Evaluation of Cleco

Settlement Proposal
March 11, 2008
Outline
ƒ Summary of Proposed Power Supply
Agreement
ƒ Summary of the Existing Arrangement
ƒ Savings Analysis
ƒ Uncertainty Analysis
ƒ Conclusions

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Proposed Power Sales Agreement
ƒ Current draft – 3/2/08
ƒ Term – 12 Years (Oct. 1 or earlier)
ƒ Option – 5 year extensions
ƒ 24 month termination notice
ƒ Meets COA’s supplemental needs above RPS2 &
SWPA
ƒ Capacity charge on supplemental capacity
ƒ 2008: $4.50/kW-mo
ƒ 2009-2019: $10.40/kW-mo (coincident w/ COD RPS3)
ƒ Energy charge based on Cleco average system
fuel cost, plus $2/MWh

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Proposed Power Sales Agreement (cont.)

ƒ Capacity credit for DG Hunter – Option

for a prepayment to COA
ƒ DG Hunter dispatched by Cleco (Cleco
pays fuel cost)
ƒ COA required to maintain DG Hunter
Provides for operation of DG Hunter by
COA during emergency conditions
ƒ Provides for Cleco O&M payments above 4
starts per unit and 4,000 MWh per year

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Proposed Power Sales Agreement (cont.)

ƒ Provides for Network Integrated Transmission

Service under the Cleco OATT
ƒ Requires other agreements with Cleco
(Reliability & Interconnection, Control Area)
ƒ Requires Bond Counsel reviews (tax issues) &
release from LEPA
ƒ Requires confirmation of transmission service
by Cleco & Entergy (SWPA)

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Existing Arrangement with Cleco
ƒ COA provides for its own capacity needs
ƒ COA retains RPS2 and SWPA purchases
ƒ COA operates and maintains DG Hunter (can be
dispatched by Cleco or COA)
ƒ CLECO Special Energy
ƒ Energy requirements above RPS2 and SWPA
ƒ Rate is lower of average cost of Cleco gas generation
or market purchases, plus $2/MWh management fee
ƒ Firm and non-firm point-to-point transmission
arranged on COA’s behalf

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Savings Analysis

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Projected Power Costs (2008 – 2019)
120
Incremental Power Costs ($/MWh)

100

80

60

40

20

Represents incremental power supply costs

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Existing Arrangement CLECO Proposal

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Projected Results (2008 – 2019)
ƒ Projected Nominal Power Costs
ƒ Existing Arrangement - $844 Million
ƒ Proposed Arrangement - $786 Million
ƒ Difference - $58 Million
ƒ Projected Present Value Power Costs
ƒ Existing Arrangement - $607 Million
ƒ Proposed Arrangement - $566 Million
ƒ Difference - $41 Million

Present value rate = 5%

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Projected Savings
ƒ Projected Nominal Power Cost Savings
ƒ Average over first 5 years (2008-2012)
ƒ $3.5 million or $4.10/MWh
ƒ Average over Initial Term (2008–2019)
ƒ $4.8 million or $5.50/MWh

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Uncertainty Analysis

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Primary Risk Considerations

ƒ Carbon Legislation
ƒ Purchased Power Prices
ƒ Fuel Prices
ƒ Unit Outages
ƒ COA Load Growth

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Comparison of Projected Power Costs
20%

18%
Cumulative Nominal
(2008-2019)
16%

14%
Probability

12%

10%

8%

6%

4%

2%

0%
700 720 740 760 780 800 820 840 860 880 900 920 940 960 980

Cumulative Power Costs ($M)

Cleco Proposed PSA Current Arrangement

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Difference in Projected Power Costs
Existing v. Proposed Arrangement
12%

Cumulative Nominal
10%
(2008-2019)

8%
Probability

6%

4%

2%

0%
-20 -10 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140

Cumulative Power Cost Savings ($M)

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Comparison of Projected NPV Power Costs
30%

Net Present Value

25% (2008-2019)

20%
Probability

15%

10%

5%

0%
500 510 520 530 540 550 560 570 580 590 600 610 620 630 640 650 660 670 680 690 700 710

NPV Power Costs ($M; $2007)

Cleco Proposed PSA Current Arrangement

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Difference in Projected NPV Power Costs
Existing v. Proposed Arrangement
16%

Net Present Value

14%
(2008-2019)
12%

10%
Probability

8%

6%

4%

2%

0%
-20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

NPV Power Cost Savings ($M; $2007)

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Conclusions
ƒ Under expected assumptions, the Cleco
Proposal is projected to be $58 million ($41
million NPV) lower than the Existing
Arrangement.
ƒ Power supply costs under the Cleco Proposal
are projected to vary less than under the
Existing Arrangement.
ƒ Savings under the Cleco Proposal are projected
to be between $27 million and $93 million (90%
confidence interval) on a nominal basis for the
major risks evaluated.
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Major Assumptions

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Major Modeling Assumptions –
Existing Arrangement

ƒ Special Energy rate

ƒ Cleco natural gas generation cost reflects only
existing Cleco gas-fueled units
ƒ Includes CO2 allowance costs beginning 2012
ƒ Cost of market purchases based on R. W. Beck’s
power market forecast
ƒ Reserve capacity
ƒ Reserves purchased to meet 13.6% reserve margin
ƒ Reserve capacity price assumed to be $5/kW-mo,
escalated at inflation

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Major Modeling Assumptions –
Cleco Proposal

ƒ Fuel charge
ƒ Average system fuel cost adjusted for 2%
losses
ƒ Includes CO2 allowance costs beginning 2012
ƒ Reserve capacity assumed to be provided
by Cleco, other than for RPS2
ƒ COA incurs no additional DG Hunter O&M
cost resulting from dispatch by Cleco

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Economic Assumptions
ƒ Inflation rate - 2.3% per year
ƒ Discount rate - 5.0%

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Alexandria Load Forecast
ƒ Econometric load forecast completed in
Feb 2007 by R. W. Beck
ƒ Historical analysis over 1990-2006
ƒ Explanatory variables included population
and personal income in Rapides Parish, the
retail price of electricity, and weather
ƒ Adjusted to reflect expected addition of
a large industrial customer (RSI)

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Fuel Forecasts
ƒ Coal price forecast prepared by a coal
market consultant for R. W. Beck
ƒ Petroleum coke (RPS3 fuel) forecast
developed based on historical
relationship between coal and pet coke
ƒ Natural gas price forecast developed by
R. W. Beck (Henry Hub and basis
differential to Cleco region)

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Emission Allowances
ƒ Existing laws regarding SO2 and NOX are
assumed to remain in effect throughout
study period
ƒ CO2 cap and trade system is assumed to
be in effect beginning 2012 ($12/ton in
2012, increasing at inflation)

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Cleco Energy Cost Model
ƒ Cleco energy costs projected based on a
production cost simulation model
ƒ O&M costs of existing units from FERC Form I
reports
ƒ Rodemacher 3 (RPS3) assumed to be on-line
1/1/2010
ƒ Cost of RPS3 based on publicly available
information and industry data
ƒ Generic CT & CC units added based on a
generation expansion optimization model

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Electricity Market Prices
ƒ Market prices for electricity for the Cleco
region are based on R. W. Beck’s
proprietary U.S. power market model
(2007 Q3)

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