Texas A

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Texas AM University February 28, 2003
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Industry Overview

• What is the current state of the Wholesale
  Electric Market?
• How did we get here?
• What is changing?
• What will this industry look like in the medium
  term?

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Review of Power Basics the Players

• Trading / Execution Entities
• Utilities and Unregulated Affiliates
• Co-ops and Municipals
• Independent Energy Marketers
• Retail Aggregators
• ISOs
• IPPs
• most have historically outsourced market
  execution needs

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Review of Power Basics the Players

• Other Stakeholders (Macroscale)
• End Users
• Regulators (State and Federal)
• Banks
• International / Foreign Corporations
• Venture Capitalists / Funds

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What is the Current State of the Industry?

• Independent Marketers and Unregulated Utility
  affiliates are under intense financial pressures
• Utilities are returning to core competencies
• IPPs have few opportunities for new development
  activities, and are struggling to save recently
  developed projects
• Financial entities are grappling with their
  overall industry exposure
• Markets are losing efficiency

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How did we get here?

• California
• Economic Slowdown
• Earnings pressure from Financial community
  (Financial Analysts)
• Irrational exuberance and resulting generation
  overbuild
• Debt versus Equity Financing
• FAS 133

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What is changing?

• Retrenchment by Independent Marketers and
  Unregulated Utility Affiliates (many are exiting
  3rd party marketing and trading)
• Capital is scarce
• New Entrants (Financial Traders, Distressed Asset
  Buyers, Regional Players)
• Extent and Speed of Deregulation coming under
  question

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What will this industry look like in the medium
term?

• Energy merchants will focus on their assets and
  financial restructuring
• Assets will change hands via foreclosures or
  distressed asset sales (new entrants)
• New Entrants (Financial Traders, Distressed Asset
  Buyers, Regional Players)
• Extent and Speed of Deregulation coming under
  question