Pacific Gas and Electric Company

Emerging Technologies Program

Application Assessment Report # 0702

Strategic Options for Energy-Efficient Electronics in Pacific Gas and Electric Service Territory: Marketing Delivery Systems for Electronics Measures

Issued: April 10, 2008

Project Managers: Wayne Krill and David Canny Pacific Gas and Electric Company

Submitted by: Steve Bassill QDI Stategies, Inc

Michael Lukasiewicz MXRoads, Inc.

Legal Notice This report was prepared for Pacific Gas and Electric Company for exclusive use by its employees and agents. Neither Pacific Gas and Electric Company nor any of its employees and agents: (1) makes any written or oral warranty, expressed or implied, including, but not limited to those concerning merchantability or fitness for a particular purpose; (2) assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, process, method, or policy contained herein; or (3) represents that its use would not infringe any privately owned rights, including, but not limited to, patents, trademarks, or copyrights.

© 2008, Pacific Gas and Electric Company. All rights reserved.

Table of Contents

List of Tables...... iii List of Figures ...... iv Executive Summary...... 1 Introduction ...... 4 Background ...... 4 Definitions ...... 4 Results and Discussion ...... 6 Electronics Market ...... 6 Overview ...... 6 Growth and Trends ...... 7 Size and Scope...... 12 Energy Consumption...... 14 Energy-Efficiency Market ...... 16 Energy-Efficient Electronics Products ...... 19 Industry Structure...... 21 Electronics Channels ...... 22 Marketing Delivery Systems...... 29 Market Behavior ...... 31 Market Analysis Conclusions ...... 40 CEE Electronics Program Evaluation ...... 44 PG&E Electronics Program Background...... 44 CEE Business Overview ...... 44 CEE Marketing Delivery System ...... 45 Assessment of Existing Measures ...... 48 CEE Electronics Program Design...... 52 Electronics Opportunity...... 52 Electronics Program Design Requirements ...... 54 Program Scenarios ...... 62 Economics...... 70 Decision Support Guides and Decision Criteria ...... 73 Conclusions and Recommendations...... 76 Conclusions...... 76 Action Items ...... 78 Next Steps...... 78 Appendices...... 80 A. References ...... 81 B. Electricity Consumption Charts...... 85 C. Electronics Programs Collaterals ...... 86 D. Channel Participants ...... 87 E. Energy Star Specification Calendar...... 90 F. EPEAT Description ...... 91 Impact of the EPEAT Standard ...... 91 Reaping Big Benefits...... 92 Purchasers Using EPEAT* ...... 92

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List of Tables

Table 1: Total Energy-Savings Opportunity 2009 - 2011...... 2 Table 2: Plan Scenario Summary ...... 3 Table 3: Electronics Product Categories Covered by Current Analysis...... 12 Table 4: Electronics Market Size by Dollar Sales in PG&E Service Territory ...... 13 Table 5: Electronics Market Size by Installed Base in PG&E Service Territory...... 13 Table 6: Electronics Market Size by Unit Sales in PG&E Service Territory...... 13 Table 7: Energy Costs as Fraction of Purchase Price...... 16 Table 8: PG&E Consumer Energy-efficiency Portfolio (PG&E, October 2007) ...... 18 Table 9: Top Electronics Retailers Sales by Store Category (TWICE 2006)...... 23 Table 10: Top Ten Electronics Retailers (TWICE 2006)...... 24 Table 11: Estimated Number of Retail Establishments in PG&E Service Territory...... 25 Table 12: Consumer Electronics Percentage Sales by Channel (2002 Retail Census)...... 25 Table 13: Sales Volume to Dealers by Channel in PG&E Territory ...... 26 Table 14: Top Ten Value Added Resellers (2007 VARBusiness 500)...... 26 Table 15: Top VARS with Western Headquarters (2007 VARBusiness 500) ...... 27 Table 16: Top VARS Serving Local and State Government...... 27 Table 17: Top VARS Serving Federal Government in California...... 27 Table 18: Retail Channel Decision Making Factors ...... 36 Table 19: OEM Channel Decision-Making Factors...... 40 Table 20: Advantages and Disadvantages of Channel Options ...... 41 Table 21: CEE Electronics Measures—Market Summary ...... 49 Table 22: Office Equipment Unit Shipments in PG&E’s Service Territory ...... 52 Table 23: Consumer Electronics Unit Shipments in PG&E’s Service Territory...... 53 Table 24: Estimated Energy Savings in PG&E Service Territory by Segment...... 54 Table 25: Energy-Saving Electronics Product Families...... 55 Table 26: Opportunities for Influencing Behavioral Changes ...... 61 Table 27: Planning Scenarios ...... 63 Table 28: Program Scenario Assumptions...... 64 Table 29: Electronics Program – Plan Scenario Summary ...... 70 Table 30: Market Share Projections for 2011 ...... 71 Table 31: Program Scenario 2008 – 2011 Summary ...... 73 Table 32: Risk Management...... 75

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List of Figures

Figure 1: Growth in Consumer Electronics...... 8 Figure 2: Forecast: US Household Technology Adoption, 2006 - 2010...... 9 Figure 3: Computers in Commercial Buildings...... 10 Figure 4: Electronics’ Share of Electricity Consumption in PG&E Service Territory...... 14 Figure 5: Commercial Electronics Energy Consumption by Product...... 15 Figure 6: Residential Electronics Energy Consumption by Product ...... 15 Figure 7: Annual Energy-Savings Potential for PG&E Mass Market...... 19 Figure 8: Electronics Channels ...... 22 Figure 9: Energy-Incentive Channel Map ...... 28 Figure 10: Marketing Delivery System ...... 29 Figure 11: Vendor Channel Organization and Roles ...... 30 Figure 12: Alignment of Manufacturer and Channel Organizations...... 31 Figure 13: Market Behavior Model ...... 32 Figure 14: Television Product Cycle ...... 38 Figure 15: QDI’s Market-Opportunity Model...... 42 Figure 16: CEE Marketing Delivery System Overview...... 46 Figure 17: Marketing Delivery System Organizational Roles ...... 46 Figure 18: Alignment of CEE Organization and Channels...... 47 Figure 19: Overlay of Channel’s MDS and CEE’s MDS ...... 48 Figure 20: Alignment of Program Implementation and Standards Schedule...... 56 Figure 21: Alignment of Program Implementation and Manufacturing Cycle...... 59 Figure 22: Electronics Program Scenarios – Gross Energy-Savings Estimates...... 64 Figure 23: Organizational Roles and Responsibilities ...... 70 Figure 24: Electronics Plan Scenario Projection by Market ...... 72

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Executive Summary

Pacific Gas and Electric Company’s (PG&E’s) Emerging Technologies and Mass Market Programs propose a “market-focused” strategy to capture energy-savings opportunities in the electronics market—the only growing load category in California. The electronics market encompasses both consumer electronics (such as televisions) and office equipment (including desktop computers and computer peripherals). During the next decade, industry and government organizations predict the annual growth rate of electricity use by electronic products to be nearly four times that of electricity consumption overall.

The proposed strategy addresses consumer markets and business markets, covers a range of electronics products, and employs all manufacturing and distribution channels that reach PG&E customers. A broad, large-scale program has mutual benefits for PG&E and its partners. The proposed program would positively impact PG&E’s customer satisfaction by providing a variety of offerings in a popular market segment. The program would also substantially raise public awareness of PG&E’s leadership in energy efficiency and global climate issues.

Major energy saving potential

The potential for PG&E customers to save energy in electronics is quite significant. This segment of electricity Electronics Opportunity use represents 20% of PG&E’s mass-market consumption (Energy Solutions, December 2006). This There is a potential savings portion increases to 26% by 2010 without the introduction of 2,600 million kWh between of energy-saving measures. If, instead, residential and 2009 through 2011 in a commercial customers were always to select the high- highly-diverse and efficiency option when purchasing new electronics fragmented market with: products, electricity consumption in consumer and ƒ more than 50 product business markets could shrink by more than 800 million categories; and kWh per year. ƒ multiple customer segments. Achieving energy savings in this product category, In PG&E’s service territory: however, faces a number of challenges, including the dynamic nature of the electronics technology, a wide ƒ 20 million units are variety of end-uses, and the relatively low energy sold each year in the consumption of each unit. top product categories; and “Market-focused” strategy ƒ 3,000 retail stores sell electronics. The strategy described in this report emphasizes a program design driven more by the needs and requirements of market participants—manufacturers, distribution channels, and customers— than the technical specifications of a product. We believe that using manufacturers and distribution channels to deliver the benefits of high-efficiency electronics to PG&E customers is critical to overcoming the challenges in this product category while meeting regulatory requirements for measurement and verification.

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Financial incentives are the major driver of the proposed strategy and a key component of the program’s benefit-to-cost ratio calculations. Consumer rebate programs, so-called “downstream programs,” with a low incentive amount relative to the value of an electronic product, are projected to have a low uptake, i.e., low redemption rate. Therefore, an upstream marketing delivery system that involves electronic retailers and manufacturers is also needed. Upstream incentives can increase the availability of efficient products. They stimulate channels to increase product placement and shelf space; negotiate with vendors for better prices; and promote specific items to increase sales volume.

Interviews with electronics retailers and manufacturers indicate a strong willingness to participate in PG&E’s program when they can extract value from the relationship, such as by increasing sales, attracting new customers, and improving their “green” image. By creating an upstream marketing delivery system that engages a high percentage of major channel participants, the proposed program could exceed Total Resource Cost (TRC) hurdles and contribute meaningfully to PG&E’s energy-savings goal.

A model of the upstream marketing delivery system produced estimates of the potential opportunity and projections of energy savings under various scenarios.

PG&E Energy Savings Opportunity 2009 – 2011 2,600 Million kWh Product Families Markets Desktop Other Office Television and Set Top Boxes Computers and Equipment Home and Personal Monitors Entertainment Electric Chargers

Residential / Home & 252 268 309 587 Small Business

Large Commercial, 774 404 Industrial & Agricultural

Retail Channel OEM/Distributor Channel Not A ddress ed

Table 1: Total Energy-Savings Opportunity 2009 - 2011

ƒ In the recommended “Plan” scenario, which fully deploys the market-focused strategy, the electronics program adds 145 Million kWh of savings in 2011, or 17% of the Mass and Targeted Market electricity savings goal (2008 basis). ƒ In a “No Investment” or “Low Investment” scenario that has limited market coverage, the contribution to the Mass and Targeted Market goal ranges from 1.8% to 6% respectively. ƒ An aggressive strategy raises the electronics programs’ contribution to more than 24% by substantially increasing the level of incentives.

The Plan scenario introduces energy-efficient electronics products by families and provides incentives to Original Equipment Manufacturer (OEM) and retail channels to deliver these products to consumers. The near-term program builds on existing electronics measures in computers and monitors, bundling them into a single offer for business markets.

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Employing leading equipment manufacturers as partners in a pilot program in 2008 is estimated to result in 4 Million kWh of savings for that year. From 2009 through 2011, the portfolio is to be expanded with three additional product families—other office equipment (including printers and copiers), home-entertainment electronics (such as televisions and audio systems), and high unit volume electronics loads. At that time, the program will also address mass-market customers through retail channels. When all the elements of the Plan portfolio are put into place, a market penetration rate of 16% is possible by the end of the program funding period.

The energy-savings benefits of the “Plan” program result in a benefit-to-cost ratio (TRC) of 2.18. The major cost of running the program is the cost of incentives. During the early, start- up years, these incentive costs are 80% of the total budget and increase to 90% when the program matures in the outlying years. Table 2 summarizes the benefits (gross energy saving and demand savings) and cost (budget) that result in a TRC of 2.18 for the recommended program.

Plan Program Summary (TRC of 2.18) 2008 2009 2010 2011 Gross Energy Savings (GWh) 4 49 117 145 Demand Savings (MW) 0.6 7.4 17.6 21.8 High Efficiency Units Sold with Incentives (Million) 0.05 0.6 2.9 4.2 Table 2: Plan Scenario Summary

Mitigating market and regulatory risks

There are uncertainties associated with the market, regulatory processes, and program execution that may impede the achievement of forecasted energy savings. These uncertainties create risks that reduce the size of the potential opportunity or constrain the ability to penetrate the market. Market risks are associated with channel behavior; channel partners may not participate at the expected levels because of low awareness or because the opportunity is not large enough. Regulatory risks—such as restrictive Evaluation, Measurement and Verification (EM&V) requirements—or delays in issuing standards and measurement protocols, likewise limit the energy-saving potential. Programmatic risks stem from the difficulty in attracting and retaining skills to execute the business model.

Risk mitigation requires focusing on activities that are critical to the future success of the electronics strategy. The three critical activities are: organization design, standards coordination, and EM&V system development. An organization must be formed with program management, marketing, and channel management skills that can develop and manage retail and OEM channels. Processes that coordinate program tasks with channel partners’ business cycles—particularly product design and merchandizing cycles—as well as with activities of state and federal standards organizations, need to be established early in the program.

One of the first program tasks is to develop a proposal to the California Public Utilities Commission (CPUC) for an EM&V approach that supports “upstream” measurement of program performance while satisfying regulatory requirements and the needs of channel partners. Program management must quantify these critical success factors and monitor the performance of each activity relative to program goals.

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Introduction

Background PG&E’s Emerging Technology Program (ET) assesses and selects promising new technologies for PG&E’s Customer Energy Efficiency and demand-response programs. Electronics is one key technology area with significant energy-saving potential. This area encompasses a broad range of mass-market products—from televisions to “smart” refrigerators. The myriad of electronic product opportunities, however, can stretch PG&E’s channel organizations beyond their capacity; this can result in poorly-executed programs and in lower-than-expected returns for individual measures. A challenge for PG&E is to: build a customer-focused portfolio of product offerings; have efficient channels to deliver this portfolio to the market; and generate enough energy and demand savings to warrant the marketing investment.

In collaboration with PG&E’s Customer Energy Efficiency (CEE) Mass Markets Program, the ET Program is investigating ways to accelerate and deepen market impact for electronic technologies. The goal of this project is to create the best strategies for the ET Program to provide—and the Mass Markets Program (and potentially Targeted Markets) to implement— significant energy savings with electronic products.

PG&E has engaged QDI Strategies, Inc. (QDI) to address three key strategic issues: 1. Define ways for CEE to maximize the performance of its existing channel and program infrastructure to move more products through this infrastructure. 2. Optimize the use of program resources to build the effectiveness of CEE programs, external channel partners, and channel suppliers. 3. Identify new channel infrastructures and program designs that are not only more effective and efficient than today’s, but can also bring to market the technologies that maximize the impact of CEE’s energy-efficiency programs.

Definitions 1. Customer Energy Efficiency (CEE) Department – PG&E’s department organized to deliver energy-efficiency programs mandated by the California Public Utilities Commission (CPUC) to its customers. 2. Emerging Technologies (ET) Program – A program within CEE, mandated by the CPUC, to assess and validate technology and markets for the purpose of accelerating new energy-efficiency technologies to market. 3. Marketing Delivery System (MDS) – Various organizational entities—including sales force, sales channels, and internal support groups—and their roles activities, processes, and key success factors (program resources, metrics, policies and procedures). 4. Measure – An energy-related technology or service, offered through a CEE Program to gain greater energy efficiency among its customers—either by education or with a monetary incentive or rebate. 5. CEE Program – One of the energy-efficiency programs delivered by CEE—primarily the core mass market and targeted markets, third-party, and local government partnership programs. 6. Evaluation, Measurement and Verification (EM&V) – Processes and efforts associated with conducting evaluations of California’s energy-efficiency programs by the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC)

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7. Energy Star Program®—a program created by the US Environmental Protection Agency and the US Department of Energy to help consumers save money and prevent air pollution as described at the Internet address www.energystar.gov.

Methodology

The purpose of this project is to develop, document, and test strategies for the CEE’s Emerging Technologies Program to provide—and the Mass Markets Program to implement—significant energy savings with electronic products. The project follows a four step methodology: 1) review of existing programs, organizations and benchmarks; 2) marketing delivery system modeling; 3) partner identification; and 4) strategy development.

Review of existing programs, organizations and benchmarks Existing programs, organizations, and benchmarks were assessed through in-depth interviews with key CEE managers. The interviews provided an understanding of:

1. measures that are presently offered, or under consideration, and the applicability of program strategy to an electronics program; 2. how CEE markets customer energy-efficiency programs and energy-saving measures today, the decision criteria used to select energy-saving measures and design programs, and the MDS for each program (the internal and external infrastructure that is used to bring an energy-savings measure to market); and 3. CEE’s delivery channels and related infrastructure, performance issues including channel conflict, and potential partners to deliver energy-efficiency programs.

Marketing delivery system modeling To understand MDS options for the electronics program, QDI creates a conceptual model of the present CEE marketing delivery system and how energy-saving measures are implemented within the MDS. By comparing CEE’s assumed marketing model to other marketing delivery systems (MDS) and assessing connected business processes with process mapping, QDI diagnoses and compares CEE’s roles, responsibilities, and key activities to those of marketers of consumer and business-to-business electronics. These comparisons identify the gaps between the existing MDS and systems that are more effective in the market.

Partner identification Interviews with key decision makers and influencers in OEM and retail sales channels identify interest in electronics energy-efficiency programs and what CEE would need to do to effectively work with these partners. Research and interviews also uncovers key players, potential content, and partnership opportunities that have value to an electronics program.

Strategy development In formulating alternative strategies for an electronics MDS, QDI identifies activities of market participants and business interests in the field of energy-efficient electronics. Alternative marketing delivery systems and strategies for CEE’s electronics program result from: contacts with manufacturers, retailers, and other market participants; QDI’s model of the MDS; and a market model of the energy-savings opportunity. The evaluation of options points out strategies to increase market penetration of CEE’s energy-saving electronics

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measures through channel programs, promotion, and other marketing activities. This evaluation also results in decision-support guides and criteria that a program manager uses to design and implement an effective electronics program.

Results and Discussion

Electronics Market

Overview It is important to understand the size, dynamics, structure, and behavior of the electronics market in order to design and deploy effective measures to save energy. Market information helps establish: who is part of the market (e.g., manufacturers, distributors, retailers, and consumers); who are leaders in the business and the key influencers in decision-making; and what approaches are most effective in overcoming barriers to greater supply and investment in energy-efficient options and/or greater participation in a program. In addition to guiding program design and implementation, market information helps develop program evaluation metrics and serves as a basis for assessing future program options.

This report describes an electronics market that is a combination of the consumer electronics market and the office equipment market. The entire electronics market—or segments of it—can potentially be addressed by a PG&E Program of energy-saving electronics measures. The following section summarizes the size of this market and how rapidly electronics are penetrating US households and businesses; discusses the market structure and how the various market participants make decisions; introduces the energy- saving opportunity for electronics; and presents feedback from potential channel partners on a PG&E electronics program.

Consumer electronics consists of video, audio, games console, and telecommunication products designed primarily for domestic use. The video sector includes CRT and flat-panel television sets, videocassette and DVD players and recorders, camcorders, digital cameras, and set-top boxes. The audio sector is comprised of hi-fi systems, cassette, CD, and MP3 recorders and players, personal stereos, and radios. The current analysis has also considered telecommunication equipment such as cordless phones, answering machines and cellular phones and miscellaneous plug loads requiring electric chargers. The analysis does not include electronics accessories and audio and video equipment for automotive use.

The office equipment category is made up of computer hardware—personal computers, servers, mainframes, workstations, and peripherals—and imaging equipment, presentation products, videoconferencing equipment and other office equipment. Document-imaging equipment includes: printers, copiers, scanners, fax machines, and multi-functional products that handle some or all of these functions. The current study focuses on personal computers, servers, workstations, and related hardware, as well as imaging equipment. Personal computers and peripherals for home use are included in this category. Uninterruptible power supplies (UPS) are not part of this office-equipment analysis for homes and businesses.

Electronics is a dynamic market with a diverse range of products used in nearly every business and household. Over the last few decades, the market has grown impressively:

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from almost nothing, to a major part of the global economy. With double-digit growth rates, there is now an installed base of billions of electronic devices in the US; annual sales to dealers are over $150 billion for the products considered in the current research. Technological advances are permitting continual performance improvement, new features, and lower prices. These, in turn, fuel more growth and lead to short product lifecycles. As the electronics market matures, consumers expect greater performance per price and can choose from many product options and sales channels to achieve this objective. The dominant sales channel for consumer electronics and office equipment for the home is the retail store; businesses purchase office equipment direct from manufacturers, wholesalers, or value-added resellers. Sales through online channels are increasing rapidly for mass- market and business customers.

Growth and Trends Electronics has been one of the fastest-growing segments of the global economy for the last few decades. Over this time period there have been major shifts in the US market, drivers of demand, supply chain, and technology. Today’s needs for information—as well as traditional desires for entertainment—are the primary drivers of demand. This demand for electronics, which had been satisfied through locally-owned stores, is now mostly serviced by big national chains and web-based suppliers. Innovation in electronics occurs at a rapid pace with the continuous introduction of new products and new features. While much of the electronics product innovation still occurs in the US, most manufacturing is outside our borders; currently more than 75% of electronics are manufactured overseas, predominantly in Asia. Advances in materials, microprocessors, and communications technologies have enabled products that were unimaginable in the 1970s.

One emerging trend in the electronics sector is the increasing sensitivity of manufacturers, retailers, and consumers to global climate issues. Manufacturers are sponsoring a number of collaborative green initiatives such as:

ƒ Green Grid - a consortium of information-technology organizations which seeks to lower the overall consumption of power in data centers; ƒ Climate Savers Computing Initiative - which unite industry, consumers, and conservation organizations to increase the energy-efficiency of computers and servers; and ƒ mygreenelectronics.org - a Consumer Electronics Association (CEA) Internet website that offers tips for saving energy with electronics.

A recent Retail Industry Leaders Association survey finds that 66% of retailers have already begun the transition to green supply chain and green operating practices (Greenbiz.com, October 2, 2007). Climate change is also becoming a factor in adopting energy-efficiency standards. For example, both the federal and California state governments have mandated that computers and monitors meet the Electronic Products Environmental Assessment Tool (EPEAT) environmental standard, which includes Energy Star® specifications. (EPEAT and Energy Star are discussed in the Energy-Efficient Electronics Products section of this report).

The pervasiveness of electronics and the ongoing growth of the market are significantly impacting electricity usage. Over the next five to ten years, electricity usage by electronics will surpass that for lighting in US homes. Up to 25% of the electricity sold to PG&E’s mass-

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market customers is expected to be used by electronics in the year 2010 (Energy Solutions, December 2006). The growth rate in electronics energy consumption is expected to taper after 2010, however, as markets mature and energy-efficient technology becomes the standard.

Consumer Electronics Growth and Trends The consumer electronics market has exploded since the early 1970s when the products were few—primarily televisions, stereo systems, and radios. Today, there are hundreds of different types of consumer electronics products, and ownership of electronics has grown correspondingly during this timeframe. The average US household (Figure 1) now owns 25 consumer electronics products (including home electronics, automotive electronics, and electronics accessories). Each year, the average adult spends $1,200 on these products, according to a Consumer Electronics Association (CEA) study released in April 2007. As indicated by the study, the five products with the highest presence in households are: television (in 92% of households), DVD player or recorder, VCR (82%), cordless phone (82%), and cellular phone (76%). The top five growth sectors were digital video recorders (DVRs), network routers or hubs, MP3 players, cable modems, and digital cameras. Other categories with significant growth include HDTV, with penetration reaching 25% of US homes.

30 s 25

20

15

10

Products per Household 5

Average # of Consumer Electronic Consumer # of Average 0 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: International Association of Electronics Recyclers, 2006, CEA 2007

Figure 1: Growth in Consumer Electronics

Television continues to be the dominant piece of electronics in the US household. TVs are getting bigger (diagonally) and flatter. Analog tube TVs will no longer be on retailers’ shelves beginning in 2008 as the digital TV standards are put into place during the first quarter of 2009. While some “die-hard” consumers will continue to purchase digital CRTs for their reliability and low price, many manufacturers—including JVC, Magnavox, Sony and Toshiba—have left this market completely. For example, Sony is now only offering LCD TVs. With the introduction of 37-52” LCD sets, LCD TVs can compete with plasma TVs by offering more screen area per dollar and better image quality. Today’s LCDs have deep blacks, accurate colors, and reduced blurring. Their performance is comparable to plasma TVs, but at a higher price point. Energy efficiency is one feature of an LCD that is frequently promoted to consumers, even though the savings is only a few dollars a month. Future

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LCDs based on Light Emitting Diode (LED) technology will have even lower power consumption per square inch of screen, as well as higher performance. There are trends towards the integration of video with audio, computer, and the Internet. Where this is occurring with early adopters, the number of electronics products per home is reduced. (Consumer Reports, August 2007)

Demand for, and ownership of, consumer electronics is influenced by a wide variety of factors. A favorable economy, growth in personal consumption expenditures, and increasing disposable personal income levels are allowing consumers to spend more freely on big- ticket items such as large-screen HDTVs. The “teen” demographic—who are early adopters of electronics—is having a positive impact on sales across all categories of electronics as their purchasing power increases. Other factors impacting the consumer electronic industry include: trends in electronic product production levels, pricing trends, lower-cost offshore supplies, and technological developments. As consumers continually seek to upgrade their equipment with the latest technology, decreasing home entertainment product pricing is increasing demand in a broad range of customer segments.

All signs indicate that consumer electronics will continue to grow over the next decade, but at a gradually-slowing rate. During the previous five-year period (2001-2006), sales of home electronics experienced a Compound Annual Growth Rate (CAGR) greater than 9%. During the next five year period (2006-2011) the CAGR is forecasted to be 6.8% (Datamonitor, July 2007). Motorola predicts rapid adoption of new, high-definition video technologies over the next five years (Figure 2), with the number of households owning these products more than doubling over the next three years. PCs, laptops and game consoles are becoming more mature, with household growth rates not much higher than the population growth rate.

120

100

80

60

40 # of U.S. Households (millions) Households of U.S. #

20

0

2006 2007 2008 2009 2010

Source: Looking at Bandwidth Five Years Forward, Motorola Whitepaper, May 2007. Figure 2: Forecast: US Household Technology Adoption, 2006 - 2010

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Office Equipment Growth and Trends Demand for personal computers and peripherals surged in the 1990s because of factors such as robust corporate investment in information technology systems and the rapid growth of the Internet. The number of computers in commercial buildings doubled during the time period to nearly 60 million units (Figure 3). By the end of the decade, electronics-based products and systems, such as PCs, became ubiquitous in all sectors of society. At this time, computer-related markets began maturing and took on the cyclicality of the broader economy. After 2001, demand was boosted by technological advancements that lowered the size and improved the performance of PCs, by the resulting short replacement cycles, and by increased popularity of portable PCs.

70,000

60,000

50,000

40,000

30,000

20,000

Number of Computers(Thousands) 10,000

0 1990 1992 1994 1996 1998 2000 2002 2004

Figure 3: Computers in Commercial Buildings (EIA, QDI Analysis)

Laptops are becoming primary computers in the office and home office because of their portability, convenience, and equivalent performance to desktop computers. (Desktops will never be fully displaced since they maintain the advantages of lower cost per performance, ease of upgrading, and better ergonomics—as well as entertainment center and sound system functionality for the home market.) One of the unintended consequences of increased demand for laptops is an improvement in the electrical efficiency of LCD screens for all applications. LCD technology for laptops is now dominant in monitors for desktop computers. The advertised advantages of LCD monitors are compelling. In addition to lower power consumption the monitors require less desk space, emit less heat, and offer consumers a wider selection. Like TVs, computer monitors that use LCD screens are becoming bigger and more economical; this leads buyers to upgrade monitors at time of purchase. While more-powerful computers with additional peripherals and larger screens potentially increase electricity consumption, energy operating costs are generally not one of the decision factors that count in computer purchases.

In large office environments, PCs are networked together through corporate servers to manage access points and provide functionality such as: data storage, data growth, applications, upgrades, Internet access, security, and power management. Most laptop and desktop computers have power-management software as part of their operating systems;

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this software gives the computer the capability of moving into a low-power state after a specified period of inactivity. Studies show, however, only a small fraction of those PCs have the function activated because of: lack of awareness, poor experience in using the function, or a lack of incentive to put the practice into place. A number of software products are becoming available to overcome some of these obstacles. They can automatically control the power settings of networked PCs at the server level—simplifying the implementation of power-management in the corporate environment.

Computer peripheral equipment, imaging equipment and telecommunications equipment are the other elements of the office equipment industry. These electronics have automated many mundane and repetitive tasks, increased productivity, and enabled home offices and telecommuting. Such performance-enhancing capability is the basic reason for the technology’s rapid market growth and broad-based acceptance. As these electronics products have become ever-present in every type of office environment, they have become commoditized. Growth rates are becoming lower and more cyclical than those of the recent past. In the maturing market, commercial businesses retain their equipment longer; it is estimated that offices now upgrade their equipment every five years.

In spite of diminished growth, these segments of the office equipment industry are dynamic. Increased interconnectivity and information availability sustains demand for all peripheral products. Copiers and printers are still part of every office suite, leading to unabated growth of paper consumption in offices. Technology and economics are driving demand for multi- function devices that merge the functionality of copiers and laser printers in high-speed devices. For small offices and home offices, they economically assimilate low-cost printers with copiers and facsimile machines.

Computer networking equipment is not just part of the large, server-based corporate network. Small offices and home offices are requiring more routers to handle increased network access; wireless “hubs” are being installed to meet requirements for portable device network access. Both types of routers are smarter and more capable of managing bandwidth growth and providing better security. In the area of telephony, there is an ongoing migration from copper-wired systems to wireless systems and Internet-based voice communication. One common attribute of peripheral equipment is that it tends to be always “on,” thus unnecessarily drawing electricity when not in use. Many offices are utilizing plug load sensors with passive infrared or ultrasonic sensors to shut off unused peripherals at a power strip.

The personal computer market experienced a CAGR of 6.2% during 2002-2006. During 2006-2011, Datamonitor forecasts the performance of the market to decelerate, with an anticipated CAGR of 5.7% (June 2007). Computer peripheral equipment demand in the US only increased 1.1% per year from 2001 to 2006, as the slowing economy in the early 2000s lowered profits and constrained spending to more critical purchases. Growth rates are expected to rebound to 3.1% for the period through 2011 (Datamonitor).

Office equipment demand is influenced by a number of variables, most of which are beyond the direct control of manufacturers and distributors. Demand is affected by factors such as: general macroeconomic conditions, demographic and firmographic patterns, personal consumption expenditures, capital investment activities, and electronic sector trends. A favorable economy inclines corporations and mass-market consumers to spend more on additional computer peripheral equipment or upgrade outdated computer equipment. Technological developments that lower price or increase functionality also have a major

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impact on office equipment demand. Other variables that influence the industry include pricing trends and competition from offshore manufacturers.

Size and Scope This analysis considers the top electricity-consuming products in consumer electronics and office equipment. Of the hundreds of products in these segments, many are for automotive use and are not plugged-in. Similarly, other consumer electronics products are not energy consuming, such as gaming software. Product categorization and product definition takes advantage of work completed for P&GE by Energy Solutions and Ecos™ Consulting. Energy Solutions evaluated technical and market information for 33 different consumer electronics and home office products in 5 product categories (Application Assessment Report #0153, Market Trends, Energy Consumption and Program Recommendations 2005- 2010, December 2006). These products are listed in Table 3. Information from a multi-client project with Ecos describes commercial electricity use and energy-savings potential for computers (Ecos, 2006).

Office Equipment Televisions Personal Electronic Chargers Desktop Computers CRT Cell phones Laptop Computer LCD Cordless phones Monitors Plasma Digital camera Inkjet printers Projection Portable audio Laser printers Home Entertainment Systems PDA’s Scanners DVD players Rechargeable batteries Copiers Home theaters Personal hygiene Fax machines Component Stereo Misc. plug load Multi-functional devices Compact Stereo Set-Top Boxes Broadband Devices Portable Stereo Digital cable box Home Router Digital satellite receiver VoIP Digital video recorder IPTV Table 3: Electronics Product Categories Covered by Current Analysis The commercial products covered by the current analysis comprise about 60% of the commercial office equipment products.

In addition to product segmentation, the current market analysis divides the electronics market by customer and geography. The mass-market segment includes residential customers and home-office and small-office customers. Business (targeted) markets encompass mid-size and large-size commercial, industrial, and agricultural firms. Three geographies are assessed: the overall US market, the California market, and the regional market that corresponds to PG&E’s service territory. US and statewide perspectives help explain the needs and requirements of global manufacturers and national retailers who represent the majority of sales in the industry. The size of the market from financial and product perspectives has been estimated by QDI from various sources: the US Economic Census, industry studies by Datamonitor and Freedonia Groups, the US Department of Energy’s (DOE) Energy Information Agency (EIA), and the Consumer Electronics Association.

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Market Size by Sales PG&E’s service territory represents about 4% of the US market and more than one-third of the California market (Table 4). Televisions constitute the largest product category in consumer electronics, at about one-third of sales volume. Personal computers, including laptops, have the largest piece of the office equipment market, about 58% of the market's overall value. Almost 60% of the volume of computers sold in 2006 was to business customers. Commercial establishments are the large majority of the business segment— estimated to be about 90%.

2006 PG&E Sales to Dealers ($Billion) Consumer Office Total Market Segment Electronics Equipment Electronics Residential and Home Office 2.9 1.2 4.1 Business 0.0 2.0 2.1 Total Market 2.9 3.3 6.2 Table 4: Electronics Market Size by Dollar Sales in PG&E Service Territory

Market Size by Installed Base

The decreasing cost of ownership for all electronic devices—particularly TVs, computers, cell phones and portable audio devices—has led the installed base of the products to approximately double since 1997. The installed base (Table 5) is an important component in the calculation of annual energy consumption. Influencing consumption in the installed based, however, is less controllable than the other factors in the equation. The amount of time the device is in use and the rate at which it consumes energy are manageable by conservation and energy efficiency, respectively.

2005 PG&E Installed Base (Million) Consumer Office Total Market Segment Electronics Equipment Electronics Residential and Home Office 39.9 16.2 56.0 Business 0.7 7.4 8.1 Total Market 40.5 23.6 64.1 Table 5: Electronics Market Size by Installed Base in PG&E Service Territory

Unit Sales by Market Segment Unit sales are due to: the replacement of existing stock, an increase in the number of units per household or business, and the introduction of new products. Estimates of unit sales by segment are based on Energy Solutions and ECOS data. Table 6 summarizes the PG&E market and product specific data from the appendix. A top-down analysis of annual sales using CEA and government census data resulted in a comparable unit sales figure of 21.6 million units per year

2006 PG&E Annual Units (Million) Consumer Office Total Market Segment Electronics Equipment Electronics Residential and Home Office 11.5 3.2 14.8 Business 0.0 4.8 4.8 Total Market 11.5 8.0 19.6 Table 6: Electronics Market Size by Unit Sales in PG&E Service Territory

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Energy Consumption Consumer electronics and office equipment consume almost 8% of electricity sold nationwide, according to industry and government estimates (CEE, June 2007 and CEA, January 2007). During the next decade, these organizations predict the annual growth of electronics’ electricity use in the US to be close to 6%—quadruple the growth rate of electricity consumption overall. The growth of US electronics load is most rapid in the residential sector, growing from an 11% share in 2006 to 18% in 2015.

In PG&E’s service territory, electronics’ share of electricity demand is higher than the national average. Electronics represent 4,550 million kWh of PG&E’s mass-market consumption in 2005—approximately 18% of residential consumption—according to an assessment by Energy Solutions (December 2006). This share is forecasted to increase to 7,130 million kWh by 2010 without the introduction of energy-saving measures. According to a commercial energy-use study for the California Energy Commission, office equipment consumes 8.2% of commercial electricity in PG&E’s territory (CEC, March 2006). Overall, electronics consume about 10% of PG&E’s electricity sales. Based on industry and government estimates, electronics consume about 8% of electricity sales nationwide (Figure 4).

Electronics' Estimated Share of PG&E Deliveries in 2006 (84,310 GwH Total)

Residential 30.9%

Residential Electronics 5.9%

Non-Residential Electronics 3.7%

Non-Residential 59.6% Figure 4: Electronics’ Share of Electricity Consumption in PG&E Service Territory (PG&E 10k; CEC, Mar. 2006; Energy Solutions, Dec. 2006; EIA)

The average annual energy consumption for consumer electronics is close to 70 kWh per unit—ranging from just 12 kWh per year for an electronic charger to 300 kWh per year for a plasma TV. For office equipment, the average annual energy consumption is about 100 kWh per unit in the home and more than 200 kWh per unit in a commercial office (where the duty cycles are substantially higher than in a home office). More than 40% of office equipment energy use is from PCs and monitors (Figure 5). Similarly, TVs and personal computer systems are the greatest consumer of electricity among home electronics (Figure 6). The fastest-growing mass-market segment is set-top boxes; their electricity consumption is anticipated to surpass that of computers and monitors over the next five years.

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Share of Annual Office Equipment Energy Figure 5: Commercial Electronics Energy Consumption by Product Type (Typical Office, 2000) Consumption by Product (ADL, January 2002) Other 10% Monitors and Displays Printers 22% 6% Uninteruptible Power Supplies 6%

Computer Networks 7%

Telecom- PCs and munication Workstations Networks 20% 7% Copiers 10% Server Computers 12%

Figure 6: Residential Electronics Energy Consumption by Product (Energy Solutions, Dec. 2006) Electronics Electricty Consumption in the PG&E Home, Share by Product Type (4.5 GwH, 2005) Personal Electronic Chargers 5% Computers and Monitors Set Top Boxes 25% 18%

Home Other Office Entertainment Equipment 13% 11%

Televisions 28%

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The cost of electricity consumption is a small portion of the life cycle cost of electronics; electricity cost is currently not a significant decision-making factor when consumers purchase electronics. Energy is only considered when there is a requirement for energy storage in portable electronics—such as laptops and portable audio devices. Price competition that creates demand for lower-priced, lower-efficiency products may dampen the impact of energy-saving incentives.

Lifetime Energy Costs as Product Fraction of Purchase Price Desktop PC (Residential) 16% Desktop PC (Commercial) 24% Monitors (Residential) 11% Monitors (Commercial) 17% Printers 20% Televisions – CRT 34% Televisions – LCD 7% Televisions – Plasma 8% Table 7: Energy Costs as Fraction of Purchase Price (Energy Solutions, December 2006)

Energy-Efficiency Market Throughout the US, energy-efficiency programs have been delivered by large utilities, small utilities, and third-party program administrators since the late 1980s. Rising energy prices and concerns about climate change have escalated the interest in energy efficiency to unprecedented levels. With new energy legislation and summer demand at all-time records, energy efficiency is a high-level concern with utilities and regulators. Energy companies throughout the US are establishing energy-efficiency programs, many of which are mandated by the state governments. In 2006, US energy-efficiency budgets totaled $2.6 billion; this created a major industry for designing and implementing energy-efficiency programs. Similarly, 34 states are currently running publicly-funded energy-efficiency programs (CEE, February 2007).

There is an underlying principle for utility investment in energy efficiency—there are barriers that inhibit either: the choice of an efficient product over a less-efficient product; or the implementation of standard practices for certain energy-efficient products and services. Barriers include: higher initial cost, lack of knowledge on the part of the supplier or the customer, or a lack of supply for an efficient product. All these can be overcome with utility participation to ensure that all customers select more energy-efficient products and practices. Successful programs have developed energy-saving measures to overcome these barriers—often by partnering with both industry and voluntary (national and regional) programs to increase the market penetration of these products. In spite of the overall success of programs in California and around the US, there have been few significant energy-savings measures that have focused on electronics.

Based upon a mandate originating in California’s restructuring legislation, each Investor Owned Utility (IOU) in the state must collect and spend a set percentage of their annual revenues on public benefit programs. The funds resulting from this charge support many of California's energy-efficiency programs. State regulators define energy-efficiency needs—

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with input and proposals from the major investor-owned utilities—and fund programs for those utilities. All programs are issued from the CPUC with approved budgets and energy- savings goals. The CPUC is preparing to extend and expand the program and budget for 2009 to 2011, addressing goals of California’s Energy Action Plan II and the California Global Warming Solutions Act of 2006. The State’s utilities will have to continue attract customers to existing measures and create new energy-efficiency programs in order to meet the upcoming CPUC goals.

PG&E Customer Energy Efficiency (CEE) PG&E has been in the energy-efficiency business for almost 30 years and has always had a very large commitment to energy efficiency. PG&E offers a wide range of well-established energy-efficiency programs—including a diverse range of rebate programs, energy audits, energy-savings programs for business, and online resources to inform and educate its customers. To-date, the most successful programs have been in the end-use area of lighting; these have contributed more than 70% of total electricity savings. The company has been recognized by American Council for an Energy-Efficient Economy (ACEEE) and the US Environmental Protection Agency (EPA) for exemplary programs in both the residential and commercial/industrial markets. Current programs are divided into those targeting the mass market and those offered to targeted or non-residential customer classes. There are approximately 200 rebated measures in the mass-market program; the targeted program offers prescriptive measures to eight commercial, industrial, and agricultural segments. Total public benefit charge (PBC) funds budgeted for fiscal years 2006-2008 were $867 million. Key mass-market and targeted-efficiency program areas are listed in Table 8.

PG&E initiated energy-saving measures in electronics in 2006 and 2007 following a completed evaluation of computer monitors (Energy Solutions, December 2005 and February 2006) and a more extensive assessment of the potential for electronics energy savings in the mass market (Energy Solutions, December 2006). The extended analysis reviewed technical and market characteristics of 33 individual electronics products (see Table 3).

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Portfolio Impacts - Aggregated End Use (Inception-to-October 2007) Net Net Net Annual Annual Smr Peak kWh Therms kW (Cumulative) (Cumulative) (Cumulative) Residential 872,090,183 131,243 3,567,739 Appliances 18,199,882 7,315 1,453,239 Consumer Electronics 60,724 14 - Cooking Appliances - - - HVAC 14,246,248 21,991 1,455,241 Lighting 794,251,963 94,185 - Pool Pump 1,687,280 479 - Refrigeration 42,947,039 6,620 - Water Heating 47,578 10 512,311 Other 649,468 630 146,948 Nonresidential 1,113,666,103 210,307 18,983,397 HVAC 58,742,917 26,850 160,102 Lighting 745,137,107 132,115 (7,881) Office 618,204 65 - Process 176,670,379 32,965 18,527,780 Refrigeration 96,075,765 11,096 - Other 36,421,730 7,216 303,396 Low Income Energy Efficiency 48,061,970 10,285 2,390,174 Codes & Standard Energy Savings 70,500,000 21,000 1,658,333 TOTAL 2,104,318,257 372,835 26,599,644

Table 8: PG&E Consumer Energy-efficiency Portfolio (PG&E, October 2007)

Based on projected unit sales and estimated unit electricity savings for each product, Energy Solutions has forecasted the size of the energy-savings opportunity in the mass market through 2010. Strategic options for penetrating this opportunity—as well as the electronics opportunity in targeted markets—are the subject of the CEE Electronics Program Design section in this report.

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Figure 7: Annual Energy-Savings Potential for PG&E Mass Market (Energy Solutions, December 2006)

PG&E’s current electronics program contains three independent energy-savings measures: LCD monitors, 80 PLUS® computers, and network PC power-management software. Today, the three different products are delivered to two distinct market segments through three different channel flow models. The LCD monitor measure provides mass-market customers incentives to purchase high-efficiency LCD units from dozens of manufacturers; this relies on retail channels to promote the incentives and pass on the savings. PG&E is a member of a multi-utility effort—80 PLUS—to develop high-efficiency power supplies for desktop PCs. The resulting specifications for 80 PLUS power supplies have been adopted by Energy Star for their latest computer specification. To bring the more-efficient technology to the market, the 80 PLUS consortium is working with, and providing incentives to, computer manufacturers to build desktop computers and servers with the 80 PLUS qualified power supply. Dell and HP have computers models with 80 PLUS power supplies. The Power Management Software measure makes end-user rebates available to businesses when they install one of four software products that automatically control the power settings of networked PCs from the server level.

Energy-Efficient Electronics Products Regulated and voluntary energy-efficiency standards apply to electronics products. The California Energy Commission has recently issued, or plans to issue, regulated efficiency standards for external power supplies and audio and video equipment. These regulations generally apply to the non-active mode of the devices and are not as stringent as the voluntary standards set by Energy Star.

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On many kinds of energy-using products, the Energy Star label designates compliance with energy-efficiency goals developed by the US EPA and the US Department of Energy (DOE). There are Energy Star standards for home electronics and office equipment. The current home electronic standards are designed to reduce electricity consumption when the products are “off” but still powering features like clock displays and remote controls. The following product categories have standards: battery charging systems, digital-to-analog converter boxes, cordless phones, DVD products, external power adapters, home audio, televisions, and VCRs. Office equipment standards are more rigorous than those for home electronics, and include: computers, copier and fax machines, external power adapters, notebook PCs, monitors, printers, scanners, and multi-function devices. These are required to use less energy to perform regular tasks, and when not in use, to enter a low-power mode automatically. Energy Star specifications are periodically revised to move the market toward more energy-saving designs. Revisions are underway for a number of electronics products: computers, external power adapters, imaging equipment, monitors, set-top boxes, and TV/VCR units. The voluntary Energy Star standards are promoted through EPA’s marketing efforts, utility energy-efficiency programs, and integration into other performance standards such as EPEAT.

EPEAT (Electronic Products Environmental Assessment Tool) is a set of environmental performance standards; these result from an executive order requiring federal agencies to manage their procurement in sustainable way. A key specification in the standards relates to energy efficiency. EPEAT has been integrated into federal and state requests-for-proposals. Currently, EPEAT regulations cover only desktop and laptop computers and monitors. Other product categories are under consideration for EPEAT registration, including: TVs and other display products, imaging devices (including printers and copiers), cellular phones, PDAs, and computer servers. The large volume of business generated by the federal government is expected to drive product design towards the EPEAT specifications.

According to Energy Star, there are no comprehensive utility programs in electronics as there are in lighting, buildings, and appliances. A few focused programs exist where utilities promote energy-efficient electronics and provide incentives. Many of the energy-efficiency offerings parallel PG&E’s measures in LCD monitors, 80 PLUS computers, and network power-management software.

In addition to PG&E, two other utilities in California have instituted LCD monitor programs. Southern California Edison provides incentives to manufacturers of energy-efficient monitors. Silicon Valley Power offers $20 rebates to their customers who buy Energy Star qualified monitors, targeting the residential segment.

The 80 PLUS consortium includes utilities and state or regional energy-efficiency organizations. Members have supported developing high-efficiency power supplies for computers and are providing incentives directly to computer manufacturers to assist in the adoption of new specifications. 80 PLUS members are: BC Hydro, Efficiency Vermont, Hydro-Québec, Midwest Energy Efficiency Alliance, Minnesota Power, National Grid, Northwest Energy Efficiency Alliance, NSTAR, Pacific Gas and Electric Company, Sacramento Municipal Utility District, Salt River Project Power, Southern California Edison, Western Massachusetts Electric Company, and Xcel Energy.

The EPA estimates that computer users can save more than $25 per year by activating the power management function on their computer. There are new software options available to control this function across large computer networks. E-Source, who provides membership-

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based information services to utilities, has developed an advisory tool to help business customers make decisions about computer power management software (www.esource.com/public/products/PA_Demo). E-Source members—including PNM, Madison Gas & Electric, XCel Energy, and BC Hydro—incorporate this information in the energy-efficiency pages of their websites. BC Hydro also offers a $3 per-license incentive on power-management software. South Bay Cities Public Agency Energy Efficiency Project (www.sbec.com) has an informational program and purchasing initiative for power management software in Southern California.

Two utilities advertise catalogs that offer rebates on Energy Star rated office equipment. Business customers of Idaho Power and Shakopee Public Utilities in Minnesota can apply to receive rebates for office equipment purchases, ranging from $5 to $50. (Informational materials on the two programs are listed in Appendix C: Electronics Programs Collaterals).

Industry organizations that represent energy users and electronics manufacturers are beginning to advocate energy-efficient electronics equipment. The Consortium for Energy Efficiency (CEE) is a membership organization representing both utilities and public-purpose organizations that promote energy-efficient products, technologies, and services. PG&E is a prominent member of the CEE and is on the Board of Directors. The CEE is a liaison between utilities and those government agencies with energy-efficiency responsibilities, such as the DOE and EPA. The CEE has recently begun to define criteria—and identify products that meet criteria—for energy efficiency in the consumer electronics product area. The Consumer Electronics Association (CEA), the trade organization of electronics manufacturers, encourages energy efficiency and educates consumers on their website (www.mygreenelectronics.org).

Industry Structure The electronics industry is comprised of companies ranging from large multi-national manufacturing and retail corporations to small component manufacturers and specialty retail firms. Many major manufacturing participants are global firms that serve consumer, business, and industrial markets. Some manufacturers offer a full line of electronics— ranging from home entertainment equipment to computers (Sony, Panasonic). Others offer computers and supporting peripherals (HP, Dell, Apple, Lenovo) or focus on specific electronics product categories: consumer electronics (Sharp, LG), computers (Gateway, Acer), computer peripherals (Canon, Lexmark, Xerox, ViewSonic), or other business machines. Manufacturers in the industry distribute their products in a number of different ways—through retailers (Best Buy, Wal-Mart, Frye’s), independent distributors, and original equipment manufacturers that incorporate electronic components with their own products. Although the major players operate in diverse businesses, consumer electronics often forms a key portion of their revenues.

The manufacture of electronics equipment generally involves the production of separate components by different companies. In most cases, suppliers assemble their equipment by combining parts sourced from producers of individual components. High levels of expertise are not often necessary since devices are usually assembled from standardized components in relatively simple processes. As a consequence, manufacturing experiences low barriers to entry, intense price competition and global sourcing. Assembly operations for electronics exist around the world in areas of low cost labor and around 75% of electronic products sold in the US are manufactured outside the country, primarily in Asia. Because electronics depend on microprocessors, manufacturers must have either strong

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relationships with component suppliers, or design and build their own semiconductors to strengthen their market positions. Other important factors impacting industry position include the innovation through research and development, strategic partnerships, advertising, brand loyalty, customer service, and distribution.

Electronics Channels Electronics channels are the final element of the value chain that produces components and systems and delivers them to the end consumer. There are generally two distribution steps between the manufacturer and the consumer. (However, manufacturer-direct or warehouse sales eliminate one or both of these steps, essentially bringing these channel functions in- house.) A broad network of companies constitutes the channels that bring products to mass- market and business customers. Some channels serve only one customer segment while others serve several customer segments. To have a successful channel-based strategy for delivering energy-efficiency incentives, it is important to understand the structure of channels in the electronics industry, clarify roles and business needs, and establish relationships with the right channel partners.

For the electronics products considered in this study, two channel structures are defined: a retail channel and an Original Equipment Manufacturer (OEM) channel (Figure 8). The retail channel connects production to the mass market first through distributors, then retail stores such as specialty electronics stores, department stores, and office-supply stores. Medium and large business, institutional, and government customers buy their electronics through OEM channels. In an OEM channel, manufacturers sell directly to business customers using their own distribution network, through independent distributors, or through Value Added Resellers (VARs).

Manufacturers Office Consumer Equipment Electronics

Distributors Computer Consumer Distributors Electronics Distributors Resellers / Dealers / Retailers

Direct Web Cable Computer Appliance, Department Office VARS Sales Retailers Companies Retailers television, Stores / Supply & other Warehouse 20% electronics stores Clubs 80% Highly concentrated channels

Government, Industry, Consumers 20% 80% Highly concentrated customer consumption

Customers Consumption

Figure 8: Electronics Channels

The “20-80” rule—or the Pareto principle—is an important consideration in setting up a channel strategy. It is a management tool to help separate the "vital few" from the "useful

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many.” Like any industry with a diverse customer base and fragmented channel structure, the electronics industry has thousands of retail stores and thousands of OEM distributors in the PG&E territory alone. In this case, the “20-80” rule means 20% of the channel participants account for approximately 80% of the sales.

Retail Channels Consumer electronics are sold to customers through a variety of distribution channels. These range from large, diversified retailers such as mass merchandisers to smaller specialty stores and Internet retailers. Large electronic retailers such as Best Buy and Circuit City offer a diverse array of consumer electronics, as well as computers, CDs, DVDs and other white goods. Mass merchandisers such as Kmart, Wal-Mart, Sears and Target represent a growing channel for the distribution of consumer electronics products. These stores are noted for global buying power; their network of stores throughout the US allow them to compete primarily on price. Specialty retailers such as Radio Shack and local electronics stores are often able to compete with mass merchandisers by providing a sharp product focus as well as knowledgeable sales and service. Many electronics manufacturers also utilize Internet-based retailers (e.g., Amazon and J&R) to market and distribute their product lines. Most leading retail chains in this industry also maintain websites where customers can buy consumer electronics and other products. Online retailing accounts for roughly 9% of total spending on consumer electronics—over three times what it is for all of online retail sales. The top 100 retailers sell more than 60% of consumer electronics, with national chains taking a dominant position (Table 9).

Top 100 Consumer Electronics Retailers 2005 U.S. Store Category Sales Million Catalog Showrooms $75 Consumer Direct $14,726 Computer Store $7,057 Drug/Grocery Store $423 Department Store $211 Electronics/Appliance Store/Single Market $1,399 Electronics/Appliance Store/Multi-Region $25,769 Electronics/Appliance Store/Regional $1,915 Electronics Only $21,127 Home Furnishings $588 Home Office Stores $4,463 Mass Merchants $21,980 Misc $2,772 Warehouse Clubs $5,864 Total $108,369 Table 9: Top Electronics Retailers Sales by Store Category (TWICE 2006)

Of the top ten retailers in the category (Table 10), Best Buy is the leader. However, Wal- Mart has been working to increase sales and compete directly with electronics/appliance stores like Best Buy and Circuit City. Wal-Mart’s expansion into the electronics arena and the success of online computer sales are two of the main reasons that CompUSA—a computer retailer who had been number seven on the top-ten list—is exiting the business and closing its stores in 2008.

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Top 10 Consumer Electronics Retailers 2005 U.S. Store Name Sales Million Best Buy $23,688 Wal-Mart $13,678 Circuit City $11,400 Dell $7,930 Radio Shack $4,507 Target $4,452 CompUSA $4,064 Costco $3,134 Sears $3,073 Sam's Club $2,336 Total $78,262 Table 10: Top Ten Electronics Retailers (TWICE 2006)

In PG&E’s territory, there are over 3,000 stores that sell electronics (Table 11). About 70% of total sales are made by 25% of the stores, each with more than 20 employees and $5 million in annual sales. Six major classes of stores make up 90% of the estimated $7.7 billion in consumer electronics retail sales; online and catalog sales contribute most of the other 10%. The “Appliance, Television and Other Electronics” classification, which includes Best Buy and Circuit City, have the dominant share: 55% of the total in-store sales. Consumer Electronics Estimated Sales Revenues and Store Count in PG&E Counties Number of Establishments and Sales by Employment-size class (2005) '100- '250- '500- Classification (NAICS#) Total '1-4' '5-9' '10-19' '20-49' '50-99' 249' 499' 999' >1000 Appliance, Television Establishments1,736934446195645937100 and Other Electronics Stores (44311) Sales ($Million) 3,875 490 546 477 392 773 1,132 66 0 0 Establishments5463261176019153600 Computer and Software Stores (443120) Sales ($Million) 1,782 242 203 208 165 278 130 557 0 0 Department Stores Establishments1963305561022421 (except Discount Dept. Stores) (452111) Sales ($Million)30400023816181149 Establishments2141311142946020 Discount Department Stores (452112) Sales ($Million)747100154281385260 Establishments5521010292200 Warehouse Clubs and Supercenters (452910) Sales ($Million)167000006310300 Office Supplies and Establishments470179786414801000 Stationery Stores (453210) Sales ($Million)604474201000 Establishments 3,217 1,457 646 320 238 172 266 113 4 1 Total Sales ($Million) 6,936 737 753 693 601 1,144 1,769 1,191 39 9 Table 11: Retail Channel Firmographic Data for PG&E Service Territory (2005 County Business Patterns, US Census, QDI analysis)

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The top 10 national retailers have a significant presence in the PG&E territory. An informal survey uncovered 438 national chain establishments in addition to 8 Fry’s stores in the PG&E service area (Table 12).

Estimated Number of Stores Establishments in PG&E’s Service Territory Best Buy 37 Circuit City 35 Comp USA 9 Fry’s 8 Total Electronics Retailers 89 Target 72 Costco 48 Wal-Mart 42 Sears 33 Sam’s 9 Total Discount Department Store, Warehouse Club 204 and Department Store Office Depot 58 Staples 55 Office Max 40 Total Office Supply Stores 153 Total Stores 446 Table 11: Estimated Number of Retail Establishments in PG&E Service Territory (Company Data) Computers and televisions are the top-selling products in the electronics sector; they present the largest energy-savings opportunity. When the two products are offered by the same channels, there are opportunities for synergies that reduce channel-management costs. Mass-market computer sales are concentrated in the computer store and appliance store channels. These retailers serve about 60% of the computer market. The balance is served by web-based retailers (Table 13).

Mass Market Electronics Percent Sales Volume by Channel Computer Television Electronic Shopping and Mail Order 39% 9% Computer & Software Stores 20% <1% Appliance, Television & Other Electronics Stores 21% 54% Department Stores, Inc. Discount Department Stores 2% 19% Warehouse Clubs 6% 14% Office Supply Stores 6% <1% All Other 6% <2% Table 12: Consumer Electronics Percentage Sales by Channel (2002 Retail Census)

The primary channel for television sales is appliance, television, and other electronic stores. 54% of all televisions are sold by this channel, with almost all of the sales by store-front electronics channels. When department stores and warehouse clubs are added, the three major channels account for almost 80% of television sales.

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The structural analysis of the retail market uncovers the “vital few” retailers who have most of the sales of products with the highest electricity-saving potential. The characteristics of these businesses—including national presence, large store size, and broad product mix— dictate a different partnership strategy in energy-efficiency programs than arrangements to promote energy efficiency with the “useful many.”

OEM Channels The government and industrial/commercial markets—PG&E’s Targeted Segments—are served in three ways: 1) directly through computer/office equipment manufacturer sales forces; 2) through Value Added Resellers (VAR); and 3) through distributors. At this time, analysis of this channel leads to an estimate of sales by channel that evenly distributes OEM sales between the direct channel and distributor/VAR channels combined (Table 14).

2006 PG&E Sales to Dealers ($Billion) Consumer Office Total Market Segment Electronics Equipment Electronics Residential - Retail Channel 2.9 1.2 4.1 Business - Direct Channel 0.0 1.0 1.0 Business - Distributor/VAR Channel 0.0 1.0 1.0 Total Market 2.9 3.3 6.2 Table 13: Sales Volume to Dealers by Channel in PG&E Territory HP and Dell have the largest share of the business computer market in California—52% according to IDC 2007 data. Dell is the largest supplier, with 28% of the market, followed by HP with a 24% share. Dell is virtually 100% direct while HP has significant direct sales activity with large accounts. Office equipment manufacturers who do not manufacture computers have a lower percentage of their direct sales than computer manufacturers.

There are about 2,500 wholesalers of computers and peripherals in California (these are a combination of VARs and distributors) and almost 800 wholesalers of office equipment. Wholesalers typically have regional and local offices to be close to their customers. More than one third of California’s wholesaler establishments are in PG&E’s service territory.

The 20-80 rule also applies to distribution channels. The largest wholesalers have the bulk of the business; all of these large wholesalers provide services in California. Table 15 lists the top 10 VARs in the US; a list of the top 100 is in Appendix D: Channel Participants.

National Revenue Rank Company (Million)

1 EDS (Electronic Data Systems) $21,268

2 Accenture Ltd. $18,228

3 BT Global Services $17,186

4 Computer Science Corp (CSC) $14,616

5 Northrop Grumman $11,000

6 Lockheed Martin $10,875

7 Capgemini Group $10,285

8 General Dynamics (Advanced Information Systems) $9,024

9 Automatic Data Processing (ADP) $8,882

10 BAE Systems Technology Solutions & Services $7,864 Table 14: Top Ten Value Added Resellers (2007 VARBusiness 500)

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The following list is of the top 10 VARs with headquarters located in the Western United States (Table 16). The rank and name of companies in the top 500 VARs that have west coast headquarters addresses is in Appendix D: Channel Participants.

National Rank Company 4 Computer Science Corp (CSC) 5 Northrop Grumman 19 Qwest Communications 25 Insight Enterprises 55 McKesson Provider Technologies Services 57 PC Mall 58 CIBER 83 Zones 103 Activant Solutions 104 Epicor Software Table 15: Top VARS with Western Headquarters (2007 VARBusiness 500)

VARs specialize in vertical business segments. VARs serving local and state government customers California include the following leaders (Table 17).

National Revenue Rank Company (Million)

118 En Pointe Technologies $324

261 DynTek $81

290 Altura Communication Solutions $67

498 ORODAY, dba Digital Consulting Services $24 Table 16: Top VARS Serving Local and State Government (2007 VARBusiness 500) Leading VARs who address Federal government operations in California are shown in Table18.

National Revenue Rank Company (Million)

5 Northrop Grumman $11,000

130 Technology Integration Group $282

338 Super Warehouse $53

401 NTH Generation Computing $38

484 Govplace $26 Table 17: Top VARS Serving Federal Government in California (2007 VARBusiness 500)

The sales and marketing organizations at the manufacturer manage both the distribution function and the distribution channel—whether the products are sold and distributed to the end-user directly or through a wholesaler. For this reason, PG&E needs to involve the manufacturer’s sales and marketing organizations in setting up programs. An energy- efficiency incentive program is similar to a cooperative marketing program for manufacturers. As such, executing marketing programs through these channels is a normal business practice for the manufacturer. Manufacturers participate in these cooperative activities only if they perceive they will extract value from the relationship—including

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increasing sales, adding customers, and improving brand image. These benefits of an energy-efficient electronics program have to outweigh the costs for activities like stocking, labeling, promotion, and information gathering and reporting.

There are a number of options for working with business-to-business channel partners. PG&E can execute partnership agreements with manufacturers alone, with VARs alone, or design a program that brings both parties together. One of the stumbling blocks in any channel-based program is information-gathering for measurement and validation; it may be necessary to track sales to end-users at the zip code level. Discussions with manufacturers indicate they can do this without revealing customer information, but PG&E will have to work closely with these manufacturers to assure that they can adequately track sales of designated energy-efficient equipment. If they cannot, PG&E will have to contract directly with these alternate channels; this will require substantially more program design and planning as there are thousands of wholesale channels. For computer products, it would be most efficient for PG&E to execute programs through computer manufacturers because of the concentration of sales with a few manufacturers such as HP and Dell. When the effort is expanded to other office equipment, programs can be tailored to wholesalers in PG&E’s territory.

Channels for Energy Incentives Just as there are channels for bringing electronics products to the end-using customers, there are channels to deliver energy-saving measures developed by the utility to these customers (Figure 9). An energy-saving measure is a combination of information and incentives that results in the purchase and use of efficient technologies. Information can be delivered by utility marketing, education and training efforts, product promotions, and point of sale advertising. Incentives can be given to any of the market participants. (These are called “downstream” incentives when received by customers; “upstream” incentives when received by manufacturers, wholesalers, or retailers; and “midstream” incentives when retailers are involved.) Ultimately, the value of the incentive flows to the end using customers.

Energy Efficiency Initiative

Upstream Energy Saving Products/Services Upstream Web Direct Distributor Sales Midstream

Retail Territory VAR/Dealer /Contractor/ Integrator Downstream Downstream

End User

Figure 9: Energy-Incentive Channel Map

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It is critical to synchronize the product delivery and energy-efficiency initiatives, taking into account the needs and requirements of all market participants. This electronics program projects low-incentive amounts relative to product value and low rebate redemption rates in downstream programs. As such, the better strategy is an upstream marketing delivery system that involves electronics retailers and manufacturers.

Marketing Delivery Systems The marketing delivery system unites the channel organizations with a marketing support organization (Figure 10). The system most effectively brings the manufacturer’s product to customers. It encompasses the organizations and activities required to bring a product to market and support it post-sale.

Key organizations in the marketing delivery system are the: channels, marketer’s support organization (groups that support channels, but do not have ongoing customer facing roles), and the manufacturer or service provider. The marketing delivery system performs channel management, marketing, and customer-service roles. Identification of specific activities and determination of the roles of participants is an important first step in putting together the delivery system. Key success factors when designing and managing the delivery system are: ƒ Channel coverage – knowing the target market and having a strategy for deploying channels to maximize market share; ƒ Channel competency – economically controlling product and brand specifications; ƒ Channel-customer connection – developing relationships to acquire and grow business; and ƒ Channel commitment – getting a channel to promote existing and new offerings.

Marketing Delivery System

Marketing Support Organization The organizations within a company, the activities they perform (and processes required), and the key success Manufacturer / factors (policies / metrics / decision Channels Service Provider criteria) required to market a product or service Offers goods or Channel organization - services to A group of independent or related entities which are organized the market to perform specific tasks to bring a product or service to market

Direct Relationship Customers

Indirect Relationship

Figure 10: Marketing Delivery System

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The people, skills, organizational structure, and business processes of the marketing delivery system for the electronics program have to be compatible with the marketing delivery system of the original equipment manufacturers and retailers.

Typical industry MDS structures Manufacturers typically build robust marketing support organizations to interact with multiple levels of their channel’s business. All functions and levels of an established manufacturer’s organization are involved in some way with the distribution channels. The executive office, sales, marketing, product development, finance, and operations departments all have roles in executing the channel strategy (Figure 11).

Typical, mature vendor organizational structure and channel roles

President Vision of channel development & growth

Sales Represent company with partners

Channel Sales Mgr Manage field sales with channel partners. National Accts Director Manage national account partners

Strategic Alliances Mgr Develop channel partnerships

Marketing Develop and direct marketing activities.

Customer Service Mgr Maintain positive channel relationships Product Marketing Develop vendor partnerships MarCom, Events Manage marketing communications

Marketing Services Develop marketing collaterals

Product Dev Market research, product definition, competitors

Finance Manage financial reports, transactions and IT

Accounting Invoices, reporting and payments MIS IT, web, PRM software

Operations Manage logistics with channel Figure 11: Vendor Channel Organization and Roles

Manufacturers typically have sales and marketing functions interacting with their counterparts within the channel. These interactions start at the top—where the senior manufacturing representative, often the company president, connects with the senior executives of the channel. Channel management goes into the field where manufacturers often contract with, or set up their own, in-store support organizations (often called detailers). These groups ensure store personnel are trained and have the right products on display with the proper signage. In a channel-based program design for energy-efficient electronics, the role of PG&E’s CEE group would parallel the roles of the manufacturer in its interaction with the retail channel.

To be effective in managing a channel program, the CEE—or its representative—has to have an organization with the appropriate resources, capabilities, and commitment. Figure

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12 maps a prototypical organization, showing its relationship to the marketing-support organization at the headquarters of a retailer.

Manufacturer/CEE Retailer

President President Headquarters Sales VP, Merchandising

Channel Sales Mgr Category Manager

National Accts Director Senior Buyer

Strategic Alliances Mgr Buyer Marketing Assistant Buyer

Customer Service Mgr E-Commerce Product Marketing Merchandising, Advertising MarCom, Events Advertising Marketing Services Chief Financial Officer Product Dev Logistics/Operations Finance Store Manager Accounting Category Manager MIS Sales Associates Operations Cashiers, Cust. Sat.

Figure 12: Alignment of Manufacturer and Channel Organizations

The retailer organization typically has highly-centralized control and a senior management team with broad, strategic influence. Solid connections with the buyer are essential, as this function has tremendous authority over his products and programs. The buyer is also the focal point to bring together other functions. For multi-category vendors, channel relationships need to be established at higher levels for an effective program.

Market Behavior Market behavior is a function of a customer’s need and external stimuli which can satisfy that need. These stimuli are a combination of products and services, and communication about those products and services. A consumer’s decision to purchase a product is driven by perceived needs and the features and benefits offered by the equipment manufacturer and the channel (Figure 13). In an energy-efficient electronics program, PG&E has a key role in influencing market behavior.

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Customer External Stimuli CEE Impact Purchase Decision CEE can motivate manufacturers • To provide an EE product Features/benefits • To price EE products more perception competitively - CEE can motivate channels Driven by what customer What to Advertising • A higher percentage of channels is aware of – sees in ads / purchase to sell the EE offering web site / personal driven by need • To participate in the CEE program experience for product • To increase the percent of - products in a category that are EE Features / Features / benefits • To promote and provide education benefits Point of perception for EE products, increasing Close - Sale - Rate Cost Driven by what customer • To price EE products more is aware of competitively – sees where she shops CEE can motivate end user • Through financial incentives and education

Figure 13: Market Behavior Model

The channel, along with the manufacturer, controls the offering—both its benefits and its total cost. The channel’s behavior, in terms of what to sell and promote, has significant impact on what consumers ultimately select. If channels offer energy-efficient products at competitive prices, consumers will buy them providing the overall value proposition for the consumer is acceptable. Consumer Behavior Buyers wield quite a bit of power in the electronics market. Prospective customers are free to choose from a variety of competing brands—or not to buy at all. Technological advances make it difficult to differentiate products through their actual performance; innovations can be rapidly imitated. As a result, consumers are becoming less loyal to brands, and more often than not are choosing products by price. To a certain extent, lack of differentiation and greater price competition may create an opportunity to create features around energy efficiency and increase the value of incentives.

In designing an electronics program, it is imperative not only to understand where consumers buy, why they buy, what they buy, and how to impact their electronics purchase decision, but to understand purchase behaviors related to energy-efficient devices. Energy efficiency is often cited as a factor in purchasing decisions—particularly in high-energy-using products like appliances, HVAC, and lighting. Efficiency, in reality, is almost always outweighed as a preferred product feature by price, quality, brand, and product performance. Electricity costs in general are rarely “top of mind” when someone goes shopping because they are a small portion of their monthly budget—3 to 6% (FRB, June 2006).

Consider shopping for appliances, for example. A refrigerator or a dishwasher has a variety of features (design, color, speed) and other characteristics (warranty, service) that are valued by consumers—almost certainly more valuable than their energy efficiency. In the purchasing process, a prospective customer might first narrow down the choice to all products of a certain size or a certain cost, that is, eliminate all those of the wrong size or

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that are too expensive. The next step is to evaluate the group of remaining products—those of a certain brand or those having desirable features. This process continues until a product is selected. Energy cost or efficiency might, or might not, appear in the list of decision criteria. (UC Berkeley, December 2005)

Efficiency can be a tiebreaker in the decision-making process—particularly if the efficient product is promoted and the consumer is aware of the product’s advantages, or if there are financial incentives such as rebates. Efficiency will not be in the decision-making equation if efficient products are not in-stock and on the shelves. Stocking is the responsibility of the channel organization.

Rebates are widely-used promotional tools designed to shift market behavior. There are two kinds of rebates: consumer rebates and channel rebates (which are payments to the retailer). Both kinds of rebates provide incentives to the retailer to stock more of the rebated product. In theory, both rebates result in the retailer selling at a lower price to consumers who are price sensitive. Channel rebates impact stocking behavior by increasing the retailer’s margin; consumer rebates do it by increasing product demand. (Aydin, Porteus)

Consumer rebates can be in the form of mail-in rebates or coupons. There are two different kinds of coupons: one is a rebate instantly redeemed at purchase; the other is a type of coupon used only the next time a product is purchased. The value, timing, and physical design of the rebate can influence a consumer’s purchase decision as well as rebate redemption rates. Retailers and manufacturers want their rebates to trigger a purchase, (revenue) while hoping the buyer fails to redeem the rebate (cost). Breakage is when a rebate is not redeemed after a purchase. Breakage is very low for coupons, but can be more than 80% for mail-in rebates. Rebate-triggered purchases are driven by the discount percentage. A $5 rebate on a $20 item (25% discount) can appear more attractive and generate more lift than a $10 rebate on a $100 item (10% discount). Breakage is a function of absolute value of the rebate. Because the rebate application contains important information for measurement and verification in an energy-efficiency program, organizations that run efficiency programs want a high number of rebate-driven purchases with the lowest breakage possible.

Lessons learned from energy-efficient compact fluorescent lighting (CFL) marketing speak to the benefits of providing incentives to manufacturers and retailers—the upstream channel partners. PG&E has successfully executed an upstream program to grow the market for CFLs by leveraging manufacturer’s marketing organizations and assembling a cost structure with an appealing value proposition for channels and consumers. The CFL upstream- incentive program is very popular with retailers. These retailers are receiving products at near zero cost and sell to the end-user at an attractive, low price. The sales price enables the retailer’s resulting gross margin to be nearly 100% and creates high customer satisfaction with low potential for product returns and refunds because of the low investment on the consumer’s part. The program is successful because it is a “win-win” for the channel (which sees low risk and high reward) and the end-user (who receives a great product at a low price). A comprehensive benchmarking study (Quantum Consulting, December 2004) summarized the key success factors from a number of lighting-efficiency efforts in the areas of program design, program management, marketing, and EM&V. Some of the pertinent findings are listed below. ƒ Design - Conduct sufficient market research, develop a sound program plan, and link program tactics to the stated theory.

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ƒ Program management - Clearly define program-management responsibilities and maintain flexibility in order to respond to market changes. ƒ Marketing and outreach - Leverage marketing dollars through cooperative marketing efforts, sponsorship by manufacturers, and coordination with national or regional efforts. ƒ EM&V - Articulate data requirements to measure success and develop assumptions on which to base estimates of savings.

In addition to providing incentives, the channel has a significant role in influencing consumer purchase behavior by educating the consumer. There are two times at which the consumer can be influenced: pre-sale education (for example, using websites or direct mail) and point of purchase (using displays and well-trained sales representatives).

Channel Behavior Channel participants in a market work together to serve end-use customers and achieve a common objective: make a profit for their company. The interdependence of the channel participants, however, does not necessarily mean they are concerned about the profits of the entire channel. Each member’s behavior is governed by the goal of increasing their own sales revenues and controlling their own costs. In order to sign up retailers or manufacturers to participate in an energy-efficient electronics program, it is important to understand their expected benefits and how they perceive the costs of participation.

QDI’s value model has provided the framework for assessing what is important in shaping the channels for an electronics program. The model compares benefits that are perceived by the channel versus the perceived costs.

Benefits: ƒ The product, or service itself in this case, benefit is the ability to sell a specific offering—such as potential revenue, new customers it might attract, positive impact on retailer image, margin dollars, and cooperative marketing dollars. ƒ The service benefits are the ease of doing business together. ƒ The relationship benefit is the commitment that the retailer sees from the supplier organization. ƒ The brand benefits are the confidence and credibility that the seller’s brand brings to the buyer.

Costs: ƒ The actual product cost—including the level of investment the retailer has to make in the product line—includes volume purchase commitments and marketing requirements. ƒ The purchase and ownership costs include the costs in handling a product line— such as inventory, sales training, and transaction support. ƒ The risk cost is result of products that do not move, mark-downs, and/or loss of good-will.

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Retail Channel Behavior Return-on-investment is the retailer’s primary driver. When retailers look at energy-efficiency programs, they are seeking three primary benefits: bringing incremental customers into the store; increasing the average amount spent per customer visit; and increasing profit margins. Telephone interviews with marketing executives at leading retailers provided insights into how they would benefit from participating in a program and what costs they are willing to accept. PG&E promotion of the program directly to a retailer’s customers through PG&E marketing communication efforts is a big benefit to them; they would hope to advertise energy-efficient products in a PG&E statement stuffer. Retailers would cross-promote these offers in their circulars and direct mail advertising. Training, education, and other market- awareness activities would also have the potential to increase the retailer’s sales. Efforts to inform customers about new, improved high-efficiency monitors on the market, for example, could speed adoption of those products.

Electronics retailing is highly competitive and operating margins are relatively small. A joint program that allows retailers to keep some portion of the incentive will improve margins. Different stores will use the energy-efficiency program in different ways. Some will promote aggressively to increase traffic as well as develop bundles that increase revenue per customer. One retailer said the incentive would allow them to run qualifying monitors in their newspaper advertising which typically increases sales by several hundred percent. This retailer would have the motivation to advertise the units—whether the rebate is passed through or not—because they can advertise an even lower, more-appealing price compared to their competitors and increase their return on that ad space. PG&E has to make this program available to all retailers so there would not be a long-term competitive advantage.

PG&E needs to provide a set of benefits to the channel that is at least equal to the channel’s total costs. Programs that require the channel to pass on rebates and add significant operating costs to the channel’s business will not be effective unless there are some additional benefits for the channel.

Retailers had a number of comments about a specific PG&E electronics program designed around high-efficiency monitors. The concept and incentives associated with PG&E’s programs are well-liked and understood by retailers. They believe it is unusual that a third party, such as PG&E, comes to them offering a cash incentive for selling specific Stock- Keeping Units (SKUs) and they are very interested in capturing that incentive. It works in PG&E’s favor that office equipment product categories are highly competitive among retailers, yet controlled by relatively few large manufactures. As a result, retailers have very small margins in this product category, and PG&E’s incentive makes a difference.

The appeal of a monitor program is greatest at the buyer level and becomes less important at higher organizational levels where the area of responsibility is broader. Monitor buyers are directly compensated on total revenue and/or gross margins, depending on the retailer. PG&E’s program contributes directly to their top and bottom-line goals. The buyer, however, is not able to implement without a higher level of approval. They appear willing to take our programs for approval, but, for national accounts, a Northern California-only program may not be worth a significant amount of internal selling. Merchandise managers, directors, or those at a vice president level have to weigh the opportunity costs of a monitor program with PG&E against all of the other demands for the resources to execute the program. Without

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executive direction, buyers would not be motivated to endorse the program as they do not see sufficient return-on-investment for the monitor program.

One of the retailers suggested that PG&E should find a way to make these programs an addendum to those already in place for light-bulbs or appliances. An arrangement like this is easier to get implemented. One retailer thought it was an inefficient use of their time to have multiple agreements in place with a vendor such as PG&E. Retailers also thought that PG&E should partner with Energy Star, since it is established, national, and already has a planning process in place. Overall, retailers would prefer PG&E to find ways to fit into their existing business practices and relationships.

Table 19 shows what is important to key functions in the retail channel and their key decision criteria related to energy-efficiency offerings. It is essential to consider these factors when designing a channel-based program and communicating benefits of the program to potential participants.

What is important to each level—on Title Key Decision Criteria what basis they make decisions Sustainability Retailer’s brand image, green image, The degree to which it supports Executive operate more environmentally friendly, the retailer's efforts to position support efficiency promotion themselves as "green" VP of Brand, image, cohesive in-store Cohesive in-store positioning— Merchandising aesthetics, uniformity of store programs that are consistent merchandising, profitability—margin % across stores or $, Senior Buyer Sales volume, gross margin dollars, The economics impact of the (who usually market development funds, co-op program on volume, gross reports to the top advertising, market share and margin dollars, market merchandising competitive pricing (given the same development funds, co-op, etc. executive) product advertised by 2 retailers it’s “cut-throat” to be the low-price leader) Buyer Negotiate best programs and execute The economics impact of the the best promotions (the same program on volume, gross concerns as the Senior Buyer but more margin dollars, market intensely focused by product) development funds, co-op, etc. Promotional / Enhance the retailers brand, This person cannot make the Communications promotions to increase store traffic or program go forward, but could Expert increase dollars spent per shopper create a significant obstacle MIS / Operations Take lead from merchandising (system This person cannot make the Expert limitations can be a factor) program go forward, but could create a significant obstacle Table 18: Retail Channel Decision Making Factors

The potential benefits for retailers from an energy-efficiency program fall into four categories: product benefits, service benefits, relationship benefits, and brand benefits. Product and service benefits directly translate into improved margins for the retailer. Product benefits include the prospect of scaling the program up to a statewide or national campaign, the economic value of the incentive, and the opportunity to promote products around a “green” theme. Services provided by the program’s marketing support organization simplify the program set-up and execution and minimize the efforts to comply with data

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requirements. PG&E’s leadership in energy-efficiency and commitment of executive management enable relationships at a high level of decision-making within the retailer and among other utilities; the program’s account manager has the responsibility of managing relationships at the store level. Brand benefits accrue from the synergy of bringing together the strong PG&E, Energy Star, and retailer’s brand.

These benefits off-set the perceived program costs, product costs, and risks. There are a number of pricing, stocking, and merchandising issues faced by retailers when dealing with special programs. These issues impact the costs of inventory, training, information management, and promotion, such as: ƒ products must be priced competitively to sell quickly; ƒ the resources allocated for marketing communications, MIS and sales depend on size of opportunity; ƒ policies and procedures control stocking SKUs, in-store advertising, and national marketing; and ƒ administrative delays in contracting or implementation can add costs. Anticipated risks for the retailer include the financial risks of rebate reimbursement, an image risk if the program fails, and an audit risk related to regulatory compliance.

Original Equipment Manufacturer Behavior Electronics manufacturers also have a value model for their business, but with a different set of costs and benefits than a retailer. Electronic products are a highly-competitive retail product that are manufactured and marketed in high volumes. At a strategic level, their businesses are primarily driven by technology, competitive forces, and regulation. These shape, for example, their new product development, capital budgeting, and resource- allocation behaviors. At an operational level, much of the manufacturers’ behavior is driven by two key consumer behaviors; purchasing and decision making. The product cycle is particularly important in consumer markets, for: A. Consumers make 50% of their purchases in just 4 months. B. Consumers shop multiple stores before making purchases.

These consumer behaviors—and the costs and time required to change models—have driven manufacturers and retailers to a very structured product cycle. The following description of a television product cycle is fairly typical for all consumer electronics. In the first quarter of a year, manufacturers decide what their model range will be for the following year. Each manufacturer investigates features/performance at each price point that will increase their market share. In June, the manufacturers have product designs in place and commit to chip designs and custom components. They build samples in September and begin showing retailers next year’s product line. In November, retailers and manufacturers negotiate the models, performance, prices, terms, market development, and special promotions for the coming year. Manufacturers have significant set-up costs and are therefore unlikely to change the units during the year. Because retailers have significant costs with stocking, display set-ups, training, and merchandising, they are therefore unlikely to want to change units during the year. These new models arrive in stores in February. By September the units are well known and retailers prepare for October 1 through the Super Bowl—when 50% of the sales occur. In designing an electronics program for televisions or

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other consumer electronics, this product cycle (as shown in Figure 14) needs to be closely coupled with program planning.

TV Product Cycle

Manufacturers Product managers Manufacturers and retailers broadly define what lock in design negotiate next year’s product of processors models, terms, line-up will be: and programs for • Features other Retailers train staff next year •Sizes customer and merchandize units • Price points components Cycle repeats

April June Aug Oct Dec Feb April June Aug Oct Dec Feb

Design products New units to specs, while reach stores leveraging commonality: • within geographies Production lines 50% of the revenue is • world wide are redesigned done between Oct 1 and for new models the super bowl. Samples are built to be shown to retailers in October Models are manufactured for a year

Figure 14: Television Product Cycle

Telephone interviews with television manufacturers investigated the concerns and needs of the manufacturers in the area of energy efficiency and the environment, as well as their willingness to participate in a PG&E program for energy-efficient consumer electronics. In the environmental area, the major OEMs have made significant commitments to creating sustainability programs and communicating them to various constituencies. Their green efforts involve: materials, packaging, shipping, and subcontractors’ requirements. These efforts, however, do not directly impact product designs or merchandising plans for individual products.

Energy-efficiency efforts are driven by the Energy Star TV specification. Since the introduction of the Energy Star standard 10 years ago, all of the major manufacturers have participated in testing units, listing qualified units with Energy Star, and offering Energy Star compliant models. Retailer interest has helped motivate manufacturers to design to the Energy Star standard and list their units with Energy Star. The current standard is not difficult to meet as it only applies to standby power. Retailers believe Energy Star qualification is a performance characteristic important to a portion of the buyers and consequently request Energy Star qualified units. Despite the retailer’s apparent interest, major manufacturers are quick to point out that retailers have accepted and promoted off brands such as Vizio, which are not Energy Star qualified. They have also mentioned that special Energy Star campaigns at Sears did not seem to attract additional buyers.

TV manufacturers have now completed the design of the models they will be selling in 2008. As of November 2007, manufacturers are expressing concern over the new Energy Star standard, which specifies standards for active mode and standby mode energy consumption, and the new test procedure. These manufacturers are lobbying (through the

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Consumer Electronics Association) for changes in the standard, the test procedure, and the implementation date. Since the new standard does not differentiate by technology, some manufacturers have suggested that there will be few units that exceed that new Energy Star standard; those that do are unlikely to be the popular LCD units. It is unclear if manufacturers will have tested and qualified many units by September of 2008.

Energy standards in Europe for 2008 are driving some manufacturers to create more energy-efficient LCD units for the European markets. These technologies will not be available for North American models in 2008, but will appear in some 2009 US models. PG&E many be able to increase the adoption of energy-efficient TVs by working with manufacturers and retailers to promote the adoption of this technology and units in PG&E’s territory.

Manufacturers are willing to participate in future PG&E—or utility-sponsored—energy- efficiency programs for consumer electronics and electronics for offices. Manufacturers will support retailer participation in utility energy-efficient programs by supplying products that have high-efficiency features. If these programs created a competitive advantage for their units, manufacturers would be willing to support use of market development or other merchandising funds to match PG&E or retailer investment. The participation is contingent, as it is with the retailers, on the program benefits outweighing the program costs.

Like retailers, manufacturers gain many of the same product, service, relationship, and brand benefits when participating in an energy-efficiency program. In addition to their costs associated with administering the program, manufacturers may also experience costs related to product design and testing. As such, standards for a program must be well defined by March of the preceding year to fit into product cycle. Moreover, qualification for PG&E incentives should be determined using Energy Star test data without additional testing. Manufacturers can then identify qualifying units at any time without additional testing costs.

Anticipated risks for the manufacture are the same as those for a retail participant in the program: financial risks of rebate reimbursement, image risk if the program fails, and audit risk related to regulatory compliance.

Table 20 shows what is important to key manufacturing stakeholders and their responses to the Energy Star and PG&E programs.

Title What is important to How they react to Energy How they react to PG&E each level – on what Star Programs programs to promote basis they make TVs that exceed Energy decisions Star's new standards Sustainability The major OEMS are Corporate commitment to They know utilities (and Executive very concerned about sustainability means they often PG&E) offer rebates their brand and having a want the Energy Star logo in other products and sustainability/green on every unit that qualifies. incentives for energy image. efficiency. Product / Concerns are for market They like having Energy They are unclear there will Marketing share, technologies Star qualified units but be very many units that Manager covered, brand cannot show it affects exceed the new Energy positioning, margins, more than 20% of the Star standards in 2008 or and pricing, buyers. They unable to 2009. Conceptually, they

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change 2008 models for support promoting more new standards. If new energy-efficient units but standards are reasonably voluntary California attainable they will try to programs will not effect have some models that worldwide product meet them in 2009. management. Director Product They are concerned how They cannot change 2008 They will show retailers Range the models of the next models and are which units qualify. generation of products encouraging the CEA to relate to each other and get Energy Star / EPA to to competitive models. push back new standards The objective is to cover to early 2009. They will not each price point with think about 2009 models competitive/superior until February of 2008. features. Promotional/ Their concern is to They view Energy Star They would support Communication promote the OEM’s qualified as one of the retailer's promotions and Expert brand and create features to denote on would like to see retailers awareness of unique packaging, the unit, POP, focus on their units features. and co-op advertising. Table 19: OEM Channel Decision-Making Factors

Market Analysis Conclusions The electronics market is large, dynamic, and growing; correspondingly, electricity use that powers this equipment is increasing. Electricity consumption by electronics is growing at a rate that is six times the average electricity growth rate. Nearly 20 million products—ranging from electric toothbrushes and MP3s to 60-inch plasma TVs and network servers—are bought by residential consumers and business customers each year in PG&E service territory alone. The energy-saving potential for each unit varies by product and is small on a per-unit basis compared with a refrigerator or clothes dryer. When aggregated however, the savings potential—if every product sold was an efficient unit—approaches 800 Million kWh per year.

To significantly penetrate this opportunity, an electronics program needs to be designed that considers the constraints of the industry structure and behavior of the market. PG&E can impact market behavior with education, promotion, and incentives. There are three options to consider:

ƒ PG&E can communicate directly with consumers, educating them about efficient electronics products and offering rebates. ƒ PG&E can provide incentives to manufacturers to make new energy-efficient products or improve the efficiency of their existing products. ƒ PG&E can provide incentives to the channels to stock and promote energy-efficient products. Each of the three approaches has its strengths and weaknesses; ultimately, consumer rebates are the least-attractive approach.

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Approach Consumer Direct Retail Channel Manufacturer

Advantages Provides data which Channels have direct If an offering is consistent CPUC is most accustomed access to customers. with their strategy—and to using. worthwhile—they will Energy savings, while participate. Direct marketing to small, is often a significant consumer brings PG&E’s portion of the profit for the Manufacturer sales can message directly to retailer. track sales to retailers. consumer. However, when the price A retailer’s decision of point increases, the fraud which products to stock risk increases, as retailers has significant impact on could ship units outside of market share. their stores to capture PG&E incentives to incentives retailers could encourage stocking and promoting energy-efficient products PG&E has higher visibility when many retailers participate. There is high satisfaction as customers like instant rebates.

Disadvantages It is expensive to reach Measurement from Manufacturers are consumers directly. retailers only includes motivated by technology, sales based on zip codes. competition, and their own Because consumers strategy. purchase most of these Retailers will not give up products only once every Energy savings is a very customer names, unless it 3-4 years, it is difficult to small portion of the total is approved by customers time promotion efforts value of most products. and they do not have to effectively. Thus, the incentive will be change their processes to small and the motivation Energy savings is a very systematically collect this will be minimal. small portion of the total data. value of most products, thus the incentive will be Retailers want to have small. consistency across stores within a region; local utility Breakage on rebates will programs make this be high, because of low- difficult. value rebates. Table 20: Advantages and Disadvantages of Channel Options

Each channel option impacts the rate at which PG&E can penetrate the energy-efficiency opportunity in electronics. QDI’s market-opportunity model is one way to identify the design requirements that lead to optimal market penetration. This model defines market penetration as opportunity share in the following formula:

Opportunity Share = Addressed Market x Market Presence x Close Rate x Incentive Capture

An illustration of the opportunity share equation appears in Figure 15.

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• Addressed Market - The fraction of the market opportunity that is realistically achievable; it is defined by a targeted set of customers for a specific product or service. Market behavior shapes the addressed market.

• Market Presence - The portion of the time the high-efficiency product is available where and when the customer wants to buy. It is influenced primarily by channel behavior.

• Close Rate - The frequency that the customer selects the high-efficiency product versus the alternatives. Customer behavior and channel behavior impact close rate.

• Incentive Capture - The rate at which the benefits of energy-savings programs are measured. This rate is dependent on channel or consumer behavior and regulatory policy.

s Products ce n ie Preference d 1.0 u A .8.8

Close .6.6 Rate .4.4 xx .2.2 x IC = 0.0 Low AverageAverage High Customers ±X±X Perceived Relative Value Addressed Market Close Rate Incentive Opportunity Market Presence Capture Share

Figure 15: QDI’s Market-Opportunity Model

In the consumer-direct (or downstream channel) option, the purchase incentive provided by rebates only influences the close rate. Furthermore, incentive capture with mail-in rebates that accompany consumer-direct incentives is typically low because of breakage. Retail and manufacturer incentives, on the other hand, can impact every factor in the opportunity model. Additionally, with a well-designed program, these incentives will produce opportunity shares substantially higher than downstream incentives. The design of a channel-based program should consider the following to optimize penetration:

Addressed Market – Maximize the targeted set of customers for a specific product or service as follows: ƒ motivate manufacturers to produce energy-efficient products; and ƒ develop programs to promote these energy-efficient products in the market.

Market Presence – Increase the frequency at which the high-efficiency product is available—where and when the customer wants to buy—as follows: ƒ motivate channels to sell the energy-efficient products, increasing market presence; ƒ motivate stores to advertise the energy-efficient products, thereby increasing market presence; and ƒ motivate stores to participate in the energy-efficiency program, thereby increasing visibility of the program to consumers.

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Close Rate – Increase how often the customer selects the high-efficiency product versus the alternatives as follows: ƒ motivate stores to increase the percentage of shelf space that is allocated to energy- efficient products, thereby increasing close rate; ƒ motivate stores to engage in educational activities (for example, store signage, and sales-associate training), thereby increasing close rate; and ƒ motivate stores to pass along rebates to consumers, thereby increasing close rate.

Incentive Capture – Increase how often credit is given for the customer’s purchase (breakage + net to gross ratio) as follows: ƒ motivate stores to track and report zip code sales; ƒ motivate stores to provide historic sales volume; and ƒ motivate stores to provide consumers with the information necessary to participate in follow-up surveys. These three store level activities can provide the data necessary for the CPUC.

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CEE Electronics Program Evaluation The program evaluation focuses on understanding issues and opportunities in PG&E’s current electronics initiatives. It also explores options within the organization—and outside it—to maximize the energy-savings potential in the growing electronics market. Interviews of PG&E managers within PG&E’s Customer Energy Efficiency (CEE) and supporting organizations, third-party providers, and other participants in the marketing delivery system provided an understanding of how energy-savings measures are designed, implemented, and managed. This knowledge has enabled the creation of a conceptual model of the present CEE marketing delivery systems and how measures are implemented within it. Results based on this model, describe alternative marketing delivery systems and strategies for CEE to use these channels to improve the performance of the electronics program.

PG&E has been in the energy-efficiency business for almost 30 years and has achieved significant energy cost savings of nearly $9 billion. Over the current funding period (from 2006 through 2008), PG&E will invest nearly $1 billion in energy-efficiency programs. CEE is part of PG&E’s Customer Care organization, which also includes the business account services area, customer contact centers, credit operations, marketing, and billing and customer records areas.

PG&E Electronics Program Background

CEE Business Overview CEE has two key stakeholders: natural gas and electricity customers (ratepayers) and the California Public Utilities Commission (CPUC). Ratepayers, realize direct benefit in reduced energy costs by using new technology in energy-efficient products. Ratepayers also benefit indirectly as the portfolio of energy-saving measures creates a resource that mitigates the need to build new generation. Successful measures are positively correlated to customer satisfaction. The CPUC is responsible for energy-efficiency policy and funding in the State of California; the CEE is a channel for distributing California’s public energy-efficiency funds. The CPUC rules, requirements, and responsibilities govern the CEE’s organizational design, processes, and behavior.

Energy-saving measures are the CEE’s main products. There are three main components of a measure: an energy-saving product or service that has measurably higher energy efficiency than a comparable, conventional product; information about energy-savings benefits of high efficiency product; and market incentives to make, distribute, purchase, and use the energy-saving product or service. Development of measures is accomplished through CEE’s program-management group and externally by third-party contractors. Delivery of a measure occurs through multiple channels.

The product, information, and incentive components of a measure can be bundled and delivered simultaneously or separately over a period of time. For example, information can be delivered through education or training independent of a product sale. Four product categories produce most of CEE’s results: lighting, HVAC, appliances, and building systems. In the current electronics program, there are three measures: 80 PLUS desktop computers and servers, LCD computer monitors, and Network PC Power Management Software.

Information about CEE measures is communicated through a number of channels and a variety of media. PG&E marketing communication channels are bill stuffers, a website,

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catalog, call center, and cooperative communications. Cooperative communications use Flex Your Energy—which has television and radio advertising, and a web site—as well as channel partners with point of sale information.

Incentives influence buyer decision-making; educate the customer: and, through rebate forms, serve as a mechanism for information collection and performance measurement. the CEE offers three types of incentives: rebates, cash, and design assistance. Alternative sources of incentives for saving energy include federal government tax credits and financial assistance, as well as coupons, rebates, or discounts from the manufacturer or retail channel.

Potential PG&E revenue streams from energy efficiency are highly dependent on CPUC measurement requirements. The CPUC recognizes energy-savings benefits to ratepayers based on measurement of units in place and energy savings per unit, adjusted for “free riders.” This accounting by the CPUC is the driver of program design, measure design, channel selection, information requirements, and application design. CPUC rules and regulations have been a discussion item throughout the electronics program evaluation.

CEE Marketing Delivery System Smooth operation of delivery system requires an organization and the skills to manage multiple channel and product flows. CEE is organized along two sets of intersecting channels—a customer channel and an incentive delivery channel. There are three market focused groups within CEE: Core Programs (mass market and targeted market), Local Government Partnerships, and Third Party Programs, that oversee the design and delivery of energy-saving measures. CEE defines the incentive delivery channels as upstream, midstream, or downstream: ƒ Upstream– The incentive is paid to the manufacturer—possibly to a retailer or distributor—to buy down the cost of the merchandise to the customer. ƒ Midstream– The incentive is paid to the middleman—distributor, dealer, contractor, retailer—to stock and promote the energy-efficiency product and track and report sales. ƒ Downstream – The incentive is paid to the customer—who is responsible for submitting a rebate application to receive payment and to validate the purchase and installation.

The CEE marketing delivery system is also structured along organizational channels (Figure 16); the incentives flow through the Core, Local Government and Third Party programs. These CEE channels often serve the same customers. Efforts are being made to coordinate these activities and avoid channel conflicts.

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Manufacturer Products

CEE Incentives

Rd Core LGP 3 Parties Upstream Upstream Midstream Midstream Upstream Midstream Downstream Downstream Downstream

Figure 16: CEE Marketing Delivery System Overview

Marketing support activities in CEE are: program strategy, planning, and investment; program design, implementation and management; and program measurement. The organizational roles of these support activities are shown in Figure 17.

Manufacturer Program Management Activities Channel Facing Strategy, planning, and investment; Facing Activities Design, implementation and management; Activities Measurement.

P r Customer Experience ro ge g a Customer Experience r and Strategy C a and Strategy o m n M su a m Mans lta n a nt n a gr a t g o ult ProgramProgram Manager Manager s e s r – r Pr n e s -Consultants C o nt Consultants h C a -CLIP process M a Program ult a n CLIP process n n Managons ag e C e l rs Rebate Processing Processing

Program Measurement Measurement

Figure 17: Marketing Delivery System Organizational Roles

Program management has the largest role in the marketing support organization. Other functions that are part of this organization include marketing research, marketing communications, rebate processing, and performance measurement. The success of these activities is ultimately measured by energy savings (kW and kWh/yr). Investment decisions are governed by benefit to cost ratios (TRC) and the size of the accessible opportunity.

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Energy-efficiency programs have evolved over the last 30 years—from technology-focused, consumer mail-in rebate programs, to benchmark programs such as PG&E’s lighting efforts that involve manufacturers and retailers in the incentive delivery. This market focus is not universal within CEE and many of CEE’s programs are oriented more to the technical performance of the energy-saving measure than the needs and requirements of the market participants. Concomitantly, the skills of program managers are strongest in engineering areas like technology and project management, and weakest in business areas including market analysis and channel management.

Program management includes a broad range of responsibilities—from conceiving new ideas for measures to reporting on program performance. Program managers have a critical role in the organization. They have budgetary responsibility and are accountable for achieving program CPUC goals. The program manager has the job of setting up and maintaining partner relationships with national groups like Energy Star, local government agencies, and channels. Program management staff negotiates with manufacturers and retailers. They directly interface with large commercial and industrial customers as well in the targeted programs. Program managers keep partners and the public informed about the status of programs—and energy efficiency in general—through communication programs, including the PG&E website.

Another key responsibility of program managers is establishing and maintaining relationships with other participants in the marketing delivery system. Program managers are taxed, however, because of their expansive role. Consequently there are gaps between CEE’s marketing support organization and that of the manufacturer and retailer. Figure 18 aligns the channel organization with CEE’s organization, pointing out potential decision- making and communication gaps.

Typical, mature vendor organizational structure and channel roles CEE Channel Roles

President Vision of channel development & growth

Sales Represent company with partners Program Manager

Channel Sales Mgr Manage field sales with channel partners.

National Accts Director Manage national account partners

Strategic Alliances Mgr Develop channel partnerships

Marketing Develop and direct marketing activities. Program Manager

Customer Service Mgr Maintain positive channel relationships

Product Marketing Develop vendor partnerships Program Manager MarCom, Events Manage marketing communications

Marketing Services Develop marketing collaterals CES

Product Dev Market research, product definition, competitors Program Manager

Finance Manage financial reports, transactions and IT Incentive Processing

Accounting Invoices, reporting and payments

MIS IT, web, PRM software

Operations Manage logistics with channel Program Manager

Figure 18: Alignment of CEE Organization and Channels

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Channel structures and organizations need to be aligned in order to have an effective channel-based strategy. CEE’s marketing delivery system has to be consistent with, and overlay, the manufacturer’s delivery system, which includes the retail channel (Figure 19). It is important to understand the marketing flows of its partners and the roles and responsibilities of the marketing support organization as well as the expected costs and benefits when channels participate: in the program. In addition to organizational alignment, effective channel management requires people and skills in both channel-facing and supplier-facing groups.

Product / Service Marketing Support Organization Product / Service Manufacturer / Incentive Service Provider Marketing Support Channels Organization Incentive Developer Incentive Channels

Customer

Figure 19: Overlay of Channel’s MDS and CEE’s MDS

Assessment of Existing Measures

As of the fourth quarter of 2007, PG&E’s electronics program includes three energy-savings measures: LCD monitors, 80 PLUS computers, and network PC power management software. The three different products are delivered to two distinct market segments through three different channel flow models (Table 22). The energy-saving goal for the three measures in 2007 is 3.6 Million kWh.

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Measure Customer Channel Manufacturer

LCD Monitors Mass market – Midstream – Dozens of LCD residential and requiring manufacturers small business channels to promote and pass on savings 80 Plus Computers Business Upstream – 5-6 major incentives to computer manufacturers to manufacturers build computers with 80 Plus power supplies Network PC Power Business Downstream – Four companies Management Software rebate to businesses who buy licenses

Table 21: CEE Electronics Measures—Market Summary

LCD Monitor The LCD monitor measure provides mass-market customers incentives to purchase high- efficiency LCDs. These would be available from dozens of manufacturers and would rely on retail channels to promote the incentives and pass on the savings. At the present time, only Western Appliance (a regional retailer in the San Francisco Bay area) and Circuit City are participating as retail channel partners.

The monitors program is a much more difficult and less rewarding offering in comparison to a program like lighting. The monitor program with the retail channel requires recordkeeping to prove the incentive was in fact passed on to the purchaser. In this case, the retailer has to modify their sales process so that certain models are eligible for the incentive and others are not. In order to implement this measure, sales representatives must be trained, sales systems must be re-programmed, and someone in the organization has to gather and consolidate the information in a format acceptable to PG&E on an ongoing basis. Most likely, an employee who already feels overburdened with existing core work will be assigned the task of gathering and reporting information back to PG&E. Depending on the sophistication of the sales and data systems at that retailer, this could be a very difficult task.

Additionally, should the consumer decide to return the discounted product back to a “non- participating” retail location that has an undiscounted price, the retailer assumes the financial risk. If the retailer refunds the “full undiscounted” retail price—having already given an un-reimbursed discount at the initial sale to the consumer—then they are carrying twice the unit incentive until PG&E pays the invoice. This financial risk—as well as the insufficient sales potential from just monitors to offset the risk—has discouraged retailers from participating.

80 PLUS PG&E is a member of a multi-utility—80 PLUS—effort to develop high-efficiency power supplies for desktop PCs. It is an electric utility-funded national incentive program established with the goal of integrating more energy-efficient power supplies into desktop

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computers and servers. This unique forum unites electric utilities, the computer industry, and consumers in ground-breaking energy conservation efforts. The resulting specifications for 80 PLUS power supplies have been adopted by Energy Star for their latest computer specification: Energy Star 4.0. This new specification is part of the EPEAT standard, which government and large commercial customers are writing into their procurement guidelines.

To bring the more efficient technology to the market, the 80 PLUS consortium is working with, and providing incentives to, computer manufacturers to build business computers with the 80 PLUS power supply. Dell and HP have computers models with 80 PLUS power supplies. Dell is an active participant in the program and has been reporting sales of energy- efficient computers.

Network PC Power-Management Software The EPA estimates computer users can save from $25 to $75 per year by activating the power-management function on their computer. More often than not, this function is not put to use. There are a number of new software options available to control power management across large computer networks. The Power Management Software measure makes $15 end-user rebates available to businesses when they install one of four software products that automatically control the power settings of networked PCs at the server level. The software must be installed to automatically control the power management settings of networked personal computers (PCs) at the server level. This program began on March 1, 2007.

The monitor program design only addresses the mass-market opportunity and uses retailers as the delivery channel. Circuit City and Western Appliance are the first retailers to join onto the program and have reported all the sales to date. This national chain has an estimated 5- 10% share of the electronics market in PG&E’s area. With such low market presence, QDI’s opportunity model predicts that the possible share of this particular mass-market opportunity is only around 0.8% of the total potential of 680,000 monitors per year—or between 4,000 and 8,000 units per year. The prediction recognizes that 25% of the monitors are sold separately as replacements or upgrades; the remaining 75% are bundled in new computer sales. In order to achieve the stated goal, the program needs to increase its presence by adding retail channels. Most of the top ten retailers in the electronics segment must be enlisted to participate for the monitor program to reach its stated goal.

Business customers are currently the target for 80 PLUS computers in this multi-client effort managed by ECOS Consulting. Dell is the primary contributor to the results to date. Even though Dell markets computers to all segments, the 80 PLUS power supply is only installed in business computers at this time, and they are marketing it accordingly. Dell has a 28% market share in California, which gives the program good presence to start and should enable the program to reach a good portion of its goal. One potential explanation for the historical lagging performance is a slow introduction of the new product. Because the 80 PLUS computer is initially a limited option among many model choices, the close rate is lower. At the same time, the impact of promotions or training may not have fully occurred yet. If this is the case, the monthly unit count should continue to rise over time. It is uncertain at this time if the incentive amount—$8.35 per computer when configured to Energy Star 4.0 specifications—is motivating enough for the manufacturer to heavily promote the 80 PLUS computer. The opportunity share can also be increased by adding manufacturing partners. As of December 2007, 37 companies manufacture Energy Star 4.0 computers with the 80 PLUS power supply, including the four market leaders. HP has 80 PLUS integrated into many of their computer models and is positioned to join the program in the near future.

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A combination of several factors is keeping the electronics program from meeting its goals. A shortage of staff resources and lack of channel relationships is an issue. There may not be a compelling value proposition to convince retailers and manufacturers that the benefits of being part of the program outweigh the costs. Retailers and manufacturers are willing and often anxious to participate in an electronics program with PG&E if the scale of the opportunity is large enough and if benefits—like increased sales, increased store traffic, and higher margins—exceed costs of training, stocking, promotion, and information management.

Electronics Program Evaluation Summary The existing electronics program is only addressing a small portion of the total potential opportunity in electronics—3.6 million kWh per year out of a potential 700 million kWh per year. A narrow product mix and lack of channel participation limits the potential and makes it difficult to attain program goals. There are only three products in the portfolio at this time and each is only addressing a small segment of the addressable market. The 80 PLUS computer program, for example, has successfully led to the adoption of the power supply standard in the Energy Star 4.0 specification. While the standard has been adopted by a number of computer manufacturers, only one major manufacturer is reporting data to PG&E.

The electronics measures are within the Mass Market segment of the CEE group and the projects are loosely coordinated by three different program managers. Current organizational strategies make it difficult to penetrate the electronics opportunity. An electronics program will require an organization that is more market-focused and market- share driven. CEE has the energy-efficiency technical expertise and knowledge of electronics technology that is necessary for: identifying energy-savings goals, specifying products that will receive incentives, and communicating with channel partners on a technical level. This technical expertise needs to be maintained and enhanced to accommodate the rapid changes in the electronics market. A channel-based strategy, most importantly, necessitates greater investments in people and skills to form channel-facing and supplier-facing groups that can develop and maintain relationships with channels.

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CEE Electronics Program Design There are three strategic options for the current electronics program: continue as-is, revise, or abandon. The electronics opportunity is large enough that the abandon option is not considered at this time. Continuing the existing program involves using the present organization and following the course of action initiated over the last year, which is described in the previous section. This level of effort could allow energy savings from the three measures to double in 2008. This is accomplishable by increasing presence—signing up another major retailer, such as Best Buy, for the monitor program and completing an agreement with HP for the 80 PLUS computer measure. Business computers are the best near-term target within the electronics opportunity, and this product set is the foundation of a revised program design. This section presents various design scenarios and guidelines that best achieve the associated savings.

Electronics Opportunity The electronics market opportunity is a combination of the consumer electronics market and the office equipment market. Consumer electronics consists of products designed primarily for domestic use. The office equipment category is made up of computer hardware— personal computers, servers, mainframes, workstations, and peripherals and other office equipment. Personal computers and peripherals for home use are included in this category.

This analysis considers the top electricity-consuming products in consumer electronics and office equipment. Product categorization and product definition takes advantage of work completed for PGE by Energy Solutions and ECOS Consulting. Energy Solutions evaluated technical and market information for 33 different consumer-electronics and home-office products in 5 product categories. QDI analysis of ECOS and Energy Solutions market estimates—in conjunction with government and industry economic studies—projects unit shipments within PG&E’s service territory for the various product categories (Table 24).

Office Equipment Projections, Unit Shipments to Businesses (1,000s)

2007 2008 2009 2010 2011

Computers 2,197 2,306 2,350 2,395 2,441

Desktops 1,318 1,386 1,414 1,442 1,471

Laptops 791 832 848 865 883

Servers 88 88 88 88 88

Peripherals 2,608 2,725 2,780 2,836 2,892

Monitors 1,318 1,386 1,414 1,442 1,471

Other Office Equipment 1,290 1,339 1,366 1,394 1,421

Total Office Equipment 4,805 5,031 5,130 5,231 5,334

Table 22: Office Equipment Unit Shipments in PG&E’s Service Territory

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The mass market segment encompasses residential customers and home offices. Energy Solutions has estimated PG&E mass-market sales for the years 2007 through 2009 and 2010; QDI analysis has extended the projection to 2011 (Table 25).

Consumer Electronics Projections, Unit Shipments to Mass Markets (1,000s) 2007 2008 2009 2010 2011 Computers 1,470 1,500 1,530 1,600 1,634 Desktop 680 690 700 730 740 Laptop 790 810 830 870 894 Peripherals 1,870 1,920 1,980 2,070 2,115 Monitors 680 690 700 730 740 Other Office Equipment 1,190 1,230 1,280 1,340 1,375 Inkjet printers 200 190 190 180 177 Laser printers 20 20 20 20 20 Scanners 90 90 80 70 65 Copiers 50 50 40 40 33 Fax machine 70 60 60 50 47 Multi-functional devices 180 180 180 190 188 Broadband Devices 340 390 450 520 569 Home Router 50 60 70 80 86 VoIP 190 190 190 190 190 Total Home Office Equipment 3,340 3,420 3,510 3,670 3,749 Televisions 1,300 1,380 1,510 1,640 1,737 CRT 470 300 230 160 20 LCD 530 710 870 1,030 1,204 Plasma 170 220 240 260 307 Projection 130 150 170 190 206 Home Entertainment 1,390 1,320 1,320 1,330 1,249 Set Top Boxes 1,149 1,217 1,278 1,472 1,507 IPTV 51 84 154 298 317 Digital Video Recorder 329 376 400 469 505 Digital Satellite Receiver 410 400 374 355 336 Digital Control Box 359 357 350 350 349 Personal Electronic Chargers 8,260 8,620 8,950 9,260 9,685 Total Consumer Electronics 12,099 12,537 13,058 13,702 14,178 Total Home Electronics 15,439 15,957 16,568 17,372 17,927

Table 23: Consumer Electronics Unit Shipments in PG&E’s Service Territory The total potential energy-savings opportunity is the product of the units shipped and the annual energy-savings per unit. The unit energy savings for the mass market is based on technical data in the Energy Solutions report and other sources; this is summarized in Appendix B: Electricity Consumption Charts. Opportunity estimates for the targeted markets are a result of secondary research and two convergent market models. Two projections use

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data from Energy Solutions and ECOS and scale the opportunity from forecasted unit sales in PG&E’s territory. The third model scales down national data from government and industry sources. The three approaches forecast long-term, energy-savings potential for business customers to range from 200 million kWh/yr to 550 million kWh/yr. In 2008, the potential targeted-market savings opportunity is 372 million kWh; the potential for the mass market is 440 million kWh. Combined, the total potential is 812 million kWh in PG&E’s territory (Table 25). Growth is forecasted to approximately 890 million kWh in 2011.

Potential Energy Savings Opportunity 2008 (Million kWh/yr)

Product Families

Set Top Televisions Computer Other Boxes and and Home Markets and Office Personal Total Entertain- Monitors Equipment Electric ment Chargers

Residential, Home and 80 79 93 187 440 Small Business

Large Commercial, 246 126 372 Industrial & Agricultural

Retail Channel OEM/Distributor Not Addressed Channel

Table 24: Estimated Energy Savings in PG&E Service Territory by Segment The total market potential defined in Table 26 assumes: A) the greatest possible energy savings; and B) that consumers always choose the energy-efficient product. In reality, the energy-savings potential depends on stores having energy-efficient products available on their shelves and on consumers selecting them over other product options. Effective program design can influence these factors. QDI’s market opportunity model has been applied—assuming certain channel and customer behaviors—to estimate the share of the total opportunity that can be attained under different program scenarios.

Electronics Program Design Requirements The number one requirement when designing the electronics program is to keep the customer in mind—their needs and their behaviors. Even though there are numerous stakeholders associated with California’s energy-efficiency activities, the investment of effort and money has little impact if the end-using customer does not select energy-efficient products. There are five stakeholders that need to be considered when designing an electronics program for CEE: end-users (ratepayers), CPUC, distribution channels, manufacturers, and PG&E.

End-users need to see tangible signs that their energy-efficiency investments are paying off with the availability of high-efficiency options and, ultimately, lower utility bills. This experience should result in positive customer satisfaction scores for PG&E, implying that

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PG&E’s brand needs to be appropriately linked to these electronics initiatives. The CPUC requires that the resulting benefits are measurable and measured as part of their regulatory responsibilities. Programs have to contribute to PG&E’s business goals for energy- efficiency, allowing stockholders to share in the economic benefits the company creates once certain thresholds are exceeded. Manufacturers and channel partners need to realize benefits of participation that exceed these companies’ costs in order for them to play a productive part in the electronics effort. All stakeholders benefit from a common goal of maximizing the share of the energy-saving opportunity: ratepayers save more electricity, manufacturers and retailers sell more products, PG&E improves its return on equity, and the CPUC achieves its benefit to cost targets.

Opportunities to Increase Addressed Market The three key requirements for increasing the size of the addressed market are to: have a significant number of products in the electronics portfolio; link the efficiency measure to accepted energy-efficiency standards; and develop an ongoing pipeline of energy-efficient products from manufacturers. The three products in the portfolio at the present time are not sufficient in volume to reasonably penetrate the electronics opportunity. Product unit sales, growth, and energy-saving potential are criteria for selecting products to add to the portfolio. As part of the program strategy, the electronics with the greatest potential contributions to energy savings have been grouped together into four product families that have similar end- use or channel characteristics: business computers and monitors, other business office equipment, home entertainment and home office equipment, and set-top boxes and personal electric chargers (Table 27).

Product Families

Set Top Televisions Boxes and Computer and Other Office and Home Markets Personal Monitors Equipment Entertain- Electric ment Chargers

Digital Multi-Function CRT/LCD/ Receivers, Devices, Plasma TVs, Residential, Home Desktop PCs Portable Audio, Broadband Audio, DVD and Monitors Phones, Digital and Small Business Devices, Home Players, Home Cameras, Router, VoIP Theaters PDAs, Etc. Printers, Large Commercial, Desktop PCs, Scanners, Network Copiers, Fax Industrial & Servers, and Machines, Agricultural Monitors Multi-Function Devices

Family 1: Targeted Computers and Monitors

Family 2: Other Targeted Office Equipment OEM/Distributor Channels

Family 4: Set Top Boxes and Chargers

Family 3: Retail Consumer Electronics Retail Channels

Table 25: Energy-Saving Electronics Product Families

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Energy-efficiency benchmarks are required for any product that will be included in the electronics-program portfolio. Standards and measurement protocols from the state and federal government could serve as these benchmarks. Energy Star provides an effective benchmark because of the number of products under its umbrella and the widespread recognition of the standard by manufacturers, retailers, and consumers. The program needs to be aware of the policies, procedures, and schedules of standards-development so the most relevant benchmarks can be incorporated into the program design. Measure- development and implementation have to be synchronized with the schedule for standards design (Figure 21).

PG&E Launches PG&E Launches PG&E Launches Phase I Phase I II PG&E Phase I I Announces (Premium (Early Adopter) (Rapid Launch) Program Plan Performance) Date

Revised Energy Announcement of Final Energy Star Energy Star Star standard is plan to create a standard set standard goes Into effect set new standard Figure 20: Alignment of Program Implementation and Standards Schedule CEE’s role in energy-efficiency markets is to help in market transformation for new products. CEE measures start with products that are early in the product life cycle while consumer acceptance and penetration is low. It is important to follow the Energy Star products through their life cycles: identifying products and how well they meet or exceed standards as soon as manufacturers publish their data; promoting standard-meeting products as soon as the standard is launched; and then promoting products that exceed the standard once the market has been transformed (market penetration greater than 50%). This cycle repeats when there is an announcement for a new, more-stringent efficiency standard. There are seven consumer electronics products on Energy Star’s specification development calendar between now and the end of 2009 (see Appendix E: Energy Star Specification Calendar).

A successful electronics program requires that a solid relationship is established with Energy Star. A preliminary meeting has occurred with Energy Star’s marketing group to discuss the program.

The EPA is enthusiastic about joining PG&E in the electronics effort; they have ongoing and planned activities where PG&E involvement would be appreciated. They are, for example, designing an instructional DVD that discusses energy-efficient electronics; this is targeting customers and staff of electronics retailers. A potential collaboration is for PG&E to pilot the DVD with retailers in its service territory. An Energy Star relationship would be beneficial in increasing market presence and close rates because of the credibility of the Energy Star brand with retailers and high brand recognition with consumers. Energy Star maintains databases of participating retailers and manufacturers that provide contacts or leads to establish channel relationships.

An awareness of, and participation in Energy Star is important for carrying on any relationship with electronics manufacturers. Energy-efficiency efforts at these manufacturers

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are driven by the Energy Star specifications. The Energy Star bureaucracy, however, can be difficult for manufacturers when schedules slip or specifications change. As of November 2007, TV manufacturers are expressing concern over the new Energy Star standard and are lobbying for changes in the standard, the test procedure, and the implementation date. Since the new standard does not differentiate by technology, some manufacturers have suggested that there will be few units that exceed that new Energy Star standard; those that do are unlikely to be the popular LCD units. It is unclear if manufacturers will have tested and qualified many units by September of 2008.

In some cases, Energy Star cannot move fast enough in developing new standards as new products and entire new electronics categories are rapidly entering the market. If it is true that Energy Star moves slower than the market leaders, then there will be a period of time when products above the Energy Star standard could be promoted. This potential utility role would help move the market to a new standard more rapidly. A utility’s own standard setting group could also work to motivate manufacturers to produce more efficient electronics.

Interviews with manufacturers indicate a willingness to participate in future PG&E or utility- sponsored energy-efficiency programs for consumer electronics and office equipment. Their participation is contingent on the program benefits outweighing the program costs. Those programs that leverage their sales and marketing efforts, their product development activities, and their brand are of particular interest to the manufacturers.

Manufacturers realize many of the same product, service, relationship, and brand benefits that a retailer gains when participating in an energy-efficiency program. In addition to expenses associated with administering the program, manufacturers also experience costs related to product design and testing.

Opportunities to Increase Market Presence In order to increase market presence, it is necessary to establish and maintain relationships with key retail channel partners. Another requirement is to have a value proposition that will convince these potential partners to participate. Elements of this value proposition are:

ƒ Product Offerings o Have economic impact (enough products) o Are easy to implement (simple to administer and supported locally) o Have geographic scale (beyond PG&E) ƒ Service and Channel Relationships o A organizational commitment from PG&E o Relationship driven: across organizational functions and at appropriate levels within channel organization o Long-term vision and commitment o Open and honest communication, yet confidential o Superior execution: plan and deliver to that plan on time o Fast, flexible issue resolution

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ƒ Brand Leverage o The local utility brand (PG&E and other) o Linked to the Energy Star brand

The program framework has to work for key distribution channels in order to have market presence with major store-based retailers, major web-based retailers, value-added distribution channels, and manufacturer direct channels. The financial incentives that get them to stock and promote the more efficient products will be successful if the channel’s requirements are recognized.

Each channel member has different requirements, so there needs to be some flexibility in the program elements. For example, one retailer prefers vendors to handle fulfillment of the rebate to customers. They would like to have tear-pad, mail-in rebates that customers could get in-store, in-aisle, or available directly from PG&E. Another major retailer, as an organization, is moving everything to instant rebates. They will not make an exception for any other type of in-store delivery mechanism. A third retailer will pass the price cut directly to the listed shelf sticker price. Customers will see it as an Instant Rebate Coupon, with a new low net price. A fourth retailer will also reduce the price of the SKU, but not use a rebate promotion.

Requiring the rebate be passed through to the customer is an obstacle to higher adoption rates; it takes more of the retailers’ resources: buyers, management, IT, store managers, sales associates, and cashiers. Some retailers, however, believe that passing it through customers creates the biggest impact on sales. Lower prices increase sales in general; many customer psychology studies show that products “on sale” sell measurably better than comparable non-sale products.

All retailers want to control the shopping experience and visual aspect within the store is one of their most important factors. With all retailers, PG&E must work with the merchandising team to develop any in-store marketing (for example, stickers for boxes or display units, shelf talkers, pitch-tent signs, and kiosks). Here are some examples of varying practices in merchandizing: Costco is very restricting; no third-party materials are allowed without VP- level approval. Costco has a standard sign Instant Rebate Coupon (IRC) to put in front of the display unit. Other mass merchants such as Wal-Mart, Target, and Sears are similarly controlling. Best Buy prefers the co-branded materials. Office Depot must approve materials but they can be more standardized.

Data policies are not as diverse as other retailer requirements. While retailers collect virtually all of the data that the program would need on customer purchases, it is generally against their policies to report it (and it takes resources to do it). They seem willing to compromise on reporting product sales by store in order to qualify for the rebate money. If necessary, they will work with PG&E to do benchmarking work to understand the impact of the rebate on sales. Companies will make data available for an audit, but only as required by someone such as the CPUC. All data access must come with a very strict confidentiality agreement and with restricted use of the data.

Other issues PG&E should anticipate are concerns about product returns to non- participating stores (although fraudulence or abuse is expected to only be a minor problem). Price discrimination—either within the store to different customers or between stores in the same chain—is not desirable. This kind of preferential treatment would work if PG&E

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delivers coupons to customers for them to bring in. However, retailers will not want to actively promote at the point of purchase (at the shelf) if the offer is not good for all customers. Some chains have stores close enough together that they compete with themselves. If one store gets the PG&E program and not the other, the retailer would probably elect not to participate just to keep the store managers on an even playing field.

In addition to being aware of a retailer’s policies, procedures, and other business requirements that enable the success of a program, CEE needs to understand the retailer’s buying cycle and how this relates to the manufacturing cycle (Figure 22). This will impact the design and implementation schedule for a measure.

Retailer Gets Information on Program Design and Manufacturer Get Products that Meet Program Program Information Requirements

Manufacturer Manufacturer Retailer Launches Announcement of Designs New Starts Marketing New Product plan to create a Product New Product new standard Figure 21: Alignment of Program Implementation and Manufacturing Cycle

Opportunities to Increase Close Rate Rebates are the key tool to shift market behavior and increase close rates; it is a requirement that the program design include a rebate. Two kinds of rebates can be employed: consumer rebates and channel rebates (which are payments to the retailer). In theory both rebates result in the retailer selling at a lower price to consumers who are price- sensitive. Both kinds of rebates provide the retailer incentive to stock more of the rebated product—retailer rebates by increasing their margin, and consumer rebates by increasing product demand. The structure of the rebates must be consistent with how the channel manages data. Consumer mail-in rebates are not recommended because of the penalty on incentive capture when rebates are not redeemed by the customers.

Consumer incentives are best used when the price gap between the energy-efficient offering and the alternative product is too large. Channel incentives make the most sense when the channel role is to either: educate the consumer, motivate the channel to stock energy- efficient products, or motivate the channel to promote energy-efficient products. Manufacturer incentives work best to motivate manufacturers to introduce design changes, provide packaging and signage support, and/or to promote the energy-efficient offering through their sales force.

Another important role of the channel is educating the consumer. The consumer can be influenced either before the sale through education (for example, websites or direct mail) or at the point of purchase with displays and well-trained sales representatives.

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Table 28 lists a number of factors that influence consumer behavior and the options that are available to PG&E or the channel partner. Each driver has an impact on close rates.

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Behavioral Existing Program Program Design Impact on New Change Driver Impact Options Program Design

# of options the Could make efficient Increase close rate for customer has electronics option the efficient electronics majority option. offering.

Brand Has some impact where Would increase Customers could buy association with there is presence. presence (number of because the offering is PG&E participating retailers) “green.” and “point of sales” presence and potentially Customer could more “promotion/co-op positively perceive advertising” presence. PG&E.

Customer Pass through rebate on Could create coupon Could increase close perception of monitors is positive. No model. rate. offer value rebate on computers. Could have “instant Could increase positive rebates.” image of PG&E.

Could have sticker saying “PG&E helped bring you this valuable offering.”

Education Today, some POP and Detailers can drive POP Could increase close web education. education and store- rate and positive image level education, of PG&E. Table 26: Opportunities for Influencing Behavioral Changes

The marketing communication plan is an important element of the program design. It will contain guidelines for messaging and schedules, as well as provide a means for coordinating promotions with the retailer, Energy Star, distribution channel, and manufacturers.

Opportunities to Increase Incentive Capture A well-designed measurement system should collect sufficiently-detailed information for program evaluation and implementation. This should not, however, impede the participation of retailers or manufacturers or provide disincentives for consumer participation.

Data collection can vary by program type, technologies addressed, channel, and customer segment. Regardless of type, all program measurement systems should include the following: ƒ Participating customer information - a unique customer identifier or other customer or site specific information; ƒ Measure-specific information - including equipment type, equipment size or quantity, efficiency level, and estimated savings;

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ƒ Program-tracking information - monitoring rebates or other program services provided (for each participant) and key program dates; and ƒ All program cost information - including internal staffing and marketing costs, subcontractor and vendor costs, and program incentives.

PG&E and its partners have to provide measurement data that is acceptable to the CPUC. This may include sales data that compares program results with historic trends and sales data that proves sales were made in PG&E territory. There would have to be a mechanism to track these sales to the end user—at least by zip code. For a channel-based program, this means the program must have the ability to track the following: final, end-user ship-to locations (for distributors and resellers); data from manufacturers to distributors, data from distributors to “value added resellers” and data from “value added resellers” to end-users. It would also be beneficial to track the ship-to point and be able to verify the product is used there. Complimentary methods for verification, such as follow-up surveys, also have to be evaluated.

Program Scenarios To apply the design guidance and market understanding, a series of program scenarios have been created; they assess the benefits and costs to penetrate the potential electronics opportunity. All four scenarios build on the current electronics measures—80 PLUS computers, LCD monitors, and network power-management software. The logic of the scenarios is to progressively invest in the electronics portfolio, add products, and expand into multiple markets.

The No Investment scenario is the “as-is” strategic option. With this option, no changes are made to the current programmatic or organizational strategy. The Low Investment scenario revises the program tactics so that more products can move through CEE’s existing marketing delivery system. Major revisions to the marketing delivery system and additions to the electronics portfolio are outlined in the Plan and Aggressive scenarios. Table 29 summarizes key features of the four scenarios.

Scenarios Family 1: Family 2: Family 3: Family 4: Targeted All Other Targeted Retail Consumer Set-Top Boxes and Computer / Office Electronics Electronics Chargers Monitor Market

Plan Assign account Assign account Place a channel Assign account managers to OEMs managers to management group manager to target and aggressively develop peripheral to develop retail and manufacturers and sign up OEMs; OEMs and market web channels— cable/satellite promote monitor through their across all product operators. They will program to get their channels. lines. Also develop work with leading sales organizations in-store promotions operators to to promote program. Work with OEMs to of rebate coupons, promote set-top have their VARs detailers, and store boxes and chargers Work with OEMs to participate in incentives. once standards have their VARs programs. have been participate in established. programs.

No Do not promote None. Keep existing None

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Investment monitors; just stay channels—do not with the computer expand the program OEMs signed up for beyond monitors. 80 PLUS. Do not add a channel management group or promote outside of the website.

Low Launch a monitor Have program Continue to manage Have program Investment program, but do not managers work with by product category managers promote assign account key computer OEMs —but add set-top boxes once managers to OEM on promoting computers and TVs the standard is set program managers peripheral products to retail, plus some with an early to pursue sign ups. to their channels. mail inserts and the adopter—most likely website. a smaller operator.

Aggressive Assign account Assign account Place a channel Aggressively set managers to OEMs managers to management group standards (if and aggressively develop peripheral to develop retail and necessary) for set- sign up OEMs. OEMs and market web channels top boxes Promote monitor through their across all product program to get their channels. lines. Strategies Assign an account sales organizations include: create manager to target all to promote program. Work with OEMs to incentives for stores the major have their VARs based on volume cable/satellite Work with OEMs to participate in targets; provide up- operators and the have their VARs programs. Or, have front investments to key set-top box participate in account managers encourage store manufacturers. programs. Or, have develop a VAR participation; have a account managers program to capture very aggressive develop a VAR largest VARs. web/small program to capture retail/specialty largest VARs. channel program; develop an in-store promotion of rebates and incentives to store and stock products; develop co-op advertising/rebate forms; create web rebate forms. Table 27: Planning Scenarios

Energy-Saving Potential of Program Scenarios A model has been developed to simulate the options for investment in an electronics program. Key variables are the unit sales and unit energy-saving figures for electronic products suite. QDI’s opportunity model provided estimates of the market penetration for the product families—considering the activities described in Table 29. The market simulator is linked to the E3 calculator in order to get benefit-to-cost (TRC) results and the net energy savings. Additional discussion of the model is in the report’s Economics section.

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Table 30 shows the penetration rate and average incentive for each product family and scenario. Figure 23 plots the gross energy savings for each scenario over the program period. The scenarios with the lowest benefit-to-cost ratios produce the highest absolute energy savings.

No Low Scenarios Plan Aggressive Investment Investment Commercial Computers and Monitors 19.0% $13.50 6.0% $8.00 10.7% $13.50 26.4% $13.50 Commercial Other Office Equipment 8.1% $10.00 0.0% $0.00 0.0% $0.00 13.3% $10.00 Residential Entertain. & Ofc. (Retail) 17.3% $10.00 0.1% $10.00 3.2% $10.00 28.6% $10.00 Residential STB and Chargers (OEM) 23.1% $3.50 0.1% $3.50 8.0% $3.50 31.0% $5.00

Table 28: Program Scenario Assumptions

250.0

200.0

150.0 Targeted Market Mass Market 100.0

50.0 Annual Energy Savings (Million Savings Energy kWh) Annual 0.0 1 2 3 4 5 6 7 8 9 10111213141516 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2008 2009 2010 2011 2008 2011 Plan No-Inv. Low-Inv. Aggressive (2.2 TRC) (3.5 TRC) (2.6 TRC) (2.1 TRC)

Figure 22: Electronics Program Scenarios – Gross Energy-Savings Estimates

Near-Term options During 2008, there are low-investment program actions that can increase the penetration rate of the current program portfolio. These activities are part of both the Low Investment scenario and the start-up strategy for the Plan and Aggressive scenarios. The objective of this near-term plan is to move more products through the existing marketing delivery system without major organizational changes.

The driver of the plan is EPEAT standards—which go into effect in 2008. Leverage from these standards could potentially increase the addressed market, market presence, and close rate; this would lead to greater opportunity share.

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EPEAT (Electronic Products Environmental Assessment Tool) is a set of environmental performance standards; they result from an executive order requiring federal agencies to manage their procurement in sustainable way. California state agencies—as well as large commercial and institutional customers—have adopted these standards. A key specification in the standards relates to energy efficiency. EPEAT has also been specified in federal and state requests-for-proposals.

Currently, EPEAT regulations cover only desktop computers, laptop computers, and monitors. Other product categories are under consideration for EPEAT registration, including: TVs and other display products, imaging devices, printers and copiers, cellular phones, PDAs, and computer servers. Starting in 2008, all federal and state government will specify EPEAT in their procurement documents. This means request for proposals for computers will request 80 PLUS/Energy Star 4.0 computers. Combined, the government market and the education market is about one-third of the total personal computer market. The addressed market increases if monitors that exceed Energy Star standards and power management software are added to the offer. CEE should explore what is required to include these products in their standards.

Business-to-business channels such as Value Added Resellers (VARs) and large distributors such as CDW reach the government market. Market presence is proportional to the number of channel partners that are part of the program. A broader portfolio of products would make the opportunity more attractive to the channels, as most large channels have the capacity to market a variety of energy products

The close rate in the targeted government market should be high, approaching 100%, as most government facilities have been complying with the directive. By working with additional promotional channels—such as green organizations (for example, Energy Savers) and PG&E channels—Local Government Partnerships and the Service and Sales organization can publicize improved-efficiency performance benefits and improve close rates. EM&V necessitates working with manufacturers and channels to track sales.

Long-Term Options – Plan and Aggressive Scenarios The Plan and Aggressive scenarios require changes to the current program approach— including CEE program organizational design. Strategies to implement these scenarios require the development of alternative MDS components, elements, or processes that allow a faster and deeper flow of products to market.

In these scenarios, the organization would expand to include marketing and channel management skills—including channel managers, account manager, program implementers, detailers, and program managers. Other program elements that are different from the current program are incentives, EM&V, and market scope. Seven initiatives are outlined as program guidelines for these long term options:

1. Channel-based EM&V 2. Segment/product line breadth 3. Technology standards as baselines 4. Mass Market channel organization 5. Vendor management organization

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6. Data tracking organization 7. Electronics specialist program management

Strategic Initiative 1: Channel Based EM&V ƒ Develop a proposal to the CPUC for EM&V to support upstream measurement of program performance. o Track sales at the zip code level by retailers. o Develop benchmarks of sales performance (which considers a baseline as well as other geographies by which to compare program performance). o Provide performance measurements on each upstream channel program that allows consumers to provide feedback directly to PG&E on their purchases. ƒ There are three primary reasons for upstream rebates. o Downstream rebates have incentive capture rates of 10% to 35%—as compared to 100% for upstream rebates. The low ratio is due to the high breakage from the small dollar amounts in downstream rebates ($5 to $20 per item, when an item’s list price can be above $1,000). o Upstream rebates give retailers incentives to stock energy-efficient products, thus increasing the presence of the offer to consumers. o Upstream rebates give retailers incentives to promote the product, thus increasing close rates. ƒ Show the CPUC the impact of program design on EM&V measurements. o Show how channel-based programs can most effectively impact energy savings in electronics markets. o Demonstrate how channel-based programs can increase channel participation and impact stocking behavior—increasing the percentage of energy-efficient products on the shelf. o Justify why channels need to maintain confidentiality with their customers (which necessitates an upstream EM&V approach with less granular data). o In the context of a multi-year program, CEE should investigate getting credit for all the years a program is in existence, even though the market was transformed in the first year. ƒ Develop consumer response tools that link to an upstream incentive program. o Get retailer participation in their marketing and sales.

Strategic Initiative 2: Segment / Product Line Breadth

ƒ The electronics product line will: o address both the mass and targeted-markets customers; o cover the breadth of electronic products that are most beneficial to CEE programs; and

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o create specific product families that present the greatest potential for and “efficient capture” of significant energy savings. ƒ Families - Groups of product categories that can be easily and logically combined into common channels. ƒ Efficient capture - Maximizing the measurement of qualifying purchases. ƒ Significant energy savings – Target product categories that are worth the channel’s investment and PG&E’s investment.

Strategic Initiative 3: Technology Standards as Baselines

ƒ All programs need a performance standard on which to measure energy-efficiency improvements. ƒ Energy Star is the accepted standard in energy efficiency and should be used whenever possible. o The advantages are that Energy Star has a very strong brand, is active in standards setting, and has a strong interest in working with CEE on electronics. o The disadvantages are that Energy Star’s time table may not synchronize well with the program schedule; they also have account relationships with major retailers that could introduce channel conflicts. ƒ Environmental standards such as EPEAT include Energy Star standards for efficiency are critical. o Federal and some state governments, including California, are required to include these guidelines in their purchasing policies. o EPEAT differentiates performance within their standards as “gold,” “silver,” and “bronze”—presenting an opportunity to CEE’s measures (such as monitors) that exceed the existing Energy Star standard. ƒ The Aggressive Scenario may require PG&E to set standards.

Strategic Initiative 4: Mass Market Channel Organization

ƒ Deploy a Mass Markets Channel management organization. o The group will manage retail, online, and reseller/distributor channels. o This organization includes both CEE personnel to design/manage programs and external personnel to manage channel relationships. ƒ The following functions can be external to CEE. o Channel program design/program implementers will work with individual accounts on program design and support. o Account mangers will build relationships with and promote programs to the channels; coordinate account access strategies with Energy Star; and promote/coordinate multiple utility programs.

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o Store detailers will operate as third-party field service organizations contracted to handle in-store merchandising and training. ƒ As the program grows in scope—from a PG&E, to California, to national program— the program management and channel design functions could move outside of PG&E. This could ultimately be a program in which PG&E participates, paying its share of the operating costs and rebates.

Strategic Initiative 5: Vendor Management Organization

ƒ Deploy a vendor management organization to do the following. o Manage relationships with key vendors in the electronics industry. o Implement marketing programs with each vendor, including: ƒ working with product managers and sales and marketing groups; ƒ ensuring vendor sales organizations promote programs to direct customers and VARs; and ƒ monitoring vendor organizations in tracking data and passing on incentives based on program design. o An organization could represent multiple utilities. Outsourcing the organization would provide a initial “structure” with which other utilities can work.

Strategic Initiative 6: Data Tracking Organization

ƒ Implement a function to collect sales data from Mass Market channels and Manufacturers. o There could be separate functions for the Mass Market and Manufacturers. o The operation would aggregate channel data for each product category and perform the EM&V program performance analysis. ƒ Economics of data tracking will focus on cost per channel, versus cost per rebate. ƒ The rebate administrative cost could be structured and paid per-store, per-chain, or per-product—but not per-item. Collecting data at the store or chain level should change the economics of tracking. There is a great opportunity to pay much less to process rebates than is paid currently once the major retailers are signed up. This potentially is major savings area for upstream programs. o The data collection function will also be responsible for validating the data. o An outsourced data-tracking organization could provide the same role for multiple utilities.

Strategic Initiative 7: Electronic Specialist Program Management

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ƒ Consistency of market knowledge is required to effectively manage electronics programs. Program management must be very knowledgeable of: o Movement of technologies - The program manager needs to understand the life cycle of product technologies and how standards and performance against those standards change over time. o Channel roles and relationships - The program manager needs to know who are the key industry contacts, and must have effective relationships with these individuals. o Vendor and vendor management - The program manager needs to know and have relationships with the key manufacturers. o In all cases, the program manager is not the one who will manage these relationships; this will be the responsibility of the appropriate account manger or channel manager. ƒ Specialization is required as each product family has enough individual products to require program specialists. Thus, we recommend up to four positions be assigned to the management of the electronics program: ƒ computers, servers and monitors; ƒ all other office equipment; ƒ consumer electronics, excluding computing products; and ƒ set-top boxes and chargers, which are OEM opportunities. ƒ A senior program manager in CEE will need to coordinate development, manufacturer, and channel activities. o Someone has to understand “the big picture” and make course corrections as the markets, technologies, or regulations change. o It is important to keep continuity about the electronic market ingrained in the program.

Organization Design Each member of the electronics organization has a channel role. A few of the key responsibilities appear in Figure 25. The pilot program in 2008 provides an opportunity to refine the roles of individual contributors, define specific responsibilities for each position, and establish reasonable performance goals for the ongoing program.

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Senior Program Manager Set vision and goals. Represent CEE with high level contacts

Electronics Program Manager Set strategy and plans

Manage CEE electronics organization. Set policies and procedures

Develop regional and national partners

Product Specialists Develop and launch electronics measures

Market research, product and partner identification

Develop marketing collaterals

Channel Manager Represent CEE with partners

Maintain positive channel relationships

Allocate resources and manage schedules Account Managers Establish and manage channel and vendor relationships

Identify channel needs and requirements Program Implementers Manage developed measures at store level

Invoices, reporting and payments Manage marketing communications Detailers Manage detailing at the store level

Figure 23: Organizational Roles and Responsibilities

Economics

The electronics program could yield savings of 145 million kWh/year in 2011, if a market penetration strategy is undertaken. This growth is from almost 50 million kWh/yr in 2009, following a pilot program that runs throughout 2008.

Electronics Plan Scenario Summary Plan Scenario (Million Targeted CEE 2008 % of CEE 2008 kWh/yr, gross) Market Mass Market Goal Goal 2008 4.1 4.1 - 869 0.5% 2009 49.0 45.6 3.4 869 6% 2010 116.7 53.2 63.5 869 13% 2011 145.0 55.5 89.6 869 17%

Table 29: Electronics Program – Plan Scenario Summary

This Plan scenario would capture 18.5% of the potential market of 782 million kWh in 2011 (Table 32), given the following assumptions.

ƒ High-energy-saving-potential product categories account for more than 75% of the market potential; they are introduced in the product mix based on standards release and other timing decisions.

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ƒ Market presence averages 53% for both markets over the course of the program.

ƒ A close rate—decisions to purchase the energy-efficiency offering—is about 50% for the decision-makers who consider it; the incentive leads retailers to provide equivalent shelf space to the energy-efficient products.

ƒ Incentive capture—the number of times the transaction is reported to PG&E— averages almost 75% for the three years of the program.

ƒ Incentive amounts are lower than $20 per unit—ranging from less than $3 for an electric charger to around $20 for a television.

ƒ There is a gross measure cost for every unit sold, accounting for the cost differential between the conventional product and the high-efficiency product. The differential approaches zero over the time period for the program and an average cost has been used in the calculations. The range of costs is from $0.67 for a charger to almost $12 for a television.

ƒ Duty cycles for commercial office equipment are 50 to 80% higher than the duty cycles for comparable equipment used in a home office.

These Plan scenario projections for 2011 are shown in Table 32.

Share of 2011 Total Addressed Addressed Incentive Capture of Market Market Close Market Share % Share Energy (million (million Presence Rate (million Incentive (million of Total Savings kWh) kWh) Estimate Estimate kWh) Capture kWh) Market

Mass 448 394 58% 40% 91 100% 91 20.4% Market

Targeted 334 294 53% 59% 92 58% 53 16.0% Market

Total Market 782 688 56% 48% 183 79% 145 18.5% Capture *These are gross gains, not net gains. Net gains are projected to be 80% of gross gains. Elimination of low energy-saving potential products reduces total market by 12.5%. Table 30: Market Share Projections for 2011

As Figure 26 shows, the near-term plan results come from the Targeted Market Opportunity; the Mass Markets make the larger contribution long- term. Beginning in 2010, an OEM program is initiated to capture the energy-saving potential in personal electric chargers and set-top boxes. The near-term targeted market opportunity is attributable to the government market for EPEAT-certified office equipment.

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160.0

140.0

120.0

100.0 Mass Market 80.0 Targeted Market Total 60.0

40.0 Energy Savings (Million kWh/yr) (Million Savings Energy

20.0

0.0 2008 2009 2010 2011

Figure 24: Electronics Plan Scenario Projection by Market

TRC Calculations Total Resource Costs are benefit-to-cost measures that apply to energy-efficiency programs. TRC measures the net costs of a program based on the total costs of the program—including the participants’ and the utility’s costs. Key inputs are: annual units, energy savings per unit, product lifecycle, incentive costs, and program costs. The simulator developed for this project provides an interface between the market data and the technical E3 model. E3 tools allow users to calculate the Total Resource Cost and Program Administrator Cost results for programs implemented in PG&E's service territory. There are separate calculator tools for residential and non-residential measures. Users need only to select the measure and climate zone (or users may select "system"), input some program details and measure per unit costs, and supply an implementation schedule.

There are uncertainties surrounding some of the key variables in the market model and the TRC calculation—namely penetration rates, incentives, and gross measure costs. The TRC value is sensitive to these values and it is important to understand the extent of the variability. A sensitivity analysis has been performed for each of these variables while keeping the other two constant. The Plan scenario has a calculated TRC of 2.2. Penetration rates are positively correlated with TRC and the costs are negatively correlated. TRC is most sensitive to the penetration rate. In the market opportunity model, this penetration rate, in turn, depends on assumptions about market presence and close rates. A 50% reduction in penetration (this can result if the close rate is close to 25%) decreases the TRC to 1.6. These three variables are not independent in reality; increasing incentive amount is expected to increase penetration rate. Increasing gross measure cost has the opposite

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effect on penetration. The conclusion is that even with the uncertainty of the key variables, it is highly probable that the program’s TRC is greater than the minimum threshold of 1.6.

The calculated TRC values range from 2.07 to 3.48 for the four different program scenarios (Table 33). Over the range of variables considered, TRC decreases as the total energy savings increases. This occurs for two main reasons. The No-Investment and Low- Investment scenarios dedicate few—if any—resources to marketing, promotion, and channel management. This results in low costs and low energy-savings benefits. When there are larger and longer-term investments in developing and managing the program—as in the Plan and Aggressive scenarios—benefits go up; but the additional costs needed to increase presence and close rates lower TRCs.

Scenario Summary 2008-2011 2008-2011 2008-2011 Total Targeted 2008-2011 Total Cost (Million kWh/yr) Market Mass Market ($Millions) TRC

Plan 314 158 156 71 2.18

No-Investment 48 47 1 6 3.48

Low-Investment 125 84 41 25 2.63

Aggressive 459 236 223 114 2.07

Table 31: Program Scenario 2008 – 2011 Summary

Decision Support Guides and Decision Criteria

Risk Management The Plan program structure can tolerate a certain level of opportunity-share erosion and maintain TRCs greater than 1.6. Still, risk mitigation and program planning is necessary to avoid surprises. The following strategies could be considered to mitigate these potential risks.

Risk Risk Mitigation

Market Risks

The market size for energy-savings Participate closely with Energy Star to stay opportunities is uncertain as standards and attuned to and direct standards development. measurement protocols have not matured.

Market opportunity may not evolve as products Keep abreast of new electronics products and mature, resulting in a lower addressed market. categories.

Energy efficiency is not historically a feature of Develop additional education, advertising consumer electronics—which increases campaigns, and potentially instant rebates for difficulty in creating demand, therefore consumers. resulting in lower close rates than projected.

Retail buyers will not promote energy-efficient Monitor performance versus goals; associate offerings as aggressively as possible, resulting incentives with—and establish incentives for—

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in lower presence and close rate or requiring promotion activity. greater incentives.

Other California utilities and Energy Star may The TRC ratios are calculated on a PG&E-only not participate—thereby reducing program program; participation by others is positive to presence and negatively impacting economics. both TRCs and overall program participation and visibility.

Energy-efficient devices may charge a price This would force CEE to develop consumer premium much greater than consumers will instant rebates to close the value gap. This accept. would negatively impact the TRC.

Regulatory Risk

CPUC requirements may not allow Energy Star Educate the CPUC about the benefits of this products to be promoted early in the life cycle. type of a program and the risks of interventions that are too early in the life cycle.

This could be a problem for PG&E and a problem for TV manufacturers if PG&E tries to intervene with a higher standard during the launch period. Just as manufacturers are launching products that meet the new standard, PG&E is paying channels to only select those that exceed those standards. This is not a good way to build alliances with manufacturers. It is better to try to raise the standards in the second or third year than it is to promote a subset of models that meet the new standard upon its launch.

Set-top box opportunities may not materialize Lead in setting standards for operators in its because no standards are set. territory and assist Energy Star.

EM&V requirements may limit channel Introduce more coupon programs that meet participation. EM&V requirements.

The net-to-gross ratio may be lower than Address a greater percentage of the market planned (.8). opportunity to offset a lower net-to-gross.

The present plan is to address 90% of the product opportunity and 90% of the timing opportunity (timing opportunity assumes that the net to gross shrinks as products mature. This factor is calculated into the addressed- market estimates.

Organizational Risks

Attracting and retaining skills will be needed to Contract with existing organizations—such as execute the business model. sales rep firms and detailing firms.

Possibly all the program management functions, the whole program could be

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outsourced.

Channels will not participate at the rate or Use aggressive strategy incentives to enroll intensity that has been forecasted. major lead channel (give first-mover incentives) which will create conditions for others to follow.

Use the PG&E Service and Sales channels to promote programs to their customers— possibly linked to lead channel partner. Table 32: Risk Management

Designing an MDS Designing a marketing delivery system for the electronics program is not entirely different from developing an MDS for any product. The first step is to start with a specific energy- saving measure and define the customer segment that is most likely to purchase the high- efficiency product. Each target customer segment has characteristic buying behaviors. By understanding buying process of these customers—how they become aware, where they learn, where they buy, where they service—one can map this knowledge to potential channels.

Channels must have the capability of serving the distribution needs of the program. As such, it is important to determine what channels—if any—have the capability to handle the volume of work. Capability includes: the capacity for market coverage, the competency to get things done in a timely fashion, and a commitment to success and customer connections. The channel uses the program’s value proposition to get customers and channel partners to purchase or sell the high-efficiency product. Performance is periodically measured to ensure the value proposition attracts the target number of buyers. If not, the proposition must be augmented at the buyer, channel, or manufacturer level. The CEE organization has to be aligned with the channel to successfully bring the product to market and support it during the program’s duration. If the skills are not available in-house then appropriate channel support has to be identified and acquired.

Design Decision Criteria and Performance Metrics As the program is developed, there are a number of key marketing questions that should accompany the decision making. These include: ƒ Are the customer and channel behaviors related to a specific product understood? ƒ Have the channel members been identified? ƒ What is the capacity of the channel to cover the market? ƒ Does the channel have competence in electronics and contacts at the appropriate organizational level? ƒ Has the value proposition been tested with the customer and channel? ƒ What are appropriate incentives and penetration targets?

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Throughout the implementation and execution of the program, performance needs to be measured relative to goals; corrective action must be taken as is appropriate. Performance measures to consider are: ƒ unit sales;

ƒ the number of stores, or channel members, signed up to participate in the program;

ƒ the percentage of market covered by channel;

ƒ the number of participating manufacturers; and

ƒ the percentage of market covered by product.

Conclusions and Recommendations

Conclusions The electronics sector is a dynamic market with a diverse range of products that nearly every business and household uses. With double-digit growth rates for the electronics industry, there is now an installed base of billions of electronic devices in the US and annual dealer sales over $150 billion. The pervasiveness of electronics at home and in businesses—as well as the ongoing growth of the market—is having significant impact on electricity usage. Consumer electronics and office equipment consume almost 8% of electricity sold nationwide, according to industry and government estimates. Currently, electronics consume about 10% of PG&E’s electricity sales.

The largest commercial office equipment energy use is by PCs and monitors. Televisions and personal computer systems are the greatest consumer of electricity among home electronics. Technological advances are permitting continual performance improvement, new products, and lower prices; in turn, these fuel more load growth. The fastest-growing mass-market segment is set-top boxes; their electricity consumption is anticipated to surpass that of computers and monitors over the next five years. Over the next five to ten years, electricity usage by electronics in general may surpass that for lighting in US homes. More than 15% of the electricity sold by PG&E is expected to be used by electronics by the year 2011.

The potential for PG&E customers to save energy in electronics is quite large. If residential and commercial customers always select the high-efficiency option when they purchase new electronics products, electricity consumption in residential and business markets could be reduced by more than 800 Million kWh per year. Achieving energy savings in this product category poses a number of challenges due to: the dynamic nature of electronics technology, a wide variety of end-uses, and the relatively low amount of energy consumed per unit. The average energy consumption per year for consumer electronics is close to 30 kWh per; it approaches 90 kWh per unit for office equipment in a business environment.

In addition to addressing these technology challenges, an electronics program needs to consider the constraints of the industry structure and behavior of the market to significantly penetrate this opportunity. Using manufacturers and distribution channels to deliver the benefits of high-efficiency electronics to PG&E customers is critical to overcoming technical

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and market challenges while meeting regulatory requirements for measurement and verification. Providing financial incentives through retailer and manufacturer channels increase availability of efficient products. Incentives stimulate channels to: increase product availability, product placement, and shelf space; negotiate with vendors for better prices; and promote specific items to increase sales volume. Interviews with electronics retailers and manufacturers indicate a strong willingness to participate in PG&E’s program if they can extract value from the relationship. By creating an upstream marketing delivery system and engaging a high percentage of major channel participants, it is possible to build a program that exceeds total resource cost hurdles and contributes meaningfully to PG&E’s energy- savings goal.

Capturing a significant share of the electronics opportunity requires a strategy that addresses consumer markets and business markets with a range of electronics products. The consumer market represents about 55% of the total energy-savings opportunity. As such, it is necessary to include business customers in the program. The business market is also the best near-term opportunity, as products and standards such as EPEAT are presently creating a demand for energy-efficient products. In designing an electronics program, it is imperative not only to understand where consumers buy, why they buy, what they buy, and how to impact their electronics purchase decision, but also to understand purchase behaviors related to energy-efficient devices. In electronics, efficiency is almost always outweighed as a preferred product feature over price, quality, brand, and product performance. Efficiency will never be in the decision-making equation if efficient products are not in-stock and on the shelves. Stocking energy-efficient electronics occurs with good channel relationships under a well-designed channel-focused program.

CEE’s organization is not optimal for a major initiative around electronics. Existing electronics measures in desktop computers, monitors, and energy-management software have met limited success and are managed independently. Requirements for the electronics organization are different as they encompass all customer segments and electronics products—not just a single technology. The electronics program needs to be organized around a product category, like lighting, but with a broader mix of products. A focus of electronics program management should be on developing and maintaining both channel and manufacturing relationships. Investments are necessary in developing skills to form channel-facing and supplier-facing groups to manage technologies, markets, and channels.

With the proper organization, channel relationships and product mix, it is possible to penetrate approximately 18% of the opportunity by 2011. Four scenarios (No-Investment, Low-Investment, Plan, and Aggressive) have been evaluated to test market assumptions and identify areas of risk. The Plan scenario resulted in energy savings of nearly 150 Million kWh in 2011 at a benefit-to-cost ratio (TRC) of 2.2. The near-term results come from the Targeted Market segments, whereas the retail channel Mass Markets program makes the larger contribution starting in 2009. Beginning in 2010, an original equipment manufacturer program is initiated to capture the energy-saving potential in plug load and set-top boxes.

There are uncertainties and risks surrounding some of the key variables in the market model and the energy-savings projections, namely: penetration rates, incentives, and gross measure costs. Risks fall into three main categories: market risks, regulatory risks, and organizational risks. The recommended Plan program can maintain TRCs greater than 1.6 if energy savings do not meet goals because of market, regulatory, or organization factors. Nevertheless, risk mitigation and program planning is necessary to avoid surprises.

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Establishing risk management strategies—including a pilot program in 2008—will help mitigate these potential risks.

Action Items Immediate program action and ongoing development of a long-term strategy are required to: ƒ develop a statewide program that covers all IOU California rate payers; ƒ capture energy and demand savings using a pilot program in 2008 (the basis for a larger program in 2009-2011); and ƒ build the organization, operating capabilities, and experience necessary to implement a larger scale program in 2009.

To achieve sufficient experience and scale for a successful program in 2009 through 2011, a pilot program should be based on existing CEE measures for efficient computers, monitors, and power-management software during 2008. The pilot activities will help clarify the opportunity and help understand risks and issues. During the pilot program, near-term inputs to the economic model can be validated, including: verifying TRC calculations and confirming assumptions about business office equipment energy savings. Programmatic action items include following up with computer manufacturers and electronics retailers to further identify barriers to participation. If data reporting is a major restriction, the planned discussion can be escalated with regulatory experts and EM&V requirements.

Next Steps The immediate next steps involve implementing a pilot program to prove the channel-based program concept. The pilot program would integrate pieces of the Plan program, so work in 2009 can begin with a smooth transition. The pilot has several different purposes: 1. Develop an OEM pilot. a. Prove that EPEAT market assumptions were correct. b. Develop relationships with three major computer OEMs. 2. Develop a retail pilot, a. Test the value proposition with retailers—determine to what will they sign up and commit. Evaluate what is the impact of a statewide program on their behavior. i. Sign up ii. Promotion / advertising b. Develop relationships with major chains and web retailers. c. Determine the efficiency of the sales organization to know the number of account managers needed during the program. d. Validate assumptions about incentive capture—including the required levels of incentive. e. Resolve branding/communications issues—including the statewide message/brand, local messages/brands, and the messaging when stores overlap territories.

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3. Determine a realistic level of coordination with Energy Star and initiate coordination effort. 4. Develop processes and organizations necessary to implement program in 2009, including: a. new incentive allocation processes; b. data collection/performance measurement/efficacy of sales; c. electronics program channel-base organization design; d. requirements for a statewide program; and e. defined scope of an implementation bid for 2009.

The 2008 pilot program’s primary goal is defined in the 2008 projection for the projected Plan scenario—to achieve 4 GWh and 0.8 MW energy and demand savings utilizing CEE’s existing 80 PLUS and LCD monitor programs, as well as the PC Power-Management Software program. A second goal of the pilot program is to conduct it with sufficient scale and program elements that allow for a smooth transition to a full-scale statewide program in 2009.

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Appendices A.References ...... 81 B.Electricity Consumption Charts...... 85 C.Electronics Programs Collaterals...... 86 D.Channel Participants...... 87 E.Energy Star Specification Calendar...... 90 F.EPEAT Description ...... 91

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A. References

• Energy Efficiency at PG&E and in California – California Energy Demand 2008-2018: Staff Revised Forecast, Staff Final Report CEC-200-2007-015-SF2, November 2007. – CPUC Energy Efficiency Monthly Report, http://www.pge.com/rebates/program_evaluation/monthly_reports/, Pacific Gas & Electric (PGE), October 2007. – Statewide Energy Efficiency Potential Estimates and Targets for California Utilities, Draft Staff Report CEC-200-2007-019-SD, California Energy Commission (CEC), August 2007. – The California Story: Investing in a Clean Energy Future, California Energy Efficiency Strategy, California Public Utilities Commission (CPUC), May 2007. – Michael W. Rufo and Alan S. North, Assessment of Long-Term Electric Energy Efficiency Potential in California’s Residential Sector, Consultant Report CEC-500-2007-002, California Energy Commission (CEC), February 2007. – Mark Levine, Emerging Energy Efficiency Technologies in California’s Future, Lawrence Berkeley National Lab (LBNL), December 2006. – California Energy Efficiency Potential Study: Volume 1, Consultant Report, CALMAC Study ID: PGE0211.01, Pacific Gas & Electric (PG&E), May 24, 2006. – California Energy Efficiency Evaluation Protocols: Technical, Methodological and Reporting Requirements for Evaluation Professionals, Consultant Report, California Public Utilities Commission (CPUC), April, 2006. – California Commercial End-Use Survey, Consultant Report CEC-400-2006- 005, California Energy Commission (CEC), March 2006. – PG&E Market Integrated Demand Side Management: Mass Market Program Description, Pacific Gas and Electric Company (PG&E), February 2006. – E3 Calculator Tool: Quick Guide and Equation Reference, Tech Memo, http://www.ethree.com/cpuc_cee_tools.html, 2006. – Alan H. Sanstad, W. Michael Hanemann, Maximillian Auffhammer, Chapter 6: End-use Energy Efficiency in a “Post-Carbon” California Economy: Policy Issues and Research Frontiers, Managing Greenhouse Gas Emissions in California, The California Climate Change Center at UC Berkeley, December 2005. – Arthur Rosenfeld, Nancy Jenkins, Robert Shelton, Emerging Technologies, Whitepaper CEC-999-2005-002, California Energy Commission (CEC), February 2005 – California Statewide Residential Appliance Saturation Study Final Report Executive Summary, Consultant Report 400-04-009, California Energy Commission (CEC), June 2004. – Energy Efficiency Policy Manual: Versions 2 and 3, California Public Utilities Commission (CPUC), August 2003. – California Standard Practice Manual: Economic Analysis of Demand-Side Programs and Projects, California Office of Planning and Research (OPR), July 2002

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• Electronics – U.S. Government Mandates EPEAT PC Purchases, GreenerComputing.com, Jan. 10, 2008 – “Majority of Retailers Taking Sustainability to Heart, Survey Finds”, Source: GreenBiz.com, Arlington, VA, Oct. 2, 2007 – FINAL EPEAT Standards Development Roadmap (EPEAT SDR), Prepared by Zero Waste Alliance with support from the US EPA and The Center for Clean Products and Materials Policy (EPA), August 24, 2007. – Green Government Procurement The New Paradigm for Consumer Electronics?, CEA International Insiders Series, Consumer Electronics Association (CEA), August 2007. – Consumer Reports Electronics Buying Guide 2008, Consumer Reports Publications, August 2007. – Consortium for Energy Efficiency Consumer Electronics Initiative (Final), Consortium for Energy Efficiency (CEE), June 2007. – Consortium for Energy Efficiency Consumer Electronics Initiative: Proposal for CEE Board review in June 2007, Consortium for Energy Efficiency (CEE), May 2007. – Energy Consumption by Consumer Electronics in Residences, TIAX LLC for Consumer Electronics Association (CEA), January 2007. – Alex Chase, Ryan Ramos, and Ted Pope, Consumer Electronics: Market Trends, Energy Consumption, and Program Recommendations, PG&E Application Assessment Report #0513, Energy Solutions, December 2006. – The Top 25 PC Retailers, TWICE, page 36, June 19, 2006. – 2006 CE STATS: Statistical Survey & Report, Dealerscope; page 48, August 2006. – The Top 100 Consumer Electronics Retailers, TWICE, pp. 50-96, Vol. 21, No. 10, May 8, 2006. – Dealerscope’s Top 50 CE Retailers, www.dealerscope.com, March 2006. – Ted Pope, Alex Chase, Joe Gaffney, Program Options for Computer Monitors in PG&E Mass Market Sector, (CWA 05 CEE T-3204) - Task 2: Program Options Report, Energy Solutions, February, 2006. – Electronics Recycling, International Association of Electronics Recyclers, 2006. – Electronics Market and Efficiency Trends in Commercial Markets, ECOS Consulting, 2006 – Ted Pope, Alex Chase, Joe Gaffney, Sales Trends and Energy Forecasts for Computer Monitors in PG&E Mass Market Sector, (CWA 05 CEE T-3204) - Task 1: Monitor Assessment Report, Energy Solutions, December 2005. – Judy A. Roberson, Carrie A. Webber, Marla C. McWhinney, Richard E. Brown, Margaret J. Pinckard, and John F. Busch, After-hours Power Status of Office Equipment and Energy Use of Miscellaneous Plug-Load Equipment, LBNL-53729-Revised, Lawrence Berkeley National Laboratory (LBNL), May 2004. – Kurt W. Roth, Fred Goldstein, Jonathan Kleinman, Energy Consumption by Office and Telecommunications Equipment in Commercial Buildings Volume I: Energy Consumption Baseline, No. 72895-00 for Department of Energy Office of Building Technology, Arthur D. Little, Inc. (ADL), January 2002.

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– Computers and Photocopiers in Commercial Buildings, Commercial Building Energy Consumption Survey (CBECS), Energy Information Agency (EIA), 1999. – M. C. Sanchez, J. G. Koomey, M. M. Moezzi, A. K. Meier, and W. Huber, Miscellaneous Electricity Use in the US Residential Sector (http://enduse.lbl.gov/Projects/ResMisc.html), Lawrence Berkeley National Laboratory (LBNL), April 1998. – Climate Savers Computing Initiative, www.climatesaverscomputing.org. – 80 PLUS Sponsoring Electric Utilities & Energy Efficiency Organizations, http://www.80plus.org/util/util.htm.

• Energy Efficiency Marketing – Monica J. Nevius, Steps On the Path to Loyalty: An Assessment of ENERGY STAR Brand Equity Indicators, Consortium for Energy Efficiency, August 2006. – Compact Fluorescent Lighting in America: Lessons Learned on the Way to Market, Pacific Northwest National Laboratory (PNNL), June 2006. – Utility Marketing Research Series: Energy Efficiency Programs, Chartwell, Inc. August 2005. – CEE Energy Star® Household Survey Report (2000) Part I – Results, Contractor Report, U. S. Environmental Protection Agency (EPA), February 9, 2001. – 1998 Home Appliance Buying Trends Survey, Final Report D&R International, Ltd., US Department of Energy (DOE), June, 1999. – Kwisun Huh, Initial Experiences with Energy Labeling Programs: Evaluating the Effectiveness of Energy Labeling, Utah State University for the United Nations, August 1998.

• Energy Efficiency Best Practices – Demand Response and Energy Efficiency for Silicon Valley Power: Implementation Recommendations, Rocky Mountain Institute, May 2007 – Mike Walker, Computer Power Management for Enterprises: A Practical Guide for Saving up to $100 per PC Annually, Beacon Consultants, February 2007. – U.S. Energy-Efficiency Programs, a $2.6 Billion Industry: 2006 Report, Consortium for Energy Efficiency (CEE), February 2007. – Energy Efficiency Program Best Practices, Chapter 6 – National Action Plan for Energy Efficiency, US EPA, July 2006. – Residential Appliance Programs National Summary, Consortium for Energy Efficiency (CEE), September 2005 – National Energy Efficiency Best Practices Study: Volume R1 – Residential Lighting, Volume R2 – Residential Air Conditioning; Volume O1 – Advertising, for California Best Practices Project Advisory Committee by Quantum Consulting Inc., December 2004. – America's Best: Profiles of America's Leading Energy Efficiency Programs, American Council for an Energy-Efficient Economy (ACEEE), October 2003. – CALMAC website for best practices research

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• Business and Economic Information – PACIFIC GAS & ELECTRIC CO Form 10-K (Annual Report) For Period Ending 12/31/2006, Filed 2/22/2007. – Consumer Electronics in the United States: Industry Profile 0072-2033, Datamonitor, July 2007. – PCs in the United States: Industry Profile 0072-0677, Datamonitor, June 2007. – VARBusiness 500 Interactive Database, Channel Web Network, http://www.crn.com/var/main/var500.jhtml, 2007. – Computer Hardware in the United States: Industry Profile 0072-0049, Datamonitor, September 2006. – TV & Video in the United States: Industry Profile 0072-0564, Datamonitor, August 2007. – Freedonia Focus on Household Audio and Video Equipment, The Freedonia Group, Inc., September 2007. – Freedonia Focus on Computer Peripherals, The Freedonia Group, Inc., July 2007. – Freedonia Focus on Personal Computers, The Freedonia Group, Inc., April 2007. – Motorola, Anticipating the Bandwidth Bottleneck Looking at Bandwidth Usage Five Years Forward, White Paper, May 2007. – 11 Green Initiatives Your Peers are Cultivating, Trends & Predictions, Info- Tech Research Group, July 30, 2007. – Timothy Silk Sauder, Consumer Behavior & Rebate Promotions, School of Business University of British Columbia, May 2007. – Francesco Drago, Dora Kadar, Rebate or bait? A model of regret and time inconsistency in consumer behavior, February 17, 2007 – David B. Cashin and Leslie McGranahan, Household energy expenditures, 1982–2005, Federal Reserve Bank of Chicago (FRB), June 2006. – County Business Patterns, US Economic Census, 2005. – Scott M. Gilpatric, Present-Biased Preference and Rebate Redemption, University of Tennessee, July 30, 2003. – U.S. Economic Census, US Department of Commerce, 2002. – Henry Norr, The How And Why Of Rebates, San Francisco Chronicle, Monday, December 18, 2000 – Goker Aydin, University of Michigan and Evan Porteus, Stanford University, Manufacturer-to-Retailer versus Manufacturer-to-Consumer Rebates in a Supply Chain, Working Paper.

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B. Electricity Consumption Charts

PG&E Commercial Electricity Usage by End-Use

Heating Cooling 1.8% 12.4% Ventilation Air Compressors 12.4% 0.9% Motors 3.8% Process 0.3% Miscellaneous 5.9% Refrigeration 14.8%

Water Heating Office Equipment 0.8% 8.2% Cooking 4.6% Exterior Lighting 5.2%

Interior Lighting 28.9% Reference: CEC March 2006

Reference: CEC June 2004

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C. Electronics Programs Collaterals

http://www.idahopower.com/pdfs/energycenter/EasyUpgrades/worksheet_Plug.pdf

http://www.shakopeeutilities.com/2007%20Office%20Rebate%20Brochure.pdf

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D. Channel Participants

Retail Channels – Top 40 Cummulative% Rank Retailer Sales (Millions) Type of Retailer of Sales of Sales 1 Best Buy Co Inc $ 23,688 Electronics / ApplianceRetailer / Multi-Region 21.8% 21.8% 2 Wal-Mart Stores Inc $ 13,678 Mass Merchants 12.6% 34.4% 3 Circuit City Stores Inc $ 11,400 Electronics Only Retailer 10.5% 45.0% 4 Dell $ 7,930 Consumer Direct 7.3% 52.3% 5 RadioShack Corp $ 4,507 Electronics Only Retailer 4.2% 56.4% 6 Target $ 4,452 Mass Merchants 4.1% 60.5% 7 CompUSA Inc $ 4,064 Computer Store 3.7% 64.3% 8 Cotsco $ 3,134 Warehouse Club 2.9% 67.2% 9 Sears $ 3,073 Mass Merchants 2.8% 70.0% 10 Sams Club $ 2,336 Warehouse Club 2.2% 72.2% 11 Gamestop $ 2,284 Computer Store 2.1% 74.3% 12 Apple Retail Stores $ 2,145 Computer Store 2.0% 76.2% 13 Office Depot, Inc. (NYSE: ODP) $ 1,921 Home Office Stores 1.8% 78.0% 14 Fry's Electronics Inc $ 1,760 Electronics / ApplianceRetailer / Multi-Region 1.6% 79.6% 15 Staples, Inc. (NASDAQ (GS): SPLS) $ 1,690 Home Office Stores 1.6% 81.2% 16 Newegg.com $ 1,210 Consumer Direct 1.1% 82.3% 17 Army - Air Force Exchange $ 1,100 Misc 1.0% 83.3% 18 Amazon.com, Inc. (NASDAQ (GS): AMZN) $ 1,060 Consumer Direct 1.0% 84.3% 19 OfficeMax $ 851 Home Office Stores 0.8% 85.1% 20 Tweeter Etertainment Group $ 798 Electronics Only Retailer 0.7% 85.8% 21 TigerDirect $ 734 Consumer Direct 0.7% 86.5% 22 Sony Retail Stores $ 674 Electronics Only Retailer 0.6% 87.1% 23 P.C. Richard & Son $ 580 Electronics / ApplianceRetailer - Regional 0.5% 87.6% 24 H.H. Gregg $ 561 Electronics / ApplianceRetailer - Regional 0.5% 88.2% 25 K-Mart $ 552 Mass Merchants 0.5% 88.7% 26 BrandsMart USA $ 546 Electronics / ApplianceRetailer - One Market 0.5% 89.2% 27 Ultimate Electronics $ 538 Electronics Only Retailer 0.5% 89.7% 28 Gateway Computer $ 508 Consumer Direct 0.5% 90.1% 29 Micro Center $ 379 Computer Store 0.3% 90.5% 30 ABC Warehouse $ 362 Electronics / ApplianceRetailer - Regional 0.3% 90.8% 31 Bose $ 354 Electronics Only Retailer 0.3% 91.1% 32 J&R Music World $ 335 Electronics / ApplianceRetailer - One Market 0.3% 91.5% 33 Rex $ 320 Electronics / ApplianceRetailer / Multi-Region 0.3% 91.8% 34 Conn's $ 287 Electronics / ApplianceRetailer - Regional 0.3% 92.0% 35 PC Mail $ 281 Consumer Direct 0.3% 92.3% 36 Buy.com $ 275 Consumer Direct 0.3% 92.5% 37 Overstock.com $ 266 Consumer Direct 0.2% 92.8% 38 Allenware $ 249 Consumer Direct 0.2% 93.0% 39 Game Crazy $ 222 Computer Store 0.2% 93.2% 40 CDW $ 214 Consumer Direct 0.2% 93.4% Source: TWICE Market Research 2006

Value Added Reseller (VAR) Channels – Top 40

Rank Company Revenue

1 EDS (Electronic Data Systems) $21,268,000,000

2 Accenture Ltd. $18,228,400,000

3 BT Global Services $17,185,872,100

4 Computer Science Corp (CSC) $14,615,600,000

5 Northrop Grumman $11,000,000,000

6 Lockheed Martin $10,875,000,000

7 Capgemini Group $10,284,506,600

8 General Dynamics (Advanced Information Systems) $9,024,000,000

9 Automatic Data Processing (ADP) $8,881,500,000

10 BAE Systems Technology Solutions & Services $7,864,341,700

11 Deloitte Consulting $7,814,000,000

12 Science Applications International Corp. (SAIC) $7,792,000,000

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13 CDW $6,785,473,000 14 Siemens IT Solutions and Services (formerly $6,500,000,000

15 Atos Origin $6,465,000,000

16 NTT Data $6,154,513,000

17 Unisys $5,757,200,000

18 Affiliated Computer Services (ACS) $5,353,661,000

19 Qwest Communications $4,613,000,000

20 Fiserv $4,544,151,000

21 IKON Office Solutions $4,228,200,000

22 Fidelity National Information Services $4,132,602,000

23 Verizon Information Systems $4,002,000,000

24 L-3 Communiations (Government Services) $3,834,400,000

25 Insight Enterprises $3,820,000,000

26 Booz Allen Hamilton Inc. $3,700,000,000

27 Getronics $3,575,519,000

28 BearingPoint Inc. $3,550,000,000

29 Harris $3,474,800,000

30 Dimension Data $3,067,096,000

31 CGI Group $3,022,180,476

32 Tata Consultancy Services $2,970,000,000

33 Convergys $2,789,800,000

34 Galileo by Travelport $2,670,000,000

35 Brightpoint North America L.P. $2,425,373,000

36 Perot Systems $2,300,000,000

37 DST Systems $2,235,800,000

38 SHI (Software House International) $2,228,539,059

39 World Wide Technology $2,150,000,000

40 Raytheon Technical Services $2,049,000,000

Value Added Reseller (VAR) Channels – Rank and name of Top 40 companies in Western U.S.

Rank Company 4 Computer Science Corp (CSC) 5 Northrop Grumman 19 Qwest Communications 25 Insight Enterprises 55 McKesson Provider Technologies Services 57 PC Mall 58 CIBER 83 Zones

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103 Activant Solutions 104 Epicor Software 110 First Data 118 En Pointe Technologies 129 Teledyne Technologies Systems Engineering Solutions 130 Technology Integration Group 131 Tibco Software 134 First Consulting Group 138 FusionStorm 149 Tectura 161 Applied Computer Solutions 163 TriZetto Group Inc. (The) 174 MTI Technology 178 Merlin International 184 Advanced Systems Group (Thornton, Colo.) 192 ILOG 199 Jeskell 204 Verio 207 SIGMAnet 213 QAD 217 Nexus IS (Integrated Services) 220 Integrated Archive Systems 224 AMAX Information Technologies 234 Global Technology Resources Inc. (GTRI) 236 Helio Solutions 248 Denali Advanced Integration 253 GST 258 Quovadx 261 DynTek 267 Thomson Elite 270 GHA Technologies 284 Bell Industries, Bell Tech.logix division 286 Direct Alliance 287 Quest 289 Technologent 290 Altura Communication Solutions 291 Incentra Solutions 292 Blue Tech 298 Wind River Systems 302 Tangent 303 Key Information Systems 304 General Communication

Source: VARBusiness 500 Interactive Database, Channel Web Network, http://www.crn.com/var/main/var500.jhtml, 2007.

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E. Energy Star Specification Calendar

ENERGY STAR for CE/OE Proposed Specification Development Calendar (As of October 2007)

TVs Oct 18 Stakeholder Meeting Late Nov Final draft TV spec to stakeholders Early Jan Final TV spec to stakeholders Sept 2008 Revised TV spec effective

Set-top Boxes (STB) Oct 16 Stakeholder Meeting Late Nov Draft 3 STB Spec to stakeholders Jan Final Draft STB spec to stakeholders Sept 2008 STB spec effective (may push out due to the additional of a 3rd draft)

External Power Supplies (EPS) Oct 11 Draft 1 EPS Spec to stakeholders Mid Nov Webinar on Draft 1 spec July 2008 Proposed Revised EPS spec effective date

Monitors Oct 26 Launch of Monitor spec revision process Nov 20 Webinar for Monitors re data collections needs Jan 14 Draft 1 for Monitors to stakeholders Spring 2009 Proposed effective date for Monitors

Imaging Equipment (IE) Mid Dec Webinar to kick off IE Tier 2 spec process April 2009 Proposed effective date for IE Tier 2

Computers Wk of Nov 26 Webinar to kickoff Computers Tier 2 spec process July 2009 Proposed effective date for Computers Tier 2

Servers Oct 31 Stakeholder Meeting

Source: US EPA Energy Star

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F. EPEAT Description

Electronic Product Environmental Assessment Tool (EPEAT) is a system to help purchasers in the public and private sectors evaluate, compare, and select desktop computers, notebooks, and monitors based on their environmental attributes. By providing a clear and consistent set of performance criteria for product design, EPEAT offers manufacturers an opportunity to secure market recognition for their efforts in reducing the environmental impact of its products.

The federal government has such a significant purchasing budget; the IDC estimates that the government buys 2.2 million new computer systems per year. The government market— including federal, state and education—accounts for one-third, or more, of the computer purchases in California. In December 2007, NASA, the Department of Defense, and the General Services Administration jointly announced a proposal that would require all new computer purchases to meet EPEAT standards for energy efficiency and toxics. This transition will likely have a significant effect on commercial and consumer buyers as well.

EPEAT evaluates electronic products according to three tiers of environmental performance: Bronze, Silver and Gold. The complete set of performance criteria includes 23 required criteria and 28 optional criteria in 8 categories. To qualify for acceptance as an EPEAT product, a product must conform to all the required criteria. Manufacturers may pick and choose among the optional criteria to boost their EPEAT baseline "score" to achieve a higher-ranking level as follows:

What is the Connection between EPEAT and ENERGY STAR 4.0?

Energy consumption during use phase is a very important aspect of computers’ and monitors’ overall environmental performance. For this reason, the American National Standard IEEE 1680—which forms the basis of EPEAT—requires that EPEAT-registered products meet the current version of the applicable ENERGY STAR standard (criterion 4.5.1.1). Therefore, all EPEAT-registered products are also ENERGY STAR qualified.

For the six-month period between July 20, 2007 and January 20, 2008, computers on the EPEAT registry may be qualified to either ENERGY STAR 3.0 or 4.0. During this transition period, in order to receive computers that meet ENERGY STAR 4.0 standards, it is necessary for purchasers to either: A) specify at time of purchase that the supplied computers must be both EPEAT-registered and ENERGY STAR 4.0 qualified; or B) search the EPEAT registry for computers that meet ENERGY STAR 4.0 specifications (as described below). This transition does not affect monitors.

There is no “grandfather clause” with the new energy star requirements. As of July 20th, 2007, a product is either ENERGY STAR 4.0 compliant, or not compliant at all. The EPEAT rules, however, allow current SKUs to have a six-month grace period before needing to be re-registered with EPEAT.

Impact of the EPEAT Standard California’s e-waste legislation (SB20) required the state to develop purchasing guidelines to buy greener electronic products. To develop these guidelines, the California Integrated Waste Management Board (CIWMB) convened a multi-stakeholder group in 2005. That

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group unanimously recommended the State adopt EPEAT as its default standard; the CIWMB formally adopted their recommendation in June 2005. Since then, the CIWMB has worked closely with the California Department of General Services (DGS) to incorporate the EPEAT-based guidelines into upcoming contract revisions, expected in late 2007. Not satisfied with waiting for the new contract, the DGS urged current vendors to register their products with EPEAT, or risk losing future state business. As a result, at least one vendor added more than 25 products to the EPEAT registry.

Reaping Big Benefits Between July 2006 and May 2007—thanks to the leadership of the CIWMB and the DGS— the State has purchased 3,756 EPEAT-bronze desktop computers, 3,318 Bronze and Silver laptop computers, and 1,629 EPEAT silver monitors.

Purchasers Using EPEAT*

US Federal Government Private Sector

US Department of Defense, Army Kaiser Permanente US Department of Energy McKesson Corporation US Department of Homeland Security HDR, Portland Oregon US Department of Interior US Department of Transportation National Aeronautic and Space State Governments Administration U.S. Environmental Protection Agency Commonwealth of Massachusetts US General Services Administration State of California Executive Office of the President State of Minnesota State of Wisconsin

Other National Government Municipal Governments Government of Canada New Zealand Department of Defense City of Phoenix, Arizona UK Office of Communications (Ofcom) City of San Jose, California City of Seattle, Washington

Educational *Partial list as of October 1, 2007

Sources: http://www.epeat.net; (EPA), August 24, 2007; CEA, August 2007; Personal Communication; greenercomputing.com, January 2008.

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