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S Challenrtunities

RPS Challenges and Opportunities – The Competitive Retail Supplier Perspective October 5, 2009 Monterey, California. S Challenrtunities. The Retail Perspective on RPS Challenges and Opportunities Review of Constellation Business: Nationwide California RPS Opportunities

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S Challenrtunities

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  1. RPS Challenges and Opportunities – The Competitive Retail Supplier PerspectiveOctober 5, 2009Monterey, California

  2. S Challenrtunities The Retail Perspective on RPS Challenges and Opportunities Review of Constellation Business: Nationwide California RPS Opportunities Helping Customers Go Beyond RPS Mandates Helping Customers Manage RPS risk RPS Challenges Lack of Price Transparency Utility Investments: The “investment conundrum” Lack of Market Certainty

  3. Constellation Energy Resources (CER) • Constellation Energy Resources is the wholesale and retail energy operation of Constellation Energy, a Fortune 125 integrated energy company • CER optimizes supply and delivery of power and fuels for some of the world’s largest producers and consumers of energy • CER manages the output and fuels for Constellation’s generation fleet • CER is among the market leaders in providing electricity and natural gas products to wholesale and retail customers throughout North America • CER currently serves over 26,600 MW of competitively procured full requirements peak load in the US • Since 1997, CER has been serving the full requirements power needs of distribution utilities, cooperatives and municipalities • CER has extensive experience dynamically scheduling and delivering power to serve load in both physical markets and financial markets • CER has successfully managed exposure to market price and regulatory volatility through a tumultuous period in the energy industry • CER operates a portfolio of resources, both owned and contracted, to manage supply obligations • Purchasing capacity from the “market” allows CER to utilize lowest-cost supply; CER supply is not tied to the economics of any one unit • CER uses a variety of tools, both physical and financial, to manage costs and risks for customers

  4. Constellation’s Customer Supply Business

  5. Generation Assets – 9,136 MW as of December 2008 Note: This slide does not reflect the impact of the Nuclear Joint Venture

  6. RPS Opportunities • Managing Risks of environmental improvement goals: • Market based mechanisms allowing customers to manage their renewable and carbon footprint goals and risks. • Competitive suppliers can: • Assist with financing of on-site renewable facilities • Manage and optimize the output of the facilities • Manage the customer’s residual load requirements • Design customized portfolios of renewables, demand response, efficiency mechanisms. Presentation Title — Date 6

  7. RPS Challenges Managing risk requires market structures that promote price transparency and the ability to hedge: • Lack of established market for renewable energy credits compromises price discovery and investment • Impact of utility investments on rates is not transparent; may compromise meaningful customer choice • Regulatory/legislative structures may create barriers to competitive investment; for example, feed-in tariffs Utility procurement of renewable resources lacks transparency and undermines merchant investment – the “investment conundrum”: • As with fossil generation, market prices do not current support competitive investment, so investment has been mandated. This type of market intervention makes merchant investment unlikely, and competitive access to supply difficult. Presentation Title — Date 7

  8. RPS Challenges Lack of Market Certainty/Supply Expansion: • Will California try again to pass protectionist renewable policy at the expense of efficient region-wide expansion of the supply? • Will California find a way to integrate renewable policy with GHG reduction policy (Executive Order should help) • Will California address renewable market development issues? • Utility procurement practices? • Tradable RECS? • Alternative Compliance Payments? • Will transmission siting and other renewable integration issues be resolved to enable new supply? Presentation Title — Date 8

  9. Meeting the challenges to capitalize on the opportunities! • Establish region-wide tradeable renewable energy credit markets • Increase the competitiveness and price transparency of utility procurement • Re-establish customer choice so customers can actively manage their risks • Address transmission siting and grid integration issues Presentation Title — Date 9

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