University of Pittsburgh School of Law 2013 Energy Law and Policy Institute Eric Matheson Energy Advisor to PAPUC Commissioner James H. Cawley August 2,

Overview of PAPUC Energy Regulation 1.Cost based regulation of gas, electric and steam utilities for distribution and transmission service 2.Resolve disputes regarding siting and construction of distribution and transmission facilities. 3.Establish policies to strengthen retail and wholesale competitive markets; light handed regulation of electric and natural gas suppliers. 4.Implement cost effective energy efficiency and conservation programs. 5.Deploy smart meters and time-based pricing programs at large electric utility service areas. 6.Maintain effective low-income customer programs. 7.Approve replacement of aging infrastructure programs and associated cost recovery mechanisms. 8.Collect unconventional well fees and disperse funds. 2

Energy Efficiency and Conservation Programs Electric Distribution Companies [EDCs] Act 129 Energy Efficiency and Conservation programs [EE&C Programs] – Phase I October 2009-May 31, 2013 – Phase II June 1, 2013-May 31, 2016 Natural Gas Distribution Companies [NGDCs] Vary by NGDC Some may not have any programs – contact your local gas utility company 3

EE&C Phase II EDC Requirements EDC 3 Year % of 2009/10 Forecast Reductions 3 Year MWh Value of 2009/10 Forecast Reductions Duquesne ,722 Met-Ed ,753 Penelec ,813 Penn Power2.0 95,502 PPL ,072 PECO2.9 1,125,851 West Penn ,533 4

Phase II EE&C Programs Phase II EE&C Guidelines EE&C program cap of 2% of 2006 revenues. (Act 129) Electric Utilities can carry over excess EE savings from Phase I. At least 25% savings each program year. At least 10% of savings from Government/non-profit sector. At least 4.5% of savings from low-income programs and a proportionate number of programs for this sector. Programs should target multi-family housing. Must offer at least one energy efficiency program for each customer sector. Must offer at least one comprehensive measure for residential and small commercial sectors. Energy efficiency expenditures are dispersed among customer classes based on cost effectiveness. 5

Phase II EE&C Programs Demand Response (DR) Act 129 programs Phase II excludes any DR goals. Phase III? PAPUC is reviewing cost effectiveness of the Phase I, 4.5% DR program. Final determination to be made by end of PAPUC encouraged utilities to continue DR programs if cost effectiveness could be demonstrated, and Act 129 budget caps are not exceeded. PECO extended their Mass Market Direct Load Control Program for 1 year. * Comverge continued the Direct Load Control Program in the PPL service area. Issues – quantifying the price-suppression impacts of DR programs and the value of avoided T&D costs, how to design future DR goals, etc. * PECO recruited over 86,000 residential and small commercial customers and installed over 100,000 load control devices. PECO submitted that the DLC Program delivered as much as 99 MWs toward PECO’s demand response target in Phase I. PECO’s DLC Program has a total resource cost (TRC) benefit-cost ratio of

Duquesne Phase II EE&C Programs Residential EE&C Programs Energy Efficiency Rebate Program Residential/Schools Energy Pledge Program Residential Home Energy Reporting Program Residential Appliance Recycling Program Residential Whole House Retrofit Program Residential Low Income Energy Efficiency Program 7

Duquesne Phase II EE&C Programs Commercial and Industrial EE&C Programs Commercial Sector Umbrella Program. Commercial Sector Sub-Programs (3): Office Building Program, Health Care Segment Program, and Retail Stores Program. Commercial Sector Upstream Lighting Program. Commercial Sector Sub-Program: Small Commercial Direct Install Program (lighting – free install). Industrial Sector Umbrella Program. Industrial Sector Sub-Programs: Primary Metals Segment Program, Chemical Products Segment Program, Mixed Segments Program. Governmental/Non-Profit Sector Sub-Program: Education Segment Program (Schools and Colleges). Governmental/Non-Profit Sector Multifamily Housing Retrofit Program. Public Agency Partnership Program (local government). 8

EE&C Coordination with other DSR Programs Electric utilities are to coordinate EE&C programs with natural gas EE programs – joint rebates, inter-utility audits. Electric utilities may bid Act 129 EE measures into PJM capacity markets (not required). Any such revenues are returned to the rate payer class, and not included in the Act 129 budget. The issue of customers directly participating in EE PJM markets via PJM CSPs was referred to further stakeholder discussions. Electric utilities charged with encouraging participating EE&C customers to leverage other state and federal energy efficiency programs and incentives. Customers can continue during Phase II to participate in PJM DR, economic, and ancillary market programs offered by various PJM Curtailment Service Providers pending PAPUC review of Act 129 DR programs.* 9 *

DR Act 129 Issues going forward DR vs. Energy Efficiency – what’s more beneficial and cost effective for consumers? How can be better calculate the benefits of peak demand reduction? [price suppression? T&D avoided costs? Customer profit?] Should we broaden our calculation of EE&C benefits of DR and Energy efficiency to include other non-electrical savings and benefits? How can Act 129 legislation be improved? 10