David K. Owens Executive Vice President, Business Operations Edison Electric Institute

1. Smart Grid: A Game-Changing Technology with Exciting Business and Public Policy ChallengesJuly 16, 2010 David K. Owens Executive Vice President, Business Operations Edison Electric Institute AABE Chair, Legislative Issues and Public Policy Committee Remarks From: Thomas H. Graham President – Pepco Region Pepco Holdings, Inc.

2. Changing Electric Utility Landscape • We are no longer a declining cost industry • Aging workforce increasingly important • Electricity demand will increase 21% by 2030 • Increasing concerns about the environment • Meeting Targets • Short-term: Rely on energy efficiency, renewables and natural gas • Medium-term: Targets should be harmonized with the development and commercial deployment of advanced technologies and measures (e.g. nuclear energy, advanced coal technologies with carbon capture and storage, PHEVs, and Smart Grid)

3. Changing Regulatory Paradigm • Obama Administration and Congress are aggressively pursuing an energy policy agenda focused on: • Reducing greenhouse gas emissions • Enhancing energy efficiency, demand response, distributed generation • Building the smart grid • Expanding renewable energy

4. Why Do We Need A Smarter Grid? • Utilities are facing major challenges: • Infrastructure investment needs--$1.5-2 Trillion • Climate change issues • Energy independence • Cyber-security • A smarter grid will enable utilities to: • Empower customers to control and optimize their energy usage • Rely on greater amounts of distributed generation—wind, solar, etc. • Use electricity as a fuel for vehicles • Enhance the reliability and efficiency of the power grid • Provide the framework and foundation for future economic growth

5. What is a Smart Grid? • An advanced, telecommunication / electric grid with sensors and smart devices linking all aspects of the grid, from generator to consumer, and delivering enhanced operational capabilities that : • Provide CONSUMERS with the information and tools necessary  to be responsive to electricity grid conditions (including price and reliability) through the use of electric devices and new services (from smart thermostats to PHEV) • Ensure EFFICIENT use of the electric grid (optimizing current assets while integrating emerging technologies such as renewables and storage devices) • Enhance RELIABILITY (protecting the grid from cyber and natural attacks, increasing power quality and promoting early detection and self correcting grid “self-healing”)

6. The Smart Grid … • will: • Help consumers use energy more efficiently—empower the customer • Improve the efficiency and resiliency of the power grid • Integrate new sources of renewable energy and distributed generation • Integrate demand response, energy-efficiency and energy storage resources • Reduce the need for future infrastructure investments • Enable smart appliance and consumer devices (Home Area Network) • Enable plug-in electric and hybrid electric vehicles. • Support microgrids • Support net-zero energy homes and commercial sites

7. Supply Side Base LoadGeneration Load FollowingGeneration +/– + Balance DispatchableGeneration with Forecastable Load Built-inDemand InterruptibleLoad DR – Demand Side Today’s Grid Bulk Energy Storage

8. Centralized Wind & Solar + Bulk EnergyStorage Base LoadGeneration Load FollowingGeneration +/– + Balance Variable Generation with Unpredictable Demand-side Resources Operating Closer to the Edge? Early Warning Signs? Variable Distributed Generation Price Responsive DR – +/– Built-inDemand InterruptibleLoad DR – “Demand-side” Resources Electric Vehicles andBattery Storage Systems +/– Tomorrow’s Grid Supply Side Demand Side

9. Transformational Technology • Game Changing Technology that Will Transform the Industry • New Customer Relationships • Greater and Better Customer Energy Control • New Businesses / Strategic Partnerships • New Market Participants • New Products for Consumers • It will impact: • Structure • Business models • Customer relationships • Regulatory policies

10. The Fundamental Challenge • Technology has transformed several key industries: • Telecommunications, retailing, publishing, etc. • The Challenge-uncertainty at this point in time as to how that transformation will unfold • Customers are raising questions about the benefits • Need a process to develop plausible deployment pathways with input from all major stakeholders

11. Smart Grid is a Game Changer • In front of the meter • Accommodates central and distributed electric generation and storage options. • Enables increased levels of renewable energy. • Provides for power quality for a range of needs by all types of consumers. • Anticipates and responds to system disturbances. • Optimizes asset utilization and operating efficiency of the electric power system. • Operates resiliently to respond to physical and cyber attacks and natural disasters. • Behind the meter • Enables informed participation by consumers in retail and wholesale electricity markets. • Enables new products, services, and markets (home area networks, electric vehicles, etc.).

12. Electric Utility Smart Grid Focus • Smart Meters and Smart Rates • New Pilot Programs • Full-scale Deployment in 33 states • 6% of Electricity Consumers Nationwide have Smart Meters • Expecting ~60 million smart meters in-service by 2019 • T&D Automation • Increasing deployment of synchrophasors • Service restoration and “self-healing” (remote controllable devices including automated voltage regulators, capacitor banks, reclosers, etc.) • Electricity Storage • Demonstration projects • Electric vehicles

13. DOE American Recovery & Reinvestment Act Transmission/Smart Grid Funding ($ million) Total: $ 4.5 billion

14. DOE Smart Grid Investment Grant Awards ($ million) Total: $ 3.4 billion

15. DOE Smart Grid Regional Demonstration & Storage Program Awards ($ million) Total: $ 620 Million

16. Smart Grid Benefits • Puts decision making in the hands of customers • Improved information, programs and pricing options will allow customers to make informed energy choices • Gives customers better information about their service and use • Automatically accommodates changing conditions • Fault isolation, quick automatic restoration • Reroute power flows, change load patterns, improve voltage profiles • Minimal workforce intervention, auto notification for corrective actions and maintenance activities • Lets utilities operate the system with greater efficiency • Better asset management – optimize grid design • Optimized grid operations • Greater reliability and security • Promotes green energy initiatives and enables distributed, renewable energy resources to participate

17. Changing Competitive Environment • The potential for new regulatory policies that impact utility revenue (net metering, increased reliance on energy efficiency, etc.) • Mid-deployment changes in regulatory requirements, standards & protocols that impact cost recovery • Cyber vulnerabilities with the increasingly reliance on technology • Emergence of new competitors and new competitive alliances, and the resulting potential for new customer relationships • New state-federal relationships to address jurisdictional boundaries • The open question is how utilities will need to change their business models to remain competitive

18. The Smart Grid Public Policy Arena • National Institute of Standards and Technology (NIST) – Organizing industry input to the NIST process, especially high-level governance, technical committees and working groups; coordinating input from Standards Development Organizations • Federal Energy Regulatory Commission (FERC) – Coordinating industry input on the enforceability of smart grid standards as they relate to system reliability and cybersecurity • Department of Energy (DOE) – Educating agency on the impacts (higher rates, projects downsized / canceled) from taxing stimulus grants; Coordinating industry response to RFIs on Communications and Data Access. • States – Engaging regulators and Smart Grid Collaborative on stranded costs / cost recovery and customer / system benefits • Federal Communications Commission (FCC) – Responding to National Broadband Plan recommendations and any subsequent legislative and / or agency actions

19. Smart Grid Issues • Cybersecurity • Data Access/Privacy • Interoperability Standards • Cost Recovery • Home Energy Management • Consumer Concerns

20. Cybersecurity • Top priority of the industry • System reliability requirements and the obligation to serve customers sets utilities apart from other industries as unique • Higher threshold for cybersecurity; rigorous testing and certification needed • Cybersecurity “seal of approval” • How can coordination with NIST, FERC, states, and the utility industry be achieved to better address cybersecurity threats and vulnerabilities as a result of the smart grid?

21. Data Access / Privacy • What rules should be in place regarding the collection, use, retention, and disclosure of customer-related information • How should they apply to utilities, third parties and customers? • What is the role of the states in setting policies? • What is the role of the FERC in setting policies? • Is the best solution to allow the DOE to establish national data access standards?

22. Interoperability Standards • What functions should interoperability standards support for the interface between customers and the smart grid? • Will the standards be voluntary, mandatory, or both? Will the standards be enforceable? • Ensure that the standards enhance system reliability and cyber security • Is there sufficient focus on the need for standards to work with legacy systems to avoid stranded costs? • Technology is advancing at a fast rate, it will be important to minimize costs to consumers that new technologies are compatible with existing systems for the most effective implementation

23. Interoperability Standards - NIST Process • NIST is engaging industry, government, and consumer stakeholders in an open process to facilitate development of interoperability standards needed to make the Smart Grid a reality. • NIST has launched a three-phase plan to expedite development and promote widespread adoption of Smart Grid interoperability standards. • Release 1.0 Framework and Roadmap for Smart Grid Interoperability – provides an initial foundation for an interoperable and secure Smart Grid. • Established a more permanent public-private partnership, the Smart Grid Interoperability Panel (SGIP), to guide the development and evolution of the standards. • Establish a testing and certification framework for the Smart Grid. • NIST’s immediate priority is to complete the Priority Action Plans that are now tackling the highest-priority needs in the standards portfolio.

24. Cost Recovery • What smart grid investments should be subject to Federal Energy Regulatory Commission (FERC) vs. state jurisdiction? • Are there unique implications of Smart Grid implementation to low income consumers and how should they be addressed? • Should regulatory depreciation rates (state and federal) be modified to account for shorter useful lives of Smart Grid investments and to prevent future stranded costs?

25. Home Energy Management • Smart grid, especially the home area network (HAN), is a “game changer” which will transform the traditional utility-customer relationship • Utilities see opportunities • New technologies • New relationship with customers • New partnerships / business alliances • New products and services • New regulatory paradigm

26. Emerging Consumer Concerns • Consumer questions – What are you doing and how will it impact me? • “No clear, concise, and specific information to all stakeholders regarding [the utility’s] overall vision to implementing a smart grid, the expected costs, technology choices and consumer and environmental benefits” • Won’t help me – just costs too much • Consumer bills – Current bills increasing faster • Payments today for future benefits? (NPV of deferred generation costs) • Payments today, but no benefits for years of deployment • Addition to ever increasing electric bills (CapEx, Cap and Trade, RPS, net metering, etc.) • Like restructuring, implementation comes at a time of increasing costs • Will blame smart grid for higher rates

27. Conclusion • Smart grid is a “game changer” which will transform the utility-customer relationship, provide new business opportunities while enabling utilities to meet energy and environmental public policy goals • Electric utilities are making substantial investments in smart grid and innovative technologies from smart meters to plug-in electric vehicles • Cybersecurity is a top priority of the utility industry because it impacts reliability of service • Electric utilities are working with regulators and smart grid technology companies to ensure the smart grid provides value for consumers.

28. Smart Meter Movie

29. Some Real-Life Experiences About The Smart Grid Remarks by Thomas Graham