Value Drivers and Risk Factors for AMI Remote Disconnect/Reconnect Functionality

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1 Value Drivers and Risk Factors for AMI Remote Disconnect/Reconnect Functionality Rob Wilhite VP Intelligent Networks and Communications

2 Our objectives today Outline remote disconnect /reconnect features and functionality Review key utility value drivers and societal benefits Specify market and cost trends Examine key manufacturers Outline key questions for further consideration

3 KEMA has been serving clients for more than 80 years Serving electric utilities diverse needs from generation to retail Established in 1927, Arnhem, the Netherlands Three primary business lines: Consulting Testing Certification 1,400 professionals in more than 18 countries Annual revenue of $250 million Independent experts to the global utility industry

4 Our perspectives are inclusive of global drivers and activities from an international footprint North America Massachusetts - Burlington California - Anaheim California - Lafayette California - Oakland California - San Diego California - Walnut Creek Colorado - Englewood North Carolina - Raleigh Montana - Helena Oregon - Corvallis Pennsylvania - Chalfont Virginia - Fairfax Wisconsin - Madison British Columbia - North Vancouver Ontario - Toronto Europe Belgium Bulgaria - Sofia Czech Republic - Brno France - Saint Laurent de Mûre Germany - Bonn Germany - Duisburg Germany - Dresden Germany - Munich Italy - Osnago the Netherlands - Arnhem Poland - Warsaw Russian Federation - Moscow Turkey - Dudullu-Istanbul United Kingdom - Glasgow, United Kingdom - London United Kingdom Monmouth South America and the Caribbean Colombia - Santafe de Bogata Brazil - Rio de Janeiro Netherlands Antillies Curcao Key to Locations: Red = Consulting services business & technical Yellow = Products and processes testing & certification Middle East Israel - Petah Tikva Oman - Muscat Qatar - Doha Saudi Arabiav - Ryadh United Arab Emerates - Dubai Asia & Australia Australia - Sydney India - Bangalore China Guangzhou China - Hong Kong China Shanghai Japan Tokyo

5 The remote disconnect switch has become one of the most desirable features in utility AMI specifications Remote, integrated devices that can either completely disconnect/ reconnect electric service, or reduce current flow to a specified maximum threshold Uses similar electrical mechanical or motor-driven technology as found in collared devices today Provided by all major meter manufacturers as an integral part of their emerging and future AMI solutions Perhaps the most significant development over the past 18 months is the integration of a fullyrated disconnect switch within the meter. Pacific Gas and Electric Company, Advanced Metering Infrastructure July 2007 Semi-Annual Assessment Report Most solutions limited to 200- amp maximum service

6 The value of an integrated, remote service switch could be realized in several areas Key Feature Potential AMI Benefit Integrated within AMI meter design Enables remote power disconnect/ reconnect Configurable load (current) limiting set points Single-site or multiply addressable On-demand or scheduled actions Safety switch and loadsensing lockout Reduces installation cost (vs. collared solution) Reduces potential device tampering costs Supports pre-payment services Reduces field service orders/ truck rolls Improves employee field safety Enables peak load limiting programs Enables more flexible pricing and service plans Supports emergency grid reliability actions Reduces credit/ collections costs Improves customer convenience/ satisfaction Reduces potential grid impacts for cold load pickup Reduces costs for inactive consumption Reduces potential liabilities with load restoration Improves customer safety

7 In the U.S. alone, device shipments will quickly escalate into the millions. 30 Projected Electric AMI and Remote Relay Switch Deployments (Largest 35 U.S. Utilities) Installed Units (Millions) Eligible AMI Deployments Remote Relay Switches During the next six years, we could expect total shipments of more than 23M units These values could expand, should regulatory and utility interest (e.g., Coops) increase Secondary market for collared solutions will remain, but substantially decrease over this period Note: Aggregate values for eligible electric meter population for largest U.S. utilities without advanced metering, adjusted for estimates of 200-amp customers and plans for AMI, pre-payment, or DR programs. Source: KEMA Research

8 Considering the interest across several global markets, these projections increase considerably Projected Electric AMI and Remote Relay Switch Deployments (Selected International Markets) South America 9% Australia 2% Europe 37% U.S. 52% Total Est. Market = 40 million units Six-year projections would indicate nearly half of installations would occur outside of the U.S. Australian values include potential for New Zealand South American interest is driven principally by Brazil, which is piloting the technology European interest driven primarily by larger EU countries Note: Aggregate values for eligible electric meter population for largest international markets in the U.S., Europe, South America, and Australia. Source: KEMA Research

9 Inherent with this demand, we would expect a continuation of the declining price trend Integrated Remote Relay Switch: Pricing Trend $140 $120 $100 $80 $60 $40 $20 Incremental Price Points 1 $120 $70 Projections $40 $30 $25 Selected costs to meter manufacturers are in the range of $16 to $24 One switch manufacturer expects these prices will decline to $10 to $12 over the next few years, given sufficient volumes $ Note 1: Per unit, incremental price relative to standard AMI meter in large-scale order quantities, based on delivery dates. Source: KEMA research and manufacturer discussions. Meter manufacturer s unit margins appear to be declining as well

10 Thus reaching an inflection point in utility cost-effectiveness projections Integrated Remote Relay Switch: Cost-Effectiveness US $ Per Meter $140 $120 $100 $80 $60 $40 $20 $0 Representative Costs-Benefits $120 $70 Costs Benefits $40 $42 $46 $ Based on these trends, projected benefits will readily exceed incremental investment levels The option value of installing an integrated switch has become a more prudent decision Note 1: Present Values based on a 15-year life cycle.

11 However, there are only a few manufacturers, with most producing and shipping from off-shore. Selected Relay Switch Manufacturers Partnered with North American Meter Providers SHANGHAI WANJIA PRECISION COMPONENTS Co., LTD Partnered with Other Intl. Meter Providers Production facilities for these firms are all located outside of the U.S., mostly in China, the UK, or Germany BLP is the predominant manufacturer referenced by major metering providers in North America Nearly half of meter manufacturers indicated an interest in a second supplier of switches to meet increased demand Current annual production levels are in the 100k s stated plans are in place to increase annual capacity to millions of units by late 2008 A number of additional electronics manufacturers have expressed interest in market entry

12 Therefore, a number of key questions arise that should be considered in a utility review o Will regulatory acceptance become more common, thereby increasing market demand even further? o As several switch manufacturer s production capacities are greatly increased over the coming months, how do we ensure quality levels to validate the AMI business case? o What impact to market supply and pricing would occur with the introduction of new switch suppliers?

13 Therefore, a number of key questions arise that should be considered in a utility review (continued) o Will meter manufacturers seek to directly design and produce their own integrated switches? o Is there enough utility demand to warrant development of a 400-amp switch for larger C/I loads? o What standards are appropriate for testing and certifying an integrated AMI meter with disconnect switch? (e.g., IEC , Electricity metering - Payment systems)

14 In conclusion... o The integrated, remote relay switch offers a significant opportunity to positively impact utility operations and add value to customer relationships o Given current pricing trends, the business case is quite favorable and should accelerate market interest and demand o As production levels increase, manufacturers and utilities will need to carefully consider supply chain impacts and quality assurance at greater volumes