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ace usa How to Make Retail Markets Work Presentation by Patricia Goudarzi, ACE USA Power Products to the New England Conference of Public Utility Commissioners June 2002 CONFIDENTIAL & PROPRIETARY Agenda Introduction to ACE USA Experience In New England Differences in How Markets Evaluate Risk Regulatory Issues Benefits of Insurance Solutions ACE USA Introduction to ACE USA ACE USA is a division of the ACE Group of Companies “A” rated capacity; “A+” S&P; “A” AM Best Global business in 50 countries $40 Billion in Consolidated Assets ACE USA Introduction to ACE USA (Contd.) ACE USA Power Products Introduced product in 1998 Started as Retail; Currently Predominantly Wholesale Insured 70,000 MW of Generating Capacity at Summer Peak Coverage ranges from 2 MW to 12,000 MW systems All 10 NERC regions covered and UK and Australia Policy Limits up to $100 million available per individual risk Risks can be covered either individually or as a portfolio ACE USA Experience in New England Largest concentration of clients in Midwest and PJM Great Bay (Only Announced Transaction in New England) Predominantly municipal clients in New England (versus IOU in other areas of country) PURMA Relationship Power Marketers with Off-Take Agreements ACE USA Basics of Insurance Credit D&O Fortuitious Business Interruption Unexpected or Rare Events Earthquake Low Probability Events Make it Affordable Terrorist Act Forced Outages Interruptible Contracts ACE USA Risk Management Perspectives Commodity/Trading Organization Standardized Risks Risk Management Offsetting Positions Unwind positions Rely on market liquidity and transparency Insurance Customized Solutions Risk Management Risk is retained until expiration (not relying on chain of suppliers for delivery, etc.) One-Sided Transactions Typically Hedge through reinsurance Large portfolios rely on offsetting Large portfolios rely on law of large numbers for risk management positions for risk management Rely on historic statistics and fleet Forward Looking information Larger number of transactions, converge to expected losses ACE USA Innovative Solutions Are Available Full Service Capabilities Short-term outage and price volatility coverage Long-term outage/fixed indemnification coverage Volumetric Risk Management due to temperature extremes Specialized Solutions (eg. Retail Programs) ACE USA Retail Risk Transfer Example 1 Interruptible Tariff Extreme conditions to interrupt (reserve margin threshold) No Purely Economic Pass Through Tariff Contained Option to Buy Through if Able Insurance Protected Against Impact of Extreme Prices for Pass Through ACE USA Risk Transfer Example 2 Onsite Generation Receive Back-up Generation from Local Provider at Market Cost Protect Customer Against Extreme Price Volatility if Generator Offline ACE USA Advantages of Insurance Solutions Generally Backed by Financially Strong Counterparties Insurance Companies are Not Potential Competitors in Commodity Business Insurance Companies are Diversified Into Different Businesses Contingent Nature of Coverage Tends to Result in Pricing and Coverage Efficiencies Financially settled through look-back mechanism. No scheduling or other requirements ACE USA Thanks for Your Attention! Contact Information: Patricia Goudarzi Senior Vice President - ACE Power Products 215.640.1893 (phone) [email protected] ACE USA
