December 2, 2004

1. Connecticut’s Energy Future Financing Sustainable Energy December 2, 2004

2. Power Generation Financing New power generation assets are not financed by the incumbent utility They are financed by third party either on • On Balance Sheet • Structure Finance

3. Power Generation Financing Risk Profile “Merchant” Project Period Capital Investment $ Hangover Period RISK

4. Power Generation Financing On-Balance Sheet financing • full faith and credit • regulated environment • economic savings • merchant plant

5. Hangover Period • Announced sales of over $20 billion of power generating assets during the last two years • Assets sold usually include long term power purchase agreements • Merchant plants still remain in possession of creditors who refuse to accept lower risk adjusted offers

6. Meriden Plant Offer 49% completed 540 MW natural gas fired power plant located in Meriden, Connecticut. Plant owner had spent a total of approximately $268 million OLV worth approximately $40 million Bridge Loan commitment securing less than 50% of OLV

7. Structured Finance Simple principle for new plant investment • obligation to purchase power output • at a price and • over a period of time • from a credit worthy entity • that permits for the repayment of debt and the recovery of capital

8. Sustainable Energy Financing Connecticut leads the nation with major landmark energy legislation • PA 03-135 • DPUC Final Ruling Docket 03-07-17

9. Sustainable Energy Financing PA 03-135 • Provides for long term contract for a minimum of 100MW of Class 1 Power • Minimum of 10 years based on financing needs of project • Pricing at $0.055/kwhr plus the cost of conventional power

10. Sustainable Energy Financing DPUC Docket 03-07-17 • Describes process for eligibility, selection, targets and timetable • Provides guidelines for long term power purchase terms and conditions

11. Long Term Pricing Options • Price based on LMP at time of Project approval plus 5.5 cents per kwhr adder • Competitive selection process – but not necessarily on price • Variable pricing options • Fixed price plus adder • Indexed price model within band of +/- 40% of the average wholesale price.

12. Financing Model • Project Capital Structure • Debt - based on ratio of debt service to free cash after operating expenses • Equity - amount necessary to complete capital structure

13. Renewable Energy Capital Cost Capital Cost by Technology

14. State and Federal Financial Support Higher cost renewable technologies need further subsidies • State Programs - CT Clean Energy Fund is providing $5,000/kw for PV installation • US Federal Programs - 1.8 cent per kw-hr production tax credit (PTC) is subsidizing wind power (other renewable technologies included)

15. Connecticut’s Biomass Power Option Biomass Projects • Use of tax-exempt debt for the qualifying portion of associated with the reduction of solid waste • Fuel is one of the main project economic drivers • The State of Connecticut is now 60% forested • Wood recovered from C & D can qualify as renewable fuel • Few large credit worthy wood fuel suppliers

16. Southwest ConnecticutCongestion FERC mandates new capacity zone in Southwest Connecticut • Effective January 1, 2006 • Total electrical rate increase of 29% • Estimated 12% increase plus recent 17% CL&P rate increase • New regional power plants • Need to recover investment before completion of new transmission lines • Must connect to an “over stressed” grid HIGH LEVEL OF UNCERTAINTY

17. Distributed Generation Hours Peak shaving with microturbine technology using on balance sheet financing

18. Summary Risk adverse profile for power generation development Power asset sales still in process Landmark Connecticut legislation supporting renewable generation deployment Additional support necessary depending on generation technology SW Connecticut environment may establish DG as a viable economic option

19. Daniel Donovan Managing Member Prospero LLC Westport, Connecticut 203.454.5616 ddonovan@prosperollc.net