1. Pat Wood III, Chairman Federal Energy Regulatory Commission Bringing Power to California Customers Silicon Valley Manufacturing Group May 27, 2004

2. Pat Wood, III: Federal Energy Regulatory Commission 2 Stable platform for growth

3. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 3 The Vision  Reliable, robust, modern electric & gas system  Competitive prices underpin economic expansion  Efficient generation replaces old, dirty power plants  Clear framework supports long term investments  Customer choice drives service innovations  Interconnections with rest of West facilitate trade  Vigilant, balanced oversight restores customer confidence  De-politicization of energy issues brings stability

4. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 4 Insufficient Resources State-wide Under Adverse Conditions this Summer

5. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 5 Hydro Supply is Always a Wild Card

6. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 6 Conservation and Demand Response Programs Have Declined

7. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 7 Southern California would have Insufficient Resources without Imports

8. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 8 Access to new generation is constrained by transmission capacity

9. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 9 Congestion Costs are Rising

10. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 10 Supply to San Diego Limited by Congestion

11. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 11 Prescription: Delivering Power to California Customers Transmission Adequacy Congestion Management Resource Adequacy FERC California

12. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 12 Achieving Transmission Adequacy  Robust grid = umbrella insurance  Price of 20 % overnight upgrade is a modest 1.5 % increase in retail bill  Also provides access to cheaper generation which would lower bills  CAISO and WECC identify regional needs  Siting process could be streamlined  ISO tariff provides the simplest cost recovery vehicle

13. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 13 Key California Transmission Projects

14. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 14 Congestion Management: Making the Best Use of Existing Transmission  No more infeasible schedules  Strains operations  Causes customers to pay for production that never happens  Individual self-interest should not trump what is best for customers overall

15. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 15 Resource Adequacy  CA and FERC agree that resource adequacy is critical  Achieve consensus around a workable model that allows for long term contracts and customer switching

16. May 27, 2004 Pat Wood, III: Federal Energy Regulatory Commission 16 Accommodate Renewables and New Technologies to Benefit the Grid  Small Scale Generation (distributed energy resources)  Backup for power outages  Increase power quality  Renewable Technologies  “Smart grid” communication technologies  New Transmission Technologies