1. 2010 Reliability Assessment

2. About NERC: Mission  Develop & enforce reliability standards  Assess current and future reliability  Analyze system events & recommend improved practices  Encourage active participation by all stakeholders  Pursue mandatory standards in all areas of the interconnection To ensure the reliability of the North American bulk power system 2

3. NERC Long-Term Reliability Assessment 3 NERC’s annual ten-year reliability assessment provides an independent view of the reliability of the bulk power system, identifying industry trends, emerging and continuing issues, and potential reliability concerns.

4. 4 Overview  Progress since 2009  2010 Report Enhancements  Highlights for 2010  Emerging Issues for 2010

5. 5 Enhancements for 2010  Enhanced transmission assessment Gathered information on delays and causes of delays  Increased supply granularity Individual unit data gathered for Planning Reserve Margin Calculation Improved validation of capacity resources  Comprehensive assessment performed on the operating boundaries of Midwest ISO and PJM  Severity Risk Assessment

6. 6 Progress on 2009 Key Findings

7. 7 Highlights  The economic recession and demand-side management leads to higher Planning Reserve Margins.  An unprecedented change in the generation fuel mix is projected during the next ten years, Increases in gas-fired, wind, solar, and nuclear generation.  Bulk transmission development begins to take shape.  Cross-industry communication and coordination is key to successful planning and operations.

8. 8 Highlight Higher Reserve Margins TRE 2015/>2019 New England 2018/>2019 Desert DW >2019/>2019 Cal N >2019/>2019 RMPA >2019/>2019 MRO-US >2019/>2019 SPP >2019/>2019 RFC >2019/>2019 WECC-CAN 2016/2017 (Winter) Ontario 2015/>2019 Central 2018/2019 VACAR 2019/>2019 Southeastern >2019/>2019 Delta >2019/>2019 FRCC >2019/>2019 MRO-CAN >2019/>2019 (Winter) New York >2019/>2019 Quebec >2019/>2019 (Winter) Maritimes >2019/>2019 (Winter) Gateway >2019/>2019 NWPP >2019/>2019 (Winter) Cal S >2019/>2019 Basin >2019/>2019 Year when Reserve Margin (RM) drops below NERC Reference Margin Level: Anticipated RM / Adjusted Potential RM Year when Reserve Margin (RM) drops below NERC Reference Margin Level: Anticipated RM / Adjusted Potential RM TRE

9. Highlight Higher Reserve Margins 9

10. 10 Highlight Higher Reserve Margins United States  2010 peak demand down 4.1% from last year’s projections; 7.8% from 2008 projections  Lower growth rate compared to 2008 and 2009 Canada  2010 peak demand down 0.7% from last year’s projections; 1.0 % from 2008 projections  Higher growth rate compared to 2008 and 2009

11. 11 Highlight Higher Reserve Margins Demand-Side Management By 2019:  10 GW of Energy Efficiency  4 years of growth deferred Demand Response  10,000 MW increase projected by 2013 and remains flat until 2019  Largest growth in market areas where DR is bid to perform, similar to a generator

12. Highlight Change in Fuel-Mix Fuel20102019 Projected Coal31%26% Gas29%30% Nuclear11%12% Hydro13%9% Renewables1%5% Dual Fuel11%13% Other4%5% Total100%  Very little coal projected to come online (less than 4 GW)  10 GW of new nuclear capacity projected by 2019  34 GW of new gas-fired generation Planned; 13 GW Conceptual  20 GW of new wind capacity expected on-peak (42 GW nameplate)  13 GW of new solar capacity (California)

13. 13 24,000 miles of Planned Transmission An additional 12,000 miles of Conceptual Transmission 50% of transmission miles projected to maintain reliability; 27% for renewable/variable generation interconntion Highlight Vital Transmission Development

14. 14 Highlight Vital Transmission Development  By end of 2014:16,000 Miles of Planned Transmission

15. 15 Highlight Vital Transmission Development 6,500 circuit-miles of transmission are currently considered delayed Over 120 projects between 100-199kV are delayed at least three years 40 projects delayed due to siting and permitting Majority of delays are due to decreased demand forecasts

16. Severity Risk Assessment

17. 17 Emerging Issues

18. Reserve Margins Become Opaque Time Reserve Margin Target Level Firm Commitments? Fuel Supply? Transmission? Regulatory? ? ? ? ? ? ? ? ? ? Capacity Queues

19. Risk Assessment of Emerging Issues  Emerging Issues is critical driver for: Assessment focus Scenario analysis  The approved process is: Industry experts to identify Emerging Issues Risk Ranking based on likelihood & severity Scenarios are selected from the resulting prioritization  Platform to inform on the policy debate

20. Development Process

21. Selection Process

22. 2009 Emerging & Standing Issues 22 Greenhouse Gas Regulations Cyber Security Transmission Siting Variable Generation Issues Reactive Power Energy Storage Economy Issues 1-5 Years 6-10 Years Workforce Issues Smart Grid & AMI Likelihood Consequence Lower Higher Higher

23. 2010 Emerging & Standing Issues 23 Impacts of Resource Mix Changes to System Stability and Frequency Response Impacts of Resource Mix Changes to System Stability and Frequency Response Changing Resource Mix Transmission Operations with Vital Transmission Out-of-Service During Upgrades Transmission Operations with Vital Transmission Out-of-Service During Upgrades Diminishing Frequency Response Uncertainty of Sustained Participation in Demand Response Consistent Modeling of Remote Resources Likelihood High Low Consequence High Low

24. Reliability Issue Assessment 24 Example SWOT Analysis – Changing Resource Mix

25. 25 Reliability Impacts of Climate Change Initiatives (RICCI): Technology Assessment

26. Reliability impacts of climate change initiatives:  Supply resource responses  Fuel mix changes and associated technologies large-scale integration of smart grids, integration of renewable, nuclear, and energy storage resources.  Scenario Framework RICCI Draft Report: Objective Preliminary Results – NOT FOR CITATION

27. North America’s network designed for:  Large, centralized coal-fired plants located at a distance from major load centers  Relatively controllable and constant generation  The unidirectional flow of electricity from large-scale plants to consumers  Management practices that focus on altering the supply of energy rather than demand RICCI Draft Report: System Design Preliminary Results – NOT FOR CITATION

28.  Basis for Technology Assessment assumes emission reductions below 2005 base 3% by 2012, 17% by 2020, 42% by 2030 83% by 2050  3 timeframes between the years 2010 – 2050 Horizon I: 1–10 yrs., Horizon II: 10–20 yrs., & Horizon III: 20+ yrs.  Outlines a systematic way to evaluate future pathways/scenarios. RICCI Draft Report: Basis for Assessment Preliminary Results – NOT FOR CITATION

29.  Climate Change Initiatives in North America  Overview of Published Scenarios and Models  Scenario Framework and Classification  Reliability Assessment of Technologies 3 time horizons Generation & DSM, Transmission, Distribution  Conclusion and Recommendations RICCI Draft Report: Report Contents Preliminary Results – NOT FOR CITATION

30. RICCI Draft Report: 20+ Years Generation and DSM Preliminary Results – NOT FOR CITATION

31. RICCI Draft Report: 20+ Years Transmission Preliminary Results – NOT FOR CITATION

32. RICCI Draft Report: 20+ Years Distribution Preliminary Results – NOT FOR CITATION Distribution Reliability Impact—Horizon III (20-plus years) TechnologyPotential IssuePresent AssumptionAdditional Mitigating Measures Electric Vehicles and PEVs  System operators will not be able to use Plug-in Electric Vehicles as storage devices  System operators will have the ability to use PEV as storage  Development and implementation of other energy storage technologies will provide operational experience that can be applied to large-scale deployment of PEVs.  Additional demand and carbon emission- free resources would be required.

33. RICCI Draft Report: Scenario Framework Preliminary Results – NOT FOR CITATION

34. RICCI Draft Report: Key Observations Preliminary Results – NOT FOR CITATION The timing of carbon reduction targets will require an unprecedented shift in North America’s resource mix. Regional solutions are needed to respond to climate change initiatives, driven by unique system characteristics and existing infrastructure. The addition of new resources increases the need for transmission and energy storage and balancing resources. Carbon reduction from increasing demand-side management must be balanced against potential reliability impacts. Climate change efforts that increasingly depend on distribution system options and applications can, in aggregate, impact bulk power system reliability.

35. RICCI: Recommendations Preliminary Results – NOT FOR CITATION

36. 36 Smart Grid

37. System: A Traditional View Demand Conventional & Hydro Generation reliability DistributionBulk Power System Over the past 60 years, we’ve divided the “grid” into two separate systems. Reliability requirements are different for each system.

38. System: A Traditional View Demand Conventional & Hydro Generation Local Drivers Policy Security Economic Regional Drivers Policy Security Economic reliability DistributionBulk Power System Policy and other drivers of development developed along the same line – factors that affected one system did not necessarily affect the other.

39. The System Begins to Change Demand Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency reliability DistributionBulk Power System As new resources were added in the 1970’s and 80’s, bulk system reliability became more dependent on distribution-level assets like demand response and energy efficiency. This began to blur the line between the bulk power system and the distribution system.

40. The 21 st Century Grid Emerges Demand CCS, Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency Plug-In Hybrid Electric Vehicles / Storage Rooftop Solar / Local Wind Development Wind & Variable Generation reliability As we look to the future, new resources like rooftop solar panels, large-scale wind generation, PHEV’s, and storage will bring unique characteristics to the grid that must be understood and effectively managed to ensure reliable and cost-effective deployment. DistributionBulk Power System These new resources will be highly interdependent. Operational variability of large-scale wind generation can be effectively balanced by flexible resources like demand response, plug-in hybrids, and energy storage. Distributed variable generation will rely on conventional generation to ensure ancillary services and voltage and reactive support are available to maintain power quality. The development and successful integration of these resources will require the industry to break down traditional boundaries and take a holistic view of the system with reliability at its core.

41. The Smart Grid Demand Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency Plug-In Hybrid Electric Vehicles / Storage Rooftop Solar / Local Wind Development Wind & Variable Generation reliability smart grid The “Smart Grid” completes the picture of a fully integrated system without boundaries. Stretching from synchro-phasors on the transmission system to smart appliances in the home, these systems will enable the visualization and control needed to maintain operational reliability.

42. Common Challenges Demand CCS, Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency Plug-In Hybrid Electric Vehicles / Storage Rooftop Solar / Local Wind Development Wind & Variable Generation smart grid cyber security reliability Cyber security is one of the most important concerns for the 21 st century grid and must be central to policy and strategy. The potential for an attacker to access the system extends from meter to generator.

43. Common Drivers Demand CCS, Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency Plug-In Hybrid Electric Vehicles / Storage Rooftop Solar / Local Wind Development Wind & Variable Generation “smart grid” Drivers Policy Security Economic cyber security reliability Building the 21 st century grid requires a comprehensive and coordinated approach to policy and resource development – looking at the grid as a whole, not as component parts.

44. The 21 st Century Grid Demand CCS, Conventional & Hydro Generation Demand Response Nuclear Energy Efficiency Plug-In Hybrid Electric Vehicles / Storage Rooftop Solar / Local Wind Development Wind & Variable Generation “smart grid” reliability

45. Components to the Intelligent Network – Many are focused in vertical silos CircuitTransformersAMILoad Management  Capacitor Bank Monitoring  Predictive Maintenance  Security (Video/Audio)  Load Management  OMS/DMS  Broadband over Power Lines  Advanced SCADA  Mesh networks  Voltage Monitoring  Outage Detection  Theft Detection  Asset Failure Alarms  Smart substation  High Temperature Superconducting (HTS) Cables  Underground Transmission  HTS Transformers  Real-Time Metering  TOU/CPP Pricing  Outage Monitoring  Voltage Monitoring  Smart switch  Smart thermostat  Real-time DLC management and verification  Load profiling  Aggregation of curtailed load Generation  Wind  Solar  Geothermal  Hydro  Biomass  Biofuels  Carbon capture  Nuclear  Carbon cap and trade  Storage technology  Capacitors Consumer Portal

46. 46 Electric Power: Players, Drivers, Etc. RELIABILITY POLICITAL REALITIES & OBJECTIVES $ - FINANCE ENVIRONMENT REGULATORS SOCIAL CONCERNS ENGINEERING FEASIBILITY POWER INDUSTRY NATIONAL SECURITY CONSUMERS ELECTRIC POWER

47. 47 Smart Grid – Everybody has a vision…

48. 48 The Smart Grid Landscape increasing uncertainty utility-scale generation increasing maturity end users BPS distribution AMI PHEV FACTS HTS PMU STORAGE DG/DER DSM STATCOM DTM DSTATCOM SST CFL PLC Smart Appliances IED RTU CLiC WAM HANIFM DSCADA PLC SHN CONCEPT RTR NOTE: Placement of items in the plane above is for concept discussion purposes.

49. 49 The Smart Grid Landscape increasing uncertainty utility-scale generation increasing maturity end users BPS distribution FACTS HTS PMU STORAGE STATCOMIED RTU CLiC WAM PLC Bulk Power System NERC’s Reliability Standards apply to all users, owners, and operators of the bulk power system and typically apply to facilities at the transmission and generation level. RTR

50. 50 The Smart Grid Landscape increasing uncertainty utility-scale generation increasing maturity end users BPS distribution AMI PHEV DG/DER DSM DTM DSTATCOM SST CFL PLC Smart Appliances HANIFM DSCADA SHN Bulk Power System Smart Grid may provide both system benefits and reliability considerations to the distribution system and bulk power system. RTR SYSTEM BENEFITS RELIABILITY CONSIDERATIONS

51. 51 The Smart Grid Landscape increasing uncertainty utility-scale generation increasing maturity end users BPS distribution AMI PHEV DG/DER DSM DTM DSTATCOM SST CFL PLC Smart Appliances HANIFM DSCADA SHN Bulk Power System AGGREGATE IMPACTS PASS-THROUGH ATTACKS The aggregate impacts of Smart Grid on the distribution system may impact the reliability of the bulk power system. Pass-through attacks from the distribution system may also present a threat to bulk power system reliability. RTR

52. 52 The Smart Grid and Reliability smart grid – The integration and application of real-time monitoring, advanced sensing, communications, analytics, and control, enabling the dynamic flow of both energy and information to accommodate existing and new forms of supply, delivery, and use in a secure, reliable, and efficient electric power system, from generation source to end-user.

53. 53 Smart Grid Task Force Scope  Identify and explain any BPS reliability issues and/or concerns of the Smart Grid  Assess Smart Grid reliability characteristics  Determine the cyber security and critical infrastructure protection implications  Identify how the integration of Smart Grid technologies affects BPS planning, design and operational processes and the tools needed to maintain reliability  Determine which existing NERC Reliability Standards may apply  Provide recommendations for areas where Reliability Standards development work may be needed

54. 54 Report Organized into Six Chapters:  Introduction  Legislative and Regulatory Summary  Characteristics and Technology Assessment  Planning and Operations with Smart Grid  Cyber Security and Critical Infrastructure Protection  Conclusions and Recommendations  A number of Appendices: Smart grid options and NERC Reliability Standards Work plan definition International developments Preliminary Results – NOT FOR CITATION

55. 55 Key Observations  Government initiatives and regulations promoting smart grid integration must consider bulk power system reliability  Integration of smart grid requires development of new tools to support planning and operations  Smart grid will change the character of the distribution system, potentially affecting bulk power system reliability  Cyber security and control systems require enhancement to ensure reliability  Research and development (R&D) has a vital role in successful smart grid integration Preliminary Results – NOT FOR CITATION

56. 56Recommendations  Engage Standard Development Organizations in the U.S. and Canada to increase coordination/harmonization in standard development  Monitor smart grid developments and remain engaged in its evolution (Federal/State/Provincial efforts, ISO/RTO, IEEE/IEC, etc.)  Support the development of tools, technology and skill sets needed to address bulk power system reliability, including cyber/control systems, modeling/simulation and operator tools/training.  Enhance NERC’s Reliability Standards, if needed, as character of the smart grid crystallizes over time. Preliminary Results – NOT FOR CITATION

57. Reliability Considerations  Coordination of controls and protection systems  Cyber security in planning, design, and operations  Ability to maintain voltage and frequency control  Disturbance ride-through (& intelligent reconnection)  System inertia – maintaining system stability  Modeling harmonics, frequency response, controls  Device interconnection standards  Increased reliance on distribution-level assets to meet bulk system reliability requirements

58. 58 Work Plan  Integration of smart grid devices/systems requires development of new planning/operating tools, models and analysis techniques  Integration of smart grid devices/systems will change the character of the distribution system, potentially affecting bulk power system reliability  Engage Standard Development Organizations in the U.S. and Canada to increase Coordination and Harmonization in standard development  Develop risk metrics that measure current and future system physical and cyber vulnerabilities from smart grid integration Preliminary Results – NOT FOR CITATION

59. 59 Scenario Assessments

60.  NERC’s Board of Trustees and MRC Request: Scenario #1: Rapid Demand Growth Scenario #2: Compound impacts of Environmental Regulations  Planning Committee Directed Reliability Assessment Subcommittee to: Develop Special Reliability Assessment on the impacts of these scenarios Document the results in a Report to the Planning Committee Report ready for approval in June 2010 Scenario Planning Preliminary Results – NOT FOR CITATION

61.  Rapid Demand Growth after Long-Term Recession Flat to negative demand growth over the next 7-8 years Industry may retire generation earlier than expected Change to normal/high demand growth as economy recovers  Study Design NERC to identify Potential Resource Implications Use 2009 Long-Term Reliability projections to model demand during recession and expected resources Use 2008 Long-Term Reliability for peak demand after recession Scenario #1: Rapid Demand Growth Preliminary Results – NOT FOR CITATION

62. Scenario #1: Rapid Demand Growth Supply and Demand Forecasts – Reported Data and Interpolated Data MW 2010 20172018 … 2008 supply forecast 2008 demand forecast 2009 supply forecast 2009 demand forecast … Scenario Inflection Year Scenario supply forecast Scenario demand forecast interpolated demand values for middle and end years of Scenario demand forecast Data presented above is for illustration purposes only—it does not reflect actual supply, demand, or reserve margin values or trends. Preliminary Results – NOT FOR CITATION

63. Scenario #1: Rapid Demand Growth Reserve Margins Developed with Supply and Demand Forecasts (based on Reported Data and Interpolated Data) % 2010 20172018 … 2008 Reserve Margin 2009 Reserve Margin NERC Reference Level … Scenario Inflection Year Scenario Reserve Margin Data presented above is for illustration purposes only—it does not reflect actual supply, demand, or reserve margin values or trends. Focus of discussion Preliminary Results – NOT FOR CITATION

64. Scenario #1: Results  Sharp increase in demand can result in margins below NERC’s Reference Level (15% Thermal Systems, 10% Hydro Systems)  Top 3 affected subregions: Region: Subregion Below NERC’s Reference Margin Level RFC: MISO Subregion 2011-2013 WECC: Arizona-New Mexico-Southern Nevada Area 2013 WECC: Rocky Mountain Power Area 2013 Range represents different resource categories being assumed Preliminary Results – NOT FOR CITATION

65. 65 Scenario #2: Impact of Four EPA Regulations

66. About this Report  Purpose Identify potential outcomes of future EPA Regulations Quantify potential impacts to Planning Reserve Margins Examine unit retirement triggered by financial constraints Provide the results to NERC’s stakeholders, industry leaders, policymakers, regulators, and the public  Depicts a “Snapshot” of U.S. Effected Generation Units and Potential Impacts to Planning Reserve Margins for three Modeled Years  Highlights the More Affected Regions/Subregions

67. Background  The EPA is Promulgating New Environmental Regulations in addition to Sulfur Dioxide (SO 2 ) and Nitrogen Oxide (NO x ) Emission Controls Clean Water Act – Section 316(b), Cooling water Intake Structures Title I of the Clean Air Act – National Emission Standards for Hazardous Air Pollutants (NESHAP), or Maximum Achievable Control Technology (MACT) Standards Clean Air Transport Rule (CATR) Coal Combustion Residuals (CCR)

68. EPA MACT Final Rule late 2011 2009201020112012201320142015201620172018 Cooling Water Intake316 (b)Coal AshClean Air Transport RuleAir Toxics-MACT Final CATR Program Mar 2011, Starts 1/1/2012 New CATR Budget Limits 2014 - 2018 EPA MACT Draft March 16,2011 EPA MACT Implementation late 2015 CATR Draft Rule July2010 EPA 316 (b) Draft Rule June 2010 EPA 316 (b) Final Rule 2012 316 (b) Implementation 2014 - 2018 EPA Coal Residual Impoundment Draft Rule April 2010 Coal Residuals Final Rule 2011 Coal Residuals Implementation 2014-2018 Timeline for EPA Regulations Impacting the Energy and Utility Industry 316(b), MACT, CCR, and more strict CATR standards begin implementation within a close timeframe, creating the need for organized, nationwide construction effort towards compliance to maintain short-term grid reliability.

69. Scenario Model  Moderate and Strict Case  Represents a “Snapshot” of Potential Effects for Each Given Year  Unit Definitions “Economically Vulnerable” for Retirement Retrofit resulting in 5MW Derating  Highlighted Assumptions Excludes committed or announced Plant Retirements (13GW) and Generation Units not included in the NERC 2009 Long Term Reliability Assessment Excludes the Ability to permit, engineer, finance, and build the required environmental controls within timeframe Includes Capital O&M Costs; excludes Replacement Power Costs and effects of demand increase

70. Explanation of Calculations  A unit is assumed to retire if : (CC+FC+VC) / (1-DR) > RC CC = Compliance Cost FC = Current Fixed O&M VC = Variable O&M RC = Replacement Cost $/MWh DR = Derate Factor (incremental energy loss)

71. Combin ed Case - Moderate and Strict of Aggregate Regulations Combin ed Case - Moderate and Strict of Aggregate Regulations 316(b ) Moderate Case Conversion cost curve for retrofit Ranges from $170-440 gpm Strict Case 25% increased cost 316(b ) Moderate Case Conversion cost curve for retrofit Ranges from $170-440 gpm Strict Case 25% increased cost CATR Moderate Case EPA preferred option No interstate trading No rate limitations Strict Case No trading Strict rate limitations CATR Moderate Case EPA preferred option No interstate trading No rate limitations Strict Case No trading Strict rate limitations MACT Moderate Case Conversion cost curve for emission controls 60% of upgraded units will receive waivers Strict Case 25% increased cost No waivers-all units must comply by 2015 MACT Moderate Case Conversion cost curve for emission controls 60% of upgraded units will receive waivers Strict Case 25% increased cost No waivers-all units must comply by 2015 CCR Moderate Case $30 M per unit Disposal costs - $15/ton Strict Case Disposal costs increased to $37.50/ton CCR Moderate Case $30 M per unit Disposal costs - $15/ton Strict Case Disposal costs increased to $37.50/ton Two Cases Assessed

72. Combined Regulations  Potential loss of approximately 40-76 GW (retrofit plus retired) capacity by 2018  Aggregate effects of multiple regulations increases unit retirement  Estimates predict the majority of retirements occur by 2015  Potential coordination issues to acquire and install the necessary environmental controls in the short- run may create significant future impacts  More units predicted to be retired rather than retrofit

73. Moderate Case Prospective and Adjusted Potential Resources Reserve Margins Compared to NERC’s Reference Margin Level 73 ERCOT 2015/2018 New England 2015/2015 AZ/NM/SNV 2015/2018 California >2018/>2018 RMPA 2015/>2018 SPP 2015/>2018 MRO-US 2013/2018 RFC 2015/2018 Central >2018/>2018 VACAR 2015/2018 Southeastern 2013/>2018 Delta 2015/2015 When Deliverable Capacity Resources drop below the NERC Reference Margin Level …including Adjusted Potential Resources FRCC >2018/>2018 New York 2018/>2018 Gateway 2018/>2018 NWPP >2018/>2018 (Winter)

74. Strict Case Prospective and Adjusted Potential Resources Reserve Margins Compared to NERC’s Reference Margin Level ERCOT 2015/2018 New England 2015/2015 AZ/NM/SNV 2015/2015 California 2018/>2018 RMPA 2015/>2018 SPP 2015/>2018 MRO-US 2013/2015 RFC 2015/2015 Central 2015/2015 VACAR 2015/2015 Southeastern >2018/>2018 Delta 2015/2015 When Deliverable Capacity Resources drop below the NERC Reference Margin Level … including Adjusted Potential Resources FRCC >2018/>2018 New York 2015/2015 Gateway 2015/2015 NWPP >2018/>2018 (Winter)

75. Scenario Results  Section 316(b) Cooling water Intake Structures rule individually has the greatest potential impact on Planning Reserve Margins  Combined Scenario illustrates 46-70 GW “vulnerable” for retirement or derating

76. Tools and Actions for Mitigating Resource Adequacy Issues Advancing In-service Dates of Future or Conceptual Resources Addition of New Resources Not yet Proposed Increased Demand-Side Management and Conservation Early Action to Mitigate Severe Losses Increase in Transfers Developing or Exploring Newer Technologies Use of More Gas-Fired Generation Repowering of Coal-Fired Generation

77. Variable Generation

78. Status of Work Plan Activities – Completed 78 Preliminary Results – NOT FOR CITATION

79. Status of Work Plan Activities – Under Review 79 Preliminary Results – NOT FOR CITATION

80. Status of Work Plan Activities – Under Development 80 Preliminary Results – NOT FOR CITATION

81. Questions?

82. Background Slides

83. WECC--NM-SNV316(b)  Greatest Potential Impacts of All Regulations  Greatest Portion of Capacity Retired by 2018  Mostly Affects Older Oil/Gas-Steam Units  Smaller Units More Likely to Retire 316(b) Impacts- 2018 Moderate Case Strict Case Derated (MW) Retired (MW) Total Derated (MW) Retired (MW) Total ERCOT 322 5,055 5,377 316 5,295 5,611 NPCC-NE 194 2,504 2,698 180 2,904 3,084 NPCC-NY 347 3,011 3,357 327 3,618 3,946 RFC 1,532 5,503 7,035 1,526 5,661 7,187 9 SERC-Delta 282 5,524 5,806 282 5,524 5,806 FRCC MRO SERC-Central SERC-Gateway SERC-Southeastern SERC-VACAR SPP WECC-CA 227 5,055 5,283 182 6,881 7,063 AZ WECC-NWPP WECC-RMPA TOTAL 4,954 32,522 37,476 4,848 36,366 41,214 1778621,0391641,3671,531 4001,2591,6594001,2641,664 388714538871459 296526822295543838 209469678209469678 3786641,0423776891,066 1439331,0761419941,135 57737785773778 4012916940129169 1618420016184200

84. MACT  Moderate Case and Strict Case impact estimates show a high degree of disparity, due to the implementation rules assumed to be enforced by the EPA  Resulting impacts highly dependent on waiver extensions past the 2015 "hard stop" compliance deadline  Will mainly affect coal-fired generation Derated (MW) Retired (MW)Total Derated (MW) Retired (MW)Total MRO125202327144764908 RFC1031,0611,1641,0605,4936,553 SERC-Central61711323051,0001,305 SERC-Southeastern331401733371,2081,545 SERC-VACAR0465 2552,6492,905 WECC-AZ-NM-SNV490 1,5801,629 ERCOT730 0 FRCC00078121199 NPCC-NE00032616647 NPCC-NY011 16694710 SERC-Delta6918876995164 SERC-Gateway8435119110365475 SPP1270 13052181 WECC-CA015 3 17 WECC-NWPP723911173129202 WECC-RMPA1041310100110 TOTAL8062,0612,8672,74614,87917,625 MACT Impacts - 2015 Moderate CaseStrict Case

85. Clean Air Transport Rule  Only regulation to start affecting capacity in the Regions by 2013  Emission limitations and trading options will largely affect the amount of overall capacity reductions  Potential Capacity loss of 2.8 – 7.2 GW  Effects mainly felt by RFC and SERC-Gateway

86.  Relatively Minimal Capacity Impact in Only a Few Regions/Subregions  Large-Scale Retrofit Projects must be Coordinated  Cost Plays Larger Role in Combined Scenario Coal Combustion Residuals Cost Contained in Flat Portion of the Curve Sensitivity of Coal Combustion Residuals Retirements as a Function of Higher Coal-Ash Disposal Costs

87. Clean Water Act – Section 316(b), Cooling Water Intake Structures  Regulates intake structures for surface waters in the U.S. and calls for best available control technology (BACT) to minimize adverse environmental impact (AEI)  Steam generating units employing once-through cooling systems could be required to replace their cooling water systems with closed-loop cooling systems  Planning Reserve margins in two ways: 1) the cost of such retrofits may result in accelerated unit retirements 2) closed-loop cooling retrofitting results in derating a unit’s net output capacity, due to additional ancillary or station load requirements to serve generator equipment

88. Title I of the Clean Air Act – National Emission Standards for Hazardous Air Pollutants (NESHAP), or Maximum Achievable Control Technology (MACT) Standards  EPA is now obligated under a consent decree to propose a MACT rule by March 16, 2011 and to finalize the rule by November 16, 2011  MACT requires coal-fired plants to reduce their emissions of air toxics, including mercury  Under the Clean Air Act, EPA is obligated to implement stricter standards within three years after the regulation becomes final

89. Clean Air Transport Rule (CATR)  CATR would sharply reduce emissions of sulfur dioxide and nitrogen oxide from power plants in 31 states and the District of Columbia  EPA proposed three program options for public comment: the EPA preferred option which sets state emission budget caps and allows intrastate trading and limited interstate trading among power plants; the EPA Alternative 1 option which sets state emission budget caps and allows intrastate trading among power plants within a state; and the EPA Alternative 2 option which sets a pollution limit for each state and specifies the allowable unit-specific emission limit

90. Coal Combustion Residuals (CCR)  In May 2010, EPA proposed two options to regulate coal combustion residual disposal Regulate the coal fly ash as a special waste under subtitle C (hazardous waste) of the Resource Conservation and Recovery Act (RCRA) Regulate ash disposal as a non-hazardous waste under subtitle D of RCRA

91. Generation Capacity Effects Potential Capacity Reduction Due to the Combined EPA Regulation Scenario The model illustrates a significant amount of generation capacity affected by the EPA Regulations. Many unit operators must take action to maintain generation capacity in compliance with the EPA Regulations to ensure grid reliability.

92. Scenario Results 2013 Adjusted Potential Capacity Resources Planning Reserve Margin Levels

93. Scenario Results cont. 2015 Adjusted Potential Capacity Resources Planning Reserve Margin Levels

94. Scenario Results cont. 2018 Adjusted Potential Capacity Resources Planning Reserve Margin Levels

95. Planning Reserve Margins: Combined Case 2015 Capacity reductions range from 33GW (Moderate Case) to 77GW (Strict Case). The model projects a considerable number of Oil/Gas – Steam units retiring in 2015, resulting in a large portion of reserve loss.

96. Planning Reserve Margins: Combined Case 2018 Capacity reductions range from 46GW (Moderate Case) to 76GW (Strict Case). RFC capacity reductions are most notable. Many older coal generating units retire causing modeled Planning Reserves to fall below the Reference Margin.

97. Tools and Actions for Mitigating Resource Adequacy Issues Generation resources may be able to advance their in-service dates where sufficient lead time is given. Accelerated construction may be possible. Existing market tools, such as forward capacity markets and reserve sharing mechanisms, can assist in signaling resource needs. Generation resources may be able to advance their in-service dates where sufficient lead time is given. Accelerated construction may be possible. Existing market tools, such as forward capacity markets and reserve sharing mechanisms, can assist in signaling resource needs. Advancing In-service Dates of Future or Conceptual Resources Smaller, combustion turbines or mobile generation units can be added to maintain local reliability where additional capacity is needed. Additional distributed generation may also mitigate local reliability issues. Smaller, combustion turbines or mobile generation units can be added to maintain local reliability where additional capacity is needed. Additional distributed generation may also mitigate local reliability issues. Addition of New Resources Not yet Proposed Increased Energy Efficiency may offset future demand growth. Increasing available Demand Response resources can provide planning and operating flexibility by reducing peak demand. Increased Energy Efficiency may offset future demand growth. Increasing available Demand Response resources can provide planning and operating flexibility by reducing peak demand. Increased Demand-Side Management and Conservation Planning and constructing retrofits immediately will aid in preventing the potential for construction delays and overflows, mitigating the risk of additional unit loss. Managing retrofit timing on a unit basis will keep capacity supply by region stable. Combating the regulations early demonstrates industry's willingness to comply, potentially dampening the EPA severity of promulgated regulations. Planning and constructing retrofits immediately will aid in preventing the potential for construction delays and overflows, mitigating the risk of additional unit loss. Managing retrofit timing on a unit basis will keep capacity supply by region stable. Combating the regulations early demonstrates industry's willingness to comply, potentially dampening the EPA severity of promulgated regulations. Early Action to Mitigate Severe Losses

98. Tools and Actions for Mitigating Resource Adequacy Issues Cont. Regions\subregions that have access to a larger pool of generation may be able to increase the amount of import capacity from areas with available capacity, transfer capability is sufficient. and deliverability is confirmed. Additional transmission or upgrades may enable additional transactions to provide additional resources across operating boundaries. Regions\subregions that have access to a larger pool of generation may be able to increase the amount of import capacity from areas with available capacity, transfer capability is sufficient. and deliverability is confirmed. Additional transmission or upgrades may enable additional transactions to provide additional resources across operating boundaries. Increase in Transfers Other technologies exist, such as trona injection, that will allow companies to comply with EPA air regulations without installing more scrubbers. Developing or Exploring Newer Technologies Existing gas units may have additional power production potential, which can be expanded during off peak periods. This capacity can assist in managing plant outages during the installation of emission control systems. Use of More Gas-Fired Generation Some coal-fired generation have the potential to repower their units with combined-cycle gas turbines and reducing emmisions. Repowering of Coal-Fired Generation

99.  Meeting the carbon reduction goals: unprecedented changes in 1,000 GW resource mix.  Industry’s knowledge represents nearly a century of operational experience  A variety of demands on existing infrastructure will be made to support the transition. RICCI Draft Report: Challenges Preliminary Results – NOT FOR CITATION