SEM Executive Board Meeting

1. SEM Executive Board Meeting Fred Fastiggi, CEM Vice President – Energy Services Tom Brys, CEP Director – Technical Services

2. Agenda Gas Auction Recap Lessons Learned Where has Market gone since Auction? Update on Voucher / PO System Other Issues Electric Primer Deregulation of Electricity Electric Pricing Distribution Channels for Electricity Fixed Price Accounts versus CIEP Accounts BGS-Basic Generation Service Locational Marginal Pricing Body Politic Lighting

3. Gas Auction Recap Two auction conducted January 22, 2010, no bids below Price to Compare, market was running up as the auction was being conducted February 9, 2010, two bids below PTC received, contract with Woodruff accepted April 1, 2010 through March 31, 2011 is contract term at $8.84 per decatherm or $0.884 per therm First auction went OK but this is a continuous learning experience

4. Education, Education, Education Can’t assume members understand all facets of this process, need to continuously educate Prevents buyer’s remorse Keeps us (SEM) out of trouble Eliminates costly and time consuming complaints or questions post auction

5. Lessons Learned Need to start earlier in prepping suppliers Who they will be selling to, deal with issues like- Credit Contract Concerns / Language Sort out truly interested suppliers from tire kickers Provide whatever is needed within reason to facilitate participation by as many suppliers as possible Timing of PTC decision, notices to members and auction execution is a key challenge Discuss general guidelines earlier with target ranges specified so we know what we want in terms of price and can act when the market offers attractive pricing Understand and manage timing of notifications and opt out requirements

6. Where has the Market Gone since Auction?

7. What does this mean? Realized price if auction conducted today would drop by approximately 47 cents per dekatherm from February 9, 2010 contract price of $8.84 Prices near historical lows, so although our price is higher than if we bought today, still relatively low when compared to recent history DOE weekly report on natural gas says: Weather has moderated for much of the country resulting in a decrease in gas for space heating A strong outlook for US supplies is likely primary factor leading to price declines in recent weeks Significantly colder than normal temperatures in producing regions contributed to lower gas in storage when compared to prior year Natural gas consumption has been rising for both space heating, commercial use and electricity generation when compared to prior years Conflicting signals on gas pricing indicators from DOE Objective was relatively attractive price with budgetary certainty Won’t really know how we did until April 1, 2011 when we can perform a retrospective analysis with actual prices Can “blend and extend” in the future if prices continue to drop, averaging down overall price

8. Update on Voucher Invoicing Coordinating and Communicating with Woodruff over the past week and a half on use of vouchers on invoices Woodruff claims: Their language on back of invoice is adequate for using voucher system Have been registered and approved for years by DCA We will verify with DCA that this is in fact the case but not sure we agree with Woodruff Otherwise have until 3/24 for Woodruff to get application in for April 14 meeting where approval is given Woodruff has also used blanket PO system and offered that as an option if members want it

9. Gas Review Any other issues we should note, discuss or work on going forward regarding gas solicitations?

10. Electric Primer - #1

11. Electric System Generation Transmission Distribution Customer

12. Electric System 3 main components Generation Transmission Distribution Deregulated structure Generation/transmission made competitive Similar to commodity and interstate transportation on gas side Distribution system still regulated by public utility commission

13. Units of measure Demand/capacity Kilowatt (kW) 1000 watts, megawatt (MW) 1,000,000 watts Energy/usage Kilowatt-hour (kWh), megawatt-hour (MWh) When you burn ten 100 watt light bulbs for 1 hour, you have used 1 kwh (10 bulbs X 100 watts = one thousand watts) X 1 hour = 1 kwh Commonly used terms/acronyms Power pool PJM (Pennsylvania/New Jersey/Maryland) Independent system operator (ISO)

14. What’s in your Electric Bill? Today Three Main Categories, can have many parts to each. Example: Typical NJ Electric Tariff in the past, was structured as follows: Customer Service Charge (flat monthly fee) Energy Charge (per KWH used charge) Basic Generation Service Market Transition Charge Securitization Transition Charge MTC-Tax Distribution Charge Societal Benefits Charge Non-Utility Generation Transition Charge Demand (or Capacity) Charge (per KW and in some cases per KVA too) Generation Transmission Market Transition Charge Each of these charges may have, or has, sub-charges rolled into their rate component

15. Market Distribution Path for Electricity End Users

16. Retail Customers can Buy fromThird Party Suppliers End Users buy from a Retail (a/k/a Third Party) Supplier Retail Supplier gets their inventory from Wholesale Suppliers Wholesale Suppliers get their inventory from Wholesale Generators

17. Typical Electric Service SEM Members are either classified as: Fixed Price Accounts (FP) Commercial and Industrial Energy Pricing (CIEP) CIEP customers have peak demand of 1000 kw or greater Everyone has the ability to switch to a third party supplier but if you don’t your utility supplies “default” service which is provided under a the terms of a “BGS” (Basic Generation Service) rider CIEP customers have an additional charge in the default service of $0.00535 per kwh (“Retail Margin Adder) in their BGS charge to encourage them to switch to a TPS

18. What isn’t billed today by Utility if you switch to a Third Party Supplier (TPS)? Basic Generation Service + Generation Portion of Demand Charge + Transmission Portion of Demand Charge will not be billed, theoretically the sum of these three items should equal the “ Price to Compare” If you switch, the utility’s charge for these components of your monthly bill go away and will be replaced by charges from a Third Party Supplier for supplying these components If you choose to switch to a TPS, the component you can shop for is clearly shown on your current utility bill and is labeled as “BGS” or “Price to Compare”

19. BGS for Fixed Price Accounts Three Components in BGS or Price to Compare BGS Energy Charge – a per kwh charge that reflects the costs for energy, generation capacity, transmission and ancillary (PJM interconnection and administrative) charges BGS Capacity Charge – a per kw charge that reflects the customers generation capacity used during the summer peak load, i.e. the generation capacity required to satisfy your peak usage BGS Transmission Charge – a per kw charge that reflects the transmission capacity for the summer peak load on the transmission system that delivers electricity to your local distribution utilities interconnect point Once a year the BPU conducts an auction to secure BGS default service from wholesale generators For the June 1, 2010 to May 31, 2011 period, the auction resulting in a per kwh BGS price (does not include tax) of: $0.1037 in PSE&G’s territory $0.1043 in JCP&L’s territory $0.1068 in ACE’s territory $0.1100 in RECO’s territory

20. BGS for CIEP Accounts Three Components in BGS or Price to Compare Energy Charges (per kwh) – Real time hourly price price that includes: The PJM Locational Marginal Price for the LDC serving the customer Ancillary Charges (including PJM admin charges) A Retail Margin at the rate of $0.005 per kwh (before tax) BGS Capacity Charge (per kw) – reflects the customer’s overall summer peak load generation capacity required to service the customer. In PSE&G’s territory for 6/1/10-5/31/11, this is proposed to be $5.20 per KW (before tax) BGS Transmission Charges (per kw) – reflects the customer’s overall summer peak load transmission capacity required to service the customer. In PSE&G’s territory for 6/1/10-5/31/11, this is proposed to be $1.835 per KW (before tax)

21. CIEP Rate Components

22. Marginal Price

23. Next Steps on Electric Procedure? Default electric pricing starts June 1, 2010 Should have electric auction in the May time frame Working on getting account numbers from current SEM members Set March 31, 2010 cutoff for new members Meet with World Energy to talk through any supplier issues Market to suppliers to generate interest in bid participation

24. Body Politic Lighting PSE&G has a tariff (price sheet) called BPL (Body Politic Lighting). It has a bundled price that encompasses: Lease payment for the lighting fixture which PSE&G owns Electricity commodity Capacity and Transmission charges Local Distribution charges Customers are able to buy the Electric Commodity plus the Capacity and Transmission charges from a Third Party Supplier but the practice is not wide spread and is a little complex Need to request usage data from PSE&G

25. Body Politic Lighting Each fixture and lamp has a wattage rating included in PSE&G’s tariff that is peculiar to its type and manufacturer PSE&G also has a published “Burn Hour Calendar” they use to determine kwh usage for each particular fixture and lamp To get usage in kwh which is what suppliers need to bid we’d need usage which is the product of: Watt rating times burn hours We can request this from PSE&G by filling out their standard EDI form 867 request which asks for their “PODID” number on their bills Once this form is received, PSE&G will calculate and provide usage for submission to bidders Need to look at other Electric Utilities (JCP&L, ACE, RECO) to see if they permit TPS for lighting tariffs

26. Body Politic Lighting Not too many municipalities are doing Third Party Supply currently The default if PSE&G supplies power is the bundled rate included in the BPL tariff which uses the published BGS rate We know we are going to save versus the BGS rate so if the volume is substantial, we may want to include BPL in an auction Regular auction or Special auction just for BPL? Better load for a supplier (it is on during off peak times) SEM would probably get a better rate on this if we ran a separate auction but would the smoothing effects of night time load present an overall more attractive load if included with other government accounts?