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SCOTTMADDEN, INC. | 7 EARNINGS GROWTH STRATEGIES: LOOKING BEYOND “NO REGRETS” INVESTMENTS Utilities are shifting focus back to the core business, increasing grid investments, and testing expanded customer-centric offerings. Approach Strategy Examples “Reinforce the Tried and True” Continuing regulated investments in core infrastructure • Duke Energy plans to invest $5.1 billion in new generation, $4.9 billion in T&D expansion, and $8.1 billion in environmental, nuclear fuel, and discretionary additions by 2020 • Dominion Resources plans to invest $15.7 billion in T&D upgrades, new generation, an LNG facility, and a new gas pipeline by 2020 “Build the Platform” Accelerating investments in system digitization and automation • Exelon plans to invest $25 billion in critical infrastructure, smart grid technologies, reliability measures, and customer service programs across its regulated utilities by 2020 • Southern California Edison plans to invest $2.3 billion in DER-related upgrades by 2018 “Optimize the Rate Structure” Redesigning rates to reflect the changing industry landscape • Arizona Public Service is currently pursuing mandatory demand charges, a three-part rate, and a reformed lost fixed-cost recovery (LFCR) adjustment for its residential customers with rooftop solar • Sacramento Municipal Utility District now offers optional time-of-use rates for customers that own DERs and plans to expand its program to all customers in 2017 “Explore the (Relatively) Unconventional” Expanding into energy services • In March 2016, Edison International launched Edison Energy, merging four stand-alone service companies into one seamless offering for commercial and industrial customers • In February 2016, Southern Company announced its acquisition of PowerSecure, a 15-year- old business that focuses on building and managing distributed generation assets and microgrids “Consider the Inorganic” Assessing external growth opportunities through acquisitions and joint ventures • In August 2016, NextEra Energy proposed its $18.7 billion acquisition of Oncor Electric Delivery Company, which would bolster its position in Texas by adding a distribution utility to its current portfolio of merchant generation and regulated transmission assets • Dominion Resources, Duke Energy, and Southern Company have each recently announced major acquisitions of natural gas utilities and pipelines in an effort to diversify their regulated business mix Déjà Vu All over Again? After the initial wave of retail restructuring in the 1990s, utility-affiliated energy service companies (ESCOs) emerged to provide turnkey energy solutions linked with competitive commodity sales. Some flourished, some exited the market. Other non-utility ESCOs like AECOM and Ameresco grew as well. Utility ESCOs may be making a comeback now, as utilities seek other revenue streams. What’s different this time? A lack of core energy sales growth; improved, broader (think distributed solar), and cheaper technology; and internet-of-things linkages. Time will tell whether customers will pay for “negawatts” and ESCOs can keep their costs to deliver competitive with local vendors and large, well-scaled non-utility ESCOs. NOTES: DER means distributed energy resources SOURCES: SNL Financial; industry news; investor presentations; company annual reports; EIA; GTM; Rocky Mountain Institute