Southwest Generation

Both TIF and UTA hold an interest in Southwest Generation

Southwest Generation operates seven power generation facilities in the US. With facilities in California, Colorado, New Mexico and Nevada, the portfolio has an aggregate capacity of 974 megawatts (MW) and consists of modern gas fired facilities operating under contracts with major electric utilities.

The portfolio is a mix of simple and combined cycle plants that can operate as load following wind resources, with a capacity weighted average age, since construction, of approximately 10 years. As such, the portfolio's facilities are efficient, low emission plants which provide power to southwestern US.

Performance Highlights 2011

Operationally, Southwest Generation has performed well since being acquired on 11 July 2008. Whilst the financial performance of Southwest Generation has also met expectations, the longer term recontracting outlook for the portfolio's Colorado facilities remains uncertain, which has been reflected in the 30 June independent valuation.

The US economic downturn has led many utilities to reduce their energy demand forecasts causing a reduction in the near-term willingness of utilities to extend or sign new capacity contracts at attractive rates. Additionally, the fundamentals of the capacity markets where Southwest Generation owns assets remain soft. This continues to affect Southwest Generation, particularly its Colorado-based facilities which come off contract in late 2012.

Performance Outlook

Southwest Generation is pursuing a variety of initiatives to protect the value of the Colorado facilities. The new laws in Colorado, which facilitate the transition of coal generation to natural gas generation, will lead to increased recontracting opportunities for Southwest Generation. Additionally, Southwest Generation's proposed 'Transparency Bill' (HB1262) passed legislation and was signed into law in April 2011. The Bill requires more transparency in the regulatory process and better access to information in the resource planning process. This should provide a fairer and more level environment for re-contracting. Separately, Southwest Generation is developing alternative marketing plans to provide power to local municipalities, as well as developing a transmission path to a new market to provide liquidity and increase potential re-contracting partners.

Southwest Generation is also focused on several additional strategic initiatives, including re-contracting efforts for the Las Vegas II facilities and is currently developing a proposal for Nevada Power as well as looking at opportunities to sell into the California markets.