Long Term Study Scenarios andGeneration Expansion Update

December 7, 2012

2

Drought Scenario(s)

December 7, 2012

• Premise: A long-term drought would begin in 2018 and last for about 6 years

• Three major adjustments made to the data for this scenario

‒ Capacity reductions were made to existing generation due to lack of water or high intake/discharge water temperatures

‒ Increase costs of water were added to new thermal expansion generating units

‒ Forecasted load used Moody’s base economic assumptions with ERCOT’S 2011 load shape

• Additional sensitivities were added to the drought scenario so the impact of water issues could be seen in isolation

‒ Sensitivity 1 removed the PTC and removed the emission costs (S5A)

‒ Sensitivity 2 removed the PTC, removed the emission costs and reduced the EIA reference gas price by $2 MMBtu (S5B)

3

Drought Scenario(s)

December 7, 2012

Black and Veatch (B&V) reviewed the Sandia work and the following information to estimate generating unit capacity reductions:

• Water Supply Availability

‒ Evaluation of rainfall patterns on an annual and monthly basis ‒ Single-year and multi-year drought scenarios‒ Reservoir/lake levels and withdrawals out of those reservoirs

• Surface water temperature for lake-cooled supplies

• Cooling Technology

4

Drought Scenario(s)

December 7, 2012

Example capacity derations for multi-year drought

5

Drought Scenario(s)

December 7, 2012

Water costs by weather zone were estimated by B&V by analyzing:

• Current water costs by weather zone

‒ Agricultural/Raw water – low cost‒ Water Authority wholesale or basic treatment‒ Municipality potable treated water or reuse – High cost

• Estimate of infrastructure availability (will additional infrastructure be required if new water source is required)

‒ Urban/water source rich areas – low cost‒ Rural/water source poor areas – high cost

 • Weather patterns

‒ High Rainfall (East, Coast) – low cost‒ Mid (Central and Southern)‒ Low rainfall (West, Far West) – high cost

Weather Zone $/MWhCOAST $0.22EAST $0.24NORTH CENTRAL $0.36SOUTH CENTRAL $0.38NORTH $0.44SOUTH $0.48WEST $0.63FAR WEST $0.76

6

Drought Scenario(s)

December 7, 2012

From the Initial B&V review ERCOT was divided into three water regions. Existing generating stations are also shown

7

Drought Scenario(s)

December 7, 2012

• In general, results have shown that large amounts of wind and solar generation are built in scenarios that include the PTC, emission costs and/or high natural gas prices.

• Results of S5A include 13,000 MWs of additional wind and 11,000 MWs of solar and 16,690 MWs new NG generation

• Results of S5B, which has a lower NG price, only 5,500 MWs of new wind is being built and most of that is not built until 2032 when the price of NG exceeds $6.00 MMBtu. 19,695 MWs new NG generation were also added

• Early results of S5C substantial amounts of both wind and solar are being built

8

Drought Scenario(s)

December 7, 2012

• Both S5A and S5B indicate that the natural gas price needs to be greater than $6.00 MMBtu for wind to be economical

9

2032 Summary of Scenario Results

December 7, 2012

*These retirements resulted from the economic retirement process based on profitability, age, and efficiency.

All scenarios with the exception of BAT Retirements include the updated wind shapes from AWS TruePower.

10

Comparison of Results: 2032 Generation Breakdown

December 7, 2012

As increasing amounts of wind, solar and geothermal proved to be economical, the amount of energy provided by renewables increased from 13% in the BAT w/ Retirements scenario to 63% in the Environmental Scenario.

11

Remaining Scenarios

• Drought S5C – Original Drought Scenario, About 50% complete

• BAU All Tech with the PTC, 20% complete

• Environmental with EE and DR mandates

• BAU All Tech with increased Asynchronous Ties

December 7, 2012

12

APPENDIX

December 7, 2012

13

Drought S5A

December 7, 2012

CC Adds MW - 2,400 - - - 1,200 CT Adds MW 9,010 510 - 170 510 2,890 Coal Adds MW - - - - - - Nuclear Adds MW - - - - - - CAES Adds MW - - - - - - Geothermal Adds MW 300 700 1,500 1,100 - - Gravity Power Adds MW - - - - - - Solar Adds MW - 2,500 2,000 2,000 2,000 2,500 Wind Adds MW 523 1,211 3,680 2,738 4,533 346 Annual Capacity Additions MW 9,833 7,321 7,180 6,008 7,043 6,936 Cumulative Capacity Additions MW 9,833 17,154 24,334 30,342 37,385 44,321 Retirements MW - - - - - - Residential Demand Response MW - - - - - Industrial Demand Response MW - - - - 500 500 Reserve Margin % 2.89 2.74 1.73 0.19 (2.22) (1.75)

Coincident Peak MW 86,113 91,068 94,728 98,666 103,502 108,981 Average LMP $/MWh 52.78 59.19 63.42 69.38 77.82 88.05 Natural Gas Price $/mmbtu 4.64 5.23 6.13 6.97 7.88 9.18 Average Market Heat Rate MMbtu/MWh 11.38 11.32 10.35 9.95 9.88 9.59 Natural Gas Generation % 45.1 44.6 42.4 38.2 35.9 38.2 Coal Generation % 33.1 31.5 31.4 29.1 28.2 26.7 Wind Generation % 10.8 12.4 17.3 20.4 23.3 22.2 Solar Generation % - 1.1 1.9 2.6 3.3 4.0 Scarcity Hours HRS 22.0 24.0 25.0 15.0 30.0 27.0 Unserved Energy GWhs 25.5 27.5 39.4 9.5 38.7 38.0 SO2 Tons 356,652 355,660 355,081 356,699 353,838 359,705 CO2 (k) Tons 254,938 250,014 245,345 243,602 243,465 251,304 NOx Tons 279,508 275,042 270,869 269,274 269,997 274,402

20322025 2028Description Units 2016 2019 2022

14

Drought S5B

December 7, 2012

CC Adds MW - 1,200 400 2,000 - 800 CT Adds MW 6,120 3,225 850 2,550 2,550 - Coal Adds MW - - - - - - Nuclear Adds MW - - - - - - CAES Adds MW - - - - - - Geothermal Adds MW - - - 600 200 900 Gravity Power Adds MW - - - - - - Solar Adds MW - - 2,500 2,500 2,000 2,000 Wind Adds MW - 200 203 221 4,926 Annual Capacity Additions MW 6,120 4,425 3,950 7,853 4,971 8,626 Cumulative Capacity Additions MW 6,120 10,545 14,495 22,348 27,319 35,945 Retirements MW - - - - - - Residential Demand Response MW - - - - - Industrial Demand Response MW - - 500 500 500 500 Reserve Margin % (0.94) (1.48) (2.12) 1.06 0.45 (0.86)

Coincident Peak MW 86,113 91,068 94,728 98,666 103,502 108,981 Average LMP $/MWh 37.94 41.71 50.72 58.87 64.94 75.31 Natural Gas Price $/mmbtu 2.64 3.23 4.13 4.97 5.88 7.19 Average Market Heat Rate MMbtu/MWh 14.37 12.91 12.28 11.85 11.04 10.47 Natural Gas Generation % 60.9 60.4 56.9 52.2 50.7 47.1 Coal Generation % 18.5 19.9 23.0 26.5 27.4 26.4 Wind Generation % 9.8 9.3 9.3 9.0 9.0 13.2 Solar Generation % - - 0.9 2.0 2.7 3.3 Scarcity Hours HRS 16.0 15.0 20.0 19.0 27.0 36.0 Unserved Energy GWhs 22.9 12.4 17.5 15.6 25.8 51.0 SO2 Tons 202,387 228,714 278,670 327,849 347,788 355,010 CO2 (k) Tons 220,286 232,061 248,045 257,712 270,852 269,595 NOx Tons 242,507 254,208 270,832 277,271 289,294 288,671

20322025 2028Description Units 2016 2019 2022