Long Term Study Scenarios and Generation Expansion Update December 7, 2012

2 Drought Scenario(s) December 7, 2012 Premise: A long-term drought would begin in 2018 and last for about 6 years Three major adjustments made to the data for this scenario ‒ Capacity reductions were made to existing generation due to lack of water or high intake/discharge water temperatures ‒ Increase costs of water were added to new thermal expansion generating units ‒ Forecasted load used Moody’s base economic assumptions with ERCOT’S 2011 load shape Additional sensitivities were added to the drought scenario so the impact of water issues could be seen in isolation ‒ Sensitivity 1 removed the PTC and removed the emission costs (S5A) ‒ Sensitivity 2 removed the PTC, removed the emission costs and reduced the EIA reference gas price by $2 MMBtu (S5B)

3 Drought Scenario(s) December 7, 2012 Black and Veatch (B&V) reviewed the Sandia work and the following information to estimate generating unit capacity reductions: Water Supply Availability ‒ Evaluation of rainfall patterns on an annual and monthly basis ‒ Single-year and multi-year drought scenarios ‒ Reservoir/lake levels and withdrawals out of those reservoirs Surface water temperature for lake-cooled supplies Cooling Technology

4 Drought Scenario(s) December 7, 2012 Example capacity derations for multi-year drought

5 Drought Scenario(s) December 7, 2012 Water costs by weather zone were estimated by B&V by analyzing: Current water costs by weather zone ‒ Agricultural/Raw water – low cost ‒ Water Authority wholesale or basic treatment ‒ Municipality potable treated water or reuse – High cost Estimate of infrastructure availability (will additional infrastructure be required if new water source is required) ‒ Urban/water source rich areas – low cost ‒ Rural/water source poor areas – high cost Weather patterns ‒ High Rainfall (East, Coast) – low cost ‒ Mid (Central and Southern) ‒ Low rainfall (West, Far West) – high cost

6 Drought Scenario(s) December 7, 2012 From the Initial B&V review ERCOT was divided into three water regions. Existing generating stations are also shown

7 Drought Scenario(s) December 7, 2012 In general, results have shown that large amounts of wind and solar generation are built in scenarios that include the PTC, emission costs and/or high natural gas prices. Results of S5A include 13,000 MWs of additional wind and 11,000 MWs of solar and 16,690 MWs new NG generation Results of S5B, which has a lower NG price, only 5,500 MWs of new wind is being built and most of that is not built until 2032 when the price of NG exceeds $6.00 MMBtu. 19,695 MWs new NG generation were also added Early results of S5C substantial amounts of both wind and solar are being built

8 Drought Scenario(s) December 7, 2012 Both S5A and S5B indicate that the natural gas price needs to be greater than $6.00 MMBtu for wind to be economical

Summary of Scenario Results December 7, 2012 *These retirements resulted from the economic retirement process based on profitability, age, and efficiency. All scenarios with the exception of BAT Retirements include the updated wind shapes from AWS TruePower.

10 Comparison of Results: 2032 Generation Breakdown December 7, 2012 As increasing amounts of wind, solar and geothermal proved to be economical, the amount of energy provided by renewables increased from 13% in the BAT w/ Retirements scenario to 63% in the Environmental Scenario.

11 Remaining Scenarios Drought S5C – Original Drought Scenario, About 50% complete BAU All Tech with the PTC, 20% complete Environmental with EE and DR mandates BAU All Tech with increased Asynchronous Ties December 7, 2012

12 APPENDIX December 7, 2012

13 Drought S5A December 7, 2012

14 Drought S5B December 7, 2012