California Market Trends: Uncertainties and Opportunities

1. California Market Trends: Uncertainties and Opportunities MRW & Associates, LLC Oakland, California (510) 834-1999 mrw@mrwassoc.com

2. Overview • Uncertainties • Natural Gas Prices • Renewable Contract Prices • Loads • Transmission Development • Opportunities • Significant Overall Procurement Expected • Renewable vs. Non-Renewable Procurement • Large vs. Small Project Procurement • Fixed Prices vs. Competitive Procurement • When is New Generation Needed?

3. Forward Gas Price Trend • Future expectations regarding natural gas prices continue to fluctuate. • Monthly average Henry Hub forward prices have generally predicted increasing long-term prices but the level of these prices has shifted throughout the year

4. Historical Gas Prices • Natural gas prices remain volatile in the short-term Source: California Energy Commission. Paul Dever. “Current Trends: Natural Gas Pricing.” 2011 CEC IEPR Staff Workshop on Natural Gas. April 19, 2011.

5. Shale Gas Expectations Continue To Hold Down Prices Forecasted North American Shale Gas Production Source: Kenneth B. Medlock III. Rice University. “The Rice World Gas Trade Model: A Discussion of Reference Case Results.” 2011 CEC IEPR Staff Workshop on Natural Gas. April 19, 2011.

6. Renewable Contract Prices • Recent market developments appear to have disrupted the upward trend in renewable contract prices relative to California’s MPR. California RPS Contracts At/Above and Below the Applicable MPR, Sorted by Most Recent Advice Letter Filing Year

7. Renewable Contract Prices California RPS Contract Capacity At/Above and Below the Applicable MPR, Sorted by Most Recent Advice Letter Filing Year

8. CEC Demand Forecast Results • The CEC’s 2011 consumption and peak demand forecasts differ from its 2009 forecast and by scenario. • Future economic growth is highly uncertain and could have a large impact on load growth through 2020 and beyond. • The CEC’s high, mid, and low forecast scenarios incorporate several variables, including economic growth.

9. California Electricity Consumption Forecast • California’s electricity consumption is now expected to grow faster in 2010-2020 than it was in 2009 in the CEC’s mid and high cases, but this growth is starting from a lower level than anticipated in 2009. Source: IEPR Committee Workshop. Tom Gorin presentation. “California Energy Demand 2011-2022 Preliminary Staff Forecast.” August 30, 2011.

10. California Peak Demand Forecast • California peak demand in the CEC’s mid-demand case is 2% lower in 2020 than in the 2009 demand forecast. Source: IEPR Committee Workshop. Tom Gorin presentation. “California Energy Demand 2011-2022 Preliminary Staff Forecast.” August 30, 2011.

11. Transmission Development • Several new projects to access renewable resources are currently under development/construction and slated to be completed in the next 1-5 years. • It is uncertain how many, if any, additional transmission projects will be built to access renewable resource areas. • According to the CAISO, transmission approved to date on its system is sufficient for multiple 33% RPS portfolio scenarios, and no new major projects are needed at this time. • The CPUC’s proceeding on transmission to access renewable resources has been largely dormant since December 2010.

12. Transmission Projects to Facilitate 33% by 2020 RPS Source: CAISO. Neil Millar Presentation. IEPR Committee Workshop on Transmission Needed to Meet State Renewable Policy Mandates and Goals. May 17, 2011

13. Development Opportunities • Despite California’s excess capacity, opportunities exist for new development projects. • Various renewable procurement mechanisms will be employed to meet California’s 33 percent RPS (RAM, FIT, Renewable RFOs, Solar Program RFOs). • Capacity from certain facilities with once-through cooling may require replacement. • The state has set aggressive CHP procurement goals. • Additional gas-fired capacity may be required to facilitate the integration of renewable resources. • Additional gas-fired capacity may be needed to provide capacity not provided by TREC transactions.

14. Procurement Contract Options • Several contract options exist based on program and resource type

15. Renewable Auction Mechanism Procurement

16. RAM Procurement per category

17. Combined Heat and Power Procurement Note: SDG&E willprocure an additional 51 MW in 2018

18. Feed-in Tariff Procurement

19. Solar PV Program Procurement

20. Current Plans for Once-through Cooling Units

21. When is New Generation Needed? Note: Does not include replacement or repowering of OTC units, RPS RFOs, or generation needed for renewable integration

22. Renewable Additions in LTPP (Net Qualifying Capacity)

23. 2020 Projected RPS Resources (Installed Capacity) Source: Exhibit 1– 2010 CPUC LTPP Docket No. R.10-05-006 - CAISO 33% RPS Study of Operational Requirements and Market Impacts Presentation

24. Renewable Integration • LTPP modeling results indicate some additional resources may be needed for renewable integration * ISO’s preliminary studies indicate that of the 4600 MW of upward ramping capability needed for renewable integration, approximately 2,000 MW is also necessary to meet local reliability requirements created by implementation of the state’s once-through cooling policy. ** The ISO’s projected need for downward balancing need may be met by from curtailment or storage