Entergy Corporation · NYSE:ETR
Entergy — Investor Day (June 2002)
12 slides from Entergy's investor day presentation, Jun 14, 2002
Slide 1: How Weather Risk Management Creates Value
How Weather Risk Management Creates Value Entergy 2002 Analyst Meeting Dick Jefferis Senior Vice President, New Products Development Entergy-Koch Trading, LP June 14, 2002 Entergy-Koch
Slide 2: EK Uses Its Weather Expertise in Its Point-of-View Trading
EK Uses Its Weather Expertise in Its Point-of-View Trading... 1) Evaluate Situation: In early 2000, U.S. has just completed the 2 mildest winters in its history 2) Establish a Point of View: + Due to mild winters, hidden demand exists in the Northeast + With normal or colder winter weather, natural
Slide 3: And Mitigates Its Risk with Weather Derivatives
And Mitigates Its Risk with Weather Derivatives 5) Transaction Results: 4) Risk Management: Winter + EK chooses the basis Weather Warm Normal Cold spread to reduce the amount of capital at risk Basis Spread ($$) $ $$$$ - HDD Call $$ ($) ($) - EKsells heating degree day (HDD) calls to reduce its risk
Slide 4: Energy Investments Are Essentially Portfolios of Real Options
Energy Investments Are Essentially Portfolios of Real Options Power plants provide the owner with an option to Storage facilities provide the operator a call Pipelines provide the owner with an sell at forward ae eehen option on natural prices or heat spreads gas timing rates spreads Sources of Valu
Slide 5: An Example of Value Creation in the Energy Industry: Hydroelectric Generation
An Example of Value Creation in the Energy Industry: Hydroelectric Generation Hydroelectric and thermal generators* face similar risks and rewards Stream Flow into Hydro Plant Ge Sells MW Output ‘Hydro _Generator Receives market : Power prices price crease 399s + Risks: stream flow, power prices Pow
Slide 6: Fuel Prices Have an Impact on the Value of Hydroelectric Generation
Fuel Prices Have an Impact on the Value of Hydroelectric Generation The price of power in most markets is determined by the cost of thermal generation Sells MW ae Sells MW Output Thermal Hydro Generator - Generator Oil or Gas i feceives market Fuels Plant, i =; Hydro plants provide the owner with an
Slide 7: A Stream Flow Hedge Provides Profits and Flexibility
A Stream Flow Hedge Provides Profits and Flexibility Annual Cash Generation Margins 50MW Hydro Facility; $ millions Stream Flow Fuel Price* Low Mean High $9 iC 49 », 6.0 65 8.3 A stream flow $14 77 10.1 129 hedge allows a hydroelectric $19 10.4 13.7 175 generator to maximize its $24 13.1 17.3 224 va
Slide 8: Risk Management Opportunities are Large in the Hydroelectric Market
Risk Management Opportunities are Large in the Hydroelectric Market Annual Hydroelectric Generation in Pacific VAR in Pacific Northwest Northwest Hydro Market million MWh 2 130 . oO a 4 rT] / 3S 120 1 a ° 3 7 VAR at $30/MWh 2 1. 1. $750 million S . § 110) » oa . 7 i= 5 o : .° ° : : | ; = 100 : . i =
Slide 9: Other Value Creation Examples
Other Value Creation Examples Temperature derivatives make it possible for the owner of a peaking plant to lock in volumes when capacity is tight and prices are high Rainfall derivatives linked to fuel prices allow corn growers to manage irrigation risk when corn prices are high Natural gas options
Slide 10: Survey Results Show The Weather Market is Growing...
Survey Results Show The Weather Market is Growing... -PriceWaterhouse Coopers Survey of the Weather Market { Seiad Sis \ Initially Released in June 2001 Significant Growth Since 1997 + Total risk transfer in the weather market has reached $11.8 billion Updated in June 2002 to include: since 1997 + w
Slide 11: ...With Significant Gains in Both the Summer and Winter Seasons
...With Significant Gains in Both the Summer and Winter Seasons Notional Summer Notional Winter Season Risk Transfer Season Risk Transfer $ millions $ millions 3,400 ole, Ey 1,900 A610 933 641 i | = : : , _1—Europe | , Summer 2000 Summer 2001 Winter 2000 Winter 2001 9.8% of notional value in Winter
Slide 12: Summary - Weather Risk Management
Summary - Weather Risk Management Entergy- Koch Trading uses weather derivatives to create value for itself and its customers by: Leveraging the knowledge gained from its weather risk activities in establishing its point of view of the markets Mitigating risk in its point-of-view trading Increasing