Navigating the Challenges

1. Navigating the Challenges Nancy Saracino Vice President, General Counsel & Chief Administrative Officer California Independent System Operator Independent Energy Producers Assoc. 29th Annual Meeting September 22-24, 2010

2. California ISO Leadership Team California ISO Governing Board

3. The winds of change driving our sector • State RPS and renewable energy standard • AB 32 & once through cooling regulations • Local environmental restrictions • Federal policies • Legislative policy shifts • Changes in executive leadership • Viability and financing of new renewable development • Technological changes • Uncertainty about rate impacts and consequences

4. Planning in the midst of change and uncertainty feels like a three-dimensional chess game.

5. Collaborating with state agencies, we developed a plan for California’s clean energy future. • Represents over a year in focused coordination and planning • Presents our only feasible opportunityto advance the state’s ambitious environmental and energy goals • Achieves collaboration, transparency and accountability across all representative areas of focus

6. The collaboration among the energy agencies and ISO will guide the next decade of coordinated strategic planning for the state. • Initial phase included the development of the vision for California’s Clean Energy Future • The planning phase consisted of developing the plan towards achieving the vision • The final (and current) phase includes managing and evaluating progress against goals and activities Metrics and activity management (under development)

7. The roadmap provides a 10-year plan of activities while identifying key decision points, inter-dependencies and milestones. • Maps demand, supply, transmission, distribution and operations, and other areas like cap and trade policy • Provides a comprehensive planning tool to generate greater consistency and transparency

8. The ISO has been active in pursuing changes needed to manage the electric grid. • Studies to inform new market products and tools • Policy development to account for changes • Accelerated action and waivers to accommodate immediate needs

9. ISO study of renewable integration at 20% RPS • Published August 31, 2010 • First detailed operational study of its kind to consider both wind and solar resources at high RPS • Available at www.caiso.com

10. The combination of wind and solar affects the morning and evening ramps: July 25, 2012 at 20% RPS

11. Study did not find significant constraints in the upward direction but did find shortages of downward ramp capability: 5-minute load-following capability, May 28, 2012 Ramp Up Capability Ramp Down Capability

12. Key findings at 20% RPS • Load-following up and down ramp rate and duration requirements will increase substantially in some hours, putting stress on the real-time economic dispatch • However, there is no clear evidence that a new load-following reserve is needed to support real-time dispatch by the 20% RPS • More regulation up and down will be needed, in aggregate up to 30-40% more than is currently procured

13. Key findings at 20% RPS (cont.) • Self-scheduling is a significant barrier to operational flexibility and must be addressed to successfully integrate 20% renewable energy • Concurrent with the need for additional operational flexibility, energy market revenues could be declining more rapidly than previously anticipated due to the effect of wind and solar displacing gas across the day • Overgeneration conditions are likely to occur more frequently and be of greater magnitude by 2012; the ISO and stakeholders need to explore options to address such conditions

14. Managing through change also means figuring out how to get along and pull in the same direction.