1. David Schlissel and Cathy Kunkel When, Not If: Bridgeport’s Future and the Retirement of PSEG’s Coal Plant January 23, 2014

2. Summary (1) 2 Life was Pretty Good Until 2008 High levels of annual generation. Selling output for substantially more than the cost of generation. Making a lot of money. Then PSEG’s pre-tax earnings fell dramatically starting in 2009. Decline primarily driven by: Collapse of natural gas and energy market prices in 2008/09. Steep decline in plant generation due to increased competition from lower cost gas-fired units. Decline in capacity market prices. Flattening of the demand for power in NE due to slow economic recovery and energy efficiency. ©2014 Institute for Energy Economics & Financial Analysis

3. Summary (2) 3 Same factors likely to drive future earnings. No credible reason to expect that pre-tax earnings will recover to anywhere near 2007/2008 levels. In fact, pre-tax earnings may disappear by end of this decade. Bridgeport Harbor Unit 3 does not appear to be financially viable over the long term. City of Bridgeport, State of Connecticut and grid operator ISO New England should begin to plan for when it retires. ©2014 Institute for Energy Economics & Financial Analysis

4. NE Wholesale Electric Prices Collapsed in 2009 4 ©2014 Institute for Energy Economics & Financial Analysis

5. Steep Decline in Annual Bridgeport Harbor Unit 3 Generation 5 ©2014 Institute for Energy Economics & Financial Analysis

6. Pre-Tax Earnings from Bridgeport Harbor Unit 3 Plummeted after 2008 ©2014 Institute for Energy Economics & Financial Analysis 6

7. Circumstances that Led to Steep Drop in Pre-Tax Earnings Unlikely to Go Away Anytime Soon 7 Natural gas prices and energy market prices expected to remain relatively low except in peak winter months. Uncertainty about future capacity market prices. Little growth projected in demand for power plus increased competition from energy efficiency and renewables. Future Bridgeport Harbor generation likely to remain low. Potential for higher prices for CO 2 emissions. ©2014 Institute for Energy Economics & Financial Analysis

8. Example – New England Energy Market Price Forwards as of January 2014 8 ©2014 Institute for Energy Economics & Financial Analysis

9. Example – Uncertainty in Future Bridgeport Harbor Generation 9 ©2014 Institute for Energy Economics & Financial Analysis

10. PSEG pre-tax earnings recovered somewhat beginning in 2013. However, based on currently expected future circumstances, there is no credible reason to expect that pre-tax earnings will again reach anywhere near the high levels achieved in 2007 and 2008. Must remember that PSEG’s after-tax profits from the plant will be even lower because it has to pay taxes, interests and depreciation from these pre-tax earnings. Conclusion No. 1 10 ©2014 Institute for Energy Economics & Financial Analysis

11. Projected Bridgeport Harbor Unit 3 Pre-Tax Earnings – “Optimistic” Scenario with Relatively High Energy Market and Capacity Market Prices ©2014 Institute for Energy Economics & Financial Analysis 11

12. Conclusion No. 2 In fact, energy and capacity market prices could be lower than assumed in the “optimistic” scenario. ©2014 Institute for Energy Economics & Financial Analysis 12

13. Projected Pre-Tax Earnings – “Less Optimistic” Scenario with Lower Energy and Capacity Prices ©2014 Institute for Energy Economics & Financial Analysis 13

14. Conclusion No. 3 Plant does not appear to be financially viable over the long term (the end of this decade). The City of Bridgeport, State of Connecticut and grid operator ISO New England should begin to plan for future without Bridgeport Harbor Unit 3 coal plant. ©2014 Institute for Energy Economics & Financial Analysis 14

15. stop For More Information David Schlissel 617-489-4840 david@schlissel-technical.com ©2014 Institute for Energy Economics & Financial Analysis 15