Henwood Consulting

What’s Up ? California Electric Generation Markets

Gary L. HuntManaging Director

Henwood Consulting

About Henwood Consulting

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. Hunt is 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

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Forces Reshaping the Competitive Energy Markets

• Consolidation

• Tight supply

• Slow growth

• Low share price

• Valuation

• B2B models

• Internet

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Electric generation is still a regional market play

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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.

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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

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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

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WSCC Supply Curve - 2010

0

50

100

150

200

250

85200 95200 105200 115200 125200 135200 145200 155200 165200

Load (MW)

Incre

men

tal C

ost

($/M

W)

Average Load Peak Load

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Cal-PX Daily On Peak Price Volatility

0

20

40

60

80

100

120

140

($/M

WH

)

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Spot Market Prices

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Wildcards

Nuclear retirements

Hydropower output1999 124% of normal2000 92% of normal

Continued Economic Expansion

Power Plant Construction Schedules

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Futures Prices of Electric Power

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Competitive Power Market Evolution

Rational markets will evolve over the next couple of years as new plants are brought on line.

Peak hour prices will still to be volatile but the number of hours, and the magnitude will be mitigated during normal conditions.

Expect new electric products to evolve to help consumers manage price risk and meet different interests of consumers (retail and wholesale)

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WSCC Average Annual Expected Electricity Prices

0

25

50

75

1999 2000 2001 2002 2003 2004 2005

*1999 = Actual, 2000 = Actual for 12 months ended August 2000, 2001-2005 = Reference Case

$/M

Wh