BRIDGE Energy Group, Inc.

ISO-NE Consumer Liaison Group Meeting

Topics

• Who is Bridge Energy Group

• Big Picture Background on Smart Grid

• Quick Background on U.S. Electric System & Policy

• What does SG mean for consumers?

• What Does SG Mean for Society?

• The Ethics of Dynamic Pricing

8/19/2010

Bridge Energy Group, Inc.

• Focused on the Energy Industry

• HQ in Marlborough, Mass

• Regional Offices: Albany, Austin, Rutland, Sacramento

• 6 year old, 110+ people

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

• Currently working on many Smart Grid Projects

BRIDGE 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

What is Smart Grid?

• Perhaps an unfortunate descriptor for it implies that the current grid is dumb

• In reality it is the sum total of many components

• Think of it as the digital automation of the electric grid

• Enhanced operational control

• Consumer empowerment

4

Implementation of Smart Grid

• Hard Assets- Meters, Switchgear, Communications and Data Consolidation Systems

• Human Element- Adaptation to New Technology and Business Process Change

5

Evolution of Smart Grid

• For Grid Operations Earlier stages included SCADA, substation automation

• On the meter/consumer side TOU pricing dates back to the 1970’s

• Direct load control with hot water heaters

• In the past decade Utility and RTO Demand Response Programs

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Cautions of Smart Grid

• Uniform Standards Not Yet a Reality

• Integration a real Challenge, Legacy IT, Tremendous Amounts of Data

• Disruptive to Traditional Utility Business Model

• Challenges Longstanding Regulatory Policies

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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

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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

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National Energy Policy

• Modern Foundation a Response to 1970’s Oil Embargoes

• PURPA in 1978, Efficiency & Resource Diversity (Beginning of “Renewables”)

• EPAct 1992 Increased Emphasis on EE, Launch of EWG’s, Seeds of Restructuring

• Since 2000 Increased Emphasis on Environmental Attributes, Climate Change

• BUT, Most Solutions are Instituted via Mandates to Utilities

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It’s Peak Demand Stupid

2/21/11

Peak Demand Drives Capacity Need

• Since 2003 Blackout Heightened Emphasis on Reliability

• NERC Standards Now Enforceable with Real Financial Penalties for Non-Compliance

• N-2 is the Standard, if Load Growth Reaches a Critical Point Investment Has to be Made

• Consumers and Macro Economy Bear the Cost

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What Does SG Mean for Consumers?

• Price Responsive Demand for the Masses

• Fair & Efficient Rate Design– Dynamic Pricing Reduces Inherent Cross Subsidies in

Today’s Rate Designs– Opportunity to Save on “Total Energy Bill Via Dynamic

Pricing– Collectively Drive Higher Capacity Utilization

• Enhanced Operational Efficiency & Quality of Service– Remote Connect/Disconnect Means No Waiting Around

for the “Utility Guy”

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What Does SG Mean for Consumers?

• Distributed Generation on a Grand Scale

• Operational Efficiencies Reduce Cost to Serve

• Enhanced Grid Reliability

• Much Greater Connection to and Understanding of Energy Use

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What Does SG Mean for Society?

• Environmental Goals Finally Achievable at Scale

– Reduction of Carbon Via Electric Vehicles & Space Heat, geo-thermal

– Reduced Utility Truck Trips

– Enhanced Integration of Renewables, Utility and Distributed Scale

– Enhanced Grid Reliability

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Dynamic Pricing the Answer to Peak Demand

• Pilot Efforts Have Shown Reduced Demand with Just Information Alone

• Dynamic Pricing Introduces a Real Price Signal that Reflects True Cost to Serve

• Customers Can Shift Usage and Add Usage to Off-Peak Periods

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Inherent Inefficiency In Rate Design

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Dynamic Pricing True to Ratemaking Principles

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Final Thoughts

• SG is a Suite of Enabling Technologies to Empower Consumers and Utility Managers

• Peak Demand Costly to Consumers & Society

• Established Regulatory Regime not Economically Efficient

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Final Thoughts

• Consumers Currently Paying for Policy Mandates

• More Electricity Use Can be a Good Thing

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Resources

“Principles of Public Utility Rates”, James C. Bonbright, Albert L. Danielsen , David R. Kamerschen

“Advanced Metering Initiatives and Residential Feedback Programs: A Meta-Review for Household Electric- Saving Opportunities”, Karen Ehrhardt-Martinez, Kat A. Donnelly, John A. “Skip Laitner, June 2010

http://www.aceee.org/research-report/e105

“Smart Grid Strategy: How Can State Commission Procedures Produce the Necessary Utility Performance?” Tom Stanton of NRRI, February 2011

http://www.nrri.org/pubs/electricity/NRRI_smart_grid_strategy_feb11-05.pdf

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Resources

“THE ETHICS OF DYNAMIC PRICING”, Ahmad Faruqui, Ph. D.The Brattle Group, March 30, 2010

“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

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Questions ?

David J. O'BrienDirector of Regulatory Strategy & ComplianceBRIDGE Energy Group Inc.

508.281.7133 x210 | M: 802.522.0917

DOBrien@bridgeenergygroup.com

www.BridgeEnergyGroup.com

Resources

“Principles of Public Utility Rates”, James C. Bonbright, Albert L. Danielsen , David R. Kamerschen

“Advanced Metering Initiatives and Residential Feedback Programs: A Meta-Review for Household Electric- Saving Opportunities”, Karen Ehrhardt-Martinez, Kat A. Donnelly, John A. “Skip Laitner, June 2010

http://www.aceee.org/research-report/e105

“Smart Grid Strategy: How Can State Commission Procedures Produce the Necessary Utility Performance?” Tom Stanton of NRRI, February 2011

http://www.nrri.org/pubs/electricity/NRRI_smart_grid_strategy_feb11-05.pdf

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Resources

“THE ETHICS OF DYNAMIC PRICING”, Ahmad Faruqui, Ph. D.The Brattle Group, March 30, 2010

“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

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Questions ?

Tony GirotiChairman & CEOBRIDGE Energy Group Inc.

508.281.7133

TGiroti@bridgeenergygroup.com

www.BridgeEnergyGroup.com