Navigating the Challenges

Nancy Saracino

Vice President, General Counsel & Chief Administrative Officer

California Independent System Operator

Independent Energy Producers Assoc.29th Annual MeetingSeptember 22-24, 2010

Slide 2

California ISO Leadership Team

California ISO Governing Board

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

Slide 3

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

Slide 4

Slide 5

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

Collaborating with state agencies, we developed a plan for California’s clean energy future.

Slide 6

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

The collaboration among the energy agencies and ISO will guide the next decade of coordinated strategic planning for the state.

Metrics and activity management

(under development)

Slide 7

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

The roadmap provides a 10-year plan of activities while identifying key decision points, inter-dependencies and milestones.

Joint Agencies – Once Through Cooling (OTC) PlanS5

ISO – Renewable integration operational studiesS7

D1,2,12,13S4,5,9,12

T9

D1,2,12,13S6,7,9,12,14T2-5,7,9 P6

CEC – 2011 Strategic Transmission Investment Plan (STIP)T1S8,14

T2-4,6,8,15

CEC – 2011 Integrated Energy Policy ReportD2 D1,S5,7,

T1

CEC – Demand Forecast and Incremental EE ScenariosD1

D4,5,6,9,14,15

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

Slide 8

ISO study of renewable integration at 20% RPS

Slide 9

• 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

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

Slide 10

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

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Ramp Up Capability

Ramp Down Capability

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

Slide 12

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

Slide 13

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

Slide 14