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Strategies for Achieving a 10% Reduction in Initial Proposal Average Rates

This document explores scenarios that can lead to a 10% reduction in the Initial Proposal Average Rate. Three scenarios are analyzed: Scenario 1 suggests a $175 million annual cost reduction yielding a $3/MWh decline in rates. Scenario 2 discusses implementing liquidity tools alongside a $50 million annual cost cut, also achieving a $3/MWh decrease. Scenario 3 combines liquidity tools with a $125 million expected improvement in trading revenues, resulting in a similar $3/MWh rate reduction. The liquidity tools are assumed to be fully flexible.

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Strategies for Achieving a 10% Reduction in Initial Proposal Average Rates

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  1. PFR II Scenarios • What would it take to get a 10% reduction in the Initial Proposal Average Rate? • Scenario 1: • $175 M/year reduction in costs results in approximately a $3/MWh reduction in the Initial Proposal Average Rate • Scenario 2: • Liquidity Tools and $50 M/year reduction in costs result in approximately a $3/MWh reduction in the Initial Proposal Average Rate ($2/MWh from liquidity tools and $1/MWh from cost reductions) • Scenario 3: • Liquidity Tools and $125 M improvement in FY06 Expected Value Net Trading Floor revenues result in approximately a $3/MWh reduction in the Initial Proposal Average Rate ($2/MWh for liquidity tools and $1/MWh improved net trading floor sales) • Note: Liquidity tool impacts assume a fully flexible financial tool in these scenarios.

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