Massachusetts Restructuring Roundtable Boston, MA November 16, 2001 John B. Howe

1. Power Transmission Technology:The Second RevolutionSuperconductor-Based Technologiesand Regulatory Reform StrategiesTo Boost Grid Capacity, Improve Reliabilityand “Break the Gridlock” Massachusetts Restructuring Roundtable Boston, MA November 16, 2001 John B. Howe Vice President, Electric Industry Affairs

2. American Superconductor Corporation Nasdaq: AMSC We are a world leader in developing and manufacturing products using superconducting wires and power electronic switches for the power infrastructure

3. Overview • Today’s Power Grid is Severely Stressed • The Grid Never Violates the Laws of Physics • New Grid Technologies: Description and Benefits • High-Capacity HTS T&D Power Cable • Distributed SMES for Voltage Stability • Network Effects of a Stronger Power Grid: Component Benefits -- System-level Benefits • Regulatory and Legislative Reforms That Can Speed the Adoption of New Grid Technologies

4. A Convergence of Many Factors... • Demand Growth • “Siliconization” • Siting Obstacles • Erratic Pace of Deregulation • Eroding Reliability …Has Brought Us to “Power Gridlock” -- And A Demand for New Power Technologies

5. In Georgetown: Lost BusinessMerchants Bemoan Costs as Power Outage Continues June 15, 2001 The Detroit News Major Detroit power line failsIt happens nearly one year after the city's worst outage Another Boston-Area Power Outage June 13, 2001 August 24, 2001 The “Power Struggle:” Summer 2001

6. 40 6 Transmission Investments 35 5 Estimate 30 4 25 New generating capacity (‘000 megawatts) 20 3 Transmission investment (1992 US$ billion) 15 2 10 1 5 New Generating Capacity 0 0 1930 1940 1950 1960 1970 1980 1990 2000 Source: CERA Grid Investment Lagging in U.S.

7. Power Grids Have Limited Capacity • The amount of power that can be transmitted through a particular grid is limited by a number of factors, chiefly: • Thermal Limits • Line/cable conductors reach physical capacity • Overload leads to excessive sag, degraded insulation, burnout and outright failure • Stability Limits • Lines reach limit of safe operation by standards of “Prudent Operating Practice” • Overload puts system at risk of fast collapse during a contingency (line outage, plant trip)

8. The Changing Role of the Power Grid • Pre-1990s: Vertically-Integrated Monopoly • Mid-1990s: Rise of DG -- “Is the Grid Obsolete?” • 2000s: The Grid Isn’t Going Away Soon -- But It Needs a Major Upgrade Now!! • The Grid’s New Role: Platform for Competition …The Lesson from Other Regulated Industries: The Key to Robust Competition Lies in a Robust Physical Network

9. Superconductor Technology Benefits • Raise Energy Efficiency • Increase Capacity • Improve Reliability and Power Quality • Reduce Environmental Impacts • Put Scarce Real Estate to Higher Value Uses …Component Benefits of Superconductivity are Leveraged into even Larger System-Level Benefits

10. HTS Wire: 140x Increase in Wire Capacity The Basis for the Revolution

11. HTS Wire Price/Performance Trend Performance and Yields are Rising -- Costs are Falling 1200 Actual 1000 Target 800 Price/Performance Ratio, $/kA-m* 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 * Price of One Meter of Wire Carrying 1,000 Amperes

12. First Commercial HTS Wire Plant --Devens Commerce Park, Massachusetts 8/00 Broke Ground 8/01 First Employees 1/02 Fully Equipped 8/02 High-Yield Production

13. HTS Power Cable Alliance • Exclusive commercial agreement • Alliance since 1990 • $30 million in funding to AMSC • First HTS cable in 1996 - Beta-phase about to start

14. High Capacity HTS Power Cables More power carried in same right of way at much lower voltages and system costs.

15. HTS Cable: The 3-to-1 Advantage (3, 4) Three HTS Cables Are Installed -- Six Conduits Free for Expansion/Other Uses (1, 2) Nine Existing Copper Cables Are Removed

16. Urban Re-Electrification: “Virtual Bus” 2 3

17. Urban Re-Electrification: “Urban Ring”

18. HTS Re-electrification: Reclaiming Corridors

19. HTS DC Transmission: Uses and Benefits • Integrate Markets: Tap the Large Interregional Price Disparities Exposed by Deregulation • Special Delivery: Serve Congested Urban Load Pockets with “Virtual Power Plant” • Operation: Avoid Parallel Path / Loop Flows • Environment: Avoid AC Line Siting, EMF Issues • 2020 Vision: Separate Grid into AC “Islands” Connected by Controllable DC “Bridges” • Improved Stability and Reliability • Make the System Function as the Economists Want it to!

20. Distributed SMES: Attacks the Power Bandwidth Problem • Power Transmission Lines Never Operate at Full Capacity (“or “Bandwidth”) • Our Least Expensive “New” Grid Capacity: The Capacity that Already Exists but Can’t be Used • At What Fraction of Maximum Bandwidth are Your Utility’s Power Lines Operating? • U.S. Average = 35% !

21. Old Solution- String More Lines!

22. A New Solution - SMES • Power electronics and superconductors • Most effective • Lowest cost • Quickest solution • No environmental permits

23. SMES Basics Proprietary Storage Technology... Coil of LTS wire stores enough energy to deliver 3 megawatts of power in one second.

24. SMES Products …Plus Proprietary Power Electronics Technology Delivers megawatts of real power instantaneously and simultaneously with megaVARS of reactive power.

25. PQ SMES: Precise Power Quality Protection LINE VOLTAGE (IN) LOAD VOLTAGE (OUT)

26. D-SMES: Wide Area Grid Stabilization 1.1 1 D-SMES 0.9 0.8 Base Run - 115kV 0.7 0.6 Relative Voltage 0.5 0.4 0.3 0.2 0.1 0 0 0.5 1 1.5 2 Time in Seconds

27. D-SMES vs. Conventional Overhead Lines • Effective alternative where existing lines are stability-limited (vs. thermally limited) • Eliminates siting & political obstacles • Quick installation (2 days) • Mobility -- avoids stranded asset risk

28. WPS Northern Loop (No. Wisconsin) D-SMES • First permanent use of superconductors in a live grid • 6 units deployed in July 2000 • 3 MVAR reactive power capacity (2.3x short term overload capability) 100 miles

29. 6 D-SMES Added Operating in the RED ZONE Dynamic Voltage Limit WPS Northern Loop 350 Thermal Limit 300 Current Operation 250 200 AvailableLoad Serving Capability, MW 150 100 50 0 Six D-SMES: 15% Safe Increase in Power Bandwidth

30. Entergy Gulf States (East Texas) D-SMES • Two units in 2001, two more in 2002 • 8 MVAR reactive power capability (2.3x overload) • D-SMES built into Entergy’s strategic planning process

31. Four D-SMES Added Operating in the RED ZONE Dynamic Voltage Limit Entergy Gulf States 1900 Thermal Limit 1800 1700 1600 Current Operation Available Load Serving Capability, MW 1500 1400 1300 1200 1100 1000 Four D-SMES: 20% Safe Increase in Power Bandwidth

32. D-SMES: Uses and Benefits • Utility: Increase Load Serving Capability Over Existing Lines -- Maintain Reliability Objective • Trader / Marketer: Increase Import / Export / Transfer Capacity -- For a Slice of the Benefit • System Planner / IPP: Facilitate Interconnection of New Merchant Generators -- and “Fill in Holes” Caused by Retirement of Older Generators • Environmental / Emissions Trading: Reduce Need for Dirty Reliability-Must-Run (“RMR”) Units -- Generate / Claim / Trade Valuable Credits

33. A Stronger Grid Gives Rise toSystem-Level Benefits • Enable Closer Adherence to Economic Dispatch (Fuel Efficiency and Air Quality Benefits) • Better Integration of Remote Resources including Coal/Nuclear and Renewables (Solar/ Wind) • Integrated “National Grid” Can Save $10Bs in Generation Investment to maintain Reserve Margin • Reduced Congestion Is Essential to Ensure the Success of New Retail Competitive Frameworks

34. The Problem For Utilities that Operate Under Traditional Cost-of-Service Regulation, Investing in Transmission Assets to Reduce Congestion is Unprofitable… or Worse.

35. Some Level of Transmission Constraints is Economically Efficient Benefits of Relieving Constraint Dollars Invested Economically Desirable Level of Constraint Cost of Relieving Constraint Number of Hours Constrained

36. What Determines “Optimal” Constraint?The Form of Regulation Matters!! Large RTO Internalizing All Congestion Costs Dollars Invested Vertically-Integrated, Local Regulated Utility Unbundled DISCO under Cost of Service Unbundled DISCO under Multi-Year Price Cap VI Utility with Non-Regulated Marketing/Generating Affiliate Number of Hours Constrained

37. Network Investment: The Key to Robust Competition • Telecom, 1970s: “No One Will Replicate the Existing Communications Network” (1980s-90s: Fiber Optic, Wireless Networks) • Natural Gas, Early 1980s: “A Sunset Industry” (1990s: New Pipelines, Compression, IT) • Airlines: Landing Gates Key to Mitigating Incumbent Market Power (the O’Hare Problem) Competition in Commodities Spurred by Competition in the Building of Network Facilities

38. Incentives to Strengthen the Grid: Regulatory and Legislative Actions • Move RTO Focus From “Congestion Management” to “Congestion Relief!” • Performance-Based Regulation (a la UK) • Mandatory Reliability Standards • Coordinate Development of Road, Railway and Utility Infrastructures • In the Long Run, the Most Stable End Point Will Be True Network-Based Competition.

39. Stimulating New Grid Investment:“Exempt Transmission Facilities” • Applies to New Facilities -- Not Existing AC Network • Must Meet Low Environmental Impact Standard • Technologies with Controllable Current (Avoid Impact on Underlying AC Network Flows) • ETFs Have No Recourse to Eminent Domain • Show Absence of Market Power (Size, Ownership)

40. Proposed Benefits of ETF Status • Exemption from Rate Regulation under FPA • Eligibility for Streamlined/Federalized Siting Process Modeled on Interstate Natural Gas Pipelines • Exemption from Open Access Requirements under FERC Order 888 / 2000

41. “Break the Gridlock!”Thank You!Questions?jhowe@amsuper.comwww.amsuper.com