Beyond The Mandates Does Green Pave The Way Delivering Energy Services Mapping Pathways To Recovery Marketing Executives’ Conference San Antonio, TX October 18, 2009 Mapping Pathways To Recovery Marketing Executives’ Conference San Antonio, TX October 18, 2009 Presented by Thomas Philbin, CEO NXEGEN LLC

INTRODUCTION Delivering Energy Services 1.What Are The Services: Scope & Delivery Model 2.Traditional ESCO Services 3.New “Smart Meter” Service 4. Utilities vs Third Parties: Advantages & Disadvantages 5. Observations And Conclusions

Delivering Energy Services  Goal: Save Energy by Cutting Consumption Sectors: Residential/Industrial/Commercial Measures: Lighting/HVAC/Refrigeration/ Process Improvements/etc. Incentives: Rebates/Incentives in proportion to savings/ Financing Assistance/kW vs kWh/ What Are The Services: Scope & Delivery Model Traditional ESCO Services What Are The Services: Scope & Delivery Model Traditional ESCO Services

Delivering Energy Services  Millions Of “Smart Meters” Being Installed  A Deluge Of Information Will Be Generated (One Minute Measurements in Real Time)  How Much Of The Purported Benefit Is Hype  Can This Data Be Used To The Benefit Of Customers And Utilities? New “Smart Meter” Services

CUSTOMER BENEFITS  Energy Savings: Peak Reduction, Load Startup Scheduling  Consumption control/reduction e.g Light Dimming  Monitoring & Verification re. Performance Contracts  TOU Cost Avoidance Actions  Aggregation For Supply Bids  Alarm Of Approach To New Peak Demand  Budgeting Delivering Energy Services Smart Meter Services

CUSTOMER BENEFITS (Cont.)  Demand Response Revenue  Building Automation System Optimization  Sub-Metering In Multi Unit Complexes  Load Analysis-Breakdown of usage by area or use  Relating Energy Consumption To Manufacturing Process Steps Delivering Energy Services Smart Meter Services

CUSTOMER BENEFITS (Cont.)  Bill Analysis and Verification  Comparison of Monitoring Results With Utility Bills  Power Quality Monitoring  Automatic Updating Of EPA Portfolio Manager  Automation Of Load Shedding For ISO Delivering Energy Services Smart Meter Services

Delivering Energy Services  Enormous Cost  Many Utilities Have Just Finished AMR  Hardware Is Not Yet Up To The Task  Software needs To Be Developed  Most Situations Will Fail Cost/Benefit Test  Benefits Are Not Yet Clear New “Smart Meter” Services Downsides

Delivering Energy Services WHO SHOULD BE Delivering Energy Services Utility or Third Party ESCO

Delivering Energy Services The Utility As Energy Service Provider Pros: - The Utility Has: - A LT Relationship With The Customer - Deep Pockets & Stable Over Long Term - Can Provide Benefits Of Large Integrated Organization Cons: - High Overhead - Management Swings In Commitment - Finds It Hard To Understand Market Swings - Subject To Complaints Of Unfair Competition

Delivering Energy Services The ESCO As Energy Service Provider Pros: - The Independent ESCO Has: - Ability To Respond Faster – Low Overhead - Higher Level Staff With Multi-Disciplinary Skills - Ability To Sell Services Over Broader Geographic Area - Ability To Specialize And Adapt to Market Changes Cons: - Less Able To Weather Economic Swings - Frequent Management Changes - Hard To Keep Technical Staff Over Long Periods - Unethical Companies

Delivering Energy Services 1.In The Northeast, Utilities And ESCO’S Cooperate To Various Degrees To Deliver Energy Services 2.Local ESCO’S Are Dependent On This Relationship For Their Survival 3.National ESCO’S With Diverse Service Portfolios And Geographic Coverage Are Less Dependent 4.Only A Small Number Of The Approximate Thirty Utility ESCO’S Of The 90’s Are Still In The Market 5.Utility ESCO’S Tend To Under Appreciate The Problem Of Generating Consistent Revenues Observations

Delivering Energy Services 8. Utility OH Structures Make The Typical ESCO Non-Competitive 7. Most Of The Successful Utility Related ESCO’S Acquired An Independent ESCO As A Market Entry Vehicle 8. ESCO’S Will Almost Never Over Time Be Able To Match The Regulated Return Of A Utility 9. ESCO’S Will Almost Never Be A Major Contributor To Utility Revenues And Profits Observations (Cont.)

Delivering Energy Services Conclusions 1.Programs That Have Utilities Working In Partnership With ESCO’S Tend To Do Better Than When They Compete 2.Programs Run By Utilities Who Have Appropriate Expertise On Staff Tend To Be The Most Successful 3.Utilities With ESCO’S Need To Maintain An Arm’s Length Relationship And Treat Them Like Any Other ESCO.

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