Energy Price HedgingUsing Non-Fossil Fuel

Generation

Tuesday – June 7, 2005Russ SylvaGeneral Manager

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HEFA and PowerOptions, Inc.

Massachusetts Health and Educational Facilities Authority is a public instrumentality formed in 1968 for the purpose of issuing tax-exempt bonds to finance facilities for lowest cost of capital.

PowerOptions : Energy purchasing consortium formed in 1996 by HEFA for Massachusetts nonprofits, cities and towns and state governmental entities to help reduce operating costs. One of the largest regional power purchasing groups in

New England with 500+ active members Since 1998, participating members have saved over $145

million in electricity and gas supply costs

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Electricity and natural gas supply provided through pre-negotiated contracts and pricing.

Members receive individual quotations; there is no price subsidization among members

Procurement through competitive RFP 3.5 million decatherms of gas supply currently

under contract to members 300 MW of electricity load currently under

contract to members

PowerOptions Consortium

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New England’s Current Retail Marketplace

Few active retail electric suppliers, but increasing Market prices increased steadily since mid-

January and are above historic levels Recent influences that have affected New England

prices Increased demand from new natural gas

powered electricity plants Cold winter and spring temps Storage status LNG and Canada sources/pipeline

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NStar BECONStar BECO1998-2005 Default & Standard Offer Electricity 1998-2005 Default & Standard Offer Electricity

RatesRates

NSTAR BECO Electricity Rates 1998-2005

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Cents/kwh

Standard Offer ResidentialSmall Commercial and Streetlights Large Commercial NEMALarge Commercial SEMA

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Projections Natural GasProjections Natural Gas

http://www.eia.doe.gov/oiaf/aeo/gas.html http://www.eia.doe.gov/oiaf/aeo/gas.html

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Natural Gas ImportsNatural Gas Imports

http://www.eia.doe.gov/oiaf/aeo/gas.htmlhttp://www.eia.doe.gov/oiaf/aeo/gas.html

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Using Non-Fuel Dependent GenerationUsing Non-Fuel Dependent Generationto Hedge Future Pricingto Hedge Future Pricing

Some characteristics of non-fossil fuel dependent generation are better for long term rate stability, but ….

Power is Intermittent or “unreliable” and needs to be supported by other types of generation

Combination sets final price characteristics

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Objective :

Capture savings over time by using non-fuel dependent generation

Provide Member with a long term hedge against fossil fuel price volatility

Provide one possible element of multiple period supply portfolio

Extend the period of favorable energy purchases available through PowerOptions

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Benefits To Members

Responds to members’ concerns for long term price stability

Allows members to hedge part of their future energy costs for one element of market uncertainty-- fossil fuel prices

May provide lower costs in future

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StatusStatus

Working closely with state agencies (MRET and DOER) and other consumer groups

Circulated and reviewing responses to RFP Discussions underway with green generators Devloping options for integrating Long Term

Supply with member’s shorter term supply. Target date for offering – July 2005

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““Renewable-as-Hedge” Possible TransactionRenewable-as-Hedge” Possible Transaction

Retail Customer Renewable Generator

Load Serving Entity

(1) Customer establishes supply contract with RE generator through LSE. RE generator sells all power to LSE. Example term = 10 years.

(2) LSE sells excess output at LMP. Provides shortfall at contract price.

(3) Supplier provides customer full requirements service.

(4) Customer pays Supplier negotiated FRS rate.

Spot Market

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PowerOptions, Inc.PowerOptions, Inc.

Phone: (617) 737-8480 or 1-888-662-HEFAPhone: (617) 737-8480 or 1-888-662-HEFAFax: (617) 737-8366Fax: (617) 737-8366

www.poweroptions.orgwww.poweroptions.org

Benson Caswell, President and HEFA Executive DirectorBenson Caswell, President and HEFA Executive Director

bcaswell@mhefa.orgbcaswell@mhefa.orgRussell Sylva, General ManagerRussell Sylva, General Manager

rsylva@mhefa.org rsylva@mhefa.org Wendy Lee, Sr. Operations and Services ManagerWendy Lee, Sr. Operations and Services Manager

wlee@mhefa.orgwlee@mhefa.org