Strategic Utility Consulting Smart Grid and its Opportunities for New Rate Designs April 28, 2016 Dale Pennington Managing Director UtiliWorks Consulting, LLC

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Utilities must prepare and embrace disruptor technologies as they have little control of their entrance into the utility energy space. 2

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Industry Perspective David Crane, president and CEO of NRG Energy, said “as solar power, wind power and energy storage grow more efficient, and as more American homes also come to rely on cheap natural gas, energy customers will switch from buying power to generating their own through ‘microgrids’ – perhaps in as little as 30 years. Microgrids will soon phase out large centralized electrical grids.” From US News Interview 3

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Energy Management Issues for the Utility The California Public Utilities Commission (CPUC) released a proposed decision that would redesign how residential customers in California pay for energy. If upheld, the decision -- supported by California investor- owned utilities Southern California Edison (SCE), San Diego Gas and Electric (SDG&E), and Pacific Gas and Electric (PG&E) -- would direct utility companies to reform the current tiered electricity rate structure for residential customers and allow for greater use of time- of-use (TOU) electricity pricing. CPUC Ruling April

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting What are Some of the Utilities’ Disruptive Technologies, and How Does it Affect Pricing? Digital Meters Solar Energy Energy Storage Electric Vehicles 5 The disruptors typically come from outside the industry they are affecting.

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting What do “Digital Meters” do to Pricing? With detailed interval data, multiple alternative pricing schemas can be provided: Time-of-Use Pricing Critical Peak Pricing Real-Time Pricing Peak Time Rebate Green Energy Pricing System Peak Response Transmission Tariff Others Yet to Be Created 6

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting How Does the Utility Manage this Pricing Change? The interaction between the utility and the customer must change with a much higher level of communication and structure. What is the best rate structure for me? How does the utility help me to manage a rate structure? What kind of notifications will you provide me? How do I really know what the electricity costs? What new tools can be provided to me if I am subject to demand charges? 7

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Residential Solar Power and the Utility Transformation How are municipalities handling this? Key Points: New Equipment Charge? Notification Requirement? Product Standards? Liability Arrangements? Pricing Contract Agreements? Application and Tools to Manage this Business? 8

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Home Energy Storage Planning How does this affect my load curves? Is it a resource for a utility? What is my pricing points going to be? Do I incentivize energy storage? TOU Rebate purchase What benefits does the utility get from this? How does the utility engage the customer? How is it a win-win? Are you planning for this engagement? 9

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Electric Vehicles Planning How does this affect my load curves? Is it a resource for a utility? Is the utility discounting energy costs? Do I extend my infrastructure to provide services? Do I partner with someone to provide charging locations? What payment structures can and will I support for remote charging, or do I participate at all? 10

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Water Rate Issues Conservation and tier pricing Cost calculations for water with multiple sources Prepay for water and associated disconnects Volume discounts, how does it relate to production costs? How do I build and charge for irrigation water systems? Will I do rebates for reducing water usage when my supply costs dramatically increase? (PTR) 11

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Time for a Whole New Pricing Model? Realignment of our business Defining each aspect of a cost Infrastructure(fixed) vs energy(variable) Rationalize our pricing Eliminate subsidies Create a more fair pricing environment 12

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Smart Grid/Metering: Subject Matter Areas Distribution Generation DSM Program Implementation Energy Storage Implementation Field Deployment/Installation Consulting Skills HAN Implementation Kiosk Implementation Line Loss Program Implementation MDMS Implementation Meter Data Mapping Meter Specification &Configuration OMS Implementation PHEV Program Implementation Prepay Implementation Project Coordinator Project Management SCADA Systems Backhaul Design Business Process Engineering Business Analysis C&I Demand Charge Management Customer Communication Cyber Security Implementation Data Analytics Distribution Automation Social Media/Public Relations Systems Engineering & Integration Transformer Load Program Implementation Voltage Program Web-Portal Implementation Contract Administrator Energy Transmission and Distribution AMI Hardware and Software Solar Program 13

© 2016 UtiliWorks Consulting, LLC Strategic Utility Consulting Questions? Thank You! 14