters, Inc..0.

5 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD NHT- Socks, M., Brink,A., and Purcell,N., Quantifying and Capturing Large... NHT- Discovery Response NHTDG-.a NHT- Discovery Response NHTDG-.ai NHT- Discovery Response NHTDG-.f NHT- Discovery Response NHTDG-.bii NHT- Discovery Response NHTDG-.biv NHT- Discovery Response NHTDG-.bv NHT- Discovery Response NHTDG-.bvi NHT- Discovery Response NHTDG-.biv NHT- Discovery Response NHTDG-.bv NHT- Discovery Response NHTDG-.bvi NHT- Discovery Response NHTDG-.bvii NHT- Discovery Response NHTDG-.b S- Direct Testimony of Roger D. Colton, Case U- ( T-) on behalf of Sierra Club, MEC, and NRDC S- Gas Financial Incentive Mechanism Calculation S- Behavioral Programs Savings and Total Investments S- Company Audit Response to DSW-. S- DTE Gas EUT Savings Achievement S- Company Audit Responses to DSW-.,. Metro Court Reporters, Inc..0.

6 Lansing, Michigan Thursday, December, : a.m (Hearing resumed pursuant to the schedule.) (Document were marked for identification by the Court Reporter as Exhibits A- through A-, NRD- through NRD-, NHT- through NHT-, and S- through S-.) JUDGE VanSTEEL: On the record. Good morning. This is a hearing in Case No. U-. This is a hearing on DTE Gas Company's application for approval of its biennial review of its Energy Waste Reduction plan. The case is captioned: In the matter, on the Commission's Own Motion regarding the regulatory reviews, revisions, determinations, and/or approvals necessary for DTE Gas Company to fully comply with Public Act of 0 as amended by Public Act of. The date today is December,. The time is now : a.m. The hearing is being conducted in the Lake Michigan hearing room of the Public Service Commission in Lansing, Michigan. The hearing is being recorded by means of a court reporter. My name is Lauren VanSteel. I'm the Metro Court Reporters, Inc..0.

7 Administrative Law Judge assigned as the presiding officer to hear this matter per the order of re-assignment issued by Administrative Law Manager Feldman on October,. Pursuant to the schedule set in this matter, this is the date and time set for the cross-examination hearing. May I have appearances, please, from counsel starting first with the Company. MS. HAYDEN: Good morning, your Honor. Andrea Hayden on behalf of DTE Gas Company. JUDGE VanSTEEL: Thank you. MS. BARBASH-RILEY: Good morning, your Honor. Lydia Barbash-Riley appearing on behalf of the Natural Resources Defense Council and the National Housing Trust. JUDGE VanSTEEL: Thank you. MR. SINGH: Good morning, your Honor. Amit Singh and Meredith Beidler on behalf of the Michigan Public Service Commission Staff. JUDGE VanSTEEL: Thank you. Let the record reflect that counsel is not present on behalf of the Association of Businesses Advocating Tariff Equity, otherwise known as ABATE. However, Ms. Hayden, you did indicate that Mr. Sean Gallagher, counsel for ABATE, had indicated previously in correspondence that ABATE would not be participating in the hearing today. Is that Metro Court Reporters, Inc..0.

8 correct? MS. HAYDEN: That is correct. JUDGE VanSTEEL: All right. So we will proceed in the absence of that counsel. For the record, is any person present wishing to make public comment under Rule? Hearing no response, we will proceed. The record does not reflect that any motions to strike have been filed regarding prefiled testimony. Is that correct? MS. BARBASH-RILEY: Yes, your Honor. JUDGE VanSTEEL: The parties have also indicated before going on the record that you wish to address binding in of testimony and admitting exhibits today but defer potential cross-examination of three witnesses to a later date in light of pending negotiations, or settlement negotiations. Is that correct? MS. HAYDEN: That's correct. MR. SINGH: Yes. MS. BARBASH-RILEY: Yes. JUDGE VanSTEEL: And as in the other matter that we heard today, the parties would be in agreement to reschedule the cross-examination to start on January, and then also pencil in the th and th if Metro Court Reporters, Inc..0.

9 necessary for cross-examination, with the initial briefs due on February, reply briefs then on March, and then the revised PFD target date of April. Any objection to that revised schedule? (No response.) Hearing no objection, I will set that as the revised schedule. Anything else preliminary before we address witness testimony? Nothing further. Ms. Hayden, at this time would you like to present the proofs on behalf of the Company? MS. HAYDEN: Yes, thank you, your Honor. The Company's first witness is John R. Boladian. Mr. Boladian filed qualifications and direct testimony consisting of a cover page and pages of questions and answers, and sponsored Exhibits A- through A-. Mr. Boladian also filed rebuttal testimony consisting of a cover page plus pages of questions and answers. No associated rebuttal exhibits. The Company moves to bind in the qualifications and direct testimony of John R. Boladian and for the admission into evidence of Exhibits A- through A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct and rebuttal testimony of John R. Boladian is admitted into evidence, as well as the Metro Court Reporters, Inc..0.

10 Exhibits A- through A- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

11 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to ) (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF JOHN R. BOLADIAN

12 Line No. DTE GAS COMPANY QUALIFICATIONS OF JOHN R. BOLADIAN Q. What is your name, business address and by whom are you employed? A. My name is John R. Boladian. My business address is: One Energy Plaza, Detroit, MI. I am employed by DTE Electric Company (DTE Electric), within the Business Planning and Development department as Director of Energy Efficiency, which includes Energy Optimization (EO) and Energy Partnership & Services. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas (or Company). Q. What is your educational background? A. I have a Bachelor of Business Administration degree with a Major in Marketing from Michigan State University. Q. What is your work experience? A. I started my career with DTE Energy in the Marketing & Sales Organization in. Most of my career has been spent in various leadership positions in marketing, customer service and information technology organizations including billing, meter reading, collections and customer care, new customer facing systems, and major accounts, focusing on relationship management for DTE s largest electric customers. Before joining DTE Energy, I held positions at various advertising and sales agencies such as Ross Roy Advertising and NBC/Mutual Broadcasting Company. I became Director of Energy Efficiency in November. JRB -

13 J. R. BOLADIAN Line U- No. Q. What are your current job responsibilities? A. As Director of Energy Efficiency, I am responsible for the development, implementation, tracking, and evaluation, measurement and verification of Energy Waste Reduction (EWR) programs for DTE Electric and DTE Gas Company. I also have responsibility for the Energy Partnership & Services group, which provides on-site energy engineers to help key customers save energy in their facilities. Q. Are you a member of any professional organizations? A. I am currently the Elected Vice Chair and an active Board Member of the Consortium of Energy Efficiency (CEE). I am also a member of the Midwest Energy Efficiency Alliance (MEEA), and the Association of Energy Service Professionals (AESP). Q. Have you previously testified before the Michigan Public Service Commission (MPSC or Commission)? A. Yes. I provided testimony in the following cases: U-0 DTE Electric EO Reconciliation U-0 DTE Gas EO Reconciliation U- DTE Electric Energy Waste Reduction Amendment U- DTE Gas Energy Waste Reduction Amendment U- DTE Electric EO Reconciliation U- DTE Gas EO Reconciliation JRB -

14 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF JOHN R. BOLADIAN Q. What is the purpose of your testimony? A. I am providing policy testimony for DTE Gas forward-looking, biennial Energy Waste Reduction (EWR) Plan, in accordance with the requirements set forth in 0 PA as amended by Public Act of (PA ), Section () and as directed by the Commission in its March, Order, U-. Throughout my testimony, I will refer to this plan as EWR, consistent with the change in legislation resulting from PA. References to previous surcharges and plan cases will be referred to as Energy Optimization (EO), consistent with the law in effect at that time. I will address the following matters related to our proposed - EWR Plan: ) Explain why DTE Gas is filing a - EWR Plan. ) Describe changes to the plan in terms of policy and programs. I will provide an overview of the removal and addition of EWR programs, describe the planned treatment of emerging programs that are still being piloted but may be ready for formal launch before the next biennial update, and confirm flexibility in plan administration. I will also discuss the approach DTE Gas is proposing to take for addressing issues on net free ridership and verification adjustments to energy savings. ) Explain the planning process and objectives of DTE Gas approach, given that DTE Gas is now over eight years into its EWR experience. ) Describe the Company s recommendation for a performance incentive mechanism consistent with PA as amended by PA. ) Describe DTE Gas approach to meet the requirements of PA as amended by PA. The remaining sections of testimony will confirm previous plan approaches or update the approach to demonstrate how the Company will JRB -

15 J. R. BOLADIAN Line U- No. design and implement programs that are consistent with PA as amended by PA including: a) Making programs available for all customer classes, b) Providing funding for low income programs, c) Proposing reasonable cost recovery, d) Describing how energy savings goals are calculated and the methods used for planning and estimating savings, e) Confirming the continued use of weather normalized retail sales as the basis, for setting energy savings targets, f) Confirming that the overall program portfolio is cost effective, g) Describing the program administration, and h) Providing for independent evaluation of programs. ) Provide a status update on the settlement agreement from DTE Gas amended EO plan for and (Case No. U-). Q. Does DTE Gas - EWR Plan meet all of the requirements outlined above? A. Yes, it does. DTE Gas - EWR Plan has been developed consistent with the provisions of PA as amended by PA, outlined above. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibits: Exhibit Description A- Program Portfolio A- Pilot & Education Program Descriptions JRB -

16 J. R. BOLADIAN Line U- No. A- Net Energy Savings Adjustments A- Portfolio Costs and Savings Summary A- Pilot, Education & Evaluation, Measurement and Verification (EM&V) Costs and Energy Savings A- Customer Class Cost Allocation Percentages A- Cost Effectiveness Test Results A- Performance Incentive Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. Who will present testimony for DTE Gas - EWR Plan? A. The Company will present its case through five witnesses, in addition to me. The DTE Gas witnesses are: Mr. George H. Chapel, Manager, Market Forecasting, who will describe DTE Gas natural gas sales market forecast for the plan period - and show how that demand is changing over time; Mr. Jason R. Kupser, Manager, Residential Programs, who will be providing an overview of the residential program portfolio for the -EWR Plan, the estimated energy savings and costs by program and residential program descriptions; JRB -

17 J. R. BOLADIAN Line U- No. Mr. Nick Hall, Owner TecMarket Works, who will confirm the evaluation approach of the EWR programs, provide guidance on how the emerging EWR programs should be evaluated and support the use of a deemed value for net free ridership; Mr. Kenneth Randazzo, Manager, commercial and industrial (C&I) programs, who will be providing an overview of the C&I program portfolio for the - EWR Plan, the estimated energy savings and costs by program and C&I program descriptions; and Mr. Kenneth Slater, Manager, Revenue Requirements, who will provide the calculations of revenue requirements by customer class for program years and ; Q. How is your testimony organized? A. My testimony consists of the following sections: Section A - EWR Plan Overview Section B Program Administration Section C Energy Savings Goals Section D Performance Incentive Mechanism Section E Spending and Program Flexibility Section F Recovery Mechanism Section G Settlement Agreement Case No. U- Section H Summary JRB -

18 J. R. BOLADIAN Line U- No. SECTION A: - EWR PLAN OVERVIEW Q. Why is DTE Gas proposing a - EWR Plan? A. There are four primary reasons why DTE Gas is proposing the - EWR plan: ) The Company is proposing its plan for two years (-) which is consistent with the two-year review period set forth in PA as amended by PA and consistent with the Commission s intended forward-looking, twoyear biennial review process. ) Adjustment to the portfolio mix of existing programs: Midstream incentives will be expanded in residential rebate programs; adding smart phone behavioral treatments; and the C&I portfolio will be adding Business Energy Consultation (BEC) and Retro Commissioning (RCx) program offerings. ) Affirm adjustments to gross energy savings: In the First approved EO Plan, DTE Gas utilized gross energy savings from the Michigan Energy Measures Database (MEMD). In the Second Approved EO Plan, DTE Gas incorporated verification adjustments to the gross energy savings provided by the MEMD. In the Third approved EO Plan, DTE Gas applied a deemed net free ridership adjustment factor of 0.0 to the energy savings of most programs. In the Fourth approved EO Plan, DTE Gas applied a deemed net free ridership adjustment factor of 0. to the energy savings of most programs. In the - EWR Plan, the Company intends to continue applying a deemed net free ridership adjustment factor of 0. to the energy savings of most programs. ) Propose a performance incentive mechanism reflecting the new statuary performance incentive thresholds that became effective April,. JRB -

19 J. R. BOLADIAN Line U- No. 0 Q. What was the planning process that DTE Gas undertook in preparing the - EWR Plan? A. The planning process for the - EWR Plan resembles the previous planning processes DTE Gas used in preparing its EO plans. DTE Gas planning process involved four steps: ) The first step was to develop an initial program by program measures mix built on experience and market feedback, as well as future capabilities and savings goals. ) The second step involved estimating program size parameters (i.e. a minimum and maximum range of units per year by program). ) The third step involved optimizing the program portfolio mix to reflect a portfolio that best meets the cost and energy savings objectives. ) The final step analyzed the output derived from the previous three steps to verify cost-effectiveness. Q. What strategic objectives were considered when developing the - EWR Plan? A. The - EWR Plan was designed to exceed required energy savings levels as specified by PA as amended by PA., while meeting program objectives. Here were several key considerations as listed below:. Provide a diverse portfolio of programs so all customers can participate if they choose to do so.. Pursue successful programs that have been operated for the last several years while making minor adjustments to improve program adoption and cost effectiveness. JRB -

20 J. R. BOLADIAN Line U- No.. Develop an agile portfolio to accommodate the expected impacts of changing State and Federal energy efficiency policy over the next several years.. Ensure that the portfolio provides opportunities for low income customers to participate in the Company s EWR programs.. Ensure that the portfolio continues to invest in long-life measures and is costeffective.. Develop pilots that will evolve into next generation energy efficiency offerings.. Develop an approach to commercialize completed and successful pilots into portfolio programs, as appropriate.. Educate and make DTE Gas customers aware of the benefits of implementing energy efficiency.. Streamline and simplify programs to make participation for trade allies and customers easier and more error free.. Develop a more customer-centric experience and designing a clearer, simpler process for customers to follow when participating in the DTE Gas EWR program, thus providing an experience that better fits customer needs and values.. Implement the performance incentive mechanism approved in the new legislation. Q. Does DTE propose to change the structure of the portfolio from those approved in prior plans? A. No. Similar to previous plan filings, the - EWR plan allocates programs into three general categories as listed in Exhibit A-, which provides an overview of the arrangement of the programs: ) Residential Programs (Including Low Income); ) Commercial & Industrial Programs; and JRB -

21 J. R. BOLADIAN Line U- No. ) Support Programs. Further details of the Residential and C&I Programs are covered in the testimony of Company Witnesses Kupser and Randazzo respectively. Detailed descriptions of the Support Programs are provided in Exhibit A-. Residential Programs (Including Low Income) Q. What Residential Programs are included in the - EWR Plan? A. Exhibit A- lists all Residential Programs included in the - EWR Plan. The - EWR Plan will have similar Residential Programs to the - EO Plan with the exception of a few changes to program components. A change to the residential programs is the inclusion of the smartphone mobile application treatment being added to the Behavior Program. Witness Kupser provides additional details of the Residential Programs in his testimony. Q. What Low Income Programs are included in the - EWR Plan? A. The following Low Income Programs are included in the - EWR Plan: ) Low income weatherization and HVAC; ) Low income multifamily direct installation; ) Low income single family dwelling direct installation; and ) Low income Home Energy Reports. Witness Kupser provides additional details of the Low-Income Programs in his testimony. JRB -

22 J. R. BOLADIAN Line U- No. Q. What is DTE Gas approach to providing opportunities for low income customers to participate in the Company s EWR programs? A. The approach will be similar to the - EO Plan s Low Income Program with increased spending. Low income funding will support all four programs described above. Where possible, the above efforts will be coordinated with other low income efforts throughout the Company. In order to best leverage EWR funding, the Company will continue to identify low income status for customers by relying on the following: ) Community Action Agency (CAA) processes or other external federal, state, or agency processes; ) DTE Gas low income qualification processes for traditional low income assistance; ) zip code and/or census tract analysis to the extent the analysis is practical to perform; and ) procured demographic data; to the extent the analysis is practical to perform. The Company will also explore pilot programs to further broaden the low income program offerings. Q. How would the zip code and/or census tract analysis be used to qualify program participants as low income? A. In some cases the process for identifying customers as low income may be difficult and costly. Therefore, DTE Gas may use zip code or U.S. census related information. An example would be to identify the percentage of households that have income below the 0% federal poverty level within a specific zip code and apply the percentage to the funds that were expended in that zip code to determine low income spending. This process will be used in low income campaigns if other more practical means for identifying income levels of individual participants are not possible. JRB -

23 J. R. BOLADIAN Line U- No. Commercial and Industrial (C&I) Programs Q. What C&I Programs are included in the - EWR Plan? A. Exhibit A- lists all C&I Programs included in the - EWR Plan. The - EWR Plan will have similar C&I Programs to the - EO Plan with the exception of a few changes. The Company will be adding Business Energy Consultation (BEC) and Retro Commissioning (RCx) program offerings. Witness Randazzo provides additional details of the C&I Programs in his testimony. Support Programs. Education Programs Q. What is DTE Gas approach to Education Programs in the - EWR Plan? A. Exhibit A- provides a description of Education Programs included in the - EWR Plan. Education programs will be used to provide general education and awareness of EWR to DTE Gas customers through marketing efforts using electronic, social, print, broadcast and other media as deemed appropriate. Education funding will not be used to promote EWR programs specifically, but to generally educate customers on the benefits of energy efficiency and direct them towards resources to learn more about what they can do to save energy.. Pilot Programs Q. What is DTE Gas approach to Pilot Programs in the - EWR Plan? A. Exhibit A- provides a description of Pilot Programs included in the - EWR Plan. Since 0, the approach to selecting and executing pilot programs has JRB -

24 J. R. BOLADIAN Line U- No. become more sophisticated due to the development of a system of gates that potential pilot programs must pass through in order to proceed to become part of the core EWR Residential or C&I program portfolio. Q. Will DTE Gas utilize the Emerging Measures and Approaches program to accommodate pilot programs? A. Yes. In the - EO Plan, we utilized the emerging measures and approaches program to accommodate pilot programs that can be commercialized prior to a new plan filing. We will continue to utilize this program in the - EWR Plan. Q. How will pilots become a part of the Emerging Measures and Approaches program? A. Since there are other pilots that are less mature or have not been started as of this filing that could develop rapidly into mature offerings, DTE Gas will notify the MPSC Program Design and Implementation Collaborative of any transfer of a pilot program into the Emerging Measures and Approaches program. SECTION B: PROGRAM ADMINISTRATION Q. Has DTE Gas plan for administering programs changed from the - EO Plan? A. In the prior EO Plans, implementation of the Company s programs was sourced to outside contractors. In general, DTE Gas will retain this approach. Key factors that enable this to happen are the development of critical technologies and capabilities to support internal functions. In cases where implementation activities are transferred to internal DTE Gas resources, the costs of those activities will only be JRB -

25 J. R. BOLADIAN Line U- No. accepted into the EWR program if they are deemed to meet incremental cost requirements and provide cost and/or quality benefits. Examples of such activities and their costs include contact center support, marketing and outreach, C&I assessments, rebate processing and C&I EWR project business development. DTE Gas will also continue managing its programs in conjunction with DTE Electric by using a combined core team to minimize customer confusion, and continue to benefit from economies of scale. Q. How will DTE Gas select contractors for program implementation? A. DTE Gas EWR program management team utilizes a Request for Proposal (RFP) process to select the best contractors at a competitive cost. DTE Gas will continue to utilize the RFP process as contract terms expire. Q. Does DTE Gas plan to continue administering EWR programs in coordination with other utilities? A. Yes. DTE Gas has partnered with Consumers Energy on the Multifamily program, the School program, and installation of programmable thermostats for C&I customers. DTE Gas has partnered with Efficiency United on the School program and statewide EWR forums. In addition, we have plans to expand our collaboration with EWR program providers in Michigan to deliver programs jointly and share costs. Utilities would need to agree to share the costs of program delivery appropriately. The benefit of this flexibility in program delivery is to provide Michigan customers with programs that are more cost effective and improve customer and trade ally experience. JRB -

26 J. R. BOLADIAN Line U- No. SECTION C: ENERGY SAVINGS GOALS Q. What is the energy savings goal for DTE Gas? A. The energy savings goal for DTE Gas is to achieve legislated energy savings of 0.% of planned retail sales, per PA, as follows: : 0.% of planned retail sales : 0.% of planned retail sales Q. Does DTE Gas - EWR Plan indicate that the energy savings requirements in PA will be met? A. Yes. This - EWR Plan was designed to continue to exceed the minimum energy savings requirements. Changing federal standards, such as minimum furnace efficiency requirements, have been included to assure that planning assumptions reflect the likely scenarios of declining deemed savings over time for those items as federal standards are implemented with furnace manufacturers. Table below shows forecasted sales volumes (as determined by Company Witness Mr. Chapel) and minimum savings targets, comparing the targets to the planned net energy savings: TABLE : Forecasted Sales and Minimum Energy Savings Previous Years Retail Sales (MMcf),, Savings Targets (%) 0.% 0.% Savings Targets (MMcf),, Planned Net Savings (MMcf),, % of Savings Target Achieved.00%.00% JRB -

27 J. R. BOLADIAN Line U- No. Q. Has the retail sales calculation methodology changed from the - EO Plan? A. No. The methodology used was the same one used in the - EO Plan. DTE Gas used service area weather normalized retail sales as a basis for its target setting. Q. What are the expected energy savings? A. The expected energy savings for the - EWR Plan is, MMcf and, MMcf, for and respectively as shown in Exhibit A-, which provides detailed breakdown of program net energy savings. Witnesses Kupser and Randazzo provided net energy savings for Residential and C&I programs in Exhibits A- and A-, respectively. Pilot and Education energy savings are provided in Exhibit A-. Q. What method was used to determine the energy savings planned for Residential and C&I customers for this - EWR Plan? A. Similar to the - EO Plan, the currently approved deemed energy savings profiles contained within the most recent version of the MEMD were used to calculate most of the portfolio energy savings. As previously explained, the energy savings are subject to evaluation adjustments and the application of a deemed net free ridership factor. In addition, future energy savings estimates are adjusted based on expected standard changes such as standards for furnaces. JRB -

28 J. R. BOLADIAN Line U- No. Q. How will DTE Gas determine energy savings? A. Verified energy savings will be determined by a third party evaluator for the - EWR programs using a three-step approach: () the audit of reported EWR gross savings as reported by DTE Gas compared to the values in the MEMD, including a review of a statistically valid sample of applications to determine the audited gross savings; () application of the appropriate installation rate adjustment factor (IRAF) to determine verified gross savings; and () application of appropriate net free ridership adjustment (aka Net-to-Gross Ratio or NTGR) to each program to determine verified net savings. Thus, the verified net savings will include any adjustments for inconsistencies in program tracking data, corrections for MEMD algorithms and inputs, corrections based on any errors found in the application sample, as well as the application of IRAF and NTGR values. The Company may also utilize other savings measurement approaches (for example custom savings analysis performed by a third party evaluator) in determining the energy savings. Q. How does the MEMD work? A. As stated on the Commission website, The MEMD was supplied by Morgan Marketing Partners, as a basis for development of initial energy efficiency savings calculations and potential savings for energy efficiency programs. The MEMD was purchased by gas and electric providers in Michigan and incorporated into the development of provider-specific Energy Waste Reduction (EWR) plans, formerly referred to as Energy Optimization (EO) Plans. Section of PA of, which amended 0 Public Act describes the required components of Energy Waste Reduction Plans. The users of the data are intended to be program planners, JRB -

29 J. R. BOLADIAN Line U- No. 0 regulatory reviews and planners, utility and regulatory forecasters, and consultants supporting utility and regulatory research and evaluation efforts. The objectives of the MEMD database are: Provide users with accurate information on potential technologies or measures that could be used in an energy efficiency programs and for Integrated Resource Planning (IRP). Provide customized measures for Michigan specific weather and loads. Allow for consistent application of information across Michigan for energy efficiency planning and goal measurement. Allow for consistency of assumptions. Provide documentation for regulatory review and reconciliation processes. DTE Gas, along with the other Michigan utilities, the Commission Staff, and other key stakeholders, jointly developed the process for adjusting the savings values assigned to deemed measures over time and the process for introducing new measures each year. Each year, reviews of existing measures and introduction of new measures may be made and changes to the database will be concluded approximately three months prior to the end of the program year and proceeding the year during which they will be used. This assures that the measures are prospective in nature and EWR plans can adapt to changes in a reasonable way before the Company makes contractual commitments. Q. What is the process to adjust gross savings to net free ridership savings amounts? JRB -

30 J. R. BOLADIAN Line U- No. A. Adjustments are made to gross EWR savings to get to an estimate of the net energy savings that the program caused to occur and eliminate coincidental savings. To achieve net free ridership amounts, reported energy savings go through the three stages of evaluation to produce a net energy savings: ) Validation: DTE Gas reported energy savings are compared with the implementation contractor s database to ensure consistency. Then a statistically significant sample of projects are selected for a more detailed review, including a comparison to source documents to verify the measures and quantities reported and to confirm the correct MEMD energy savings values were used. Adjustments are then made based on any discrepancies discovered. ) Verification of measure installation and use: Field visits, or customer interviews with a statistically significant sample of customers are used to determine the proportion of proper and persistent installation of energy efficiency measures among participants. ) Application of deemed net free ridership: As discussed briefly earlier and in detail below, the Company will be using a deemed net free ridership adjustment factor of 0. for most of its programs. However, for program design and selection purposes, the Company will conduct customer interviews with a statistically significant sample of customers to determine the proportion of customers who would have probably installed the measure, even without the DTE Gas program. This free ridership number is then offset with any spillover and/or market effects findings to arrive at the net free ridership number. For this - EWR Plan, DTE Gas presumed all validation errors to be zero as generally the adjustments for validation errors have been very small in the past. JRB -

31 J. R. BOLADIAN Line U- No. Verification and net free ridership adjustments used for the plan are listed in Exhibit A-. Q. How will DTE Gas be using the verification numbers shown in Exhibit A- in future EWR reconciliations? A. The numbers shown on Exhibit A- for verification adjustments are preliminary estimates for planning purposes for the - EWR Plan. However, unlike the net free ridership factors, the Company plans to use the verification evaluations done for the year prior to the year being reconciled as the basis for adjusting energy savings values for reconciliation purposes. Thus, starting with the verification of program year (occurring in ), the resulting verification adjustments will be utilized for the program year. Going forward, each program years gross energy savings will be adjusted, prospectively, in similar fashion. Applying the verification factors prospectively will allow the Company to manage its portfolio with some certainty concerning the adjustments made to its energy savings at the end of a program year. Q. What are the factors that are used to compute net free ridership (aka Net-to- Gross Ratio or NTGR)? A. There are three factors used to compute net free ridership. They are: ) free ridership; ) spillover; and ) market effects. In the total calculation of net free ridership, spillover and market effects factors are offsetting to free ridership factors. JRB -

32 J. R. BOLADIAN Line U- No. Q. What does the term free ridership mean? A. Free ridership analysis attempts to discern a customer s motivation for program participation. This assumes that some customers choose to adopt energy efficiency improvements regardless of the program incentives and education but because the program incentive is available, they collect the incentive in order to lower their cost. For example, some customers would be willing to pay the full unsubsidized price for a programmable thermostat but because an incentive lowers the price at a retailer, they purchase the programmable thermostat at a lower price. Simply put, a free rider is someone who would have taken the same action in the absence of the program. Q. What does the term spillover mean? A. Spillover is the effect of a customer being motivated to implement energy efficiency from awareness of a program, but the customer is not participating directly in the program. An example of spillover involves a customer who learns of programmable thermostats through a program promotion, but then installs a programmable thermostat purchased from a non-participating retailer. Q. What does the term market effects mean? A. Market effects analysis measures the effect a program has on eliminating market barriers, resulting in a change in a customer s purchase or program participation. Examples include a retailer changing the product mix or a manufacturer implementing production process improvements to meet the higher demand for an energy efficient product they produce. JRB -

33 J. R. BOLADIAN Line U- No. Q. What does a net free ridership adjustment of % mean? A. The net free ridership adjustment represents the proportion of verified energy savings that are presumed to have resulted from the program s efforts, rather than as a result of free riders off set by spillover and market effects. In other words, a 0. or % net free ridership adjustment equates after deducting free riders and adding spillover and market effects, the energy savings are reduced by %. Q. Why is the net free ridership adjustment set to % for most of the programs? A. Several discussions at the EWR Collaborative focused on the concept of free ridership and the difficulty of accurately and cost effectively measuring free ridership. Given the complexity of measurement and lack of scientific and repeatable determination of free ridership, the parties were unable to reach full consensus on the approach for determining specific adjustments to incorporate into the evaluation process. Practices in other jurisdictions vary, some have always used gross, others have specified a standard Net to Gross Ratio (NTGR) in a technical reference manual, and a few have attempted to do the detailed research to estimate NTGRs a high cost option. Performing such measurement annually has two significant drawbacks. First, the expense, and then the potential for large swings in planning numbers from year to year, wreaks havoc with program planning and confuses customers as providers change their program mix frequently to meet overall objectives. Annual changes such as these can be disruptive, especially if the goal in the long-term is market transformation. Recognizing this, most of the EWR collaborative participants came to the conclusion that setting a deemed net free ridership adjustment was best for the EWR programs across Michigan, an approach utilized in other jurisdictions. Company Witness Mr. Hall provides more details on JRB -

34 J. R. BOLADIAN Line U- No. how the % net free ridership adjustment factor is an appropriate and conservative approach for DTE Gas programs. Q. Has the Commission provided any guidance on the appropriateness of using a deemed net free ridership adjustment factor? A. Yes. In Case No. U- the Company discussed in detail the appropriateness of using a deemed net free ridership adjustment factor of 0.. The Commission s order dated June, explicitly supported DTE Gas use of this deemed net free ridership adjustment factor for most programs through. The Commission in its March, Order, U-, determined that revisiting NTG values for measures that provide a majority of EWR program savings is appropriate to ensure that the savings from EWR programs may be dependably used as energy and capacity resources. DTE Gas has taken these inputs into consideration in determining an appropriate deemed net free ridership adjustment factor. Based on the testimony of Witness Hall we are recommending that the deemed net free ridership adjustment factor for most programs be maintained at 0. for and. Q. Why do some of the programs or measure listed have a net free ridership adjustment factor of.0 or 0%? A. Education and Pilots are calculated energy savings programs; thus they are not affected by free ridership concerns. Low Income is not adjusted because low income customers generally do not have the means to implement significant energy efficiency measures. Hence, they would likely not install any measures without some level of assistance, which results in an assumption of not having a free JRB -

35 J. R. BOLADIAN Line U- No. ridership adjustment. Finally, any EWR measures that have derived their energy savings values from methods that already took net free ridership into their calculations obviously do not have an adjustment factor applied to them. This includes the measures in the Behavior program, residential wi-fi enabled thermostats, and Tier programmable thermostats in the C&I sector. Q. What is DTE Gas requesting that the Commission approve regarding the application of net free ridership factors? A. DTE Gas is requesting that the deemed net free ridership values discussed above and shown in Exhibit A- be approved as the net free ridership factors adopted for long-term EWR planning purposes and as the adjustment factors used during the and EWR plan reconciliations. Having these deemed net free ridership values as multi-year metrics helps to stabilize program planning and execution, and that benefits both customers and local contractors. Q. Will the independent Evaluation, Measurement, and Verification (EM&V) of EWR programs continue? A. Yes. DTE Gas will continue to engage a third-party EM&V firm to review programs, provide metrics such as verification adjustments, monitor free ridership levels, validate year end energy savings totals and provide process evaluations for the programs. In addition, the EM&V work includes periodic refreshes of our baseline studies, evaluation of pilot results as needed, and the evaluation of the performance incentive metrics. JRB -

36 J. R. BOLADIAN Line U- No. Q. What are the costs and energy savings for pilots, education and EM&V programs? A. The costs and calculated energy savings for pilots, education and EM&V programs are $. million and MMcf for and $. million and MMcf for (Exhibit A-). As in previous plans, the pilot spending is calculated as % of the overall program costs and education is calculated at %. Lines and show implementation costs and administrative costs for the pilot program, respectively. Line shows total costs, as well as the calculated energy savings for pilot program. Lines and show implementation costs and administrative costs for the education program, respectively. Line shows total costs as well as the calculated energy savings for the education program. In addition, EM&V costs are shown in lines,, and. EM&V costs are set at % of total spend. Line shows the total costs and calculated energy savings of these three programs. Q. Can DTE Gas choose to roll forward excess energy savings achieved above the minimum requirements into the next program year? A. Yes. According to PA Section (), a provider can carry forward up to / of excess energy savings achieved in a program year into the following program year s energy savings requirement. If DTE Gas chooses to carry forward excess savings, the Company will forgo any claim to its current year s performance incentive. Q. Will DTE Gas consider carrying forward excess energy savings in any program year in the - EWR Plan? JRB -

37 J. R. BOLADIAN Line U- No. A. No. If the plan and performance incentive is approved as proposed in the - EWR Plan, the Company does not intend to carry forward excess energy savings. SECTION D: PERFORMANCE INCENTIVE MECHANISM Q. What is DTE Gas performance incentive mechanism proposal? A. The Company proposes a performance incentive mechanism based on exceeding energy savings targets and meeting or exceeding program goals as shown in Exhibit A-. Q. Does this performance incentive mechanism differ from those approved in prior EO cases? A. Yes. In December, PA was passed which revised the performance incentive mechanism for utilities achieving incremental savings as identified in Section of PA. DTE Gas is proposing to amend its performance incentive mechanism to reflect new statutory performance incentive thresholds, that became effective April,, which will bring the Company into alignment with the new legislation. Q. Has the performance incentive mechanism changed as a result of PA? A. PA allowed a financial incentive to rate-regulated providers for exceeding the energy optimization performance standard, detailed in DTE Gas Case No. U-. The Order from the Commission PA sets out a revised incentive that permits a provider to receive a financial award dependent upon achieving the specified first-year tiered net energy savings levels. JRB -

38 J. R. BOLADIAN Line U- No. Q. How will the performance incentive be calculated? DTE Gas will calculate the performance incentive in accordance with PA Section. This Section states that the earned performance incentive financial award be calculated as a function of the net present value of life-cycle cost reductions generated during the annual period and based on total program spending, tiered based on annual incremental savings as follows: ) Annual incremental savings of greater than % of its total annual retail natural gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: (a) 0% of the net present value of life-cycle cost reductions experienced by the provider s customers as a result of implementation, during the year for which the financial incentive is paid, of the EWR plan, or (b) % of the provider s actual energy waste reduction program expenditures for the year. ) Annual incremental savings of greater than 0.% but not greater than % of its total annual retail natural gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: (a).% of the net present value of life-cycle cost reductions experienced by the provider s customers as a result of implementation, during the year for which the financial incentive is paid, of the EWR plan, or (b).% of the provider s actual EWR program expenditures for the year. ) Annual incremental savings of at least 0.% but not greater than 0.% of its total annual retail natural gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: JRB -

39 J. R. BOLADIAN Line U- No. 0 (a) (b) % of the net present value of life-cycle cost reductions experienced by the provider s customers as a result of implementation, during the year for which the financial incentive is id, of the EWR plan, or % of the provider s actual energy waste reduction program expenditures for the year. Consistent with PA, the Company calculates the net present value of life-cycle cost reductions by subtracting the EWR program costs from the avoided costs (i.e. benefits) of the EWR Program. The avoided costs are calculated by multiplying the program cost by the EWR Program Portfolio s Utility System Resource Cost Test (USRCT) score. Q. When will this performance incentive become effective? A. The performance incentive mechanism proposed would be for EWR plan years and. SECTION E: SPENDING AND PROGRAM FLEXIBILITY Q. Have the cost elements for EWR programs changed from the - EO Plan? A. No. As in the - EO Plan cost elements for this - EWR Plan include, but are not limited to, the following: ) Direct costs of programs including incentives and rebates; ) Costs for third party administrators or implementation contractors; ) Incremental expenditures on material and media for customer education; JRB -

40 J. R. BOLADIAN Line U- No. ) Incremental expenditures on services, materials and incentives for pilot programs; ) EM&V contractor costs; ) Program infrastructure costs such as incremental information technology (IT) activities and products; ) Incremental labor expenditures for administering and supporting the programs; and ) Cost of capital, including debt and equity (return on), and return of investment as applicable. Q. What are the overall incremental costs for all programs in this plan? A. The total costs of all programs are summarized in Table below. They represent the summary of costs from Witness Kupser s Exhibit A- and Witness Randazzo s Exhibit A-. In addition, Exhibit A- includes costs for Education, Pilots, and EM&V. TABLE : Total Spending of All EWR Programs Category Residential Programs $. $. Low Income Programs $. $. C&I Programs $. $. Pilot Program $. $. Education Program $0. $0. EM&V Program $. $. Total Spending ($ millions) $. $. Note: Totals may not match due to rounding. JRB -

41 J. R. BOLADIAN Line U- No. Q. How was the low income funding level determined? A. The planning process was initiated with the assumption that general spending and savings levels for low income would remain consistent from prior spending levels. The historical programmatic cost of savings the Company experienced for low income programs was used in calculating the funding levels to meet energy savings targets. The surcharges designed to fund the program are covered in the testimony of Company Witness Mr. Slater. Q. How is low income, education and pilot program costs allocated to the two major rate classes Residential and C&I/EUT? A. Pilot and low income program costs are allocated based on estimated annual spending levels from Residential and C&I/EUT programs. Education costs are allocated 0% to the residential class and % to C&I/EUT class as in previously approved plans. This allocation of education costs remains appropriate because most education and awareness campaigns will continue to target residential customers given the large number of residential customers who need to be communicated with relative to C&I/EUT customers. This ratio follows roughly with the number of meters between these two customer classes. The allocation percentages of the costs between residential and C&I/EUT are calculated on Exhibit A-, lines through. These allocation percentages are used by Witness Kupser s on Exhibit A- and Witness Randazzo s on Exhibit A-. JRB - 0

42 J. R. BOLADIAN Line U- No. Q. Is the Company proposing a change in its capitalization policy from the - EO Plan? A. No. The capitalization policy will remain the same. As approved in DTE Gas initial EO Plan, Case No. U-0 (First Approved EO Plan), certain program costs were capitalized and amortized over a five-year period. DTE Gas discontinued capitalizing program costs in. As a result, the costs that were capitalized last will be fully amortized by. Therefore, the / EWR Plan reflects zero capitalization costs. Q. Does the Company s plan spend remain within % or less of retail sales for the plan years -? A. Yes. There is no longer a requirement in PA to ensure that the plan spend remains within % or less of retail sales, as there was under PA. However, DTE Gas is committed to managing a cost effective EWR program and intends to manage the spend within % or less of retail sales as per the table below: TABLE : EWR Program Spend as % of Retail Sales Forecast Years Prior Retail Sales ($MM) $, $, EWR Plan Spend ($MM) $. $. % of Years Prior Retail Sales.%.00% JRB -

43 J. R. BOLADIAN Line U- No. Q. Is DTE Gas requesting specific approval for any other means of program spending flexibility? A. No. At this time DTE Gas is not requesting specific approval for any other means of spending flexibility, however the Company reserves the ability to increase spend above the filed amounts for - while still remaining cost effective. bpa removed restrictions to program class spend change that were previously in place under PA.b However, in its March, Order, the Commission reaffirmed its determination in the June, order in Case No. U-0, that providers may change spending for programs within a customer class by up to 0% without the need to file a plan amendment. In addition to the 0% program class spend change control limit, DTE Gas may need to increase spend above the plan amounts. The purpose of increasing spend above the plan amounts would be to assure program continuity in those future years in cases where programs have become oversubscribed, to provide an ability to adjust incentive levels as needed for unanticipated market response, or to initiate infrastructure improvements to enhance customer experience. As previously stated, under PA the Company is no longer capped to spend less than % of retail sales for that budget year, however we do plan to remain within % or less of retail sales for the - Plan period. Q. Will the methods used to allocate costs between DTE Gas and DTE Electric change for this - EWR Plan? A. No. The approach will remain the same. Costs, to the extent possible, will be directly charged. When that is not possible, the next approach will be to charge the separate companies based on estimated effort or time allocation. When direct JRB -

44 J. R. BOLADIAN Line U- No. charging or estimating is not practical for shared spending areas, costs will be allocated based on annual spending budgets for the program. Q. Is the - EWR Plan cost effective? A. Yes. A USRCT score has been calculated based on the costs and energy savings from the plan excluding low income programs and as required by PA. Application of this test shows that the score is. and thus the - EWR Plan is cost effective. The USRCT score is shown in Exhibit A-. Q. What is DTE Gas approach to incorporating long-life measures into the Plan portfolio? A. DTE Gas will continue to promote measures that have an average life of years or greater to maximize the net lifetime savings from the portfolio. Q. What is the weighted average measure life of the portfolio? A. The weighted average measure life is calculated by weighting measure life by net lifetime savings. The weighted average measure life of the - EWR Plan is. years for and. years for as shown in Exhibit A-. Q. What is the net lifetime savings of the Plan portfolio? A. The net lifetime savings of the Plan portfolio is calculated by multiplying the firstyear net savings by the weighted average measure life. The net lifetime savings of the - EWR Plan is,,0 Mcf for and,, Mcf for as shown in Exhibit A-. JRB -

45 J. R. BOLADIAN Line U- No. SECTION F: RECOVERY MECHANISM Q. What funding levels are being sought by DTE Gas for the - EWR Plan? A. The funding levels being sought by DTE Gas for the years amended by this - EWR Plan are the sum of the revenue recoveries calculated by Witness Slater for the residential, C&I and EUT classes and shown in Exhibit A-. Table describes the levelized requested funding levels for the - EWR Plan years. TABLE : EWR Plan Levelized Requested Funding Levels Year Amount ($ millions) $. $. Q. What recovery mechanism will the Company use to fund the - EWR Plan? A. DTE Gas plans to continue the surcharge design methodology used in the - EO Plan. This methodology is discussed by Witness Slater and used by him to calculate a levelized surcharge for each customer class (residential, C&I, and EUT) that is levelized across all the months of the plan, January through December. Q. Will the structure of surcharges change with the - EWR Plan? A. No. Residential surcharges will be charged to customers on Ccf usage each month. Surcharges for C&I and EUT customers will be charged on Ccf usage each month as well. Section () of PA provides that providers of EWR programs JRB -

46 J. R. BOLADIAN Line U- No. recover actual costs of implementing their approved plans in this manner. Surcharges for all classes are developed on a levelized basis to keep the surcharge as consistent as possible year over year. Q. How will DTE Gas ensure, to the extent feasible, that the revenues collected from a rate class are spent on programs that benefit that customer class? A. DTE Gas has established specific accounting reports and tracking systems for customer incentives which enable monitoring of customer class spending. Reconciliation of under or over recoveries will continue to be performed on a class basis each year and included in the annual reconciliations filed with the Commission. As part of the monitoring and reconciliation process, the Company will continue to ensure, to the extent feasible, that the EWR program offerings are designed and positioned such that the revenues collected from a rate class are spent to benefit that customer class in a cost effective, reasonable and prudent way. Q How will the base EWR surcharges proposed on Exhibit A- impact customers? A. There are some differences in comparing the surcharges in this plan to the surcharges in place from the - EO Plan. The average residential customer and the average C&I/EUT customer will pay more. Q. How does DTE Gas plan to handle EWR over/under recoveries for the program costs covered under the - EO Plan? A. When the Company filed its Fourth approved EO Plan, it was thought that the EWR program would end December,. At that time, Detroit Edison proposed that JRB -

47 J. R. BOLADIAN Line U- No. in its final EWR reconciliation filing in, the Company would recommend treatment of any remaining EWR over/ under recovery amounts. As we stand today, we do not see the EWR program ending in. Therefore, Witness Slater incorporated the projected cumulative over/under recoveries into the derivation of the surcharges for -. Q. How does DTE Gas plan to handle the residual over/under recovery from the - EWR Plan? A. The Company proposes to continue to rollover any over/under recoveries into future EWR reconciliations and plans. When and if the EWR program comes to an end, the Company will recommend treatment of residual over/under recovery amounts including recovery of unamortized capitalized costs. SECTION G: SETTLEMENT AGREEMENT CASE NO. U- Q. What activities did the Company promise to engage in the Settlement Agreement in case No. U-? A. As specifically explained in paragraphs,, and of the settlement agreement, in Case No. U-, DTE Gas agreed to perform the following activity related to its EO plan: Consulting with the Staff to develop and implement as part of the company s commercial and industrial strategic plan, outreach programs that include educational and promotional materials and engaging a third party evaluation contractor to verify that these strategic plans have been developed and implemented during. JRB -

48 J. R. BOLADIAN Line U- No. Q. What is the status of the development and implementation of the Company s C&I Strategic Plan? A. The Company developed and implemented a Strategic Energy Plan in July. The Company will continue to assist and encourage C&I business customers to develop and implement a strategic energy plan. This plan will help them focus on energy efficient improvements and prioritize the installation of those improvements. SECTION H: SUMMARY Q. Does DTE Gas - EWR Plan meet the EWR plan requirements of PA? A. Yes. In brief, the - EWR Plan demonstrates that it: ) offers programs for each customer class, including low income residential customers as described in Section A - EWR Plan Overview; ) specifies necessary funding levels as described in Section D Spending and Program Flexibility; ) describes how the program costs will be recovered as described in Section E Recovery Mechanism; ) assures to the extent feasible that charges collected from a particular class are spent on programs that benefit that class as described in Section E Recovery Mechanism; ) demonstrates that proposed programs and funding are sufficient to achieve the applicable EWR standard as described in Section B Energy Savings Goals; ) specifies the method used to calculate incremental energy savings as described in Section B Energy Savings Goals; JRB -

49 J. R. BOLADIAN Line U- No. 0 ) is cost effective under the USRCT test and includes a robust weighted average measure life, as described in Section D Spending and Program Flexibility; ) provides practical and effective administration of the proposed programs as described in Section A - EWR Plan Overview; and ) includes a process for obtaining an independent expert evaluation to verify incremental energy savings as described in Section B Energy Savings Goals. DTE Gas believes the approach and design of the - EWR Plan programs as presented in this filing will result in significant customer benefit. The Company has taken a careful approach to cost control and has built a capable staff to help manage the contractors implementing the programs. As the energy savings goals are now at maximum levels, the Company believes that the EWR program, as outlined in this filing and if approved with the requested flexibilities, is positioned to succeed in meeting all program objectives in a cost effective, reasonable and prudent way. Q. Does this complete your direct testimony? A. Yes, it does. JRB -

50 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) motion, regarding the regulatory reviews, ) revisions, determinations, and/or approvals ) Case No. U- necessary for DTE GAS ) (Paperless e-file) COMPANY to fully comply with Public ) Act of 0, as amended by Public ) Act of ) REBUTTAL TESTIMONY OF JOHN R. BOLADIAN

51 Q. What is your name, business address and by whom are you employed? A. My name is John R. Boladian. My business address is: One Energy Plaza, Detroit, MI. I am employed by DTE Electric Company, within the Business Planning and Development department as Director of Energy Efficiency, which includes Energy Optimization (EO) and Energy Partnership & Services. Q. Did you file direct testimony in this proceeding on behalf of DTE Gas Company (DTE Gas or Company)? A. Yes, I did. Q. What is the purpose of your rebuttal testimony? A. The purpose of my rebuttal testimony is as follows: Address the direct testimony of Natural Resources Defense Council (NRDC) Witness Mr. Neme and the direct testimony of Michigan Public Service Commission (MPSC) Witness Ms. Gould concerning ) using lifetime savings as the primary metric for the performance incentive mechanism; and ) the value of having a portion of shareholder incentives tied to other, secondary performance objectives. Address the direct testimony of Michigan Public Service Commission (MPSC) Witness Mr. Walker concerning the method the Company uses to determine the EUT portion of the energy savings target. Q. Are you sponsoring any exhibits with your rebuttal testimony? A. No, I am not. --

52 PERFORMANCE INCENTIVE MECHANISM Q. What is NRDC Witness Neme s proposal for performance incentive mechanism? A. Witness Neme is proposing to change the Company s proposed performance incentive mechanism to include: () lifetime savings as the primary performance metric; and () secondary metrics related to (a) comprehensive treatment of energy savings opportunities in low income single family homes and multi-family buildings, and (b) the level of savings from small businesses. Q. What is MPSC Witness Gould s proposal for performance incentive mechanism? A. MPSC Witness Gould is proposing to change the Company s proposed performance incentive mechanism to include: () a sliding scale mechanism; and () include secondary metrics related to (a) portfolio lifetime savings, (b) low-income lifetime savings, and (c) low-income multi-family lifetime savings. Q. Does the Company agree with these proposals? A. The company disagrees with the performance incentive metrics and the associated targets proposed by both Staff and NRDC. The Company believes that Public Act (PA ) is clear in stating that the performance metric for achieving a financial incentive is based on first-year energy savings. However, the Company may consider the idea of using a sliding scale mechanism and secondary metrics as part of the performance incentive mechanism in subsequent filings, beginning with the plan year if: ) the primary performance metric for achieving a financial incentive is based on first-year energy savings; ) secondary metrics are sufficiently discussed --

53 with the affected stakeholders and an order issued by the Commission to provide clear guidance; and ) consistent and reasonable targets are established for those secondary metrics in collaboration with affected stakeholders. Q. What is the calculation for earning a performance incentive in PA? A. Section of PA states that the earned performance incentive financial award be calculated as a function of the net present value of life-cycle cost reductions generated during the annual period and based on total program spending, tiered based on annual incremental savings as follows: () Annual incremental savings of greater than % of its total annual retail gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: (a) 0% of the net present value of life-cycle cost reductions experienced by the Provider s customers as a result of implementation, during the year for which the financial incentive is paid, of the EWR plan, or (b) % of the provider s actual energy waste reduction program expenditures for the year. () Annual incremental savings of greater than 0.% but not greater than % of its total annual retail gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: (a).% of the net present value of life-cycle cost reductions experienced by the provider s customers as a result of implementation, during the year for which the financial incentive is paid, of the EWR plan, or (b).% of the provider s actual EWR program expenditures for the year. --

54 () Annual incremental savings of at least 0.% but not greater than 0.% of its total annual retail gas sales in dekatherms in the preceding year shall not exceed the lesser of the following amounts: (a) % of the net present value of life-cycle cost reductions experienced by the provider s customers as a result of implementation, during the year for which the financial incentive is paid, of the EWR plan, or (b) % of the provider s actual energy waste reduction program expenditures for the year. Q. Do you agree with NRDC Witness Neme s statement on page of his testimony that both the old law (PA ) and the new legislation (PA ), establish minimum savings requirements in terms of first year savings as it relates to a performance incentive? A. No. PA, simply states an energy optimization plan of a provider whose rates are regulated by the commission may authorize a commensurate financial incentive for the provider for exceeding the energy optimization performance standard. In contrast, PA provides clear guidelines and calculations for determining the actual performance incentive thresholds associated with exceeding the energy waste reduction performance standard based on first-year savings. Q. Why does the Company disagree with the performance incentive mechanism proposed by both Staff and NRDC? A. DTE developed its / EWR Plan based on a clear and undeniable understanding of the performance incentive structure outlined in the legislation which is based on first year savings. DTE s plan was submitted based on this legislative --

55 guidance. Any changes to the proposed incentive structure at this time is not appropriate and more importantly, I believe these particular proposals are inconsistent with the statutory provisions of PA. Q. In what manner does the Company s position regarding the level of rigor associated with meeting the first-year performance incentive savings targets set forth in PA conflict with the positions taken by Staff and NRDC? A. In the new legislation (PA ), the level of first-year energy efficiency savings associated with earning the highest performance incentive percentage is set to be greater than % of the provider s total annual retail gas sales in dekatherms in the preceding year. Per PA, the legislative minimum is 0.%. The first-year savings goal of.0% associated with earning the highest performance incentive percentage in the legislation is aggressive and represents a higher than usual attainment of performance, particularly in an era when finding cost-effective gas savings is increasingly difficulty due to lower natural gas prices. Furthermore, the Commission in a recent order disallowed the use of bonus multipliers for long-life and market transformation measures, making achieving these targets even more difficult. Therefore, the Company maintains that the performance incentive mechanism proposed in the legislation appropriately rewards energy providers for increased level of effort associated with achieving the aggressive first-year savings targets which is contrary to the proposals from Staff and NRDC witnesses Q. Can you provide an example of how the performance incentive mechanisms proposed by both NRDC and Staff do not take into consideration this increased --

56 level of rigor associated with meeting the first-year performance incentive savings targets set forth in PA? A. Yes. The performance incentive mechanisms proposed by both NRDC and Staff fail to take into consideration the increased level of effort and challenges associated with achieving higher first-year savings thresholds in the new legislation. Specifically, neither proposal includes first-year savings as a primary metric in their respective performance incentive mechanisms. Instead of including the first-year savings targets set forth by the new legislation, both NRDC and Staff are introducing new metrics such as lifetime savings, low income savings, and multifamily low income savings. None of these proposed metrics are expressly stated or in any way implied in the statutory provisions enacted in the new legislation (PA ). Furthermore, as a practical matter, these secondary metrics have not been discussed with key stakeholders to assess feasibility or reasonableness and they were not considered when DTE prepared its - EWR plan. Q. What is the Company s position regarding introducing alternate performance incentive metrics at this stage of the Company s / plan filing? A. The Company believes that it is inappropriate to modify the performance incentive mechanism from the clearly stated provisions of the legislation. From a policy perspective, the focus of Performance Incentive Mechanisms should be to address state-wide objectives, that are applied consistently across all utilities. If the Commission/Staff finds deficiencies in the new legislation or if they believe that the legislation is inadequate in promoting energy efficiency in Michigan, then the Company recommends that the Commission/Staff should first assemble comments from affected stakeholders to determine what alternate metrics would add the most --

57 value to the State and to customers. Then propose uniform, consistent and reasonable guidelines and targets for all energy providers in Michigan to meet those secondary metrics in each utility s contested case EWR proceeding where such proposals can be properly, fairly, and lawfully evaluated. The Company strongly insists that the premature inclusion of these secondary metrics and targets into the utility s performance incentive without sufficient analysis through the contested case process may result in significant disruptions, misalignment, and inconsistencies in application of energy waste reduction measures and resources across Michigan and may also impact customer affordability. The Company understands the process of informally gathering comments and establishing guidelines and protocols may take a considerable amount of time. In summary, proposing an incentive structure that is fundamentally different than the operating parameters set forth in the new energy legislation and DTE s plan is premature and ill-timed. We are open to engaging in discussions with NRDC and Staff with respect to a performance incentive design prior to the next EWR plan filing cycle, beginning with the plan year. Q. Specifically, what is DTE s position regarding NRDC and Staff s proposal of using lifetime energy savings as a primary performance incentive metric? A. DTE disagrees with using lifetime energy savings as a primary performance incentive metric and recommends that the first-year targets set forth in PA, which are already aggressive, should be the primary metric. As supported by Witness Neme himself in his Exhibit NRD-, Final Report: Alternative Michigan Energy Savings --

58 Goals to Promote Longer Term Savings and Address Small Utility Challenges, there does not appear to have been a dramatic difference between the ranking of electric or gas programs by dollars spent per unit or first year energy saved versus per unit of lifetime energy saved. Hence, a change from a first-year savings target to a lifetime savings target would not have a dramatic shift in portfolio design. Furthermore, based on the industry expertise of our independent third-party evaluator, most jurisdictions do not have goals centered on long life or lifetime savings, as savings targets are primarily based on first-year savings. Q. Do you agree with Witness Gould s recommendation on page to eliminate the UCT score as a criterion for the financial incentive award? A. No. A UCT score is a more holistic demonstration of the value provided to customers from energy waste reduction programs over the lifetime of measures implemented. DTE calculates UCT scores by modeling and aggregating the load shapes of individual measures in the utility portfolio using a sophisticated analytical modeling tool known as DSMore. This analysis provides a complete picture of the avoided energy and capacity costs from all measures in a utility s portfolio. DSMore then calculates the UCT scores by dividing the net present value of the lifetime avoided costs from all measures by the net present value of program costs (see table below). A UCT score takes into consideration both the avoided costs and the level of effort required (i.e., program costs) to realize the lifecycle avoided costs. In comparison, lifetime savings only takes into consideration the measure life of the portfolio and first-year savings but ignores the avoided costs and the level of effort --

59 0 or program costs. This provides a narrow view of the true value of the energy waste reduction measures and programs. Therefore, we should take into consideration both the avoided costs and program costs from the energy efficiency measures, which a UCT calculation truly achieves. Please see in the table below, the various factors that the UCT score takes into consideration. Table : UCT calculation Avoided Costs (Benefits) Program Costs Utility System Resource Cost Test (USRCT or UCT) Energy-related costs avoided by the utility Capacity-related costs avoided by the utility Program overhead costs Utility/program administrator incentive costs Utility/program administrator installation costs UCT Score = NPV Σ avoided costs or benefits (dollars) NPV Σ program costs (dollars) It is also important to note that the performance incentive mechanism in PA already takes into consideration the impact of a utility s UCT score. As explained on pages through 0 of my direct testimony, Section of PA states that the earned performance incentive financial award be calculated as a function of the net present value of life-cycle cost reductions generated during the annual period and based on total program spending, tiered based on annual incremental savings as seen from the calculation below: --

60 NPV of life-cycle cost reductions = NPV Σ avoided costs or benefits (dollars) - NPV Σ costs (dollars) UCT Score = NPV Σ avoided costs or benefits (dollars) NPV Σ costs (dollars) NPV of life-cycle cost reductions = UCT x NPV Σ costs (dollars) - NPV Σ costs (dollars) In conclusion, the UCT score already takes into consideration the interplay between avoided costs and program costs of a bundle of measures in a utility portfolio and therefore is a superior indicator of portfolio design and efficacy. The performance incentive mechanism proposed in the legislation already includes net present value of life-cycle cost reductions that considers the impact of UCT score. Q. Do you agree with Witness Gould s statement on Page of her direct testimony that Focusing too much on achieving very high UCT scores can result in shallow programs that just focus on the simplest and cheapest measures, and deliver much smaller overall savings. Programs that feature comprehensive measures with deeper savings will tend to have somewhat lower UCT scores? A. I disagree with Witness Gould s assessment of DTE s / plan. DTE s / plan does not focus on the simplest and cheapest measures. As can be calculated from the measure file that DTE provided as part of audit response PMP-, % of first-year energy savings in DTE s plan come from measures that have measure lives of years or greater. DTE s / weighted average portfolio measure life of./. would not be probable if DTE focused on short lived measures. I also want to clarify that focusing on the simplest and cost-effective measures do not result in shallow programs or result in lower lifetime savings. For --

61 instance, Tier programmable thermostats, which arguably are very cost effective, have measure lives of years. Q. Do you agree with Witness Gould s statement on pages and of her direct testimony that higher cost programs tend to be the more robust, longer life measures that have the ability to be a substantial utility system resource and actually displace supply-side investments? A. No. Just because a measure includes higher costs does not necessarily mean it provides more savings or has a longer life. Both long-lived and short-lived measures are necessarily part of a robust EWR portfolio. Witness Gould s statement that long-lived measures can be a substantial utility system resource more so than short-lived measures and displace supply-side investments is not supported by evidence and is at odds with the inclusion of short-lived measures in the Statewide EE Potential Study. EWR portfolio should secure a least-cost mix of resources over a given planning window. Q. Do you have any other concerns about the lifetime savings targets proposed by NRDC and Staff? A. Yes. As mentioned earlier, the major concern is that this is not the time to propose a change to the legislative intent of the performance incentive as this would result in premature outcomes, inconsistent guidance, and issues with reasonableness in setting up targets. This is evident in the approach taken by Staff and NRDC in establishing targets: A key input in the calculation of lifetime savings is the calculation of weighted average portfolio measure life. While there are measure life values in the --

62 Michigan Energy Measures Database (MEMD), there are no guidelines provided on the actual calculation of portfolio measure life in the MEMD. Staff and NRDC have proposed two different measure lives for the DTE portfolio of./. and./. respectively and have established different targets. I attribute these inconsistencies to the assumptions made in determining DTE Gas s portfolio measure life. The target setting process is not reasonable because the targets are established after the utility submits their plans and the weighted average portfolio measure life is already reported to the intervenors. When DTE filed the / plan, we optimized the portfolio and reported a weighted average portfolio measure life as./.. Staff simply took this higher measure life and developed targets for lifetime savings without taking into consideration the historical trends in lifetime savings and what other utilities in Michigan have achieved. As noted earlier, DTE believes setting parameter guidelines for the establishment of performance incentives, needs to be finalized, through discussions with key stakeholders and issued through a Commission order, well in advance of finalization and submission of the regulatory plans. DTE recommends that any new secondary performance targets such as lifetime savings should be discussed with the stakeholders to establish consistency in calculation methodology and issued through a Commission order. Targets must be established before utility plans are submitted, using historical performance and trends / characteristics of the energy efficiency profile of the State of Michigan. This will ensure all energy providers are held to the same standards and energy providers have --

63 a reasonable amount of time to develop an energy efficiency portfolio that delivers on such targets. in the future. PILOT AND EDUCATION PROGRAM SAVINGS ASSUMPTION Q. What is Witness Neme s recommendation for pilot and general education program savings? A. Witness Neme states that any savings claims for such programs should be held to the same evaluation standard as savings claims for other programs. Q. Do you agree with Witness Neme s recommendation regarding pilot and general education program savings? A. No. The Company believes the current savings allocation mechanism is consistent with guidance provided by the Commission, consistent with all prior years calculations of pilot and education savings, and encourages continued focus and investment in education and pilot program activities. Q. Is guidance provided with regards to how pilot savings should be calculated? A. Yes. The December, 0 Temporary Order in U-00 contains provisions for pilot programs on pages and of Attachment E which states the following: Utilities may designate up to five percent of the energy optimization budget for pilot programs, future energy optimization program development or to assess emerging technologies. As technology changes, impacts to program success can be great. Programs need to incent customers to move above the base efficiency available to them. --

64 These budget funds will be deemed to generate a proportional amount up to five percent of the required energy savings for the program year during which the money is spent. Q. Is guidance provided with regards to how education savings should be calculated? A. Yes. The December, 0 Temporary Order in U-00 contains provisions for education programs on pages and of Attachment E which states the following: Up to three percent of the energy optimization budget may be used for the cost of energy optimization education programs. Energy optimization education program costs include all media types (pamphlets, brochures, DVD s, web sites, etc.) that are designed to communicate and educate customers on the benefits of energy efficiency, conservation and load management. These budget funds will be deemed to generate a proportional amount up to three percent of the required energy savings for the program year during which the money is spent. Energy optimization education program costs do not include promotion of any specific energy optimization program or any efforts designed to educate low income residential customers. --

65 Q. Did the March, order, Case No. U-0 et al. bring any changes to the method in which pilot and education programs calculate energy savings? A. No. The order further supports and reiterates the method in which pilot and education programs calculate energy savings. On page, the order states that The Commission therefore recommends that providers continue to use the model contained in Attachment E to the Temporary Order for future EWRPs. DTE developed its / EWR Pilot and Education savings based on a clear understanding of the structure outlined in these Commission orders. Q. Why does the Company believe this is an appropriate method to claim savings for education and pilot programs? A. The current savings allowance mechanism is a reasonable, pragmatic solution to attributing savings to components of an EWR program that provide benefits that are impractical to measure. The Company believes this savings methodology is appropriate since pilot programs differ from commercialized programs. Unlike commercialized programs which claim savings primarily from installed deemed measures, pilots may require specific assessments, research, technical papers, and installed measures via field tests and demonstration showcases. Pilot funding toward emerging technologies and innovative marketing approaches encourages the acceleration of market adoption during the earliest stages of the acceptance curve. Successful pilots ensure future programs are scalable, cost-effective, and achieve a high level of customer satisfaction once commercialized. Funding to develop pilots enables investment in areas such as design, procurement, installation, evaluation --

66 and best practices which are often already inherent in fully commercialized programs. Q. What would be the impact to education and pilot programs as a result of Neme s recommendation? A. Instead of funding innovative pilots at current levels, utilities will route these dollars to programs that have reliable savings they can accurately forecast and account. Much of the focus that goes towards testing and developing programs would go towards ensuring metrics are met. The current savings allowance mechanism is a direct and pragmatic way to both encourage energy efficiency innovation and robust public awareness and outreach. This savings allowance mechanism has proven to be a successful model to date, and has resulted in numerous enhancements, innovations, and commercialized programs to the DTE portfolio. DTE believes that continued focus and investment in education and awareness activities, and pilot programs, are crucial for the long-term success of achieving Michigan s clean energy future. Changing this savings allowance mechanism, at this time, particularly as the industry faces a new horizon with the anticipated EISA lighting standards to be in full effect in, sends the wrong signal to utilities as to the role and importance of innovation and customer education. --

67 EUT SAVINGS ALLOCATION Q. What is Staff s position on the method the Company uses to determine the EUT portion of the energy savings target? A. Staff Witness Walker states he is concerned that the method the Company uses to determine the EUT portion of the energy savings target. Q. What is the method currently used by the Company? A. The Company currently uses a methodology approved by the Commission on June, 0 in Case No. U-0. The Company uses the ratio of a proxy gas commodity revenue to total revenue to calculate a reduction factor that is applied to the EUT gas volumes. The total revenue that serves as the denominator of the formula includes the proxy gas commodity revenue. As calculated in this case by Company Witness Mr. Chapel on Exhibit A-, line, that percentage is.%. Witness Chapel then multiplies.% (0% -.%) by the total EUT volume to determine the amount of energy savings that will be used to represent the EUTs portion of the savings target. Q. Does the Staff propose an alternative to the Company s method? A. Yes. In his direct testimony Witness Walker proposes a new method In the absence of better information to reconcile the methodologies based on revenue disparity and performance. Witness Walker states in his direct testimony on page, line, that the result of his calculations indicates that the reduction factor should instead be % but then further suggests that 0% savings adjustment is reasonable. It is --

68 inappropriate to change the formula for calculating the EUT contribution to the Company s energy savings target by including a ratio less than.%. Q. Should the formula be changed to the formula proposed by Witness Walker? A. No. There is no valid reason to adopt Staff s proposed change to the formula or any other change that incorporates a ratio less than.%. The current formula was approved by the Commission and has been in use from the inception of Energy Optimization programs. It was and remains an appropriate calculation to address the fact that these customers only pay for the transportation of natural gas and not for the natural gas itself. Thus, the current formula is a pro-ration based on sales, which is consistent with the fact that the EWR performance standards are based on sales levels. Witness Walker provides no support for changing the established precedent to use a proration based on savings achieved by the EUT class, which is inconsistent with the sales-based formula within PA for establishing the Company s EWR performance standards. Q. What are the consequences of this proposed change to DTE Gas? A. Adoption of Staff s formula would jeopardize the Company s ability to meet the energy savings goals in its plan and jeopardize DTE Gas opportunity to earn a performance incentive. Within Case No. U-00, Staff requested that the Company introduce an exploratory program for EUT customers that would exempt participating EUT customers from paying the energy optimization surcharge except for the low income portion. By eliminating these surcharges, there are now fewer resources to fund EUT programs. As a result, Staff is asking the Company to obtain more energy savings while at the same time reducing the available resources to do --

69 0 so. The Company designed the exploratory EUT program to be responsive to the Commission s order in Case No. U- and to address concerns by the Association of Businesses Advocating Tariff Equality (ABATE) and the Commission Staff that large EUT customers be provided an option to manage their own Energy Optimization programs. Consequently, the Company is harmed as a result of introducing the exploratory EUT program while also changing the energy savings target calculation for EUT customers. Q. If the formula was to be modified as suggested by Staff Witness Walker, how would the Company be harmed? A. As I ve previously noted, the Company s ability to meet the energy savings goals in its plan would be jeopardized. The extent of the harm caused by adoption of Witness Walker s reduction factor of 0% is increased if an even lower percentage is adopted. Q. What harm will the Company experience if the reduction factor of 0% stated in Witness Walker s direct testimony is adopted by the Commission? A. The change in the formula to apply a 0% reduction factor would increase the energy savings target in by MMCF for a total of, MMCF. The Company filed a plan to achieve energy savings of, MMCF in. This level of energy savings combined with achievement of the proposed policy objectives recommended for the performance incentive would give the Company the opportunity to earn the maximum performance incentive. The formula proposed by Staff for setting the energy savings target would mean that the Company s filed plan would likely be limited to energy savings of % of target rather than % of target as supported by DTE Gas filed plan. In addition, adoption of Staff s formula would result in the --

70 Company having an opportunity to earn only % of the maximum performance incentive (% of program spending). Q. What harm will the Company experience if a reduction factor of less than 0% is adopted by the Commission? A. The change in the formula to apply a reduction factor less than 0% would increase the energy savings target in. A formula that proposes a ratio of less than 0% for setting the energy savings target would mean that the Company s filed plan would likely be limited to energy savings that are significantly lower than the % of target that would occur with an 0% reduction factor, and lower than the % of target as supported by DTE Gas filed plan. If the Company were to meet the policy objectives of the performance incentive mechanism, adoption of a formula that includes a ratio of less than 0% would result in the Company having an opportunity to earn substantially less than allowed if an 0% ratio is used. Q. Is it appropriate to determine the energy savings target based on past participation in Energy Optimization programs or savings achieved by class? A. No. Public Act requires the Company to meet the energy saving target of 0.% of gas sales as a whole, not by class. In addition, Section ()(a) of PA provides for the Commission to allow utilities, based on the utility s unique service territory characteristics, to have the flexibility to devote its programmatic focus to each customer class as it deems appropriate. --

71 Q. If the Commission adopts Staff s formula can the Company achieve the additional energy savings necessary to provide a reasonable opportunity to achieve the maximum performance incentive? A. No, the Company will not be able to achieve the additional energy savings with the spending and program design proposed in its plan. Spending in excess of the amount requested in the plan would be needed and programmatic changes outside the Commission ordered program budget reallocation limits would have to be filed for approval. If the Commission adopts Staff s proposal to alter the energy savings target formula, this could lead the Company to reject the Plan so that programs could be redesigned to give the Company an opportunity to earn the maximum performance incentive. This potential redesign of programs would include an evaluation of the EUT exploratory offering to determine whether it is too risky for the portfolio given the increased energy savings targets. Q. Has a similarly modified formula for the energy savings target been proposed by Staff in other Energy Optimization Plan Cases? A. Yes. Staff proposed a similar formula in Consumer Energy s EO Plan Case No. U- 0 and DTE Gas Case U-00. Q. Did the Commission approve the use of the Staff s formula in its order in U- 0 or U-00? A. No. The Commission s order in Case Nos. U-0 and U-00 did not approve the use of Staff s calculation for determining the minimum energy savings targets related to the contribution to the target by large gas EUT customers. The Commission explicitly adopted DTE Gas and Consumer Energy s methodology for calculating --

72 the target. It should be noted that Consumer Energy s methodology was designed to be consistent with the calculation methodology approved by the Commission for DTE Gas in U-0. Q. Does this complete your rebuttal testimony? A. Yes, it does. --

73 MS. HAYDEN: The Company's next witness is Jason R. Kupser. Mr. Kupser filed qualifications and direct testimony consisting of a cover page plus pages of questions and answers. He sponsored Exhibits A-, A-, and A-. Mr. Kupser also filed rebuttal testimony consisting of a cover page plus pages of questions and answers, and he sponsors rebuttal Exhibit A-. The Company would move for the admission of the qualifications and direct testimony of Jason Kupser, as well as direct Exhibits A-, A-, and A-. The Company also moves to bind in the rebuttal testimony of Mr. Kupser, as well as the admission into evidence of rebuttal Exhibit A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct and rebuttal testimony of witness Jason R. Kupser as described is admitted into evidence, as well as Exhibits A-, A-, A-, and rebuttal Exhibit A- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

74 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF JASON R. KUPSER

75 Line No. DTE GAS COMPANY QUALIFICATIONS OF JASON R. KUPSER Q. What is your name, business address and by whom are you employed? A. My name is Jason R. Kupser. My business address is: One Energy Plaza, Detroit, MI. I am employed by DTE Gas (DTE or Company) within the Business Planning and Development department; my title is Manager Residential Programs, Energy Optimization (EO). Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas. Q. What is your educational background? A. I graduated from the Wayne State University with a Bachelor of Arts Degree in Public Relations in. In, I graduated from Wayne State University with a Master of Business Administration in Marketing/Management. Q. What is your employment experience at DTE Gas? A. In, I was hired by The Detroit Edison Company as a Customer Service Representative (CSR) in the Customer Service department. My primary responsibilities in this position were to address customer inquiries related to electric outages, billing, collection, service connection and disconnection, and other customer issues. In 0, Michigan Consolidated Gas Company (MichCon) parent, MCN Energy, was acquired by DTE Energy, DTE Electric s (formerly The Detroit Edison Company) parent. After the 0 acquisition, my work expanded to include subjects related to MichCon s natural gas service. JRK -

76 J. R. KUPSER Line U- No. In 0, I was promoted to a Call Center Analyst position where my responsibilities expanded and included small commercial customer subject matter and supervisory calls related to complex customer issues. In 0, I was promoted to Senior Call Center Analyst where my responsibilities increased to include CSR training and then transitioned to CSR quality assurance. During this time, I was educated in continuous improvement and received extensive Lean Six Sigma training. In 0, I was promoted to the position of Marketing Analyst on the Tactical Marketing team in the Regulated Marketing department of DTE Energy Corporate Services LLC. My primary responsibility was marketing energy efficiency to DTE Energy customers and employees through various marketing offerings. In 0, I was promoted to the position of Principal Marketing Analyst in the Regulated Marketing Department working within Energy Optimization (EO). My primary job responsibilities included developing market intelligence capability and analysis related to EO. In conjunction with this, I provided project management and EO program analytics and modeling. I used DSMore as the analytical tool used to define the cost effectiveness of EO measures and programs. I provided internal savings tracking, reporting and report analysis for all EO programs. In this role, I also administered the program tracking database for the EO program as well as many other databases that had been created for business intelligence purposes. JRK -

77 J. R. KUPSER Line U- No. In, I was promoted to the position of Principal Marketing Specialist. My primary job responsibilities included the program management of the following residential EO programs: the Home Energy Consultation program, which was formerly a subset of the EO residential Audit and Weatherization Program; the Home Energy Report program, which is a behavioral program; and the online energy audit program, which included kits being mailed to customers. In, I was extended a lateral assignment as a Principal Supervisor. My primary job responsibility was the management of the Evaluation Measurement & Validation (EM&V) staff of DTE Energy, whose function is to support the needs and facilitate many interactions between DTE Energy and a rd party evaluator to perform evaluations, provide testimony and produce process and impact evaluation reports. Other responsibilities included support of the Michigan Energy Measures Database (MEMD) calibration efforts, being a representative on the State of Michigan EO Collaborative and leading various research efforts. In, I was promoted to Manager of Residential programs, EO. Q. What are your current job responsibilities? A. As the Manager of the Residential EWR programs, I am responsible for developing residential electric and gas product offerings that support the DTE s overall energy efficiency program strategies. JRK -

78 J. R. KUPSER Line U- No. Q. Are you a member of any professional organizations? A. I am a member of the Association of Energy Services Professionals (AESP). AESP is an organization that provides professional development programs, a network of energy practitioners, and promotes the transfer of knowledge and experience to promote energy efficiency programs. I have previously been a member of the Consortium for Energy Efficiency (CEE) engaging on its benchmarking committee. CEE is the United States and Canadian consortium of gas and electric efficiency program administrators, whose goal is to accelerate the development and availability of energy efficient products and services. Q. Have you previously sponsored testimony in cases before the Michigan Public Service Commission (Commission)? A. Yes, I testified in the following cases: U- 0 DTE Electric EO Reconciliation U- 0 DTE Gas EO Reconciliation U- DTE Electric Biennial Review and Amended EO Plan U-0 DTE Gas Biennial Review and Amended EO Plan U-0 DTE Electric Amended EO Plan U-00 DTE Gas Amended EO Plan U- DTE Electric EO Reconciliation U- DTE Gas EO Reconciliation JRK -

79 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF JASON R. KUPSER Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this - Energy Waste Reduction (EWR) filing is to cover the following: ) Provide an overview of the Company s residential EWR programs planned for the period. ) Describe program adjustments between the - EWR Plan and the - EO Plan. These adjustments include new program offerings and approaches. ) Provide an updated program description for each of the residential programs. Each program description highlights the target markets, eligible measures, implementation and marketing strategies, estimated participation, and shows an estimated program budget and respective energy savings for the - EWR Plan period. ) Provide the projected energy savings and investment for the residential portfolio. ) Provide the residential customer class cost for the - EWR Plan. 0 Throughout my testimony, I will refer to the - plan as EWR Plan, consistent with the change in legislation resulting from Public Act. References to previous plan cases as well as the current approved plan will be referred to as EO Plan, consistent with the law in effect at the time from Public Act. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibits: JRK -

80 J. R. KUPSER Line U- No. Exhibit Description A- Residential Portfolio, Program Descriptions, Measures and Incentives A- Residential and Low Income Portfolio Summary A- Residential Customer Class Costs Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. What is the Company s overall objective in developing programs for its residential customers? A. The objective of the Company s residential programs is to continue to build customer awareness regarding the benefits of energy efficiency so that customers are encouraged to participate in the various EWR offerings and services, and make long-term commitments to reduce their energy usage. This objective is accomplished through education and by offering a diverse portfolio of programs that create value for customers through a range of participation options. Q. Will the Company continue to offer the same residential programs with the same energy efficiency measures that are in the - EO Plan? A. The programs currently offered will continue to be offered in the - EWR Plan. These programs have provided continued momentum for the Company s EWR effort. In addition, program elements must be created that will foster a sustainable energy efficient environment for our customers. The Company s energy efficiency measures will continue to be drawn primarily from measures included within the MEMD. The MEMD is updated annually to reflect technology JRK -

81 J. R. KUPSER Line U- No. or application changes (i.e., adding new measures or proposing a new application of an existing measure). Q. Does the Company propose to make any significant program adjustments between its - EWR Plan and its - EO Plan? A. Yes. To react to market conditions, efficiency standards, and technology changes, the Company must continue to refine and adjust its measure offerings. There is only one significant adjustment that the Company is making in its - EWR Plan. The Behavior Program is adding an additional component to its behavioral treatments to include smartphone mobile application. The Company will also continue to increase its collaboration and coordination with other uitility energy efficiency program providers to help make the programs more cost effective and improve the customers experience. Q. What portion of the - EWR Plan spend includes Low-Income programs? A. The Low Income program continues to represent a sizable portion of both savings and spending in the - EWR Plan. The Low Income program is % of the - EWR Plan portfolio spend in and % of the - EWR Plan portfolio spend in. Q. What portion of the - EWR Plan spend includes Behavorial programs? A. The planned spending for behavior measures, which are in both the Behavior program and the behavior component of the Low Income program, is.% of the JRK -

82 J. R. KUPSER Line U- No. - EWR Plan portfolio spend in and.% of the - EWR Plan portfolio spend in. Q. How are the savings for Home Energy Report program calculated? A. Home Energy Report program is implemented and evaluated as an experimental design. A third-party evaluator has measured savings from this program annually using methods that adhere to those outlined in the protocols cited above. In addition, statewide studies have been conducted by third-party evaluators to independently measure savings with the most recent having been completed in May. Home Energy Report programs use a randomized controlled trial (RCT) program design in which a population is randomly assigned to two groups a treatment group and a control group. The outcomes for these two groups can be compared and any differences identified are directly attributable to the treatment, in this case the Home Energy Report program. There are several national guidance documents and protocols on how to measure and evaluate savings from Home Energy Report programs, including the State and Local Energy Efficiency Action Network (SEEAction) sponsored by the Lawrence Berkeley National Laboratory, and the Department of Energy s Uniform Methods Protocol. All protocols recommend using experimental design to measure and evaluate savings from a Home Energy Report program, as experimental design ensures the observed outcome is caused by the program. The SEEAction Protocol states, A program that is set up as a randomized control trail will yield valid, unbiased estimates of energy savings that are very robust for the population and time frame being studied. The RCT design JRK -

83 J. R. KUPSER Line U- No. follows the best practice evaluation methodology recommended by both the US Department of Energy s State and Local Energy Efficiency Action Network and the Uniform Methods Project, and is the same evaluation methodology used by the U.S. Food and Drug Administration in clinical drug trials. The RCT methodology produces accurate and unbiased estimates of energy savings and the savings estimates are unaffected by random events, either observed or unobserved. Q. What is the Company s approach to provide sufficient program offerings for its residential customers? A. The Company s approach is to maintain a balanced portfolio, offering energy efficiency programs to all residential customers while including a broad array of technologies that may appeal to various customers. The Company will offer the following program elements: () incentives to purchase low-cost measures, such as thermostats, and high-end qualified energy efficient appliances like clothes washers; () in-home energy consultations to educate customers on ways to save energy and the directly install low-cost measures (includes low income); () the direct installation of low-cost energy efficient products to customers residing in multifamily complexes (includes low income); () service offerings to the Company s low income customers through coordination with multiple partners such as Community Action Agencies; () weatherization and insulation measures that reduce energy consumption for both heating and cooling; () energy efficiency education and distribution of kits provided through schools and via the Company s online energy audit; JRK -

84 J. R. KUPSER Line U- No. () home energy reports that provide customer s usage comparison to like neighbors and themselves; and tips to become more energy efficient through behavioral changes (includes low income); () development of a free smartphone application that displays a customer s energy use to empower and educate customers to become more energy efficient through behavioral changes; and () emerging measures and approaches program offerings to be identified via pilot efforts. Q. What is the overall portfolio of programs the Company plans to offer its residential customers? A. The Company is planning to offer a variety of residential programs, the majority of which are programs currently offered by the Company. The programs consist of the following and are described in more detail in Exhibit A-, titled Residential Program Descriptions, Measures and Incentives : Residential ENERGY STAR Products This program will continue to provide incentives to customers who purchase qualified energy efficient equipment, such as ENERGY STAR clothes washers and programmable thermostats. The delivery mechanism will be through retailers. As the Company continues to assess other incentive models to encourage investments in energy efficient technologies, it will consider using midstream incentives. The ENERGY STAR Products program will provide market support to retailers to promote the purchase of high efficiency gas equipment. JRK -

85 J. R. KUPSER Line U- No. Heating, Ventilation and Air Conditioning (HVAC) The HVAC program is designed to provide incentives to customers who choose to purchase qualifying equipment. The Company plans to offer incentives to customers for products such as furnaces, water heaters, and programmable thermostats. The HVAC dealers and contractors will continue to be leveraged since this network is a vital delivery channel for program participation. The Company may also elect to use midstream incentives to HVAC dealers and distributors to stock, promote, and sell high efficiency heating and cooling equipment. Multifamily The multifamily program is designed to generate energy savings by direct installation of low-cost, energy efficient products. This program provides multi-family residents with a quick and easy way to save energy. The Company s implementation contractor will train and schedule equipment installers to retrofit living units in multifamily buildings. The contractor will install energy efficient water saving devices, including kitchen and bath aerators, and showerheads, and install water heater pipe wrap in each unit. As new technologies evolve, additional measures may be added if deemed cost effective. Educational information about the energy savings associated with these devices will be left in these units. The directly installed measures will be provided at no cost to property owners/managers and occupants. In addition to direct install measures, rebates may be offered for new or additional measures as opportunities are identified. Home Energy Consultation (HEC) The HEC program is an offering designed to provide customers with an in-home energy consultation as a starting point in becoming more energy efficient. The HEC customer experience is designed to JRK -

86 J. R. KUPSER Line U- No. provide energy efficiency education and awareness, and includes the direct installation of low-cost energy efficiency products (i.e., hot water pipe wrap, and kitchen and bathroom faucet aerators) to help reduce energy use in their homes. The program also will connect customers with available payment assistance options (if needed); and help customers understand how to read a bill statement and how to access web-based information, such as the Company s on-line energy audit tool. Besides the initial consultation, the program will create a personalized home energy report for the customer, providing the homeowner with information to take future energy efficiency actions (e.g., savings from measures installed, approximate savings if recommended measures are installed, how much energy each end use utilizes, etc.). Further, the program has been designed as an excellent vehicle for opening the door with a customer and starting a relationship centered on energy efficiency. Audit & Weatherization The audit & weatherization program will utilize a couple of options for customers to learn about energy efficiency opportunities in their homes and encourage them to participate by providing: () prescriptive weatherization rebates for customers who install qualifying measures, such as efficient windows and attic insulation, and () multi-measure rebates to encourage customers to complete projects that yield deep energy savings within their homes. Customers who prefer this program option will be required to obtain a comprehensive energy audit. The comprehensive audits will enable a homeowner to schedule a home audit with a Building Performance Institute-certified auditor that will perform diagnostics of the building envelope, such as a blower door test and infrared imaging. The comprehensive audit will allow customers to gain a JRK -

87 J. R. KUPSER Line U- No. better understanding of various energy efficiency improvements they can make to their homes. School Program The objective of this program is to provide energy education to students as a means to influence families energy behaviors. The program currently targets students from th through th grades, who will be provided with education and a take-home kit that () raises awareness about how individual actions impact usage, and () provides low-cost measures that can provide reductions in energy consumption. All educational materials and take-home efficiency kits are offered free of charge to the schools and their students. On-Line Energy Audit The on-line energy audit program enables customers to use the Company s EWR website to () complete a self-audit of their home, () answer questions about their home, and () receive valuable information and learn about ways that will help them save energy and money. Customers who complete the online audit will receive a complimentary energy efficiency savings kit. Behavior Program There a two different behavioral traeatments in the Behavior program: Home Energy Reports and smartphone application. The Home Energy Report treatment seeks to change customer behavior in order to cause a reduction in energy usage through the delivery of home energy reports to randomly selected customers. These reports display a comparison of usage to similar neighbors and trend analysis of customer energy usage. It also provides specific and relevant efficiency recommendations to these customers. This makes it JRK -

88 J. R. KUPSER Line U- No. easier for each customer to take action on the recommendations and to participate in the programs most relevant to them. The smartphone application treatment seeks to change customer behavior in order to cause a reduction in energy usage to those customers that chose to download the application to a smart device. The smartphone application treatment displays the customer s own specific energy usage, allows for energy usage targets to be set, provides notification that the energy usage targets are being approached or have been surpassed, provides information about how to reduce energy usage, and encourages the customer to reduce wasted energy. Emerging Measures and Approaches Program The Emerging Measures and Approaches Program in the residential portfolio encompasses measures and approaches that are mature or nearly mature from the pilot phase of program development. As discussed by Company Witness Mr. Boladian, the emerging measures and approach program provides a transition point from pilots that have been successfully completed or are expected to be completed in the near future. This transition will allow DTE Gas the opportunity to create an entry point for pilots before they are commercialized and incorporated into the mainstream programs. Low Income The objective of the program is to reduce the energy use of the Company s low income customers through improvements to their home at no cost to them. In addition, the program will aim to increase the installation of high efficiency equipment in low income rental properties. Low income customers JRK -

89 J. R. KUPSER Line U- No. 0 traditionally reside in multifamily complexes and single family homes, and renting is common in this segment. The low income program will meet its objectives through the contribution of many programs via the following mechanisms: ) It will continue to work with many partners, including local Community Action Agencies and nonprofit organizations to help eligible customers make energy-saving improvements to their existing homes at no cost through the Energy Efficiency Assistance program; ) It will target low income customers residing in single family homes through the HEC program; ) It will target low income multifamily properties through the multifamily program; and ) It will target low income customers through its behavior program and the home energy reports. The Company will continue to explore additional avenues beyond traditional delivery strategies to ensure the low income community is fully served. One example is coordination of the EWR low income programs with the Company s Low Income Self Sufficiency Plan (LSP) program. Q. Will the Company change its implementation approach in its - EWR Plan from previous EO Plans? A. No. With respect to the existing programs currently offered under the Company s - EO Plan, many of the existing Implementation Contractors (IC) contracts expire either at the end of or. As a result, the Company may issue request for proposals to seek competitive bids for the work that will continue from through. JRK -

90 J. R. KUPSER Line U- No. Q. What methodology has the Company used to establish a balanced portfolio and budget for the proposed residential portfolio? A. The planning process for the - EWR Plan resembles the previous planning processes DTE Gas has used. As the Company continues to gain experience, it continues to build upon its capabilities to develop more indepth plans. In agreement with the process outlined Witness Boladian s testimony, the DTE Gas s planning process involved four steps. The first step was to develop an initial program by program measures mix that considered past experience, market feedback, changes technology, as well as future capabilities and savings goals. The second step involved estimating program size parameters (i.e. a minimum and maximum range of units per year by program). The third step involved optimizing the program portfolio mix to reflect a portfolio that best meets the cost and energy savings objectives. Lastly, the output derived from the previous three steps was analyzed through DSMore to verify cost-effectiveness. Q. What approach did the Company use to determine the cost effectiveness for its residential programs in the - EWR Plan? A. The Company has maintained the same methodology to determine program cost effectiveness as in the - EO Plan. That is, individual measures were first grouped into their respective programs in order to calculate the cost-effectiveness analysis at the program level. Following that, the programs were bundled into the overall portfolio, which is also analyzed for cost-effectiveness. This final step included portfolio level costs (administration and infrastructure) in the costeffectiveness test. Company Witness Mr. Boladian s testimony provides additional information regarding the cost-effectiveness modeling for the residential programs. JRK -

91 J. R. KUPSER Line U- No. Q. What is shown in your Exhibit A-, titled Residential and Low Income Portfolio Summary? A. Exhibit A- presents the Company s residential portfolio budget for through delineated by program, the estimated net MCF savings by program, the USRCT score, and Cost of Conserved Energy (CCE) in $/CCF for each of the programs. The Company s estimated MCF savings and budgeted cost for each of the residential programs are shown on lines through ; these amounts were derived from Witness Boladian s DSMore model calculations. In addition, the estimated MCF savings and budgeted costs for the Company s low income programs have been included in line through. The administration and infrastructure costs for the residential programs and low income program are shown on lines and, respectively. However, the USRCT and CCE results shown in columns (b) and (c), respectively, reflect program scores inclusive of the program s respective administration and infrastructure costs. The administration and infrastructure cost includes the following: ) internal Company resources to administer and manage the programs and vendors, ) maintenance of a data tracking system to track and report the participants activity and impacts, ) other information technology costs such as software licenses and existing billing system modifications, ) consulting services, and JRK -

92 J. R. KUPSER Line U- No. ) certain marketing, communication and research costs. Q. What is shown in your Exhibit A-, titled Residential Customer Class Costs? A. Exhibit A- shows the allocation methodology for the residential class. The funding allocation percentages for the through plan period were derived from Witness Boladian s Exhibit A-. The Company will not be capitalizing any residential program costs. Line shows the amount of direct program cost that will be expensed. Lines through show the allocated residential program cost for Pilot, Education, Residential Low Income, Administrative & Infrastructure, and EM&V. All of the costs on lines through will be expensed. Q. What approach will the Company use to make changes to its residential portfolio spending? A. The Company will use the same process to make changes in its residential portfolio as in its - EO Plan. That process involves having the flexibility to reallocate budgets between programs, adjust incentive levels, and add new and/or related measures to the residential programs to respond quickly to market conditions. For example, the Company may find it necessary to move funds from one program to another, within Commission-ordered reallocation limits, to avoid having to suspend a program that is very successful in the market. This flexibility was exercised in the past and has allowed the Company to maintain market momentum and to meet customer expectations. JRK -

93 J. R. KUPSER Line U- No. Q. Does this complete your direct testimony? A. Yes, it does. JRK -

94 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) motion, regarding the regulatory reviews, ) revisions, determinations, and/or approvals ) Case No. U- necessary for DTE GAS ) (Paperless e-file) COMPANY to fully comply with Public ) Act of 0, as amended by Public ) of ) REBUTTAL TESTIMONY OF JASON R. KUPSER

95 Line No. DTE GAS COMPANY REBUTTAL TESTIMONY OF JASON R. KUPSER Q. What is your name, business address and by whom are you employed? A. My name is Jason R. Kupser. My business address is: One Energy Plaza, Detroit, MI. I am employed by DTE Electric Company (DTE Electric or Company) within the Business Planning and Development department; my title is Manager Residential Programs, Energy Waste Reduction (EWR). Q. Did you file testimony in this proceeding on behalf of DTE GAS? A. Yes, I did. Q. Are you sponsoring any exhibits with your rebuttal testimony? A. Yes, Exhibit A-, Benchmarking Electric Behavior Program. Q. What is the purpose of your rebuttal testimony? A. The purpose of my rebuttal testimony is as follows: Respond or provide clarification to the recommendations and assumptions made by Staff Witness Mr. Banks, specifically related to: providing information in the delivery of EWR programs and the distinction of behavior programs where the EWR program generate savings; the design of the Energy Efficiency Assistance (EEA) program of the low-income portfolio; and the planned spending and savings level of the multi-family programs. Respond to the recommendations made by National Housing Trust (NHT) Witness Ms. Brink related to the program design of the Multi-family program; and specifically, aspects to address low income customers.

96 J. R. KUPSER Line U- No. Respond to the recommendations and assumptions made by Staff Witness Ms. Gould related to the program design of the Multi-family program; and specifically, aspects to address low income customers. Respond to the recommendations and assumptions made by Staff Witness David A. Walker related to the distinction between education programs and behavior programs that generate energy savings; and the recommended limitation of behavior programs. REBUTTAL TO BRAD A. BANKS TESTIMONY Q. Do you agree with Staff Witness Banks conclusion that the Company s EWR plan, as proposed, is not reasonable? A. No. The specific points of his reasoning that I do not agree with are: ) behavior savings are being claimed in programs outside of the behavior program; ) the reasonableness of the behavior program costs; ) concerns related to providing information on the delivery of EWR programs and the distinction of behavior programs where the EWR program generate savings; and ) the design of the Energy Efficiency Assistance (EEA) portfolio in the low-income program; Q. Do you agree with Witness Banks statement on page of his testimony that the Company s EWR programs include behavior-based elements which in combination with the Company s actual Behavior Program, far exceed a reasonable percentage for robust EWR programming? A. No. Witness Banks is confusing behavior as it relates to marketing and education with behavioral change programs that primarily rely on social science based strategies and real-time feedback instead of traditional approaches such as incentives JRK Rebuttal -

97 J. R. KUPSER Line U- No. and rebates. Behavioral change programs generate verified energy savings on their own. The Company believes the level of proposed Behavior programming within its / EWR portfolio is both reasonable and prudent. Q. Does the Company have multiple behavioral programs within its EWR portfolio as Witness Banks suggests in his testimony? A. No. The Behavior Program is the only program which generates energy savings from behavioral treatments. While the other programs Witness Banks references throughout his testimony provide customer marketing and education, the Company does not calculate nor claim behavioral savings from these or any other programs. Q. Do the programs Witness Banks references throughout his testimony rely on behavior modifications to achieve energy savings? A. No. Other than the Behavior Program, all energy savings are from direct install or rebated measures. The behavior Witness Banks refers to is simply the marketing and education element to the specific programs referenced. There is a fundamental difference between behavior as it relates to marketing and education and Behavior Programs. Behavior Programs include energy savings that are measured, verified and reliable. Behavior Programs also operate on the principle of feedback, social norms, customer engagement and challenges. Whereas all EWR programs have a natural element of marketing and education necessary to operate and promote the programs. Q. Witness Banks states the actual savings associated with behavior programming, if separated out from the measure implementation aspects of the JRK Rebuttal -

98 J. R. KUPSER Line U- No. programs, will account for a significantly greater percentage. accurate assessment? Is this an A. No. As stated above, the Company does not calculate or claim any behavior-based energy savings from any program other than the Behavior Program. This information was provided in the Company s response to Staff audit request PMP- which list all energy savings calculations at a measure level. Q. Is there a difference between the Company s Education Program and the marketing and education of the programs Witness Banks references in his testimony? A. Yes. The Education Program provides general education and awareness of EWR to customers through marketing efforts using electronic, social, print, broadcast and other media as deemed appropriate. Education funding is not used to promote any specific program. There is a clear separation, as defined in Temporary Order in Case No. U-00, between specific program marketing and the general education and marketing of EWR. The marketing and education of the programs Witness Banks references is specific to those programs and is essential to their promotion and implementation. Temporary Order in Case No. U-00, Attachment E states that up to three percent of the energy waste reduction budget may be used for the cost of energy waste reduction education programs. Energy waste reduction education program costs include all media types (pamphlets, brochures, web sites, etc.) that are designed to communicate to and educate customers on the benefits of energy efficiency, JRK Rebuttal -

99 J. R. KUPSER Line U- No. conservation and load management. Energy waste reduction education program costs shall not include promotion of any specific energy waste reduction program. Q. Do you agree with Witness Banks opinion that the Company does not have an effective low income program design? A. No. Specifically, his statement on page line - that the Company simply allocate a percentage of each s budget to low income population in their service territory rather than developing programs with specifically target the most vulnerable low income customers in the territory is inaccurate. Q. What program designs are included in the various components of the lowincome program to target low income customers? A. There are four components of the low income program. There are specific targeting for three of the program designs to specifically target and serve low income customers. In the EEA program, the Company leverages its relations with Community Action Agencies, Non-Profit Organizations and Community Based Organizations to reach customers to deliver energy savings measures to customers at or below 0% of the Federal Poverty Limit (FPL). The low-income customers served by the Home Energy Consultation (HEC) program, customers are targeted by performing marketing and outreach efforts in low income regions. This is done by partnerships in faith based organizations, civic institutions, at community events, and at resources fairs, among others. Low income JRK Rebuttal -

100 J. R. KUPSER Line U- No. customers that receive an HEC are prequalified using Company records as low income, being at or below 0% of the FPL. The low-income customers served by the Home Energy Report (HER) program are prequalified by Company records being at or below 0% of the FPL. This behavior program is tailored to speak to low income customers, providing a different treatment to these targeted customers. Q. Do you agree with Witness Banks assessment of the difference between energy A. Yes. usage reduction and EWR, as found on page, lines - of his testimony? Q. Do you believe that it is appropriate that the EWR plan also be accountable for the delivery of energy usage reduction as described by Witness Banks in the previous question? A. No. There are low-income programs that address affordability and credit and collections and other energy assistance programs designed to help low income customers avoid shut off and assist in payment of utility bills. These programs are all considered and approved as part of DTE Electric s general rate case and the design and costs recovery of these programs are determined in the general rate case. It appears that Witness Banks does not understand that under the utility regulatory ratemaking structure in Michigan, these programs are not part of the EWR programs or rate making cost recovery for EWR programs. The Michigan statutory structure related to EWR clearly excludes these programs from EWR proceedings, as they are reviewed and approved in utility general rate cases. These programs as are JRK Rebuttal -

101 J. R. KUPSER Line U- No. fundamentally different, legislatively separated, procedurally separated, and funded separately. Q. Do you agree that with Witness Banks that better targeting may help lead to assisting low income customers with energy usage reduction? A. Yes. Fundamentally, if a customer lowers their energy consumption as a result of being more energy efficient, they would be less burdened by their energy bill which in turn would mitigate their need for bill assistance programs. Q. What can the Company do to help with the efforts of energy usage reduction of low income customers? A. In addition to the targeting that the Company does with the low-income programs it proposes in this case, the Company can also make concerted efforts to target low income customers that are faced with credit and collection issues by providing the community agencies targeted lists to provide EEA program offerings to these customers. Additionally, these customers could be targeted by the HEC program to receive that program s offerings as well. Q. In his testimony, Witness Banks has included Exhibit S- (BBB-) (The direct Testimony of Roger D. Colton, filed in the DTE Electric Case U- ( T- ) on behalf of the Sierra Club, Michigan Environmental Council, and the Natural Resources Defense Council. Does this exhibit provide any direction of measure offerings related to EWR low income natural gas programs? JRK Rebuttal -

102 J. R. KUPSER Line U- No. A. No. The exhibit was written for the DTE Electric rate case, U-, and provides program design elements of measures specific to low income EWR programs, not low income EWR natural gas programs. Q. Does Witness Banks provide any examples of measures that should be provided in any low income programs to better serve low income natural gas customers? A. No. In his testimony, the only natural gas applicable reference he makes is a natural gas heating package that is offered in the Pennsylvania Low-Income Usage Reduction Program (LIURP), which is introduce in his testimony on page, line -. Q. Do you agree with Staff, as found in Witness Bank s testimony on page, line, that targeting low income high usage customers relying on electric heat may also be a good strategy for impactful savings for a low income EWR natural gas program? A. I feel that the targeting of low income high usage customers relying on electric heat would be a good suggestion for a low income EWR electric program. But for a low income EWR natural gas program it is not relevant as to the savings that can be offered by that program. Q. Does Witness Banks provide an example or reference of where his recommended program design has been successful? A. Yes. Witness Banks makes references to the Pennsylvania LIURP. Q. Why can t the Pennsylvania LIURP be implemented in Michigan? JRK Rebuttal -

103 J. R. KUPSER Line U- No. A. Per the Penn State College of Agriculture website that describes the Pennsylvania ILURP, the program is described as a statewide program that has rules and regulations that require the -major electric and gas utilities to establish fair, effective and energy efficient usage reduction programs for low-income customers. This program, which is mandated and administered through the Pennsylvania Public Utility Commission, has the same design features as described by Witness Colton. Michigan has no such statewide mandate that requires participation for a program like the one described in the Pennsylvania LIURP and it would not be reasonable to adopt one in Michigan because there is no a mechanism requiring utilities to fully address the need of affordability through efforts across utilities (electric and gas) nor does it not have a funding mechanism. Q. Would the Company be willing to try to target customers to participate in its EWR low income program based their credit and collection status? A. Yes. The Company can try to target low income customers based on their credit and collection status, regardless of what arrearage or payment program they may participate in. Q. Does Witness Banks provide any guidance as to the amount that should be budgeted and for what duration for his proposed modifications to the natural gas low income EWR program? A. No. JRK Rebuttal -

104 J. R. KUPSER Line U- No. Q. Does Witness Banks provide any guidance as to customer eligibility as compared to the Federal Poverty Limit (FLP) in his proposed modifications to the natural gas low income EWR program? A. No. Q. What do you feel the eligibility requirement should be to participate in natural gas low income EWR program? A. Whereas I recognize the financial burdens for customers that have lower incomes is greater with less income, I still believe that customers at or below 0% of the FPL should be eligible to receive all low income EWR program services, as they too have many financial obstacles to becoming more energy efficient. Since the 0, the low income program eligibility is set at 0% of the FPL. Keeping this level of eligibility will aid in reaching customers that are too in need and it will help keep continuity of the EWR low income programs from year to year. Q. What program design elements from Witness Banks s recommendations do you see that may be incorporated into the EWR low income programs? A. The design element that should be considered is making a concerted effort to target and market to customers that have difficulty in paying their energy bill causing them to have credit and collection issues due to arrearages. REBUTTAL TO ANNIKA BRINK S TESTIMONY Q. Are their aspects of Witness Brink s testimony that you disagree? JRK Rebuttal -

105 J. R. KUPSER Line U- No. A. Yes. My concerns are that Witness Brink s recommendations and assumptions related to the design of the Multi-family program; and specifically, aspects to address low income customers. Q. What recommendations does Witness Brink provide related to program design considerations? A. On pages - Witness Brink summarizes program design features that she feels should be considered. Q. How do you feel about these program design recommendations? A. I feel that there was a good deal of consideration related to the development of these recommendations, some of which may be good considerations to incorporate into the Company s existing Multifamily pilot, some of which are already part of the pilot design. There are other recommendations I do not agree with that I will address. Q. Has the Company already initiated a pilot that seeks to understand the viability of some of the design features described in Witness Brink s testimony? A. Yes. The Company explained in response to the first discovery request from National Housing Trust in this case filing, that to understand and hopefully make program changes addressing challenges of the multifamily low income market, the Company is conducting a multifamily low income pilot. The pilot targets low income property locations; seeks to better understand property owner/managers investment decision processes and considerations to invest in energy efficiency upgrades that benefit tenants and property owners; test the benefits of providing the costs of an ASHRAE JRK Rebuttal -

106 J. R. KUPSER Line U- No. level audits for selected properties; offering a concierge service to assist in the delivery of the program, and test incentive levels. Q. Which of the recommendations made in Witness Brink s testimony do you feel would be good considerations to incorporate or are already included in the design of the existing multifamily pilot? A. The following recommendation may be good considerations to incorporate or are already included in the design of the existing multifamily pilot: Recommendation ); Standardize procedures for more detailed tracking and reporting of low-income multifamily spending, and savings for this program that is separate from general multifamily or general low-income reporting, so that low-income and multifamily stakeholders can track program performance over time. Partially Recommendation ); A one-stop-shop program that serves common areas, tenant units, building systems and exterior systems as well as gas and electric via a single application and single, streamlines participation process. Recommendation ); Provision of comprehensive, wrap-around services for owners, including intensive support before, throughout, and after the retrofit (a key component of the one-stop-shop model) Partially recommendation ); Inclusion of a full suite of direct install measures. The Company supports the measure inclusion for low income multifamily direct install measures found in Witness Brink s testimony on page, lines - except for electric saving measure, which are not relevant to an EWR natural gas savings program, which included: occupancy sensors, common area LED exit signs, common area vending machine misers, in-unit smart plug power strips, JRK Rebuttal -

107 J. R. KUPSER Line U- No. in-unit and common area condenser coil cleaning, in-unit refrigerators, and window AC replacement All of the acceptable recommendations would need to have considerations for the viability related to installation difficulties or realization rates. Partially recommendation ); Provision to every program participant of an energy assessment that meets, at a minimum, standards for an ASHRAE Level audit The company takes exception to providing including benchmarking of the last months off energy usage. Recommendation ); Provision to every program participant of a detailed written energy assessment report that includes information on recommended measures, available rebates, measure cost, typical payback and potential financing sources. Recommendation ); A set of higher, low-income multifamily specific incentives, marketed in their own brochure, that include the full range of measures found on multifamily properties, as well as incentives for ASHRAE Level II audits. Recommendation ); Lifting of limits on the dollar amount of rebates that a commercial low-income multifamily customer can receive during a program year. Recommendation ); Spending on low-income multifamily should not be counted automatically based of the percent zip code that is low-income. Rather, the Company should specifically target low-income multifamily buildings and offer a menu of options for eligibility, including easy proof of eligibility for unsubsidized properties, which can include geographic criteria. Q. Which of the recommendations and assumptions made in Witness Brink s testimony do you disagree with and should not be incorporated in either a commercialized or piloted program and why? JRK Rebuttal -

108 J. R. KUPSER Line U- No. A. I feel that there are six recommendation that Witness Brink has made that should not be considered in the Multifamily program design, low-income or market rate. Recommendation ); A new, stand-alone low-income multifamily program that is designed for, targeted to, and responsive to the needs of the low income multifamily buildings. The Company feels that there are economies in leveraging the same resources, systems, tracking, and property owner/manager relationships across both low income and market rate multifamily programs. Additionally, as Witness Brink has provided on page -, Table that the best practices list under the ACEEE report as a design element to overcome barriers to participation in multifamily programs is. Serve both low-income and market-rate multifamily households. Additionally, on page line - she cites the best practice also found in table, but refers to the Energy Efficiency for All report findings number that states Develop programs specifically targeted to MFAH (Multi-Family Affordable Housing) buildings. This best practice finding does not state creating a stand-alone program. Recommendation ); An appropriately-sized electric energy efficiency budget of $. to $.0 million annually, allocated specifically to low-income multifamily to facilitate a move toward deeper savings and to fund the higher incentive levels. The Company feels that determining the size of the budget necessary to operate a low-income multifamily program with these design elements would be an output of the pilot fore mentioned in this rebuttal testimony. The Company does not feel comfortable in making this sizable of a cost increase without understanding size of the program, adoption rates, and incentive levels needed for the incorporation of these program design elements. JRK Rebuttal -

109 J. R. KUPSER Line U- No. 0 Recommendation ); Ability for applicants for Low Income Housing Tax Credits to reserve rebates for up months. The Company feels that this is not necessary, as these programs have had a durability and have always been able to provide incentive rebates year after year since 0. Additionally, the Company could not commit to a -year program funding commitment. The Company does not make EWR plan filings that ensure cost recovery for years, EWR plans are submitted and reviewed for approval on a -year cycle. Recommendation ); Buy-down interest rates on Michigan Saves financing from % to 0%. The Company does not feel that the access to capital nor the cost of capital related to the buying down of the interest rate is a barrier to program participation and would only add more costs to a program that would possibly be already offering high rebates. Recommendation ); Ideally, this program will be administered by a missionbased organization with deep connections to the affordable housing community and that will pursue improved linkages ad better coordination with stake holders such as the Michigan State Housing Development Authority, local CDFIs, PACE administrators and other local lenders, etc. The Company disagrees with this because it should be administered by the Company, as it is part of the Company s EWR portfolio and impacts the Company s performance and metrics. Recommendation ); Utility performance metrics that encourage continued program evolution toward delivering more comprehensive, whole-building saving. The Company disagrees with this as an additional metric. As previously stated in my rebuttal testimony, the goal of EWR plans is the reduction of wasteful energy consumption, moreover the goals for the EWR program are addressed in the testimony of Company Witness Mr. Boladian. The levels of the JRK Rebuttal -

110 J. R. KUPSER Line U- No. goals and achievement of these goals are described in his testimony related to performance incentives. REBUTTAL TO KAREN M. GOULD S TESTIMONY Q. What is the purpose of your response to Staff Witness Gould testimony? A. I will address the recommendations and assumptions made by Staff Witness Gould related to the program design of the Multi-family program; and specifically, aspects to address low income customers and to provide my opinion of a proper course of action related to the multifamily program. Q. Are there assumptions about the multifamily program that Staff Witness Gould references that are incorrect? A. Yes. On page, line -, she stated that the measures are delivered to the multifamily program are short lived education and behavior programs, and that other measures delivered in a kit are frequently uninstalled. Q. How does the in-unit aspect of the EWR Multifamily program get executed in the field? A. Access to a majority or all of the units is made possible by the property owner or manager. The EWR Multifamily program crew then enters each unit that they have access to and performs the direct installation of measures. Literature is left for each resident explaining what measures were installed as well as a survey card. Often the residents are not even present when the direct installation process is happening. There is no behavior savings aspect to this program. If measures are uninstalled or JRK Rebuttal -

111 J. R. KUPSER Line U- No. operated in a manner that does not yield savings, that is at the decision of the resident, and the net energy savings are adjusted to account for this. Q. Staff Witness Gould s provided her opinion on some of the unique challenges of providing EWR programs to multifamily housing. Which of these challenges would you agree with? A. I agree with Witness Gould in stating There are multiple challenges facing the Multi- family housing EWR programs. following: I specifically agree with her relating to the The Multifamily EWR program (market rate or low income) serves customers, the building owner(s) and the residents, and any EWR upgrades provides benefit to both customers. That even though some multifamily residents are low income, the building owner(s) are not There may be unintended results as a result of building upgrades, such as raising rents, making the building owner(s) more wealthy and leaving the resident still with the same affordability burden. Due to the utility metering situations commonly found in multifamily housing, there are complications as to which customer will receive the reduced energy bill and therefore the financial benefit of the EWR program upgrade. Q. Can you summarize the recommendation does Witness Gould s make to possibly overcome challenges of providing EWR programs to multifamily housing? A. Yes. The recommendations include: JRK Rebuttal -

112 J. R. KUPSER Line U- No. Measure should be provided at no cost to eliminate the question of who will benefit, specifically in targeting low income rental units The requirement for building owner(s) to enter a multi-year rent lock agreement prior to receiving the EWR upgrades and rent credits should be provided from the property owner(s) to residents whose energy bill is imbedded into their monthly rent. Working with city and government agencies to implement an income based multi-housing energy efficiency benchmarking program. Working with other stake holders to help ensure success Q. How does Witness Gould suggest the Company begin to addressing these challenges? A. Witness Gould provides two suggestions: Perform necessary research of other programs offered across the country to find successful implementations; and, that small pilots may also be necessary to provide insight and information as to what would work best for Michigan customer within the Company s service territory. Q. Do you agree with the recommendations made by Witness Gould to overcome challenges of providing EWR programs to multifamily housing? A. I can neither agree or disagree, as I don t know if these suggestions will be effective or not. However, the Company is willing to explore ways to overcome these challenges in its multifamily pilot. Q. Do you agree with the recommendations made by Witness Gould as where to begin to addressing these challenges? JRK Rebuttal -

113 J. R. KUPSER Line U- No. A. Yes. I feel that the Company would support research to find successful programs that overcome the Multifamily EWR program challenges. And I feel that the Multifamily pilot as described in the rebuttal to Witness Brink s testimony may be able to incorporate and test various program design elements, such as incentive levels and the other suggestions made by Witness Gould. REBUTTAL TO DAVID S. WALKER S TESTIMONY Q. Do you have concerns with Witness Walker s testimony? A. Yes. My concerns with the recommendations and assumptions made by Staff Witness Mr. Walker are related to the distinction between education programs and behavior programs that generate energy savings; and the recommended limitation of behavior programs. Q. Is the Behavior Program the same as an Education Program as suggested by Witness Walker? A. No. As stated above, The Education Program provides general education and awareness of EWR to customers through marketing efforts. The Education program does not deliver information about the customer s usage as suggested by Witness Walker. Behavior Programs generate actual energy savings that are rigorously and accurately determined and continuously verified whereas Education Programs do not. A detailed description of the Company s Education Program was provided in Exhibit A- of Witness Boladian s Testimony and a detailed description of the Company s Behavior Program was provided in Exhibit A- of my direct testimony. Q. Do Behavior Programs lack persistence as suggested by Witness Walker? JRK Rebuttal -

114 J. R. KUPSER Line U- No. A. No. The Company is in its fifth year of offering a Behavior Program to its customers. Every year, a third-party evaluation has measured savings that are statistically significant. This finding is consistent with third-party evaluations of the behavior programs across the nation; savings are durable as long as the program continues to be delivered. There is substantial evidence behavior program savings persist beyond the first year even if the program ceases to continue. As cited in the DOE s UMP, studies show savings persist after treatment stops. Allcott and Rodgers show in their research report, The Short-Run and Long-Run Effects of Behavioral Interventions: Experimental Evidence from Energy Conservation, that the persistence of behavior programs offers unparalleled dividend years after the program has ended. Allocott and Rodgers go on to estimate a savings decay rate of only about % per year. Further, Lawrence Berkeley National Lab cited in its Behavior Analytics Report, Insights form Smart Meters, that savings persist between mailings: there are statistically significant savings every day between mailings. The savings are relatively stable: after the first mailing, there is no statistically significant decline in savings over time, and no statistically significant variation in savings day-to-day. There are many examples of jurisdictions where persistence is included in savings calculations of Behavior Programs. For example, a persistence decay rate is deemed in the Illinois TRM. These results point to a strong complementarity in social norms and the formation of habit capital. JRK Rebuttal -

115 J. R. KUPSER Line U- No. Q. Is Witness Walker s statement that Behavior Programs do not involve the sale and installation of purchased goods, and therefore, do not encourage private investment in energy waste reduction an accurate assessment of Behavior Programs? A. No. Behavior programs absolutely result in the sale of traditional measures. Brandon et al. in their research report, Do the Effects of Social Nudges Persist? Theory and Evidence from Natural Field Experiments, provides evidence that up to half of Home Energy Report program savings persistence is attributable to physical capital improvements to homes. This finding is consistent with third-party evaluations of the Home Energy Report program which shows the program results in customers installing long-life measures outside of the energy efficiency programs offered by utilities. The methodology for calculating savings from behavior programs avoids double counting saving from other energy efficiency programs. Brandon et al. goes on to cite that the unobserved adoption of traditional measures play a significant role in Behavior program persistence. From a normative perspective, these results highlight the value of programs that change habit because they provide a long-lived stream of benefits at little direct costs, which significantly enhances the costeffectiveness and gains to welfare. Q. What approach did Brandon et el. take to verify the adoption of traditional measures as a result of Behavior Programs? A. Brandon et al. isolated the role of technology adoption on long-run patterns of energy use upon the sale of the home. Using more than million observations of monthly electricity consumption and observations from more than 0,000 homes that saw a JRK Rebuttal -

116 J. R. KUPSER Line U- No. change in ownership in over natural field experiments, Brandon et al. found that homes that change ownership react to the home energy reports in the same way as the full sample of all homes exposed to the home energy report: they reduced their electricity consumption by. percent, on average. Interestingly, approximately to percent of those effects persisted in the home after the household moved and home energy reports delivery ended. Taken jointly, Brandon et al. interprets these findings as suggesting that Behavior Programs serve to induce changes in capital stock and that such changes are important drivers of persistence. It is important to note that these changes in capital stock occur outside of what is accounted for in energy efficiency programs. Q. Are traditional programs that rely on financial incentives the only way to generate energy savings and promote the installation of capital stock? A. No. Financial incentives are only one of many important programmatic marketing tools. Program designs and program logic models also need to make use of other tools to maximize energy savings, consumer awareness and understanding of energy efficient products. The February National Action Plan for Energy Efficiency Report titled Customer Incentives for Energy Efficiency Through Program Offerings states that Incentives can be used in conjunction with other program strategies to achieve market transformation, whereby there is a lasting change in the availability and demand for energy-efficient goods and services. This step is critical to avoid grossly overpaying for energy savings. JRK Rebuttal -

117 J. R. KUPSER Line U- No. Q. Do you agree with Witness Walker that there are limitations on Behavior Programs? A. No. Witness Walker references Section of Public Act which states the following: () Subject to subsection (), an energy optimization plan may do or more of the following: (a) Utilize educational programs designed to alter consumer behavior or any other measures that can reasonably be used to meet the goals set forth in subsection (). (b) Propose to the commission measures that are designed to meet the goals set forth in subsection () and that provide additional customer benefits. () Expenditures under subsection () shall not exceed % of the costs of implementing the energy optimization plan. This section Witness Walker references relates to Education programs which provide general education and awareness of EWR to customers through marketing efforts. This section does not place a limitation on Behavior Programs. 0 Q. Was guidance provided regarding what Section () and () of Public Act pertains too? A. Yes. The December, 0 Temporary Order in U-00 contains provisions for Education Programs on pages and of Attachment E which states the following: Up to three percent of the energy optimization budget may be used for the cost of energy optimization education programs. Energy optimization education program costs include all media types (pamphlets, brochures, DVD s, web sites, etc.) that are designed to communicate to and educate customers on the benefits of energy efficiency, conservation and load management. These budget funds will be deemed to generate a proportional amount up to three percent of the required energy savings for the program year during which the money is spent. Energy optimization education program costs do not include promotion of any specific energy optimization program or any efforts designed to educate low income residential customers. JRK Rebuttal -

118 J. R. KUPSER Line U- No. Q. What other facts demonstrate that Section () and () of Public Act does not pertain to Behavior Programs? A. Public Act was issued in 0. Behavior Programs did not exist in 0. It was not until that Behavior Programs were adopted in Michigan. Q. Does Public Act provide any constraints on Behavior Programs? A. No. Section () and () uses the exact same language as Public Act. Below is the language in Public Act : () Subject to subsection (), an energy waste reduction plan may do or more of the following: (a) Utilize educational programs designed to alter consumer behavior or any other measures that can reasonably be used to meet the goals set forth in subsection (). (b) Propose to the commission measures that are designed to meet the goals set forth in subsection () and that provide additional customer benefits. () Expenditures under subsection () shall not exceed % of the costs of implementing the energy waste reduction plan. 0 Q. Does the March, order, Case No. U-0 et al. provide any constraints on Behavior Programs? A. No. As stated in Witness Walker s testimony, the order simply reiterates the language used in Public Act Section () and () and Public Act Section () and (). Further, the Order goes on to state that The Commission therefore recommends that providers continue to use the model contained in Attachment E to the Temporary Order for future EWRPs. As mentioned above, the limitation mentioned in Attachment E of Temporary Order U-00 clearly refers to Education Programs and not Behavior Programs. JRK Rebuttal -

119 J. R. KUPSER Line U- No. 0 Q. Does Temporary Order in U-00 provide a constraint on savings as suggested by Witness Walker? A. No. This again refers to Education Programs and not Behavior Programs. Witness Walker states in his testimony that Education Program savings are deemed because the benefit are impractical to measure. This is not the case with Behavior Programs. As Witness Walker mentions, the underlying methods are well established for the calculation of Behavior Program savings. Behavior Program treatments are an approved measure by the EWR Collaborative and rigorously and accurately verified. Neither Public Act or Public Act mention a savings constraint on any program within a EWR Plan. Q. Do you agree with Witness Walker that Behavioral programs do not share the same characteristics of traditional programs? A. No. As I cited above, Behavioral Programs share many of the same characteristics as more traditional programs and are an important programmatic tool. The savings for Behavior Programs are as concrete and verifiable as any other efficiency measure. Q. Do you agree with Witness Walker that the proportion of savings from Behavior Programs is unreasonable? A. No. The Company benchmarks the size of all its EWR programs when developing diverse and robust program offerings. Exhibit A- provides multiple studies benchmarking of the Company s Behavior Program against peer utilities. Compared to DTE, other utilities rely on Behavior Programs to deliver a much higher proportion JRK Rebuttal -

120 J. R. KUPSER Line U- No. of first-year (and lifetime) savings. The Company s proportion of behavior savings is among the lowest of all peer utilities benchmarked. Q. Did Witness Walker recommend a savings constraint for any other programs within the Company s EWR Plan? A. No. Witness Walker states he sees the benefit in maintaining a diverse portfolio but does not recommend a savings constraint on the many other programs that contribute a greater proportion of savings than what the Behavior Program contributes. For example, the HVAC, Prescriptive C&I and Non-Prescriptive C&I programs all contribute a higher portion of savings than the Behavior Program. Q. What is the portion of first-year behavior savings to the Company s total planned savings? A. The portion of first-year behavior savings to the Company s total planned savings is.%. Q. What is the portion of lifetime behavior savings to the Company s residential lifetime savings? A. The portion of behavior savings to the Company s residential lifetime savings is.%. Q. What is the portion of lifetime behavior savings to the Company s total planned lifetime savings? A. The portion of Behavior savings to the Company s total planned lifetime savings is.%. JRK Rebuttal -

121 J. R. KUPSER Line U- No. Q. Is the level of planned behavior savings unreasonable? A. No. Based on the multiple benchmarking reports and above stated percentages, the level of planned behavior savings is both reasonable and conservative. Q. Does this complete your direct testimony? A. Yes, it does. JRK Rebuttal -

122 MS. HAYDEN: The Company's next witness is Kenneth Randazzo. Mr. Randazzo filed qualifications and direct testimony consisting of a cover page plus pages of questions and answers. Mr. Randazzo sponsored Exhibits A-, A-, and A-. I would note that Exhibits A- and A- were unintentionally omitted in initial filing. They were provided yesterday. I would, as a proviso, note that the information provided in those exhibits was also discussed in the testimony and exhibits of Mr. Boladian. The Company would move for the admission into evidence of Mr. Randazzo's direct testimony and qualifications, as well as Exhibits A-, A-, and A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct testimony of witness Kenneth Randazzo is admitted into evidence as described, as well as Exhibits A-, A-, and A- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

123 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF KENNETH RANDAZZO

124 Line No. DTE GAS COMPANY QUALIFICATIONS OF KENNETH RANDAZZO Q. What is your name, business address and by whom are you employed? A. My name is Kenneth Randazzo. My business address is: One Energy Plaza, Detroit, MI. I am employed by DTE Electric Company (DTE Electric or Company). Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas. Q. What is your educational background? A. I graduated from Oakland University, Rochester Hills MI, with a Bachelor of Science Degree in Mechanical Engineering in. Q. What is your work experience? A. I was hired by The Detroit Edison Company in June as an Engineer in the Generation Engineering Department. As an engineer in the Generation Engineering Department, I worked on several studies and projects regarding energy production. From to mid-, I worked at the Belle River Power Plant in the Project Management Organization. During that time, I developed testimony and exhibits and answered discovery questions supporting the Company s general rate case. From mid- to mid-, I was in the Company s Marketing organization as a technical support engineer. In that role, I performed energy audits and analyses, building energy simulations and performed energy-related economic comparisons for customers. I was also a program manager for HVAC products. KR -

125 K. RANDAZZO Line U- No. From mid- -, I was an account manager in the Oakland Division. I managed the customer relationships for hospitals, schools, commercial office buildings, and commercial building developers. In this position, I worked with customers on how to manage their energy consumption and how to best apply various rate products to reduce their overall operating expenses. From -, I was program manager for Geothermal. My responsibilities involved the development of marketing strategies, product promotional materials, and geothermal infrastructure. I also provided technical knowledge on geothermal and economic system comparisons, leveraged demand side management incentives; and partnered with two lending institutions to develop and implement energy efficient mortgage product offerings. In addition, I was a member of the Geothermal Heat Pump Consortium and participated in the Department of Energy s (DOE) efforts to establish Geothermal as viable HVAC option. Through these efforts the DOE selected Detroit Edison s geothermal market efforts as the standard for all other utilities geothermal marketing programs. In, I became a Principal Account Manager working with commercial and industrial customers in Macomb and Oakland counties. In, I accepted a developmental assignment as Principal Supervisor of Southeast Michigan Business Accounts and Primary Services. In that role, I managed four groups of account managers focused on commercial and industrial customers and a customer focused technical service group. In 00 and 0, I worked on the DTE Energy and MCN Energy merger, focusing on the account management function and Marketing areas. In 0, I resumed my Principal Supervisor position, managing two account KR -

126 K. RANDAZZO Line U- No. management groups. In 0, I was given additional responsibility for starting an account management group that focused on improving interactions and relationships with small to medium business customers. This group was Midsize Business Accounts. I managed that group until June 0 when I became Manager of National Accounts. The National Accounts group was responsible for assisting the largest national customers with their electric and gas issues and promoting energy efficient concepts. In June, I became Manager of the Energy Optimization (EO) Commercial and Industrial (C&I) Programs and Energy Partnership & Services. Q. What are your current job responsibilities? A. As Manager of the EO C&I Program team, I am responsible for developing electric and gas product offerings for C&I customers that support DTE Energy s overall energy efficiency program strategies. I also have responsibility for the Energy Partnership & Services group, which provides energy consulting services to various C&I customers. Q. Have you previously provided testimony before the Michigan Public Service Commission (Commission)? A. Yes, I provided testimony in the DTE Electric,,, and EO Reconciliation Cases (U-, U-0, U-, U0 and U, respectively) and I provided testimony in the DTE Gas,,, and EO Reconciliation Cases (U-, U-0, U-, U-0 and U-, respectively). I also provided testimony in DTE Electric Amended Energy KR -

127 K. RANDAZZO Line U- No. Optimization Plan Case U- as well as DTE Gas Amended Energy Optimization Plan Case U-. KR -

128 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF KENNETH RANDAZZO Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this - Energy Waste Reduction (EWR) Plan filing is to provide an overview of the Company s C&I EO programs planned for the period -. Throughout my testimony, I will refer to the - plan as EWR Plan, consistent with the change in legislation resulting from Public Act. References to previous plan cases as well as the current approved plan will be referred to as EO Plan, consistent with the law in effect at the time from Public Act. My testimony will cover the following areas and demonstrate that the Company s proposed set of C&I programs have been designed so that all C&I customers have an opportunity to participate. My testimony will cover the following: ) Provide an overview of the objectives in developing programs for C&I customers. ) Describe program adjustments between the / EWR Plan and the Current EO Plan. These adjustments include new C&I offerings and approaches. In addition, I will briefly describe the portfolio of the proposed C&I programs which is designed to increase customer awareness and demand for energy efficient products and services. ) Provide an updated program description for each of the C&I programs. Each program description highlights the target markets, eligible measures, implementation and marketing strategies, estimated participation, and shows an estimated program budget and respective energy savings for the period. ) Describe the methodology used to establish a balanced C&I portfolio with an estimated budget and projected energy savings. Also, I will show each KR -

129 K. RANDAZZO Line U- No. 0 program s cost effectiveness using the Utility System Resource Cost Test (USRCT) score and Cost of Conserved Energy (CCE). ) Provide the overall C&I class cost for the / EWR Plan. ) Describe the Company s End Use Transportation (EUT) offering Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibits: Exhibit Description A- C&I Program Descriptions, Measures, and Incentives A- C&I Portfolio Summary A- C&I Customer Class Costs Q. Were these exhibits prepared by you or under your supervision? A. Yes, they were. Q. What was the Company s overall objective in developing programs for its C&I customers? A. The objective of the Company s C&I programs is to continue to build customer awareness regarding the benefits of energy efficiency so customers participate in the various energy waste reduction offerings and services, and make long-term commitments to reduce their energy usage. This objective is accomplished through actively marketing a diverse portfolio of programs that create value for customers through a range of participation options. KR -

130 K. RANDAZZO Line U- No. Q. Will the Company continue to offer the same C&I programs and energy efficiency measures that are in the Current EO Plan? A. In general, yes. The Company s programs will continue to include prescriptive measures which are included in the Michigan Energy Measures Database (MEMD) and non-prescriptive measures which are custom in nature. Prescriptive and nonprescriptive measures are defined and discussed later in my testimony. Q. Does the Company propose to add any new C&I program offerings to its portfolio that are not in the Current EO Plan? A. Yes. The Company will be adding Business Energy Consultation (BEC) and Retro Commissioning (RCx) offerings for our customers. Based on DTE s eight years of experience in developing and executing EWR programs, these new program offerings will enhance the overall portfolio experience for our C&I customers. The Company continues to refine and adjust measures and programs to react to market conditions, emerging technologies, efficiency standards, and technology changes, while exploring other program elements that create a sustainable energy efficient environment for our customers. Q. What portfolio of programs does the Company plan to offer its C&I customers? A. DTE Gas will provide EWR offerings to its C&I customers through two types of programs: ) Prescriptive, including an agricultural-focused application and common areas of multifamily units; and ) Non-Prescriptive; including Custom, New Construction and Request for Proposal; Business Energy Consultation, Retro KR -

131 K. RANDAZZO Line U- No. Commissioning, and Emerging Measures and Approach. These programs are discussed below. Q. Will the Company continue to coordinate and collaborate its C&I program offerings with other energy efficiency service providers? A. Yes. DTE Gas will continue to coordinate and collaborate with other energy efficiency providers. In the past we have coordinated offers and collaborated with Consumers Energy and Efficiency United. DTE Gas will continue these efforts through and. Q. How would you describe the C&I prescriptive program? A. The C&I prescriptive program is designed to offer a comprehensive mix of measures that have an associated fixed saving and incentive for each measure. The measures under the prescriptive program include, but are not limited to, Heating, Ventilation and Air Conditioning (HVAC), HVAC controls, demand control ventilation, boiler tune-ups and Food Service Equipment. The primary goal of the program remains unchanged, that is, to encourage DTE Gas s C&I customers to install energy-efficient measures in existing and new facilities. For DTE Gas s agricultural segment of customers, we will continue to have a program offering of energy efficient measures that will assist all agricultural vertical markets become more efficient. For Multifamily properties with three or more units, incentives are provided to property owners who are DTE Gas commercial customers for energy efficient equipment installed in common areas. The Multifamily common area work is a subset of the Multifamily program which is described by Company Witness Mr. Kupser in Exhibit A-. KR -

132 K. RANDAZZO Line U- No. DTE Gas has engaged market participants, such as trade allies and contractors, and account managers to use their existing delivery channels to help promote and deliver this program. These participants include manufacturers, distributors, consultants, engineers and contractors of energy efficient equipment and services. Q. How would you describe the C&I non-prescriptive program? A. The C&I Non-prescriptive program has three offerings: Custom, Request for Proposal (RFP) and New Construction. Each offering is described below. Custom This offering is designed to help C&I customers improve the efficiency of their existing facilities by offering incentives for installing nonstandard energy-efficient equipment and controls in existing facilities that are not covered by the prescriptive MEMD measures. Non-standard or nonprescriptive measures include unique applications, equipment, or processes; applications where operations vary so much by customer that standardized savings are difficult to calculate; and new technologies without established baseline savings. DTE Gas accounts for energy savings under this offering by approving and validating custom projects that are installed in a customer s facility. The Company anticipates that the number of participants in the Custom offering will grow over time as business customers learn about the offering and are able to invest in tailored energy efficiency opportunities. RFP This offering provides customers who meet the RFP s requirements with custom incentives for installing innovative, non-standard energy-efficiency equipment and controls in existing facilities. This offering allows DTE Gas to increase its service territory s overall energy efficiency by accelerating projects with significant savings, reinvigorating certain stalled projects, and emphasizing KR -

133 K. RANDAZZO Line U- No. specific types of extremely high efficiency technology or projects. This offering also provides DTE Gas with the ability to tailor specific product or market offerings to targeted segments and vertical markets to increase their participation. This offering could also contain the Company s multi-year incentive RFP. This RFP is designed to promote large capital-intensive projects that may span more than one program year and to assist in reducing the customer s hurdles to achieve an acceptable payback period for the project. New Construction and Major Renovation Incentive This offering is intended to encourage non-residential customer decision-makers in new construction/major renovation projects to incorporate greater energy efficiency into their building design and construction practices. New construction/major renovations projects must involve facility improvements that result in measurable or verifiable electric savings (kwh) and/or natural gas energy savings (Mcf) exceeding the requirements set forth in American Society of Heating, Refrigeration, and Air Conditioning Engineers (ASHRAE) Standard 0.-0, LEED or local building codes, whichever is more stringent. The New Construction/Major Renovation Program offers incentives in three different areas: LEED Design Review Assistance New Construction Systems Approach New Construction LEED Whole Building Approach Q. How would you describe the Business Energy Consultation (BEC) offering? A. The Business Energy Consultation offering is targeted at small business customers. It provides customers with a path to energy savings and a means of beginning their KR -

134 K. RANDAZZO Line U- No. energy efficiency journey. A BEC starts with an energy assessment of the customer s facility. The energy assessment provides a detailed check of the customer s building, analyze the energy envelope, check for equipment that may not be operating properly, inspect and assess the heating and cooling, hot water and lighting systems. A final energy assessment report is provided to the customer detailing the findings and providing them with energy efficiency improvement recommendations. Additionally, a customer that opts to have a BEC completed could be provided direct install measures such as a Tier programmable thermostat, faucet aerators and hot water pipe wrap; and if the customer is also a DTE Electric customer, they could receive LED exit sign and PAR LED lamps. Q. How would you describe the Retro Commissioning (RCx) offering? A. Retro Commissioning is a comprehensive testing of building systems with the goal of improving quality; allows building deficiencies to be identified and corrected for optimum energy use. RCx is a systematic process to improve an existing commercial and institutional facility s building performance. Using a whole building systems approach, retro commissioning seeks to identify operational improvements that will save energy and also increase occupant comfort. RCx consists of four phases. In the planning phase, the building systems to be analyzed are identified. The next phase determines how those systems are supposed to operate and a prioritized list of operating deficiencies is prepared. During the implementation phase, the highest-priority deficiencies are corrected and proper operation is verified. In the verification phase, improvements to the facilities are reported and the customers are shown how to sustain proper ongoing operation. KR -

135 K. RANDAZZO Line U- No. Retro Commissioning can be one of the most cost effective means of improving operational energy efficiency in commercial buildings. Q. How would you describe the C&I Emerging Measures and Approach Program? A. The emerging measures and approach program in the C&I portfolio encompasses measures that are mature, or nearly mature, from the pilot phase of program development. As discussed by Company Witness Mr. Boladian, the emerging measures and approach program provides a transition point from pilots that have been successfully completed or are expected to be completed in the near future. This transition will allow the company the opportunity to create an entry point for pilots before they are commercialized and incorporated in to the mainstream programs. The following is an example of an offer that is being considered for inclusion in the emerging measures program. Midstream Food Service The Midstream Food Service emerging approach is a simplified marketing strategy targeting food service equipment distributors. Partnering with the food service distributor channel allows for flexibility and greater market insight. Customers and trade allies go to their food service distributor to better understand the various technical applications of food service equipment. These knowledgeable market experts generally cater to specific market segments and product types. By targeting the food service distributor channel, one can focus on fewer players that can impact many more downstream customers. Midstream programs are anticipated to change the distributor channel product stocking habits to include a higher percentage of Energy Star rated energy KR -

136 K. RANDAZZO Line U- No. efficiency food service products. The Company will determine and apply a range of incentive contributions toward the cost of the assessment and implemented measures identified during the assessment. Incentive ranges will vary based on the complexity of the evaluation and the potential for low cost savings. The Company will continue to assess the viability of other programs as they evolve toward potential launch. As a result, other pilots may be included in addition to the one discussed. Q. Will the Company continue to encourage C&I customers to install multiple energy efficient products? A. Yes, the Company will continue to encourage all business customers to install more than one energy efficient product. In doing so, DTE will be promoting deeper energy savings. Q. What types of measure categories could be utilized by the customer to achieve multiple energy efficient product installation? A. Some category examples are lighting, HVAC electric and gas, motors, refrigeration, boiler tune-ups and food service equipment. Q. Will the Company provide sufficient program offerings for all C&I customers? A. Yes. The C&I program portfolio is designed to provide all DTE Gas C&I customers with an opportunity to participate in the EWR program. The mix of program offerings provides comprehensive coverage for all DTE Gas C&I customers. All programs will continue to be complementary with each other. For KR -

137 K. RANDAZZO Line U- No. all C&I customers, the programs have sufficient measures and flexibility so that all business owners can take advantage of a variety of EWR offerings. Q. Will the Company continue to support C&I business customers in developing a Strategic Energy Plan to assist them in taking advantage of the EWR portfolio? A. Yes. The Company will continue to assist and encourage C&I business customers to develop and implement a strategic energy plan. This plan will help them focus on energy efficient improvements and prioritize the installation of those improvements. Q. What elements will be included in a strategic energy plan for the Company s customers? A. Elements of a strategic energy plan will include:. customer commitment agreement;. current energy efficiency performance assessment;. setting energy efficiency goals;. creating action plans to achieve goals;. implementing action plans;. evaluating progress as plans are implemented; and. monitoring results. Tools will be provided by DTE Gas to the customer to help them carry out the strategic plan, including: program guide, energy management handbook template, energy assessment tools, and an energy management toolbox. KR -

138 K. RANDAZZO Line U- No. Q. How will the Company implement its - EWR Plan? A. DTE Gas will follow the process used in its Current EO Plan. In general, the Company will continue to use rd party Implementation Contractors (ICs) to: a) provide EWR marketing, b) facilitate customer intake, c) help customers understand the features and benefits of high-efficiency equipment, d) verify eligibility, e) assist in processing program applications and rebates, and f) track customer progress. However, in certain cases where the Company has gained experience in some functions originally sourced to outside contractors, DTE Gas may utilize internal staff in the future. The Company s C&I staff will continue to provide overall strategic direction and program management. Also note, the scope of existing C&I programs currently offered under the Company s Current EO Plan was competitively bid. The Company will continue to use the competitive bid process to award future contracts. The Company will continue to review how the work has been assigned and may elect to redistribute work and request proposals for any newly developed emerging measures program or programs where work focus has significantly changed. Q. What methodology has the Company used to establish a balanced portfolio and budget for the proposed C&I portfolio? KR -

139 K. RANDAZZO Line U- No. 0 A. Given the Company is more than eight years into its EWR experience, a more sophisticated program planning approach was used in this - EWR plan than in previous plans. At a high level, the planning approach can be explained in four steps:. The first step was to develop an initial program by program measures mix built on past experience, market feedback, as well as, future capabilities and savings goals.. The second step involved estimating program size parameters (i.e., a minimum and maximum range of units per year by program).. The third step involved optimizing the program portfolio mix to reflect a portfolio that best meets the Company s many objectives.. Finally, in the fourth step, the output derived from the previous three steps was analyzed through DSMore to verify cost effectiveness. Q. What approach did the Company use to determine the cost effectiveness for its C&I programs in this - EWR Plan? A. The Company has maintained the same methodology to determine program cost effectiveness as in the Current EO Plan. At a high level, the analysis can be segregated into several stages. That is, individual measures were first grouped into their respective programs in order to calculate the cost-effectiveness at the program level. Following that, the programs were bundled into the overall portfolio, which is also analyzed for cost-effectiveness. This final step included portfolio level costs (administration and infrastructure) in the cost-effectiveness test. Witness Boladian s testimony provides additional information regarding the cost-effective modeling for the C&I programs. KR -

140 K. RANDAZZO Line U- No. Q. What is shown in your Exhibit A-, titled C&I and EUT Portfolio Summary? A. Exhibit A- represents C&I and EUT program costs, energy savings and the USRCT and CCE results. The exhibit presents ) DTE Gas s proposed EWR budget for - delineated by portfolio program (columns (e) and (g) respectively), ) expected natural gas energy savings by program (columns (d) and (f) respectively), and ) USRCT score and CCE in $/Mcf for each of DTE Gas s EWR C&I and EUT programs. Line shows the subtotal EWR program cost and energy savings for each of the program years. The administration and infrastructure costs for C&I are shown separately on line with the total program costs shown on line. However, the USRCT and CCE results shown in columns (b) and (c), respectively, reflect the program scores inclusive of the programs respective administration and infrastructure costs. Q. What is shown in your Exhibit A-, page, titled C&I and EUT Customer Class Costs? A. Exhibit A- represents the program cost for the C&I and EUT Customer Class programs. Lines and show the amount of direct program costs that will be capitalized and expensed, respectively. Lines through show the allocated program cost by rate class for Pilot, Education, Residential Low Income, administrative & infrastructure, and EM&V. All of the costs on lines through are expensed and are allocated as described in Witness Boladian s testimony. Line shows the total C&I and EUT EO program costs for and. KR -

141 K. RANDAZZO Line U- No. Q. How is the Company notifying its EUT customers of their eligibility to file their own energy efficient project plans? A. DTE Gas notified its EUT customers by placing a bill message on their commercial natural gas bills and by sending a letter to each EUT customer informing them about the program and describing how to enroll. DTE Gas account managers contacted their assigned EUT customers to further inform them and to address any questions. The program information was also placed on the DTE Energy web site along with the required energy plan templates for customers to use when applying to the programs. Q. What was the Company s overall objective in developing the EUT offering? A. The objective of the EUT offering is to continue to build customer awareness regarding the benefits of energy efficiency and for EUT customers to take ownership of their energy efficiency strategies and improvements by making a long term commitment to reduce their energy use. Q. How many customers have participated in the EUT offering since its initial inception? A. Since the initial offering, zero EUT customers have participated in the EO EUT program offering. Q. What process will the Company use to make changes to its C&I portfolio? A. The Company will continue to use the existing process to make changes in its C&I portfolio as in the Current EO Plan. That process involves having the flexibility to reallocate budgets, adjust incentive levels and eligible measures from the C&I KR -

142 K. RANDAZZO Line U- No. portfolio to respond quickly to market conditions. In other words, the Company may find it necessary to move funds from one program to another, within Commission ordered reallocation limits, to avoid having to suspend a program that is very successful in the market due to lack of funds. This flexibility was exercised in the past and has allowed the Company to maintain market momentum and to meet customer satisfaction and expectations. Q. Does this complete your direct testimony? A. Yes, it does. KR -

143 MS. HAYDEN: The Company's next witness is Nick Hall. Mr. Hall filed qualifications and direct testimony consisting of a cover page plus pages of questions and answers. Mr. Hall sponsored direct Exhibit A-, Schedules and. The Company moves to bind in the direct testimony of Mr. Hall, and for the admission into evidence of Exhibit A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct testimony of Nick Hall as described is admitted into evidence, as well as Exhibits A-, Schedules and? MS. HAYDEN: That is correct, your Honor. JUDGE VanSTEEL: All right. Those are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

144 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to ) (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF NICK HALL

145 Line No. DTE GAS COMPANY QUALIFICATIONS OF NICK HALL Q. What is your name, business address, and by whom are you employed? A. My name is Nick Hall. My business address is S Waters Edge Way, Prairie du Sac, Wisconsin,. I am the owner of TecMarket Works. TecMarket Works is an independent arms-length energy program evaluation contractor with a focus on evaluation management and oversight services. I am responsible for all phases of the company s operations. In this capacity, I plan, direct, manage, and oversee evaluations of energy efficiency and renewable energy programs and work with clients to help design, manage and oversee their evaluation efforts. This covers energy and demand savings, operational process and management, and market effects studies. Throughout my testimony, I will refer to this current plan as Energy Waste Reduction (EWR), consistent with the change in legislation resulting from Public Act. References to previous plan cases will be referred to as Energy Optimization (EO), consistent with the law in effect at that time. Q. Is your firm owned in part or in whole by any utility company or energy program service provider? A. No. My firm is not financially affiliated with any other organization. We have no parent company. I am the sole owner of TecMarket Works and our only function is to provide independent program evaluation management and oversight services to governmental and regulatory bodies and energy service providers. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas Company (DTE Gas). NH -

146 N. HALL Line U- No. Q. What is your educational training? A. I received my advanced education from Sangamon State University in Springfield, Illinois, where I completed the University s Bachelor of Science in Biology program in and their Master of Environmental Administration program in 0. Q. What is your evaluation experience? A. I have been in the energy program evaluation field for over years. I have authored over 00 technical publications in this field. To the best of my knowledge, I am the most published energy program evaluation professional in the world today. I have managed, supervised, overseen, or conducted over $0,000,000 worth of evaluation efforts in the last years. I have served as the lead evaluation contractor or the lead advisor for the four largest energy efficiency portfolio evaluations in the world (California, New York and two national portfolio evaluations for the United States Department of Energy (USDOE)). From 0 to, I served as the Master Evaluation Contractor for the multi-billion dollar California Energy Efficiency Portfolio. For the last years I have also served as the Lead Evaluation Advisor for New York s multi-billion-dollar energy efficiency portfolios, reporting to the energy commission (Depart of Public Service), advising on and overseeing all program evaluation and associated efforts. I have also served as the lead evaluation advisor to the USDOE, structuring the evaluation efforts for the multibillion-dollar State Energy Program and the local governmental Block Grant funded energy projects that were part of the Obama Administration s economic stimulus package. I have also served on the USDOE team that wrote the standards for project spending for the energy programs associated with the Administration s Stimulus NH -

147 N. HALL Line U- No. Package. To the best of my knowledge, this $.-billion-dollar federal effort was the largest energy efficiency portfolio in the world. I have also served as an evaluation expert, supervising, planning or conducting studies in the states of North Carolina, South Carolina, Ohio, Indiana, New Hampshire, Wisconsin and Kentucky. I have recently served as one of the lead evaluation advisors for Illinois, Missouri, California, Oregon, Washington, Wyoming, and Utah. I have taught evaluation courses for the Association of Energy Service Professionals (AESP), the International Energy Program Evaluation Conference (IEPEC), and the United States Department of Energy (USDOE), among others. I was also on the USDOE team of evaluation experts selected to teach energy program evaluation research to all 0 state energy offices. I also served as the prime contractor and lead author for the California Evaluation Protocols and the Evaluation Framework. These are the most comprehensive set of application protocols in the country, supported by the most comprehensive evaluation policy framework. These documents were a key part of the guiding documents for the establishment of the USDOE s Uniform Methods Protocols, of which I served as a technical reviewer. I have received awards for outstanding contributions to the field from the Association of Energy Service Professionals and the International Energy Program Evaluation Conference. I am the only professional to have ever received both awards. I was recognized by the United States Department of Energy as providing the most innovative evaluation approach for a federal energy program, NH -

148 N. HALL Line U- No. and was referred to the President and Congress for that recognition. I was also recognized by the Governor of California for helping to make the state of California the most energy efficient state in the United States. I have planned, supervised, managed or conducted well over 00 evaluation studies for the federal government, for state governments and regulators, for non-profit organizations and for utility companies. I am the sole-founder of the International Energy Program Evaluation Conference. I have served as past President, Secretary, and Treasurer for this organization and have served on the Planning Committee for over years. To the best of my knowledge, I have planned, directed, conducted, supervised, and overseen more evaluations studies, across more programs and markets than any other evaluation professional. I have attached additional qualifications to this testimony that highlight specific projects and studies. Q. Have you testified previously before the Michigan Public Service Commission? A. Yes, I have previously testified in the following cases approved by the Michigan Public Service Commission (MPSC): U-0 Detroit Edison 0 EO Plan U-0 -A Detroit Edison Amended EO Plan U- Detroit Edison Amended EO Plan U-0 Detroit Edison EO Plan U-0 Michigan Consolidated Gas (MichCon) 0 EO Plan U-0 -A Michigan Consolidated Gas (MichCon) Amended EO Plan U-0 Michigan Consolidated Gas (MichCon) Amended EO Plan NH -

149 N. HALL Line U- No. 0 U-00 Michigan Consolidated Gas (MichCon) EO Plan U- DTE Energy Electric - EO Plan U- DTE Energy Gas - EO Plan Q. Have you previously testified in front of other Regulatory Bodies? A. Yes. I have formally testified in public hearings and cases in Illinois (Docket No. 0-00), North Carolina (Docket No. E-, Sub and ), Indiana (Cause No. ), and at non-numbered public hearings in Wisconsin, California, and Minnesota and in additional follow-up data requests for Duke Energy s programs in Ohio, North Carolina and South Carolina. NH -

150 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF NICK HALL Q. What is the purpose of your testimony? A. The purpose of my testimony in this / EWR Plan, is to ) confirm that the summary evaluation plans I have authored are applicable and proper for assessing energy impacts and for improving the operations of the programs in the Company s / EWR Plan, including the approach for both current and emerging EWR programs; ) comment on the sufficiency of the evaluation budget to provide adequate resources for the evaluations needed for this plan; ) comment on the ability of the proposed programs plans to achieve their energy savings goals; and ) support the use of a deemed net to gross ratio (NTG) of 0. for gas measures. Throughout my testimony, I will refer to this current plan as Energy Waste Reduction (EWR), consistent with the change in legislation resulting from Public Act. References to previous surcharges and plan cases will be referred to as Energy Optimization (EO), consistent with the law in effect at the time. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibits: Exhibit Description A- Schedule Qualifications of Nick Hall, TecMarket Works A- Schedule Summary Gas Evaluation Plans Q. Was this exhibit prepared by you or under your supervision? A. Yes, it was. NH -

151 N. HALL Line U- No. Q. In your opinion, will the summary evaluation plans filed by DTE Gas in its / EWR Plan accurately and reliably document the savings achieved by the Company s programs being proposed in its / EWR Plan? A. Yes, I have authored the summary evaluation plans for the / cycle. I have designed these plans to be both objective and cost effective, and to comply with the industry s standards for reliable findings. These evaluation plans are capable of both representing the energy impact accomplishments of the programs being evaluated, but also serve as an important resource for assessing the reliability of the Michigan Energy Measures Database (MEMD) estimates. These summary evaluation plans, of course, will need to be supported with detailed implementation-level plans that follow our industry s protocols for independence and bias free results. The approaches I have provided represent a reasonable and cost effective way of reliably documenting the impacts of the programs and the portfolio as a whole. If requested to do so, I will also serve as an oversight agent for DTE to monitor the implementation of these plans. I have also established a reliable approach for structuring the evaluation of new or emerging programs that may be implemented during the cycle. This will help assure that any emerging initiatives are evaluated using rigorous methods that reflect the highest standards of our industry. Q. Do you consider DTE Gas s evaluation budget adequate to support the evaluation efforts needed for its / EWR Plan? A. Yes, I generally recommend that portfolio evaluation budgets be set at % of the total EWR spend budget with the ability to increase or decrease that amount to reflect the needs of any given program and to match the research objectives. As long as the program evaluation focuses primarily on impact estimations for the / DTE NH -

152 N. HALL Line U- No. Gas program services described in their plan, and process evaluation efforts to improve the design and performance of those programs, the % level is adequate for most portfolios depending on the program mix and the accuracy requirements. Q. Have you reviewed the program plans proposed by DTE Gas in its / EWR Plan? A. Yes, I have. Q. What are the factors in determining if DTE Gas s - EWR Plan is capable of reaching their energy savings goals? A. The ability of a program to reach its energy impact goals is a function of the integration of the design and operations of the program with the potentials for energy savings within any given market, and the conditions within that market. If the goals are set in a way that reflects the ability of the technologies and program services to achieve the per unit savings, and if the programs are designed to capture the anticipated share of the market needed to capture those savings, then the goals can be achieved. That is, the programs must be designed to convince customers who would not have taken the program-incented or recommended action in the absence of the program, to take that action in order to capture the net energy efficiency potential. The - EWR program plans developed by DTE Gas are similar to several previously-approved EWR Plans, as well as the types of programs implemented in other jurisdictions that are producing their expected savings. DTE Gas s EWR Plan is also consistent with industry standards and approaches for programs that capture NH -

153 N. HALL Line U- No. those savings. In addition, DTE s Gas programs are similar to the kinds of programs my company has seen in other states, and which we have evaluated. Also, in the past I have worked with the experts retained by DTE Gas who have helped design the DTE Gas programs. These are some of the leading experts in the field. They have worked with DTE Gas to design programs for the Company that focus on markets and gas technologies that have the potential to capture the planned savings. I have also reviewed the savings associated with the gas measures offered by DTE s programs and compared those to the Michigan Energy Measures Database (MEMD). I have examined MEMD s deemed technology-specific measures in DTE s / programs and I compared MEMD s per unit projected savings with the projected savings anticipated by DTE in their / program plans. I found that DTE s planned savings for the non-weather sensitive measures are consistent with the energy savings projected in MEMD. For the weather sensitive gas measures, the planned per-measure savings are also consistent with MEMD after the estimate is calibrated for DTE s weather and the expected results for the type of customers DTE serves. While DTE has minor differences in the expected savings compared to MEMD, these differences appear to be associated with the different types of businesses and their associated operating hours within the commercial and industrial markets within the DTE service territory with adjustments for the typical square footage of DTE s customer s facilities. That is, the projected savings that are being used by DTE for their / portfolio are consistent with MEMD s projected savings and where there are minor differences, they appear to be well developed to NH -

154 N. HALL Line U- No. more accurately reflect the typical type of DTE customers and their gas usage. In my opinion, the MEMD database savings projections are improved when they are adjusted to reflect a utility s service territory and its customer base. The MEMD database employees a well-engineered systematic approach for estimating the expected gross savings for each measure within the typical state-wide customer s facilities but are not designed to reflect the variances within items such as size and type of facility and their operating hours when those are different than the projections developed through MEMD. When the MEMD estimates are fine-tuned to a specific utility s customer conditions, such as their typical customer s facility size and type and hours of operation, and informed via the evaluation industry s experience and evaluation results, those estimates are improved. I support the use of the MEMD database for establishing non-weather dependent projected savings for a Michigan program or portfolio and I support using the MEMD database for the starting place for estimating weather dependent gas savings, which are then improved by employing utility-specific, customer profile-specific adjustments such as DTE has done with their projected savings. Q. Given the factors described in the previous Q&A, in your opinion, is DTE Gas s - EWR Plan capable of reaching their energy savings goals? A. Yes. If these programs are well implemented and managed, and focus on the gas savings objectives (measure installs), I fully expect the programs to be successful in reaching their objectives as long as the market is capable of supporting these energy efficiency initiatives and the economy allows those investments to proceed. As we have seen in the past, economic slumps and bumps can influence energy efficiency investments and constitutes the largest uncertainty to a program s success, if well NH -

155 N. HALL Line U- No. implemented. So, while I believe the programs are capable of reaching their goals, I cannot predict if the programs are capable of overcoming DTE Gas territory s current or future economic conditions that may impact program accomplishments. I am hopeful that the economy within the DTE Gas territory will continue to improve and that our industry s program managers will find creative ways to overcome any potential economic influences. Q. Are DTE Gas s evaluation contractors capable of conducting reliable studies of these programs? A. Yes. I have found that DTEs evaluation contractor is one of the leading evaluation firms in the United States and is very experienced in this field. I would have complete faith in their ability to independently, objectively and professionally conduct the evaluation efforts for this portfolio. This assessment is based on my experience: I have served as the Master Evaluation Contractor for eight years overseeing all evaluation efforts and research results in California and New York. And I have conducted a great many evaluations of similar programs via the efforts of my firm. I have also reviewed the past evaluations conducted for DTE. As founder of the International Energy Program Evaluation Conference (IEPEC), I have reviewed the methods and results of several hundred studies selected as the best in the field for publication, presentation and peer review at IEPEC. As an evaluation instructor for the IEPEC and for the AESP, I have taught evaluation methods to almost every evaluation firm in operation today. NH -

156 N. HALL Line U- No. Q. Are the evaluation approaches used for assessing the DTE Gas portfolio capable of providing reliable estimates of the programs savings achievements? A. Yes. DTE has employed the services of expert evaluation contractors who have followed the evaluation plans I have developed for DTE in the past and I expect that to continue in this cycle as well. These are reliable approaches that have served both the regulatory process and the evaluation planning and implementation process well. I have developed the evaluation plans for hundreds of program evaluations and have written the summary evaluation plans for DTE for the / cycle. I have also reviewed the results of these efforts during the past program cycles. In addition, recently our field has developed multiple sets of standard evaluation protocols and frameworks which now guide much of our industry s evaluation planning efforts. These protocols and frameworks provide guidance on how detailed evaluation plans should be constructed and conducted to provide objective and reliable gross and net energy savings estimates that meet today s more rigorous standards. These protocols were developed to assure transparency and quality within the evaluation process. I understand that DTE s evaluation contactors will continue to follow these protocols and frameworks in the detailed evaluation planning process and in the implementation of these studies. At this time there are two key evaluation protocols and an evaluation framework that help guide most all types of program evaluation efforts in the United States. These are the California Energy Efficiency Evaluation Protocols Technical Methodological and Reporting Requirements ( _0--0.pdf), and the United States Department of Energy (USDOE) Uniform Methods Evaluation Protocols ( In NH -

157 N. HALL Line U- No. addition to these protocols, the California Evaluation Framework ( provides guidance on evaluating specific types of programs and for assessing net energy savings. The California Evaluation Protocols and Framework focus on general analytical methods for programs serving the commercial, industrial and residential markets. The USDOE Uniform Methods Evaluation Protocols is a collection of guidance documents focused on technology-specific approaches for determining program impacts and provides for up-dated and advanced net to gross analysis approaches beyond those of the California documents. The California Protocols and Framework provide guidance on conducting process evaluations. Together these three documents serve as a guidance platform for the evaluation of DTE s portfolio of programs. These protocols cover all of the program-types being implemented in the up-coming DTE program cycle (-) including DTE s information and customer feed-back programs. To assure that the DTE portfolio will be evaluated in an objective and reliable way, the in-field evaluations should follow the gas technologies and program type approaches covered in these protocols. While some of these protocols have significant policy, administrative and reporting sections that do not apply to DTE s programs, the technical approaches covered in these protocols and frameworks do apply. The NTG assessment approaches employed by DTE s evaluation contractors should comply with the USDOE Uniform Methods Evaluation protocols for estimating net NH -

158 N. HALL Line U- No. energy impacts (Chapter ). Evaluation contractors should be free to select the specific gross impact assessment approaches that apply to their DTE evaluations; however, those approaches must be supported by one or more of these protocols and frameworks. In addition, the detailed evaluation planning efforts employed by DTE s evaluation contactors should justify its selection of their program-specific approaches to DTE and state why those approaches are objective and reliable and are in compliance with the field s evaluation standards exemplified within those protocols and frameworks. As the lead author of the California Evaluation Protocols and the California Evaluation Framework, and as the Technical Advisor for the USDOE Uniform Methods Protocols I have strong faith in their ability to guide DTE s evaluation contractor s in-field approaches for conducting the evaluations of the / program cycle. Q. What experience do you have conducting net to gross (NTG) analysis and with helping shape policy on the use of NTG ratios? A. I have spent considerable time developing the methods for, writing the protocols for, and conducting NTG analysis. To the best of my knowledge, I am the first evaluation professional to bring net-to-gross analysis to the energy program evaluation field in the late 0s for the USDOE, and the first to apply the results to programmatic assessments. I have been active in NTG analysis methods and approaches science we opened this field of evaluation in the 0s. I have been very active in improving our approaches over the last years. I have watched the approaches and the results of that analysis change over time, responding to program changes, market changes, NH -

159 N. HALL Line U- No. 0 as well as policy changes associated with the NTG assessment approach and the definitions that applied. I have personally tested the accuracy of the different approaches we developed for the California Evaluation Protocols. I have been personally involved with, and in several cases lead the development of the very definitions that our field uses for the components of NTG analysis. In my capacity as lead oversight contractor for New York for years and as my capacity as the Master Evaluation Contractor for California for years I have been personally responsible for reviewing and approving all NTG research approaches. In addition, as my role as the California Master Evaluation Contractor I was heavily involved in the development and review of the standard and enhanced NTG protocols for California. In addition, I have been personally responsible for our own studies and research approaches on how NTG values are set and the conditions that influence these values. I have also spent considerable time focusing on improving the evaluation approaches used to document NTG ratios. I have taken part in a number of national panels, discussions and webinars regarding this subject and have lead webinars on this subject for the USDOE and the IEPEC. I have also taught NTG analysis approaches to evaluation contractors enrolling in the IEPEC workshop programs. As the Master Evaluation Contractor for the State of California (0-), providing oversight for all evaluation studies, we focused considerable attention on NTG analysis issues. In addition, as the lead evaluation advisor in New York, we also spent considerable time focusing on NTG issues as they apply to New York. NTG analysis issues have also been a central issue for the evaluation of the President s ARRA (SEP and Block Grant) energy projects for which I personally developed the evaluation plans and overseen these studies for Oak Ridge NH -

160 N. HALL Line U- No. National Laboratory, the agency responsible for these analysis efforts via their evaluation contractor. In both the California and New York efforts, I reported directly to the state public utility commission staff (the California Public Utilities Commission in California and the Department of Public Service in New York (DPS). For the President s ARRA evaluations, I reported directly to Oak Ridge National Laboratory and to the United States Department of Energy management team. Q. Are NTG ratios across the country determined using consistent definitions and approaches? A. In most states, the definition used to specify net savings and the selection of the evaluation approach to quantify NTG ratios has an effect on the NTG values. This is important to note because when people look at the variance in NTG values across the country, they do not understand that those values are defined differently and the evaluation approaches used to establish NTG ratios may be different; thereby producing different values where the differences have little to do with the program or its impact in the market. For example, in California, for several years during which I was responsible for the oversight of all evaluation studies, the Commission approved the lowest-cost lowest-reliability NTG evaluation approaches to be used and the CPUC established the narrowest of all NTG definitions of which I am aware. These definitions meant that not all program-induced savings could be counted. Of course, the resulting NTG ratios were among the lowest ever reported from the evaluation field and are incomparable to other states that did not have such restrictive definitions. As the Master Evaluation Contractor for this study period, I do not think that the California studies provided accurate results of the total net savings achieved from the energy efficiency programs or the portfolio. Instead, they substantially NH -

161 N. HALL Line U- No. under-reported actual net savings as most other states would define net savings. Thus, the under-reporting of total net savings is a consequence of how net savings are defined in California and the use of the lower cost, less reliable evaluation approaches to evaluate net savings. I was the prime evaluation contractor over these programs and oversaw and approved all studies. I was also the lead evaluation contractor (Master Evaluation Contractor) responsible for redefining California s NTG approach in 0- which lead to more realistic and more accurate NTG study results when those standards were applied. Prior to these changes, in most all other states, net savings were defined differently than they were in California and, thus during this period, some of the non-california studies, which have a more complete definition, can be more reflective of actual net savings when the evaluations are structured to conduct full net savings analysis. In these other states that conducted more rigorous and more complete NTG analysis, such as in New York and Wisconsin, and in some of the more recent California studies, the NTG ratios are typically higher and often substantially larger than what is seen in, for example, California when I served as the Master Evaluation Contractor. Q. What do you consider a rigorous and more complete NTG analysis? A. Net savings should be exactly what it suggests it means; net of all other natural savings. Thus, a more complete analysis would include an analysis over time to assess the longer term effects of the program s influence on the participant and on the market as a whole, in addition to the short term components that we typically evaluate via a single program or portfolio evaluation studies. These of course include the assessment of the short term effects associated with free ridership and short-term NH -

162 N. HALL Line U- No. spillover and sometimes short term market effects. A more rigorous analysis would include participant interviews or surveys to assess original intent in the absence of the program and the degree to which those or associated actions are replicated by the participants. It would also include short term and longer term market effects assessments to determine how the market as a whole is reacting to the program or portfolio. The USDOE Uniform Methods Protocols specify the industry s current methods for assessing net savings and this protocol should be used by DTE s evaluation contractors. Q. What is the range of NTG ratio values being used in the states with which you are familiar? A. In the approaches and definitions used in California, where only partial net is counted, and where the analysis approach allows more uncertainty, NTG values typically ranged in the 0. to 0. range. However, in states that conduct more rigorous and more complete studies, the NTG values can typically be in the 0. to.0 range and often higher for some programs. In New York, for example, the New York State Research and Development Authority has documented typical NTG values at well over.0, and often between.0 to.0 when spillover and market effects are included. The same has occurred in the Pacific Northwest with the studies conducted by the Northwest Energy Efficiency Alliance. Both of these organizations typically conduct more rigorous market-based evaluations of net energy impacts. Again, it is important to understand these differences so that when we look at the NTG ratio in one state, we do not assume that that number should be used for similar programs targeting similar markets but located outside of that state. NH -

163 N. HALL Line U- No. Q. How are net savings identified? A. All states other than California, with which I am familiar, identify net savings in the following way: Net savings = (evaluation verified gross savings) (free rider savings) + (participant spillover savings) + (market effects savings). This definition allows for the counting of all savings achieved by the programs within a portfolio over time, and allows for the attribution of savings to the program that the program caused to occur, while not counting savings that would have been achieved without the program. Evaluations that are conducted based on this definition and in which the evaluations are funded to document effects for each of these definitional components can be expected to have NTG values near or greater than 0. for programs that have operated for only a few years, to well over.0 or.0 for programs that have had time more substantially impact the normal operations of the market and have a measurable market effect. Because of this, the commission in New York, for example, has established a deemed NTG value for all programs at 0.0 that still is effect today. This value is unchanged as a result of the review of eight years of evaluation results within New York, in which I served as the lead oversight contractor for those studies. This value is set for all gas measures until such time that the evaluation efforts determine it should change. The Commission staff in New York can then modify the net savings should that be required. Q. Can you share your professional opinion on the use of deemed NTG ratios and on the approach being taken by New York to use 0.0 as a deemed NTG ratio? A. As the lead evaluation advisor to New York I have advised the New York Commission (DPS) that the approach which their internal DPS staff established, and NH -

164 N. HALL Line U- No. that I described above, is a best practice approach because it sets a deemed value for utilities to use for program planning and it sets the value upon which performance toward the energy goals are based. More importantly, it sets the NTG at a level that is more likely to be documented in their more rigorous evaluation efforts which focus on reliably estimating net effects. That is, the 0.0 deemed NTG ratio is a more reliable number than what might be established if only California studies were used to set a number. Q. What deemed NTG value do you recommend for use in Michigan? A. Michigan has previously established a deemed NTG ratio for the last cycle of 0. for the gas measures in the portfolio of DTE programs. This number was based on my previous testimony and other expert opinions and evaluation reports. As I testified in the previous round, this number should be revised from time to time as the evaluations are completed and updated as necessary. Based on the past evaluation results for the portfolio, DTE should maintain the NTG ratio for gas measures at 0.. The gas measures should continue to stay at the current 0. level to reflect total NTG values as defined in Michigan which is to adjust for free ridership, spillover and market effects (market effects are not now included in the reported NTG values). This change would serve as the NTG set-points until the subsequent / evaluation findings and the evaluation field, in general, suggest a change is needed. I would suggest that at the end of the up-coming cycle evaluations include a component to more thoroughly examine the current and projected market effects of the DTE portfolio to determine if the NTG value of. should be increased or decreased. As noted in my testimony from previous cycles, NH -

165 N. HALL Line U- No. including submitted studies of market effects from programs in other jurisdictions similar to DTEs programs, market effects can be from an expected low of % of the direct achieved savings, to a level equal to or greater than the direct savings. At this time market effects values, which increase the NTG value, are not quantified or projected in the evaluations of the DTE programs. Thus it makes prudent sense to maintain the status quo for the gas measures deemed NTG values. Typically, market effects studies focus on how programs have changed the market s technology offerings and sales, and the pricing of energy efficient technologies in that market. These studies are significantly different than standard evaluation studies and are therefore funded separately from the standard evaluations of program or portfolio induced savings. The next round of evaluation studies can guide this potential change, however, I do not recommend using any single round of program evaluations to be used to change the deemed NTG values. Market conditions and program designs and offerings change often and these values can jump higher or lower during any given evaluation effort. Thus, in my view it is prudent to examine a number of program evaluations and compare those results to other studies in other jurisdictions before changing a deemed NTG value. That is, wait until we see a constant change that is higher or lower across multiple rounds of study before we adjust a deemed number established within the regulatory process. Q. When should this value be updated and applied to future programs? A. As I testified during the previous cycle, I would first make sure that from time to time the evaluation efforts focus an analysis effort on quantifying total net impacts for all, or at least a majority of the programs in the gas measures. In short, the NTG value should be adjusted every few program cycles, after evaluations show metric stability NH -

166 N. HALL Line U- No. and a trend, but only if the studies on which the adjustments are being based have been designed to support such an assessment. The market baseline for assessing net impacts from DTE s programs can be estimated via retrospective market research. Then the program/portfolio impacts on the market, and the changes caused in the market that impact adoption rates and penetration of energy efficient technologies should be reassessed every few program cycles, focusing on similar markets and market actors identified in the baseline research. Then I would let those programs run a few program cycles, until new evaluations can document that a change is needed. At that point, I would use those new studies to adjust the NTG value up or down as appropriate if they focus on the three key components of net energy savings (free riders, spillover, market effects). That is, I would make sure that the new NTG value is informed by new inputs for each component of the NTG definition. Program-specific evaluations quantify program specific impacts and are appropriate for obtaining part of the information needed to adjust a portfolio NTG value. Q. Does this complete your direct testimony? A. Yes, it does. NH -

167 JUDGE VanSTEEL: The Company's next witness is George R. Chapel. Mr. Chapel filed qualifications and direct testimony consisting of a cover page and ten pages of questions and answers. He sponsored Exhibits A-, A-, A-, and A-. The Company moves to bind in the direct testimony of Mr. Chapel and for the admission into evidence of Exhibits A- through A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct testimony of witness George Chapel is admitted into evidence as described, as well as Exhibits A-, A-, A-, and A- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

168 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF GEORGE H. CHAPEL

169 Line No. DTE GAS COMPANY QUALIFICATIONS OF GEORGE H. CHAPEL Q. What is your name, business address and by whom are you employed? A. My name is George H. Chapel. My business address is One Energy Plaza, Detroit, Michigan. I am employed by DTE Gas Company (DTE Gas or Company). Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas. Q. What is your educational background? A. In December, I earned a Bachelor of Science degree from Central Michigan University with a major in mathematics. In addition, I have attended numerous industry conferences focusing on natural gas demand forecasting, sharing knowledge and expertise with a nationwide range of industry peers. Q. What is your business experience? A. In April, I was hired by Michigan Gas Company (MiGas) as a Rates and Gas Supply Analyst where I performed various duties of increasing responsibility arising out of the regulation of MiGas as a public utility. In, the assets of MiGas were rolled in with those of affiliate Southeastern Michigan Gas Company and Battle Creek Gas Company. These companies were combined to form what is known today as SEMCO Energy Gas Company (SEMCO). My duties with SEMCO included demand forecasting, supply planning, supply purchasing, nominating, and pipeline capacity management. In May, I was hired by the Company as a Gas Supply Analyst. My duties in that capacity included supply purchasing and market analysis. In October 00, I 0 GHC-

170 G. H. CHAPEL Line U- No. was promoted to Manager, Gas Supply. I assumed my current position on January, 0. Q. What is your current position? A. My current position is Manager, Market Forecasting. Q. What are your responsibilities with DTE Gas as Manager, Market Forecasting? A. I am responsible for projecting the Company s rate schedule customer growth/decline, natural gas supply demand, as well as review and analysis of the natural gas market. Q. Have you previously provided testimony before the Michigan Public Service Commission (MPSC or Commission)? A. Yes. I sponsored testimony on behalf of SEMCO and its subsidiaries in a variety of cases before the Commission. These cases include two general rate cases, two Michigan Residential Conservation Surcharge cases, and several Gas Cost Reconciliation ( GCR ) Plan and Reconciliation proceedings. I have also provided testimony in numerous regulatory proceedings for DTE Gas including both GCR Plan and Reconciliation proceedings, as well as the Company s most recent general rate cases. My experience as a GCR witness began with SEMCO in 0 and has continued with little interruption to the present day for DTE Gas. GHC-

171 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF GEORGE H. CHAPEL Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to describe DTE Gas s natural gas sales market forecast for the Energy Waste Reduction (EWR) plan period of -. This testimony will lay out DTE Gas s demand forecast for - and show how that demand is changing over time. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibits: Exhibit Description A- Market Outlook Weather Normalized Sales by Rate Class A- Market Outlook - Projected Average Number of Customers A- Rate Schedule Historical Volume Normalization A- Imputed Supply Cost as a % of Total EUT Revenue Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. MARKET OUTLOOK Q. What is DTE Gas s natural gas sales forecast for the through planning period? A. For calendar year, I am forecasting pre-ewr program rate schedule sales volumes of 0, MMcf for DTE Gas s rate schedule sales customers (Exhibit A-, page of, column (e), line ). For calendar year, pre-ewr program rate GHC-

172 G. H. CHAPEL Line U- No. schedule sales volumes are projected to be, MMcf (Exhibit A-, page of, column (f), line ). Rate schedule sales customers include Gas Cost Recovery (GCR), Gas Customer Choice (GCC), and aggregate customers. I forecasted volumes for DTE Gas s End-User Transport (EUT) customers of, MMcf for (Exhibit A-, page of, column (e), line ) and 0, MMcf for (Exhibit A-, page of, column (f), line ). Q. What are DTE Gas s current assumptions concerning expected pre-ewr consumption from its rate schedule customers? A. In this plan, DTE Gas has assumed that normal pre-ewr customer consumption behavior will closely resemble that shown in the most recently completed -months ended July period (-months ended July ). Q. What are DTE Gas s projected targeted savings from the EWR program from through? A. On Exhibit A-, page of, line, I have projected cumulative demand reductions due to the EO program as follows:,0 MMcf in and,0 MMcf in. Note that these savings are cumulative through. Q. What is DTE Gas s forecasted sales including the targeted savings from the EWR program from through? A. Please see Exhibit A-, page of. For the rate schedule classes, the targeted savings from Exhibit A-, page of, line are allocated among the rate schedule GHC-

173 G. H. CHAPEL Line U- No. rate classes. Forecasted sales including the EWR targeted savings are identified by year and by rate class on lines through. For the EUT classes, the targeted savings from Exhibit A-, page of, line are allocated amongst all of the EUT classes. Forecasted sales including the EWR targeted savings are identified by year and by rate class on lines through. Q. What is your projection for average number of natural gas customers from through? A. As reflected on Exhibit A-, column (d), line, I project approximately. million total natural gas rate schedule customers (mean average) during. This number is expected to increase to approximately. million customers in, as shown in column (e), line. EUT IMPUTED SUPPLY COST Q. Why are you calculating imputed gas supply cost for EUT customers on Exhibit A-? A. Imputed gas supply cost percentage is used in calculating the volume savings targets for EUT. The percentage of.% on line of Exhibit A- is calculated based on imputed gas supply cost for EUT customers on line divided by total EUT revenues including gas supply cost on line. The imputed gas supply on line was calculated based on EUT sales volumes on line multiplied by the average cost of gas on line. GHC-

174 G. H. CHAPEL Line U- No. RESIDENTIAL SINGLE FAMILY RATE SCHEDULE SALES MARKET Q. How did you develop the forecast for the single family residential rate schedule sales market, including both GCR and GCC customers? A. Single family residential rate schedule customers are those customers identified as Rate A. There are two key elements used in projecting volumes in the residential rate schedule sales market. The first element is the forecast of the number of customers, by month, in the seven different geographical market areas that DTE Gas serves. DTE Gas s seven different service regions are as follows: Detroit/Ann Arbor, Grand Rapids, Muskegon, Traverse City, Alpena, Sault Ste. Marie, and Iron Mountain. The second element is an analysis of the usage per customer per heating degree day (HDD) at varying degrees of intensity. In this case, the Company is proposing to use a three-step linear model that was developed for all rate classes to forecast usage per HDD. The combination of customer count and three-step linear heat load factors for each respective market area yields the most accurate residential rate schedule sales market forecast. Q. What is a Heating Degree Day? A. A Heating Degree Day is a measure of how temperature relates to natural gas usage for heating purposes; HDDs give an indication of a customer s likelihood of turning on their furnace to heat their home or facility. Basically, the greater the number of HDDs, the greater the heating demand. Mathematically, HDDs are defined as the greater of A) zero, or B) average daily temperature (in degrees Fahrenheit). GHC-

175 G. H. CHAPEL Line U- No. For instance, if the daily high temperature is 0 degrees and the daily low temperature is degrees, then the daily average temperature is degrees. The HDDs for that day then, are: = 0 HDDs. If, on the other hand, the daily high temperature is 0 degrees and the daily low temperature is 0 degrees, then the daily average temperature is 0 degrees. The HDDs for that day then, are: 0, since 0 results in a negative value. Q. How did you develop the forecast of the number of residential customers, including both GCR and GCC? A. Monthly customer additions and losses in each of DTE Gas s seven service regions over a three-year period were analyzed to develop a trend factor for the number of residential customers. The historical data used is the actual monthly billing data for each of the approximately. million residential customers in DTE Gas s service territory. Residential customer growth and loss, by month, is then projected for each region and projected forward for five years to develop the demand forecast. The forecast also reflects marketing initiatives within the Company that are expected to add,00-,000 customers annually through. These marketing initiatives are offset by the expected reduction in customer count through due to Company efforts at locking and cutting & capping customers due to theft and non-payment. These locks and cuts & caps are expected to occur at a net level reduction of approximately,00 annually over the EWR plan period. MULTI-FAMILY RESIDENTIAL, COMMERCIAL, & INDUSTRIAL MARKETS Q. How did you develop the forecast for multi-family residential, commercial, and industrial markets, including GCR, GCC, and Aggregate customers? GHC-

176 G. H. CHAPEL Line U- No. A. The methodology used for forecasting volumes in the multi-family residential (Rate A), commercial (GS-, GS-), and industrial (GS-, GS-) rate schedule markets is essentially the same as that used for the single family residential market (Rate A). The process involves forecasting the number of customers for each year and calculating the average base load and usage per HDD per customer. As reflected on Exhibit A-, page of, line, with the inclusion of EWR targeted savings, I am projecting a decrease in multi-family residential, commercial, and industrial volumes from, MMcf in (column c) to, MMcf in (column e). WEATHER NORMAL PERIOD Q. What is weather normalization and how is it used? A. Weather normalization is a technique that estimates what usage would be from a prior period had normal weather occurred. It adjusts actual volumes from past periods to eliminate the impact of non-normal weather on the data during that time period. Weather normalized data is then used as a component to forecast future volumes. To calculate the forecasted volumes in this - EWR Plan, the Company used a -year historical weather-normalized period as a factor. Q. What -year period is DTE Gas using in this plan? A. DTE Gas is calculating -year weather based upon weather from what the Company experienced during the -year period, 0 to. Q. Why is DTE Gas proposing to utilize -year normal to project forecasted demand requirements in this case? A. Consistent with the Commission Order in Case No. U-, and the methodology GHC-

177 G. H. CHAPEL Line U- No. in Case No. U-, DTE Gas is utilizing -year weather for its normal weather period in all regulatory filings. Q. Why is the weather normalization period important? A. Weather is one of the primary determinants of natural gas demand. If the Company can project Heating Degree Days more accurately, then it can more accurately project demand on its system. Accurate projections lead to optimal planning, which in turn reduces the gas costs DTE Gas will need to recover from its customers. HISTORICAL YEAR WEATHER NORMALIZATION Q. How are historical years weather normalized? A. Please see Exhibit A-. This exhibit displays the weather normalization for rate schedule customers for January through July with forecasted volumes for the remainder of the year (page of ) and for normalized deliveries to EUT customers (page of ). Rate schedule normalization is done on this exhibit collectively for ) single family residential customers (residential) and for ) multi-family, commercial, and industrial customers (non-residential). The rate schedule normalization technique is the same for both residential and nonresidential. The monthly volumes are normalized by comparing actual HDDs experienced each month with normal HDDs each month. The forecast model is run for both actual weather and normal weather scenarios generating a variance in expected demand. Colder-than-normal weather creates a positive variance while warmer-than-normal weather creates a negative variance. The monthly variance is then subtracted from monthly booked volumes to arrive at normalized actual monthly GHC-

178 G. H. CHAPEL Line U- No. sales. Q. How did you arrive at the weather normalized consumption for DTE Gas s EUT customers? A. The normalized consumption for DTE Gas s EUT customers is summarized on Exhibit A-, page of, column (b). The weather normalized EUT volumes was actual billed consumption, adjusted for estimated normal weather. Q. Does this complete your direct testimony? A. Yes, it does. GHC-

179 0 MS. HAYDEN: The Company's last witness is Kenneth L. Slater. Mr. Slater filed qualifications and direct testimony consisting of a cover page plus pages of questions and answers. Mr. Slater sponsored Exhibits A-, A-, A-, A-, and A-. The Company moves to bind in the direct testimony of Mr. Slater, and for the admission into evidence of Exhibits A- through A-. JUDGE VanSTEEL: Any objection? Hearing no objection, the direct testimony of witness Kenneth L. Slater as described is admitted into evidence, as well as Exhibits A-, A-, A-, A-, and A- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

180 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own ) Motion, regarding the regulatory reviews ) Revisions, determinations, and/or approvals ) Case No. U- Necessary for DTE Gas Company to (Paperless e-file) Fully comply with Public Act of 0, ) as amended by Public Act of ) QUALIFICATIONS AND DIRECT TESTIMONY OF KENNETH L. SLATER

181 Line No. DTE GAS COMPANY QUALIFICATIONS OF KENNETH L. SLATER Q. What is your name, business address and by whom are you employed? A. My name is Kenneth L. Slater. My business address is One Energy Plaza, Detroit, Michigan. I am employed by DTE Energy Corporate Services, LLC, a subsidiary of DTE Energy Company (DTE Energy) within Regulatory Affairs as Manager of Revenue Requirements. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Gas Company (DTE Gas or the Company). Q. What is your educational background and business experience? A. I received a Bachelor of Science Degree in Business Administration, with a major in Accounting, from Lawrence Technological University in 0. In June 0, I joined Michigan Consolidated Gas Company (MichCon) and through August, I had several positions of increasing responsibilities within Regulatory Affairs. In September, I transferred to Gas Accounting as Supervisor, Michigan Gas Production Accounting with responsibilities for the recording of gas volumes and purchases from producers in Michigan. In September, I transferred back to Regulatory Affairs where I held several positions of increasing responsibilities. In July 0, I was promoted to Manager, Case Litigation within Regulatory Affairs with responsibility for the management of activities relative to MichCon s regulatory activities. In January, I was appointed to my current position. Q. What are your current duties and responsibilities? A. As Manager of Revenue Requirements within DTE Energy s Regulatory Affairs organization, I am responsible for revenue requirement studies, depreciation rate KLS -

182 K. L. SLATER Line U- No. studies, cost of service studies, as well as regulatory analysis and research for both DTE Electric Company and DTE Gas Company. Q. Have you previously sponsored testimony in cases before the Michigan Public Service Commission (MPSC or Commission)? A. Yes. I have sponsored testimony before the MPSC in a number of MichCon Gas Cost Recovery (GCR) factor and reconciliation cases regarding the forecasted and actual costs of transportation from MichCon s interstate pipeline transporters as well as the following cases: U- DTE Gas Energy Optimization Reconciliation U- DTE Electric Energy Optimization Reconciliation U- DTE Electric General Rate Case U- DTE Electric Reconciliation of its TRM U-0 DTE Electric REP Reconciliation U-0 DTE Gas Energy Optimization Reconciliation U-0 DTE Electric Energy Optimization Reconciliation U-00 DTE Electric Company s Reconciliation of its Transitional Reconciliation Mechanism associated with the Disposition of the City of Detroit Public Lighting System for the Period of January, through December, U- DTE Gas Company s application for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority U- DTE Electric Company for Reconciliation of its Transitional Reconciliation Mechanism associated with the Disposition of the KLS -

183 K. L. SLATER Line U- No. City of Detroit Public Lighting System for the Period of August, through December, U- Approval of a Refund Related to Self-Implementation of general service rates beginning November, and ending December, U- MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, through June 0, U- MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, through June 0, U- Approval of a Refund Related to Self-Implementation of general service rates beginning January, and ending June, U- MichCon s Application for Authority to Increase Its Rates and for Other Relief U- MichCon s 0 Income Sharing Calculation U- Complaint Case (Title Transfer Fees) KLS -

184 Line No. DTE GAS COMPANY DIRECT TESTIMONY OF KENNETH L. SLATER Q. What is the purpose of your testimony in this proceeding? A. My testimony in this proceeding calculates DTE Gas s Energy Waste Reduction (EWR) revenue requirements by customer class for the Company s - EWR Plan. Throughout my testimony, I will refer to this current plan as EWR, consistent with the change in legislation resulting from Public Act (PA ). References to previous surcharges and plan cases will be referred to as Energy Optimization (EO), consistent with the law in effect at the time from 0 Public Act (PA ). More specifically, my testimony covers the following: ) The calculation of the revenue requirement by customer class for through by using program costs provided by Company Witnesses Messrs. Randazzo and Kupser. This revenue requirement calculation includes the O&M expenses (program costs; pilot programs; education and awareness programs; low income programs; administration and infrastructure; and evaluation, measurement and verification (EM&V)), over/under recoveries for through, and carrying charges. The revenue requirement reflects zero return on and of capitalized costs in -. ) I will show that the total calculated revenue requirement for the periods through is $. million for residential customers, and $. million for commercial and industrial (C&I) and end-user transportation (EUT) customers. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am sponsoring the following exhibits: Exhibit Description A- Total Revenue Requirement Summary of All Classes KLS -

185 K. L. SLATER Line U- No. A- Total Revenue Requirement by Year A- Calculation of Low Income Percentage for the C&I/EUT Exploratory Program A- Calculation of EWR Surcharges A- Proposed EWR Surcharge Tariff Sheet Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. What are the components of the revenue requirement for DTE Gas s - EWR Plan? A. The annual revenue requirement for DTE Gas s - EWR Plan consists of the program costs that will be expensed in the defined program year (as well as pilot programs; education and awareness programs; low income programs; administrative and general expenses; and EM&V). Also included in the revenue requirement for this - EWR Plan are: () the actual over/under recovered cumulative EO balances as of December, ; and () the forecasted over/under recovered EO balances. DTE Gas is including the balance and over/under recoveries to minimize the EWR over/under recovery balance going forward. Q. Why did you not include the Return On and the Return Of capitalized program costs in your revenue requirement? A. As approved in DTE Gas s initial EO Plan, Case No. U-0 (First Approved EO Plan), certain program costs were capitalized and amortized over a five-year period. KLS -

186 K. L. SLATER Line U- No. DTE Gas discontinued capitalizing program costs in. As a result, the costs that were capitalized last were fully amortized by, therefore lines - of Exhibit A- reflect zero cost. Q. What are the December, EO over/under recovery balances? A. The December, EO over/under recovery balances are the differences between DTE Gas s EO surcharge revenues realized and actual EO costs incurred for 0 through inclusive of carrying charges through, for the respective customer classes. These amounts are the actual balances filed in DTE Gas s EO reconciliation filing, Case No. U-. Q. What is the forecasted EO over/under recovery balance? A. The EO over/under recovery balance is the difference between forecasted DTE Gas s EO surcharge revenues and EO costs anticipated to be incurred. Q. What information is displayed on Exhibit A-? A. Exhibit A- entitled Total Revenue Requirement Summary of All Classes presents a summary of the - EWR revenue requirement for the residential and C&I/EUT customer classes as calculated on Exhibit A-. Q. What information is displayed on Exhibit A-? A. Exhibit A- titled Total Revenue Requirement by Year is a two-page exhibit that presents the - EWR revenue requirement amounts for the residential and C&I/EUT customer classes. Page reflects the - EWR revenue requirement amounts for the residential customer class. Page reflects the - KLS -

187 K. L. SLATER Line U- No. EWR revenue requirement amounts for the C&I and EUT customer classes. The total EWR revenue requirement amounts (line of pages and ) are used on Exhibit A- to derive the levelized EWR surcharges for each customer class. The EWR revenue requirement amounts for the capitalized costs: Return On Capitalized Costs (line ) and Return Of Capitalized Costs (line ), reflect zero costs, as explained earlier in my testimony. Line reflects the EWR program costs to be expensed in the program year. The costs for the residential class are taken from Exhibit A-, supported by Witness Kupser. The costs for the C&I and EUT classes are taken from Exhibit A-, supported by Witness Randazzo. Line is the revenue requirement for both capitalized and expensed program costs. Line represents the actual cumulative EO over/under recovery balances as of December,. Line represents the EWR forecasted over/under recovery balances. Line represents estimated carrying charges on the amounts reflected on lines and. Line is the total EWR revenue requirement used on Exhibit A- to derive the new levelized EWR base surcharges. Q. Why are you including estimated carrying charges on line of Exhibit A-? A. The balances on line include carrying charges through. The amount on line is the forecasted over/under recovered amount for but does not reflect carrying charges for. Carrying charges will be accrued on these balances during. Since these balances are being rolled into the revenue requirements, carrying charges are being calculated to reflect an estimate of what will be incurred through the end of. KLS -

188 K. L. SLATER Line U- No. Q. How are the estimated carrying charges, shown on line of Exhibit A-, calculated? A. The estimated carrying charges on line are based on a full year s worth of accrued interest on the cumulative over/under recovery balances as of December, and a half of year of accrued interest on the forecasted over/under recovery. The calculation consists of line plus the simple average of line (line /) multiplied by the average short-term debt rate of.0%. The short-term debt rate was provided by DTE Energy s Treasury Department. The debt rate is the forecasted short-term debt rate for. Q. What information is displayed on Exhibit A-? A. Exhibit A- entitled Calculation of Low Income Percentage For the C&I/EUT Exploratory Program (EEP) derives the percentage of the C&I/EUT - EWR revenue requirement that represents low income programs. The EEP percentage calculated on line is used on Exhibit A- to derive the levelized EWR surcharge for participants in the EEP. Line reflects the low income EWR program costs expensed in the program year for C&I and EUT. The low income costs for the C&I/EUT customer class are taken from Exhibit A-, supported by Witness Randazzo. Line is equal to line. Line represents the total revenue requirement for C&I/EUT customers before any offsetting amounts for the cumulative over/under recovery balances or s projected over/under recovery amounts and comes from line of page of Exhibit A-. Line is the low income percentage of the total C&I/EUT revenue requirement, and is calculated by dividing line by line. Line is the EEP percentage used to derive the new EEP surcharge. KLS -

189 K. L. SLATER Line U- No. 0 Q. How does DTE Gas propose to recover its EWR Revenue Requirement? A. DTE Gas plans to assess levelized customer surcharges to recover the to EWR revenue requirement. The surcharges are designed to recover from each customer class the revenue requirement amounts associated with the EWR program for each respective customer class. These levelized surcharges are derived on Exhibit A-. Q. How were the customer surcharges on Exhibit A- derived? A. Consistent with the methodology used by DTE Gas in its Currently Approved EO Plan, the customer surcharges in this - EWR Plan were derived based on the revenue requirement amounts calculated on Exhibit A- and the forecasted billing determinants supported by Company Witness Mr. Chapel. I am calculating a two-year levelized rate. Column (b), lines through, represent the total revenue requirement for the respective periods for the two customer classes. Column (c), lines through, represent the total billing determinants, by customer class, for the respective time periods. For this two-year period, I then calculated the Net Present Value (NPV) of the total revenue requirement to be collected from each customer class, shown in column (d), on lines through, and of the corresponding billing determinants, shown in column (e). The C&I NPV revenue requirement on line column (d) reflects a reduction for the EUT revenue requirement amount on line. I will discuss the reason for this reduction later in my testimony. The levelized surcharges were calculated by dividing the NPV of total revenue requirement for each customer class by the NPV of the corresponding forecasted billing determinants. The resulting levelized surcharges, on a per Mcf basis, for each customer class are shown in column (f). KLS -

190 K. L. SLATER Line U- No. Q. How were the EUT and C&I NPV revenue requirements in column (d) on lines and of Exhibit A- derived? A. Company Witness Mr. Boladian directed me to keep the percentage rate change for the EUT and C&I rate classes equal. In order to accomplish this, I was required to simultaneously solve for the NPV revenue requirement for EUT and C&I. The NPV revenue requirement for EUT on line, column (d), is subtracted from the NPV of the total revenue requirement of the combined C&I / EUT class to get the NPV revenue requirement for C&I alone, shown on line, column (d). The resulting NPV numbers for each class produce surcharges that reflect an equal percentage change for both C&I and EUT customers from their currently effective base EO surcharges, as shown in column (j). Q. How was the surcharge on line of Exhibit A- for the proposed EEP surcharge calculated? A. As directed by Witness Boladian, I derived the EEP surcharge by multiplying the proposed EUT surcharge on line by the EEP (low income) percentage calculated on Exhibit A-. The resulting rate is listed on line of Exhibit A-. Q. What interest rate did you use to calculate the NPV of total revenue requirement and billing determinants on Exhibit A-? A. I used the following discount rates:.% () and.00% () to calculate the NPVs. These rates are based on DTE Gas s estimated short-term borrowing costs and were supplied to me by DTE Energy s Treasury Department. Q. What does the section under the title Levelized Revenue Requirement, on KLS -

191 K. L. SLATER Line U- No. lines through of Exhibit A- represent? A. Lines through represent the levelized revenue DTE Gas should collect based on the forecasted volume at the proposed levelized rates for through. These levelized revenue requirement amounts will be compared to actual billed EWR revenue for each customer class in the annual reconciliations. Q. What are the levelized surcharges DTE Gas is proposing to implement? A. As shown on Exhibit A-, column (f), DTE Gas is proposing that the Commission approve the levelized EWR surcharges of $0.0/Mcf for residential customers; C&I surcharges of $0./Mcf; EUT surcharges of $.00/Mcf, and EEP surcharges of $0.00/Mcf based on the revenue requirements presented in my testimony for each customer class. Column (g) shows these levelized surcharges converted to $/Ccf. Q. What are the amounts listed on columns (h), (i) and (j) of Exhibit A-? A. The amounts listed in column (h) are the Base EO Surcharges DTE Gas is currently allowed to collect, as approved by the Commission in Case No. U-, they do not include any performance incentive surcharges. The amounts listed in column (i) are the absolute change from currently approved base EO rates if the proposed EWR rates, shown in column (g), are approved. The amounts shown in column (j) are the percent change in the customer classes surcharges. Again, as instructed by Witness Boladian, column (j) reflects an equal percentage change for both C&I and EUT customers from their currently effective base EO surcharges. Q. What information is presented on Exhibit A-? KLS -

192 K. L. SLATER Line U- No. A. Exhibit A- is the tariff sheet that would be effective upon implementation of the proposed EWR surcharges. This tariff sheet shows the EWR surcharges that customers would begin to see on their actual bills after the proposed surcharges are implemented. As explained earlier in my testimony, these proposed EWR surcharges are calculated in column (g) of Exhibit A-. Consistent with prior Commission orders, I am proposing these surcharges be implemented on a bills rendered basis for all classes. Upon approval by the Commission of DTE Gas s proposed surcharges, the tariff sheet will be updated, if necessary. Q. Does this complete your direct testimony? A. Yes, it does. KLS -

193 MS. HAYDEN: That concludes the Company's proofs, your Honor. JUDGE VanSTEEL: Thank you. At this time Ms. Barbash-Riley, do you wish to address the proofs for the Natural Resources Defense Council? MS. BARBASH-RILEY: Yes, your Honor. Thank you. At this time on behalf of the Natural Resources Defense Council I move to bind into the record the corrected direct testimony of Chris Neme, which consists of a cover page, errata, a table of contents, and pages of questions and answers. I would also move to admit into evidence Exhibits NRD- through NRD-, which Mr. Neme sponsored and were prefiled with Mr. Neme's direct testimony. JUDGE VanSTEEL: Any objection? Hearing no objection, the corrected direct testimony of witness Chris Neme is admitted into evidence as described, as well as NRDC Exhibits,,,,,, and are admitted. MS. BARBASH-RILEY: Thank you. (Testimony bound in.) Metro Court Reporters, Inc..0.

194 STATE OF MICHIGAN MICHIGAN PUBLUC SERVICE COMMISSION In the matter on the Commission s own Case No. U- Motion, regarding the regulatory review, Revisions, determinations, and/or approvals ALJ Lauren G. Van Steel Necessary for DTE Gas Company to fully comply with Public Act of 0, as amended by Public Act of CORRECTED DIRECT TESTIMONY OF CHRIS NEME ON BEHALF OF THE NATURAL RESOURCES DEFENSE COUNCIL December,

195 ERRATA to the U- DIRECT TESTIMONY OF CHRIS NEME ON BEHALF OF THE NATURAL RESOURCES DEFENSE COUNCIL Page(s) Location Change Line electricity replaced with gas Line - replaced with - Line.00% electric replaced with 0.% gas Line electric replaced with gas Line electric replaced with gas Line electric replaced with gas Line electricity replaced with gas Line electric replaced with gas Line Table replaced with corrected Table Lines - (i.e.,.00% to.0% of electric sales) replaced with (i.e., 0.% to.00% of gas sales) - Line -Line I understand that NRDC witness Mellinger is suggesting in his testimony that DTE has overstated the lifetime savings of standard LED light bulbs. A modest downward adjustment to the lifetime electric savings targets in Table would be appropriate if the Commission agrees with his recommendations. Deleted Line The word gas added to sentence

196 Table of Contents I. Introductions and Qualifications... II. Testimony Overview... III. DTE s Shareholder Incentive Performance Metrics... IV. Education and Pilot Program Savings Assumptions... i

197 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of I. Introductions and Qualifications Q: Please state your name, employer and business address. A: My name is Chris Neme. I am a co-founder and Principal of Energy Futures Group, a consulting firm that provides specialized expertise on energy efficiency and renewable energy markets, programs and policies. My business address is P.O. Box, Hinesburg, VT 0. Q: Please describe your educational background. A: I received a Master of Public Policy ( MPP ) degree from the University of Michigan (Ann Arbor) in. That is a two-year, multi-disciplinary degree focused on applied economics, statistics and policy development. I also received a Bachelor s degree in Political Science from the University of Michigan (Ann Arbor) in. My first year of graduate school counted towards both my Masters and Bachelor s degrees. Q: Please summarize your business and professional experience. A: As a Principal in Energy Futures Group, I play major roles in a variety of energy efficiency consulting projects. Recent examples include: Representing NRDC in consultations with utilities and other parties in three Midwestern states Michigan, Illinois and Ohio on efficiency program and portfolio design, costeffectiveness screening, evaluation, shareholder incentive structures and other related topics; Serving as an appointed expert representative on the Ontario Energy Board s Evaluation and Audit Committee for natural gas demand-side management;

198 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of Serving on the Management Committee and leading strategic planning and program design for a team of firms, led by Applied Energy Group, that was hired by the New Jersey Board of Public Utilities to deliver the electric and gas utility-funded New Jersey Clean Energy Programs; Serving on a five-person national drafting committee for development of a new National Standard Practice Manual for cost-effectiveness screening of energy efficiency measures, programs and portfolios which was published in May ; Helping the National Association of Regulatory Utility Commissioners and the Michigan Public Service Commission staff assess the relative merits of alternative approaches to defining savings goals for utility efficiency programs (focusing on lifetime rather than just first year savings); Leading a project for the Northeast Energy Efficiency Partnerships (NEEP) to document lessons learned from utility and other efforts across the United States over the past years to use geographically targeted efficiency programs (sometimes in concert with other distributed resources) to cost-effectively defer capital investment in transmission and/or distribution system infrastructure; and Drafting policy reports for the Regulatory Assistance Project on a variety of energy efficiency and related regulatory policy issues, such as whether 0% electric savings is achievable in ten years, the history of efforts across the United States to use geographically targeted efficiency programs to cost-effectively defer transmission and distribution system investments, the history of bidding of efficiency resources into the PJM and New England capacity markets, and other topics.

199 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 0 Prior to co-founding Energy Futures Group in I worked for years for the Vermont Energy Investment Corporation ( VEIC ), the last as Director of its Consulting Division managing a group of 0 professionals with offices in three states. Most of our consulting work involved critically reviewing, developing and/or supporting the implementation of electric, gas, and multi-fuel energy efficiency programs for clients across North America and beyond. During my career in energy efficiency I have worked in numerous jurisdictions to develop or review energy efficiency potential studies, develop or review Technical Reference Manuals ( TRM ) of deemed savings assumptions (including the Ohio, Michigan and Illinois TRMs), support utility-stakeholder collaboratives (including those in Michigan, Illinois and most recently Ohio), negotiate or support development of efficiency program performance incentive mechanisms (including the current Michigan and Ontario mechanisms, as well as the mechanism included in recently passed Illinois legislation), and review or develop efficiency programs. All told, I have worked on these and/or other efficiency policy and program issues for clients in more than 0 states and provinces as well as parts of Europe. I have also led courses on efficiency program design, published widely on a range of efficiency topics and served on numerous national and regional efficiency committees, working groups and forums. A copy of my curriculum vitae is attached as Exhibit NRD-. Q: Have you previously filed expert witness testimony in other proceedings before the Commission? A: Yes. I filed testimony in the following Michigan Public Service Commission Dockets: U-, regarding Consumers Energy Company s proposed - energy efficiency programs (Energy Waste Reduction) plan;

200 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of U-, regarding Consumers Energy Company s proposed amendment to its energy efficiency programs (Energy Waste Reduction) plan; U- regarding DTE s proposed amendment to its energy efficiency programs (Energy Waste Reduction) plan; U- regarding Consumers Energy s estimates of energy efficiency potential in its assessment of alternatives to its proposal at the time to construct a new 00 MW gas-fired power plant (Thetford). U-, regarding Consumers Energy s proposed modifications to its - Energy Optimization plans; U-0, regarding DTE s proposed modifications to its - Energy Optimization plans; U-0, regarding Consumers Energy s biennial review and Amended Energy Optimization plan; and U-, regarding DTE s biennial review and Amended Energy Optimization plan; Q: Have you been an expert witness on energy efficiency matters before other regulatory commissions? A: Yes, I have filed expert witness testimony on more than other occasions before similar regulatory bodies in nine other states and provinces, including the neighboring jurisdictions of Ohio, Illinois and Ontario. Q: Are you sponsoring any exhibits?

201 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of A: Yes. Exhibit NRD- C. Neme CV Exhibit NRD- Exhibit NRD- Optimal Energy and Energy Futures Group, Final Report: Alternative Michigan Energy Savings Goals to Promote Longer Term Savings and Address Small Utility Challenges Discovery Response NRDC-.a Exhibit NRD- Exhibit NRD- Discovery Response NRDC-. with Attachment U--NRDC-. Discovery Response NRDC-.ci Exhibit NRD- Discovery Response NRDC-.a Exhibit NRD- Discovery Response NRDC-. with Attachment U-- NRDC-. Pilot List-Gas.xlsx.

202 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of II. Testimony Overview Q: What is the purpose of your testimony? A: My testimony addresses several aspects of DTE Gas Company s (DTE s) proposed - Energy Waste Reduction plan:. The Company s proposal to substantially increase the scope budget and savings of its efficiency program portfolio;. The Company s proposal to change its shareholder performance incentive mechanism from one with multiple performance metrics, of which lifetime savings was most important, to one with a single metric focused on first year savings;. DTE s assumption that both its portfolio-level education programs and its pilot programs will produce electricity gas savings at the same rate per dollar spent as the rest of its programs. Q: Please summarize your response to the first issue the Company s proposal to substantially expand its energy efficiency effort. A: The Company s proposal to significantly increase the energy savings from its energy efficiency program portfolio should be supported. While an increase in budget is necessary to acquire the increased savings, the benefits of the additional spending far outweigh the costs. Indeed, the Company is forecasting that its non-low income efficiency programs will provide nearly $ in benefits for every $ spent on gas efficiency. Exhibit A-.

203 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of Q: Please summarize your responses to and recommendations for each of the other issues you are addressing. I find each of the other Company proposals to be problematic. My summary responses to each are as follows: Shareholder incentive mechanism: The Company s proposal to shift from multiple performance metrics with a primary focus on lifetime savings to a single metric focused on just first year savings will create perverse incentives and undermine Michigan s longterm efficiency goals. The Commission should instead require that the Company () retain lifetime savings as its primary performance metric; and () include secondary metrics related to (a) comprehensive treatment of energy savings opportunities in low income single family homes and multi-family buildings, and (b) the level of savings from small businesses. Education and Pilot Program Savings Assumptions: DTE s assumption that its portfolio-level education and pilot programs are producing savings at the same rate, per dollar spent, as its other efficiency programs is not supported by any data or analysis, is extremely unlikely, and therefore is problematic if the Company intends to make the same assumption when claiming progress towards its statutory and shareholder incentive mechanism savings goals. The Commission should revisit its policy on this issue and allow only those savings that can be documented from pilot and general education programs through standard evaluation processes to count towards the Company s savings goals and shareholder incentive calculations. I discuss each of these issues in more detail in the following sections of my testimony.

204 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of III. DTE s Shareholder Incentive Performance Metrics Q: What is DTE s proposed shareholder incentive mechanism? A: DTE is proposing that its shareholder incentive be tied solely to the level of first year savings its efficiency program portfolio produces each year. The Company would earn an incentive equal to % of program spending if it achieved first year savings between 0.0% and 0.% of sales, an incentive equal to.% of program spending if it achieved first year savings between 0.% and.000% of sales, and a performance incentive equal to % of program spending if it achieved savings in excess.000% of sales., Q: How is that different from the Company s performance incentive structure in recent years? A: At a high level, it is different in at least three key ways from the performance incentive structure that was in place from through :. The Company s maximum shareholder incentive was historically equal to only % of its program spending; the Company is now proposing to increase the maximum to %;. The Company previously had six different performance metrics; the Company is now proposing only one metric; and Though I discuss the magnitude of the potential incentive in terms of percent of efficiency program spending, it is possible for it to be less than that because the law states that the incentive will be the lesser of () a percentage of program spending and () a percentage of the net present value of net benefits provided by those programs. For example, at the highest tier (i.e. at a level of savings exceeding.00% of sales), the incentive that can be earned is the lesser of % of program spending or 0% of economic net benefits. However, as discussed in more detail below, the magnitude of the economic net benefits the Company s programs are projected to produce suggests that the percent of budget will likely be the constraining factor. Exhibit A-.

205 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of. The Company s primary performance metric the one to which the largest portion of shareholder incentive was tied was the amount of lifetime savings its programs produce; the Company is now proposing to shift to a sole focus on first year savings (i.e., the amount of savings efficiency measures installed in a given year will produce during just their first year of operation making the number of years they would produce savings irrelevant); Q: What is your view regarding DTE s proposal to increase the maximum shareholder incentive from % to %? A: This change is clearly permitted by the new law, Public Act of (PA ). Further, the Company must achieve a higher level of performance than it has in the past in order to earn the full %. Thus, I think the Commission should accept it. Q: What is your view of DTE s proposal to replace multiple performance metrics with just one metric? A: Utility shareholder incentives should ideally be based on the policy objectives of a state. If the state has multiple policy objectives for efficiency programs particularly if some of those objectives compete with each other then the shareholder incentive structure should ideally have multiple performance objectives tied to those different objectives, encouraging the utility to effectively manage its efficiency programs to achieve each of the competing objectives. Given that there are compelling policy arguments for addressing the energy needs of low income customers and ensuring equitable treatment of all customers (including small businesses which are least likely to participate in business efficiency programs), it would be reasonable to have secondary performance metrics tied to these policy goals.

206 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of Q: What is your view of DTE s proposal to replace the lifetime savings with first year savings as the sole performance metric? A: I have significant concerns about this proposal. First year savings can be a poor indicator of the value of efficiency because it treats the savings from a measure that lasts one year or two years the same as savings from a measure that lasts or years. As a result, it can create perverse incentives for utilities to increase promotion of efficiency measures and/or programs that have relatively low costs per first year MCf saved even if they have relatively high costs per unit of lifetime savings and therefore less value to ratepayers. This point was made, with several concrete examples from past Michigan utilities efficiency program portfolios, in a report I coauthored several years ago for the National Association of Regulatory Utility Commissioners (NARUC) and the Michigan Public Service Commission staff. Put simply, DTE s proposal to revert back to just a first year savings metric, if adopted, would represent a significant step backwards for the Commission, the Company and its customers. Q: Has DTE attempted to address the concern that basing shareholder incentives solely on first year savings creates a perverse incentive to increase focus on savings that are relatively inexpensive per first year MCf saved but not very cost-competitive from a longer-term perspective? A: Yes. Mr. Boladian notes that the Company s proposed performance metrics are not based solely on first year savings because the magnitude of any financial incentive earned by the company can be constrained by the cost-effectiveness of its programs. He also notes that the Exhibit NRD-, Optimal Energy and Energy Futures Group, Final Report: Alternative Michigan Energy Savings Goals to Promote Longer Term Savings and Address Small Utility Challenges, prepared for the Michigan Public Service Commission, September,. (

207 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of cost-effectiveness test assigns value to the full life of the savings of the measures installed and therefore demonstrates the value provided to customers based on lifetime savings. Q: Does that address your concern? A: No. It is true that the magnitude of the Company s maximum shareholder incentive can theoretically be constrained by the cost-effectiveness of its programs. For example, at the highest level of performance the statute states that the maximum shareholder incentive will be equal to the lesser of (A) % of the utility s efficiency program spending; and (B) 0% of the economic net benefits those programs provide. However, the reality is that the magnitude of the shareholder incentive is likely to only be constrained by the first of those two possibilities: the amount of program spending. Put another way, cost-effectiveness is a constraint in name only. Q: Why is that? A: I estimate that DTE s program portfolio will provide approximately $ million per year in UCT net benefits. Thus, the economic net benefits cap is on the order of $. million. In contrast, with a total budget of $. million, the % spending cap is about $. million. Put another way, the portfolio cost-effectiveness would need to decline by more nearly 0% for the net benefits cap to be more constraining on the maximum shareholder incentive than the spending cap. That magnitude of reduction could not result from even very large shifts in emphasis away from longer-lived measures and towards shorter-lived savings. As a result, the Exhibit NRD-, Discovery Response NRDC-.a. Computed by multiplying residential sector, low income sector, commercial and industrial sector, pilot and education program budgets as shown in DTE Exhibit A- by their respective UCT benefit-cost ratios as shown in DTE Exhibit A-. EM&V and administrative costs also included in the calculation.

208 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of fact that lifetime savings are captured in cost-effectiveness analysis will have no bearing on the potential perverse incentive that basing performance incentives on first year savings creates. Q: Would it be easy to translate DTE s proposed first year savings metrics to lifetime savings metrics for -? A: Yes. Lifetime savings estimates can be easily extracted from the data and analyses that DTE has provided in this case. Based on those data and analyses, I have computed the lifetime savings that the Company would need to achieve to reach the minimum levels of savings required to earn a shareholder incentive (i.e., equivalent to.00% electric0.% gas first year savings) as well as the lifetime savings that the Company would need to earn the maximum shareholder incentive. Those values are presented in rows (f) and (h) in Table below. See Exhibit NRD-, Discovery Response NRDC-. with Attachment U--NRDC-. DTE Gas Lifetime Mcf.xlsx. Note that the lifetime savings values in this document were off by a factor of ten (i.e., expressed in Mcf when they were really in ccf) for all programs other than emerging measures, pilots, and education. The need for such adjustments is confirmed by a review of the Results Summary tabs in the C&I, Low Income and Residential files provided in response to NRDC-. Note also that the lifetime savings values suggested by this analysis are considerably lower than the. years suggested in DTE Exhibit A-. I use have used average measure life implied by the values in the DTE discovery responses because they are provided in a more detailed manner. If they are incorrect and the average life reported in DTE Exhibit A- is accurate, the. years value from Exhibit A- can be easily substituted into my Table to update the implied lifetime savings goals.

209 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of Table : Lifetime Savings Equivalents for Shareholder Incentives Source DTE Plan a st Year Savings (Mcf),,,, Exh A- b Avg Measure Life (Years).. (c) / (a) c Lifetime Savings (Mcf),,,, (b) * (a) d st Year Savings % of Sales.00%.00% [ (a) / (e) ] / 0 Savings at 0.% of Sales e st Year Savings (Mcf),,,, Exh A- f Lifetime Savings (Mcf),,0,0, (e) * (b) Savings at.00% of Sales g st Year Savings (Mcf),,,, (e) *. h Lifetime Savings (Mcf),,,, (g) * (b) Q: Why has DTE proposed reverting back to a first year savings metric? A: The Company has not offered a detailed explanation for this proposed change. It simply states that its proposal is consistent with the language of the new law, PA. Q: Would the language of the new law prohibit adoption of lifetime savings metric? A: I am not an attorney, so I cannot offer a legal opinion. However, my general understanding is that both the old law (PA ) and the new law (PA ) establish minimum savings requirements in terms of first year savings. Other than the fact that PA establishes three different incentive amounts for three different levels of savings, the language in both statutes regarding shareholder incentives is very similar. Under PA, the Commission approved performance incentive mechanisms for DTE in which first year savings requirements were translated into lifetime savings performance metrics for the purpose of determining the value of Direct Testimony of J.R. Boladian, pp. - and Exhibit A-.

210 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of shareholder incentives. It is not clear to me why the Commission would not have the same discretion under the new law Q: Are there other aspects of the PA s language regarding shareholder incentives that also require Commission interpretation in this case? A: Yes. As I just noted, the new law, PA, describes three tiers of shareholder incentive:. % of spending for achieving 0.0% to 0.% electric gas savings;..% of spending for achieving 0.% to.000% electric gas savings; and. % for achieving greater than.000% electric gas savings. DTE appears to be asking that the Commission make the incentives associated with those tiers a step function rather than a linear sliding scale. I suggest that a linear sliding scale would be more appropriate as it would eliminate a perverse incentive. For example, rather than making a utility indifferent between achieving 0.0% and 0.% electricity gas savings, as would be the case if a three-tiered incentive structure without a sliding scale were adopted, a sliding scale would give a utility an incentive to continuing improving its performance at every level of electric gas savings up to.00%. Q: Given the two major concerns you have raised in this section of your testimony () the significant advantage of making lifetime savings, rather than st year savings, the primary performance metric, and () the value of having a portion of shareholder incentives tied to For example, see U- DTE Exhibit A-, p. of (proposing base energy savings performance metric of Lifetime MWH of energy savings for exceeding yearly reduction of sales by.00% ) and the June, Commission Order approving the plan as modified through by a settlement agreement. Though the Company did state that it may consider the sliding scale approach I propose. Exhibit NRD-, Discovery Response NRDC-.ci.

211 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of other, secondary performance objectives how would you recommend structuring DTE s total shareholder incentive? A: I would recommend 0% of the shareholder incentive weight (i.e., a maximum incentive equal to % of efficiency program spending) be tied to performance relative to total portfolio lifetime savings. I would further recommend an additional % weight (i.e., a maximum incentive equal to % of program spending) be assigned to the number of low income housing units receiving comprehensive retrofits and an additional % weight (i.e., a maximum incentive equal to % of program spending) be assigned to the portion of business lifetime energy savings produced by small businesses. Note that the sum of my proposed weights is equal to %. By definition, the Company should not be permitted to earn more than 0% of a maximum portfolio incentive of % of program spending. Having the sum of the maximums that can be earned for each individual metric exceed 0% simply means that the Company would not have to achieve the maximum level of performance on every single metric in order to earn the maximum portfolio incentive. This provides some risk mitigation for the Company, allowing achievement of the maximum rewardable performance in some metrics to offset somewhat less than maximum performance on others. This is conceptually the same as the structure that was in place in recent years. As in the past, for each metric there should be a threshold level of performance at which the Company would begin to earn an incentive, a specific amount that the Company would earn for attaining that threshold ( threshold incentive ) and a maximum level of performance at which the maximum incentive would be earned. The incentive earned at any point between the

212 U- - December, CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of threshold level and the maximum level would be linearly interpolated between the threshold incentive and the maximum incentive. Q: What might that look like? A: Table shows what this might look like for the gas efficiency portfolio. Table : Conceptual Lay-Out of Gas Performance Incentive Structure Q: In Table you provide not only the metrics and suggested weights, but also specific performance levels for each metric. What is the basis for those performance levels? A: The specific performance levels in these tables were developed as follows: Lifetime Savings: These are based on the Company s own estimates of lifetime savings from its plan, adjusted down to the statutory st year performance targets (i.e.,.00% to.0% of electric salesi.e., 0.% to.00% of gas sales) as shown in Table of my testimony above. I understand that NRDC witness Mellinger is suggesting in his testimony that DTE has overstated the lifetime savings of standard LED light bulbs. A