2014 LTSA Scenario and Data Assumptions March 25, 2014

1. 2014 LTSA Scenario and Data Assumptions March 25, 2014

2. Outline • Scenario Assumptions • Capital Cost Projections • Fuel Price Projections • Emission Price Projections • Load Forecast • Retirement Process • Generation Siting Process • Additional Information

3. Scenario Assumptions

4. Capital Cost Projections

5. Current Trends Capital Cost Assumptions (Nominal $/kW) • Thermal Costs are increased 2.4% annually (EIA AEO 2014 early release) • Solar PV costs are developer supplied

6. High Capital Cost Assumptions (Nominal $/kW) • High costs are 10% higher than those in Current Trends scenario

7. Low Capital Cost Assumptions (Nominal $/kW) • Low costs are 10% less than those in Current Trends scenario

8. Fuel Price Projections

9. NG Price for Scenarios • Selected EIA AEO 2014 as price for Current Trends scenario • Added $1.5/mmBtu for high price, $3.50/mmBtu for High Gas scenario • Subtracted $1.00/mmBtu for low gas price

10. Coal Price for Scenarios • Average of price forecasts from 2014 and 2012 EIA AEO and SNL

11. Emission Price Projections

12. CO2 Price Forecast • Average of price forecasts from Synapse and Fraunhofer for use in the Stringent Environmental scenario

13. SO2 Price for Scenarios • Average of price forecasts from EPA and Black & Veatch

14. NOx Price and Mercury Trading for Scenarios • Average of price forecasts from EPA and Black & Veatch • Because MATS will be effective in 2016 , no mercury emission allowance trading is assumed.

15. Emission Assumptions for All Scenarios

16. Load Forecast

17. Current Trends Load Forecast • Peak increases at an average of 1.25% per year and energy increases at an average 1.68% per year Peak Forecast

18. LNG Exports Overview • 9 Proposed LNG facilities in ERCOT • 3 general locations (Freeport, Corpus Christi region, Brownsville) • Assume principally powered from grid. • Assume 2018-2019 online dates • Assume each Bcf/d of LNG capacity has a load of several hundred MWs, based on indicative proprietary data available to ERCOT, but we expect public load data will become available soon. • Available data indicates each Bcf/d of LNG capacity could used 300 to 500 MW. These numbers show the large load impact LNG facilities could have.

19. Retirement Process

20. Fixed Length Retirements • Wind units will be retired at 25 years • Thermal retirements • All gas units will be retired at 50 years • All coal units will be retired at 55 years • Needto evaluate UPLAN’s retirement process

21. Economic Retirement Process • Age, efficiency, profit margins and cost of retrofits are considered • Each category was broken into different groups and each group was given a value from 1-6 depending on number of groups • Age: <10 yrs (1), 10-20 yrs (2), 20-30 yrs (3), 30-40 yrs (4), >40 yrs (5) • Efficiency: <6 MMBtu (1), 6-7.5 MMBtu (2), 7.5-9 MMBtu (3), 9-10.5 MMBtu (4), 10.5-12 MMBtu (5), >12 MMBtu (6) • Profit margins: >25% (1), 10-25% (2), 0-10% (3), -10-0% (4), -10- (-25)% (5), <-25% (6) • Retrofit: need to define retrofit process • UPLAN results will be used to determine profit margin values • Each unit was given a total score (sum of values for each category) • ∑ = A (Wa) + E (We) + P (Wp) + R (Wr) • Retirement decision: if the unit’s total score was higher than 1 standard deviation above the mean of the sum of all units scores

22. Retrofit Costs for Emission Control

23. Generation Siting Process

24. Generation Siting Method • Used process developed in the DOE LTS where consideration was give to: • Gas pipeline density • Railroad density • Urban population density • Wind and solar conditions • Surface water conditions • Non-attainment zones • Also consider brownfield sites and other sources of water to determine a list of available 345 kV buses for the siting of new generation • Expansion wind generation will use site profile information supplied by AWS Truepower from the 130 hypothetical sites delivered Sept 2012 • Similar information will be used for the siting of solar projects. Profiles from URS delivered in March 2013 for potential sites in Texas

25. Generation Siting Method • Each new generator the UPLAN model builds (including wind and solar) will be given a list of potential 345 kV buses for siting • UPLAN evaluates each site and will place the new unit at the site that results in the highest revenue • ERCOT will review the site selection by UPLAN and re-site if it is appropriate to do so

26. Additional Information

27. Renewable Installations by Year • Average installations per year for all years is 801 MWs. • Average installations per year for the years 2006 thru 2009 is 1,766 MWs ERCOT Wind installations per year • Wind installations per year up to 2,500 MW • Solar installations per year up to 1,500 MW

28. Next Steps • Complete load data adjustments for Current Trends scenario • LNG additions • Oil and gas drilling additions • Input all data for Current Trends scenario into UPLAN model • Run UPLAN model and test/adjust processes developed for generation expansion and unit retirement • Finalize data gathering and assumptions for all scenarios • EE and DR assumptions • LNG and drilling load • Other data

29. Appendix

30. Henry Hub forecast by Wood Mackenzie Source: Wood Mackenzie, “North America Natural Gas Outlook – ERCOT Planning Workshop”, Jan. 2014.

31. Fraunhofer CO2 Price Projections Source: C. Kost, J. N. Mayer, J. Thomsen, N. Hartmann, C. Senkpiel, S. Philipps, S. Nold, S. Lude, N. Saad, T. Schlegl, “Levelized Cost of Electricity Renewable Energy Technologies”, Nov. 2013, Fraunhofer Institute for Solar Energy Systems ISE

32. Source: EPA, Office of Air and Radiation, “Estimating Future Air Emissions Allowance Values”, Nov. 2006

33. Black & Veatch March 2013 Source: Black & Veatch, “City of Ames Energy Resource Options Study”, Mar. 2013

34. Ventyx Fall 2013 - NOX Source: Ventyx, “National Database Release Notes”, Fall 2013.

35. Ventyx Fall 2013 – SOX

36. Synapse CO2 Prices Source: P. Luckow, E.A. Stanton, B. Biewald, J. Fisher, F. Ackerman, E. Hausman, “2013 Carbon Dioxide Price Forecast”, Synaps Energy Economics, Nov. 2013.

37. Ventyx Fall 2013 – CO2

38. Technology Price Projections - 2012$ • Capital cost estimates from 2013 EIA Capital Cost Projections Update, April 2013

39. Technology Price Projections - 2012$ • Capital cost estimates from August 2013 Lazard’s Levelized Cost of Energy Analysis

40. Capital Cost Assumptions • Average conventional capital cost assumptions • GDP growth rate from EIA AEO 2014 Early Release - 2.4%

41. Capital Cost Assumptions – Cont. • Average renewable capital cost assumptions • GDP growth rate from EIA AEO 2014 Early Release - 2.4%

42. Wind Cost Trends • 2013 Brattle ERCOT Study for Clean Energy Council assumed in the Reference Case that wind costs fall to 1,800 2012$/kW in 2015 and then remain constant in real terms through 2030. In the Low Cost Renewable case, they decline to 1,500 2012$/kW by 2030. • The NREL 2012 Wind Technologies Market Report shows a range of $1,500 – 2,400/kW for recent capital costs for the Interior region (including Texas) Source: NREL. 2012 Wind Technologies Market Report. August 2013.

43. Wind Capacity Factor Trends • Recent performance improvements in wind turbines could increase capacity factors by 10% in the near term • Projections for levelized cost of energy (LCOE) provide insight into both capital cost and performance trends Source: NREL. IEA Wind Task 26: The Past And Future Cost Of Wind Energy, Work Package 2. May 2012.