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<title>SEMC Northeast Energy Review and Forecast - February 1, 2001</title>
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<td width="100%" valign="middle">7<a name="top"></a><img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" width="229" height="100"></td>
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<td width="80%" valign="top"><p align="right"><font face="Arial" size="2">(<em>originally
published by PMA OnLine Magazine: 2001/02/04)</em></font></p>
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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 REVIEW <br>
AND FORECAST<br>
</span></font><font face="Arial" size="4"><span style="mso-bidi-font-size: 10.0pt">February
1, 2001</span></font></b></p>
<p style="margin-right:.5in;tab-stops:.5in" align="center"><img border="0" src="../images/semc.gif" width="459" height="149"></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</span></b></p>
</center>
<p class="MsoPlainText" align="center"><span style="font-size:14.0pt;mso-bidi-font-size:
10.0pt;font-family:Arial;mso-bidi-font-family:"Times New Roman""><b style="mso-bidi-font-weight:normal">NEW ENGLAND and NEW YORK <br>
FORWARD MARKET</b><b style="mso-bidi-font-weight: normal; font-size: 14.0pt; mso-bidi-font-size: 10.0pt; font-family: Arial; mso-bidi-font-family: Times New Roman">
</b><b style="mso-bidi-font-weight:normal">COMMENTARY<o:p>
</o:p></b></span><span style="font-size:12.0pt;mso-bidi-font-size:10.0pt;
font-family:Arial;mso-bidi-font-family:"Times New Roman""><o:p>
</o:p>
</span></p>
<p class="MsoBodyText" style="text-indent:0in"><span style="font-size:12.0pt;
mso-bidi-font-size:10.0pt;font-family:Arial;mso-bidi-font-family:"Times New Roman""><br>
The early part of the year 2001 has been one characterized by extreme
volatility for the prices of forward electricity, natural gas and even that
boring commodity old man coal.<span style="mso-spacerun: yes"> </span>Of
the three, gas has been the real mover and shaker with the prompt month
future posting a $10.10 high the week after Christmas to only close the
month of January at $5.707.<span style="mso-spacerun: yes"> </span>Clearly
power has followed the gas market both up and down but they have not been
step for step.<span style="mso-spacerun: yes"> </span>The NEPOOL Feb
forward ended 2000 at approximately $97.00, spent the first half of January
moving between $80.00 and $90.00, and then collapsed the last 2 weeks of
January to enter the spot month at $60.00.<span style="mso-spacerun: yes">
</span>March traded in a similar fashion, trading as high as $80.00 during
the middle of January but then retreating to its current level of $57.00.<span style="mso-spacerun: yes">
</span>Though at different levels, Feb and March forwards in New York Zone A
had similar movements and ended the month of January at $44.00 and $43.00
respectively.<span style="mso-spacerun: yes"> </span>The
forwards for the shoulder months of April and May in New England<span style="mso-spacerun: yes">
</span>closed the year 2000 at $65.00 and $71.00 but ended the month of
January at $56.00 and $57.50 respectively.<span style="mso-spacerun: yes">
</span>The forwards for July-August 2001 in NEPOOL and New York have been
back and forth over the survey period but both are trading slightly below
the levels reported in our last newsletter.<span style="mso-spacerun: yes">
</span>New York Zone J power for July-August remains strong at $130.00.<span style="mso-spacerun: yes">
</span>The Q4 2001 forward in NEPOOL actually traded higher during the
survey period and the Cal 02 forward in NEPOOL closed January at $58.50
after trading as high as $65.00 on Jan 10<sup>th</sup>.<o:p>
</o:p>
</span></p>
<p class="MsoBodyText" style="text-indent:0in"><span style="font-size:12.0pt;mso-bidi-font-size:10.0pt;font-family:Arial;
mso-fareast-font-family:"Times New Roman";mso-bidi-font-family:"Times New Roman";
mso-ansi-language:EN-US;mso-fareast-language:EN-US;mso-bidi-language:AR-SA">So
it appears that we have entered an area of low forward prices relative to
where they have been recently, but historically still very high.<span style="mso-spacerun: yes">
</span>The question we always ask ourselves during these declines is whether
it is just a sell-off in the middle of a long-term bull market or the first
sign of a longer-term trend change.<span style="mso-spacerun: yes"> </span>On
a macro basis, one item that worries us about a possible trend change is
that for the first time since the bulk power markets have been deregulated
we have the potential for negative growth in the economy.<span style="mso-spacerun: yes">
</span>This is in stark contrast to the situation we have seen over the last
few years (strong growth and minimal generation capacity additions).<span style="mso-spacerun: yes">
</span>Our feeling is that this no/low growth scenario will have its largest
impact on pricing for 2002 and beyond as additional, more efficient capacity
comes on line.<span style="mso-spacerun: yes"> </span>We would
also expect the 2002 gas strip to decline from its current lofty level of
$4.74 as the economy slows and the recent record rig counts in the gulf
manifest themselves in additional gas supply.<span style="mso-spacerun: yes">
</span>Since we are still bullish on the near-term months (see below) our
instinct would be to explore the possibilities of selling 2002 peak forward
on any rallies above $62.00 that are inspired by near-term circumstances.<span style="mso-spacerun: yes">
</span>For March and July-Aug we are bullish at current levels and recommend
buying March below $58.00 and July-Aug below $98.00.<span style="mso-spacerun:
yes"> </span>Our bullishness for March stems from the fact that it
is maintenance season and we feel that a lot of the maintenance normally
scheduled for April and May (NEPOOL capacity chart below not withstanding)
will be scheduled earlier this year to avoid any type of crisis seen last
May.<span style="mso-spacerun: yes"> </span>Additionally, though fuel
prices have retreated, at this point delivered gas to the region would be
roughly $6.00+, which is still very high relative to the current forward
price of power in NEPOOL.<span style="mso-spacerun: yes"> </span>Due
to maintenance, we foresee NEPOOL having gas on the margin quite often
during March and believe that generators will try and pass on their higher
fuel costs to the market.<span style="mso-spacerun: yes"> </span>One
last bullish item is that March has the potential for some very cold weather
and we feel that the current price does not reflect any of that risk.<span style="mso-spacerun: yes">
</span>Regarding July-August, we believe that the market will begin to price
in additional summer risk as we move forward in time.<span style="mso-spacerun:
yes"> </span>The attached chart shows that the area between $95.00 and
$98.00 has proven to be good support over the last few months and we think
that being long in this area offers good value (especially against gas
prices-see chart).<span style="mso-spacerun: yes"> </span>We do
caution that this is not a position to get married to and if the market
breaks below $90.00 we would immediately exit the trade and reassess the
trading environment at that time.<span style="mso-spacerun: yes"> </span></span></p>
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<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>
</span><span style="font-size:14.0pt;mso-bidi-font-size:10.0pt">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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