Proposed Generation Expansion Process For Review and Discussion March 1, 2011

2 Agenda Goal of Generation Expansion Process Overview of Process Details of Iterative Process Next Steps March 1, 2011

3 Goal To create a market-like expansion plan through 2030 When evaluating transmission needs through 2030, we will need additional generation to serve forecasted loads Intent is to select generation technologies consistent with what the market would be likely to develop, given specific conditions in each scenario March 1, 2011

4 Overview of Process March 1, 2011 Base Case Generation Add increment of renewable capacity Run Promod Evaluate Promod Results Run MP Insert MP expansion into Promod Insert Adjusted load shape into MarketPower (MP) Run MP Re-run Promod Add/Subtract increment renewable capacity Finalize Promod Expansion Plan Transmission Evaluation Generation Siting Pass Fail After Year +20 run and Pass Fail Repeated Every 3 Years

5 Starting Case Information Latest load forecast developed by the load forecasting group Existing generation as listed in the 2010 CDR Winter Update –For discussion: Two potential options for future units that currently have signed Interconnection Agreements Include all units with signed Interconnection Agreements as of March 1, 2011 Do not include any units with signed Interconnection Agreements – let expansion process evaluate all future units March 1, 2011

6 Iterative Process Using Promod and MarketPower together –Use strengths of both software packages to develop a generation expansion plan for each scenario –MarketPower is fast and evaluates multiple dispatchable technologies at the same time. MarketPower does not evaluate hours in chonological order. –Promod evaluates system commitment and dispatch across all hours - it maintains chronology of hourly patterns and provides unit-specific output data Promod will be run without transmission topology to see market-wide opportunities March 1, 2011

7 How Does MarketPower Work? Compares existing (base case generation) resources to peak load on an annual basis Evaluates technologies on a financial basis to determine its viability in the market –The equations for this calculation is listed in the appendix MarketPower will build a unit if the unit will operate at or above its calculated minimum capacity requirement when compared to an Advanced Combustion Turbine unit. Unit operations are based on estimates of market prices. March 1, 2011

8 What Information Does the Model Use? Created generic categories for each technology Generic operating and financial characteristics –Heat rate –Min up and down times –O&M costs –Capital costs –Capacity –Etc. The financial characteristics may change by scenario March 1, 2011

9 Promod Run to Evaluate Renewables with Diurnal Pattern Begin with Year + 3 (2014) –Insert an initial increment of renewable capacity into Promod Evaluate all potential renewable technologies –Run Promod for Year + 3 Evaluate model results using financial criteria –Marginal generator revenue »Also review avg. system production cost savings per MWh –Others If units are profitable (i.e., revenue stream supports adequate IRR), add a second increment of capacity If units are not profitable, decrease initial increment of capacity and re-run Promod Continue the Promod runs at Year + 3 until a final capacity for each renewable technology has been determined March 1, 2011

10 Using Promod Results in MarketPower Adjust forecasted load shape to reflect net load with the renewable expansion units from Promod runs –Insert new load shape into MarketPower –Run MarketPower for Year + 3 through Year + 20 –Take MarketPower expansion plan from Year + 3 to Year + 6 and insert into Promod March 1, 2011

11 Iterative Process Contd. Run Promod at Year + 6 –Includes Promod renewable expansion plan from Year + 3 and MarketPower thermal expansion plan from Year + 3 through Year +6 –Evaluate existing and expansion plan units using financial criteria Candidacy for mothball status will be assessed using operating hours, capacity factor, number of starts, etc. A mothballed unit will have the ability to be restarted within succeeding MarketPower analysis –Begin adding initial increment of renewable capacity at Year + 6 –Repeat process 3 year increments Until final expansion plan through Year +20 has been developed March 1, 2011

12 Next Steps Generation Expansion plan will go through the generation siting process –Dispatchable siting will use geographic databases Develop lists of acceptable siting locations by fuel by county Rank these buses by LMP’s Site based on LMP rankings –Renewable siting will evaluate both capacity factors and LMP’s Proceed with transmission evaluation –Existing and expansion units will be reassessed during the transmission evaluation process Financial criteria developed during generation expansion plan Candidacy for mothball status Re-evaluate expansion plan if unserved energy is not able to be solved with transmission projects March 1, 2011

13 Results This process will be repeated for each scenario Plan is to provide expansion results for BAU scenario at April LTSTF meeting –Capacity additions by prototype for each year –Reserve margin by year –Etc. March 1, 2011

14 QUESTIONS??? March 1, 2011

15 Appendix: MarketPower Build Decision Calculations March 1, 2011 Total Fixed t = Capital t + Fixed t Total Energy t = Fuel t + Variable t Avg Fixed t = Total Fixed t / Generation t Avg Variable t = Total Energy t / Generation t (Avg Fixed 1 – Avg Fixed 2 ) / (Avg Var 1 –Avg Var 2 ) = %

16 Generic Generating Resource Assumptions (2010$) Operating characteristics for existing generating resources March 1, 2011

17 Generic Generating Resource Assumptions (2010$) Operating characteristics for new generating resources March 1, 2011