1. Opportunities for Natural Gas Efficiency in Pennsylvania Presented to Keystone Energy Efficiency Alliance September 20, 2011 Steven Nadel American Council for an Energy-Efficient Economy

3. 2010 State Energy Efficiency Scorecard

4. Pennsylvania 2010 Scorecard Results Earned 24 points out of possible 50 Ranks 16th Average to above average scores for Combined Heat & Power (CHP), building energy codes, transportation policies, and state facilities & fleets Average score for utility-sector programs: ranks 28th in the nation (low efficiency program spending and savings, no actions to address utility incentives/disincentives) Note: Ramping in of Act 129 will likely improve PA’s utility score in future Scorecards

5. ACEEE 2009 Study on Cost-Effective Resource Potential in Pennsylvania by 2025 Electricity: 33%Natural Gas: 27% Fuel Oil: 29%

6. Energy Efficiency Resource Potential: Residential Natural Gas (84,000 MMBtu Gallons or 36% savings potential in 2025)

7. Impact of Efficiency Policies on Natural Gas Needs in Pennsylvania

8. Economic and Environmental Impacts of EE Investment in Pennsylvania Net Macroeconomic Impacts 20202025 Net Jobs (Actual)14,50027,200 Wages ($2006)$440 $1.1 Billion GSP ($2006)$1 Billion $2.6 Billion Reduce CO2 emissions ~45 million tons in 2025

9. Implementation of Electric Savings Targets (EERS) in 2010 Thirteen of the twenty states with EERS policies in place for over two years are achieving 100% or more of their goals as of 2010 Only three states are realizing savings below 80% of their goals but all 3 are still ramping up

10. Energy Efficiency Resource Standards – Natural Gas 12 States have natural gas EERS policies in place Standard Pending Standard

11. Minnesota YearIOU Natural Gas Savings (MCF) Savings as % of Average Sales 2006N/A 2007N/A 20081,534,1210.54% 20091,777,3690.63% EERS: 0.75% annual savings from 2010-2012; 1.5% annual savings in 2013

12. Massachusetts YearSavings Target as Percent of Sales Savings Goal (Therms) Natural Gas Savings Achieved (Therms) Percent of Target Achieved 20100.63%13,586,66613,926,865103% 20110.89%19,087,301 20121.15%24,687,219 2010-20122.67%56,368,432 State law requires the natural gas distribution utilities to procure all cost- effective efficiency resources through a 3-year Efficiency Procurement Plan and requires full funding of the Plan.

13. Vermont Gas Saved 82,151 McF in 2010; ~1% sales Will result in 1,467,673 Lifetime McF

14. Iowa 2004200520062007 0.63%0.83%0.89%0.68% Iowa IOU Natural Gas Savings 2004-2007 Statewide data for 2008-2009 unavailable. In 2010, all IOUs hit savings targets ~1%. Annual goals by 2013 vary by utility: 0.74% (Muni’s); 0.85% (MidAmerican); 0.94% (Black Hills) 1.2% (IPL)

15. Consider EE from a Utility Perspective Need to make the business case: 1.Cost recovery 2.Address lost revenues needed to cover fixed costs 3.Some form of return on investment

16. Decoupling Rates are designed to recover fixed and variable costs Decoupling adjusts rates up or down so that authorized fixed costs are fully recovered. Reduces over-recovery due to increases in sales Reduces under-recovery from reduced sales such as due to a recession, warm weather or energy efficiency programs

17. Natural Gas Decoupling Decoupling Lost Revenue Adjustment Mechanism or Ratemaking Approach to Lost Revenues Decoupling Pending 16 states with true natural gas decoupling; 11 with LRAM or other ratemaking approach to recover lost revenues; 8 with decoupling pending

18. Shareholder Incentives Utilities earn a rate of return on their supply- side investments To provide balance, many states provide incentives for energy efficiency: Performance bonus for meeting savings goals; or Share of net benefits due to programs (~10%) 25 states provide such incentives to electric and/or gas utilities

19. Conclusions Energy efficiency resource standards are working, including in Pennsylvania There are large opportunities to cost- effectively reduce natural gas use in PA Pennsylvania should enact: A natural gas EERS with modest targets to start, ramping up over time Decoupling and shareholder incentives for natural gas utilities (latter tied to savings goals)

20. Contact Information Steven Nadel snadel@aceee.org 202-507-4000 www.aceee.org