FLEXPOWER BUNDLE UPDATE(PART 3)

PRESENTED BY:

John KosubSenior Director, Energy Portfolio Analytics

January 27, 2020

In fo rmat iona l Update

• DISCUSS OUR SEQUENCING FOR REPLACING AGING PLANTS

• DESCRIBE THE IMPORTANCE OF FIRMING POWER TO MEET RELIABILITY

• INCORPORATE AN ALL-SOURCE ELEMENT INTO OUR APPROACH

2

OBJECTIVES & TAKEAWAYS

3

AGENDA

• RECAP THE NEED TO ADD RESOURCES

• VALUE OF BUNDLED APPROACH

• “FIRMING POWER” FOR RELIABILITY

• LOOK AHEAD AND NEXT STEPS

4

FLEXIBLE PATH:INNOVATION & TRANSFORMATION JOURNEY

Present Future

Flexible Path:Traditional + Renewables +

Energy Storage + Smart Grid + “Fifth Fuel”

Technology Drives Timing Transitioning to Innovation

Transformation & Innovation:Flexible Path + New Products & Services

“Fifth Fuel” is composed of energy efficiency gains & demand response

5

OUR GUIDING PILLARS &FOUNDATION

All business decisions are based on our commitment to being one of the best-managed and most financially responsible utilities in the nation!

SecurityCustomer

AffordabilityReliability

EnvironmentalResponsibility Resiliency Safety

FINANCIALLYRESPONSIBLE

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OUR PLANTS ARE AGING

5715

976

1454

560

1036

1242

447

0

1000

2000

3000

4000

5000

6000

0 - 9 10- 19 20 - 29 30 - 39 40 - 49 50+ All Years (Total

Capacity)

MBL 5-8Spruce 2

MBL 1-4Rio NogalesAvR

Spruce 1 STP 1STP 2

Sommers 1Sommers 2Braunig 3

Braunig 1 Braunig 2

Our team does a great job keeping our plants running. Sequencing of future capacity solutions continue to be a top priority.

Almost 30% of our capacity comes from plants that are

40+ years old

About 1700 MW capacity retiring within 10 years

• These aging plants run during summer peak, but are less reliable

• Failures at these plants carry high financial risk

FlexPower Bundle; envisions up to

• 900 MW solar,

• 50 MW storage

• 500 MW gas toll or equivalent technology that can meet the same requirements to firm up the solar and reliability of older units

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THE NEED FOR FLEXPOWER BUNDLE

FlexPower Bundle replaces about half of our aging gas steam capacity while continuing our transition to cleaner energy.

THE VALUE OF A BUNDLED APPROACH

SOURCES OF GENERATION

SOLAR STORAGE GAS

BENEFITSZero emission

resource that aligns with load

Zero emission back-up resource

Mature technology that is controllable

CHALLENGES

Weather & time dependent resource

requires back-up generation

Limited duration to serve as a back-up resource; 4-6 hours

typically

Has emission profile with a carbon

footprint

Bundling resources improves performance and reliability for our customers under all conditions year round.

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9

VOLATILE ERCOT MARKETWIND PRODUCTION VS INSTALLED CAPACITY

ERCOT declared an emergency when the wind production dropped

below 10% of the installed capacity leading to a supply shortage.

0

5000

10000

15000

20000

25000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

MW

Hour of the Day

ERCOT Wind Generation on August 15, 2019

Wind Production Installed Wind Capacity

$9,000/MWH prices occurred for two hours (about 80 times greater than typical residential retail rates).

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PEAK DAYS FOR SAN ANTONIO IN 2019IMPORTANCE OF FIRMING POWER

The intermittent nature of solar and wind production shows the need

for firming power to provide around-the-clock reliability.

Note: CPS Energy wind and solar production in 15-minute intervals is shown in the stacked graphs

0

1000

2000

3000

4000

5000

6000

8/12/2019 8/13/2019 8/14/2019 8/15/2019 8/16/2019

MW

Total Renewable Production - Peak Summer Week

Solar

Firming Power for Around-the-Clock Reliability

Native Load Demand

Wind Risk Point

0

1000

2000

3000

4000

5000

6000

1/21/2019 1/22/2019 1/23/2019 1/24/2019 1/25/2019

MW

Total Renewable Production - Peak Winter Week

Solar

Firming Power for Around-the-Clock Reliability

Wind

Native Load Demand

Risk Point

21.4% 24.8% 25.2% 25.5%

8.8% 4.9% 3.0% 3.0%

5.2% 0.2% 0.2%

37.6%

45.1% 36.1% 35.5%

26.9%

24.9%35.7% 36.1%

0

1000

2000

3000

4000

5000

6000

Summer January 3 January 16 January 17

MW

Nuclear Wind Solar Landfill Gas Coal Gas

4,866 MW

4,250 MW

(6/23/17 5-6 PM)

4,216 MW

(1/16/18 6-7 PM) (1/17/18 7-8 AM)

4,316 MW

(1/3/18 7-8 AM)

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Highest Usage Hour

Low: 23˚FHigh: 57˚FHDD*: 25

Low: 26˚FHigh: 43˚FHDD*: 30

Low: 22˚FHigh: 36˚FHDD*: 36

*HDD = Heating Degree Days

Our diverse generation portfolio provides

customers reliable

service & protects them from volatile

market pricing.

DIVERSITY = RESILIENCEPROTECTING OUR CUSTOMERS

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Industry definition for All-Source RFP:

Any and all resources considered, requirement

driven, open to all approaches and technologies

What We Want:• Utility-scale assets• Introduce more storage• Solar power aligned with customer demand• Lower carbon resources• Firming capacity to meet customer needs• Maintain portfolio diversity

SOLAR

BATTERY STORAGE

GAS TOLL

ANOTHER FIRMING TECHNOLOGY THAT MEETS OR BEATS GAS

OR

OUR APPROACH TO AN ALL-SOURCE RFP

Our obligation to serve customers is best met by physical assets. We have a strategic interest in adding more solar & battery storage and will

consider our firming options.

• Up to 500 MW of gas toll or technology to beat

that provides reliable generation capacity with

availability:

oAll hours

oAll weather

oYear-round

oLow emissions

• Term of 4 to 10 years

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FIRMING POWER SUPPLY REQUIREMENTS

Our obligation is to provide reliable power to our customers.

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FLEXPOWER BUNDLE RFPCURRENT APPROACH

We continue our transition to more renewable power & have immediate needs for firming capacity. We are sequencing our RFP

to make sure we meet our customers’ needs.

Request For Proposal Profile

Solar Storage

Firming Gas Toll or Equivalent

Respondents would have option to bid on one or multiple resources

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NEXT STEPS

As the process unfolds, we will be back to discuss progress at future Board meetings.

Continue to get feedback & study other markets

Finalize RFP development & selection process

NEXT 6-12 MONTHS

Next 6-12 months

LAUNCH RFP

Thank You

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