1. NARUC Joint Session, Committees on Electricity and Gas Ellen Lapson, CFA February 19, 2008

2. U.S. Capacity Additions Source: Global Energy Decisions Uncertain 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 19501960197019801990200020102020 Nameplate Capacity (MW) CoalNuclearNatural GasFuel OilHydroRenewables & Other

3. Baseload Capacity Additions Delayed or Cancelled >New baseload coal units denied approval or cancelled by sponsors >New nuclear plants unlikely to enter service before 2016 - 20 >Investment in wind and renewable capacity is rising, but reliable capacity credit is limited for intermittent supply without gas turbines or storage >Only option is more natural gas-fired generation in the next 5 -7 years OwnerPlantMWStatus FLSeminoleSeminole 3750Denied application FLFP&LGlades Power Park1,960Denied application FLTampa ElectricPolk Unit 6 IGCC632Cancelled by owner OK OG&E, Pub Service OK, OK Municipal Red Rock950 Denied approval by PSC; plan terminated KSSunflower Electric; Tristate G&T Holcomb1,400Environmental agency denied application

4. Gas Price Outlook: An Upward Trend Future prices are likely to be volatile, NOT smooth. ------ Forecast ----------

5. From Fitch’s 2008 Outlook for Electric & Gas >Despite an easy near-term supply situation in the 2007-08 heating season, the longer-term outlook for natural gas is for tight supply. –Fitch expects demand for gas for power generation to continue to rise for at least the next five years… –Deliverability of conventional gas sources is dwindling, with new supply likely to come from unconventional sources at higher cost. >Fitch expects a resumption of volatility associated with periods of supply interruption or extreme weather. –High and volatile gas prices create an adverse environment for any power or gas utilities lacking efficient and timely commodity cost recovery mechanisms.

6. Fitch’s 2008 Utility Credit Outlook by Sector Sector Median rating Senior Unsecured Debt Near-term Outlook 1 year Long-term Outlook 2 – 4 years Investor Owned Electric Utilities Integrated: BBB+ Elec. Dist.: A- StableNegative Gas Distributors A- to AStable

7. Sector Credit Drivers for Electric Utlities NEAR-TERM >Economic slowdown or recession; downturn in housing >Interest rates remain relatively low >Reasonable access to capital and bank markets; sector is viewed as a safe harbor for money >Adequate financial condition as a starting point LONGER-TERM >Declining power reserve margins >Sustained high capex for next decade –External financing; need for equity as well as debt –Higher construction costs; completion risks >Federal or state carbon rules; unknown regulatory framework. >Public opposition to rising tariffs & political push-back >Potential demand elasticity

8. Sector Credit Drivers for Gas Distribution Utlities NEAR-TERM >Economic slowdown or recession >Reasonable access to capital and bank markets; sector is viewed as a safe harbor >Good 2008 gas storage and supply >Most companies have timely and effective purchased gas adjustment mechanisms. >Declining consumption, but offset by minimum demand / volumetric billing structures. LONGER-TERM >Concerns about adequacy of longer-term supply; increased consumption for power generation >Shrinking consumption with higher prices >Strong regulatory support helps to support credit

9. What Policies Can States Adopt to Mitigate Risks? >Implement Integrated Resource Planning >Encourage a balanced portfolio of generation resources and energy efficiency programs. >Preserve the financial viability of utilities so they can fund nedded capex. –Implement more timely and more effective commodity cost recovery mechanisms. –Adopt mechanisms that provide a cash return on construction work in progress; avoid rate shock at completion. >Encourage funding of research, development, and demonstration projects.

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