Utility Customer Profitability Analysis Paul Grey Chief Technology

Systems Experience in International Energy Markets Peace launches browser-based customer care for utility call centers First millionconsumer installation First North American regulated and competitive Peace installations Australia deregulates C&I Peace pioneers industry’s first Internet selfservice 11 -state regulated multi-jurisdiction implementation Australia and Texas full retail competition First Peace Australian utility client New Zealand deregulates energy sector 1980 s Confidential Information First Peace utility CIS 1989 1994 1995 1996 1997 1998 2000 2002 2004 © 2003 Peace Software Inc. All Rights Reserved

Energy Retail Cost to Serve Total Revenue Retail Customer Profitability Retail profit contribution Retail Customer care Distribution Collections Transmission Generation Bill presentment Retail cost to serve Billing Receipting Overhead Confidential Information © 2003 Peace Software Inc. All Rights Reserved

Focus on Cost and Efficiency From overall cost focus. . . Retail operational costs . . . to individual customer contribution % of total profit Cumulative Customer Profitability 350 300 250 Billing Call center 200 150 Co ll io ect ns Payment processing Confidential Information Meter Ov er ing he ad 100 50 0 20 More profitable 40 60 80 100 Less profitable % of customers © 2003 Peace Software Inc. All Rights Reserved

The Profitability “Whale Curve” Percentage of total profit 20% of customers can contribute 300%+ of overall profitability 60% customers are around break even 20% customers can erode 200% of the bottom line More profitable Less profitable Percentage of customers Confidential Information © 2003 Peace Software Inc. All Rights Reserved

Customer Profitability Model Customers Margin drivers Customer profile Cost drivers Confidential Information Customer Profitability Analytical Engine Individual customer cost-toserve & profitability © 2003 Peace Software Inc. All Rights Reserved

Customer Profitability Analytical Engine Margin drivers Customer profile Identify and retain profitable customers Customer Profitability Analytical Engine Cost drivers Individual customer cost-toserve & profitability Customer profitability adds to the customer profile Understand the value of each of your customers Target operational initiatives for maximum profitability impact Advanced CIS delivers operational value Confidential Information © 2003 Peace Software Inc. All Rights Reserved

CPA – Where’s the Value? Planning Operations n Better understand your customer base n Priority customer care n Know what questions to ask n Identify opportunities for operational improvement n Retention programmes and promotions n Better qualify prospective customers Strategic business improvement n “What-if” business planning tool n Assess potential impact of changes, costs, initiatives n M&A customer valuation Confidential Information © 2003 Peace Software Inc. All Rights Reserved