Monterey Plaza Hotel October 8-10, 2007 March 8-9, 2007 Yakout Mansour President & Chief Executive Officer Monterey Plaza Hotel October 8-10, 2007 Board/Management Planning Session, Five-Year Business Plan, 2007-2011

On Wednesday, we are all in the same mental & physical condition ! March 8-9, 2007 On Wednesday, we are all in the same mental & physical condition ! Under 40 Monday Tuesday Wednesday Thursday Friday Over 40 Board/Management Planning Session, Five-Year Business Plan, 2007-2011

Board/Management Planning Session, Five-Year Business Plan, 2007-2011 Upper Limit Nominal Lower Limit Ground M A R C H 8 - 9 , 2 0 0 7 Board/Management Planning Session, Five-Year Business Plan, 2007-2011

What is necessary to integrate 20% renewable generation offers a good example. We have published engineering studies on how to integrate renewable generation to meet the 20% RPS. Intermittency and timing of wind generation creates operational challenges. Morning and evening ramp will increase 20-30%. Potential wind forecast errors will drive the need for increased regulation capacity (as much as 500 MW) and a much deeper supplemental energy stack. Over-generation will occur during certain hours but can be mitigated by minimal curtailment. Needed integration services can be provided by: Hydro, IF there is enough water. New thermal, IF it has the right characteristics. Existing thermal, IF it is kept operating at certain levels (but could defeat the purpose). Other mitigation measures are also necessary: Advanced Demand Response Curtailment mechanisms Improved technology Better forecasting tools Maintaining existing generation is essential (although replacement or re-powering can work).

What does it take to integrate a higher RPS in California. Case GWh Avg. Mw Nameplate Mw 20% RPS 55,657 6,353 13,614 33% RPS ~ 93,000 10,500 26,000 Achieving 33% requires us to meet two times load growth with renewables between now and 2020. The increase in need for capacity, ramping, and regulation to achieve 33% RPS is not linear – it is much greater. Regional diversification is important technically and economically. Key questions are: Can we retain and invest in more non base-load facilities? Does retirement or replacement make sense? “There isn’t anything we cannot do.” “What is it?” and “How much does it cost?”

What is necessary to achieve AB 32 reductions. Assumption: Reduce CO2 emissions by 30% in 2020. 20% RPS reduces 2020 electric emission down to 2008 level (Optimistic – Mw for Mw). 2008 to 1990 Gap 33% RPS can bring it closer. Need to add new transmission infrastructure, maintain and enhance existing generation capacity, and achieve much better regional integration. Other non-fossil technologies and sequestration can bring it closer Conflicts with 33% RPS target. High RPS combined with restrictions on other resources presents a major infrastructure issue that we need to sort out.

Generators are necessary for reliable grid operations. Generators are required to: Meet demand. Meet local/zonal requirements. Provide regulation and other ancillary services.

Many coastal plants are needed for local reliability. Many generators that use Once Through Cooling today are located in areas within the CAISO control area that require generation to be located within the load pocket in order to meet local capacity requirements. Any policy that eliminates capacity must be coordinated to provide for replacement capacity. SONGS

The CAISO’s commitment to aligning operations with state policies is unwavering. The ISO has acted to support State renewable resource policies. Tehachapi transmission project review and approval. FERC declaratory order and remote resource interconnection tariff. Participating Intermittent Resource Program. The ISO is actively participating in ongoing policy initiatives California Renewable Energy Transmission Initiative Greenhouse Gas deliberations We look forward to working with State leaders to ensure that successful implementation of State policy priorities. It is critical to be systematic and thorough in considering policy choices.