National Grid Implementation of Green Communities Act

1. National Grid Implementation of Green Communities Act Massachusetts Energy Roundtable September 12, 2008

2. National Grid Implementation Plans • Energy Efficiency • Decoupling • Solar • Long Term Contracting for Renewables • Conclusion

3. Our Commitment to Energy Efficiency • National Grid supports the expansion of energy efficiency programs to • Reduce costs for customers • Reduce environmental impact of energy usage • Improve the efficiency of the electricity and natural gas delivery systems and lower system costs over the long term • Benefits for Customers • Lower total bills - Energy efficiency offers customers $3 of savings for every dollar spent • Enhanced customer service • Reduced operating costs • Access to trusted technical expertise and financial assistance • Help in meeting environmental objectives

4. Energy Efficiency – Program Scope • Reviewing program designs in light of the Green Communities Act • Increasing electric energy efficiency funding ahead of this heating season by $4.3 million • Increasing gas energy efficiency funding in 2008 by $3 million (25%) • Integrating gas and electric energy efficiency programs to provide one-stop energy efficiency service to our customers • Expanding program options such as "On-Bill Financing" for cities and towns, solar heating and water heating and deeper residential retrofits

5. Energy Efficiency at National Grid • Increasing Internal and External workforce • Increasing staff to support program ramp-up in Massachusetts as well as other states • Expanding training internally and externally to develop the "green collar” workforce • National Grid Demonstrating Leadership • Designing its new Massachusetts office building to achieve LEED Goldstandard

6. Net Metering and Smart Grid Pilot • New Net Metering law • 2 MW for solar and wind • Allows transfer or credits or ‘virtual wheeling’ of power to other accounts • Smart Grid/Meter pilot • Advanced metering with optional hourly pricing offering • Goal is 5% energy reduction per participant • Distribution automation for improved reliability • Working on location and technology options

7. Expanding Energy Efficiency in MA Electric 2008 2010 2009 2011 2012 $62 million $120 million $160 million • Green Communities legislation was passed in July 2008 • Requires least-cost procurement for new resources • First 3 year plans to be filed April 1, 2009 Gas 2008 2009 2010 2011 2012 $16 million $22.5 million $32 million • Plan to double gas efficiency programs over 5 years • Recent approval from DPU to continue programs through 2009 Note: Spending is used as a proxy for savings throughout all slides

8. Decoupling: The Rationale • Traditional utility ratemaking sets delivery rates based on • Costs to provide safe and reliable service (revenue requirement) • Divided by forecasted use to get volumetric charge ($/kWh or therm) • Utility recovers costs of providing safe, reliable and efficient delivery service through rates only if customers use the level of energy forecasted in setting rates • Therefore, traditional ratemaking presents obstacle to aggressive energy efficiency

9. Decoupling and Energy Efficiency • With decoupling, utility can pursue energy efficiency aggressively • Customers benefit from fewer (costly) rate cases and more stable rates • Increase in delivery rates more than offset by avoidance of commodity costs for participating customers • Per the MA DPU order, National Grid will propose decoupling mechanisms • For electric rates in 2009 to be effective 1-1-2010 • For gas rates in early 2Q 2010 to be effective 3Q 2010

10. Utility Ownership of Solar National Grid is excited to be part of advancing Solar across the Commonwealth. • GCA allows ability to own up to 50 MW of PV by 2010 • Main areas of focus: • Utility-scale on National Grid property • Customer Facilities • state agencies • municipalities • Filing expected late summer 2008 • Significant permitting and contractual effort

11. Long Term Contracting for Renewables • Long term contracts (10-15 years) as way to encourage renewable energy development • Facilitate project financing • Provide a potential hedging value and rate stability benefit for all distribution customers. • Energy may be retained for sale to distribution company customers or sold on the wholesale market • Renewable Energy Credits (REC’s) can be retained to satisfy RPS requirements or sold/auctioned to the wholesale market. • Provides 4% remuneration to distribution utility to compensate for accepting long term obligation of the market • Distribution utilities are not required to exceed 3% of their peak load

12. Long Term Contracting Implementation • Flexibility for distribution utility to develop an approach to solicitation, selection and contracting that balances development incentives and customer interests • Timetable and method for solicitation and execution of contracts to be proposed in consultation with DOER, and approved by DPU • National Grid is developing its preferred general approach, based on its past experience and a review of programs in neighboring states

13. Conclusion • National Grid vision: “We are committed to being an innovative leader in energy management and to safeguarding our global environment for future generations.” • National Grid applauds Legislature for Green Communities Act and DPU for Decoupling Order • Energy efficiency saves customers money and reduces environmental impacts of energy use • Renewable energy also reduces environmental impacts