1. 2012 Long-Term Load Forecast Update ERCOT Calvin Opheim December 3, 2012

2. 2 Outline Forecast Overview Economic Assumptions / Non-Farm Employment Forecasts Economic Vendors Questions

3. 3 Forecast Overview To create a long-term load forecast requires: i.Employment or economic data forecast for each county for the duration of the forecasting time-frame ii.Hourly weather forecast for each weather zone which will be used for each forecasting year These values are used by forecasting models to create the hourly demand forecasts for ERCOT

4. 4 Forecast Overview Non-farm employment is the driver of ERCOT’s load growth:

5. 5 Economic Assumptions Previously, Moody’s provided ERCOT with three county-level economic scenarios: i.Base economic growth ii.High economic growth iii.Low economic growth

6. 6 Economic Assumptions For 2012, Moody’s provided ERCOT with ten county-level economic forecasts: i.Base economic growth ii.High economic growth iii.Low economic growth iv.Stronger near-term rebound v.Mild second recession vi.Deeper second recession vii.Protracted slump viii.Below-trend long-term growth ix.Oil price increase, dollar crash inflation x.Fiscal cliff

7. 7 Non-Farm Employment Statistics ERCOT Historical Non-Farm Employment Statistics: i.From 2002 to 2012, non-farm employment grew at an Annual Average Growth Rate (AAGR) of 1.6% ii.From 2009 to 2012, non-farm employment grew at an Annual Average Growth Rate (AAGR) of 2.1% iii.From 2003 to 2008, non-farm employment grew at an Annual Average Growth Rate (AAGR) of 3.0%

8. 8 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate

9. 9 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1%

10. 10 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6%

11. 11 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6%

12. 12 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The Protracted Slump and Deeper Second Recession scenarios show a decline for 2012. This seems unlikely. XX

13. 13 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The High and Stronger Near-Term Rebound scenarios show extremely high growth rates. XXXX

14. 14 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The Fiscal Cliff and Base scenarios show higher growth rates than have been experienced the last 10 years. XXXXXX

15. 15 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6%

16. 16 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The Below Trend Long-Term Growth scenario shows a higher growth rate than has been experienced the last 10 years. X

17. 17 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The Mild Second Recession scenario has extremely high growth rates after the first year. XX

18. 18 Non-Farm Employment Forecast Comparison Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% The Low scenario has increasing annual growth rates in 2014 and 2015 which is common in Moody’s forecasts. XX

19. 19 Moody’s Non-Farm Employment Base Forecast – 11/8/2011 Year Non-Farm Employment (000s) Annual Growth Rate 20129,7341.9% 201310,0493.2% 201410,4754.2% 201510,8703.8% 201611,1812.9% 201711,4072.0% 201811,5961.7% 201911,7801.6% 202011,9691.6% 202112,1581.6% For the last few years, Moody’s has consistently expected non-farm employment to grow in an increasing manner before leveling off

20. 20 Moody’s Non-Farm Employment Base Forecast – 11/8/2011 Year Non-Farm Employment (000s) Annual Growth Rate 20129,7341.9% 201310,0493.2% 201410,4754.2% 201510,8703.8% 201611,1812.9% 201711,4072.0% 201811,5961.7% 201911,7801.6% 202011,9691.6% 202112,1581.6% For the last few years, Moody’s has consistently expected non-farm employment to grow in an increasing manner before leveling off Notice the increases in 2013, 2014, and 2015

21. 21 Moody’s Non-Farm Employment Base Forecast – 11/8/2011 Year Non-Farm Employment (000s) Annual Growth Rate 20129,7341.9% 201310,0493.2% 201410,4754.2% 201510,8703.8% 201611,1812.9% 201711,4072.0% 201811,5961.7% 201911,7801.6% 202011,9691.6% 202112,1581.6% For the last few years, Moody’s has consistently expected non-farm employment to grow in an increasing manner before leveling off Notice the increases in 2013, 2014, and 2015

22. 22 Moody’s Non-Farm Employment Base Forecast – 11/8/2011 Year Non-Farm Employment (000s) Annual Growth Rate 20129,7341.9% 201310,0493.2% 201410,4754.2% 201510,8703.8% 201611,1812.9% 201711,4072.0% 201811,5961.7% 201911,7801.6% 202011,9691.6% 202112,1581.6% For the last few years, Moody’s has consistently expected non-farm employment to grow in an increasing manner before leveling off Notice the increases in 2013, 2014, and 2015 This is what has caused ERCOT’s forecast to behave similarly

23. 23 Blended Non-Farm Employment Forecast Notes: AAGR – annual average growth rate2009 – 2012 AAGR was 2.1% 2002 – 2012 AAGR was 1.6% Blending multiple Moody’s forecasts is a possible option to mitigate Moody’s shorter term (2 to 3 years) increasing growth rates.

24. 24 Blended Non-Farm Employment Forecast “Predictions are hard to make, especially about the future“, Nobel physicist Niels Bohr “Essentially, all models are wrong, but some are useful” George Edward Pelham Box, University of Wisconsin “… the uncertainty over the near term is higher than the uncertainty of the trend over the long run. This does not mean that Moody’s can do a better job predicting GDP growth 10 years ahead rather than one year ahead, but rather average annual pace of growth over many years has less volatility than growth in any one year” from a PJM report

25. 25 Economic Vendors From a survey conducted in 2011: –44% use Moody’s –31% use Global Insight –23% creates own forecast –21% use a local vendor or university –8% use Woods and Poole ERCOT has added Woods and Poole as an additional economic vendor in 2012 though their forecast is not available yet Some use multiple economic vendors to provide forecasts and weight the forecasts

26. 26 Questions ON OFF