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martin@gmpvt.com
September 12, 2007
VIA EMAIL
Susan Hudson, Clerk
Vermont Public Service Board
112 State Street, Drawer 20
Montpelier, Vt 05602
RE: Energy Efficiency Utility (“EEU”) Structure Working Group
Dear Ms. Hudson:
Included are Green Mountain Power’s (“GMP”) comments in response to the second
meeting of the EEU Structure Working Group on August 31, 2007. At that meeting
attendees agreed to circulate via email comments regarding the EEU structure that
they recommend be implemented or to describe an EEU structure that the working
group should consider. Since most of the working group’s time and effort to date
have centered on how best to structure a franchise (monopoly) for the EEU, GMP’s
comments will focus on providing a 10-year long term contract to the EEU.
Although we are not prepared to provide our final recommendation at this time on
EEU structure, we do believe it worthwhile to discuss reasonable alternatives to the
franchise concept as the best means to end up with an EEU structure that
optimizes value for customers.
GMP believes that the current EEU structure, principally consisting of a three-year
contract with the Public Service Board (“PSB”, “Board”) with an option of an
additional three years, has served the State very well to date, despite certain
limitations. The current contract structure’s principal strength is its recognition
that delivery of energy efficiency is a competitive service. As the DPS has pointed
out, the characteristics of a natural monopoly or essential service do not exist in
this market. Encouraging competition among potential suppliers helps ensure that
services are delivered efficiently, at lowest cost, and with the highest customer
satisfaction. Other strengths of the current structure include contract provisions
that are designed to be performance-based. The contract model provides the Board,
the DPS and other stakeholders with an opportunity to focus on EEU performance
on an on-going basis. These reasons contribute to our thoughts that the Board
should continue to consider the alternative of modifications to the current structure
and look at the relative strengths and weaknesses of more than one approach to
assist decision making and increase the likelihood of ending up with an optimal
design regardless of what final EEU structure is adopted.
The Board’s July 13, 2007 memorandum and August 14, 2007 Revised Task
Statement identified several weaknesses in the current structure. A 10-year long
term contract mollifies all problematic aspects raised by the group regarding a
three-year contract:
1. The current contract cycle may not provide adequate incentives to promote
competitive bidding for the EEU contract. The fact that only two providers
have bid on the EEU contract suggests that the contract model is not
optimally designed to encourage competitive suppliers to participate in the
contract bidding process. Assuming that the State wants to cover all
reasonably achievable cost effective efficiency potential then by changing to a
10-year contract GMP estimates that the contract value will be in excess of
$500 Million. This assuredly will pique more interest in potential providers of
energy efficiency that will in turn provide better value to the citizens of
Vermont.
2. The current contract cycle does not permit the EEU to optimize planning,
programming and commitments that could benefit Vermont electric
consumers. Again, a long term contract allows for planning well into the
future.
3. The current contract cycle has presented challenges in evaluating
performance of the EEU in a timely manner that coincides with the contract
bidding process. This is also addressed by having a long term contract.
4. The current contract cycle presents challenges for multi-year programs and
optimizing cost-effective spending. The forward capacity market and the
geographic targeting initiative were the two examples cited. A long term
contract addresses these perceived weaknesses.
5. Financing limitations were also mentioned as limiting the efficiency resources
that can be acquired by the EEU. A long term contract also addressed this
weakness.
GMP is uncertain how a franchise should operate in what is essentially a
competitive environment of delivering energy efficiency services.
GMP believes that the franchise form is necessary where significant barriers to
entry exist in terms of capital costs. We don’t believe that these barriers exist in the
energy efficiency services sector.
Market transformation of energy efficiency can be defined as a process whereby
efficiencies are introduced into the marketplace and over time reach a large portion
of the consumer marketplace. Once efficiency is introduced, its penetration rate
begins to rise through a sequence starting with innovators and early adopters that
accelerates as awareness of efficiency grows. The process continues until market
penetration levels off or declines as full market potential is realized. Market
transformation involves ongoing and lasting change such that the market does not
regress to lower levels of utilization at some later time. A franchise may ultimately
provide less incentive than a long-term contract to achieve market transformation.
With an expanding marketplace for efficiency on a national level, it is possible if not
probable that competition in this arena will increase. In that event, it is also
possible that other deliverers of efficiency services could bring a superior value to
customers. Given the current leadership of VEIC, we don’t believe that is the
present case, but we do believe past performance does not guarantee superior
future results.
Some stakeholders have indicated that accountability, transparency and oversight
of the EEU could be improved. If the current structure does not provide Vermont’s
electric customers with a high and sustained level of confidence that the EEU is
operating efficiently and effectively in serving customer needs, this is a weakness
that should be addressed. Vermont customers will be paying in excess of $30
million per year to fund the EEU and customers’ must have great confidence that
the entity (or entities) receiving and spending customer funds are operating
transparently, with appropriate accountability. This is critical to the long-term
success and sustainability of any EEU model.
Finally, it bears re-emphasis that the EEU model has served Vermont effectively.
EVT, as the contractor, has delivered millions of dollars of efficiency savings to
Vermont consumers during its term as the contract provider. We strongly support
continued cost-effective delivery of efficiency services and we look forward to
working with the Board. the Department, EVT and other stakeholders in reviewing
and potentially improving upon the excellent track record that Vermont has
demonstrated as a national leader in promoting and implementing energy efficiency
programs.
Thank you for the opportunity to comment. If you have any questions about these
comments or if we can provide additional information to assist the Board, please let
me know. Otherwise I look forward to our discussions at the next scheduled
meeting, this Friday, September 14, 2007.
Sincerely,
David P. Martin
David P. Martin
cc:
EEU Structure Email Service List