Direct Energy Introduction - Centrica

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Direct Energy Introduction Leadership Chris Weston President and CEO David Clarke Chief Financial Officer Maura Clark President DE Business Eddy Collier President DE Services Strategy Badar Khan President DE Upstream Georganne Hodges Interim President DE Residential Kumud Kalia CIO and EVP Customer Operations Invest in upstream integration Grow scale and leadership downstream Establish leading positions 2000-08 Strengthen the platform 2009 Improve returns from existing business 2010 2011 2012 Simple. Friendly. Direct. Adèle Malo EVP and General Counsel Janice Thomson EVP HR & Communications Material contribution to Centrica earnings

North America Residential Market Share Eligible power and gas customers (m) 100% 5m 10m 26m Unswitched Unswitched Others 80% Stream DE 60% Reliant 40% ENMAX 20% DE Reg TXU Others Just Energy 0% Texas Canada US Northeast Source: KEMA US Retailer Landscape, EIA, competitor websites Simple. Friendly. Direct. Just Energy DE IGS Dominion

US Northeast Residential Electricity Growth Percentage of eligible customers switched to competitive suppliers DE entered 2006/07 DE entered Q4 2009 2009 Potential future markets 2014 25% 20% 15% 10% 5% 0% NY CT PA IL MA MD Source: KEMA and EIA Simple. Friendly. Direct. OH

Texas Transformation Initiatives: Retention and Bad Debt DE inbound customer retention (% of total) DE debt recovery rates* (%) 60% 50% 55% 40% 50% 30% 45% 20% 40% 10% 35% 0% 30% 2008 2009 2010 YTD 2008 2009 * Voluntary churn debt Simple. Friendly. Direct. 2010 YTD

Prepaid in Texas Texas customer credit quality 100% 75% Texas smart meter deployment (% of total) 100% Customers requiring deposit who would not pay 50% 75% 50% Paid deposit 25% No deposit required 0% 25% 0% 2009 DE Acquisition Screening 2009 2010 2012 2013 2014 2015 Simple. Friendly. Direct.

Smart Meters and Home Energy Management HVAC Management and Diagnostics Schedule an Appt Mobile TV PC Meter Need an Audit? Appliance Management and Diagnostics OpenFrame touch screen control panel Customer Applications Simple. Friendly. Direct.

Downstream Financial Performance DE Residential DE Business 2007 2008 2009 2,437 2,652 2,644 Operating Profit ( m) 110 118 155 Operating Margin % 4.5% 4.4% 5.9% Revenue ( m) Gas Customers ‘000 (period end) Electricity Customers ‘000 (period end) Services 2007 2008 2009 978 2,015 2,491 Operating Profit ( m) 1 11 Operating Margin % 0.1% 0.5% Revenue ( m) 1,692 1,723 1,724 Gas Production (mmth) 627 1,313 1,369 1,351 Electricity Consumption (GWh) 13,925 2007 2008 2009 Revenue ( m) 351 375 406 34 Operating Profit ( m) 17 16 18 1.4% Operating Margin % 4.8% 4.3% 4.4% 603 689 Gas Customers ‘000 (period end) 2,033 2,140 2,111 27,411 33,430 Note: DE Residential is before 61m one-off provisioning Simple. Friendly. Direct.

Electricity Markets: Small Commercial Opportunity DE Business electricity market (annual gross margin) 100% AB ON CT 80% MD MA Small commercial OH TX 60% NJ 40% 20% Medium and large commercial & industrial IL NY PA 0% DE Business electricity market Small commercial Simple. Friendly. Direct.

Texas Transformation Initiatives Cost to serve Retention Acquisition Bill print vendor switch Segmented pricing Prepay IVR enhancements Inbound saves Online channel Platform consolidation Transfer of service Pre-acquisition loss: Bill improvements Proactive retention - Priority move-ins Automatic payments - Credit engine Incumbent MF partnership Bad debt A/R management: outbound vendor, debt path and skip tracing Regulatory rulemakings: tampering, Prepay Prepay launch - Go-to-market - Payments deferred payment plans and critical care - IS/Ops Credit assessment and deposits strategies - Finance Prepay application for high-risk customers - Legal/Regulatory Simple. Friendly. Direct.

Downstream Residential energy Eligible customers (m) Annual consumption per customer Competitive markets Power 60 1400 1200 1000 800 600 400 200 0 30 20 10 0 8 6 NA 4 2 UK Unbundled Competition 65m eligible gas and power customers in North America Power and gas consumption per customer in North America is 3x UK Continuing growth from new markets opening and increasing switching 10 NA Gas wholesale: Power wholesale: Utility as supplier: UK 0 Power Gas UK Market deregulation Competitive marketers: Gas Uncompetitive markets Gas volumes (tcf) 100 1000 80 800 MWh 12 therms 50 North America Power volumes (TWh) Energy market types Gas 70 Business energy Deregulation in North America 80 40 Simple. Friendly. Direct. Electricity DC Hybrid Competition Fully Regulated Deep and liquid traded markets Generation in ratebase Competitive / ISO market Not permitted Pricing against utility “default” Exclusively Permitted but not active; no headroom NA Not permitted 60 400 40 20 200 UK UK 0 Market deregulation Gas Regulated return on utility rate-base Electricity Retail market deregulation established generally at state and provincial level Different market structures adopted with two general models for competition - Unbundled markets: (e.g. Texas power) structured like the UK - Hybrid markets: (e.g. Canada & US Northeast) regulated utility as default supply option DC DC Competitive Competitive Unbundled Competition Hybrid Competition Unbundled Competition Fully Regulated Services - Deregulated US Northeast: NA overall: Billing and collections DE customers (millions) DE market position (rank) Key Competitors Hybrid Utility 0.9 n/a n/a Just Energy ENMAX Hybrid Utility (Ontario) Marketer (Alberta) 1.0 2 Unbundled Marketer 0.7 3 TXU Reliant Hybrid Utility 0.6 3 Dominion IGS 3.1 1 Hybrid Competition Ineffective Choice Fully Regulated US power market share (TWh) 70 Market status Canada: Texas: Uncompetitive Uncompetitive Ineffective Choice Direct Energy Residential - Regulated 1,000TWh, 90bth eligible market in North America Combination of national and regional competitors NA 600 0 Flow-through of wholesale costs T&D: DC Ineffective Choice n/a Direct Energy is the largest competitive supplier in North America, focused in three key regions: - Canada - US Northeast - Texas Focused on establishing #1 or #2 position in each regional market Market share1 North American Residential heating/ cooling services market (C bn) 30 50 30 Major/ National Water Heating 80% Large Local Other Reliance Sears 25 Central Air Conditioning 20 10 20 10 Clockwork 2 40% Small Local Furnace AHS ARS / Rescue Rooter Service Experts 20% 5 Direct Energy 2 0 Market growth supported by economic recovery and efficiency incentives Highly fragmented competition with only a handful of major/national players SuezGDF Direct Energy Reliant Sempra Hess TXU Pepco 60% Dwyer 2 15 Acquisition of Strategic 40 100% 35 Constellation 60 0% North American Market 1 HVAC, Plumbing and Electrical services Major / National 2 Includes franchisee revenues Direct Energy is one of the largest in the market Growth focus: - Capitalising on economies of scale - Increasing density in local markets - Positioning for value from energy and services integration 0 2005 Source: KEMA 2006 2007 2008 2009 Direct Energy is the third largest provider in North America - Strong platform with acquisition of Strategic Energy - Continuing strong organic growth track record Growth focus is on the most attractive segments - Small commercial customers - Differentiated products

Direct Energy: Power Asset Operational Performance Competitive cost performance (2007 - 2009) Controllable Cost /KW 35 30 25 Paris Benchmark performance 20 Frontera 15 Bastrop 10 200 Source: Solomon benchmarking 300 400 500 600 700 800 900 1000 1100 Capacity MW Simple. Friendly. Direct. 1200

Total US Power Generation Output (by fuel) 100% 80% 0.2% 2% -1% -3% -1% 8% 60% -4% -15% 5% 10% 40% 20% 0% 2010 2020 (base case) 2020 (Waxman-Markey) Simple. Friendly. Direct. Percentage point change vs. 2010 Other Renewables Nuclear Coal Gas CC & CT

North American Natural Gas Supply Current N.A natural gas supply Conventional (Can) Unconventional (Can) LNG Assoc. gas 0 0 1 Note: Economics based on cash costs / marginal costs only (i.e. excludes cost of entry, F&D); Associated gas and contract LNG assumed to flow regardless of short term price movements Source: Warlick International, Credit Suisse, expert interviews 2 3 4 Henry hub price Simple. Friendly. Direct. Rocky Mountain gas WCSB-CBM/Other shallow Other conventional Spot LNG CBM Barnett Montney Mid Continent Tight gas West TX East/ Sth TX Contract LNG Other Shale 20 Haynesville Marcellus 40 WCSB-Conventional 60 GOM offshore Current N.A gas demand Horn River 80 Bcf/d Conventional (US) Unconventional (US) 5

Direct Energy’s Competitive Upstream Gas Position WCSB producer cash costs ( /mcf) 1 4 3 Direct Energy WCSB competitors 2 1 0 1 Q3 2009 cash costs for WCSB producers 50% gas weighted Simple. Friendly. Direct.

Disciplined Investment Track Record Power investments (US /kW) ERCOT CCGT new build 900 Gas investments 1 (100% market transaction average ) 100% Market average 800 80% 700 600 60% 500 400 40% 300 200 20% 100 0% 0 Paris Q1 2006 Bastrop Q2 2004 Investments (2007-2009) Frontera Q4 2004 1 Quarterly market transaction averages for WCSB acquisitions (reserve multiples – 2P) Simple. Friendly. Direct.

DE Upstream Financial Performance 2007 2008 2009 Revenue ( m) 226 786 567 Operating Profit ( m) 46 51 7 Operating Profit margin 21% 7% 1% Gas Production volume (mmth) 297 365 375 5,053 4,688 4,982 Power Generated (GWh) Simple. Friendly. Direct.

Upstream Power generation in North America Competitive wholesale power markets Simple. Friendly. Direct. Gas production in North America Direct Energy Gas basins Direct Energy power generation assets ERCOT Supply Stack 540GW 100% AESO ISO-NE IESO AESO (Alberta) 80% NYISO 60% ERCOT 40% MISO IESO (Ontario) CAISO Start Date Capacity (MW) Heat-rate (BTU/kWh) Capacity factor Bastrop 2002 525 7,200 50% Frontera 2000 450 7,200 55% Paris 1990 240 8,300 20% NYISO (New York) ERCOT (Texas) Paris PJM ( Mid-Atlantic) 20% Bastrop Houston Frontera Installed capacity Source: ISO/RTO Council and ISOs; excludes ISOs where retail power is not deregulated Current low spark spreads creating challenging economics Strong fundamentals - Capacity margins shrinking in key markets - Large requirement for investment in new capacity Direct Energy's generation assets Expansion focus in Texas in Texas competitively positioned and US Northeast - Flexible, low heat-rate and - Aligned to downstream low carbon power positions - Acquired at 20-30% of new build cost - Strong (and improving) reliability Direct Energy gas operations Direct Energy's gas production is based in Western Canada - 4,550 producing wells - Annual production of 40bcf per year - 50% conventional / 50% unconventional - Reserves of c. 400bcf (P P), 10 year Reserve life index - 295k net acres of undeveloped land - Top quartile cost position versus competitors Growth focus in Western Canada production - Also exploring shale Edmonton Reserve margins and new capacity requirements Reserve margins 30% 25% 20% 15% 10% 5% 0% 2010 Required new generation 2009-30 (GW) 2014 250 Source: ISO’s NEPOOL Calgary Base Case Uinta-Piceance and San Juan Basins Gammon Michigan and Illinois Basins Powder River Basin New Albany Fayetteville Barnett Mid-Continent (inc. Permian) Basin Antrium Haynesville North Atlantic offshore Source: The Brattle Group 12 10 8 6 4 2 0 Conventional 20% 0% Eagle Ford Annual production Gulf of Mexico Gas production in North America spread across several basins and reserve types Decreasing conventional production will be offset by growing unconventional (shale) production Current low gas prices impacting returns and creating opportunities to increase reserves Gas production (tcf) 30 25 Shale Tight Coalbed Methane 1 500 Trinidad WCSB 0 Peak load 1 0 2000 1,000 Texas Generation Excludes 1,400mmth gas demand of regulated customers in Alberta Conventional 5 DE gas demand and production (mmth) 1,500 US NE Demand1 Gulf Coast Appalachian Basin 10 2,000 Other Canada WCSB 40% Marcellus, Utica and Devonian/ Ohio Shale 15 CBM – Dry (Horseshoe Canyon) DE peak load and generation (MW) Efficiency & carbon Efficiency prevails scenario policy scenario Rockies 60% UticaLorraine CBM – Wet (Mannville) 300 km 25 tcf Northeast Mid-Contenent/ Permian Montney 20 Shallow gas Direct Energy – vertical integration 50 0 NY 300 km Medicine Hat 200 150 100 PJM 80% Bakken PJM ERCOT Horn River Greater Green River 0% Several competitive wholesale power markets in North America 100% Shale Plays Western Canadian Sedimentary Basin ISO-NE (New England) MISO (Midwest) CAISO (California) Key conventional & offshore basins Direct Energy CCGT Generation – 1,215MW Power Station Production Offshore Associated 2005 2010 2015 2020

Direct Energy Introduction Leadership Strategy Simple. Friendly. Direct. Chris Weston . Prepaid in Texas Simple. Friendly. Direct. Texas customer credit quality Texas smart meter deployment (% of total) 0% 25% 50% 75% 100% 0% 25% 50% 75% . Electricity Customers '000 (period end) Revenue ( m) 978 2007 2008 2009 2,015 2,491 689 34 603

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