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Definitions

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“Spark Spreads” and “Heat Rate”.

“Heat Rate”: is a number used to describe how efficient our equipment converts natural gas to electricity. It’s represented as a whole number derived from a simple equation of BTU burned/KW produced. In a combined cycle facility such as ours, the heat rate would be somewhere around 7000, or approximately 7 million BTU (MMBTu) per each MW produced. A lower number means we’re more efficient, wasting less energy through the stack and converting more BTU value into usable power (something we’ll strive to continuously improve upon). We would also use the term “per MW fuel cost of electricity” which is the product of the cost for fuel and the plant heat rate, given in dollars (e.g. $4.00 MMBTu x 7000= $28/MW).

“Spark Spread”: is the difference (in dollars per MW) between the cost or market price of electricity and the cost of converting natural gas to electricity (the “per MW fuel cost”).  If our per-MW cost is $30, and the markets were buying at $35/MW, then the Spark Spread (in dollars per MW’s) would be $5/MW or a “positive spread”. When fuel prices increase suddenly we could find ourselves in a negative spread, making operation of the plant less profitable and more than likely we would purchase cheaper power, if available, to support our CDWR contract.

Given the fact that this is a basic formula, we also must include overhead to determine our true cost per MW. Add in our salaries, cost for chemicals, replacement parts, consumables (filters, gaskets, nuts & bolts), backfeed charges, and start-up costs to name a few….and we now have the real cost of making electricity at Mesquite Power. These are called the “Variable and Fixed O&M Costs” and would be included in our “per MW fuel cost” model. Some of these costs we have no control over, but others are well within our abilities to affect. The task ahead is for us to keep heat rate down, and maintain variable costs within our budgets. Everyone can play a part, whether by finding new ways to improve system efficiencies, reduce chemical usage, or by just operating the plant in the most economical way…safely. Once we’ve accepted Block 1, I’ll be rolling out the Incentive Plan which will include all these factors and gauge improvements on a Shift level. We’ll have some friendly competition, and also reap the rewards of being the best operated facility in the Sempra Fleet.

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