Systematic Energy Efficiency

Beyond EE capital… From Energy Champions to Everyone Envolved

Mike Molnar 25 August 2010

12/13/2012 2

Diversified Global Company

Components

Engines

• Turbochargers • Filtration • Emissions • Fuel Systems

Power Generation

Distribution

12/13/2012 3

Global Revenue 2009: $10.8B

US/Canada 44%

EMEA 24%

Latin America + Mexico 11%

India 5%

Asia Pacific 10%

China 6%

12/13/2012 4

Global Footprint Over 35,000 employees in 131 countries.

12/13/2012 5

Climate Change??

Heating ↑ ⇓

Temperature ↑ & Evaporation ↑ ⇓

water holding capacity ↑ ⇓

atmospheric moisture ↑ ⇓ ⇓

greenhouse effect ↑ & rain intensity ↑

⇓ Floods & Droughts

Cradle to Grave

Car

bon

Sequ

estra

tion Carbon dioxide (CO2)

Methane (CH4) Nitrous oxide (N2O) Hydrofluorocarbons (HFCs) Perfluorocarbons (PFCs) Sulfur hexafluoride (SF6)

1,428 page US House Bill

923 page US Senate Bill

AB32

12/13/2012 6

Low Carbon Energy Efficiency Facilities

Commit

Plan Manage

Improve

12/13/2012 7

Climate change initiatives position Cummins for sustainable success

It’s Good Business and

Good For Our Business

Energy Efficiency Drives Greenhouse Gas Reduction

Regulations are Coming

Our Customers Can Count on Us

It’s the Right Thing to Do

Business Case

12/13/2012 8

GHG Reduction Goal Setting Measure what we had already accomplished

–2.3% absolute and 20% intensity reduction 2000-2005

Set competitive goal –A goal that is competitive among peers –Cummins enjoying strong growth, elected an intensity metric to focus

on sustainable growth

First public commitment –25% intensity reduction from 2005 baseline by 2010

Climate Leaders Commitment Achieved by Energy Efficiency

"Fugitive gases"(process GHG)

15%

Stationarycombustion(direct GHG)

22%

Electricity(indirect GHG)

59%

Other 1%Mobile sources(owned auto/air) 3% 85% of our GHG emissions are from using

energy

– Indirect - generation of electricity

–Direct - fuel we combust

–Fugitive gases – focus to eliminate Achieving GHG reduction pays dividends

of energy efficiency

–Avoiding ~ $25 million of annual utility spend

2005 baseline year footprint

12/13/2012 10

Low Carbon Energy Efficiency Facilities

Commit

Plan Manage

Improve

12/13/2012 11

Systematic GHG/EE Approach

Planning 1. Scenario 2. Business Case 3. Commitment 4. Baseline 5. Benchmark 6. Assessments

Managing 7. Leaders 8. Teams 9. Methods 10. Portfolio 11. Goals & Targets 12. Reporting

Improving 13. Capital

Improvements 14. Operational

Improvements 15. Education and

Engagement 16. Sustainable

Building Standards

12/13/2012 12

Carbon Footprint Pareto

Large office building - 1%

Next 10 sites - 18%

189 other non dist sites - 14%

150 distributor sites - 5%

Mfg site - 9% of total CMI

Tech Center - 8% of total CMI

7%

6%

5%

5%

5%5%3%

3% 3%

Data Center - <1%

Tech Center - 1%Data Center- 1%

15 US sites account for ~ 2/3rds of total footprint (~ 400 sites) Make GHG emissions visible – stress linkage to Energy Use

Manufacturing

Tech Center

Data Center

Office / Whse

Manufacturing

Tech Center

Office / Whse

12/13/2012 13

Assessing Opportunities By Intensity vs Energy Use

0 20000 40000 60000 80000 100000 120000

MwH / Annum

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Inte

nsity

(kw

H /

ft^2)

High Intensity and High Energy Use

Low Intensity and Low Energy Use

High Intensity and Low Energy Use

Low Intensity and High Energy Use

Ene

rgy

Inte

sity

( U

se /

size

)

Energy Use

12/13/2012 14

0 20000 40000 60000 80000 100000 120000

MwH / Annum

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Inte

nsity

(kw

H /

ft^2)

High Intensity and High

Energy Use

Low Intensity and Low Energy Use

High Intensity and Low Energy Use

Low Intensity and High Energy Use

Assessing Opportunities By Intensity vs Energy Use

25 priority sites for first wave of detailed EE assessments E

nerg

y In

tesi

ty (

Use

/siz

e )

Energy Use

Actual Intensity 177 Actual Intensity 201

Manufacturing

Tech Center

Data Center

Office / Whse

Manufacturing

Tech Center

Office / Whse

The Cummins 7 Energy Themes

Power Management

Heating & Cooling

Building Envelope Lighting

Energy Recovery Fuel Usage

Machinery & Equipment

12/13/2012 16

Reduction Opportunities Found More than 500 technically viable capital projects defined at first 15 US sites

Heating / Cooling 36%

Waste Heat 23% Process Power

12%

Lighting 10%

Combustion 8%

Operations 4%

Water 3%

Building Envelope 2% Powered Equipment 2%

Key Idea 1

Invest in EE assessments at largest /energy intensive sites

“parent” findings for all others

12/13/2012 17

Low Carbon Energy Efficiency Facilities

Commit

Plan Manage

Improve

12/13/2012 18

Systematic GHG/EE Approach

Planning 1. Scenario 2. Business Case 3. Commitment 4. Baseline 5. Benchmark 6. Assessments

Managing 7. Leaders 8. Teams 9. Methods 10. Portfolio 11. Goals & Targets 12. Reporting

Improving 13. Capital

Improvements 14. Operational

Improvements 15. Education and

Engagement 16. Sustainable

Building Standards

12/13/2012 19

Teamwork for Energy Efficiency

Energy Efficiency

Team

Facilities and Business Leaders

Site Teams

Energy Champions and the Health, Safety, Environment Council Promote Efficiency at

Site Level

EET provides program management, goal setting, activity tracking, and accountability to progress

Capital Council

All capital projects are evaluated for energy efficiency and greenhouse gas reduction

Cummins Facilities Council established to drive improvements and share best practices

12/13/2012 20

Financial Valuation and Prioritization

Cummins pioneers “sustainable capital planning” –Standard capital evaluation tool has “Energy &

Environment” section added –Calculates energy use, costs, and GHG footprint for every

investment –Includes financial valuation for CO2 impact

Tool enables our prioritization of energy efficiency investments –Prioritize by IRR and GHG cost/benefit –Investment rule for % return, initial $ per annual CO2

12/13/2012 21

Return on Investment ( IRR % )

Initi

al c

apita

l cos

t per

ann

ual G

HG

ben

efit

( $ /

tCO

2e )

COMBUST HVAC LIGHT PROC WH POWEQ

FinancialReturnHurdle

Environmental Benefit Hurdle

Data Mining Assessments for best environmental and financial results

Tremendous opportunities for improvement found in energy efficiency

“Balanced Scorecard” financial model with GHG metric produces clear total value return

Prioritization based on both environmental and financial benefits – two minimum hurdles designed to meet our goals

All these projects meet our environmental and financial investment criteria

All these projects are priorities – offering superior environmental and financial benefits – do these first!

12/13/2012 22

Example Site Energy Efficiency Assessment/Prioritization

Positive financial return, meeting 25% reduction goal

52

40

10

Reviewed and selected by plant for implementation wave

42

Identified energy efficiency capital projects by assessment team

After further study, technically viable projects

Meets corporate investment rule

Key Idea 2

Put a value on GHG

Portfolio investment approach based on best financial and

environmental returns

12/13/2012 23

Low Carbon Energy Efficiency Facilities

Commit

Plan Manage

Improve

– Capital Improvements – Operational Improvements via “Energy Champions” – Involving everyone in savings

12/13/2012 24

Systematic GHG/EE Approach

Planning 1. Scenario 2. Business Case 3. Commitment 4. Baseline 5. Benchmark 6. Assessments

Managing 7. Leaders 8. Teams 9. Methods 10. Portfolio 11. Goals & Targets 12. Reporting

Improving 13. Capital

Improvements 14. Operational

Improvements 15. Education and

Engagement 16. Sustainable

Building Standards

12/13/2012 25

Fuel Systems Plant - Columbus Indiana Former MH lighting replaced New high efficiency lighting installed

Capital Project Example High Efficiency Lighting

Capital: $535k Annual Savings $343k GHG avoided: 3,372t

Lighting is higher quality and brighter, uses “smart sensor” Project replicated at 49 other sites

Energy Efficiency Case Studies

Lighting: Industrial

Case studies illustrate projects very effectively Organized by the seven energy themes in a standard format Each to include case studies relevant to employees’ home life

Lighting: Home

12/13/2012 27

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Q1-200

6

Q2-200

6

Q3-200

6

Q4-200

6

Q1-200

7

Q2-200

7

Q3-200

7

Q4-200

7

Q1-200

8

Q2-200

8

Q3-200

8

Q4-200

8

Q1-200

9

Q2-200

9

Q3-200

9

Q4-200

9

Quarter

Tons

CO

2 E

quiv

alen

t

PGBU

CBS

FSBU

CFBU

DBU

EBU

CTT

CESEnergy Efficiency

Team (EET) established

Strategic fund begins seeding projects

Cummins Facilities Council established

EPA base year is 2005, 1/06 is start of

our improvement commitment

Energy Champions Training Program

Launched

2006 to date 251 capital projects, ~50% ROI $17M annual savings 235,000 tCO2e annual reduction

Energy Efficiency Capital Project Results

12/13/2012 28

GHG reductions

12/13/2012 29

Low Carbon Energy Efficiency Facilities

Commit

Plan Manage

Improve

– Capital Improvements – Operational Improvements via “Energy Champions” – New Building Standards for Sustainable Future Growth

Key Idea 3

Lots of opportunities with capital investments, but…

How you operate sites equally

important

12/13/2012 30

GHG and Energy Training Strategy Energy Champions & Leaders

Individual Actions-

Company Impact $

Ener

gy C

ham

pion

s

Ener

gy L

eade

rs

Cum

min

s Em

ploy

ees

5 Days – Centralized Group + Web 10 – one hour

local weekly sessions 4 Hours –

Web

Com

mitm

ent

Lead EE at site

Coach/mentor ELs in local teams

Team “starpoint” resource Generate ideas Implement power down

Generate Ideas Act

Content

Energy Champion one per site

Energy Leaders Area/shift based associates,

2-20 per site

All Cummins employees – info for their benefit at home,

and at work

12/13/2012 31

Energy Champions/Leaders Program Operating our facilities for Energy Efficiency

One per Site Coaching and Project Focus

One in every area/team at a Site

Operations Improvement Focus

Wave 5 EC Launch, Daventry UK February 2010

Pilot Graduation Energy Leader Class CIC/CKEC, January 2010

Every site can save at least 10% with low/no cost actions

~ $10M savings

2010 Goal: 100 Energy Champions trained

At least 20 sites with active Energy Leaders programs

12/13/2012 32

Building a Network of Energy Champions

Resources: Time, People, Money

9 Box Matrix

Ben

efits

: Fin

anci

al, E

nviro

nmen

tal,

Impa

ct to

the

Ent

erpr

ise

Projects for Energy Leaders

Bro

nze

Silv

er

Gol

d

Projects for Energy Champions

Projects for Facilities Council/EET

“Just Do It” types of projects

No or low cost

“Just Do It” types of projects

No or low cost

Kaizen projects, Energy

Campaigns

Large capital and/or strategic

projects, Six Sigma

Avoid – low or negative return on

resource investment

Example “Energy Treasure Hunt” projects Minimize Fan Run Time from 24 hrs/day to

run only when wash pumps operate.

Change chemicals to reduce tank temps, use less natural gas

Non-capital Energy Treasure Hunt Creates “hoppers” of ideas for

operations to do with either “just do it”, Energy Kaizens, or Six Sigma projects

100+ improvement ideas at typical plant

Cost to Implement Savings/yr $100 $28,019

$8,000 $36,400

Example activities for Energy Leaders – Conducting Energy Treasure Hunts

12/13/2012 35

Examples – “Make Energy Visible”

Lightswitch card

Printer sticker

Key Idea 4

Making energy use/carbon footprint visible is VERY

powerful

Everyone enabled to “shut it off”

12/13/2012 36

Low Carbon Energy Efficiency Facilities Commit

Plan Manage

Improve

– Capital Improvements – Operational Improvements via “Energy Champions” – Involving everyone in savings

12/13/2012 37

Real employees engaged in energy efficiency actions

Home energy use / fuel savings tips

Make Energy Use Personal

12/13/2012 38

Capture carbon footprint before and after individual energy efficiency efforts

Employee Carbon Pledge

12/13/2012 39

Educate Broadly with Varied Vehicles

Articles Intranet stories Emails Newsletter Factbook

In Person Site visit roadshow Staff meetings

Web and Video Webcast Web conferences Slides w/audio Social networking

12/13/2012 40

Dedicated intranet portal website * Progress and success stories GHG tracking and reduction scorecard Energy Champion training Energy and green building awards

Keep Everyone Updated

12/13/2012 41

Make Energy Use Visible and Personal

Employee Engagement

Case Study: The Cummins Unplugged Challenge

Cummins Unplugged Challenge

Use the year-end shut down period as Employee Engagement opportunity to show no cost actions by all can result in Energy and GHG savings – Objective 1: Educate employees about energy use

and carbon footprint – Objective 2: Show that everyone can have an

operational impact by their individual behavior – Objective 3: Demonstrate to plant leaders simple

changes in operating procedures during off-shift, weekend, and holiday can lower the “at rest” facility profile

Unplugged Challenge

• Best Practices package developed with Facilities Council and EE leaders

• Supporting website created

• Invitation to participate sent to every plant manager and facilities leader

• Webcast with email blast sent to every Cummins employee

Make it a contest! Only cost – banners

– Best Energy Cost Savings – Best % Energy Reduction - – Best GHG Reduction - – Best Employee Communications – Best Employee Engagement – – Most Innovative/Creative Results

– 2009 Challenge - $908,000 saved – 2010 Challenge - $1,300,000 saved

Unplugged Challenge Wrapup

Winning site: Best Cost Reduction Cummins Turbo Technologies – Huddersfield England

Key Idea 5

Hold a shutdown contest at your company

Shows many small no-cost

actions by everyone collectively make a

difference!

Thank You!

Questions or Comments welcomed… Mike Molnar Director – Environmental Policy & Sustainable Development mike.molnar@cummins.com