1. IBM Research ® Industry Trends in Smart Grids: The Consumer Ron Ambrosio Global Research Leader, Energy & Utilities Industry Senior Technical Staff Member IBM TJ Watson Research Center, Yorktown Heights, NY U.S. Dept. of Energy GridWise Architecture Council Chairman 11

2. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 2 The convergence of new realities will force our energy and utility clients to rethink their business Customer Innovation Energy Flow Information Flow Industry Value Chain Innovation Business Model Innovation

3. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 3 In the current environment, integration of consumers’ wants and needs is critical for success regardless of geography  Lighting the Way | 10/12/2014 To fully understand and benefit from these changes, utilities must take steps now to integrate the “consumer voice” into strategic planning, as stakeholders will challenge them to show how the public benefits from new investments New customer behaviors are emerging based on income, desire for control, ability to take control, and age that will be a critical factor in how successfully these new investments can be leveraged As utilities prepare for a period of major new infrastructure investments, consumers worldwide are reconsidering their role in the electric power value chain because of a combination of environmental, economic, and technology-driven factors

4. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 4 As this industry model unfolds, customers will gravitate toward specific behavioral patterns based on two key factors  Lighting the Way | 10/12/2014  Two factors will determine the nature of the interface between utilities and consumers in the future:  The degree to which consumers take initiative in decision-making in their energy supply and usage toward meeting specific goals  The consumers’ disposable income available for energy choices in supply and conservation Disposable Income Available for Energy Choices Low High Decision-Making Initiative Taken Low High Passive Ratepayer (PR) Frugal Goal-Seeker (FG) Energy Stalwart (ES) Energy Epicure (EE) An energy consumer who is relatively uninvolved with decisions related to energy usage and uninterested in taking or unable to take added responsibility for these decisions An energy consumer who is willing to take modest action to address specific goals or needs in energy usage, but is constrained in what they are able to do because disposable income is limited An energy consumer who has specific goals or needs in energy usage, and has both the income and desire to act on those needs A very high-usage energy consumer relatively unconstrained by budget limits, but with little or no desire for conservation or active involvement in energy control Residential and Small Commercial Energy Customers 22%21% 31%26% Sample Size = 5084

5. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 5 Using survey responses, we evaluated these types of consumers on six key attributes Focus on Environment: Interest in green products, willingness to make changes to reduce personal environmental impact Hunger for Information: Desire for more frequent and more detailed information around the cost and impact of personal energy usage Willingness to Take Control: Motivation and desire to actively manage energy usage, cost, and environmental impact Motivation to be Efficient: Willingness to take steps to increase energy efficiency through some combination of lower-cost and higher-cost actions Knowledge about Providers: Overall awareness of energy provider and options that the provider makes available to manage efficiency, environment, and cost Sensitivity to Cost: Degree to which behavior would change (or be limited) by the cost or energy or of options made available Lighting the Way | 10/12/2014 Source: IBM Institute for Business Value (IBV) analysis

6. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 6 Several important findings emerged from this year’s survey, particularly in comparison with last year’s survey  The emphasis on climate is as strong with consumers as it was in 2007, but there has been a significant and consistent pullback of desire to spend more on green products over the past year  Cost remains the most powerful motivator for desire for control and willingness to change behavior, more so than environmental concerns, reliability concerns, or other factors  Consumers are having a hard time getting (or understanding) information about the availability of new utility programs –In particular, provider messages are not reaching the youngest consumers in our survey (18-34 years old) –This is an emerging issue of concern, because this age bracket is most likely to be willing to pay for new products and services  Major generational shifts in how information is obtained imply that multiple communication channels across a broad array of old and new media are needed to be effective  Over 90% of respondents indicated that they would like to see a smart meter and tools for managing their usage available at their home, with 55-60% of those respondents willing to pay a fixed or monthly fee for that capability  Lighting the Way | 10/12/2014

7. © 2008 IBM Corporation IBM Research © 2009 IBM Corporation Page 7 This will lead to a future for energy providers driven by technological evolution and increasing consumer control Lighting the Way | 10/12/2014 Source: IBM Institute for Business Value (IBV) analysis Operations Transformation Some combination of grid and network technology evolves to enable shared responsibility, but consumers either cannot exert much control or elect not to and the balance of benefits favors the utility Participatory Network A wide variety of grid and network technology evolve to enable shared responsibility, and consumers’ strong interest in specific goals creates new markets (virtual and physical) and new product demands, which balances benefits more equally between the consumers and utilities Constrained Choice Consumers take firm steps to move toward more control, but are limited to certain “levers” (technologies, behaviors, or choices in providers) by regulatory and/or technological constraints Passive Persistence Traditional utility market structures dominate, and consumers either accept or prefer the traditional supplier-user relationship Low High Technology Evolution Utility Industry Models 2007—2017 Centralized and One-Way Distributed and Dynamic Degree of Consumer Control

8. IBM Research © 2009 IBM Corporation Contact Ron Ambrosio Global Research Leader Energy & Utilities Industry Ron Ambrosio/Watson/IBM@IBMUS rfa@us.ibm.com +1 914-945-3121 IBM T.J. Watson Research Center P.O. Box 218 1101 Kitchawan Rd. / Route 134 Yorktown Heights, NY 10598

9. IBM Research © 2009 IBM Corporation9