1. Future Shock: What Did Restructuring Uncover? What Will the Next Industry Upheaval Bring? April 12 th, 2005 Presented by Eric P. Cody

2. Has utility restructuring failed? Has utility restructuring failed? What changes have been wrought? What changes have been wrought? What lessons learned? What lessons learned? Are metering and billing safe now? Are metering and billing safe now? What about utilities that didn’t have to run the gauntlet? What about utilities that didn’t have to run the gauntlet? Who won? Who won? Who’s going to prison? Who’s going to prison? What’s next? What’s next? Questions to be Answered

3. Lessons from Preparing-for-Competition You never run half as hard as when someone is chasing you You never run half as hard as when someone is chasing you Customers want choices, not necessarily Choice Customers want choices, not necessarily Choice Regulators must regulate Regulators must regulate Competition introduces new concepts and dynamics Competition introduces new concepts and dynamics Differentiation ≠ discrimination Differentiation ≠ discrimination Metering is not easily unbundled Metering is not easily unbundled

4. Central Theme The process of preparing for retail competition yielded important insights into how individual utilities perform their core customer functions, and what they cost. …however, few utilities have capitalized on this deeper understanding of retail operations.

5. Through the Looking Glass Restructuring legislation Restructuring legislation Commission action to deregulate Commission action to deregulate Develop restructuring plan Develop restructuring plan Prepare unbundled cost-of-service Revalue assets in market setting Comply with affiliate standards of conduct Comply with affiliate standards of conduct Divest assets Develop unbundled bills Develop unbundled rates Estimate fixed vs. avoidable costs Estimate strandable costs Transfer assets Maintain assets Retail competition Wholesale competition File for stranded cost recovery File backout credits

6. Where Utilities Looked More frequently— Strandable assets Strandable assets Overall cost structure and kWh cost Overall cost structure and kWh cost Unbundled costs Unbundled costs Less frequently— Customer preferences Customer preferences Employee adaptability Employee adaptability Alternative sources for non-strategic work Alternative sources for non-strategic work

7. Regulated Monopoly Regulated Monopoly Regulated Monopoly Regulated Monopoly Regulated Monopoly Regulated Monopoly Competitive Energy Supply Competitive Energy Supply Re-regulated Utilities Re-regulated Utilities Competitive Energy Supply Competitive Energy Supply Competitive Energy Supply Competitive Energy Supply Regulated Monopoly Regulated Monopoly Partially Unbundled Utilities Partially Unbundled Utilities “Virtual Choice” “Virtual Choice” Pre-1998 1998-20012001-20032003  Structural Divergence

8. Load Supplied Competitively (% Total Electric Load Served Competitively) Note: Data not reported on a consistent basis and therefore not directly comparable between jurisdictions; estimation required

9. Distinct Markets Exist Major commercial and industrial customers Mid-market commercial and industrial customers Mass market of residential and small business customers

10. Current Utility Model Clusters Full retail separation AB, AUS, TX, UK AB, AUS, TX, UK Customer base transferred to affiliate Regulated wires company delivers energy Retail providers issue a consolidated bill Customer base transferred to affiliate Regulated wires company delivers energy Retail providers issue a consolidated bill Unbundled operations Cooperatives, municipals Focus is on distribution and retail services Generation supply is contracted, mainly long term Customers not enabled to choose retail supplier Focus is on distribution and retail services Generation supply is contracted, mainly long term Customers not enabled to choose retail supplier Competitive generation supply MA, ME, NJ, NY, OH, PA MA, ME, NJ, NY, OH, PA Generation separated and subject to competition Incumbent delivery companies act as providers of last resort Billing, metering & customer care remain bundled utility services Generation separated and subject to competition Incumbent delivery companies act as providers of last resort Billing, metering & customer care remain bundled utility services Non-residential choice with portfolio of options for small customers OR Non-residential customers may switch retail suppliers Residential customers may choose from regulated portfolio Small business customers may choose portfolio options or switch retail suppliers Non-residential customers may switch retail suppliers Residential customers may choose from regulated portfolio Small business customers may choose portfolio options or switch retail suppliers Market/regulatory model Represented by Model characteristics Vertically integrated Most U.S. states Utility maintains assets in G,T, and D Customers not enabled to choose retail supplier Majority of load requirements supplied by rate based units Wholesale competition increasingly used to supply load growth Utility maintains assets in G,T, and D Customers not enabled to choose retail supplier Majority of load requirements supplied by rate based units Wholesale competition increasingly used to supply load growth Restructured models Established models

11. 11 Percentage of Residential Customers Served Competitively Full Retail Separation Direct Customer Assignment Competitive Generation Supply Regulated Portfolio Choices 2003 data; underlying figure originally prepared by Plexus Research for MA Division of Energy Resources 100%

12. Unmet Restructuring Expectations Markets have defied ‘regulatory prescription’ Markets have defied ‘regulatory prescription’ Distinct sub-markets have emerged with divergent requirements Distinct sub-markets have emerged with divergent requirements Residential customers mostly left out in the cold Residential customers mostly left out in the cold One model does not fit all utilities One model does not fit all utilities Metering competitive in only a few markets Metering competitive in only a few markets IT systems subject to lingering uncertainty IT systems subject to lingering uncertainty Electricity prices have not fallen Electricity prices have not fallen

13. 1998 Expectations Re: Metering Interval meters on large customers for settlement purposes Interval meters on large customers for settlement purposes Universal interval metering was a distinct possibility Universal interval metering was a distinct possibility Daily remote interrogation Daily remote interrogation Enhanced metering to take advantage of innovative pricing Enhanced metering to take advantage of innovative pricing Metering services would become competitive in some states Metering services would become competitive in some states New metering standards would emerge New metering standards would emerge

14. ‘Then’ and ‘Now’ Perspectives: Metering Requirements Meter reading frequency frequency MeteringinformationgranularityMeteringinformationgranularity AMR technology architecture architecture Ownership of metering function Ownership of metering function Daily or on-demand on-demand Hourly interval data Universal interval metering via fixed network Unbundled metering; subject to competition All customers Residential & small business Large commercial & industrial MonthlyMonthly Cumulative energy usage Mobile radio; drive-by Bundled metering Daily, hourly or on-demand on-demand Hourly interval data Wireless network or power line carrier Unbundled or enhanced metering services per tariff 1998 Looking Forward 2005 Looking Backward Metering Requirements Customer class

15. Why is Metering Hard to Unbundle? Physical assets widely dispersed Physical assets widely dispersed Integrated into electrical system Integrated into electrical system Economies of scale apply Economies of scale apply Lack of practical know-how outside utilities Lack of practical know-how outside utilities Metering communications infrastructure begs for single, centralized operator Metering communications infrastructure begs for single, centralized operator Critical issues  safety, reliability, regulation Critical issues  safety, reliability, regulation

16. Billing & Payment Transformation Bill printed & Mailed monthly, on cycle Bill printed & Mailed monthly, on cycle Outsourced bill print & distribution Outsourced bill print & distribution On-line, electronic bill presentment On-line, electronic bill presentment Bill Presentment On-line, electronic payment via third party On-line, electronic payment via third party On-line or telephone payment by credit card On-line or telephone payment by credit card Pre-approved bank account debit Pre-approved bank account debit Check by mail Walk-in payment Bill Payment Processing Outsourced payment processing (EFT) Outsourced payment processing (EFT) Outsourced remittance processing Outsourced remittance processing In-house remittance processing In-house remittance processing Credit & Collections Assured payment (pre-authorized EFT options) Assured payment (pre-authorized EFT options) Outsourced collections Outsourced collections In-house collections In-house collections Termination for Non-payment Remote disconnect & reconnect Remote disconnect & reconnect Instant on-site authorization of credit card payment during disconnect visit Instant on-site authorization of credit card payment during disconnect visit Multiple site visits to disconnect and reconnect meter Multiple site visits to disconnect and reconnect meter Transformed Practices Traditional Outsourced Electronic

17. Developments in Call Management Centralize Call Center operations Centralize Call Center operations Create virtual Call Centers Create virtual Call Centers Continuously monitor customer satisfaction Continuously monitor customer satisfaction Consolidate & Centralize Apply graphical user interface to CIS screens Apply graphical user interface to CIS screens Track & analyze call patterns Track & analyze call patterns Implement interactive voice response (IVR) Implement interactive voice response (IVR) Link AMR system to enable instant meter reads on request Link AMR system to enable instant meter reads on request Leverage Existing Assets Enhance Responsiveness Cost Productivity Loyalty Extend hours of Call Center operation to 24x7 Extend hours of Call Center operation to 24x7

18. Portability of Function Retail Services Differentiated Strategic Value of FunctionCompetitiveMarketOperations RegulatedUtilityOperations Continuing Pressures to Unbundle OutsourcedCommodityServices Small Customer Billing Small Customer Billing Major Customer Billing Major Customer Billing Small Customer Metering Services Small Customer Metering Services Major Customer Metering Services Major Customer Metering Services Major Customer Information Services Major Customer Information Services Small Customer Information Services Small Customer Information Services Customer Payment Processing Customer Payment Processing Call Handling Call Handling

19. Due Diligence – Retail Services Operational Criteria Retail Service Activities

20. Retail Due Diligence How portable is the function? How portable is the function? Have automation possibilities been exhausted? Have automation possibilities been exhausted? Is the function strategic to the utility? Is the function strategic to the utility? Can it be outsourced without fanfare? Can it be outsourced without fanfare? What synergies/economies are uniquely available to an outsourcer? What synergies/economies are uniquely available to an outsourcer? What utility IT system upgrades can be avoided by outsourcing? What utility IT system upgrades can be avoided by outsourcing? What fixed and variable costs are associated with the function? What fixed and variable costs are associated with the function?

21. Continuously profitable for 30 years Continuously profitable for 30 years Started a revolution; new paradigm Started a revolution; new paradigm Transformed customer operations Transformed customer operations Radically simplified business processes Radically simplified business processes Redefined external business relationships Redefined external business relationships Pervasively lower cost Pervasively lower cost Inspired and innovative employees Inspired and innovative employees Food for Thought: Southwest Airlines

22. Contact Information Eric P. Cody Cody Energy Group 629 Massachusetts Avenue Boxborough, MA 01719 (978) 264-9839 CodyEnergy@net1plus.com