Psa Backup 1 120908

Cleco Settlement Proposal December 9, 2008

Outline ƒ ƒ ƒ ƒ ƒ

Summary of Proposed Power Supply Agreement Summary of the Existing Arrangement March 2008 Analysis Conclusions Next Steps

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Proposed Power Sales Agreement ƒ ƒ

Current draft – 11/24/08 Term – 13 Years (Oct. 1, 2009 or earlier) ƒ ƒ

ƒ ƒ

Meets COA’s supplemental needs above RPS2 & SWPA Capacity charge on supplemental capacity ƒ ƒ

ƒ

Option – 5 year extensions 24 month termination notice

2009: $4.50/kW-mo (thru RPS3 COD) 2009-2021: $10.40/kW-mo

Energy charge based on Cleco average system fuel cost, plus $2/MWh Privileged and Confidential, Attorney Work Product

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Proposed Power Sales Agreement (cont.) ƒ ƒ ƒ ƒ ƒ

Capacity credit for DG Hunter – Option for a prepayment to COA DG Hunter dispatched by Cleco (Cleco pays fuel cost) COA required to maintain DG Hunter Provides for operation of DG Hunter by COA during emergency conditions Provides for Cleco non-fuel O&M payments above 4 starts per unit and 4,000 MWh per year Privileged and Confidential, Attorney Work Product

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Proposed Power Sales Agreement (cont.) ƒ ƒ ƒ ƒ ƒ

Provides COA extensive rights to review, audit, and challenge all PSA charges Provides strong protection to COA in event of Cleco default Requires confirmation of Network Integrated Transmission Service under the Cleco OATT Requires other agreements with Cleco (e.g., Reliability & Interconnection) Requires Bond Counsel reviews (tax issues) & release from LEPA Privileged and Confidential, Attorney Work Product

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Existing Arrangement with Cleco ƒ ƒ ƒ ƒ

COA provides for its own capacity needs COA retains RPS2 and SWPA purchases COA operates and maintains DG Hunter (can be dispatched by Cleco or COA) CLECO Special Energy ƒ ƒ

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Energy requirements above RPS2 and SWPA Rate is lower of average cost of Cleco gas generation or market purchases, plus $2/MWh management fee

Firm and non-firm point-to-point transmission arranged on COA’s behalf Privileged and Confidential, Attorney Work Product

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March 2008 Analysis

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Background ƒ ƒ ƒ

Prepared in 4th quarter 2007 and 1st quarter 2008 Based on fuel and electricity market price forecasts published in 3rd quarter 2007 Recent significant volatility in power and fuel markets and other factors gave reason to conduct a limited review of certain assumptions

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Background ƒ

(cont’d)

Based on this limited review, potential changes in major assumptions include: ƒ

Updated fuel forecasts ƒ ƒ

Gas price forecast is similar Coal price forecasts are generally higher

Timing and impact of carbon legislation ƒ Additional costs of transmission for market purchases under the Existing Arrangement ƒ Study period changed to reflect implementation of contract beginning 2009 extending through 2021 ƒ Update to Rodemacher 3 on-line date ƒ

ƒ

Further analysis required to quantify impact of changes and update conclusions Privileged and Confidential, Attorney Work Product

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March 2008 Analysis – Base Case Projected Power Costs (2008 – 2019) Incremental Power Costs ($/MWh)

120

100

80

60

40

20

Represents incremental power supply costs 0 2004

2005

2006

2007

2008

2009

2010

2011

Existing Arrangement

2012

2013

2014

2015

2016

2017

2018

2019

CLECO Proposal Privileged and Confidential, Attorney Work Product

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March 2008 Analysis – Base Case Projected Power Costs (2008 – 2019) ƒ

Projected Nominal Power Costs ƒ ƒ ƒ

ƒ

Existing Arrangement - $844 Million Proposed Arrangement - $786 Million Difference - $58 Million

Projected Present Value Power Costs ƒ ƒ ƒ

Existing Arrangement - $607 Million Proposed Arrangement - $566 Million Difference - $41 Million

Present value rate = 5%

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March 2008 Analysis – Base Case Projected Savings ƒ

Projected Nominal Power Cost Savings ƒ

Average over first 5 years (2008-2012) ƒ

ƒ

$3.5 million or $4.10/MWh

Average over Initial Term (2008–2019) ƒ

$4.8 million or $5.50/MWh

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March 2008 Analysis Primary Risk Considerations ƒ ƒ ƒ ƒ ƒ

Carbon Legislation Purchased Power Prices Fuel Prices Unit Outages COA Load Growth

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March 2008 Analysis – Risk Evaluation Comparison of Projected Power Costs 20%

Cumulative Nominal (2008-2019)

18% 16%

Probability

14% 12% 10% 8% 6% 4% 2% 0% 700

720

740

760

780

800

820

840

860

880

900

920

940

960

980

Cumulative Power Costs ($M) Cleco Proposed PSA

Current Arrangement Privileged and Confidential, Attorney Work Product

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March 2008 Analysis – Risk Evaluation Projected Power Cost Differential 12%

Cumulative Nominal (2008-2019)

10%

Probability

8%

6%

4%

2%

0% -20

-10

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

Cumulative Power Cost Savings ($M) Privileged and Confidential, Attorney Work Product

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March 2008 Analysis – Risk Evaluation Comparison of Projected NPV Power Costs 30%

Net Present Value (2008-2019)

25%

Probability

20%

15%

10%

5%

0% 500 510 520 530 540 550 560 570 580 590 600 610 620 630 640 650 660 670 680 690 700 710

NPV Power Costs ($M; $2007) Cleco Proposed PSA

Current Arrangement Privileged and Confidential, Attorney Work Product

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March 2008 Analysis – Risk Evaluation Projected NPV Power Cost Differential 16%

Net Present Value (2008-2019)

14%

Probability

12%

10%

8%

6%

4%

2%

0% -20 -15 -10 -5

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95 100

NPV Power Cost Savings ($M; $2007) Privileged and Confidential, Attorney Work Product

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March 2008 Analysis Conclusions ƒ

ƒ

ƒ

Under expected assumptions, the Cleco Proposal was projected to be $58 million ($41 million NPV) lower than the Existing Arrangement Power supply costs under the Cleco Proposal were projected to vary less than under the Existing Arrangement Savings under the Cleco Proposal were projected to be between $27 million and $93 million (90% confidence interval) on a nominal basis for the major risks evaluated Privileged and Confidential, Attorney Work Product

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Next Steps Update the March 2008 Analysis ƒ Revise conclusions as necessary ƒ Schedule additional meetings to present updated results ƒ City to determine course of action on Cleco proposal ƒ

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March 2008 Analysis Major Assumptions

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March 2008 Analysis Assumptions – Existing Arrangement ƒ

Special Energy rate ƒ ƒ ƒ

ƒ

Cleco natural gas generation cost reflects only existing Cleco gas-fueled units Includes CO2 allowance costs beginning 2012 Cost of market purchases based on R. W. Beck’s power market forecast

Reserve capacity ƒ ƒ

Reserves purchased to meet 13.6% reserve margin Reserve capacity price assumed to be $5/kW-mo, escalated at inflation Privileged and Confidential, Attorney Work Product

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March 2008 Analysis Assumptions – Cleco Proposal ƒ

Fuel charge ƒ ƒ

Average system fuel cost adjusted for 2% losses Includes CO2 allowance costs beginning 2012

Reserve capacity assumed to be provided by Cleco, other than for RPS2 ƒ COA incurs no additional DG Hunter O&M cost resulting from dispatch by Cleco ƒ

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March 2008 Analysis Economic Assumptions Inflation rate - 2.3% per year ƒ Discount rate - 5.0% ƒ

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March 2008 Analysis Alexandria Load Forecast ƒ

Econometric load forecast completed in Feb 2007 by R. W. Beck ƒ ƒ

ƒ

Historical analysis over 1990-2006 Explanatory variables included population and personal income in Rapides Parish, the retail price of electricity, and weather

Adjusted to reflect expected addition of a large industrial customer (RSI) Privileged and Confidential, Attorney Work Product

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March 2008 Analysis Fuel Forecasts Coal price forecast prepared by a coal market consultant for R. W. Beck ƒ Petroleum coke (RPS3 fuel) forecast developed based on historical relationship between coal and pet coke ƒ Natural gas price forecast developed by R. W. Beck (Henry Hub and basis differential to Cleco region) ƒ

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March 2008 Analysis Emission Allowances Existing laws regarding SO2 and NOX are assumed to remain in effect throughout study period ƒ CO2 cap and trade system is assumed to be in effect beginning 2012 ($12/ton in 2012, increasing at inflation) ƒ

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March 2008 Analysis Cleco Energy Cost Model ƒ

Cleco energy costs projected based on a production cost simulation model ƒ ƒ ƒ ƒ

O&M costs of existing units from FERC Form I reports Rodemacher 3 (RPS3) assumed to be on-line 1/1/2010 Cost of RPS3 based on publicly available information and industry data Generic CT & CC units added based on a generation expansion optimization model Privileged and Confidential, Attorney Work Product

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March 2008 Analysis Electricity Market Prices ƒ

Market prices for electricity for the Cleco region are based on R. W. Beck’s proprietary U.S. power market model (2007 Q3)

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