Overview of the Tulia CAES Bulk Electric Storage Project

April 2013

Agenda

2

I. What is CAES?II. Why Tulia and Economic Development III. Need for Storage and our Progress IV. Subsurface TechnologyV. MilestonesVI. Questions?

Tulia I Rapid Response Storage and Generation Facility

What is CAES?Commercially proven in two facilities, Compressed Air Energy Storage (CAES) 

is the most flexible technology for the bulk storage of electricity

Two commercial‐scale units have been operating reliably for two decades.

Two commercial‐scale units have been operating reliably for two decades.

Can optimize sales and purchases of energy and ancillary services

Can optimize sales and purchases of energy and ancillary services

Compressed air  is released , mixed with a  small amount of natural gas, and used to fire a  turbines for generation of electricity  when it  is most needed and when prices are higher.

Compressed air  is released , mixed with a  small amount of natural gas, and used to fire a  turbines for generation of electricity  when it  is most needed and when prices are higher.

Can store and generate simultaneously

Can store and generate simultaneously

Electricity from grid or behind meter source

3

The Right Place in Texas

4

• Geology 

• Wind 

• Water 

• Technology 

• Electric Transmission 

• Gas Pipeline

• Potential Revenue 

• Regulation is Right

TULIA CAES PLANT

CAES 7-mile double-circuit 345 kV line

345 kV CREZ loop from Nazareth to Silverton

Silverton Collection Station

Amarillo South toSwisher County

SPP 230 kV Line

Proposed Interconnection of Tulia 1 CAES plant to ERCOT 345 kV CREZ system.

PowerSouth Energy Cooperative

5

CavernWellhead

CAES Unit

Tulia Economic Development

6

Facility Staffing Plan

Description NumberPlant Manager 1Operations Manager 1Shift Operators 12Leaching Field Operators 3Maintenance Manager 1Mechanical Technicians 8I&E Technicians 6Maintenance Assistants 2Groundskeeper 1Janitor 1Warehouse 1Accounting/Payroll 3Security 4Administrative 1Total Staff 45

The Facility is to be staffed 24 hours a day 7 days a week. Operating staff is to work in 12-hour shifts on a rotating schedule. The management and maintenance staff is to work a normal weekday schedule and work on nights or weekends, as required. Major maintenance crews will be employed as required.

The Need For Bulk Energy Storage

7

• The electric grid operates entirely on demand – generation must meet demand at all times– Grid operators balance supply and demand to maintain the stability of the system

• Responsive generating units are dispatched to meet peaks in demand and ramped down when load tapers off• Fast response units, however, can be expensive to operate, leading to spikes in power prices when demand is high

– Efficient bulk energy storage can be used to help maintain grid stability at attractive cost• Stored power can be dispatched extremely quickly to meet peak demand• Lower fuel costs than conventional thermal quick response units

Greater Penetration of Renewable Energy Resources + Grid Stability• Power landscape is shifting toward a greater reliance on renewable forms of power generation (e.g. wind)

– While renewable resources are attractive for their environmental characteristics, they often prove to be significantly less reliable sources of power than conventional thermal resources• Power is generated intermittently (i.e. whenever the wind blows) and output can be highly variable• Accordingly, the growth in renewable energy resources creates a more volatile grid system• As wind resources lend to a “peak-ier” system, bulk energy storage can be used to efficiently regulate the

balance between electric supply and demand

– Further, renewable resources may generate power at suboptimal times• In West Texas, for example, the wind blows primarily during the nighttime hours when demand is low• Bulk energy storage can be used to “time-shift” excess power, storing it and making it available during

periods of greater demand

Summary of the Tulia CAES Project

8

• Chamisa Energy, LLC (“Chamisa”) is developing a 270MW Compressed Air Energy Storage (“CAES”) facility (“Tulia I”) in Swisher County, Texas

• Chamisa owns the land on which the Tulia I site will be located, having acquired the plot following a careful analysis of the surrounding region’s geology, the site’s physical proximity to wind generating resources and the ability to efficiently interconnect to the ERCOT grid

• Tulia I will employ proven CAES technology to capitalize on a compelling market opportunity, as the high-wind-penetrated yet overall resource constrained ERCOT market provides an exceptional platform to capture the full range of economics available to CAES technology, including:

– Transforming wind , or another renewable, into a fully dispatchable generating resource– Serving any of base, intermediate and peak load– Providing Ancillary Services– Arbitraging on-peak/off-peak energy prices

• The project is expected to generate 25-year unlevered returns of 17-30% based on third-party power market consultant analysis

• The Tulia I team has achieved significant development milestones to date and has a credible development plan for the construction of the facility

Bedded Salt CavernsGeophysical Well Logs and Stratigraphy Confirms Salt Formations

14 11 6

SWISHER HALE

SouthB’Interpretations based

on core descriptions

NorthB

Top of San Andres

Formation

Chamisa anticipates locating the caverns in the Upper San Andreas Formation, which is comprised mainly of salt

Subsurface Development

• Chamisa engaged RESPEC Consulting & Services to perform extensive geomechanical modeling and analysis in order to inform the selection of an appropriate number of caverns, their depth and design– Thermal finite element model used to predict temperatures in the rock surrounding the caverns as a function of time– Temporal rock temperatures and mechanical loading used in thermomechanical finite element model to predict cavern

stress• Key modeling assumptions:

– Casing seat at 2,284 feet– Cavern roof at 2,324 feet (roof salt thickness of 50 feet)– Cavern floor at 2,424 feet– Maximum radius of 150 feet – Cavern usable air storage volume of 733,500 bbls (each)– Cavern fully cycled over a 48-hour period

• In consultation with RESPEC, Lonquist and Glorieta Geoscience, Chamisa has assumed a conservative cavern plan– Caverns will be limited to a maximum pressure swing of 0.21 psi/ft at the casing seat (~480 psi), ranging from 0.64-

0.85 psi/ft– This will allow for 6.6 mmlbs of working gas and 18 hours of storage (assuming a withdrawal rate of 101 lb/s)

• Based on the simulations analyzed by RESPEC, the caverns are projected to experience minimal tensile stresses with high factors of safety in the surrounding siltstone – The cavern plan will be refined following the drilling and analysis of the onsite test core– Ultimately, Chamisa’s cavern plan may prove to be overly conservative, which would allow for the development of

fewer caverns while maintaining the same total amount of storage and operating parameters

Cavern Location and Design

Source: Chamisa Energy, LLC; RESPEC; Lonquist & Co. LLC

Subsurface Development (Cont.)Cavern Location and Design (Cont.)

Source: Chamisa Energy, LLC; RESPEC; Lonquist & Co. LLC

Cavern Design Close-Up of Cavern Area

CAES Cycle Working Gas CAES Cycles – Casing Seat Pressure

0 50 100 150 200 250 300

2,200

2,250

2,300

2,350

2,400

2,450

2,500

Radius (ft)

Dep

th (ft) Siltstone

Salt

Anhydrite

-10

0

10

20

30

40

50

60

70

80

90

100

110

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Wor

king

Gas

(%)

Time (days)

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Pres

sure

Gra

dien

t at C

asin

g Se

at (p

si/ft

)

Time (days)

0.61 to 0.85 psi/ft

0.64 to 0.85 psi/ft

0.63 to 0.85 psi/ft

Subsurface Development (Cont.)Cavern Location and Design (Cont.)

Source: Chamisa Energy, LLC; RESPEC; Lonquist & Co. LLC

Potential for Tensile Fracture Siltstone Factors of Safety (25 years)

Potential for Salt Dilation Cavern Closure

70

80

90

100

110

120

‐2,000

‐1,500

‐1,000

‐500

0

500

364.00 364.25 364.50 364.75 365.00 365.25 365.50 365.75 366.00Tempe

rature (°F)

Stress (p

si)

Days into 1st Year of Cycling

0.64 to 0.85 psi/ft

Maximum Principal StressNormal Stress (Negative of Cavern Pressure)

Cavern Wall Temperature

Note: Tensile Stresses are Positive

Development Milestones Completed

13

Chamisa has invested approximately $5-10mm in land acquisition and project development costs to date

Date Milestone

October 2010 Completed Phase I environmental review

July 2011 Acquired TCEQ groundwater protection letter

July 2011 Acquired surface water permit

July 2011 Completed acquisition of site and all mineral rights

December 2011 Completed PILOT agreement negotiations with local governments

March 2012 Acquired TRRC test core drilling permit

March 2012 Received favorable rule change from PUCT for energy storage

April 2012 Acquired TRRC P-5 operators permit

October 2012 Signed ESA with Dresser Rand and Lonquist

November 2012 Engaged SAIC as Independent Engineer / Power Market Consultant

December 2012 Filed air permit with EPA

December 2012 ERCOT began implementation of energy storage rule change

January 2013 Filed air permit with TCEQ

February 2013 Received Class 3 proposal from Dresser Rand

February 2013 Received preliminary geo-mechanical analysis from RESPEC

February 2013 Finalized preliminary cavern design and solution mining plan

March 2013 Received Power Market Consultant report

March 2013 Received Independent Engineer report

March 2013 Received air permit from TCEQ

Key Project Milestones Remaining

Date Milestone

Q2 2013 Issue FEED RFP

Q2 2013 File Rule 97 and Rule 9 permit applications

Q3 2013 Drill & analyze on-site test core

Q3-Q4 2013 Refine cavern design and solution mining plan

Q4 2013 Finalize contract with Dresser Rand, order long-lead time items

Q4 2013 Finalize selection of and negotiate contract with EPC contractor

Q1 2014 Commence well and cavern drilling

Q1 2015 Commence cavern leaching

2016 Construct balance of plant

2016 Construct transmission line and gas pipeline

Q2 2016 Begin installation of Dresser Rand equipment

Q1 2017 Begin conversion of caverns to air service

Q3 2017 Commence operations

14

The critical near-term milestone will be the drilling and analysis of the on-site test core

Tulia I Rapid Response Storage and Generation Facility 15

Questions