MEC: Customer Profitability Models

TopicDSM – DR, Advanced EE and Dispatch Ability

Jesse Langston, OG&EOct 20th 2013

Situation

Current State

•Current EE programs focus on customer savings and cost recovery, but not earnings

•Metrics for Regulatory commissions focuses on energy reductions rather than demand reductions

•Utilities investing in a significant level of technology but may not be taking full advantage

• Smart Meters / Dumb Rates• Smarter demand side options

How can we build profitable model business models in this dynamic

environment?

How do we balance the needs for cost recovery and also innovate?

MEC Questions

OG&E Shifting Emphasis from EE to DR Programs

• Serves 800,000 customers in Oklahoma and Arkansas.

• Demand Response– 80,000 Customer – Dynamic Pricing– No Direct Load Control– Smart Grid Integrated

• Energy Efficiency Programs– Lost Revenue & Incentives

• Other– RTP, GFB, Wind and Rate tamer

4

DR overall value to customer is high and behavior is predictable (Future dispatchable program?)

2012 and 2013 OG&E Smart-hours program results

5

When given the option, 73% of customers would choose according to their personal preferences vs. standard tariffs

2013 OG&E conjoint study

Today Tomorrow

Next Gen

ROI& Risk

MEC Question: How can we build profitable model business models in this dynamic

environment?

Home Energy Efficiency

Commercial Standard

Offer

Smarthours Thermostat

Price ResponseSmart Grid

Integrated LED Lighting

Guaranteed Flat Bill

Solar PV installatio

n

Community Renewable with Price Guarantee

Smart Grid as a Utility Service

Smart Grid Integrated LED

Lighting

High Efficiency Lighting

Integrated Volt Var

Control

Implemented programs

Programs under development

Yesterday

Today

Tomorrow

ROI& Risk

OG&E Product and Service Evolution

MEC Question: How do we balance the needs for

cost recovery and also innovate?

Program Category

Program Example

Annual Investment

Investment Type

Regulatory Treatment

Per Participant

Benefit

Non Participant

Impact

Net Program Contribution

to Net income

Income Contribution

Source

Range of Return

Uncertainty

Traditional DSM

Weatherization

$5.6MMContractor Services

Program Cost

Recovery; Lost Margin Recovery;

Performance Incentive

2752 KwH savings;

$1979 rebate

6.8 Million Kwh 1.23 TRC

$75K Program

Incentive Very Low

Capital Investment Demand Response

Smarthours (Thermostats

with Price response)

$14.4MM

Capital for Thermostats

and Installation

Program Cost

Recovery; Lost Margin Recovery; Return on Invested Capital

$200 annual bill savings

53MW from system peak

1.18 TRC$1.1MM

Return of invested capital

Low

Below the Line Customer Programs

Guaranteed Flat Bill

$212K

Marketing Promotion

and Administratio

n

Customers rebilled on standard

rate; Shareholders take risk

on difference

Price security of fixed bill

NA $2.0MMRisk

adjustment to bill

High

Partnership Venture Programs

Smart Grid as a Service (Municipal

Utility)

$1.8MMAdditional Network Facilities

Permission to use utility

regulated assets

Reduced operational

benefits $8.7MM NPV

Reduced network cost

for OG&E customers $650 NPV

$250K Service Fees Moderate

9

The “Secret Sauce” is having a product plan continuum that meets broad customer needs

Smart Grid Enhanced

*

10

Keys for success • Ability to effectively market

and offer strong customer value

• Requires effective regulatory strategy

• Ability to evolve as technology improves

• Flexibility to improve business models and market approach