Infrastructure Planning: Non-Transmission Alternatives

1. Infrastructure Planning: Non-Transmission Alternatives 2010 NASUCA Mid-Year Meeting San Francisco, June 15, 2010 Drew Murphy NRG Executive Vice President and Regional President, Northeast

2. Safe Harbor Statement This Presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as “expect,” “estimate,” “should,” “anticipate,” “forecast,” “plan,” “guidance,” “believe,” “will” and similar terms. Although NRG believes that these expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, competition in wholesale power markets, the volatility of energy and fuel prices, failure of customers to perform under contracts, changes in the wholesale power markets, changes in government regulation of markets and of environmental emissions, the condition of capital markets generally, adverse results in current and future litigation, failure to identify or successfully implement acquisitions and repowerings, and the inability to implement value enhancing improvements to plant operations and companywide processes. NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause actual results to differ materially from those contemplated in the forward-looking statements included in this Presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.

3. The Issue: Industry Restructuring • Separated generation planning from transmission • Created an uneven playing field • Different models for investment, cost recovery, and return • Generation no longer financeable in rate base • Restructuring effectively penalized generation and demand resources • Receive market-based revenues only • No path to revenue differential between full cost and market value, even if overall cost is lower than transmission • Demonstrates need for long-term contracts

4. New England as an Illustration Source: ISO-NE RSP09 Public Meeting Presentation, September 10, 2009

5. Comparative Economics of Options Generation • 1,100MW combined cycle • $1,250/kW installed • Annual fixed cost ~$275 million • Annual fixed cost $250/kW-year • Minus energy and capacity net revenues of $173/kW-year (ISO estimate, 2008) • Net annual cost $77/kW-year Transmission • 1,100MW transfer capability • $2 billion installed • Annual cost ~$400 million Net annual cost $364/kW-year How can we not look at all alternatives?

6. Integrating Non-Transmission Alternatives • Restructuring created uneven playing field for transmission, generation and other infrastructure • ISO/RTO planning focus is reliability, not economics • Typically excludes options other than transmission • Does not take into account policies promoting renewable energy or environmental issues • All ISO/RTOs have a provision for ‘backstop’ planning of regulated transmission • Wholesale markets intended to be front line indicator of infrastructure needs • Creates obstacles to lowest-cost infrastructure • Wholesale markets not supporting investment • ISO/RTO planning focused on transmission If your only tool is a hammer, all your problems look like nails

7. Developing a Regional InfrastructurePlan • Individual State plans not sufficient • Need a coordinated, regional IRP process • Should answer these questions: • How much reliability is enough? • How much are ratepayers willing to pay- for what level of reliability? • Most cost-effective means of achieving reliability objectives? • What other policy considerations should be addressed that are not adequately reflected in wholesale markets? • Renewable energy goals (e.g. RGGI, RPS) • Environmental concerns (e.g. EPA and state DEP rulemaking) • Economic development considerations (local vs. regional?) • Local vs. remote generation

8. Local or Imported? • Example: Northeast Offshore Wind vs. Midwest “Imported” Wind • NE Governors’ “Energy Blueprint” found that in-region renewables (10,000 MW wind identified) can be developed at a far lower cost than importing equivalent quantities of wind from out-of-region sources via new, high-voltage transmission lines.

9. State Participation in Planning • Current planning typically provides only a binary choice: • Approve the single transmission project developed in the ISO/RTO planning process, or; • Face imminent reliability problems • Including Non-Transmission Alternatives in planning is critical • ISO/RTOs cannot compel purchases of generation or demand-side management resources • Only States can enter into such binding commitments

10. A Path Forward Reliability Planners • Must consider all resource solutions when evaluating and recommending infrastructure improvements • Should provide States with multiple solutions to each identified need including: • At least one transmission alternative • At least one generation alternative • An indication of how much demand side management needed to solve reliability • Feasible mix of generation, demand-side resources and transmission upgrades

11. A Path Forward • Regional or state-level processes should solicit and evaluate alternatives to meet reliability needs • Infrastructure decisions should be informed by all available options • Ratepayers benefit from lower-cost solutions if all options are considered on a level playing field

12. Q & A