1. The Democratization of Energy and the Networked Grid James Tong VP, Strategy and Government Affairs

2. 2 spruce 1)The Grid of the Future 2)The Networked Grid and Need for Neutrality 3)The Promise of a Networked Grid Agenda

3. The Grid of the Future

4. 4 spruce The grid is transforming. More Choices, More Suppliers ?? Historically…Today… Commodity product Monopoly Diversified offers Multiple providers

5. 5 spruce The future will be more diverse… The home will be a network of devices Source: SmarterUtility.com

6. 6 spruce …and more interconnected The grid will be a network of networks

7. 7 spruce The democratization of energy will be disruptive. Changing needs, technologies, and customers are outpacing regulation. 20 TH CENTURY GRID21 ST CENTURY GRID Reliable, safe, & least-costClean, resilient, & consumer choice Centralized hierarchy & monopolyDecentralized networks & peer-to-peer RatepayersCustomers & prosumers Pay for what has been builtPay for what people want Rigid rates designed by governmentFlexible prices determined by markets

8. The Networked Grid and Need for Neutrality

9. 9 spruce What is the market structure of the future? Who gets to do what and where? 20 TH CENTURY GRID21 ST CENTURY GRID Who pays whom and how much?

10. 10 spruce Two indisputable realities: Utilities must invest in the grid (the “commons”) so that it will continue to serve all. Customers must ensure fair compensation to utilities. Two major utility concerns: Poor recovery of past sunk cost  stranded investment Missing out on future opportunities for DER/grid investment Protecting the commons≠ protecting utilities Public policy should not conflate fair compensation with future investment opportunities Revisiting the “Obligation to Serve” What are the customers’ responsibility in a democratized grid

11. 11 spruce Misunderstanding problems can leads to bad policies Example: The Net Metering “Red Herring” Rooftop solar boom began in 2007  currently < 1% penetration U.S. electricity demand growth 1950-2040 New England (ISO-NE) Peak-to-Average Demand Ratio Utilities’ fixed charge proposals on solar do not address underlying long-term problems. More efficient consumers Less efficient utilities Source: U.S. Energy Information Administration

12. 12 spruce Tenets of Grid Neutrality 1. Consumer Empowerment Principle: Empower the consumer while maintaining universal access to safe, reliable electricity at reasonable cost. 2. Commons Principle: Demarcate and protect the “commons”. 3. Risk-Reward Principle: Align risks and rewards across the industry. 4. Transparency Principle: Create a transparent, level playing field. 5. Open-Access Principle: Foster open access to the grid. Grid Neutrality Principles for the Grid of the Future Goals Evaluate future grid policies and design considerations with accepted benchmarks Align competing private interests with public interests Maximize welfare of the end customer

13. 13 spruce The Grid as a Platform for Providers and Consumers  Third party suppliers become customers to utilities  Standardized rules and regulations  Fees for line access to the grid or transactions brokered by utilities  Network effects reinforces value of the grid The grid operator needs to be neutral

14. 14 spruce Hypothetical Win-Win for Solar and Utilities Solar example Utilities can reduce the cost of rooftop solar and accelerate deployment by: Educate consumers and lower customer acquisition costs Streamlining interconnection and inspections Providing customer service or operation and maintenance support Develop programs to target customers overlooked by markets Rooftop solar industry can support utilities: Pay fee for services Provide grid services (e.g., grid monitoring, voltage support, and backup power)

15. The Promise of a Networked Grid

16. 16 spruce Regulatory reforms can open new opportunities  Stronger cost recovery  Lower risks  Opportunity to compete in competitive businesses (DG, solar, EVs) via unregulated subsidiaries Utilities  Opportunities to offer higher-value grid services beyond simply producing power  Opportunity to more readily interconnect and sell to consumers  Opportunity to cost-effectively augment the grid in a targeted way Third Party Providers

17. 17 spruce The Promise of a Networked Grid  More services to meet diverse needs – “the internet of things”  More efficient; cleaner  Resiliency; protection against outages  Less use of ratepayer funds for grid investments  Lower-cost for all “The grid increasingly is…a multi-directional network interconnecting millions of consuming devices, flexible distributed energy resources including DG, and back-up generation.” ̶ Edison Electric Institute

18. Appendix

19. 19 spruce Extend Wholesale Market Mechanism DSO ca Distribution Utilities Consumers Solar DER Wholesale Markets (RTO/ISO) Generators & Traders Ancillary Service Providers Wholesale Markets (RTO/ISO) Generators & Traders Ancillary Service Providers Aggregated DER At every substation (or other jurisdiction boundary) Distribution System Operator SolarDER RetailersConsumers Market-based control Regulation-based control

20. 20 spruce How Utilities Are Charting a Regressive Path “…total of 25 states have seen proposals for fixed-charge increases…” – NRRI, October 2015 Fixed charges are a false fix:  Encourage wasteful consumption and investments  Reduce opportunities for DERs to improve the grid.  Disproportionately impact lower-income households  Can ultimately hurt IOU shareholders

21. 21 spruce The Double Edge Sword of DERs DERs can lead to a cleaner, more dynamic, and efficient grid or… Source: EPRI …facilitate uneconomic bypass and load/grid defection.