OVERVIEW

1. ISO OutlookSummer 2005 and BeyondSenate Energy, Utilities and Communications CommitteeFebruary 22, 2005Jim DetmersVice President of Grid Operations

2. ISO: Who we are, functions Summer 2004 Conditions ISO Focus and Activities, 2005 ISO Procedures for Balancing Loads and Resources Conclusion OVERVIEW RRC/OE&M

3. California ISO • 501c(3) nonprofit corp., created by state statue & regulated by FERC • 5 member board appointed by the Governor and confirmed by Senate • One of 3 Western Electricity Coordinating Council Reliability Coordinators (WECC) in the West Functions: • Operate the High Voltage Grid for 75% of California in a safe and reliable manner • Created to provide open & nondiscriminatory access to transmission grid • Maintain grid reliability by matching supply & demand in real time & meet WECC mandated power reserves • Recommend appropriate grid upgrades • Schedule & coordinate power plant & transmission lines coming out of service for maintenance RRC/OE&M

4. Prepare annual grid plans w/10-year outlook on ISO controlled grid ISO does not acquire long-term resources; we direct transmission and adjust flow of power in real time for balancing purposes Supports Intermittent Resource Program accommodate wind and solar power into our ancillary services markets (serves as national model according to wind industry) California ISO—Other Functions RRC/OE&M

5. 7 record setting days in 2004: July 19 44,042 MW July 20 44,330 MW July 21 44,360 MW August 10 44,497 MW August 11 44,872 MW September 7 45,165 MW September 8 45,597 MW We hit loads in 2004 that were not forecasted until 2005 and the State did not have exceptionally high temperatures! The previous record peak demand of 43,609 MW, set July 1999, stood for four years. (SMUD load subtracted from this total) Record Loads Summer 2004 RRC/OE&M

6. In spite of moderate temperatures, CAISO set a new system peak of 45,597 MW on September 8, 2004. At the time of system peak, reserves were not distributed throughout the system. Joint Energy Action Forum (JEAF) has developed estimated load and resource picture for 2005. JEAF includes: CAISO, CEC, CPUC, Governor’s Office. JEAF is looking at expedited solutions to help address the Summer 2005 problem. Summer 2004 RRC/OE&M

7. ISO continually monitors system conditions and prepares actions: Operational Forecast of Loads and Resources Transmission Upgrades Demand Response Emergency Procedures Communication ISO Focus RRC/OE&M

8. ISO Seasonal Operational Assessment ISO Summer 2005 Operational Assessment presently in development; to be published 3/31/05. Builds from CEC’s Planning Assessment, fine tunes assumptions for: load growth, changes in Control Area definition (WAPA/SMUD), economic factors, updates in generation/transmission. considers potential adverse conditions. Generation Assumptions: Retirements refined based on “Request For Offer” outcomes, air emissions, and unit age. Additions refined based on “Request For Offer” contract outcomes, construction progress. Load and Resource Forecasts RRC/OE&M

9. Key Southern California Paths for 2005 include “Path 26”, “South of Lugo”, “Miguel”. ISO monitors and supports construction progress on transmission upgrades. Complete operational studies, determine new Path ratings. Transmission Upgrades RRC/OE&M

10. Promote Demand Response Voluntary Load Reduction Programs Encourage Energy Conservation, “Power Watch” Promote “Alerts-Warnings-Emergency” education and drills, both internally and externally Operator Emergency Preparedness Update Procedures Provide operator analysis tools Conduct training, drills Emergency Preparedness RRC/OE&M

11. Electrical Emergency Communications and Voluntary Load Reduction Program Stages of Electrical Emergencies* Stage One Emergency Generating reserves less than requirements (Continuously recalculated. Between 6% & 7%) Generating Reserves • Issue Stage One news release calling for conservation • Coordinate with public safety agencies 7% Voluntary Load Reduction Program VLRP Triggered 6% • Voluntary commercial customers reduce electricity use. • Provides advance notice to businesses that power reserves are low and that business operations could be affected. 5% 4% Generating reserves less than 5% Stage Two Emergency 3% • Issue Stage Two news release • Invoke UDC Interruptible Load Programs 2% Generating reserves less than largest contingency (Continuously recalculated. Between 1.5% & 3%) 1% Stage Three Emergency • Issue Stage Three news release • Issue Notice of Load Interruptions • Instruct utilities to implement rotating outages 0% *Many emergencies are due to operating reserve levels, however, some emergencies are declared as a result of transmission line losses or limitations. RRC/OE&M Log into www.caiso.com for the California ISO’s latest emergency information

12. ISO Coordinates proposed outages of major generation and transmission facilities up to 15 months in advance. The industry must submit reasonable, accurate, and balanced schedules for Loads and Resources. In Day-Ahead timeframe, ISO compares schedules with ISO forecast. In Real-Time, ISO monitors and balances Load and Resources every 5 minutes. ISO seeks to fill any anticipated shortfall with supplemental (Spot market) energy. If reserves diminish in Real-Time, seek to reduce demand through alerts, warnings, emergencies. (Voluntary load reduction to rotating outages). ISO Procedures for Balancing Loads and Resources RRC/OE&M

13. Moderate amount of risk associated with Summer 2005 operation of the Grid. ISO focused in monitoring system conditions, emergency preparedness, and communication. Problems expected to worsen in 2006; those mitigation efforts should begin now. Conclusion RRC/OE&M