1. Restructuring Roundtable: Merchant vs Rate-Base
presented by
Dan Allegretti

2. The Basic Idea
Merchant = Gooood!!!!
Rate Base = Baaaad!!!!

3. Benefits of Moving to Merchant Model
Utility-owned power plant
Merchant power plant
Three Main Benefits
Competitive forces lead to more efficient operation
Risk of generation plant cost over-runs shifted from captive ratepayers to merchant owner shareholders
Provide more efficient & reliable power system

4. More Efficient Operation
Improved Generator Performance. Since Wholesale Restructuring, plant availability in New England has increased by 8%, avoiding the construction of up to five 400 MW generating facilities.
Reduced Emission Rates. While electricity generation within New England increased 25% between 1998 and 2004, associated SO2 rates decreased by 56%, NOX by 57% and CO2 by 22%.
Consumer Savings. Consumers have saved between $6.5 and $7.6 billion between 1998 and 2005, based on projections of where prices would have trended in the absence of restructuring.
Source: “A Review of Electricity Industry Restructuring in New England,”
Polestar Communications and Strategic Analysis (for the New England Energy Alliance), September 2006.

5. Less Ratepayer Risk Example: Duke Energy
“U.S. power company Duke Energy on Thursday significantly boosted its estimated cost for building two proposed power plants, citing higher material expenses and a shortage of skilled labor. Chief Executive Jim Rogers said at a press luncheon that the proposed clean-coal power plant in Indiana may cost $2 billion, up from a prior estimate of about $1 billion. The cost for the proposed conventional coal plant in the Carolinas has been increased to $3 billion from $2 billion, Rogers said.”
*Source: Reuters, November 16, 2006.

6. Less Ratepayer Risk Example: Exelon
In 2003 Exelon Corp. turned over ownership of the newly re-powered Mystic and Fore River generating plants to its lenders. According to the Boston business Journal Exelon had acquired the plants from Sithe for a $543 million note. None of this money was recovered from captive ratepayers through stranded cost recovery charges.

7. Efficient & Reliable System
Nearly 40% of installed generation capacity is now merchant
Competitive sector built almost all new generation since early 1990s
Competitive Power’s Fuel Diversity:
Coal – 36%
Natural Gas – 27%
Nuclear – 27%
Renewables – 5%
Other – 5%

8. How Much More Do You Need To See????
New England. $6.5 to 7.6 billion since restructuring. Polestar Study 2006.
New York to 17.7% savings for all customers. NYPSC Staff 2006.
PJM & NY Combined. $430 million to 1.3 billion/year. LECG 2006.
Eastern Interconnect. $15 billion for Global Energy Decisions 2005.
Whole Nation. $34 billion over 7 years. Cambridge Energy Research Associates.
Economists agree benefits are real Open Letter.