Global Utility White Paper CONFIDENTIAL e = Latam Utilities Latin America will be a trading market for the next year or two. These markets, with the exception of Chile, are subject to significant government intervention, which follows long cycles; Brazil is early in the interventionist cycle (e.g., Brazilian President Dilma Rousseff’s recent politicization of electricity tariffs), while other countries such as Argentina are closer to the end. Below is a partial list of structural changes driving long/short opportunities in Latin America: Electron’s structural changes: Latin America e = Brazil’s tariff intervention and consequent derating of sector e = Argentina’s increasingly urgent need for system investment and tariff increases e Shale gas development in Argentina and its impact on power prices and regional markets 4. Global Structural Changes Driving Alpha Opportunity In addition to region-specific structural changes, there are structural changes that have a global impact on the utility sector. e Power Prices are Skewed to the Upside The cost of natural gas and coal sets the marginal power price in many power markets around the globe. The rapid rise in US shale production that began in 2007 caused domestic gas prices to decline much more rapidly than other fuels and put downward pressure on power prices both in the US and globally. For US gas-fired generator Calpine, lower fuel costs offset lower power prices and the company emerged a relative winner. Virtually all other US generators employ a mix of assets fired by costlier fuels and suffered a tremendous margin squeeze, with — in the most extreme example — coal-fired generator Dynegy declaring bankruptcy in 2012. We believe the downward trend in US natural gas prices has flattened for reasons noted below, and upward optionality remains, which will affect power prices not only in the US but also Europe and Asia given cross-border commodity linkages. In Europe, in an example of the regional, non-correlated charac