1. Developing a New Technology Roadmap for Bandera Electric Cooperative, Inc. Presented by: Brian D. Bartos, P.E. Manager, Engineering & Operations Leslie W. Kramer, CPA Manager, Finance & Administration Evaluating the Business Case for Smart Grid Investments Orlando, Florida October 21, 2011

2. 2 Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 San Antonio Austin BEC Bandera Electric Cooperative, Inc.  Located in the Texas Hill Country in all or parts of seven counties: Bandera, Bexar, Kerr, Kendall, Medina, Real, and Uvalde  104 miles of transmission ~4,435 miles of distribution  ~32,000 meters  ~24,000 Members  203 MW peak demand (winter)  140 MW peak demand (summer)  550.7 million kWh sales in 2010 (~90% residential)  2.8-3.0% growth rate  Over $159.1 million in total assets

3. 3 Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Texas Hill Country

4. 4Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 BEC’s Mission We Enhance Quality of Life BEC’s Vision BEC will be the trusted energy solutions provider of choice for its Member-Owners BEC will be the trusted energy solutions provider of choice for its Member-Owners

5. 5Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 A Cooperative Undergoing Change… In 2008, Looking Ahead Strategically, BEC saw… An industry in unprecedented change An industry in unprecedented change Technology, regulation, expectations, reliability, aging assets, security issues, national economy faltering High natural gas prices  higher electricity costs High natural gas prices  higher electricity costs BEC was negotiating a Power Supply Agreement (outcome uncertain at that time) Increasing awareness of conservation, distributed generation Increasing awareness of conservation, distributed generation Reliance on increasing kWh sales was questioned Workforce in transition Workforce in transition Combination of valuable, experienced aging employees; and, inexperienced, but very talented, young employees

6. 6Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 While we still believed strongly in the Cooperative business model, we concluded…. BEC’s processes and infrastructure were suited for success in the 1970-80s and not for 2010 and beyond

7. So We Went to Work… We assessed our financial situation We assessed our financial situation We concluded that while our current financial situation was good, without changes it would deteriorate over the next 5 years We examined our reliability We examined our reliability We concluded we did not have many outages, but when we did, they tended to last longer than they should We assessed our Member service programs We assessed our Member service programs We concluded our members could not do business with us anytime it was convenient for them or in the manner they wanted We examined all of key business processes We examined all of key business processes We concluded that we could not improve efficiency & effectiveness without reinventing most of these processes utilizing technology We assessed our data structure We assessed our data structure We concluded that we could not go forward without a major overhaul of our IT infrastructure—This would be a deal breaker if not completed 7Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

8. 8 After a comprehensive strategic & tactical assessment of every facet of the Cooperative’s operations, we continued to come to the same conclusion: Our current way of doing business would not sustain the Cooperative or serve our Members satisfactorily for the long-term

9. 9Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 We Knew Strategically, We Needed To… Strengthen our financial position Strengthen our financial position Successfully conclude our Power Supply Agreement negotiations Automate & streamline as many business processes as possible Automate & streamline as many business processes as possible Begin the move toward a paperless organization Reorganize & realign our business structure for success in the 2010s, not the 1980s. Reorganize & realign our business structure for success in the 2010s, not the 1980s. Engage every employee -- Empower & hold accountable Develop a Technology Plan – Contract it, if necessary Develop a Technology Plan – Contract it, if necessary Completely rebuild our IT infrastructure to create a data warehouse concept Integrate Operational Data & create Business Intelligence Integrate Operational Data & create Business Intelligence Data needed to be viewed as a Cooperative asset Develop & Implement a SMART electric infrastructure – BEC’s Smart Grid Vision Develop & Implement a SMART electric infrastructure – BEC’s Smart Grid Vision

10. 10Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Desired Outcomes of Change Improve Member Service Rededication and focus on serving members Facilitates ability to offer new services Improve Reliability Improved utilization of line personnel Standardization of training and practices Improve Employee Development Reward contribution not tenure Focus on excellence not mediocrity Facilitate continued Succession Planning Ensure employees are on the “right seat on bus” Ensure shared vision with Board by entire BEC leadership team  Streamline decision making  Consolidate functional positions  Improve BEC’s Culture  Position BEC for future success

11. So What Did We Do? 11Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

12. BEC’s Smart Grid Vision -- Improve Reliability & Enhance Member Satisfaction-- 12Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

13. BEC Data Architecture - 2008 13Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

14. To Accomplish Our Goals, We Instructed… 14Evaluating the Business Case for Smart Grid Investments -- October 21, 2011  There are no “Sacred Cows”  Focus on results, not specifications or computer specs  Technology is moving too fast  Don’t fall back on “add a body”  Get rid of processes that are of no value  Don’t just automate doing the “same dumb things we do, but only faster with more of them”  Encourage creativity

15. BEC Data Architecture - Today © ElectSolve Technology Solutions & Services, Inc. 15Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Data Mapping Layer Centralized Operational Data Repository Data Access Layer CIS AMI SCADA OMS EA/GIS Other Enterprise Services Bus Web Services, JDBC, Custom API, JAVA-EJB, etc… Enterprise Services Bus Web Services, JDBC, Custom API, JAVA-EJB, etc… MDM Portal Internal Users MDM Portal Internal Users MDM Dashboards Internal Mgmt MDM Dashboards Internal Mgmt Customer Portal Optional Application Customer Portal Optional Application VEE Data Management System Tools Optional Applications LARS Demand Response Power Billing Optional Applications LARS Demand Response Power Billing Alerting– Scheduling.NET WS Interfaces

16. 16Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 What has BEC Accomplished Since 2009… Completed change-out program to a smart meter Completed change-out program to a smart meter Rebuilt entire IT infrastructure to include a MDMS as the data warehouse Rebuilt entire IT infrastructure to include a MDMS as the data warehouse Introduced new Member services such as Smart Watch Introduced new Member services such as Smart Watch Implemented an enhancement to our CIS system Implemented an enhancement to our CIS system Implemented a new Outage Management System Implemented a new Outage Management System Integrated new Automatic Vehicle Locating with OMS Integrated new Automatic Vehicle Locating with OMS Completed a complete GIS audit – GPS every asset location Completed a complete GIS audit – GPS every asset location Implemented a new GIS/Enterprise Asset Management system Implemented a new GIS/Enterprise Asset Management system Implemented a new SCADA system Implemented a new SCADA system Implemented a new computerized staking system Implemented a new computerized staking system Implementing a new Mobile Workforce Management system Implementing a new Mobile Workforce Management system Implemented automatic service disconnects Implemented automatic service disconnects Piloting new fault locating / auto-sectionalizing system Piloting new fault locating / auto-sectionalizing system Piloting new voltage control systems Piloting new voltage control systems Commissioned a new 24x7 state-of-the-art System Control Center Commissioned a new 24x7 state-of-the-art System Control Center

17. We Went From This… 17Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 BEC Operations in 2005

18. 18 Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 BEC’s 24x7 System Control Center - 2010

19. 19Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 So What Have Been the Results… We have restructured and realigned the Cooperative We have restructured and realigned the Cooperative Our rates continue to be among the lowest against our comparables Our rates continue to be among the lowest against our comparables Our reliability has steadily been improving both in terms of SAIFI and CAIDI Our reliability has steadily been improving both in terms of SAIFI and CAIDI Our safety record has dramatically improved  600,000 man-hours without a lost time accident Our safety record has dramatically improved  600,000 man-hours without a lost time accident Our ACSI score is among the highest in the industry Our ACSI score is among the highest in the industry Our employee headcount has been reduced – yet added new functions Our employee headcount has been reduced – yet added new functions Our O&M expenses have remained relatively flat over the past 3 years Our O&M expenses have remained relatively flat over the past 3 years We have successfully renegotiated our Power Supply Agreement, Joint Use Agreements, most contractor agreements and have received regulatory approval on recovery of transmission cost of service We have successfully renegotiated our Power Supply Agreement, Joint Use Agreements, most contractor agreements and have received regulatory approval on recovery of transmission cost of service

20. Simple Facts - Results Total FTE employees 89  had 97 in 2008 Total FTE employees 89  had 97 in 2008 38 or 43% less that 5 years Another 12 or 14% less than 10 years Created three new departments Created three new departments System Performance (8) Personnel (3) Billing & Banking (4) Numerous reorganizations and are continuously changing Numerous reorganizations and are continuously changing Training, training and more training; primarily in technology Training, training and more training; primarily in technology Benchmarking; by comparison and setting standards Benchmarking; by comparison and setting standards Communication; board, employees and members Communication; board, employees and members Low interest rates = more capital credits back to members Low interest rates = more capital credits back to members Don’t sweat the small stuff – Focus on the $250,000+ Don’t sweat the small stuff – Focus on the $250,000+ 20Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

21. Future Plans – Strategic Human Resources 21Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Identify strengths and target cultural weaknesses Identify strengths and target cultural weaknesses Organizational alignment to map needed employee and management skills to existing and anticipated functions Organizational alignment to map needed employee and management skills to existing and anticipated functions Sustain the Co-op through: Sustain the Co-op through: Employee development and leadership training Identifying and developing leaders Employee retention and recruitment planning Identify and develop leaders Identify and develop leaders Innovation = Ideas + Leadership

22. Controllable Expenses per Meter Historical & Projected 22Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

23. Average Consumers per Employee Historical & Projected 23 Evaluating the Business Case for Smart Grid Investments -- October 21, 2011

24. The Challenges of System Integration… 24Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Successful Smart Grid system integration requires that you… Demand Open systems Demand Open systems Expect difficulties in the integration Expect difficulties in the integration Hold vendors accountable Hold vendors accountable Expect resistance to change Expect resistance to change Understand that these integrations are more complex than single technology integrations Understand that these integrations are more complex than single technology integrations Install & maintain new sophisticated databases Install & maintain new sophisticated databases Demand cooperation among multiple departments to work together Demand cooperation among multiple departments to work together

25. Some Lessons Learned, So Far… 25Evaluating the Business Case for Smart Grid Investments -- October 21, 2011 Must have your Board of Directors and executive management unwavering support. Must have your Board of Directors and executive management unwavering support. Must have a comprehensive Smart Grid vision & Technology Plan. Must have a comprehensive Smart Grid vision & Technology Plan. Do only what makes strategic business sense Must review all business process – be unsympathetically prepared to jettison outdated processes that no longer bring enterprise value Must review all business process – be unsympathetically prepared to jettison outdated processes that no longer bring enterprise value Make sure all sacred cows are looked at Seek benefits through advanced integration Have a solid project management plan. Consistently evaluate progress – don’t be afraid to make changes; Have a solid project management plan. Consistently evaluate progress – don’t be afraid to make changes; Speed up, Slow down, or Exit Don’t neglect a change management process with your employees

26. QUESTIONS QUESTIONS Brian D. Bartos, P.E. b.bartos@banderaelectric.com Leslie W. Kramer, CPA l.kramer@banderaelectric.com For more about Bandera Electric Cooperative, Inc. visit us at www.banderaelectric.com b.bartos@banderaelectric.com l.kramer@banderaelectric.com 26Evaluating the Business Case for Smart Grid Investments -- October 21, 2011