Dykema Gossett PLLC - force.com

Dykema Gossett PLLCCapitol View201 Townsend Street, Suite 900Lansing, MI 48933

WWW.DYKEMA.COM

Tel: (517) 374-9100Fax: (517) 374-9191

Shaun M. Johnson

Direct Dial: (517) 374-9159Direct Fax: (855) 258-3523Email: [email protected]

Cal i forn ia | I l l ino is | Michigan | Minnesota | North Caro l ina | Texas | Washington , D.C .

LAN01\312995.1ID\JMBA1 - 109461\0016

June 28, 2013

Mary Jo KunkleExecutive SecretaryMichigan Public Service CommissionPO Box 30221Lansing, MI 48909

Re: Case No. U-17362SEMCO’s Application for Approval of its Energy Optimization PlanApplication, Testimony, and Exhibits

Dear Ms. Kunkle:

Enclosed, for electronic filing, please find SEMCO Energy Gas Company’s (1) Application forApproval of its Energy Optimization Plan, (2), Direct Testimony and Exhibits of Kevin L.Bilyeu, (3) Qualifications, Direct Testimony and Exhibits of George L. Phillips, and (4) DirectTestimony and Exhibits of James A. Van Sickle, in the above-referenced matter.

If you have any questions, please contact me.

Sincerely,

DYKEMA GOSSETT PLLC

Shaun M. Johnson

SMJ/jmb

Enclosures

cc: Kristin Smith, Kevin L. Bilyeu, George L. Phillips, James Van Sickle, and Tom Connelly

LAN01\313057.1ID\SMJO - 109461\0016

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter of the application of )SEMCO ENERGY, INC. for authority to )implement its Energy Optimization Plan for ) Case No. U-17362the 24-month period of January 2014 through )December 2015. )

SEMCO ENERGY GAS COMPANY’SAPPLICATION FOR APPROVAL OF ITS

ENERGY OPTIMIZATION PLAN

SEMCO Energy Gas Company (“SEMCO Gas” or “Applicant”), a division of SEMCO

Energy, Inc. (“SEMCO Energy”) pursuant to MCL 460.1001 et seq., 2008 PA 295, the Michigan

Clean, Renewable, and Efficient Energy Act, (“PA 295”), respectfully requests approval of its

Energy Optimization (“EO”) Plan (the “Plan”). In support thereof, SEMCO Gas represents to

the Commission as follows:

1. SEMCO Gas provides retail gas service to the public in service areas located in

Michigan. SEMCO Gas’s retail natural gas sales business and its retail gas transportation

business are subject to the Commission’s jurisdiction.

2. PA 295 requires natural gas providers to file proposed EO plans with the

Michigan Public Service Commission (“Commission”) for review and approval.

3. Section 71 of PA 295 requires that an EO plan: (a) propose a set of EO programs

that include offerings for each customer class; (b) specify necessary funding levels; (c) describe

how EO program costs will be recovered; (d) ensure that, to the extent feasible, charges collected

from a particular rate class are spent on EO programs for that rate class; (e) demonstrate that the

proposed EO programs and funding are sufficient to ensure achievement of the applicable

standards; (f) specify whether the number of decatherms of natural gas used in the calculation of

2

incremental energy savings will be weather-normalized or based on the average number of

decatherms of natural gas sold annually during the previous three years to retail customers in

Michigan; (g) demonstrate that the EO programs will be cost-effective; (h) provide for the

practical and effective administration of the proposed EO programs; and, (i) include a process for

obtaining an independent expert evaluation of the actual EO programs to verify the incremental

energy savings from each EO program.

4. On October 21, 2008, the Commission issued a “temporary order” in Case No. U-

15800 implementing section 71 PA 295’s provisions (the “Temporary Order”). The Temporary

Order requires that an EO plan must: (1) propose a set of programs that will meet energy savings

targets established by PA 295; (2) include offerings for each customer class, including low

income residential; (3) specify necessary funding levels; (4) propose cost recovery mechanisms

that will allow recovery of EO plan costs; (5) demonstrate that the offered EO programs (except

for low income programs) will be cost-effective; and, (6) provide for the practical and effective

administration of the proposed programs. The Temporary Order also authorized the deferment

of EO plan implementation costs.

5. On August 25, 2011, the Commission issued an order in Case No. U-16733

approving SEMCO Gas’s EO plan for the 24-month period of January 2012 through December

2013. Under that plan, and pursuant to Section 91 of PA 295, SEMCO paid a prescribed portion

of its revenues to the independent energy optimization program administrator selected by the

Commission (the “State Administrator”).

6. On March 15, 2013, the Commission opened this docket and directed SEMCO

Gas to file its bi-annual Energy Optimization plan on or before July 1, 2013.

3

7. On June 1, 2013, SEMCO Gas filed its Notice of Intent to file an application for

the Plan.

8. SEMCO now wishes to transition away from making payments to the State

Administrator pursuant to Section 91 of PA 295 and is proposing a self-administered EO plan.

For 2014 and 2015, SEMCO proposes to implement the Plan utilizing a contract between

SEMCO and Michigan Community Action Agency Association and CLEAResult Great Lakes

Consulting, LLC.

9. In compliance with PA 295 and the Temporary Order, the EO Plan describes how

it will achieve compliance with PA 295, by proposing cost-effective EO programs to each

customer class (including low income), explaining how those programs will be administered,

specifying the funding necessary for the Plan and how EO Plan costs will be recovered,

explaining how charges collected from a particular customer class will be spent on programs for

that class, describing the process for obtaining an independent expert evaluation of the programs,

and ensuring that the funding is sufficient to ensure achieving PA 295’s EO standards.

10. In support of this Application, in support of its EO Plan, and in compliance with

PA 295 and the Temporary Order, SEMCO Gas files the following:

A. The testimony and exhibit of Kevin Bilyeu. The purpose of this

testimony is to describe the EO programs that will be offered to each

customer class, describe the EO Plan’s administration, describe SEMCO’s

process for obtaining an independent expert evaluation of the programs

offered under the EO Plan, and describe the requested EO financial

incentive mechanism.

4

B. The testimony and exhibits of George Phillips. The purpose of this

testimony is to describe the EO programs that will be offered to each

customer class, specify the necessary funding levels for the EO Plan,

explain how charges collected from a rate class will be spent on EO

programs for that class, demonstrate that the EO programs and funding are

sufficient to ensure the required standards, and explain how the EO

programs, except for those offered to low-income customers, will

collectively be cost-effective.

C. The testimony and exhibits of James Van Sickle. The purpose of

this testimony is to describe how the EO Plan’s costs will be recovered,

and to explain SEMCO’s deferment of the Plan’s development costs.

11. SEMCO’s testimony and exhibits demonstrate that that the EO Plan is reasonable,

prudent, and consistent with PA 295’s requirements. As such, SEMCO seeks Commission

approval of a financial incentive mechanism pursuant to Section 75 of PA 295.

12. SEMCO also requests the approval of surcharges designed to recover the costs of

the EO Plan. As explained in Mr. Van Sickle’s testimony, costs will be recovered from

residential, commercial, and industrial customers on a levelized basis over the Plan’s two year

period. Specifically, SEMCO requests that the Commission approve the following surcharges,

subject to the annual reconciliations required under PA 295:

Rate Class Amount

Residential $0.1412 per Dth

Up to 9 Dth per Month Remaining Dth per Month

5

GS-1 $0.9301 per Dth $0.0001 per Dth

GS-2 $0.9301 per Dth $0.0001 per Dth

GS-3 $0.9301 per Dth $0.0001 per Dth

Up to 2500 Dth per Month Remaining Dth per Month

TR-1 $0.0552 per Dth $0.0001 per Dth

TR-2 $0.0552 per Dth $0.0001 per Dth

TR-3 $0.0552 per Dth $0.0001 per Dth

WHEREFORE, SEMCO respectfully requests that the Michigan Public Service

Commission:

A. Accept the EO Plan, consisting of this application and prefiled testimony and

exhibits;

B. Determine that the EO Plan is reasonable and prudent, and that it meets all of PA

295’s requirements;

C. Approve the EO Plan surcharges;

D. Approve the requested EO financial incentive mechanism;

E. Approve the necessary accounting authority for deferral of actual costs incurred

prior to 2014 in implementing the EO Plan, as described in SEMCO’s testimony; and,

F. Grant such other and further relief as is just and reasonable.

6

Respectfully submitted,

DYKEMA GOSSETT PLLC

Attorneys for:SEMCO ENERGY GAS COMPANY

Dated: June 28, 2013 By:Albert Ernst (P24059)Shaun M. Johnson (P69036)Courtney F. Kissel (P74179)201 Townsend, Suite 900Lansing, MI 48933(517) 374-9100

Kristin M. Smith (P46323)Vice President and General CounselSEMCO Energy Gas Company1411 Third Street, Suite AP.O. Box 5004Port Huron, MI 48060-5026

STATE OF MICHIGAN


***** In the matter of the application of ) SEMCO ENERGY, INC. for authority to ) implement its Energy Optimization Plan for ) Case No. U-17362 the 24-month period of January 2014 through ) December 2015. )

DIRECT TESTIMONY AND EXHIBIT OF KEVIN L. BILYEU

ON BEHALF OF

SEMCO ENERGY GAS COMPANY

Direct Testimony of Kevin L. Bilyeu On Behalf of

SEMCO Energy Gas Company Q. What is your full name and business address? 1

A. My name is Kevin L. Bilyeu. My business address is 1411 Third Street, Port Huron, 2

Michigan 48060. 3

Q. By whom are you employed and what is your position with that employer? 4

A. My present position is Manager, Customer Energy Management at SEMCO 5

ENERGY Gas Company (“SEMCO Gas”). SEMCO Gas provides natural gas sales 6

and transportation service to approximately 291,000 customers in areas throughout 7

the State of Michigan. SEMCO Gas is a division of SEMCO Energy, Inc. 8

Q. What are your responsibilities as Manager, Customer Energy Management? 9

A. I have responsibility for the overall administration, monitoring, and development of 10

the Energy Optimization (“EO”) Program, providing testimony and support for the 11

filing of EO plans and reconciliation cases at the Michigan Public Service 12

Commission (“MPSC”), and monitoring, planning and administering the home repair 13

program. 14

Q. What is your academic background? 15

A. In 2005, I graduated from St. Clair County Community College with an Associate of 16

Business Administration. In 2006, I obtained an Associate of Liberal Arts from St. 17

Clair County Community College. In 2008, I graduated from Walsh College with a 18

Bachelor of Business Administration. In 2012, I graduated from the University of 19

Michigan with a Master of Business Administration. 20


SEMCO Energy Gas Company

2

Q. What is your relevant employment and professional experience? 1

A. In 2003, I joined Austin, Niester, Beuchamp & Finnegan, P.C. where I prepared and 2

reconciled financial statements, managed the firm budget, and made regular reports 3

to firm partners and customers. In 2004, I joined Huron Title Company, which 4

included responsibilities such as preparing insurance policies and assisting in 5

mortgage closings. 6

In 2006, I joined SEMCO Gas where I have held various positions of increasing 7

responsibility. In 2008, I obtained the position of Billing Analyst which included 8

responsibilities such as providing business expertise and support to stakeholders, 9

performing reviews, and recommending improvements in various department and 10

Company processes. I also managed departmental projects, which included the 11

conduct of research, preparation of presentation materials, developing 12

recommendations, project implementation, monitoring, and revisions. In 2011, I 13

obtained the position of Supervisor of Customer Accounting which included 14

responsibility for customer billings, remittance processing, inactive collections, bad 15

debt, and financial analysis and reporting for the Customer Accounting Department. 16

In 2013, I obtained the position of Manager, Customer Energy Management, which 17

includes the previously detailed responsibilities. 18

Q. Have you previously filed testimony with the MPSC? 19

A. No. 20



3

Q. What is the purpose of your testimony in this proceeding? 1

A. The purpose of my testimony is to: 2

1) Describe the EO programs that will be offered to each customer class, 3

including low income residential for the 2014 and 2015 plan years. 4

2) Describe the process for the practical and effective administration of the 5 SEMCO Gas’ EO programs. 6

3) Describe SEMCO Gas’ process for obtaining an independent expert 7 evaluation of the programs offered under SEMCO Gas’ EO Plan. 8

4) Describe the proposed methodology for a provider performance incentive for 9 SEMCO Gas’ EO Plan. 10

Q. What exhibits are you sponsoring in this case? 11

A. I am sponsoring the following exhibit: 12

Exhibit A-4 - EO Incentive Mechanism and Energy Savings Target 13

Q. What is SEMCO Gas’ experience with Energy Efficiency? 14

A. As a result of 2008 Public Act 295, the “clean, renewable, and efficient energy act 15

(“PA 295”), SEMCO Gas provided energy efficiency services to its customers 16

through Efficiency UNITED, a brand name for EO programs offered on behalf of 17

participating providers of retail electricity and natural gas services pursuant to PA 18

295, Section 91(1). Section 91 allows interested providers to comply with PA 295 EO 19

requirements by making an alternative compliance payment to the independent 20

energy optimization program administrator selected by the MPSC. These payments 21

are derived from surcharges collected from customers via their utility bills. 22



4

After a competitive bid process, in July 2009, the MPSC selected the Michigan 1

Community Action Agency Association (“MCAAA”), with CLEAResult Great Lakes 2

Consulting, LLC (“CLEAResult”) as its primary implementation contractor, to 3

administer the Efficiency UNITED EO programs. The Efficiency UNITED contract is 4

between MCAAA and the Department of Licensing and Regulatory Affairs. 5

Initial program services were rolled out late in the fourth quarter of 2009. The first full 6

year of EO programs was 2010. 7

SEMCO Gas participated with Efficiency UNITED team members and MPSC Staff to 8

provide customer information and data, input, and feedback on design, 9

implementation, and evaluation. 10

Q. Why is SEMCO Gas filing this EO Plan? 11

A. SEMCO Gas is filing this EO Plan for 2014 and 2015 pursuant to PA 295, requesting 12

approval of the SEMCO Gas EO Plan, and authority to implement EO surcharges 13

and other related relief. 14

Q. How will SEMCO Gas transition to its EO Plan? 15

A. SEMCO Gas’ EO Plan for the years 2014 and 2015 will be rolled out by directly 16

contracting with the state selected provider, currently MCAAA. SEMCO Gas will 17

contract with MCAAA and CLEAResult to implement its EO programs under the 18

Efficiency UNITED brand name and manage the process of obtaining an 19

independent expert evaluation. 20



5

In the interim, SEMCO Gas worked with MCAAA and CLEAResult to establish a 1

Memorandum of Understanding (“MOU”) between SEMCO Gas and MCAAA and 2

CLEAResult. The MOU, entered into on June 27, 2013, specifies the mutually-3

accepted expectations between the parties. SEMCO Gas expects to execute the 4

contract with MCAAA and CLEAResult in the third quarter of 2013. 5

Q. Why is SEMCO Gas proposing to implement its own EO Plan? 6

A. SEMCO Gas is proposing an EO Plan which provides an administrative structure 7

designed to provide its customers a set of energy optimization programs that include 8

offerings for each customer class, including a low-income residential program, based 9

on SEMCO Gas’ targeted customer base. The Plan’s administrative structure shall 10

allow SEMCO Gas flexibility to tailor the relative amount of effort devoted to each 11

customer class based on the specific characteristics of its service territory. 12

SEMCO Gas’ EO Plan will create efficiencies through common program planning 13

and design, consistency in trade allies’ knowledge and processes, and common 14

incentive levels. By having programs similar to other utility programs across the 15

state, impact evaluation costs should be reduced for SEMCO Gas customers. 16

Providing program consistency will permit leveraging program delivery across the 17

SEMCO Gas territory and help lower program delivery costs for its customers. 18

The EO Plan will provide SEMCO Gas with program management, tracking and 19

reporting oversight, and impact and process evaluation to better achieve energy 20

savings. 21



6

In addition, under Section 75 of PA 295, an energy optimization plan of a provider 1

whose rates are regulated by the MPSC will be able to receive a commensurate 2

financial incentive for exceeding energy optimization performance standards. 3

Q. Why is SEMCO Gas selecting MCAAA and CLEAResult to implement its EO 4

program under the Efficiency UNITED brand name? 5

A. Selecting MCAAA and CLEAResult to implement SEMCO Gas’ EO programs under 6

the Efficiency UNITED brand name will match, as closely as possible, those 7

programs offered by other utility providers in Michigan. In addition, contracting with 8

MCAAA and CLEAResult will provide consistency of programming, create less 9

confusion for customers and trade allies, streamline our message to customers, and 10

leverage spending effectively. This should result in greater customer participation 11

and accelerated transition of SEMCO Gas’ EO Plan. It is expected that over time, 12

SEMCO Gas’ EO Plan will provide program experience, which is the best basis for 13

developing future program implementations. 14

SEMCO Gas’ EO Plan for the year 2014 and 2015 provides a detailed set of 15

programs with expected energy savings and budgets for each program SEMCO Gas 16

establishes. The portfolio is fully described in witness Phillips’ testimony. SEMCO 17

Gas' EO Plan is based on previous program plans and regulatory reports, program 18

implementation experience, changes in energy savings reflected in the Michigan 19

Energy Measures Database (MEMD), changes in gas measurement efficiency 20

standards, performance incentives, and a review of best practices. The EO Plan will 21



7

result in consistent programming designed to deliver cost effective programs that will 1

appeal to the largest number of SEMCO Gas’ customers. 2

Q. Why does SEMCO Gas detail its Preliminary Concept, although it is seeking 3

approval of its Pilot EO Plan for the 2014 and 2015 plan years? 4

A. SEMCO Gas initially worked with Morgan Marketing Partners (“MMP”) to develop an 5

EO Plan which met all the requirements as outlined in PA 295 (the “Preliminary 6

Concept”). However, due to SEMCO Gas’ unique situation and decreased spending 7

limits in 2014 and 2015, it became evident the Preliminary Concept focuses on 8

short-term, lower costs measures in order to meet the energy savings targets set 9

forth in PA 295. SEMCO Gas is providing detail on its Preliminary Concept to 10

provide a base from which to compare a more traditional plan to the proposed Pilot 11

Plan and to demonstrate the advantages of a plan that focuses on longer life saving 12

measures as compared to a plan that primarily relies on low cost, direct install 13

measures. 14

SEMCO Gas is proposing, and seeking approval of a Pilot EO Plan for each year 15

which focuses on longer life saving measures and reduces the reliance placed on 16

low cost, direct install measures. In contrast, the Preliminary Concept is designed to 17

utilize a first-year energy savings model regardless of energy savings over the entire 18

measure life. The Pilot Plan will provide long term energy savings for customers and 19

is delivered in a manner to create comprehensive energy savings and develop long-20



8

term customer commitments to saving energy through continuous efficiency 1

improvements in homes and businesses. 2

The Pilot EO Plan was established and will be continuously refined through a 3

common effort with SEMCO Gas, CLEAResult, MMP, and the MPSC Staff with the 4

goal to promote longer term energy savings. SEMCO Gas continues to work with 5

these parties to refine the longer term energy savings and will incorporate the 6

revisions in its Pilot EO Plan in the fall of 2013, if necessary. 7

Overview of SEMCO Gas’ Preliminary Concept 8

Q. What program portfolio did SEMCO Gas include in its Preliminary Concept? 9

A. SEMCO Gas’ Preliminary Concept is structured to include a mix of programs 10

designed to produce the desired energy savings results, achieve optimal cost 11

effectives, and satisfy other critical objectives, such as staying within the statutory 12

spending limits and including offerings available for each customer class, including 13

low-income. There are two basic program types: 1) Residential and 2) Commercial & 14

Industrial (“C&I”). The Preliminary Concept includes the following residential 15

programs: 16

1) Residential Home Performance Program: The primary objective of the 17

Residential Home Performance Program includes the installation of 18

energy efficiency equipment made through HVAC and plumbing 19

contractors. 20



9

2) Residential Multi-Family Program: The Residential Multi-Family Direct 1

Install Program provides for the installation of free energy efficiency 2

measures in the units. The program will produce annual energy savings in 3

multi-family buildings through direct installation of low-flow, water-saving 4

devices and hot water pipe wraps in units with gas water heating. 5

3) Residential Income Eligible Program: The objective of the Residential 6

Income Eligible Program includes the installation of energy saving 7

measures at no cost to the customer. These installations will be made 8

through existing low income weatherization agencies and directly to 9

income eligible customers. 10

4) Residential Educational Services Program: The objective of the 11

Educational Services Programs is to provide information and education 12

about energy efficiency and conservation. These educational programs 13

will provide the basis for more program specific efforts aimed at 14

encouraging customer participation in SEMCO Gas’ Energy Optimization 15

portfolio of programs. 16

5) Residential Pilot Program: The objective of the Residential Pilot Program 17

is to test and develop new program designs, test new marketing 18

strategies, and test the energy saving impact of emerging technologies. 19

The Preliminary Concept also includes the following commercial programs: 20



10

1) C&I Prescriptive Program: The objective of the C&I Prescriptive 1

Program is to encourage SEMCO Gas’ C&I customers to install energy-2

efficient measures in existing and new facilities. This program includes 3

incentives for common energy efficiency equipment used in businesses. 4

2) C&I Custom Program: The primary objective of the C&I Custom Program 5

is to encourage C&I customers to install energy-efficient measures in 6

existing and new facilities. The program is designed to affect the 7

installation of site-specific and unique energy efficiency technologies and 8

process improvements by C&I customers. 9

3) C&I Educational Services Program: The objective of the Educational 10

Services Program is to provide information and education about energy 11

efficiency and conservation. These educational programs will provide the 12

basis for more program specific efforts aimed at encouraging customers to 13

participate in SEMCO Gas’ Energy Optimization portfolio of programs. 14

4) C&I Pilot Program: The objective of the C&I Pilot Program is to test and 15

develop new program designs, test new marketing strategies, and test the 16

energy saving impact of emerging technologies. 17

Detailed descriptions of these programs can be found in witness Phillips’ testimony. 18

Q. Does SEMCO Gas’ Preliminary Concept meet all the requirements as outlined 19

in PA 295? 20

A. Yes. SEMCO Gas’ 2014-2015 Preliminary Concept has been developed to address 21

the provisions of PA 295. In addition, the Preliminary Concept is based on SEMCO 22



11

Gas’ initial program design with modifications based on previous program plans and 1

regulatory reports, program implementation experience, and a review of best 2

practices as described by SEMCO Gas’ expert witness Mr. Phillips. The Preliminary 3

Concept is flexible and scalable to react to changing market conditions. 4

Q. Is the Preliminary Concept for SEMCO Gas an effective plan? 5

A. Yes. SEMCO Gas’ consultants, Morgan Marketing Partners, have informed it on how 6

to approach building this program in a cost-effective manner. However, since the 7

Preliminary Concept is constrained by spending limits, the program offerings rely on 8

more direct installation measures rather than longer-lived measures as discussed 9

below. SEMCO Gas believes spending funds on longer-lived measures better 10

contemplates comprehensive energy savings with long-term customer engagement. 11

Overview of SEMCO Gas’ Pilot EO Plan 12

Q. Why is SEMCO Gas proposing the Pilot EO Plan for the 2014 and 2015 EO Plan 13

years? 14

A. Pursuant to PA 295, the EO Plan spending limit is 2.0% of total retail sales revenues 15

for the two years preceding and energy savings targets are equivalent to the 16

average of 0.75% of total annual retail sales in the three preceding years. As a 17

result, SEMCO Gas’ spending cap in 2014 will experience a 17% reduction from 18

2013 and the energy savings target will only experience a 1% reduction from 2013. 19

Pilot Plan budgets relative to the spending limits and energy savings target 20

calculations can be found in witness Van Sickle’s Testimony. 21



12

Given the reduction in SEMCO Gas’ spending limit, the Preliminary Concept focuses 1

on short-term, lower costs measures in order to meet the energy savings targets set 2

forth in PA 295. The reduced spending limit creates a barrier toward the 3

implementation of long life measures since they are typically higher cost capital 4

investments. However, the measure life is not a factor in determining the energy 5

savings required to meet the savings goals established in PA 295. 6

As a result, SEMCO Gas is proposing a Pilot EO Plan which focuses on longer life 7

saving measures and reduces the importance placed on first year energy savings. 8

The current EO Plan design in Michigan utilizes a first-year savings model 9

regardless of measure life. This system is not a good fit for longer lived measures 10

such as insulation, HVAC, windows, and other building shell improvements. 11

The Pilot EO Plan is preferred since it includes long-term energy saving measures 12

and is delivered in a manner to create comprehensive energy savings with long-term 13

customer engagement. The Pilot EO Plan does not lend itself to “quick fixes” but 14

instead offers comprehensive energy efficiency installations, long-term energy 15

savings, and develops long-term customer commitment to saving energy through 16

continuous efficiency improvements in homes and businesses. 17

The Pilot EO Plan as proposed in this application satisfies all of 2008 PA 295’s 18

requirements. In an effort to further improve this Plan, however, SEMCO Gas is 19

working with MMP, CLEAResult, and the MPSC Staff in a common effort to design 20

an EO Plan which drives installations of more comprehensive and special programs. 21



13

MMP, CLEAResult, and the MPSC Staff have informed SEMCO Gas of the best 1

ways to approach building a Pilot EO Plan for 2014 and 2015 which promotes longer 2

term energy savings. 3

Q. Is SEMCO Gas requesting approval of the Pilot EO Plan for 2014 and 2015? 4

A. Yes. If approved, SEMCO Gas will implement the Pilot EO Plan for the 2014 and 5

2015 EO Plan years. 6

The Pilot EO Plan is based on the program design as detailed in witness Phillips’ 7

testimony. Although the Pilot EO Plan as proposed in this application satisfies all 8

standards required for approval, SEMCO Gas is currently in the process of working 9

with MMP, CLEAResult, and the MPSC staff to further develop the Pilot EO Plan. As 10

a result, if necessary, SEMCO Gas will modify the Pilot EO Plan based on previous 11

program plans and regulatory reports, program implementation experience, results 12

from the 2013 EO Plan, changes in energy savings and standards, changes in gas 13

measurement efficiency standards, MPSC Staff input, performance incentives, and a 14

review of best practices. It is expected SEMCO Gas’ Pilot EO Plan will result in 15

consistent programming designed to deliver cost effective programs which promote 16

longer term energy savings. 17

Q. How will SEMCO Gas implement the Pilot EO Plan? 18

A. SEMCO Gas will continue to work with MCAAA and their primary implementation 19

contractor, CLEAResult, to develop multiple delivery methods and program 20

offerings for customers incorporating strategic assessments, special services, 21



14

individual customer energy optimization plans, financial assistance, and increased 1

incentive offerings which promote the installation of long life measures. 2

Q. What program portfolio is SEMCO Gas proposing to use for its Pilot EO Plan? 3

A. SEMCO Gas’ portfolio for its Pilot EO Plan will be structured to use a mix of 4

programs designed to drive the installation of longer lifecycle and a more 5

comprehensive suite of measures. In addition, the program portfolio will satisfy other 6

critical objectives, such as staying within the statutory spending limits and including 7

offerings available for each customer class, including low-income. There are two 8

basic program types: 1) Comprehensive Residential and 2) C&I Comprehensive and 9

Special: 10

1) Comprehensive Residential Program: The Comprehensive Residential 11

program is an enhancement to the Home Performance program that 12

utilizes a home performance contracting network to provide eligible 13

homeowners with a whole home audit. The audit is subsidized and offers 14

additional measures to encourage the installation of HVAC and envelop 15

measures that improve customer’s home energy performance. 16

The program design overcomes the most critical market barrier; ease of 17

participation. The program is designed to support the customer at key 18

decision points and simplifies the participation process for the customer 19

and contractor with streamlined applications and tailored support. 20

Once the customer begins implementing their Home Energy Efficiency 21

Plan, an Energy Advisor will be assigned to support measure installation 22



15

and ensure a positive experience. The Energy Advisor will serve as the 1

customer’s consultant to alleviate the customer’s burden and intervening 2

at critical decision points if necessary. Our approach is designed to foster 3

a deeper relationship with the customer that will extend beyond the Home 4

Performance Program and position the utility as a long-term home 5

improvement advocate. 6

2) C&I Comprehensive and Special Programs: The Commercial and 7

Industrial Comprehensive and Special Programs offers rebates for high 8

efficiency equipment and process improvements for SEMCO Gas 9

customers. The overall intent of the Comprehensive and Special Programs 10

is to implement a holistic and long-term approach to working with C&I 11

customers to promote the implementation of longer-life, deeper saving 12

measures, processes and behavioral changes to how energy is used. 13

A fundamental change from the traditional delivery of C&I programs and 14

incentives is the implementation of a process for continuous improvement 15

which is initiated with the establishment of a Joint Energy Efficiency Plan 16

(JEEP) for each customer participant. The JEEP will be combined with the 17

delivery of special assessment services which will provide customers with 18

long-term planning and implementation tools. 19

Detailed descriptions of these programs can be found in witness Phillips’ testimony. 20



16

Q. Is SEMCO Gas requesting approval of the methodology to be used for a 1

provider performance incentive under the Pilot EO Plan as provided for in 2

Section 75(b) of PA 295? 3

A. Yes. SEMCO Gas is requesting approval of the methodology to be used for a 4

financial incentive which is tied to the proposed Pilot EO Plan. SEMCO Gas worked 5

in collaboration with the MPSC Staff to establish an incentive mechanism designed 6

around the Pilot EO Plan and energy savings targets. In addition, the performance 7

incentive will include a mechanism designed around qualitative objectives which 8

ensures SEMCO Gas’ Pilot EO plan is in alignment with the Efficiency UNITED and 9

MPSC Staff energy efficiency objectives. 10

Q. How is SEMCO Gas proposing the performance incentive be calculated? 11

SEMCO Gas is proposing the performance incentive be based in total on 15% of 12

SEMCO Gas’ actual energy efficiency program expenditures for the applicable EO 13

Plan year. Actual energy efficiency program expenditures are based on total 14

program portfolio costs, excluding the cost of any incentive bonus that SEMCO may 15

have earned. Achievement of the performance incentive will be based equally on 16

meeting the performance incentive energy savings target and meeting the qualitative 17

objectives. The amount of the performance incentive is calculated based on 18

multiplying the EO program expenditures by 7.5% for meeting the energy savings 19

targets and by 7.5% for meeting qualitative objectives. 20

Q. How is the energy savings target calculated for the performance incentive? 21



17

A. SEMCO Gas worked with the MPSC Staff to establish how the energy savings target 1

is calculated for the performance incentive. The energy savings target was 2

established by calculating a percentage of the three-year average annual volumes 3

and transportation volumes. For the 2014 Plan year, total annual sales and 4

transportation volumes from years 2010, 2011 and 2012 were used. For the 2015 5

Plan year, total annual sales and transportation volumes from years 2011, 2012 and 6

forecasted 2013 were used. After determining the three year average of the total 7

annual sales and transportation for the respected Plan years, the forecasted lifetime 8

energy savings goals for the Pilot EO Plans were calculated by applying 9

approximately 3.8% to the three year average for 2014 and applying approximately 10

3.7% to the three year average for 2015. The calculations are shown on Exhibit A-4, 11

page 2. 12

SEMCO Gas is proposing its performance incentive for meeting the energy savings 13

targets be based on a graduated scale. The chart shown on Exhibit A-4 indicates the 14

level of performance incentive to be awarded as a percentage of the energy savings 15

target achieved. The performance incentive increases as customer lifetime savings 16

increases over the savings goal. The table in Exhibit A-4, page 1 stipulates that if 17

lifetime savings are 120% or greater than the performance incentive energy savings 18

target SEMCO Gas is to be awarded an incentive of 7.5% of the EO program 19

expenditures. 20

Q. How are the energy savings calculated for the performance incentive? 21



18

A. The energy savings for the performance incentive is calculated using a life-cycle 1

basis, in which the entire lifetime savings for each measure is counted in the EO 2

Plan year in which the measure is implemented. Lifetime energy savings by 3

measure are calculated using the lifetime savings specified in the state adopted 4

Michigan Energy Measures Database (“MEMD”). Participation estimates multiplied 5

by the deemed lifetime savings number yields the lifetime savings estimates used. 6

Measures not included in this database will fall under the “Custom” program, with 7

lifetime energy savings engineering calculations being completed for each specific 8

project based on the current or base efficiency equipment standards and the new 9

high efficiency equipment. 10

The energy savings calculated for the performance incentive was established and 11

will be continuously refined through a common effort with SEMCO Gas and the 12

MPSC Staff with the goal to promote longer term energy savings. SEMCO Gas will 13

continue to work with the MPSC Staff to refine the longer term energy savings and 14

will incorporate the revisions in its Pilot EO Plan in the fall of 2013, if necessary. 15

Q. What are qualitative objectives used for the performance incentive? 16

A. SEMCO Gas worked with the MPSC Staff to establish the qualitative measures for 17

the performance incentive. The qualitative objectives are listed below: 18

1) Program alignment with Efficiency UNITED 19

2) Low-Income Customer Focus 20

3) Multi-measure and multi-year programming 21



19

4) Development and implementation of a strategic plan for C&I customers 1

5) Gas utility and electric utility coordination 2

Q. How is the performance incentive for meeting the qualitative objectives 3

calculated? 4

A. The performance incentive for meeting the qualitative objectives is calculated based 5

on multiplying the EO program expenditures by 7.5%. The percentage each 6

qualitative objective contributes to the overall performance incentive includes the 7

following: 8

3% Program alignment with Efficiency UNITED: 9

1% Low-Income Customer Focus 10

1.5% Multi-measure and multi-year programming: 11

1% Development and implementation of a strategic plan for commercial 12

and industrial customers 13

1% Gas utility and electric utility coordination 14

The percentage associated with each qualitative objective puts emphasis on the 15

areas which ensures SEMCO Gas’ Pilot EO plan is in alignment with the Efficiency 16

UNITED and MPSC Staff energy efficiency objectives. 17

Q. How is SEMCO Gas proposing to recover a provider performance incentive? 18

A. SEMCO Gas is proposing to collect each year of the EO Plan’s performance 19

incentive immediately following the EO Plan year reconciliation. SEMCO Gas 20

intends to recover the performance incentive through the EO surcharge. This 21



20

amount will be a component to the EO surcharge and billed to customers. In this 1

proceeding, SEMCO Gas is simply seeking approval of the methodology and criteria 2

to be used to subsequently evaluate and determine whether or not a performance 3

incentive has been earned. Upon completion of an EO Plan year, SEMCO Gas 4

expects to seek actual recovery of the incentive should the goals for that year be 5

met. 6

Overview of Program Evaluation 7

Q. What is SEMCO Gas’ experience with the evaluation of EO programs? 8

A. Pursuant to Section 71 of PA 295, an EO Plan shall include a process for obtaining 9

an independent expert evaluation of the energy optimization programs to verify the 10

incremental energy savings from each energy optimization program. 11

SEMCO Gas provided energy efficiency services to its customers through Efficiency 12

UNITED, a brand name for EO programs offered on behalf of participating providers 13

of retail electricity and natural gas services pursuant to PA 295, Section 91(1). The 14

impact and process evaluation of the Efficiency UNITED portfolio of energy 15

efficiency programs, on behalf of the MCAAA, was conducted by KEMA Inc. 16

Q. How will SEMCO Gas evaluate the implementation of the programs in its EO 17

program? 18

A. The MOU with MCAAA and CLEAResult provides that MCAAA will retain an 19

independent expert evaluation of the SEMCO Gas EO Plan. It is expected that this 20



21

will be done in conjunction with the larger evaluation of all the Efficiency UNITED 1

programs and SEMCO Gas will work with MCAAA in selecting such a firm. 2

Evaluation will be performed by an independent third party Evaluation, Measurement 3

and Verification (EM&V) firm. This firm’s purpose will be to evaluate energy savings 4

claimed, and the effectiveness of the measures installed by customers. The two 5

basic types of evaluations will be (1) energy impact evaluations and (2) process 6

evaluations. SEMCO Gas will closely monitor the performance of all measures and 7

programs once they have been launched. Saving values will be based on 8

documented values from the Michigan Energy Measures Database. Custom 9

incentives target projects with a wide range of non-standard measures or standard 10

measures using non-standard installations/configurations will rely on the engineering 11

analysis of each project. Evaluation activity will focus on verification of installation 12

and estimates of deemed savings. 13

SEMCO Gas will oversee the impact and process evaluation of the program. The 14

evaluation will include a certification of savings and will leverage knowledge gained 15

from the evaluation of similar utility energy efficiency programs in Michigan. Data 16

collection processes for the certification of savings will be reviewed by an 17

independent third party evaluation contractor. 18

The process evaluation is intended to provide program managers with timely 19

recommendations on program operations, effectiveness, and ability to maximize the 20



22

program’s participation to capture new savings, and participant satisfaction so that 1

mid-course corrections may be considered. 2

Q. U-15800 provides for the reallocation of up to 20% of funding within a class to 3

accommodate unforeseen demand issues for programs. Please Comment. 4

A. Since the Pilot EO Plan is a first-time program utilizing longer lived measures, 5

SEMCO Gas is seeking additional flexibility implementing the Pilot EO Plan to 6

accommodate unforeseen demand issues and remain coordinated with the EU Plan. 7

If it is found that a program is not performing as planned, or that a measure or 8

program is not being adapted as expected, SEMCO Gas will reallocate funding 9

within and between classes to accommodate for such unforeseen demand issues. 10

Overview Program Management and Administration 11

Q. How will SEMCO Gas administer its EO programs? 12

A. SEMCO Gas will provide program management and oversight, tracking and 13

reporting oversight, and regulatory review. SEMCO Gas expects to contract with 14

MCAAA and CLEAResult, under the terms of the MOU, to provide day-to-day turn-15

key implementation services including education and training, application and 16

incentive processing, incentive payments, tracking, verification, technical support, 17

customer support, and marketing. The primary implementation contractor will also 18

be responsible for supporting the HVAC contractors, including in-field training and 19

marketing/promotion support. 20



23

The current primary implementation contractor, CLEAResult, has experience in 1

Michigan and other states assisting utilities in implementing energy efficiency 2

programs and SEMCO Gas will take advantage of that expertise and experience. 3

This will also benefit customers through more effective messaging and leveraged 4

spending. 5

Q. How will SEMCO Gas implement its EO Plan if MCAAA is not the state selected 6

provider for the 2014 and 2015 EO Plan year? 7

A. As outlined in the testimony and exhibits in this proceeding, SEMCO Gas expects to 8

contract with MCAAA and CLEAResult to implement its EO programs under the 9

Efficiency United brand name and manage the process of obtaining an independent 10

expert evaluation. Under the terms of the MOU, SEMCO Gas’ contract with MCAAA 11

and CLEAResult may be assignable, meaning the contract will include a provision 12

permitting SEMCO Gas the rights to terminate the contract with MCAAA and 13

CLEAResult or assign the contract to the chosen state selected provider for the 14

2014 and 2015 EO Plan year. This enables the contract holder, MCAAA and 15

CLEAResult, the ability to assign their rights and obligations if the state selects a 16

provider other than MCAAA for the 2014 and 2015 EO Plan years. An assignable 17

contract provides SEMCO Gas with the ability to implement its EO programs under 18

the Efficiency UNITED brand name. If SEMCO Gas elects to terminate the contract, 19

it will select an implementation contractor through a competitive bid process. 20

Q. How will SEMCO Gas address any unspent funds from the 2013 EO Plan year? 21



24

A. SEMCO Gas requests approval to use any unspent funds from the 2013 EO Plan 1

year towards 2014 program costs. Any available carry-over funds will be used 2

towards program costs prior to the use of EO funds collected in 2014 and may be 3

applied towards any 2014 development cost incurred in 2013. 4

In the event funds designated for the Community Targeting pilot program in 2013 are 5

unspent, SEMCO Gas is requesting to continue the program into 2014 using the 6

designated funds from 2013 in the 2014 EO Plan year. The amount spent towards 7

the Community Targeting pilot program shall not exceed the total amount budgeted 8

for the program in 2013. 9

In the event the unspent funds results in a program spend greater than 2.0% in the 10

2014 or 2015 EO Plan year, SEMCO Gas is requesting approval to use the unspent 11

funds proportionally, as originally allocated between residential and non-residential 12

categories, to the extent possible. 13

Q. Does SEMCO Gas believe that any unspent funds from 2013 EO plan year 14

belong to the Company? 15

A. No. SEMCO Gas believes that the unspent funds from previous plan years belong to 16

its customers who provided those funds. By returning any unused funds from 17

previous plan years, SEMCO Gas can use those funds for the purpose they were 18

intended. 19

Q. How does SEMCO Gas plan on recovering pre-start up implementation costs 20

incurred in 2013? 21

A. Section 89 (1) of PA 295 allows a provider whose rates are regulated by the MPSC 22

to recover the actual costs of implementing its approved EO Plan. SEMCO Gas 23



25

plans to recover all the costs of implementing the 2014-2015 EO Plan incurred in 1

2013 through the 2014 EO surcharge. These costs include, but may not be limited to 2

the following: 3

• Incremental expenditures on materials, media, and services for programs 4

• Program infrastructure 5

• Internal labor cost for administering the program 6

• Program design costs 7

SEMCO Gas will defer recovery of incremental plan and program development costs 8

until the 2014 EO Plan year. Witness Van Sickle’s testimony addresses this issue in 9

more detail. 10

Q. Does this complete your direct testimony at this time? 11

A. Yes. 12

SEMCO ENERGY Gas Company Exhibit A-42014‐2015 Energy Optimization Plan Page 1 of 2EO Incentive Mechanism Case No. U-17362

Performance Incentive% of Progam Expenditures

100.0 0.00100.5 0.19101.0 0.38101.5 0.56102.0 0.75102.5 0.94103.0 1.13103.5 1.31104.0 1.50104.5 1.69105.0 1.88105.5 2.06106.0 2.25106.5 2.44107.0 2.63107.5 2.81108.0 3.00108.5 3.19109.0 3.38109.5 3.56110.0 3.75110.5 3.94111.0 4.13111.5 4.31112.0 4.50112.5 4.69113.0 4.88113.5 5.06114.0 5.25114.5 5.44115.0 5.63115.5 5.81116.0 6.00116.5 6.19117.0 6.38117.5 6.56118.0 6.75118.5 6.94119.0 7.13119.5 7.31120.0 7.50

Savings Target %

SEMCO ENERGY Gas Company Exhibit A-42014‐2015 Energy Optimization Plan Page 2 of 2Performance Incentive Energy Savings Target Case No. U-17362

2014 20152010 2011 2012 2013 (forecasted) Avg 2010‐2012 (therms) Avg 2011‐2013 (therms)

Residential 233,853,890 246,929,400 218,612,970 250,534,470 233,132,087 238,692,280C&I 122,052,110 134,520,430 120,814,410 137,035,570 125,795,650 130,790,137Transport 165,209,760 168,516,750 167,347,060 167,347,060 167,024,523 167,736,957Total Avg Sales (therms) 525,952,260 537,219,373

Energy Savings Target 3.8% 3.7%Pilot Lifetime Energy Savings (therms) 19,935,093 20,013,386

Program Expenditures* $5,205,300 $4,975,217Performance Incentive @ 15% $780,795 $746,283

*Note: Refer to exhibit A‐6, pg 2 for detail

Sales Volume (therms)

STATE OF MICHIGAN


In the matter of the application of ) SEMCO ENERGY, INC. for authority to ) implement its Energy Optimization Plan for )Case No. U-17362 the 24-month period of January 2014 through ) December 2015. )

QUALIFICATIONS, DIRECT TESTIMONY AND EXHIBITS

OF

GEORGE L. PHILLIPS

SEMCO ENERGY GAS COMPANY DIRECT TESTIMONY OF GEORGE L. PHILLIPS

2

Q. Please state your name and business address. 1

A. My name is George L. Phillips. I am a Senior Consultant of Morgan 2

Marketing Partners. My business address is 14926 Sheridan Circle, Clive, 3

IA 50325. 4

5

Q. Can you describe Morgan Marketing Partners? 6

A. Morgan Marketing Partners (“MMP”) is a professional services firm formed in 7

1995 that partners with utility and governmental clients to provide energy 8

efficiency consulting services including program design and development, 9

cost-effectiveness modeling, strategic marketing consulting, implementation 10

and operations assistance, new product and service development, 11

management assistance, and evaluation and assessments. MMP has worked 12

with clients including but not limited to Duke Energy, California Public Utility 13

Commission, Energy Trust of Oregon, Missouri River Energy Services, 14

Kansas City Power & Light, Jacksonville Electric Authority, Rochester Public 15

Utilities, MidAmerican Energy, Hawaii Electric, Northwest Energy Efficiency 16

Alliance, the State of Indiana and Wisconsin Focus on Energy administered by 17

Wisconsin Energy Conservation Corporation. In Michigan MMP has worked 18

with MichCon, Detroit Edison, Consumers Energy, the Michigan Electric 19

Cooperative Association EO Collaborative, Efficiency United and the Michigan 20

Public Service Commission (“Commission” or “MPSC”) Staff. 21

22

Q. Can you summarize your educational background and professional 23

qualifications? 24

A. I earned a Bachelor of Science degree in Electrical Engineering from Purdue 25

University in 1968 and my Master of Business Administration (Management 26

and Marketing) from Ball State University in 1972. I am a licensed 27

Professional Engineer in the State of Indiana. I am a past Board Member for 28

the Association of Energy Services Professionals (“AESP”). I have presented 29


3

numerous papers on energy efficiency at AESP, E Source, DistribuTECH, 1

Gas Research Institute, Edison Electric Institute and many others. 2

3

Q. Can you describe your professional background and experience? 4

A. I have over 45 years of management, planning, program design, 5

implementation and marketing experience in the energy field. I have been 6

involved in various aspects of serving utility customers my entire career. 7

8

As a Senior Consultant with MMP, I provide direct support for the planning, 9

design and implementation of energy efficiency and demand response 10

programs for utility clients. Prior to MMP, I spent 5 years at Kansas City 11

Power & Light (KCP&L) managing the planning, detailed design, 12

implementation and evaluation of energy efficiency and demand response 13

programs for all market segments. Before KCP&L, I joined MidAmerican 14

Energy Company to plan, design, implement, and evaluate new gas and 15

electric energy efficiency programs for residential, commercial, and 16

industrial customers. I provided strategic planning to meet energy 17

efficiency commitments, prepared financial analysis for each program to 18

determine their cost effectiveness and analyzed program impacts on the 19

utility rates and revenues. I have directed the development of major energy 20

efficiency initiatives over the past 20 years. I have supported energy 21

efficiency and demand response initiates by presenting case studies at 22

state regulatory forums, legislative committees and national conferences. I 23

have written RFPs and negotiated and managed energy efficiency 24

program implementation contracts. I have directed the full range of energy 25

efficiency management from initial planning to supply integration, from 26

detailed program and marketing design to program launch, from pilot 27

program to full scale deployment, and from evaluation planning to detailed 28

regulatory plan review and evaluation. I have conducted market research 29


4

and employee training, determined appropriate customer incentive levels, 1

and developed customer communication strategies and program budgets. 2

I have prepared and presented regulatory testimony in support of energy 3

efficiency. I have managed collaborative initiatives of multiple 4

stakeholders including utility management, customers, trade allies, 5

community leaders, environmental support organizations and regulatory 6

staff. 7

8

Q. Have you previously provided testimony before the Commission? 9

A. No. 10

11


A. The purpose of my testimony is to provide information to meet requirements 13

of four paragraphs of Section 71 (3) of 2008 Public Act 295, the “clean, 14

renewable, and efficient energy act (“PA 295”). These paragraphs are: 15

• Propose a set of energy optimization programs for 2014 and 16

2015 that include offerings for each customer class, including 17

low income residential. 18

• Specify necessary funding levels. 19

• Demonstrate that SEMCO Gas' energy optimization programs, 20

excluding program offerings to low income residential customers, will 21

collectively be cost-effective. 22

• Demonstrate that the proposed energy optimization programs and 23

funding are sufficient to ensure the achievement of applicable energy 24

optimization standards. 25

26

Q. Are you sponsoring any exhibits? 27


5

A. Yes. The following are the exhibits that I am sponsoring: 1

Exhibit Description 2

(A-5) Pilot Plan Program Descriptions 3

(A-6) Pilot Plan Program Goals and Budgets 4

(A-7) Pilot Plan Cost-Effectiveness Test 5

(A-8) Preliminary Concept Program Descriptions 6

(A-9) Preliminary Concept Program Goals and Budgets 7

(A-10) Incentive levels Results 8

(A-11) Preliminary Concept Cost-Effectiveness Test Results 9

10

Q. Were these exhibits prepared under your direction and supervision? 11

A. Yes. 12

13

Q. Will you describe the services your firm has provided for SEMCO Gas? 14

A. MMP has served as the principal consultant for SEMCO Gas in connection 15

with their energy efficiency planning efforts as required by PA 295 for 2014 16

and 2015 years of the Plan. In this role, I developed the program planning 17

process, determined the program energy savings goals and the maximum 18

funding available for 2014 and 2015, designed energy efficiency programs, 19

helped establish program budgets, and under my direction conducted cost-20

effectiveness modeling and energy savings calculations for each program. 21

The energy savings goals and maximum funding available by state 22

regulation was determined with input from SEMCO Gas’ volume sales and 23

revenue data, and is also addressed in witness Van Sickle’s testimony. At 24

the request of Michigan utilities statewide and the Commission, MMP has 25

also provided the Michigan Energy Measures Database for use by all 26

Michigan utilities in their cost-effectiveness modeling. 27


6

MMP consultants worked with SEMCO Gas to develop all the EO programs 1

discussed in the application in this docket. We brought our combined 2

experience of over 70 years in the utility and energy efficiency business to 3

provide ideas and guidance on the program designs. The work included a 4

review of best practices of gas programs across North America. 5

6

Propose a set of energy optimization programs that include offerings for each 7

customer class, including low income residential. 8

9

Q. How did MMP help SEMCO Gas develop their EO Programs? 10

A. MMP assisted SEMCO Gas in several ways during the development of the 11

EO Programs. First, MMP brought many years of experience planning and 12

implementing programs, providing high level advice on programs to 13

consider, technologies to screen and appropriate ways to deliver programs. 14

Second, MMP has reviewed and researched other programs to determine 15

best practices and approaches to energy efficiency implementation. Third, 16

MMP provided technical support, including the MEMD and DSMore cost-17

effectiveness analysis. Fourth, MMP helped SEMCO Gas with its internal 18

planning process and filing development. Last, MMP helped SEMCO Gas 19

with development of the program documents for this filing. 20

21

Q. Has MMP developed an Energy Optimization Pilot Plan? If so, please 22

describe. 23

A. Yes. MMP has developed a large comprehensive Pilot Plan. This Plan 24

includes long-term and short-term energy saving measures and is delivered 25

in a manner to create comprehensive energy savings with long-term 26

customer engagement. 27

28


7

Q. What is the purpose of the Pilot Plan? 1

A. The purpose of the Pilot Plan is to develop and test future Energy 2

Optimization program capabilities to deliver long-term energy savings 3

through comprehensive energy plans and engaging customers in long-term 4

energy savings strategies. 5

6

Q. What are the goals of the Pilot Plan? 7

A. The goals of the Pilot Plan are to install long-term energy saving measures, 8

have comprehensive energy efficiency installations and develop long-term 9

customer commitment to saving energy through continuous efficiency 10

improvements in homes and businesses. For residential, the goals will be to 11

conduct energy savings audits and install energy efficiency measures for 12

comprehensive energy savings. The Commercial and Industrial (C&I) goals 13

of the program will be measured by the number of customers developing 14

and committing to a comprehensive, multi-year energy savings plan, the 15

number of customers implementing at least one measure of the plan and 16

the number of customers that implement multiple measures. 17

18

Q. Does the Pilot Plan have an energy savings goal? 19

A. Yes. Since the Pilot Plan goals are focused on long-term energy savings, 20

the energy savings goal was based on long-term energy savings. These 21

goals are further discussed later in my testimony. 22

23

Q. Does the Pilot Plan achieve its goals? 24

A. Yes. The Pilot Plan emphasizes long-term energy savings, customer 25

engagement and comprehensive savings. Besides emphasizing long-term, 26

comprehensive energy saving installations, the Pilot Plan will also provide 27

data for evaluating different methods for measuring and valuing long-term 28


8

energy savings as well as offering an alternative to short-term measures 1

which are easily removed or relocated. The Pilot Plan will help provide the 2

data needed to identify those actions or decisions regarding saving energy 3

that are adaptable to multiple solutions in Michigan’s energy future. 4

5

Q. What other goals does the Pilot Plan achieve? 6

A. The Pilot Plan is designed to be flexible in its implementation while 7

encouraging customers to make comprehensive energy efficiency decisions 8

and maximizing customers’ long-term energy savings. The Pilot Plan will 9

help customers lower their energy bills through efficiency, making living in 10

Michigan more affordable for residents and more competitive for 11

businesses. The Pilot Plan will utilize Michigan Saves as a partner for 12

saving energy and money. The data from the Pilot Plan can be used by 13

Michigan to make decisions about its energy framework that will enhance 14

Michigan’s adaptability, reliability, affordability and environment. It can be 15

used to establish new energy efficiency goals and the structures for 16

achieving those goals. The Pilot Plan is designed to be coordinated with 17

Efficiency UNITED’s 2014/2015 Plan, which will allow cost savings and pilot 18

data enhancements. Rather than the “quick fixes” to achieve annual energy 19

savings goals, the Pilot Plan will provide long-term energy efficiency 20

planning for C&I customers, a sustainable long-term commitment to energy 21

savings for residential customers and a long-term market transformation to 22

energy efficiency. 23

24

Q. What EO programs are included in the Pilot Plan? 25

A. SEMCO Gas’ EO Pilot Plan includes the following programs. These are 26

further described in Exhibit A-5. 27

• Residential Income Eligible Program 28


9

• Residential Comprehensive Program 1

• Residential Pilot Program 2

• Residential Educational Services Program 3

• C&I Comprehensive Program 4

• C&I Pilot Program 5

• C&I Educational Services Program 6

7

Q. Please describe the extent to which EO programs will be available to 8

various customer classes including low income customers. 9

A. Programs were designed for all residential and C&I customer classes and 10

low income customers. Additionally, the measures selected for the 11

programs and the additional program services make it possible for all, or 12

nearly all, customers to participate in one or more of the EO programs. 13

These programs are designed for existing and new residential and C&I 14

customers. A specific program is developed for low income customers with 15

three different delivery channels proposed. 16

17

Q. What programs will be available for low income residential customers? 18

A. All residential programs are available to low income customers. In addition, 19

there is a program designed specifically for low income customers. This 20

program includes all weatherization measures, educational materials and 21

other support services included in the CAA weatherization projects. 22

Measures that provide energy savings includes the installation of 92% 23

AFUE efficient furnaces, gas furnace tune-ups, installation of a 24

programmable set back thermostats, the installation of low-flow shower 25

heads, kitchen and bath faucet aerators and hot water pipe insulation. 26

27


10

Q. What delivery method will be used for the low income program? 1

A. The primary delivery channel will be through the Community Action 2

Agencies. These agencies that are conducting home weatherization will be 3

provided funds for the materials and installation costs for their 4

weatherization projects. Two other installation channels may be used as 5

needed. These include the direct installation of these measures in low 6

income multi-family units and in neighborhoods where the population 7

predominately meets the low income requirements. 8

9

Q. Please describe the Residential and C&I Comprehensive Programs in 10

the Pilot Plan. 11

A. The Pilot Plan includes a Residential Comprehensive Program and a C&I 12

Comprehensive Program. These programs will be used to develop and test 13

program and market capabilities to cost effectively deliver long-term energy 14

savings and encourage the implementation of long-life, deeper savings 15

measures, processes and behavioral changes. 16

The Residential Comprehensive Program is an enhancement to the current 17

Home Performance program that utilizes the existing home performance 18

contracting network to provide eligible homeowners with a whole home 19

audit. The audit is subsidized and additional measures are offered to 20

encourage the installation of space heating and envelop measures that 21

improve customer’s home long-term energy performance and comfort. 22

The C&I Comprehensive Program offers rebates and program assistance 23

for high efficiency equipment and process improvements for gas customers 24

to implement comprehensive and holistic projects. The objective is to 25

encourage implementation of long-life, deeper savings measures, 26

processes and behavioral changes. It will incorporate previous measures 27

from all previous C&I programs and features of the Industrial Process Pilot 28

Program, the Agricultural Program and the Michigan Saves Program. The 29


11

program will obtain immediate gas savings through on-going delivery of the 1

C&I core measures which will dovetail with the Comprehensive Program 2

offerings 3

These programs are more fully described in Exhibit A-5. 4

5

Q. Besides the Income Eligible Program, the Residential Comprehensive 6

Program and the C&I Comprehensive Program, what other programs will 7

be offered? Please provide a brief description of each. 8

A. The Residential Educational Services Program provides information about 9

energy efficiency and conservation and gives customers valuable 10

information on the benefits of participation, what they need to do to 11

participate and how to sign up for the program. 12

The Residential Pilot Program is designed to enrich the effectiveness of the 13

Energy Optimization Programs. The Residential Pilot Program will evolve 14

over time and will be dictated by the changing needs of customers and new 15

technologies. An important component of the Pilot Program will be to 16

conduct customer research to get the “voice of the customer” related to 17

current and future programs and technologies. 18

The C&I Educational Services Program provides information about energy 19

efficiency and conservation and, gives customers valuable information on 20

the benefits of participation, what they need to do to participate and how to 21

sign up for the program. 22

The C&I Pilot Program is designed to enrich the effectiveness of the Energy 23

Optimization Programs. The Pilot Program will evolve over time and will be 24

dictated by the changing needs of customers and new technologies. An 25

important component of the Pilot Program will be to conduct customer 26

research to get the “voice of the customer” related to current and future 27

programs and technologies. 28

29


12

Specify necessary funding levels. 1

2

Q. What are the 2014 and 2015 budgets for the Pilot Plan? 3

A. The 2014 and 2015 Pilot Plan budgets (Exhibit A-6) are $5,205,300 and 4

$4,975,217, respectively. 5

6

Q. Will the Pilot Plan budget and program costs be the same? 7

A. Not necessarily. The budgets in the Pilot Plan are based on implementation 8

cost estimates from similar programs. The actual Plan cost will be 9

determined by the implementation contractor and the work which is actually 10

performed. 11

12

Demonstrate that the provider's energy optimization programs, excluding 13

program offerings to low income residential customers, will collectively be 14

cost-effective. 15

16

Q. How was cost-effectiveness of these Pilot Plan programs determined? 17

A. The DSMore cost analysis tool was used to calculate and report cost-18

effectiveness for the programs using the Utility System Resource Cost Test 19

(USRCT) as defined by PA 295 and the Commission’s December 4, 2008 20

Order in Case No. U-15800. As ordered, SEMCO Gas’ programs must be 21

cost-effective utilizing the USRCT. Several other cost-effectiveness tests 22

were performed, and their results along with the URSCT are tabulated in 23

Exhibit A-7. 24

25

Q. How do PA 295 and the Commission’s order in U-15800 define cost-26

effectiveness? 27


13

A. The Commission’s order indicates that the USRCT is the test for cost-1

effectiveness of all the programs collectively, excluding low income. The 2

order further defines the cost and savings elements to use in this test. The 3

costs and benefits used in the SEMCO Gas program analysis of USRCT 4

comply with the elements defined in the order. 5

6

Q. Can you please describe Exhibit A-7? 7

A. Exhibit A-7 shows the cost-effectiveness test results for SEMCO Gas’ EO 8

Plan programs in total, by Residential and C&I classes, and for each 9

program. The various test results shown are for the following tests: 10

• USRCT: Defined in the Commission’s order. For a program to be cost-11

effective, this ratio needs to be greater than one. 12

• Total Resource Cost Test (TRC): Defined as the total avoided cost 13

divided by the program administrative costs plus the incremental cost 14

of the installed measure. 15

• Rate Impact Measure (RIM): Defined as the avoided cost benefits 16

divided by the program costs and lost revenues. 17

• Participant Test: Defined as the participant’s benefits in energy savings 18

from their bill reduction plus their incentives divided by their costs to 19

participate. 20

In addition, I provided within the exhibit the cost of conserved energy (CCE 21

$/therm). This is the lifetime savings in therms divided by the program costs. 22

23

Q. Is the Pilot Plan cost effective? 24

A. Yes. The Pilot Plan is cost effective. It has a USRCT of 1.70. As SEMCO 25

Gas gains experience from the Pilot Plan and the customers and trade allies 26

fully engage in comprehensive and long-term energy efficiency planning, the 27

program costs per unit of energy saved should go down and the benefit/cost 28


14

ratio will go up. See Exhibit A-7 for each program and each cost 1

effectiveness test. 2

3

Q. Can you describe the DSMore modeling tool? 4

A. The DSMore tool is an award-winning modeling software that is nationally 5

recognized and used by most utilities in Michigan for the energy 6

optimization cost effectiveness modeling. It is also used in many states by 7

regulatory bodies and utilities across the country to determine cost-8

effectiveness. Developed and licensed by Integral Analytics based in 9

Cincinnati Ohio, the DSMore cost-effectiveness modeling tool takes daily 10

prices and energy savings from the specific measures/technologies being 11

considered for the EO program, and then correlates both to weather. This 12

tool looks at over 30 years of historic weather variability to get the full 13

weather variances appropriately modeled. In turn, this allows the model to 14

capture the low probability, but high consequence weather events and apply 15

appropriate values to them. Thus, DSMore is able to provide a more 16

accurate view of the value of the efficiency measure as compared to other 17

alternative supply options. 18

19

Q. What is the source of the gas energy prices used in DSMore? 20

A. Gas energy prices used in DSMore are the historic daily Henry Hub gas 21

prices adjusted for Michigan delivery. 22

23

Q. What type of Energy Optimization program information is used for 24

model inputs? 25

A. Program inputs into the model include participation rates, incentives paid, 26

energy savings of the measure, life of the measure, implementation costs, 27


15

administrative costs and incremental costs to the participant of the high 1

efficiency measure. 2

3

Q. How was the appropriate level of customer incentive determined? 4

A. There are no simple formulas to determine the correct customer incentive 5

that will motivate potential customers to develop long-term energy savings 6

plans or install energy efficient equipment. For some new technologies, 7

there may be a need for very high incentives to get over perceived risk by 8

the customer, and for other technologies with more market acceptance, 9

customers may just need a little financial motivation to stimulate them to 10

consider and purchase the high efficiency alternative. As such, in the 11

planning process, we use many different methods to refine what the 12

incentive should be. First, we looked at the existing programs in Michigan 13

(particularly programs being implemented by EU since they are currently 14

implementing SEMCO Gas’ EO Plan), the measure incentive and the 15

program’s success in achieving the energy savings goals. Second, we 16

looked at the incentive levels in other successful programs to see what their 17

markets needed for participation. Third, we considered trying to pay for half 18

of the incremental installation cost for the energy efficiency option. We then 19

used these estimates to calculate the cost-effectiveness of that measure, 20

considering not only the incentive but the implementation costs. Based on 21

the DSMore outputs, we then adjusted the incentive to make sure that the 22

portfolio was cost-effective. The incentives in the Pilot Plan will be 23

coordinated with incentives in the EU Plan. To be successful, a program will 24

need to adjust these incentives on a real-time basis during program 25

operations to meet the changing market needs and customer response. 26

27

Q. How will the programs need to change over time? 28


16

A. Programs will need to change over time in two ways. One is the offering of 1

technologies. Technologies are constantly changing as are standards or code 2

requirements, so the measures offered must be able to adjust to meet the 3

market situation. A good example is the minimum federal efficiency standards 4

of a gas furnace. These standards may be going up and as they do, the 5

programs will increase the efficiency levels required to receive the incentive. 6

Customer incentives also may need to be adjusted in response to the 7

customer and market response. Incentives sometimes need to be increased if 8

the market is not responding to the current incentive in a difficult economy. 9

Hopefully, incentives can be reduced over time as the market transforms and 10

accepts the measure as the standard practice, or as costs come down for the 11

technology. 12

13

Q. What is the source of these Energy Optimization program inputs? 14

A. The state adopted MEMD was used for the energy savings, measure cost 15

and measure life inputs. Participation rates were based on estimations from 16

other programs and SEMCO Gas customers. Incentive estimates were 17

estimated as described above. Administrative and implementation costs 18

were estimated based on reviewing and benchmarking costs from similar 19

existing programs. 20

21

Q. What type of utility information is used in DSMore? 22

A. For utility information, DSMore utilizes utility rates; escalation rates for retail 23

rates and supply costs; utility discount rates for the utility, society and the 24

participant; and avoided costs. 25

26

Q. What is the source of the utility information used for SEMCO Gas’ 27

DSMore inputs? 28


17

A. Utility inputs were provided by SEMCO Gas. This input included retail rates, 1

utility discount rate, cost per unit of delivered gas, rate escalation, gas cost 2

escalation, line loss, past annual gas revenues and past annual energy 3

sales. 4

5

Q. How were the model inputs utilized to determine the market based 6

avoided cost savings? 7

A. The market based avoided cost savings calculation utilizes a daily review of 8

Henry Hub-based historic prices adjusted for SEMCO Gas delivery that are 9

escalated going forward. These prices are correlated to weather over that 10

same period so that DSMore includes the volatility of those prices associated 11

with weather. The measured therm savings are then applied to the 12

appropriate days for that customer, based on the load curves of the customer 13

group that is most likely to install the measure. 14

15

Q. How is the appropriate level of deemed savings determined for custom 16

measures? 17

A. A “custom” measure is a measure that has unique characteristics and 18

applications, has large variations in application or baseline, and/or is new to 19

the marketplace and does not have enough information from which a 20

deemed savings can be determined. Many industrial applications fall into 21

this category because of their unique application of the measure or 22

technology. To get the custom incentives, customers provide the technical 23

documentation to support their energy savings estimates. The savings for 24

each custom project will be reviewed by appropriate technical experts to 25

determine if the assumptions within are appropriate. The incentive for that 26

customer will be provided within the guidelines of the program for legitimate 27

and documented savings. In the DSMore run, the incentive is the amount 28

that we can cost-effectively pay for the energy saved. By definition, there is 29


18

no incentive for any savings that are not cost-effective using the incentive 1

levels outlined. 2

3

Q. Based on the results of your work, do the SEMCO Gas EO programs 4

meet the cost-effectiveness requirements of the state legislation and 5

Commission orders? 6

A. Yes. As I described earlier in my testimony, based on the analysis 7

performed using DSMore, the SEMCO Gas portfolio of programs has a 8

USRCT of 1.69 and passes the cost-effectiveness test in accordance to the 9

guidelines outlined by the MPSC in its order, and the legislative 10

requirements of PA 295. This analysis was done in accordance to MPSC 11

guidelines and did not include low income programs. The results of my 12

analysis are provided in Exhibit A-7. 13

14

Demonstrate that the proposed energy optimization programs and funding are 15

sufficient to ensure the achievement of applicable energy optimization 16

standards. 17

18

Q. Is the Pilot Plan budget within the funding limits set by Commission 19

rules? 20

A. Yes. The programs were designed to have their budgets equal the funding 21

limits in total and for each year of the Plan and for each customer class. 22

23

Q. What are the lifetime energy savings from the Pilot Plan? 24

A. The lifetime energy savings goal for the Pilot Plan for 2014 and 2015 are 25

1,993,509 and 2,001,339 Dekatherms respectively. For 2014 and 2015, 26

these lifetime energy savings represents approximately 3.8% and 3.7% of 27


19

the three-year average annual sales. See Exhibit A-6 for budget and 1

savings details. 2

3

Q. How were the lifetime energy savings on Exhibit A-6 calculated? 4

A. Lifetime energy savings by measure were calculated using the annual 5

deemed savings contained in the state adopted Michigan Energy Measures 6

Database (MEMD) multiplied by the life of the measure. Participation 7

estimates multiplied by the deemed lifetime energy savings number yields 8

the lifetime energy savings estimates used. The MEMD has been 9

developed under the direction of the Commission and the Michigan Energy 10

Optimization Collaborative. Measures not included in this database will fall 11

under the “Custom” program, with energy savings engineering calculations 12

being completed for each specific project based on the current or base 13

efficiency equipment standards and the new high efficiency equipment. 14

15

Q. How were participation levels estimated for these programs? 16

A. Participation levels were estimated based on the experience of the Pilot 17

Plan being implemented in 2013 by Efficiency UNITED in the SEMCO Gas 18

service territory. 19

20

Q. Does the Pilot Plan meet the objectives of a pilot? 21

A. Yes. The Pilot Plan’s objectives are the installation on long-term energy 22

saving measures and the development and testing of program and market 23

capabilities to cost effectively deliver long-term energy savings and 24

encourage the implementation of long-life, deeper savings measures, 25

processes and behavioral changes. Besides meeting these Pilot Plan 26

objectives, the Pilot Plan is also designed to meet the lifetime energy 27

savings goals. 28


20

1

Preliminary Concept 2

Q. In addition to designing the Pilot Plan, did MMP also design a 3

Preliminary Concept that achieved the energy savings goals within the 4

funding limits? 5

A. Yes. MMP developed a Preliminary Concept that achieved the savings 6

goals within the funding limits. 7

8

Q. What specific EO programs were initially selected to accomplish the 9

gas energy savings goals established in PA 295? 10

A. The Preliminary Concept includes the follow programs. These are further 11

described in Exhibit A-8. 12

• Residential Income Eligible Program 13

• Residential Home Performance Program 14

• Residential Multi-Family Program 15

• Residential Pilot Program 16

• Residential Educational Services Program 17

• C&I Prescriptive 18

• C&I Custom 19

• C&I Pilot Program 20

• C&I Educational Services Program 21

22

Q. Please describe the extent to which programs in the Preliminary 23

Concept were designed to be available to various customer classes 24

including low income customers. 25


21

A. Programs were designed for all residential and C&I customer classes and 1

low income customers. Additionally, the measures selected for the 2

programs make it possible for all, or nearly all, customers to participate in 3

one or more of the EO programs. These programs are designed for existing 4

and new residential and C&I customers. A specific program is developed for 5

low income customers with three different delivery channels proposed. 6

7

Q. What program was designed low income residential customers? 8

A. All residential programs are available to low income customers. There is a 9

program designed specifically for low income customers. This program 10

includes the installation of 92% AFUE efficient furnaces, gas furnace tune-11

ups, installation of a programmable set back thermostats, the installation of 12

low-flow shower heads, kitchen and bath faucet aerators and hot water pipe 13

insulation. The program funds only these measures and not the full 14

weatherization treatment included in the CAA projects. 15

16

Q. What delivery method would be used for the low income program? 17

A. The primary delivery channel would be through the Community Action 18

Agencies. These agencies that are conducting home weatherization will be 19

provided funds for the materials and installation costs of the above 20

measures. Two other installation channels may be used as needed. These 21

include the direct installation of these measures in low income multi-family 22

units and in neighborhoods where the population predominately meets the 23

low income requirements. 24

25

Q. Besides the Income Eligible Program, what other programs were 26

designed in the Preliminary Concept? Please provide a brief description 27

of each. 28


22

A. The Residential Home Performance Program provides market incentives to 1

residential customers for installing energy-efficient gas space and hot water 2

saving equipment. This program is offered to existing and new homes 3

installing new space and water heating equipment. Incentives will be 4

provided to the home owner and will be based on fulfilling the energy 5

efficiency requirements. 6

The Residential Multi-Family Program provides a turn-key service for 7

helping customers and property owners and managers reduce their gas 8

energy use in multi-family buildings. SEMCO Gas’ implementation 9

contractor will directly install gas hot water energy savings measures. These 10

measures include aerators, shower heads and pipe insulation. Educational 11

information about the energy savings associated with these devices is left 12

behind in all units. The service is provided to property owners and 13

occupants at no cost. 14

The Residential Educational Services Program provides information about 15

energy efficiency and conservation and gives customers valuable 16

information on the benefits of participation, what they need to do to 17

participate and how to sign up for the program. 18

The Residential Pilot Program will evolve over time and will be dictated by 19

the changing needs of customers and new technologies. An important 20

component of the Pilot Program will be to conduct customer research to get 21

the “voice of the customer” related to current and future programs and 22

technologies. 23

The C&I Prescriptive Program provides prescriptive incentives to SEMCO 24

Gas’ C&I customers for the installation of energy-efficient equipment for 25

numerous applications including boiler controls, steam heat system 26

improvements, pre-rinse sprayers and room temperature controls. 27

The C&I Custom Program provides custom incentives for the installation of 28

innovative and unique energy-efficient equipment and controls. Having a 29


23

custom incentive allows efficiency measures and systems to be installed for 1

situations specific to that customer’s application or process. 2

The C&I Educational Services Program provides information about energy 3

efficiency and conservation and, gives customers valuable information on 4

the benefits of participation, what they need to do to participate and how to 5

sign up for the program. 6

The C&I Pilot Program will evolve over time and will be dictated by the 7

changing needs of customers and new technologies. An important 8

component of the Pilot Program will be to conduct customer research to get 9

the “voice of the customer” related to current and future programs and 10

technologies. 11

12

Q. In the Preliminary Concept design, are the savings goals achieved 13

within each year for residential and C&I for 2014 and 2015? 14

A. Yes. The annual energy savings goals for 2014 and 2015 as required by 15

PA 295 for the residential and C&I classes are designed to be achieved. 16

See Exhibit A-9. 17

18

Q. How was the appropriate level of customer incentive determined? 19

A. There are no simple formulas to determine the correct customer incentive 20

that will motivate potential customers to install energy efficient equipment. 21

For some new technologies, there may be a need for very high incentives to 22

get over perceived risk by the customer, and for other technologies with 23

more market acceptance, customers may just need a little financial 24

motivation to stimulate them to consider and purchase the high efficiency 25

alternative. As such, in the planning process, we use many different 26

methods to refine what the incentive should be. First, we looked at the 27

existing programs in Michigan, the measure incentive and the program’s 28

success in achieving the energy savings goals. Second, we looked at the 29


24

incentive levels in other successful programs to see what their markets 1

needed for participation. Third, we considered trying to pay for half of the 2

incremental installation cost for the energy efficiency option. We then used 3

these estimates to calculate the cost-effectiveness of that measure, 4

considering not only the incentive but the implementation costs. Based on 5

the DSMore outputs, we then adjusted the incentive to make sure that the 6

portfolio was cost-effective. The incentive for each measure in each 7

program is included in Exhibit A-10. To be successful, a program will need 8

to adjust these incentives on a real-time basis during program operations to 9

meet the changing market needs and customer response. 10

11

Q. How were participation levels estimated for these programs? 12

A. Participation levels were estimated using the experience of other Midwest 13

programs. Specifically we used data from other utilities in Michigan when 14

available. Initially we used a broad set of measures and participation rates 15

common for those programs. This resulted in a budget that exceeded the 16

funding limit established by regulation. 17

18

Q. How was the Preliminary Concept able to achieve the energy savings 19

within the funding limits? 20

A. To meet the annual energy savings goals within the budget limits, most of 21

the higher cost per energy saved measures were dropped. Even though 22

these measures were cost effective, their cost per first year energy savings 23

were higher than measures that were kept in the Preliminary Concept. 24

Besides reducing the number of high cost measures, the total number of 25

different measures included in the Preliminary Concept was also reduced. 26

To make up for the reduction in energy savings from the elimination of 27

participation in the higher cost measures, the participation of the lower cost 28

measures was increased. 29


25

1

Q. Would the Preliminary Concept be able to achieve the higher 2

participation numbers in the lower cost measures? 3

A. Yes. Energy efficiency programs are relatively new in Michigan and it is 4

anticipated that the potential market is sufficient to accommodate higher 5

participation in the lower cost measures. 6

7

Q. Does achieving the goal with high participation of lower cost 8

measures create any risks to program success? 9

A. Yes. Generally, lower cost measures are measures that can easily be 10

removed. If a high number of low cost measures are removed (or never 11

installed) the expected energy savings will not be realized. 12

13

Q. Were shorter-term energy saving measures given preference over 14

long-term energy saving measures? 15

A. No. Since the program design was constrained by funding limits, the 16

measures selected to be dropped were the higher cost measures. As it 17

turns out, those are generally the longer-life measures, but the measure life 18

was not a factor in the selection of measures. 19

20

Q. Does achieving the goal with a reduced number of measures create 21

any risks to program success? 22

A. Yes. To achieve the annual energy savings goals, the participation in the 23

lower cost measures was increased. Although it is expected that the higher 24

participation levels of these low cost measures can be achieved with 25

aggressive and focused program marketing and delivery, there will come a 26

point when these low cost measures will have higher market saturation and 27

the ability to maintain high levels of participation will become more 28


26

challenging. At that point, additional installations of these low cost measures 1

will become more costly. 2

3

Q. Will you describe the cost-effectiveness results for the SEMCO Gas’ 4

EO programs in the Preliminary Concept? 5

A. All SEMCO Gas programs in the Preliminary Concept are cost-effective 6

with the Portfolio USRCT score of 3.29. See Exhibit A-11. 7

8

Q. Are you recommending the MPSC approve the Preliminary Concept 9

Plan? 10

A. No, I am recommending the MPSC approve the Pilot Plan. The Pilot Plan 11

provides a basis for the development of future Energy Optimization program 12

capabilities to deliver long-term energy savings through comprehensive 13

energy plans and engaging customers in long-term energy savings 14

strategies. The Pilot Plan includes long-term and short-term energy saving 15

measures and is delivered in a manner to create comprehensive energy 16

savings with long-term customer engagement through continuous efficiency 17

improvements in homes and businesses. The Preliminary Concept Plan is a 18

more traditional plan that was developed to compare the Pilot Plan and to 19

demonstrate the advantages of a plan that focuses on longer life saving 20

measures as compared to a plan that primarily relies on low cost, direct 21

install measures. Rather than using traditional energy savings programs to 22

achieve annual energy savings goals of the Preliminary Concept Plan, the 23

Pilot Plan provides long-term energy efficiency planning for C&I customers, 24

a sustainable long-term commitment to energy savings for residential 25

customers and a long-term market transformation to energy efficiency. 26

27

Q. Does this complete your direct testimony? 28


27

A. Yes, it does. 1

SEMCO ENERGY, Inc. Exhibit A‐5 2014‐2015 Energy Optimization Plan Page 1 of 24 Pilot Plan Program Description Case No. U‐17362

1

Energy Optimization Plan

2014-2015

Program Descriptions


2

Program Residential Income Eligible Program

Objective The objective of the Residential Income Eligible Program is to reduce gasuse and lower gas bills of income eligible customers through the installation of energy saving measures at no cost to them. These installations will be made through existing low income weatherization agencies and directly to income eligible customers. The measures installed will help save gas and reduce customer’s energy bills.

The second objective of the program will be to provide recommendations, financial assistance and education to customers with limited incomes to assist them in reducing their gas energy use and managing their utility costs.

Target Market All income eligible homeowners that are served through approved Weatherization Providers are eligible for the program. Specifically the target market is customers with household incomes at or below 200% of federal poverty guidelines and serviced through the Michigan Weatherization Assistance Program.

The target market will also include income eligible customers in multi-family housing and neighborhood census tracks where at least 75% of the customers in the census tract meet the income eligibility requirement of the program.

Program Duration

January 1, 2014 through December 31, 2015.

Program Description

The Residential Income Eligible Program provides funding to State of Michigan approved Weatherization Providers through non-profit Community Action Agencies (CAA), for the installation of program specific energy efficient equipment and measures for income qualified homeowners. Through partnering with these agencies that already have infrastructure in place, SEMCO can leverage their funding by subsidizing the installation of cost-effective gas saving measures thereby increasing the number of homes served through the program.

The program is designed to:

• Provide funding for those measures listed in the program. These measures include:


3

o Furnace tune-up

o Furnace replacement with an ECM

o Set back thermostat

o Shower head

o Faucet aerator

o Pipe wrap

• Provide technical information, education and support to the Weatherization Providers so they can understand and comply with the program requirements.

• Provide customers and agency education materials where appropriate.

Where the installation of a measure that saves gas and electric and where the electric provider includes the same measures in their program, SEMCO will provide funding for the measures in proportional to the gas savings coming from its installation compared to the electric savings.

SEMCO may elect to expand the assistance to income eligible customersbeyond the weatherization assistance provided by the CAA’s by targetingincome eligible customers in multi-family housing and income eligible neighborhoods where at least 75% of the residents are income qualified.

A significant barrier for this customer group is lack of funds to make needed improvements to their homes and appliances that would save gas and money. There is also a lack of awareness and knowledge as to the ways that they can improve their homes. For the Weatherization Providers there is a lack of money to serve all the income eligible homeowners in need of these services. This program is designed to helpovercome these barriers and improve energy efficiency for this specific customer group.

Eligible Measures

The technologies to be included within this program are:

• Gas furnace tune up • Furnace replacement • Set back thermostat • Shower head • Faucet aerator • Pipe wrap

Technologies included in the program will change over time. Measures may be added or removed based on market response, technology


4

availability and changes in efficiency standards. Technologies must be cost-effective, passing the Utility System Resource Cost Test individually, to be included.

Implementation Strategy

SEMCO will provide program management and oversight, tracking and reporting oversight, and regulatory review. The Residential Income Eligible Program will be delivered through the existing approved Weatherization Providers and third parity contractor. These Community Action Agencies already have a delivery mechanism established with a long running program. By utilizing these agencies, SEMCO can cost-effectively deliver these needed services without duplicating efforts. The work of the third party contractor will provide energy efficiency measures in homes and multi-housing units that would not otherwise be served.

Funds for the program will be provided to the Community Action Agencies. These funds will cover the total cost of the program measuresplus installation.

For the program expansion beyond the CAA delivery channel, a third party implementation contractor will have day to day implementation responsibility including education and training, application, verification, technical support, customer support, and marketing. The third party contractor will also be responsible for developing community relationships in support of this expanded program.

Marketing Strategy

Education and promotional materials will be developed as needed for each participating agency.

The marketing and communications strategy for the CAA weatherization assistance will be designed to help the agencies recruit participants and explain SEMCO’s portion of the program. General program promotion will encourage income eligible customers to call their local CAA office to get in touch with agencies that will help with their particular need including the Income Eligible Program.

As this is an existing program for the Weatherization Providers and since it has a limited and targeted audience based on income, there will be limited additional promotion by SEMCO.

The marketing and communication strategy for the neighborhood based program may be designed to inform customers of the additional energy efficiency measures that could be installed in the homes. For neighborhood weatherization, the marketing and communication strategy will be directed to the residents of the neighborhood and to community leaders who are supportive of the weatherization efforts.


5

More specifically, the marketing and communications plan may include:

• Public relations materials.

• Brochures that describe the benefits and features of the program including Community Action Agency contact information. The brochures will be available for various public awareness events (presentations, seminars etc).

• Bill inserts, bill messages and email messages.

• Informational content on the SEMCO website providing program information.

Milestones

Major milestones Date

Energy Optimization Plan modeling complete 5/13

Energy Optimization program written 5/13

Issue implementation RFP 7/13

Energy Optimization Plan filed with MPSC 7/13

Implementation bid submittal deadline 8/13

Implementation contractor selected 9/13

Implementation contract signed 10/13

Energy Optimization Plan approved by MPSC 10/13

Program implementation begins 1/14

EM&V Evaluation activities for the Residential Income Eligible Program will focus on verification and assessment of gas energy impacts for the installed measures.

The evaluation will have an energy impact evaluation and a process evaluation. The energy impact valuation will focus on reliably estimating the program’s gross annual therm savings over the effective useful life of the gas saving measures. The process evaluation is intended to provide program managers with timely recommendations on program operations, effectiveness, and ability to maximize the program’s


6

participation to capture new savings, and participant satisfaction so that mid-course corrections may be considered.

Savings values will be based on documented values from the Michigan Energy Measures Database and verification of installations.

SEMCO will oversee the impact and process evaluation of the program. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of savings will be reviewed by an independent third party evaluation contractor.

SEMCO intends that products or measures will be added or eliminated from the program based on cost-effectiveness, market acceptance and standard practice. They will also be added as new products, measures and technologies emerge in the market.


7

Program Residential Comprehensive Program

Objective The objective of the Residential Comprehensive Program is to develop multiple program delivery methods to overcome market barriers to comprehensive installations of long-term energy saving measures.

Target Market All residential customers.

Program Duration


Program Description

The Residential Comprehensive Program is an enhancement to the current Home Performance program that utilizes the existing home performance contracting network to provide eligible homeowners with a whole home audit. The audit is subsidized and measures in addition to the Core program are offered to encourage the installation of space heating and envelop measures that improve customer’s home energy performance.

The program is designed to overcome the most critical market barrier; ease of participation. The program is designed to support the customer at key decision points and simplifies the participation process for the customer and contractor with streamlined applications and tailored support. The energy auditor will help the customer create a Home Energy Efficiency Plan.

Once the customer begins implementing their Home Energy Efficiency Plan, the Efficiency UNITED team will serve as an Energy Advisor to support measure installation and ensure a positive experience. The Energy Advisor will serve as the customer’s consultant to alleviate the customer’s burden and intervening at critical decision points if necessary. Efficiency UNITED’s approach is designed to foster a deeper relationship with the customer that will extend beyond the Home Performance Program and position the utility as a long-term home improvement advocate.

Eligible Measures

The Comprehensive Residential Program will incorporate deemed measures from the CORE program that meet the following criteria:

• Life of measure is greater than 10 years • Measure is not being adopted through CORE Program (for

various reasons)


8

Technologies included in the program will change over time. Measures may be added or removed based on market response, technology availability and changes in efficiency standards.


The implementation is designed to overcome these barriers to the installation of long-term energy saving measures. These barriers include:

• Lack of participation in measures with long measure life and high initial cost;

• Lack of educational resources for customers; and • Using a first-year savings model versus a life of measure

savings model.

The program will include an energy audit that will include a long-term implementation plan for the customers. The plan will include action steps for the installation of long-term energy savings measures.

The incentive plan will include bonus incentives to motivate customers to install multiple measures and continue to follow the long-term savings plan that was developed.

The implementation strategy will include the development of a long-term customer energy advisor relationship and will provide the customer with energy advice and support at critical decision points.

Marketing Strategy

All residential customers are eligible for the program. The subsidized audit will be promoted to identify those customers that would commit to:

• Creating an Energy Efficiency Plan that defines the strategy and tactics associated with the implementation of both short and longer life measures, and.

• Investing and installing equipment that has a long measure life and high initial costs that typically lead to a simple payback of greater than 10 years.


9

Milestones





Plan modified based on 2013 Pilot Plan results 10/1


Program implementation begins 1/1/14

EM&V Efficiency UNITED will track program participation on a monthly basis.


10

Program Residential Pilot Program

Objective The objective of the Residential Pilot Program is to make current programs as effective as possible for customers and test and develop new program designs, test new marketing strategies and approaches to most effectively serve the energy needs of customers, and to test the energy saving impact of emerging technologies.

Target Market All residential customer segments will be served by the pilot program. The program is designed to identify and learn more about new energy efficient technologies and program strategies with potential to capture additional gas energy savings.

Program design and new marketing approaches will be tested to reach “hard-to-reach” market segments. For example, these markets might include the non-English speaking community or customers who conduct all of their financial transactions in cash. This may require a test of social marketing techniques and unique partnerships for effectively delivering energy information, education and programs.

Program Duration


Program Description

The Pilot Program is designed to enrich the effectiveness of the Energy Optimization Programs. The Pilot Program will evolve over time and will be dictated by the changing needs of customers and new technologies. An important component of the Pilot Program will be to conduct customer research to get the “voice of the customer” related to current and future programs and technologies.

The Energy Optimization Programs are designed to permit all customers to have reasonable access to program benefits. The Pilot Program will help improve the effectiveness and customer reach of the Energy Optimization Programs.

The Pilot Program provides incentives to introduce new products to demonstrate proof of product, technology application, technology acceptance and market acceptance. The Pilot Program also determines product performance, customer satisfaction and energy saving of emerging technologies.

Eligible Measures

Eligible measures will be determined based on the pilot projects selected. This may include the piloting of new technologies, marketing


11

and communications concepts, program processes and other aspects of delivering energy savings.


The Pilot Program ideas and direction will come from feedback from the current programs, “voice of the customer” research and SEMCO and implementation contractor staff.

Marketing Strategy

Marketing strategy of the Pilot Program will be dictated by the technology, the program or marketing approaches being tested.

Milestones











EM&V Evaluation requirements will be determined as pilot initiatives are developed.


12

Program Residential Educational Services Program

Objective The objective of the Educational Services Programs is to provide information and education about energy efficiency and conservation. The educational information will be delivered through many media and communication channels. These educational programs will provide the basis for more program specific efforts aimed at encouraging customer participation in SEMCO’s Energy Optimization portfolio of programs.

Target Market The target markets are all residential customers served by the Energy Optimization Programs. Trade allies will also be a targeted market.

Program Duration


Program Description

The Educational Services Program will provide information about energy efficiency and conservation, giving customers valuable information on the benefits of participation, what they need to do to participate and how to sign up for the program.

The Educational Services Programs will increase customer participation in the programs by making them aware of the benefits of energy efficiency and conservation programs, educating them about how much energy and cost savings they can expect, and the long-term environmental benefits associated with these actions.

The Educational Services Programs will be primarily focused on the customers, but it will also make it easy for trade allies to support the energy efficiency programs.

Besides generally supporting all energy efficiency programs, the Educational Program will directly implement the energy efficiency online self audit program. The program will also provide a connection to other programs and provide materials customers need to participate.

Program education and information will be provided through many different channels. The following are examples of channels that might be used.

• Customer Representatives trained to promote the program to their customers

• Informational content on SEMCO’s website

• Residential seminars


13

• Trade ally seminars/education

• Radio advertising

• Print advertising

• Bill inserts

• Events and trade shows

• School programs

• Trade publication advertising

Eligible Measures

The Educational Services Programs will not include eligible measures but will support and promote energy efficiency and conservation messages.


The Educational Services Programs will provide general information on energy efficiency and conservation in support of the program specific marketing messages.

The following types of initiatives will be considered for implementation:

• Develop, produce, and distribute energy efficiency tips and information about the energy efficiency portfolio through bill inserts and newsletters.

• Enhance the website to facilitate easy access to educational materials/programs.

• Provide energy education/awareness booths at scheduled community fairs and events.

Promote and deliver special energy workshops for targeted groups of participants, including distribution of free energy-saving products.

Marketing Strategy

Marketing strategy for the Educational Services Program is to have general information about energy efficiency and conservation readily available to customers enabling them to understand the benefits of participating. Cost savings as well as the long-term environmental benefits will be communicated.

Besides achieving energy saving by installing energy efficiency measures through the energy efficiency programs, low-cost/no-cost energy savings will be promoted.


14

Milestones











EM&V Educational activities will be documented and number of customers reached recorded.


15

Program Commercial and Industrial Comprehensive Program

Objective Commercial and Industrial Comprehensive Program will test delivery approaches that will support a comprehensive and holistic approach to achieving the implementation of long-life, deeper savings measures, processes and behavioral changes to how energy is used.

Target Market The Program will target commercial and industrial customers who:

Are participating in one of the current C&I programs

Have participated in the past

Have established corporate structures that can be leveraged to address energy efficiency in multiple locations

Trade allies who:

Understand the value of long-term strategic customer relationships and want to partner with SEMCO to deliver a continuous improvement solution

Program Duration


Program Description

The Commercial and Industrial (C&I) Comprehensive Program offers rebates for high efficiency equipment and process improvements for gas customers.

The program will incorporate previous measures from all previous C&I program and features of the Industrial Process Pilot Program, the Agricultural Program and the Michigan Saves Program.

The program will obtain immediate gas savings through on-going delivery of the C&I core measure which will dovetail with the Comprehensive Program offerings.

The Program provides customers with a flexible and adaptable program offering that allows them to select the participation level that best meets their needs.

The C&I Comprehensive Program overcomes the most critical market barriers; ease of participation and achievement of longer-life, deeper savings measures. Through strong customer engagement, the program is designed to support the customer at key decision points and simplify


16

the participation process for the customer and contractor. Specific program offerings designed to address critical market barriers include:

Development of a multi-year, site specific Joint Energy Efficiency Plans (JEEP) designed to allow the EU program to more properly integrate with the planning, budgeting and implementation process and timelines of the customer. The JEEP will also drive a process of continuous improvement through on-going updating of the JEEP.

Delivery of Special Assessments which will provide customers with a multi-year strategic plan for obtaining energy and cost savings. Special Assessments will include delivery of 1) BestEnergy® designed for large commercial and industrial customers, 2) SCORE® designed for school programs and 3) CitySmart® designed for municipal operations and local units of government.

The development of the JEEP, designed to provide a tactical approach to energy savings, combined with the strategic planning provided through Special Assessments will provide SEMCO’s C&I customers with the holistic, continuous improvement process that will result in the implementation of long-life, deeper savings measures.

Implementation of an industrial component of the Program is designed to address the energy related, process specific issues of the larger industrial customers in the SEMCO service territory. The industrial component will provide customers with expertise and technical support to achieve deep, long-term energy and cost savings.

The Program will also implement an agricultural component in conjunction with the agricultural expertise of Michigan State University. This component will leverage the expertise of Michigan State to deliver comprehensive energy audits which will be combined with Program incentives to drive project implementation.

Program financing options will be provided through collaboration with the Michigan Saves Program. The Program will provide a buy-down of the low cost financial rates offered by Michigan Saves for implementing projects that presently face a financial market barrier to participation.

Eligible Measures

The measure offerings include prescriptive and custom measures as well as incentives for special assessment services. Additionally incentives are offered for the bundling of multiple measures which is a key aspect of the Comprehensive Program offering. The prescriptive measures represent measures with a life of measure greater than 15 years. Custom projects that will be included in the Comprehensive Program will focus on opportunities with a life of measure greater than


17

15 years and will allow for measures that have simple paybacks in excess of 7 years.


The program will be delivered through multiple market channels including the leverage of the a well-trained group of trade allies as well as regional technical and financial resources including Michigan State University and the Michigan Saves® program.

The implementation strategy will initiate a holistic (“customer for life”) approach to working with customers that creates a multi-year, multi-functional plan to identify, implement and achieve long-term energy savings. The holistic approach will be centered on the implementation of a multi-year strategy documented through a Joint Energy Efficiency Plan (JEEP) and conducting of special assessments including BestEnergy®, CitySmart® and Score®.

As part of the implementation strategy, the Program will promote local workforce and economic development with an emphasis on projects that are larger and may require multiple years to implement. The C&I Program will coordinate closely with Michigan economic development initiatives to leverage program offerings to assist in the retaining C&I business operations within the State of Michigan.

Marketing Strategy

The C&I Comprehensive Program will build upon the traditional approach to delivering energy efficiency by replacing transactional implementation (install equipment and get an incentive) with a more long-range strategic approach designed to drive the implementation of longer-life, deeper savings measures.

Key Messages

Long-term energy and sustainability planning enhances business success and insures better realization of energy and cost savings over a longer period of time.

SEMCO is a business partner that you want to be part of your team and long-term business solutions. Participation in the SEMCO C&I comprehensive Program enhances business competitiveness.

SEMCO’s C&I Comprehensive Program allows for easy and “hassle free” participation

The C&I Comprehensive Program integrates into your existing business practices at either a corporate or facility level.

Marketing Initiatives

Marketing initiatives must be broad-reaching and simultaneously


18

targeted. Reaching new customers requires new methods of message delivery. Utilizing SEMCO’s existing customer relationships will drive this initiative.

The use the community connections of the trade allies has historically proven successful and will be further utilized. Access to local markets and customers makes this avenue an ideal match. To support trade allies, the Program will develop marketing resource kits including approved ad templates, flyers, information sheets and press releases. Providing these materials will ensure the messaging is targeted and adheres to all SEMCO brand guidelines.

Reaching out to past SEMCO participants in any of the EU programs will also be utilized. Past participation indicates an established interest in energy efficiency. Contacting those individuals to take advantage of additional savings uses their existing knowledge and understanding of the long-term value of energy efficiency.

Marketing Channels

• Direct Mail o Reach customers in new territories o Contact past participants

• Meetings/Presentations/Education o Professional Business Organizations o Event sponsorship and participation

• Paid Advertising o Online

• PR/Earned Media o Press Releases in all areas initially, additional attention

in under-performing areas • Print Collateral • Program handout (redesign/edit current overall EU brochure)• Fact Sheets


19

Milestones Major milestones Date




Plan modified based on 2013 Pilot Plan results 10/1


Program implementation begins 1/1/14

EM&V Efficiency UNITED will track program participation on a monthly basis.


20

Program Commercial and Industrial Pilot Program

Objective The objective of the Commercial and Industrial Pilot Program is to make current programs as effective as possible for customers and test and develop new program designs, test new marketing strategies and approaches to most effectively serve the energy needs of customers, and to test the energy saving impact of emerging technologies.

Target Market All C&I customer segments will be served by the pilot program. The program is designed to identify and learn more about new energy efficient technologies and program strategies with potential to capture additional gas energy savings.

Program design and new marketing approaches may also be tested to reach “hard-to-reach” market segments. For example, these markets might include small businesses who lease space for their operations or schools with limited capital budgets. This may require a test of marketing techniques and unique partnerships for effectively delivering energy information, education and programs.

Program Duration


Program Description




Eligible Measures

Eligible measures will be determined based on the pilot projects


21


The Pilot Programs ideas and direction will come from feedback from the current programs, “voice of the customer” research and SEMCO and implementation contractor staff.

Marketing Strategy

Marketing strategy of the Pilot Programs will be dictated by the technology, the program or marketing approaches being tested.

Milestones













22

Program Commercial and Industrial Educational Services Program

Objective The objective of the Educational Services Program is to provide information and education about energy efficiency and conservation. The educational information will be delivered through many media and communication channels. These educational programs will provide the basis for more program specific efforts aimed at encouraging customers to participate in SEMCO’s Energy Optimization portfolio of programs.

Target Market The target markets are all commercial and industrial customers served by the Energy Optimization Programs. Trade allies will also be a targeted market.

Program Duration


Program Description


The Educational Services Program will increase customer participation in the programs by making them aware of the benefits of energy efficiency and conservation programs, educating them about how much energy and cost savings they can expect, and the long-term environmental benefits associated with these actions.

The Educational Services Program will be primarily focused on the customers, but it will also to make it easy for trade allies to support the energy efficiency programs.

The program will provide a connection to other programs and provide materials needed to participate.




• Business seminars


23




• Bill inserts



Eligible Measures

The Educational Services Program will not include eligible measures but will support and promote energy efficiency and conservation messages.


The Educational Services Program will provide general information on energy efficiency and conservation in support of the program specific marketing messages.


• Develop, produce, and distribute energy efficiency tips, fact sheets and case studies that promote the benefits of energy efficiency.

• Enhance the utility website to facilitate easy access to educational materials and program offerings.

Marketing Strategy




24

Milestones











EM&V Education activities will be documented and number of customers reached recorded.

SEMCO ENERGY, Inc. Exhibit A‐6 2014‐2015 Energy Optimization Plan Page 1 of 2 Pilot Plan Programs Budgets and Goals Case No. U‐17362

Pilot Plan I. Budget and Savings Targets 2014 2015

Pilot Plan Lifetime Savings (therms)

Lifetime Savings (therms) Budget

Lifetime Savings (therms) Budget

Residential Current Values for this Portfolio 11,655,696 $3,561,174 10,377,403 $3,402,556

Commercial Current Values for this Portfolio 8,279,398 $1,644,126 9,635,983 $1,572,662

Total Current Values for this Portfolio 19,935,093 $5,205,300 20,013,386 $4,975,217

Lifetime savings as a percent of sales 3.8% 3.7%

SEMCO ENERGY, Inc. Exhibit A‐6 2014‐2015 Energy Optimization Plan Page 2 of 2 Pilot Plan Programs Budgets and Goals Case No. U‐17362

II. Energy Optimization Program Portfolio 2014 2015

Portfolio Category Program Portfolio

Lifetime Savings

Program Budget

Lifetime Savings Program Budget

Residential Low Income Services

734,750 $ 312,318

812,486 $ 345,361

Core services

3,120,135 $ 129,686

2,727,632 $ 113,372

Comprehensive Services

7,681,913 $ 2,322,891

6,715,553 $ 2,030,679

Pilot Programs 74,311 $ 172,811

76,083 $ 190,041

Educational Services 44,587 $ 103,687

45,650 $ 114,025 Evaluation $ 142,447 $ 156,725 SEMCO Administration $ 142,447 $ 195,907 MCAAA $ 79,770 $ 87,766

Subcontractor performance incentive $ 155,116 $ 168,680

Subtotal - Residential Solutions

11,655,696 $ 3,561,174

10,377,403 $3,402,556

Commercial & Industrial Prescriptive Program

3,971,011 $ 389,959

4,632,194 $ 454,888

Custom Program 4,159,049 $ 858,989 4,851,540 $ 668,009


95,156 $ 97,760


57,093 $ 58,656

Evaluation - $ 87,454

- $ 73,515

SEMCO Administration - $ 52,472

- $ 91,894

MCAAA - $ 36,828

- $ 41,169

Subcontractor performance incentive - $ 78,498

- $ 86,771

Subtotal - Business Solutions 8,279,398 $ 1,644,126

9,635,983 $1,572,662

Total Program Portfolio

19,935,093 $ 5,205,300

20,013,386 $4,975,217

SEMCO ENERGY, Inc. Exhibit A-7 2014-2015 Energy Optimization Plan Page 1 of 1 Pilot Plan Programs Cost Effectiveness Test Results

Case No. U-17362

1

SEMCO Cost Effectiveness Results - 2014-2015 Gas Programs - Pilot Plan

All Programs (including

administration) Portfolio

Residential Programs (w/o

Low Income) C&I

Programs USRCT 1.70 1.33 2.43

TRC Test 1.11 0.88 1.58 RIM Test 0.54 0.49 0.60

Participant Test 1.85 1.52 2.48 CCE $/therm $0.22 $0.27 $0.16

Residential Programs Core

Comprehensive Home

Performance Res Pilot Res

Education USRCT 11.56 1.40 0.26 0.26

TRC Test 28.90 0.73 0.53 0.53 RIM Test 0.72 0.50 0.19 0.19

Participant Test N/A 1.07 N/A N/A CCE $/therm $0.03 $0.25 $1.97 $1.97

C&I Programs Core Comprehensive C&I Pilot C&I

Education USRCT 5.08 2.61 0.66 0.66

TRC Test 2.05 1.73 1.33 1.33 RIM Test 0.69 0.61 0.36 0.36

Participant Test 2.39 2.33 N/A N/A CCE $/therm $0.08 $0.14 $0.80 $0.80

SEMCO ENERGY, Inc. Exhibit A‐8 2014‐2015 Energy Optimization Plan Page 1 of 42 Preliminary Concept Plan Program Descriptions Case No. U‐17362

1

Energy Optimization Plan

2014-2015

Program Descriptions


2

Program Residential Income Eligible Program

Objective The objective of the Residential Income Eligible Program is to reduce gasuse and lower gas bills of income eligible customers through the installation of energy saving measures at no cost to them. These installations will be made through existing low income weatherization agencies and directly to income eligible customers. The measures installed will help save gas and reduce customer’s energy bills.

The second objective of the program will be to provide recommendations, financial assistance and education to customers with limited incomes to assist them in reducing their gas energy use and managing their utility costs.

Target Market All income eligible homeowners that are served through approved Weatherization Providers are eligible for the program. Specifically the target market is customers with household incomes at or below 200% of federal poverty guidelines and serviced through the Michigan Weatherization Assistance Program.

The target market will also include income eligible customers in multi-family housing and neighborhood census tracks where at least 75% of the customers in the census tract meet the income eligibility requirement of the program.

Program Duration


Program Description

The Residential Income Eligible Program provides funding to State of Michigan approved Weatherization Providers through non-profit Community Action Agencies (CAA), for the installation of program specific energy efficient equipment and measures for income qualified homeowners. Through partnering with these agencies that already have infrastructure in place, SEMCO can leverage their funding by subsidizing the installation of cost-effective gas saving measures thereby increasing the number of homes served through the program.

The program is designed to:

• Provide funding for those measures listed in the program. These measures include:

o Furnace tune-up


3

o Furnace replacement with an ECM

o Set back thermostat

o Shower head

o Faucet aerator

o Pipe wrap

• Provide technical information, education and support to the Weatherization Providers so they can understand and comply with the program requirements.

• Provide customers and agency education materials where appropriate.

Where the installation of a measure that saves gas and electric and where the electric provider includes the same measures in their program, SEMCO will provide funding for the measures in proportional to the gas savings coming from its installation compared to the electric savings.

SEMCO may elect to expand the assistance to income eligible customersbeyond the weatherization assistance provided by the CAA’s by targetingincome eligible customers in multi-family housing and income eligible neighborhoods where at least 75% of the residents are income qualified.

A significant barrier for this customer group is lack of funds to make needed improvements to their homes and appliances that would save gas and money. There is also a lack of awareness and knowledge as to the ways that they can improve their homes. For the Weatherization Providers there is a lack of money to serve all the income eligible homeowners in need of these services. This program is designed to helpovercome these barriers and improve energy efficiency for this specific customer group.

Eligible Measures

The technologies to be included within this program are:

• Gas furnace tune up • Furnace replacement • Set back thermostat • Shower head • Faucet aerator • Pipe wrap

Technologies included in the program will change over time. Measures may be added or removed based on market response, technology availability and changes in efficiency standards. Technologies must be cost-effective, passing the Utility System Resource Cost Test


4

individually, to be included.


SEMCO will provide program management and oversight, tracking and reporting oversight, and regulatory review. The Residential Income Eligible Program will be delivered through the existing approved Weatherization Providers and third parity contractor. These Community Action Agencies already have a delivery mechanism established with a long running program. By utilizing these agencies, SEMCO can cost-effectively deliver these needed services without duplicating efforts. The work of the third party contractor will provide energy efficiency measures in homes and multi-housing units that would not otherwise be served.

Funds for the program will be provided to the Community Action Agencies. These funds will cover the total cost of the program measuresplus installation.

For the program expansion beyond the CAA delivery channel, a third party implementation contractor will have day to day implementation responsibility including education and training, application, verification, technical support, customer support, and marketing. The third party contractor will also be responsible for developing community relationships in support of this expanded program.

Marketing Strategy

Education and promotional materials will be developed as needed for each participating agency.

The marketing and communications strategy for the CAA weatherization assistance will be designed to help the agencies recruit participants and explain SEMCO’s portion of the program. General program promotion will encourage income eligible customers to call their local CAA office to get in touch with agencies that will help with their particular need including the Income Eligible Program.

As this is an existing program for the Weatherization Providers and since it has a limited and targeted audience based on income, there will be limited additional promotion by SEMCO.

The marketing and communication strategy for the neighborhood based program may be designed to inform customers of the additional energy efficiency measures that could be installed in the homes. For neighborhood weatherization, the marketing and communication strategy will be directed to the residents of the neighborhood and to community leaders who are supportive of the weatherization efforts.

More specifically, the marketing and communications plan may include:


5

• Public relations materials.

• Brochures that describe the benefits and features of the program including Community Action Agency contact information. The brochures will be available for various public awareness events (presentations, seminars etc).

• Bill inserts, bill messages and email messages.

• Informational content on the SEMCO website providing program information.

Milestones











EM&V Evaluation activities for the Residential Income Eligible Program will focus on verification and assessment of gas energy impacts for the installed measures.

The evaluation will have an energy impact evaluation and a process evaluation. The energy impact valuation will focus on reliably estimating the program’s gross annual therm savings over the effective useful life of the gas saving measures. The process evaluation is intended to provide program managers with timely recommendations on program operations, effectiveness, and ability to maximize the program’s participation to capture new savings, and participant satisfaction so that


6

mid-course corrections may be considered.

Savings values will be based on documented values from the Michigan Energy Measures Database and verification of installations.

SEMCO will oversee the impact and process evaluation of the program. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of savings will be reviewed by an independent third party evaluation contractor.



7

Program Residential Home Performance Program

Objective The primary objective of the Residential Home Performance Program is to encourage residential customers to install energy-efficient space heating and water heating equipment through the trade ally network. The installation of energy efficiency equipment will be made through HVAC and plumbing contractors. The premise is that through market support of these trade allies, these products will have more customer exposure and higher adoption rates. The HVAC contractor on-site sales force will be more aware of the product and promote it more often to customers. It is expected that over time, as the product gets more widely accepted and prices are reduced, SEMCO can lower or eliminate the incentive since the products will be commonly adopted by their customers. The program will lower the use of gas and lower energy bills of their customers. It also encourages the HVAC contractors to development business practices (inventory, training, sales) that would promote the use of energy efficiency HVAC gas heating equipment. The program also supports the installation of products that control home heating and reduce the use of hot water.

Target Market All residential customers are eligible for the program. The primary target market is the HVAC contractors who specifies and replaces the space heating equipment in a home.

Program Duration


Program Description

The Residential Home Performance Program provides market incentives to residential customers for installing energy-efficient gas space and hot water saving equipment. This program pertains to existing and new homes installing new space and water heating equipment. Incentives will be provided to the home owner and will be based on fulfilling the energy efficiency requirements. More specifically, the program is designed to:

• Provide incentives to purchase high efficiency equipment as specified within the program.

• Provide technical information, education and training to contractors and homeowners so that they can understand the benefits of the high efficiency gas alternatives and provide high efficiency alternatives as the best choice to customers.

• Provide a marketing mechanism for contractors and equipment distributors to promote high efficiency gas equipment.


8

• Ensure that the participation process is clear, easy to understand and simple.

Certain barriers exist to the adoption of energy-efficient equipment, including lack of investment capital, competition for funds with other home investments or amenities, lack of awareness/knowledge about the benefits and costs of energy efficiency measures, lack of education and skills of the contractor, and technology performance uncertainties. If the equipment is replaced without gas efficiency in mind, there might not be the opportunity to make these improvements until many years later at the end of equipment life. Avoiding this lost opportunity at the time of replacement allows energy efficiency to be optimized and is usually less costly than equipment replacement at a later time. This program is designed to help overcome these market barriers and encourage greater adoption of gas energy-efficient HVAC and water heating equipment in the residential market.

Eligible Measures

Technologies that may be included within this program are high efficiency gas space heating, programmable thermostat control of the HVAC equipment and hot water saving measures. Initial standards will include:

• Programmable thermostat

• High efficiency gas furnace with at 95% AFUE with am ECM

• Gas furnace or boiler tune-up

• An online hot water gas energy savings kit that includes pipe wrap, 2 faucet aerators, one low-flow shower head and door weather strip

Technologies included in the program will change over time. Measures may be added or removed based on market response, technology availability and changes in efficiency standards. Technologies must be cost-effective, passing the Utility System Resource Cost Test individually, to be included.


SEMCO will provide program management and oversight, vendor referrals, tracking and reporting oversight, and regulatory review. Through a competitive bid process, SEMCO may select an implementation contractor to provide day to day turn-key implementation services including education and training, application and incentive processing, incentive payments, tracking, verification, technical support, customer support, and marketing.

The third party implementation contractor will also be responsible for supporting the HVAC contractors with this program including in-field


9

training and marketing/promotion support.

To make the Residential Home Performance Program effective, SEMCO and its implementation contractor will work with HVAC contractors. Those market participants are key in making sure high efficiency space heating equipment is available, and key for selling the high efficiency alternative directly to customers as they replace their old and failing equipment. By having these market participants sell and promote gas energy-efficient equipment, customers will better understand the benefits of the higher efficiency choices.

The incentives for the program will be paid to the customer as either an instant incentive on the installing contractor’s invoice or a direct payment to the customer. Once the equipment is installed and is verified as complying with the minimum standards, the instant incentive provided on the invoice to the customer will be paid to the HVAC contractor, or the incentive will be paid to the customer. Incentives will be provided to the contractor for all qualifying incentives paid each month.

Through the online energy audit, the customer can “earn” a free energy efficiency kit. This kit will be mailed to the customer once the online energy audit is completed. The kit includes hot water and infiltration energy saving measures.

The initial incentive levels are described in Exhibit A-10. Incentives may change based on market conditions. Agreements will be established with contractors to provide this incentive as a line item on the customer’s invoice.

Marketing Strategy

The marketing and communications strategy will be designed to inform customers and HVAC contractors of the availability and benefits of the program and how they can participate in the program. The strategy will include outreach to key partners and trade allies including contractors, equipment distributors, trade associations, and other parties of interest in the market. An important part of the marketing plan will be content and functionality on SEMCO’s website, which will direct customers to information about the program.

Marketing and communications plan will include:

• Educational materials in each market to provide details about how to participate in the program. The materials will be tailored to the needs of homeowners, contractors and equipment distributors.

• A combination of strategies including local media advertising, outreach and presentations at professional and community forums and events,


10

and through direct outreach to key contractors such as:

o Brochures that describe the benefits and features of the program including program application forms and worksheets. The brochures and applications will be available on SEMCO’s implementing contactor’s website and mailed upon request and distributed by the implementing contractor. SEMCO will provide program summaries and links to the contractor’s website. Brochures will also be available through various public awareness events (presentations, home shows, etc).

o Targeted direct mailings used to educate homeowners on the benefits of the program and explaining how they can apply.

o Customer and trade partner outreach and presentations informing interested parties about the benefits of the program and how to participate.

o Print advertisements to promote the program placed in selected local media including the local area newspapers and trade publications.

o SEMCO customer communications will include general information about all energy efficiency programs and will be used to feature special stories and solicit participation in this program.

o Bill inserts, bill messages and email messages

o SEMCO’s implementing contractor’s website content providing program information resources, contact information, downloadable application forms and worksheets, and links to other relevant service and information resources. SEMCO will provide links to the contractor’s website.

o Customer representatives trained to promote the program to their customers

o Presence at conferences and public events used to increase general awareness of the program and distribute program promotional materials.

• The marketing strategy will identify key customer segments and groups for target marketing, and will prepare specific outreach activities for these customers.

SEMCO will oversee the development of content, messaging, branding, and calls to action of all of the marketing and collateral materials used to promote the program.


11

Milestones











EM&V The evaluation of the Residential Home Performance Program will have an energy impact evaluation and a process evaluation. The energy impact valuation will focus on reliably estimating the program’s gross annual therm savings over the effective useful life of the space and water heating measures. The process evaluation is intended to provide program managers with timely recommendations on program operations, effectiveness, and ability to maximize the program’s participation to capture new savings, and participant satisfaction so that mid-course corrections may be considered.

Savings values will be based on documented values from the Michigan Energy Measures Database. Evaluation activity will focus on verification of installation and estimates of deemed savings.

The Residential Home Performance Program is intended to increase the sales of high efficient gas space heating equipment by partnering with trade allies to recommend the installation of high efficient equipment and provide rebates to customers.

SEMCO will oversee the impact and process evaluation of the program. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of


12

savings will be reviewed by an independent third party evaluation contractor.



13

Program Residential Multi-Family Program

Objective The primary goal of the Residential Multi-Family Direct Install Program is to reduce gas energy use for hot water in multi-family properties. The program provides for the installation of free energy efficiency measures in the units.

The program will produce immediate annual energy savings in multi-family buildings through direct installation of low-flow, water-saving devices and hot water pipe wraps in units with gas water heating.

Target Market Property owners of multi-family buildings (both apartments and condominiums) with gas water heating.

All multifamily buildings with more than 4 units are eligible for the program including both condominiums and apartments.

Program Duration


Program Description

The Residential Multi-Family Program provides a turn-key service for helping customers and property owners and managers reduce their gas energy use in multi-family buildings. SEMCO’s implementation contractor will directly install gas hot water energy savings measures. These measures include aerators, shower heads and pipe insulation. Educational information about the energy savings associated with these devices is left behind in all units. The service is provided to property owners and occupants at no cost.

For properties where central hot water is provided, the same measures will be installed. The building owner or property manager will pay for the installation and a commercial incentive will be paid to the owner or property manager. The incentive amount will be based on the energy savings resulting from the measure that are installed and paid under the Commercial Custom Program.

If the building is considered a low income property, as defined as households at or below 200% of federal poverty guidelines, there will be no cost for the measures installed in the units to save gas energy. In this case the installation would be under the Low Income Program.

More specifically, the program is designed to:

• Provide “turn key” direct installation of efficiency measures in rental properties.


14

• Cover most or all of the cost of the efficiency improvements.

• Provide energy information, education and training to tenants on how to save on their energy bills.


To make the Multi Family Direct Install Program effective, SEMCO and its implementation contractor will work with apartment associations and large property management firms. This will permit SEMCO and its contractor to reach those building owners that own and operate larger facilities in their area.

The multifamily market has significant barriers to energy efficiency. The primary barrier is that the tenant often pays the gas bill and does not own the building so cannot make energy efficiency improvements directly. For the owner there is little incentive to improve energy efficiency since tenants typically pay the gas bill except for common areas which is passed on to tenants through their rent. Building owners and managers also have little time to implement or knowledge of energy efficiency measures. By providing direct installation at very low or no cost, the efficiency is improved helping tenants pay their bills, and making long term changes in the common areas again helps to reduce cost of operations and keep rents down.

Eligible Measures

Initial in-unit measures will include:

• Low-flow showerheads • Kitchen and bath faucet aerators • Pipe wrap

Technologies included in the program will change over time based on opportunities found in the marketplace. Measures may be added or removed based on market response, technology availability and changes in efficiency standards. Technologies must be cost-effective, passing the Utility System Resource Cost Test individually, to be included.


SEMCO will provide program management and oversight, vendor referrals, tracking and reporting oversight, and regulatory review. Through a competitive bid process, SEMCO will select a contractor to provide turn-key implementation services, including marketing to building owners/managers, building assessments and in-unit installations.

The third party implementation contractor will also be responsible for


15

training and education, application processing, tracking, verification, technical support, customer support, and marketing.

There will be direct installation of the efficiency measures in the units at no cost to the tenant. Where gas water heating is provided from a central location, the energy saving measures will be installed under the Commercial Custom Program.

• Targeted outreach to property owners. SEMCO’s implementation contractor will promote the program to interested property owners with gas water heating.

• In-unit direct installs. SEMCO’s implementation contractor will schedule installation appointments with interested property owners. The contractor will oversee a crew of installers who will complete the in-unit installation of low-flow water saving devices and pipe wrap. The crew will be trained on the most appropriate applications for these devices. The crew will leave behind educational materials in each unit, to describe for the resident the work that has been done and to promote the energy-saving benefits.

All arrangements for the equipment and installation will be made by the program.

All measures under this program will be free to the customer.

Marketing Strategy

A targeted marketing strategy will be employed for the multi-family program. Eligible property owners will be identified from SEMCO’s information system.

The marketing and communications strategy will be designed to inform tenants and building owners of the availability and benefits of the program and how they can participate in the program. The strategy will include outreach to apartment associations and building owner/management groups. An important part of the marketing plan will be the content and functionality on SEMCO’s website, which will direct customers to information about the program.

Education and promotional materials will be developed for tenants and building owners/managers on the benefits of high efficiency equipment and improved systems performance, including educational brochures, program promotional material, and website content. Specific educational and promotional efforts will be provided to building owners to help them promote their more efficient units. This education will be through a combination of mailings and direct meetings with key building owner associations in the area.


16

More specifically, the marketing and communications plan will include:

• Educational seminars to provide details about how to participate in the program. The seminars will be tailored to the needs of tenants and building owners.

• Brochures that describe the benefits and features of the program including program applications.

• Targeted direct mailings used to educate building owners and apartment associations on the benefits of the program and explaining how they can apply.

• Customer and trade partner outreach and presentations (e.g. apartment associations and building owner organizations) informing interested parties about the benefits of the program and how to participate.

• SEMCO’s implementing contractor’s websites content providing program information resources, contact information, downloadable applications and links to other relevant service and information resources. SEMCO will provide program summary and links to the contractor’s website.

• Presence at conferences and business events used to increase general awareness of the program and distribute program promotional materials.

• Presentations to key customers and customer groups to actively solicit their participation in the program.

• The marketing strategy will identify key customer segments and groups for target marketing, and will prepare specific outreach activities for these customers


17

Milestones Major milestones Date










EM&V The evaluation of the Residential Multi-Family Program will have an energy impact evaluation and a process evaluation. The energy impact valuation will focus on reliably estimating the program’s gross annual therm savings over the effective useful life of the water heating saving measures. The process evaluation is intended to provide program managers with timely recommendations on program operations, effectiveness, and ability to maximize the program’s participation to capture new savings, and participant satisfaction so that mid-course corrections may be considered.

Savings values will be based on documented values from the Michigan Energy Measures Database. Evaluation activity will focus on verification of installation and estimates of deemed savings.

The Residential Multi-Family Program is intended to reduce the energy needed for hot water by providing a direct installation of measures that reduce hot water use.

SEMCO will oversee the impact and process evaluation of the program. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of savings will be reviewed by an independent third party evaluation


18

contractor.



19

Program Residential Pilot Program

Objective The objective of the Residential Pilot Program is to make current programs as effective as possible for customers and test and develop new program designs, test new marketing strategies and approaches to most effectively serve the energy needs of customers, and to test the energy saving impact of emerging technologies.

Target Market All residential customer segments will be served by the pilot program. The program is designed to identify and learn more about new energy efficient technologies and program strategies with potential to capture additional gas energy savings.

Program design and new marketing approaches will be tested to reach “hard-to-reach” market segments. For example, these markets might include the non-English speaking community or customers who conduct all of their financial transactions in cash. This may require a test of social marketing techniques and unique partnerships for effectively delivering energy information, education and programs.

Program Duration


Program Description




Eligible Eligible measures will be determined based on the pilot projects


20

Measures selected. This may include the piloting of new technologies, marketing and communications concepts, program processes and other aspects of delivering energy savings.


The Pilot Program ideas and direction will come from feedback from the current programs, “voice of the customer” research and SEMCO and implementation contractor staff.

Marketing Strategy

Marketing strategy of the Pilot Program will be dictated by the technology, the program or marketing approaches being tested.

Milestones













21

Program Residential Educational Services Program

Objective The objective of the Educational Services Programs is to provide information and education about energy efficiency and conservation. The educational information will be delivered through many media and communication channels. These educational programs will provide the basis for more program specific efforts aimed at encouraging customer participation in SEMCO’s Energy Optimization portfolio of programs.

Target Market The target markets are all residential customers served by the Energy Optimization Programs. Trade allies will also be a targeted market.

Program Duration


Program Description


The Educational Services Programs will increase customer participation in the programs by making them aware of the benefits of energy efficiency and conservation programs, educating them about how much energy and cost savings they can expect, and the long-term environmental benefits associated with these actions.

The Educational Services Programs will be primarily focused on the customers, but it will also make it easy for trade allies to support the energy efficiency programs.

Besides generally supporting all energy efficiency programs, the Educational Program will directly implement the energy efficiency online self audit program. The program will also provide a connection to other programs and provide materials customers need to participate.




• Residential seminars


22




• Bill inserts


• School programs


Eligible Measures

The Educational Services Programs will not include eligible measures but will support and promote energy efficiency and conservation messages.


The Educational Services Programs will provide general information on energy efficiency and conservation in support of the program specific marketing messages.


• Develop, produce, and distribute energy efficiency tips and information about the energy efficiency portfolio through bill inserts and newsletters.

• Enhance the website to facilitate easy access to educational materials/programs.

• Provide energy education/awareness booths at scheduled community fairs and events.

Promote and deliver special energy workshops for targeted groups of participants, including distribution of free energy-saving products.

Marketing Strategy




23

Milestones











EM&V Educational activities will be documented and number of customers reached recorded.


24

Program Commercial and Industrial Prescriptive Program

Objective The objective of the Commercial and Industrial (C&I) Prescriptive Program is to encourage SEMCO’s commercial and industrial (C&I) customers to install energy-efficient measures in existing and new facilities. This program includes incentives for common energy efficiency equipment used in businesses. These incentives are offered in a menu fashion, making it easy for customers to participate. This program will encourage business customers and the businesses that support them to think of energy efficiency equipment as the “first choice.”

Target Market All SEMCO C&I customers are eligible for the C&I Prescriptive Program when they purchase qualifying equipment. However, the program will utilize a targeted outreach strategy to influence specific markets.

• High-impact/high-need customer sectors (such as schools and hospitality, municipal facilities, hospitals, food processing and manufacturing )

• Market Providers (wholesalers, distributors, engineering and architectural firms, developers, and builders) that will promote the qualifying technologies

Program Duration


Program Description

The C&I Prescriptive Program provides prescriptive incentives to SEMCO’s C&I customers for the installation of energy-efficient equipment for numerous applications including boiler controls, steam heat system improvements, pre-rinse sprayers and room temperature controls.

The program is structured as a broadly applicable C&I prescriptive incentive program since the energy savings for these common energy efficiency measures are similar across many C&I market segments. Having a simple program structure and incentive schedule provides customers and the market suppliers with certainty and ease of use regarding the incentives they will receive for installing a variety of energy efficiency measures.


• Provide incentives to facility owners and operators for the installation of high efficiency equipment and controls.


25

• Provide the knowledge necessary and market demand to justify the marketing of high efficiency measures by equipment providers, contractors, and distributors.


Where applicable, SEMCO will work with the electric company supplying services to each customer to coordinate incentives, processing and assistance for those measures or systems that apply to both fuels (ex: set back thermostats).

Certain barriers exist to the adoption of energy efficiency measures, including lack of investment capital, competition for funds with other capital improvements, lack of awareness/knowledge about the benefits and costs of energy efficiency measures, high transaction and information research costs, and technology performance uncertainties. This program is designed to help overcome these market barriers and encourage greater adoption of energy efficiency measures in the C&I market. The premise of the program is that through engagement and education with the market participants and through customer incentives to reduce upfront costs, the risks to energy efficiency implementation will be reduced and the rewards from the savings will become more apparent, thus increasing adoption.

The program will increase demand by educating business customers about the energy and money saving benefits associated with efficient products and equipping market providers to communicate those benefits directly to their customers. To address the first-cost barrier for customers, the program will utilize financial incentives (i.e. cash-back mail-in rebates) averaging 20% to 40% of the incremental cost of purchasing and installing qualifying technologies.

The program will affect the purchase and installation of high-efficiency technologies through a combination of market push and pull strategies. The program will stimulate market provider investment in stocking and promoting efficient products through a targeted outreach effort. The implementation contractor will employ field sales representatives to proactively train and equip market providers to convey the energy and money saving benefits to consumers. Further, the existence of cash-back incentives will elevate efficiency to a competitive issue that will naturally motivate market providers to stock and promote targeted products.

The C&I Prescriptive Program will also include a new construction/renovation component that will assist customers in


26

specifying and installing high efficiency measures.

Eligible Measures

The C&I Prescriptive Program is a customer incentive program for the installation of energy efficiency measures in non-residential facilities.

More specifically, the program may offer customer incentives for the following technology categories.

• Boiler controls

• Steam heat system improvements

• Pre-rinse sprayers

• Room temperature controls

Specific technologies included in the program will change over time based on codes and standards, changing market needs, introduction of new technologies and market adoption rates. The initial proposed measure listing is in Exhibit A-10. Technologies must be cost-effective, passing the Utility System Resource Cost Test individually, to be included.


SEMCO will provide program management, tracking and reporting oversight, and regulatory review. Through a competitive bid process, SEMCO will select an implementation contractor to have day to day implementation responsibility including application and incentive processing, incentive payments, tracking, verification, technical support, customer support, and marketing, all with SEMCO oversight.

The keys to program success are twofold.

• First, SEMCO’s implementing contractor will engage customer participants by using their existing market delivery channels. This market delivery channels include manufacturers, distributors, consultants, engineers and contractors. The program will have resources specifically dedicated to educating, partnering and engaging these important market actors in the program. Through these existing market actors who have relationships with C&I customers, the new high efficiency technology will be offered to customers as a viable option. To support the market participants, the program also includes customer educational and promotional pieces designed to assist facility owners, operators and decision makers with the information necessary to improve the energy efficiency of the systems in their facilities.

• Second, SEMCO staff that have relationships with customers


27

and can help identify opportunities to participate in the program. These resources will build customer awareness, educate the customer on opportunities and connect interested customers with the appropriate participating contractors.

Incentives for each technology will be offered to reduce the cost of the energy-efficient equipment and will vary based on cost-effectiveness and market response. A full listing of the initial proposed technologies and their initial incentives is attached in Exhibit A-10. The program strives to cover a 20% to 40% of the incremental equipment cost of the measure to stimulate the market if it is cost-effective. Additional guidelines are established such as total incentives available per customer per year to provide broad customer participation opportunities.

Where applicable, SEMCO will work with the electric company supplying services to each customer to coordinate incentives, processing and assistance for those measures or systems that apply to both fuels (ex: set back thermostats).

SEMCO’s account managers will promote the program to their customers directly and cross promote it with other programs.

• Outreach to market providers. The implementation contractor will inform and recruit participating market providers. Outreach will include orientation meetings and conducting in-person visits aimed at training and equipping market providers to communicate program information to customers. The contractor will ensure that providers have an updated stock of program materials.

• Outreach to targeted customers. The implementation contractor will personally contact energy managers and decision makers within the targeted customer sectors. The contractor will assist business customers in determining whether the prescriptive incentives or the custom approach would be most appropriate for their operations. SEMCO’s business account representatives will assist with outreach within the course of their regular contacts with business customers.

Incentives may change based on market prices and response.

Marketing Strategy

Education and promotional materials will be developed for business owners and operators on the benefits of energy efficiency improvements and improved systems performance, including educational brochures, customer and market provider seminars, program promotional material, and website content. Specific


28

educational, training and promotional efforts will be aimed at market participants such as installation contractors, equipment supply firms, and distributors to help them promote efficient measures to their customers. This education will be through a combination of mailings and direct meetings with key market participants.

The marketing and communications strategy will be designed to inform customers of the availability and benefits of the program and how they can participate in the program. The strategy will include outreach to key partners and market participants including A&E firms, the contractor community, relevant professional and trade associations and other interested parties. An important part of the marketing plan will be content and functionality on the SEMCO website, which will direct customers to information about the program.


• Education seminars implemented in each market will provide details about the program and how to participate in the program. The seminars will be tailored to the needs of business owners, building managers, architects, engineers, vendors, and contractors.

• A combination of strategies including media advertising, outreach and presentations at professional and community forums and events, and through direct outreach to key customers and customer representatives such as:

o Brochures that describe the benefits and features of the program including program application forms and worksheets.

o Targeted direct mailings used to educate customers on the benefits of the program and explaining how they can apply.


o Print advertisements to promote the program placed in selected local media including newspapers and trade publications in SEMCO’s various service territories.

o Website content providing program information resources, contact information, downloadable application forms and SEMCO account managers informing their assigned accounts about the program during their regular communications.

o Presence at conferences and public events used to increase general awareness of the program and distribute program


29

promotional materials.

o Presentations to key customers and customer groups to actively solicit their participation in the program.


Milestones











EM&V SEMCO will coordinate the impact and process evaluation of the programs. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of savings will be reviewed by an independent third party evaluation contractor.

For prescriptive incentive measures, the energy impact evaluation will focus on reliably estimating the program’s annual therm savings over the effective useful life of the prescriptive retrofits and installations.

SEMCO’s implementation contractor will be responsible for implementing the following types of measurement and verification activities to facilitate the utility’s third-party evaluation work:


30

• Collect and track all customers, measure installations, and incentive data.

• Verify that each product on which incentives are paid meets the prescribed efficiency standards of the MEMD.

Conduct on-site inspections of 2% to 5% of equipment for which customers receive incentives to verify that products were installed and that the model and serial numbers match those provided on the incentive claim. Any inconsistencies will be researched and the resolution recorded. Market providers associated with inconsistencies will receive follow up inspections on projects that they are associated with.



31

Program Commercial and Industrial Custom Program

Objective The primary objective of the Commercial and Industrial (C&I) Custom Program is to encourage commercial and industrial (C&I) customers to install energy-efficient measures in existing and new facilities. The program is designed to affect the installation of site-specific and unique energy efficiency technologies and process improvements by C&I customers that would not have done so in the absence of the program.

Target Market All C&I customers are eligible for the program.

Special targeting will focus on high-impact/high-need customer sectors (such as schools and hospitality, municipal facilities, hospitals, food processing and manufacturing).

The program will also target market providers (wholesalers, distributors, engineering and architectural firms, developers, and builders) that will promote the high efficiency technologies and processes.

Program Duration


Program Description

This program provides custom incentives for the installation of innovative and unique energy-efficient equipment and controls. Having a custom incentive allows efficiency measures and systems to be installed for situations specific to that customer’s application or process.

The incentive for the installation of these innovative and unique energy-efficient equipment and controls are to be offered on a per therm saved basis based on pre-approved engineering energy saving estimates. This program targets energy savings equipment or processes as well as applications with so much variability in operating characteristics that standardized savings cannot be assumed across the customer base. This program also includes those technologies that are new to the market and have not yet established baseline savings.


• Provide incentives to facility owners and operators for the installation of high efficiency equipment and controls.

• Provide the knowledge necessary and market demand to justify the marketing of high efficiency measures by equipment suppliers and their distributors.


32


Where applicable, SEMCO’s implementation contractor will work with the electric company supplying services to the customers to coordinate incentives, processing and assistance for those measures or systems that apply to both fuels (ex: building shell measure improvements).

Certain barriers exist to the adoption of energy efficiency measures, including lack of investment capital, competition for funds with other capital improvements, lack of awareness/knowledge about the benefits and costs of energy efficiency measures, high transaction and information research costs, and technology performance uncertainties. This program is designed to help overcome these market barriers and encourage greater adoption of energy efficiency measures in the C&I market. The premise of the program is that through engagement and education with the market participants and through customer incentives to reduce upfront costs, the risks to energy efficiency implementation will be reduced and the rewards from the savings will become more apparent thus increasing adoption.

The C&I Custom Program will help customers and market providers identify more complex energy savings projects, analyze the economics of each project, and complete a customized incentive application. Over the long term, the C&I Custom Program will allow SEMCO to develop and enhance the assistance they can provide to businesses with unique opportunities – including industrial process improvements, emerging technologies, and new facility design and/or modernization.

The C&I Custom Program will also be offered to new construction/renovation project that will assist customers in specifying and installing high efficiency measures and establishing effective commissioning on the long term performance of the building.

Eligible Measures

For the effective use of custom incentives, flexibility is the key. Technologies that are unique to that customer, new to the market or have a wide range of savings based on their application cannot be covered by prescriptive incentives due to their variability. However these variable energy savings technologies can be significant and encouraged with custom incentives. Measures must show gas energy savings through accepted engineering analysis that will be reviewed and pre-approved by SEMCO or its implementation contractor for the incentive. Measures cannot receive a custom incentive if they are eligible for a prescriptive incentive unless they are in combination with other measures or systems that makes them unique.


33


Work to achieve cost effective energy savings with custom incentives will center on working with customers to apply energy efficiency in unique ways to their operations and processes and working with the industry participants to find the right solutions to their needs. The primary key to success is utilizing the existing relationships of SEMCO’s internal staff that has relationships with business customers and can help identify opportunities to participate in the program. These internal staff resources will build customer awareness, educate the customer, and work with engineering staff, supporting engineering firms and Energy Service Companies. Through the engagement of the market participants throughout the delivery channel, additional projects can be identified and potential solutions suggested. These participants include manufacturers, distributors, trade associations, consultants, engineers and contractors. The program will have SEMCO staff educating, partnering and engaging with these important market participants as they also discuss other program offerings. Through these existing market participants who have relationships with C&I customers, new high efficiency technology and custom program solutions will be offered to customers as a viable option. To support the market participants, the program also includes customer educational and promotional pieces designed to assist facility owners, operators and decision makers with the information necessary to improve the energy efficiency of the systems in their facilities.

SEMCO’s account managers will promote the program to their assigned customers directly and cross promote it with other programs. They will assist business customers to determine whether the custom incentives or the prescriptive approach would be most appropriate for their operations. SEMCO’s implementation contractor will work closely with the utility to identify and conduct face-to-face meetings with key end-use customers to recruit their participation

Custom incentives will be set using a per therm saved basis so energy savings will be rewarded. Incentive levels will vary over time based on costs and market need but will typically be established in one year increments. SEMCO will use a three tier custom incentive approach. The first tier is a lower incentive rate for technologies that are established and known in the market but need financial help to get them implemented. The second and third tiers target technologies that are newer to the market or have more significant risk or other barriers that need higher stimulation and awareness. All three tiers may or may not be used in a specific time period. Many new technologies will have higher incentive levels and migrate to a lower incentive level over time


34

as they gain acceptance within the market. This approach gives appropriate signals to the market about new or riskier technologies that have significant savings potential. Other guidelines to reduce free ridership will also be established. These guidelines may include:

• Simple payback for the project must be between 1 year and 8 years after the incentive is applied. Incentives can be adjusted to meet the payback criteria.

• Program incentives will not exceed 50% of the installed project incremental cost.

• SEMCO reserves the right to adjust these guidelines over time and to make exceptions.

One barrier to getting custom measures identified and installed is getting customers to spend funds to analyze the opportunity and savings. To help address this issue, assessment/audit grants will be available to customers for up to 25% of the analysis cost not to exceed an amount to be determined for facilities less than 25,000 square feet and not to exceed an amount to be determined for larger facilities. If the customer implements that project an additional bonus will be included in the incentive to cover an additional 25% of the assessment cost using the same cost caps.

Marketing Strategy

Educational and promotional materials will be developed for building owners and operators on the benefits of energy efficiency improvements and improved systems performance, including educational brochures, customer and market provider seminars, program promotional material, and website content. Specific educational, training and promotional efforts will be aimed at market participants such as technology and process contractors, building supply firms, and distributors to help them promote efficient measures to their customers. This education will be through a combination of mailings and direct meetings with key market participants.

The marketing and communications strategy will be designed to inform customers of the availability and benefits of the program and how they can participate in the program. The strategy will include outreach to key partners and market participants including A&E firms, Energy Services Companies, the equipment supply community, the contractor community, relevant professional and trade associations and other interested parties. An important part of the marketing plan will be content and functionality on SEMCO’s website, which will direct customers to information about the program.


35


• Education seminars will provide details about the program and how to participate in the program.

• A combination of strategies including media advertising, outreach and presentations at professional and community forums and events, and through direct outreach to key customers and customer representatives such as:

o Brochures that describe the benefits and features of the program including program application forms and worksheets.

o Targeted direct mailings used to educate customers on the benefits of the program and explaining how they can apply.


o Print advertisements to promote the program placed in selected local media including newspapers and trade publications in SEMCO’s service territories.

o Website content providing program information resources, contact information, downloadable application forms and worksheets, and links to other relevant service and information resources.

o SEMCO’s’ account managers informing their assigned accounts about the program during their regular communications.

o Presence at conferences and public events used to increase general awareness of the program and distribute program promotional materials.

o Presentations to key customers and customer groups to actively solicit their participation in the program.



36

Milestones











EM&V SEMCO will coordinate the impact and process evaluation of the EO Programs. The evaluation will include a certification of savings and will leverage knowledge gained from the evaluation of similar utility energy efficiency programs in Michigan. Data collection processes for the certification of savings will be reviewed by an independent third party evaluation contractor.

Because custom incentives targets projects with a wide range of non-standard measures or standard measures used in non-standard installations/configurations, the evaluation will rely on the engineering analysis of each project.

The process evaluation is intended to provide program managers with timely recommendations on program operations, effectiveness and participant satisfaction so that mid-course corrections may be considered.

SEMCO’s implementation contractor will be responsible for implementing the following types of measurement and verification activities to facilitate the utility’s third-party evaluation work:

• Collect and track all customer, measure installation, and incentive


37

data.

• Verify that each product on which incentives are paid meets the prescribed efficiency standards using third party databases (e.g. ENERGY STAR, GAMA, and ARI). Products that cannot be verified using a credible third party database will be considered on a case-by-case basis; product performance information will be requested from the contractor or manufacturer and efficiency will be verified by a qualified engineer.

• Provide engineering support to identify and analyze the cost-effectiveness of energy saving opportunities. The energy advisor will work with the customer and/or market provider to complete custom engineering calculations that assess the energy savings potential, payback horizon, project eligibility and incentive amount. If the project is deemed eligible, the advisor will assist the customer or market provider in completing a custom incentive application.

Conduct on-site inspections of 2% to 5% of equipment for which customers receive incentives to verify that products were installed and that the model and serial numbers match those provided on the incentive claim. Any inconsistencies will be researched and the resolution recorded. Market providers associated with inconsistencies will receive follow up inspections on projects that they are associated with.


38

Program Commercial and Industrial Pilot Program

Objective The objective of the Commercial and Industrial Pilot Program is to make current programs as effective as possible for customers and test and develop new program designs, test new marketing strategies and approaches to most effectively serve the energy needs of customers, and to test the energy saving impact of emerging technologies.

Target Market All C&I customer segments will be served by the pilot program. The program is designed to identify and learn more about new energy efficient technologies and program strategies with potential to capture additional gas energy savings.

Program design and new marketing approaches may also be tested to reach “hard-to-reach” market segments. For example, these markets might include small businesses who lease space for their operations or schools with limited capital budgets. This may require a test of marketing techniques and unique partnerships for effectively delivering energy information, education and programs.

Program Duration


Program Description




Eligible Measures

Eligible measures will be determined based on the pilot projects


39


The Pilot Programs ideas and direction will come from feedback from the current programs, “voice of the customer” research and SEMCO and implementation contractor staff.

Marketing Strategy

Marketing strategy of the Pilot Programs will be dictated by the technology, the program or marketing approaches being tested.

Milestones













40

Program Commercial and Industrial Educational Services Program

Objective The objective of the Educational Services Program is to provide information and education about energy efficiency and conservation. The educational information will be delivered through many media and communication channels. These educational programs will provide the basis for more program specific efforts aimed at encouraging customers to participate in SEMCO’s Energy Optimization portfolio of programs.

Target Market The target markets are all commercial and industrial customers served by the Energy Optimization Programs. Trade allies will also be a targeted market.

Program Duration


Program Description


The Educational Services Program will increase customer participation in the programs by making them aware of the benefits of energy efficiency and conservation programs, educating them about how much energy and cost savings they can expect, and the long-term environmental benefits associated with these actions.

The Educational Services Program will be primarily focused on the customers, but it will also to make it easy for trade allies to support the energy efficiency programs.

The program will provide a connection to other programs and provide materials needed to participate.




• Business seminars


41




• Bill inserts



Eligible Measures

The Educational Services Program will not include eligible measures but will support and promote energy efficiency and conservation messages.


The Educational Services Program will provide general information on energy efficiency and conservation in support of the program specific marketing messages.


• Develop, produce, and distribute energy efficiency tips, fact sheets and case studies that promote the benefits of energy efficiency.

• Enhance the utility website to facilitate easy access to educational materials and program offerings.

Marketing Strategy



Milestones






42







EM&V Education activities will be documented and number of customers reached recorded.

SEMCO ENERGY, Inc. Exhibit A‐9 2014‐2015 Energy Optimization Plan Page 1 of 2 Preliminary Concept Plan Program Budgets and Goals Case No. U‐17362

1

I. Budget and Savings Targets 2014 2015

Savings (therms) Budget

Savings (therms) Budget

Residential

Savings Goals/Budget Caps 1,748,491 $3,561,174

1,790,192 $3,918,132

Current Values for this Portfolio 1,748,491 $ 3,526,849

1,790,192 $3,693,773

Variance - $ 34,325

- $ 224,359 Variance % 0% 1% 0% 6%

Commercial


2,238,953 $1,837,881

Current Values for this Portfolio 2,196,151 $1,625,871

2,238,953 $1,706,356

Variance - $ 18,255

- $ 131,524 Variance % 0% 1% 0% 7%

Total


4,029,145 $5,756,012

Current Values for this Portfolio 3,944,642 $5,152,720

4,029,145 $5,400,129

Variance - $52,580

- $355,883

Variance % - 1%

- 6%

SEMCO ENERGY, Inc. Exhibit A‐9 2014‐2015 Energy Optimization Plan Page 2 of 2 Preliminary Concept Plan Program Budgets and Goals Case No. U‐17362

2

II. Energy Optimization Program Portfolio 2014 2015

Portfolio Category Program Portfolio

Gross First Year Therm Savings

Program Budget

Gross First Year Therm

Savings Program Budget

Residential Low Income Services 167,762 $ 312,318

177,829 $ 331,059

ENERGY STAR Program - $ -

- $ - Home Energy 1,108,186 $2,370,006 1,129,952 $2,416,554

Multi-family Services 332,663 $ 256,966

339,196 $ 262,013


89,510 $ 190,041


53,706 $ 114,025 Evaluation $ 172,811 $ 190,041 Administration $ 138,249 $ 190,041

Subtotal - Residential Solutions 1,748,491 $ 3,526,849

1,790,192 $3,693,773

Commercial &

Industrial Prescriptive Program 133,631 $ 70,644

136,235 $ 72,021

Custom Program 1,886,828 $ 1,257,886

1,923,602 $ 1,282,401


111,948 $ 97,760


67,169 $ 58,656

Evaluation - $ 87,454

- $ 97,760

Administration - $ 69,963

- $ 97,760

Subtotal - Business Solutions 2,196,151 $ 1,625,871

2,238,953 $1,706,356

Total Program Portfolio 3,944,642 $ 5,152,720

4,029,145 $5,400,129

SEMCO ENERGY, Inc. Exhibit A-10 2014-2015 Energy Optimization Plan Page 1 of 1 Preliminary Concept Plan Programs Measures Incentives

Case No. U-17362

Residential

Measure Program Incentive/ Part Setback thermostat - moderate setback (HVAC rebate) Home Perf $ 20.00 High Eff 95 AFUE Furnace without ECM Home Perf $ 400.00 O&M Tune Up - Gas Home Perf $ 100.00 Online Audit Kit 203 - PW, 2FA, SH, 2DWS Home Perf $ 75.00 MF Low Flow Showerhead (1.5GPM) MF $ 14.00 MF Low Flow Faucet Aerator (1.5GPM) MF $ 4.75 MF Pipe Wrap (R-3) MF $ 9.50

C&I

Measure Program Incentive/ Part Pipe Wrap - Steam Boiler Gas Prescriptive $ 40 Pre Rinse Sprayers Gas Prescriptive $ 25 C&I Thermostat Setback - Setup Prescriptive $ 90 Steam trap repair or replacement Prescriptive $ 50 Boiler Modulating Burner Control 5to1 turn-down - retrofit Prescriptive $ 120 Boiler Reset Control Prescriptive $ 60 O2 Trim Control Prescriptive $ 45 Guestroom Energy Management Control Prescriptive $ 25 Custom Custom $ 2,400

SEMCO ENERGY, Inc. Exhibit A-11 2014-2015 Energy Optimization Plan Page 1 of 1 Preliminary Concept Plan Program Cost Effectiveness Test Results

Case No. U-17362

SEMCO Cost Effectiveness Results - 2014-2015 Gas Programs – Preliminary Concept Plan

All Programs (including

administration) Portfolio

Residential Programs (w/o Low Income)

C&I Programs

USRCT 3.29 2.25 5.34 TRC Test 2.86 2.03 4.30 RIM Test 0.63 0.57 0.69

Participant Test 5.06 3.91 6.90 CCE $/therm $0.12 $0.17 $0.08

Residential Programs

Home Energy Multi-Family Res Pilot

Res Education

USRCT 2.40 6.04 0.26 0.26 TRC Test 2.07 7.09 0.26 0.26 RIM Test 0.58 0.68 0.19 0.19


C&I Programs Prescriptive Custom C&I Pilot C&I

Education USRCT 9.03 6.41 0.66 0.66

TRC Test 6.86 4.93 0.66 0.66 RIM Test 0.73 0.70 0.36 0.36


STATE OF MICHIGAN


***** In the matter of the application of ) SEMCO ENERGY, INC. for authority to ) implement its Energy Optimization Plan for ) Case No. U-17362 the 24-month period of January 2014 through ) December 2015. )

DIRECT TESTIMONY AND EXHIBITS OF JAMES A. VAN SICKLE

ON BEHALF OF

SEMCO ENERGY GAS COMPANY

Direct Testimony of James A. Van Sickle On Behalf of

SEMCO Energy Gas Company Q. Please state your name and business address. 1

A. My name is James A. Van Sickle. My business address is 1411 Third Street, Port 2

Huron, Michigan 48060. 3

Q. By whom are you employed and what is your position with that employer? 4

A. My present position is Rates Analyst in the Rates and Regulatory Department at 5

SEMCO Energy Gas Company (“SEMCO Gas” or the “Company”). SEMCO Gas 6

provides natural gas sales and transportation service to approximately 291,000 7

customers in areas throughout the State of Michigan. SEMCO Gas is a division of 8

SEMCO Energy, Inc. 9

Q. What are your responsibilities as Rates Analyst? 10

A. Under the supervision of the Manager of Regulatory Affairs, I have responsibility for 11

participating in Michigan Public Service Commission (the “MPSC” or the 12

“Commission”) proceedings, including preparing exhibits and workpapers, writing 13

testimony, submitting to cross-examination, and otherwise presenting the 14

Company's positions to the MPSC. I am also responsible for communication of tariff 15

changes and other regulatory assignments. 16

Q. Please summarize your academic background. 17

A. In 1981, I graduated from St. Clair County Community College with an Associates 18

degree in Arts. In 1984, I graduated from Michigan State University with a Bachelor 19

of Arts Humanities/Pre-Law degree. In 1990, I received an Associates degree in 20

Paralegal Studies from Mountain West Junior College. 21

Q. Please summarize your relevant employment and professional experience. 22



2

A. In 1997, I joined SEMCO Gas as a Marketing Analyst. While with the Marketing 1

Department, I developed and implemented procedural changes that streamlined 2

several aspects of that department’s activities. In 1999, I moved into the position of 3

Manager of Process and Analysis with SEMCO Energy Ventures (“Ventures”), a 4

subsidiary of SEMCO Energy, Inc. Under the direction of the president of Ventures, 5

I gathered and prepared information for the construction and engineering 6

companies, as well as the production facilities that were held by Ventures. I then 7

worked in the Training Department for SEMCO Gas, tracking training documentation 8

and developing various training-related processes. 9

I have been in the Rates and Regulatory Department since June 2004, with 10

the duties I described earlier, including data gathering and presentation, reporting, 11

and various support roles. 12

Q. Have you previously filed testimony with the MPSC? 13

A. Yes. The topics I covered included forecasting volumes, tariff changes, Energy 14

Optimization Reconciliation and Gas Cost Recovery planning. 15


A. The purpose of my testimony is to: (1) demonstrate, for SEMCO Gas’s Energy 17

Optimization (“EO”) Plan for the years 2014 and 2015, that the EO Plan funding level 18

is within statutory limits, (2) propose the customer surcharges for recovery of the EO 19

Plan costs, (3) calculate the savings volume goals per Public Act 295 (“PA 295”), (4) 20

propose the deferment of certain costs incurred in year 2013 into year 2014, and (5) 21

sponsor the proposed tariff pages. 22

Q. Please identify the exhibits which you are sponsoring in this case. 23

A. I am sponsoring the following exhibits: 24



3

Exhibit A-1 Verification of Funding Limit % 1

Exhibit A-2 Calculation of Customer Surcharges 2

Exhibit A-3 Tariff Pages 3

Q. Were these exhibits prepared by you or under your direction? 4

A. Yes, they were. 5

Q. How does SEMCO Gas intend to comply with its EO obligations under PA 295? 6

A. The Company plans to implement its self-administered EO Plan for the 2014 and 7

2015 plan years as described by Witnesses Phillips and Bilyeu. 8

9

Determination of Plan Funding Limit 10

Q. Please discuss your Exhibit A-1, Verification of Plan Funding Limit %. 11

A. Section 89(7) of PA 295 provides that a natural gas provider may not spend more 12

than 2% of total retail sales revenues for the 2 years preceding to comply with EO 13

performance standards. Pursuant to this limitation, to verify the Pilot Plan’s funding 14

limit for the plan year 2014 was within statutory limits, I divided the 2014 plan year 15

budgets by 2012 actual revenue. This resulted in a percentage of 2. To verify the 16

Pilot Plan’s funding limit for the plan year 2015 was within statutory limits, I divided 17

the 2015 plan year budgets by 2013 forecasted revenue. This resulted in a 18

percentage of 1.7. These percentages do not exceed the statutory limit of 2%. 19

Page 1 reflects the funding limit for 2014; page 2 reflects the funding limit for 2015. 20

The budgets are developed by Witness Phillips. 21

Q. Have you assumed any roll forward of an over or under recovery balance from 22

the 2013 EO plan? 23

A. No, I have assumed that the 2013 EO Plan over or under recoveries will be zero for 24

all rate classes. 25



4

Q. Does the Company propose to implement a customer surcharge to recover the 1

amount of the plan expenses over the biennial period of 2014 and 2015? 2

A. Yes. Per Section 89(2) of PA 295, the Company is proposing a volumetric 3

surcharge be applied to all customers. The Company is proposing to recover the 4

2014 and 2015 plan expenses over the months of January 2014 through December 5

2015. 6

Q. Have you determined the proportion for which each class is responsible for 7

the Low Income funding level? 8

A. Yes. Per Section 89(5) of PA 295, the Company will fund the low income program 9

by the proportion of each customer class’s EO Plan funding compared to the total 10

Plan funding. On an annualized basis, the residential class is responsible for 66.2% 11

of the low income funding, the non-residential class is responsible for 33.8% of the 12

low income funding. 13

Q. Please discuss your Exhibit A-2, Calculation of Customer Surcharges. 14

A. Exhibit A-2 combines 2014 and 2015 Plan budgets for the Pilot Plan as supported by 15

witness Phillips and divides that number by two in order to levelize collection of the 16

two-year plan expenses. Each rate is charged volumetrically. The rates have been 17

designed to recover the expenses by Rate Class, avoid the 1.7% limit PA 295 places 18

on an individual customer with annual usage over 100,000 Dth, and avoid rate shock 19

that can occur when shifting from a fixed monthly charge to a variable charge. 20

21

Savings Targets and Accounting Treatment 22

Q. Have you identified the minimum energy optimization standards for the Plan 23

Years 2014 and 2015 per Section 77(3) of PA 295? 24

A. Yes. The Company has used a three-year average of volumes to determine the 25

minimum energy optimization standards as delineated by Section 77(5)(b) of PA 26

295. For the 2014 Plan year, volumes from years 2010, 2011 and 2012 were used. 27



5

For the 2015 Plan year, volumes from years 2011, 2012 and forecasted 2013 were 1

used. After determining the averages by Plan year, I multiplied the average by 2

0.75% per Section 77(3)(d) of PA 295. The results are 394,464 Dth for 2014 and 3

402,915 Dth for 2015. 4

Q. Is the Company requesting specific accounting treatment? 5

A. The Company is requesting that start-up costs incurred before the 2014 Plan year 6

be deferred until the beginning of that Plan year. 7

Q. How does the Company propose to account for this deferment? 8

A. The Company proposes to account for these deferred costs by using the FERC 9

deferred asset account 182.3. PA 295, section 47(3) refers to the use of regulatory 10

assets. The Company’s proposed use of regulatory assets and regulatory liabilities 11

in accounting for EO is consistent with the statutory requirements for renewable 12

energy plans. Additionally, deferred accounting treatment has been ordered in Case 13

No. U-15800. 14

Q. How does the Company propose to recover the implementation costs deferred 15

in FERC account 182.3? 16

A. The Company will recognize and recover these costs in Plan year 2014. 17

Q. Will the Company record interest on any under- or over-recoveries? 18

A. Yes. Each month, for both under- and over-recoveries, the Company will accrue 19

interest at its short-term borrowing rate for that month. This is how the Company 20

currently accounts for its EO balance. 21

Q. Will these EO surcharges and expenses be reviewed by the MPSC? 22

A. Yes. The Company currently is required to file an annual reconciliation for its Plan 23

expenses and surcharge revenues. The Company proposes that the final order in 24

its reconciliation filing will allow the Company to adjust its recovery of Plan costs 25

throughout the remaining months of that plan year. 26

27



6

Tariff Pages 1

Q. Please discuss your Exhibit A-3, Tariff Pages. 2

A. The Company believes that the tariff pages, as illustrated in Exhibit A-3, are 3

sufficient for setting forth the authorized EO surcharges. 4

Q. Does this complete your direct testimony at this time? 5

A. Yes, it does. 6

SEMCO ENERGY, Inc. Exhibit A-12014-2015 Energy Optimization Plan Page 1 of 2Verification of Funding Limit % Case No. U-17362

2012 Revenue 2012 Plan Year Plan YearRate Total 2014 2014Class Revenue % $

1 [Source: WP-JAV-1]2 Residential 172,811,467$ 2.0% 3,456,229$ 34 Non Residential 87,453,537$ 2.0% 1,749,071$ 567 Total 260,265,004$ 5,205,300$

SEMCO ENERGY, Inc. Exhibit A-12014-2015 Energy Optimization Plan Page 2 of 2Verification of Funding Limit % Case No. U-17362

2013 Revenue 2013 Plan Year Plan YearRate Total Forecasted 2015 2015Class Revenue % $

1 [Source: WP-JAV-2]2 Residential 190,041,005$ 1.7% 3,285,244$ 34 Non Residential 97,759,619$ 1.7% 1,689,973$ 567 Total 287,800,624$ 4,975,217$

SEMCO ENERGY, Inc. Exhibit A-22014-2015 Energy Optimization Plan Page 1 of 2Calculation of Customer Surcharges Case No. U-17362

BiennialProgram

Combined CostsMPSC & BC $

1 [Source: Exhibit A-1]23 Residential 3,370,737$ 0.1412$ per Dth4567 GS 1,508,078$ 0.9301$ per Dth89

10 0.0001$ per Dth11121314 TR 211,445$ 0.0552$ per Dth151617 0.0001$ per Dth1819 Total 5,090,259$

Up to 9 Dth per Month

Over 9 Dth per Month



VolumetricSurcharge

SEMCO ENERGY, Inc. Exhibit A-22014-2015 Energy Optimization Plan Page 2 of 2Calculation of Customer Surcharges Case No. U-17362

BiennialProgram

Combined CostsMPSC & BC $

1 [Source: Exhibit A-1]23 Residential 3,370,737$ 0.1412$ per Dth4567 GS 1,508,078$ 0.9301$ per Dth89

10 0.0001$ per Dth111213 TR 211,445$ 14 0.0552$ per Dth151617 0.0001$ per Dth1819 Total 5,090,259$



VolumetricSurcharge



M.P.S.C. - No. 1 – Gas Case No.: U-17362 SEMCO ENERGY GAS COMPANY Exhibit A-3 Page 1 of 2 Sheet No. D-2.00

Effective for bills rendered on and after . Issued under authority of the Michigan Public Service Commission In Case No. U-17362.

SECTION D

GAS SALES SERVICE SURCHARGES

Energy Optimization Program Clause – This clause permits, pursuant to Section 89(2) of 2008 PA 295, recovery of the actual costs of implementing its approved energy optimization plan. This charge is to be on a volumetric basis for all customers. Special contract customers will be billed in the sales and transportation rate class most appropriate to their volumetric throughput.

Energy Optimization Surcharge

Rate Class Amount Order No. Residential $0.1412 per Dth U-17362 Up to 9 Dth per Month Remaining Dth per Month GS-1 $0.9301 per Dth $0.0001 per Dth U-17362 GS-2 $0.9301 per Dth $0.0001 per Dth U-17362 GS-3 $0.9301 per Dth $0.0001 per Dth U-17362

M.P.S.C. - No. 1 – Gas Case No.: U-17362 SEMCO ENERGY GAS COMPANY Exhibit A-3 Page 2 of 2 Sheet No. E-1.00

Effective for bills rendered on and after . Issued under authority of the Michigan Public Service Commission In Case No. U-17362.

SECTION E

TRANSPORTATION SERVICE

SURCHARGES

Energy Optimization Program Clause – This clause permits, pursuant to Section 89(2) of 2008 PA 295, recovery of the actual costs of implementing its approved energy optimization plan. This charge is to be on a volumetric basis for all customers. Special contract customers will be billed in the sales and transportation rate class most appropriate to their volumetric throughput.

Energy Optimization Surcharge

Rate Class Amount Order No. Up to 2500 Dth per Month Remaining Dth per Month TR-1 $0.0552 per Dth $0.0001per Dth U-17362 TR-2 $0.0552 per Dth $0.0001per Dth U-17362 TR-3 $0.0552 per Dth $0.0001per Dth U-17362

Documents

Dykema Gossett PLLC - force.com