1. ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY DISPUTES & INVESTIGATIONS ECONOMICS FINANCIAL ADVISORY MANAGEMENT CONSULTING September 28, 2011 CPUC Potentials, Goals and Targets Study Update Presentation to the Demand Analysis Working Group (DAWG)

2. 1 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 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. September 28, 2011 ©2011 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 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

4. 3 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

5. 4 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Track 2 is organized by Key Market Drivers (KMDs), including IOU Programs (from Track 1) and other factors that promote EE. Overview of Track 2 Effort » At a Glance

6. 5 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY The project team is analyzing the KMDs in parallel to assess their level of impact, modeling requirements, and specific energy savings. Overview of Track 2 Effort » Work Plan

7. 6 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Output 2 (Optional): Programmatic + Market Transformation Approach Presents framework approach for incorporating Market Transformation activities into portfolio analysis Integrates with ongoing market transformation cost- effectiveness work Output 1B: Advanced Market Diffusion Model Overlay with Scenarios Analyzes changes in the pace of market adoption when incentive levels are varied based on current stage of market adoption (e.g., ET, mature technologies) Establishes two additional scenarios for incentive levels (e.g., incentives for ET at 100% / mid-mature technologies at 50% of incremental cost) Output 1A: Update / Enhancement of SESAT Model with Scenarios Builds off, updates, and enhances (where possible) the 2008 G&T Itron study Reviews CEC forecast assumptions for possible crossover Splits gross market potential by sector and IOU service territory Identifies key delivery mechanisms by sector Track 2 will produce an analytical model to support the development of two key study outputs. Overview of Track 2 Effort

8. 7 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Intersecting Issues Defining KMDs AttributionUncertaintyScenarios AB32 EE Target Overview of Track 2 Effort » Issues for the Analysis The Track 2 team is considering several intersecting issues in the analysis and is developing strategies to address them.

9. 8 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

10. 9 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Track 2 Model » Modeling Process Organization › High Level Track 1 – IOU Model Track 2 – Incremental Savings Model Technical & Economic Potential Achievable Potential IOUs (w/ C&S, Emerging Tech) Incremental Technical & Economic Potential Incremental Achievable Potential Strategic Initiatives, Market Trans, Legislation, Behavior, etc. Output 1A – Basic Targets (IOU Achievable Potential – Track 1) Output 1B – Policy Analysis: Incentive Levels (Incentives by Technology Maturity) Output 2 – Advanced Decision Analysis (Portfolio Decision Framework & Guidelines) Commission Policy Analysis Modeling Phase Policy Phase The IOU and Non-IOU Models will be used together to develop the Policy Analysis for the CPUC.

11. 10 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Track 2 Model » Modeling Process Organization › Detail Nat. Occurring J. Luboff, B. Rogers Conv. Measures G. Cullen C&S HMG / M. O’Hare Emerging Tech A. Sathe / M. Guernsey Other Leg. HMG / M. O’Hare Market Trans. D. Violette/ B. Rogers Scenario Inputs B. Rogers / G. Cullen EERAM G. Cullen Output 1A J. Luboff Output 1B J. Luboff Output 2 J. Luboff Strategic Plan J. Salmon/Waypoint/HMG Track 2 A. Sathe / B. Rogers Market Trans. D. Violette/ B. Rogers Phase 1: Input Development Phase 2: Model Development Phase 3: Policy Analysis List Screen Process IOU Other Drivers Model Inputs Technical & Economic Potential Market Potential Model Inputs Incremental Technical & Economic Potential Incremental Market Potential AttributionNaturally Occurring Savings from MT List Screen-KMD Process Other Drivers List Screen-KMD Process Other Drivers List Screen Process IOU Char. Process Scenarios List Hi/Med/Lo Develop Final Scenarios Stakeholder Process Potential Results Integration A. Sathe / B. Rogers List Screen Process Measure Related Basic TargetsVariable Incentive Levels Programmatic + Market Transformation Approach Integrating results from the various potential models. TBD The Track 2 model incorporates inputs from EERAM as well as analysis of each of the KMDs to produce the study outputs.

12. 11 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Track 2 GUI » Inputs Where relevant, the values for global inputs will be coordinated with those used in Track 1 analysis. Key Inputs II Integrated Scenario Energy Prices Energy Demand Forecast Population Discount Rate Incentive Level BAU Table Input Cases for Selected Scenario Etc. Table Notes: The model will be built in Analytica, a dynamic modeling platform that facilitates scenario analysis, QC, and uncertainty analysis. This example of an input screen demonstrates that the inputs will be easily accessible to reviewers. Outputs will be presented in a similarly transparent fashion. Illustrative

13. 12 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

14. 13 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Track 2 Model » Modeling Process Organization › Detail Nat. Occurring J. Luboff, B. Rogers Conv. Measures G. Cullen C&S HMG / M. O’Hare Emerging Tech A. Sathe / M. Guernsey Other Leg. HMG / M. O’Hare Market Trans. D. Violette/ B. Rogers Scenario Inputs B. Rogers / G. Cullen EERAM G. Cullen Output 1A J. Luboff Output 1B J. Luboff Output 2 J. Luboff Strategic Plan J. Salmon/Waypoint/HMG Track 2 A. Sathe / B. Rogers Market Trans. D. Violette/ B. Rogers Phase 1: Input Development Phase 2: Model Development Phase 3: Policy Analysis List Screen Process IOU Other Drivers Model Inputs Technical & Economic Potential Market Potential Model Inputs Incremental Technical & Economic Potential Incremental Market Potential AttributionNaturally Occurring Savings from MT List Screen-KMD Process Other Drivers List Screen-KMD Process Other Drivers List Screen Process IOU Char. Process Scenarios List Hi/Med/Lo Develop Final Scenarios Stakeholder Process Potential Results Integration A. Sathe / B. Rogers List Screen Process Measure Related Basic TargetsVariable Incentive Levels Programmatic + Market Transformation Approach Integrating results from the various potential models. TBD The CPUC’s Strategic Plan for Energy Efficiency was analyzed to identify the most influential goals to be modeled.

15. 14 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY A five-step process is driving the analysis of the Strategic Plan, allowing for characterization of its strategies and goals. Analysis of Key Market Drivers » Strategic Plan › Approach Fill Out Database with Strategic Plan Information Complete Scorecard Rank Strategic Plan Goals for Deeper Analysis Model Strategic Plan Goals That Pass the Screen Assess Attribution and Calculate Savings Steps in Strategic Plan Analysis Develop Framework for Future Analysis of Strategic Plan

16. 15 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY CategoryExample Scoring CriteriaPossible Points Impact of TechnologyHIMs Impacted MOIs Impacted ETs Impacted 3.5 Reach of InterventionType of Intervention Number of Sectors Affected 2.0 CPUC PriorityAction Plan Developed Related to Programmatic Initiative Champion Identified 2.0 Total Points Possible7.5 The scorecard considers the potential energy savings, the reach of the intervention, and the level of policy priority put on the strategies so far. Analysis of Key Market Drivers » Strategic Plan › Scorecard Existing Buildings Whole Building Design New HVAC Technologies Existing Homes Preliminary Priority Goals Score at Strategy Level Rank at Goal Level

17. 16 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Strategic Plan › Modeling Effort Modeling savings created by the Strategic Plan will start with bundling the technologies that result from each goal. Strategic Plan Goal #1 Technology A Technology B Technology C Technology D S.P. Goal #1: Bundle Total Cost Total Savings Wt. Average Measure Life Wt. Average Aware. + Will. Calculated Parameter Customer Payback S.P. Goal #1: Individual Data Tech kWh Savings A100 B25 C20 D10

18. 17 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

19. 18 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Track 2 Model » Modeling Process Organization › Detail Nat. Occurring J. Luboff, B. Rogers Conv. Measures G. Cullen C&S HMG / M. O’Hare Emerging Tech A. Sathe / M. Guernsey Other Leg. HMG / M. O’Hare Market Trans. D. Violette/ B. Rogers Scenario Inputs B. Rogers / G. Cullen EERAM G. Cullen Output 1A J. Luboff Output 1B J. Luboff Output 2 J. Luboff Strategic Plan J. Salmon/Waypoint/HMG Track 2 A. Sathe / B. Rogers Market Trans. D. Violette/ B. Rogers Phase 1: Input Development Phase 2: Model Development Phase 3: Policy Analysis List Screen Process IOU Other Drivers Model Inputs Technical & Economic Potential Market Potential Model Inputs Incremental Technical & Economic Potential Incremental Market Potential AttributionNaturally Occurring Savings from MT List Screen-KMD Process Other Drivers List Screen-KMD Process Other Drivers List Screen Process IOU Char. Process Scenarios List Hi/Med/Lo Develop Final Scenarios Stakeholder Process Potential Results Integration A. Sathe / B. Rogers List Screen Process Measure Related Basic TargetsVariable Incentive Levels Programmatic + Market Transformation Approach Integrating results from the various potential models. TBD Seven different state and federal legislative initiatives are currently being analyzed to understand their impacts on energy savings.

20. 19 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY The team focused on a select set of Legislative Initiatives identified in the RFP. Analysis of Key Market Drivers » Legislative Initiatives › Approach 1.AB 32: California Global Warming Solutions Act of 2006 2.AB 758 - Comprehensive Energy Efficiency Program for Existing Buildings 3.AB 1103 - Commercial Building Energy Use Disclosure Program 4.AB 1109: Huffman Bill 5.AB2404: Water Efficiency Programs 6.ARRA 7.Select Codes and Standards (both Voluntary and Mandatory) Legislative Initiatives Analyzed

21. 20 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY To analyze Legislative Initiatives, the team conducted both secondary and primary research. Analysis of Key Market Drivers » Legislative Initiatives › Approach Identify the appropriate legislative initiatives Use secondary sources to gather basic information Conduct interviews with key decision makers Prioritize legislative initiatives for further analysis Model relevant legislative initiatives Steps in Analysis of Legislative Initiatives

22. 21 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY We will use a “twins” approach to modeling the codes and standards included in Track 2. Analysis of Key Market Drivers » Legislative Initiatives › Approach to C&S “Measure 1a”: Modeled In EERAM “Measure 1b”: Modeled In Track 2 Measure 1a: Savings After Code Measure 1b Savings due to Code Measure 1 Savings Before Code (Deemed Savings)

23. 22 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

24. 23 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Behavior › Approach The Track 2 team is working to quantify the energy savings from behavior programs. 1)Identify participant types (residential, commercial) 2)Identify outcome types (usage-based behavior, market- based behavior) 3)Identify achieved impacts from information and behavior-based programs 4)Extrapolate achieved impacts to population Approach to Analyzing Energy Savings from Behavior

25. 24 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Behavior › Approach Existing studies report savings from different participant types. The Track 2 team will follow this breakdown. Focus on sectors with most supporting data: Residential Commercial building operators Step 1: Behavior Program Participant Types

26. 25 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Behavior › Approach Existing impact evaluations will provide data for quantifying the impacts of future behavior programs. Use existing impact evaluations to set targets Residential – OPower, Home Energy Efficiency Survey (HEES), other programs across the U.S. - % of residential energy consumption Commercial – Building Operator Certification (BOC), Government Partnerships, and other programs – kWh/sq ft, therms/sq ft Step 2: Behavior Program Impacts

27. 26 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Behavior › Approach Behavior programs can trigger one of two types of outcomes: changes in energy usage or changes to equipment installation behavior. Usage Behavior – changes in usage, existing equipment, relatively short persistence Equipment Installation Behavior – improved efficiency equipment, relatively long persistence Not incented (Naturally Occurring) Incented (overlap with resource programs) Step 3: Behavior Program Outcome Types

28. 27 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Analysis of Key Market Drivers » Behavior › Approach Methodologies in existing potential studies will inform the level of projected participation for behavior programs. Follow methodology of potential studies to extrapolate achieved savings to the population BC Hydro, 2007 Conservation Potential Review Includes behavior and lifestyle analysis areas Michigan State University, Behavioral Wedge examination Addresses expectation of population to act Step 4: Behavior Program Savings Potential

29. 28 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

30. 29 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Overview of Track 2 Model » Modeling Process Organization › Detail Nat. Occurring J. Luboff, B. Rogers Conv. Measures G. Cullen C&S HMG / M. O’Hare Emerging Tech A. Sathe / M. Guernsey Other Leg. HMG / M. O’Hare Market Trans. D. Violette/ B. Rogers Scenario Inputs B. Rogers / G. Cullen EERAM G. Cullen Output 1A J. Luboff Output 1B J. Luboff Output 2 J. Luboff Strategic Plan J. Salmon/Waypoint/HMG Track 2 A. Sathe / B. Rogers Market Trans. D. Violette/ B. Rogers Phase 1: Input Development Phase 2: Model Development Phase 3: Policy Analysis List Screen Process IOU Other Drivers Model Inputs Technical & Economic Potential Market Potential Model Inputs Incremental Technical & Economic Potential Incremental Market Potential AttributionNaturally Occurring Savings from MT List Screen-KMD Process Other Drivers List Screen-KMD Process Other Drivers List Screen Process IOU Char. Process Scenarios List Hi/Med/Lo Develop Final Scenarios Stakeholder Process Potential Results Integration A. Sathe / B. Rogers List Screen Process Measure Related Basic TargetsVariable Incentive Levels Programmatic + Market Transformation Approach Integrating results from the various potential models. TBD Emerging Technologies and IOU Savings will rely on outputs from the EERAM model used in Track 1 as a starting point.

31. 30 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY 3Analysis of Key Market Drivers Cross-Cutting Issues4 2Overview of Track 2 Model 1Overview of Track 2 Effort Strategic Plana Legislative Initiativesb Emerging Technologies and IOU Savingsd Agenda Behaviorc

32. 31 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Attribution will be considered among KMDs and across delivery mechanisms. Examples of each are provided below. Cross-Cutting Issues » Attribution Among KMDs LegislationStrategic Plan IOU Programs Across Delivery Mechanisms IOU ProgramsCEC Local Government Programs Attribution Purpose: Allow policy makers to understand the effects of different policies / market drivers. Purpose: Allow users to see which entities are expected to deliver energy savings..

33. 32 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY “Matrix” templates will be used to identify areas of overlap and assign attribution. Cross-Cutting Issues » Attribution Conduct analysis on independent KMDs Develop hierarchy of attribution Identify areas of overlap Navigant assigns preliminary attribution Conduct Delphi panel to finalize Approach to Assigning Attribution

34. 33 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Two “matrix” templates will be used to identify areas of overlap and assign attribution: among KMDs and across delivery mechanisms. Cross-Cutting Issues » Attribution SP #1SP#2SP#3AB758AB1103AB1109 IOU Pgms SP#1Xx SP#2Xxx SP#3Xx AB758xXx AB1103X AB1109Xx IOU Pgms xxxxxX Example of “Matrix” Approach for Attribution among KMDs

35. 34 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. ENERGY Track 2 Issues » Naturally Occurring Naturally Occurring energy savings encompass several types of non- programmatic energy savings. Source: Sulyma, I. 2009. Evaluation of Market Transformation Programs: An Introduction. BC Hydro. Potential savings from customer adoptions that would occur in the absence of further utility (*and other) programs from the outset of the forecast period, including freeriders, participant and non- participant spillover, and longer-term market effects. Source: Itron. Mike Ting presentation, February 17, 2007. Joint IEPR and NG&E Committees Workshop. * Navigant insertion Draft Working Definition of Naturally Occurring Savings Attribution of Energy Savings

36. 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 ©2011 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 35 ENERGY Kevin Cooney, Director-in-Charge Managing Director Boulder, CO (303) 728-2500 Kevin.Cooney@navigant.com Floyd Keneipp, Project Manager Director Walnut Creek, CA (925) 930-2716 Floyd.Keneipp@navigant.com Jay Luboff Associate Director Los Angeles (213) 670-2724 Jay.Luboff@navigant.com Jane Pater Salmon Associate Director Boulder, CO (303) 728-2522 Jane.Salmon@navigant.com Kevin Cooney, Director-in-Charge Managing Director Boulder, CO (303) 728-2500 Kevin.Cooney@navigant.com Floyd Keneipp, Project Manager Director Walnut Creek, CA (925) 930-2716 Floyd.Keneipp@navigant.com Jay Luboff Associate Director Los Angeles (213) 670-2724 Jay.Luboff@navigant.com Jane Pater Salmon Associate Director Boulder, CO (303) 728-2522 Jane.Salmon@navigant.com