Michele Marzola Vice-President, IBM Global Services Cape Town, May 17, 2005

1. Automated Meter ManagementStarts from pre-payment the transformational journey of African Utilities Michele Marzola Vice-President, IBM Global Services Cape Town, May 17, 2005

2. In the World, Utilities and Regulators are facing four different challenges depending on the local economic scenario Increase Demand Efficiency And Reduce Outages Domotics Integration Economy growth Eradicate Frauds, Thefts and Bad Payers Peak Shaving and Creation of Retail Competition GDP per capita Cape Town, May 17, 2005

3. Automatic Meter Management (AMM ) helps dealing with all four issues at the same time Increase Demand Efficiency And reduce Outages Domotics Integration Economy growth AMM Eradicate Frauds, Thefts and Bad Payers Peak Shaving and creation of Retail competition GDP per capita Cape Town, May 17, 2005

4. AMM creates an Intelligent Network with bi-directional communication Integration with SAP and creation of a powerful new series of applications handling customer management and energy efficiency Data Communication Centre Two-way communication with all customers MV/LV Substation Intranet Concentrator New services, including broadband options Meters Customer Portals available for users, regulator and retailers A completly new network of intelligent meters Cape Town, May 17, 2005

5. AMM is very distinct from AMR and drives the transformation of the Distribution business Slows Down and Minimise the benefits of AMM AMM (Benefits extended to: • Remote customer mgmt. • Energy balance every 15 m. • Flexible tariffs and DSM • Power modulation Strategic (Revenue protection, Load management, Competitive Adv) Client’s Objectives AMR (Benefits limited to more efficient reading) AMR does not have sufficient capabilities to transform the Business Tactical (Meter reading efficiency) Evolution Transformation Implementation approach Cape Town, May 17, 2005

6. AMM will transform the Utilities Industry by the end of this decade. Utilities adopting AMM will be able to... • Execute customer requests in a few minutes.... • Provide customers with precise, actual bills which contain a rich history of their consumption, with suggestions on how to improve energy efficiency.... • Design bespoke contracts which apply rates in synch with the actual cost of energy and the price sensitivity of each customer... • Accept new customers with just a phone call or an internet message, without any need of phisical intervention of new meters.... • Reduce outages by one order of magnitude... • Eradicate thefts and frauds... • Manage bad payers with both social responsibility and business integrity • Provide Regulators evidence of service rendered to each customer.... • Provide Regulators and Government the evidence of energy saved through the elimination of frauds, thefts and the smoothing of peak demand... • AND ALL OF THE ABOVE AT HALF OF THE CURRENT OPERATING COSTS !! Cape Town, May 17, 2005

7. AMM will help African Utilities to reduce the cost of commercial losses Source: World Bank Cape Town, May 17, 2005

8. Commercial Losses require different approaches for different customer segments AMM enables flexible rates and can help people to pay, also using pre-payment functionalities AMM avoids wrong billing and creates new services opportunity YES Willingness to Pay ? AMM permits to identify endemic leaks and help dealing with the political issues of these customers AMM permits to identify key losses and provides ways to bring behaviours back to law NO NO YES Can Afford to Pay for Energy? Cape Town, May 17, 2005

9. The eradication of Commercial losses requires a systemic approach AMM enables flexible rates and can help people to pay, also using pre-payment functionalities AMM avoids wrong billing and creates new services opportunity Introduction of flexible pre-payment Elimination of faulty meters YES Willingness to Pay ? AMM permits to identify endemic leaks and help dealing with the political issues of these customers AMM permits to identify key losses and provides ways to bring behaviours back to law Identification of by-passes Elimination of tampered meters NO NO YES Can Afford to Pay for Energy? Cape Town, May 17, 2005

10. Peak Tariff (Seasonal) ?? Low Tariff Peak Tariff Low Tariff AMM will introduce flexible rates and enable Demand Side Management AMM records individual load profiles with 15 minutes intervals AMM permits to bill the real value of energy with dynamic adjustments any 15 minutes AMM introduces the very innovative capability to curtail the power supplied to specific customers at any time AMM enables the design of tariffs for optimal energy usage Cape Town, May 17, 2005

11. Up to 80 € of saving per Customer p.a. New tailored tariffs permit savings of more than $ 100 per annum to customers willing to move their consumption patterns 3 kW Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri 0:00 Price: -22% 19:00 Price: -16% 1:00 24:00 minimum “Blu time” consumption: 26% minimum “Blu time” consumption: 26% Cape Town, May 17, 2005

12. Both Utilities and the customers will benefit from the much easier pre-payment process enabled by AMM More personal financial planning options for the customer Credit updated in Billling system Consumption path for a pre-paid card • Examples of possible pre-payment systems • Bank transfer, ATM • Cheque • Debit or credit card through call center • Pre paid through mobile phone • Cash through supermarket collection • Vending (including kiosk in post offices, etc.) • POS device on the electronic meter Area = Anticipated cash Curtailment process for bad payers More payments options for the customer Cape Town, May 17, 2005

13. The massive installation of new electronic meters creates a fraud–free installed base Customer Information System • Consumption reading • Meter’s picture • Expected consumption by customer type and builling history • Asset description (n.a.) Information system (AMM) • Final report: • Consumption database update • Type and number of illegal situations • Connections ageing • Meter initialization Meter data repository Network asset monitoring Platform standardization New meters are precise Fraud meters are removed Illegal connections are eliminated Ageing assets replaced Standardized meters and meters boards Up to date meter database built Illegal connections removed Asset renewal Cape Town, May 17, 2005

14. Once operational, AMM permits to have constant monitoring of energy distribution yield Meters MV/LV Substation Concentrator ENERGY BILLED Technical Losses (Joule effect, ...) (Mathematical models) Energy Balance every 15 minutes (Syncronous reading between meters and transformer Total Energy Invoiced ≠ Commercial Losses • Theft • Fraud • Wrong measurement Cape Town, May 17, 2005

15. Energy billed Other losses Technical losses Already during the first weeks of operations the quantum leap in energy efficiency can be measured Sistematic meter replacement removes all types of frauds at time 0 Kwh injected in the grid 100 % Asset renewal will reduce technical losses Revenue OK ! 90% time 0 New meters installation Cape Town, May 17, 2005

16. MV meter Only a complete AMM roll-out will permit to control the full energy balance, with the capability of detecting any new fraud attempt MV meter Detected unbalance LV Detected leakage Detected leakage LV Dedicated substation apparent yield can already be calculated tampering MV meter starts calculating user load profile Cape Town, May 17, 2005

17. AMM is the only systematic solution to eradicate frauds • “1000 Inspectors with 1000 dogs” can visit any account at least once a year.. • If they were to know where to go...without political biases • If they are let in... • If this does not create political repulsion against the Utility.... • Frauds can be reinstalled a day after the visit... • Evidence about frauds may be insufficient to recover past losses • ....and why could not the readers execute this fraud eradication program before?... • ..and would anyone replace a dum old electromechanical meter with a new, still dum, electromechanical meter bound to be tampered soon? • ...but the cost of this program would waste more than half of the benefits, besides requiring € 6 per meter (per annum?) to renew the assets • AMM will insure a continuous monitoring of energy efficiency, with an auditable track record of consumption patterns and would also help to improve the technical losses, besides eradicating the commercial losses Cape Town, May 17, 2005

18. Minimum allowed for key social reasons -40% -60% -80% The curtailment functionality of AMM ensures minimum social supply to all, instead of outright cut-offs -20% Power allowed Increasing shortage of supply brings to a selective stop of home appliances Full power availability Illustrative Example Cape Town, May 17, 2005

19. AMM permits to monitor the availability of the distribution grid Concentrator (CBT) AMM Telegestore GSM Network Concentrator (CBT) GSM Network Concentrator (CBT) GSM Network Cape Town, May 17, 2005

20. ..and transforms the way to handle critical situations IMPACT OF THE HEAT WAVE IN SEVILLA IN 2004 • Generation capable of coping with increased demand • However, the capacity of two large transformers was stretched to the limit until they burn out • The black-outs following this event caused disruptions evaluated to exceed $ 650 M • AMM could have curtailed demand and balanced the throughput of the two transformers, avoiding a major capital loss, insuring continuos services and sparing two weeks of havoc to a major town Cape Town, May 17, 2005

21. AMM creates benefits for all stakeholders Utilities benefit from a reduction in customer management processes costs End user benefits from a better service with more customised tariffs The Economy benefits from better energy management Cape Town, May 17, 2005

22. AMM offers great benefits for customers… • No charges made for the new meter, however it is a great opportunity for the utility to upgrade paid-up equipment and services….and rational customers may be willing to pay $ 100 to obtain rate savings • Never need to answer the door to a meter reader early in the morning or to wait in all day for one to arrive • Able to activate, or change, their energy contract immediately • Billing always aligned with actual consumption • Information to identify the best tariff • Power curtailment will permit most appliances to operate during energy shortage periods • A cost-effective gateway into the home for new value added services such as alarm monitoring, fire detection, lighting management, intelligent buildings management Cape Town, May 17, 2005

23. … and for the wider economy • AMM allows economy to grow even with a stalled generation supply • AMM will ensure that each kWh of energy is delivered where it is most needed - less pollution • Reduce peaks and outages, sustaining economic growth - - The Swedish regulator estimates that AMM will increase GDP by 0.03% • Ability to plan network investments according to the real consumption patterns • Strong monitoring of network availability and efficiency Cape Town, May 17, 2005

24. The return on investment for an integrated distribution company is impressive, with a four years pay-back Total investments € 2,100 millions Annual savings • Savings on purchasing of old meters • Field operations • Readings • Revenue protection (thefts/failures) • Other • Plus: • Accelerated Return on RAB • Increased Market Share • Increased Bonus for better Service € 500M TOTAL SAVINGS Cape Town, May 17, 2005

25. Thanks to AMM, even the most efficient utilities will be able to cut its process costs by 33% Case Study 2 Compared with European Average Meter-to-Cash cost per customer per annum - 27 % - 33 % - 65% Future Operating Cost Total New Net Cost Baseline Operating Cost 1 2 3 Cape Town, May 17, 2005

26. AMM Value Creation (Sample) AMM Operations Infrastructure Revenue Protection $ per customer Operations Customer Management Network Benefits Investments Net Present Value AMM creates a Net Present Value of $ 105 per customer just out of Operational Savings... NPV $ 105 Cape Town, May 17, 2005

27. The Value of AMM is in the integration with the operating processes, not in any single component of the technology Value for the Utility Business Process Outsourcing Project Financing Business Transformation Customer Information Systems Renewal Electronic Meter Installation Electronic Meters Offering evolution Cape Town, May 17, 2005

28. In Summary...... • AMM Solutions exist and deliver new important functionalities to Utilities • Regulators are highly favouring the adoption of AMM technologies • The business cases for a variety of Utilities around the world show a pay-back period between 2 and 7 years, with Net Present Value created per customer up to $500 • Risks are identified and are manageable • The full achievement of AMM benefits requires the integration of the entire solution supported by a full business transformation programme Cape Town, May 17, 2005

29. Questions? Cape Town, May 17, 2005