POWERSECURE INTERNATIONAL, INC.

Litigation Relating to the Merger – On March 17, 2016, a putative class action lawsuit challenging the Merger (Note 2) was filed by a purported PowerSecure stockholder on behalf of all PowerSecure stockholders in the General Court of Justice of the Superior Court Division of Wake County, North Carolina. The lawsuit names as defendants PowerSecure, its directors, Southern Company and Merger Sub. The lawsuit alleges that the PowerSecure directors breached their fiduciary duties to PowerSecure stockholders by engaging in a flawed process to sell PowerSecure, by agreeing to sell PowerSecure for inadequate consideration and by agreeing to improper deal protection terms in the Merger Agreement. In addition, the lawsuit alleges that the entity defendants aided and abetted these breaches of fiduciary duty. The lawsuit seeks, among other things, an injunction barring the Merger, an accounting for damages and attorneys’ fees. The defendants believe that the lawsuit is without merit. The ultimate outcome of this lawsuit cannot be predicted

Our Solar Energy business significantly expanded in 2015 under awards from Georgia Power, one of the largest investor-owned utilities in the U.S., to provide utility-scale solar installations that we currently expect to generate a total of approximately $120 million in revenues during 2015 and 2016, including revenues from such projects that we have already recognized. In July 2014, we entered into two Engineering, Procurement and Construction Agreements (“EPC Contracts”) with Georgia Power. In July 2015, we entered into a third EPC Contract with Georgia Power. The July 2015 EPC Contract was subsequently terminated, by mutual agreement, on March 23, 2016. In connection with the termination agreement, we transferred to Georgia Power all of our rights, duties and obligations under our solar panel supply agreement, and Georgia Power agreed to pay us approximately $3.2 million, which is equal to the sum of the deposit paid by us to the solar panel supplier and the amount owed by us for certain engineering work product. In addition, Georgia Power fully released and discharged the underlying payment and performance bond. We did not incur any termination fees or penalties as a result of the termination of the July 2015 EPC Contract.

On March 31, 2016, the U.S. Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Act with regard to the Merger, and on May 5, 2016, at a special meeting of shareholders of the Company, the holders of a majority of all outstanding shares of our common stock voted to approve the Merger, thus fulfilling two of the primary conditions to complete the transaction. Accordingly, as of the date of this report, the Company expects to complete the Merger on or around May 9, 2016.

During April 2016, we determined that our costs to complete two large utility-scale solar projects would be substantially in excess of our prior estimates and that a loss would be incurred to complete the contracts. In accordance with generally accepted accounting principles, we recorded an aggregate cost adjustment on the two contracts during the three months ended March 31, 2016 in the amount of $6.5 million representing the full amount of the loss we expect to incur, which is included in our cost of sales during that period. We currently do not anticipate recording any additional losses to complete these two contracts, but additional losses may be incurred if future events are different from our assumptions, and those losses may be significant. The scheduled substantial completion and placed in service dates of the two utility-scale solar contracts range from August 1, 2016 to October 1, 2016.

Our first quarter 2016 gross margin as a percentage of revenue decreased to 8.8%, compared to 26.8% in the first quarter 2015, on a consolidated basis. Distributed Generation segment gross profit margins were 21.5% in the first quarter 2016 compared to 38.6% in the first quarter 2015. Solar Energy segment gross profit margins were a negative 26.7% in the first quarter 2016 compared to 9.7% in the first quarter 2015. Utility Infrastructure segment gross profit margins were 12.2% in the first quarter 2016 compared to 13.3% in the first quarter 2015. Energy Efficiency segment gross profit margins were 33.6% in the first quarter 2016 compared to 37.0% in the first quarter 2015.

The year-over-year gross profit margin decrease in our Solar Energy segment was primarily driven by a $6.5 million cost of sales adjustment due to costs expected to be incurred to complete two utility-scale solar projects in excess of prior estimates, which reduced our gross profit and gross profit margin during the first quarter 2016. In accordance with generally accepted accounting principles, since we now expect to realize a loss on the contracts underlying those two projects, the full amount of the cost of sales adjustment was recognized in the first quarter 2016 versus over the remaining contract period. Our Distributed Generation gross profit and gross profit margin was affected by the volume of revenue in the first quarter 2016, which was less than we had anticipated as discussed above. Portions of our Distributed Generation cost of sales are relatively fixed over the near-term. Therefore, the lower than anticipated Distributed Generation revenue level during the first quarter 2016 combined with the fixed portion of our costs of sales resulted in a higher cost of sales as a percentage of revenues, lower gross profit, and a reduction in our Distributed Generation gross profit margin during that period. The decrease in our Utility Infrastructure segment gross profit margin is due to a reduction in operational

underlying those two projects, the full amount of the cost of sales adjustment was recognized in the first quarter 2016 versus over the remaining contract period. In addition, our Distributed Generation gross profit and gross profit margin was affected by the volume of revenue in the first quarter 2016, which was less than we had anticipated as discussed above. Portions of our Distributed Generation cost of sales are relatively fixed over the near-term. Therefore, the lower than anticipated Distributed Generation revenue level during the first quarter 2016 combined with the fixed portion of our costs of sales resulted in a higher cost of sales as a percentage of revenues, lower gross profit, and a reduction in our Distributed Generation gross profit margin during that period. The decrease in our Utility Infrastructure segment gross profit margin is due to a reduction in operational efficiencies within our UtilityServices operations, despite the overall increase in gross profit. Our Energy Efficiency segment gross profit margin decrease was driven primarily by the reduction of sales of our higher margin LED products in the first quarter 2016 compared to the first quarter 2015. Our Distributed Generation, Utility Infrastructure and Energy Efficiency segment gross profit margins also decreased due to differences in the mix of projects period-to-period.