National Grid OBF / OBR Overview August, 2010

Agenda Overview of OBF / OBR Financing at National Grid State-specific Expansion Needs / Requirements Scope of work and Resources Next Steps

2009 Electric Commercial & Industrial Key Highlights Retrofit Large Commercial / Industrial Program has been very successful in MA and RI due to the focus on specific market segments as well as offering on bill financing Major success with 1) The Retrofit / Whole Building Assessment program which offers comprehensive treatment (beyond lighting); 2) The High Performance Schools program; and 3) Municipal programs which had high participation due to OBF (primarily) and using whole building assessments to maximize penetration into that market. Enhancing the lighting incentive levels and expanding the depth of the project expediters was effective in delivering the high-performance lighting measures. Retrofit Small Business was successful in MA and RI and had a great launch in UNY The Small Business program was able to deliver its goals using program attributes such as OBF UNY Small Business Services program was launched in March with one bridge vendor and has now expanded to three regional program administrators with a staff of 50, performing audits and lighting installations to support the expansion of programs in 2010 / 2011.

2009 OBF /OBR & Financing Activity – Electric C&I Market State Large Small Total MASS $5,364,216.00 $2,096,862.00 $7,461,078.00 NH $0.00 $147,720.00 RI $1,361,712.00 $1,413,974.00 $2,775,686.00 $6,725,928.00 $3,658,556.00 $10,384,484.00 CoPays (Financing amounts - 2009 YE) Number of Loans 1317 (SBS); 216 (mid-large C&I) Avg loan amount $2,000 (SBS); $30,000-$300,000 (med / lrg); 30% of total project cost; Up to 70% incentives Payment terms Customer chooses up to 24 monthly installments, interest free. payment with SBS customers are offered a one time15% discount on the 30% remaining balance (total 4.5%) Customer Comm Installation and materials are provided by a National Grid Small Business Regional Program Administrator. Project Scope Projects are primarily lighting and refrigeration measures. Recycling of fluorescent lamps and ballasts at no cost to customer

Small/Mid-Sized Business Direct Install Program Available for 20 years to small business customers In 2009, financed projects with 1300+ MA customers, totaling $3.4 million at zero interest. Funding source is systems benefit charge dollars Sixty percent of customers representing 45% of dollars opted for 1-time quick pay. As projects grow in size, majority opt for 24 months.

Small/Mid-Sized Business Direct Install Program Making it easier for the customer to say “yes”... Simple process/contract: Vendors claim “it sells the program”, improving close rate by 25% to 50% No creditworthiness test: Small projects where average financed amount was ~$2300 Loan term of two years: Insures projects have positive cash flow with average payback less than one year Default Rates: Less than 3%

2009 Financing Activity – Residential Market (MA) - Total Dollars Financed $9,459,288 (through traditional prequalified banks) - Number of Loans 1262 - Avg loan amount $7,500 - Payment Terms 12 to 84 months at 0% to the customers (NGRID buys down the rate; spent ~$2M SBC dollars) Rate Buydown Amount 1% over prime with a minimum of 5% for MA Banks. 12% to 18% with EnerBank USA Customer Comm Our vendor CSG currently handles all the communication with the customers and introduces the customer to financing options. MassSave (electric): "Home Performance with Energy Star" requires the contractor to be BPI certified. An audit is also required for any financing to be released to the customer Project Scope Projects are primarily weatherization, heating, etc. Once OBF is put in place in MA, the above financing options would remain available to the customers.

2010 EE Outlook and importance of OBF Aggressive State-specific savings goals, in some cases doubled from previous year, will only be achieved through multiple new and innovative solutions, including the expansion of On Bill Financing and securing third party funding for financing The basic concept behind on-bill financing is to provide utility customers a means of financing energy efficiency measures directly through their utility bills with little or no up- front cash outlay. One purpose of an on-bill financing program is to lower or eliminate the presumed barriers to customer participation in energy efficiency. Such barriers include lack of access to capital and other financing related issues, reluctance to commit capital, uncertainty of benefits, and the divergent interests of landlord and tenants (i.e., split incentive). Ideally, an on-bill financing program would overcome these barriers for certain consumers. OPOWER / Home Energy Reports: In 2009, the OPOWER pilot for 25,000 electric and 25,000 Massachusetts gas customers was launched, focusing on achieving savings through behavioral changes by sending participants Home Energy Reports comparing their energy usage to their neighbors and providing tips to National Grid Energy Efficiency rebates and programs. Positive press was received locally and nationally in the Boston Globe, Business Week, Greenbiz and various other news sources. In order to leverage the 3% less commitment, each Home Energy Report provides information about the campaign while customers can track their progress to 3% in the paper reports and on an online module available on the pilot website. In 2010, the pilot was proposed as a 3-year program in MA, pending regulatory approval, with 100,000 electric and gas customers respectively receiving reports in 2010. Similarly, Upstate NY got approval to run the program for duel fuel customers and is in the process of finalizing its implementation plan. On Bill Financing 2010 outlook: 3rd Party funding source for OBF efforts (in particular for MA) Developing an RFI to gain interest from external funding entities (RFI to go out mid-Feb) RFI to focus on all regions where funding will be needed MA – as per 3 year plans – $172 million will be needed for 3 years for financing UNY – working with NYSERDA as Pilot partners to identify 3rd party and launch a pilot NH – got RGGI Funding ($50K for res; $300K for C&I – build a revolving fund) RI – awaiting to hear of the available RGGI dollars for financing DNY – to be assessed IT Infrastructure systems changes / Including InDemand changes A team will be assembled to start assessing estimates for MA OBF program (residential el, gas and C&I gas, el) / will all depend on the “Mechanism or Model” chosen on how the financing would work UNY Pilot with NYSERDA – costs assessed; applied for DOE grants to get recovery for the estimated $400K of work needed to be done on CSS Systems (Grant approval end of March 2010)

Regulatory Requirements OBF / OBR New Requirements by State Regulatory Requirements Sector Approach Funding Sources MA 3-yr MA plans (ordered to attain outside funding for financing/grants for Jan 2011) Residential and C&I (electric / gas) Currently only Small Business Residential Heat Loan through 3rd party banks Working with DOER and other PA’s (various Working Groups and other venues) DOER searching for a source of funds to establish a loan loss reserve. RFI (launch 3/12) Seeking Grants for customers through DOER & internal NG resources (investigating) UNY Green Jobs-Green New York Act requires NYSERDA to demonstrate the feasibility of "innovative financing mechanisms" for EE measures, including OBF/OBR. $112M RGGI funding OBF plans were filed 4/1 Residential and small C&I (less than 100 employees; electric / gas) Currently : Small Business: Residential pilot moving forward Working with NYSERDA as a partner to implement this OBF/OBR pilot NYSERDA will establish loan loss reserve NYSERDA applied for DOE grant to cover IT infrastructure changes NYSERDA attain 3rd party funding source RFI (launch April); can be utilized for other EE programs not eligible for GJGNY Legislature (SBS, EI, etc) DNY NYPSC initiated a proceeding (CASE 09-M-0465) to consider an on-bill financing pilot for DNY (later shifted to UNY). Residential and C&I (gas) Currently: None No active focus on DNY (to be considered end of 2010) IT System changes for OBF setup will take time and $$ (initial est. ~$1.2M for each NYC & LI upgrade) RFI (launch April); suggested in the RFI that there will be funding oppt in the near future for DNY RI / NH RGGI proceeds to be utilized for a revolving loan fund NH (el): $300K (C&I); $50K (Res) RI (el): $4M (40% for OBF) Residential and C&I (electric) Currently: Small Business. Tariff approved for Residential and Municipal in NH Residential and C&I (expand current OBF programs & launch resi NH program) RGGI – establish revolving fund and supplement with funding from RFI (launch April)

OBF Project Resources Team Lead Bill Codner RFI Procurement: Treasury: Financing: Consultant (Financing): IT Billing Requirements Billing: Pricing / Rates Credit/ Collections: Accounting: IT: Policy & Procedures: Legal: Regulatory: Energy Efficiency (EE) Requirements (programmatic) EE Resi team: EE C&I Team: InDemand: EE Regulatory:

RFI Scope RFI Launch: March 2010 RFI Results: April 2010 Launch RFP process RFP completed: end of August Have the ability to offer 3rd party financing January 1, 2010 Please note that these figures represent the anticipated funding needs of National Grid only. National Grid requests information from Financial Institutions/Lenders/Fund Managers/Trust Managers and others who can provide EE third-party financing for gas and electric residential, small / medium & large business customers National Grid is looking for innovative approaches to fund customer’s energy efficiency projects without encumbering National Grid’s balance sheet. Furthermore, while offering customers financing over agreed upon terms (to be determined), National Grid would offer the customers to pay the amount financed back through their utility bill. National Grid will collect the payments for the third-party entity, easing the process for the customer and the third-party. An estimated $250-300 million gross investment is required over three years, which has a potential to increase in the future In addition, National Grid is interested in exploring funding available for financing of renewables as well as oil to gas conversion projects (majority being high efficiency) for the above mentioned customer segment.

3-year MA Funding Needs

Contact Information Bill Codner (781) 907-1715 william.codner@us.ngrid.com