1. 1 DRAFT DO NOT CITE OR QUOTE For NPC Resource Study Discussion Only NPC Demand Task Force – Residential and Commercial Findings & Recommendations January 21, 2011

2. 2 DRAFT DO NOT CITE OR QUOTE For NPC Resource Study Discussion Only Further information about evidentiary support for the proposed finding: The growth in overall energy consumption is largely attributable to growth in electricity demand and losses related to generation, transportation, and distribution as electricity usage increased in the residential and commercial sector. Finding 1: Electricity related losses have increased to represent over 50% of total energy consumption in the residential and commercial sectors in 2009. Residential & Commercial Subgroup Judgment / observation: A holistic energy measurement methodology, such as a full-fuel-cycle analysis, provides means towards a more comprehensive assessment of energy usage, emission levels, intensity, costs, benefits, impacts, and efficiency economy wide. The direct use of natural gas for residential and commercial heating and cooking applications can offset losses related to electricity sales to these applications. Consequence(s) of doing nothing: Overall energy consumption will continue to be driven by growth in electricity demand and related losses. Consequence(s) of suggested policy : A holistic measurement approach would include consideration of energy losses promoting a fuller evaluation of the economic and societal-wide costs, benefits, and impacts associated with a particular energy option. Enabled with this information, key stakeholders such as consumers, energy providers, policy makers, and regulators can make better informed decisions regarding energy choices. Preliminary policy suggestion(s): Source-based efficiency labeling for appliances and buildings Direct funding of R&D towards increased efficiency of end-use applications and expanding the use of natural gas to displace higher carbon emitting sources Policies that support the development of distributed energy technologies Policies promoting end-use energy efficiency reduce energy waste, emissions, and other impacts irrespective of energy source and at all fuel-cycle phases. Working assumptions that underlie the policy suggestion: The energy consumed by a natural gas end-use appliance, when measured on a full-fuel-cycle basis, often offers higher efficiencies and lower carbon emissions compared to competing technologies and fuel sources. To CSC for 1/27/2011 mtg Add’l to Policy Subgroup

3. 3 DRAFT DO NOT CITE OR QUOTE For NPC Resource Study Discussion Only Further information about evidentiary support for the proposed finding: Reducing the need for all energy, regardless of source, energy efficiency improvements lower emissions, mitigate environmental impacts, and enhance energy security. If the United States used energy at 1973 efficiency levels, about 56 percent more energy would be consumed, or 52 quads. Finding 2: Energy efficiency improvements have weakened the link between economic and population growth and demand for energy. Residential & Commercial Subgroup Judgment / observation: Various studies reviewed by our subgroup indicate that energy efficiency opportunities in the residential and commercial sectors remain vast. Consequence(s) of doing nothing: By not addressing all energy efficiency improvement opportunities, the potential for efficiency gains will not be realized in a cost effective nor timely manner. Consequence(s) of suggested policy: Energy efficiency policy measures can help overcome market failures (split incentive/principal agent problems, information gaps, high “hurdle rates”, uncertain tenure [how long will you own home], externality costs) to allow and promote cost- effective energy efficiency investments that may not otherwise occur. Such investments could then reduce emissions and other environmental impacts, enhance energy reliability and security. Preliminary policy suggestion(s): Various policies for increasing end-use energy efficiency, including, among others; enhanced building codes and equipment standards utility tariff design energy efficiency resource standards (EERS) fiscal incentives (tax incentives, loan funds, property assessed clean energy [PACE] financing, etc.) building labeling and consumer energy information, would reduce energy waste, emissions, and other impacts irrespective of energy source and at all fuel-cycle phases and could enhance energy security and reliability. Working assumptions that underlie the policy suggestion: Energy efficiency advancements have reduced the rate of growth in energy consumption Enhanced codes and standards improve energy efficiency of new buildings and equipment. Innovative tariff design, EERS, and utility demand- side management programs have yielded energy savings, more so in states with stronger requirements. Financial incentives (tax, loan funds, etc.) can incentivize more energy efficient new and retrofitted buildings and equipment. Labeling and information inform consumers of energy costs and impacts and ways to save. To CSC for 1/27/2011 mtg Add’l to Policy Subgroup

4. 4 DRAFT DO NOT CITE OR QUOTE For NPC Resource Study Discussion Only Further information about evidentiary support for the proposed finding: Historical declines in natural gas demand per household and per person is expected to continue for the foreseeable future as existing natural gas heating and water heating equipment is replaced with new high efficiency equipment, new buildings are built with more energy efficient shells, and conservation influences consumer behavior. Efficiency of both natural gas and electric appliances and equipment have improved, but new electric applications have more than offset energy efficiency gains. Finding 3: Gas use per customer has decreased while electric use per customer has increased. Residential & Commercial Subgroup Judgment / observation: Natural gas can reduce emissions by displacing more carbon intensive fuels through increased high efficiency end use applications Consequence(s) of doing nothing: Overall energy consumption will continue to be driven by growth in electricity demand and related losses. Consequence(s) of suggested policy The efficient, direct use of natural gas in home and building energy applications provides North America with an opportunity to significantly reduce economy-wide CO 2 emissions in a cost affordable and achievable manner and achieve the following objectives specified in Secretary Chu’s letter to the National Petroleum Council: Environmental Protection Economic Growth National Security Preliminary policy suggestion(s): Enable growth in direct use natural gas applications, such as: main extension policies to enable the expansion of natural gas infrastructure and provide expanded customer choices, incenting non-traditional gas technology to consumers (gas heat pumps, desiccant dehumidifiers, micro-combined heat and power units) while promoting improvements in efficiency. Providing tax incentives for the production of bio- gas from renewable sources such as animal manure, forest residues, agricultural wastes and municipal landfills that are similar to those that exist for renewable electricity and renewable transportation Natural gas meters and appliances should be integrated into electric smart grid initiatives to promote a Smart Energy Grid. Working assumptions that underlie the policy suggestion: Natural gas ratios for energy consumption per household and per population experienced the most dramatic reduction from 1970-2009, while energy consumption per customer for electricity did not experience a reduction as new electric applications have more than offset the reductions in energy consumption associated with energy efficiency advancements. To CSC for 1/27/2011 mtg Add’l to Policy Subgroup