Long Term Study Scenarios and Generation Expansion Update October 12, 2012

2 Agenda Summary of Scenario Results System Ramp Rate Capability Generation Build Discussion Drought Scenario Appendix October 12, 2012

3 Generation Expansion Update Six scenarios have been completed to date. See scenario matrix in appendix for further information –Original Business as Usual (BAU) –BAU with all technologies (BAT) –BAT with retirements –BAT with updated wind shapes –BAT with High Natural Gas Price (BAT High NG) –Environmental Updated wind profiles were received from AWS TruePower and applied to BAT New Wind, BAT High NG, and Environmental scenarios Results generally pointing to the addition of large amounts of wind in all scenarios with new wind profiles Solar generation also being added in large amounts Drought Scenario currently in progress (about 25% complete) October 12, 2012

Summary of Scenario Results October 12, 2012 *These retirements resulted from the economic retirement process based on profitability, age, and efficiency. The BAT New Wind, BAT High NG, and Environmental scenarios include the updated wind shapes from AWS TruePower. BAT Retirements was completed before receiving the new shapes.

5 Comparison of Results: 2032 LMP Price Duration Curve October 12, 2012 The BAU with retirements resulted in no hours with LMPs at $0/MWh. The Environmental Scenario, with a total of over 81,000 MW of nameplate wind capacity, resulted in 2,670 hours of LMPs at $0/MWh.

Wind Production vs. Hourly LMPs October 12, 2012

7 Comparison of Results: 2032 Generation Breakdown October 12, 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. The reduction in generation from natural gas and coal in the Environmental Scenario was a result from increased renewables and economic retirements of older steam gas units and coal units with high emission rates.

8 Comparison of Results: 2032 Dispatch Cost Components October 12, 2012 Coal may appear to have the lowest overall dispatch costs, but wind, solar and geothermal have a $0/MWh dispatch cost in the model. The addition of emission costs in the Environmental Scenario increases the total dispatch costs of all thermal units. The increases ranged from $32/MWh up to $75/MWh.

9 Summary of Scenario Results: SO 2 Emissions October 12, 2012 If the CSAPR rule comes back in some form, according to previous limits proposed, the Environmental Scenario is the only scenario that would meet those limits. SO2 emissions decrease in the BAT High NG scenario due to increased generation from wind and decreased generation from natural gas fired units.

10 System Ramp Rate Capability – BAT High NG October 12, 2012 While there are times when the combination of wind and load ramp approaches 10,000 MWs in one hour in this scenario, a large amount of thermal generation is on-line during those hours. Further analysis is needed to determine the required amount of thermal generation on-line. March 2 nd, Hour 24 System Load – 59,137 MWs Renewable Generation on-line – 31,477 MWs All other generation – 27,660 MWs Combined wind/load ramp – 9,156 MWs October 28 th, Hour 04 System Load – 42,275 MWs Renewable Generation on-line – 31,499 MWs HSL of Committed Units– 20,676 MWs All other generation – 10,776 MWs Combined wind/load ramp – 42 MWs

11 System Ramp Rate Capability - Environmental Scenario October 12, 2012 In the Environmental scenario there are a number of hours where the amount of system ramping capability could be insufficient. April 2 nd, Hour 11 System Load – 55,203 MWs Renewable Generation on-line – 48,404 MWs HSL of Committed Units– 11,131 MWs All other generation – 6,798 MWs Combined wind/load ramp – 10,298 MWs May 18 th, Hour 08 System Load – 57,881 MWs Renewable Generation on-line – 27,697 MWs All other generation – 30,184 MWs Combined wind/load ramp – 12,906 MWs

12 Generation Build Discussion Why is so much wind getting built? –Wind capital cost decreased in 2012 from $2,222/kW to $2,000/kW Discussion with other working groups lead to updated capital costs for wind which occurred after BAU with All Tech was completed. This lead to an overall decrease in capital cost for all years –Updated wind shapes (see other presentation) BAU All Tech and BAT Retirements had the old wind shapes –Received updated information from RFP after these scenarios were completed These new shapes provided our expansion units with higher overall capacity factors The shape of the wind output also varied, leading to increased number of hours of operation during peak summer periods The increased capacity factor and altered shapes led to increased revenues received –PTC Provides additional revenue –For example: $24/MWh in 2016 October 12, 2012

13 Generation Build Discussion Why are coal or combined cycles not getting built? –Capital Cost is very high for coal compared to alternative technologies –Natural Gas price does not increase enough to result in high LMPs –Wind modeling Wind is modeled as a transaction in PROMOD with a $0/MWh dispatch cost, thus decreasing LMPs during high wind hours –In the Environmental Scenario emissions costs are added to coal and gas generating units October 12, 2012

14 Drought Scenario October 12, 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 ERCOTS’ 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 reduced the gas price to the base level ‒ Sensitivity 2 removed the PTC and reduced the gas price further to a low natural gas price

15 QUESTIONS / COMMENTS??? October 12, 2012

16 APPENDIX October 12, 2012

17 Progress to Date October 12, 2012

18 BAT with Retirements Scenario Results October 12, 2012

19 BAT New Wind Shapes Scenario Results October 12, 2012

20 BAT High NG Scenario Results October 12, 2012

21 Environmental Scenario Results October 12, 2012