Proposed Generation Expansion Process

1. Proposed Generation Expansion Process For Review and Discussion March 1, 2011

2. Agenda • Goal of Generation Expansion Process • Overview of Process • Details of Iterative Process • Next Steps

3. Goal • To create a market-like expansion plan through 2030 • When evaluating transmission needs through 2030, we will need additional generation to serve forecasted loads • Intent is to select generation technologies consistent with what the market would be likely to develop, given specific conditions in each scenario

4. Overview of Process Generation Siting • Add increment of renewable capacity • Run Promod Base Case Generation After Year +20 run and Pass • Finalize Promod Expansion Plan Transmission Evaluation Pass •Evaluate Promod Results Fail Fail • Insert Adjusted load shape into MarketPower (MP) • Run MP • Add/Subtract increment renewable capacity Repeated Every 3 Years • Run MP • Insert MP expansion into Promod • Re-run Promod

5. Starting Case Information • Latest load forecast developed by the load forecasting group • Existing generation as listed in the 2010 CDR Winter Update • For discussion: Two potential options for future units that currently have signed Interconnection Agreements • Include all units with signed Interconnection Agreements as of March 1, 2011 • Do not include any units with signed Interconnection Agreements – let expansion process evaluate all future units

6. Iterative Process • Using Promod and MarketPower together • Use strengths of both software packages to develop a generation expansion plan for each scenario • MarketPower is fast and evaluates multiple dispatchable technologies at the same time. MarketPower does not evaluate hours in chonological order. • Promod evaluates system commitment and dispatch across all hours - it maintains chronology of hourly patterns and provides unit-specific output data • Promod will be run without transmission topology to see market-wide opportunities

7. How Does MarketPower Work? • Compares existing (base case generation) resources to peak load on an annual basis • Evaluates technologies on a financial basis to determine its viability in the market • The equations for this calculation is listed in the appendix • MarketPower will build a unit if the unit will operate at or above its calculated minimum capacity requirement when compared to an Advanced Combustion Turbine unit. Unit operations are based on estimates of market prices.

8. What Information Does the Model Use? • Created generic categories for each technology • Generic operating and financial characteristics • Heat rate • Min up and down times • O&M costs • Capital costs • Capacity • Etc. • The financial characteristics may change by scenario March 1, 2011

9. Promod Run to Evaluate Renewables with Diurnal Pattern • Begin with Year + 3 (2014) • Insert an initial increment of renewable capacity into Promod • Evaluate all potential renewable technologies • Run Promod for Year + 3 • Evaluate model results using financial criteria • Marginal generator revenue • Also review avg. system production cost savings per MWh • Others • If units are profitable (i.e., revenue stream supports adequate IRR), add a second increment of capacity • If units are not profitable, decrease initial increment of capacity and re-run Promod • Continue the Promod runs at Year + 3 until a final capacity for each renewable technology has been determined

10. Using Promod Results in MarketPower • Adjust forecasted load shape to reflect net load with the renewable expansion units from Promod runs • Insert new load shape into MarketPower • Run MarketPower for Year + 3 through Year + 20 • Take MarketPower expansion plan from Year + 3 to Year + 6 and insert into Promod

11. Iterative Process Contd. • Run Promod at Year + 6 • Includes Promod renewable expansion plan from Year + 3 and MarketPower thermal expansion plan from Year + 3 through Year +6 • Evaluate existing and expansion plan units using financial criteria • Candidacy for mothball status will be assessed using operating hours, capacity factor, number of starts, etc. • A mothballed unit will have the ability to be restarted within succeeding MarketPower analysis • Begin adding initial increment of renewable capacity at Year + 6 • Repeat process • 3 year increments • Until final expansion plan through Year +20 has been developed

12. Next Steps • Generation Expansion plan will go through the generation siting process • Dispatchable siting will use geographic databases • Develop lists of acceptable siting locations by fuel by county • Rank these buses by LMP’s • Site based on LMP rankings • Renewable siting will evaluate both capacity factors and LMP’s • Proceed with transmission evaluation • Existing and expansion units will be reassessed during the transmission evaluation process • Financial criteria developed during generation expansion plan • Candidacy for mothball status • Re-evaluate expansion plan if unserved energy is not able to be solved with transmission projects

13. Results • This process will be repeated for each scenario • Plan is to provide expansion results for BAU scenario at April LTSTF meeting • Capacity additions by prototype for each year • Reserve margin by year • Etc.

14. QUESTIONS???

15. Appendix: MarketPower Build Decision Calculations Total Fixedt = Capitalt + Fixedt Total Energyt = Fuelt + Variablet Avg Fixedt = Total Fixedt / Generationt Avg Variablet = Total Energyt / Generationt (Avg Fixed1 – Avg Fixed2) / (Avg Var1 –Avg Var2) = %

16. Generic Generating Resource Assumptions (2010$) Operating characteristics for existing generating resources

17. Generic Generating Resource Assumptions (2010$) Operating characteristics for new generating resources