The Fight to Save NHSaves

Will drama over discount rates doom New Hampshire’s “NHSaves” energy efficiency programs?  That’s the question that hovers over the hearings that begin on October 25 before the Public Utilities Commission as it decides whether to approve the 2024-2026 Triennial Energy Efficiency Plan.

All of us utility customers in the Granite State pay for the NHSaves programs via the System Benefits Charge on our electric bills and the LDAC charges on our gas bills.  The purpose of the NHSaves programs is to save all customers money, whether they take advantage of energy efficiency or not, by helping homes and businesses get more work out of each unit of energy consumed.

When the state’s utilities filed their last Triennial Energy Efficiency Plan, in 2020, the PUC waited nearly a year to make a decision and, then, rejected the plan in November of 2021.  Numerous appeals to the New Hampshire Supreme Court followed, in the face of massive disruptions to the programs and to the small businesses that install most energy efficiency measures under contract to the utilities.

Those appeals were withdrawn when, in February 2022, Governor Sununu signed House Bill 549 into law.  House Bill 549 told the PUC it could not simply abolish the NHSaves programs while at the same time subjected the programs to strict budget limits.  In fact, the budget of NHSaves was capped at its 2020 level, adjusted for inflation.

As this year’s NHSaves hearings approached, on October 20 the PUC issued a prehearing order that made clear where the controversy will be this time around.  “Subject to the hearing process, the Commission sees no obstacles to approval of the changes to the [current NHSaves] program offerings submitted by the joint utilities,” the Commission noted.  “The Commission anticipates asking questions at hearing with an emphasis on cost effectiveness.”

Translation:  They’re coming for the discount rate.

What’s a discount rate and why is it so important here?  Basically, it stems from the requirement that the benefits of ratepayer-funded energy efficiency programs exceed their cost.

Unlike the supply-side investments made by utility shareholders, which are paid for gradually over their useful lives, we ratepayers fund the NHSaves programs entirely up-front.  It’s the difference between taking out a auto loan and paying for a new car with cash.

The discount rate issue arises because, unlike the up-front payment of all costs, the benefits roll in over a period of years – often many years.  If, for example, you weatherize a home with help from NHSaves, the benefits roll in over a period of 30 years!

To compare 30 years of benefits with costs incurred 100 percent up front, it becomes necessary to reduce those longterm benefits to their ‘net present value.’  That’s where the discount rate comes in.

The NHSaves utilities have long used a reasonable discount rate of 2.78 percent per annum.  At that level, $100 benefits accruing next year would be discounted by $2.78 and, thus, would be worth only $97.22 for purposes of comparing costs and benefits.  You don’t have to do the elaborate math to figure out that benefits in Year 30, discounted by 2.78 percent 29 times, would count for very little under this rubric.

Via questions it has posed to the utilities in recent months, the PUC has made clear it is flirting with a discount rate of at least 7 percent.  Using a discount rate that high would decimate the NHSaves programs because almost nothing would pencil out as cost-effective – particularly the home weatherization projects that have proven to be so valuable to residential customers.

At the Office of the Consumer Advocate, we see two problems with this high discount rate approach.  First, we believe it is illegal – in other words, impermissible under House Bill 549 as signed into law last year.

House Bill 549 requires the use of the so-called “Granite State Test” for cost effectiveness, developed under the aegis of the PUC embraced by the Commission in 2019 only to be repudiated by the very same agency less than two years later.  A key component of the Granite State Test is the use of a low discount rate, particularly the 2.78 percent rate being used in 2019 and proposed for ongoing use now.

The second problem with using a discount rate north of 7 percent is that it is typically justified as reflecting the cost utilities incur when they invest their own capital in a project – the utilities’ so-called “Weighted Average Cost of Capital.”  But here’s the thing:  The utilities do not invest any of their own capital in NHSaves; it is all ratepayer money.

“This is a policy choice, plain and simple,” said Consumer Advocate Don Kreis.  “If you like ratepayer-funded energy efficiency, you apply a low discount rate.  If you don’t think we should all invest in energy efficiency via our utility bills, you use a high discount rate, as the PUC appears to be considering.”

“Speaking personally, I’d actually be comfortable using a zero percent discount rate for the NHSaves programs,” added Kreis.  “That’s because I think energy efficiency is the ultimate no-impact source of energy, so I am fine with today’s ratepayers passing this benefit on to tomorrow’s customers.

“But I have to agree that 2.78 percent is a reasonable compromise between those who share my view and those who are more skeptical about requiring today’s ratepayers to pay for tomorrow’s energy efficiency benefits,” said the Consumer Advocate.  “If the PUC persists with an unreasonably high discount rate in an attempt to sink the NHSaves programs, we will not hesitate to take our case to the New Hampshire Supreme Court, just as we did two years ago.”

The Office of the Consumer Advocate urges ratepayers to contact the PUC with their opinions about the future of NHSaves.  Send an e-mail to puc@puc.nh.gov and mention Docket No. DE 23-068 in the subject line.