Northeast Utilities Transmission – Managing Capital Projects

1. Northeast Utilities Transmission – Managing Capital Projects Presentation to UCONN Graduate Business Studies Program Operations Management May 29, 2008

2. Transmission Capital Projects – Providing Solutions to System Problems Transmission projects are developed in response to several needs, and all projects are prioritized. Reliability Requirements ISO-NE, Regional System Plan projects: contingency overloads, voltage support, resource adequacy, NERC and/or NPCC-imposed planning criteria Distribution Load Support Transmission Capital Projects Required new substations, new lines for additional capacity, additional transformation Regulatory Compliance NERC and/or NPCC-imposed criteria (e.g., BPS facilities), state-imposed relocations Annual projects to fix equipment that breaks, facilities, IT, tools and equipment, substation battery replacements, real estate needs Core Business Operations Replacement and optimization programs (circuit breakers, P&C equipment, switches), SCADA installations System Renewal & Optimization

3. Transmission Projects at NU • NU has completed and placed into service 460 transmission projects and $1B of investment since 2004. • We track a Key Performance Metric for each project that compares the spending to the scope (e.g. actual costs to the estimate). The results on a portfolio basis for each year are presented below: 2005 2006 2007 1.10 1.02 1.00 • For example 1.1 indicates actual costs were under the estimates by 10%

4. Project placed in service Construction & community relations Project Planning, Engineering, Siting & Permitting, Construction and Approval Process The Process: State regulatory filings (CT, MA & NH) and Regional System Plan (ISO-NE) identify possible projects (Need) Early planning studies completed, system alternatives identified Project prioritization and risk assessment Detailed planning studies completed; siting applications drafted In some cases, extensive public outreach, legal work, interrogatories Detailed cost estimate & validation, cost allocation process at ISO-NE Detailed design and RFPs issued Contracts awarded Procurement Planning Initiation Siting & Permitting Engineering & Design Construction Close- Out Process takes 3 to 5+ years for major projects depending upon substation or line Approvals: • All changes require management approval at Monthly Project Review Meeting: • Project costs change • Project schedule change • Project scope changes RFPs ($5M or greater) are formally reviewed by Risk Management Council, Work Management for T-20 milestone countdown to construction. Capital Project Authorization: Formal project inception, management reviews, estimate is approved, costs begin to be capitalized, Sr. Mgmt. approval for projects >$10M

5. Initiating a Project Project Planning and Technical Review • Policies • All projects flow through this process • Transmission Need Statements developed as main input • Transmission Project Summaries created as main output (provides for good definition on scope) • Projects with an estimated cost greater than $10 million must have a Transmission Group management review • All projects prioritized with the Transmission Group’s Asset Strategy model

6. Capital Project Authorization • Policies • Authorization Levels: • Less than $1 M – CPA Committee • Less than $2 M – VPs Projects and Strategy & Operations • Less than $10 M – Sr. VP • Greater than $10 M – Risk and Capital Committee, CEO • Rules for projects returning to CPA for additional approvals: • SCHEDULE -- anticipate a 6 month or more delay in the currently estimated in-service date. • TOTAL PROJECT COST -- estimate their total project costs to vary from currently approved estimates by plus or minus 10% or $1 million. • AUTHORIZATION LEVEL -- anticipate exceeding currently authorized expenditure levels. • CURRENT PROJECTED YEAR-END CASH FLOW -- anticipate that current year cash flows will vary from currently approved estimates by plus or minus 10%, and if greater than $100,000. Capital Project Authorization

7. Project Management • Every Transmission Project is assigned to one person (Project Lead or Project Manager) responsible for: • Project cost, • Schedule, and • Scope • 90% of Transmission Projects have a Project Manager assigned(some annuals and 1 for 1 equipment replacements have a Project Lead assigned) • Project Managers are professionally trained (PMI, ESI) and most are Certified Project Managers • Policy and procedures are included in the Transmission Group Project Management Handbook

8. Project Schedules • Every Project has an integrated project schedule with consistent work breakdown structures – some key reports: • Critical Path • Network Diagrams • Schedules by function – e.g. all of the Protection & Controls Engineering workload • Missing Work Management Milestones (reported for every project every week) • Work Management Milestones are embedded into every schedule to define KEY prerequisites (deliverables) for a project to proceed to construction – some examples: • Scope document • Outage scheduled • Engineering complete • Materials on-site • Constraints are tending to be availability of outages on the Transmission System – while maintaining system security, distribution reliability and economics • Not meeting your schedule can have a “domino” effect on downstream work

9. Risk Management for Every Project - A Systematic, Continual Process To Identify, Analyze, And Respond To Project Risk Risk Management Planning Evaluate Identify Communicate And Document Analyze Execute Mitigation Plan Prioritize Project RiskAn uncertain event or condition that, if it occurs, has a positive or negative effect on a project objective.

10. Risk Management at NU - A Systematic, Continual Process To Address Project Risk Project RiskAn uncertain event or condition that, if it occurs, has a positive or negative effect on the project. • This attention to risk enables projects to stay on scope, cost and schedule. • This reporting supports our Sarbanes Oxley requirements for larger projects.

11. Monthly Project Review Monthly Project Review • Key Performance Indicators: • Year to date spending • Plant in service • Material procurement (long lead time) • Engineering status • Major contract status (RFPs) • % Scope/% Spend Ratio

12. Controlling Project Costs = Schedule Adherence • Project Management: • Quality of Estimates - Formal Cost Estimating Process • Project Management Philosophy - ensures accountability and scope control • Managing Change Orders and Claims - Contract Management Process • Material Lead Times: (bulk purchases of autotransformers, cable, conductor, structures, circuit breakers, etc…) • Construction Methods: • Helicopters for: material delivery, wire stringing, linework (reduces swamp mats, road building) • Pre-cast vs. poured foundations • Substation Electrical assemblies vs. components • Pre-wired control panels • Work Management: • Establish Key Schedule Milestones for all projects - as prerequisites to start of construction • T-20 countdown – outage plans, engineering, materials, permits, construction Go/No Go, Updates at Control Centers, etc…