An Energy Product Breakthrough! Bob Hughes Manager, Product Marketing Georgia Power Company FlatBill for the Energy Industry

Residential and Small Commercial Customer Concerns  Some customers want to know exactly how much they will be paying for utilities – No Surprises!  They want a totally flat bill with no possible bump or additional, after-the-fact charge when costs are higher than had been expected as found with Budget Billing  Many customers dislike their bills for energy subject to the weather  They are better able to manage their energy bills if the bills are spread equally over the year rather than spiking in certain months

FlatBill: A Classic Win-Win Product on the Verge of Market Prominence  FlatBill is an exciting and remarkable pricing innovation!  Customer is offered a Flat price for an entire billing period regardless of underlying costs and usage changes  Conceived through market research directed at mass markets  Will capture a large market share AND  Provides a healthy return to the provider!

Program Design Target Customers  Residential/small commercial  At least one year history  Good credit but may be ideal for bad credit

Electric Utilities Commission Approval Status Map Permanent FlatBill Tariff Pilot FlatBill Tariff Without FlatBill

Electric Utilities Offering Flat Bill  Permanently approved tariffs  Georgia Power  Duke Power  Progress Energy (NC, SC)  Gulf Power Company  Indianapolis Power & Light  Pilots  Jacksonville Electric Authority  Oklahoma Gas & Electric  Alabama Power Company  Pending approval or roll-out  Savannah Electric  East Kentucky Power Cooperative  Public Service of Indiana  Electric Power Board of Chattanooga

Why Should Utilities Offer FlatBill?  Marketing and financial product catalyst  Customer satisfaction  High retention  Open access Customer Satisfaction Customer Choice 95% of those surveyed said Flat Bill met/exceeded expectations 71% of those surveyed said they are very “likely” to renew; 1% “unlikely”; actual renewals > 90%

Why Offer Flat Bill? Customer Satisfaction Results  Favorable public reaction (Ex. In Georgia received favorable press in local newspaper, AP Press, Local Radio/TV, Paul Harvey newscast)  Reduction to deferred payments  10%+ market penetration rate for residential customers  Enrollment rates vary based on customer segment and profile

Why Should Utilities Offer Flat Bill?  Earnings  + $1.3m EBIT per every 25,000  Pricing product portfolio fit  Penetration 7-15% for residential; 5% for commercial  Growth  Primarily off peak

Why Should Utilities Offer Flat Bill?  Addresses some regulatory concern  Creates bill simplicity by bundling components  Complaints due to unexpectedly high bills  Flat billing products approved by regulators in at least 10 states  Catalyst for product innovations in the mass market

What to Expect from FlatBill?  Healthy growth mostly off-peak  High customer satisfaction and renewal  Reduced deferral payments and bad debt  Good penetration rates with attractive premiums  Strong interest from budget pay customers  Manageable risks  Natural hedge

Flat Bill Data Management Actual Usage OFFERS Analysis & Design* Weather Pricing Parameters Customer Care and Marketing CUSTOMERS Accounting and Risk Mgmt Agents Pricing Department Historical Usage Billing System and Data Bases Tracking Software Inputs/Outputs Systems Offer Software Reports *Christensen Associations **Direct Options * * * *

Flat Bill Issues  Accounting  Above or below  Regulatory approval/Conservation  Volatility of Fuel Cost  Program Resource Needs  Target Marketing  Renewals  Segmentation  Tracking software  Reporting

FlatBill Issues  Pilot or permanent initial rollout  Financial impacts  Product design –Bill algorithm and software Risk coverage and premium –Tariff design Eligibility Pro-rate Force majeure Early termination Meter route changes Budget billing History and credit

FlatBill  Separating Fact from Fiction!!

The Georgia Power FlatBill™ Experience  Pilot programs: residential, small commercial  500 customers –  10,000 customers –  Permanent program – present  130,000 customers approx. in population of 1.3 million  Renewal rates: very high  Issues:  Measurement of response  Treatment of rapid-growth customers  Pricing strategy (segmentation needed?)

Unfounded Risk Perceptions  System Capacity Will Suffer  Customers Won’t Buy It  Unmanageable Risk  Regulators Won’t Approve It

System Capacity Doesn’t Suffer  There is an increase in energy and demand consumption  Occurred during off-peak times  Program accurately measures participant’s change in behavior  Change in demand is quantified and factored into following year’s pricing  Efficiency rewarded with a lower offer  Program materials encourage energy efficiency

Customers Buy It  Customers value predictability and are willing to pay a premium to get it  Appeals to identifiable customer segments  Can be modified to extend reach into incremental segments  Results have exceeded clients’ expectations

The Risk Reality  Program not designed to “win” every year  Earn a given return over multiple years  Product not for every customer  GPC exceeded goals in 2001, 2002 and 2003 and 2004  Need remains for a Budget Billing (EPP) product

Regulators Do Approve  Shift risk away from customers to utility  Reduces customer complaints to commission  Gives customer the opportunity to say, “No”  At least seven states have granted approval

Offer Development  KISS – Keep It Simple & Sweet  Focus on customer benefits  Vary Terms & Conditions of offer to meet needs of the market segment  Facilitate customer understanding  Provide meaningful comparisons  Make it easy to say “Yes”

Market Segmentation  Various target audiences  Customer segments are “offer sensitive”  Product supports various offers and pricing/payment options  Propensity model assists in segmentation

Creative Materials Tested a range of formats and messages  #10 Personalized Mailing  Follow-up “Deadline” Mailer  Enrollment Confirmation Package  Avoid jargon, caveats and “commission” language  Allow customer to make informed decision

25 Bill Volatility Extreme Weather Bad Credit Seasonal Effects Developer Packages Conservation Package Multi-year Apartment Packages “Green” Package Prepay w/Discount Prepay “Phone card” Limits Plus Banded Flat Bill Standard Flat Bill Flat Bill Family