What’s Up ? California Electric Generation Markets

1. What’s Up ?California Electric Generation Markets Gary L. Hunt Managing Director

2. Henwood is a market leading energy technology and consulting firm based in Sacramento. Henwood’s power generation planning, market simulation and power plant performance optimization software are used by more than 130 of the world’s largest electric generators and utilities to manage their asset portfolio. Henwood’s newest service, TermDesk is an energy buyer-focused gas and power origination service providing on-line energy auction and procurement services to assist buyers manage price risk and supply reliability. Henwood Consulting provides strategic consulting and power market analysis services to clients worldwide focused on electric asset valuation, portfolio development, power market analysis and energy price risk management. For more information contact: Henwood Consulting 2710 Gateway Oaks Drive, Suite #300N Sacramento, CA 95833 916-569-0985 www.hesinet.com Gary L. Huntis Managing Director of Consulting for Henwood. He is an expert in electric power markets, industry restructuring and competitive strategy development. Gary has 25 years experience as a state public utility regulator, electric power executive and strategic consultant. Gary served as Minnesota Deputy State Public Service Director and was chief of Staff at the Illinois Commerce Commission. He was CEO of MMWEC, a wholesale power producer in New England, Assistant City Manager for Utilities in Austin, Texas, and Assistant General Manager-Operations at EBMUD. Before joining Henwood, he was Director of Electric Power at Cambridge Energy Research Associates and was a Principal in the Utility Economics Practice of Standard & Poor’s. Gary Hunt 916-569-0985, ext # 341 ghunt@hesinet.com About Henwood Consulting

3. Forces Reshaping the Competitive Energy Markets • Consolidation • Tight supply • Slow growth • Low share price • Valuation • B2B models • Internet

4. Electric generation is still a regional market play

5. Before Electric Restructuring Rates set by the CPUC based upon capital invested Rates “averaged” masking true price volatility. Non-utility generators offered to build power plants at prices lower than utilities’ proposed new projects. No major generation additions since 1980’s.

6. After Electric Restructuring • Utilities divested most generating assets • Utilities as “buyers” in the marketplace. • Prices not “average cost” over long periods of times • Tight Supply/Demand balances • Lead to price spike volatility

7. WSCC Electric Power Markets by the numbers 160,000 MW installed capacity 60,000 MW of PNW Hydro 130,000 MW current peak load 1.9% electric load growth 9,000 MW new power plant construction 50,000+ MW of announced new plant

8. WSCC Supply Curve - 2010

9. Cal-PX Daily On Peak Price Volatility

10. Spot Market Prices

11. Wildcards Nuclear retirements Hydropower output 1999 124% of normal 2000 92% of normal Continued Economic Expansion Power Plant Construction Schedules

12. Futures Prices of Electric Power

13. Competitive Power Market Evolution Rational markets will evolveover the next couple of years as new plants are brought on line. Peak hour prices will still to be volatilebut the number of hours, and the magnitude will be mitigated during normal conditions. Expect new electric products to evolveto help consumers manage price risk and meet different interests of consumers (retail and wholesale)

14. WSCC Average Annual Expected Electricity Prices