1. CPUC EM&V WO54 – Market Assessment & Market Effects www.nmrgroupinc.com Baseline Characterization Market Effects Study of Investor-Owned Utility Residential and Small Commercial HVAC Quality Installation and Quality Improvement Programs in California

2. Agenda Overall Study Objectives Subprograms and Indicators of Progress Inputs to the HVAC Baseline Market Characterization Study Key Conclusions Recommendations 2

3. Overall Objectives of the HVAC Baseline Characterization Market Effects Study Provide baseline for CPUC HVAC residential and small commercial customer programs to help assess future market effects Address market transformation indicators (MTIs) established for HVAC programs. Estimate: –Contractors adhering to QI and QM practices –Contractor qualification –Customer awareness –Program participation –Customers receiving regular system maintenance 3

4. Overall Objectives of the HVAC Baseline Characterization Market Effects Study (continued) Develop estimates for energy-efficient HVAC equipment of: –Market share –Sales –Penetration –Saturation Develop a system for obtaining ongoing measurements of energy-efficient HVAC equipment for: –Market share –Sales –Penetration 4

5. Agenda Overall Study Objectives Subprograms and Indicators of Progress Inputs to the HVAC Baseline Market Characterization Study Key Conclusions Recommendations 5

6. CPUC HVAC Subprogram Areas Quality Installation (QI) and Quality Maintenance(QM) –Industry standards (ANSI/ACCA/ASHRAE) establish minimum requirements for the installation, inspection and maintenance of HVAC systems –Promote thermal comfort, indoor air quality, and energy efficiency. Upstream HVAC Equipment –Incentives provided to distributors for selling high efficiency HVAC equipment 6

7. CPUC HVAC Subprograms and Market Transformation Indicators (MTIs) SubprogramSubprogram NameMTIMTI Description HVAC-1 Upstream HVAC Equipment Subprogram MTI-1 Market share of climate appropriate HVAC equipment. HVAC-2 Residential Energy Star Quality Installation Subprogram MTI-2 Percentage change in the use of Quality Installation guidelines among all California Residential HVAC installation contractors. HVAC-3 Commercial Quality Installation Subprogram MTI-3 Percentage change in the use of Quality Installation guidelines among all California Commercial HVAC installation contractors. HVAC-4 Quality Maintenance Development Subprogram MTI-4 Percent change in the employment of Quality Maintenance practices among all California HVAC contractors and technicians. 7

8. Secondary Indicators Assessing HVAC Subprograms Progress 8 Quality InstallationQuality Maintenance PERCENT CHANGE IN… Contractor awareness of QI and ACCA standards Contractor awareness of QM and ACCA/ASHRAE standards Customer awareness of QI conceptsCustomer awareness of QM concepts Contractors currently participating in QI programs Contractors currently participating in QM programs Customer awareness of rebate and QI programs Customer awareness of QM programs Technicians with training in QITechnicians with training in QM Portion of contractors that obtain building permits for HVAC installations Customers who have regular maintenance of their HVAC systems

9. Agenda Overall Study Objectives Subprograms and Indicators of Progress Inputs to the HVAC Baseline Market Characterization Study Key Conclusions Recommendations 9

10. Studies Providing Inputs to the HVAC Baseline Characterization Market Effects Study Data sources for baseline MTIs and secondary indicators –HVAC Maintenance Behavioral Research Study –RMST/CLASS (WO 21) –CMST/CSS (WO 24) –HVAC Impact Evaluation (WO 32) These included –Online and telephone surveys of residential customers, small commercial customers, and contractors –In-depth interviews with program staff and HVAC distributors –On-sites and field assessments of homes with cooling systems, recent installations, and recent maintenance 10

11. Agenda Overall Study Objectives Subprograms and Indicators of Progress Inputs to the HVAC Baseline Market Characterization Study Key Conclusions Recommendations 11

12. Key Conclusions Over one-half of energy-efficient HVAC equipment sold to residential and small commercial customers in 2011 and 2012 in California met Tier 1 or better efficiency standards Baselines for QI and QM in California are relatively low: –Fewer than one-half of contractors are familiar with the ACCA or ASHRAE standards for QI and QM; a small minority say they adhere to all these standards –Most customers are not aware of the concepts of QI and QM or of the IOU programs –Fewer than one-quarter of residential customers and fewer than three-fifths of small commercial customers have annual maintenance of their HVAC systems 12

13. Progress Toward California Energy Efficiency Strategic Plan Market Share Goals Goal: 15% of HVAC equipment shipments optimized for California’s climate by 2015 and 70% by 2020. Overall 57% of HVAC units sold to residential and small commercial customers in 2011 and 2012 met Tier 1 or better program efficiency standards, a proxy indicator of climate appropriate. Overall 13% of HVAC units met Tier 2 or better efficiency standards Performance tiers were defined using the 2010-2012 SCE Qualifying Minimum Equipment Efficiencies & Incentive Levels for Commercial Air Conditioners (see Appendix A). The number of tiers and tier standards, defined based on minimum unit SEER, EER, or IEER ratings, vary by HVAC unit type and capacity. 13

14. 14 Installation Contractor Awareness of and Adherence to Standards Residential Small Commercial The majority of installation contractors say they have formal policies and guidelines for their technicians to follow BUT— Fewer than one-half are aware of ACCA Standard 5 A small minority adhere to all ACCA Standard 5 specifications Source: Online contractor survey of 245 contractors conducted during May and June of 2012

15. 15 Maintenance Contractor Awareness of and Adherence to Standards ResidentialSmall Commercial The majority of maintenance contractors say they have formal policies and guidelines for their technicians to follow BUT— Fewer than one-half are aware of ACCA/ASHRAE Standards A small minority adheres to all ACCA/ASHRAE Standards specifications Source: Online contractor survey of 245 contractors conducted during May and June of 2012

16. Customer Awareness of QI Small commercial customers slightly more aware than residential customers Low unaided awareness Hardly any customers (7 out of 597 surveyed) could name any QI programs or guidelines unaided Source: Telephone surveys of 297 residential customers and 300 small commercial customers conducted between August and October 2012 16

17. Customer Awareness of QM More customers aware of QM than QI Residential customers slightly more aware than small commercial customers Still have low unaided awareness Hardly any customers (5 out of 597 surveyed) could name any QM programs or guidelines unaided Source: Telephone surveys of 297 residential customers and 300 small commercial customers conducted between August and October 2012 17

18. Aided Customer Awareness of QI/QM and Rebate Programs Highest awareness among SDG&E customers More small commercial customers aware programs exist but have not heard of Quality Care or SCE Installation Source: Telephone surveys of 297 residential customers and 300 small commercial customers conducted between August and October 2012 18

19. 19 Customer Reported Frequency of Maintenance Visits (excluding repairs) ResidentialSmall Commercial Most (66%) residential customers have maintenance every two years or less frequently Many (38%) small commercial customers have maintenance every two years or less frequently Source: Telephone surveys of 297 residential customers and 300 small commercial customers conducted between August and October 2012

20. Key Conclusions (continued) The barrier to QI and QM most commonly cited by contractors is customers’ reluctance to pay for it. An additional barrier to QI and QM is competition from many unlicensed HVAC technicians –CSLB estimates that there may be as many as 60,000 unlicensed technicians operating in California Small fractions (1% to 10%) of installation and maintenance contractors have qualified for IOU QI/QM programs. 20

21. 21 Installation Contractors’ Reported Barriers to QI Residential Small Commercial Customer reluctance to pay for QI is cited by a majority of contractors, far more than any other barrier Knowledge and access to training are the next most commonly cited barriers Source: Online contractor survey of 245 contractors conducted during May and June of 2012

22. 22 Maintenance Contractors’ Reported Barriers to QM Residential Small Commercial Contractors believe customers need education on benefits of QM and need to be “sold” on it Residential customers are more reluctant to pay for QM unless they know it will save them money Small commercial customers, however, are more reluctant to pay regardless of knowledge Source: Online contractor survey of 245 contractors conducted during May and June of 2012

23. Installation Contractors with IOU Training and/or Qualification Very small portion of contractors estimated to have gone through IOU training and/or qualification* Number of contractors in California extrapolated from survey results *Since one IOU did not distinguish between program qualified and trained contractors, the analysis used the larger of the numbers provided by the other IOUs Source: Energy Market Innovations, California HVAC Contractor & Technician Behavior Study, Final Report, September 2012 23

24. Maintenance Contractors with IOU Training and/or Qualification Larger portion of maintenance contractors trained/qualified* than installation contractors Small portion of maintenance contractors estimated to have gone through IOU training and/or qualification Number of contractors in California extrapolated from survey results *Since one IOU did not distinguish between program qualified and trained contractors, the analysis used the larger of the numbers provided by the other IOUs Source: Energy Market Innovations, California HVAC Contractor & Technician Behavior Study, Final Report, September 2012 24

25. Agenda Overall Study Objectives Subprograms and Indicators of Progress Inputs to the HVAC Baseline Market Characterization Study Key Conclusions Recommendations 25

26. Recommendations Design and operation of the HVAC subprograms –Use a common definition of "climate appropriate," "quality," and “contractor qualification" among stakeholders and implementers Focus on educating customers about QI and QM Educate customers about benefits of energy efficient HVAC system –Collaborate with industry leaders, in a cost-effective manner, to promote Contractor training for NATE certifications More stringent IOU program qualification requirements –Step up efforts to have contractors participate in IOU training programs –Agree on a common set of QI/QM program qualification requirements across IOUs IOUs could, if appropriate, also offer an approach to qualify entire contracting companies for their programs. 26

27. Recommendations (continued) Research and monitoring of program indicators –Periodically assess market transformation indicators and secondary indicators –Implement a market share tracking system for periodic reporting of market shares by efficiency level and sales –Customer focus groups may help assess perceptions of "Quality Installation” and “Quality Maintenance” versus the generic term “quality” –Assess the magnitude of the problem of competition from unlicensed technicians 27