1. TIM MASON RENEWABLE RESOURCE INTEGRATION IEP ASSOCIATION ANNUAL MEETING FALLEN LEAF LAKE 5 October 2011

2. Integration means different thing in different timeframes, and often require different types of resources Seconds - Voltage and Frequency support Minutes - Regulation Services Hours and Days - Load Following and Unit commitment Months - Resource Adequacy Years – Developing appropriate resources Concern today is whether we will be able to integrate renewable resources currently under development INTEGRATION REQUIREMENTS 5 October 2011 2

3. 3 Renewable resources keep growing, with most energy coming from variable output resources In US, most renewable capacity is wind In California we anticipate split between solar and wind U.S. ANNUAL RENEWABLE CAPACITY ADDITIONS, MW 5 October 2011 Source: Black & Veatch Analysis

4. WHERE ARE WE AT TODAY? 4 Coal 45.0% Natural Gas 24.2% Nuclear 19.6% Oil 0.9% Hydro 6.2% Biomass 1.4% Wind 2.30% Geothermal 0.38% Solar 0.03% Other 4.1% Source: Data from EIA, B&V Analysis 2010 U.S. Electricity Generation, by source 5 October 2011

5. Source: Black & Veatch Analysis 5 AND RENEWABLES KEEP COMING… Most renewable growth driven by RPS mandates Black & Veatch Base Case has a 300% growth in renewables in the next 15 years About 11% market share (plus another 6% from hydro) U.S. Cumulative Renewable Resource Additions (MW) 5 October 2011

6. Conventional wisdom is that we will need massive quantities of new resources designed to manage variable renewable generation … but is that correct? IMPACT OF RENEWABLE RESOURCES ON SYSTEM 5 October 2011 6

7. Black & Veatch - 7 WIND RESOURCE VARIABILITY Expected output of 250 MW California wind generator for week in August (MW/hr) 5 October 2011

8. Black & Veatch - 8 SOLAR RESOURCE VARIABILITY Expected generation of 250 MW California solar resource for typical August week (5-50 MW facilities in different locations) (MW/hr) 5 October 2011

9. Black & Veatch – 9 COMBINED RESOURCE VARIABILITY Expected combined generation profile for co-located 250 MW solar and 250 MW wind resource in California for a typical August week (MW/hr) 5 October 2011 Co-locating wind and solar increased dependable energy and reduced output variability

10. System operators have always had to manage unit outages and load variability Needs for integration will vary with system size and available resources - small systems that have high percentage of variable generation will require more renewable integration resources Geographic diversity will reduce integration requirement CAISO indicates <1000 MW of new regulation needed to integrate 20% renewables in 2020 Changing how we operate resources, such as hydro dispatch, could reduce integration needs Consider integration requirements along with other changes to the generation mix DO WE REALLY NEED A LOT OF INTEGRATION RESOURCES? 5 October 2011 10 Black & Veatch – 10

11. Estimated 6,000 MW of coal retirements in WECC do to emission, water and carbon policy requirements Replacing ~12,000 MW of once through cooling capacity in California Load growth, including EVs Demand response and smart grid technologies WHAT ELSE DO WE NEED TO CONSIDER? 5 October 2011 11 Source: Black & Veatch WECC Retirements by Technology Black & Veatch – 11

12. Ideal new resources need to meet integration needs and system requirements Dependable to provide capacity /resource adequacy Flexible to meet most operating requirements Commercially proven technology Meets environmental goals Inexpensive SO WHAT DOES THIS MEAN? 5 October 2011 12 Black & Veatch – 12

13. POTENTIAL INTEGRATION PRODUCTS 5 October 2011 13 Different integration products will serve different purposes Most potential integration resource are still under development, and expensive Gas is most commercial, least cost technology to integrate renewables in next 10 years Beyond 10 years other technologies may become competitive TechnologyMaturityLevelized Cost ($/MWh) Gas – CCMature67 Gas – GTMature127 Pumped HydroMature310-380 Compressed AirDemo/Commercial81-102 Lead Acid BatteryCommercial505-760 Flow BatteryDemo470-1,125 Li-ion Battery (ISO Services Grid Support) Demo6,000-7,200 Li-ion Battery (C&I Energy Mgt PV Integration) Demo10,50-1,550 Fly WheelsDemo7,800-7,900 Source - Gas technologies cost from EIA and storage technologies from EPRI The Levelized Cost of Energy (LCOE), also called the busbar cost, is calculated by determining the annualized fixed costs of a power plant, dividing that value by its expected annual generation, and then adding all of its variable costs including fuel. Black & Veatch – 13

14. INTEGRATION PRODUCTS BY TIMEFRAME AND FUNCTION 5 October 2011 14 Variety of storage options under development but largely pre-commercial Substantial demand response options are years away from reality Conventional technologies are best able to meet integration requirements today Black & Veatch – 14

15. Gas generation will be primary resource to integrate renewables for the next 10 years After 10 years, new storage products will likely compete with gas for integration CONCLUSION 5 October 2011 15 Black & Veatch – 15

16. THE CHANGING ENERGY MIX-US ENERGY MIX2011ENERGY MIX2035 Source: Black & Veatch Analysis Data Label Legend: Technology, Energy (GWh), Share of Total (%) 16 Natural gass market share increases from 21% of electricity consumption to 42%, while coal decreases from 44% to 24%, and renewables increase from 5% to 13% 5 October 2011 Black & Veatch – 16

17. 17 Infrastructure response to tremendous shifts in market dynamics is likely over the next 25 years US Power Sector Infrastructure Transition 2011-2035 5 October 2011 Black & Veatch – 17

18. RENEWABLE ENERGY Gas is cheap today Volatility over gas price would change chart WHAT COULD POSSIBLY GO WRONG WITH USING GAS FOR INTEGRATION? 5 October 2011 18 Black & Veatch – 18