1610 Harrison Street Oakland, CA Existing Upstream Program Process CPUC HVAC Workshop Wednesday, June 24, 2009

2 Upstream Program Theory Leverage Marketplace at a point in the Distribution Channel where most impactful. Provide motivation to “Stock and Sell” the most efficient equipment. Provide incentives based on efficiency of equipment to overcome Cost Barriers. Reduce Barriers to participation via an effective program design.

3 Leverage the Market Manufacturers/ Distributors have knowledge, infrastructure, communication channels, and other resources (marketing expertise) that can be brought to bear to achieve mutual goals. Dozens of Distributors can influence about three thousand contractors who can impact hundreds of thousands of customers.

4 Barriers to Stocking and Selling Without adequate intervention - lower cost/less efficient equipment monopolizes sales. Distributors are competing for business where lowest cost typically wins the award. Explaining benefits of more costly, more efficient equipment takes time thus can be a barrier to “Up-selling”. Distributors must have “competitively priced” product in order to win new business as well as to justify for emergency replacement business. They stock what they believe they can sell most quickly or most profitably.

5 Incentives Provide the Right Message Incentives directly correlate to efficiency of equipment. Incentives are based on savings irrespective of brand. Tiered incentives provide additional impetus to promote and develop the next generation product.

6 Removing Barriers to Participation Web-based, user friendly system minimizes administrative cost to the Distributor (and Utility) over the long term. Pre-establishing incentive levels and qualifying equipment allows Distributors a “level playing field” in bid pricing to clients. Automated review provides streamlined approval and payment to Distributors. Reducing or removing the incremental cost can change stocking practice of Distributors.

7 Program Process Distributor reviews terms/executes program agreement. Security password issued to Distributor to access the online secure system. Distributor promotes qualifying equipment and enters qualifying sales into system. Online system validates customer, equipment, transaction date eligibility and initiates payment process. Sample of applications may be held for on-site verification activity.

8 Program History and Reach PG&E introduced in 1998 and demonstrated as an effective approach for HVAC. Statewide IOU program in 2004 and Currently in SCE, SMUD, NV Energy and PG&E. (Under consideration in LADWP & PacifiCorp.) Since 2004, this Program has processed over $31 million incentives representing over 375,000 tons of efficient HVAC equipment for clients. Other measures ie boilers, various lighting, or refrigeration are either underway or under consideration with various clients.

9 Going Forward The processing and approval time is days as opposed to weeks via traditional processes. Having the On-Line System accommodate volumes of applications in the tens of thousands per month is already occurring. Having migrated processing to a scalable server cluster has increased both reliability and availability. 500,000 applications per year would not be problematic. Upgrading the On-Line System to accommodate a more complex audit trail would take from two to three months once all details are known.

10 Questions? Terrance Pang Energy Solutions (510) x249