Arizona Energy Policy Update Jeff Schlegel, The Southwest Energy Efficiency Project USGBC Arizona Chapter; March 17, 2011

Southwest Energy Efficiency Project (SWEEP) Public interest initiative founded in 2001 Promotes greater energy efficiency (EE) in AZ and SW Board of Directors includes utility, state government, national laboratory, and private sector representatives Funding provided by the Energy Foundation, Hewlett Foundation, Edwards Mother Earth Foundation, U.S. Department of Energy (DOE), and U.S. Environmental Protection Agency (EPA)

Energy Efficiency Delivers Benefits for: Customers (Consumers & Businesses) The Utility System (Electric & Gas) Our Economy Our Environment

Arizona Energy Policy Forums Arizona Corporation Commission Arizona State Legislature Salt River Project Board and Managers Governor’s Office & State Administration Cities & Counties Congressional Delegation

Arizona Corporation Commission (ACC) 5 elected commissioners Has jurisdiction over quality of service & rates charged by public service utilities Regulates 14 electric utilities including APS & TEP, not SRP Approves/denies many utility actions (i.e. rates) Can establish rules further governing utilities

Recent Policy Developments at the ACC ①Electric Efficiency Standard Requires 22% energy savings by 2020 ②Gas Efficiency Standard Requires 6% energy savings by 2020 ③Decoupling Policy Statement Allows investor-owned electric and gas utilities to file specific decoupling proposals to align utility financial interests with the interests of customers and the public (which supports EE, RE DG) (Decoupling “de-couples” utility revenues from energy sales) ④Integrated Resource Planning Rules Allows meaningful opportunities for EE & RE to compete on a level playing field with conventional resources.

What is the Electric Efficiency Standard (EES)? Approved unanimously by ACC in July 2010 Requires investor-owned utilities to: – Achieve cumulative annual energy savings of 22% by 2020 – Includes a 2% credit for peak reductions from Demand Response Electric Coops required to meet 75% of standard Countable energy savings include: – Savings from combined heat and power (CHP) – 1/3 of measured savings from building energy code support 7 Gas Efficiency Standard  Approved Unanimously   Requires 6% Savings by 2020   Savings from CHP, building energy codes, & standards 

EES Impact on Retail Sales 8 Retail Energy Sales Forecast Retail Energy Sales (MWh)  APS’ energy sales growth reduced from 2.8% to 1.1% per year  TEP’s energy sales growth reduced from 1.5% to -0.2% per year Energy Sales Forecast with EES

The Effect of Much Higher EE Savings 9 AZ 2008AZ Energy efficiency becomes one-fifth of the energy “pie” in Lower total costs, lower utility bills, more jobs, less pollution - Deferral of 3 large baseload plants from early 2020’s to 2030’s (and by then renewables, storage, electric vehicles, etc.) - Plus $9 billion in lower customer bills ( )

EE: ACC Policy Advancements In Action TEP EE Implementation Plan Filed New programs, expansions of existing programs Continuation and expansion of new construction programs Includes pilot program to support building energy codes Also EE programs for existing buildings APS 2011 EE Implementation Plan Approved New programs (including multi-family new construction) and program expansions

TEP’s Residential New Construction Program Uses an incentive schedule that awards larger incentives for more energy-efficient homes To qualify, homes must: – Be tested by an approved energy rater – Meet one of three tiers in the program based on a Home Energy Rating System (HERS) Index Score: 1)Tier 1: ≤ 85 ($400 incentive per home to builder) 2)Tier 2 ≤ 70 ($1,500 incentive) 3)Tier 3 ≤ 45 ($3,000 incentive)

TEP’s Commercial New Construction Program Offers rebates to non-residential customers in TEP service territory who design and/or build new energy efficient facilities Two rebate types offered: 1)Design Assistance Rebates Promote EE integration into design process 2)New Construction Rebates Promote incorporation of EE products/practices during construction Rebate Caps 1)Customer Caps Depends on funding availability & number of program participants 2)Measure Caps  Design Assistance: 50% of the incremental cost up to a max of $10K  New Construction: 50% of the incremental cost up to max of $75K New in ’11-’12: High Performance Window Glazing

APS Multi-Family New Construction Program Promotes EE in construction/renovation of new multi-family buildings Building owners/developers offered an incentive per dwelling unit for installing select packages of EE improvements in each unit. – Four different packages – One package targets major renovation projects – Three packages target new construction – New construction packages offer progressively higher incentives for projects that meet higher levels of energy Eligibility – All existing multi-family rental housing complexes and new multi- family rental construction projects within APS service territory with five dwelling units or more are eligible for the program – No owner-occupied condominiums or townhomes NEW!

Support Building Energy Code Advancement Building energy codes ensure our homes & offices are “built right” the first time Energy efficient homes are more affordable & reduce the risk of defaults and foreclosures Building energy codes are a cost-efficient policy strategy for reducing energy costs and pollution

Building Energy Codes in Arizona Arizona is a “home rule state” (local jurisdictions enact building codes) Only 33% of 111 municipalities have adopted a version of the International Energy Conservation Code (IECC) To date, no single municipality has adopted the 2009 IECC (although several are working on it) Also, Green Building Codes and “beyond code” standards

Arizona Legislature

Arizona Legislature – Current Session SB 1172 – Performance contracting and energy savings accounts for cities and counties (failed in Senate committee but may come back) Greenhouse gas “freedom to breath” proposals to prevent action on climate (SB 1393, SB 1394) Challenges to ACC authority (HB 2195, HB 2185) HB 2501 – “ambiguous” rules or laws “Energy parks” and “energy districts” Sustainable finance authority BUDGET