Bandera Electric Cooperative, Inc.

1. Making the Business Case for Smart Grid at Bandera Electric Cooperative, Inc.Presented by:Brian D. Bartos, P.E.Manager, Engineering & OperationsSouthwest Electric Distribution ExchangeApril 27, 2011

2. Bandera Electric Cooperative, Inc. • Located in the Texas Hill Country in all or parts of seven counties: Bandera, Bexar, Kerr, Kendall, Medina, Real, and Uvalde • 104 miles of transmission ~4,400 miles of distribution • ~32,000 meters • 203 MW peak demand (winter) • 140 MW peak demand (summer) • 550.7 million kWh sales in 2010 • (~90% residential) • 2.5-2.8% growth rate/year • $155.1 million in total assets • NERC Registered as a Transmission Owner, Transmission Planner, Distribution Provider, and Load-Serving Entity Austin BEC San Antonio Southwest Electric Distribution Exchange -- April 27, 2011

3. So, Why Would Bandera Electric begin to look at Smart Grid? Southwest Electric Distribution Exchange -- April 27, 2011

4. In 2008, Looking Ahead Strategically, BEC saw… • An industry in unprecedented change • Technology, regulation, expectations, reliability, aging assets, security issues, national economy faltering • High natural gas prices  higher electricity costs • BEC was negotiating a Power Supply Agreement (outcome uncertain at that time) • Increasing awareness of conservation, distributed generation • Reliance on increasing kWh sales was questioned • Workforce in transition • Combination of valuable, experienced aging employees; and, inexperienced, but very talented, young employees • Business model no longer effective • We still believe strongly in the Cooperative model, but concluded…. Southwest Electric Distribution Exchange -- April 27, 2011

5. BEC’s processes and infrastructure were suited for success in the 1970-80s and not for 2010 and beyond Southwest Electric Distribution Exchange -- April 27, 2011

6. BEC in 2005 Southwest Electric Distribution Exchange -- April 27, 2011

7. Beyond the Obvious, BEC had to change Our current way of doing business would not sustain the Cooperative for the long-term • Too much paper • “We’ve always done it this way” • Systems lacking and/or isolated and not integrated • Lack of data infrastructure • Technology only in IT • No plan • Processes were not streamlined • Outage Management • Staking & Line Construction • Member bill payments • All employees were not fully engaged • Financially, we could not afford to keep the status quo Southwest Electric Distribution Exchange -- April 27, 2011

8. We Assessed Our Financial Situation We looked at where the money goes • Power Purchases • Operating Costs (Salaries, Benefits, Maintenance, etc.) • Debt Coverage (Interest & Principle) • Capital Credits Obviously, much depended on the ultimate resolution of our Power Supply Agreement negotiations. We concluded that while our current financial situation was good; if we didn’t make necessary changes, our financial situation would deteriorate over the next five years. We examined where the money comes from • Availability Charge • kWh Sales • Membership Equity • Aid-to-Construction • Fees • Non-Electric Revenues • Debt Southwest Electric Distribution Exchange -- April 27, 2011

9. We Examined Our Reliability While we receive few complaints regarding our service reliability, we determined that… • We were very pleased with our SAIFI results • BEC’s results indicate the Cooperative continues to be in the top quartile of all US cooperative’s in terms of SAIFI. • We were less pleased with our SAIDI and CAIDI results • Assessments indicated a significant improvement needed in this area. BEC ranked below the national cooperative average. In short, we didn’t have many outages; but when we did, they tended to last longer than they should Southwest Electric Distribution Exchange -- April 27, 2011

10. We Assessed Our Member Services While BEC has always enjoyed high levels of Member satisfaction according to Member surveys, it was determined that…. • Our phone and CIS systems did not facilitate advanced Member service • The methods available for our Members to pay their bills were antiquated • Our Members had little information available to them to better manage their energy use • We could do little business after-hours with our Members, with the exception of outage reporting • Rarely could we give our Members the “Right Answer, Right Away” In short, our Members could not do business with us anytime it was convenient for them or in the manner they wanted Southwest Electric Distribution Exchange -- April 27, 2011

11. We Examined Our Data Structure We knew this area was of most concern going forward. Our assessment confirmed that…. • Systems/applications were “daisy-chained” together making integration or change-out extremely difficult • Data entry had to be duplicated in almost all systems • Technology expertise resided only in our IT department • IT drove the business instead of the business driving our IT solutions • Business applications & systems were “turf-protected” by IT • We had plenty of good ideas, but no IT or Technology Plan and was having a difficult time making it happen In short, we concluded that we could not go forward without a major overhaul of our IT infrastructure. This would be a deal-breaker if not completed. Southwest Electric Distribution Exchange -- April 27, 2011

12. After a comprehensive strategic & tactical assessment of every facet of the Cooperative’s operations, we continued to come to the same conclusion: Our current way of doing business would not sustain the Cooperative or serve our Members satisfactorily for the long-term Southwest Electric Distribution Exchange -- April 27, 2011

13. We Knew Strategically, We Needed To… • Strengthen our financial position • Successfully conclude our Power Supply Agreement negotiations • Automate and streamline as many business processes as possible • Begin the move toward a paperless organization • Reorganize and realign our business structure for success in the 2010s, not the 1980s. • Engage every employee -- Empower & hold accountable • Contract with a technology consultant to develop a Technology Plan • Completely rebuild our IT infrastructure to create a data warehouse concept • Integrate Operational Data and create Business Intelligence • Data needed to be viewed as a Cooperative asset • Create a SMART electric infrastructure – BEC’s Smart Grid Vision Southwest Electric Distribution Exchange -- April 27, 2011

14. BEC’s Smart Grid Southwest Electric Distribution Exchange -- April 27, 2011

15. What Exactly is a Smart Grid? First off, despite all the hype, there is no single universally accepted definition of Smart Grid. Infinite possibilities – infinite challenges • Many different pieces (no one product) • Can’t just buy one in a box • Uncertain definitions of what it is • Everybody is selling something “Smart” • Varying goals (depends on who you ask) • What are the costs? Benefits? Risks? • How do we get the most out of it? • Will anyone use it? Southwest Electric Distribution Exchange -- April 27, 2011

16. BEC’s Vision of Smart Grid BEC’s Smart Grid vision is… …a fully-integrated IT infrastructure composed of sophisticated data management tools which provide for a highly integrated Meter Data Management System in which resides advanced metering and advanced Distribution Automation information; as well as, back-end software systems that provide integrated control of outage management, asset management, customer information, billing, energy management and other advanced applications. In short, at BEC, our Smart Grid is intended to: Improve Reliability and Enhance Member Satisfaction Southwest Electric Distribution Exchange -- April 27, 2011

17. BEC’s Smart Grid Model Southwest Electric Distribution Exchange -- April 27, 2011

18. So, What has BEC Accomplished Since 2009… In pursuit of BEC’s Smart Grid Vision, we have… • Rebuilt entire IT infrastructure to include a MDMS as the data warehouse • Completed change out program to a smart meter • Completed a complete GIS audit – GPS every asset location • Introduced new Member services such as Smart Watch • Implemented a new automated staking system integrated with CIS • Implemented a new Outage Management System with Automatic Vehicle Locating • Implemented automatic service disconnects • Implementing a new GIS/Asset Management system • Implementing a new SCADA system • Implementing a new Mobile Workforce Management system • Piloting new fault locating / auto-sectionalizing system • Piloting new voltage control systems • Commissioned a new 24x7 state-of-the-art System Control Center Southwest Electric Distribution Exchange -- April 27, 2011

19. BEC in 2011 Southwest Electric Distribution Exchange -- April 27, 2011

20. The Challenges of System Integration… Successful Smart Grid system integration requires that you… • Demand Open systems • Expect difficulties in the integration • Hold vendors accountable • Expect resistance to change • Understand that these integrations are more complex than single technology integrations • Install & maintain new sophisticated databases • Demand cooperation among multiple departments Southwest Electric Distribution Exchange -- April 27, 2011

21. Some Lessons Learned… BEC is not finished with its Smart Grid plan, but some lessons learned so far include… • Must have your Board of Directors and executive management unwavering support. • Must have a comprehensive Smart Grid vision & Technology Plan. • Do only what makes strategic business sense • Must review all business process – be unsympathetically prepared to jettison outdated processes that no longer bring enterprise value • Make sure all sacred cows are looked at • Seek benefits through advanced integration • Have a solid project management plan. Consistently evaluate progress – don’t be afraid to make changes; • Speed up, Slow down, or Exit • Don’t neglect a change management process with your employees Southwest Electric Distribution Exchange -- April 27, 2011

22. Final Lesson Learned… ABOVE ALL ELSE, remember if your Smart Grid plan does not: Improve Reliability or EnhanceMember Satisfaction Then you have probably wasted your time and your Member’s money. Southwest Electric Distribution Exchange -- April 27, 2011

23. Questions