Global Utility White Paper CONFIDENTIAL 2. Structural Change — Advantageous Time for Global Utility Sector Long/Short Investing The high level of structural change occurring around the globe makes this a particularly advantageous time to be long/short investing in the global utility sector. The various examples for each region, the importance of structural change to each region and the opportunities are listed in Section 3. e Structural Change in Electron’s Research Process Since the original Electron was formed in 2004, Electron’s research process has focused on structural change to determine its impact on the underlying future earnings potential of our companies (see Appendix 1, page 22). Whenever there is structural change, distortions and inefficiencies arise. These invariably result in both winners and losers among utility stocks, in large part because of the heavy influence of public policy on the sector (e.g. governments and regulators). Policymakers will never want to knowingly provide windfall profits to utilities; if a structural change is producing a winner, we look for the loser. If a loser cannot be found, we keep looking: the loser will eventually surface. e Structural Change Cycle As cycles are an important feature of life, so are cycles of structural change important in the global industry. During the recession following the financial crisis, the activity level of structural change did slow down around the globe. This is not surprising as governments, regulators and other stakeholders slowed the pace of structural change (i.e. a hunkering down mentality took hold among _ utility stakeholders) and companies slowed their rate of capital spending (because of uncertain economic growth prospects). As time has passed, the outlook for global growth has stabilized, tail risks have been managed and confidence has returned, and companies have begun spending previously-delayed capex needed to ensure system reliability. This collectively has prompted utility sta