P- STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES IN THE MATTER OF THE PETITION OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY FOR APPROVAL OF ITS ENERGY EFFICIENCY 01 PROGRAM AND RECOVERY OF ASSOCIATED COSTS ( EE 01 PROGRAM ) BPU Docket No. EO01 PUBLIC SERVICE ELECTRIC AND GAS COMPANY REBUTTAL TESTIMONY OF ISAAC GABEL-FRANK SR. ASSOCIATE GABEL ASSOCIATES, INC. JUNE, 01
TABLE OF CONTENTS I. INTRODUCTION...- 1 - II. PURPOSE OF THIS TESTIMONY...- - III. SUMMARY OF CONCLUSIONS...- - IV. RESPONSE TO DR. HAUSMAN S DIRECT TESTIMONY...- - V. CONCLUSIONS...- -
PUBLIC SERVICE ELECTRIC AND GAS COMPANY REBUTTAL TESTIMONY OF ISAAC GABEL-FRANK I. INTRODUCTION Q. Please state your name and business address. A. My name is Isaac Gabel-Frank and my business address is 1 Denison Street, Highland Park, New Jersey, 00. I am presently employed as a Senior Associate at Gabel Associates, Inc., an energy, environmental, and public utility consulting firm. 1 1 1 1 1 1 1 1 0 1 Q. Please summarize your professional experience and educational background. A. As a Senior Associate at Gabel Associates, Inc., I perform specialized economic, financial, tariff, regulatory, and marketplace analysis for various energy projects including energy efficiency, renewable energy, cogeneration, and traditional generation sources. This comprehensive analysis takes into account all critical cost/benefit factors and is designed to quantify the economic outcome of customized projects to support investment decisions. Through this work, I also closely monitor the electricity, natural gas, and renewable markets and offer tailored insights in that regard. Since beginning work at Gabel Associates, Inc. in 00, I have evaluated a myriad of projects for both public and private clients and assisted in the analysis, development, and implementation process for all types of technologies and contractual arrangements. This includes the development of proprietary models that evaluate the viability of projects in the near term, as well as long term forecasts based on market signals and industry knowledge. - 1 -
I use my knowledge of wholesale electricity and natural gas markets, paired with my experience working with retail tariffs to deliver in-depth market forecasts which are used to assess and undertake project investment decisions. I am also versed on regional transmission organizations (RTOs) including the offering of energy efficiency, demand response, renewable, and traditional generation resources into the PJM market, and was a lead contributor in the development of a proprietary statistical model that computes the exposure of capacity resources within the PJM and ISO-New England footprints. I received my education from the University of Pittsburgh where I received a BA in Economics, Political Science, and English Writing. Further work experience can be found in my resume provided in the attached Schedule IGF-EE1-1. 1 1 1 1 1 1 1 1 0 Q. What experience do you have in evaluating project costs and benefits? A. I have completed numerous cost-benefit analyses for federal agencies at locations throughout the United States, as a well as a multitude of counties, municipalities, and school districts within the State of New Jersey. These projects range in type and size and represent an array of different technologies and configurations which have prepared me to undertake the cost-benefit analysis for the 01 EE Program filing. Having performed this analysis for a multitude of projects with varying degrees of complexity, I am extremely familiar with the process and methodology to formulate an objective and balanced cost-benefit study. - -
Q. Did you prepare the cost-benefit analysis included in the filing? A. Yes. I prepared the cost-benefit analysis which includes the five tests laid out in the Minimum Filing Requirements, including the Total Resource Cost (TRC) test, the Participant Cost (PC) test, the Program Administrator Cost (PAC) test, the Ratepayer Impact Measure (RIM) test, and the Societal Cost (SC) test. 1 1 II. PURPOSE OF THIS TESTIMONY Q. Please describe the purpose of this rebuttal testimony. A. I will review the adjustments to the cost-benefit analysis proposed by Rate Counsel witness Dr. Hausman (Direct Testimony of Ezra D. Hausman, Ph.D. On Behalf of The State of New Jersey Division of Rate Counsel), assess whether his proposed adjustments are reasonable, and present adjusted cost-benefit ratios for the five tests required for review by the Board of Public Utilities ( the Board ) Minimum Filing Requirements. 1 1 1 1 1 1 0 III. SUMMARY OF CONCLUSIONS Q. Please summarize your conclusions. A. Dr. Hausman recommended three adjustments to the cost-benefit analysis presented in the filing. For the reasons stated below, I have accepted two of the adjustments: a) recognizing the value of incentives in the TRC test and the SC test; and b) recognizing the present value of repayments in the TRC test, SC test, PAC test, and the RIM test. 1 I do not recommend the Board accept his other recommended adjustment related to the calculation of the RIM test. In particular, Dr. Hausman substantially understates the result because he includes on the program cost side of the ledger the full retail electric - -
benefit to the participating customer, including BGS and BGSS charges, instead of only including the value of lost utility distribution revenues. This error inappropriately adds over $0 million of costs into the calculation, skewing the cost-benefit result down. Q. Based on these adjustments can you provide a revised cost-benefit schedule? A. Yes. The revised cost-benefit table is provided as the attached schedule IGF-EE1-. Q. What do you conclude from these revised results? A. While the results have changed from those provided in the filing, they do not impact the overall viability and reasonableness of the proposed sub-programs. Specifically, the Board and Rate Counsel have recognized (as does Dr. Hausman) that each sub-program does not have to achieve a cost-benefit ratio above 1.0 on every test for a program filing to be reasonable and acceptable to the Board. 1 1 1 1 1 1 1 1 0 1 The revised results indicate that in aggregate, the EE 01 Program achieves a costbenefit ratio of at least 1.0 for each of the five tests required by the Minimum Filing Requirements. Individually, on the sub-program level, 1 of the tests (five test categories for five separate sub-programs) achieve a cost-benefit ratio of at least 1.0, with many greatly exceeding that level. In particular, because of PSE&G s decision to only collect a portion of the foregone distribution contributions prior to January 1, 0, the RIM test, which, according to Dr. Hausman s testimony on page lines -, measures the impact of energy efficiency programs on ratepayers as a whole, results in an aggregate EE 01 Program cost-benefit ratio of 1.0, meaning non-participant ratepayers are receiving benefits roughly equal to the costs of the sub-programs combined. - -
Overall, the EE 01 Program cost-benefit results represent reasonable energy efficiency program scores for customers, and the State of New Jersey as a whole. IV. RESPONSE TO DR. HAUSMAN S DIRECT TESTIMONY 1 1 1 1 1 1 Q. Beginning on page 1, line, Dr. Hausman states that the formula used to calculate the TRC test in the EE 01 Program filing was incorrect, and should include the present value of incentives accrued by participants as a component of the costs. Do you agree that the present value of incentives should be included as a component of the costs used to calculate the TRC test? A. Yes. When preparing the cost-benefit analysis for the EE 01 Program filing, I had excluded the present value of incentives from the TRC because it was excluded from the Rutgers Center for Energy, Economic & Environmental Policy (CEEEP) analysis performed in the previous PSE&G filing. Given that CEEEP has been an advisor to the Board, and supported the cost-benefit study in the last proceeding, for purposes of consistency, I maintained that approach. Dr. Hausman subsequently provided a discovery response from the last proceeding in which the present value of incentives were included, an adjustment made by CEEEP with which I agree, as it captures a cost element of the proposed sub-programs. 1 1 0 1 Therefore, line of schedule MCM-EE1-, entitled: Lifetime Program Investment Costs, has been adjusted to include the present value of incentives, calculated as the difference between each sub-program s Program Investment (calculated on the Monthly Pro-Forma tab) and the present value of repayments by participants (found on line of MCM-EE1-, entitled: Lifetime Participant Costs ). - -
Based on this change, the TRC test values of the sub-programs are represented in the following chart, and are consistent with those provided on page below line 1 of the Direct Testimony of Dr. Hausman. Multifamily Direct Install Hosp & Health Smart Tstat Data Analytics 0. 0. 0. 1. 1. Similarly, I updated the SC test to include the present value of incentives and the results, consistent with those provided on page line of the Direct Testimony of Dr. Hausman, are contained in the chart below. 1 1 1 1 1 1 1 1 0 1 Multifamily Direct Install Hosp & Health Smart Tstat Data Analytics 1.1 1. 1.0. 1. Q. On page, line -, Dr. Hausman states that in calculating the present value of incentives (as used in the TRC test, the PAC, and other tests) PSE&G, erroneously netted out of its own payments any amount that would be repaid by the participant, but at a later date. This introduces an error into the cost calculation because it ignores the time value of money. Do you agree that the time value of money should be accounted for in the calculation of the present value of incentives to participants? A. Yes. In the TRC test, program investments should be included as a cost component in the calculation of the TRC. Because the present value of repayments by participants is already accounted for (on line of MCM-EE1-), the balance must be included, which is the difference between each sub-program s Program Investment (as found on the Monthly Pro Forma tab) and the present value of repayments by participants. This, by definition, is the present value of incentives. This formula may also be used for the PAC test, the RIM test, and the SC test. - -
Therefore, the PAC test calculation has been adjusted to account for the time value of money. The following chart displays the updated sub-program results, consistent with those provided on page below line of the Direct Testimony of Dr. Hausman. Multifamily Direct Install Hosp & Health Smart Tstat Data Analytics 1. 1.1 1.0. 1. 1 1 1 1 1 1 1 1 0 1 Q. Beginning on page, line, Dr. Hausman states that the RIM test as calculated in the EE 01 Program filing omits any estimate of the vast bulk of forgone revenues. Dr. Hausman also offered corrected RIM calculations by removing the Lifetime Utility Cost (line of MCM-EE1-) and adding Lifetime Participant Benefits (line of MCM-EE1-). Do you agree that the analysis omits any estimate of the vast bulk of foregone revenues and if so, do you agree with the methodology proposed by Dr. Hausman? A. No. The calculations proposed by Dr. Hausman incorrectly incorporate Lifetime Participant Benefits into the RIM test, which represent the present value of bill reductions at retail for participants, inclusive of not only distribution costs, but also BGS and BGSS supply charges. These other elements do not represent components of the foregone distribution contribution, are not recovered from other ratepayers, and should not be included in the calculation. Dr. Hausman s use of the Lifetime Participant Benefits in this context, that is, including these other tariff charges which are not borne by other ratepayers as the result of the program energy reductions and are not related to distribution revenues, greatly overvalues the level of foregone distribution revenues for each of the sub-programs, and thereby inappropriately reduces the results of the RIM test. To put the mistake into context, the Lifetime Participant Benefits, used by Dr. Hausman to perform the RIM test is $ million over the lifetime of the five sub- - -
programs, while the total foregone distribution contributions are estimated at a present value of approximately $ million (consisting of $. million before January 1, 0, and $1. million thereafter), an overestimation by Dr. Hausman of over $0 million. Q. Can you provide a recalculation of the RIM test, correcting for this error? A. Yes. The following chart provides the RIM test results, correcting for this error and recognizing lost distribution revenues for the study period. 1 1 1 Multifamily Direct Install Hosp & Health Smart Tstat Data Analytics 0. 0. 0. 1. 0. These results do not match those proposed by Dr. Hausman, but more accurately reflect the timing and value of foregone distribution contributions. The fact that some of these results are slightly below 1.0 is not troubling, because, and as stated by Dr. Hausman on page, lines 1-1 of his testimony, energy efficiency measures generally do not have benefit/cost rations greater than 1 under this (RIM) test. Therefore, the results of the RIM test are appropriate for a successful and generally approved program. 1 V. CONCLUSIONS 1 1 1 1 0 Q. Can you provide an amended schedule of the cost-benefit test results based upon the above recommendations? A. Yes. An updated version of the schedule MCM-EE1- summarizing all the cost-benefit test results, for each sub-program, is provided as in the attached schedule IGF-EE1-. - -
Q. Do you believe that the updates to the cost-benefit tests provided in attached schedule IGF-EE1- have reasonably amended the cost-benefit tests to properly assess the costs, benefits, and economic merit of the 01 EE Program filing? A. Yes. Based upon my review and adjustment of the Direct Testimony of Dr. Hausman and the California Standard Practice Manual (CPSM), I believe the test results now offer a clear and accurate assessment of each of the sub-programs, as well as the overall EE 01 Program in general. 1 1 1 1 1 Q. Is there precedent for programs with cost-benefit test ratios below 1.0 being accepted by the Board? A. Yes. While more recent data is not available, a review of the Cost-Benefit Analysis of the New Jersey Clean Energy Program Energy Efficiency Programs: 0 Retrospective & 01 Prospective Summary Report produced in October 01 by CEEEP 1 for the Board illustrates numerous programs that have cost-benefit ratios below 1.0. In fact, of the thirteen programs referenced in the CEEEP report of 01, eight were calculated to have a TRC ratio below 1.0. The relevant pages of the 01 CEEEP report (pages and ) are provided in the attached schedule IGF-EE1-. 1 1 1 Individual TRC cost-benefit ratios, and for that matter, any cost-benefit score for any of the five cost-benefit tests, that is below 1.0 does not preclude approval of an energy efficiency filing. 0 1 Q. How should the Board and Rate Counsel evaluate the EE 01 Program in light of these updates? A. The submission of the EE 01 Program filing offers PSE&G ratepayers multiple options to participate in programs that will reduce energy consumption, provide monetary 1 http://www.njcleanenergy.com/files/file/library/market%0research/0-cost-benefit-analysis-of-the-njcep- Energy-Efficiency-Programs---1.pdf - -
savings, and improve the regional environment. It is not necessary for each sub-program to score above 1.0 in every cost-benefit test for a program to be acceptable to the Board. This principle is recognized by Dr. Hausman as well as in the Board s acceptance of programs offered by its own Office of Clean Energy. Additionally, the EE 01 Program can also be evaluated in totality, as a portfolio, rather than only as individual sub-programs. This perspective would be analogous to the testimony provided by Dr. Hausman, where he states: 1 1 eliminating the more marginal measures runs the risk of so-called cherrypicking, i.e., of missing one-time opportunities to install numerous energysaving measures that are only available under the Company s whole-building or whole-facility approach. A well-designed EE program can reasonably include such measures as long as the overall program is cost-effective and provides net benefits for ratepayers and for the State. Page 1 lines 1-1. 1 1 1 1 1 1 0 1 Reviewing the EE 01 Program filing as five separate sub-programs runs the risk of cherry-picking the programs that provide the greatest benefit, while overlooking the opportunity to achieve additional benefits that may not otherwise be realized. When evaluating the EE 01 Program as a portfolio, each of the cost-benefit tests achieves a ratio of at least 1.0, with many greatly exceeding that value. The chart below summarizes the scores for each of the cost-benefit tests for the EE 01 Program filing as a whole, which is also summarized in the attached schedule IGF-EE1-. Total Resource Cost Test (TRC) Participant Cost Test (PCT) Program Administrator Cost Test (PAC) Ratepayer Impact Measure Test (RIM) Societal Cost Test (SCT) 1.0.1 1. 1.0 1. - -
1 1 1 1 Q. Based upon the above, do you believe these programs offer benefits to ratepayers and should be approved? A. Yes. The updated cost-benefit ratios, adjusted in accord with the above discussions, and represented in the attached schedule IGF-EE1-, show that the EE 01 Program provides various levels of benefits to participants, ratepayers, and residents of the State of New Jersey, as well as to the overall energy efficiency marketplace and New Jersey in general. Based on the EE 01 Program filing and the analysis provided in WP-MCM- EE1-1 (and attachment schedule IGF-EE1-), the PSE&G Energy Efficiency 01 sub-programs offer greater than $ million in present value wholesale cost reduction benefits to ratepayers, more than $ million in present value avoided retail purchases for participants, and greater than $0 million in present value emissions savings to residents of the region. These estimates do not include the additional benefits from job creation, the value of multiplier effects from stimulating the market growth of energy efficiency in the State of New Jersey, or the hedge benefits of avoiding fuel cost volatility. 1 1 1 Q. Does this conclude your testimony? A. Yes. However, I reserve the right to update this testimony to account for additional information I may receive. Thank you. - -
Overview of Experience Isaac Gabel-Frank, Senior Associate at Gabel Associates, has over years of experience supporting complex energy issues related to cost-benefit analysis, energy project development, economic and tariff analysis, electric vehicles, regional transmission organizations (RTOs), and energy procurement. Mr. Gabel-Frank is an expert on cost-benefit analytics and has supported a multitude of clients in quantifying cost and benefit dynamics related to the economic impact of energy projects. This includes past and present work for Federal agencies, state and local governments, school districts, and private sector clients on energy efficiency, renewable energy, cogeneration, and traditional generation projects. Mr. Gabel-Frank also performs sensitivity analyses to help identify risk boundaries and market deviations. These analyses are critical to investment decisions as it allows clients to understand the full value proposition associated with energy initiatives. Schedule EE1-1 Isaac Gabel-Frank Senior Associate Professional Qualifications BA., Economics, Political Science, English Writing University of Pittsburgh, 00 Mr. Gabel-Frank has also performed in-depth project valuation and levelized cost of energy studies to support proposed asset transactions. Mr. Gabel-Frank also assists in the development of numerous renewable and energy efficiency projects including in-depth economic, technical, and utility tariff analysis, which incorporates long-term utility and energy forecasts. He has developed various tariff models from the ground up, which are customized to reflect the specific parameters of each project. He is also skilled at calculating energy savings associated with various project structures. As a result of his strong analytical skill set, Mr. Gabel-Frank has served an integral role on various solar projects throughout the region. He supports solar projects through the request for proposal (RFP) process as well as reviews utility tariffs and performs cost/benefit analysis. He is also knowledgeable on the solar renewable energy certificate (SREC) market. He is experienced with and has specialized knowledge of demand response programs and can effectively support clients in evaluating this revenue opportunity. Mr. Gabel-Frank also developed a model that calculates energy savings and potential rebates associated with energy efficiency projects. In addition, he is extremely knowledgeable on RTO issues and actively monitors activities related to energy and capacity markets, energy efficiency, demand response, ancillary services, interconnection, and general grid issues. Mr. Gabel-Frank helps clients formulate and strategize positions on current PJM rules as well as provides analysis on potential market changes. This includes development of offer and bid strategies for energy efficiency, demand response, renewable, and traditional generation resources into the PJM market. He was a key contributor in the development of the Analytical Likelihood of Availability and Non-Performance Risk (ALAN) model, a proprietary stochastic modeling tool that computes the exposure of capacity resources within the PJM and ISO-NE footprints. ALAN uses resource outage data as well expected performance assessment event information to determine the probabilistic coincidence of outages and performance assessment events. Gabel Associates, Inc. www.gabelassociates.com
Schedule EE1- Results Smart Multifamily Direct Install Hosp & Health Thermostat Data Analytics All Programs Total Resource Cost Test (TRC) 1 Lifetime Avoided Supply Costs PV of bill reduction at wholesale $ 1,, $,1, $ 1,,00 $,0,0 $,0, $,1,1 Lifetime Capacity Costs PV of peak electric capacity cost $ 0,0 $ 1,0, $ 1,,0 $ 1,, $, $,0, Lifetime Avoided T&D Costs PV of avoided T&D $ 1, $, $, $, $, $,, Total Benefit 1++ $ 1,,1 $ 1,,0 $ 1,0, $,0, $,,1 $,, Lifetime Participant Costs PV of repayments by participants $,0, $,,1 $,, $,,1 $ - $ 1,, Lifetime Administration Costs PV of admin costs $,,0 $,, $ 1,0,1 $,1, $ 1,, $ 1,,0 Lifetime Program Investment Costs PV of incentives $,, $,, $ 1,00, $,, $,, $,,1 Total Costs ++ $ 0,,1 $ 1,, $,1,0 $ 1,0, $,0, $,, Benefit-Cost Ratio (1++)/(++) 0. 0. 0. 1. 1. 1.0 Participant Cost Test (PCT) Lifetime Participant Benefits PV of bill reduction at retail $,1,0 $,0, $,,01 $,, $,,0 $,1, Benefit-Cost Ratio /.0...0 n/a.1 Program Administrator Cost Test (PAC) Lifetime Program Incentive Costs Benefit-Cost Ratio (1++)/(+) 1. 1.1 1.0. 1. 1. Ratepayer Impact Measure Test (RIM) Lifetime Utility Revenue Gained $ - $ - $ - $ - $ - $ - Lifetime Utility Cost PV of bill reduction at retail (for T&D costs only) $,1,0 $,00,1 $,1, $,0,1 $ 1,, $,, Benefit-Cost Ratio (1+++)/(++) 0. 0. 0. 1. 0. 1.0 Societal Cost Test (SCT) Lifeteime Emission Savings PV of CO ₂ + Nox + SO ₂ emissions savings $,,0 $,,1 $,1, $,1,1 $,, $ 0,, Benefit-Cost Ratio (1+++)/(++) 1.1 1. 1.0. 1. 1.
Schedule EE1-
Schedule EE1-