case no. 09-g-0795 joseph mcgowan rebuttal/update testimony gas

Case No. 09-G-0795

JOSEPH MCGOWANREBUTTAL/UPDATE TESTIMONY - GAS

1 Q. Please state your name and business address.

2 A. My name is Joseph McGowan. My business address is 4

3 Irving Place, New York, New York 10003.

4 Q. Have you previously submitted testimony in this

5 proceeding?

6 A. No, I have not.

7 Q. please state your work experience and education.

8 A. I have been employed by Consolidated Edison Company of

9 New York, Inc. since November 2005. Since December

i0 2007, I have been the Section Manager for Gas Sales,

ii which resides in the Energy Efficiency Programs

12 Department. One of my primary responsibilities is

13 managing the Company’s Oil-to-Gas Incentive Programs.

14 I also manage the business response center for the

15 Department’s energy efficiency programs and serve as

16 the pmogram manager for certain gas efficiency programs

17 approved in the Energy Efficiency Portfolio Standards

18 (~EEPS") proceeding. Prior to my current position~ I

19 was a Senior Real Estate Representative for the Company

20 for two years. Prior to joining Con Edison, I was a

21 commercial real estate broker in New York City for

22 twelve years, representing both tenant and owners of

23 office buildings. I received both my BA in

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Case No. 09-G-O795

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JOSEPH MCGOWANREBUTTAL/UPDATE TESTIMONY GAS

Communi.cations in 1992. and my MBA in Finance in 1999

from Fordham University.

What is the purpose of your testimony?

My testimony explains why the funding for the Company’s

oil-to-gas conversion program should be maintained at

the level established in the Company’s last gas rate

case and addresses the adjustment by the Staff. Gas

Rates Panel, which eliminates funding for the Company’s

oil-to-gas conversion program.

Please describe the Company’s oil-to-gas conversion

program.

In its Order Adopting in Part the Terms and Conditions

of the Parties" Joint Proposal, issued and effective

September 25, 2007 in Case 06-G-1332(~Order"), the

Commission adopted a three-year gas rate plan for Con

Edison, The gas rate plan provides for Con Edison to

administer an oil-to-gas conversion program for each of

RYI, RY2 and RY3 in that proceeding. Pursuant to the

Order, up to .$1.47 million in incentives, which is

provided to participating customers, is recovered

through a surcharge to the monthly rate adjustment

( ~MRA~ ) .

Case No. 09-G-0795

JOSEPH MCGOWANREBUTTAl/UPDATE TESTIMONY - GAS

1 Under theoil-to-gas conversion program, the Company

2 provides financial incentives to residential and

3 commercial customers to encourage their conversion from

4 oil use to gas use. The incentives that Con Edison may

5 offer include: (i) a cash incentive, (ii) a reduction

6 tO an applicant’s cost responsibilities associated with

7 required additional facilities (this incentive is

8 available only to interruptible, off-peak firm, and

9 firm non-dual fuel applicants), (iii) financing or

i0 leases, (iv) project management or (v) another

ll incentive or combination of incentives available at the

12 time of the applicant’s application to Con Edison in

13 order to defray a portion of applicant’s conversion or

14 installation costs, in return for the applicant’s

i5 commitment to use an agreed-upon level of gas for an

16 agreed-upon term.

17 Q. Where is .the Company’s oil-to-gas conversion program

18 set forth?

19 A. The program is set forth in Appendix B of the Company’s

20 Gas Sales and Transportation Operating Procedures

21 (~GTOP") .

22 Q. What is the position of the Staff Gas Rates Panel

23 concerning the oil-to-gas conversion program?

Case No. 09-G-0795


1 A. The Staff Gas Rates Panel recommended that the fundin9

2 for the program be eliminated. The Staff Gas Rates

3 Panel opines that the market favors natural gas as the

4 fuel of choice, both economically and environmentally.

5 As a rationale for eliminating the program, Staff

6 alleges that customers can avail themselves of other

7 incentives, including NYSERDA and other sources of

8 funding, such as tax credits.

9 Q. Do you agree with either the rationale or the

i0 recommendation?

Ii A. No, I do not.

12 Q. Please explain.

13 A. The Company’s oil-to-gas conversion program serves an

14 important role in promoting and encouraging

15 conversions..

16 Q. Is there supporting documentation for this assertion?

17 A. Yes. Data from RYI and RY2 of the current oil-to-gas

18 conversion program demonstrate that the average cost of

19 an oil-to-gas conversion in the Con Edison service

20 territory for a service adequate 1-4 family dwelling

21 unit is approximately $7,000, which is the full

22 responsib±lity of the customer. This cost is

23 substantially higher than simply upgrading to more

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Case No. 09-G-079S

JOSEPH MCGOWANREBUTTAL/UPDATE TESTIMONY GAS

1 efficient equipment, as it involves not only replacing

2 ~the heating equipment but the supporting infrastructure

3 (i:.e. piping) as well. According to the Company’s RYI

4 customer survey, 64 percent of responding customers

5 described the Company’s rebate/incentive offer as ~very

6 important~ (important or not important as the

7 alternatives) in their decision to convert from oil to

8 gas.

9 Q. Please continue.

i0 A. In spiteof the increasing awareness of the

II environmental benefits of gas and the current economic

12 benefit of gas compared to oil, the conversion costs

13 represent a substantial hurdle to potential conversion

14 customers. There is no evidence to support Staff’s

15 conclusion that customers will convert based upon

16 environmental considerations, the current oil/gas price

17 differential, tax credits or other incentives that

18 Staff suggests are available.

19 Q. Did Staff perform any studies to support their

20 conclusion that customers do not need the Company’s

21 incentive program to covert, from oil-to-gas?

22 A. Staff acknowledges that it did not. perform a study to

23 evaluate continued customer fundin~ for this program,

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Case No. 09-G-0795


1 the impact on the level of oil-to-gas conversions or

2 the. impact on Con Edison’s programs in the EEPS

3 proceeding (response to Con Edison IR 7). In addition,

4 Staff did not review market studies, ~as versus oil

5 prices, labor and equipment installation costs, or

6 incentive programs for competitive products (response

7 to Con Edison IR 9).

8 MARK FOR IDENTIFICATION AS EXHIBIT (JM-I)

9 Q. Did the Staff Gas Rates Panel have any comments on the

i0 reports filed by the Company for the oil-to-gas

II conversion program?

12 A. Yes. Staff indicated that Con Edison has not submitted.

13 its report on the oil-to-gas conversion program for

14 "this year" as required. The RY3 report is due 60 days

15 after the end of the current rate year (e.g. November

16 30, 2010.). The Company did timely submit to Staff a

17 report for the oil-to-gas conversion program as

18 required in Case 06-G-1332 following the conclusion of

19 RYI and RY2.

20 Q. What has been your experience with the oil-to-gas

21 conversion program during the current rate plan?

22 A. As indicated above, the Company’s RYI customer survey

23 for the program has shown that while lower gas prices

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Case NO. 09-G-0795


1 (when applicable) and environmental benefits encourage

2 customers to convert, a significant driver for the

3 eventual decision to convert is reducing the cost of

4 the conversion to the customer.

5 The Company believes that oil-to-gas conversion

6 incentives are even more important during economic

7 downturns as we are currently experiencing in New York.

8 For example, the Company experienced a 400 percent

9 decline in the number of conversions in the residential

i0 incentive program (1-4 dwelling units) and the multi-

ii dwelling program (5-50 dwelling units) in RY2 even

12 though the cost of gas was lower than the price of oil.

13 Based on customer and contractor feedback, the economy

14 had a significant impact on the customer’s ability to

15 afford to convert from oil to gas.

1.6 If Staff’s assertion that gas is the fuel of choice,

17 economically and environmentally, and that certain

18 NYSERDA incentives and tax credits are sufficient, the

19 Company should not have seen such a large decline from

20 RYI to RY2 since these factors would have applied to

21 both RYI and RY2. It is readily apparent that the

22 participation rates would have been even lower had

23 incentives not been provided.

Case No. 09-G-0795

JOSEPH MCGOWAN’REBUTTAL/UPDATE TESTIMONY GAS

1 Q. Staff references NYSERDA and tax credits as an

2 alternative to the Con Edison Program. Do you agree

3 that these are viable alternatives?

4 A. No. First, NYSERDA does not offer any program or

5 incentives for oil-to-gas conversions about which I am

6 aware. In fact, in discovery, Staff acknowledged that

7 NYSERDA does not provide an oil-to-gas conversion

8 program (response to Con Edison IR 8). Staff did

9 identify certain incentives available through NYSERDA

I0 in the EEPS proceeding (response to Con Edison IR 8),

ii but the Company would note that those incentives can

12 only be used to install certain high efficiency gas

13 equipment above the standard allowable code. High

14 efficiency equipment can be a substantial additional

15 cost beyond standard equipment and the EEPS incentive

1.6 is designed to offset only those costs related to the

17 higher efficiency. NYSERDA does not provide any

18 incentive for the actual conversion from oil to gas.

19 As I mentioned earlier, the cost associated with the

20 conversion can represent a substantial hurdle to

21 customers considering converting from oil to gas.

22 Q. Please continue.

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Case No. 09-G-0795


1 A. Second, the Company is aware that tax credits are

2 available and informs its customers of the avail.ability

3 of these credits. The Company has no empirical data to

4 suggest that these tax credits are materially

5 influencing the customer’s decision to convert from oil

6 to gas, nor has Staff offered any such data. Moreover,

7 since we have been. making customers aware of the tax

8 credit along with the oil-to-gas conversion incentive

9 and the combination is still not enough for many

i0 customers to convert, it is readily, apparent that the

ll tax incentive will be less effective as the stand-alone

12 incentive, and most likely, not viable .as a stand-alone

13 incentive, at least under current economic

14 circumstances.

15 Q. Are there other reasons for the Commission to continue

16 the Company’s recovery of the oil-to-gas conversion

17 incentives?

18 A. Yes. As I noted earlier, conversion customers face

19 significantly higher Costs as the conversion requires

20 the replacement of certain infrastructure when

21 switching to gas. Higher efficiency equipment then

22 adds additional costs over conversion to standard

23 equipment.

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Please continue.

In the. EEPS proceeding, the Commission allows

conversion customers to take advantage of EEPS

incentives to install higher efficiency equipment. As

such, the oil-to-gas incentive encourages customers to

switch fuels while theEEPS incentive moves customers

to a higher level of efficiency during the conversion

process. The authorization to allow conversion

customers to utilize EEPS incentives recognizes the

importance of conversions to the success of Con

Edison’s gas efficiency programs. Under the approved

program, Con Edison uses the conversion incentives, as a

strategic program entry point for customers.

Accordingly, elimination of the oil-to-gas conversion

program would also necessitate modification of certain

Con Edison’s EEPS programs,, as certain gas EEPS

programs were designed based on the inclusion of

conversion customers in the analysis presented to the

Commission. The reduction or elimination of conversion

funding reduces the number of participants in the gas

EEPS programs and would fundamentally change the

Company’s ability to achieve EEPS program savings

goals.

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Case No. 09-G-0795


I Q. What is the current cost recovery mechanism for this

2 program?

3 A. As previously explained, the Company only recovers,

4 through a surcharge to the MRA, the actual incentives

5 paid to eligible customers. This is a reasonable

6 process for cost recovery and is fair and equitable to

7 gas ratepayers.

8 Qo Does this conclude your testimony?

9 A. Yes.

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Case No. 09-E-0428

Exhibit _ (JM- 1)Page 1 of 13

Consolidated Edison Company of New York, Inc. Electric Rate Case

Con Edison information Request to DPS Staff (Set 1)

Witness: Staff Gas Rates Panel

7. On p. 17, the Panel recommends that the oil to gas conversion program no longerbe funded because the market favors natural gas as the fuel of choice.

In addition to eliminating the funding for this program, is Staff also proposingelimination of the oil-to-gas conversion incentive program itself? If yes, pleaseexplain why.

Response: Staff is recommending the elimination of customer funding for thisprogram. Staff does not oppose the continuation of this program with Companyfunding.

b. Has the Panel performed a study that evaluates the impact Of eliminating thisincentive? If yes, please provide a copy of any such study or analysis.

Response: The panel has not performed a study to evaluate the continued customerfunding of this program. The Company’s oil-to-gas program is a provision of theJoint Proposal which was adopted by the Commission in Case 06-G-1.332. Thisprogram provides a monetary incentive to customers that switch to natural gas tohelp offset the cost of conversion for such items as gas equipment and itsinstallation, ha its current rate filing, Con Edison did not present a comprehensiveevaluation of this program, a cost benefit analysis, nor any presentation showingthe net benefit for its continuation as customer funded program.. In fact, Con.Edison is required under the Joint Proposal to file an annual report within 60 daysof the end of each rate year on activities under the program. That filing has notbeen made by the Company this year. On advice of counsel, it is the Company’sburden to show why this program should be continued.

Co Is it the PaneI’s view that elimination of this program will have no impact on thelevel of oi! to gas conversions? If yes, what is the basis of that view? Pleaseprovide a copy of any underlying study or analysis. If no, what impact does thePanel project and please provide all studies and analyses that quantify that impact.

Response: Staffhas not developed a view of the impact of its proposal on the level ofconversion. Also, see the response to 7.b, above.

Case No. 09-E-0428

Exhibit __ (JM- 1)Page 2 of 13


Con Edison Information Request to DPS Staff (Set 1)

do Has Staff considered how eliminating this funding and!or program would impactthe goals established for the Company’s gas energy efficiency programsestablished in the EEPS Proceeding? If yes, please provide a copy of all studiesand analyses. If no, please explain why not.

Response: See Staff response to 7.b

8. On p. 17, the Panel states,"...customers may avail themselves of other incentives,including New York State Energy Research and Development Agency programs.."

Please list all NYSERDA programs (including whether the program is (i) anEnergy Efficiency Portfolio Standards (EEPS) program, (ii) a NYS Energy SmartProgram or (iii) another program), that provide oil to gas conversion incentives.

Response: Customers, choosing to switch to nature gas, may avail themselves ofincentives provided by EEPS programs administered by NYSERDA and ConEdison. These programs are designed to provide cash incentives and orequipment rebates for the installation of efficiency measures including gasequipment for existing and converting customers. These programs were notgenerally available the Company’s current oil-to-gas program was implemented.Converting customers may also avail themselves other incentives in the form ofgas equipment manufacturer and industry rebate programs some of which areattached.

b. For each program, list the amotmt of incentive by measure and total fundsavailable.

Response: See the attached for a list of gas measure/equipment incentive rebatesavailable to existing and converting customers now provided by the Company thatare separate and apart from the oil-to-gas program incentives. The measureincentives/rebates range from $25 for a set-back thermostat to $1,000 for a gaswater boiler. Similar incentives and or rebates are available from NYSERDA asacknowledged by Con Edison in paragraph 4 of the Company’s Residential GasRebate Application form also attached. As mentioned in response to 8a, above,these incentives were not previously available to customers who chose nature gasas an energy source.

Co For each program, please provide the amounts of marketing, administrative and aMonitoring & Verification ("M&V") costs allocated by NYSERDA to theprogram.

Case No. 09-E-0428

Exhibit __ (JM- 1)Page 3 of 13



Response: Specific cost allocation information related to the Company’s gasequipment rebate program and similar or accompanied NYSERDA programs arenot available to Staff beyond publicly available data. The Company, whoadministers and or facilitates these programs, should have the requestedinformation.& For each program, please provide the total conversions attributedto the program by year for each year the program has been in existence.

Response: Staff does not possess this information.

e. For each program, please identify the source of funding (e.g., SBC funds).

Response: The Con Edison equipment rebate program and the NYSERDA programsare funded through the SBC charge paid by gas customers as a separate charge ontheir bills.

f. If the program is funded through SBC collections, is Staff of the view thatNYSERDA is authorized to fund oil to gas conversions through SBC collections?If the answer is "yes~" please provide a copy of or a citation to such authority.

Response: Staff in its testimony does not contend that NYSERDA provides an oil-to-gas program. Staff notes that customers who choose to switch to natural gas andinstall efficient gas equipment may avail themselves of rebates and incentives tooffset costs from other new sources previously unavailable, including CompanyEEP gas equipment rebate programs and similar NYSERDA programs. This inaddition to other incentives offered by equipment manufactures and installationproviders.

9. The Panel states (p. 17) that, "the market favors natural gas as the fuel of choice,economically..."

a. Please provide any market studies upon which Staff relied in making this assertion, byfuel designation (i.e., #6, #4 and #2 oil).b. Please identify the almuai period(s) to which this assertion relates.c. Did Staff rely on posted oil prices or deliveled-to-customer oil prices for purposes ofits analysis?d. Please provide the delivered-to-customer and posted oil prices for #6, #4 and #2 oil inCon Edison’s territory relied on by Staff, as applicable.e. For each fuel segment, did Staff perform a cost analysis that compares the Con Edisongas tariff rates to the delivered-to-customer and!or posted #6, #4 and #2 oil prices?

Case No. 09-E-0428

Exhibit _ (JM- 1)Page 4 of 13

Consolidated Edison Company of New York, inc. Electric Rate Case


f. Please provide a copy of any study or analysis of gas vs. oil prices for a future year(s)reviewed or relied on by Staff.g. How much labor and equipment cost does Staff attribute to oil-to-gas conversioneconomics by size? HOw does this cost compare a customer’s cost if they decide to stayas a fuel customer?h. Is Staff aware of any incentive program(s) offered by oil companies for customers toremain as oil customers and not convert to gas? If so, please provide copies of anyprograms that Staff reviewed. Please explain whether Staff took such incentives intoconsideration in making their analysis and, if so, how such incentives were reflected inthe Staff analysis.

Response (a - h): Staff has not performed a study beyond review of informationprovided to it in Con Edison’s filings. Natural gas has generally maintained an economicadvantage over oil as illustrated by Con Edison’s continued ability to make sales inexcess of 24 Mdt anmmlly to interruptible and dual fuel customers for the past six years(see table below). In addition to fuel cost differences, environmental benefits and theeconomics related to the operation and maintenance of equipment that generally favornatural gas provide further incentive for customers to convert from oil to gas. Per theattachment to this response provided in a separate PDF document from the Company’swebsite, Con Edison acknowledges that "natural gas is a better fuel source for your home,your health, the environment, and your peace of mind" and, further, that "natural gas isthe right choice" that customers should make, with which Staff concurs.

Twelve’ Months Ending Interruptib!e Volumes (dt)12/31/2001. .... .. 14,730,78,7 ...12/3.1./2002 .... !2,623,833.12/3.1/20 03 1..5.,442,596 .....12/3.1/2004 .24,675,552 ...12/31/2005 31,230,49512/31/2006 31,109,847,.12/31/2007 25,953,204 ....12/31/2008 .... 30,955,20612/31/2009 26,115,545

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case no. 09-g-0795 joseph mcgowan rebuttal/update testimony gas

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