The table below outlines the Fiscal Year 2015 goals for the Direct Install program.

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1 Program Planning Committee: Program Review Template Program Name: Direct Install (DI) PROGRAM DESCRIPTION 2. The Direct Install Program offers eligible small business customers the opportunity to retrofit existing inefficient equipment with more energy efficient systems. Municipal and other local government agencies that have successfully participated in the Local Government Energy Audit Program are also eligible. The Program provides turn-key services including technical assistance, financial incentives, education to encourage the early replacement of existing equipment with high efficiency alternatives, as well as the installation of new equipment. A variety of electric and natural gas energy using systems are eligible for improvements including lighting, controls, refrigeration, HVAC, motors, and variable speed drives. The program provides turn-key services and offers customers a single source of technical assistance, financial incentives and installation services. The Program is delivered across the state by multiple regional participating contractor who have been pre-selected via Request for Proposal (RFP) process to deliver installation and related services. Proper program and project management is a key factor which drives the success of the program in reaching its goals. Most importantly, appropriate management of the six primary Direct Install program contractors (and their associated sub-contractors) is necessary in order to ensure program participation levels are up to par. Setting goals for each contractor has been a useful strategy in the past and is continuing to help the program thrive. Direct Install Project incentive cap of up to $125,000. Direct Install participants will also be held to a fiscal year entity cap of $250,000 per entity. The signed Scope of Work Agreement will be the milestone used to determine proximity to the entity cap. 2. PROGRAM GOALS AND OBJECTIVES The table below outlines the Fiscal Year 2015 goals for the Direct Install program. Program FY 2015 New Applications Annual kw Committed Annual MWh Committed Annual DTh Committed Direct Install 1,393 9,614 41,715 72,209 FY 15 Direct Install Program Goals Current program progress against the goals depicted above can be found in Section 3 of this document. In addition, the DI program seeks to address the unique needs of New Jersey s small business community by creating a comprehensive, turnkey program which offers a variety of electric and natural gas energy using systems are eligible for improvements including lighting, controls, refrigeration, HVAC, motors, and variable speed drives. The Program strives to include a comprehensive package of costeffective energy efficiency improvements in each customer s project. 1

2 2.1 Program Benefits While the primary purpose of the program is to achieve the goals outlined above, the program creates several ancillary benefits for both the state and small business community. Some of these benefits include the following: Job Creation Since program inception it is estimated that the Direct Install Program has created over 300 local jobs (This number is based on feedback received from the primary contractors and has not been confirmed by TRC). Most of the jobs are within the six primary contractors and their individual sub-contractors. Water Implementing new gas saving measures such as boilers and water heaters is a large proponent of the program which help the program to obtain its annual gas savings goal. The program takes the next step and offers incentives for water savings measures such as low flow faucet aerators and low flow shower heads. These measures directly save water and indirectly help lower the customer s gas usage. 2.2 Target Market The Direct Install Program is open to all eligible commercial and industrial customers whose peak demand did not exceed 200 kw in any of the preceding twelve months. 2.3 Market Barriers The small business sector targeted by the Program tends to have a historical reluctance or inability to fund energy efficiency improvements. In addition, their small size tends to exclude them as beneficiaries of services from other energy service providers. Additionally the following challenges have been identified: Customers tend to be skeptical of new technologies. Customers do not understand why program administrators (Utilities, BPU, etc.) are offering to provide them with an incentive to implement these measures, and that they pay into the SBC to fund these programs. Customers are unsure of how to move forward with participating in programs. Marketing opportunities are limited to deliver information about the program to potential customers. Many customers are not aware of the program and incentives offered through the state, therefore the contractors must educate the customer about the program and how it works. Trust Many customers do not believe the 70% incentive level is real. Even with lucrative incentives, customers often do not have funding to cover energy efficiency improvements, they would rather wait until the equipment breaks down and has to be replaced. Education regarding the cost of using old, inefficient equipment is challenging Addressing Market Barriers Having six primary contractors to coordinate with customers has proven to be an efficient model. Five of the six contractors are assigned to a specific geographical area of the state, while the sixth contractor handles refrigeration jobs specifically statewide. Having localized teams enables the contractors to focus on the needs of their particular markets and has made educating the end users a simpler. The six 2

3 primary contractors utilize numerous subcontractors that they have trained regarding the program requirements. This expanded contractor network enables the teams to provide a more comprehensive energy solutions. The program contractors are responsible for addressing the following barriers: Contractors not part of the program have no incentive to tell customers about the program incentives and may direct them to other programs or technologies. Need to enhance outreach, education and marketing to small business sectors. Need to develop more case studies/success stories to represent business sectors and use in marketing strategies. 2.4 Scale of Market Intervention The planned scale of market intervention for this program is full statewide implementation. The program is currently only available to customers with a demand of less than 200 kw (recorded in the previous twelve month period. The program is not designed to handle larger customers as they generally have larger mechanical systems, different payback requirements and generally have more complex systems HISTORIC PROGRAM RESULTS The tables below show the program results for a portion of the past two fiscal years of the program. The first table includes the number of participants who received incentives in each time period, the associate energy savings, and the program expenditures and the second set show the outstanding commitments and the associated energy savings metrics. Time Period Fiscal Year 2014 (July June 2014) Fiscal Year 2015 (July June 2015) (Data Through Dec ) Participants MW MWh DTh Incentives Paid Admin Expenses Total Expendatures 1, ,040 99,959 $ 26,085, $ 602, $ 26,688, ,891 61,854 $ 16,785, $ 298, $ 17,083, Direct Install Results The table above shows positive results for the Direct Install program. The program commonly meets or exceeds the program goals set but the program administrators. The committed projects table can show how the program grows over time. The larger committed numbers depict an upward trend in applications received and approved. Time Period As of June 2014 (End of 2014 Fiscal Year) As of December 2014 (YTD for Fiscal Year 2015 at time of analysis) MW MWh DTh Committed Incentives ,893 50,783 $ 13,640, ,147 50,343 $ 16,219, Direct Install Results 3

4 The results shown in the tables above were exported from the New Jersey Clean Energy Program (NJCEP) database in a series of reports and compiled into tables. The database is populated with application data from applications and proposals received from program participants. calculations and algorithms are applied in order to determined energy savings values RESULTS OF BENEFIT ENEFIT/C /COST ANALYSIS /C The Cost Benefit Analysis for the program was completed by CEEEP and is based on the minimal data available. The analysis is intended to be a high level program analysis and does not reflect all of the measures actually installed within the program. 4.1 Cost Tests The Cost Benefit Analysis (CBA) for the program utilizes five separate tests which are outlined below. 1. Participation Cost Test a. The measure of the quantifiable benefits and costs to the customer attributed to participation in a program. The participant benefits are equal to the sum of any participant incentives paid, any reductions in bills, and any federal or state tax deductions or credits. Participant costs include any out-of-pocket costs associated with the program. 2. Program Administrator Cost Test a. The costs of a program as a resource option based on the costs incurred by the program administrator (including incentive costs), excluding any costs incurred by the participant. The benefits are the avoided supply costs of energy and demand and the reduction in capacity valued at marginal costs for the periods when there is a load reduction. The costs are the program costs incurred by the administrator, the incentives paid to the customers, and the increased supply costs for the periods in which load is increased. 3. Ratepayer Impact Measure Test a. Measure of what happens to customer bills or rates due to changes in revenues and operating costs caused by the program. The benefits equal the savings from avoided supply 2 costs, including the reduction in capacity costs for periods when load has been reduced and the increase in revenues for periods in which load has increased. The costs are the program costs incurred by administration of the program, the incentives paid to the participant, decreased revenues for any periods in which load has been decreased and increased supply costs for any periods when load has increased. 4. Total Resource Cost Test a. The costs of a program as a resource option based on the total costs of the program, including both the participants' and the utility's costs. This test represents the combination of the effects of a program on both the participating and non-participating customers. The benefits are the avoided supply costs, federal tax credits, and the reduction in generation and capacity costs valued at marginal cost for the periods when there is a load reduction. The costs are the program costs paid by the utility and participants plus the increase in supply costs for the periods in which load is increased. 5. Societal Cost Test 4

5 a. Attempts to quantify the change in the total resource costs to society as a whole rather than only to the utility and its ratepayers. Costs include all consumer, utility and program expenses. Benefits associated with the societal perspective include avoided power supply costs, capacity benefits, avoided transmission and distribution costs, and emissions savings. 4.2 Cost Benefit Analysis (CBA) Results Test Name Benefit-Cost Ratio FY13 Participant Cost 3.5 Program Administration Cost 0.9 Ratepayer Impact Measure 0.4 Total Resource Cost 0.9 Societal Cost 0.9 Direct Install COMPARISON TO OTHER PROGRAMS P The NJCEP Direct Install (DI) program shares a remarkably similar program model as PSEG, LI (LIPA) and San Diego Gas & Electric s Direct Install programs in New York and California respectively. These programs consist of a preliminary audit, a set of recommendations, and installation of those recommendations for existing commercial, industrial, and government facilities located within their service areas. All of these programs run concurrently in different neighboring areas and as such, are prime candidates for comparison of incentives, requirements, and processes. 5.1 Incentive levels The NJCEP Direct Install program shares a nearly identical approach with its closest counterpart, the PSEG Long Island Direct Install program which also has a 70% incentive level. SDGE Direct Install has a similar model, except that it will pay 100% of the cost and doesn t require repayment at any point. Key differences are that PSEG LI acquires the 30% repayment through the dollar value of the saved energy on the customer s utility bills over the next 2 years, while NJCEP requires the customer to pay 30% of the project cost. Some utilities will offer on-bill repayment for that 30% customer share. The table below details the key similarities and differences in how incentives are formatted for each of these programs: 5

6 Historically, incentive levels for the NJCEP Direct Install programs have changed. Some program years included an incentive level as high as 80% while others reduced it to 60%. The current 70% incentive level has proven to be very attractive to customers. 5.2 Program requirements While NJCCEP, PSEG, and SDGE Direct Install programs differ in terms of incentives, they share eligibility requirements in most respects, with a few distinctions. All programs require the facility to be located within the applicable service territory and have accounts with the relevant utility that are in reasonable standing. Additionally, NJCEP, PSEG and SDGE have maximum facility caps, where the facility must be classified as a small to medium size which corresponds to a demand requirement of less than 200 kw, 150 kw and 100 kw respectively. 5.3 Identify best practices Neither of the NJCEP, PSEG, or SDGE Direct Install programs follow a standard best practice template, however, they all contain many elements that are accepted by the industry as standard. All three programs target a similar market and use a contractor or contractors under contract with the organization offering the program. The contractor(s) is the only one allowed to solicit customers and perform work in their facility (sub-contractors are allowable). The NJCEP and SDGE programs delivery the same measures (Lighting, HVAC, Water Heating, Refrigeration, etc.) where the PSEG LI program offers only solutions for lighting. The Environmental Defense Fund (EDF) Investor Confidence Project is a representative example of best practices that have a strong impact on a successful EE program. They lay out 5 overarching categories in their report: Baselining, Projections, Initial Commissioning, Ongoing Commissioning, and Measurement & Verification. Taken together, these were designed to represent the entire lifecycle of a strong energy efficiency project. Each category contains three parts, Required Elements, Required Procedures, and Required Documentation. While NJCEP DI doesn t contain every single practice laid out in the EDF report, it does use the first three major categories listed by the EDF. NJCEP DI is based around performing a low-level audit, identifying and projecting potential savings, and installation and commission of the equipment chosen. All of these practices are crucial to the success of this program as they help instill confidence in efficiency projects and proof that they produce real savings. 6

7 6. 6. SUMMARY OF INPUT FROM CONTRACTORS AND CUSTOMERS TRC organized seven sector focused subcommittee meetings designed to bring together contractors, trade allies, customers and stakeholders to discuss their experiences with the current Commercial and Industrial program offerings and to share suggestions for program modifications and improvement as well as new program ideas. In our invitations, we discussed the purpose of these meetings and how the information collected will be used. We also sent each participant a series of questions in advance so they could come to the meeting prepared. Each meeting was facilitated and extensive notes were taken. There were between participants in each meeting. 6.1 General Findings Across multiple sector subcommittee meetings we heard similar concerns/issues raised by customers, contractors and stakeholders. We recognize that some are based upon existing State law or Treasury requirements and shared that with meeting participants, however we present them for consideration as part of the overall record of comments received. 1. Prevailing Wage a. This requirement will often influence whether a customer will move forward with a project. Even with incentives this requirement may make certain energy efficiency projects cost-prohibitive, particularly in Smart Start. 2. Tax Clearance a. This requirement is cumbersome and often causes problems when name on form doesn t not match name of customer. 3. Utility Bills a. Many customers and contractors expressed frustration regarding the time required to obtain twelve months of bills from the utilities. Discussions regarding improving this process included: making bill requirements consistent over all programs, improving upfront education of customers that this would be a requirement of the program so they can initiate the request early and improving relationship with utility contacts through TRC and BPU. 4. Enhanced Marketing and Outreach a. Contractors shared that they often encounter customers who not familiar with program offerings and incentive opportunities. Discussions focused value and quality or existing marketing information and suggestions for new material/tools. 5. Brand Recognition There was consensus that the current CEP web site is cumbersome and discussed short term solutions for improvement while plans were underway for the website overhaul. Sector specific entry points were recommended so customers see exactly what would be appropriate for them (i.e., hotel or datacenter). A simpler home page with clearer navigation was also discussed. Increasing the number of success stories/case studies to cover wider variety of programs, sectors was recommended. Webinars and s were the preferred method for receiving program updates and information. 7

8 a. Many committee participants commented that there is confusion in marketing materials due to the number or logos (BPU, CEP, Smart Start, DI) and not much brand recognition for the clean energy program. Group members suggested: using a single logo, establishing a more catchy name such as Green Team used in NY. 6. Market Uncertainty a. Due to the lack of long-term planning/long term funding commitments, the lengthy process to implement program changes and variability in program budges over time, customer and contractors expressed concern regarding obtaining commitments for larger more long-term projects energy efficiency projects such as new construction or CHP. 7. Confusion over audit options a. Some customers and contractors stated that there is confusion in the marketplace over audit opportunities. In particular, the DI contractors will perform an audit and it is unclear whether this is the same as what would be done under a LGEA or other ASHRE audits and the audits required under ESIP. 8. Additional Guidance Needed for Customers Interested in Multiple Programs a. Discussions focused on how to better assist customers trying to determine best program and or best path forward when considering multiple programs. This guidance isn t available on web site or via program literature, only when/if customer contacts program representative. This was a particular focus in Local Government meeting but was raised in others as well. 9. Sector Specific Program Design Suggestions a. In multiple meetings the concept of sector based programs were discussed. Options for this design ranged from offering same programs but through a sector-based portal which provided better direction regarding best options or, alternatively, a complete redesign of incentive options for specific sectors that don t always have a clear program option, for example: data centers, multi-family and gut rehab projects. 10. Financing a. When asked about the need for financing most participants indicated that this is not a problem and they can find funding if needed. Incentives drive the programs. On bill repayment however was generally agreed to be a very attractive option for customers. 11. Follow Through a. Contractors and stakeholder discussed concerns that many customers make inquiries about the programs and/or move ahead with an audit through LGEA or DI, but never follow through with actual implementation of energy efficiency projects. Participants discussed improving customer follow up and looking into why this occurs. 12. Benchmarking a. Should be promoted more, many customers not aware of program. 13. Trade Ally/Contractors a. Consider offering incentives that encourage contractors to promote the programs and/or incentivize them to meet specific goals for energy savings or projects. Establish requirements for becoming and remaining a pre-approved contractor or trade ally so it encourages performance; consider tiered levels to recognize top performers. 14. Technology Advancement a. Programs should be designed to be more responsive to changes in technology changes i.e., lighting. Suggest using fewer categories or eliminating those rarely used. 8

9 6.2 Direct Install Program Specific Findings In general the comments received by customers and contractors regarding DI were positive. Changes made over the past few years to improve the application processing and payment turn-around time have made the program more efficient and attractive to customers. While those who have worked with other state program acknowledged the NJ program is a bit more complex with more paperwork, they also stated our program is more comprehensive and effective. The groups did address some concerns with the program and offered several comments and recommendations as outlined below: 1. General lack of customer awareness of program and lack of understanding that upgrades done before equipment stops working can be cost effective. Some customers do not believe the 70% incentive is real. 2. Challenge of explaining role of State, Clean Energy program, TRC and DI Contractors and how relationship works. 3. Customer confusion re: DI Audit and the LGEA or other audits. 4. Need to better address how to coordinate customer participation in multiple programs (not just DI) schools as an example % incentive level is not sustainable over time, some discussions regarding reducing the incentives resulted in a consensus that it would likely reduce participation rates. If incentive was reduced to 60% or 50%, on bill financing/repayment option would be more important as an option. Financing in general is not needed and when offered rarely used. 6. Need to revisit contractor pricing structure it is not market-based pricing 7. Use existing contractor network and customers testimonials to educate other contractors and customers about the program. 8. Develop customer leads by identifying customers who had an audit done but never followed through with implementation of any of the identified energy efficiency measures. 9. Some concerns regarding the comprehensive nature of DI projects given the contractors tend to have specialty areas most contractors explained that they often partner with subs to provide more comprehensive options to customers but more could be done. 10. Program designed for one-for-one replacement of equipment and therefor doesn t encourage most efficient equipment or solutions. Performance based conversions would be a better alternative. 11. Current entity cap does limit some participation in the program. 12. Some conflict with Smart Start contractors who do lighting change outs free or cheaper because they buy the fixtures themselves and use incentives to pay for them. 13. Should look at ways to incorporate retro-commissioning, tune-ups and maintenance in programs rather than focus exclusively on equipment replacements. 14. Aggregation should be available for franchise/chain stores as an alternative to completing individual application for each store/location. Other states offer this option. The group discussed opening up the pre-approved contractor list to more than the current six and if/how that might impact the program. Participants comments were varied as expected and included: 1. Keeping the limited number allows for ease of program administration, reliable data collection and consistency of program delivery. 2. Existing contractors often use subs to do comprehensive jobs so others are not completely cut out of the program 3. Concerns regarding underbidding jobs if program is open to multiple contractors in a given geographic location. 9

10 4. Some contractors indicated that when subs cannot complete work they are not used again and therefor may complain. Implementing quality control standard for subs, similar to those for the pre-selected contractors was suggested. 5. Suggestion made that new contractors interested in participating in the DI program should contact TRC who can share this with the existing contractors to encourage broader use of subs. 6. Some believed the program should be open to any contractor or use a process similar to payfor- Performance which allows a much larger pool from which to choose CODES AND STANDARDS IMPACTS ON PROGRAM ASHRAE is the current energy code in New Jersey. This code has been superseded by two newer versions, -2010, and -2013, so there is reason to assume that the state may need to update to a more recent version of ASHRAE The approved and proposed updates to the DOE and ASHRAE 90.1 Efficiency Standards affect several of the appliances incentivized under the SmartStart and Direct Install Programs, and will also have indirect effects on the Pay for Performance Program. In this document we provide an estimate of the impact based on an overall whole building energy performance basis and overview of the HVAC and Lighting program elements that may be impacted by an update to the state building energy code. We compared the current and expected updates for each appliance and evaluated how each update impacts the current program efficiency requirements and savings. For the Pay for Performance Program, the baseline against which a proposed project is compared will be affected by these updates; therefore, in order to be eligible, projects may need to install higher efficiency appliances to reach the program threshold saving requirements. 7.1 Impacts to Direct Install Below are areas which could potentially be affected by code changes which would impact the Direct Install Program. Each item is explained in detail in accompanied appendix (section 7). 1. HVAC (appendix section 7.1) a. New ASHRAE codes impact HVAC systems commonly found within the segment. 2. Boilers (appendix section 7.1.4) a. Code changes will only affect boilers under 300 MBH if the 2013 ASHRAE code is adopted. 3. Lighting (appendix section 7.2) a. Threshold for code compliance decreases from 50% to 10% in ASHRAE 2010 and b. Daylighting requirements will eliminate the primary benefit that daylight controls have in a program. c. Lighting Controls (outlined in table) CHANGING BASELINES IMPACTS ON PROGRAM In this document we provide an estimate of the impact based on an overall whole building energy performance basis and overview of the HVAC and Lighting program elements that may be impacted by 10

11 an update to the state building energy code. We compared the current and expected updates for each appliance and evaluated how each update impacts the current program efficiency requirements and savings. Not all programs will be affected by these changes, within the Pay for Performance Program, the baseline against which a proposed project is compared will be affected; therefore, in order to be eligible, projects may need to install higher efficiency appliances to reach the program threshold saving requirements. (Please see appendix section 8) SUMMARY OF RECOMMENDED PROGRAM MODIFICATIONS The Direct Install program is constantly evolving to include new technologies and measures within the program in order to better suit the needs of the market. The following recommendations were identified customer, staff, contractors and stakeholders: One for One replacements The one for one replacement requirement may not make sense in all cases, specifically as it relates to boilers. Scenario Customers have an existing oversized boiler they would like to replace it with several new smaller localized boilers to increase overall system efficiency. This is not permitted under current program design. LED Tubes Customer feedback suggests the Direct Install program would benefit from the inclusion of LED tubes as a measure. LED tubes were recently added to the SmartStart program and adding the measure to Direct Install is advised. Open the program to other contractors. Additional, targeting marketing needed. Sustainability of the current 70% incentive level if reduces how would that impact program participation and energy savings. 11