THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE ATTORNEY GENERAL ONE ASHBURTON PLACE BOSTON, MASSACHUSETTS 02108

THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE ATTORNEY GENERAL ONE ASHBURTON PLACE BOSTON, MASSACHUSETTS 02108 MARTHA COAKLEY ATTORNEY GENERAL (617) 727-2200 (617) 727-4765 TTY www.mass.gov/ago June 8, 2012 Mark D. Marini, Secretary Department of Public Utilities One South Station, 5 th Floor Boston, MA 02110 Re: D.P.U. 11-109 - Boston Gas Company and Colonial Gas Company d/b/a National Grid Dear Secretary Marini: On or about October 28, 2011, NSTAR Electric Company, NSTAR Gas Company, Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid, Boston Gas Company and Colonial Gas Company d/b/a National Grid, Fitchburg Gas and Electric Light Company, d/b/a Unitil (Electric Division), Fitchburg Gas and Electric Light Company, d/b/a Unitil (Gas Division), Western Massachusetts Electric Company, Bay State Gas Company d/b/a Columbia Gas of Massachusetts, The Berkshire Gas Company, New England Gas Company, and the Cape Light Compact (collectively Program Administrators or PAs ) filed mid-term modifications ( 2012 MTMs ) to their respective 2012 electric and natural gas energy efficiency plans with the Department of Public Utilities ( Department ) for approval. The Attorney General intervened in each of the above-noted dockets. On April 20, 2012, the PAs, in conjunction with the Attorney General, the Department of Energy Resources ( DOER ), Environment Northeast ( ENE ), and the Low-Income Weatherization and Fuel Assistance Program Network, The Massachusetts Energy Directors Association, and The Low-Income Energy Afford Ability Network ( LEAN ) ( Settling Parties ) filed a Motion for Approval of a Partial Settlement ( Partial Settlement ) covering all issues with respect to the use of estimated avoided costs based on the 2011 Avoided Energy Supply Costs in New England: 2011 Report (July 21, 2011, amended August 11, 2011) ( 2011 AESC Study ) and estimated non-energy benefits (also known as non-energy

impacts) based on the Massachusetts Special and Cross-Sector Studies Area, Residential and Low-Income Non-Energy Impacts ( NEI ) Evaluation (August 15, 2011) (the NEI Evaluation ). The Settling Parties agreed that issues related to the 2011 AESC Study and the NEI Evaluation should not be addressed in these proceedings. On May 2, 2012, the Department approved the Partial Settlement and, on May 24, 2012, issued the following procedural schedule: Initial Comments due on June 8, 2012 and Reply Comments due on July 11, 2012. This letter constitutes the Attorney General s Initial Comments on the matters related to the 2012 MTMs that are not covered by the Partial Settlement. These Initial Comments apply, in common fashion, to all of the 2012 MTMs filed by the Program Administrators. Please note that the Initial Comments filed in D.P.U. 11-109 contain a Boston Gas Company and Colonial Gas Company d/b/a National Grid-specific section. Low Income Program Consolidation The PAs propose to consolidate the Low Income Single Family Retrofit and Low Income Multi-Family Retrofit energy efficiency programs ( Low Income Programs ) to form one Low Income Retrofit Program in order to: provide greater flexibility to address market circumstances and demands for program services in the field by low-income customers; help ensure robust overall program cost-effectiveness; and potentially provide opportunities for administrative efficiencies over time. See generally 2012 MTMs, Executive Summary, Exhibit A, p. 6. Additionally, the PAs expect that the proposed consolidation will provide in-the-field experience with programs that have separate initiatives operating within a single program and that this approach will assist the PAs in developing the 2013-2015 energy efficiency plans ( 2013-2015 Plans ). Id., p. 6. The Attorney General supports the PAs efforts to ensure the robust costeffectiveness of their energy efficiency programs. The Attorney General is also mindful, in her role as the Ratepayer Advocate, of the increasing costs associated with the provision of energy efficiency programs, including Low Income Programs, and that the PAs Residential and Commercial and Industrial ( C&I ) customers provide a significant portion of the funding necessary to offer the Low Income Programs. The total statewide gas and electric Low Income budget is approximately $85.5 million. Thus, it is in the interest of all ratepayers to ensure that the proposed consolidation achieves and maintains the robust cost-effectiveness of the Low Income Programs as noted by the PAs and that the other benefits of consolidation as related by the PAs are achieved. To this end, the Attorney General respectfully requests that the Department require the PAs to report certain information (see below) on the consolidated Low Income Programs in 1) the 2012 Energy Efficiency Annual Report ( EEAR ) or its equivalent following the conclusion of the Phase II investigation in D.P.U. 11-120 and 2) the EEARs or equivalent filings for each year of the 2013-2015 Plans. Specifically, the Attorney General requests that the PAs report on: the individual (pre-consolidation) benefit cost ratios ( BCR ) for the Low Income Programs and the BCR for the consolidated Low Income Program; the planned and actual savings for the individual and consolidated Low Income Programs; and any administrative efficiencies due to the consolidation, including a quantification of the dollars saved due to those efficiencies, and any best practices identified and implemented due to consolidation. The PAs should

also report the planned and actual individual and consolidated budgets for the Low Income Programs. This reporting should not prove to be an administrative burden as the PAs noted that they would establish individual budgets and then combine them and that they would internally track the spending and savings associated with each individual Low Income Program. See PA responses to AG-Comm-2-3 and AG-Comm-2-5. Additionally, the PAs should provide reports on the periodic reviews they intend to conduct on the consolidated Low Income Programs (see PA responses to AG-Comm-2-6), including any significant deviations in planned individual funding and participation levels (see PA responses to AG-Comm-2-5) and any course corrections made by the PAs based on their findings (see PA responses to AG-Comm-2-8). Finally, the PAs should provide the results arrived at in their post-2012 evaluation of the consolidation. See PA responses to AG-Comm-2-8. The reporting requested by the Attorney General is necessary to ensure that the consolidation is effectively serving the Low Income community and that the funds provided by all ratepayers in support of the Low Income Programs are used costeffectively. While the requested reporting is significant, it should not present an administrative burden as the PAs indicated that they intend to collect this information as noted in their responses to the Attorney General s Second Set of Common Discovery in the above-referenced dockets. Additionally, this requested reporting framework should be used, both for the consolidated Low Income Programs and any proposed consolidations going forward, to determine if the consolidation was successful, should be abandoned or modified to address and mitigate any identified deficiencies. Market Transformation Standard The Attorney General, in her Initial Brief on the PAs 2010 Energy Efficiency Annuals Reports, 1 requested that the Department address the issue of Market Transformation to ensure that customers benefit from robust energy efficiency programs while ensuring that they are not burdened with subsidizing technologies or programs the no longer require such assistance to become the norm. Specifically, the Attorney General requested that the Department, with the input of the PAs and interested stakeholders, develop a standard for determining whether market transformation has occurred as it relates to energy efficiency programs and technologies. See Attorney General Initial Brief, p. 7. Such a standard will ensure that customer funds are being used to subsidize energy efficiency markets that have not yet been transformed due to the PAs actions and prevent customer funds from subsidizing markets that have been transformed. Id., pp. 7-8. 1 See Attorney General Initial Brief, pages 7-9 in NSTAR Electric Company, D.P.U. 11-63; NSTAR Gas Company, D.P.U. 11-64; Bay State Gas Company d/b/a Columbia Gas of Massachusetts, D.P.U. 11-65; New England Gas Company, D.P.U. 11-66; The Berkshire Gas Company, D.P.U. 11-67; Cape Light Compact, D.P.U. 11-68; Western Massachusetts Electric Company, D.P.U. 11-69; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Gas Division), D.P.U. 11-70; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Electric Division), D.P.U. 11-71; Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid, D.P.U. 11-72; Boston Gas Company, Colonial Gas Company and Essex Gas Company d/b/a National Grid, D.P.U. 11-73; and Blackstone Gas Company, D.P.U. 11-126. The Department has not yet issued Orders in these dockets.

In the interest of brevity, the Attorney General will not reiterate her arguments regarding the need to establish a market transformation standard except to note that such an exercise is in the best interest of ratepayers. Performance Incentives The PAs filed, as a component of their 2012 MTMs, a Performance Incentive ( PI ) mechanism and metrics. 2 While the Attorney General holds that PI are unnecessary given the Green Communities Act s ( GCA ) requirements that the PAs provide all available cost-effective energy efficiency (M.G.L. c. 25, 21) and the existence of Revenue Decoupling Mechanisms and Lost Base Revenue recovery to eliminate any disincentive to provide energy efficiency programs, certain aspects of the PAs PI proposal merit special attention. Cost Efficiency of Program Expenditures PI Metric In her Initial Comments in the PAs 2011 MTMs, 3 the Attorney General asserted that the Department should not approve the implementation of the Cost Efficiency of Program Expenditures metric. See generally PAs 2012 MTMs Exhibit D, Attachment 1 or Exhibit I, Appendix 3. Simply put, the PAs should already be using ratepayer funds as efficiently as possible so as to avoid imprudent and wasteful expenditures. This is a basic tenet of the use of ratepayer funds. To hold otherwise would open the door for unchecked, excessive collection and expenditures on the backs of ratepayers. Additionally, the accurate measurement and quantification as to whether a PA used customer funds cost efficiently is difficult, if not impossible. The Department s Energy Efficiency Guidelines require that performance incentives be based on clearlydefined goals and activities that can be sufficiently monitored, quantified and verified after the fact. Investigation by the Department of Public Utilities on its own Motion into Updating its Energy Efficiency Guidelines Consistent with An Act Relative to Green Communities, D.P.U. 08-50 (2008); D.P.U. 08-50-A (2009); D.P.U. 08-50-B (2009); Guidelines 3.6.2. This metric clearly does not meet those requirements. The PAs have not offered evidence as to how they will establish baselines, monitor and report on their activities in fulfillment of this metric, nor have they indicated how the efficiencies will be quantified and verified. This assertion is supported by the PAs own statements regarding the Attorney General s request, in her Initial Brief on the PAs 2010 Energy Efficiency Annual Reports, that the PAs quantify the administrative costs that they were able to minimize as required by 2 As a municipal aggregator, the Cape Light Compact is not eligible for Performance Incentives. 3 See Attorney General Initial Comments, pp. 8-9 in Boston Gas Company, Colonial Gas Company and Essex Gas Company d/b/a National Grid, D.P.U. 10-140; NSTAR Gas Company, D.P.U. 10-141; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Electric Division), D.P.U. 10-142; New England Gas Company, D.P.U. 10-143; Bay State Gas Company d/b/a Columbia Gas of Massachusetts, D.P.U. 10-144; The Berkshire Gas Company, D.P.U. 10-145; NSTAR Electric Company, D.P.U. 10-146; Cape Light Compact, D.P.U. 10-147; Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid, D.P.U. 10-148; Western Massachusetts Electric Company, D.P.U. 10-149; and Fitchburg Gas and Electric Light Company, d/b/a Unitil (Gas Division), D.P.U. 10-150. The Department has not yet issued Orders in these dockets.

the GCA and Guidelines. 4 The PAs, in response, argued that this request was inappropriate. Exact quantification is not possible because the continuous scaling up and evolution of the Plans, make it impossible to establish a solid baseline for the comparison requested by the Attorney General. When the variables are constantly (and necessarily) shifting, there is no opportunity to make a meaningful quantitative comparison or to estimate a counterfactual. See D.P.U. 11-63 through D.P.U. 11-73, D.P.U. 11-126, Joint PA Reply Comments, p. 7. The same logic applies to the Cost Efficiency of Program Expenditures PI metric and argues against Department approval. PI Increases A majority of the PAs 2012 MTMs sought significant increases in PI, while demonstrating either a decrease or disproportionate increase in energy efficiency savings. See AG-CMA-1-1 (95.7% PI increase with a 21.7% savings decrease); AG-Berkshire-2-1 (87.3% PI increase with a 14.6% savings decrease); AG-NGridElectric-2-1(185.6% PI increase with a 34.8% savings decrease); AG-NSTARElec-2-1 (101.1% PI increase with a 6.3% savings decrease); AG-NSTARGas-1-2 (40% PI increase with a 49% savings decrease); AG-FGas-1-6 (997.2% PI increase with a 40% savings decrease); AG- FElectric-2-1 (342.7% PI increase with a 13.2% savings increase); AG-NGridGas-1-13 (132% PI increase with a 44% savings increase); and AG-WMEC0-2-1 (643% PI increase with a 92.2% savings increase). 5 On average, the PAs attributed these significant PI increases to a PI methodology change. Id. The Attorney General respectfully requests that the Department deny recovery of the increased PI due to the methodology change. Regardless of the impetus behind the change or the magnitude of actual dollars, customers should not be required to fund increased PI that is based on a change in the PI mechanism, rather than, in most cases, the provision of increased energy efficiency savings. Rewarding the PAs in this manner is inappropriate, both equitably and optically. Going forward, the Department should prohibit the recovery of increased performance incentives that come about as a result of a change to the PI mechanism rather than a proportional increase in either savings or value as incented under the PI mechanism. This serves to incent the PAs to strive to achieve their goals, while protecting customers from rewarding ministerial changes. Savings Decreases A significant number of PAs filed 2012 MTMs which sought approval to decrease 4 See Attorney General Initial Brief, pages 6-7 in NSTAR Electric Company, D.P.U. 11-63; NSTAR Gas Company, D.P.U. 11-64; Bay State Gas Company d/b/a Columbia Gas of Massachusetts, D.P.U. 11-65; New England Gas Company, D.P.U. 11-66; The Berkshire Gas Company, D.P.U. 11-67; Cape Light Compact, D.P.U. 11-68; Western Massachusetts Electric Company, D.P.U. 11-69; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Gas Division), D.P.U. 11-70; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Electric Division), D.P.U. 11-71; Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid, D.P.U. 11-72; Boston Gas Company, Colonial Gas Company and Essex Gas Company d/b/a National Grid, D.P.U. 11-73; and Blackstone Gas Company, D.P.U. 11-126. 5 New England Gas Company did not seek a similar increase in PI due to the methodology change. See AG-NEGas-2-1.

energy efficiency program savings, while program budgets increased or remained flat. See Berkshire Gas Company, D.P.U. 11-114, Exhibit A, p. 9; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Electric Division), D.P.U. 11-110, Exhibit A, p. 8; Fitchburg Gas and Electric Light Company, d/b/a Unitil (Gas Division), D.P.U. 11-111, Exhibit A, p. 8; New England Gas Company, D.P.U. 11-115, Exhibit A, p. 9; and Western Massachusetts Electric Company, D.P.U. 11-112, Exhibit A, p. 8. Going forward, the Attorney General respectfully requests that the PAs, if seeking to decrease energy efficiency program savings, explain, if applicable, why they are not seeking a corresponding budget decrease. Additionally, the PAs should demonstrate why the increased or static budgets need to remain as such and detail what the budget will be used for, e.g. customer incentives, contractor training, etc. Requiring the PAs to demonstrate why they are seeking the same or increased customer funding while providing fewer energy efficiency savings to customers will ensure that customer money is being spent prudently. Additionally, this information will aid the Department in approving, denying or modifying a PAs proposed MTM. National Grid Gas Alternative Application Process In its 2012 MTM, Boston Gas Company and Colonial Gas Company d/b/a National Grid National Grid ( National Grid or Company ) proposes to create an Alternative Application Process ( APP ) to expand the availability of its energy efficiency programs to its gas special contract customers who have multiple locations within its service area and where the customers contribute to energy efficiency funding at non-special contract locations. See D.P.U. 11-109, Exhibit A, p. 7. The Company proposes to provide these customers with the opportunity to aggregate their projected energy efficiency funding contributions over two years and to allow those customers to use up to 85% of those contributions to receive approved energy efficiency services at any of their locations within the National Grid service territory. Id., p. 7. Customers who opt to participate in the AAP will not be eligible to also participate through the standard application approach. Id., pp. 7-8. The Attorney General respectfully requests that the Department reject this proposal. The Company s special contract customers do not pay into the Company s energy efficiency programs. In seeking to exclude special contract customers from its revenue decoupling mechanism, the Company noted that [t]hey are transportation-only customers that are not assessed an energy efficiency surcharge, making them ineligible to participate in the Companies energy efficiency programs (Exh. DPU-1-27). Boston Gas Company, Essex Gas Company and Colonial Gas Company, each d/b/a National Grid, D.P.U. 10-55, Department Order, p. 20, ftnt. 14 (November 2, 2010). It is inequitable to provide energy efficiency services to a customer that does not provide commensurate funding for those services. The Company s proposal will shrink the pool of energy efficiency funds available to its C&I customers who provide those funds and who should not be denied their benefit in favor of serving customers who do not shoulder the same funding burden. If the Company truly wishes to extend energy efficiency services to special contract customers, it should accomplish this by ensuring that these

customers, perhaps through the special gas contracts they have with the Company, contribute their equitable share of funding to the energy efficiency programs. Thank you for the opportunity to provide these comments. If you have any questions, please do not hesitate to contact me. Sincerely, /s/ Danielle C. Rathbun Danielle C. Rathbun Assistant Attorney General Enclosure cc: Jonathan A. Goldberg, Esq., Hearing Officer Service List

COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES Boston Gas Company and Colonial Gas D.P.U. 11-109 Company d/b/a National Grid CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document upon all parties of record in these proceedings in accordance with the requirements of 220 C.M.R. 1.05(1) (Department s Rules of Practice and Procedure). Dated at Boston this 8 th day of June, 2012. /s/ Danielle C. Rathbun Danielle C. Rathbun Assistant Attorney General Office of the Attorney General Office of Ratepayer Advocacy One Ashburton Place Boston, MA 02108 (617) 963-2408