Doug Baston Principal, North Atlantic Energy Advisors

1. Efficiency Programs 101: A Guide to Public Efficiency Programs in Maine and Elsewhere for the new Board Member Doug Baston Principal, North Atlantic Energy Advisors (and Director of Business Construction Services, Efficiency Maine) 1

2. Today: • History of Efficiency Programs in New England • Maine’s Unique History • Efficiency Programs in 2008 • What We’ve Learned about Good Programs • What’s on the Horizon

3. History of Efficiency Programs in New England: 1985 – 1995 • Pressure from environmental organizations: Efficiency is a lower cost, cleaner alternative to new nuclear or fossil plants • 1987 CLF issues “Power to Spare” report. CLF forms Stakeholder Collaboratives with utilities in Connecticut, Massachusetts, and Rhode Island to jointly design new programs and increase efficiency spending • Utilities in Maine, New Hampshire, and Vermont also develop efficiency programs; CMP rejects a collaborative • Large budgets (CMP and New England Electric were in the forefront) • A suite of brand new “resource acquisition” programs (some modeled after those in the Pacific Northwest) • Stakeholder/Utility Collaboratives become institutionalized • New England utilities, including CMP, are national leaders

4. 1995 – 2005 • Utility Restructuring “Grand Bargain” keeps efficiency programs in place, but control shifts from regulators to legislators • Utilities in other New England states want to keep program management and delivery (Maine utilities do not) • Some states shift to government administration (New York, New Jersey, Wisconsin, California, Maine) • As New England generation fleet shifts to gas, environmental benefits of efficiency are seen to diminish (pre - CO2 concern) • More emphasis on “Market Transformation” programs (vs. “Resource Acquisition”) • More emphasis on “Lost Opportunity” (vs. Retrofit) programs • Programs become more consistent in the region, around mature and proven models • More cooperation among distribution utilities, who don’t compete for power sales

5. Mid 2005 to Now • Perfect Storm: rising energy costs, capacity constraints, climate change • Good news: Politicians discover efficiency; Bad news: Politicians discover efficiency • Huge budget increases bring: - Concerns about insufficient workforce and infrastructure - Pressure to do “splashy” programs - Fear of legislative raids - Pressure to dilute technical rigor of programs • Many more jurisdictions establish programs – New Brunswick, Nova Scotia, Maryland, Delaware, Illinois, Indiana, etc. • Some states return to utility administration (Wisconsin, California, probably New Jersey; New York moves towards mixed system) • Consider capacity savings attributes of efficiency (not a fully developed science) • “Best Practices” program models are generally known and accepted, and are largely copied by new program entrants • Acceptance that market captures but a fraction of available efficiency

6. Maine’s Unique History • No history of participatory program development. CMP rejected the collaborative approach in mid-80’s • CMP outsourced efficiency (Power Partners), so Maine never retained or developed (a) seasoned program administrators or (b) a support industry of private energy engineering or program delivery firms • Power Partners shut down efficiency programs for 15 years – creating a gap in program knowledge and experience while other state programs were growing and maturing • Maine’s largest utilities vehemently opposed creating a SBC, and remain largely uncooperative • Efficiency policy and legislation is far more bipartisan in other states

7. Maine in 2008 • Maine’s large customers neither pay nor play • Maine potentially has two efficiency program delivery vehicles – Efficiency Maine and the Trust. Other states folded RGGI into existing program delivery structure. • Maine’s system benefit charge is the lowest in the region. • One of only 2.5 states in region with government-run programs (New Jersey and New York).

8. Northeast Funding Levels: • Historic High: $900+ million (1994, NE, NJ, NY) • Low: $450 million (1997, post-restucturing) • 2007: $623+ million • Future: On path towards $1.5 billion/year

9. SBC Levels:

10. Budget Levels (2008):

11. How to Prioritize Programs: • All states have some general statutory “program goals” language – serve low income (usually a set-aside), supporting small business, market transformation, environmental benefits, reduce costs for consumers, etc. The portfolio should be consistent with these and: • Minimize lost opportunities; • Leverage market and technology opportunities; • Address market barriers; • Be cost-effective; • Be quantifiable; • Be equitable; • Be comprehensive; • Have an exit strategy

12. Successful Programs = Appropriate Administrative Structure + Good Program Model + Good Delivery (solid technical expertise + incentives) • Appropriate Administrative Structure: • Flexibility to adapt organizationally, and staff accordingly, in response to changing public policy; evolving program design, maturing delivery expertise; • Lean staffing: maintain flexibility to contract out functions or retain in house; • A strong evaluation capability (in-house or contract); • Ability to pay market-based compensation (It’s a very competitive labor market); • Ability to adapt program structure, rules, incentives quickly in response to changing market conditions and opportunities; • Crisp, nimble and responsive decision-making authority; • A vehicle for stakeholder input.

13. Good Program Models…. • This is Rocket Science, but the rockets have already been built and tested. • www.eebestpractices.com • American Council for an Energy Efficient Economy: “America’s Best: Profiles of America’s Leading Energy Efficiency Programs” • Energy Trust of Oregon: “Best Practices from Energy Efficiency Organizations and Program” • Dalhousie University: “Overview of Administrative Models for DSM” • Most of the Best Practices Programs are right here in New England – National Grid, NSTAR, Northeast Utilities, Efficiency Vermont • This is an industry that shares well with others

14. …. + Good Delivery: • Customers want independent technical advice: (a) qualified and (b) not associated with a product (e.g., a vendor) • They want someone who will hand-hold them through a process from: (a) opportunity identification, to (b) calculating out costs and savings, to (c) shepherding the project through to completion, including (d) the program paperwork. • This includes looking at all the savings opportunities. • Incentives are important, but often not as important as the above. • The art and science of incentives is in finding the Goldilocks Spot. A Small Craft Warning: We are experiencing a very, very tight labor market for experienced technical consultants and program managers.

15. What We’ve Learned: • Don’t Reinvent the Wheel • A Wheel is Pretty Much a Wheel Everywhere • Be first to be second • Have Serious Programs to be Taken Seriously • Have Broad, Umbrella Programs • Work with the Market – and Add Value • Be Known for Your Technical Competence • Have Stable, Consistent Programs • Don’t Buy What You Can’t Verify • Hold Strictly to Cost-Effectiveness

16. A Few “Best Practices" Examples…. • National Grid’s Design 2000+ Program • Direct Install Program (National Grid, NSTAR, PSNH, Efficiency Vermont, Nova Scotia Power) • High Performance T8 “Upstream” Incentive Program (Efficiency New Brunswick, Conserve Nova Scotia) • NSTAR/Grid Performance Lighting • NSTAR Marshfield Project

17. Where Were Going: • Much Bigger Budgets (FCM, REGGI, edicts to acquire “all cost effective” efficiency)…… • …..And accompanying delivery problems (lack of skilled program managers, engineers, evaluators, skilled installers) • Integrating other funding streams (REGGI, FCM, gas or oil SBC) into a coherent and coordinated program…. • …..And addressing the multiple policy objectives that accompany that • Increased focus on Whole Building Solutions: • Home Energy Performance • Comprehensive Design Approach • LEED, Advanced Buildings • NetZero Buildings • New Technologies: Plug Load Energy Star Electronics, LEDs, etc. • Acquiring “all cost effective efficiency” – could mean $70 mil/yr in Maine • Decoupling, and utilities reentering the game • The “Efficiency Utility”? • The challenge of “All Fuels” • More aggressive energy codes and equipment standards

18. Questions?