Update on the Western Region Resource Plan Presented to the Community Energy Advisory Council November 14, 2008

Update on the Western Region Resource Plan Agenda Latest load forecast for the Western Region and Dashboard update Review of resource planning principles and objectives Where do we stand today? What issues remain to be addressed and where do we go from here?

Update on the Western Region Resource Plan Latest load forecast for the Western Region Recent forecasts show increasing trend DSM/EE activities cut load growth in half

Update on the Western Region Resource Plan Latest load forecast for the Western Region Dashboard Update

Update on the Western Region Resource Plan Review of resource planning principles and objectives SERC NERC NCUC SCPSC FERC System Resource Planning Plus: Federal, state and Local Environmental Regulations

Update on the Western Region Resource Plan Review of resource planning principles and objectives Regulatory Body Areas of Regulation North Carolina Utilities Commission Cost, reliability, adequacy NERC/SERC Reliability, adequacy FERC Cost, reliability EPA, NCDENR Environmental performance, siting Local Authorities Zoning/siting This list is not intended to be all inclusive or a complete representation of the authority of any given regulatory body.

Update on the Western Region Resource Plan Review of resource planning principles and objectives Some of the regulatory considerations in creating the plan: Adequacy of resources – Are there enough to meet the peak? Reliability of resources – Are there enough to deal with contingencies? Least Cost – Is the plan the lowest cost to customers? Environmental Performance – Does the plan meet environmental limits? Clean Smokestacks CAIR, CAMR, CAVR etc. Licensing/zoning requirements The plan must consider planning and operating requirements.

Update on the Western Region Resource Plan Review of resource planning principles and objectives The objective of the planning process is to provide an adequate, reliable supply of electricity at the lowest (least) cost to customers.

Update on the Western Region Resource Plan Where do we stand today? Remember where we started West Region Supply Resources 1,200 Marshall & Walters - Hydro 1,000 Rockport - Purchase 2010 Winter Peak Demand 2007 Winter Peak Demand Marshall & Walters - Hydro 800 SEPA - Purchase Asheville 4 - Combustion Turbine Megawatts 600 Asheville 3 - Combustion Turbine 400 Asheville 2 - Coal 200 Asheville 1 - Coal

Update on the Western Region Resource Plan Where do we stand today? DSM and energy efficiency activities aim to reduce peak usage West Region Peak Day 2006 (December 8) Morning Peak 928 MW (about 7-8 a.m.)

Update on the Western Region Resource Plan Where do we stand today? An adequate supply meets firm demand plus reserve requirements 17000 17000 16000 16000 New Resources New Resources Required Required 15000 15000 Purchases Purchases 14000 14000 13000 13000 Existing Capacity Existing Capacity 12000 12000 Reserves Plus Firm Reserves Plus Firm Demand Demand 11000 11000 10000 10000 Firm Demand Firm Demand 9000 9000 8000 8000 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 Reduction of firm demand reduces supply requirements

Update on the Western Region Resource Plan Where do we stand today? So how did we address the resource shortfall in 2010? Purchases of firm capacity (250 MW) for two years from multiple sources Extended purchases an additional year through 2012

Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? West Region Hourly Load for 2006 Peak Demand Daily Load Variation ~ 200 MW J F M A M J J A S O N D We are in the process of addressing adequacy. Now we need to consider reliability.

Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? West Region Hourly Load for 2006 Amount of Resources Must be Adequate to Meet Peak Demand and Provide Reserves Reserves must be Available to Meet Contingencies at any time Reliability J F M A M J J A S O N D Operating reserves are required to meet contingencies

Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? What are operating reserves? Operating reserves are resources that can quickly replace any generating resource that may be lost due to equipment failure or other cause. There are 3 sources of operating reserves: Spinning reserves Fast start reserves (available within 10 minutes) Demand reduction These reserves must be available to replace the power that is provided instantaneously by neighboring utilities.

Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? How do we provide operating reserves in the Western region today? Unique AEP contract transmission arrangements How will we provide operating reserves after the AEP contract expires? Spinning reserves and reserved transmission capacity

How should we provide needed operating reserves? Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? Issues that need to be addressed : Spinning reserves and reserved transmission capacity burns additional fuel and increases cost (vs. fast start reserves in area) DSM capacity, which acts like fast start, varies hourly and seasonally (2 a.m. in April) New federal standards may require specific allocation of operating reserves How should we provide needed operating reserves?