1. GETTING TO 3% ANNUAL ENERGY SAVINGS NECPUC Annual Symposium Stowe, VT June 17, 2014 Chris Neme, Energy Futures Group

2. Energy Futures Group Consulting Areas of Expertise  Program Design  Policy Development  Building Codes  Evaluation  Cost-Effectiveness Range of Clients  Government Agencies  Advocates/NGOs  Regulators  Utilities Clients in more than 20 states, 4 Canadian provinces and Europe. 2

3. Presentation Themes 3  Get the goals right  Focus on the longer-term  Facilitate integration of efficiency with other objectives  Electrification  Distributed generation  Others  Fully value all benefits of efficiency

4. The Climate Change Context 4 Four strategies required to address climate change:  De-carbonization of grid  Electrification  building heating/other end uses  cars  Investing in grid flexibility to address intermittent renewables  More transmission inter-connections  More demand response  More flexibility (to turn off/on) of remaining fossil fuel generation  Massive investment in energy efficiency Conclusion of both European and California studies

5. California’s Least Cost 2050 GHG Path 5 Source: Energy and Environmental Economics (E3), “Meeting California’s Long-Term Greenhouse Gas Reduction Goals, 2009

6. Question/Goal Needs Re-Framing 6  Need longer term focus: e.g. getting to “30% over 10 years”  Articulating goals as 1 st year savings is problematic  Perverse incentive to invest in cheap, shorter-lived measures  Cheapest per 1 st year kWh often not cheapest per lifetime kWh:  Metrics based on 1 year of performance is problematic  All about chasing savings this year/quarter/month  Little incentive to invest in longer-term market development strategy  Little incentive to invest in emerging technologies Savings/ YearMeasure LifeCost Cost/unit of 1 st year savings Cost/unit of lifetime savings Measure 1 20 therms 1 $10$0.50 Measure 2100 therms20$200$2.00$0.10

7. Lifetime vs. 1 st Year Savings Trade-offs 7 Source: Optimal Energy and Energy Futures Group, “Final Report: Alternative Michigan Energy Savings Goals to Promote Longer Term Savings and Address Small Utility Challenges”, prepared for the Michigan Public Service Commission, September 13, 2013

8. Make Goals kWh “Equivalents” 8  Need “all fuels” perspective to optimize efficiency  Why not weatherize fossil fuel-heated homes?  They will ultimately need to become electrically heated  Better to weatherize before or at same time as electrified  Why not support efficient fuel-switching?  We need to electrify anyway  Super efficient, cold climate heat pumps are game-changer  Source efficiency already better than best gas furnace  More advancements coming  Electric cars are inherently more efficient

9. Encourage/Reward Market Transformation 9 A range of options:  Provide credit for advancing codes and standards  Provide credit for other evidence of MT  Substantial efficiency budget set-asides for MT  With their own rigorous performance metrics  More radical changes to savings goals…

10. Base Goals on Actual kWh Consumption 10  E.g. Electric sales should be <XXXX GWh in 5 years  Lots of Advantages:  Measures the real “bottom line”  Inherently rewards market transformation efforts  Eliminates fights over gross savings measurement  Still do EM&V, but only to inform strategy  Eliminates fights over free ridership and spillover  But Challenges Too:  Need to provide credits to support electrification  Need adjustments for weather, economy, maybe other things  Requires commitment to long time horizons…  …but utilities like annual rewards

11. Fully Value All Efficiency Benefits 11  In cost-effectiveness screening:  Avoided energy, capacity, T&D  Price suppression effects  Marginal line losses  Risk mitigation  Non-energy benefits  When considering T&D:  Routinely assess alternatives  Equal cost-allocation treatment New England is nation – leading on these things, but still room for improvement Some of the best efforts in country in the Northeast, but still some big problems (e.g. PTF treatment of transmission, but not alternatives)

12. Chris Neme Energy Futures Group cneme@energyfuturesgroup.com Phone: 802-482-5001 Cell: 802-363-6551 Q&A 12