1. 1 Are We Ready For The Future? 2005 NIPPC Annual Meeting September 8, 2005 Michael R. Niggli President, Sempra Generation

2. 2 U.S. Electric Market Evolution Source: Global Energy Decisions

3. 3 U.S. Natural Gas Prices (Henry Hub) $12.36/MMBtu 18 Month Strip = $10.58/MMBtu

4. 4 U.S. Gas Supply/Demand Balance

5. 5 U.S. LNG Imports

6. 6 LNG Import Facilities

7. 7 Sempra Energy Infrastructure Projects

8. 8 Major U.S. Market Structure Issues Mandatory minimum capacity reserve requirements RTOs and independent transmission planning and operation Retail access Open, liquid and competitive markets for capacity and energy Long-term contracts to support generation development

9. 9 Resource Adequacy Challenges Utility Procurement – Build vs. Buy Competitive Bidding Challenges –Debt Equivalency –Credit Requirements –Environmental Adders Transmission –Need Better Access, Fewer Constraints –Cost & Benefits of Major New Regional Transmission Projects Should Be Weighed Against Alternative Strategic Siting of New Generation Projects

10. 10 West-Wide Solutions Are Needed For The Future States & sub-regions within the WECC may have some unique attributes, but are not electrical “islands” Western sub-regions are interdependent We are best able to optimize and ensure the security of the system by working together The region has a history of working together to improve economics and reliability As a West-Wide Region, we should “go back to the future” and improve on past practices Strong political and regulatory leadership to foster West-Wide policies is needed Source: WECC

11. 11 Balanced, Responsible Options For Adding New Capacity Protecting Ratepayers & the Environment –Delivered Energy COSTS Are Very Important To Consumers –Environmental Protections Must Be Affordable –If New Regulations Must Be Implemented, They Should Be Standardized As Broadly As Possible (e.g., on a national level)  Not On A State-By-State Basis  Not On An Industry-By-Industry Basis  Not On A Company-By-Company Basis Economics & Reliability –New Generation Is Needed to Ensure Future Reliability and Price Stability –Capacity Markets Must Provide LONG-TERM Incentives for Capital Investment

12. 12 Most Viable New Generation Options For Balanced, Responsible, Cost-Effective Capacity Portfolios –Coal Projects –Gas Plants  LNG –Renewables Reliability, Deliverability & Cost Will Be Critical Factors Balanced, Responsible Options For Adding New Capacity

13. 13 Coal – A Responsible Resource Why Coal? –Energy Security & Independence: Coal is an abundant domestic resource –Proven & Reliable: Electricity production from coal is significant (~50% of nation’s energy) and will remain so for the foreseeable future –Affordable: Coal provides a competitive base-load resource with low and stable fuel costs Comparative Fuel Costs

14. 14 Why Coal? (contd.) –Commercially Practical: Other generation types cannot replace pulverized coal plants in the next 10 – 20 years –Clean & Efficient: New supercritical plants are even more environmentally responsible – better efficiency/lower emissions –Relationship w/Renewables: Coal projects can facilitate, rather than compete with, renewable energy projects Current WECC Installed Capacity & Generation Mix Source: Global Energy Decisions, Fall 2004 Report Coal – A Responsible Resource

15. 15 Sempra Western Coal Fired Projects Idaho/Oregon Market Idaho/Utah Market Southwest Market Pacific Intertie DC Line Idaho Valley Granite Fox Northern Nevada Market Northwest Market

16. 16 Macro Energy Issues Energy Independence? OR Foreign Dependence? How reliable & costly are supply options? How much will you pay for clean air & water? Local supply OR regional supply? (Strength of the transmission grid & pipeline system)

17. 17 Conclusions Yes, We Are Ready For the Future, But... We Still Have Work To Do! –Need Strong Political & Regulatory Leadership for West-Wide Policy Development –Provide Affordable, Environmentally Responsible Resources  Overcoming Impediments to Competitive Markets  Overzealous Use of Criteria Such As Debt Equivalency & Credit Can Choke Competition  Transmission Constraints & Seams Issues May Limit Future Access to Economic Resources & Seasonal Exchanges  Transmission Projects Should Be Weighed Vs. Strategic Generation Sites  Continued Emphasis In the Future On Affordable, Reliable Generation Resources:  Addressing Issues Such As Global Warming