Consumer Electric Natural Gas Telecom Water

Biennial Report of the Office of Consumer Advocate (2005-2007)

• THE OCA: WHO WE ARE, WHAT WE DO AND WHO WE HELP
• ACTIVITIES: ADVOCACY AND OUTREACH
  • At The Public Utilities Commission
  • At The New Hampshire Legislature
  • Collaboration With Other State Stakeholders
  • Regional And National Level Advocacy
  • In The Community
• RESIDENTIAL RATEPAYERS ADVISORY BOARD
• CUSTOMER EDUCATION
• FY 2006-2007ACTIVITIES: BY INDUSTRY
• ELECTRIC INDUSTRY
  • State Level
  • Regional Level
• TELEPHONE INDUSTRY
• NATURAL GAS INDUSTRY
• WATER INDUSTRY
• CONCLUSION

THE OCA: WHO WE ARE, WHAT WE DO AND WHO WE HELP

The Office of Consumer Advocate (OCA) is an independent agency administratively attached to the Public Utilities Commission ( PUC ) pursuant toRSA 363:28. The OCA represents the interests of residential utility ratepayers in any forum in which those interests might be affected, including the PUC, the Legislature, and at the regional and national levels. In addition to its advocacy work, the OCA promotes and furthers the knowledge and education of consumers about important utility-related issues.

The Consumer Advocate, an unclassified State employee appointed by the Governor and the Executive Council, leads a staff of four full-time classified employees in the OCA’s vital work. Presently, these positions are filed in the following manner: two utility analysts, one staff attorney and a legal assistant. The budget approved for FY 2008-2009 provides funds for a part-time administrative assistant to provide much-needed additional administrative and document management support. We filled the position in August 2007.

ACTIVITIES: ADVOCACY AND OUTREACH

At The Public Utilities Commission

Given the size of its staff and budget, it is not practical for the OCA to meaningfully participate in each of the approximately 200 dockets that the PUC processes every year. Instead, the OCA reviews all PUC dockets and dedicates the bulk of its limited resources to the dockets which involve important policy or precedent, or which will cause a particularly burdensome economic or service-quality impact on residential utility consumers. On occasion, these dockets lead to appeals before the N.H. Supreme Court.

The OCA actively participated in approximately 35 dockets at the PUC each year, while also working on various non-docketed projects. Through its advocacy, the OCA secured significant savings for residential utility customers, and has achieved other meaningful relief. Specific examples are detailed below in each industry section.

At The New Hampshire Legislature

At the beginning of each legislative session, the OCA reviews all bills and determines which, if any, require monitoring or advocacy activity. If appropriate or when invited, the OCA presents testimony before legislative committees, provides research and analysis to legislators, and participates with bill sponsors and other stakeholders in drafting proposed legislation. Key legislative initiatives of interest to the OCA in 2006 and 2007 included: a new law to encourage alternative forms of regulation for small telephone utilities; the adoption of a Renewable Portfolio Standard for New Hampshire electric utilities; the removal of the sunset on the Electric Assistance Program (EAP); several bills that sought to allow PSNH to build new ratepayer-funded electric generation plants; and two retained bills, one that that would allow the PUC to direct utilities to make refunds to customers who receive substandard service, and another to adopt state energy efficient appliance standards for certain household and business appliances sold in the state.

Collaboration With Other State Stakeholders

The OCA is a statutory member of the State Energy Planning Advisory Board and the State Energy Planning Commission. The OCA collaborates with other state agencies and legislators to develop state energy and other utility-related policy goals and initiatives. The OCA also works with the Public Utilities Commission, the Office of Energy and Planning, the Department of Environmental Services Air Resources Division, and the Department of Resources and Economic Development on a wide range of projects. Over the last two years these projects have included the Renewable Portfolio Standards (RPS) bill, the Electric Assistance Program (EAP) implementation, the Regional Greenhouse Gas Initiative (RGGI), and other projects related to appliance standards, low income heating assistance, energy efficiency programs, regional energy initiatives, and E911.

Regional And National Level Advocacy

As a result of the restructuring of the electric and natural gas industries and limits on state authority over the telecommunications industry, the OCA has become more involved with regional and federal regulatory activities. For federal and regional electric issues, the OCA employs a consultant to advance the interests of New Hampshire residential utility consumers in out-of-state forums, including the Federal Energy Regulatory Commission (FERC), and the New England Electric Power Pool (NEPOOL), which is discussed further in the regional electric section below.

The OCA is also a member of the National Association of State Utility Advocates (NASUCA), an organization founded to exchange ideas, improve consumer representation at the federal and state levels, and to encourage greater participation by consumers in the regulation of utilities. Through NASUCA membership, the OCA keeps abreast of developments in other states and on a national level, and often joins other advocates in filings with federal agencies such as the Federal Communications Commission (FCC) and the Federal Energy Regulatory Commission (FERC). Members of the OCA staff also serve on NASUCA committees that monitor the electric, natural gas, telecommunications, and water industries.

In The Community

The OCA continuously works to improve residential utility consumers’ understanding of the often arcane utility industry. These efforts take many forms: the OCA publishes a seasonal newsletter; the OCA issues press releases to the media, the public and many state agencies and legislators about important developments and events; the OCA maintains for the public’s use a website with relevant and helpful industry information and consumer tips; and on a daily basis, the OCA assists consumers and refers their calls and written inquiries and complaints to appropriate agencies.

The goal of the OCA’s outreach and education is to develop and distribute information that provides New Hampshire residential utility consumers with a basic understanding of their rights, responsibilities and other general issues regarding regulated utilities. One of our areas of focus has been to provide information to customers seeking information on how to improve their energy efficiency. The OCA’s outreach efforts assist consumers in making informed decisions related to their utility services.

RESIDENTIAL RATEPAYERS ADVISORY BOARD

RSA 363:28-a establishes a nine member Residential Ratepayers Advisory Board to advise the OCA. The Board consists of nine politically-appointed members: three by the Speaker of the House; three by the Senate President; and three by the Governor and Executive Council. The Board members represent a broad cross-section of interests including the elderly, the disabled, small business owners, persons of low income, residents of public housing, the public, and the environment.

The Board assists the OCA in making important policy decisions and prioritizing the OCA’s activities. The Board also has the responsibility for recommending to the Governor a nominee upon the departure of the Consumer Advocate or expiration of the Consumer Advocate’s term. In September 27, 2006 , as recommended by the Board, Governor John Lynch and the Executive Council confirmed Meredith A. Hatfield as Consumer Advocate. Ms. Hatfield succeeded F. Anne Ross.

CUSTOMER EDUCATION

The OCA’s statute was amended in 2001 to include promoting and furthering consumer knowledge and education within the OCA’s charge. The OCA is committed to keeping consumers aware of industry trends and issues, as well as initiatives such as energy efficiency and low income assistance programs. The OCA provides consumer education in several ways.

One way that the OCA provides consumer education is through the “New Hampshire RateWatcher,” a seasonal newsletter created and distributed by the OCA. Recent editions have provided information on issues including fuel assistance to low income consumers, energy efficiency and weatherization tips and programs, E911 services, understanding your telephone bill, renewable energy, Voice over Internet Protocol (VOIP) and others.

Another way that the OCA educates consumers is through press releases issued to the media, other agencies, legislators, and consumers. The OCA has also established a web site ( www.oca.nh.gov) that provides summaries of significant OCA cases, press releases, RateWatcher newsletters, information about the Residential Ratepayer Advisory Board and several pages of useful consumer information such as, how to read your utility bills, how and where to file a complaint, energy efficiency information and resources, utility and statewide assistance programs and finally how to become involved in a PUC docket.

The OCA also assists consumers who call almost daily with various issues and problems by referring them to the appropriate agency. Because the OCA is not authorized to act on behalf of consumers regarding individual consumer complaints, we must direct the consumer to the PUC ’s Consumer Affairs Division or other appropriate agency. While we do track certain information regarding utility-related complaints, this method requires significant time and resources, but is valuable in helping to keep the OCA informed of any issues that may impact the rates charged or the services provided to residential utility ratepayers.

FY 2006-2007 Activities: By Industry

Electric Industry

State Level

Pursuant to RSA 374:F, the OCA continues to focus on the implementation and monitoring of the electric industry restructuring. As a result, we regularly participate in dockets addressing procurement and pricing of energy service by each of the three remaining regulated New Hampshire electric utilities: Public Service Company of New Hampshire (PSNH), Unitil Energy Services (UES), and National Grid d/b/a Granite State Electric Company (GSEC).

PSNH continues to generate about 70% of the energy needs of its energy service customers. PSNH’s energy service rates have increased by about 2¢ per kilowatt hour (kWh) over the biennium due to increases in fuel and market prices. A similar trend exists for UES and GSEC which acquire 100% of their energy service needs through a competitive bid process.

The OCA plays an active role in electric utility rate cases, including a PSNH distribution rate case in 2007, in which the OCA’s expert testimony resulted in a settlement that included a lower cost of capital, which saved ratepayers approximately $3 million dollars per year. Similarly, in a UES rate case, the OCA joined the PUC staff and UES in a settlement agreement which included an overall rate increase of just under $2.3 million, rather than the $4.2 million rate increase that UES requested. These settlements also avoided the costs to ratepayers of weeks of hearings and possible appeals.

As noted in the natural gas section, below, the OCA actively participated in the PUC docket involving National Grid’s acquisition of Keyspan, including settlement negotiations. Among the terms of the settlement, GSEC customers will see rate reductions, improved reliability, and customer service protections.

During the previous biennium, the OCA participated in the Schiller Modification docket in which PSNH requested permission to convert one of its older coal burning units at Schiller station to a modern fluidized bed boiler which burned wood or coal with significantly reduced emissions. The project includes an innovative approach to sharing the risk of the project between ratepayers and PSNH shareholders. During this biennium, in December 2006, the converted unit went online. The preliminary figures show that customers have benefited from the conversion and the shared risk approach.

The OCA continues to actively participate in the governance and regulation of two important electric programs: the Energy Efficiency Programs (“Core” programs) and the Electric Assistance Program (EAP). These programs are funded through the Systems Benefits Charge (SBC) of 0.3¢/kwh (or 3 mills), which is paid by all electric ratepayers. The Core programs provide electric customers, both residential and commercial and industrial, with programs designed to reduce electric bills, and reduce our state’s overall energy use, through cost-effective energy efficiency programs. (Information on the programs is available at www.nhsaves.com). The EAP assists income-qualified residential electric customers by providing bill discounts administered by the state’s Community Action Agencies and the electric utilities. In the winter of 2005-2006, in response to the rising costs of electricity due to the hurricanes in the Gulf, the EAP program received supplemental funding through special legislation, SB 228. The EAP Advisory Board, of which the OCA is a member, stewarded the program through this difficult time. In the summer of 2006, in part due to the crises experienced the prior winter, the OCA also participated with other stakeholders in the redesign of the EAP, which resulted in a program that serves more households without increasing the SBC. In the fall of 2007 the PUC is concluding a docket to review the EAP administrative costs.

In 2007, the Commission opened dockets to consider two important energy policy areas: implementation of the federal Energy Policy Act of 2005 (EPAct), and rate decoupling. Under EPAct, each state commission was charged with investigating several issues including interconnection policies, net metering, fuel diversity, and time-based metering communications, also know as “smart metering.” The Commission is in the process of addressing these issues within a multi-part EPAct docket. Some of these issues, such as smart metering, could have major impacts on customers’ ability to understand and manage their own energy use.

The decoupling docket was opened in the spring on 2007, and is in the early stages. Decoupling operates by separating a utility’s profitability from sales volumes, usually by assuring some reasonable rate of return through a true-up mechanism, to compensate a utility for lost revenues due to reduced sales from energy efficiency programs. Decoupling can also include incentives for enhanced energy efficiency programs. The OCA is participating in this important docket to ensure that ratepayers do not compensate utilities unnecessarily.

Regional Level

In order for restructuring to work effectively, a truly competitive market for power must exist at the regional level. For that reason, the OCA has maintained its involvement in regional electric market issues at both the Federal Energy Regulatory Commission (FERC) and at the New England ISO (Independent System Operator) levels. The OCA became an end-user member of NEPOOL, an ISO committee, in 2001, and is the only voting representative of New Hampshire ’s small electric customers in NEPOOL. During this biennium, the OCA cast its vote in that capacity on many critical regional issues, such as the equal treatment of energy efficiency and demand response with generation in the Forward Capacity Market, which provides incentives for new generation. This approach is a small step toward giving energy efficiency equal weight with generation in planning for the region’s future.

Telephone Industry

The OCA spent a significant amount of time and energy during the last biennium advocating on behalf the residential ratepayers of Verizon New Hampshire (Verizon). The OCA litigated Verizon-related cases at the PUC and the New Hampshire Supreme Court.

In the fall of 2005, the OCA appeared before the New Hampshire Supreme Court to oppose Verizon’s appeal of a PUC decision concerning Verizon Yellow Pages revenues. Following a contested proceeding in which the OCA actively participated, the PUC had ruled that, for ratemaking purposes, Verizon must impute annually at least $23.3 million earned by its unregulated affiliate, Verizon Yellow Pages into its regulated jurisdictional revenues. Verizon appealed and the OCA and the PUC opposed the appeal. In December 2005, the OCA and PUC ’s position prevailed when the New Hampshire Supreme Court affirmed the PUC ’s Yellow Pages decision. As a result, if Verizon seeks general rate relief in the future, its customers will be better off by at least $23.3 million dollars annually.

In May of 2006, Verizon and the PUC Staff filed a stipulation for an alternative form of regulation (AFOR) for Verizon. The OCA opposed the stipulation and the proposed AFOR, taking the position that a general rate case was necessary to establish a just and reasonable rate benchmark before permitting Verizon relief from rate of return regulation, as Verizon has not had a rate case since 1989. The OCA also opposed the AFOR due to the lack of sufficient evidence of meaningful competition in all of the areas served by Verizon, and because it did not address long-standing service quality issues that are the subject of an open 2004 docket.

In early September 2006, Verizon filed a letter with the PUC seeking to withdraw the Stipulation. Later that day, the OCA filed a letter requesting that the PUC proceed with the docket notwithstanding Verizon’s withdrawal. To date, no public activity has taken place in this docket.

In January 2007 Verizon New Hampshire filed, together with FairPoint Communications, Inc. (FairPoint), a joint petition for approval to transfer Verizon New Hampshire’s wireline assets and franchise in New Hampshire to FairPoint. The importance of the outcome of this unprecedented docket to New Hampshire and Verizon ratepayers can not be overstated. Verizon serves over 350,000 residential customers in New Hampshire . The financial, managerial and operational abilities of any successor to Verizon are of critical importance to these customers and to the state’s economy.

In light of this fact, the Legislature authorized the PUC to make a special assessment of up to $150,000.00 against FairPoint to fund the costs of the OCA’s expert witnesses. In terms of scale, this special assessment approximates one and a half times the OCA’s entire budget for consultants for the year. During the spring of 2007, the OCA’s experts assisted it with a rapid and complex period of discovery, during which the parties analyzed the joint petition and testimony filed by Verizon and FairPoint. The remainder of the case will be completed in the next biennium, with hearings scheduled for late fall 2007.

In addition to its work on Verizon cases, the OCA participated in a PUC docket involving Union Telephone Company ( Union ), a small Independent Local Exchange Company (ILEC) that serves Alton , New Durham, Center Barnstead and Gilmanton Iron Works. In December 2006, Union filed a revised tariff that reduced its terminating intrastate access charges and increased basic residential rates, which was supported by Staff. The OCA opposed the filing, taking the position that the burdens of increases to basic residential rates outweighed the benefits of a reduction to access charges. Following a contested hearing, the PUC ruled that it lacked sufficient evidence to approve the tariff and gave the parties and Staff the opportunity to explore a negotiated resolution. In the end, the OCA, Staff and Union reached a compromise, which the Commission approved in May 2007. The settlement approved by the PUC resulted in a smaller rate increase, which was applicable to both residential and business customers.

In the spring of 2007, the PUC opened a docket to review plans for an alternative form of regulation (AFOR) for four subsidiaries of TDS Telecom: Kearsarge Telephone, Wilton Telephone, Hollis Telephone, and Merrimack County Telephone (TDS Companies). Together, the TDS Companies serve nearly 25,000 customers in the following communities: Andover , Antrim, Boscawen, Bradford , Chichester , Contoocook, Henniker, Hillsborough, Hollis, Melvin Village , Meriden , New London , Salisbury , Sutton, Warner, and Wilton . In pertinent part, the proposed plans allow for rate increases of up to 10% per year and, if the TDS Companies interpretation of the statute prevails, in some circumstances, even higher rate increases. The OCA is in the process of hiring a consultant to assist it with this docket, which is expected to continue through the fall of 2007. A threshold issue is whether the majority of TDS customers have access to competitive telecommunications options.

Natural Gas Industry

The OCA remained active in dockets related to the cost of gas for New Hampshire ’s two natural gas utilities, Keyspan and Northern Utilities, Inc. (Northern), as well as integrated least cost planning dockets, which examine how the utilities plan, on a cost-effective basis, to meet future customer demands.

Because of the significant volatility of natural gas costs, the OCA has consistently advocated measures to stabilize those costs. Typically, those measures involve two approaches: first, having the utility offer a fixed-price option to customers; and second, having the utility take measures to hedge supplies. Price hedging serves as an insurance policy to protect against major price increases. Keyspan offers a fixed-price option and diversifies the timing and source of its gas purchases to hedge prices. While not offering a fixed-price option, Northern similarly takes steps to hedges its gas supplies.

The OCA expended considerable resources on the development of cost effective gas energy efficiency programs and the establishment of a low income assistance program for residential gas customers who use natural gas to heat their homes. The low income gas program is estimated to reduce the cost of heating for eligible customers by 10 - 15%.

Among the OCA’s more significant efforts in the gas industry beyond our continued involvement in the semi-annual cost of gas proceedings was our involvement in the complex negotiations and settlement of issues involving Northern’s service to both Maine and New Hampshire . The other parties included representatives of the Maine Public Utilities Commission staff, Northern Utilities, competitive suppliers and the PUC staff. The central issue concerned how Northern allocates costs between New Hampshire and Maine customers. The result will save New Hampshire customers at least $100,000 annually.

In another docket, the PUC staff uncovered a billing error by Keyspan related to how it charged customers for gas. Keyspan, without the permission of the PUC or notice to customers, changed the way it measured the amount of gas used by customers. As a result, for several years customers were charged more than Keyspan had the authority to charge. The OCA participated in the settlement of that error, which was corrected on a going-forward basis. The settlement provided Keyspan customers with a credit of $3,076,708, which included interest of over $800,000. KeySpan also agreed to contribute $200,000 in non-recoverable funds to its low income energy efficiency programs.

As also noted in the electric section, the OCA took an active part in negotiations and a settlement which allows National Grid to acquire KeySpan. The terms of the settlement were, in part, aimed at improving customer service, safety, and delaying a rate case for KeySpan.

Water Industry

During the last biennium, the OCA participated at the PUC in a number of dockets involving water utilities. The issues in these dockets included acquisitions, rate increases, and service quality.

The OCA continued to monitor Nashua ’s petition to take, by eminent domain, the assets of Pennichuck Water Works (PWW). The OCA has not filed testimony or taken a position on Nashua ’s petition. In January 2007, after several days of hearings, the PUC suspended the hearings at the request of Nashua and PWW, who requested the opportunity to negotiate a resolution of their dispute. As the negotiations did not result in an agreement, hearings resumed in September 2007.

In addition to the eminent domain case, the OCA monitored or participated in cases involving the voluntary sale and acquisition of water utilities. The OCA monitored the sale of Consolidated Water Company (Consolidated) and Central Water Company (Central) to Pittsfield Aqueduct Company (PAC). This docket concerned approximately 1,000 customers in the communities of Barnstead, North Conway and Middleton , New Hampshire . Primarily among the OCA’s concerns were the long history of service quality problems experienced by the customers of Consolidated and Central and PAC’s intentions to resolve these issues in a way that did not significantly increase rates.

The OCA also participated in the docket concerning the acquisition by Macquarie Utilities, Inc. ( Macquarie ) of Aquarion Water Company of New Hampshire (Aquarion). Aquarion serves approximately 8,700 customers in Hampton , North Hampton and Rye , New Hampshire . Chief among the OCA’s objectives and efforts was ensuring that customers did not experience harm after Macquarie ’s purchase. The OCA asked for and the Commission approved requirements that Macquarie maintain a local customer service presence and a customer advisory council following its purchase.

The OCA continues to participate in general rate cases filed by water utilities serving customers and communities throughout New Hampshire including: PWW; Pennichuck East Utilities; Hampstead Water Company; Aquarion Water Company; Lakes Region Water Company; Hanover Water Works Company; and the Fryeburg Water Company. Typically, the OCA’s activity in these dockets included propounding data requests and negotiating terms for settlement and looking at conservation efforts. Generally, the rates of water companies in New Hampshire are increasing. In large part, these increases are due to requirements beyond the control of the water utilities, including those of the federal Safe Drinking Water Act.

After years of advocacy by the OCA on behalf of the residential customers of Fryeburg Water Company (Fryeburg) and ceaseless efforts of two customers of Fryeburg, in July 2006, the Commission ordered Fryeburg to replace a significantly corroded distribution main that was more than 120 years old, which served East Conway , New Hampshire . Fryeburg replaced the pipe in August 2006 and, as a result, for the first time in many years, the East Conway customers of Fryeburg receive consistently clear water through their taps. The OCA is now monitoring Fryeburg’s Maine PUC rate case to ensure that costs are not shifted unfairly to the East Conway customers.

CONCLUSION

The activities described above, as well as others, have kept the OCA very busy during the last biennium. In spite of a relatively small staff and budget, the OCA endeavored to provide its constituents with substantial financial and non-financial relief through a broad scope of advocacy efforts. The OCA also worked to empower its constituents by providing pertinent and timely information about the utilities that serve them, and the activities of the agencies that regulate these utilities. We look forward to continuing to serve the ratepayers of New Hampshire as effectively and efficiently as possible in the next biennium.