Energy Efficiency and Conservation Direct Use Program Proposal For Discussion with EmPOWER Maryland Stakeholders December 2, 2010

Key Message The direct use of natural gas at the retail level: Impacts Empower MD electricity reduction goals Encourages wiser, more efficient use of natural gas Delivers environmental benefits to the region and the State of Maryland. Realizes the objective driving DOE to adopt improved methods for measuring energy and GHG impacts

Direct Use of Natural Gas is Most Efficient

Direct Use of Natural Gas Eliminates Electrical Appliances Reducing the population of electrical appliances necessarily delivers demand savings Replacement of Average Heat Pump Annual Savings: 5,554 kWh Replacement of Average Hot Water Heater Annual Savings: 4,875 kWh Peak Demand Savings: 0.5 kW Natural Gas Conversions will help the state reach its Empower Maryland goals

Cost Effects of End-Use of Natural Gas Decoupling creates necessary regulatory environment Neither utility is unduly harmed or advantaged Usage of natural gas for electric generation creates upward pressure on natural gas prices. Carbon constraining regulations and abundant natural gas reserves likely to drive expansion of gas-fired generation Current incentives may increase demand for electricity

Space Heating

End-use of Natural Gas Delivers Environmental Benefits Pennsylvania Public Utilities Commission En Banc Hearing Presentation – Paul Raab, EnergyTools LLC http://www.puc.state.pa.us/electric/dsrwg_DSR_enbanc_Hearing.aspx

Convert estimated 750 Homes to Natural Gas Space and Water Heating Program Features Convert estimated 750 Homes to Natural Gas Space and Water Heating Utility Paid Incentives Cover High Efficiency Appliances Customer Contribution for Average Line Extension Administered as Part of Washington Gas’s Existing On-Main Conversion Program Rapid Implementation Report to MD PSC on Pilot Program Results Finalize Program Parameters for Full Implementation

Example Incentives / Expected Results Party Contribution Utility Incentive $8,6001 Customer $4,835 (est.) Thru 2015 Estimated Participants 750 Expected Annual Savings 7,821 MWh Expected Demand Savings 375 kW Est. Annual CO2 Elimination 2,325 tons 1Reflects incentive level identified by PA PUC Fuel Switching Working Group, corresponds to 100% of estimated conversion costs in that market area. Applying this incentive level to the WG market area covers 64% of the estimated cost of conversion.

Cost Effectiveness Pennsylvania Working Group Results – Space Heating Test Net Benefit Benefit/Cost Ratio Total Resource Cost Test – Erie/ Harrisburg $8,948/$4,763 1.50/1.30 Participant Test – Erie/Harrisburg $14,048/$9,863 1.79/1.61 Rate Impact Measure Test – Erie/ Harrisburg $4,080/$2,359 1.14/1.11 Program Administrator Cost Test – Erie/ Harrisburg 1.63/1.38 Pennsylvania Working Group Results – Water Heating Test Net Benefit Benefit/Cost Ratio Total Resource Cost Test $6,149 2.80 Participant Test $7,049 3.07 Rate Impact Measure Test $1,610 1.17 Program Administrator Cost Test $5,349 2.57

Cost Effective Results Proposed Program Lifecycle Costs $8,600 + $333 5,554 kWh * 18 yrs + 4,785 kWh * 10yrs = 6.0 ¢ / kWh

Payback on Customer Investment $4,835 Customer Contribution Payback = 5.6 years “Payback” is not instructive if the cost of electric heat pump and water heater replacement (est. $8,300) is compared to customer contribution under program Absent incentive program, typical customer payback is 15.7 years Customer Savings - $855/yr Gas Furnace will consume 660 therms (90% efficient) Gas Water heater will consume 250 therms (EF 0.75)  Electric Heat Pump (HSPF 7.7 or COP 2.2) Electric Water Heater (EF 0.90) Base or other annual consumption of 4,485 kWh (EIA, 1993) Current Pepco MD and WGL MD Tarrifs\Rate PGC for August-2009 through July-2010

DOE Adopting FFC Analysis