New England ElectricityRestructuring Roundtable

The Electric Utility of the (Near?) Future

David R. McHale

EVP, Chief Administrative Officer

Northeast Utilities

June 27, 2014

NU Overview

NU serves 525 cities & towns throughout New England; Massachusetts, Connecticut and New Hampshire

Providing reliable electric and natural gas service to 3.6 million electric and natural gas customers

Comprised of:• Four electric companies• Two natural gas companies• One three-state electric transmission business

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Current State

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DeliveringReliable Energy

Superior Customer Service

Utility of the Future

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• Cleaner, more sustainable energy• Distributed energy resources • Energy security and independence• Competitively priced

The “utility of the future” will evolve to support an environment of clean energy, an integrated grid and customer engagement

Generation

The Grid

Customers

Business Model

• More resilient• Smarter• Integrated

• Knowledgeable• Empowered• Self-reliant

• More sustainable• Decoupled and repriced• Incentivized

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“Utility of the Future” Drivers

Market changes that will require a “two-way” modern

grid

Emerging disruptive

technologies and digital strategies

Increasing customer

expectations

Shifting end-user consumption

patterns

Rising energy prices and delivery

constraints

Clean energy mandates and

subsidies

Utility of the future is driven by a convergence of energy policies, market shifts, technology advancements and rising customer expectations

Utility of the Future Drivers

U.S. Electricity Demand Trends

U.S. Electricity Demand — Rate of Growth

Source: EIA Annual Energy Outlook

One key driver is the projected low growth in electricity consumption in New England and the rest of the US

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The Quest for Cleaner Generation

The quest for low-carbon and renewable energy resources is driving significant change throughout New England power markets

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CT

MA

9484

71

19

4441

40

9

0

20

40

60

80

100

120

140

160

1990Actual

2010Actual

2020Target

2050Target

138 20% reduction

75% reduction

125111

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• Massachusetts and Connecticut have statutes which call for a reduction in carbon emissions of 80% by 2050 (from 1990 baseline)

• Equally, the States have aggressive renewable portfolio standards; 22.1% by 2020 for MA and 27% by 2020 for CT

• There exists a significant gap between installed renewables in the region and longer term requirements

CT & MA Greenhouse Gas Emission TargetsMillions of tons of CO2

Attributes of the Modern Grid

Development of a modern grid will require investments to make it resilient, smart and integrated

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Resilient Smart Integrated Resilient Smart Integrated

Self-healing, line and substation automation

Situational awareness during outages and “blue sky” events

Enterprise-wide outage management capabilities

GIS asset and locational mapping; mobile workforce technology solutions

Asset hardening to protected against weather-related events, particularly flooding and severe winds

Pro-active vegetation management and tree clearing

Protected from physical and cyber threats

Two-way power flows

Distributed energy resources and micro-grids

Advanced metering capability

Electric vehicles

New products, services, market entrants

Underlying goal of increasing system and capital investment efficiency

Engaging and Empowering Customers

Personalize Inbound Customer Interactions

Personalize Inbound Customer Interactions

Personalize Outbound CommunicationsPersonalize Outbound Communications

Generate Actionable Customer InsightsGenerate Actionable Customer Insights

Resulting in…

Continuous Customer Engagement and Satisfaction

Continuous Customer Engagement and Satisfaction

Increased Energy Efficiency Program Participation

Increased Energy Efficiency Program Participation

“Personalized Ways to Save” and an Improved Customer Experience

The Launch of New Customer Engagement PlatformsThe Launch of New Customer Engagement Platforms

Leading-edge customer engagement capabilities through tailored solutions, data analytics and digital/social media channels

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Regulation of the Future

The “utility of the future” will require “regulation of the future” to ensure alignment among policy makers, customers and investors

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Modern Grid

Modern Grid

Smart Technologies

Smart Technologies

Integrated Solutions

Integrated Solutions

“Utility of the Future”“Utility of the Future”

Customer Centric

Customer Centric

Operating Environment

• Modest sales growth

• Price pressures

• Higher reliability demands

• Increasing expectations

• New market entrants

• Grid independence

• Security threats

Re-examine cost allocation, subsidies, rate-making principles

Rate design and pricing

Metering policies

Cost recovery

Performance incentives and metrics

Alignment

“Regulation of the Future”“Regulation of the Future”

NU’s Solutions for the Future (and Today)

Investments in additional transmission capacity to enable low-carbon and clean energy sources

Investment in additional gas pipeline capacity and related infrastructure

Advance and modernize the electric grid to drive reliability and situational awareness

Continued investment in energy efficiency with emphasis on innovation, financing and tailored customer solutions

Engage and empower customers through innovative partnering, tools, analytics and social media

Explore new regulatory business models and approaches, including pricing alternatives

Future State Mission – Reliable Energy and Superior Customer Service

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