1. Change the Equation
John McCue
and Ben Jones
Deloitte LLP
September, 2013

2. Copyright © 2013 Deloitte Development LLC. All rights reserved.1 What will the U.S. power industry look like in the future?
“The Math”
Source: ‘The Math Does Not Lie: Factoring the Future of the US Electric Power Industry’ – Deloitte Energy & Resources Dbriefs, Jan
2013
Cost per
kWh
Sold
($/kWh)
• Generation, Transmission,
Distribution additions
• Environmental and safety
compliance
• Renewable portfolio standards
• Nuclear regulations
• Cost of capital / Interest rates
Capital Costs
• Cost of fuel
• Incremental operating
costs of environmental
compliance retrofits
• New operating
technologies
Operating Costs
• Weather
• New sources of demand
• Changes in the economy
• Technological advances in energy
efficiency
• Customer behavior and attitudes
kWh Consumed
“The Numerator”
“The Denominator”

3. Copyright © 2013 Deloitte Development LLC. All rights reserved.2 What will the U.S. power industry look like in the future?
The Denominator
(kWh Demand)
New sources of demand
Impact of recession
Efficiency technology
advances
Distributed generation
The Numerator
Operating Costs
Fuel
• (Natural gas at historic lows)
Emissions retrofits
New technologies
The Numerator
Capital Costs
New Generation
• Aging plants
• Early retirements
New Transmission and Distribution
• Reliability
• Smart grid
• Integrating renewables and distributed
generation
Environmental — Emissions Restrictions
• Capital retrofits
• Parasitic load
Renewable Portfolio Standards
Interest rates
“The math” — Major trends
Forecasting the Variables

4. Copyright © 2013 Deloitte Development LLC. All rights reserved.3 What will the U.S. power industry look like in the future?
• Achieving the promise of AMI
– Reduced field visits
– Distribution Management and Transmission Enhancement
– Improved Outage Management
– Reduced Theft and Fraud
• Mobile-enabled field service
• Customer mobility applications
Technology to Reduce Operating Costs

5. Copyright © 2013 Deloitte Development LLC. All rights reserved.4 What will the U.S. power industry look like in the future?
The Denominator
(kWh Demand)
New sources of demand
Impact of recession
Efficiency technology
advances
Distributed generation
The Numerator
Operating Costs
Fuel
• (Natural gas at historic lows)
Emissions retrofits
New technologies
The Numerator
Capital Costs
New Generation
• Aging plants
• Early retirements
New Transmission and Distribution
• Reliability
• Smart grid
• Integrating renewables and distributed
generation
Environmental — Emissions Restrictions
• Capital retrofits
• Parasitic load
Renewable Portfolio Standards
Interest rates
“The math” — Major trends
Forecasting the Variables

6. 5 Copyright © 2013 Deloitte Development LLC. All rights reserved.What will the U.S. power industry look like in the future?
“The Three Rules”
Deloitte’s research shows how certain exceptional companies
deliver superior performance over the long run despite facing
similar constraints
About the Study
• Reviewed more than 25,000 companies spanning 45 years
• Focused on cash flow return on assets, an objective measure of strong,
stable performance
• Identified 344 exceptional companies – either Miracle Workers or Long
Runners
• Used rigorous statistical methods to identify and analyze the common
characteristics of long term excellence and found only three
The Three Rules for Success
1. Better before cheaper – compete on differentiators not price
2. Revenue before cost – prioritize increasing revenues over reducing costs
3. There are no other rules – change anything/everything in order to abide by the first two rules

7. Copyright © 2013 Deloitte Development LLC. All rights reserved.6 What will the U.S. power industry look like in the future?
• Enhanced support for Energy Efficiency
• Extend Demand Response programs
• Leverage “Big Data” through advanced Analytics:
– Develop innovative rate plans to incent behavior
– Provide energy management as a service
– React to real-time customer feedback to improve satisfaction
Cracking the Code – Customer Needs

8. 7 Copyright © 2013 Deloitte Development LLC. All rights reserved.What will the U.S. power industry look like in the future?
“The Math” - Avenues to Evaluate
• Reduce, restructure, defer controllable
costs
• Leverage technology for efficiency,
effectiveness and connectivity
• M&A for scale & scope economies
• Rate reform to reflect the reality of “The
Math”
Reduce
numerator
• Increase electricity demand
– Electrification
– Attract new load
• Identify new regulated or unregulated revenue streams
– Energy efficiency products & services
– Acquire new revenue streams
– Alternative business models
Grow
denominator