Lawrence Berkeley National Laboratory April 30, 2009

1. Overview of Calif. Public Utilities Commission’sHistory and Strategies forAchieving Maximum Energy Efficiency Potential Lawrence Berkeley National Laboratory April 30, 2009 Jeanne Clinton, Climate Strategies Branch Manager California Public Utilities Commission

2. The CPUC regulates privately owned telecommunications, electric, natural gas, water, railroad, rail transit, and passenger  transportation companies, in addition to authorizing video franchises.  Five Governor-appointed Commissioners dedicated to the CPUC mission: to ensure safe and reliable services at just and reasonable rates, protect consumers against fraud, and promote the economy of the state. The CPUC plays a key role in making California a national and international leader on a number of clean energy related initiatives and policies designed to benefit consumers, the environment, and the economy About the California Public Utilities Commission

3. Policy Context for Energy Efficiency

4. Energy Action Plan II • Unprecedented collaboration by principal energy agencies in California • Summarizes California’s energy goals • Identifies specific actions to implement goals • Energy efficiency and Demand Response – #1 priority followed by renewables and clean fossil fueled generation Energy Action Plan www.cpuc.ca.gov/PUBLISHED/REPORT/51604.htm

5. Calif. Policy Arenas Spurring Clean Energy Technology Markets • Energy Efficiency • Demand Response, Advanced Metering Technology, “Smart Grid” • Distributed-scale Solar • Other Clean Distributed Generation • Calif. EE Strategic Plan promotes integrated DSM solutions

6. Energy Efficiency is a Resource • Generation Benefits • Saves capacity and energy • Lowers fuel costs • Reduces required reserves • Transmission and Distribution Benefits • Defers new investment • Improves reliability • Resource Benefits • Promotes Integrated Resource Planning • Environmental Benefits • Paves the way for sustainable growth • Reduces GHG emissions Energy Efficiency

7. WHAT IT TAKES: INTEGRATION • Clear Policy • “EE is #1 in loading order” • EE linked to resource planning • Firm Standards • Building and appliance standards • Adequate Financial Mechanisms and Funding • Decoupling sales from revenues • Performance-based incentives/penalties • Evaluation, Measurement, and Verification (EM&V)

8. WHAT IT TAKES: INTEGRATION • Decoupling (2001) –(1st Decoupling in 1982) • Public Benefits Charge (2002) • California Energy Action Plan (I: 2003; II: 2005) • Energy Efficiency Goals through 2013 (2004) • Administration & Procurement (2005) –Utilities manage EE; “procurement” funds expand EE • EE Policy Rules (2005) • Avoided Costs & EE savings database (2005+) • 2006-2008 Portfolios Authorized (2005-06) • CPUC Impact Evaluation (“EM&V”) studies • Shareholder Incentive Framework* (2007) • Energy Efficiency Goals through 2020 (2008) • GHG Reduction Plan coordination (2008) • Policy • Standards • Funding • EM&V *1st stockholder shared savings was in 1991 through restructuring

9. California Global Warming Solutions Act of2006 (AB 32) • 2010: emissions at 2000 levels* • 2020: emissions at 1990 levels • 2050: emissions 80% below 1990 levels* • Covers all major emitters, to be defined by California Air Resources Board (ARB). • Covers all major greenhouse gases. *Set in Executive Order S-3-05, June 2005.

10. Planning & Analysis to Direct Energy Efficiency

11. Options for reducing energy sectorGHG emissions • Reduce Demand • Energy efficiency • Advanced metering/demand response • Water conservation • Cleaner Supplies • Loading Order • Renewable Portfolio Std. • CA Solar Initiative • Emissions Performance Std. • New Technologies • RD&D investments • Standards

12. CPUC Sets the Bars for Utility Delivery of Energy Efficiency • Annual goals set on the basis of best available information regarding energy efficiency potential with IOU service areas • 2005-2011 goals set in 2004 decision. • 2012-2020 goals set in 2008 decision. • Program savings verified by independent evaluators • Approximately 8% of overall budget committed to evaluation, measurement and verification. • Evaluation contracts managed by CPUC Energy Division • Utility performance assessed relative to goals under Risk-Reward Incentive Mechanism. • If utilities fall short, subject to penalties • If utilities meet goals, entitled to earnings on investment

13. Goals Established After Understanding EE Potential -- by End Use (Illustrative) Source – Itron 2008 Potential Study as exhibited in Southern California Edison Testimony, Application for Approval of Low Income Assistance Programs and Budgets for Program Years 2009-2011, pg. 32.

14. CPUC EE Goals Through 2020 Goals set for CPUC-regulated utilities from 2004 through 2020, in accordance with best available data on energy efficiency potential. • Based primarily on existing technologies and rates of adoption

15. CPUC’s EE 2020 GOALS in IOU Areas (“Mid Case”) New technologies & solutions must fill the “white space” and raise the bar

16. EE Where the Money Goes Investor-Owned Utility Energy Efficiency Portfolios Program Types • Rebates – Customer purchases energy efficiency measure at lower cost, with the difference paid by the program • Audits – Inspection of a home or business to identify energy efficiency opportunities • Direct Installs – Installation of energy efficiency measures at no cost to the customer • Appliance Turn-In – Takes inefficient appliances out of circulation with free or rebated recycling services • Education – Training for the general public and trade allies (e.g. builders or building operators) • Performance Contracting – Typically non-residential programs. Pays incentive per unit of energy saved for results of equipment and building; not a rebate per measure purchased or installed • Energy Management Services – Typically non-residential programs. A combination of audit services; rebates, performance contracts and/or direct install; can include load management and self-generation • Codes and Standards – Advocacy and technical assistance on building code updating, as well as code compliance.

17. PROGRAM/COST ELEMENT REQUESTED BUDGET Residential $311.5 Commercial 205.2 Industrial 110.0 Agricultural 83.7 New Construction (Residential & Non-residential) 90.3 Lighting Market Transformation 0.5 Heating Ventilation Air Conditioning 101.6 Codes and Standards 19.3 Emerging Technologies 42.2 Workforce Education and Training 48.3 Marketing Education and Outreach 27.0 Statewide DSM Coordination/Integration 1.2 Government Partnerships 217.4 Third Parties 334.3 Zero Net Energy Pilots 35.3 Local DSM Coordination/Integration 7.3 On-Bill Financing 32.7 Evaluation Measurement & Verification Expense 124.8 Evaluation Measurement & Verification Capital RRQ 8.8 Zero Net Energy Lab/Demo/Other Capital RRQ 1.8 TOTAL $1,802.9 Example: PG&E 2009-2011 Proposed Efficiency Portfolio ($ Millions)

18. EE: Where the Money Goes for Residential End Uses2009-2011 Investor-Owned Utility Portfolios(as proposed 7/08)

19. MONITORING & INDICATORS OF SUCCESS Monitor program results through: • Tracking database reports on (a) program expenditures, installations & activities, and (b) program evaluation activities and results • Independent verification of measure installations and costs Indicators of EE Success • Performance of each utility administrator evaluated at the portfolio level • Based on net resource benefits (value of energy savings minus program and customer out of pocket costs over the life of the measures) • Includes minimum performance threshold tied to achievement of energy and peak savings goals

20. Challenges and Opportunities 1. Leadership on Statewide Action • CARB, CEC, CPUC policies are in alignment; work plans may be on different schedules • Need to engage Publicly-owned utilities alongside Investor-owned utilities 2. Absence of widespread benchmarks to identify homes, businesses, facilities with large potential for EE 3. Creating public and market demand for EE 4. Financing instruments needed to match customer cash flow of EE investments to the rate of utility bill savings 5. EE implementation and delivery “industry” balkanized

21. Energy Efficiency Economics & Cost Recovery

22. Comparison of EE Program Costs to Supply Generation Costs 0.180 Supply Options 0.160 0.140 0.120 0.100 $/kWh 0.080 0.167 0.060 0.118 Demand 0.040 0.058 0.020 0.029 0.000 Average Cost of EE Programs for 2000 - 2004 Base Load Generation Shoulder Generation Peak Generation

23. FUNDING FOR CALIFORNIA CPUCEE PROGRAMS Two Sources: • Public Goods Charge • California’s energy efficiency programs are funded by electric Public Goods Charge and natural gas Public Purpose Program charge applied to each customer’s bill • Surcharges approximately 1% (electric) and 0.7% (gas) of each customer’s bill and provide approximately $540 million annually to fund energy efficiency programs • Procurement • Energy efficiency is treated as a resource • Energy efficiency surcharges set on commodity portion of IOU customer bill and provide additional funding

24. Energy Efficiency Funding by “Public Goods Charge” Compared with Total Energy Procurement Costs (2005) Total Utility Spending for Energy Resources = $10.7 billion Total EE Funding (SBC) = $252 million

25. Energy Efficiency Funding Integrated with Energy Procurement (2005) Funding for Energy Efficiency Doubled to $537 million $217 M $244 M Total Utility Spending for Procurement + EE/SBC = $11.2 billion $76 M

26. Increase EE Funding- Minimal Impact to Customers - PG&E $343,000,000 82% Increase 1.6% Increase $189,000,000 $73.13 $71.95

27. Second-Generation Efficiency Planning

29. Policy Question: How to Tap All Cost-Effective Energy Efficiency Potential? California & Western Region EE Market Actors & Relationships Manufacturers, Retailers/Distributors, Builders, Property Owners, Business & Industry Market Actors Consumer Voluntary Action CEC Building Codes & Appliance Standards Investor-Owned Utilities EE Programs Public Utility EE Programs

30. A Detailed & Long-range Plan -- Why We Needed to Do This • Ensure public purpose programs are highly cost-effective, keeping efficiency a large preferred resource • Maximize chances of being able to afford to meet technical & full economic efficiency potential • California’s ambitious (and necessary) GHG reduction targets will have lower societal cost if we can maximize EE

31. Choosing Big, Bold Targets -- The Potential

32. Choosing Targets– The Leverage Opportunity

33. What’s Needed to Take Us Further 1. Statewide Efforts • CPUC policy leadership with investor-owned utilities as the exclusive providers of EE impacts is insufficient for the scale of our challenge. California needs: • more expansive local government policies on buildings & development, • participation by municipal utilities, • motivated entrepreneurial engagement, and • broader policy leadership. 2. Broader, Comprehensive Approaches to End Users • Utility and retailer campaigns have focused on single-purpose actions. This leads to: • missed opportunities, • customer confusion, and • higher overall costs to go back to the same customers year-after-year for successive waves of single-purpose activities. • California needs more comprehensive one-stop program offerings and co-branding of energy and climate change benefits.

34. What’s Needed to Take Us Further (continued) 3. Deep-seated, Durable Savings • The majority of recent utility energy savings come from short-term measures like CFL light bulbs. These generate lucrative low-cost savings in the short run. • However, the energy resource and GHG benefits of efficiency demand a transformative approach -- strategic spending of ratepayer funds to generate deep, long-lasting savings. 4. End-to-End Planning • Short-term, single-purpose programs lack long-term, market-capturing goals. • California needs outcome-oriented planning that links strategies “end-to-end”: • from RD&D and emerging technology, • through incentive and technical assistance programs, and • eventually to permanent market transformation via statewide codes and standards.

35. Process Insight • Focus of stakeholder engagement was: • Identifying the key moving edges of strategies needed to achieve bold levels of EE • Identifying stakeholders with good ideas, beyond utilities • “How do we set up the motivation and create a market demand, alongside capabilities to deliver results? • Stakeholder key to success: • Identifying enthusiastic, objective experts to facilitate the dialogue & action plans • Inviting significant numbers of thoughtful stakeholders to be a majority compared to utility staff participants

36. 4 BIG BOLDEnergy Efficiency Strategies – the “cornerstones” Commercial New Construction • All new commercial construction in California will be zero net energy by 2030. Residential / Small Commercial HVAC • Heating, Ventilation, and Air Conditioning (HVAC) industry will be reshaped Residential New Construction • All new residential construction in California will be zero net energy by 2020. Low- Income Energy Efficiency • All eligible low-income homes will be energy-efficient by 2020

37. Goal Goal Results • New construction will increasingly embrace zero net energy performance including clean, on-site distributed generation [DG], reaching 100 percent penetration of new starts in 2030.  An increasing percentage of the 50-120 million sq. ft./ year of new commercial construction will be progressively more efficient; all new construction ZNE by 2030. • 50% existing buildings equivalent to ZNE buildings by 2030 through deep efficiency & clean DG.  250 million square feet (1/20th of existing space) per year through 2030 reach deep levels of energy efficiency improvements through whole building approaches. • Commercial lighting will transform to high-efficiency, high-performance technologies, pushed by state & national codes and standards.  Utilities will phase out mass market CFL bulb promotions, shifting focus to new technologies & innovations to long-life solutions & higher consumer uptake. Goals Example: COMMERCIAL SECTOR These goals will spur actions to transform the energy patterns of California’s largest energy-consuming sector—its commercial buildings

38. Goal Goal Results • Consistent and effective compliance, enforcement, and verification of HVAC-related building and appliance standards.  By 2020 100 percent of systems are installed to quality standards and optimally maintained throughout their useful life. • Quality installation and maintenance becomes the industry and market norm.  Integrated design and construction practices are standard practice by 2020. • Whole building design and construction practices fully integrate building performance objectives to reduce cooling and heating loads.  At least 15 percent of equipment shipments are optimized • New climate-appropriate HVAC technologies (equipment and controls, including system diagnostics) are developed with accelerated market penetration.  HVAC-related permits are obtained for 50 percent of installations by 2015 and 90+ percent by 2020. Goals Example: HVAC

39. FOR MORE INFORMATION… Strategic Plan documents and reference material: http://www.californiaenergyefficiency.com CPUC Efficiency proceeding documents: http://www.cpuc.ca.gov/PUC/energy/electric/Energy+Efficiency/ EE Programs Best Practices website: http://www.eebestpractices.com/ Contact: Jeanne Clintoncln@cpuc.ca.gov(415) 703-1159