1. ©2012 Navigant Consulting, Inc. ENERGY DISPUTES & INVESTIGATIONS ECONOMICS FINANCIAL ADVISORY MANAGEMENT CONSULTING October 25, 2012 CPUC Potentials, Goals and Targets (PGT) Study Update Presentation to the Demand Analysis Working Group (DAWG) Navigant Reference: 150283

2. 1 ©2012 Navigant Consulting, Inc. ENERGY Content of Report This presentation was prepared by Navigant Consulting, Inc. exclusively for the benefit and internal use of the California Public Utilities Commission (CPUC) and/or its affiliates or subsidiaries. No part of it may be circulated, quoted, or reproduced for distribution outside these organization(s) without prior written approval from Navigant Consulting, Inc. The work presented in this report represents our best efforts and judgments based on the information available at the time this report was prepared. Navigant Consulting, Inc. is not responsible for the reader’s use of, or reliance upon, the report, nor any decisions based on the report. NAVIGANT CONSULTING, INC. MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED. Readers of the report are advised that they assume all liabilities incurred by them, or third parties, as a result of their reliance on the report, or the data, information, findings and opinions contained in the report. October 25, 2012 ©2012 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC.www.navigantconsulting.com/licensing

3. 2 ©2012 Navigant Consulting, Inc. ENERGY 1Codes and Standards Agenda Emerging Technologies2 Upcoming DAWG Schedule3

4. 3 ©2012 Navigant Consulting, Inc. ENERGY 1Codes and Standards Agenda Emerging Technologies2 Upcoming DAWG Schedule3

5. 4 ©2012 Navigant Consulting, Inc. ENERGY Codes and standards affect IOU energy efficiency programs in two different ways: –Increase the overall amount of EE savings by requiring customers to install high- efficiency measures in lieu of baseline equipment. A portion of these savings can be claimed by the IOUs. –Reduce the savings from IOU rebate programs. C&S updates increase the baseline efficiency of utility-rebated measures. The May 2012 PGT report modeled “On-the-Books” Codes and Standards (C&S) using the same method as used by CPUC evaluations. Codes and Standards » Past Methodology C&S Modeled Standards Group Impact to Voluntary Programs C&S Program Savings Title 242005, 2008, and 2013 Title 24 Title 20 2005, 2006, 2008, 2009, and 2011 Title 20 (phase-in of Huffman Bill, which outlaws general service incandescent lamps) Federal Appliance Standards All adopted federal standards Federal standards reported by IOU C&S Programs

6. 5 ©2012 Navigant Consulting, Inc. ENERGY Gross C&S Savings –Total energy savings estimated to be achieved by C&S since 2006 –Accounts for compliance rate Net C&S Program Savings –The portion of the total C&S savings that can be attributed to the IOUs –Accounts for naturally occurring market adoption (NOMAD) and utility attribution factors –Inform the IOU-specific goals for portfolio planning The CPUC evaluations of IOU C&S advocacy programs establish the methodology and definitions that Navigant uses for C&S savings. Codes and Standards » Past Methodology General Methodology for C&S Savings Calculation Source: KEMA. Codes & Standards (C&S) Programs Impact Evaluation. 2010

7. 6 ©2012 Navigant Consulting, Inc. ENERGY The update will use the same modeling methodology as the 2011 study. Future C&S are more uncertain than “On-the Books” C&S, which were the only C&S modeled in the 2011 study. Title 24 –The 2016, 2019, and 2022 standards may be influenced by the state’s ZNE goals: ZNE for residential new construction by 2020 and commercial new construction by 2030 –We are in discussion with the CEC to understand where these may go. –CEC is starting to consider the 2016 cycle; there is little data or information on the 2019 or 2022 cycles. Title 20 –Future Title 20 is driven by AB1109, AB32, and the ZNE goal. –C&S updates are not necessarily on a schedule like Title 24. –Currently, CEC is considering consumer electronics, lighting, and water consuming appliances and fixtures for inclusion in standards updates; however, timelines are not firm. Federal Standards –Navigant is tracking future federal rulemakings through publically available DOE rulemaking documents The PGT team plans to model future Codes and Standards to the extent that data is available. Codes and Standards » Update Scope

8. 7 ©2012 Navigant Consulting, Inc. ENERGY NOMAD quantifies the naturally occurring adoption of code-compliant equipment and reduces the IOU claimable savings. The study team will review NOMAD assumptions as they have a large impact on IOU net C&S savings: –Documenting the methodology to develop NOMAD –Discussing the uncertainty in NOMAD estimates and (if data allows) conducting sensitivity tests on NOMAD inputs –Additional NOMAD data may become available as part of the CPUC 2010-12 evaluation cycle. Title 20 and federal standards savings are based on statewide or national equipment sales data embedded in CEC and DOE analysis. –These embedded assumptions may differ from the population and measure density data used to estimate utility rebate program potential. –The PGT team will assess the discrepancy of appliance stock and unit energy savings for key measures and adjust values as needed. Stakeholders commented that the energy savings potential from plug load efficiency is not well understood and that the goals study should revisit the end use. The PGT team expects a significant portion of plug load efficiency savings to appear in the form of C&S savings. The PGT team plans to review this end use and coordinate with the CEC. The PGT team plans to more closely examine NOMAD, building and appliance stocks, and plug load C&S. Codes and Standards » Update Scope

9. 8 ©2012 Navigant Consulting, Inc. ENERGY When calculating IOU energy efficiency program cost effectiveness (TRC, UTC, RIM, etc.) we will not include any costs or savings associated with C&S. What This Means For IOU Program TRC We assume any “on-the-books” C&S has already met the CEC or DOE’s cost effectiveness test. For these C&S, we do not plan to track any data related to cost or cost effectiveness, simply the energy savings. For future C&S (“expected” and “possible”), we plan to work with CEC to get an understanding of what C&S can be implemented. Assessing if a future Code or Standard can be implemented inherently passes some judgment on whether or not the Code or Standard is cost effective. We do not plan to calculate the cost effectiveness of future C&S. If CEC tells us a set of future C&S will come into effect, we will simply assume those C&S will be cost effective and only calculate their savings. What This Means for C&S Modeling The PGT team does not plan to quantify the costs associated with Codes and Standards. Codes and Standards » Update Scope

10. 9 ©2012 Navigant Consulting, Inc. ENERGY 1Codes and Standards Agenda Emerging Technologies2 Upcoming DAWG Schedule3

11. 10 ©2012 Navigant Consulting, Inc. ENERGY Market Potential for Gas ETs in 2014 Focused mostly on lighting, HVAC and water heating emerging technologies for the commercial and residential sectors Competed emerging technologies against conventional technologies (e.g. LEDs vs. CFLs) on the basis of cost effectiveness. The May 2012 PGT report included 23 unique emerging technologies selected by the study team with input from stakeholders. Emerging Technology » Past Methodology Market Potential for Electric ETs in 2014 Source: Navigant. Analysis To Update Energy Efficiency Potential, Goals, And Targets For 2013 And Beyond. 2012.

12. 11 ©2012 Navigant Consulting, Inc. ENERGY Residential electric comparison reveals some differences between consumption and market potential for ETs. Emerging Technology » Past Results IOU Market Potential for Electric ETs in 2014 Navigant conduced a similar analysis for the commercial sector and for gas use as well. The comparison revealed some additional areas in which ETs may have more potential Source: Navigant, 2012. Source: CEC 2011 IEPR Forecast Data Statewide Residential Electric Use (CEC Data)

13. 12 ©2012 Navigant Consulting, Inc. ENERGY Residential and Commercial technology selection will be informed by the largest energy consuming sector end-use combinations in the state The tables below list the sectors and end uses on which we plan to focus on for this update and indicates whether or not they were covered in the last report. In this update we plan to include an expanded scope of end uses in which ETs could generate savings. Emerging Technology » Update Methodology Electric Sector and End Use Percent Residential + Commercial Electricity Use Coverage in Last Report? Com Indoor Lighting16.55%Yes Com Miscellaneous12.63% Res Miscellaneous10.37% Com Cooling8.29%Yes Res Refrigerator8.22% Res Lighting7.38%Yes Com Ventilation5.64% Com Refrigeration4.37% Res Cooling3.58%Yes Com Outdoor Lighting3.09%Yes Res Dryer2.44% Res Water heater0.93%Yes Total83.5% Gas Sector and End Use Percent Residential + Commercial Gas Use Coverage in Last Report? Res Space heat 31.92% Res Water heater 16.07%Yes Com Heating 10.88%Yes Com Water Heating 9.51%Yes Res Clothes washer (demand on water heating) 7.39% Com Cooking 6.76% Res Dishwasher (demand on water heating) 4.60% Total87.1% Source: CEC 2011 IEPR Forecast Data and Navigant Analysis

14. 13 ©2012 Navigant Consulting, Inc. ENERGY For example, lets consider Residential Air Conditioning: –Using DEER measures, we are planning to model conventional residential high efficiency air conditioners with SEER 15 and SEER 18 levels. –As an emerging technology for this end use, we could model (for example) a SEER 22 unit. –Its possible that various manufactures employ various technologies that could achieve this effective SEER level (indirect evaporative cooling, “hot-dry” optimized AC, water cooled condenser coils, etc.). –We would use these specific technologies as data sources for technical feasibility, cost, and savings. However, we will average them into a single aggregate emerging technology called “SEER 22 AC”. We are agnostic to how the ET high efficiency level is reached; rather we’ll focus on what that level is (is it technically feasible with today’s technologies?), what it can save, and how much it would cost. This method allows us to –Avoid picking a “winning” technology or manufacturer –Avoid competing multiple ET products against each other that effectively do the same thing –Examine more sector-end use combinations than before The PGT team plans to generalize emerging technologies for the targeted sectors and end uses based on ETs data available. Emerging Technology » Update Methodology

15. 14 ©2012 Navigant Consulting, Inc. ENERGY The PGT team plans to use an Emerging Technology “Risk Factor” assigned to each ET to represent the inherent uncertainty. Emerging Technology » Update Methodology ET Risk Factor Scorecard Technology Characteristic 54321 Market Risk (High Risk) Requires new/changed business model Start-up, or small manufacturer Significant changes to infrastructure Requires training of contractors Consumer acceptance barriers exist. (Low Risk) Trained contractors Established business models Already in U.S. Market Manufacturer committed to commercialization Technical Risk High Risk: Prototype in first field tests Low volume manufacturer. Limited experience New product with broad commercial appeal Proven technology in different application or different region Low Risk: Proven technology in target application Data Source Risk High Risk: Based only on manufacturer claims Manufacturer case studies Engineering assessment or lab test Third party case study (real world installation) Low Risk: Multiple third party case studies or evaluation results The PGT team will use the final score to estimate a risk factor on a scale of 0% to 100% that will be used to decrement market potential from ETs as needed.

16. 15 ©2012 Navigant Consulting, Inc. ENERGY 1Codes and Standards Agenda Emerging Technologies2 Upcoming DAWG Schedule3

17. 16 ©2012 Navigant Consulting, Inc. ENERGY Upcoming DAWG Meetings We plan to have three additional DAWG meetings in 2012. We will coordinate dates for early-2013 meetings in December. Upcoming DAWG Meetings November 8 November 29 December 13

18. 17 ©2012 Navigant Consulting, Inc. ENERGY Upcoming DAWG Meetings Calculate Technical Potential Calculate Market Potential Calculate Economic Potential Finalize Analysis for Goals Develop Measure- Level Inputs Res/Comm (DEER, FEA, ET) AIMS Update Analysis of Drivers IOU Portfolios C&S Strategic Plan Financing Update Global Inputs Economic Building Stock Baseline Energy and Demand Model Market Adoption Create Structure Develop Inputs Decay Conduct Additional Activities Scenario / Sensitivity Analysis Calibration Apply TRC Screen

19. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. Key C O N T A C T S ©2012 Navigant Consulting, Inc. 18 ENERGY Floyd Keneipp, Director in Charge Managing Director Walnut Creek, CA (925) 930-2716 Floyd.Keneipp@navigant.com Jane Pater Salmon Associate Director Boulder, CO (303) 728-2522 Jane.Salmon@navigant.com Amul Sathe Managing Consultant San Francisco, CA (415) 399-2180 Amul.Sathe@navigant.com Floyd Keneipp, Director in Charge Managing Director Walnut Creek, CA (925) 930-2716 Floyd.Keneipp@navigant.com Jane Pater Salmon Associate Director Boulder, CO (303) 728-2522 Jane.Salmon@navigant.com Amul Sathe Managing Consultant San Francisco, CA (415) 399-2180 Amul.Sathe@navigant.com