1. AZGT Annual Meeting Ted Vatnsdal - Senior VP & COO May 10, 2017

2. Agenda ACES Overview/West RTC Year in Review Solar Developments
California’s Carbon Construct
Western Markets and the Coming of the RTOs
Transmission Expansion
Fitting Resources in CAISO and SPP
IOU Outlook

3. ACES Overview/ West RTC

4. ACES Overview RTC Customers Members Affiliated Customers Customer Load
Member Load
Affiliated Customer Load

5. West RTC

6. West RTC
Although the WRTC only constitutes 4% (2200MW Peak/50,000 MW Peak) of the peak load we manage transaction statistics are relatively high.

7. Year in Review

8. What’s Happened Since Last Year?
2016 Highlights:
Changing Resource Mix
Power and Natural Gas Prices
CAISO Expansion
Changing Market Dynamics
2017 Highlights:
Developments on All of the Above
Navajo Retirement
Spin Sales

9. Power Markets Since Last Year
The Good, Bad, and Ugly of Carbon:
Clean Power Plan Out?
Bearish on Power
Carbon Regulations in?
Bearish on Change in CO2 Prices
Regional Carbon Markets Depressed
Energy Efficiency Assumptions Up
Load Growth is Wildcard

10. 6x16 Energy Forward Curve

11. Wrap Energy Forward Curve

12. Natural Gas Markets Since Last Year
Plenty of Natural Gas
Especially in Permian Basin
Exports to Mexico Well Underway
Non-North American Exports Also Starting, With Much Room to Grow
Continued Drilling, Exploration By Majors
“New Normal”: Will It Have a $2.00 Handle?

13. 2016 NG Forward Curve

14. 2016 vs NG Forward Curve

15. Solar Developments

16. Solar Developments: Supply/Cost

17. Solar Developments: Rates/DG
AZ Solar Bills
Other States’ Solar Rate Changes

18. California’s Carbon Construct

19. California Carbon Market
States Participating: Outlook For Growth in CAISO For “Like-Minded” States/Provinces?
California
Quebec
Ontario
Regional Greenhouse Gas Initiative (RGGI)
Alberta Carbon Tax
Increases Value For Larger, Regional Trading Markets

20. Western Markets and the Coming of the RTOs

21. National RTO Landscape

22. Western Markets/ RTO Expansion
EIM Entities Now in the Implementation Phase:
Portland General – Fall 2017
Idaho Power – Spring 2018
Seattle City Light & SMUD/BANC – Spring 2019
Entities Exploring Future Entry:
CENACE, Baja, CA
Los Angeles Department Of Water & Power (LADWP)
Salt River Project
Northwestern Energy
Source: CAISO

23. Western Markets/ RTO Expansion
Implementation Update
Common Tariff For MWTG
Selected RTO (SPP)
Cost-Benefit Analysis
Entities Included:
Tri-State G&T
Basin Electric G&T
Public Service Colorado (Xcel)
Black Hills Utilities
Platte River Power Authority
Colorado Spring Utilities
Loveland Area Project
Colorado River Storage Project
Source: WAPA

24. Transmission Expansion

25. Transmission Expansion
2016 ACES Member Survey: “Is Increased Transmission Activity By Other Entities of Interest or Concern to Your Organization?”
Wood Mackenzie Data: Identified Projects
$41.7B in United States
$14.2B in West (34% of U.S. Total)
Two Key Factors:
RTO Expansion/RTO Integration
Renewable Integration

26. China Solar Analog

27. China Solar Analog

28. Fitting Resources in CAISO and SPP

29. Time of Use Price Shapes
These prices were derived based on historical SP15 March 2012 vs SP15 March 2017 prices. March is being used as a representative month.

30. Finding Value in New Market
Market Needs For Flexible Generation Increasing
Spinning Reserve Sales: Evidence of Generation Changes
$1,207,480 Total 2016 Spin Sales
72,310 Total Spin MWh Transacted
$16.70/MWh Average Spin Sale Price
Opportunities in WALC, Other Balancing Authorities

31. Flexible Capacity Needs in CA

32. Resource Adequacy: CAISO
Healthy Reserve Margins
20% For Summer 2017
Resource Plan: Standard, Local, Flex RA Components
Driven By System Needs, Intermittent Generation
Flexible RA Requirements Up 20% Y-O-Y
Pricing Up 40% Over Standard RA
16.16% Planning Reserve Margin
Annual Resource Plan in Advance, Monthly True-Up

33. Resource Adequacy: SPP
Healthy Reserve Margins
27% For Summer 2017
Firm Resources
13.6% Planning Reserve Margin (Installed Capacity)
Resources Deliverable to Grid
Peak Load Resources Require Firm Trans
Excess Above Peak Load Doesn’t Require Firm Trans
Resource Plan Demonstrated By LSE For Next Year

34. TED Talks

35. IOU Outlook

36. IOU Outlook Renewables Push IRPs For Utilities Joining EIM
Where the Renewables Make Sense
Easy to Get Approved By State Commissions
IRPs For Utilities Joining EIM
IRPs/Reserve Margins For SPP Utes
Investment Outlook - Plans For ROE

37. Observations/Predictions
War of Words Between CA and Fed Gov’t is Not as Important as Market Signs
Market Price Levels Continue to Be Challenged By Zero-Cost Renewables and Lack of Retail TOU Pricing
Does Not Speak to Volatility, Which We Expect to Increase
Increased Clout of RTOs

38. Questions?