Planning for Texas’ Energy Future Select Committee on Electric Generation Capacity and Environmental Effects Bob Kahn President & CEO February 6, 2008

2 2 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 North American Electric Grids The ERCOT Region is one of three North American grid interconnections. The ERCOT grid: -75% of Texas land -85% of Texas load -38,000 miles of transmission lines generation units -Physical assets are owned by transmission providers and generators -62,339 MW peak demand (set 8/17/06)

3 3 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 What We Do ERCOT “directs traffic” on the grid to maintain reliability and ensure supply of electricity: Coordinates scheduling of power by market participants Analyzes grid conditions continuously in real-time Because electricity cannot be stored, ERCOT directs the dispatch of generation to ensure power production matches load at all times Secures available generation capacity to meet daily reliability requirements from available plants Coordinates planned outages of generators and transmission lines Relieves transmission system congestion Coordinates emergency actions & recovery Operates markets to meet regional energy & capacity requirements not met through bilateral arrangements

4 4 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 Projected Peak Demand:

5 5 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 Existing Capacity Will Fall Below 12.5% Reserve Margin By 2009

6 6 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 Generation “in the queue” 220 Generation Interconnection Requests, totaling almost 97,000 MW, are currently active and under study.

7 7 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 The ERCOT Region needs more fuel diversity Reduces vulnerability to supply disruption and volatile pricing Also critical: Additional demand response and energy efficiency 2007 Installed Capacity

8 8 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 Fuel Diversity: Critical for Affordability AND Reliability Maintaining the diversity of available fuel resources helps to ensure that we do not become too dependent on one fuel source Fuel diversity protects consumers from contingencies such as fuel unavailability due to extreme weather events, price fluctuations, and changes in regulatory practices Fuel prices greatly affect the price of electricity—and some fuel prices have been highly volatile in recent years

9 9 Select Committee on Electric Generation Capacity & Environmental Effects February 6, 2008 The Current Outlook The market is responding to the need for more generation Many generation projects are in the permitting or study phase –Unknown how many will be built –Current permitting issues are a consideration Studies show a possible need for up to 75,000 MW of new generation by 2026 if all units over 40 years of age are retired Fuel diversity is a real issue in ERCOT – currently 70% of installed capacity is natural-gas fired