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<title>SEMC Northeast Energy Review and Forecast - May 12, 2000</title>
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<td width="80%" valign="top"><p align="right"><font face="Arial" size="2">(<em>originally
published by PMA OnLine Magazine: 2000/05/18</em>)</font><font FACE="Palatino" SIZE="5"><b></p>
</b></font>
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<p style="margin-right:.5in;tab-stops:.5in" align="center"><b><font face="Arial" size="5"><span style="font-size: 26.0pt; mso-bidi-font-size: 10.0pt"><br>
NORTHEAST ENERGY <br>
REVIEW AND FORECAST<br>
</span></font><span style="mso-bidi-font-size: 10.0pt"><font face="Arial" size="4">May
12, 2000</font></span></b></p>
<center>
<p class="MsoPlainText" align="center"><b style="mso-bidi-font-weight:normal"><span style="font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:
"Times New Roman"">SPOT MARKET ELECTRICITY ACTIVITY</span><span style="font-size:9.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:
"Times New Roman""><br>
NEW ENGLAND & NEW YORK<o:p>
</span></b></p>
</center>
<blockquote>
<blockquote>
<p class="MsoPlainText" align="left">The contents of the current Strategic
Energy Management Corp. newsletter “<b>Northeast Energy Review and Forecast
5-18-00</b>” found on this website represents excerpts.<span style="mso-spacerun:
yes"> </span>If you would like to receive the complete newsletter please
click on <a href="http://www.strategicenergymgmt.com/">www.strategicenergymgmt.com</a>
and go to the current newsletter section of our website.<span style="mso-spacerun: yes"> </span><b style="mso-bidi-font-weight:normal"><span style="font-size:9.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:
"Times New Roman""><br>
</span></b></p>
</blockquote>
</blockquote>
<p class="MsoBodyText" style="text-indent:0in"><span style="font-size: 12.0pt; mso-bidi-font-size: 10.0pt; mso-bidi-font-family: Times New Roman"><font face="Arial">Forward
prices in both New England and New York increased sharply during the first
two weeks of May after drifting slightly lower through the last half of
April.<span style="mso-spacerun: yes"> </span>As alluded to above,
the market cannot seem to get a break regarding maintenance season as
admittedly the weather was VERY unseasonable for the 2<sup>nd</sup> week
of May.<span style="mso-spacerun:
yes"> </span>The entire curve in both regions rose in response to the very
high spot prices seen last Monday and Tuesday.<span style="mso-spacerun: yes">
</span>The NEPOOL June forward led the way, presently at $82.00 (+$20.00)
after having traded as high as $95.00 last Tuesday.<span style="mso-spacerun: yes">
</span>The NEPOOL and ZONE A Jul-Aug forwards both rose to new highs and
are currently at $113.00 and $93.00 respectively.<span style="mso-spacerun: yes">
</span>Zone J (New York city) continued its relentless drive higher and is
now at $135.00.<span style="mso-spacerun: yes"> </span>While it is
not at all surprising to us that the forward markets jumped on the back of
NEPOOL’s spot peak clearing price average of $1731.00 on May 8<sup>th</sup>,
we think it does make sense to step back and realize that the price
drivers behind last week’s unprecedented price rise will probably have
changed significantly by the time most of the aforementioned forward
months turn to spot.<span style="mso-spacerun: yes"> </span>Quite
obviously, the most important driver regarding extreme spot pricing will
be the amount of generation available for the grid.<span style="mso-spacerun: yes">
</span>If all of the generation that is expected to return to the grid
does in fact return, then we might not see a repeat of the type of pricing
that occurred last week.<span style="mso-spacerun: yes"> </span>This
is NOT a recommendation to short the market, as it is quite possible that
many of the units could fail to return.<span style="mso-spacerun: yes">
</span>In fact, we see the current emotion and forward momentum in the
market carrying June and JULY-AUG forwards in NEPOOL higher over the very
near term (7 to 10 days) with price targets of $95.00 and $122.50-$125
respectively.<span style="mso-spacerun: yes"> </span>We advise that
the movements over the next few weeks will be sharp and believe that the
news of generation returns or outage continuations will drive the nearby
forward prices. <span style="mso-spacerun: yes"> </span>At this
juncture, we recommend trying to stay on the side of the direction of
price momentum.<span style="mso-spacerun: yes"> </span>If we do see
another spike towards the end of May and early June, it may be worth
exploring a short position in the JUL-AUG if both the forward price rises
and the generation picture looks as though it may improve by July and
August. <o:p>
</o:p>
</font></span></p>
<p class="MsoBodyText" style="text-indent:0in"><span style="font-size: 12.0pt; mso-bidi-font-size: 10.0pt; mso-bidi-font-family: Times New Roman"><font face="Arial">The
troubles of last week clearly highlight the peaking capacity shortage in
the northeast and in other selected regions of the country.<span style="mso-spacerun: yes">
</span>This problem has been highly documented over the last few years and
the current backwardation (front months higher than the back months
adjusted for seasonality) of some of the longer-term (2 to 3 years)
regional (Cinergy, Entergy, NEPOOL etc.) forward curves indicate that
sufficient generation is being built to at least improve the situation.<span style="mso-spacerun: yes">
</span>The longer-term repercussions of last week’s price action may be
to cause the maintenance season to be even more compact with it starting
in late February with the intent of finishing by May.<span style="mso-spacerun: yes">
</span>One of the results of this could be the possibility that over time
both the forward and spot prices in the shoulder months (ie Mar ,April,
Oct) could rise relative to peaking months.<o:p>
</o:p>
</font></span></p>
<p class="MsoBodyText" style="text-indent:0in" align="left"><span style="font-size: 12.0pt; mso-bidi-font-size: 10.0pt; mso-bidi-font-family: Times New Roman"><font face="Arial">While
the Cal 2001 also rose last week in response to the high spot prices, the
market did not rise as high as one might have thought.<span style="mso-spacerun: yes">
</span>Again, this may be reflective of the fact that by June 2001 there
will be enough additional peaking capacity to reduce some of the upward
volatility.<span style="mso-spacerun: yes"> </span>Balancing this
fact is that fuel costs for both oil and gas continue to rise.<span style="mso-spacerun: yes">
</span>After correcting to the $24.00-$25.00 level, front-month NYMEX
Crude closed at $29.62 last Friday.<span style="mso-spacerun: yes"> </span>While
the crude oil curve is still in backwardation, the situation is much
improved (the curve has flattened) from a year ago and this indicates that
higher oil prices are here for a while. In fact, we are only a political
crisis away from $40.00 oil.<span style="mso-spacerun: yes"> </span>These
higher energy costs are going to keep the upward pressure on baseload
wholesale electricity prices and this needs to be measured against
additional peaking capacity when assessing forward prices for 2001 and
beyond.</font></span></p>
<p class="MsoBodyText" style="text-indent:0in" align="left"><img border="0" src="../images/neup000512a.gif" width="573" height="336"></p>
<p class="MsoBodyText" style="text-indent:0in" align="left"><img border="0" src="../images/neup000512b.gif" width="563" height="356"></p>
<p class="MsoBodyText" style="text-indent:0in" align="left"> </p>
<p class="MsoNormal" style="margin-left:1.0in"><font face="Arial" size="3">The
contents of the current Strategic Energy Management Corp. newsletter
“Northeast Energy Review and Forecast” found here represents excerpts.<span style="mso-spacerun:
yes"> </span>If you would like to receive the complete newsletter please
click on <a href="http://www.strategicenergymgmt.com/">www.strategicenergymgmt.com</a>
and go to the current newsletter section of our website.<span style="mso-spacerun: yes"> </span></font></p>
<p class="MsoNormal" style="margin-left:1.0in"><font face="Arial" size="3"><span style="mso-fareast-font-family: Times New Roman; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA">All
information contained within this document is deemed to be from reliable
sources. Strategic Energy Management Corp. makes no representations with respect
to any aspect of its accuracy, completeness, or timeliness. Strategic Energy
Management Corp. disclaims liability to any person or entity in regards to
errors, omissions, or decisions based upon any information contained within.</span></font></p>
<p class="MsoNormal" align="center"><span style="font-size:14.0pt;mso-bidi-font-size:10.0pt">Strategic
Energy Management Corp.<br>
Phone:<span style="mso-spacerun: yes"> </span>630-482-2451<o:p>
</o:p>
<br>
Fax:<span style="mso-spacerun: yes"> </span>630-482-2452<o:p>
</o:p>
<br>
</span><font face="Arial"><span style="font-size:14.0pt;mso-bidi-font-size:10.0pt">e-mail:
<a href="mailto:[email protected]">[email protected]</a></span></font><span style="font-size:14.0pt;mso-bidi-font-size:10.0pt"> </span></p>
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