1. Corporate Purchasing UConn Graduate Business Studies Program OPIM 310 May 8, 2008

2. Purchasing’s Role Ensure availability of materials and services for our business clients in support of their strategies and financial objectives Maximize value of transactions and supplier relationships for the benefit of the company Ensure compliance with applicable laws, regulations and company policies Balance customer service with corporate governance responsibilities

3. NU’s Internal Business Environment Regulated transmission, distribution and generation businesses Large multi-year capital construction Program O&M budget constraints Centralized procurement function provides opportunity to create leverage by aggregating spend across business units Our multi-state service territory creates challenges and opportunities

4. Key Market Challenges Significant capital construction by utilities in the US and abroad have resulted in extended manufacturing lead times Raw material (copper, steel, aluminum, oil) prices and lead times have increased significantly in the past 3-4 years due to growing demand Shrinking US supply base/growing dependence on foreign supply

5. Mitigation Strategies Well defined procurement process Internal collaboration early in planning process/commodity plans Strategic sourcing and inventory management Large Project Procurement Process (LP3) Large Procurement Programs Supplier Relationship Management Proactively build our diverse supplier base

6. Procurement Process Requirements for transactions based on dollar value Controls ensure the process is fair to all participants and compliant with laws, regulations and company policies Electronic sourcing tool and records repository Use of Blanket Purchase Orders, Master Service Agreements and “Of Choice” contracts Requirement for competitive bidding Sole source justifications Sourcing Committee Large Project Procurement Process MIMS approvals

7. Strategic Sourcing and Inventory Management Commodity/Strategic Sourcing Plans Alliance/Of Choice Contracts (3-5 years) Aggregation of procurement across operating companies eCatalog Supplier Integrator Project for low value transactions Large Procurement Programs Inventory Management Tools Just in Time Vendor Managed Consignment

8. Large Project Procurement Process (LP3) LP3 was developed to provide a framework for discussion of contract strategy, identification of contract risk, development of risk mitigation strategies, meeting our quality assurance objectives, while supporting the selection of the best evaluated proposal for all contracts in excess of $5M. The LP3 process requires: –Risk Management Council (RMC) review and approval of the RFP, negotiation and contract award is required for all projects or transactions over $5M in value. –Executive Risk Management Council (ERMC) review and approval of the RFP, negotiation and contract award is also required for all projects or transactions over $25M in value.

9. LP3 Process Map Need identified Project Team assembled Contracting Strategy developed Vendor Pre-Qualification Request for Proposal developed Bid List is Finalized RMC/ERMC Review/approval Evaluation Criteria developed RFP is finalized and issued Prebid Meeting Proposals submitted Proposals evaluated RMC/ERMC review approval Contract Negotiations RMC/ERMC approval (as needed) RMC/ERMC Sign Off Contract Award/Execution

10. LP3 vs. RaCC - Roles and Responsibilities IssueRMC (LP3)ERMC (LP3)RaCC Voting MembersProject Manager Purchasing Legal Claims & Insurance Treasury Environmental Internal Audit Senior VP and General Counsel VP Shared Services and Chief Compliance Officer Officer Sponsoring Purchasing Request Senior VP and General Counsel VP Shared Services and Chief Compliance Officer Senior VP and CFO Executive VP Operations Senior VP Enterprise Planning and Development VP HR Chairman, President and CEO (Ex-Officio) Advisory TeamJanus Management Associates Enterprise Risk Management Other executives from key stakeholder departments as needed and may include: –Legal –Treasury –Insurance –Environmental Janus Management Associates Enterprise Risk Management Director of ERM and BURCs VP Accounting and Controller VP and Treasurer VP Regulatory and Governmental Forms Director Internal Audit Assistant General Counsel Executive Director of Business Financial Services CharterFor projects valued at $5million or more, RMC approval is required prior to RFP, negotiations and contract award For projects valued at $25 million or more, ERMC approval is required prior to RFP, negotiations and contract award Responsible for ensuring that NU is prudently managing its principal enterprise risks Review capital programs and projects exceeding $10M and make recommendations to the CEO for approval Scheduled Meetings As required Monthly or more frequently if required Other Reviews undertaken in accordance with the CaPP Formal minutes are taken at each RaCC meeting Projects exceeding $50M must be reviewed with the Board of Trustees prior to final approval

11. LP3/RaCC Link Northeast Utilities System Purchasing Policy Manual 13.3 LARGE PROJECT PROCUREMENT PROCESS 13.3.1 Procurements valued at $5,000,000 or more (generally excluding Blanket Purchase Orders based on estimated annual usage) related to projects shall be subject to the Large Project Procurement Process (“LP3”). If the procurement exceeds $25,000,000, in addition to the RMC review, an Executive Risk Management Council (ERMC) review is required. 13.3.2 Risk and Capital Committee (RaCC) review and NU Chief Executive Officer (CEO) approval shall be confirmed by the Director – Purchasing prior to approval of Purchase Orders associated with existing projects or transactions valued at $10,000,000 or more. In the absence of such review and approval, the Director-Purchasing shall confer with the Director – Enterprise Risk Management or the Chief Financial Officer prior to approving the Purchase Order.

12. Supplier Relationship Management Increasingly important in current business environment (high demand for utility construction and equipment, long lead times and price volatility) “Customer of Choice” approach with critical suppliers ensures they’ll be there when we need them based on mutually beneficial relationship (cooperation and collaboration during business planning process/product or service innovation/problem solving) Balance the need for reliable alternate source(s) in appropriate circumstances Develop and maintain supplier evaluation database for use in managing supplier relationships and in evaluating future proposals

13. NU is a Community Leader in Supplier Diversity Awarded Corporation of the Year 2006 and Advocate of the Year 2006 by the CMSDC Prime Vendor Fair 2006 and 2007 Supplier diversity program assistance to Yale University and the Metropolitan District Commission Construction Expo 2007 Green Procurement Expo 2007 Business LINC mentor

14. Key Objectives for 2008-2009 Strengthen collaborative relationships with internal business clients to ensure that we develop robust and effective commodity plans/strategic sourcing plans Maximize the use of available technology to achieve process efficiencies Formalize Supplier Relations Program to ensure we remain a “Customer of Choice” of our critical suppliers

15. Questions?