Pay-As-You-Go - Draft Executive Product Development Meeting 3/29/2013

Agenda 2 Pay-As-You-Go Pilot Overview Hypothesis Results Pay-As-You-Go Business Case Development Initial Program Assumptions & Overview Options for Improved Shareholder Benefit Current Program Assumptions & Overview Risk Analysis IT & Notification Changes Timeline Next Steps & Recommendations

Pay-As-You-Go Pilot Overview Customers divided between two rates – standard and time-of-use. Customers can pay for electricity in advance & opt out at any time. Open to any residential customer except those who are critical care, owe more than $500, or have a security light. Recruited via call center and direct marketing. Start with $25, then choose how much and how frequently to pay, using any OG&E method. No deposit, late fees, or disconnect/reconnect fees. No printed monthly statements. Option to receive text, , or phone outbound notifications. Access to myUsage.com to edit notification preferences & view payments. 3

Pay-As-You-Go Pilot Overview Marketing & Official Enrollment: 3/5/12 Enrollment Complete: 6/12/12 TOU pricing period: 6/1/2012 – 9/30/2012 Analysis conducted: 10/1/2012 – 1/31/2013 Business case developed: 2/1/ current Pay-As-You-Go Pilot Enrollment RateGroupGoal Actual Enrollment Current Enrollment StandardBudget StandardConvenience TOUBudget TOUConvenience TOTAL: Actual enrollment numbers as of June 12. Current enrollment numbers as of February 7.

Pay-As-You-Go Pilot Hypothesis Summary of Business ProblemSummary of Business Opportunity  Many customers struggle to afford the upfront deposits we charge while others easily get behind on their payments. The impact of requiring such high deposits is a negative customer experience from day one.  Customers need a billing option that they can pay smaller, incremental amounts rather than one large bill.  Budget constrained customers often have a negative customer experience because they  Customers cannot pay a high deposit  Customers get behind on installment plans  The primary opportunity is to improve the customer experience by having an active, engaging billing option. It will change the dynamics by shifting customers’ mindsets and is expected to engage approximately 10% of our customers.  The secondary opportunities consist of:  Coupling prepay with time-of-use allows us to maximize peak load reduction and minimize off peak reduction.  Opportunity to reduce bad debt and improve credit/collections as customers.  Opportunity to reduce call volumes for such things as high bill complaints, payment arrangement, etc. 5

Pay-As-You-Go Pilot Results Customer Impacts –83% said they were likely to remain on the program 1 –81% said the program is better than traditional billing 2 –Net Promoter Score = 64 3 –“This is a Godsend for me.” – Pay-As-You-Go customer quote Operational Impacts –Initial increase in calls, relative to control group, followed be significant decreases over time. –More frequent, but shorter duration, disconnects 6 1.If the program were to continue, how likely are you to remain on Pay-As-You-Go, on a scale of 1-10 where 1 is not at all likely and 10 is highly likely? N=115 Satisfaction survey was fielded in November In your opinion, how does the Pay-As-You-Go program compare to the conventional one-month billing statement? Much better, somewhat better, somewhat worse, much worse. The interim survey was fielded in July Net Promoter Score (NPS) is a registered trademark Fred Reichheld, Bain & Company, and Satmetrix. “On a scale of 0-10, with 0 being highly unlikely and 10 being highly likely, please indicate how likely you are to recommend PAYG to friends, coworkers and family?” Satisfaction survey was fielded in November 2012.

Pay-As-You-Go Pilot Results Group Baseline (energy) Reduction (energy) Percent Reduction Estimated Demand at time of System Peak (kW) Budget Move In % Budget Installment Plan % Estimated Total Energy for the Summer (kWh) Budget Move In 5, % Budget Installment Plan 5, % Group Baseline (energy) Reduction (energy) Percent Reduction Estimated Demand at time of System Peak (kW) Budget Move In % Budget Installment Plan % Estimated Total Energy for the Summer (kWh) Budget Move In 6,1291,14419% Budget Installment Plan 5, % Budget participants show significant on- peak energy savings. Budget TOU customers showed the largest reduction at system peak, lowering demand by 0.75 kW. Convenience customers’ usage suggested minor savings but the findings were not statistically significant. Estimated average savings for all standard rate participants Estimated average savings for all TOU rate participants

Pay-As-You-Go Business Case Development

Initial Program Assumptions Participation of 8% of OG&E’s residential customer base (~52,000) over 5 years Customer behavior will be similar to that of the study participants ~15% reduction in KWH usage over entire year ~0.41KW per year reduction per customer No disconnect fees or enrollment fees Use of Exceleron IT & notification tools Average customer remains on the program for 2 years (Salt River Project’s 2010 study results) OK Rate cases in 2015 and 2018 (regulatory lag) 9

Initial Benefit/Cost Overview 10 Program Participants All Rate PayersShareholders Benefits$47M$69M$1.0M Costs$1.5M*$23M$3.8M Net Benefit$45M$46M($2.8M) * Assumes no customer charge/fee for participation Costs include: Allocation of program costs in rates Benefits include: Reduction in KWH consumption Fuel Savings Reduced late payment charges Costs include: Customer Acquisition Costs Internal IT Costs External IT Costs Notification Costs Benefits include: Avoided Generation Avoided Capacity Reduced administrative costs (call center, bad debt, paperless bills) Costs include: Reduced KWH sales between rate cases Benefits include: O&M reduction during regulatory lag

Options and Opportunities Fees –Charge Disconnect fees –Monthly fee –Sign-up fees Financial (O&M and Capital) –Build front-end tool, back-end tool, notification tool, or some combination –Include an IHD or similar device –Develop Pay-As-You-Go mobile application to push notifications to customers –Develop capability of taking credit card payments in-house and/or owning OG&E payment stations –Make changes to the way we send outbound notifications –Provide fixed number of text & notifications and charge for additional notifications Regulatory –Approval mechanism –Develop two bundled Pay-As-You-Go rates (TOU and Standard version) that include fuel, riders, monthly customer charge, and the rate all into one price (two for TOU). –Modify the monthly customer charge to be a price per day instead of price per month Marketing –Target customer segments that increase revenue/mitigate lost revenue –Customer education around Time of Use pricing 11

Suggested Program Assumptions Participation capped at 5% of OG&E’s residential customer base (~34,000) over 5 years Customer behavior will be similar to that of the study participants with 5% adjustment for increased usage due to reduced disconnects ~15% reduction in KWH usage over entire year ~0.41KW per year reduction per customer Same disconnect fee for Pay-As-You-Go customers as for all customers $25 enrollment fee in the program for all customers Internal build of IT and notification tools Internal build of notification application for phones & tablets Average customer remains on the program for 2 years (Salt River Project’s 2010 study results) OK Rate cases in 2015 and 2018 (regulatory lag) 12

Current Benefit/Cost Overview 13 Program Participants All Rate PayersShareholders Benefits$28M$45M$2.5M Costs$4M$5M$2.2M Net Benefit$24M$40M$0.3M Costs include: Allocation of program costs in rates Customer charge for Pay As You Go Benefits include: Reduction in KWH consumption Fuel Savings Reduced late payment charges Costs include: Customer Acquisition Costs Internal IT Costs Benefits include: Avoided Generation Avoided Capacity Reduced administrative costs (call center, bad debt, paperless bills) Costs include: Reduced KWH sales between rate cases Benefits include: O&M reduction during regulatory lag Enrollment Fee during regulatory lag Return on equity from IT & notification tools development

Customer Risk Analysis 14

Shareholder Risk Analysis 15

IT Costs IT cost is the biggest driver of the customer value Currently, OG&E is using Exceleron for its front-end, back-end, and notification tool For 34,000 customers, the annual cost is ~$1.8M OG&E has three options Renegotiate the contract with Exceleron Build internal OG&E tools to perform these functions Perform RFP for a new vendor to perform the services Internal Build Costs –Assumed a $3M build cost for front-end and back-end tools –Assumed a $1M build cost for notification tool –Assumed a $100K build cost for notification app for smartphones and tablets –Assumed a $25,000 annual O&M on IT systems 16

Notification Changes 17 Currently, we send text, , or outbound phone notifications to customers as frequently as they desire Customers can also access the website or call the OG&E call center at any time Average spend on text notifications is $0.56 per month. Average spend on phone notifications is $0.10 per month. notifications were free with the service used in the pilot. Average number of text notifications was 14 per month. Average number of phone notifications is 2 per month. Average number of notifications is 5 per month. If OG&E continued current practices, it would spend over $270K per year in notification costs (assuming 34,000 Pay As You Go customers)

Business Case Development Business Case to be completed by May 31, 2013 Tasks to be completed include: Develop shareholder impact strategy Refine program composition and details Continued work with IT to evaluate and select best IT solution Document business case assumptions Perform customer and shareholder risk analysis Next update presentation on Pay-As-You-Go will be at the end of May 18

Milestones – Develop Pay As You Go Offering 19 MilestoneTiming and Notes 1.Create the Business Case 2.Develop Financial Model 3.Define Offering 4.Develop Integrated Project Plan 5.Initiate RFx with Partners and Vendors 6.Define IT Business Requirements 7.Define IT Solution Architecture 8.Develop Regulatory Plan 9.Develop Marketing Plan 10.Develop Service & Support Plan 11.Develop Back Office Billing Plan 12.Develop Sales Plan 13.Execute Regulatory “Ask” 14.Complete Regulatory Approval Conduct Pre-Launch (execute project) Launch Product 1.In process, complete by May In process, complete by May In process, complete by May Not started, complete by July Not started, complete by August Not started, complete by September Not started, Complete by October Not started, needed by October Not started, completed by November Not started, completed by November Not started, completed by November Not started, completed by November Not started, complete by November Not started, needed January 2014 January 2014 – June 2014 July 2014

Next Steps & Recommendation Continue pilot until a determination on business case is made –OG&E has 323 customers still on the pilot at a cost of ~$8,000 per month Work with IT to develop business requirements and solution architecture Finalize business case document Determine regulatory mechanism 20