1. ©2004 InfoNetrix LLC All Rights Reserved Worldwide 3-1 PART THREE Market Drivers, Issues & Trends Market Horizons™ Report Geospatial & Field Automation Solutions (GFAS) in the North American Utilities Marketplace (2003-2007)

2. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-2 About This Report InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Geospatial & Field Automation Solutions (GFAS) in the North American Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace and Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace. Please visit www.InfoNetrix.com for more information about these and other InfoNetrix Advisory Services.www.InfoNetrix.com InfoNetrix LLC, an independent technical research and consulting firm specialized in utility automation and information technology (Utility Automation/IT) markets conducted the research for this report. InfoNetrix reports are available for subscription by any and all interested parties, foreign and domestic (except as prohibited by law), in accordance with the pricing and terms set forth in the prospectus, provided separately. This report addresses Geospatial & Field Automation Solutions (GFAS) in the North American Utilities Marketplace. Other reports in the Market Horizons™ Series provide similar analyses of Real-time Automation & Controls (RTAC) in the North American Electric Utilities Marketplace and Real-time Automation & Controls (RTAC) in the North American Water/Wastewater Utilities Marketplace. Please visit www.InfoNetrix.com for more information about these and other InfoNetrix Advisory Services.www.InfoNetrix.com

3. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-3 General Information & Notifications PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America PURPOSE The information contained in this document is for the sole use of InfoNetrix clients and is not to be distributed outside client organizations. No part of this publication may be reproduced, transcribed, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any electronic storage and retrieval system, without permission in writing from the copyright owner. DISCLAIMER This publication has been prepared with care, however, no guarantee of accuracy, completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix be liable to any user of the publication or any portion(s) hereof for any direct or indirect damages, expenses, costs or losses of any kind resulting from its use. COUNTRY OF ORIGIN United States of America

4. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-4 Research Standards & Methodology The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study. The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed. The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study.

5. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-5 Research Reliability & Acceptance The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at: www.InfoNetrix.com.) The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material. For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely. By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services. (Detailed company contact information is provided on the web at: www.InfoNetrix.com.)

6. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-6 Market Horizons™ Report Contents 1.Executive Market Summary 2.Marketplace Characteristics 3.Market Drivers, Issues & Trends 4.Market Analysis & Future Outlook 5.Supplier Environment

7. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-7 Market Drivers, Issues & Trends Market Snapshots (2002-2007) Principal Market Drivers Key Issues & Trends (The Seven Signs) Challenges & Opportunities

8. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-8 Market Snapshots Near-term Impact of BUSINESS Factors Q: How important has each factor been to GFAS justification and procurement in 2002 & 2003?

9. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-9 Q: How important will each factor be to GFAS justification and procurement in the next 3-5 years (2003-07)? Market Snapshots Long-term Impact of BUSINESS Factors

10. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-10 Market Snapshots Near-term Impact of TECHNOLOGY Factors Q: How important has each factor been to GFAS justification and procurement in 2002 & 2003?

11. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-11 Q: How important will each factor be to GFAS justification and procurement in the next 3-5 years (2003-07)? Market Snapshots Long-term Impact of TECHNOLOGY Factors

12. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-12 Principal Market Drivers 1.Operational Efficiency: 1.Operational Efficiency: Do more with less! 2.Policy Issues: 2.Policy Issues: Regulatory, legislative & spending mandates 3.Security: 3.Security: Physical & cyber-security protection & compliance 4.Standards/Standardization: 4.Standards/Standardization: Interoperability & Cost Reduction 5.Financial & Market Uncertainties: 5.Financial & Market Uncertainties: Business Focus ($$$ & ROI) 6.Aging Infrastructure: 6.Aging Infrastructure: Reliability, O&M (& Replacement) Costs 7.EAM(Enterprise Asset Management): 7.EAM (Enterprise Asset Management): Sweat the Assets! Notably, these are substantially ALL Business issues. By contrast, the role of Technology continues to diminish as a procurement driver - except as directly related to efficiency and capital cost reduction - and plays mainly a supporting role to the principal business factors driving the market.

13. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-13 Do more with less!  Downsizing at many utilities cut labor pools and other resources below practical levels  Expect increased levels of outsourcing, even for previously routine internal activities  Rising demand for skilled, experienced system integrators now being filled by: Former utility employees now on contract Traditional engineering consulting firms & conversion companies Some distributor & sales representative organizations  Ongoing utility mergers & acquisitions will continue to exacerbate resource deficiencies and drive more outsourcing  Engineering firms moving rapidly to outsourcing & integration Principal Market Drivers Operational Efficiency

14. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-14 Principal Market Drivers Policy Issues August 14, 2003 Blackout  Caused a fundamental shift in political, regulatory and industry focus from the historical Generation mindset to a new awareness of Power Delivery  Painted an indelible picture of the criticality of T&D in the minds of politicians, regulators and (notably) consumers  Emphasized need for a streamlined permitting and construction process Ethics, Diligence & Security  Legislative and regulatory initiatives (NERC-1200, GASB- 34, Sarbanes-Oxley, etc.) now have direct impact on I/T initiatives and will link with GFAS on various levels Enhanced Satellite Image of Blackout Primary Areas of Impact (INSET) The blackout on August 14th, 2003 arguably had a more definitive impact on utility, regulatory and political policy regarding the grid and infrastructure investments than the two decades of industry, congressional and regulatory interactions that preceded it.

15. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-15 NERC-1200 CONTENT & ORGANIZATIONNERC-1200 CONTENT & ORGANIZATION 1201.Cybersecurity Policy 1202.Critical Cyber Assets 1203.Electronic Security Perimeter 1204.Electronic Access Controls 1205.Physical Security Perimeter 1206.Physical Access Controls 1207.Personnel 1208.Monitoring Physical Access 1209.Monitoring Electronic Access 1210.Information Protection 1211.Training 1212.Systems Management 1213.Test Procedures 1214.Electronic Incident Response Actions 1215.Physical Incident Response Actions 1216.Recovery Plans The NERC-1200 standard identifies sanctions for various levels of non-compliance and repetitive non-compliance incidents Only documentary sanctions will apply during the life of the Urgent Action Standard (See Appendix B) Once the permanent NERC Cybersecurity Standard is in effect, sanctions will include: An escalating series of letters notifying company executives, regional officers and regulators of non-compliance A series of escalating periodic fines up to $10,000 or $10 per MW of installed generation capacity, transmission capacity or load, whichever is greater Principal Market Drivers Security Courtesy of The Steadfast Group (www.TheSteadfastGroup.com)

16. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-16 Standards proliferation and implementation are steadily (and measurably) driving capital equipment and O&M cost reductions by facilitating:  Incremental upgrades & expansion of legacy systems  Interoperability among previously incompatible systems  Lowered project initiation costs due to… Accelerated planning, specification and procurement cycles Shorter learning curve for new or expanded implementations Faster, easier, more effective training and support Equipment (hardware and software) standardization has virtually eliminated the need for so-called “forklift replacements” of major system platforms due to compatibility and/or extensibility limitations HoweverHowever, broad deployments of standardized platforms (e.g., MS-Windows) adapted for custom applications are creating a new - and potentially onerous - support issues that must be resolved by suppliers  Platform provider may not support older hardware/software in new releases  Field documentation often inadequate to determine deviations from standard (or not known at all until upgrade deployment causes operational problems!)  Mounting configuration control challenges will strain internal resources Principal Market Drivers Standards/Standardization

17. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-17 Economic impacts on GFAS expenditures (2002-2004)  2002  2002: Recession drastically slowed GFAS spending  2003  2003: Modest rebound; then growing momentum  2004  2004: Strong economic recovery gathering momentum but skepticism about recovery sustainability still lingering.  2004-07  2004-07 Expect: Increasing GFAS spending tied to sustainability of economic recovery Previous levels of large GFAS projects will be substantially diminished More modest projects with tangible benefits & quick returns Any signs of instability in the economy could halt spending plans Future economic impacts on GFAS expenditures (2004-2007)  Improved economy and return to core business coupled with increasing emphasis on deteriorating assets and customer service demands suggests substantial GFAS spending increases in all vertical markets (Electric, Gas & Water)  Economic stability will diminish downward pressure on selling prices  Aging infrastructure and security issues will become major factors Principal Market Drivers Financial & Market Uncertainties

18. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-18 Ongoing shift in emphasis from Power Generation to escalating focus on Power Delivery T&D spending increases will be gradual but steady Increased utility spending on infrastructure driven by:  August 14, 2003 Northeast Blackout (Awareness!)  Returning to core business after “unregulated” failures  Knowing what business they will be in after restructuring  Greater confidence that investments will have a return thru: Improved PBR scores (e.g., SAIDI/SAIFI/CAIFI) Cost reductions from operational efficiency Better customer service & satisfaction  New realization that current infrastructure cannot properly support new uses driven by restructuring & deregulation Principal Market Drivers Aging Infrastructure: Electric Utilities

19. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-19 Gas Utilities  Realization that aging infrastructure creates new challenges that require attention to avert disruptions and disasters  Rising natural gas prices should provide additional capital for incremental improvements  Growing emphasis on Asset Management Water/Wastewater Utilities  Increasing awareness of aging mains and distribution lines being brought to light by directly or indirectly related environmental and/or security initiatives, studies and mandates Clean Water standards compliance Pollution Control standards compliance Security Vulnerability standards compliance  Increasing emphasis on O&M cost reductions Principal Market Drivers Aging Infrastructure: Gas & Water/Wastewater

20. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-20 Sweat the Assets! Is a corollary to the Do more with less! mantra. Utilities are being challenged to:  Extend useful life of assets  Optimize reliability, availability & maintenance costs  Defer/Avoid Capital Expenses GFAS is increasingly viewed as an Enterprise IT resource, and not just an isolated, specialized IT platform GFAS procurement decisions are increasingly based on ROI and tangible (measurable; short-term) benefits EAM objectives are financially - not technically - grounded EAM will focus first on high-cost/high-risk assets such as hi- voltage transformers, compressors, filters, etc. and further move applications into the field (e.g.,WMS/WFM & Mobile Computing) Principal Market Drivers Enterprise Asset Management

21. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-21 Key Issues & Trends (2003-2007) The 7 Signs 1.Regulatory Policy & Governance 2.Economics & Investment 3.Technology/Integration/Standardization 4.Security & Data Integrity 5.Web & Wireless Solutions 6.Enterprise Asset Management (EAM) 7.Customer Care & Satisfaction

22. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-22 The 7 Signs 1. Regulatory Policy & Governance Initiatives, guidelines, orders, regulations and legislation by governmental and non-governmental regulatory and legislative bodies including, but not necessarily limited to:  United States Federal Energy Regulatory Commission (FERC) North American Electric Reliability Council (NERC) State/Provincial, Municipal & Local Regulators US Department of Energy (DOE) US Department of Homeland Security (DHS) US Environmental Protection Agency (EPA)  Canada: National Energy Board of Canada (NEB-ONE) Natural Resources Canada

23. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-23 US Electricity Restructuring Status “As of February 2003, twenty-four states and the District of Columbia had either enacted legislation or issued a regulatory order to implement retail access. The local distribution company continues to provide transmission and distribution (delivery of energy) services. Retail access allows customers to choose their own supplier of generation energy services, but each state’s retail access schedule varies according to the legislature mandates or regulatory orders.” – Energy Information Administration SOURCE: Energy Information Administration (Updated Feb 2003) 1. Regulatory Policy & Governance Electricity Restructuring Status

24. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-24 Transmission & Regional Transmission Organizations (RTOs)  The North American transmission grid is being reshaped by FERC’s RTO and Standard Market Design (SMD) initiatives  So far, mixed reactions by US and Canadian utilities and governments Practically all Canadian provinces have expressed interest in some form of participation in RTOs. US action/reaction varies widely by utility and geographical region. Most unsettled is the Southeast where utilities have vowed strong legal opposition. 1. Regulatory Policy & Governance Electricity Restructuring Status…

25. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-25 SOURCE: National Energy Board of Canada (Updated Dec 2003) 1. Regulatory Policy & Governance Electricity Restructuring Regions

26. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-26 Province Wholesale AccessRetail AccessComments British ColumbiaYESLarge industrial consumers BC Hydro retail prices are frozen until 31 March 2003 Future prices will be regulated by the British Columbia Utilities Commission, based on approved costs. Yukon Territory, Northwest Territories & Nunavut NO Prices are regulated by public utility boards Small, dispersed markets No transmission interconnections with the provinces Alberta YES Wholesale prices are established in the market managed by the Alberta Electric System Operator (AESO); pass-through to consumers who have various purchase options SaskatchewanYESCities of Saskatoon & Swift Current Retail prices are subject to government approval ManitobaYES NO Retail prices are approved by the Manitoba Public Utilities Bd Coordination agreement with the Midwest Independent System Operator (MISO) (Continued on next slide) SOURCE: National Energy Board of Canada (Updated Dec 2003) Canadian Electricity Restructuring Status 1. Regulatory Policy & Governance Canadian Electricity Restructuring Status

27. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-27 (Continued from previous slide) SOURCE: National Energy Board of Canada (Updated Dec 2003) ProvinceWholesale AccessRetail AccessComments Ontario YES Wholesale prices are established in IMO- administered market Pass-through to residential and other low-volume consumers is capped at 4.3 cents per kW.h; two-tier pricing is proposed commencing 1 April 2004 QuébecYESLarge industrial consumers - retail prices are regulated by the Régie de l’énergie du Québec - rates are frozen until 2004 New BrunswickYESLarge industrial consumers, planned for 2004 -retail prices are regulated by the Board of Commissioners of Public Utilities - opening of wholesale market planned for 1 April 2004. Prince Edward Island NO - P.E.I. imports most of its electricity from New Brunswick - retail prices cannot exceed 110 percent of that paid for comparable service in New Brunswick (under the Maritime Electric Company Act) Nova ScotiaNO - retail prices regulated by the Nova Scotia Utility & Review Bd - limited wholesale access, starting January 2005 Newfoundland & Labrador NO - retail prices regulated by the Bd of Commissioner of Public Utilities - study of restructuring has been undertaken 1. Regulatory Policy & Governance Canadian Electricity Restructuring Status…

28. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-28 20 States and the District of Columbia Have a Residential Choice Program SOURCE: US Energy Information Administration 1. Regulatory Policy & Governance Gas Deregulation Status (2002)

29. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-29 INDUSTRY SEGMENTS Producers  6,800 US Oil & Gas Companies  21 Major Energy Companies Interstate Pipelines (~90) Intrastate Pipelines (~70) Local Gas Utilities (1,400) Marketers (~300) Underground Storage (415 Fields; 120 Operators) REGULATORY REGIME Phased price deregulation started in 1979; completed with Decontrol Act of 1989 (FERC Order 636) FERC State Regulatory Commissions Unregulated FERC if part of interstate system; State regulatory commissions for others Source: Energy Information Administration 1. Regulatory Policy & Governance Governance of Gas Utilities

30. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-30 Numerous Federal Agencies Affect Natural Gas Markets Department of Interior  Bureau of Land Management)  Minerals Management Service  Bureau of Indian Affair  U.S. Geologic Survey Department of Agriculture  U.S. Forest Service Department of Energy  Office of Fossil Energy) Department of Commerce Department of Treasury Environmental Protection Agency Department of Transportation  Office of Pipeline Safety FERC Federal Trade Commission, Canadian FTC (CFTC) 1. Regulatory Policy & Governance Governance of Gas Utilities (Cont’d)

31. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-31 Natural gas provides About 24 percent of the energy used in the US; or about 1/3 of all energy excluding transportation fuels Natural gas utilities operate and maintain more than 1.2 million miles of underground pipes LDCs (Local Distribution Companies) are regulated on multiple levels:  Federal: Environmental regulations (e.g.,emissions, ground water impact, etc.)  State: Local utility rates, certain operations, siting, construction and emissions  Local: Municipal utility rates and operations There is no centralized planning for additional pipeline capacity; need determined by estimates of future gas demand  Pipelines must obtain FERC approval  Must also demonstrate need for capacity and minimize adverse environmental and cultural impacts 1. Regulatory Policy & Governance Governance of Gas Utilities (Cont’d)

32. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-32 The 7 Signs (Cont’d) 2. Economics & Investment Factors having a direct and/or indirect impact on utility financing and/or investments in some or all of the following categories…  Capital Expenditures for goods and services (CapEx)  Utility Business/Market strategy, growth and development  Divestitures, Mergers & Acquisitions (D/M&A)  Operations, Infrastructure & Apparatus  Utility Automation & IT (A/IT) products, systems & services  Facility (physical) and/or data (Cyber) security/integrity  Utility Operations & Maintenance (O&M)  Outsourcing of equipment and/or services

33. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-33 In 1995, transmission investment started down a path of lagging peak demand by an increasing margin coincident with the advancement of deregulation and restructuring. (See chart, following) Why?  Initially - lack of definition of how restructuring would play out; utilities established a wait-and-see posture  Later - mixed signals and a series of fits and starts by FERC caused widespread uncertainty about how or when the final plan would be known and its implications for investment recovery  Now - The August 14th blackout put the entire continent on notice that the congestion problem is here and now 2. Economics & Investment Power Delivery Investments

34. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-34 2. Economics & Investment Transmission Investments 0 500 1,000 1,500 2,000 2,500 1990199119921993199419951996199719981999 Millions (US$1990) 400 420 440 460 480 500 520 540 560 (GigaWatts) Transmission Investment (millions 1990$)System Peak Demand (GigaWatts) PRE- deregulation Era POST- deregulation SOURCE: PA Consulting (Based on UDI Database) PRE- and POST-deregulation Transmission Investment Trends

35. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-35 Energy Trading & Merchant Power Collapse  Fewer merchant power projects thru 2007, but some distributed generation projects for peak-shaving and reliability may proceed Economic Outlook  Economic recovery timeline remains unclear, but municipal markets already seeing a strong rebound in tax base revenue  Return to core business; investments primarily in infrastructure projects with tangible ROI and/or regulatory mandates Financial (ROI) Issues & Expectations  Energy Bill (pending passage in 2004 Congress)  Mandatory Compliance Costs Standard Market Design (SMD) for Electric Utilities Security (NERC 1200) for Electric Utilities Integrity (GASB-34 & Sarbanes-Oxley) Performance-based Regulation (PBR) Environmental regulations (Clean Water Act; Safe Drinking Water, etc.) 2. Economics & Investment Business & Financial Dynamics

36. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-36 The 7 Signs (Cont’d) 3. Technology/Integration/Standardization Technology  Technological Advancements  New Products/Services/Applications Integration  Enterprise  System  Product/Application Standardization  Enterprise  System  Product/Application

37. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-37 Potential business benefits achievable Proximity to core business PC Maintenance Remote Metering Internet Systems Integration SCADA External Application Development Call Center Operation Asset Management SOURCE: DATAMONITOR Impact & Importance of Automation & IT Initiatives Among Utilities Mission-critical 3. Technology/Integration/Standardization Automation & IT Enterprise Position

38. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-38 Proliferation/implementation of standards on all levels  Microsoft Windows Operating System  Linux making inroads at server & embedded O/S levels  Intel PC Hardware Platform Security is the next major technological development area  Implementation of NERC-1200 will be felt across the enterprise starting in 2004 and escalating in 2005 and on  Potential new requirements for standard (and secure) protocols at host & field levels (e.g., AGA-12) New financial asset management and reporting mandates  GASB-34 and Sarbanes-Oxley will gradually change GFAS design, management, operation & documentation to satisfy GASB Method 2 (“Modified Approach”) reporting requirements  Increasing impact on technology, integration and costs 2004-2007 3. Technology/Integration/Standardization GFAS Products, Systems & Services

39. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-39 Outage Management Systems  Increased trend toward PBR and efficiency improvements  Need to modernize/upgrade/replace aging equipment  Desire for common equipment (O&M cost reductions) Work Management Systems & Workforce Management  Still fragmented with many solution sets still evolving  Supplier consolidations will improve standardization efforts long-term Mobile Computing  Falling device costs, BUT still too expensive for some applications; further reductions needed (and expected)  Expect nominal concessions in functionality to reduce costs  More holistic solutions to serve entire enterprise; not just GIS 3. Technology/Integration/Standardization Field Automation Solutions (FAS)

40. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-40 Downsized utilities struggling with…  Reduced staff  Limited time  Constrained resources GFAS solutions must… 1.Be simple & intuitive 2.Employ open standards 3.Have a measurable ROI & solid cost-benefits ratio 4.Require low/no maintenance 5.Be easy to operate and support over full life cycle New Invensys HMI bundles WonderWare’s InTouch® SCADA software with tablet PCs 3. Technology/Integration/Standardization Utility Wants, Needs & Expectations

41. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-41 Microsoft Windows remains the platform of choice for most desktop applications BUTLinux emerging as potential rival to Windows, mainly in server applications, BUT… Recent Linux initiatives (notably by IBM) may trigger a rising tide of Linux in desktop applications Other standards & trends to watch:  OpenGIS  OpenSource* (*See notes below) 3. Technology/Integration/Standardization Standards & Standardization Trends

42. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-42 Direct and indirect impact and effects of increasing awareness and responses to physical (facility) and data (cyber) security threats and data integrity including:  Vulnerability issues and assessments (EPA funded initiatives must be completed by mid-2004 but funding is substantially depleted)  Security regulations and mandates (NERC-1200 policies become significantly more pervasive and add financial penalties in 2005)  Threat mitigation methods and measures require new cost appropriation, justification and budgeting methodologies  Organizational guidance and oversight US Department of Homeland Security FERC NERC  Data integrity and information reporting/compliance issues NERC-1200 GASB-34 Sarbanes-Oxley The 7 Signs (Cont’d) 4. Security & Data Integrity

43. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-43 Global awareness of the need for enhanced or upgraded security software will force utilities to find funds to meet the challenge. 4. Security & Data Integrity Security Expenditures

44. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-44 The 7 Signs (Cont’d) 5. Web & Wireless Solutions Direct and indirect effects and impact of Web and wireless solutions on the GFAS marketplace include:  Browser-based HMIs (Human-Machine Interfaces)  Rising wireless technologies & standards 802.11x (i.e., 802.11b, 802.11g, etc.) Wireless Ethernet Cellular conversion to digital (by 2005) Satellite (VSAT, etc.) Advancing communications deployments  Broadening cellular coverage to include rural areas  Increased bandwidth to support new functionality  Ongoing pervasive expansion of wireless  PLC (Power Line Communications) option still unfolding but problematic RF interference issues will delay progress

45. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-45 The 7 Signs (Cont’d) 6. Enterprise Asset Management (EAM) Increasing utility focus and emphasis on improved management of assets at all levels of the enterprise to enable/be enabled by:  Remote Asset Monitoring  Field Crew (“Workforce”) management  Integrated Work Management Systems (WMS)  Integrated Outage Management Systems (OMS) EAM requires access to information from various levels  Host  Field Data Devices (FDDs)  Other Intelligent Electronic Devices (IEDs) Field Data Devices (FDDs) have especially large amounts of information that is…  Acquired and “invisibly” stored  Acquired and logged but not easily accessible  Accessible but not accessed by anyone  Accessible to the “wrong” people

46. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-46 Emphasis on Remote Asset Monitoring  Infrastructure, Apparatus & Equipment  GASB 34 Compliance*: Mainly affects public (i.e., municipal) utilities  Sarbanes-Oxley Compliance: Applies mainly to IOUs  NERC-1200 Compliance: Applies to ALL electrical load-serving entities by 2005  Present data acquisition methods are inadequate to acquire non- operational data* from substation devices and apparatus Communications networks do not adequately accommodate dramatically escalating volumes of asset data Utilities lack suitable information flows & functions* model to accommodate data acquisition and access issues Rapid growth in OMS, WMS/WFM & Mobile to support EAM  Outage Management Systems  Work (and Workforce) Management Systems  Mobile Computing & Field Force Automation (*See slides with details following) The 7 Signs (Cont’d) 6. Enterprise Asset Management (EAM)

47. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-47 Diagram courtesy of Kreiss Johnson Technologies; San Diego, CA (www.KJT.com) 6. Enterprise Asset Management Non-operational Data Management Smart Object Library Smart Object Library Notification Non-operational Data : Information Flows & Functions Model

48. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-48 *Consolidated Annual Financial Report Modified Approach (Preserving) Assemble CAFR Team Develop/ Update Inventory Determine Approach Ascertain Historical Cost Calculate Upkeep Required Assess Condition Determine Useful Life Depreciate Calculate Maintenance Expenses Publish CAFR Plan Annual CAFR* Work Depreciation Approach Compare GASB-34 COMPLIANCE SCHEDULE TOTAL ANNUAL REVENUESFINANCIAL REPORTING MODELINFRASTRUCTURE REPORTING Greater than $100 millionJune 30, 2002June 30, 2006, retroactive 25 years Between $10 and $99 millionJune 30, 2003June 30, 2007, retroactive 25 years Less than $10 millionJune 20, 2004Prospectively from July 1, 1999 SOURCE: EMA Inc. (www.EMA-Inc.com) Infrastructure Identification and Valuation Cycle (GASB-34) The 7 Signs (Cont’d) 6. Enterprise Asset Management (Cont’d)

49. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-49 The 7 Signs (Cont’d) 7. Customer Care & Satisfaction Direct and indirect impact of increasing emphasis and focus on customers brought about by:  Industry deregulation and restructuring  Utility response to rising demands for improved customer service & satisfaction  Time-of-Use (TOU) Metering  Outage Management/Notification Systems (OMS/ONS)  Trouble Call Management (TCM)  Work/Workforce Management (WMS/WFM) Performance Based Regulation (PBR) will have a marked influence as restructuring moves ahead:  Utilities will depend on PBR scores for rate increases  Consumer pressure increasingly drives automation motives

50. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-50 Security compliance cost appropriation/allocation  Funding sources  Budgeting issues Declines in average selling prices  Material cost reduction vs. labor cost increases  Low- (No-) maintenance preference  Macroeconomic and competitive pressures Simple, intuitive solutions  Little or no training required  Works out-of-the-box  Easy to integrate (employs open standards) Challenges & Opportunities Price-Performance Issues

51. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-51 Funding/Budgeting/Justification Outlook  So far, no apparent blanket legislation planned or in place for funding security mandates by other than rate-based initiatives  Some utilities have been successful in getting PUCs to approve selective spending using critical infrastructure rules, national security considerations (e.g., government & military installations) or similar justification as the basis for funding at the state, regional or local level.  Many speculate that automation/IT budgets will bear the near-term brunt of cyber-security spending, but no tangible evidence yet that any such budget shifting is widespread  Utilities will ultimately have to build security into operating costs and be amortized across the enterprise in all departments at all levels Challenges & Opportunities Security Funding/Budgeting/Justification

52. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-52 Need products with:  Minimum time/labor to install/repair/replace  Little or no ongoing local (jobsite) maintenance requirements  Little or no training requirements  Works out-of-the-box promise (guarantee?) and support Low- (No-) maintenance preference  Utility maintenance staffing is minimal and shrinking  Routine field work now being outsourced  Little or no training required  Works out-of-the-box  Easy to integrate (employs open standards) WinTel (Windows® + Intel®) platform now Linux gaining popularity for servers; embedded FDD applications; less for desktops but some emerging Challenges & Opportunities Holistic, Intuitive Solutions

53. ©2004 InfoNetrix LLC All Rights Reserved Worldwide PART 3: Market Drivers, Issues & Trends 3-53 Security & Financial/Operations Reporting  Major impact on systems integration & implementation costs for utility compliance with: GASB-34 (New reporting standard for public/municipal entities) Sarbanes-Oxley (New reporting standard for SEC entities) NERC-1200 (Critical infrastructure security for wholesale load- serving entities connected to the grid)  “Un-funded Mandates” Utilities face unprecedented operational cost & implementation burdens required by compliance and will increasingly look to suppliers for solutions Suppliers will be challenged with finding ways to incorporate compliance into GFAS, quickly & economically! Challenges & Opportunities Security & Data Integrity