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Shahid Malik President and CEO

Effective Retail POLR Design. Shahid Malik President and CEO. Quick Facts about Strategic Energy. OUR HALLMARKS Broad Industry Experience Deep Energy Knowledge Objectivity Honesty Integrity. Trusted retail energy provider to business, education and government

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Shahid Malik President and CEO

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  1. Effective Retail POLR Design Shahid Malik President and CEO

  2. Quick Facts about Strategic Energy • OUR HALLMARKS • Broad Industry Experience • Deep Energy Knowledge • Objectivity • Honesty • Integrity • Trusted retail energy provider to business, education and government • Began energy consulting practice in 1986 • Entered the retail electricity market in 1997 in Pennsylvania • Now serving more than 7,000 customers in ten states • Over $1.3B in annual revenue with no debt in capital structure • Serving 20 percent of the Fortune 500 companies • Customer demand currently at 4,000 MW peak • Natural Gas managed: 8,594,513 MMBtu

  3. 1 Total Available Market by State - 2004 1/3 of US electricity demand is available to competitive suppliers – and only 25% has switched. Total Available 1,159M MWhs CA 24 Other 54 AZ 25 CT 30 TX 209 OR 38 MA 47 MD 64 OH 136 NJ 75 Restructuring Active Restructuring Delayed Restructuring Suspended Restructuring Not Active Strategic Energy Serving Customers MI 82 NY 135 IL 106 PA 133 Data Source: EIA

  4. POLR Designs Are Critical to Competition • Many states exiting transitional periods • Competition lagging in shopping credit markets where utilities provide bundled service Source: KEMA Inc.

  5. Strategic’s Position on POLR Pricing • Must be tied to the wholesale market • No risk/reward to the wires company • No switching restrictions on customers • POLR service priced separately from distribution rates

  6. With Competitive Supplier With Utility Affiliate Texas’s Successful Retail Model • Unregulated POLR and Default Service • Full functional separation between wires and commodity services • Very high switching for 1MW+ customers • Highly competitive – more than 100 licensed suppliers and aggregators Data Source: Public Utility Commission of Texas

  7. Successful Models in PJM • Hourly pricing option for large customers • Administrative charge (“market functions charge”) • Declining threshold for hourly pricing New Jersey Percent of load served by competitive suppliers as of 12/04: Conectiv 96% JCP&L 91% PSE&G 80% Rockland 64%

  8. Natural Gas Price History 10.00 10.00 9.00 9.00 Cold Long winter Weather 8.00 8.00 and low storage 7.00 7.00 Storage & 6.00 6.00 Production Storage Dollars per MMBtu Dollars per MMBtu Shortfall 5.00 5.00 Shortfall 4.00 4.00 3.00 3.00 2.00 2.00 Hurricane 1.00 1.00 Threat 0.00 0.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 f:consult/ham/graphics/NYMEX History.xls f:consult/ham/graphics/NYMEX History.xls Competition Spurring Innovation • Ability to hedge portions of load based on market signals/risk tolerance • Sophisticated customers are tapping Portfolio and Demand Response services • Access to enhanced customer service, electronic billing, etc. Data Source: NYMEX

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