Cost Effectiveness and Evaluation Advisory Committee Northwest Energy Efficiency Alliance Cost Effectiveness and Evaluation Advisory Committee March 9, 2017 Innovation to Action

Northwest Energy Efficiency Alliance Agenda TIME TOPIC PRESENTER(S) 10:00-10:05 (5 min) Welcome and Introductions Ryan Brown 10:05-10:15 (10 min) NEEA Overview Objective: Provide background on NEEA’s work Outcome: Committee will have an understanding of NEEA’s market transformation approach 10:15-10:40 (25 min) NEEA Savings Approach Objective: Share the savings metrics NEEA reports and answer any questions. Outcome: Committee will understand the savings metrics NEEA reports and why we use them Christina Steinhoff 10:40-10:55 (15 min) NEEA Cost Effectiveness Approach Objective: NEEA will review the cost effectiveness approach and answer questions Outcome: Committee will understand the components of NEEA cost effectiveness calculation and the metrics reported 10:55-11:00 Wrap up/Review Open Items  Ryan Brown 11:00 Adjourn Innovation to Action

Northwest Energy Efficiency Alliance Annual Review Schedule CEAC Meeting April 19 CEAC Meeting March 22 CEAC Meeting CEAC Webinar (Today) Complete Annual Report Funder Reports Oct. Nov. Dec. Jan. Feb. March April May June July Aug. Sep. I want to start with an overview of where we are in the process of reporting 2016 energy savings. Data collection Local Programs Sales data Market research and evaluation The purpose of today’s meeting is to set the stage for March 22 when we present preliminary savings results. Internal Review and Reporting Data Collection & Processing Planning Evaluation & Market Research Innovation to Action

Northwest Energy Efficiency Alliance NEEA Overview Innovation to Action

The Alliance NEEA is a regional alliance of more than 140 Northwest utilities and energy efficiency organizations including BPA and Energy Trust. NEEA was incorporated in 1996 as a regional collaborative tasked with pursuing the highest-value activities to secure energy efficiency for the region Our funders represent more than 13 million energy consumers in Idaho, Montana, Oregon and Washington. Our 80+ staff are located in Portland, OR, but we also work with contractors throughout the region.

Why an Alliance? Economies of Scale Risk Pooling Market Influence There are significant benefits to utilities working as an alliance to achieve energy efficiency: Greater Influence: We use the power of the region’s 13 million energy consumers to get the attention of manufacturers, retailers and other regional and national partners. Cost Savings: We combine EE dollars from across the region to do things more cost- effectively than any one utility could do on their own (a good example is our building stock assessments); and, Reduced Risk: We spread the risks associated with trying out new and emerging technologies. If a technology fails, or isn’t right for our region, no one utility is on the hook. The result is a lot more emerging technology investment.

Northwest Energy Efficiency Alliance Mission and Vision Vision: Energy efficiency is a cornerstone of a vibrant sustainable Northwest. Mission: Mobilize the Northwest to become increasingly energy efficient for a sustainable future. Innovation to Action

Alliance Strategic Goals Fill the energy-efficiency pipeline with new products, services and approaches. Goal 2: Create market conditions that will accelerate and sustain the market adoption of emerging energy- efficiency products, services and practices. NEEA has two interdependent strategic goals, which were developed in collaboration and with input from the region (read slide). The role of this committee is to advise NEEA in measuring, reporting and ensuring we are avoiding double-counting in goal #2

Northwest Energy Efficiency Alliance Who We Work With [SUSAN] NEEA has built long-term relationships and partnerships with national and international organizations. Our partners include some of the largest retailers, distributors and manufacturers in the World (e.g. Costco, Walmart, Samsung, etc.), as well as local market actors. Our regional role enables us to get whole market data and plan for the long term Innovation to Action

Northwest Energy Efficiency Alliance Electric Portfolio Consumer Products Retail Platform/Retail Product Portfolio Super Efficient Dryers Heat Pump Water Heaters Ductless Heat Pumps Commercial/ Industrial Lighting Top Tier Trade Ally Integrated Design Labs Reduced Wattage Lamp Replacement Luminaire Level Lighting Other Markets Commercial Secondary Glazing Commercial Real Estate Commercial & Industrial Strategic Energy Management Industrial Technical Training Building Operator Certification Expansion Refrigeration Energy Specialist Certification Res/ Com New Construction Certified Homes/Next Step Homes Commercial Code Enhancement Manufactured Homes Next Step Homes Innovation to Action

Market Transformation Northwest Energy Efficiency Alliance Market Transformation Dollars Invested Natural Baseline Codes & Standards Market Transformation Market Share This graph shows the impact of market transformation over time on market share. As you can see from the graph, as market share increases NEEA’s investment decreases. In fact, the majority of savings from NEEA market transformation program come years after we’ve stopped paying for it. The investments we make today deliver savings far into the future. As a result, our programs are extremely cost-effective. Early Adopters Early Majority Late Majority Laggards Time Innovation to Action

20 Years of Market Transformation Northwest Energy Efficiency Alliance 20 Years of Market Transformation 1,275 aMW Cumulative Total Regional Savings 1997-2015 Since 1997, the alliance has saved over 1,200 aMW. That’s the equivalent of two sizable power plants that the region didn’t need to build. NEEA’s Market Transformation programs deliver long-term savings. The blue, yellow and green pieces of the graph are programs in which we are no longer investing, but that continue to deliver savings today. In 2015, about 85% of our saving came from previously funded initiatives. These savings were delivered to the region at a cost of less than 3 cents per kWh. Innovation to Action

NEEA Savings Approach Overview Northwest Energy Efficiency Alliance NEEA Savings Approach Overview Innovation to Action

Linking Savings to Market Transformation Northwest Energy Efficiency Alliance Linking Savings to Market Transformation Our a primary savings approach tracks Market Transformation progress for the region. Our secondary savings approach supports funder needs to report against regional targets that the Northwest Power and Conservation Council establishes every 5-6 years. One method we use to assess our work is through savings estimates. We set savings targets and assess program progress. We also report savings from Market Transformation to our funders.  We also have a secondary savings report that is tied to 7th PP. The calculation approach aligns with the PPs and many of our regional funders. As a result, the values can be compared and added to regional savings estimate by the Council and the Bonneville Power Administration. In April we will send our funders either a report using the MT approach or the PP approach. Today, I am going to briefly review each of these approaches so that you have a clear understanding savings values we report. For some of you, it will be a PP value. For others, it will be a MT value. Feel free to ask questions throughout this webinar; or, if you need more detail, we can review the calculations during a separate meeting. Objective: Review these two approaches in preparation for the March 22 meeting. Innovation to Action

What do these metrics mean to you? Northwest Energy Efficiency Alliance What do these metrics mean to you? Market Transformation Savings from Market Transformation efforts since the start of the program Aligns with NEEA’s Targets 7th Power Plan What do the savings we report mean? When report MT savings, we are trying to capture the benefits from our intervention strategies to help increase or speed up the adoption of efficient product or behavior. These savings align with our Business Plan targets   When we report 7th PP savings, we are trying to capture savings above the 7th PP baseline that overlap with programs we supported. This value is agnostic to the cause– whether it be MT or the natural change in the market. The values align with the Power Plan targets and the approach many of our funders use to measure energy savings. Savings from Total Market Change in energy consumption since the start of the Power Plan Aligns with the Power Plan targets Innovation to Action

Example of the two approaches Northwest Energy Efficiency Alliance Example of the two approaches Market Transformation Savings from Efficient Tier (e.g. ENERGY STAR) since the start of the program until the market is transformed Savings from all market change from the start of the Power Plan until the new plan. 7th Power Plan For example, NEEA has many programs intended to increase the adoption of efficient products like ENERGY STAR through upstream incentives and other market intervention strategies. NEEA’s savings metric would measure the savings from the change in adoption of the efficient tier since the program started until the market is transformed. This could be 1 year, 5 years, or more NEEA’s PP metric would measure the savings from a product category until the new plan is in place. CLICK In summary, the MT calc is focused on the ES tier in this example and our PP calc is focused on the entire product category. Click And the MT approach starts and ends with the program The PP approach starts and ends with the Plan. Innovation to Action

The high-level equation is the same Northwest Energy Efficiency Alliance The high-level equation is the same NEEA Net Market Effects Total Regional Savings Baseline Savings Local Programs = - - Power Plan Remaining Savings Total Regional Savings Baseline Savings Local Programs = - - The concept of the calculation is pretty much the same. The MT value we report to our funders is called NME… The PP value we report to our funders is called Remaining Savings… One difference is that MT value removes the baseline effects from the units portion of the calculation. Whereas we typically remove the baseline effects from the savings rate portion of the calculation for the 7th PP. Innovation to Action

Why Approach Baseline differently? Northwest Energy Efficiency Alliance Why Approach Baseline differently? 100% ENERGY STAR Market Adoption 75% Net Market Effects 50% Total Regional Savings 25% The reason why NEEA removes the baseline effects from the units’ calculation is to capture energy savings from MT intervention. We typically start a program with some understanding of the market trend. We know the starting baseline (current practice) and we work with a contractor to understand the natural trend—what we call the naturally occurring baseline. That is what this green line illustrates. Through market intervention, we hope to increase the adoption, speed up the adoption or both. Our regional savings from the increased adoption from the current practice baseline-- Total Regional Savings (difference between the orange and black lines) Our NME, assuming no LP, would be the difference between the orange and the naturally occurring baseline (green line). TRS and NME are both metrics tied to the adoption of ES example here– our MT efforts. 0% 2015 2016 2017 2018 2019 2020 2021 Naturally Occurring Baseline Adoption with Intervention Fixed Baseline Innovation to Action

Different Approach to Accounting Baseline Northwest Energy Efficiency Alliance Different Approach to Accounting Baseline Market Transformation Approach Savings Rate Calculation Non Qualifying Product UEC ENERGY STAR UEC Savings Rate 200 (kWh/unit) 100 (kWh/unit) 100 (kWh/Unit) - = Net Market Effects Units Current ENERGY STAR Market Share Baseline ENERGY STAR Market Share What this means in terms of the savings calculation and the savings input values will see in few weeks is that the savings rate is tied to the intervention strategy. In this case ES. To measure savings from MT, NEEA calculates the savings rate as the difference between the intervention strategy (in this case ES) and the alternative (non- program qualifying product). NEEA multiplies this value by the units net of the current practice baseline. The net is net of the current practice baseline show with the 15%. With this equation, we can also net out the a growing baseline to get NME. If the value grows to 15% in year 2, the net units would decline to 1, holder all other inputs constant. The result is a report of savings from regional MT efforts. Total Sales (product) NME Units 20 1 2 20% 15% 10% - * = UEC=Unit Energy Consumption Example assumes Local Programs are 0. Innovation to Action

Why Approach Baseline different? Northwest Energy Efficiency Alliance Why Approach Baseline different? Total Market Change in Energy Use Remaining Savings* Unit Energy Consumption (UEC) Our approach to measure Power Plan savings is not isolated market invention strategies. We start with the Power Plan assumption for a baseline market UEC and we report all energy savings from that frozen baseline. Where we have data, we capture savings and losses from all market changes outside. For example, we could capture the benefits from improvement in efficiency from efficiency levels not covered by a NEEA program. such as non-energy star products 2015 2016 2017 2018 2019 2020 2021 Fixed Baseline Change in UEC *Example assumes Local Programs are zero. Innovation to Action

Different Approach to Accounting Baseline Northwest Energy Efficiency Alliance Different Approach to Accounting Baseline Power Plan Approach Savings Rate Baseline Weighted Market Average UEC Current Weighted Market Average UEC The Baseline is Frozen Savings Rate 190 (kWh/unit) - 180 (kWh/unit) 10 (kWh/unit) = 90% 200 kWh 10% 100 kWh 80% 200 kWh 20% 100 kWh * + + * * * Non-Qualifying Product Prg.-Qualifying Product Non-Qualifying Product Prg.-Qualifying Product Here is another visual of our approach to reporting energy savings against the PP baseline. Our savings rate here measures the difference between the weight average energy Unit Energy Consumption of the baseline period versus the current period. We then multiply this value by the total sales. The baseline is Frozen The result is a report of savings within a product category from all market change NEEA worked in from a point in time. Total Regional Units Total Sales 20 UEC=Unit Energy Consumption Innovation to Action

We also have a different start and end date Northwest Energy Efficiency Alliance We also have a different start and end date NEEA Start NEEA counts savings after intervention. Ends NEEA ends reporting Net Market Effects when the Naturally Occurring Baseline equals the market share. 7th Power Plan Another important note about the two savings report is the start and end date. Start Power Plan starts from 2016. Ends NEEA stops reporting Power Plan saving when the savings become a part of the future Power Plan’s baseline Innovation to Action

Northwest Energy Efficiency Alliance 7th PP Savings - 200 400 600 800 1,000 1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Potential 7th PP Savings Savings Captured in the 7th PP Baseline/Load Forecast 200+ aMW Cumulative aMW When you have set start and end dates, the PP savings get truncated and reported through the PP baseline as opposed to NEEA’s reports. CLICK Innovation to Action

Northwest Energy Efficiency Alliance Summary NEEA has two savings reports One to assess the effects of Market Transformation from a savings perspective Another to assess market change in alignment with the regional Power Plan In summary, We have two reports. Each meets a regional need One assesses the effect of MT from a savings perspective The other measures market change in alignment with the regional PP. Will review the inputs and results during for our upcoming meeting. Innovation to Action

NEEA Cost Effectiveness Approach Overview Northwest Energy Efficiency Alliance NEEA Cost Effectiveness Approach Overview Innovation to Action

NEEA Objectives “Market Transformation is the strategic process of intervening in a market to ... accelerate the adoption of all cost-effective energy efficiency...” A cost-effective NEEA portfolio of initiatives has a Levelized Cost of 3.5 cents/kWh. So what is our measuring stick? NEEA is a Market Transformation organization and our definition of MT includes a statement about cost-effectiveness (read) Market Transformation is the strategic process of intervening in a market to create lasting change in market behavior by removing identified barriers or exploiting opportunities to accelerate the adoption of all cost-effective energy efficiency as a matter of standard practice Second bullet is from our 2015-2019 business plan (3.5 cents/kWh). We use this to compare EE to other resources, whether generation or otherwise.

Northwest Energy Efficiency Alliance Metrics NEEA Uses Metrics calculated using ProCost Total Resource Cost (TRC) Levelized Cost TRC Benefit/Cost Ratio Capacity Value (New and under development) Calculated at the measure level Savings-weighted to initiative- and portfolio-level NEEA costs fully loaded in final portfolio value So what specifically does NEEA track and how does procost fit in? There are several metrics we are able to calculate using the tool. These include TRC Lvl Cost, B/C ratio, and Capacity value These are calculated using ProCost at the individual measure level and then we use our savings forecast to weight these up to the initiative and then portfolio level Innovation to Action

Cost Effectiveness Metrics: Calculation Total Resource Cost Perspective Costs include: Benefits include: Incremental first cost Replacement cost Incremental O&M cost Utility program administrative costs Cost of NEEA’s upstream incentives Market Research & Evaluation costs NEEA administrative cost Other costs associated with market change Electricity benefit Carbon Local System Distribution Loss Other quantifiable non-electric benefits such as gas and water savings. RB NEEA uses a Total Resource Cost Perspective in our calculation that includes all monetizable costs and benefits The marginal cost curves and values for carbon etc. come directly from the ProCost tool. We will be sending out a complete PDF packet containing our detailed key assumptions in mid March and then we will also summarize our inputs to the cost effectiveness calculation during our March 22nd meeting. These will include our assumptions for first costs, O&M costs, admin costs, as well as any non-electric or non-energy benefits we are factoring into the calculation.

Measuring Cost Effectiveness External Cost Effectiveness Estimate NEEA Metric Program Development Market Development Long-term Monitoring Consumer Products Retail Product Portfolio (NEW) Super Efficient Dryers (NEW) Heat Pump Water Heaters Ductless Heat Pumps TVs Residential CFLs White Goods New Construction (Commercial/Residential) Next Step Home (NEW) Efficient Homes Commercial Lighting Luminaire Level Lighting Control Reduced Wattage Lamp Repl. Other Markets RETA CRES Refrigeration Operator Cert. Bldg Operator Certification Expansion Food Processors Drive Power, 80Plus Bldg Operator Certification Commissioning, BacGen, PneuLogic, MagnaDrive Strategic Market NEEA uses a phase-gate management tool we call the Initiative Lifecycle to vet, develop and roll out new initiatives in the region. This slide shows that we use different sources and levels of analysis at different phases of development for our initiatives. Program development we use external, generally either PP or RTF. If it truly doesn’t exist we’ll build an early estimate. In market development we know enough about the product and market to calculate our own metric. You can see the 4 programs that have c/e measurements defined; which confirm their continuation in market dev. These are the initiatives that are included in our portfolio cost effectiveness calculation. We will share the results of that calculation at our March 22nd meeting.

Review Actions and Adjourn Northwest Energy Efficiency Alliance Review Actions and Adjourn Stephanie Innovation to Action

Northwest Energy Efficiency Alliance Annual Review Schedule CEAC Meeting April 19 CEAC Meeting March 22 CEAC Meeting CEAC Webinars Complete Annual Report Funder Reports Oct. Nov. Dec. Jan. Feb. March April May June July Aug. Sep. CS Data Collection Internal Review and Reporting Planning Evaluation & Market Research Innovation to Action