Arizona Electric Power Cooperative Annual Meeting 6/13/12 Arizona Electric Power Cooperative Annual Meeting 6/13/12 Life After Restructuring

Arizona Electric Power Cooperative Annual Meeting • 6/13/12

Life After Restructuring


Own / operate4,130 MW

Oglethorpe Power Corporation

2

1997

OglethorpeRestructured

Member “choice” for future power supply

Responsibility for existing commitments locked in

Oglethorpe retained generating assets

Today

1.8 million consumers

Own / operate ~ 8,400 MW

Total assets = $8.1 billion

Total revenue = $1.4 billion

1999

Built Smarr (221 MW)

2000

Built Sewell (504 MW)Doyle PPA(348 MW)

2002

Built Talbot (656 MW)

2003

Built Chatt. (470 MW)

2009

Bought Hawk ( 486 MW)

Bought Hartwell(298 MW)

2011

Bought Murray (1250 MW)

2012

New Business Model(Restructuring 2)


Challenges Right After Restructuring

• Member trust very low (of Oglethorpe and among other Members)

• Relationship between Oglethorpe and Members not unified; Members wanted different things

• Key new business model challenges:

− What services can Oglethorpe effectively provide to subsets of Members?

− Use of Oglethorpe credit for subsets of members (since all members are jointly liable)

− Complexity resulting from restructuring / choice

3


Oglethorpe Guiding Principles

• Transparent

• Customer (Member) Oriented

• Collaborative

• Fair and Equitable

• Professional

• Focused on Creating Value

4

Objective

To change culture and to restore trust between Members and Oglethorpe


Specific Examples of Issues & Resolution

• Oglethorpe’s credit valuable and could support various new business endeavors (beyond existing commitments)

• All members jointly & severally liable for payment of Oglethorpe’s obligations (i.e., if one can’t pay, the others are required to cover the shortfall)

• Potential uses of Oglethorpe credit

− Building or acquiring new generation

− New power purchases

− Energy trading

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Use of Oglethorpe’s Credit

Issue



• Use Oglethorpe credit for things that benefit the vast majority of members

• Generally speaking, certain approval thresholds must be achieved for use of Oglethorpe’s credit for new commitments

− 75% of board

− 75% of members based on number (1 member / 1 vote)

− 75% of members based on patronage (effective in 2003)

• Also, a conflict of interest must not exist

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Use of Oglethorpe’s Credit

Solution



• In 1997 Oglethorpe no longer the “all-requirements” supplier

• Power supply needs largely taken care of through 2005

• Significant shift of responsibility to members

• In 1999 – 2001 Members entertained options offered by choice in planning for 2005 and beyond

• Oglethorpe’s role unclear… viewed as competitor versus partner with members

• Ultimately resulted in undesirable situation

7

Power Supply Planning & Procurement

Issue



• Oglethorpe retreated in 2003 as part of the “New Business Model” restructuring

• On their own, members entered into long-term supplemental power supply contracts (most “requirements based”)

• Oglethorpe “opportunistic” with respect to future power supply

• Developed a process with the members to screen attractive opportunities, assess interest, and ultimately subscribe resource (get firm commitments) if sufficient interest

• Oglethorpe leads negotiations / manages development of resource if subscribed

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Solution


23%

7%

27%

16%

13%

7%

7%Cobb Group (7 Members)

JP Morgan Group (3 Members)

Southern Power Group (11 Members)

Georgia Energy Cooperative/Constellation Group (15 Members)

Jackson EMC / Constellation

Greystone Power /Morgan Stanley

Walton EMC Morgan Stanley

Member Supplemental Power Supply Contracts

Projected Contribution to 2012 System Peak

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• Members realizing value of Oglethorpe’s balance sheet

• Members also seeking to minimize contract renewal risk in their third party contracts through owning more generation

• Recent new generation initiatives

− Joint owner in new nuclear project (660 MW / $4.2 billion)

− Three acquisitions (2,000 MW / $900 million)

• Some members now building in flexibility to take potential future Oglethorpe resources into their supplemental power supply contracts

Today


Load plus Reserves

2012 2013 2014 2015 2016 2017 2018 2019 20200

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Total Existing Capacity Vogtle Expansion Total Contract Resources Net Requirements

MW

Members’ Forecasted Requirements and Identified Sources

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• By resource

• Choice complexity

• All members have different cost profiles!

• Customized bills, budgets and forecasts (monthly bill went from 3 pages to over 150!)

• Examples of more challenging allocations:

− A&G

− Margin increase

− Liquidity

− Energy settlement (when another member uses someone else’s resource because it is cheaper for the system)

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Cost Allocation


Successes

• Improved trust and communication

• Oglethorpe’s role is better defined and understood

• Creative solutions / customization

− Optional natural gas hedging program

− Optional rate management programs

− Optional prepayment of power bills program

− Pre-approval of use of credit for limited purposes/ timeframes

• One member withdrew and re-joined again several years later

• Members seeking Oglethorpe involvement!

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Continued Challenges

• Enhancing efficiency of system operations / dispatch

• Proliferation / changes in composition of member groups based on evolving power supply strategies

• Cost allocation… there will always be different opinions!

• All-requirements supplier again? Some members quietly asking…

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Documents

Arizona Electric Power Cooperative Annual Meeting 6/13/12 Arizona Electric Power Cooperative Annual Meeting 6/13/12 Life After Restructuring