Questions to be Answered

1. Future Shock:What Did Restructuring Uncover?What Will the Next Industry Upheaval Bring?April 12th, 2005 Presented by Eric P. Cody

2. Questions to be Answered • Has utility restructuring failed? • What changes have been wrought? • What lessons learned? • Are metering and billing safe now? • What about utilities that didn’t have to run the gauntlet? • Who won? • Who’s going to prison? • What’s next?

3. Lessons fromPreparing-for-Competition • You never run half as hard as when someone is chasing you • Customers want choices, not necessarily Choice • Regulators must regulate • Competition introduces new concepts and dynamics • Differentiation ≠ discrimination • Metering is not easily unbundled

4. Central Theme The process of preparing for retail competition yielded important insights into how individual utilities perform their core customer functions, and what they cost.…however, few utilities have capitalized on this deeper understanding of retail operations.

5. Restructuring legislation Develop restructuringplan Commission action toderegulate Through the Looking Glass Estimatestrandable costs File forstranded costrecovery Wholesalecompetition Revalue assetsin marketsetting Divest assets Comply withaffiliatestandards of conduct Transfer assets Maintain assets Prepareunbundledcost-of-service Developunbundled rates Developunbundled bills Retailcompetition Estimatefixed vs.avoidable costs File backoutcredits

6. Where Utilities Looked More frequently— • Strandable assets • Overall cost structure and kWh cost • Unbundled costs Less frequently— • Customer preferences • Employee adaptability • Alternative sources for non-strategic work

7. Structural Divergence 1998-2001 2001-2003 2003  Pre-1998 Regulated Monopoly Regulated Monopoly Regulated Monopoly Regulated Monopoly “Virtual Choice” Re-regulated Utilities Competitive Energy Supply Partially Unbundled Utilities Competitive Energy Supply Competitive Energy Supply

8. Load Supplied Competitively(% Total Electric Load Served Competitively) Note: Data not reported on a consistent basis and therefore not directly comparable between jurisdictions; estimation required

9. Distinct Markets Exist Major commercial and industrial customers Mid-market commercial and industrial customers Mass market of residential and small business customers

10. Market/regulatory model Representedby Modelcharacteristics Full retailseparation AB, AUS, TX, UK • Customer base transferred to affiliate • Regulated wires company delivers energy • Retail providers issue a consolidated bill Unbundled operations Cooperatives,municipals • Focus is on distribution and retail services • Generation supply is contracted, mainly long term • Customers not enabled to choose retail supplier Competitivegeneration supply MA, ME, NJ, NY, OH, PA • Generation separated and subject to competition • Incumbent delivery companies act as providers of last resort • Billing, metering & customer care remain bundled utility services Non-residential choicewith portfolio ofoptions forsmall customers OR • Non-residential customers may switch retail suppliers • Residential customers may choose from regulated portfolio • Small business customers may choose portfolio options or switch retail suppliers Vertically integrated Most U.S.states • Utility maintains assets in G,T, and D • Customers not enabled to choose retail supplier • Majority of load requirements supplied by rate based units • Wholesale competition increasingly used to supply load growth Current Utility Model Clusters Established models Restructured models

11. Percentage of Residential Customers Served Competitively 100% Direct Customer Assignment Full Retail Separation Competitive Generation Supply Regulated Portfolio Choices 2003 data; underlying figure originally prepared by Plexus Research for MA Division of Energy Resources

12. Unmet Restructuring Expectations • Markets have defied ‘regulatory prescription’ • Distinct sub-markets have emerged with divergent requirements • Residential customers mostly left out inthe cold • One model does not fit all utilities • Metering competitive in only a few markets • IT systems subject to lingering uncertainty • Electricity prices have not fallen

13. 1998 Expectations Re: Metering • Interval meters on large customers for settlement purposes • Universal interval metering was a distinct possibility • Daily remote interrogation • Enhanced metering to take advantage of innovative pricing • Metering services would becomecompetitive in some states • New metering standards would emerge

14. Daily, hourly or on-demand Meter reading frequency Daily or on-demand Monthly Metering information granularity Hourly interval data Cumulative energyusage Hourly interval data Universal intervalmetering via fixednetwork Wireless networkor power line carrier AMR technology architecture Mobile radio; drive-by Unbundled metering; subject to competition Bundled metering Ownership of metering function Unbundled or enhancedmetering services per tariff ‘Then’ and ‘Now’ Perspectives: Metering Requirements 1998 Looking Forward 2005 Looking Backward All customers Residential & smallbusiness Large commercial &industrial Customerclass MeteringRequirements

15. Why is Metering Hardto Unbundle? • Physical assets widely dispersed • Integrated into electrical system • Economies of scale apply • Lack of practical know-how outside utilities • Metering communications infrastructure begs for single, centralized operator • Critical issues  safety, reliability, regulation

16. Traditional Outsourced Electronic Billing & Payment Transformation Bill Presentment Bill Payment Payment Processing Credit & Collections Termination for Non-payment On-line, electronic bill presentment On-line, electronic payment via third party Outsourced payment processing (EFT) Assured payment (pre-authorized EFT options) Remote disconnect & reconnect Transformed Practices Outsourced bill print & distribution On-line or telephone payment by credit card Instant on-site authorization of credit card payment during disconnect visit Bill printed & Mailed monthly, on cycle Pre-approved bank account debit Outsourced remittance processing Outsourced collections Multiple site visits to disconnect and reconnect meter Check by mail Walk-in payment In-house remittance processing In-house collections

17. Developments inCall Management Centralize Call Center operations Cost Continuously monitor customer satisfaction Create virtual Call Centers Track & analyze call patterns Loyalty Link AMR system to enable instant meter reads on request Consolidate & Centralize Productivity Extend hours of Call Center operation to 24x7 Enhance Responsiveness Apply graphical user interface to CIS screens Implement interactive voice response (IVR) Leverage Existing Assets

18. Strategic Value of Function Retail Services Differentiated Major Customer Information Services Major Customer Billing Outsourced Commodity Services Competitive Market Operations Major Customer Metering Services Customer Payment Processing Small Customer Information Services Portability of Function Small Customer Billing Regulated Utility Operations ContinuingPressuresto Unbundle Call Handling Small Customer Metering Services

19. Operational Criteria Retail Service Activities Due Diligence – Retail Services

20. Retail Due Diligence • How portable is the function? • Have automation possibilities been exhausted? • Is the function strategic to the utility? • Can it be outsourced without fanfare? • What synergies/economies are uniquely available to an outsourcer? • What utility IT system upgrades can be avoided by outsourcing? • What fixed and variable costs are associated with the function?

21. Food for Thought: Southwest Airlines • Continuously profitable for 30 years • Started a revolution; new paradigm • Transformed customer operations • Radically simplified business processes • Redefined external business relationships • Pervasively lower cost • Inspired and innovative employees

22. Contact Information Eric P. Cody Cody Energy Group 629 Massachusetts Avenue Boxborough, MA 01719 (978) 264-9839 CodyEnergy@net1plus.com