EEI Energy Efficiency Initiative Eric Ackerman ( Senior Manager, Regulatory Policy April 23, 2007

Overview n Why – Do we need to aggressively increase energy efficiency in the electric sector? n What – Does the EEI Energy Efficiency Initiative aim to do? n How – Do we aim to do it, what are our strategies?

EEI Efficiency Initiative – The Case for Action n Rates Are Increasing: Our Customers Need Help n Evolving Customer Requirements: We Can Be Ready n Wholesale/Retail Competition: Reduce Risks Through Demand Response and Innovative Rate Design n Environmental Issues: An Opportunity To Reduce Emissions n Evolving Technology: New Developments Will Change the Business n EPAct and PURPA Requirements: An Opportunity for State Action

EEI Energy Efficiency Initiative (Con’t) n Approved by EEI Board, September 2006 n Five component strategies, five teams: 1.Innovative Rate Designs & Regulation 2.Advanced Metering and Infrastructure 3.Smart and Efficient Buildings 4.Smart and Efficiency Appliances 5.Plug In Hybrid Electric Vehicles

Innovative Rate Designs & Regulation n Goal Implement innovative rate designs and regulatory structures that support energy efficiency as a viable business compatible with and attractive to the electric industry and its customers n Strategy Develop innovative rate designs, regulatory and business models to support energy efficiency and demand response programs Outreach to state regulatory commissions and other stakeholder groups to gain acceptance of EEI’s innovative rate designs, regulatory and business models that support energy efficiency and demand response programs

Advanced Metering and Infrastructure n Goal Increase the penetration of cost-effective AMI with effective communications capability that will support innovative rate designs, energy efficiency and demand response programs Secure legislative and regulatory policies that will reduce investment risk associated with investments in advanced metering n Strategy Develop proposed regulatory and legislative policies that will reduce metering investment risk Outreach to state regulators to gain acceptance and implementation of required regulatory changes Advocate federal & state incentives to support financial viability of metering investment Coordinate with vendors to guide the development of cost-effective AMI

Advanced Metering and Infrastructure n Goal Increase the penetration of cost-effective Advanced Metering and Infrastructure (AMI) with effective communications capability that will support innovative rate designs, energy efficiency and demand response programs Secure legislative and regulatory policies that will reduce investment risk associated with investments in advanced metering n Strategy Develop proposed regulatory and legislative policies that will reduce metering investment risk Outreach to state regulators to gain acceptance and implementation of required regulatory changes Advocate federal & state incentives to support financial viability of metering investment Coordinate with vendors to guide the development of cost-effective AMI

Smart and Efficient Buildings n Goal Improve the efficiency and responsiveness of new and existing buildings by working with end-use customers, trade allies, and government agencies n Strategy Have states adopt 2006/2007 building efficiency codes Extend, expand, and simplify federal (and state) tax incentives Raise public awareness of EEI member company programs that help improve the efficiency of residential and commercial customer buildings

Smart and Efficient Appliances n Goal Increase the market share of smart, efficient, and cost-effective appliances that are accessible and affordable for customers n Strategy Build coalitions to support consensus-based national appliance efficiency standards Extend and expand federal (and state) appliance efficiency tax incentives Raise public awareness of EEI member company programs that help improve the efficiency and responsiveness of residential and commercial equipment

Plug In Hybrid Electric Vehicles n Goal Increase awareness, visibility and viability of Plug In Hybrid Electric Vehicles (PHEV) in advance of a successful launch of a vehicle by 2010 n Strategy Implement incentives (Legislative and Regulatory) Outreach to key stakeholders (auto manufactures, environmental advocacy groups) Initiate communications initiative (PR, Education)

Rate Designs n We need to move toward more efficient rate designs: Greater use of time-differentiated designs to reflect the true cost of generation (e.g., time-of-use, critical peak pricing) Greater choice among options that let customers trade off stability vs. cost minimization

Price vs. Risk Profile Risk to Buyer Expected Price to Buyer RTP-DA FPA & RTP w/ Adjustable CBL RTP w/ PPP RTP-HA PLL Rates TOU Rates Variability Source: Jon Kubler, GA Power Co.

Advanced Metering Infrastructure n Critical support to demand-response: Sends time-differentiated price signals Records time-differentiated consumption (interval metering) n Many other operational cost savings and reliability improvements that benefit customers n The issue is careful business case development to ensure that benefits justify costs Treatment of legacy meters can tip the decision Accelerated depreciation of new meters also is appropriate and will improve business case

Possible Business Models n Conventional regulatory incentives Rate basing Shared savings n Performance-based models Revenue caps n Market-based models Customer infrastructure models Fee-for-service models n Green power models Rate basing Fee for services Renewable / carbon credits models

Enabling Regulatory Policies n DSM cost trackers n Decoupling mechanisms n Measuring and sharing benefits n Rate basing n Performance based regulatory authority, plan designs n Premium services policy n Cost/revenue separations mechanisms n Affiliate codes of conduct

Conclusions 1. The need for increased efficiency is urgent. 2. Multiple policies are needed: a.Efficient rates b.Advanced metering infrastructure (where cost-effective) c.New business models d.Enabling regulatory policies. 3. No one model will work for every utility / service territory. 4. Criteria for sustainable businesses: a.Timely recovery of DSM program costs b.Keeping whole for fixed costs c.Ability to make a margin.