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Review of the Vesting Contract Financial Parameters For the period 1 January 2017 to 31 December 2018 Final Report 2611312A-REP-004B

23 September 2016 Submitted to: Energy Market Authority Submitted by: WSP | Parsons Brinckerhoff; Prepared by: KPMG Singapore

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EXECUTIVE SUMMARY As part of the Energy Market Authority’s review of the long run marginal cost parameters for setting the vesting contract price for the period 1st January 2017 to 31st December 2018, WSP | Parsons Brinckerhoff, together with KPMG, have been appointed as the technical and financial advisors respectively to assist the EMA in their determination of each parameter. KPMG’s scope of work as the financial advisor includes the review of the following financial parameters that are necessary to arrive at the weighted average cost of capital:

Risk free rate; Debt premium; Gearing; Beta; and Market risk premium.

As part of our review of the above parameters, we have also updated other parameters, such as the relevant exchange rate and the MAS Core Inflation Index as and when necessary. The final post-tax nominal weighted average cost of capital, calculated following review of the above parameters, is 6.65%.

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CONTENTS EXECUTIVE SUMMARY I

1 INTRODUCTION 1

1.1 TERMS OF REFERENCE 1

2 DETERMINATION OF FINANCIAL PARAMETERS 2

2.1 Base Month 2

2.2 Comparator companies 2 1. Availability of information .................................................. 2 2. Financial health ................................................................. 2 3. Business location .............................................................. 2 4. Revenue source ................................................................ 2 5. Generation portfolio........................................................... 3

2.3 Exchange rates 3

2.4 MAS Core Inflation Index 3 2.5 Risk free rate 4

2.6 Debt premium 4

2.7 Corporate tax rate 5

2.8 Gearing 5

2.9 Beta 5 2.10 Market risk premium 6 2.10.1 Historical market risk premium 6 2.10.2 Implied market risk premium 7 2.10.3 Overseas benchmarks 7 2.10.4 Local benchmarks 8 2.10.5 Dividend growth model 9

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3 WEIGHTED AVERAGE COST OF CAPITAL 10

APPENDIX A 11

Comparator company profiles 11

Shortlisted companies and assessment criteria 13

APPENDIX B 16

Exchange Rates (USD/SGD) 16

Exchange Rates (EUR/SGD) 17

Exchange Rates (EUR/USD) 18

APPENDIX C 19

Debt premium 19

APPENDIX D 21

Comparator company total debt and market value of equity 21

APPENDIX E 22

Beta calculations 22

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TABLES Table 1: Summary of financial parameters ................................................... 1 Table 2: MAS Core Inflation Index ................................................................ 4 Table 3: Market risk premiums using various approaches ........................... 6 Table 4: Historical market risk premium ....................................................... 7 Table 5: Market risk premium from UK regulators ........................................ 8 Table 6: Market risk premium from Australian regulators ............................. 8 Table 7: Market risk premium using overseas benchmarks ......................... 8 Table 8: Market risk premium using local benchmarks ................................ 9 Table 9: WACC calculations ....................................................................... 10

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ABBREVIATIONS

ABBREVIATION DESCRIPTION

CAPM Capital Asset Pricing Model

EMA Energy Market Authority

Genco Generation Companies

IRAS Inland Revenue Authority of Singapore

LRMC Long Run Marginal Cost

MAS Monetary Authority of Singapore

SGS Singapore Government Securities

WACC Weighted Average Cost of Capital

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1 INTRODUCTION

1.1 TERMS OF REFERENCE In January 2004, the Energy Market Authority (“EMA”) of Singapore implemented Vesting Contracts as a tool to mitigate the exercise of market power by commercial generation companies (“Gencos”) in the national electricity market of Singapore (“NEMS”). Under the Vesting Contracts, Gencos are committed to sell a specified quantity of electricity at a specified price. This removes the incentive for large Gencos to withhold generation capacity in the market. The price under the Vesting Contracts is approximated with the long run marginal cost (“LRMC”) of a theoretical new generation entrant in the market, utilising the most economic generation technology in operation which contributes to more than 25% of total demand. Parsons Brinckerhoff, together with KPMG, have been appointed by the EMA to review the technical and financial parameters for the vesting price. The financial parameters are used to determine the Weighted Average Cost of Capital (“WACC”) for a new generation entrant in the market. This Final Report presents KPMG’s analysis and recommendations on the vesting contract financial parameters. The financial parameters have been updated with the Base Month of May. A summary of the financial parameters is shown in Table 1 below. Table 1: Summary of financial parameters

Financial Parameters Value Report Reference Base Month May 2.1

Exchange Rate (USD/SGD) 1.3643 2.3

Exchange Rate (EUR/SGD) 1.5357 2.3

Exchange Rate (EUR/USD) 1.1257 2.3

MAS Core Inflation Index 0.80% 2.4

Risk Free Rate 2.54% 2.5

Debt Premium 2.61% 2.6

Gearing 45.9% 2.8

Equity Beta 1.00 2.9

Market Risk Premium 6.12% 2.10

Corporate Tax Rate 17% 2.7

Post-tax nominal WACC 6.65%

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2 DETERMINATION OF FINANCIAL PARAMETERS

2.1 BASE MONTH For parameters that tend to be volatile in nature, a three month average of data has been used in accordance with EMA’s Procedures for Calculating the Components of the Vesting Contracts. In this Final Report, the Base Month of May has been used and the following parameters are estimated by averaging the data over a three month period up to and including the Base Month (i.e. 1st March 2016 – 31st May 2016):

Risk free rate; Exchange rates; MAS Core Inflation; and Debt premium.

2.2 COMPARATOR COMPANIES Comparator companies are used to determine several financial parameters by taking reference from publicly available information. These parameters include:

Gearing; and Beta.

In assessing the list of appropriate comparator companies, the following screening criteria have been applied to ensure that the comparator companies are as relevant as possible for a theoretical new generation entrant in Singapore, in particular, its merchant power market structure and power generation sources.

1. AVAILABILITY OF INFORMATION Only companies which are publicly listed have been selected so that financial information is transparent and adheres to international standard reporting requirements (e.g. GAAP / IFRS). Selected companies are also required to have at least 5 years of historical information to derive averages over a longer time frame.

2. FINANCIAL HEALTH Comparator companies should not have adverse financial health in the past 5 years, such as bankruptcy, insolvency, significant acquisitions and / or restructuring.

3. BUSINESS LOCATION Comparator companies should operate mainly in countries with similar credit ratings as Singapore1, and where merchant electricity markets exist to ensure that they experience a similar level of demand risk as Singapore.

4. REVENUE SOURCE The company should derive more than or equal to 50% of its total revenue from electricity generation and sales in merchant markets. There is an inherently different risk profile when a generation business enters into long-term electricity sales contracts against those where a

1 Singapore’s sovereign credit rating is AAA by the three rating agencies of S&P, Fitch and Moody’s. A similar credit rating has been taken as AAA – AA for S&P, AAA – AA for Fitch, and Aaa – Aa1 for Moody’s.

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wholesale market exists. In order for the business profiles to be similar, the company should be exposed to merchant market risks, similar to a Singapore Genco.

5. GENERATION PORTFOLIO As the majority of Singapore’s power generation is generated from natural gas, more than or equal to 50% of the company’s generation portfolio should be from thermal generation. Thermal generation plants are exposed to different commodity and operational risks as compared to other types of power plants. S&P Capital IQ was used to obtain a comprehensive list of public companies by screening for the industry classifications “Electric Power Generation by Fossil Fuels” and “Independent Power Producers and Energy Traders”. An additional screening criteria was added to limit companies to countries with similar credit ratings to Singapore. The list obtained from Capital IQ, was further filtered down to a shortlist based on their business descriptions to remove those companies not deemed to be relevant comparators. Based on the above criteria, the screening resulted in the following five comparator companies:

Calpine Corporation (NYSE:CPX) Capital Power Corporation (TSX:CPX) NRG Energy (NYSE:NRG) SSE plc (LSE:SSE) Drax Group plc (LSE:DRX)

Please refer to Appendix A for the profiles of the five comparator companies and the shortlisted comparator companies.

2.3 EXCHANGE RATES The exchange rates between the currencies used in the calculation of the vesting contract components are obtained from Bloomberg by taking the average of the bid / ask rates over the three month period up to and including the Base Month. The exchange rates determined by this approach for the following currency pairs are:

USD/SGD: 1.3643 EUR/SGD: 1.5357 EUR/USD: 1.1257

Please refer to Appendix B for further details on the daily exchange rates.

2.4 MAS CORE INFLATION INDEX The MAS Core Inflation Index is used in the calculation of the financial parameters to determine the real post-tax WACC and LRMC Scale Factor Indices. The MAS Core Inflation Index is calculated by taking the average of the MAS Core Inflation Index published by MAS for the three month period up to and including the Base Month.

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Table 2: MAS Core Inflation Index

Period Index YOY % Growth

March 2016 101.166 0.55%

April 2016 101.159 0.82%

May 2016 101.090 1.02%

Average: 0.80% Source: Monetary Authority of Singapore, http://www.mas.gov.sg/statistics/other-statistics.aspx

2.5 RISK FREE RATE The risk free rate is defined as the rate of return on an investment with zero risk. In practice, this is commonly taken to be the rate of return from investing in a sovereign treasury bond in a country with a high credit rating. It is used in the WACC calculations to determine the cost of debt and cost of equity. The daily closing yield on a government bond was used to calculate the risk free rate. To match with the economic asset life of 25 years as determined in the technical parameters study, a government bond with remaining maturity as close to 25 years as possible was selected to approximate the risk free rate. The government bond selected is NA12100N, a 30-year Singapore Government Security (“SGS”) bond with an issue date of 2nd April 2012 that matures on 1st April 2042. The bond has a remaining maturity period of approximately 26 years. The risk free rate determined using the average of the daily closing yield for the three month period up to and including the Base Month (inclusive of 31st May) is 2.54%.

2.6 DEBT PREMIUM The debt premium is the rate of return over and above the risk free rate that a lender would expect to earn from lending to a project or company. The debt premium, or credit margin, reflects the additional risks that the lender will bear as a result of lending to the project or company. The debt premium is generally affected by multiple factors, including the credit rating of the borrower, project structure and macroeconomic conditions. In the past determinations, the spread between a utility bond index and a risk free rate has been used to estimate the debt premium. To be consistent with previous determinations, the Moody’s Bond Utility Baa Index has been selected as the relevant index. Constituent bonds of the index have maturities as close as possible to 30 years, and are removed from the index when their maturity falls below 20 years, if they are susceptible to redemption, or if their ratings change. To match with the maturity period of the bonds in the index, the risk free rate used to calculate the debt premium is the yield on 30-year US treasury bonds. Taking the preceding three month’s daily average of the spread between Moody’s Bond Utility Baa Index and the yield on the 30-year US treasury bonds, the estimated debt premium is 2.18%. Further details on the debt premium calculations are provided in Appendix C. When taken together with the risk-free rate of 2.54%, the pre-tax cost of debt derived from this approach is 4.72%. While the above approach uses a bond index to approximate the debt premium, a new generation entrant in Singapore may consider project finance debt instead. However, benchmarks for project finance debt in Singapore are not readily available as new plants are added to the system infrequently given the relatively small size of the Singapore generation market, or not publicly disclosed as it is a private transaction between borrowers and lenders. Notwithstanding this, bank

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quotes for project financing of a new generation planting in Singapore is available from several financial institutions active in the Singapore power market. Taking into account the above market information, the pre-tax cost of debt of 5.15% is assessed to be reasonable which yields a debt premium of 2.61%.

2.7 CORPORATE TAX RATE

The corporate tax rate in Singapore is 17%, as specified by the Inland Revenue Authority of Singapore (“IRAS”).

2.8 GEARING Gearing indicates the capital structure and extent of financial leverage of a business. It is calculated as the ratio of total debt to the sum of the company’s total debt and market value of equity. The gearing is used in the WACC formula to weight the cost of equity and cost of debt. The targeted capital structure for a theoretical new generation entrant was determined by taking the median of the 5-year average gearing of the comparator companies. A 5-year average gearing is used to mitigate the impact of any short term fluctuations in gearing. The gearing obtained using this method is 45.9%. Please refer to Appendix D for further details on the comparator companies’ total debt, market value of equity, and gearing. These details have been updated as at 31 May to be aligned with the Base Month of May.

2.9 BETA The beta represents the risk involved in investing in the assets of a particular company relative to the market. The beta is used in the WACC formula to scale the market risk premium according to the risk profile of the company. The beta for a theoretical new entrant generation company is calculated using the following steps based on the comparator companies identified in Section 2.2:

1. Obtain the 5-year levered (equity) adjusted beta2 based on weekly returns for each of the comparator companies;

2. De-lever levered beta based on the applicable 5-year average gearing and tax rate for each of the comparator companies to obtain the asset beta;

3. Calculate R2 weighted average asset beta of comparator companies; and 4. Re-lever beta based on gearing as determined in Section 2.8 above and Singapore

corporate tax rate of 17% as specified in Section 2.7. The relation between unlevered and levered beta follows the following equation:

𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑏𝑏𝐿𝐿𝑏𝑏𝑏𝑏 = 𝐴𝐴𝐴𝐴𝐴𝐴𝐿𝐿𝑏𝑏 𝑏𝑏𝐿𝐿𝑏𝑏𝑏𝑏 × �1 + (1 − 𝑏𝑏) ×𝐷𝐷𝐸𝐸�

The beta approximated for a theoretical new generation entrant from the steps above is 0.89. Please refer to Appendix E for detailed calculations. Given the expectation that the returns for generation companies in Singapore would be closely correlated with general economic returns, the equity beta has been adjusted to 1.0.

2 Blume (1975) showed that estimated beta coefficients tend to regress towards the grand mean of betas over time. We have used the adjusted beta to account for mean reversion to 1. The raw beta is adjusted by the formula (1/3 + β * 2/3).

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2.10 MARKET RISK PREMIUM The market risk premium is the rate of return, over and above the risk-free rate, an investor would require in order to invest in the stock market, or in a company or project. The following approaches are used in determining the market risk premium:

Historical market risk premium in mature markets; Implied market risk premium; Overseas benchmarks from regulatory cost of capital determinations Local benchmarks reported in company annual reports; and Using dividend growth model.

The range of market risk premium determined using the various approaches above is summarised in the table below. The median market risk premium is 6.12%. Table 3: Market risk premiums using various approaches

Approach Market Risk Premium Historical market risk premium 5.57%

Implied market risk premium 6.12%

Overseas benchmarks 6.32%

Local benchmarks 5.00%

Dividend growth model3 6.22%

Median: 6.12% Each of the approaches are described in detail below:

2.10.1 HISTORICAL MARKET RISK PREMIUM Historical data provides a good starting point for an approximation of market risk premium. The historical market risk premium is estimated by measuring the actual return on stocks in a market, typically via a stock index proxy, over a long time period. The historical risk premium using such an approach have been estimated based on values provided by Aswath Damodaran in the 2016 Edition of Equity Risk Premiums Determinants, Estimation and Implications. The horizon-weighted average of the arithmetic and geometric market risk premium of mature markets has been used to estimate the market risk premium for Singapore. In general, an arithmetic average tends to overestimate returns while a geometric average tends to understate returns. According to Indro and Lee (1997)4, a horizon-weighted average contains the least bias.

3 Country Risk Premium for Singapore as extracted from Bloomberg (Ticker: CRP SG) 4 According to Indro and Lee (1997) in Biases in Arithmetic and Geometric Averages as Estimate of Long-Run Expected Returns and Risk Premia, the horizon weighted average contains the least bias. In weighting the market risk premium, we have taken the historical return period of 115 years from 1900 to 2015 and a horizon of 25 years covering the economic life of the project.

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Table 4: Historical market risk premium5

Country Arithmetic Market Risk Premium

Geometric Market Risk Premium

Australia 6.60% 5.00%

New Zealand 5.50% 4.00%

United Kingdom 5.00% 3.60%

United States 6.40% 4.30%

Median: 5.95% 4.15%

Weighting Factor: 0.79 0.21

Horizon-Weighted Average Market Risk Premium: 5.57% Source: Equity Risk Premiums (ERP): Determinants, Estimation and Implications – The 2016 Edition, Damodaran, 2016

2.10.2 IMPLIED MARKET RISK PREMIUM In the same paper, the 2016 Edition of Equity Risk Premiums Determinants, Estimation and Implications, Damodaran has proposed estimating the implied equity risk premium through discounting expected cash flows to equity holders (e.g. dividends and share buybacks) and solving for the required return on equity. The implied equity risk premium is then the difference between the required return on equity and the risk free rate.

𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐿𝐿𝐿𝐿 𝐿𝐿𝑒𝑒𝑒𝑒𝐼𝐼𝑏𝑏𝑒𝑒 𝐿𝐿𝐼𝐼𝐴𝐴𝑟𝑟 𝐼𝐼𝐿𝐿𝐿𝐿𝐼𝐼𝐼𝐼𝑒𝑒𝐼𝐼 = 𝑅𝑅𝐿𝐿𝑒𝑒𝑒𝑒𝐼𝐼𝐿𝐿𝐿𝐿𝐿𝐿 𝐿𝐿𝐿𝐿𝑏𝑏𝑒𝑒𝐿𝐿𝑟𝑟 𝑜𝑜𝑟𝑟 𝐿𝐿𝑒𝑒𝑒𝑒𝐼𝐼𝑏𝑏𝑒𝑒 − 𝑅𝑅𝐼𝐼𝐴𝐴𝑟𝑟 𝑓𝑓𝐿𝐿𝐿𝐿𝐿𝐿 𝐿𝐿𝑏𝑏𝑏𝑏𝐿𝐿 Damodaran has calculated the implied equity risk premium for the S&P 500 and uses it as an implied equity risk premium for a mature market. For certain individual countries, an additional country risk premium is added. There is no additional country risk premium for Singapore as a result of its AAA credit rating. The implied market risk premium is a commonly used methodology for estimating market risk premium and is calculated off a mature and well-diversified index. As such, we suggest to include it as another measure of market risk premium. The value of the implied equity risk premium computed by Damodaran as of 1st June 2016 is 6.12%6.

2.10.3 OVERSEAS BENCHMARKS Regulators in mature markets such as Australia and the United Kingdom publish WACC determinations for various industries. We have used the most recent available WACC determinations (e.g. 2015) to ensure the relevance of the information. In the United Kingdom, the UK Regulators’ Network recently published the cost of capital determinations for each regulator. The extract of the equity risk premium as determined by each regulator is shown below. While the determinations deal with multiple industries, the equity risk premium is not expected to vary across industries. For this exercise, the median of the equity risk premium determinations was taken as the benchmark for the United Kingdom.

5 The use of volatility adjusted market risk premium has been omitted as countries with low trading volumes exhibit lower volatility. In Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, Damodaran has highlighted that there are problems with using the relative standard deviation method due to liquidity differences. From our analysis, countries with low trading volumes tend to have low volatility, which could result in an under-representation of the MRP. 6 Implied ERP by month for previous months, Aswath Damodaran, http://pages.stern.nyu.edu/~adamodar/

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Table 5: Market risk premium from UK regulators

Year Regulator Sector Market Risk Premium

2015 Ofcom Telecoms 5.30%

2015 CMA Water 5.25%

Median: 5.28% Source: Cost of Capital – Annual Update Report: 2015-16, March 2016, UK Regulators Network

Table 6: Market risk premium from Australian regulators

Year Regulator Sector Market Risk Premium 2015 AER Electricity/Gas network 6.50%

2015 ERA Rail 7.30%

Median: 6.90% Sources: Rate of Return Factsheet, October 2015, Australia Energy Regulator Review of the method for estimating the Weighted Average Cost of Capital for the Regulated Railway Networks – Final Decision, September 2015, Economic Regulation Authority Table 7: Market risk premium using overseas benchmarks

Country Market Risk Premium

Australia 6.90%

New Zealand7 6.32%

United Kingdom 5.28%

Median: 6.32% Sources: United Kingdom: As above Australia: As above New Zealand: Cost of capital determination for information disclosure year 2017 for electricity distribution services and specified airport services (March year-end), April 2016, Commerce Commission New Zealand

2.10.4 LOCAL BENCHMARKS A number of local companies publish the equity risk premium used in its calculations. We have reviewed the publicly available information of companies in Singapore and noted that only five companies have published such an estimate. These local benchmarks have been included for local representation.

7 New Zealand uses a tax adjusted market premium (TAMRP) of 7.00% where MRP = TAMRP – Rf(T), the quoted number has been adjusted using a risk-free rate of 2.42% and tax rate of 28% as also provided in the determination document.

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Table 8: Market risk premium using local benchmarks

Local Benchmarks Market Risk Premium

Capitaland Limited 5.78%

Keppel Corporation 5.00%

Sembcorp Industries 5.00%

SMRT Corporation 5.00%

ST Engineering 5.00%

Median: 5.00%

Source: 2015 Company Annual Reports

2.10.5 DIVIDEND GROWTH MODEL Similar to Damodaran’s implied risk premium methodology, Bloomberg estimates the market risk premium8 as the difference between the estimated implied market return based on a country’s local index and the local risk-free rate.

Market Risk Premium = Market Return – Risk Free Rate

The market return is defined as the market cap-weighted average internal rate of rate of each index member with the internal rate of return estimated using a three-stage dividend discount model. Risk free rate is derived from the local generic 10 year treasury security. To be consistent with the Base Month, we have extracted the market risk premium as reported at 31st May 2016. The value of market risk premium based on the Dividend Growth Model is 6.22%.

8 Bloomberg’s terminology is “Country Risk Premium”.

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3 WEIGHTED AVERAGE COST OF CAPITAL

𝑊𝑊𝐴𝐴𝑊𝑊𝑊𝑊 = �𝐿𝐿𝑓𝑓 + 𝐷𝐷𝐷𝐷�(1 − 𝑏𝑏) × 𝑔𝑔 + [𝐿𝐿𝑓𝑓 + 𝛽𝛽�𝐿𝐿𝑚𝑚 − 𝐿𝐿𝑓𝑓�] × (1 − 𝑔𝑔) Based on the WACC formula above, the parameters determined above have led to following WACC calculations:

The post-tax nominal WACC is 6.65% The post-tax real WACC is 5.80% The pre-tax real WACC is 7.15%

The table below shows the interim calculations to arrive at the post-tax nominal WACC. Table 9: WACC calculations

Parameter 2017-2018 2015-2016 2013-2014

Risk-Free Rate, 𝐿𝐿𝑓𝑓 2.54% 3.08% 2.41%

Debt Premium, 𝐷𝐷𝐷𝐷 2.61% 2.42% 2.59%

Tax Rate 17% 17% 17%

Cost of Debt 5.15% 5.50% 5.00%

Gearing, 𝑔𝑔 45.9% 50.0% 49.7%

Equity Beta, 𝛽𝛽 1.00 1.00 1.00

Market risk premium, (𝐿𝐿𝑚𝑚 − 𝐿𝐿𝑓𝑓) 6.12% 6.00% 6.00%

Cost of Equity 8.66% 9.08% 8.41% Post-tax nominal WACC 6.65% 6.82% 6.29%

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APPENDIX A

COMPARATOR COMPANY PROFILES Comparator Company Company Profile

Calpine Corporation (NYSE:CPN)

Calpine Corporation, a wholesale power generation company, owns and operates natural gas-fired and geothermal power plants in North America. It operates natural gas-fired combustion turbines and renewable geothermal conventional steam turbines. The company sells power, steam, capacity, renewable energy credits, and ancillary services to utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities and other governmental entities, and power marketers, as well as retail commercial, industrial, and residential customers.

Capital Power Corporation (TSX:CPX)

Capital Power Corporation acquires, develops, operates, and optimizes power generation facilities in Canada and the United States. The company generates electricity from various energy sources, such as natural gas, landfill gas, coal, wind, solid fuels, and solar. As of February 18, 2016, it owned approximately 3,200 megawatts of power generation capacity at 18 facilities; 371 megawatts of capacity through a power purchase agreement; and 530 megawatts of owned generation capacity under the advanced stages of development. Capital Power Corporation was founded in 1891 and is headquartered in Edmonton, Canada.

NRG Energy, Inc. (NYSE:NRG)

NRG Energy, Inc., or NRG or the Company, is an integrated competitive power company, which produces, sells and delivers energy and energy products and services in major competitive power markets in the U.S. while positioning itself as a leader in the way residential, industrial and commercial consumers think about and use energy products and services. NRG has one of the nation's largest and most diverse competitive generation portfolios balanced with the nation's largest competitive retail energy business. The Company owns and operates approximately 50,000 MW of generation; engages in the trading of wholesale energy, capacity and related products; transacts in and trades fuel and transportation services; and directly sells energy, services, and innovative, sustainable products and services to retail customers under the names “NRG”, "Reliant" and other retail brand names owned by NRG. NRG was incorporated as a Delaware corporation on May 29, 1992.

SSE plc (LSE:SSE)

SSE plc generates, transmits, distributes, and supplies electricity in the United Kingdom and Ireland. The company also produces, stores, distributes, and supplies natural gas, as well as is involved in energy portfolio management activities. It generates electricity from gas, oil, coal, water, and wind. The company operates in three segments: Networks, Retail, and Wholesale. Its electricity networks transmit and distribute electricity

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to approximately 3.7 million businesses, offices, and homes through approximately 130,000 kilometres of overhead lines and underground cables; and gas networks distribute gas to approximately 5.7 million homes, offices, and businesses through 75,000 kilometres of gas mains. The company also supplies electricity and gas to approximately 9 million households and businesses under the SSE, Scottish Hydro, Southern Electric, SWALEC, Atlantic, and SSE Airtricity brands. It owns or has an ownership interest in approximately 11,733 megawatts of generation capacity.

Drax Group plc. (LSE:DRX)

Drax Group plc, together with its subsidiaries, engages in the generation and supply of electricity in the United Kingdom. It operates through three segments: Generation, Biomass Supply, and Retail. The company owns and operates Drax Power Station that produces electricity from biomass located in Selby, North Yorkshire. It sells its electricity to the wholesale market and business customers. In addition, the company manufactures and supplies compressed wood pellets for commercial and domestic customers for heating. Drax Group plc was incorporated in 2005 and is based in Selby, the United Kingdom.

Source: Capital IQ, Company Websites, Company Annual Reports

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SHORTLISTED COMPANIES AND ASSESSMENT CRITERIA

Source: Capital IQ, Company Annual Reports

Criteria Calpine Corporation Capital Power Corporation

NRG Energy, Inc. SSE plc Drax Group plc

1. Availability of information

PASS – Publicly listed company with available information over the past 5 years





2. Financial Health PASS – No adverse financial impact in the past 5 years

PASS – No adverse financial impact in the past 5 years




3. Geographical location of revenues

PASS – United States (100%)

PASS – Canada (91%); United States (9%)


PASS – United Kingdom PASS – United Kingdom

4. Revenue sources PASS – Revenues are not broken down, but Calpine operates primarily in merchant markets

PASS – 63% of its revenues are derived from its merchant plants (including portfolio optimisation)

PASS – 85% of its revenues are derived from energy and retail

PASS – 71% of its revenues are derived the from energy portfolio management and electricity generation segment

PASS – 58% from generation revenue, 42% from retail

5. Generation portfolio

PASS – 97% out of its 27,282 MW is thermal generation




PASS – 50% of its 3,960MW of generation capacity is from coal

Added to comparator list? Considered in past determinations?

2015/16 2013/14

2013/14 2011/12

2010 2015/16 2013/14 2011/12

2015/16 2013/14

14



Criteria TransAlta Corp. Dynegy Inc. Maxim Power Corp Fortum OYJ Contact Energy Ltd








FAIL – Dynegy filed for bankruptcy protection in 2012 and emerged from bankruptcy on October 2012





PASS – United Kingdom, Australia, Canada


PASS – Canada (16%), United States (52%), and France (32%)

PASS – 76% of revenue from Nordic region

PASS – New Zealand

4. Revenue sources FAIL – Majority of assets are under long term contracts

PASS – 100% from merchant market

FAIL – 39% from electricity sales from merchant portfolio

PASS – 62% from power sales in Nordic power market

PASS – 91% of revenues from wholesale and retail electricity



PASS – 100% of its 26,184 MW of generation capacity is thermal generation

PASS – 99% of its 778 MW of generation capacity is thermal generation

FAIL – Majority of generation capacity via Hydro, Wind and Nuclear

FAIL – 40% of its current 1,959MW of generation capacity is thermal generation


2015/16 2013/14 2011/12 2010

- - - 2013/14

15



Criteria AES Corporation Great Plains Energy Inc. American Electric Power Co Iberdrola SA











FAIL – Significant proportion of revenues in South and Central America

PASS – United States PASS – United States FAIL – 57% of revenue from Spain; Spain’s has a significantly lower credit rating than Singapore

4. Revenue sources FAIL – Most of the generation fleet sells electricity under contracts, with an average remaining contract term of 7 years across the portfolio

FAIL – 92% of revenue to retail, 8% of revenue to wholesale. Great Plains operates as a natural monopoly, with no competition in its franchised service territory

FAIL – Vertically Integrated Utilities (56%), Generation & Marketing (21%). VIL includes generation, transmission and distribution of electricity to retail and wholesale customers

FAIL – 69% of revenue from deregulated business segment (69%). However, there is insufficient information breakdown between electricity generation and gas and trading sales




PASS – Majority of generation capacity is thermal generation

FAIL – 38% of its 44,574 MW of generation capacity is thermal generation


2009/10 2007/08

2013/14 2013/14 2015/16 2013/14

16


APPENDIX B

EXCHANGE RATES (USD/SGD) Daily USD/SGD Exchange Rate

Date Bid Ask Date Bid Ask Date Bid Ask

1/3/2016 1.4001 1.4011 1/4/2016 1.3498 1.3517 2/5/2016 1.3400 1.3410

2/3/2016 1.3965 1.3972 4/4/2016 1.3517 1.3524 3/5/2016 1.3521 1.3527

3/3/2016 1.3884 1.3894 5/4/2016 1.3547 1.3586 4/5/2016 1.3579 1.3587

4/3/2016 1.3739 1.3756 6/4/2016 1.3463 1.3483 5/5/2016 1.3579 1.3599

7/3/2016 1.3780 1.3786 7/4/2016 1.3520 1.3534 6/5/2016 1.3595 1.3632

8/3/2016 1.3843 1.3853 8/4/2016 1.3472 1.3511 9/5/2016 1.3712 1.3724

9/3/2016 1.3820 1.3829 11/4/2016 1.3421 1.3454 10/5/2016 1.3681 1.3695

10/3/2016 1.3799 1.3812 12/4/2016 1.3431 1.3438 11/5/2016 1.3645 1.3669

11/3/2016 1.3718 1.3748 13/4/2016 1.3503 1.3512 12/5/2016 1.3725 1.3735

14/3/2016 1.3751 1.3779 14/4/2016 1.3629 1.3639 13/5/2016 1.3713 1.3732

15/3/2016 1.3812 1.3825 15/4/2016 1.3546 1.3605 16/5/2016 1.3692 1.3698

16/3/2016 1.3644 1.3653 18/4/2016 1.3508 1.3518 17/5/2016 1.3690 1.3698

17/3/2016 1.3490 1.3509 19/4/2016 1.3356 1.3390 18/5/2016 1.3811 1.3829

18/3/2016 1.3556 1.3606 20/4/2016 1.3440 1.3448 19/5/2016 1.3797 1.3823

21/3/2016 1.3594 1.3604 21/4/2016 1.3490 1.3499 20/5/2016 1.3813 1.3822

22/3/2016 1.3593 1.3600 22/4/2016 1.3531 1.3558 23/5/2016 1.3778 1.3782

23/3/2016 1.3652 1.3682 25/4/2016 1.3514 1.3526 24/5/2016 1.3812 1.3820

24/3/2016 1.3688 1.3704 26/4/2016 1.3512 1.3520 25/5/2016 1.3779 1.3786

25/3/2016 1.3685 1.3749 27/4/2016 1.3486 1.3500 26/5/2016 1.3734 1.3739

28/3/2016 1.3692 1.3706 28/4/2016 1.3444 1.3460 27/5/2016 1.3785 1.3806

29/3/2016 1.3540 1.3547 29/4/2016 1.3421 1.3463 30/5/2016 1.3814 1.3819

30/3/2016 1.3492 1.3511 31/5/2016 1.3772 1.3782

31/3/2016 1.3481 1.3486

3-mth avg. of mid-price: 1.3643 Source: Bloomberg (Ticker: USDSGD BGN Curncy)

17


EXCHANGE RATES (EUR/SGD) Daily EUR/SGD Exchange Rate


1/3/2016 1.5214 1.5229 1/4/2016 1.5364 1.5406 2/5/2016 1.5452 1.5471

2/3/2016 1.5177 1.5186 4/4/2016 1.5388 1.5412 3/5/2016 1.5541 1.5554

3/3/2016 1.5212 1.5225 5/4/2016 1.5420 1.5470 4/5/2016 1.5595 1.5611

4/3/2016 1.5118 1.5146 6/4/2016 1.5343 1.5370 5/5/2016 1.5485 1.5512

7/3/2016 1.5176 1.5185 7/4/2016 1.5380 1.5403 6/5/2016 1.5510 1.5537

8/3/2016 1.5243 1.5254 8/4/2016 1.5361 1.5396 9/5/2016 1.5609 1.5624

9/3/2016 1.5202 1.5212 11/4/2016 1.5304 1.5360 10/5/2016 1.5556 1.5576

10/3/2016 1.5423 1.5439 12/4/2016 1.5288 1.5305 11/5/2016 1.5587 1.5619

11/3/2016 1.5270 1.5368 13/4/2016 1.5220 1.5235 12/5/2016 1.5612 1.5628

14/3/2016 1.5264 1.5303 14/4/2016 1.5358 1.5370 13/5/2016 1.5504 1.5529

15/3/2016 1.5341 1.5362 15/4/2016 1.5284 1.5352 16/5/2016 1.5499 1.5511

16/3/2016 1.5312 1.5327 18/4/2016 1.5279 1.5295 17/5/2016 1.5484 1.5501

17/3/2016 1.5263 1.5295 19/4/2016 1.5169 1.5210 18/5/2016 1.5489 1.5517

18/3/2016 1.5297 1.5334 20/4/2016 1.5180 1.5195 19/5/2016 1.5456 1.5488

21/3/2016 1.5278 1.5296 21/4/2016 1.5224 1.5240 20/5/2016 1.5493 1.5521

22/3/2016 1.5246 1.5256 22/4/2016 1.5185 1.5217 23/5/2016 1.5458 1.5464

23/3/2016 1.5257 1.5302 25/4/2016 1.5222 1.5243 24/5/2016 1.5386 1.5398

24/3/2016 1.5292 1.5316 26/4/2016 1.5262 1.5280 25/5/2016 1.5368 1.5380

25/3/2016 1.5295 1.5348 27/4/2016 1.5265 1.5292 26/5/2016 1.5371 1.5382

28/3/2016 1.5328 1.5348 28/4/2016 1.5257 1.5286 27/5/2016 1.5315 1.5352

29/3/2016 1.5285 1.5298 29/4/2016 1.5373 1.5408 30/5/2016 1.5383 1.5396

30/3/2016 1.5295 1.5321 31/5/2016 1.5328 1.5348

31/3/2016 1.5338 1.5350

3-mth avg. of mid-price: 1.5357 Source: Bloomberg (Ticker: EURSGD BGN Curncy)

18


EXCHANGE RATES (EUR/USD) Daily EUR/USD Exchange Rate


1/3/2016 1.0867 1.0868 1/4/2016 1.1390 1.1391 2/5/2016 1.1533 1.1534

2/3/2016 1.0868 1.0869 4/4/2016 1.1390 1.1391 3/5/2016 1.1496 1.1497

3/3/2016 1.0956 1.0957 5/4/2016 1.1384 1.1385 4/5/2016 1.1487 1.1488

4/3/2016 1.1004 1.1006 6/4/2016 1.1399 1.1400 5/5/2016 1.1405 1.1406

7/3/2016 1.1013 1.1014 7/4/2016 1.1377 1.1379 6/5/2016 1.1404 1.1405

8/3/2016 1.1010 1.1011 8/4/2016 1.1398 1.1399 9/5/2016 1.1383 1.1384

9/3/2016 1.0999 1.1000 11/4/2016 1.1407 1.1409 10/5/2016 1.1372 1.1373

10/3/2016 1.1177 1.1178 12/4/2016 1.1385 1.1386 11/5/2016 1.1426 1.1427

11/3/2016 1.1155 1.1157 13/4/2016 1.1274 1.1275 12/5/2016 1.1376 1.1377

14/3/2016 1.1102 1.1104 14/4/2016 1.1267 1.1268 13/5/2016 1.1308 1.1309

15/3/2016 1.1108 1.1109 15/4/2016 1.1283 1.1284 16/5/2016 1.1320 1.1321

16/3/2016 1.1224 1.1225 18/4/2016 1.1313 1.1314 17/5/2016 1.1313 1.1314

17/3/2016 1.1318 1.1319 19/4/2016 1.1357 1.1358 18/5/2016 1.1216 1.1217

18/3/2016 1.1269 1.1270 20/4/2016 1.1296 1.1297 19/5/2016 1.1202 1.1203

21/3/2016 1.1241 1.1242 21/4/2016 1.1287 1.1288 20/5/2016 1.1223 1.1224

22/3/2016 1.1217 1.1218 22/4/2016 1.1221 1.1222 23/5/2016 1.1220 1.1221

23/3/2016 1.1181 1.1182 25/4/2016 1.1267 1.1269 24/5/2016 1.1140 1.1142

24/3/2016 1.1174 1.1175 26/4/2016 1.1297 1.1298 25/5/2016 1.1154 1.1155

25/3/2016 1.1165 1.1170 27/4/2016 1.1322 1.1323 26/5/2016 1.1193 1.1194

28/3/2016 1.1196 1.1197 28/4/2016 1.1351 1.1353 27/5/2016 1.1114 1.1116

29/3/2016 1.1290 1.1291 29/4/2016 1.1450 1.1451 30/5/2016 1.1138 1.1139

30/3/2016 1.1337 1.1338 31/5/2016 1.1131 1.1132

31/3/2016 1.1380 1.1381

3-mth avg. of mid-price: 1.1257 Source: Bloomberg (Ticker: EURUSD BGN Curncy)

19


APPENDIX C

DEBT PREMIUM

Date Moody’s Bond

Utility Baa Index (Mid Yield)

30-year US Treasury Bonds Debt Premium

1/3/2016 5.32 2.70 2.62

2/3/2016 5.30 2.69 2.61

3/3/2016 5.26 2.65 2.61

4/3/2016 5.28 2.70 2.58

7/3/2016 5.26 2.71 2.55

8/3/2016 5.18 2.63 2.55

9/3/2016 5.24 2.68 2.56

10/3/2016 5.20 2.70 2.50

11/3/2016 5.22 2.75 2.47

14/3/2016 5.19 2.74 2.45

15/3/2016 5.17 2.73 2.44

16/3/2016 5.17 2.73 2.44

17/3/2016 5.12 2.69 2.43

18/3/2016 5.05 2.68 2.37

21/3/2016 5.07 2.72 2.35

22/3/2016 5.05 2.72 2.33

23/3/2016 4.96 2.65 2.31

24/3/2016 4.98 2.67 2.31

28/3/2016 4.95 2.66 2.29

29/3/2016 4.91 2.60 2.31

30/3/2016 4.94 2.65 2.29

31/3/2016 4.89 2.61 2.28

1/4/2016 4.87 2.62 2.25

4/4/2016 4.86 2.60 2.26

5/4/2016 4.79 2.54 2.25

6/4/2016 4.80 2.58 2.22

7/4/2016 4.71 2.52 2.19

8/4/2016 4.74 2.55 2.19

11/4/2016 4.72 2.56 2.16

12/4/2016 4.76 2.61 2.15

13/4/2016 4.72 2.58 2.14

14/4/2016 4.74 2.61 2.13

15/4/2016 4.70 2.56 2.14

18/4/2016 4.73 2.58 2.15

19/4/2016 4.71 2.60 2.11

20


20/4/2016 4.74 2.66 2.08

21/4/2016 4.75 2.69 2.06

22/4/2016 4.74 2.70 2.04

25/4/2016 4.75 2.72 2.03

26/4/2016 4.76 2.76 2.00

27/4/2016 4.70 2.71 1.99

28/4/2016 4.70 2.68 2.02

29/4/2016 4.66 2.66 2.00

2/5/2016 4.71 2.71 2.00

3/5/2016 4.60 2.66 1.94

4/5/2016 4.57 2.64 1.93

5/5/2016 4.55 2.60 1.95

6/5/2016 4.58 2.62 1.96

9/5/2016 4.57 2.61 1.96

10/5/2016 4.58 2.61 1.97

11/5/2016 4.55 2.58 1.97

12/5/2016 4.57 2.60 1.97

13/5/2016 4.51 2.55 1.96

16/5/2016 4.56 2.59 1.97

17/5/2016 4.55 2.59 1.96

18/5/2016 4.65 2.67 1.98

19/5/2016 4.60 2.64 1.96

20/5/2016 4.61 2.63 1.98

23/5/2016 4.61 2.63 1.98

24/5/2016 4.63 2.65 1.98

25/5/2016 4.66 2.67 1.99

26/5/2016 4.62 2.64 1.98

27/5/2016 4.63 2.65 1.98

31/5/2016 4.62 2.64 1.98

3-mth avg.: 4.83 2.65 2.18 Source: Bloomberg (Ticker: MOODUBAA Index), US Department of the Treasury - Daily Treasury Yield Curve Rates

21


APPENDIX D

COMPARATOR COMPANY TOTAL DEBT AND MARKET VALUE OF EQUITY

Comparator company Total debt (SGD millions) Filing currency 31st May 2012 31st May 2013 31st May 2014 31st May 2015 31st May 2016

Calpine Corporation (NYSE:CPN) USD 13,405 13,606 14,598 16,240 16,108 Capital Power Corporation (TSX:CPX) CAD 1,957 1,995 1,788 1,726 1,612 NRG Energy, Inc. (NYSE:NRG) USD 12,968 20,595 22,094 28,423 25,997 SSE plc (LSE:SSE) GBP 12,991 11,962 13,804 13,402 14,694 Drax Group plc. (LSE:DRX) GBP 16 405 665 657 670

Source: Capital IQ

Comparator company Market value of equity (SGD millions) Filing currency 31st May 2012 31st May 2013 31st May 2014 31st May 2015 31st May 2016

Calpine Corporation (NYSE:CPN) USD 10,452 11,704 12,381 10,093 7,322 Capital Power Corporation (TSX:CPX) CAD 2,004 1,857 2,453 2,678 1,951 NRG Energy, Inc. (NYSE:NRG) USD 4,495 10,418 15,073 11,333 7,108 SSE plc (LSE:SSE) GBP 24,673 28,655 31,736 33,849 30,742 Drax Group plc. (LSE:DRX) GBP 3,958 4,414 5,348 3,303 2,520

Source: Capital IQ

𝐺𝐺𝐿𝐿𝑏𝑏𝐿𝐿𝐼𝐼𝑟𝑟𝑔𝑔 = 𝑇𝑇𝑜𝑜𝑏𝑏𝑏𝑏𝐼𝐼 𝐷𝐷𝐿𝐿𝑏𝑏𝑏𝑏

𝑇𝑇𝑜𝑜𝑏𝑏𝑏𝑏𝐼𝐼 𝐷𝐷𝐿𝐿𝑏𝑏𝑏𝑏 + 𝑀𝑀𝑏𝑏𝐿𝐿𝑟𝑟𝐿𝐿𝑏𝑏 𝑉𝑉𝑏𝑏𝐼𝐼𝑒𝑒𝐿𝐿 𝑜𝑜𝑓𝑓 𝐸𝐸𝑒𝑒𝑒𝑒𝐼𝐼𝑏𝑏𝑒𝑒

Comparator company Gearing 5-year average gearing ratio9 31st May 2012 31st May 2013 31st May 2014 31st May 2015 31st May 2016

Calpine Corporation (NYSE:CPN) 0.562 0.538 0.541 0.617 0.687 0.598 Capital Power Corporation (TSX:CPX) 0.494 0.518 0.422 0.392 0.452 0.459 NRG Energy, Inc. (NYSE:NRG) 0.743 0.664 0.594 0.715 0.785 0.714 SSE plc (LSE:SSE) 0.345 0.295 0.303 0.284 0.323 0.311 Drax Group plc. (LSE:DRX) 0.004 0.084 0.111 0.166 0.210 0.120

Average gearing ratio: 0.441 Median gearing ratio: 0.459

Recommended gearing ratio: 0.459

9 Please note that the 5-year average gearing is calculated by using the 5-year average debt to equity ratio in the gearing formula, and is not the average of individual yearly gearings.

22


APPENDIX E

BETA CALCULATIONS Comparator company 5-year average D/E 5-year levered beta Tax rate Unlevered beta R2 Calpine Corporation (NYSE:CPN) 1.49 0.96 40.0% 0.51 0.24

Capital Power Corporation (TSX:CPX) 0.85 0.75 26.5% 0.46 0.17

NRG Energy, Inc. (NYSE:NRG) 2.50 1.03 40.0% 0.41 0.19

SSE plc (LSE:SSE) 0.45 0.69 20.0% 0.51 0.24

Drax Group plc. (LSE:DRX) 0.14 0.91 20.0% 0.82 0.13

Sum of R2: 0.97

R2 weighted average un-levered beta: 0.52

Singapore corporate tax rate: 17%

Recommended D/E ratio: 0.85

Re-levered beta: 0.89

ABOUT WSP | PARSONS BRINCKERHOFF WSP and Parsons Brinckerhoff have combined and are now one of the world’s leading engineering professional services consulting firms. Together we provide services to transform the built environment and restore the natural environment, and our expertise ranges from environmental remediation to urban planning, from engineering iconic buildings to designing sustainable transport networks, and from developing the energy sources of the future to enabling new ways of extracting essential resources. We have approximately 32,000 employees, including engineers, technicians, scientists, architects, planners, surveyors, program and construction management professionals, and various environmental experts. We are based in more than 500 offices across 40 countries worldwide.

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