©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS ECONOMICS FINANCIAL ADVISORY MANAGEMENT CONSULTING January 10, 2012 CPUC Potentials, Goals and Targets Study Update Presentation to the Demand Analysis Working Group: C&S Navigant Reference:

1 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Content of Report This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use of the California Public Utilities Commission and/or its affiliates or subsidiaries. No part of it may be circulated, quoted, or reproduced for distribution outside these organization(s) without prior written approval from Navigant Consulting, Inc. The work presented in this report represents our best efforts and judgments based on the information available at the time this report was prepared. Navigant Consulting, Inc. is not responsible for the reader’s use of, or reliance upon, the report, nor any decisions based on the report. NAVIGANT CONSULTING, INC. MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED. Readers of the report are advised that they assume all liabilities incurred by them, or third parties, as a result of their reliance on the report, or the data, information, findings and opinions contained in the report. January 10, 2012 ©2011 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.

2 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Additional Slides3 2C&S Methodology Review 1C&S in Track 1 and Track 2 Approach for Goals Proposala Comparison to Evaluation Approachb Measure Lifec Table of Contents

3 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Additional Slides3 2C&S Methodology Review 1C&S in Track 1 and Track 2 Approach for Goals Proposala Comparison to Evaluation Approachb Table of Contents Measure Lifec

4 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» Framing the Conversation We welcome your input on this issue and appreciate your patience as we explain what was done and outline the issues.  C&S issues are very complex.  Many assumptions underlie the analysis.  This is the first time ever that goals have been attributed to different types of energy savings (e.g., C&S, ET).  This presentation outlines the decision points, how we addressed them, and provides a framework for discussing alternative approaches. Addressing C&S from a Goals Perspective We bring this to DAWG as a means of receiving the best available input.

5 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» Study Background The PGT study will serve multiple policy-making processes, each with a slightly different set of interests related to C&S. Purposes of the PGT Study To provide guidance for the utilities’ next energy efficiency portfolios To set benchmarks for Risk Reward Incentive Mechanism (RRIM) To update the forecast for energy procurement planning To inform strategic contributions to California’s greenhouse gas reduction targets.

6 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» PGT Study Background C&S play multiple roles in the calculation of energy savings to inform these policy-making processes. Purposes of the PGT Study Relevance of C&S: 1. Calculating IOU savings from C&S advocacy 2. Calculating effects on IOU incentive programs due to C&S To provide guidance for the utilities’ next energy efficiency portfolios To set benchmarks for Risk Reward Incentive Mechanism (RRIM) Relevance of C&S: Calculating contributions to TMGIOU To update the forecast for energy procurement planning To inform strategic contributions to California’s greenhouse gas reduction targets.

7 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» PGT Study Background The two parts of the PGT study take different approaches to C&S. These two parts will be integrated to inform G&T for 2015 and beyond. Track 1 (EERAM): Potential Study Adjusts baseline to calculate IOU incentive program savings Does not consider savings from C&S advocacy Track 2: Goals and Targets Study (2015 and beyond) Incorporates Track 1 (EERAM) calculations of IOU incentive program savings Adds savings from C&S, including assigning attribution to IOUs and CEC 2011 California Energy Efficiency Potential, Goals, and Targets Study

8 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» Connection to Goals Proposal Because of the timing, the goals proposal integrated Track 1 calculations with a third source – the Statewide C&S model. Track 1 (EERAM): Potential Study Adjusts baseline to calculate IOU incentive program savings Does not consider savings from C&S advocacy Statewide C&S Model Accounts for savings for C&S only Includes measures included in EERAM and additional measures affected by C&S Track 2: Goals and Targets Study (2015 and beyond) Incorporates Track 1 (EERAM) calculations of IOU incentive program savings Adds savings from C&S, including assigning attribution to IOUs and CEC IOU Energy Efficiency Goals Proposal The Track 2 model was not used for the goals proposal because of schedule constraints. The Track 2 model does incorporate the Statewide C&S model method.

9 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S in Track 1 and Track 2» Connection to Goals Proposal The EE goals proposal integrates savings from two sources. The next section presents the methods used in each of these sources. Track 1 (EERAM): Potential Study Adjusts baseline to calculate IOU incentive program savings Does not consider savings from C&S advocacy Statewide C&S Model Accounts for savings for C&S advocacy only Includes measures included in EERAM and additional measures affected by C&S Energy Efficiency Goals Proposal

10 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Additional Slides3 2C&S Methodology Review 1C&S in Track 1 and Track 2 Approach for Goals Proposala Comparison to Evaluation Approachb Measure Lifec Table of Contents

11 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY EERAMStatewide C&S Model Measures Affected by C&S Includes measures that could be included in IOU program (and that survived vetting) Includes measures affected by a suite of C&S Savings CalculatedSavings from IOU incentive programs Savings from a suite of C&S Effect of C&S on UESBaseline for IOU program measures increased by new C&S Incremental savings associated with the new C&S The goals proposal adds the savings from IOU incentive programs to those created by C&S. C&S Methodology Review » Approach for Goals Proposal › Overview The outputs of the Statewide C&S model can be adjusted to calculate savings from IOU C&S advocacy by applying the appropriate factors. The goals proposal presents gross numbers (as used in the C&S world), not these adjusted numbers.

12 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY  EERAM includes measures that could potentially be included within a utility program.  EERAM does not include Codes & Standards utility programs. These are handled separately in the Statewide Codes and Standards model.  The effects of Codes and Standards are included within EERAM by adjusting the base technology over time to reflect Codes and Standards implementation.  The effects of Codes and Standards within EERAM is to reduce measure savings as Codes and Standards come into effect.  The savings are not lost, but rather transferred to become a Codes and Standards impact EERAM focuses on calculating the effects of C&S on IOU incentive programs. It does not calculate savings from C&S advocacy. C&S Methodology Review » Approach for Goals Proposal › EERAM Portion C&S Treatment in EERAM (Track 1)

13 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Based on gross savings defined by the CPUC evaluation Scope of C&S programs  Adopted standards that are considered by the CPUC evaluation  Adopted federal standards that will take effect during  Future standards: 2013 Title 24 and 2011 Title 20 Battery charge standards  Compliance enhancement potential (Extension of advocacy) The Statewide C&S model calculates energy savings from C&S. The output can be adapted to assign savings to IOU C&S advocacy efforts. C&S Methodology Review » Approach for Goals Proposal › Statewide C&S Model Portion C&S Treatment in Statewide C&S Model

14 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY The method used to calculate savings from C&S in the Statewide C&S Model has been used in previous evaluations. C&S Methodology Review » Approach for Goals Proposal › Statewide C&S Model Portion C&S Treatment in Statewide C&S Model

15 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Additional Slides3 2C&S Methodology Review 1C&S in Track 1 and Track 2 Approach for Goals Proposala Comparison to Evaluation Approachb Measure Lifec Table of Contents

16 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S Methodology Review » Comparison to Evaluation Approach › Sources of Data Data Sources of C&S Program Savings ProcessUESMarketCompliance Rate Existing Standards CPUC evaluation planning – PG&E model 1.CPUC evaluation results 2.Title 24 & Title 20 CASE report, CEC 2008 Title 24 impact study 3.Federal rulemaking documents Future Title 20 Standards Data request response provided by IOU C&S programs 1.Title 20 – IOU CASE study estimates, 84% compliance rate 2.Federal – DOE rulemaking document, 95% compliance rate Future Federal Standards Future Title 24 Codes Preliminary CEC 2013 Title 24 impact analysis IOU CASE study report published on the CEC 2013 Title 24 website Compliance Enhancement Number of Years to Achieve 100 % Compliance 1.Title 20 – 10 years 2.Title 24 – 6 years 3.Federal – 5 years

17 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Additional Slides3 2C&S Methodology Review 1C&S in Track 1 and Track 2 Approach for Goals Proposala Comparison to Evaluation Approachb Table of Contents Measure Lifec

18 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY C&S Methodology Review » Measure Life › Overview The measure life is considered differently, depending on the intended output of the analysis. Purposes of the PGT Study Relevance of C&S: 1. Calculating IOU savings from C&S advocacy 2. Calculating effects on IOU incentive programs due to C&S Consider savings over a single measure life Relevance of C&S: Calculating contributions to TMGIOU Consider savings in perpetuity. Each code or standard builds on its predecessor.

19 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Traditionally, the Statewide C&S Model accounted for cumulative impacts over time. The traditional Statewide C&S Model properly recognizes that impacts from Codes and Standards are permanent. However, Codes and Standards targets need to be identified at the incremental level, not the cumulative level. To accomplish this, the Statewide C&S Model was modified so that a Codes and Standards impact is recognized only over the first measure life. This approach recognizes that yes, the impacts of Codes and Standards continue after the initial measure life (cumulative) but that the addition to savings on an incremental basis only occurs during the first lifetime. The two models used to calculate the goals proposal used the measure life differently and therefore used different assumptions. C&S Methodology Review » Measure Life › Approach in Goals Proposal Approach to Measure Life in the Calculation of Goals Proposal

20 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Apply adjustments to reach IOU goal numbers –Apply NOMAD adjustment –Estimate IOU attribution credit –Allocate savings to IOU territories Consider adjusting ex ante to ex post measure savings –Market and Energy Use Baselines –Unit Energy Savings –Compliance Rates The goals proposal may need to be adjusted to reflect the changes outlined in this presentation. C&S Methodology Review » Moving Forward Adapting the C&S Goals Moving Forward

Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 21 ENERGY Kevin Cooney, Director-in-Charge Managing Director (303) Floyd Keneipp, Project Manager Director (925) Gary Cullen Associate Director (360) Jane Pater Salmon Associate Director (303) Jay Luboff Associate Director (213) Kevin Cooney, Director-in-Charge Managing Director (303) Floyd Keneipp, Project Manager Director (925) Gary Cullen Associate Director (360) Jane Pater Salmon Associate Director (303) Jay Luboff Associate Director (213) Project Management