1. NASHVILLE ELECTRIC SERVICE | Association for Financial Professionals March 2012

2. NASHVILLE ELECTRIC SERVICE | Introduction Overview of NES Compliance/Regulation Summary Electric Vehicles Electric Rates Smart Grid Funding of Underground Utilities

3. NASHVILLE ELECTRIC SERVICE | Overview of NES NES is the 12 th largest public power electric distributor in the United States. Approximately 360,000 customers 1,000 employees $1.2 Billion in annual revenues Largest taxpayer in Metro Nashville with in-lieu- of taxes of $26.3 million last year

4. NASHVILLE ELECTRIC SERVICE | Overview of NES NES’ service territory includes nearly all of Davidson County and portions of six surrounding counties; it contains about 700 square miles.

5. NASHVILLE ELECTRIC SERVICE | Overview of NES NES has no generating capacity and purchases its entire supply of power from the Tennessee Valley Authority (TVA) under long-term contract. About 80% of all electric revenue received by NES is passed on to TVA for power costs.

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7. Compliance/Regulation TVA’s Role as Regulator Rates Use of Revenues Cash Reserves Renewable Portfolio Standards North American Reliability Corporation

8. Electric Vehicles NASHVILLE ELECTRIC SERVICE | NES has been an integral part of the Electronic Vehicle (EV) movement here in Middle Tennessee. NES is an original member of the Tennessee Governor’s Zero Emission Vehicle Partnership with Nissan. We have partnered with TVA and EPRI to study the impact of plug-in electric vehicles on the electric distribution system.

9. NASHVILLE ELECTRIC SERVICE | Rates TVA’s New Rate Structure An effort to reduce peak power demand throughout the region Wholesale rate options After extensive research and a thorough customer impact analysis, NES selected a rate that provides stability and helps avoid an immediate rate increase

10. NASHVILLE ELECTRIC SERVICE | Rates TVA’s New Rate Structure - Impacts Need for higher cash reserves Confusion for our customers –Higher rate in summer and winter when fuel costs are higher—June through September and December through March –Lower rates in transition months—April, May, October, November Need for better data and more control

11. Grant from TVA for Pilot Projects Advanced Voltage Management –Voltage reduction results in a reduction in total power –Approx. 700 meters will monitor system voltage Direct Load Control –Commercial Rooftop HVAC –Commercial and Residential Water Heaters Critical Peak Pricing –Voluntary load reduction/conservation Smart Grid

12. What Do We Hope to Accomplish? –Install 30,000 new meters at key points in the NES service area –Reduce a total of 52 megawatts (MW) of peak demand on the NES system 40 MW through voltage reduction 10 MW using direct load control devices 2 MW through critical peak pricing rates Smart Grid Project Goals

13. Benefits to NES Accurate system information Improved system reliability and power quality Dynamically manage system load Benefits to the Customer Meter readings done remotely Better for the environment Lights coming on sooner after an outage Benefits of Upgraded Meters

14. NASHVILLE ELECTRIC SERVICE | Smart Meters Conversion to Smart Meters Transition toward time of use Demand response Automatic detection of problems; enhanced ability to correct problems Better prediction of energy usage Concerns Privacy, particularly in light of open records Radio frequency

15. NASHVILLE ELECTRIC SERVICE | Underground Utilities Current Policy on Underground Utilities Conversion projects are funded by the requesting party Allowances for new construction are revenue- based Conduit and excavation cost is borne by the developer during new construction Underground services are provided at no additional charge

16. NASHVILLE ELECTRIC SERVICE | Underground Utilities Converting System to Underground Disregarding lighting costs, customer wiring and other utilities, NES estimates the cost to be $7,000+ per residential customer Based on an estimated 320,000 residential customers, the total cost would be $2.25 billion

17. NASHVILLE ELECTRIC SERVICE | Underground Utilities New Construction Distribution conductor – 13 times more expensive Service conductor – 2 times more expensive Transformer – 1.4 times more expensive

18. Music City Center A tunnel was built to place high-voltage transmission lines underground downtown. In 2011, we completed the relocation of a downtown substation that was required to be moved due to the construction of Nashville’s new Convention Center. The new Peabody Substation was constructed with state-of-the-art equipment and is designed to be completely enclosed upon completion of the project. NASHVILLE ELECTRIC SERVICE |

19. Partially Completed Tunnel

20. Architectural Rendering of Enclosed Peabody Substation

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