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TEP and UES Resource Planning Workshop 1 Capacity Planning Michael Sheehan Director, Supply-Side Planning

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Page 1: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

TEP and UES Resource Planning Workshop 1

Capacity Planning

Michael SheehanDirector, Supply-Side Planning

Page 2: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Capacity Planning Requirements

2

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Base Load Requirements

Intermediate Requirements

Peaking Requirements

How much do we need?

What technologies?

What are the environmental impacts?

How much will it cost?

How do we meet our regulatory requirements?

Page 3: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Renewable Energy Standard Requirements

RES Compliance – 15% by 2025

Cumulative reduction of about 7000 GWh

Equates to approximately 3.5 million tons of CO2 (2010-2020)*

Approximately 500 MW of renewable nameplate capacity

* Assumes a diversified mix of renewable resources with an average capacity factor of 30%

3

EnergyGWh

REST Target

TEP UNSE Total Capacity

MW TEP UNSE Total

2010 3% 235 40 275 2010 70 20 90

2015 5% 475 75 550 2015 125 25 150

2020 10% 950 150 1100 2020 225 50 275

2025 15% 1400 200 1600 2025 450 85 535

Page 4: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Electric Market Overview Energy Efficiency Resource Standards and Goals

4

Page 5: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Energy Efficiency Requirements

Summit Blue Consulting » Developed long-range forecast to target different levels of EE by 2020

» Modeled based building simulation models of existing programs

» Detailed hourly data aggregated to capture energy and net coincident system peak reductions

Base Case assumes Energy Efficiency target of 15% by 2020

Sensitivity cases were designed to study effects on changes in portfolio mix and timing.

5

Page 6: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

2020 Energy Efficiency ImpactsEnergy, Demand and Carbon Reductions

Base Case Energy Efficiency Targets (2020) TEP UNSE Total

Projected Energy Reductions, GWh 1,600 300 1,900

Cumulative Energy Reductions, GWh (2010-2020) 7,000 1,500 8,500

Base Case Demand Reductions (2020) TEP UNSE Total

Residential & Commercial DSM Programs, MW 400 100 500

Direct Load Control, MW 70 - 70

Demand-Side Management Reductions, MW 470 100 570

6

Equates to approximately 5 million tons of CO2 (Cumulative 2010-2020)

Page 7: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

7

Base Case - 15% by 2020

Scenario 1 - 10% by 2020

Scenario 2 - 3% by 2020

0%

5%

10%

15%

20%

25%

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

% o

f R

etai

l Lo

ad

Energy Efficiency CasesTucson Electric Power and Unisource Electric

Changes in Portfolio1. Resource Types2. Technologies3. Timing4. Transmission

Page 8: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric PowerTotal Capacity Requirements

8

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Base Load Requirements

Intermediate Requirements

Peaking Requirements

Page 9: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric Power Capacity Requirements with Existing Resources

9

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Existing Coal Resources

Future Base Load

Requirements

Page 10: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric Power Capacity Requirements with Existing Resources

10

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Existing Coal Resources

Existing Intermediate Resources

Future IntermediateRequirements

Page 11: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric Power Capacity Requirements with Existing Resources

11

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

) Existing Peaking Resources

Existing Coal Resources

Existing Intermediate Resources

FuturePeaking

Requirements

Page 12: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric Power Capacity Requirements with 15% Energy Efficiency Target by 2020

12

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Existing Peaking Resources

Energy Efficiency Impacts All Resource Requirements

Existing Coal Resources

Existing Intermediate Resources

Reduction ofPeaking and Intermediate

Resources

Increases Surplus of Base Load Resources

Page 13: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Tucson Electric PowerCapacity Requirements with 15% Energy Efficiency Target by 2020

and 15% Renewable Energy Target by 2025

13

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Dem

and

(MW

)

Existing Peaking Resources

Existing Coal Resources

Existing Intermediate Resources

Renewable Resources

Fill-In Intermediate Deficiencies

Page 14: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

-

100

200

300

400

500

600

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Pea

k D

eman

d, (

MW

)

14

Renewable Resources

Firm Purchase

Power Agreements

Existing Peaking Resources(Black Mountain & Valencia Generating Station)

Intermediate& Base Load

Requirements

Unisource ElectricCapacity Requirements with 15% Energy Efficiency Target by 2020

and 15% Renewable Energy Target by 2025

Page 15: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

2009 SPRING REFERENCE

CASE

15

Long-Term Forecast Assumptions

Page 16: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

16

Base Case

High GasSensitivity

Low Case Sensitivity

$0

$5

$10

$15

$20

$25

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

An

nu

al A

vera

ge $

/mm

Btu

Permian Gas Market, $/mmBtuMarket Sensitivity

Page 17: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

17

Base Case

High Case Sensitivity

Low Case Sensitivity

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Ave

rag

e A

nn

ua

l (7

x2

4)

$/M

Wh

Wholesale Market Prices, $/MWhMarket Sensitivity

Page 18: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

18

Base Case

High Carbon Sensitivity

$0

$10

$20

$30

$40

$50

$60

$70

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Annual C

O2

Price

$/T

on

CO2 Emission Prices, $/TonCarbon Case Sensitivity

Page 19: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

19

Base Case

High Carbon Case Sensitivity

$0

$20

$40

$60

$80

$100

$120

$140

$160

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Ave

rag

e A

nn

ua

l (7

x2

4)

$/M

Wh

Wholesale Market Prices, $/MWhHigh Carbon Case Sensitivity

Page 20: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Conventional Resources

Cost and performance

» Ventyx

» Electric Power Research Institute (EPRI)

» Utilities

Wide range of conventional technologies evaluated

Plant construction, transmission & long-term O&M

Project development requirements

Plant environmental profiles part of analysis

20

Page 21: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

$249$243

$172 $168

$115 $110

$100

$85

$60

0

50

100

150

200

250

300

Aero-Derivative CT LM6000

Frame 7FA Combustion Turbine (CT)

Aero-Derivative CT LMS 100

Integrated Coal Gassification

Combined Cycle (IGCC) with CCS

Integrated Coal Gassification

Combined Cycle (IGCC)

Nuclear Combined Cycle (CC)

Pulverized Coal Energy Efficiency

LCO

E $

/MW

hConventional Resources

2009 Levelized Cost of Delivered Electricity ($/MWh)

Interconnection & EHV

Generation

21Fuel Cost Assumptions $/mmBtu: ( Natural Gas $8.00, Coal $2.50, Nuclear $0.60 )

Typical

Capacity

Factor %

Peaking Resources Base Load and Intermediate Resources

10% 10% 18% 70% 75% 85% 50% 85% Varies

Page 22: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

22Fuel Cost Assumptions $/mmBtu: ( Natural Gas $8.00, Coal $2.50, Nuclear $0.60 )

10% 10% 18% 70% 75% 85% 50% 85% VariesTypical

Capacity

Factor %

$276$270

$199

$173$165

$110

$120

$135

$60

0

50

100

150

200

250

300

Aero-Derivative CT LM6000

Frame 7FA Combustion Turbine (CT)

Aero-Derivative CT LMS 100

Integrated Coal Gassification

Combined Cycle (IGCC) with CCS

Integrated Coal Gassification

Combined Cycle (IGCC)

Nuclear Combined Cycle (CC)

Pulverized Coal Energy Efficiency

LCO

E $

/MW

hConventional Resources (Carbon Case)

2009 Levelized Cost of Delivered Electricity with $50/Ton CO2 Tax ($/MWh)

$50/Ton CO2 Tax

Interconnection & EHV

Generation

Page 23: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Thermal ResourcesConstruction Costs and Operating Characteristics (Detail)

23

Plant Construction Costs Units

Aero-DerivativeLMS 100

Gas Turbine

Aero-Derivative

LM6000Gas Turbine

Frame 7FA Gas

Turbine CombinedCycle (CC)

CompressedAir Energy Storage(CAES)

Pulverized Coal IGCC

IGCC with CCS Nuclear

Project Lead Time Years 4 4 4 5 4 7 8 9 12

Installation Years Year Available 2014 2014 2014 2015 2014 2017 2018 2019 2022

Peak Capacity MW 90 45 160 570 100 400 600 380 1000

Plant Construction Cost 2009 $/kW $1,020 $850 $660 $970 $1,593 $2,680 $3,383 $5,164 $5,870

EHV/Interconnection Cost 2009 $/kW $52 $104 $29 $159 $52 $432 $1,143 $1,804 $401

Total Plant Cost 2009 $/kW $1,072 $954 $689 $1,129 $1,645 $3,112 $4,526 $6,968 $6,271

Operating Characteristics

Fixed O&M 2009 $/kW-yr $11.95 $22.00 $19.90 $22.00 $43.00 $43.93 $74.45 $85.10 $110.83

Variable O&M 2009 $/MWh $3.30 $2.85 $3.75 $2.15 $1.80 $4.00 $4.65 $5.35 $0.55

Gas Transportation 2009 $/kW-yr $16.80 $16.80 $16.80 $16.80 $16.80 $0.00 $0.00 $0.00 $0.00

Annual Heat Rate Btu/kWh 9,000 9,800 10,500 7,200 4,500 10,250 9,200 11,000 10,400

Capacity Factor Annual % 18% 10% 10% 45% 15% 85% 75% 70% 85%

Expected Annual Output GWh 138 39 140 2,247 131 5,957 3,942 2,330 7,446

Levelized Cost of Energy $/MWh $172 $243 $249 $100 $305 $85 $115 $168 $110

Environmental Profile

CO2 Rate lbs/MWh 1,059 1,153 1,235 847 267 2,101 1,886 226 0

SO2 Rate lbs/MWh 0.005 0.006 0.006 0.004 0.001 1.046 0.117 0.094 0.000

NOX Rate lbs/MWh 0.297 0.323 0.347 0.094 0.173 0.656 0.406 0.450 0.000

HG Rate lbs/MWh 2.30E-06 2.50E-06 2.70E-06 1.80E-06 1.35E-06 1.17E-05 4.25E-06 4.59E-06 0.000

VOC Rate lbs/MWh 0.050 0.050 0.060 0.040 0.02 0.030 0.040 0.040 0.000

PM10 Rate lbs/MWh 0.067 0.073 0.078 0.054 0.039 0.210 0.007 0.007 0.000

Water Usage Gal/MWh 150 150 150 350 75 750 800 900 1,000

Page 24: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Renewable Resources

Data aggregated from studies done by:» Black & Veatch

» National Renewable Energy Laboratory

» Recent RFP Activity

Wide range of renewable resources evaluated

Location effects cost and performance

System integration and backup capacity factored into evaluation

Technology innovation curves are also assumed

24

Page 25: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Renewable ResourcesConstruction Costs and Operating Characteristics (Detail)

25

Cost and Operating Characteristics Units NM Wind AZ Wind Solar PV Solar 1-Axis Solar CSPSolar CSP 6

HourBiomass

Direct

Project Lead Time Years 2 2 2 2 2 2 2

Installation Years First Year 2012 2012 2012 2012 2012 2012 2012

Peak Capacity MW 50 50 20 20 50 50 20

Construction Cost 2009 $/kW $2,300 $2,600 $4,000 $4,500 $6,075 $6,500 $3,500

EHV/Interconnection Cost 2009 $/kW $400 $300 $50 $50 $300 $300 $300

Total Construction Cost 2009 $/kW $2,700 $2,900 $4,050 $4,550 $6,375 $6,800 $3,800

Construction Cost with ITC 2009 $/kW $2,000 $2,125 $2,850 $3,200 $4,500 $4,850 $2,750

Fixed O&M 2009 $/kW-yr $50.00 $50.00 $12.00 $12.00 $35.00 $50.00 $83.00

Variable O&M 2009$/MWh $22.00 $15.00

Fuel Cost 2009$/MWh $44.00

System Integration Costs 2009 $/MWh $5.00 $5.00 $4.00 $4.00 $2.00 $2.00 $0.00

Levelized Cost of Energy $/MWh $120 $140 $197 $166 $181 $172 $107

Typical Capacity Factor Annual % 38% 30% 17% 24% 30% 38% 85%

Net Coincident Peak Contribution NCP % 13% 9% 33% 51% 70% 87% 100%

Water Usage Gal/MWh 800 800 100

ITC Qualify YES YES YES YES YES YES YES

Tax Depreciation Qualify 5-Year 5-Year 5-Year 5-Year 5-Year 5-Year 5-Year

Page 26: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

26

$100

$79$91

$140$151

$169$153

$107

$120

$140

$166$172

$181

$197

$0

$50

$100

$150

$200

$250

Biomass Direct NM Wind Turbine

AZ Wind Turbine

Solar (1-Axis) Solar Thermal, CSP

Solar Thermal, CSP 6 HR

Solar PV

LC

OE

2009 $

/MW

h

Renewable Resources2009 Levelized Cost of Delivered Electricity ($/MWh)

Backup Capacity

Delivery

Generation

83% 38% 30% 24% 30% 38% 17%

100% 9% 9% 51% 70% 87% 24%

Low Low Low Low

Capacity Factor %

System Peak %

Water Usage

Page 27: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

27

$-

$50.00

$100.00

$150.00

$200.00

$250.00

Biomass Direct AZ Wind Solar PV (1-Axis) CSP with Storage Solar PV Fixed

$/M

Wh

2015 Renewable Technologies DeliveredCosts Adjusted for Technology Innovations ($/MWh)

Backup Capacity

EHV/Interconnection

Generation

Mature TechnologyNew Transmission Needed

Technology InnovationsLocal Area Site Development

$$

Page 28: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

28

BiomassWind

Utility Scale (1-Axis) PV

CSP

Utility Scale Fixed PV

$-

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

2010 2015 2020 2025 2030

$/M

Wh

Renewable Technologies (Delivered)Costs Adjusted for Technology Innovations, $/MWh

Page 29: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

29

FUTURE UNCERTAINTIES

Sensitivities and Scenarios

Page 30: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Ventyx Confidential

30

Ventyx Advisors with assistance from industry experts identified four distinct themes which are expected to have the greatest impact on the future energy business environment over the next 25 years. The themes were drawn from the key uncertainties.

» Global Turmoil due to gas supply disruptions the domestic policy shifts to energy independence and protectionism

» Technology Evolution driven by mandated CO2 reductions

» Global Economy movement due to collapse of major industries in U.S. and global consolidation

» Return to Reliability for both generation and transmission

Electric Power Horizons 2009Scenarios of the Global Energy Future

Page 31: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

31

Electric Power Horizons 2009Summary of Key Assumptions and Scenario Drivers

Global Turmoil Technology Evolution Global Economy Return to Reliability

Economic Growth Low Status Quo High Status Quo

Electricity DemandSlow growth

Reduced - conservation works Medium- Expanded Markets Medium High - EESIncreased in later years

Load Factor3.6% increase due to addition of heavy

industryNo change

3.6% decrease due to loss of heavy industry

EES standard modifies load factor

Energy Efficiency Low Medium High; 15% by 2020 Medium High

Gas Supply LNG constrained Status Quo LNG accelerated Status Quo

Gas Price High Medium high Low Medium

Coal Price High Low Medium low Medium high

Oil Price High Medium high Low Medium

CO2 Price None None High Low

Environmental RegulationRe-introduction of CAMR; existing SO2,

and NOX regulations enforcedPollutants: SO2 and NOX

Pollutants: SO2, NOX, CO2; ACES Act 20% below 2005 by 2020

Re-introduction of CAMR; existing SO2, NOX, and regulations

enforced; CO2 tax with no cap

Emission Caps Base + Hg Base + CO2 goal Base + CO2 Base + Hg

Nuclear New Builds 7 GW APWR 100 GW PBMR 3 GW APWRBuild Permitted &

Application Pending Units (47 GW APWR)

Renewable Generation 20% by 2026 Additional generation 25% by 2025Meet State RPS

mandates; reduced wind for reliability

Technology Improvements Energy efficiency

CO2 sequestration CO2 sequestration Transmission

Renewables Superconductor Energy efficiency

Nuclear PBMR Energy Efficiency

Energy efficiency

Coal Generation Clean coal technologies Target zero emission resource Target zero emission resource Pulverized coal

Reserve Margin Target 15% reserve Target 15% reserve Target 15% reserve Target 18% reserve

TransmissionAdditional capacity to accommodate

renewable additionsAdditional capacity to accommodate shift

of capacity due to nuclear builds

Additional capacity to accommodate retirements and

renewable additions

Additional capacity for reliability and

congestion

Page 32: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Forecast SensitivitiesRelative to Base Case Assumptions

32

Sensitivities Description Modeling Insights

Forecast Sensitivities Examines Timing and Portfolio Mix Changes

High & Low Gas Prices +/- 25% Base Case Forecast

High CO2 Tax High & Low Carbon Case

Energy Efficiency Programs 5% by 2020, 10% by 2020, 15% by 2020

High Customer Growth High Growth Scenarios (Large Industrial and PHEV)

Carbon Reduction Sensitivities Examines Potential on CO2 Reduction Strategies

Coal Retrofits Technology Advances with CCS

Coal Asset Sales / Retirements High Carbon Costs

Zero – Emission Base Load Options New Coal with CCS or Nuclear

Page 33: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Capital AssumptionsCost of Capital, Inflation & Tax Rates

33

TEP UNSE

Cost Of Capital

Debt 6.38% 8.08%

Common Equity 10.25% 10.00%

Composition

Debt 57.50% 51.15%

Common Equity 42.50% 48.85%

Average Cost Of Capital

WACC 8.03% 9.02%

After-Tax WACC 6.57% 7.38%

Inflation Rate 2.50% 2.50%

Property Taxes & Insurance 1.90% 2.10%

Federal Tax Rate 35.00% 35.00%

State Tax Rate 7.10% 7.10%

Composite Rate 39.60% 39.60%

Page 34: Capacity Planning - Tucson Electric Power · Capacity Planning Requirements 2-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

TEP and UES Resource Planning Workshop 1

Workshop 2 Thursday, October 22nd 2009

Energy Efficiency and RenewablesTransmission PlanningEnvironmental Strategies