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Dec 07 Expansion Plan Alternatives Tim Ponseti – System Planning

Dec 07 Expansion Plan Alternatives Tim Ponseti – System Planning. Updated Presentation - January 14, 2008. Draft Presentation Presented to Bill McCollum - January 7, 2008. Dec 07 Expansion Plan Alternatives. Objectives: Meet Capacity Need with 15% Reserve Margin

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Dec 07 Expansion Plan Alternatives Tim Ponseti – System Planning

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  1. Dec 07 Expansion Plan AlternativesTim Ponseti – System Planning Updated Presentation - January 14, 2008 Draft Presentation Presented to Bill McCollum - January 7, 2008

  2. Dec 07 Expansion Plan Alternatives • Objectives: • Meet Capacity Need with 15% Reserve Margin • Evaluate selection of PPAs from CO&F’s latest RFP • Quantify tradeoff between least cost plan vs. June Budget cash flow from 2008 to 2012 and 2008 to 2019 • No reliance on 7 States funding • Include transmission cost assumptions • Understand risks and uncertainties • Calculate new cash flows with all new construction going commercial June 1 instead of January 1 • Resources Considered (2008 to 2019): • 2 acquisitions: Southaven CC @ $475M & Brownsville CT @ $90M • 5 PPAs from latest CO&F RFP • 3 redevelopment/conversion projects with updated cost estimates: Lagoon Crk III CC, Caledonia CT, Gleason Conversion to CC • 2 greenfield build types thru 2019 using the June Long Term Average Cost and using the New Build Now Cost: 610 MW CT & 863 MW 3on1 CC

  3. Cases Considered All cases assume Watts Bar 2 (before summer 2013) and Lagoon Creek III CC (before summer 2010) are completed as scheduled. • Case 1 20 Yr. NPV = $45,096 M (same as Dec. 07 Modified) • Optimize portfolio to give least cost solution with Gleason Conversion completed in 2011. • Case 2 20 Yr. NPV = $45,021 M • Optimize portfolio without converting Gleason CTs to CC. • NPV goes down by $75 M (all other cases assume no conversion) • Case 3 20 Yr. NPV = $45,038 M • If we do not sign a PPA with Suez, what is next best alternative? Kgen Murray (Looper’s Farm) CC but 20 Yr. NPV is $17 M higher. • Case 4 20 Yr. NPV = $45,091 M • What if we do not acquire Southaven CC, what is next best alternative? Sign 5 Yr. PPA with Kgen Murray CC. • Case 5 20 Yr. NPV = $45,119 M • What if we do not acquire Brownsville CT but acquire Southaven CC and sign a PPA with Suez?

  4. Cases Considered (cont.) • Case 6 20 Yr. NPV = $45,026M • Will a 2nd DEC 5 Yr PPA starting in 2013 help to delay new construction expenditures in the next 5 years? • Case 7 20 Yr. NPV = $45,147M • How would the 2nd DEC 5 Yr. PPA and the FP&L 6 Yr. CT PPA proposal fit to help defer new construction expenditures the next 5 years? • Case 8 20 Yr. NPV = $45,267M • CO&F wanted to see what the expansion plan be if we do not buy Southaven CC nor Brownsville CT and sign additional PPAs instead? • Case 9 20 Yr. NPV = $45,267M • Taking Case 8 a step further, what if we add a 2nd DEC 5 Yr. PPA in 2013 and a MEC 5 Yr. PPA starting in 2011? How much new construction does this delay? • Case 10 20 Yr. NPV = $45,079M • If we acquire Brownsville CT in 2008, have one 5 Yr PPA starting in 2011 and two in 2013, can we meet the 5 year Budget cash flow?

  5. Summary Financial Results Table Black = under June adjusted budget; Red = over June adjusted budget * Same as Dec. 07 Modified

  6. Summary • With the current list of acquisitions, PPAs from CO&F’s RFP, and current construction costs (New Build Now), the least cost NPV solution leaves us $250M short on cash flow in 2008 but 5 Yr cash flow is positive. (this means the most we could pay for Southaven and breakeven on cash flow is about $225M). • If we do not buy the Brownsville CT for $90M, it frees up $60M toward the Southaven acquisition once you replace Brownsville with a PPA in 2008. 5 yr cash flow is still positive. • If we do not buy Southaven CC, it frees up $225M, but $79M will have to be spent on 2 PPAs (in addition to DEC & Suez) to net $146M in 2008 if these 2 PPAs are executed from the current RFP offers. We could wait until 2009 for 1 PPA but PPA prices could be higher than current estimates. If we do new build to replace the PPAs then 5 yr cash flow is negative. • If we do not make any acquisitions and sign 5 yr. PPAs, you save for 2 years but new construction costs still sends you over-budget at the end of the 1st five years. • If we sign 2 additional 5 Yr PPAs in 2008 without any acquisitions and extend the current DEC & Suez PPAs to 10 years or 2 new PPAs starting in 2013, then we can meet the 2008 budget cash flow and be $338M positive on 5 year cash flow if assumed PPA prices can be met. • If we acquire Brownsville CT in 2008, sign 1 PPA in 2008 in addition to DEC and Suez, finish Caledonia CT in 2012, sign 5 Yr PPAs in 2011 & two in 2013 to delay new construction, then we can meet the 2008 budget and 5 year cash flow is $1.1B positive if PPAs prices can be met. • If Watts Bar 2 can meet an operational date of 6/1/2012, then the Caledonia CT can be delayed from 6/1/2012 to 6/1/2014.

  7. Insight & Risk • It will be very difficult to acquire Southaven @ $475M and meet the 2008 Budget cash flow • Gleason CTs should not be converted to CC in 2011 but wait at least until a new CC needs to be built & then re-evaluate • Brownsville CT can be acquired in 2008 supplemented with PPAs and still meet the 2008 Budget cash flow and 5 year budget cash flow • With 5 Yr PPAs starting in 2008 and no Southaven CC acquisition, if you replace the MWs with new construction and market purchases in 2013, then it will be difficult to meet the 5 year cumulative Budget cash flow if new build prices remain at current levels • If three 5 Yr PPAs can be executed in 2013 then we can meet the 5 year cumulative Budget cash flow even without Southaven • Brownsville CT acquisition has been negotiated and is ready to be purchased in Jan. 2008. Any delay in this decision could jeopardize the deal • Suez PPA has transmission issues that can be resolved by Entergy. TVA estimates range from $25M to $40M. TVA Trans. Planning is conducting a joint study with Entergy and results along with an Entergy cost estimate should be ready by June 2008. This study assumed a cost of $40M or $8M per year for 5 years • All transmission costs for new construction is assumed to be $200/kW. This could be more or less depending on the plant site. • We have no PPA offers to support the assumptions in this study beyond those starting in 2008. Future prices could be more. The 2013 PPA Premium assumption used in this study was $7.50/kW-month escalating 2.5% per year.

  8. Backup Evaluation Detail Assumptions And Results

  9. Expansion Plan Alternatives thru 2017 • Proposed Acquisitions : • 783 MW Southaven CC in 2008 for $475M • 400 MW Brownsville CT in 2008 for $90M • Potential PPAs to start in 2008 from CO&F’s RFP: • 677 MW Suez 5 Yr. PPA with $40M Entergy Transmission Upgrade • 276 MW Batesville 5 Yr. PPA • 500 MW Kgen Murray 5 Yr. PPA • 783 MW Magnolia 5 Yr. PPA • 822 MW Reliant Choctaw 3 Yr. PPA

  10. Expansion Plan Alternatives thru 2017 (cont.) • Redevelopment/Conversion : • 398 MW Gleason CT Conversion to CC in 2011 • 540 MW Lagoon Creek III CC in 2010 (Board App.) • 458 MW Caledonia CT Redevelopment (can start in 2011 or later after buying site in 2008) • Greenfield Construction : • 610 MW Build CT to start in 2012 or later • 863 MW Build CC to start in 2012 or later

  11. Expansion Plan Summary

  12. Expansion Plan Summary (cont.)

  13. Case 1(same as Dec 07 Modified) • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Gleason Conversion To CC is forced into Plan in 2011 • Everything else are economic choices • Choices that were not economic : • Kgen Murray 5 Yr PPA • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  14. Case 1 Expansion Plan (MW)(same as Dec. 07 Modified)

  15. Case 1 Expansion Plan ($M)(same as Dec. 07 Modified)

  16. Case 1Cash Flows Compared to June 07 Budget • Case 1 20 Yr. NPV = $45,096 M (same as Dec. 07 Modified) • Optimize portfolio to give least cost solution with Gleason Conversion completed in 2011. $M June LT Average Cost for New Construction $M

  17. Case 2 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Kgen Murray 5 Yr PPA • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  18. Case 2 Expansion Plan (MW)

  19. Case 2 Expansion Plan ($M)

  20. Case 2 Cash Flows Compared to June 07 Budget • Case 2 20 Yr. NPV = $45,021 M • Optimize portfolio without converting Gleason CTs to CC. • NPV goes down by $75 M (all other cases assume no Gleason conversion) $M $M

  21. Case 3 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Suez 5 Yr PPA is not available to see what is next best alternative • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  22. Case 3 Expansion Plan (MW)

  23. Case 3 Expansion Plan ($M)

  24. Case 3 Cash Flows Compared to June 07 Budget • Case 3 20 Yr. NPV = $45,038 M • If we do not sign a PPA with Suez, what is next best alternative? • Kgen Murray (Looper’s Farm) CC but NPV is $17 M higher. $M $M $M

  25. Case 4 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Southaven acquisition is NOT made to see what is next best alternative • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  26. Case 4 Expansion Plan (MW)

  27. Case 4 Expansion Plan ($M)

  28. Case 4 Cash Flows Compared to June 07 Budget • Case 4 20 Yr. NPV = $45,091 M • What if we do not acquire Southaven CC, what is next best alternative? • Sign 5 Yr. PPA with Kgen Murray CC. $M $M

  29. Case 5 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Brownsville acquisition is not made to see what is next best alternative • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Batesville 5 Yr PPA • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  30. Case 5 Expansion Plan (MW)

  31. Case 5 Expansion Plan ($M)

  32. Case 5 Cash Flows Compared to June 07 Budget • Case 5 20 Yr. NPV = $45,119 M • What if we do not buy Brownsville CT but buy Southaven CC $475M and sign a PPA with Suez? $M $M

  33. Case 6 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Same as Case 2 except a new 5 Yr PPA is available starting at $7.50/kW-month in 2013 • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Kgen Murray 5 Yr PPA • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  34. Case 6 Expansion Plan (MW)

  35. Case 6 Expansion Plan ($M)

  36. Case 6 Cash Flows Compared to June 07 Budget • Case 6 20 Yr. NPV = $45,026M • Will a 2nd DEC 5 Yr PPA starting in 2013 help to delay new construction expenditures in the next 5 years? $M $M

  37. Case 7 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Same as Case 2 except a new 5 Yr PPA is available starting at $7.50/kW-month in 2013 and FP&L CT 6 Yr PPA starting in 2010 is analyzed as an option • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Kgen Murray 5 Yr PPA • Magnolia 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  38. Case 7 Expansion Plan (MW)

  39. Case 7 Expansion Plan ($M)

  40. Case 7 Cash Flows Compared to June 07 Budget • Case 7 20 Yr. NPV = $45,147M • How would the 2nd DEC 5 Yr. PPA and the FP&L 6 Yr. CT PPA proposal fit to help defer new construction expenditures the next 5 years? $M $M

  41. Case 8 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Southaven CC and Brownsville CT acquisitions are not made in 2008 to see how Plan changes • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Kgen Murray 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  42. Case 8 Expansion Plan (MW)

  43. Case 8 Expansion Plan ($M)

  44. Case 8 Cash Flows Compared to June 07 Budget • Case 8 20 Yr. NPV = $45,267M • CO&F wanted to see what the expansion plan be if we do not buy Southaven CC nor Brownsville CT and sign additional PPAs instead? $M $M

  45. Case 9 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Southaven CC and Brownsville CT acquisitions are not made in 2008 • 2 new PPAs are made at $7.50/kW-month escalating 3% starting in 2011 and 2013 whether they are economic or not • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Batesville 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  46. Case 9 Expansion Plan (MW)

  47. Case 9 Expansion Plan ($M)

  48. Case 9 Cash Flows Compared to June 07 Budget • Case 9 20 Yr. NPV = $45,267M • Taking Case 8 a step further, what if we add a 2nd DEC 5 Yr. PPA in 2013 and a MEC 5 Yr. PPA starting in 2011? How much new construction does this delay? $M $M

  49. Case 10 • Key Assumptions : • Lagoon Creek III CC is completed as scheduled for 2010 • Southaven CC acquisition is not made in 2008 • 3 new 5 Yr PPAs are made at $7.50/kW-month escalating 3%, 1 starting in 2011 and two in 2013 whether they are economic or not • Everything else are economic choices • Choices that were not economic : • Gleason Conversion to CC in 2011 • Batesville 5 Yr PPA • Reliant Choctaw 3 Yr PPA

  50. Case 10 Expansion Plan (MW)

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