niagara mohawk power corporation proceeding on motion of · 2012-04-20 · niagara mohawk power...

Niagara Mohawk Power Corporation d/b/a National Grid PROCEEDING ON MOTION OF THE COMMISSION AS TO THE RATES, CHARGES, RULES AND REGULATIONS OF NIAGARA MOHAWK POWER CORPORATION FOR ELECTRIC AND GAS SERVICE

Testimony and Exhibits of:

Shared Services and Customer Panel Exhibits __ (SSCP-1) – (SSCP-13)

Book 6

April 2012

Submitted to: New York State Public Service Commission Case 12-E-____ Case 12-G-____

Submitted by: Niagara Mohawk Power Corporation

Testim

ony of

SSCP

Before the New York State Public Service Commission

NIAGARA MOHAWK POWER CORPORATION d/b/a NATIONAL GRID

Direct Testimony

of

Shared Services and Customer Panel

1

Table of Contents Page I. Introduction and Qualifications ...................................................................1

II. Property Tax Expense ..................................................................................9

III. Uncollectible Accounts Expense ...............................................................19

IV. Service Quality Performance .....................................................................29

V. Programs for Low Income Customers .......................................................39

VI. Additional Customer-Focused Programs...................................................48

a. Economic Development Programs ......................................................48

b. Buffalo Niagara Medical Campus .......................................................59

c. Customer Outreach and Education Initiative.......................................61

d. Paperless Billing Incentive ..................................................................64

e. LED Streetlighting ...............................................................................66

f. Alternate Fuel Vehicles........................................................................70

g. Collaborative Research & Development for Gas Technologies ..........75

h. Job Vacancies in Customer Organization as of December 31, 2011...79

2

Testimony of Shared Services and Customer Panel

Page 1 of 82

I. Introduction and Qualifications 1

Q. Please introduce the members of the Shared Services and Customer 2

Panel. 3

A. The Panel consists of Rudolph L. Wynter Jr., Evelyn Kaye, and Edward 4

H. White, Jr. 5

6

Q. Mr. Wynter, please state your name and business address. 7

A. My name is Rudolph L. Wynter, Jr. My business address is One 8

MetroTech Center, Brooklyn, New York 11201. 9

10

Q. By whom are you employed and in what capacity? 11

A. I am employed by National Grid Corporate Services LLC, and currently 12

hold the position of Senior Vice President, Shared Services. I am 13

responsible for call center operations in the United States, facilities and 14

real estate management, and the Transactions Delivery Centers, which 15

house the Company’s billing, procure to pay, payment processing, and 16

credit and collections functions. 17

18

Q. Please describe your educational background and experience. 19

A. I received a Bachelor of Science degree in Mechanical Engineering from 20

the Pratt Institute in 1988 and a Master of Business Administration from 21

3


Page 2 of 82

Fordham University in 1995. In 1988, I joined The Brooklyn Union Gas 1

Company (which later became a subsidiary of KeySpan Corporation) as a 2

management trainee. Prior to taking my current position, I held various 3

positions in system design and engineering, operations, gas marketing, and 4

strategic planning. 5

6

Q. Have you previously testified before the Commission? 7

A. Yes. Most recently, I testified before the Commission on behalf of 8

Niagara Mohawk Power Corporation d/b/a National Grid (“Niagara 9

Mohawk” or the “Company”) in Case 10-E-0050, Proceeding on Motion 10

of the Commission as to the Rates, Charges, Rules and Regulations of 11

Niagara Mohawk Power Corporation for Electric Service (the “2010 12

Electric Rate Case”). 13

14

Q. Ms. Kaye, please state your name and business address. 15

A. My name is Evelyn Kaye. My business address is 300 Erie Boulevard 16

West, Syracuse, New York 13202. 17

18


A. I am employed by National Grid USA Service Company, Inc., and 20

currently hold the position of Vice President, Transactions Delivery 21

4


Page 3 of 82

Centers. I am responsible for all aspects of the Transactions Delivery 1

Centers, which house the Company’s billing, procure to pay, payment 2

processing, and credit and collections functions. 3

4


A. I received a Bachelor of Science in Business Administration from Siena 6

College in 1988 and a Master of Business Administration from LeMoyne 7

College in 1998. In 1988, I joined Niagara Mohawk Power Corporation as 8

a meter reader. Prior to my current position, I served as a Director on the 9

shared services team, directing the development of the Transactions 10

Delivery Centers and leading the business process outsourcing project. I 11

have also served as a Manager in the Syracuse Contact Center, and in 12

various positions in customer service, system design, operations, finance, 13

and strategic planning prior to my current position. 14

15


A. No. 17

18

Q. Mr. White, please state your name and business address. 19

A. My name is Edward H. White, Jr. My business address is 40 Sylvan 20

Road, Waltham, Massachusetts 02451. 21

5


Page 4 of 82


A. I am employed by National Grid USA Service Company, Inc., and 2

currently hold the position of Vice President, Customer and Business 3

Strategy in the Customer organization of National Grid USA (“National 4

Grid”). I am responsible for leading National Grid USA’s energy 5

efficiency and distributed resources product offerings, including energy 6

efficiency program management and operations, regulatory compliance 7

and evaluation, and new product development. 8

9


A. I graduated from Northeastern University with a Bachelor of Science 11

degree in Civil Engineering in 1996 and completed a High Performance 12

Management Program from Northeastern University in 2003. Before 13

joining the Customer organization, I worked for over 13 years in various 14

positions across National Grid and its predecessor companies, including 15

Electric Operations, Environmental Compliance, Site 16

Investigation/Remediation, Transmission Licensing and Permitting, and 17

Purchasing. I was the Staff Assistant to the President of National Grid 18

USA between 2006 and 2008, and worked as the U.S. lead on developing 19

an energy management strategy for National Grid USA. 20

21

6


Page 5 of 82


A. No, I have not. 2

3

Q. How has the Panel organized the testimony? 4

A. The testimony of the Panel is divided into six sections, including this first 5

introductory section. 6

II. In Section II, the Panel describes the calculation of the 7

Company’s property tax expense. 8

III. In Section III, the Panel describes the Company’s proposed 9

uncollectible accounts expense and details the credit and collections 10

process, including initiatives the Company has undertaken as part of its 11

ongoing efforts to manage its uncollectible accounts expense. 12

IV. In Section IV, the Panel describes the processes and tools 13

that Niagara Mohawk uses to manage customer service quality 14

performance, along with the current and proposed customer service quality 15

metrics. 16

V. In Section V, the Panel describes the programs the 17

Company has in place to provide extra care to its low income customers, 18

and discusses the Company’s proposal to increase the low income 19

discount program for gas customers. 20

7


Page 6 of 82

VI. Finally, in Section VI, the Panel describes additional 1

customer focused programs, including economic development for the 2

electric and gas businesses, the Company’s efforts to work with the 3

Buffalo Niagara Medical Campus, the Company’s proposal for an 4

Outreach and Education initiative, a proposed incentive for paperless 5

billing, a proposed energy-only tariff offering for LED streetlighting, 6

programs for alternate fuel vehicles, gas-related research and 7

development, and job vacancies in National Grid’s Customer organization 8

as of December 31, 2011. 9

10

Q. Are you sponsoring any exhibits as part of your testimony? 11

A. Yes. The Panel is sponsoring the following exhibits, which were prepared 12

under our direction and supervision: 13

14

Exhibits for Property Tax 15

• Exhibit __ (SSCP-1) sets forth data for the calculation of the five-16

year average obsolescence factor used to forecast property tax 17

expense. 18

• Exhibit __ (SSCP-2) sets forth the calculation for the growth factor 19

used to forecast property tax expense. 20

8


Page 7 of 82

• Exhibit __ (SSCP-3) sets forth the calculation for the property tax 1

expense backcast using a growth factor of 3.2%. 2

3

Exhibits for Uncollectible Accounts Expense 4

• Exhibit __ (SSCP-4) sets forth data for the historical uncollectible 5

rate calculation for the electric business for the 12-month periods 6

ended December 2009, 2010, and 2011. Each month in this exhibit 7

has rolling 12-month figures. 8

• Exhibit __ (SSCP-5) sets forth data for the historical uncollectible 9

rate calculation for the gas business for the 12-month periods 10

ended December 2009, 2010, and 2011. Each month in this exhibit 11

has rolling 12-month figures. 12

• Exhibit __ (SSCP-6) sets forth the trend in accounts receivable, 13

accounts receivable in arrears, and write-offs over the period 2007 14

through 2011. 15

• Exhibit __ (SSCP-7) sets forth the trend among net write-off and 16

gas supply costs on a lag basis. 17

• Exhibit __ (SSCP-8) contains the work papers developed in the 18

preparation of this testimony. 19

20

21

9


Page 8 of 82

Exhibits for Customer Service Quality 1

• Exhibit __ (SSCP-9) is a summary of the current customer service 2

metrics for gas and electric customers. 3

• Exhibit __ (SSCP-10) illustrates the Company’s proposed changes 4

to its customer service-related metrics. 5

• Exhibit __ (SSCP-11) provides supporting data for the Company’s 6

proposed changes to the small commercial and industrial customer 7

satisfaction metric. 8

9

Exhibits for Customer Programs 10

• Exhibit __ (SSCP-12) sets forth the 2013 Electric Economic 11

Development Grant Program proposal. 12

• Exhibit __ (SSCP-13) sets forth the 2013 Gas Economic 13

Development Grant Program proposal. 14

• Exhibit __ (SSCP-14) contains the JD Powers Electric and Gas 15

Residential and Business Full Year Reports for 2011. 16

• Exhibit __ (SSCP-15) sets forth a proposed breakdown of costs 17

associated with the Company’s proposed Customer Outreach and 18

Education initiative. 19

• Exhibit __ (SSCP-16) describes certain job vacancies in the 20

Customer Organization. 21

10


Page 9 of 82

• Exhibit __ (SSCP-17) provides support for the Company’s request 1

for an incremental employee in the Customer organization. 2

3

II. Property Tax Expense 4

Q. How is the taxable value of the Company’s real property determined 5

for property tax purposes? 6

A. Real property owned by the Company and located in the public right-of-7

way is considered special franchise property and subject to a special 8

franchise assessment. The preparation of special franchise assessments is 9

the responsibility of the Valuation Services Division of the Office of Real 10

Property Tax Services (“ORPS”) with the State Board of Real Property 11

Services having the authority to approve these assessments. Real property 12

owned by the Company and located on private property is locally 13

assessed. For purposes of property tax assessment, real property includes 14

land, buildings, plant and other equipment. 15

16

Regardless whether the property is subject to a special franchise 17

assessment or locally assessed, the methodology for determining the 18

assessment or taxable value of most utility property is the Reproduction 19

Cost New less Depreciation (“RCNLD”) approach. 20

21

11


Page 10 of 82

Q. How was the Rate Year forecast of property tax expense calculated? 1

A. The Company calculated property tax expense for the twelve months 2

ending March 31, 2014 (“Rate Year”) by applying a growth factor to the 3

actual property tax expense incurred in the twelve months ended March 4

31, 2012 and adding property tax expense associated with incremental 5

additions to plant in service. 6

7

As shown in Exhibit__ (RRP-5), Schedule 1, Page 1, property tax expense 8

in the year ending December 31, 2011 (“Historic Test Year”) totaled 9

$181.882 million. The Historic Test Year was then normalized for 10

refunds consistent with the approach approved by the Commission in the 11

2010 Electric Rate Case. Consistent with how the Historic Test Year 12

property tax expense was determined, the Company started with the actual 13

fiscal year ended March 31, 2012 property tax expense and normalized it 14

for refunds. The Company then applied a growth factor of 3.2% percent 15

to the prior fiscal year’s property tax expense for the fiscal years ending 16

March 31, 2013 and March 31, 2014 to reflect forecast increases in 17

property tax of $5.82 million and $6.07 million, respectively. (See Exhibit 18

__ (RRP-5), Schedule 1, Page 3, Line 15, Columns (b) and (f) and Page 4, 19

Line 15, Columns (b) and (e)). The Company added to these amounts 20

forecast property tax expense associated with incremental additions to 21

12


Page 11 of 82

plant in service of $2.01 million for the fiscal year ending March 31, 2013 1

and $4.60 million for the Rate Year. (See Exhibit __ (RRP-5), Schedule 2

1, Page 3, Line 20, Columns (c), (d), (g) and (h) and Page 4, Line 20, 3

Columns (c) and (f)). Property tax expense for the years ending March 31, 4

2015 and March 31, 2016 (collectively, the “Data Years”) were developed 5

using this method. 6

7

Q. Is this calculation consistent with the methodology approved by the 8

Commission in the 2010 Electric Rate Case to forecast property tax 9

expense? 10

A. Yes. In the 2010 Electric Rate Case, the Company started with the 11

calendar year (“CY”) 2009 property tax expense, increased it by the prior 12

year’s growth factor and then added property tax for incremental capital 13

additions to plant in service to arrive at the rate year forecast. 14

15

Q. Please explain how the Company determined the proposed growth 16

factor. 17

A. The Company proposes a growth factor of 3.2% based on the increase in 18

the Company’s actual property tax expense from CY 2010 to the Historic 19

Test Year, normalized to remove the effect of property tax refunds. (See 20

Exhibit __ (SSCP-2), Schedule 1, Column G for CY 2011). 21

13


Page 12 of 82

Q. Is the development of the 3.2% growth factor consistent with the 1

methodology approved by the Commission in the 2010 Electric Rate 2

Case? 3

A. Yes. The 3.2% growth factor was developed using the same methodology 4

as the 1.6% growth factor approved in the 2010 Electric Rate Case, which 5

was based on growth from CY 2008 to CY 2009. (See Exhibit __ (SSCP-6

2), Schedule 1, Column G for CY 2009). 7

8

Q. Please explain how tax rates are established. 9

A. Tax rates are set by local taxing jurisdictions (school district, municipality, 10

county, special district). Each jurisdiction determines its revenue from all 11

sources other than the property tax such as state aid, sales tax revenue, and 12

user fees. Those revenues are subtracted from the jurisdiction’s budget 13

and the remainder becomes the property tax levy. To determine the actual 14

tax rate, the taxing jurisdiction divides the tax levy by the total taxable 15

assessed value of all property in the jurisdiction. 16

17

Q. How did the Company calculate the average tax rate for the Historic 18

Test Year? 19

A. The Company calculated its average tax rate for the Historic Test Year in 20

three steps. 21

14


Page 13 of 82

1. The Company identified all tax parcels on which the Company 1

paid property taxes including the location of the parcel, its assessed 2

value, the equalization rate of the municipality where each parcel 3

is located, and the taxes paid. 4

2. The Company then divided the assessed value of each parcel by 5

the applicable equalization rate for the municipality, as established 6

by ORPS, to calculate 100 percent of taxable value for each 7

property. 8

3. Finally, the Company divided the total property taxes paid by the 9

result of Step 2 above. 10

11

Q. How is the Company proposing to reflect changes in the tax rate for 12

the Rate Year and Data Years? 13

A. Changes in tax rates for the Rate Year and Data Years are implicit in the 14

3.2% annual growth factor used by the Company, which represents the 15

actual growth in operating property tax expense from CY 2010 to the 16

Historic Test Year. For purposes of determining the property taxes 17

associated with the incremental plant additions, the Historic Test Year’s 18

average tax rate is used. This is consistent with the approach approved by 19

the Commission in 2010 Electric Rate Case. 20

21

15


Page 14 of 82

Q. Does the recent property tax cap law in New York State affect the 1

forecast? 2

A. No. In 2011, New York State passed a law capping year-on-year growth 3

on the property tax levy at two percent or the rate of inflation, whichever 4

is less. This law does not constrain the Company’s forecast of property 5

tax expense because the law does not cap increases in tax rates or 6

individual tax bills. The Company’s forecast of property tax expense is 7

based on the tax bills, not the tax levy. Additionally, the cap on tax levy is 8

not an absolute limit. There are exceptions for certain expenses (e.g., 9

unusually large pension increases) and, with a 60% majority, voters for 10

school districts or local governments can vote to override the cap. 11

12

Q. How does the Company manage property tax expense? 13

A. The Company manages property tax expense by protesting overvaluations, 14

reviewing cost data supplied to taxing authorities, and petitioning for 15

obsolescence allowances to be applied to the valuation of special franchise 16

property. 17

18

Q. Please describe the trend of property taxes paid in recent years. 19

A. As reflected in Exhibit __ (SSCP-2), Schedule 1, property taxes increased 20

6.1% from CY 2009 to CY 2010, in part because of the decrease in the 21

16


Page 15 of 82

obsolescence allowance from 23% to 21%. Property taxes increased 3.2% 1

from CY 2010 to CY 2011. The increase in the Company’s obsolescence 2

allowance during this timeframe went from 21% to 23%, as determined by 3

ORPS, preventing the property tax increase from being greater. 4

5

Q. What is obsolescence and how does it affect property taxes? 6

A. Obsolescence is an impairment in the value of an asset that is distinct from 7

physical depreciation. The RCNLD methodology used by ORPS to 8

develop assessments recognizes the existence of functional and economic 9

obsolescence. To date, the economic obsolescence allowed by ORPS is 10

based on the Company not achieving certain economic performance 11

metrics. If these metrics improve, the amount of economic obsolescence 12

allowed by ORPS will decrease, causing a corresponding increase in 13

assessments and property taxes. 14

15

Q. Has ORPS accepted the Company’s applications for obsolescence 16

allowances? 17

A. Yes, ORPS has accepted the Company’s applications for economic 18

obsolescence on its electric and gas assets. However, ORPS has never 19

granted the Company an allowance for functional obsolescence. 20

21

17


Page 16 of 82

Q. Please explain the Company’s forecast obsolescence rate for the Rate 1

Year and Data Years. 2

A. The Company forecast obsolescence for the Rate Year and Data Years 3

using a 5-year historic average. As shown in Exhibit __ (SSCP-1), the 4

average of 23% encompasses the 2008 through 2012 allowances. The 5

factors that are allowed by ORPS are themselves based on multi-year 6

averages, further supporting the use of the 5-year average. The data are 7

shown below. 8

9

Obsolescence % For Roll Year 21% 2008 23% 2009 21% 2010 23% 2011 27% 2012 23% 5-Year average (2008-2012)

10

Q. How is the 23% five-year historic average obsolescence included in 11

the Rate Year and Data Year forecasts? 12

A. The 23% average obsolescence factor is embedded in the 3.2% growth 13

factor, because the 2011 taxes were based on a 23% obsolescence factor, 14

as noted in the above chart. 15

16

18


Page 17 of 82

Q. What is the impact of using an average obsolescence factor on the 1

forecast property tax expense? 2

A. Using a 23% average obsolescence factor for the Rate Year and Data 3

Years minimizes the impact of variations in obsolescence factors on the 4

forecast property tax expense. 5

6

Q. What is the impact of capital additions on the forecast? 7

A. Capital additions increase the Company’s taxable property and, therefore, 8

its property tax expense. The Company’s 3.2% growth factor implicitly 9

incorporates capital spending that is approximately equal to its five-year 10

historic average. Consistent with the approach approved by the 11

Commission in the 2010 Electric Rate Case, property taxes on forecast 12

capital spending in excess of these average historical levels are separately 13

calculated and added to the forecast property tax expense. 14

15

Q. How are refunds handled and what did the Company forecast for 16

refunds during the Rate Year and Data Years? 17

A. Refunds are added back to the Historic Test Year consistent with the 18

approach approved by the Commission in the 2010 Electric Rate Case, and 19

none are forecast for the Rate Year or Data Years. Refunds are the result 20

of successful litigation against municipalities and, therefore, are non-21

19


Page 18 of 82

recurring and unpredictable. Niagara Mohawk does not have a basis for 1

forecasting refunds to be received in the Rate Year or Data Years. 2

3

Q. How did the Company verify the methodology used in preparing its 4

Rate Year forecast? 5

A. The Company prepared a backcast, retroactively applying its forecast 6

methodology to prior years. The Company then compared the backcast 7

results to the actual results to prove its methodology. The backcast is 8

presented in Exhibit__ (SSCP-3), Schedule 1. 9

10

Q. How was the backcast prepared? 11

A. First, the Company adjusted actual annual results for CYs 2006 through 12

2011 for changes in allowed economic obsolescence. The Company next 13

applied the 3.2% growth factor to the adjusted prior year actual results. It 14

then added the calculated additional tax on net plant closings in excess of, 15

or under, the average change to net plant in service using the same five 16

year period used in preparing the Rate Year forecast. 17

18

Q. What was the result of performing the backcast with a growth factor 19

of 3.2%? 20

20


Page 19 of 82

A. The backcast produced results that were within 0.01% of the actual results 1

experienced by the Company for the period 2006 through 2011, as shown 2

in Exhibit __ (SSCP-3), Schedule 1, Page 1. 3

4

III. Uncollectible Accounts Expense 5

Q. Please explain Niagara Mohawk’s recent experience with regard to 6

uncollectible accounts and its efforts to mitigate this expense. 7

A. The uncollectible accounts expense incurred by Niagara Mohawk each 8

year is a significant focus of our attention, as are the Company’s efforts to 9

mitigate this cost. As discussed later in our testimony, several factors 10

outside the Company’s control have placed considerable upward pressure 11

on the level of uncollectible accounts expense in recent years. In response 12

to this increase, Niagara Mohawk began implementing a bad debt 13

mitigation plan in 2008, whereby certain collection activities were ramped 14

up, particularly in the areas of outbound calling, account initiation, and 15

field visit management. Despite these efforts, net write-offs continued to 16

climb for several years and then declined as supply costs declined and 17

account initiation practices took hold. 18

19

Q. Please describe how Niagara Mohawk manages its collections process 20

to minimize its uncollectible accounts expense. 21

21


Page 20 of 82

A. Niagara Mohawk uses a full suite of collection activities and strategies to 1

manage its collection process and minimize uncollectible accounts 2

expense. These activities and strategies are employed throughout the 3

Company’s delinquency management process, which consists of four key 4

components: Account Initiation, Account Management, Field Collections, 5

and Final Bill Management. 6

7

Account Initiation is the point at which the Company establishes a service 8

contract with the customer applying for service. Prior to initiating service, 9

the Company confirms the identification of each applicant. If an applicant 10

has outstanding debt with the Company within the last six years, they are 11

required to pay the balance owed or establish a payment agreement prior 12

to obtaining service. The debt is recalled from the collection agency 13

before a payment agreement is established on the unpaid balance. The 14

past debt is then transferred to the new active account under the terms of 15

the new payment agreement. 16

17

Account Management is the method the Company uses to actively monitor 18

customer payment history. The Company manages collection accounts 19

with the use of a behavioral scoring mechanism referred to as a Portfolio 20

Management Package (“PMP”). Each customer account in arrears is 21

22


Page 21 of 82

evaluated and scored using PMP. The output from the model, which is 1

reviewed and updated at regular intervals, assists the Company in 2

determining the appropriate collections actions based on the customer’s 3

past payment behavior. Customers are divided into five risk groups, and 4

each group is assigned the most cost-effective treatment path that is likely 5

to be successful. In prioritizing the accounts in the portfolio, Niagara 6

Mohawk seeks to identify lower risk customers that will likely self cure 7

and higher risk customers requiring more assertive collection measures. 8

This process attempts to gear the response to the specific circumstances of 9

the individual customer and attempts to ensure that the most cost-effective 10

steps are taken to mitigate the Company’s uncollectible accounts expense. 11

12

Field Collections are the actions taken by the Company to collect 13

customer payment on a field visit or to terminate service because of non-14

payment. Field collections begin after a final notice has been issued to the 15

customer. The Company significantly increased its field collections 16

activities in 2008 as part of its bad debt mitigation strategy. 17

18

Final Bill Management is the process of collecting final or written-off 19

accounts with the assistance of outside collection agencies. 20

21

23


Page 22 of 82

Q. Is Niagara Mohawk taking any other steps to control its uncollectible 1

expenses? 2

A. Yes. During 2010 and through early 2011, the Company undertook a 3

project to reinstate previously written-off accounts and transfer the unpaid 4

balances to active accounts (“Transfer-to-Active Project”). This Project 5

included an automated system change to the account initiation process that 6

matches customers seeking new service with previously written off 7

amounts in the customer’s name. This is performed via a database search 8

using a credit reporting service. The Transfer-to-Active Project also 9

included a one-time manual effort to transfer previously written-off 10

balances up to five years old to active accounts. The manual phase of the 11

project resulted in a one-time $9 million increase in recoveries. The 12

increase in recoveries from this project significantly reduced net write-13

offs. This, in turn, favorably affected uncollectible rates. 14

15

Table 1 below illustrates the historical levels of accounts receivable 16

associated with customers who had reinstated balances transferred to their 17

active accounts. Since January 2010, there has been a significant increase 18

in the receivables from these customers. 19

20

21

24


Page 23 of 82

Table 1 1

Historical Accounts Receivable Related To Customers With Reinstated 2 Balances 3

(Electric & Gas Combined) March 2003 Through December 2011 4 5

6

7

In addition, Niagara Mohawk strives to inform its low income customers 8

of the programs that are available to assist them in paying their bills. 9

These programs are described in Section V of our testimony. Niagara 10

Mohawk also provides training and tools to its customer service 11

representatives to prepare them to respond to customer high bill inquiries 12

in a knowledgeable, empathetic, and solution-oriented manner. Also, the 13

Company’s specially-trained Consumer Advocates provide assistance to 14

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Page 24 of 82

the Company’s most vulnerable customers through the collections process. 1

These efforts demonstrate Niagara Mohawk’s continuing commitment to 2

assist low income customers in managing their arrears, which in turn, 3

helps minimize the Company’s uncollectible accounts expense. 4

5

Q. What was Niagara Mohawk’s uncollectible accounts expense in the 6

Historic Test Year? 7

A. Niagara Mohawk incurred total uncollectible accounts expense (also 8

referred to as net write-offs) of $18.9 million or 2.297 percent of retail 9

sales revenues for gas, and $42.6 million or 1.271 percent of retail sales 10

revenue for electric in the Historic Test Year. The Company’s 11

uncollectible accounts expense for calendar years 2009 through the 12

Historic Test Year are reflected in Exhibit __ (SSCP-4) and Exhibit __ 13

(SSCP-5). 14

15

Q. Please summarize the Company’s proposal for recovery of 16

uncollectible accounts expense. 17

A. The Company currently recovers uncollectible expense based on the net-18

write-off rates established in the 2008 Gas Rate Case and 2010 Electric 19

Rate Case. The Company is proposing to update the uncollectible expense 20

rates to recover net write-offs associated with delivery and commodity 21

26


Page 25 of 82

revenues, including purchased receivables, by setting the uncollectible rate 1

for the Rate Year equal to the Historic Test Year net write-off rate of 2

2.297 percent of gas revenue and 1.271 percent of electric revenue. This 3

is consistent with the methodology used in the 2008 Gas Rate Case and 4

2010 Electric Rate Case. As in the 2010 Electric Rate Case, the Company 5

proposes to update its forecast using the most recently available twelve-6

months of data. 7

8

Q. How do the proposed net write-off rates compare to the rates 9

established in the 2008 Gas Rate Case and 2010 Electric Rate Case? 10

A. The net write-off rates of 2.297 percent for gas and 1.271 percent for 11

electric for the Historic Test Year are higher than the 1.75 percent in the 12

2008 Gas Rate Case and the 1.221 percent in the 2010 Electric Rate Case. 13

As indicated on page one of Exhibit __ (SSCP-4) and Exhibit __ (SSCP-14

5), the rolling 12 month uncollectible rates decreased significantly in the 15

latter half of 2010 through much of 2011, partly as a result of the Transfer-16

to-Active Project. Toward the end of 2011, the uncollectible rates rose 17

because revenues dropped as a result of lower supply costs and a relatively 18

cool 2011 summer followed by the warm winter of 2011-2012. 19

Furthermore, as shown in Exhibit __ (SSCP-6), Schedule 1, net write-offs 20

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increased as a result of the colder winter of 2010-2011 as did write-offs 1

attributed to accounts that had been reinstated. 2

3

Q. How have the enhanced collection processes affected the uncollectible 4

rate presented in Exhibit __ (SSCP-4) and Exhibit __ (SSCP-5)? 5

A. The Company’s established collection practices serve to mitigate bad debt 6

expense over the long term. Instituting new initiatives, such as aggressive 7

field collection strategies, may actually increase the uncollectible rate in 8

the near term. Alternatively, initiatives such as the Transfer-to-Active 9

Project tend to reduce the uncollectible rate in the short-term as previously 10

written-off amounts are reinstated to active accounts. Over time, however, 11

any unrecovered balances associated with these reinstatements will move 12

to write-off, thereby increasing the uncollectible rate. The impact of the 13

Company’s collection strategies implemented in the past few years are 14

reflected in the uncollectible rates illustrated in Exhibit __ (SSCP-4) and 15

Exhibit __ (SSCP-5). 16

17

In particular, the second page of these exhibits reflects the removal of the 18

manual phase of the Transfer-to-Active Project. These pages illustrate the 19

impact on the uncollectible rates of reinstating the previously written-off 20

amounts. As shown in the exhibit, the uncollectible rates are generally 21

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higher in the months the manual process occurred, including the first few 1

months of the Historic Test Year. Updating the twelve-month period will 2

mitigate this impact as the update will remove months impacted by the 3

Transfer-to-Active Project, which concluded in February 2011. 4

5

Q. Do you anticipate further changes in the uncollectible rate as a result 6

of enhanced collection practices? 7

A. No. The Company does not anticipate further favorable impacts on the 8

uncollectible rate in the Rate Year as a result of these practices. It is 9

anticipated that the uncollectible rate will rise in the first six months of 10

2012. Two factors contribute to this rise – increasing net write offs and a 11

declining revenue base. As we move past the rolling 12 month net write-12

off affected by the manual phase of the Transfer-to-Active Project, net 13

write-offs will stabilize while the revenue base is expected to decline 14

because of mild weather and lower commodity costs during the most 15

recent winter of 2011-2012. 16

17

Q. Please explain the percentage allocations between the electric and gas 18

segments as presented in Exhibit __ (SSCP-4) and Exhibit __ (SSCP-19

5). 20

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A. The allocations are applied in the same way that bad debt expense has 1

been booked historically. Prior to January 2011, the allocation was 72% 2

electric and 28% gas in accordance with a study conducted for the March 3

11, 1999 Gas Multi-Year Rate and Restructuring Proposal in Case 09-G-4

0336. As an outcome of the 2010 Electric Rate Case, the allocation was 5

changed to 69% electric and 31% gas for the months of January 2011 6

through October 2011. Based on an annual reassessment performed in 7

November 2011, the electric and gas allocation was updated to 70% 8

electric and 30% gas for November and December of 2011. This annual 9

reassessment is typically performed at the end of October before the 10

moratorium period commences and when receivable inventories are 11

generally the lowest. 12

13

Q. Has the Company forecasted uncollectible accounts expense for the 14

Rate Year? 15

A. Yes. Including the uncollectibles on the base rate increase, the net write-16

off forecast for the Rate Year is $13.8 million for gas and $29.7 million 17

for electric. The Company has also included information for Data Years 1 18

and 2 in Exhibit __ (RRP-3), Schedule 44, Page 5 of 5. These amounts 19

were calculated by applying the forecast write-off rates of 2.297 percent 20

for gas and 1.271 percent for electric to the forecast of Niagara Mohawk’s 21

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retail revenue (excluding 18-A assessments), plus the late payment charge 1

forecast revenue, in each year. 2

3

IV. Service Quality Performance 4

Q. Please describe the Company’s efforts to manage customer service 5

quality. 6

A. The centerpiece of Niagara Mohawk’s customer service quality efforts is 7

the Customer Call Center in Syracuse, New York. The Customer Call 8

Center is a full service center providing 24 hours a day, 365 days a year 9

emergency service and handling over a million calls per year. The 10

Customer Call Center staff includes 117 professional customer service 11

representatives available to handle emergency calls and incoming 12

customer inquiries such as general billing inquiries, meter reading issues, 13

electric outage reporting and status, and available payment options. The 14

Company has also entered an arrangement with a third party to handle 15

calls specific to starting and stopping service and collection-related 16

activities. 17

18

The Company’s Accounts Processing organization is located in Syracuse 19

and Niagara Falls. This 90 employee group is responsible for ensuring bill 20

accuracy, revenue integrity, and timely cash flow. To ensure the best 21

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customer experience possible, both the Customer Call Center and the 1

Accounts Processing organization receive extensive training throughout 2

the year specific to meeting the needs of customers and complying with 3

regulatory obligations. 4

5

In addition, Niagara Mohawk has a group located in Syracuse dedicated to 6

handling escalated complaints received directly by the Company as well as 7

from the Commission. This group, Escalated Complaint Management 8

Upstate NY, consists of eight full time employees dedicated to resolving 9

escalated customer issues, ensuring that the Company’s policies are 10

followed consistently, and managing the Commission’s Quick Resolution 11

Process for the Company. Under the Quick Resolution Process, all 12

customer complaints received by the Commission that were not initially 13

handled by the Company are sent back to the Company for resolution. 14

These are referred to as Quick Resolutions (“QRS”). If the Company and 15

the customer cannot resolve the issue and it is sent back to the 16

Commission by the customer, the Company, or both, the complaint is 17

categorized as a Standard Resolution (“SRS”). Complaints reaching the 18

level of an SRS are considered charged complaints for purposes of the 19

Company’s complaint performance metric. The Customer Policy and 20

Satisfaction group is dedicated to ensuring that all customer complaints 21

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are handled in an efficient and fair manner in accordance with the 1

Commission’s rules. During the Historic Test Year, the group handled 2

2,452 QRS complaints with 135 rising to the level of an SRS complaint. 3

4

Another important aspect of providing an exceptional customer experience 5

is obtaining feedback directly from customers. In the 2008 Gas Rate Case, 6

the Commission approved the Company’s use of a telephone survey 7

beginning January 1, 2011 for the Residential Transaction Satisfaction 8

Index. In a recent collaborative stemming from the 2010 Electric Rate 9

Case, the Company agreed to implement a monthly customer satisfaction 10

survey administered by telephone for the Small to Medium 11

Commercial/Industrial (“C&I”) Satisfaction Index. The Company has 12

conducted monthly telephone surveys continuously since April 2009, 13

receiving immediate feedback that the Company has used to resolve 14

customer issues. 15

16

Q. Please describe the Company’s current Commission-approved Service 17

Quality Assurance Program (“SQA Program”). 18

A. Niagara Mohawk’s SQA Program includes performance targets in three 19

major areas: (1) electric and gas Customer Service Performance, (2) 20

Electric Reliability, and (3) Gas Safety. In this testimony, the Panel 21

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addresses Customer Service Performance. The Electric Reliability and 1

Gas Safety performance targets are addressed in the testimony of the 2

Electric and Gas Infrastructure and Operations Panels. 3

4

Q. Please describe the Customer Service Performance measures in the 5

SQA Program. 6

A. The current electric customer service performance measures were adopted 7

in the 2010 Electric Rate Case Order. The current performance targets for 8

electric Customer Service Performance are: (1) annual Commission 9

complaint rate per 100,000 customers, (2) residential customer transaction 10

satisfaction, (3) small to medium commercial and industrial customer 11

transaction satisfaction, and (4) percent of calls answered in 30 seconds. 12

The electric customer service performance targets associated with percent 13

of meters read and the LICAP (also referred to as the “AffordAbility 14

Program”) enrollment target were eliminated in the 2010 Electric Rate 15

Case. 16

17

The current Customer Service Performance measures for the gas business 18

are set forth in the 2008 Gas Order. They are: (1) annual Commission 19

complaint rate per 100,000 customers, (2) residential customer transaction 20

satisfaction, (3) small to medium commercial and industrial customer 21

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transaction satisfaction, (4) percent of meters read, (5) percent of calls 1

answered in 30 seconds, and (6) the LICAP enrollment target. 2

3

Q. Please describe Niagara Mohawk’s most recent performance for the 4

customer service metrics under the SQA Program. 5

A. Since 2009, the Company has met the performance targets in all six 6

customer service measures for each year including 2011. A table showing 7

the Company’s recent performance on the Customer Service Performance 8

metrics is provided in Exhibit __ (SSCP-9). 9

10

Q. Is the Company proposing any changes to the Company’s customer 11

service metrics? 12

A. Yes. Consistent with the 2010 Electric Rate Case, Niagara Mohawk 13

proposes to eliminate the gas metrics associated with percent of meters 14

read and the LICAP enrollment target. The Company also proposes to 15

modify the annual Commission complaint rate for gas and the small to 16

medium C&I customer transaction satisfaction metrics for the electric and 17

gas businesses. 18

19

Tables comparing the Company’s current service quality measures to the 20

Company’s proposed measures are presented in Exhibit __ (SSCP-10). 21

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The Company proposes the same total negative revenue adjustments for 1

the SQA Program adopted in the 2010 Electric Rate Case and the 2008 2

Gas Rate Case. 3

4

Q. Please discuss Niagara Mohawk’s proposal to discontinue the percent 5

of gas meters read customer service measure. 6

A. The percent of meters read measure was implemented to reduce the 7

number of estimated meter reads performed by the Company. In 2005, 8

Niagara Mohawk completed its Automated Meter Reading (“AMR”) 9

program. As a consequence, a service measure for meter reads is no 10

longer needed to ensure a high level of actual meter reads. The current 11

annual target under the SQA Program for percent of meters read is 96 12

percent. For 2008, Niagara Mohawk had a percent of meters read statistic 13

of 98.6 percent; for 2009, 98.7 percent; for 2010, 99.9 percent; and for 14

2011, 98.96 percent. The Company’s meter reading performance 15

consistently exceeds the Commission’s metrics and there is little risk that 16

this performance will decline in the future. Accordingly, Niagara 17

Mohawk submits that the percent of meters read measure should be 18

discontinued. This proposal was supported by Staff and interested parties 19

in the 2010 Electric Rate Case and the metric has been eliminated for the 20

electric business. 21

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Q. Please discuss Niagara Mohawk’s proposal to discontinue the gas 1

LICAP customer service measure. 2

A. The LICAP measure was implemented to monitor Niagara Mohawk’s low 3

income program and ensure that the Company continued its outreach 4

programs to attract eligible customers. Like the percent of meters read 5

measure, Niagara Mohawk’s performance and commitment to the program 6

demonstrates that this performance measure is no longer needed. Over the 7

past several years, Niagara Mohawk has exceeded the targeted enrollment 8

of 3,780 customers. In 2008, Niagara Mohawk enrolled 3,943 customers, 9

in 2009, 3,956 customers, in 2010, 3,903 customers, and in 2011, 4,607 10

customers, exceeding the annual target by 128%. Niagara Mohawk’s low 11

income program is well established, its customer participation levels have 12

been well above target over the past few years, and the Company’s 13

commitment to the program remains strong, as discussed in Section V of 14

our testimony. The LICAP measure originally served an important 15

purpose; however, the risk of under enrollment has not and is not likely to 16

present itself. As such, Niagara Mohawk submits that the LICAP measure 17

should be discontinued. This proposal was supported by Staff and 18

interested parties in the 2010 Electric Rate Case and the metric has been 19

eliminated for the electric business. 20

21

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Q. Please describe the proposed change to the complaint rate for gas 1

customers. 2

A. In the 2010 Electric Rate Case, and as modified in the RPP, a revised 3

electric target and negative revenue adjustment level was approved for the 4

Complaints per 100,000 customers metric. The Company is proposing to 5

realign the gas metric with the electric metric. The Company does not 6

distinguish between gas or electric complaints, given that some customers 7

are electric only, some gas only, and some receive combined service. The 8

minimum threshold under the current measure for gas is 3 or more charged 9

complaints per 100,000 customers in a year with a maximum negative 10

revenue adjustment of $1.6 million. The minimum threshold under the 11

current measure for electric is 1.5 or more charged complaints per 100,000 12

customers in a year with a maximum negative revenue adjustment of 13

$6.08 million. Niagara Mohawk proposes to combine the gas and electric 14

complaint metrics and to maintain the current electric minimum threshold 15

of 1.5 complaints per 100,000 customers in a given year. 16

17

Q. Please discuss the proposed revision to the small to medium C&I 18

customer transaction satisfaction customer service measure. 19

A. Pursuant to the Rate Plan Provisions (“RPP”) filed with the Commission 20

on January 31, 2012 in connection with the 2010 Electric Rate Case, the 21

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Company agreed to work with interested parties and Staff to share data on 1

the small C&I telephone surveys and prepare a report and 2

recommendation to the Commission on whether the threshold for gas and 3

electric should be modified. A collaborative meeting was held on March 4

20, 2012 to review the measure. As part of the collaborative, the parties 5

discussed the methodology for analyzing the metric, reviewed the results 6

of an independent third party assessment of 24 months of data (Exhibit __ 7

(SSCP-11), and agreed on a recommended revised metric. 8

The collaborative recommended that the small C&I metric target be 9

increased from 69.5 to 75.1 for calendar year 2012. The new target uses a 10

95% confidence level, which results in a significant difference of 2.7 11

points and the recommended penalty threshold of 75.1. Given the 12

collaborative just completed its work on the revised metric, the Company 13

proposes to utilize the new threshold of 75.1 for calendar year 2013 and 14

beyond. 15

16

Q. Is the Company proposing any revisions to the potential negative 17

revenue adjustments associated Customer Service Performance? 18

A. No. The Company is not proposing to modify the $19.8 million in total 19

potential pre-tax negative revenue adjustments. If the Company’s 20

proposal to eliminate the meters read and LICAP metrics is approved, the 21

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Company proposes to re-allocate the negative revenue adjustments 1

associated with those metrics to the remaining four customer service 2

quality metrics. The negative revenue adjustment thresholds for Niagara 3

Mohawk’s electric business were recently changed by the Commission in 4

the 2010 Electric Rate Case. The thresholds for both the electric and gas 5

SQA Program were recently reviewed by Staff, the Company, and 6

interested parties in the collaborative required by the 2010 Electric Rate 7

Case, and are shown in the RPP. The Company believes that it is 8

unnecessary to revisit the negative revenue adjustment levels given that 9

the Company, Staff, and interested parties recently reached consensus on 10

them. 11

12

Q. Does the Company propose to make any changes to the way negative 13

revenue adjustments are calculated and credited to customers? 14

A. No. Niagara Mohawk proposes to maintain the currently effective method 15

for calculating and crediting customers with negative revenue adjustments, 16

which was adopted in the 2010 Electric Rate Case Order and 2008 Gas 17

Rate Case Order, and described in the RPP. 18

19

Q. Does the Company propose to make any changes to the way SQA 20

Program performance is currently reported? 21

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A. The Company proposes the reporting protocols set forth in the RPP. As 1

provided in the RPP, the Company would be required to report annual 2

performance results, together with supporting data and reports, to Staff 3

within 3 months after the conclusion of each full calendar year. The 4

annual Customer Service Performance report includes a description of the 5

service quality measures, the method for calculating performance, the 6

results for the period, supporting calculations of annual results in 7

spreadsheet format, and a narrative overall assessment of customer service 8

performance during that calendar year. Pursuant to the RPP, the Company 9

has agreed to submit to Staff quarterly performance reports within thirty 10

days of the conclusion of the first, second, and third quarter of each 11

calendar year. The Company proposes to continue to provide to Staff 12

annual reports within 3 months after the conclusion of each full calendar 13

year, and quarterly reports within 30 days of the conclusion of the first, 14

second, and third quarter of each calendar year. 15

16

V. Programs for Low Income Customers 17

Q. Please summarize the Company’s approach regarding its low income 18

programs. 19

A. Niagara Mohawk recognizes that low income customers in its service 20

territory face substantial and serious challenges in meeting their energy 21

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needs. As a result, the Company has devoted significant attention to the 1

development of its low income programs. The Company’s low income 2

programs are intended to improve affordability, decrease arrears, and 3

ensure that eligible customers are enrolled in programs offered by the 4

Company and government and social service agencies that are most 5

beneficial to them. 6

7

Q. What programs does the Company currently offer to assist low 8

income customers? 9

A. The Company’s low income programs available to electric and gas 10

customers include AffordAbility, Low Income Discounts, and the 11

Reconnect Fee Waiver Programs. Niagara Mohawk’s commitment to 12

provide safe and adequate electric and gas service includes a particular 13

focus on its most vulnerable customers, such as those with special needs 14

and those who have struggled to pay their bills. The Company 15

understands that low income customers may need sustainable, long-term 16

support. With this in mind, Niagara Mohawk seeks to educate low income 17

customers about energy efficiency and the availability of payment 18

assistance through the AffordAbility Program. The Company also 19

provides other programs, such as the Low Income Discount Program and 20

the Reconnect Fee Waiver Program for customers who have demonstrated 21

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a financial hardship and are unable to make full payment on their utility 1

bills. 2

3

Q. Who is eligible to participate in the Company’s low income 4

programs? 5

A. Niagara Mohawk has tailored the eligibility criteria for its low income 6

programs to existing programs that identify customers most likely to 7

benefit. Specifically, customers who are approved for the Home Energy 8

Assistance Program (“HEAP”), are in arrears, and have a history of 9

broken payment arrangements are eligible for the AffordAbility Program. 10

Customers may also qualify for the AffordAbility Program if they have a 11

referral from local human service agencies and/or the Company’s 12

Consumer Advocates and are current on their account but unable to afford 13

necessary medication, proper nutrition, or some other life necessity. 14

15

The Low Income Discount Program’s eligibility is based solely upon the 16

customer receiving a HEAP benefit within the past 14 months. 17

18

Eligibility for the Reconnect Fee Waiver Program is based on eligibility 19

for a HEAP benefit. 20

21

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Q. Is the Company proposing any changes to its electric low income 1

programs? 2

A. The Company recently made changes to the AffordAbility and Low 3

Income Discount Programs in the 2010 Electric Rate Case. The 4

Reconnect Fee Waiver Program for HEAP recipients was implemented 5

pursuant to the 2010 Electric Rate Case. The Company previously 6

estimated the cost of the Reconnect Fee Waiver Program to be less than 7

$10,000 per year; however, the actual expense during the Historic Test 8

Year was approximately $109,000. Thus, the Company proposes to 9

continue the Reconnect Fee Waiver Program and increase funding to the 10

level of lost fee revenue. Otherwise, the Company proposes to continue 11

its existing programs for electric customers without change. The 12

Company will continue to monitor the success of its low income programs 13

to determine if additional programs or program changes are warranted in 14

the future. 15

16

Q. Is the Company proposing any changes to its gas low income 17

programs? 18

A. Yes. The Company is proposing to increase the credit available to gas 19

customers under the Low Income Discount Program. The Company 20

recently made changes to the Low Income Discount Program for electric 21

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customers in the 2010 Electric Rate Case. The Company is now 1

proposing an increase in the monthly credit available to gas customers. 2

3

Q. What are the current discount levels of the gas Low Income Discount 4

Program? 5

A. Currently, eligible customers receive a $7.50 monthly discount on their 6

gas bill for 14 months. To be eligible, the customer must have received a 7

HEAP grant. Customers must receive a HEAP grant every year to remain 8

on the program. 9

10

Q. What level of increase is the Company seeking in the monthly gas 11

credit? 12

A. The Company is proposing to increase the monthly credit of $7.50 by 13

$2.50 to $10.00 per month. The Company estimates the total funding to 14

be $8.2 million annually, resulting in an incremental increase of $3.7 15

million above the Company’s current annual recovery of $4.5 million. 16

The proposed increase of $3.7 million will address the increase in the 17

credit (i.e., from $7.50 to $10.00) and reflect funding for increased 18

participation in the program, thereby mitigating the ongoing shortfall the 19

Company is experiencing. 20

21

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Q. Why does the Company believe the increase in the monthly gas credit 1

is warranted? 2

A. Given today’s economy, many more people are finding themselves in need 3

of financial assistance. The increase in the number of HEAP grants alone 4

demonstrates this fact. The number of grants from the 2010-2011 heating 5

season increased by 49% from the 2007-2008 heating season. Federal 6

funding for assistance is limited, however. For the 2011-2012 heating 7

season, for example, the federal government reduced the funding for 8

HEAP from $5.1 billion to $3.47 billion. This reduced New York State’s 9

HEAP funds from $522 million to $376 million. The President’s recent 10

budget further reduces HEAP funding for FY 2013. New York State’s 11

funding will be reduced to $303 million, which equates to a reduction of 12

43.6% from federal FY 2010 appropriations. This reduction in much 13

needed funding will have a negative impact on the Company’s low income 14

customers who depend on such funding to heat their homes. Increasing 15

this credit will partially offset the reduction in available HEAP benefits 16

and provide customers with assistance to manage their gas bills. 17

18

Q. How has the gas Low Income Discount Program performed against 19

the Company’s original projections of customer participation? 20

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A. The gas program to date has had participation above original estimates. 1

This increase caused by the increase in customers receiving HEAP 2

benefits. The Company estimates that by May 2012, it will experience an 3

overall increase of 32% in the credits provided to eligible gas customers 4

above the original projections. To date, the annual funding of $6.1 million 5

for the program outpaces the Company’s original projections of $4.5 6

million by $1.6 million. 7

8

Q. Does the Company currently reconcile credits that are above or below 9

the rate allowance for the gas Low Income Discount Program? 10

A. Yes. Pursuant to the 2008 Gas Rate Case, the Company defers and 11

reconciles the amount recovered in rates to the actual cost of the gas Low 12

Income Discount Program in each year. If the actual annual program costs 13

are below the amount recovered in rates, the Company would establish a 14

deferred credit for the difference. If the actual annual program costs 15

exceed the amount recovered in rates, the Company is permitted to 16

establish a deferred debit, as long as its achieved return on equity for that 17

year does not exceed 10.2%. During the Historic Test Year, the 18

Company’s achieved return on equity did not exceed 10.2% and the $6.1 19

million spent on the program exceeded the $4.5 million authorized in rates 20

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by $1.6 million. Thus, the Company has a deferred debit for $1.6 million 1

during the Historic Test Year. 2

3

Q. How does the Company propose to recover the cost of the Low 4

Income Discount Programs for gas and electric customers? 5

A. The Company proposes to continue recovering the costs associated with 6

the gas and electric Low Income Discount Program through the base rates 7

of gas and electric service classifications. Details on how the costs will be 8

recovered appear in testimony for the Gas and Electric Rate Design 9

Panels. 10

11

Q. Does the Company propose to reconcile over or under-collection of 12

the cost of the Low Income Discount Program to the base rate 13

allowance? 14

A. Yes. In the 2010 Electric Rate Case and in the 2008 Gas Rate Case, the 15

Commission approved deferral mechanisms authorizing the Company to 16

defer the difference between the allowance in base rates and actual costs 17

of the electric and gas Low Income Discount Programs for future refund to 18

or recovery from customers. The Company proposes to continue these 19

existing deferral mechanisms. Details on the proposed Low Income 20

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deferral mechanism are provided in the Revenue Requirements Panel 1

testimony. 2

3

Q. What other efforts has the Company undertaken to reach out to low 4

income customers? 5

A. The Company implemented a grassroots campaign where our Consumer 6

Advocates target prospective customers with one-on-one assistance. The 7

Consumer Advocates in each of the Company’s regions are making 8

weekly, bi-monthly, and monthly visits to selected agencies such as the 9

Department of Social Services, Department of Labor offices, Community 10

Action Program agencies, Economic Opportunity Council offices, one-11

stop job training centers, food pantries, domestic violence organizations, 12

health clinics, mobile outreach vans, public libraries, and senior apartment 13

complexes, among others. In FY 2012, the Consumer Advocates assisted 14

16,630 households, made 385 home visits, and participated in 953 15

outreach and educational events. In FY 2011, the Consumer Advocates 16

assisted 13,243 households, made 359 home visits, and participated in 639 17

outreach and educational events. By networking with those who share 18

common interests and goals, the team has identified new ways of reaching 19

out to customers. The Company has also identified new opportunities for 20

outreach and found pockets of customers who may be in need of services. 21

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The campaign is successful and receives positive feedback from various 1

agencies and customers. 2

3

VI. Additional Customer-Focused Programs 4

Economic Development Programs 5

Q. Please describe the Company’s economic development activities and 6

programs. 7

A. The Company’s economic development activities support regional 8

economic growth by attracting new businesses, helping existing customers 9

grow, and otherwise supporting the economic development and 10

revitalization of Upstate New York. The purpose of these economic 11

development activities is to help create and retain jobs and to generate new 12

capital investment in the Company’s service area. The Company 13

provides site location assistance, energy infrastructure development, and 14

other services to help businesses solve energy issues that are a barrier to 15

growth and viability. The Company works closely with state, regional, 16

county, and local economic development agencies in providing these 17

services. Finally, the Company administers a portfolio of incentive 18

programs that support the economic development objectives of the 19

Company and New York State. Those programs include energy delivery 20

discount programs, such as the Empire Zone Rider (“EZR”), and grant 21

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programs that are designed to promote economic development and urban 1

revitalization in the Company’s service territory. 2

3

Q. Please describe the Company’s EZR discount program. 4

A. The Company has participated in the New York State Empire Zones 5

program (formerly known as Economic Development Zones) since the late 6

1980s. Under the EZR Program contained in Rule 34.3 of the electric 7

tariff and Rule 23 of the gas tariff, the Company provides 10 years of 8

discounted delivery rates to qualifying, New York State certified 9

customers who add load by locating or expanding in a designated Empire 10

Zone. The New York State Empire Zones program was discontinued in 11

2010, and no new businesses have been certified since June 30 of that 12

year. The State, however, issued Empire Zone “retention certificates” to 13

certain qualifying businesses that were deemed eligible to continue 14

receiving Empire Zone tax benefits beyond the June 30, 2010 “sunset” 15

date. As a result, as of January 1, 2012, approximately 950 electric 16

customer accounts remain on the Company’s EZR Program, which 17

provided $18.8 million in electric delivery discounts in the Historic Test 18

Year. The Company’s natural gas EZR program provided $1.04 million in 19

gas delivery discounts to 434 customer accounts during the Historic Test 20

Year. 21

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Q. What is the Company recommending with respect to the EZR 1

Program? 2

A. In accordance with its tariffs, the Company proposes to continue providing 3

EZR Program discounts for the duration of each currently-certified 4

customer’s 10-year discount term. This includes a small number of 5

customers who have qualified for the EZR Program discount, but whose 6

EZR accounts have not yet been initiated. Those customers were Empire 7

Zone certified by New York State before the June 2010 deadline, received 8

a retention certificate from New York State, and are still in the process of 9

completing their construction projects and adding their qualifying electric 10

and/or gas load. For example, a semiconductor manufacturing foundry is 11

under construction in the Town of Malta (Saratoga County), and has been 12

Empire Zone certified since 2008, but the facility is not yet fully 13

operational. The foundry is expected to commence commercial 14

manufacturing and become eligible for the EZR Program discount in late 15

2012 or early 2013, at which time the Company will initiate the 16

discounted EZR Program billing for a 10-year period. 17

18

Q. How does the Company recover EZR Program discounts? 19

A. The Company recovers electric discounts from other customers through 20

base rates. Actual discounts are reconciled to the allowance in base rates 21

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and the difference added to the economic development deferral. Gas 1

discounts are recovered from other customers through base rates. The 2

Company proposes to continue the existing treatment of EZR Program 3

discounts, with one change for gas discounts. Gas EZR Program 4

discounts are currently not reconciled. The Company proposes to 5

reconcile actual gas EZR Program discounts and debit or credit the 6

difference to a gas economic development deferral. 7

8

Q. Is there a replacement for the New York State EZR Program? 9

A. Yes. New York State has created a new economic development initiative 10

called the Excelsior Jobs Program. 11

12

Q. Are there electric and gas delivery discounts associated with the 13

Excelsior Jobs Program? 14

A. Yes. On March 31, 2011, the new statutory requirements relating to the 15

Excelsior Jobs Program became effective as set forth in Article 17 of the 16

New York State Economic Development Law. As was the case with the 17

EZR Program, Excelsior Jobs Program rates are to be equal to the 18

incremental cost of providing service, and are to be provided for a period 19

of up to 10 years. Pursuant to the Commission’s Order in Case 11-M-20

0542 (and a subsequent filing extension), on February 29, 2012, the 21

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Company filed electric and gas tariff amendments to reflect the new 1

statutory requirements. If approved, the proposed tariff amendments will 2

be effective on June 1, 2012. 3

4

Q. How does the Company propose to recover Excelsior Jobs customer 5

discounts? 6

A. Because the Excelsior Jobs program is new, recovery of customer 7

discounts is not currently an issue. Excelsior customer load is not 8

included in forecast sales for the Rate Year. All Excelsior eligible load 9

will be incremental, and the discounted rates are intended and designed to 10

equal the incremental cost of providing service, thereby mitigating the 11

Company’s loss of delivery costs and revenues. 12

13

Q. Please describe the Company’s electric economic development grant 14

programs. 15

A. The Company’s electric economic development grant programs were first 16

introduced in 2003 as part of the Merger Joint Proposal in Case 01-M-17

0075. The Company presently administers a portfolio of 18 grant 18

programs that allow it to: 1) help customers solve energy issues and 19

improve their productivity, efficiency and viability; 2) promote 20

sustainable, “smart” growth by redeveloping vacant buildings, Brownfield 21

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sites, and key urban centers; 3) facilitate regional growth through the 1

development and deployment of renewable energy technologies; and 4) 2

partner with state, regional and local economic development organizations 3

to market our region to growing companies in strategic industries. 4

5

Q. How are these programs funded? 6

A. These programs are currently funded through an electric base rate 7

allowance of $9.1 million per year. Pursuant to the 2010 Electric Rate 8

Case, any under expenditures in a given year are deferred for future use, 9

and in the event of any over expenditures, the Company may petition the 10

Commission to defer those costs for future recovery. 11

12

Q. What are the Company’s historical and forecast levels of expenditure 13

under these programs? 14

A. Expenditures have trended upward in each of the last three years, 15

increasing from $3.7 million in 2009, $7.2 million in 2010, and $8.6 16

million in 2011. The years 2010 and 2011 have been the most active in 17

terms of applications, approvals and reimbursements, and the Company 18

expects expenditures to continue trending upward. During 2011, a total of 19

$11.9 million in project applications was approved for funding. In 20

addition, there is an accumulated balance of approximately $11.5 million 21

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in committed funds, as of December 31, 2011, associated with projects 1

that are approved, but are still under construction. Many projects involve 2

major capital investments in energy infrastructure, buildings, machinery, 3

and equipment that can extend construction over multiple years. Others 4

involve Brownfield remediation and/or development or large scale urban 5

redevelopment efforts, all of which can likewise entail extended 6

development periods. Because grant funding is only released to customers 7

after projects are completed, the Company must allow for reimbursement 8

of all or part of the $11.5 million of committed funds in 2012 and 2013, 9

along with expenditures associated with new projects that are approved 10

and completed during that period. 11

12

Q. What is the Company’s recommendation with respect to the electric 13

grant programs? 14

A. In light of the current high level of activity, the large amount of committed 15

funds, and the trend of expenditure discussed above, the Company 16

recommends that these programs be funded at a level of $11 million per 17

year, a $1.9 million annual increase over the current allowance. The 18

Company also proposes to modify the current reconciliation mechanism 19

for electric grant program costs. Under the current mechanism, in the 20

event of any over expenditures, the Company may petition the 21

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Commission for deferral. The Company proposes to modify this 1

mechanism such that over or under recovery of expenditures are deferred 2

for future use or recovery from customers. The Company proposes to 3

maintain the existing process for program filing, approval and reporting. 4

A detailed program proposal and Rate Year budget are included in Exhibit 5

__ (SSCP-12). 6

7

Q. How would electric customers benefit from this increase in Economic 8

Development funding? 9

A. Since 2003, the Company’s grant programs have played a role in the 10

creation or retention of more than 19,000 jobs across the Company’s 11

service area and have helped generate over $2 billion in new capital 12

investment. The Company’s programs have served as the model for other 13

utility economic development programs in New York State and elsewhere, 14

and in May 2011 the Company’s economic development department 15

received the New York State Economic Development Council’s 16

“Chairman’s Award” in recognition of the impact the Company’s grant 17

programs and economic development staff have had across Upstate New 18

York. The proposed increase in spending would enable a continuation and 19

expansion of the value the Company’s programs bring to customers and to 20

the regional economy. 21

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Q. Does the Company currently have economic development grant 1

programs specifically designed for natural gas customers? 2

A. No. While the electric grant programs do provide assistance to many 3

customers who receive both electric and natural gas delivery service from 4

the Company, there are no programs designed specifically to address 5

natural gas infrastructure issues, renewable energy technology 6

opportunities or other “strictly gas” economic development situations. 7

8

Q. Is the Company proposing to implement natural gas economic 9

development grant programs? 10

A. Yes. The Company proposes to create a natural gas economic 11

development grant program funded through a base rate allowance of $1 12

million per year, comprised of two programs patterned on existing electric 13

programs. The first program, the Gas Capital Investment Incentive, would 14

help offset customer costs for natural gas infrastructure upgrades that are 15

required to accommodate a business expansion or new construction 16

project. The second program, Sustainable Natural Gas and Economic 17

Development, would promote regional economic growth through the 18

development, demonstration, and deployment of new sustainable gas and 19

clean transportation technologies. Like their electric counterparts, the 20

proposed gas programs are designed to stimulate economic development 21

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in the form of new jobs and new capital investment in the Company’s 1

service area. A detailed program proposal and budget are included in 2

Exhibit __ (SSCP-13). The Company proposes that the gas grant 3

program expenditures be funded through a base rate allowance of $1 4

million per year, with potential over or under recovery of expenditures 5

deferred for future use or recovery from customers. Finally, the Company 6

proposes that the administration of the new gas programs be incorporated 7

into the program filing, approval, reporting, and evaluation processes 8

utilized for the existing electric programs. 9

10

Q. How would gas customers benefit from these new programs? 11

A. The new programs would allow the Company to address economic 12

development opportunities and challenges that are currently ineligible for 13

funding through the electric programs. As described earlier with respect 14

to the electric programs, the new gas economic development programs 15

would help generate benefits in the form of new and retained jobs, new 16

capital investment, and higher regional earnings in the communities the 17

Company serves. Also, the proposed gas economic development 18

programs would complement the other elements of the Company’s plans 19

to expand natural gas service in the Capital/Northeast regions, as 20

described in the testimony of the Gas Infrastructure Operations Panel. 21

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Q. Please describe the Company’s Emergency Economic Development 1

Programs 2

A. In response to the devastating damage caused by Hurricane Irene and 3

Tropical Storm Lee, last September the Company filed a petition seeking 4

approval to implement four new emergency economic development 5

programs, with authorization to defer up to a total of $6 million in 6

incremental grant funding through December 31, 2012. The four proposed 7

programs were approved with modifications on an emergency basis by the 8

Commission on September 23, 2011. The programs include an 9

emergency agriculture fund, a bridge loan program, and two programs 10

aimed at restoring businesses and infrastructure in flood-impacted 11

commercial districts. 12

13

Q. What is the status of those programs in terms of applications and 14

expenditures? 15

A. As of March 2012, 43 applications have been approved, representing $1.7 16

million of assistance. Thus far, approximately $675,000 has been 17

disbursed under these programs. The Company is still experiencing new 18

application activity, and will continue to report o

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