POWER RESOURCE PLANNING & ERCOT UPDATE

I N T R O D U C T I O N B Y :Cris Eugster

Chie f Operat ing Of f i cer

PRESENTED BY:Frank Almaraz

SVP, Commerc ia l Operat ions

January 28 , 2019

I n f o rma t i ona l On l y

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AGENDA

• PLANNING PROCESS

• SEASONAL PREPAREDNESS

• RESERVE MARGINS

• CUSTOMER PARTNERSHIP

• SUMMER OUTLOOK

RESERVE MARGIN

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TERMINOLOGY

Reserve Margin: The extent to which supply of available power resources exceeds the maximum amount demanded by our customers.

Supply Demand

“Resources”“Capacity”

“Consumption”“Load”

“Peak = High Demand”

STRATEGIC TO EXECUTION VIEW OF ENERGY SUPPLY

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We strategically manage our resources for the demands of our community.

25-Year:

• Strategic Planning

• Economic and population trends

• Planning for new resources and retirements

• “Flex Path”

5-Year:

• Detailed capital and O&M plans

• Financial goals

1-Year:

• Operational Planning

• Sales and purchases of power

Seasonal Weekly Daily Hourly

Strategic Day-to-day

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• Involves representatives from across operations

• Full range of preparatory activities:– Weather forecasting

– Reserve margin planning

– Testing, and system maintenance activities

• Major maintenance on our systems performed between summer and winter peak seasons

RIGOROUS OPERATIONAL MANAGEMENT

SEASONAL PREPAREDNESS

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✓ Seasonal preventive & predictive maintenance

✓ System checks, procedure reviews & testing

✓ Demand Response testing

✓ Gas and coal supply analysis

✓ Net position analysis – decisions on purchases or sales

✓ Supply audits & staging

✓ Certify Completion of Preparedness to Senior Management & ERCOT

✓ Transmission lines in service

✓ Capacitor bank maintenance

✓ Inspections & testing

✓ Load shed plan updates (emergency only)

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OUR RESERVE MARGIN

The period from 2009 – 2018 included 2 strategic supply additions resulting in historically high reserve margins.

20%32%

21% 24% 36% 16% 13% 13%

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,5002

00

9

20

10

20

11

20

12

20

13

20

14

20

15

20

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20

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20

18

20

19

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22

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Cap

acit

y (

MW

)

Calendar Year

CPS Energy Peak Demand and Resources

Reserve Margin Peak Demand Including Wholesale Resources

Reserve Margin

Peak Demand

Rio full capacity included in 2016

Deely mothballedin 2018Spruce 2 & MBL

East addedFlex Path

21.8%

15.9%12.1% 13.2% 13.8%

15.7% 16.5% 16.9%

9.3%7.4%

8.1% *

13.75% Target

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Reserve M

arg

in (

%)

Calendar Year

ERCOT Annual Capacity, Demand and Reserve Forecast

* The Dec 2018 CDR forecast of 8.1% was decreased to 7.4% with the removal of 470 MW Gibbons Creek Plant, announced on 12/21/18.

ERCOT RESERVE MARGIN

Low ERCOT reserve margin could lead to higher market prices this summer. Our reserve margin helps protect customers from exposure to high prices.

Tighter reserve margin in ERCOT could result in

higher wholesale prices this summer.

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CPS ENERGY CUSTOMER PROGRAMS

• Commercial Demand Response – 100 MW

• My Thermostat Rewards –100 MW

• Reduce My Use Program – 12 MW

• Total – 212 MW

We partner with over 220,000 customers to protect from high

market prices and avoid additional transmission costs.

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CURRENT CAMPAIGN

• Educate customers on programs & rebates

• Reinforce extreme weather impact on energy bills

• Encourage business customers to sign up for “Manage My Account”

Website, billboards, bus signs, radio, print ads, and digital advertising in dual languages that reach our diverse customer base.

ERCOT MARKET OUTLOOKWINTER/SUMMER 2019

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Above average rainfall over the last few months ended drought conditions. Normal to moderate temperatures

this coming summer.

ERCOT Winter Forecast • Normal temperatures / above normal rain

through March – adequate resources

Summer Outlook• Normal temperature and rainfall outlook• El Nino conditions and end of drought are

the drivers• 7.4% reserve margin forecasted due to load

growth and delays / cancellations of planned generation projects

Precipitation

Temperature

CONTINGENCY PLANNING FOR SUMMER 2019

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Expected Peak Demand

Summer 2019 Reserve Margin = 886 MW, or 16%

5,386MW

6,272MW

Resources Available

We continue to manage our reserve margin to meet the

needs of the community, and have

the expertise to create solutions should we need

additional resources

FLEXIBLE PATH TO MANAGING RESERVE MARGIN

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More to Come!

• Energy Efficiency

• Demand Response

• Additional renewable energy

• Short-term purchases

• Flexible Generation Options

• Energy storage

• Innovative Distributed Energy programs

Thank You

Appendix

GLOSSARYTerm

Acronym(if applicable) Definition

Resources -Electrical Generation facilities available to meet customerdemand on an as-needed basis.

Capacity, Demand & Reserves

CDRPeriodically, ERCOT issues a public report that projects these market metrics for future months.

Decommissioning -Planned shut-down and permanent removal from service of equipment, plant, etc.

Electric Reliability Council of Texas

ERCOTEntity that manages the flow of electric power on the Texas Interconnection that supplies power to Texas customers -representing 85% of the state's electric load.

Layup / Mothball -The deactivation and preservation of equipment / production facility to prevent corrosion damage and allow for future return to service.

Peak Demand -The maximum periodic load demand imposed on a power supply system.

Reserve Margin -(Total Resources - Firm Load Forecast) / Firm Load Forecast. Applies to the peak demand for one hour of the year.

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RECENT GENERATOR ANNOUNCEMENTS

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CHANGES TO RESERVE MARGIN

Generator Announcement

Description of ChangeERCOT

Reserve Margin

December 2018 CDR • Baseline summer 2019 Reserve Margin 8.1%

Gibbons Creek Generation Station

(470 MW - Coal)

• From “Seasonal Mothball” to “Indefinite Mothball” status• Announced 12/21/18

7.4%

S R Bertron Units(280 MW - Gas)

• From “Mothball” to “Decommissioned and Retired Permanently”• Announced 12/28/18

7.4%(no change)

Sources: ERCOT Form – Notice of Suspension of Operations of a Generation Resource as applicable to generating units above.