1. Business Case Development SWEMA Spring Meeting June 6, 2005 Wayne Callender

2. The Project Mass replacement of a portion of the existing meter population with radio frequency meters Used in a walk/drive-by capacity Main Driver - Increased productivity for meter readers to allow reduced staffing through attrition

3. Key Points Timing, Timing, Timing Involve Multiple Areas Be Conservative Make Sure People Read It It Helps to Be Lucky

4. Business Case Flow Hard $$ Soft $$ –Get input from multiple areas Weigh them out SEPERATELY and then make decision Document Everything Don’ Forget to Account for Risk

5. Financial Analysis Cash is King Only consider Cash Flows in the future that are different between various scenarios Make sure that the time frames are the same between scenarios Is it Fixed or Variable?

6. Financial Tools Net Present Value (NPV) –Calculates the value of the investment (sum of all cash flows) in today’s dollars adjusted for the time value of money at a utility’s weighted average cost of capital (WACC). Higher the NPV the more valuable a project scenario, and in general, accept all investment decisions with an NPV greater than zero. Internal Rate of Return (IRR) –Calculates the rate that discounts all of the cash flows of an investment to exactly zero (i.e., the discount rate where the NPV is zero). The IRR is the expected rate of return on an investment.

7. Financial Tools Payback –The time period in years required to break even on the initial investment on a non-discounted after-tax basis. –Payback period is probably the most used and misused financial measurement in the utility industry. Payback does not take into account the time value of money nor does it reflect the economic value of a project. –Payback period can be easily manipulated through financing arrangements. For example, an AMR project with a seven year payback on a purchase basis would have an immediate payback (less than six months) if the project were financed.

8. Other Financial Considerations Arrow Diagrams If it’s Sunk it’s Sunk Make sure you Consider Opportunity Costs Don’t Forget about Depreciation 0 12345n Outflow Initial Investment Inflows

9. The Soft Stuff Customer Satisfaction –Internal and External Employee Development & Satisfaction Safety Image/Brand Environment Community Brainstorm with Other Areas of the Company

10. Other Considerations You don’t have to do it alone Be Careful What You Wish For… Be ready to act Get the “Dog and Pony” show ready

11. One More Thing

12. Questions ?