A Wall Street Transcript Interview with Hugh Wynne, a Senior Research Analyst at Sanford C. Bernstein & Co., LLC, and a Senior Vice President of AllianceBernstein: Solar Power Generation Becomes Significant Electricity Pricing Factor for Selected Conventional Utilities

February 19, 2014

67 WALL STREET, New York - February 19, 2014 - The Wall Street Transcript has just published its Alternative Energy & Utilities Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Outlook for Biofuels and Biochemicals - Asia Pacific Demand for Solar Energy - Grid Parity Timelines for Alternative Energy - Solar Energy Pricing - Government Subsidies and Regulation - Solar Growth Drivers and Headwinds - Regulatory Headwinds for U.S. Utilities

Companies include: American Electric Power Co., I (AEP), Dominion Resources, Inc. (D), Duke Energy Corp. (DUK), Edison International (EIX), Exelon Corp. (EXC), Firstenergy Corp. (FE), PG & E Corp. (PCG), Dynegy Inc. (DYN), Calpine Corp. (CPN), NRG Energy, Inc. (NRG), Ameren Corporation (AEE) and many others.

In the following excerpt from the Alternative Energy & Utilities Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What impact is renewable energy generation having on conventional power companies, and which are the companies that you expect to be hurt the most?

Mr. Wynne: The basic issue is that you've got flat to down retail electricity demand, and at the same time you've got rapidly rising renewable generation. As a result, the need for the conventional fleet of nuclear, coal and gas-fired power plants to produce electricity has been reduced. So if you go back say over the five years from 2007 through 2012, total demand for electricity in the U.S. fell by about 100 million megawatt hours. Renewable generation grew rapidly. It rose by about 140 million megawatt hours. That meant that the need for conventional generation - primarily the need for coal- and gas-fired generation - fell by about 240 million megawatt hours, and you therefore have an issue of declining volume sales of electricity, which, if you are a competitive generator, directly impacts your revenue.

Now if you are a regulated utility the impact is less severe, because you are going to be indifferent as to whether you produce the electricity that you supply yourself and recover its costs from your ratepayer, or whether you purchase the electricity that you supply from a third party and recover the cost of that purchase from your ratepayer. In neither case are you making any money on that transaction; rather your return is an allowed return on your investment. So regulated utilities are insulated to a far greater degree from the impact of the decline in conventional generation than are competitive owners of conventional power plants for whom the loss of volume represents loss of revenue and loss of earnings.

Now there is a second impact, which is a price impact in the wholesale markets. So in competitive power markets like those in ERCOT or PJM or the New England or New York ISOs, generators will offer their electricity into the day-ahead market at their variable cost of production. For renewable generators, that variable cost of production is zero. When renewable generation becomes a very large part of the total supply, as it is for example in ERCOT or MISO, then a large portion of the supply curve is available to the market at zero variable cost. So in 2012, 9% of the total generation in ERCOT, 9% of the total generation in SPP and 6% of total generation in MISO came from wind and solar power plants, so 6% to 9% of the total supply of electricity in those three markets was being offered into the market at zero...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.