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

2 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 3 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 4 Dashboard Update

5 Update on the Western Region Resource Plan Review of resource planning principles and objectives System Resource Planning NCUCSCPSC SERCNERC FERC Plus: Federal, state and Local Environmental Regulations

6 Update on the Western Region Resource Plan Review of resource planning principles and objectives Regulatory BodyAreas of Regulation North Carolina Utilities CommissionCost, reliability, adequacy NERC/SERCReliability, adequacy FERCCost, reliability EPA, NCDENREnvironmental performance, siting Local AuthoritiesZoning/siting This list is not intended to be all inclusive or a complete representation of the authority of any given regulatory body.

7 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.

8 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.

9 Update on the Western Region Resource Plan Where do we stand today? West Region Supply Resources Asheville 1 - CoalAsheville 2 - Coal Asheville 3 - Combustion Turbine Asheville 4 - Combustion Turbine SEPA - Purchase Rockport - Purchase Marshall & Walters - Hydro ,000 1,200 Megawatts 2007 Winter Peak Demand2010 Winter Peak Demand Marshall & Walters - Hydro Remember where we started

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

11 Update on the Western Region Resource Plan Where do we stand today? An adequate supply meets firm demand plus reserve requirements New Resources Required Purchases Existing Capacity Reserves Plus Firm Demand Firm Demand New Resources Required Purchases Existing Capacity Reserves Plus Firm Demand Firm Demand Reduction of firm demand reduces supply requirements

Update on the Western Region Resource Plan Where do we stand today? 12 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

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

14 Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? J F M A M J J A S O N D Amount of Resources Must be Adequate to Meet Peak Demand and Provide Reserves Reserves must be Available to Meet Contingencies at any time Reliability West Region Hourly Load for 2006 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? 15 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? 16 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

Update on the Western Region Resource Plan What issues remain to be addressed and where do we go from here? 17 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?