MEC: Customer Profitability Models Topic DSM – DR, Advanced EE and Dispatch Ability Jesse Langston, OG&E Oct 20 th 2013

Situation Current State Current EE programs focus on customer savings and cost recovery, but not earnings Metrics for Regulatory commissions focuses on energy reductions rather than demand reductions Utilities investing in a significant level of technology but may not be taking full advantage Smart Meters / Dumb Rates Smarter demand side options How can we build profitable model business models in this dynamic environment? How do we balance the needs for cost recovery and also innovate? MEC Questions

OG&E Shifting Emphasis from EE to DR Programs Serves 800,000 customers in Oklahoma and Arkansas. Demand Response –80,000 Customer –Dynamic Pricing –No Direct Load Control –Smart Grid Integrated Energy Efficiency Programs –Lost Revenue & Incentives Other –RTP, GFB, Wind and Rate tamer

4 DR overall value to customer is high and behavior is predictable (Future dispatchable program?) 2012 and 2013 OG&E Smart-hours program results

5 When given the option, 73% of customers would choose according to their personal preferences vs. standard tariffs 2013 OG&E conjoint study

Traditional Efficiency Programs Capital Investment Demand Response Programs Below the Line Investments 3 rd Party Partnership Today Tomorrow Next Gen ROI & Risk MEC Question: How can we build profitable model business models in this dynamic environment?

Traditional Efficiency Programs Capital Investment Demand Response Programs Below the Line Component Customer Programs Partnership Venture Programs (regional and national) Home Energy Efficiency Commercial Standard Offer Smarthours Thermostat Price Response Smart Grid Integrated LED Lighting Guaranteed Flat Bill Solar PV installation Community Renewable with Price Guarantee Smart Grid as a Utility Service Smart Grid Integrated LED Lighting High Efficiency Lighting Integrated Volt Var Control Implemented programs Programs under development YesterdayToday Tomorrow ROI & Risk OG&E Product and Service Evolution

MEC Question: How do we balance the needs for cost recovery and also innovate? Program Category Program Example Annual Investment Investment Type Regulatory Treatment Per Participant Benefit Non Participant Impact Net Program Contribution to Net income Income Contribution Source Range of Return Uncertainty Traditional DSM Weatherization$5.6MM Contractor Services Program Cost Recovery; Lost Margin Recovery; Performance Incentive 2752 KwH savings; $1979 rebate 6.8 Million Kwh 1.23 TRC $75K Program Incentive Very Low Capital Investment Demand Response Smarthours (Thermostats with Price response) $14.4MM Capital for Thermostats and Installation Program Cost Recovery; Lost Margin Recovery; Return on Invested Capital $200 annual bill savings 53MW from system peak 1.18 TRC $1.1MM Return of invested capital Low Below the Line Customer Programs Guaranteed Flat Bill $212K Marketing Promotion and Administration Customers rebilled on standard rate; Shareholders take risk on difference Price security of fixed bill NA$2.0MM Risk adjustment to bill High Partnership Venture Programs Smart Grid as a Service (Municipal Utility) $1.8MM Additional Network Facilities Permission to use utility regulated assets Reduced operational benefits $8.7MM NPV Reduced network cost for OG&E customers $650 NPV $250KService FeesModerate

9 The “Secret Sauce” is having a product plan continuum that meets broad customer needs Smart Grid Enhanced *

10 Keys for success Ability to effectively market and offer strong customer value Requires effective regulatory strategy Ability to evolve as technology improves Flexibility to improve business models and market approach