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Are We Ready For The Future?

2005 NIPPC Annual MeetingSeptember 8, 2005

Michael R. NiggliPresident, Sempra Generation

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U.S. Electric Market Evolution

Source: Global Energy Decisions

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Cap

aci

ty I

nst

alla

tio

ns

(MW

)

Coal Hydro Renewables Uranium Fuel Oil Natural Gas

The Oil Embargo1973-4

PURPA1978

PURPAQF Era

EPACT1992

EWGs

CAA1970

Vertically Integrated Utilities

RTO NOPR1999

Rise of the Merchant

Credit Crash

CAA Amendments

1990

3

U.S. Natural Gas Prices (Henry Hub)

$12.36/MMBtu

18 Month Strip = $10.58/MMBtu

4

U.S. Gas Supply/Demand

Balance

0

5

10

15

20

25

30

1970 1980 1990 2000 2010 2020

Dry

Tc

f p

er

ye

ar

Low

High

US Govt

L48 Production

Consumption

Actual Forecast

Consultants

Basis: EIA natural gas statisticsConsultant demand forecastsUS Potential Gas Committee's Year 2002 resource estimates

Net Imports

5

U.S. LNG Imports

US LNG Imports

0

5

10

15

20

25

30

2000 2005 2010 2015

Bc

fd

0

50

100

150

200

mtp

a

High Resources

Low Resources

6

LNG Import Facilities

7

Sempra Energy Infrastructure Projects

Costa Azul (1.0 Bcf/day)

Port Arthur(3.0 Bcf/day)

Cameron(1.5 Bcf/day)

Northville

El Dorado(480 MW)

Copper Mountain

Elk Hills(275 MW)

Palomar(550 MW)

Mexicali(600 MW)

Mesquite I & II

(1250 MW)

MC Energy

Cedar PowerBonnet Carre

Catoctin

Crescent City

Twin Oaks I & II(305 MW)

Granite Fox

Idaho Valley

Coleto Creek(316 MW)

Texas Non-Coal(659 MW)

Twin Oaks III

Norton

South Shore Power

OPERATING

UNDER CONSTRUCTION

IN DEVELOPMENT

POWER PLANTS

LNG TERMINALS

PERMITTED

UNDER CONSTRUCTION

West-East Pipeline

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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

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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

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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

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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

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• 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

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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

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• 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

Installed Capacity (MW) Nuclear, 9,397, 5%

Renew/Other, 6,061, 3%

Oil, 1,797, 1%

Coal, 37,284, 19%

Hydro, 62,799, 32%

Natural Gas, 77,559, 40%

Energy (TWh)

Nuclear, 75, 9%

Gas, 209, 25%

Renewable, 50, 6%

Coal, 268, 31%

Hydro, 242, 29%

Current WECC Installed Capacity & Generation Mix

Source: Global Energy Decisions, Fall 2004 Report

Coal – A Responsible Resource

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Sempra Western Coal Fired Projects

Idaho/Oregon Market

Idaho/Utah Market

Southwest Market

Pacific Intertie DC Line

Idaho ValleyGranite Fox

Northern Nevada Market

Northwest Market

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Macro Energy Issues

• Energy Independence? ORForeign 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)

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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