State Activity Report

March 9, 2015 DOE Furnace Standard Update State Legislative Tracking Update Rates & Regulatory Updates 2015 Events

DOE Furnace Standard Update As we have previously reported, the U.S. Department of Energy recently issued a pre-publication Federal Register notice of proposed rulemaking (NOPR) and public meeting for energy conservation standards for certain residential furnaces. The proposed rule states that all non-weatherized natural gas furnaces must have a 92 percent or higher annual fuel utilization efficiency (AFUE) rating. Why this is a problem: There are any number of individuals living in row houses, manufactured (mobile) homes and owners and/or renters of older single family homes who presently have “non-condensing” furnaces. In order to meet the standard set forth in the proposal, those individuals, when met with a decision to replace their current furnace upon the end of its useful life would either have to 1) make structural modifications to their homes to accommodate different venting requirements (changes that would impose significant costs, or 2) choose to switch to an alternative fuel heating system-systems that would ultimately be less efficient and less cost effective. Moreover, in some instances, it will be impossible for an individual to replace his or her natural gas furnace due to limitations on the building structure. Implications: As mentioned above, the new standard could impose significant cost impacts on the consumer. As well, there are likely to be negative impacts to state and utility-specific energy efficiency programs. Below please find three draft compendiums listing information on energy efficiency programs, multifamily energy efficiency programs and state direct use programs. Please take a moment to review your state(s), if listed, and provide any thoughts your company might have relative to how the proposed furnace standard could or would have a negative impact on these programs and/or your company.

State Energy Efficiency Programs Multi-Family Programs State Direct Use Policies or Programs

State Legislative Updates & Tracking

MI: Legislature to Consider Energy Package On March 5th, Michigan House Energy Policy Committee Chairman Aric Nesbitt introduced an eight-bill energy package in the House that would maintain the state’s existing RPS, but would implement other sweeping changes to energy policy including the elimination of competitive electric markets and the facilitation of natural gas infrastructure expansion. Nesbitt has stated that his “plan” is centered on three pillars: ensuring reliability and affordability for consumers, as well as adaptability so that the state can respond to new federal regulations expected over time. The package is wide-spanning and addresses a number of critical energy topics. Among them is a bill that would amend PA 295 of 2008, which originally established Michigan’s 10 percent by 2015 RPS and energy efficiency standards. Though there has been a recent push by Michigan Democrats to increase the RPS, Nesbitt’s bill would keep the target in place. Instead, his proposal would change the definition of “renewable energy” to include burning municipal solid waste including materials like scrap tires. Also of note, the package includes the re-introduction of natural gas infrastructure expansion legislation that Nesbitt originally authored in 2014. HB 4303 would allow LDCs to file an Infrastructure Expansion Investment Plan with the Michigan Public Service Commission to provide the natural gas infrastructure necessary to serve unserved or underserved areas in the state. Proposed expansion plans must include each of the following: (a) a 1-year plan that projects investment related to expansion (b) a proposed recovery mechanism that provides for the recovery of the incremental revenue requirement associated with expansion investments (c) all expected costs and benefits associated with the proposed investments (d) an investment projection up to 5 years in duration proposed to be recovered in future expansion recovery mechanisms. The legislation would have required the PSC to review and approve or amend propose plans within 180 days. As well, Nesbitt’s package includes legislation that would remove electric choice and make Michigan a fully regulated state once again. Michigan’s Retail Open Access Program, which came to fruition as part of a 2008 energy law, limits alternative electric supply to 10% of utilities’ adjusted retail sales of the preceding calendar year. The program has faced increasing criticism over the years and the state’s two largest utilities—DTE and CMS—have previously supported its elimination. On March 6, Nesbitt noted “deregulation…(has) resulted in higher rates for residential ratepayers, and it’s something that also has issues of making sure that there is proper generation capacity….in the energy market, and the electricity market specifically, you have to have a mandatory oversupply of capacity. You don’t have that in any other industry. So to have that oversupply, you need to have a regulated infrastructure to ensure that you have reliability.”

Nesbitt’s HB 4298 amends the 2008 law to eliminate certain retail open access language and specify that customers purchasing electricity from an electric utility will continue to receive electricity from that utility, and that alternative electric supplies “shall not provide retail customers with electric generation service or enter into agreements to provide retail customers with electric generation service.” A summary of the 8-bill package is provided below.

Bill Number Summary Last Action

HB 4297 of 2015 Energy; alternative sources; energy generated from waste; allow to qualify as renewable or advanced cleaner energy, modify renewable energy location requirements, and eliminate energy optimization program. Amends secs. 1, 3, 5, 7, 9, 11, 13, 21, 27, 39, 43, 45, 89, 91, 93 & 95 of 2008 PA 295 (MCL 460.1001 et seq.) & repeals

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4298 of 2015 Public utilities; electric utilities; electric choice; eliminate, prohibit self-implementation of rate increases, and require utilities to utilize a competitive bid process. Amends title & secs. 6a, 6b, 6l, 6m, 6s, 10, 10a, 10c, 10e, 10g, 10q, 10t & 10y of 1939 PA 3 (MCL 460.6a et seq.); adds sec. 6t & repeals secs. 10f, 10u, 10x & 10bb of 1939 PA 3 (MCL 460.10f et seq.).

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4299 of 2015 Public utilities; electric utilities; 1951 PA 35; update references. Amends sec. 3 of 1951 PA 35 (MCL 124.3). TIE BAR WITH: HB 4298'15

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4300 of 2015 Public utilities; electric utilities; home rule city act; update references. Amends sec. 4f of 1909 PA 279 (MCL 117.4f). TIE BAR WITH: HB 4298'15

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4301 of 2015 Public utilities; electric utilities; electric cooperative member-regulation act; update references. Amends sec. 9 of 2008 PA 167 (MCL 460.39). TIE BAR WITH: HB 4298'15

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4302 of 2015 Public utilities; electric utilities; clean, renewable, and efficient energy act; update references. Amends secs. 5 & 33 of 2008 PA 295 (MCL 460.1005 & 460.1033). TIE BAR WITH: HB 4298'15

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4303 of 2015 Public utilities; natural gas utilities; infrastructure expansion investment costs for certain underserved or unserved areas; allow natural gas utilities to recover. Amends 1939 PA 3 (MCL 460.1 - 460.11) by adding sec. 9u & repeals sec. 9u of 1939 PA 3.

Last Action: 03/05/2015 - referred to Committee on Energy Policy

HB 4304 of 2015 Public utilities; public service commission; assessment of certain fines or penalties; prohibit. Amends 1939 PA 3 (MCL 460.1 - 460.11) by adding sec. 6f.

Last Action: 03/05/2015 - referred to Committee on Energy Policy

Meanwhile, Michigan Governor Rick Snyder is expected to lay out his own energy plan in the coming weeks. During his January State of State Address, Snyder outlined his plans to deliver a special message on energy in March to address the need for a long-term energy policy centered on affordability, reliability and environmental protection. At the time, Snyder noted that the state’s energy policy must be adaptable because of the lack of federal policy and the challenges of a global marketplace. He offered few specifics, but did note that the plan would place

an emphasis on “eliminating energy waste” and would continue the transition from coal to natural gas and renewables in the state.

Legislative Tracking AGA staff continues to monitor state legislative activity occurring around the country. In an effort to keep you up-to-date on legislative action, we continue to compile information on those bills that have been pre-filed, introduced and/or are already moving that are relevant to our sector. Please click here for our full AGA state legislation tracking document. If there is state-specific legislation you wish to have included and/or your company has identified as a priority, please let us know. Below, please find summaries and recent action on bills that we have identified as priority for our sector relating to infrastructure and emissions.

Bill Number Description Action Category

MI H 4303 A natural gas utility may file an infrastructure expansion investment plan with the commission to provide the natural gas infrastructure necessary to serve unserved or underserved areas. The amount a natural gas utility spends annually on an infrastructure expansion investment plan under this section shall not exceed $5,000,000.00 or 25% of that utility's annual spending on replacing cast iron, unprotected steel, and vintage plastic pipe, whichever is greater.

Referred to House Committee on Energy Policy

Infrastructure

ND S 2276 Provides for multiple tax credits and exemptions including a ten year exemption for infrastructure projects aimed at delivering natural gas to underserved communities, an income tax credit for individuals converting their primary heating fuel source to natural gas, and an exemption for sale of personal property used to expand natural gas transmission system.

Passed Senate; In House Committee on Energy and Natural Resources

Infrastructure

NH H 679 Provides for a 5-year deferral of the business profits tax, business enterprise tax, and utility property tax of natural gas distribution expansion projects. A performance bond or other appropriate substitute is required to ensure payment of deferred taxes and interest when due.

Died in House Committee on Ways and Means

Infrastructure

NJ A 4260 Requires natural gas pipeline utilities to repair or replace leaking natural gas pipelines.

Referred to Assembly Committee on Telecommunications and Utilities

Infrastructure

NV S 151 Requires the PUC to adopt regulations authorizing a natural gas utility to expand its infrastructure in a manner consistent with a program of economic development.

Referred to Senate Committee on Commerce, Labor and Energy

Infrastructure

OR S 32 Instructs the PUC to create a work group tasked with studying the PUC’s policies regarding natural gas main extension, mechanisms for funding infrastructure expansion, selection criteria for expansion projects, potential rate caps, and mechanisms for funding expansion projects. The work group will consist of representatives from natural gas utilities and one Representative and one Senator representing underserved areas.

Passed Senate; Referred to Speaker’s Desk

Infrastructure

OR S 456 The PUC was instructed to establish a voluntary emission reduction program for those public utilities supplying natural gas. This legislation would clarify the legal language, providing for receipt of any allowed additional incentives.

Passed Senate; In House Energy and Environment Committee

Emissions

PA S 214 Details requirements for distribution system expansion proposals submitted to the PUC. Plans must include data on current customers, potential new customers, three year projections, financing options, and possible obstacles. Prohibits expansion costs from being passed on to existing customers.

Passed Senate Environmental Resources & Energy Committee; Re referred to Senate Committee on Appropriations

Infrastructure

VA H 1475 Details requirements for distribution system expansion proposals submitted to the SCC. Plans must include cost recovery schedules through riders and methods for deferral of eligible unrecovered costs. The cost recovery allowed through this measure will be in addition to all other cost recovery already permitted.

Passed House; Passed Senate; To Governor

Infrastructure

WA H 1095 Promotes thermal energy efficiency through CHP. Establishes a voluntary emission reduction program to encourage natural gas companies to invest in projects that reduce emissions and improve thermal energy efficiency. Provides for cost recovery and incentives.

Passed House; Referred to Senate Committee on Energy, Environment & Telecommunications

Emissions

WV S 390 Authorizes PSC to approve expedited cost recovery of natural gas utility infrastructure projects.

Passed Senate; In House Committee on Judiciary

Infrastructure

Rate & Regulatory Updates CO: Xcel Proposes Rate Increase On March 3, Xcel Energy Inc. filed a gas rate increase with the Colorado Public Utilities Commission seeking to recover costs associated with safety and reliability initiatives.

In the proposal, Xcel is seeking a cumulative base rate increase of $66.2 million, with an additional cumulative increase of $42.9 million spread out over three years. If approved, residential customers would see bill increases of approximately 3.5% in late 2015 and less than 3% in 2016 and 2017. Xcel’s request is being spurred by projects meant to upgrade its transmission and distribution system in the state. According to the company, since 2012, Xcel has replaced 198 miles of pipe, including all cast-iron and most bare-steel pipelines. Xcel said it plans to replace 275 miles of pipe by 2017, including some vintage plastic. The company has also said that it plans to monitor and improve the condition and operations of its pipeline system through assessment of pipeline health, equipment additions in key locations and standardized practices and procedures.

IN: Vectren & OUCC Renew Natural Gas Energy Efficiency Plan On March 2, Vectren Energy Delivery of Indiana and the Indiana Office of Utility Consumer Counselor (OUCC) filed a joint settlement with the Indiana Utility Regulatory Commission (IURC) to renew the utility’s natural gas energy efficiency plan. Originally approved in 2006, Vectren’s energy efficiency plan was set to expire at the end of March, and the program would have terminated entirely at the end of 2015. The joint settlement allows the program to continue through 2020. Pursuant to the agreement, Vectren will continue to advocate broad energy efficiency programs, including rebates on high-efficiency appliances and increasing awareness in the state to promote efficient use of natural gas and reduce customer costs. Cost-effective programs administered under the plan will continue to be overseen by the utility, OUCC and other key stakeholders. As well, the approved program will expand Vectren’s efforts to work with overlapping electric utilities to jointly deliver gas and electric efficiency programs to achieve greater energy savings. The approved settlement also extended decoupling for Vectren through 2020. With respect to electric energy efficiency programs in Indiana, last year we reported that the Indiana legislature passed a bill that terminated the state’s electric energy efficiency programs on December 31, 2014. SB 340 provided that industrial customers of an electricity supplier may opt out of

participating in an energy efficiency program implemented by the electricity supplier

in response to an order of the utility regulatory commission concerning demand

side management (DSM) programs. The bill effectively eliminated a requirement for

Indiana’s investor-owned electric utilities to reduce retail electricity sales by 2

percent every year through 2019.

Presently, the Indiana legislature is considering SB 412, a bill that would replace

the Energizing Indiana program. If passed, the legislation would authorize the IURC

to allow an electric utility to recover certain energy efficiency program costs through

a periodic rate adjustment and provides that the IRUC may not require a third party

administrator to implement an energy efficiency program or plan. SB 412 passed

the Senate on February 10th and was referred to the House Committee on Utilities,

Energy and Telecommunications where it awaits further action.

ME: Summit Natural Gas to Expand Natural Gas Service On February 25, Summit Natural Gas of Maine presented its 2015 Construction Build-Out Plan, which outlines the utility’s plans to expand natural gas service to more than 2,400 customers in Central and Southern Maine. The release is part of the company’s 10-year investment strategy to provide greater access to natural gas in the state. In a release, Summit expressed its intent to begin construction in April, weather-permitting, that continue through summer and fall. By the end of 2015, the company expects to provide service to approximately 10,000 homes and businesses. The plan is part of a growth strategy whereby the company plans to invest $460 million in infrastructure from 2013 and 2018.

NJ: PSE&G Submits 5-Year Infrastructure Modernization Proposal On March 2, Public Service Electric & Gas Company (PSE&G) unveiled its plan to invest $320 million per year over the next five years to modernize its natural gas distribution system. In its filing with the New Jersey Board of Public Utilities (BPU), PSE&G requests $1.6 billion over the next 5 years to proactively modernize its gas system, including replacing approximately 800 miles of cast iron and unprotected steel pipelines with plastic. Specifically, if approved, PSE&G’s Gas System Modernization Program would lead to the replacement of 160 miles of cast iron and unprotected steel gas mains and about 11,000 unprotected steel service lines within the next five years. PSE&G has touted lower gas prices and consumer bills as a driver for making these needed investments now. The company has also noted that the program would support more than 500 direct jobs. The Gas System Modernization Program will augment PSE&G’s continuing modernization strategy, which includes its ongoing Energy Strong initiative, a $1.22 billion program focused on building resiliency which includes raising, relocating and protecting electrical switching and substations and replacing 250 miles of cast iron gas mains near flood zones.

Northwest: Utilities Join Effort to Push More Efficient Gas Technology Late last month, the Northwest Energy Efficiency Alliance (NEEA), in coordination with the regions natural gas utilities, unveiled a strategy for initiating market transformation leading to the adaptation of more efficient gas technologies in the Northwest. Unveiled on February 23rd, the Natural Gas Market Transformation Business Plan 2015-2019 focuses on the following five technology areas: 1) gas-fired heat-pump water heaters, 2) combined space-water heating,3) hearth products, 4) rooftop heat, ventilation and air conditioning or HVAC systems, 5) gas clothes dryers. The goal of the Collaborative is to bring down the products’ unit costs so to ultimately bring these technologies into the mainstream marketplace. To do so, the Collaborative has proposed a five-year $18.3 million natural gas market transformation plan, funded largely by the participating utilities, that leverages and complements NEEA’s 2015-2019 Business Plan. According to the

plan, the three largest initiatives in the portfolio are capable of saving more than 280 million Therms annually, at a weighted average TRC levelized cost of $0.28/Therm. Of note, some key principles of the Collaborative plan include no promotion of fuel switching, no cross subsidies between electric and gas, and implementing gas efforts without diminishing existing electric transformation work being conducted under NEEA auspices. The Collaborative includes representatives from Avista Utilities, Cascade Natural Gas, Energy Trust of Oregon, the Northwest Gas Association, NW Natural and Puget Sound Energy.

NY: PSC Adopts “Track One” of Reforming Energy Vision (REV) On February 26, 2015 the New York Public Service Commission (PSC) issued an order adopting a regulatory policy framework and implementation plan in Track One of the PSC's Reforming Energy Vision (REV) initiative. Through the REV initiative, the PSC is addressing how current regulatory practices are to be modified to enable electric utilities to manage and coordinate distributed energy resources, and enable customers to optimize their energy resource decisions, provide system benefits, and be compensated for providing such benefits. The REV initiative is being conducted in two tracks. Track One addresses the functions of the "distribution system platform" providers (DSP). These functions include: undertaking an integrated approach that considers all energy resources (including energy efficiency, demand reduction, and distributed generation) in utility planning and operations to help optimize resource deployment to meet customer reliability needs and reduce overall costs to customers; upgrading distribution management systems and communications infrastructure and providing a platform to accommodate distributed energy resources (DER) to offer new energy products and services; and, creating pricing mechanisms to buy/sell products/services from DER to provide value to the utility system and thus to customers. Track 1 also addressed factors that may affect customer participation. Of particular interest to natural gas utilities in this proceeding, the Commission noted that combined heat and power (CHP) “generally makes a more efficient use of fuel than centralized generation and avoids the line losses that result from power transmission. For distribution systems to accommodate much greater penetration of combined heat and power, changes to pricing, physical interconnection procedures, backup-power rates, and system controls will be needed.” Under a companion order in Track Two of the initial phase of REV, the PSC will adopt ratemaking reforms to secure equitable allocation of benefits and costs among customers and to align utilities' financial interests with the objectives of reform. Staff will issue a straw proposal on Track Two issues by June 1, 2015.

2015 Events Calendar

March 2015

DGA Spring Policy Conference March 13-14 | Fajardo, Puerto Rico

ECOS Spring Meeting March 16-18 | Washington, DC RLGA Policy Roundtable March 17-18 | Washington, DC SGAC Annual Meeting March 18-20 | Nashville, TN

April 2015

CPU-NMSU Current Issues Conference April 19-22 | Santa Fe, NM NCSL Executive Committee and LSCC April 23-25 | Denver, CO

May 2015

DGA Kentucky Oaks & Derby May 1-2 | Louisville, KY DAGA Spring Policy Conference May 7-8 | Chicago, IL RLCC Northwest Regional Meeting May 13-14 | Portland, OR ALEC Spring Task Force Summit May 15 | Savannah, GA GOPAC Western Regional Forum May 18-20 | Phoenix, AZ RGA Policy Summit May 19-20 | Dallas, TX NARUC: 2014 Western Conference May 31-June 3 | Phoenix, AZ

June 2015

NCSL Executive Committee Spring Meeting June 4-6 | Denver, CO RAGA ERC Retreat June 4-7 | TBD NARUC: MARC Meeting June 7-10 | Milwaukee, WI NARUC: NECPUC Symposium June 7-10 | Newport, RI

NARUC: SEARUC Annual Meeting June 7-10 | San Antonio, TX GOPAC Emerging Leaders Summit June 8-11 | Key West, FL NCSL Legislative Leaders June 10-12 | Washington, DC DGA Northeastern Policy Conference June 17-18 | Greenwich, CT NARUC: MACRUC Annual Education Conference June 21-24 | Williamsburg, VA WGA Annual Meeting June 24-26 | Lake Tahoe, NV DGA Governor’s Cabinet Retreat June 25-28 | Nantucket, MA

July 2015

RLGA Policy Roundtable July 7-8 | Indianapolis, IN CSG: Midwestern Legislative Conference Annual Meeting July 12-15 | Bismarck, ND NARUC Summer Committee Meetings July 12-15 | New York, NY DAGA Pre-CWAG Reception & Dinner July 18 | Maui, HI CSG: Southern Legislative Conference Annual Meeting July 18-22 | Savannah, GA CWAG Annual Meeting July 19-22 | Maui, HI ALEC Annual Meeting July 22-24 | San Diego, CA NGA Summer Meeting July 23-26 | White Sulphur Springs, WV DGA Events during Summer NGA Meeting July 23-26 | White Sulphur Springs, WV RGA Summer Reception July 25 | White Sulphur Springs, WV AGA Rates Course July 27-30 | Chicago, IL

CSG West Annual Conference July 28-31 | Vail, CO RLCC National Meeting July 29-31 | Boston, MA DGA Summer Policy Conference July 31- August 2 | Aspen, CO

August 2015

RAGA Summer National Meeting August 1-4 | White Sulphur Springs, WV NCSL Legislative Summit August 3-6 | Seattle, WA RLGA National Meeting August 8-11 | Asheville, NC CSG Eastern Regional Conference Annual Meeting August 16-19 | Wilmington, DE Southern Governors’ Association Annual Meeting August 21-23 | St. Louis, MO GOPAC State Legislative Leaders Summit August 24-27 | Columbus, OH ECOS Fall Meeting August 31-September 2 | Newport, RI

September 2015

DAGA Fall Policy Conference September 8-9 | Richmond, VA RLCC Midwest Regional Meeting September 9-10 | Chicago, IL NASEO 2014 Annual Meeting September 13-16 | San Diego, CA DLCC Eastern Leadership Conference September 23-24 | Bethlehem, PA RGA Corporate Policy Summit September 24-25 | Indianapolis, IN SSEB Annual Meeting September 27-29 | White Sulphur Springs, WV RSLC Annual Retreat September 27-29 | Sun Valley, ID

October 2015

AGA State Affairs Committee Meeting October 4-7 | San Diego, CA CSG Policy Academy October 14-16 | New Orleans, LA

November 2015

NARUC Annual Meeting November 8-11 | Austin, TX NCSL Emerging Leaders Summit November 12-14 | TBD RAGA Fall National Meeting November 14-17 | Scottsdale, AZ RGA Annual Conference November 18-19 | Las Vegas, NV RLGA Policy Retreat November | New York, NY

December 2015

CWAG Winter Dinner December 1 | Charleston, SC

ALEC States and Nation Policy Summit December 2-4 | Phoenix, AZ DGA Holiday Party & Annual Meeting December 7-8 | Location TBD NCSL Fall Forum December 8-11 | Washington, DC DAGA Holiday Party December 9 | Washington, DC CSG National Conference December 10-13 | Nashville, TN WGA Winter Meeting December | Las Vegas, NV

Kyle Rogers | Vice President, Government Relations Ashley Duckman | Director, State Affairs 202.824.7218 | krogers@aga.org 202.824.7212 | asmith@aga.org American Gas Association | 400 N. Capitol St., NW | Washington, DC 20001 | www.aga.org | www.truebluenaturalgas.org