National Grid s Growth in Energy Efficiency. Bruce Johnson, Director of Energy Efficiency Implementation

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1 National Grid s Growth in Energy Efficiency Bruce Johnson, Direcr of Energy Efficiency Implementation

2 Total U.S. Energy Efficiency spending has shown aggressive growth with tal spending for gas electric energy efficiency programs at ~$3.7 billion Total U.S. Gas Electric Efficiency Budgets from in millions of $ $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $248 $2,393 68% 14% $416 $2,723 27% 18% $530 $3,208 Gas Total 3-year Increase: 114% Electric Total 3-year Increase: 34% $500 $ Total Electric Total Gas The majority of this growth came from the Northeast California based utilities This high level of growth is expected continue as state national legislation favor the expansion of energy efficiency programs 2 *Source: Consortium of Energy Efficiency, November 2008

3 There are a significant number of market forces that are radically changing the utility lscape Traditional Energy Market supply driven Utilities provide energy cusmers without segmentation or added services Large centralized generation transmission Use of conventional technologies Nuclear power Hydroelectric Coal / gas fired power station Static infrastructure Energy volume drives company revenue ($) Evolving market cusmer driven Cusmers focus on economic environmental value, using a wider range of products services Electricity flows users, surplus from distributed generation flows back grid New technologies Smart Grid & Smart Metering Onshore offshore wind Solar water heating Efficient boilers Micro biomass Energy volume is no longer connected company revenues ($) due Decoupling. Main drivers are Conservation CO2 reduction 3

U.S. Stimulus Package includes $50 billion for energy programs focused on efficiency renewable energy in the 2009-2010 timeframe The Breakdown : $5 billion weatherize modest-income homes eligibility

2 billion municipalities-- $400 million competitively bid $6 billion subsidize loans for renewable energy projects About $20 billion in tax incentives for renewable energy energy efficiency over 10

4 U.S. Stimulus Package includes $50 billion for energy programs focused on efficiency renewable energy in the timeframe The Breakdown : $5 billion weatherize modest-income homes eligibility 200% poverty- 1.0 million houses targeted annually $11 billion ward a "smart electricity grid" reduce waste $6.3 billion in state energy efficiency clean energy grants $3.2 billion municipalities-- $400 million competitively bid $6 billion subsidize loans for renewable energy projects About $20 billion in tax incentives for renewable energy energy efficiency over 10 years The Challenge: The bill suffers from problems of implementation (i.e. size complexity; challenge of administration within limited time frame) Credibility of future energy efficiency initiatives depends on effective implementation 4

Simultaneously State Local Regulary Initiatives are driving the focus complexity of efficiency program growth Location Legislative Acts Overall Impact All terriries Regional Greenhouse Gas

resources; least cost procurement New York State & New York City Energy Efficiency Portfolio Stard (EEPS) NYS : Reduce electricity usage by 15% statewide by 2015.

5 Simultaneously State Local Regulary Initiatives are driving the focus complexity of efficiency program growth Location Legislative Acts Overall Impact All terriries Regional Greenhouse Gas Initiative Reduce CO2 emissions from the power generation secr 10% by 2018 Massachusetts The Green Communities Act Reduce energy costs & price volatilities by purchasing a portfolio of resources; least cost procurement New York State & New York City Energy Efficiency Portfolio Stard (EEPS) NYS : Reduce electricity usage by 15% statewide by Rhode Isl The Comprehensive Energy Conservation, Efficiency Affordability Act of 2006 PLANYC: Reduce emissions by 30% by 2030 Primary focus is on least cost procurement energy cost reduction price volatility mitigation 5

6 National Grid is the 2 nd largest energy Company in the U.S. with a focused vision on energy efficiency climate change We, We, at at National National Grid, Grid, will will be be the the foremost foremost international international electricity electricity gas gas company, company, delivering delivering unparalleled unparalleled efficiency, efficiency, reliability, reliability, safety, safety, vital vital the the well-being well-being of of our our cusmers cusmers communities. communities. We We are are committed committed being being an an innovative innovative leader leader in in energy energy management management safeguarding safeguarding our our global global environment environment for for future future generations generations Objective: Ensure National Grid s energy efficiency organization continues be a nationally recognized leader in the efficiency industry an increasingly profitable part of National Grid s energy management activities Minimizing our impact on the environment while delivering safe, secure economic supplies of energy cusmers is not an option, it is a must. Steve Holliday, National Grid CEO 6

7 National Grid s Energy Efficiency Program Hisry Programs designed serve all cusmer secrs (residential, multifamily, business) More than 4.7 million National Grid cusmer projects completed in New Engl, saving more than $3.6 billion in energy costs Electric Programs: Electric efficiency programs introduced in 1987 Programs first implemented in MA, RI, NH (upstate NY in mid 2009) 2008 budget: $116 million 2009 budget: $195 million 68% increase Programs save cusmers over $300 million annually Over $1.5 billion invested in efficiency Gas Programs: Gas efficiency programs first introduced in 1991 in MA then NH, in downstate NY RI in 2007 (upstate NY in Ocber 2008) 2008 budget: $55 million 2009 budget: $70 million 27% increase 7

8 National Grid s spend is increasing significantly due the macro environment $800,000 Efficiency Spending Increase from in ($000) $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $ Electric Spending Overall budget in 2014 will be over $700 M Gas Spending Electric program budgets are projected increase 226% over 5 years be $633 million by 2014 (includes LIPA) Gas program budgets are projected increase 97% over 5 years be $139 million by 2014 Approval of decoupling in all regions will ensure revenue recovery 8

9 Success of Efficiency Programs at National Grid The electric programs have been very successful in New Engl have been in place for about 20 years, having reached over 140K cusmers, having penetrated approximately 8%* of the market from The gas efficiency programs have been very successful in New Engl having reached approximately 25% of the market since 2004 Metro New York programs; given a short ramp up period, have been challenged, but programs have been growing: Have reached14k cusmers since 2007, have had approximately 1% of the Metro NY market participate in the Company s efficiency programs Upstate NY programs have been extremely successful in their 5-month program life 9 *excludes lighting program

10 Decoupling the success of efficiency programs Decoupling allows the utility separate its profits from sales Decoupling prevents the utility from increasing its profits by increasing its sales volumes, because the additional distribution charge is refunded cusmers In an independent evaluation of one decoupling tariff it was concluded that it: Effectively reduced the variability of utility revenues Removed disincentives promote energy efficiency Changed the utility's focus from sales advertising efficiency advertising Did not reduce the incentive for cusmer service Did not shift risk cusmers National Grid supports decoupling revenues from sales in order support increased efficiency program spending Gas Decoupling MA: as of Ocber 2010 Metro New York: retroactively Jan 1, 2009 Upstate NY: as of June 1, 2009 Electric Decoupling MA: as of Jan 2010 RI: as of Jan 2010 NH UPNY: currently no plans 10 Source: Roger Cooper, Revenue Decoupling: A Win-Win Scenario for Utilities Their Cusmers, AGA, December 2006

11 National Grid has taken the following steps address the current challenges market opportunities by. Organization Will add 100+ positions in 2009; including engineers, managers, analysts, project mangers Staff is needed hle the increased dem for efficiency work from both cusmers regulars Training Develop secure a talented workforce in order ensure success for efficiency programs Many strategic contracr training efforts in order meet the skill dem required by the market Database management / reporting Deploy a disciplined approach moniring, measuring, reporting efficiency program performance Use database systems manage house efficiency metrics Renewable Energy As an organization, National Grid sees the value in renewable energy is working bring the two gether as best serve its cusmers Innovation Support encourage new technologies through our technology demonstration program Addressing lost revenues (interim basis before decoupling come in effect) 11

Tim Roughan Director of Distributed Resources National Grid, MA USA

Tim Roughan Director of Distributed Resources National Grid, MA USA Agenda National Grid Company Overview Market Evolution Market Drivers National Grid s Program Approach Overview of Our Smart Grid Pilot