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 Purpose  To present Staff’s Preliminary Findings on the 2012 Integrated Resource Plans of:  APS – Arizona Public Service Company  TEP – Tucson Electric Power Company  UNS – UNS Electric, Inc.  AEPCo – Arizona Electric Power Cooperative, Inc.  As required by the Commission’s IRP Rules  To solicit input from all stakeholders 2

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 The purpose of Integrated Resource Planning (IRP)  To develop a long-term plan to meet customers’ electric needs taking into consideration:  Input of all stakeholders  All Relevant Costs  Reliability of service  Environmental and societal impacts  Demand Reduction and Increased Supply on an equal basis 8

 Each IRP must be reasonable and in the public interest, considering the following factors:  The total cost of electric energy services;  The degree to which the factors that affect demand, including demand management, have been taken into account;  The degree to which supply alternatives, such as self-generation, have been taken into account;  Uncertainty in demand and supply analyses, forecasts, and plans, and whether plans are sufficiently flexible to enable the entity to respond to unforeseen changes in demand and supply factors;  The reliability of power supplied, including fuel diversity and non-cost considerations;  The reliability of the transmission grid;  The environmental impacts of resource choices and alternatives;  The degree to which the entity considered all relevant resources, risks, and uncertainties;  The degree to which the entity’s plan for future resources is in the best interest of its customers;  The best combination of expected costs and associated risks for the entity and its customers; and  The degree to which the entity’s resource plan allows for coordinated efforts with other entities. 9

 Renewable Energy Requirement:  3.5% of retail energy sold in 2012  Increasing to 15% by 2025  Distributed Renewable Energy Requirement:  30% of the Annual Renewable Energy Requirement  Energy Efficiency Standard:  3.0% of retail energy sold in 2012  Increasing to 22% by

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Load Forecast Demand-Side Options Supply-Side Options Integration Process Assumptions A plan: Best Mix of Demand and Supply-Side Resources to add in the future 12 Sensitivity & Risk Analyses The IRP Existing Resources

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14 3% Average Annual Growth

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16 2.3% Average Annual Growth

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18 1.0% Average Annual Growth

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20 1.2% Average Annual Growth Loss of customers to City of Safford

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22 2.9% Average Annual Growth

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30 APSTEPUNS Planning Reserve Margin15% Inflation2.5% Wind Integration Cost per MWh$3.25$5.00 Solar Integration Costs per MWh$2.50$4.00 Construction Costs in $/KW: Natural Gas Combustion Turbine$716$779 Natural Gas Combined Cycle$892$1,320 Wind$2,190$2,200 Solar PV Fixed$1,783$2,350 Geothermal$4,639 Biomass$4,783$3,250

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 APS  Four Corners Coal Plant  Retire Units 1-3, purchase SCE shares of Units 4 & 5  Net Gain of 179 MW  Long-term Purchases  UNS  Long-term Purchases  No other fossil retirements 33

 Base Case  Retire Four Corners 1-3, purchase SCE share of 4&5  New gas-fired generation  EE & RES Compliance  Four Corners Contingency  Retire all Four Corners units  Replace with gas-fired generation  Enhanced Renewable  Base Case Four Corners  30% additional energy needs met with RE  Coal Retirement  Retire all coal-fired generation  Replace with gas-fired generation and RE 34

 Natural Gas Prices – High & Low  CO2 Prices – High & Low  Renewable Tax Credits Extended  EE Costs – High & Low  Externalities 35

 Reference Case  No coal retirements  New gas-fired generation  EE and RES Compliance  Four Corners Retirement  Navajo Retirement  San Juan Retirement  Springerville Replacement  Externalities 36

 Natural Gas Prices – High & Low  Wholesale Market Prices – High & Low  Load Growth – High & Low 37

 Reference Case  New gas-fired peaking units  RES Compliance  Combined Cycle Case  Joint ownership of combined-cycle unit  RES Compliance  Externalities 38

 Natural Gas Prices – High & Low  Wholesale Market Prices – High & Low 39

 Base Plan  Short-Term Purchases 40  Information not supplied

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42 Firm Wholesale Sales End

43 Long-term Purchases End

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 SRP Fiscal Year 2011 Resource Plan  EE programs at 3-4% of retail requirements  DR programs mw  Interruptible programs mw  TOU programs mw  Renewable generation mw  Purchased power – 500 mw  Natural gas generation – 1360 mw 45

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 Average predicted annual rate increases:  APS4.2%  TEP3.2%  UNS4.7%  AEPCoNot supplied  SRPNot supplied 56

 General  Lack of consideration of conversion of coal plants to natural gas  Lack of consideration of jointly developed generation  Excessive reliance on short-term market purchases  Failure to consider all resource options  APS  No capacity expansion model – plans developed manually  Questionable assumptions made  No consideration of new baseload generation  Limited consideration of new nuclear  No load growth sensitivity 57

 UNS  IRP does not meet EE requirement  No load growth sensitivity  AEPCo  Did not develop a complete IRP  Considered only two members - Graham & Duncan  Missing required elements  IRP does not meet EE and Renewable requirements 58

 The Commission should acknowledge the 2012 IRPs filed by APS, TEP and UNS, assuming the load-serving entities agree to correct identified issues in all future IRP filings  The Commission should not acknowledge the 2012 IRP filed by AEPCo 59