BRIDGE Energy Group, Inc.

Economic Benefits of Smart Grid

Topics

• Who is Bridge Energy Group

• Overview of Traditional Regulated Electric System

• Brief Overview of De Facto Energy Policy

• Electric System Economically Inefficient

8/19/2010

Topics (cont.)

• Causes of Reduced System Load Factor

• Peak Demand Drives System Investment

• Dynamic Pricing Best Solution to Combat Peak and Maintain Fairness in Rate Design

• Micro & Macro Economic Benefits of SG3

Bridge Energy Group, Inc.

• Focused on the Energy Industry• HQ in Marlborough, Mass• Regional Offices: Albany, Austin, Rutland, Sacramento • 6 year old, 110+ people• Clients: ISO, Small to Medium - T&D, Utilities, Coops, Munis• Currently working on many Smart Grid Projects

BRIDGE is Not Aligned with any Tool, Product or Technology VendorAdvantage: BRIDGE works for the client’s cause.

BRIDGE coordinates as neutral third party with all vendors without conflict of interest.

BRIDGE will be Your Trusted Advisor and Implementation Partner.

8/19/2010

The Traditional Regulated Utility

• Bundled Investment Made on Behalf of Consumers & Society

• Investment in Long Lived, Predictable Assets• Retail Rates Expected to be Stable• Utilities Manage a Centrally Controlled

Network• Utility Planners Focus on Stability and are

Responsible for Reliability

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The National Electric System

• Historically Central Station Driven• Since Restructuring Focused on a National

Transmission Superhighway• Top Down Resource Planning via Utilities,

Regulators and RTO’s• Since 2003 Blackout Accountability for

Reliability Raised Significantly

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National Energy Policy

• Modern Foundation a Response to 1970’s Oil Embargoes

• PURPA in 1978, Efficiency & Resource Diversity (Beginning of “Renewables”)

• EPAct 1992 Increased Emphasis on EE, Launch of EWG’s, Seeds of Restructuring

• Since 2000 Increased Emphasis on Environmental Attributes, Climate Change

• BUT, Most Solutions are Instituted via Mandates to Utilities

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A Macro Picture of the NE System

2/21/11

Causes of Reduced Load Factor

• Reduced Concentration of Industrial Load

• Steady Increase in A/C Load, Flat Panels etc.

• Consumers Indifferent as to Price

• Current Energy Efficiency Programs Reduce Usage, Not Peak

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Peak Demand Drives Capacity Need

• Since 2003 Blackout Heightened Emphasis on Reliability

• NERC Standards Now Enforceable with Real Financial Penalties for Non-Compliance

• N-2 is the Standard, if Load Growth Reaches a Critical Point Investment Has to be Made

• Consumers and Macro Economy Bear the Cost10

Dynamic Pricing the Answer to Peak Demand

• Pilot Efforts Have Shown Reduced Demand with Just Information Alone

• Dynamic Pricing Introduces a Real Price Signal that Reflects True Cost to Serve

• Customers Can Shift Usage and Add Usage to Off-Peak Periods

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Dynamic Pricing True to Ratemaking Principles

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SG Economic Benefits

• Economically Efficient Rate Design

• Enhanced Utilization of Utility Assets

• More Efficient Utility Business Model Places Downward Pressure on Electric Rates

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SG Economic Benefits

• Greater Utilization Relative to Fixed Costs Enhances Utility Revenues, Thus Downward Pressure on Retail Rates

• Ratepayers & Shareholders Benefit

• Cost Savings Multiply Across Economy

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Final Thoughts

• Established Regulatory Regime not Economically Efficient

• Utility Revenues and Earnings Under Pressure

• Consumers Ultimately Pay for Legislative and Regulatory Mandates

• SG is a Suite of Enabling Technologies to Empower Consumers and Utility Managers

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Resources

“Principles of Public Utility Rates”, James C. Bonbright, Albert L. Danielsen , David R. Kamerschen

“Advanced Metering Initiatives and Residential Feedback Programs: A Meta-Review for Household Electric- Saving Opportunities”, Karen Ehrhardt-Martinez, Kat A. Donnelly, John A. “Skip Laitner, June 2010

http://www.aceee.org/research-report/e105

“Smart Grid Strategy: How Can State Commission Procedures Produce the Necessary Utility Performance?” Tom Stanton of NRRI, February 2011

http://www.nrri.org/pubs/electricity/NRRI_smart_grid_strategy_feb11-05.pdf

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Resources

“THE ETHICS OF DYNAMIC PRICING”, Ahmad Faruqui, Ph. D. The Brattle Group, March 30, 2010

“Rethinking ‘Dumb’ Rates, Achieving the Smart Grid’s Potential Requires a Revolution in Electricity Pricing.” Rick Morgan, Public Utilities Fortnightly, March 2009.

http://www.fortnightly.com/exclusive.cfm?o_id=158

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Questions ?

David J. O'BrienDirector of Regulatory Strategy & ComplianceBRIDGE Energy Group Inc.

508.281.7133 x210 | M: 802.522.0917 DOBrien@bridgeenergygroup.com www.BridgeEnergyGroup.com