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HEADLINES FROM THE 2009 STATE OF THE MARKET REPORT SOUTHWEST POWER POOL, INC.

HEADLINES FROM THE 2009 STATE OF THE MARKET REPORT SOUTHWEST POWER POOL, INC. Presented To: SPP Board of Directors/Members Committee Presented By: Craig R. Roach, Ph.D. Boston Pacific Company, Inc. April 27, 2010. 2009 STATE OF THE MARKET: MAJOR HEADLINES.

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HEADLINES FROM THE 2009 STATE OF THE MARKET REPORT SOUTHWEST POWER POOL, INC.

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  1. HEADLINES FROM THE 2009 STATE OF THE MARKET REPORTSOUTHWEST POWER POOL, INC. Presented To: SPP Board of Directors/Members Committee Presented By: Craig R. Roach, Ph.D. Boston Pacific Company, Inc. April 27, 2010

  2. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT • EIS PRICES FALL DRAMATICALLY • NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN • BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS • RECOMMENDATIONS

  3. MAP OF SPP BALANCING AUTHORITIES

  4. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT • Adds Three New Entities • Nebraska Public Power District • Omaha Public Power District • Lincoln Electric System • Impact • Peak demand 14% higher • Consumption 11% higher • Miles of transmission 16% higher • Adds fuel diversity

  5. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  6. MONTHLY PEAK ELECTRIC ENERGY DEMAND (MW) FOR SPP 6

  7. TOTAL ELECTRIC ENERGY USAGE (MWH) WITHIN SPP BY MONTH AND YEAR

  8. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  9. ELECTRICITY PRICES COMPARED WITH NEIGHBORING REGIONS ELECTRICITY PRICES COMPARED WITH NEIGHBORING REGIONS FOR 2009

  10. COMPARISON OF AVERAGE MONTHLY ON-PEAK SPPELECTRICITY PRICES AND PANHANDLE NATURAL GAS PRICES

  11. ELECTRICITY SALES IN THE EIS MARKET BY MONTH

  12. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  13. EFFECT OF THE FERC AND SPP OFFER CAPS IN 2009 13

  14. SHARES OF EIS MARKET SALES FOR ALL MARKET PARTICIPANTS (ANONYMOUSLY RANKED) FOR 2009 14

  15. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  16. PERCENT OF FIVE-MINUTE INTERVALSWITH AT LEAST ONE FLOWGATE CONGESTED

  17. NUMBER OF BINDING AND BREACHEDFLOWGATE INTERVALS FROM 2007 TO 2009

  18. 2009 TOP 10 CONGESTED FLOWGATESBY AGGREGATE SHADOW PRICE IN SPP

  19. SPP 2008 AND 2009 EIS PRICE CONTOUR MAPS 2008 Map 2009 Map

  20. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  21. DAYS OF TRANSMISSION OUTAGES BY MONTH FOR 2006 TO 2009

  22. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  23. CLIMATE CHANGE POLICY • Set Backs, and Persistence • Copenhagen Negotiations • High expectations/disappointment • Federal Legislation or Regulation • Waxman-Markey • Kerry-Graham-Lieberman (sectoral) • Cantwell (Cap-and-Dividend) • EPA regulations (under Supreme Court Order)

  24. CLIMATE CHANGE POLICY (Continued) • State and Regional Action • Regional Greenhouse Gas Initiative (RGGI) • Western Climate Initiative • Midwestern Greenhouse Gas Reduction Program • Impact of Recession • RGGI: Prices at minimum • Europe: Prices fall to €14 from €30

  25. CLEAN AIR ACT REGULATIONS OR LEGISLATION • A Flood of Proposed Actions (and Acronyms) • NAAQS, MACT, CAIR, CAMR,… • For same pollutants (SO2, NOx, Mercury) • Courts Push Back; Issue is Command-and-Control vs. Cap-and-Trade • To Some, an All-out Assault on Coal-Fired Power • Retrofit or shut down • 64% of SPP generation from coal-fired units

  26. NATURAL GAS PRICES • Natural Gas Prices Drive EIS Market Prices • EIS prices down 48% (2009 vs. 2008) • Average natural gas prices down 54% ($3.32/MMBtu in 2009, $7.14/MMBtu in 2008) • Natural gas at margin in EIS market (61% in 2009, 70% in 2008)

  27. NATURAL GAS PRICES (Continued) • Causes of Natural Gas Price Decline • No precise explanation • Recession • Liquefied natural gas (LNG) surplus • “Revolution” in shale-gas technology

  28. NATURAL GAS PRICES (Continued) C. Price Expectation

  29. 2009 STATE OF THE MARKET: MAJOR HEADLINES I. NEW ENTITIES EXPAND AND DIVERSIFY THE SPP FOOTPRINT II. DEMAND DECREASES IN THE ORIGINAL FOOTPRINT EIS PRICES FALL DRAMATICALLY NO EVIDENCE OF MARKET POWER V. TOTAL TRANSMISSION CONGESTION UP; MORE SERIOUS TYPES OF CONGESTION DOWN VI. TRANSMISSION OUTAGES ARE UP AGAIN BROADER POLICY ISSUES STILL CAN BE GAME CHANGERS RECOMMENDATIONS

  30. RECOMMENDATIONS • Create Standardized Categories of Transmission Outages and Record Data by Year End • Monitor and Report Trends in Transmission Congestion and Use of Temporary Flowgates • Congestion on Temporary Flowgates Should be Included in the Calculation and Activation of Offer Caps • Continue expedient implementation of New Market Development to Achieve Consumer Benefits

  31. QUESTIONS

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