© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 1 Smart Grid Utility Challenges and Telecomm Opportunities Rick Geiger Executive Director, Utilities & Smart Grid

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 2

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 3 Service Providers and Electric Utilities  Business Model: CAPEX vs OPEX Not an issue for Munis & Co-ops  Business Drivers – Voice & Data vs 120VAC  SLAs  Disaster Recovery  My customers - Who’s your retailer? Not an issue for Munis & Co-ops  Technology Horizons

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 4 Coverage – Always a Challenge

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 5 Cooperatives

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 6 Cooperatives  Are located in 80% of the nation’s counties  Are the largest electric utility network in the nation  Total more than 930 local systems in 47 states  Have 40 million member-owners  Distribute power over 2.4 million miles of line  Own $112 billion in generation, transmission, and distribution assets Source: NRECA

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 7 Public Power  Located in 49 of 50 States  2010 Community Owned Electric Utilities  Serving 45 million people  14% of US Electric Power Source: APPA

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 8 US Electricity Industry Statistics Number of Electricity Providers % of Total Publicly Owned Utilities2, % Investor Owned Utilities2126.5% Cooperatives % Federal Power Agencies90.3% Power Marketers1534.7% Source: Energy Information Administration

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 9  Flexible tariffs cause changing demand patterns  More complex to predict  Climate change and energy efficiency goals  Standards and interoperability  Network security and reliability  Stimulus packages  Additional sales volume by electric plug-in vehicles  Economically store electricity Innovation and regulation drive change in the utility industry  Unpredictable renewable supply sources  Distributed generation sources feeding into unmonitored grid areas Changing Supply: Renewable Generation Changing Demand Patterns Regulation/ Compliance New Opportunities Change Drivers

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 10 Smart Grid: Transformation of an Industry Distribution (Local Utility) Network Control Center Power Generation Transmission (Utility) Network Control Center Federated Data Centers EnergyInformation Industrial Customer Commercial Customer Residential Customer Distributed Generation Sources

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 11 Utilities are challenged with a more complex operating environment  Intransparent build-up (geography & scale)  Significant increase in offtake  Integration of new applications Change Challenges Capacity Commu- nication Capabi- lities  Timing of feedin  Moving load  Increased information requirements  Management of increased stochastic generation  Potential for storage & feedin  Technical specs defined outside utility industry  Competition for ownership of innovative efficiency solutions Distributed GenerationEV & StorageEnergy Management Smart Grid Challenges

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 12 Utilities will respond along three dimensions in building the Smart Grid DimensionsRequirementsRationale SG Building Blocks Readiness Capacity Infrastructure Layer Commu- nication ICT Layer Capabilities Applications Layer  Adequate capacity  Transition from distribution focused to contribution capable  Today’s consumption supplied though no demand shifts included  Physical infrastruc- ture to accommodate complex load flows  Basic system status  Creation of an information rich and potentially real time operating environment  Current system highly reliable in “look and see” mode  Increased levels of uncertainty around system behavior  Electricity delivery  Integration of new infrastructure elements  Substitution of phy- sical with virtual capacity  Stable environment with limited need for short term action  Increased system stress through erratic offtake / feed-in ( ) Available todayNot available today Smart Grid Building Blocks

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 13 Business and regulatory requirements open new business opportuntities Infrastructure Layer ICT Layer Applications Layer Supply SideDemand SideGrid Operation Energy Storage “Near-Time” Pricing Self-Healing Grid Micro Grids System Engineering Visualization & Prediction Load Mgt. & Balancing Advanced Grid Sens. & Contr. Demand Response SG Building Blocks Smart Grid business opportunties for SPs Smart Grid Opportunities Substation Automation V2G Narrow- / Broadband Enablement Data Integrity Management Smart Meter Building/Home Energy Mgmt Web Services Business Energy Mgt. DG Integration Work Force Mgt. Comms for Vehicles by 2020 Residential smart meters Comms for new installations Energy Management Source: Booz & Company, Newton Energy Research, ABS Energy Research Comms C&I smart meters Application hosting Network of substations Plan, design, operate Top Utilities: We can do it better than SPs

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 14 Strategic and architectural challenges: Will Utility/SP infrastructures converge? Market Expectation  Utilities rolling-out Smart Metering  Strong regulatory and public pressue to deliver energy efficiency solutions  SP / Challenger under pressure to enable mass market broadband connectivity Competition Smart Grid as a hosted service  Utility and SP under pressure by declining retail margins  Renaissance of home automation services fueled by energy efficiency solutions (and renewable integration)  Utility and SP independently fighting for retail customer ownership How to develop a communication infrastructure meeting the requirements of an integrated though unbundled utility value chain? Could convergence of utility and SP networks enhance a joint value proposition? What are the regulatory and legal implications?

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 15 Way Forward: Developing the Vision for the converged infrastructure network  Develop a converged network position –Outline an end-to-end Smart Grid solution –Win-win value proposition and business models  Explore utility industry readiness  Consider a cross-industry Smart Grid initiative

© 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential T-Systems International Smart Grid 16