Decoupling and Energy Efficiency: Benefits for Customers

1
Decoupling and Energy Efficiency Benefits for
Customers

• Power Options Seminar on 2008 MA Energy
  Initiatives
• Janet Gail Besser, VP, Regulatory Strategy
• October 7, 2008

2
National Grids Vision

• We, at National Grid, will be the foremost
  international electricity and gas company,
  delivering unparalleled efficiency, reliability
  and safety, vital to the well-being of our
  customers and communities.
• We are committed to being an innovative leader in
  energy management and to safeguarding our global
  environment for future generations.

3
Energy Policy Objectives

• Massachusetts Green Communities Act
• Energy efficiency
• Renewable energy
• Climate change
• Concern about rising and volatile energy costs
• Oil and gas ? electricity
• National Grid focus
• Helping customers manage energy costs and address
  climate change

4
National Grids Plans

• Energy Efficiency
• Decoupling
• Solar

5
Our Commitment to Energy Efficiency

• National Grid supports 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

6
Energy Efficiency for Our Customers

• Reviewing program designs in light of the Green
  Communities Act
• Proposing to increase 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

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
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 our new Massachusetts office building
  to achieve LEED Gold standard

9
Decoupling and Energy Efficiency

• 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)
• For large customers, rates may include a demand
  charge, based on peak use
• Customers also pay a customer charge, unrelated
  to volume of electricity or gas used
• Utility will recover costs of providing safe,
  reliable and efficient delivery service through
  rates only if customers use the level of energy
  forecasted in setting rates
• Therefore, utility has disincentive to encourage
  customers to use less energy

10
Decoupling Rationale

• Under traditional ratemaking, a drop in
  customers use of energy results in a drop in the
  utilitys revenues
• Reducing funds available for investment in the
  system to provide safe, reliable and efficient
  service
• Decoupling is ratemaking tool designed to break
  the link between utility earnings and customer
  energy consumption
• Decoupling therefore removes obstacles to
  aggressive utility pursuit of energy efficiency
  on behalf of customers

11
Why Decoupling Makes Sense for Customers

• 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
• Delivery rates are about 20-30 of the bill on
  average
• 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 1Q 2010 to be effective 3Q 2010

12
National Grid Solar Proposal

• National Grid proposal for advancing solar energy
  development in MA
• Green Communities Act allows utility 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
• Solar as component of energy efficiency programs
• Filed last week with DPU and DOER

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
• Emphasis on energy efficiency both helps
  customers manage energy costs and reduces
  environmental impacts of energy use