Can DER Defer Traditional Distribution Capital Investments? January 31, 2017 Dan Zaweski - PSEG LONG ISLAND Sunil Pancholi - LOCKHEED MARTIN ENERGY

Contents Innovative Efforts in Support of NY REV Preliminary Analysis for NWA Projects Project Plans for Selected NWA project NWA Decision Framework Innovative Load Relief – a Super Saver Project Can DER defer capital investments?

Innovative Efforts in Support of NY REV Promotion of distributed resources, improving system efficiency, identifying opportunities for the deferral of capital investment, and enhancing customer choice and supporting a market for clean energy investments South Fork project RFP Western Nassau RFP Dynamic Load Management Tariffs Renewable RFP Advanced Metering Rollout to Major Customers Combined Heat and Power incentives Geothermal Heat Pump incentives Thermal Storage incentives Non Wire Alternatives

Preliminary Listing of NWA Opportunities (2015) Projects Total Load MW Relief Required MW % Load Relief Required T&D Required Date Project 1 241 7-10 4.1% Summer 2017-2020 Project 2 175 6-11 6.3% Project 3 119 6.1 5.1% Summer 2017 Project 4 100 6-12 12.0% Project 5 106 26 25.0% Project 6 200 63 32.0% Project 7 25 0.6 0.15% In 2015, System Planning and EERE reviewed several projects for NWA feasibility Project 6 and Project 7 were eventually removed from consideration due to equipment reconfiguration, in-service date and environmental condition reasons.

NWA Request for Information RFI issued in 2015 that requested proposed DER solutions and indicative pricing Included pertinent customer information, load profiles, and load reduction needs information provided All feasible DER technologies requested Key considerations for evaluation: Cost effectiveness Timeliness Reliability of the technology and solutions Functionality 42 responses: Provided a higher confidence regarding technologies potential for load reductions and projected costs 3 major cost categories of solutions:  Technology Groupings Relative Costs   Demand Load Control/DR $ Multiple Technologies (Renewables, CHP, Thermal $$ Energy Storage (Battery)  $$$

Portfolio Approach: Example of Analyses Conducted for NWA Projects – Project 1 Totals 2017 2018 2019 2020 Projected DLC savings from HVAC Residential customers 2.7 MW 1.0 MW 1.7 MW   Projected DLC savings from non-HVAC Residential customers 0.8 MW 0.5 MW 0.3 MW Projected DLC savings from customers with pool pumps 1.9 MW 0.9 MW Large C&I customer load reduction potential 2.6 MW 0.6 MW Small/Medium C&I customer load reduction potential 2.0 MW Load reduction required for Battery installations Not Required Total required load reductions 10.0 MW 3.0 MW 4.0 MW 1.5 MW Projected costs $10.0M Key Conclusions, based upon analyses of all 5 projects: Knowledge of local customers load profiles and existing EE/DR work DLC/DR opportunities limited based upon customer loads Renewables and Storage can be scaled up based upon project needs

Analysis and Recommendations for Selected NWA Projects All $ are in Thousands Discount rate 5.5% Project 1 Project 2 Project 3 Project 4 Project 5 Load Relief Required (MW) 10.0 MW 11.0 MW 6.1 MW 12.0 MW 26.0 MW Years of Deferment 4 1 % of Load Relief Required 4.1% 6.3% 5.1% 12.0% 25.0% NPV Analysis NPV Analysis (Benefits – Costs) $ (1,808) $ (10,738) $ (4,902) $ (12,743) $ (37,991) SENSITIVITY PROJECTIONS Impact on NPV: If 10% reduction in load relief project costs $ 916 $ 1,714 $ 885 $ 1,911 $ 5,362 Impact on NPV: If 10% increase in capacity savings price $ 461 $ 501 $ 299 $ 517 $ 1,198 Impact on NPV: If asset life is 15 years (rather than 10 years) $ 1,542 $ 1,661 $ 991 $ 1,950 $ 3,973 Impact on NPV: If 10% lower MW requirements $ 476 $ 1,147 $ 415 $ 1,435 $ 10,278 RECOMMENDATON (GO/NO-GO)   Issue RFP for Projects 1 and 2 Project 3 looked favorable, but not considered for NWA project due to additional issues such as reliability of existing equipment and in-service date requirements Project 4 while interesting was removed from consideration due to decision time constraints which could have resulted in loss of load reliability conditions Approve T&D Capital projects for Projects 3, 4 and 5

NWA Project Decision Framework Load Relief – Alternative to T&D Project Ideal Possible Not Recommended Load relief required as a % of total load <5% Expect DLC <5% Feeders 5-20% Group of substations >10% Feeders >20% Group of substations Load relief requirement timeline >3 years 2-3 years Less than 2 years Exposure to load left unserved No Yes Capital project costs >$10M typically $2M-$10M typically <$2M Load relief required for substation group, substation or feeder levels Wider-load area or substation group A few substations in a group; Non-specific at feeder levels Multiple specific feeders and substations Residential customer loads as a % of total load <40% 40-60% >60% Load relief required (hrs. per event) <3 hrs. 3-8 hrs. >8 hrs. Number of DR/DLC events per year 4 8-12 >12 The decision making framework establishes a collaborative process for PSEG Long Island decision makers to determine if an alternative load relief is feasible While each capital project will contain some/many decision criteria that may look favorable (or unfavorable), this guideline provides a decision making tool to ensure key aspects of the project(s) are considered

NWA Project Plans – NWA Project 2 Project 1 was most favorable However, revised T&D Planning load projections, performed in mid 2016, eliminated the need for capital as well as load relief projects Request for load relief alternatives proposal (RFP) is in final stages Load relief requirement modified from 11 MW to 8.5 MW, which improved the cost-benefit RFP will include both BTM (behind-the-meter) and IFM (in-front-of-the-meter) projects to allow for changes in technologies and costs, which may have come about since RFI We will look for guaranteed load relief solutions We anticipate awarding multiple unique solutions and multiple vendors Tentative RFP Timeline: RFP Issuance – 1Q 2017 RFP Response due date – early 2Q 2017 Contract Awards – 3Q 2017 Project Delivery – Commence by early 2018

Proposed New Initiative – Super Saver Project Pilot unique comprehensive solution for a selected load constrained distribution on transmission capital project for 2020/2021 need Incorporate select load management tools and techniques such as: Offer to install AMI (Smart Meters) for all customers fed by the selected substation(s) Perform Energy Audit at no cost for residential customers Offer Smart thermostat to customers who have Central A/C (“CAC”) and will enroll in the DLM tariff Establish analytical capabilities to utilize the smart meters’ data and develop programs/methods to deliver cost-beneficial load reductions Offer TOU pricing to empower customer decision-making regarding energy usage and timing of the use (targeted for 2018 implementation) Review suitability of load reduction technologies such as thermal storage and CHP, and develop target offerings Deployment of these tools will improve the system-wide efficiency Monitor progress to maintain reliability with a traditional approach, if necessary.

Can DER defer capital investments? Selection of NWA projects Development of NWA project selection framework Buy in and participation by key internal organizations Screening potential NWA project early, allows more time for analysis RFI or recent RFPs improve the accuracy of the costs and technology potential DER technology alternatives and costs DER technology alternatives and maturity are expanding DER costs are becoming more competitive Trend is going to continue and can accelerate Critical to integrate DER portfolio Utilities have many diverse projects and technologies in consideration and implementation The resource utilization can improve with an integrated DER plan Take Aways Not every project suitable for analysis Initial Projects will set stage for acceptance – reliability still primary concern If successful, will likely require changes in certain operating protocols Portfolio solutions will bring command and control questions into play