1. Kevin Hanson Doug Murray Jenell Katheiser Long Term Study Scenarios and Generation Expansion Update April, 2012

2. 2 Discussion Topics 2012 Model Updates Scenario Review New Technology Information Demand Response Modeling Economic Retirement Process Generation Expansion Process Current Status April, 2012

3. 3 2012 Model Updates Fuel Forecasts from the Early Release of the Annual Energy Outlook (AEO) for 2012 published by the Energy Information Administration (EIA) –Henry Hub Natural Gas –Powder River Basin Coal Capacity, Demand, and Reserves (CDR) updates from the December 2011 report –Generating unit changes Mothballed units, new I/A units –Units Capacity –Unit winter to summer capacity derations Load Forecast Update –Based on December 2011 CDR report April, 2012

4. 4 Scenarios for Study Three scenarios have been finalized: –Business as Usual (BAU) –Drought –Environmental Business as Usual scenario has a base case and 5 sensitivities Drought has only a base case Environmental has a base case and 2 sensitivities The matrix is in the appendix of this presentation April, 2012

5. 5 Business as Usual Scenario The BAU generation expansion from the Interim Report has been integrated into the transmission analysis that has been completed Demand response is included in sensitivities based on discussions with Demand Side Working Group (DSWG) –Residential/Commercial: 2,200 MW –Industrial: 500 MW Additional sensitivities: –All Tech (additional technologies: Compressed Air Energy Storage (CAES), Gravity Power, Geothermal, Solar) –All Tech with Retirements of Natural Gas units aged 50 years or older –All Tech with PTC (production tax credit is extended) –All Tech with Increased Asynchronous Tie Capacity –All Tech with High Natural Gas Prices and PTC extension April, 2012

6. 6 Extreme Drought Scenario ERCOT is working with Sandia National Labs to develop a scenario that reflects the impact of a prolonged drought Sandia is anticipating having a final list of potential resources at risk by June 2012 Impacts to system load from drought conditions are also being analyzed Assumptions made for scenario: –Extension of PTC –Industrial Demand Response is increased from 500 MW to 3,000 MW –Emission costs are included April, 2012

7. 7 Environmental Scenario Environmental Base Case assumes: –Higher natural gas prices (EIA reference plus $5/MMBtu) –Extension of PTC –Demand Response is increased Residential/commercial up to 4,400 MW Industrial up to 3,000 MW –Emission costs are included Sensitivities to the Environmental Base Case: –Base Case with Renewable Portfolio Standard (RPS) 25% of energy by 2025 from renewables Retirement of all coal units without Carbon Capture and Sequestration (CCS) technology –Base Case with Demand Response (DR) and Energy Efficiency (EE) Mandates 10,000 MW DR Mandate 15% of energy by 2025 from EE April, 2012

8. 8 Additional Resources Considered in Modeling April, 2012 Operating characteristics of additional resources and new technologies ResourceWartsila 18.7 MW CAESGravity PowerWindLarge Solar PVGeothermal Capital Cost ($/kW in 2011$) $900 (vendor)$1,000 (vendor) $2,000 (EERE)$3,270 (2007$) (Austin Energy IRP Assumptions) $1,800 PTC EligibleNo YesNoYes Max Capacity (MW)225235150100 50 Min Capacity (% of Max)3.30%10%0% 40% Heat Rate (btu/kWh)8,0004,500N/A Variable O&M ($/MWh in 2011$) $6.00$4.00$0 $10 Fixed O&M ($/kW-year in 2011$) $5.00$20.00$13.03$28.07$6.02 (2007$) $84.27 OperationsQuickstartOutput for 12 hours and refill for 12 hours on a daily basis 4 hours of operation and then 5 hours to refill Intermittent Baseload (5 minute to full load) Water UsageMinimal900 gallons per minute26 million gallons for initial fill None Minimal

9. 9 Residential Demand Response Characteristics Modeled as an interruptible resource in PROMOD. Established a strike price for dispatch. Starting strike price is $1,032/MWh based on a pro-forma analysis using characteristics provided by stakeholders at Demand Side Work Group (DSWG) If current strike price yields operation of more than 100 hours, the strike price was adjusted such that operation was less than or equal to 100 hours. –100 hours was chosen based on discussion with stakeholders at DSWG If those hours of operation yielded revenues such that it was economic, then the DR was assumed to be built in that year. If DR was economic in any given year, it was assumed to remain in service no matter what future revenues it received. –Assumption that a DR asset would not be retired April, 2012

10. 10 Industrial DR Analysis 15-min settlement data for Transmission Voltage and Primary Voltage levels (1,242 ESI IDs) –Primary Voltage level was taken for all ESI IDs above 1 MW Settlement Point Prices for respective load zones Determined the average load for each ESI ID Subtracted each interval from average to determine potential load reduction –Intervals used were occurrences above $500/MWh –Transmission Voltage level load reduction: 187 MW –Primary Voltage level load reduction: 353 MW Determined an Industrial DR capacity of 500 MW with a strike price of $500/MWh April, 2012

11. 11 Economic Retirement Process Age, efficiency, profit margins and cost of retrofits are considered Each category was broken into different groups and each group was given a value from 1-6 depending on number of groups –Age: 40 yrs (5) –Efficiency: 12 MMBtu (6) –Profit margins: >25% (1), 10-25% (2), 0-10% (3), -10-0% (4), -10- (-25)% (5), <- 25% (6) –Retrofit: no retrofits were required in the BAU scenario (to be determined for scenarios with environmental regulations) PROMOD results were used to determine profit margin values Each unit was given a total score (sum of values for each category) –∑ = A (Wa) + E (We) + P (Wp) + R (Wr) Retirement decision: if the unit’s total score was higher than 1 standard deviation above the mean of the sum of all units scores April, 2012

12. 12 Flowchart of Generation Expansion Process April, 2012 Run PROMOD Run Market Power Export Market Power Expansion Units to PROMOD Repeat Process Every 3 Years Yes No Add / Subtract Additional Resource Finalize Generation Expansion Plan Meets Criteria Expansion Meets Criteria Yes No Iterate Initial PM Retirement Run Re-evaluate Retirements Retire Units If Any Re-evaluate Expansion Plan

13. 13 Current Status Preliminary results are complete for BAU with All Tech and the BAU With All Tech plus retirements of NG units > 50 yrs old Results of the BAU with All Tech look very similar to the BAU with Wind so the expected transmission build out will also look similar –Advanced Combined Cycles and Advanced Combustion Turbines Initial results of BAU With All Tech with Retirements of Natural Gas units aged 50 years or older are undergoing further review April, 2012

14. 14 QUESTIONS / COMMENTS??? April, 2012

15. 15 APPENDIX April, 2012

16. 16 Scenario Matrix April, 2012