DHP for New Construction Subcommittee Meeting Adam Hadley March 11, 2016

RTF Direction Staff to work with a subcommittee to define the new construction market for DHP considering issues such as ducting, home UA, gas availability, and fuel switching studies. Create options for eligibility and baseline assumptions and related research. 2

Survey Summary Three Questions: 1.How should the RTF define the market baseline heating system mix? 2.How should the RTF prove out the market baseline heating system mix for a “proven” UES? 3.In what ways should the RTF define measure eligibility to align with the above baseline heating system mix and method to prove the mix? Notes on data collection methodology and respondents Received written survey responses from: 1.Tina Jayaweera 2.Bob Davis 3.Phillip Kelsven 4.David Bopp 5.Thomas Anreise 6.Aaron Winer 7.Carrie Cobb Adam called the following people to get their responses verbally: 8.Mark Jerome 9.Bill Welch 10.Josh Rushton 11.David Baylon 12.Scott Leonard 13.Jeff Harris* 14.Kevin Geraghty 15.Christian Douglass 16.Cheryn Metzger 17.Tom Leinhard 3

Survey Results 4

Survey Question 1 5

Q1: How should the RTF Define the Market Baseline Heating System Mix? a: Use market mix, consider filtering for measure eligibility criteria 1.Tina Jayaweera 2.Bob Davis 3.Mark Jerome 4.Bill Welch 5.Josh Rushton 6.Scott Leonard 7.Adam Hadley 8.Christian Douglas 9.Cheryn Metzger 10.Tom Leinhard 6

Q1: How should the RTF Define the Market Baseline Heating System Mix? b/c: Use something other than the market mix 1.Phillip Kelsven Assume 90% zonal; 10% DHP/Zonal 2.David Bopp Assume electric heat as the baseline, but with a correction factor for potential fuel switching 3.Thomas Anreise Use builder survey results – what system the house “would have had” 4.Aaron Winer (Same as Thomas) 5.David Baylon Assume 100% ASHP as baseline for SF in OR, ID, MT 6.Jeff Harris Assume 100% zonal electric; model baseline per code requirements for zonal electric 7.Kevin Geraghty Start with market mix, but adjust the percentages based on an assumed likelihood of moving from gas to electric, forced air to zonal, etc. 8.Carrie Cobb Electric only; ducted systems are one category, non-ducted are another; weighted by sales data provided via NEEA and the most recent new construction study 7

Survey Question 2 8

Q2: How should the RTF prove out the market baseline heating system mix for a “proven” UES? a: Market saturation survey 1.Tina Jayweera 2.Bill Welch (if not small saver) 3.Josh Rushton 4.Scott Leonard (but with “b”, too) 5.Adam Hadley 6.Christian Douglass 7.Cheryn Metzger 8.Tom Leinhard Comments – Christian Douglass: Using builder/homeowner survey results would fundamentally change how we do our measures 9

Q2: How should the RTF prove out the market baseline heating system mix for a “proven” UES? b/c: Builder or homeowner surveys 1.Bob Davis (b) 2.Phillip Kelsven (b and c) 3.Thomas Anreise (b) 4.Kevin Geraghty (b and c, with d) 5.Aaron Winer (b) Comments – Bob Davis: Survey is only done for sites with UA’s less than determined value. This would mean some gas is picked up (and so fuel-switching can be estimated) but for only a limited number of sites – Kevin Geraghty: Getting a better understanding of the market would be important. For example, understand whether some all-gas builders have seen some uptake of the measure. 10

Q2: How should the RTF prove out the market baseline heating system mix for a “proven” UES? d: RTF judgment 1.Bill Welch (if small saver) 2.Dave Baylon 3.Kevin Geraghty (b and c, with d) Comments – Dave Baylon: This is a virtual baseline (bordering on political). RTF is the correct body to make the call. 11

Q2: How should the RTF prove out the market baseline heating system mix for a “proven” UES? e: Something Else 1.David Bopp Determine the savings potential for this measure with a like for like assumption. If this is larger than small saver, research the potential for the incentive and presence of the program to move the market and create fuel switching. If the savings potential is small, then assume a similar number to the study performed in the 90’s around the Super Good Cents Homes to derate the savings for fuel switching. 2.Mark Jerome Look at NW Energy Star homes and NSH to determine the mix 3.Jeff Harris Need to understand mix of zonal and DHP/zonal hybrid systems 12

Survey Question 3 13

Q3: How should measure eligibility be defined to align with the baseline heating system mix? a: Do not limit eligibility 1.David Bopp 2.Dave Baylon 3.Jeff Harris (implied) 4.Carrie Cobb 14

Q3: How should measure eligibility be defined to align with the baseline heating system mix? b: Define eligibility based on objective criteria 1.Tina Jayaweera (House UA, Gas Availability) 2.Bob Davis (House UA, Gas Availability) 3.Phillip Kelsven (House Size) 4.Mark Jerome (Gas Availability) 5.Bill Welch (Gas Availability, maybe House Size) 6.Josh Rushton (Gas Availability, maybe House Size) 7.Scott Leonard 8.Adam Hadley (consider all options) 9.Kevin Geraghty (Gas Availability) 10.Christian Douglass (consider all options) 11.Cheryn Metzger (Gas Availability) 12.Tom Leinhard (Gas Availability) Comments – Tina Jayaweera: Need to be careful about how we define gas availability. UA might be difficult for builders to report. – Bob Davis: Restrict measure to homes that are either in no-gas areas OR that have a UA below a certain level. Utilities who want the measure will have to calculate/confirm the UA. – Mark Jerome: Need to be sure to capture saturation of wood/propane in areas with no gas available – Bill Welch: “No Gas Available” is key for this measure. – Kevin Geraghty: RTF should develop two separate measures for areas with and without gas service – Christian Douglass: Consider adding requirement for non-electric heating systems. – Tom Leinhard: Measure shouldn’t be allowed where gas is available. Geographic location will be important, too, to be sure there’s access to certain heating systems (sample needs to come from all areas). 15

Q3: How should measure eligibility be defined to align with the baseline heating system mix? c: Another approach 1.Thomas Anreise: Two tiers – one using generic baseline mix (from builder surveys), the other using an all-electric baseline for non-gas territories 2.Aaron Winer (same as Thomas) 16

Additional Comments Bill Welch: UES for this measure is difficult. Josh Rushton: Would rather see RTF not do this measure for new construction; pick up the ones that fell through the cracks in the existing construction measure. David Baylon – Guidelines are a disservice to new construction because it’s a historical look at the baseline. Guidelines need modification. – Agenda: Decarbonize the economy by using electricity (efficiently) to replace gas. – Electric utilities in the PNW have avoided fuel switching from gas for political reasons; while gas utilities have very aggressively pursued gas heat in new construction, as well as conversions to gas from electric in existing houses. Regulators, in effect, considered gas the more appropriate choice. Today, we’re in a different place. Adam Hadley: Utility rebates/incentives based on a UES may not be appropriate for this measure. If the goal is to eliminate zonal electric as much as possible, code change is the appropriate tool. Jeff Harris – Code says once you choose a fuel, you go down the path for that fuel; we should follow code’s lead. – We’re in the intersection of reality and policy. – The following is a comfortable assumption: People buying gas heated houses are going to stick with buying gas heated houses. Same with central air source heat pumps. – Tracking market share over time would be prudent, especially looking for big shifts in gas vs DHP, which is CAT’s concern. Kevin Geraghty: It is not intellectually respectable to ignore the fuel switching issue. Cheryn Metzger – People who use gas will probably switch to electricity (DHP) – If we decide to cut the measure, we’ll need to explain the RTF is NOT saying the measure is a bad idea. Likewise, if we decide to assume zonal is the baseline, we’ll need to explain that doesn’t mean we don’t think there could be significant fuel switching. Carrie Cobb – You should not have a measure where the savings go to zero unless that market has shifted to high- efficiency products. To avoid this problem, we should be focused on efficiency choices within the same fuel. The baseline must be focused on efficiency, not load reduction. – We need to remain objective in setting current practice baseline. Free-ridership type studies are not the way to go because asking people about the counterfactual choice results in unreliable answers. 17

Survey Results Summary We need to discuss some more, but consensus seems unlikely – But, we need to come up with a solution somehow, even if we don’t come to consensus – In the end, CAT would like help with how to best convey the subcommittee’s recommendations to the RTF Suggested approach for the rest of today and beyond: – Today: Finish the remainder of the slides Discussion until 11:30 – Ground Rules: Clarify your position, ask each other clarifying questions, make specific recommendations for moving forward – By Next Friday: Fill out the survey again – After that: Another subcommittee meeting? Or bring to the RTF? Or PAC? 18

CAT’s Perspective on the Options 19

The Study Tom Eckman Referenced A. D. Lee, et. al. “Residential Fuel Choice in the Pacific Northwest.” PNL for BPA. February (Link)Link – Background Model Conservation Standards (MCS) were being adopted by local codes through the Early Adopter Program (EAP) EAP’s paid builders incentives to build to MCS, for electrically heated homes only “In Tacoma, the share of new single-family homes having electric heating has fallen from around 95% in the early-1980’s to about 55% currently. This trend has been coincident with the introduction of the MCS.” – Data Collected Survey of attitudes and behavior related to fuel choice in EAP jurisdictions (mostly Tacoma) – Builder interviews (electric heat builders only) – Homeowner surveys Housing characteristics and sales data – Relevant Findings Major caveat: Data mostly from builders of electrically heated homes and households in EAP jurisdictions – “MCS incentives have been effective in encouraging builders to construct energy-efficient electrically heated homes. Though builders choose what fuel to install partly on the basis of relative fuel prices, modest incentives tied to specific fuel types could offset the effect of higher fuel prices.” – “In Tacoma, buyers were willing to pay about $4,000 more for existing gas-heated homes than they were for existing electrically heated homes in 1987, controlling for the age of the home. The increased value of gas-heated homes appears to be related to recent large increases in the relative price of electricity. The electricity price increases appear largely responsible for the recent decline in electric heating’s share in the new housing market.” – “In Tacoma, buyers’ willingness to pay more for MCS homes suggest that demand for new, electrically heated homes is higher than it otherwise would have been without the EAP and MCS requirements.” 20

Another Study Referencing Fuel Switching A. Lee, et. al. “Impact Evaluation for the Manufactured Housing Acquisition Program (MAP).” PNL for BPA. October (Link)Link – “To assess whether possible fuel switching from natural gas to electric heat resulting from MAP could have affected program cost- effectiveness, we conducted a simplified analysis. A previous study (Lee, Sandahl, and Kavanaugh 1994) estimated that MAP could have induced some fuel switching, up to a maximum of about 6% of new homes. Using the data from the current study and the methodology in BPA (1993, p. 12), we estimate that up to 12% fuel switching from natural gas to electric heat could have been induced by MAP and it would have remained cost-effective from the regional perspective. Thus, fuel switching could increase program levelized cost, but not beyond the regional cost-effectiveness level.” – And even another study (not available, yet): A. Lee, et. al. “Fuel Choice Effects of the Manufactured Housing Acquisition Program: A Preliminary Assessment.” DOE/BPA

Council Policy Statement Regarding Direct Use of Natural Gas Source: 7 th Plan, Appendix N (Link)Link The Council recognizes that there are applications in which it is more energy efficient to use natural gas directly than to generate electricity from natural gas and then use the electricity in the end-use application. The Council also recognizes that in many cases the direct use of natural gas can be more economically efficient. These potentially cost-effective reductions in electricity use, while not defined as conservation in the sense the Council uses the term, are nevertheless alternatives to be considered in planning for future electricity requirements. The changing nature of energy markets, the substantial benefits that can accrue from healthy competition among natural gas, electricity and other fuels, and the desire to promote individual energy source choices all support the Council taking a market-oriented approach to encouraging efficient fuel decisions in the region. 22

New Washington Code Language Effective July, 2016 (Source: Link)Link R Electric resistance zone heated units. All detached one- and two-family dwellings and multiple single-family dwellings (townhouses) up to three stories in height above grade plane using electric zonal heating as the primary heat source shall install an inverter-driven ductless mini-split heat pump in the largest zone in the dwelling. Building permit drawings shall specify the heating equipment type and location of the heating system. EXCEPTION: Total installed heating capacity of 2 kW per dwelling unit or less. 23

NEEA New Homes Survey Data Source: NEEA Database (Reported in 2007, houses built in 2004 and 2005) Electric FAF1.9% ASHP7.8% Zonal Electric3.6% Gas82.4% Pellets or Propane4.3% 24