The document discusses regulatory issues related to smart grid implementation. It notes that smart grid is a "game changer" that will change the traditional utility regulatory model. Some key applied regulatory issues discussed are ratemaking principles of known and measurable costs, asset amortization periods, and rate design to encourage conservation. The document also examines the roles of state utility commissions versus federal regulators and challenges in evaluating smart grid costs and benefits.

1. Effective Regulatory Issues for Smart Grid

2. Topics Who is Bridge Energy Group Smart Grid is a “Game Changer” for Traditional Utility Regulation Applied Regulatory Issues with Smart Grid Regulatory Roles, State Versus Federal How Should Utility Commissions Address Cost/Benefit? 8/19/2010

4. HQ in Marlborough, Mass

5. Regional Offices: Albany, Austin, Rutland, Sacramento

6. 6 year old, 110+ people

7. Clients: ISO, Small to Medium - T&D, Utilities, Coops, Munis

8. Currently working on many Smart Grid ProjectsBRIDGE is Not Aligned with any Tool, Product or Technology Vendor Advantage: BRIDGE works for the client’s cause. BRIDGE coordinates as neutral third party with all vendors without conflict of interest. BRIDGE will be Your Trusted Advisor and Implementation Partner. 8/19/2010

9. The Traditional Regulated Utility Bundled Investment Made on Behalf of Consumers & Society Investment in Long Lived, Predictable Assets Retail Rates Expected to be Stable Utilities Manage a Centrally Controlled Network Utility Planners Focus on Stability and are Responsible for Reliability 4

10. The National Electric System Historically Central Station Driven Since Restructuring Focused on a National Transmission Superhighway Top Down Resource Planning via Utilities, Regulators and RTO’s Since 2003 Blackout Accountability for Reliability Raised Significantly 5

11. National Energy Policy Starting with PURPA in 1978, Efficiency & Resource Diversity (Renewables) EPAct 1992 Increased Emphasis on Efficiency, Launch of EWG’s, Restructuring Increasing Emphasis on Environmental Attributes in Light of Climate Change BUT Most Solutions are Instituted via Mandates to Utilities 6

12. A Macro Picture of the NE System 2/21/11

13. Old Ratepayer Profile All Set, Taken Care of Disengaged, Uninterested Content that the Lights Come On, Flat Screen Works Occasionally Awakened When Rates Increase or a Transmission Line is Proposed Pays their Bill via the U.S. mail 8

14. New Ratepayer Profile Banks, Christmas Shops, Plans Vacation & Has a Garage Sale (eBay) all online Has at least one cell phone Owns not just a DVR, But Streams Movies, Even Netflix in the Mailbox is Old Already Very aware of and cares about the environment Has installed or is thinking about installing their own solar panels, or wind turbine 9

16. Dynamic Rate Environment Replaces Static One

18. Utility Relationship w/ Consumers Less “Paternalistic”

19. Increased Electric Sales Can be a Good Thing

20. Many Regulatory Principles Remain Valid, But Not All11

22. Inventory Energy Policy Objectives, Are They Being Met?

23. What Has Worked Well What Has Not?

25. Known & Measureable, Used & Useful

26. Are SG project costs well defined, will the solutions remain useful over their projected lives?

27. Prudence

28. Was management prudent in their asset/technology selection?

29. Asset Amortization

31. Rate Design

32. Principle of stable rates must be revisited

33. Reward Conservation & Load Shifting

34. Big Picture we Must Facilitate an Atmosphere of Trust & Shared Responsibility between Utility and Regulator

35. Traditional Cost of Service vs. Alternative or Performance Based Regulation

37. The SG “Line of Scrimmage” is the State Utility Commission

38. Federal SG Role Has Been one of Vision & Certainly Stimulus $$

39. However FERC Must Engage on Price Responsive Demand Development within Wholesale Power Markets15

40. Determining SG Cost/Benefit Cost and benefit extends well beyond AMI Distribution Automation a Major Driver of Ratepayer Benefit Measuring Ratepayer Benefit Greatest Challenge Uniformity of Approach Should Be Explored

44. “Rethinking ‘Dumb’ Rates, Achieving the Smart Grid’s Potential Requires a Revolution in Electricity Pricing.” Rick Morgan, Public Utilities Fortnightly, March 2009.http://www.fortnightly.com/exclusive.cfm?o_id=158 18

45. Questions ? David J. O'Brien Director of Regulatory Strategy & ComplianceBRIDGE Energy Group Inc. 508.281.7133 x210 | M: 802.522.0917 DOBrien@bridgeenergygroup.com www.BridgeEnergyGroup.com