Building Generation The United Illuminating Company Perspective

Transcription

1 UIL Holdings Corporation Building Generation The United Illuminating Company Perspective James P. Torgerson, CEO Platts 3 rd Annual Northeast Power Markets Forum April 28 29,

2 Safe Harbor Provision Certain statements contained herein, regarding matters that are not historical facts, are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These include statements regarding management s intentions, plans, beliefs, expectations or forecasts for the future. Such forward-looking statements are based on the Corporation s expectations and involve risks and uncertainties; consequently, actual results may differ materially from those expressed or implied in the statements. Such risks and uncertainties include, but are not limited to, general economic conditions, legislative and regulatory changes, changes in demand for electricity and other products and services, unanticipated weather conditions, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental, and technological factors affecting the operations, timing, markets, products, services and prices of the Corporation s subsidiaries. The foregoing and other factors are discussed and should be reviewed in the Corporation s most recent Annual Report on Form 10-K and other subsequent periodic filings with the Securities and Exchange Commission. Forward-looking statements included herein speak only as of the date hereof and the Corporation undertakes no obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances. James P. Torgerson President and Chief Executive Officer UIL Holdings Corporation Chief Executive Officer The United Illuminating Company UI Service Territory in Connecticut 2

3 The United Illuminating Company The United Illuminating Company, a wholly owned subsidiary of UIL Holdings Corporation $1.78B Total Assets $770M Market Capitalization* 970 Employees *As of April 15,

4 The United Illuminating Company An independent New Haven based regional electric transmission and distribution utility Delivers energy and energy services to 323,000 residential, commercial and industrial customers in Southwest Connecticut Long history of expertise in regulated operations, transmission and distribution Recognized by peers and regulators for consistently delivering customer and shareholder value 4

5 Leveraging our Core Competencies Distribution Transmission Generation Upgrading aging infrastructure Adding capacity to meet peak demand Meeting customer needs Upgrading aging infrastructure Adding capacity to meet peak demand Standards compliance 2007 legislation recognized the need for new peaking generation Partnership with NRG offers an innovative response to meet generation needs while delivering customer and business value Conservation UI energy efficiency and demand response programs are recognized nationally for innovation and excellence 5

6 A New Opportunity: The Hybrid Generation Model Topics for Discussion Connecticut restructuring story Creating opportunity Competitive cost-of-service -- a new model UI and NRG -- a new kind of partnership Cost-of-service and customer benefits 6

7 Restructuring in Connecticut AN ACT CONCERNING ELECTRIC RESTRUCTURING April 15, 1998 UI became a distribution company and divested itself of all generation assets Distribution rates were capped until December 31, 1999 UI remained regulated by the Department of Public Utility Control (DPUC) On July 1, 2000 all customers were able to choose their supplier Retail electricity suppliers were required to be licensed by the DPUC UI would continue to bill customers and offer bundled electric services to customers who did not choose a retail electricity supplier CT Legislation 7

8 Restructuring in Connecticut Desired Results The General Assembly believed competition would benefit: Connecticut s consumers by providing both choice and the opportunity for savings Connecticut s economy by bringing in new electric generators and new generation technology Connecticut s environment by encouraging companies to develop technologies that improved air quality The environment by increasing conservation and mandating renewable portfolio standards 8

9 Restructuring in Connecticut Rates in 2000 were mandated to be 10% lower than in 1996 with capped prices expiring December 31, 2003 Two favorable contracts for generation to supply bundled service yielded little rate pressure Emphasis on Conservation and Load Management development and energy efficiency Renewable energy investment Retail access enabled but only minimal alternative supplier switching 9

10 Restructuring in Connecticut January 1, 2007 Significant subsequent events included: Multi-year contracts expired and customer rates climbed by 50% to more than 21 cents/kwh Competition among generators/financial entities to supply bundled service obligations was not as robust as expected CLM programs were continuing to gain traction Localized customer generation was being installed to control costs Investment offsetting old inefficient baseload plants was not occurring 10

11 Restructuring in Connecticut UI recognized the need for: The ability to negotiate long-term contracts The ability to negotiate directly with the generators The ability to utilize the spot market for balancing Pricing of generation that reflected actual cost plus a reasonable return 11

12 CT Legislative Action Public Act Signed June 4, 2007 An Act Concerning Electricity and Energy Efficiency A comprehensive bill with sections addressing a range of business issues including: Peaking generation Electric company ownership of power plants Integrated resource planning and resource procurement Utility purchase of generating plants Long-term energy contracts Decoupling of revenues from KWH sales Continued development of renewable resources 12

13 The Key Opportunity Peaking Generation Required electric companies and allowed non-utilities, singly or jointly, to submit a proposal to DPUC by February 1, 2008, to build peaking generation plants DPUC must review and approve proposals within 120 days of receipt unless it determines that the project is not in customers interests Any approved plan must compensate the applicant at the plant s reasonable cost of service plus a reasonable rate of return A new concept in Connecticut -- Competitive Cost-of-Service 13

14 Opportunity Defined The Rules Docket Defined the need, the rules for submitting proposals and the criteria for judging Need was preliminarily determined at 500 MW by the DPUC consultant Proposals would recover all reasonable costs over 30 years and receive a ROE of 9.75 to % under contract or DPUC order All proposals must show customer benefits All units must operate in the ISO-NE markets at the DPUC s direction 14

15 Developing a Winning Approach Leveraging Strengths and Addressing Weaknesses UI is experienced in the regulatory environment, focused on ratepayer service and has proven project management success Needed a partner who had proven generation capability, development experience and a desire for the long-term cost of service approach versus a volatile market approach Best case would be an organization operating and holding suitable sites in Connecticut 15

16 Why NRG? Summer 2007 UI recognized that NRG strengths complemented both the peaking project needs and UI s strengths Together UI and NRG developed a joint venture approach, with UI having the primary role in the regulatory submission and associated filings and NRG providing the site and managing the day-to-day operational issues UI and NRG publicly announced the JV and the hybrid approach October 23,

17 JV = LLC GE LM6000 PC Sprint 17

18 18 UI and NRG Structure

19 Competitive Fit Advantages Leverage of existing infrastructure at NRG sites: Fuel supply & storage Electrical interconnection Internal NRG engineering, procurement & construction NRG commercial operations Utilization of shared resources UI regulatory & policy expertise 19

20 Competitive Issues Disadvantages - Cost of formation & 0peration of GenConn Energy LLC Utilization of below market or actual cost allocations by competition Cross subsidization issues ROE & debt structure 20

21 Milestones and Evaluation Status February 1, 2008 Qualification statement for 500MW peaking submitted March 3, 2008 Proposal submitted Scalable in 100 MW increments Three possible NRG owned locations in Connecticut April DPUC Prosecutorial Division (PRO) and Office of Consumer Counsel (OCC) recommendations made June 2008 DPUC decision to be issued June 2010 Commercial operation of approved options 21

22 Overview of Competitive Proposals 1. GenConn 200 to 500 MW at Devon, Middletown & Montville 2. CL&P 200 MW in Lebanon and 76 MW in Waterbury 3. PSEG MW at New Haven Harbor 4. Bridgeport Energy 390/330 MW at Bridgeport Harbor 5. Maxim Power 100 MW in Bridgeport 6. First Light 100 MW in Southbury 7. Bridgeport Peaking Power 200 MW in Bridgeport 22

23 Competitive Proposals - Status Over 1,600 MW offered vs. DPUC preliminary need of 500 MW OCC and DPUC PRO published recommendations on April 10 The DPUC, Office of Consumer Counsel, and the DPUC PRO are examining proposals and issuing interrogatories DPUC Hearings begin April 29 Decision due June 18 Decision deadline is July 1 23

24 Competitive Proposals - Process It is difficult to compare because of the complexity of the various proposals Evaluation is based on multiple factors AFRR -- capital cost, operating cost and ROE ISO-NE Market Participation -- capacity, reserves and energy Qualitative Factors -- experience, technology choice and location GenConn has gained key recommendations from PRO and the OCC and will remain engaged in the process to maximize our opportunities 24

25 Competitive Proposals - Costs Proposal BE II - Siemens PSEG GenConn MW GenConn MW GenConn MW BE II - GE CL&P Card St GenConn MW AFRR $/kw-mo (Estimate from Exhibit B PRO) $ $ $ $ $ $ $ $ AFRR ($/KW-yr) Summer MW GenConn 2 GenConn 3 GenConn 4 CL&P 1 CL&P 2 Revised CL&P 1 Revised CL&P 2 BEII 1 BEII 2 PSEG FirstLight BP3 Maxim 25

26 Competitive Proposals - Benefits Portfolio GenConn included in six of the top seven rated portfolios (Not in C) I F O H C E G B NPV of Net Benefits - from Exhibit F p3 PRO (Millions) $ $ $705.7 $ $ $ $ $ GenConn MW included in I, F and O -- the top three scoring portfolios Portfolio F recommended by PRO as the portfolio with the most certainty of achieving forecast benefits Portfolio F consists of GenConn 2 at 400 MW and PSEG at 150 MW GE LM6000 PC generators preferred and included by both GenConn and PSEG for their reliability and fast start capabilities D $ A $ 328.3

27 Competitive Proposals - Benefits Based on the PRO Analysis, benefits accrue by Displacement of inefficient spinning reserves, reducing uplift charges Reduction in Connecticut LFRM costs Changes to Connecticut share of ISO-NE Reserve Market costs Reduction in ISO-NE FCM costs Reduction in energy costs on peak days 27

28 Competitive Proposals - Conclusion Based on the PRO Analysis The GenConn Proposals offer the highest value to all Connecticut ratepayers but not at the lowest cost but the DPUC process accounts for benefits as well as costs and GenConn MW was also recommended by the OCC as part of their portfolio analysis Conclusion stay tuned!!! 28

29 More Opportunity: The Hybrid Generation Model The hybrid model and partnership provides a template to expand into baseload generation, distributed generation or renewable green investments that can provide both customer and business value. Increased system reliability Competitive cost of construction & operation Environmental benefits Long-term price stability of COS investment 29

30 30 Q & A