URA Exhibit No. ___________

BEFORE THE PUBLIC SERVICE COMMISSION OF UTAH

______________________________________________________________________________

In the Matter of the Joint Application of )

Questar Gas Company, the Division of )

Public Utilities and Utah Clean Energy ) Docket No. 05-057-T01

for the Approval of the Conservation )

Enabling Tariff Adjustment Option and )

Accounting Orders )

______________________________________________________________________________

DIRECT TESTIMONY OF

ELIZABETH WOLF

on behalf of

SALT LAKE COMMUNITY ACTION PROGRAM

AND

CROSSROADS URBAN CENTER,

COLLECTIVELY

UTAH RATEPAYERS ALLIANCE

MAY 15, 2006

Q: PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.

A: My name is Elizabeth Wolf and my business address is 764 South 200 West in Salt Lake City.

Q: ON WHOSE BEHALF ARE YOUR TESTIFYING?

A: I am testifying in Docket No. 05-057-T01 on behalf of Salt Lake Community Action Program and Crossroads Urban Center, collectively known as the Utah Ratepayers Alliance (URA).

Q: PLEASE OUTLINE YOUR EDUCATIONAL BACKGROUND.

A: I hold a B.A. in American Studies from the University of Michigan. I have also taken a substantial number of graduate courses in the School of Social Work at the University of Utah.

Q: BY WHOM ARE YOU CURRENTLY EMPLOYED?

A: I am currently employed by Salt Lake Community Action Program as an advocate for low income people on utility issues. Salt Lake Community Action Program is a nonprofit agency that works to help low-income families seek self-sufficiency through service delivery and advocacy.

Q: PLEASE DESCRIBE ANY OTHER RELEVANT WORK EXPERIENCE.

A: I was employed previously for sixteen years as Executive Director for Utah Common Cause, a nonprofit, nonpartisan citizens’ lobbying group working for more open and accountable government. In that capacity, I worked with other consumer groups on utility issues, including telephone deregulation and support for adequate consumer representa-

tion in utility regulatory proceedings. During that time, I also worked extensively with the Utah Legislature and provided testimony on numerous occasions.

Q: HAVE YOU TESTIFIED BEFORE ON UTILITY ISSUES?

A: Yes. Over the past eight years, I have testified as a witness in many dockets on electric and gas issues, including general rate cases and other dockets on more specific issues.

Purpose of Testimony

Q: WHAT IS THE PURPOSE OF YOUR TESTIMONY?

A: The purpose of my testimony is threefold. The first purpose is to state our ongoing support for energy efficiency and conservation measures and to support investment in Demand Side Management (DSM), especially for low-income households. The second purpose is to explain why, while we wholeheartedly support investment in DSM, we do not support the proposal before the Public Service Commission (PSC or Commission) in the Joint Application proposed by Questar Gas Company (QGC or Questar or the Company), the Division of Public Utilities (DPU or Division) and Utah Clean Energy (also known collectively as Joint Applicants). Therefore we urge the Commission to reject adoption of the Conservation Enabling Tariff mechanism proposed by the Joint Applicants in Docket No. 05-057-T01. Finally, we recommend that there are other options that could be employed to achieve the objectives of actually incenting investment in DSM.

Background and Experience of SLCAP and Crossroads on Issues Relating to Energy Efficiency and DSM

Q: DO YOU HAVE ANY EXPERIENCE DEALING WITH THE ISSUES OF ENERGY EFFICIENCY AND CONSERVATION?

A: Yes, I do. As a utility ratepayer advocate for SLCAP, I started learning about energy conservation and energy efficiency shortly after I began working for SLCAP in early 1997 as it was an item of discussion in the debate on electric deregulation. I have participated in task forces, working groups and advisory groups related to these issues since one created as an outgrowth of a PacifiCorp general rate case in Docket No. 97-035-01. I have since participated in other task forces, working groups and advisory groups that have worked on this issue primarily related to electricity and more recently related to natural gas as well.

Q: WHAT IS THE POSITION OF SALT LAKE COMMUNITY ACTION PROGRAM AND CROSSROADS URBAN CENTER REGARDING ENERGY EFFICIENCY AND INVESTMENTS IN DEMAND SIDE MANAGEMENT?

A: Both organizations have strongly supported DSM on the electric side and also support it for natural gas. We have supported investments in DSM as being beneficial to all ratepayers and we have also supported programs designed specifically for low income households since they generally lack the financial resources to invest in energy efficiency measures themselves.

Over the years, as agencies and interveners, we supported legislation that permitted the Commission to implement a tariff rider so that PacifiCorp could collect funds on an ongoing basis for DSM outside of rate cases; participated in the PacifiCorp advisory group that assisted in developing PacifiCorp’s initial DSM programs and worked on the tariff rider proposal ultimately adopted by the Commission; and we continue to support substantial investment in DSM in the Integrated Resource Planning (IRP) process and the ongoing advisory group. I also participated in the task forces arising out of the Questar general rate case in Docket No. 02-057-02 on Cost of Service issues and on the potential for natural gas DSM.

While understanding that there are fundamental differences that influence rate making between the electric and natural gas industries, we nevertheless believe that all cost effective Demand Side Management has benefits for the utility companies, for customers and for the state as a whole. In addition to conserving finite resources, reduced energy use may mitigate costs otherwise necessary to build additional infrastructure. Benefits also accrue to the public through a reduced impact on the environment, including land, air and water, and a positive effect on climate change.

Q SINCE YOUR ORGANIZATIONS REPRESENT LOW INCOME CUSTOMERS, WHAT HAS YOUR POSITION BEEN IN REGARD TO ENERGY EFFICIENCY PROGRAMS SPECIFICALLY FOR LOW INCOME CUSTOMERS?

A: SLCAP and Crossroads are keenly interested in energy efficiency programs for low income households for a number of reasons. First of all, low income households pay a disproportionately high percentage of their limited incomes for essential and critical utility services. The amount spent on energy utility services (electricity and heating whether electric, natural gas, propane, etc.) relative to income is commonly known as the energy burden. While a median income household in Utah spends about 3% of its annual income on energy, most low income households spend 8 to 15% of their income for energy costs. The energy burden for most low income Utahns who received energy assistance last winter was over 20 % on an annual basis with many winter gas bills in excess of half of a household’s monthly income.

In recognition of this high energy burden, low income advocates here in Utah and nationwide have for decades supported energy efficiency programs (often known as weatherization programs) for low income households as a way to reduce energy consumption which in turn reduces the cost of energy bills and the energy burden for low income households.

Thus, in addition to supporting programs aimed at a wide variety of customers including residential, commercial and industrial customers, SLCAP and Crossroads have advocated for and testified in support of the need for specific programs to help low income households. In general, while many residential customers and businesses, both large and small, have the ability to invest dollars, sometimes with incentives provided through utility sponsored DSM programs and the resulting surcharge for all customers, low income households do not have that ability since their limited household finances preclude them from having sufficient dollars to invest in such programs.

On the electric side, as a matter of equity since all ratepayers contribute to DSM through a surcharge or tariff rider, we have supported programs for electric baseload reduction for low income households which include provision of compact fluorescent lights (CFLs) and replacement of inefficient refrigerators. These programs are, by their nature, relatively small since the vast majority of homes inhabited by low income families do not heat with electricity nor do they use air conditioners which are the target for many residential electric DSM programs.

Q: HAVE YOU PROPOSED PROGRAMS FOR NATURAL GAS ENERGY EFFICIENCY FOR LOW INCOME CUSTOMERS?

A: Yes. We have twice proposed funding for a small low income weatherization program for natural gas customers. The initial proposal for $250,000 was ordered by the PSC in Docket No. 99-057-20. It was to provide funds throughout Questar Gas Company’s Utah service territory to augment the statewide network’s ability to provide low income weatherization and to have resources available for furnace repairs and replacements without which some low income households would not have access to any heat in the winter.

The second proposal, for an additional $250,000 in Docket No. 02-057-02, was prompted by the increasing need for furnace repairs or replacements in homes that were being weatherized where federal funding was insufficient for those purposes. The PSC did not accept that proposal, requesting instead that further study be done to assess an appropriate level for low income weatherization funding.

Q: WAS THAT STUDY DONE?

A: Yes. In conjunction with the work of the Natural Gas DSM Advisory Group ordered in the foregoing docket, a study of the Low Income Weatherization Program (LIWP) was conducted by GDS Associates in 2004, which concluded that there is substantially more cost effective natural gas DSM to do for low income households. It suggested that to weatherize the remaining low income housing stock would cost over $180 million. To achieve that goal over a ten year period would require total annual funding of $18.1 million, which is $13.3 million more than the then current program budget of $4.8 million. That number would likely be considerably higher today given high gas prices and decreased funding streams for statewide weatherization programs.

Problems with the Current Proposal

Q: YOU HAVE STATED CONSISTENT SUPPORT FOR INVESTMENT IN DSM GENERALLY AND LOW INCOME PROGRAMS IN PARTICULAR. DO YOU ALSO SUPPORT THE MECHANISM THAT IS BEING PROPOSED IN THE JOINT APPLICATION?

A: No. We do not support the proposed mechanism, called the Conservation Enabling Tariff by the Joint Applicants, and urge the Public Service Commission not to adopt it in this proceeding.

Q: PLEASE EXPLAIN WHY YOU DO NOT SUPPORT ADOPTION OF THIS MECHANISM AS A WAY TO ENCOURAGE INVESTMENT IN DSM PROGRAMS.

A: In our view, there are many reasons that we do not support the particular mechanism proposed in this docket. They fall into a few general categories which I will describe and elaborate on as follows: 1) policy; 2) timing; 3) type of proceeding; 4) shifting of risk; and 5) design and implementation of the mechanism itself.

Q: WHAT ARE SOME OF THE POLICY QUESTIONS INVOLVED?

A: The proposal purports to remove the disincentives that keep the Company from investing in Demand Side Management (DSM). What the proposal really does is to structure rates in such a way as to make the Company whole for revenues it might otherwise not have received in response to reduced customer demand from both higher energy prices and apparently more efficient new building envelopes and more efficient natural gas appliances.

We do agree that this type of mechanism can serve to remove barriers to investing in DSM but it does little if anything to provide or promote actual DSM programs. Consequently, the PSC must first decide the fundamental policy question. Does it want to adopt a mechanism (like the one proposed) to remove disincentives to investing in DSM which has far reaching effects on traditional ratemaking practices and principles or does it want to first adopt a mechanism that ensures that the Company does actually invest in cost effective DSM programs?

Q: CAN YOU EXPLAIN WHAT YOU MEAN ABOUT THE ISSUE OF TIMING?

A: The proposal is somewhat backwards in that it puts the cart before the horse. It proposes to implement a mechanism that will ensure the Company’s revenue stream prior to:

1) obtaining a determination from the PSC as to whether it thinks that it is appropriate for Questar Gas Company to invest in DSM programs;

2) obtaining a determination from the Commission of what it thinks is / are the appropriate test(s) to determine the cost effectiveness of specific programs for natural gas DSM;

3) developing and receiving approval for programs that meet the test(s) determined to be appropriate for natural gas DSM;

4) setting out a time line for instituting a mechanism to incent Company promotion of DSM concurrently with actual implementation of programs to accomplish that objective.

While various advisory groups have discussed these issues, they never agreed on some of the fundamental approaches such as the appropriate cost effectiveness tests, the appropriate mechanisms for removing barriers and/or incenting the Company to do aggressive DSM programs. Nor has the Commission ruled on some of these important issues that are a precursor to moving forward with meaningful investment in DSM.

Q: PLEASE DESCRIBE WHAT YOUR CONCERNS ARE RELATED TO THE TYPE OF PROCEEDING FOR THIS PARTICULAR REQUEST.

A: We believe that a mechanism that so fundamentally alters the rate making structure should be accomplished in the context of a rate case. While we appreciate that there has been much discussion on these issues, the reason the proposal is being contested now is that there was never a full convergence of opinion around a particular solution to the issue of investing in natural gas DSM. While we believe it is perfectly appropriate to examine issues in dockets that are outside a rate case, there are several issues raised here that make it troubling in this instance.

First of all, because there has been no recent general rate case for Questar Gas Company, it would be imprudent to consider seriously such a substantial change in the setting of rates. The proposal looks at the revenue stream to the Company, but with the exception of the specific issues examined in the Rate Reduction Stipulation filed before the Commission on May 10^th, other issues important to customers as would occur in a rate case have not been considered such as changes in rate base, expenses and rate of return.

In regard to rate of return, the proposal shifts risks from the Company to ratepayers without any commensurate decrease in the rate of return to the Company. Without addressing this issue within the context of a rate case it appears to us to be an unfair shifting of cost and burden to ratepayers.

If such a proposal were to be adopted, it would be hard to fathom that without a specific Order from the Commission to conduct rate cases on a periodic basis, that there would very often, if ever, be other rate cases. If the Company virtually assures its profitability through a passing through of costs related to fuel expenditures and a revenue decoupling mechanism to assure its revenue stream on fixed costs, what would constitute a reason for the Company to come in for a rate case? On the other hand, what recourse would ratepayers have if the Company was earning within a rate of return that was justified in a rate case separate from and prior to enacting such a mechanism?

Q: YOU HAVE JUST DESCRIBED SOME SHIFTING OF RISKS FROM THE COMPANY TO RATEPAYERS. DO YOU HAVE ANY OTHER RELATED CONCERNS?

A: Yes. I’ve described the shift in risk from the Company to ratepayers by ensuring that nearly all the fixed costs would be covered without a comparable shift in the benefits to ratepayers in the form of a lower rate of return. In addition to reducing the normal risks of doing business, we have concerns about whether this is a balanced approach in terms of benefits for both the ratepayers and the Company. It’s clear what the benefits are to the Company but it’s not very clear at all what the benefits of this particular approach are to the ratepayers.

Q: DO YU HAVE ANY OTHER CONCERNS WITH THE IMPLEMENTATION AND DESIGN OF THE PROPOSAL?

A: Yes. Since programs are in the development stage, there is no commitment to specific programs or program levels with the exception of the $250,000 for the Low Income Weatherization Program This is included in the $1.3 million that the Company has indicated would be used for this and other programs. There are no incentives for actual programs and as I’ve stated, removing disincentives is different from providing incentives. Another point is that traditional rate making holds that it is necessary for the utility to provide least cost service and if least cost service involves implementing Demand Side Management, then that should be a part of the regular course of business. Furthermore, without a change in timing, there are no guarantees that ratepayers will see any benefits while the Company should see benefits from the outset.

Q: CAN YOU DESCRIBE SOME OF THE PROBLEMS WITH THIS PROPOSAL SPECIFICALLY RELATED TO LOW INCOME CUSTOMERS?

A: Some low income advocates have expressed concern that they have seen instances in which decoupling mechanisms have been implemented in order to encourage utility investment in energy efficiency with the result of higher costs for customers with little or no actual investment. Needless to say, higher costs are not helpful for those whose energy burdens are already high.

It’s important to recognize that this type of mechanism passes on costs to low income households without the ability of those households to participate in the programs unless there are specific programs designed for low income customers. Otherwise, those customers least able to afford it and least able to take advantage of the programs are the ones who pay for it.

We acknowledge that the Company has offered an additional $250,000 in funding for the Low Income Weatherization Program. While that is appreciated, it must be understood that in order to protect the legitimate interests of low income customers, it would be unfair to sign onto a program that could help 100 to 150 households depending on the measures employed in those homes while nearly 100,000 more low income households are paying for what we consider to be a questionable mechanism.

It is important in implementing DSM programs to assure that there is equity between and within customer classes . While the low hanging fruit may be to do energy efficiency measures for larger commercial and industrial customers, it is important to provide a mechanism for those who cannot afford to pay potentially increased costs without receiving any benefits.

Q: IS IT APPROPRIATE TO IMPLEMENT THIS AS A PILOT PROGRAM THAT CAN GO AWAY IN A FEW YEARS IF PARTIES DON’T LIKE IT? A:No, because this proposal only serves to remove barriers that are a disincentive to Questar to invest in energy efficiency. But it does not provide actual incentives or a fully fleshed out plan to implement DSM programs. This proposal would implement the former without the latter. Such a proposal puts forward one part - i.e, the part that ensures the revenue stream without the second part of the aggressive implementation of programs. Therefore it’s unacceptable to begin a decoupling mechanism without programs in place.

Second, as I stated earlier, it’s a solution to the wrong issue. If there is an issue that QGC is unable to recover its costs of doing business, then that issue should be examined in more detail. It is unclear whether it is correct that the company is adversely affected since while its revenues on a per customer basis may be going down, its revenues from increased customers overall is going up. Prior to this year, the Company actually saw a slight increase in usage and it is not clear that it has suffered on its rate of return in recent years due to declining usage.

Third, by establishing such a program as a pilot, it shifts the burden to opponents to undo it. If it isn’t good for customers, then we should not implement it now. We would prefer to find a solution that ensures that significant cost-effective DSM will be achieved.

Fourth, we are concerned that in a time of rapidly rising rates and perhaps greater declining usage, it is in Questar’s interest to implement a mechanism now that captures the difference that could occur in the revenue stream. However, by implementing one portion of the program (the portion that makes Questar whole) without implementing substantial DSM programs at the same time, it is possible that customers could be shortchanged in the process. If the program is terminated within the three year pilot period, then ratepayers have made the Company whole with no accompanying benefits for themselves.

Q: ISN’T QUESTAR MAKING A GOOD FAITH EFFORT TO LOOK AT DSM BY ESTABLISHING AN ADVISORY GROUP?

A: The Company has started a DSM Advisory Group which has met a few times and appears to be making some progress in coming up with ideas that could be implemented. The question here is partly one of timing. As I said earlier, the mechanism is set to begin prior to implementation of any significant programs.

Q: AND DOESN’T THE JOINT APPLICATION PROVIDE SOME FUNDING TO GET PROJECTS STARTED?

A: Yes, there is a minimal amount of money allocated to this purpose, including $250,000 that was allocated to the Low Income Weatherization Program. But let’s for a moment look at a comparison with PacifiCorp and the original implementation of its DSM programs. While I understand there are differences underlying the need for and implementation of DSM between the two industries, there are still some issues that are worth raising for the sake of comparison. On the electric side, PacifiCorp started making investments in DSM well in advance of collecting the money to pay for them. The Company was allowed to defer its expenditures and amortize them over time in order to get a reasonable payback period for customers. The amount of dollars invested in the initial programs was also significant even though ramping up is a necessary component when programs are just starting. PacifiCorp spent nearly $25 million over a three year period before it ever started collecting money for its expenditures from ratepayers.

Q: DOESN’T DR. HOWARD GELLER, IN HIS TESTIMONY, POINT TO A NUMBER OF COMPANIES THAT HAVE INSTITUTED WHAT HE VIEWS TO BE COMPREHENSIVE DSM PROGRAMS?

A: Yes, he presents a list of natural gas utilities that have invested in DSM programs in Exhibit HG-2 and describes some other new or proposed initiatives in his testimony. I would point out that most of the companies listed or described do not have decoupling mechanisms. In addition, those that do have decoupling mechanisms invest among the smallest amounts in relation to retail sales.

Q: HOW DO THESE COMPANIES’ INVESTMENTS COMPARE TO QUESTAR’S PROPOSAL?

A: As we’ve stated previously, there are no firm proposals, merely a commitment to pursue some as yet undetermined level of DSM activity. As Dr. Geller points out in his testimony (p.10), in order to invest at the average level in Exhibit HG -2, Questar would need to spend about $9 million on an annual basis. Even this is merely peanuts in the larger scheme of things. On the electric side in Utah, investment in DSM has been substantially greater compared to retail revenues and involves no decoupling mechanism nor any incentives. Nor does this amount compare favorably with results in the GDS Report which shows substantial potential investment in DSM overall and additional spending of over $4 million annually just to weatherize the current low income housing stock over a twenty year time period.

I would also note the skyrocketing cost of natural gas in recent years. In just one of the pass through cases last heating season, the increase in purchased gas costs alone was projected at over $195 million. This just points out that the amounts so far suggested in the Joint Applicants proposal are miniscule in relation to the amount of cost effective DSM.

Q: SO, DO YOU DISAGREE WITH DR. GELLER’S ANALYSIS OF THE SITUATION?

A: In general, we agree with Dr. Geller’s fundamental premise regarding the need for significant investment in DSM programs. What we take issue with is the method of getting to a meaningful investment in natural gas DSM programs.

Other Suggestions and Alternative Approaches

Q: THEN WHAT ARE YOUR SUGGESTIONS FOR PROCEEDING?

A: We think it is important first to develop cost effective energy efficiency programs that are ready to be implemented before adopting and implementing a mechanism to change the rate structure. We urge the Public Service Commission not to put the cart before the horse as is currently being proposed. Then we would prefer to see incentives developed and mechanisms for implementing them that are more appropriate for what is being proposed.

The National Regulatory Research Institute (NRRI), the university based research arm of the National Association of Regulatory Utility Commissioners( NARUC), in its recent paper, Revenue Decoupling for Natural Gas Utilities, April 2006, talks about three conditions that would support a Revenue Decoupling mechanism. Essentially those are:1) a belief that customer usage will decline in the future; 2) limited ability for the utility to add new customers in increasing sales; and 3) a commission’s inability to go beyond known and measurable changes in a test year. (p. 21)

In Utah, we are in a different situation. We acknowledge a generally downward trend in per customer usage trends although usage increased slightly prior to last year’s high prices. However, the other two conditions do not exist. Utah’s population has been growing steadily in recent years as has business activity in the state and forecasts are for that trend to continue for the foreseeable future. Finally, Utah statute allows for a test year that allows future projections so it is not constrained by solely a historic test year.

Those factors alone may be able to have a mitigating effect on the effects of downward trends in per customer consumption. We believe that a forward looking test year may be one appropriate method for dealing with this issue at least in part.

Furthermore, if what we want is investment in energy efficiency and demand side management (and we support that) then that’s what we should specifically provide incentives for. Other states, like Massachusetts, have found it helpful to establish incentives for actual investment in cost effective DSM. Rather than implementing a decoupling mechanism that is not tied specifically to investment in DSM, it would be preferable to pursue incentives for meaningful efficiency measures, allowing effective DSM to become a potential profit center for the company. This would mean that Questar could have a higher profit on a relatively small investment, thus mitigating the Company’s sensitivity to the loss of gas load that increased DSM could produce. For the customer, it would have benefits for providing the correct incentives for encouraging the Company to invest in DSM rather than the potentially more costly consequences of the broader revenue decoupling mechanism.

Conclusions and Summary

Q: WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY?

A:. Salt Lake Community Action Program and Crossroads Urban Center strongly support investments in cost effective demand side management programs. We think it is important and beneficial for Questar Gas Company to invest in such programs in a way that will benefit the Company and its ratepayers. We also think it is critical to assist low income customers with energy efficiency measures that they cannot otherwise afford in order to decrease their energy usage and make bills more affordable.

However, we do not support adoption of the proposed revenue decoupling mechanism particularly in the context of the proposed pilot program. Whether intended or not, we view the results of the proposal more as a revenue protection plan for Questar Gas Company than a true incentive to increase investments in energy efficiency.

We believe that there are many issues and problems with this proposal and it would be better to look at other ways to provide incentives to invest in substantial demand side management activities. Of particular concern is the fact that the mechanism is proposed to be implemented prior to approval of significant programs that would provide even a semblance of equitable balance of risk and reward to the Company and rate payers.

Furthermore, our regulatory structure allows for mechanisms that could lessen the impact of declining use on the Company such as the use of a forecasted test year. Other incentives can be employed such as those used in other states with a record of good investment in DSM in order to incent Questar to invest in meaningful programs.

We urge that the Public Service Commission reject the proposed mechanism and look for a way to more adequately balance the interests of both ratepayers and the Company.

Q: DOES THIS CONCLUDE YOUR TESTIMONY?

A: Yes, it does.

Certificate of Service

I hereby certify that a true and direct copy of the foregoing Direct Testimony of Elizabeth Wolf on behalf of Salt Lake Community Action Program and Crossroads Urban Center, collectively known as the Utah Ratepayers Alliance, was served upon the following by electronic mail on May 15, 2006:

Michael Ginsberg

Patricia E. Schmid

Assistant Attorney Generals

160 East 300 South, 5^th Floor

Salt Lake City, UT 84111

mginsberg@utah.gov

pschmid@utah.gov

Reed T. Warnick

Paul H. Proctor

Assistant Attorney Generals

160 East 300 South, 5^th Floor

Salt Lake City, UT 84111