Are We Ready For The Future? 2005 NIPPC Annual Meeting September 8, 2005

1. Are We Ready For The Future?2005 NIPPC Annual MeetingSeptember 8, 2005 Michael R. Niggli President, Sempra Generation

2. 70,000 Coal Hydro Renewables Uranium Fuel Oil Natural Gas Credit 60,000 Crash The Oil Embargo 50,000 1973-4 CAA RTO NOPR 1970 1999 40,000 PURPA Capacity Installations (MW) 1978 CAA Amendments 30,000 1990 EPACT 20,000 1992 Rise of the Merchant PURPA 10,000 QF Era EWGs Vertically Integrated Utilities 0 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 U.S. Electric Market Evolution Source: Global Energy Decisions

3. U.S. Natural Gas Prices (Henry Hub) $12.36/MMBtu 18 Month Strip = $10.58/MMBtu

4. U.S. Gas Supply/Demand Balance

5. U.S. LNG Imports

6. LNG Import Facilities

7. Idaho Valley Granite Fox Northville South Shore Power West-East Pipeline El Dorado (480 MW) Catoctin Norton Elk Hills (275 MW) Copper Mountain POWER PLANTS Palomar (550 MW) OPERATING Mesquite I & II (1250 MW) Mexicali (600 MW) Twin Oaks I & II (305 MW) UNDER CONSTRUCTION Twin Oaks III Costa Azul (1.0 Bcf/day) IN DEVELOPMENT MC Energy Bonnet Carre Cedar Power LNG TERMINALS Coleto Creek (316 MW) Crescent City PERMITTED Texas Non-Coal (659 MW) Port Arthur (3.0 Bcf/day) Cameron (1.5 Bcf/day) UNDER CONSTRUCTION Sempra Energy Infrastructure Projects

8. Major U.S. Market Structure Issues • Mandatory minimum capacity reserve requirements • RTOs and independent transmission planning and operation • Retail access • Open, liquid and competitive markets for capacity and energy • Long-term contracts to support generation development

9. Resource Adequacy Challenges • Utility Procurement – Build vs. Buy • Competitive Bidding Challenges • Debt Equivalency • Credit Requirements • Environmental Adders • Transmission • Need Better Access, Fewer Constraints • Cost & Benefits of Major New Regional Transmission Projects Should Be Weighed Against Alternative Strategic Siting of New Generation Projects

10. States & sub-regions within the WECC may have some unique attributes, but are not electrical “islands” Western sub-regions are interdependent We are best able to optimize and ensure the security of the system by working together The region has a history of working together to improve economics and reliability As a West-Wide Region, we should “go back to the future” and improve on past practices Strong political and regulatory leadership to foster West-Wide policies is needed West-Wide Solutions Are Needed For The Future Source: WECC

11. Balanced, Responsible Options For Adding New Capacity • Protecting Ratepayers & the Environment • Delivered Energy COSTS Are Very Important To Consumers • Environmental Protections Must Be Affordable • If New Regulations Must Be Implemented, They Should Be Standardized As Broadly As Possible (e.g., on a national level) • Not On A State-By-State Basis • Not On An Industry-By-Industry Basis • Not On A Company-By-Company Basis • Economics & Reliability • New Generation Is Needed to Ensure Future Reliability and Price Stability • Capacity Markets Must Provide LONG-TERM Incentives for Capital Investment

12. Balanced, Responsible Options For Adding New Capacity • Most Viable New Generation Options For Balanced, Responsible, Cost-Effective Capacity Portfolios • Coal Projects • Gas Plants • LNG • Renewables • Reliability, Deliverability & Cost Will Be Critical Factors

13. Why Coal? Energy Security & Independence: Coal is an abundant domestic resource Proven & Reliable: Electricity production from coal is significant (~50% of nation’s energy) and will remain so for the foreseeable future Affordable: Coal provides a competitive base-load resource with low and stable fuel costs Coal – A Responsible Resource Comparative Fuel Costs

14. Coal – A Responsible Resource Current WECC Installed Capacity & Generation Mix • Why Coal? (contd.) • Commercially Practical: Other generation types cannot replace pulverized coal plants in the next 10 – 20 years • Clean & Efficient: New supercritical plants are even more environmentally responsible – better efficiency/lower emissions • Relationship w/Renewables: Coal projects can facilitate, rather than compete with, renewable energy projects Source: Global Energy Decisions, Fall 2004 Report

15. Northwest Market Idaho/Oregon Market Granite Fox Idaho Valley Northern Nevada Market Idaho/Utah Market Pacific Intertie DC Line Southwest Market Sempra Western Coal Fired Projects

16. Macro Energy Issues • Energy Independence? OR Foreign Dependence? • How reliable & costly are supply options? • How much will you pay for clean air & water? • Local supply OR regional supply? (Strength of the transmission grid & pipeline system)

17. Conclusions • Yes, We Are Ready For the Future, But . . . We Still Have Work To Do! • Need Strong Political & Regulatory Leadership for West-Wide Policy Development • Provide Affordable, Environmentally Responsible Resources • Overcoming Impediments to Competitive Markets • Overzealous Use of Criteria Such As Debt Equivalency & Credit Can Choke Competition • Transmission Constraints & Seams Issues May Limit Future Access to Economic Resources & Seasonal Exchanges • Transmission Projects Should Be Weighed Vs. Strategic Generation Sites • Continued Emphasis In the Future On Affordable, Reliable Generation Resources: • Addressing Issues Such As Global Warming