TEP Integrated Resource P lan

Public Workshop

May 20, 2020

WELCOME

JEFF YOCKEYDIRECTOR, RESOURCE PLANNING

Meeting Logistics

o Connection— Skype for Business (screen share)— Materials at tep.com/resource-planning/— Audio connection

o Phone preferredo Disconnect device audio

o Public Engagement— Chat— Audio

o All participants muted during presentations

o Unmute for Q&Ao Mute your device unless asking questions

o Safety Minute:Embrace the “New Normal”

o Agenda— IRP Overview— Load Forecast— Modeling Assumptions— Resource Adequacy— Portfolio Results

Lunch Break— TEP CO2 Reduction Goal— Advisory Council Feedback— Public Comment— Wrap-up

Integrated Resource Plan ( IRP) Overview

Resource Need

• Load Forecast• Existing Resources

Resource Portfolios

• Technology Assessment• Future Resources

Scenarios

• Fuel and Market Pricing• Macroeconomics

4

Portfolio Analysis

Timing 3-year planning cycle 15-year outlook

2021 - 2035 5-year Action Plan

IRP Schedule

5

Kick-off TEP Advisory Council

May 2019

File Preliminary

IRPJuly 2019

ACC Workshop

on Preliminary

IRPSeptember

2019

ACC Open Meeting

on Preliminary

IRPOctober

2019

Request to Extend IRP

Filing Deadline February

2020

TEP Public Workshop May 2020

Final IRP Due

June 26, 2020

Public Comment Period and

Staff Report

ACC Acknowled

gement

Advisory Council

6

Category Organization

Cust

omer

sLarge/Industrial Port of Tucson

Commercial GLHN, Architects and Engineers

Residential RUCO

Low Income Wildfire AZ

Senior Pima Council on Aging / AARP

Gov

ernm

ent City City of Tucson

County Pima County

State University of Arizona

Federal Davis Monthan AFB

Advo

cacy

Environment Sierra Club / Western Resource Advocates

Energy Efficiency SWEEP

Economic Development Sun Corridor

Distributed Generation Technicians for Sustainability

Advisory Council Structure and Topics

o Monthly Meetings— May through December 2019

o Subject Matter Experts— Including guests

o Meeting Materials Posted Online— Presentations— Meeting Summary— https://www.tep.com/resource-

planning/

7

Meeting Topics

Planning for Uncertainty Modeling Assumptions

Load Forecast Grid Enhancements

Existing Resource Attributes Customer Resources

Proposed Resource Additions Coal Plant Economics

Future Resource Costs CO2 Emission Reductions

Resource Adequacy Electric Vehicles

Revenue Requirement Demand Side Management

KEV IN BAT TAG LIALEA D S U P P LY - S IDE P LA N N ER

Modeling and Assumptions

Overview of Portfolio Cost Assessment

9

Portfolioand

ScenarioAssumptions

Portfolio Cost(NPV)

Market Assumptions

10

Permian Natural Gas ($/MMBtu) Palo Verde Market ($/MWh)

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

ACTUAL PRICES M1-Base Carbon

M2-High Carbon M3-Low No Carbon

Nat Gas El Paso San Juan Annual Energy outlook

ICE Index Forecast Extended

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

ACTUAL PRICES M1-Base Carbon

M2-High Carbon M3-Low No Carbon

Vender Forecast Vender Forecast with Scarcity

Tullett Index Forecast Extended

CapEx Forecast

11

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Solar PV Single Axis Tracking($/kW)

Solar PV - Tracking (>20 MW) ATB - Utility PV - Chicago - Mid

AEO-Low PV w/axis tracking AEO-Mid PV w/axis tracking

AEO-High PV w/axis tracking Woodmac Arizona

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Onshore Wind($/kW)

Wind - Onshore ATB-Mid AEO-Low

AEO-Mid AEO-High Woodmac Arizona

On a Levelized cost basis, the near term decrease in capital cost is offset by a reduction in the Investment Tax Credit.

CapEx Forecast

12

$600

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500

$1,600

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Natural Gas Combined Cycle (NGCC)($/kW)

Gas NGCC ATB-NGCC AEO-Mid Woodmac Arizona

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Battery Storage - 4 hour($/kW)

Battery Storage 4h ATB 4h Battery Storage NREL Low

NREL Mid NREL High Woodmac Arizona

CO2 Pricing

13

LEE A LTERLEA D S U P P LY - S IDE P LA N N ER

RESOURCE ADEQUACY

PORTFOLIO REVIEW

Portfolio Identification

P01aL1M1E1

P01aL1M1E1

Portfolio Name (i.e. 80% renewable energy by 2050)Portfolio variation (i.e. majority solar vs. majority wind)Load Scenario (electric vehicles, mining)Market Scenario (Low gas price vs. High gas price)Emission Scenario (Carbon price vs. No carbon price)

Alternative Scenarios

Load Scenario ID Description

L1 December 2019 – Expected EV Sales

L2 No load growth

L3Low load growth (<1%); Low EV Sales; Exclude Rosemont

L4 Exclude Rosemont

L5 Low EV sales

L6 High EV sales

Market Scenario ID Description

M1 2019 Base Case

M2 2019 High Case

M3 2019 Low Case

17

Emission Scenario ID Description

E1 Federal Carbon Case

E2 No Federal Carbon Case

Portfolio List

Portfolio Identifier Source Design ElementP01 Arizona Corporation Commission Portfolio standard: 80% - 100% clean energy by 2050

P02 Arizona Corporation Commission Portfolio standard: 80% - 100% clean energy by 2050; 50% renewable energy by 2028 -2030

P05* 2017 IRP Order Portfolio standard: Specified levels of clean energy, energy storage, energy efficiency and biomass

P06 Arizona Corporation CommissionDraft Energy Rules

Portfolio standard: 45% renewable energy by 2035;30% clean during peak by 2035

P08 Sierra Club Coal retirements: all coal by 2028; Springerville 1 by 2025

P09 Western Resource Advocates CO2 reduction (from 2005): 50% by 2025; 60% by 2030; 70% by 2035

P10 Western Resource Advocates CO2 reduction (from 2005): 40% by 2025; 50% by 2030; 60% by 2035

P11* Merchant Generators Buy-through option

P13* Residential Utility Consumer Office (RUCO) Portfolio standard: Demand response 40% of peak

P16 TEP Coal Supply Limits

18*Portfolio development in process

Emission Reductions

19

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

TEP

Dire

ct C

O2

Emiss

ions

(ton

s)

P01aL1M1E1 P01bL1M1E1 P02aL1M1E1 P02bL1M1E1 P02bL3M3E2 P02bL6M2E1 P02cL1M1E1P02dL1M1E1 P06aL1M1E1 P06aL3M3E2 P06aL6M2E1 P06bL1M1E1 P06cL1M1E1 P08aL1M1E1P08aL1M1E2 P08aL1M2E1 P08bL1M1E1 P09aL1M1E1 P09bL1M1E1 P10aL1M1E1 P16aL1M1E1

50% Reduction from 2005

80% Reduction from 2005

Comparing Policy Options

Renewable % of Retail Sales 2025 2030 2035

P01b - ACC 32% 31% 73%

P02b - ACC w Interim 37% 50% 80%

P06b - ACC Energy Rules 31% 29% 45%

P09b - Carbon Target 41% 38% 62%

20

$13,050,000$13,100,000$13,150,000$13,200,000$13,250,000$13,300,000$13,350,000$13,400,000$13,450,000$13,500,000$13,550,000

P01b - ACC P02b - ACC w Interim P06b - ACC EnergyRules

P09b - Carbon Target

NPV Rev. Req. ($000)

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2021 2023 2025 2027 2029 2031 2033 2035

CO2 Emissions (tons)

P01b - ACC P02b - ACC w InterimP06b - ACC Energy Rules P09b - Carbon Target

A carbon target can achieve emission reductions at lower cost than a portfolio standard

Energy Efficiency

Energy Efficiency (GWh) 2025 2030 2035

P02b - ACC w Interim 997 1,193 1,441

P02c - ACC w Interim & EE (low) 1,349 2,031 2,625

P02d - ACC w Interim & EE (high) 1,348 2,030 2,623

P02e -SWEEP EE 1,454 2,183 2,858

21

The cost of achieving energy efficiency targets depends on the availability of low cost measures

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2021 2023 2025 2027 2029 2031 2033 2035

CO2 Emissions (tons)

P02b - ACC w Interim P02c - ACC w Interim & EE (low)

P02d - ACC w Interim & EE (high) P02e -SWEEP EE

$13,000,000$13,100,000$13,200,000$13,300,000$13,400,000$13,500,000$13,600,000$13,700,000$13,800,000$13,900,000$14,000,000

P02b - ACC w Interim P02c - ACC w Interim& EE (low)

P02d - ACC w Interim& EE (high)

P02e -SWEEP EE

NPV Rev. Req. ($000)

Reduced fuel use is offset by reduced need for new renewables

Scenario Analysis

22

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2021 2023 2025 2027 2029 2031 2033 2035

CO2 Emissions (tons)

P02b - Base P02b - Low P02b - High$13,000,000

$13,100,000

$13,200,000

$13,300,000

$13,400,000

$13,500,000

$13,600,000

$13,700,000

$13,800,000

P02b - Base P02b - Low P02b - High

NPV Rev. Req. ($000)

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2021 2023 2025 2027 2029 2031 2033 2035

P06a - Base P06a - Low P06a - High$12,200,000

$12,400,000

$12,600,000

$12,800,000

$13,000,000

$13,200,000

$13,400,000

$13,600,000

$13,800,000

P06a - Base P06a - Low P06a - High

P02

50%

rene

wab

les

by 2

030

P06

45%

rene

wab

les

by 2

035

Comparison of two portfolios under

varying economic conditions.

High load growth and high prices consistent

with a strong economy.

Low load growth and low market prices consistent with a weak economy.

TEP Local NOX Emissions( S u n d t , D e M o s s P e t r i e , a n d N o r t h L o o p G e n e r a t i n g S t a t i o n s )

23

211

473

-

100

200

300

400

500

600

700

800

900

1,000

Tons

/yea

r

Mobile Source1 Local NOXEmissions 9,000 tons/yr

Historical TEP Local NOX Emissions 1,600 tons/yr

1. On-road mobile source vehicle emissions; Pima County Department of Environmental Quality Emissions Inventory, https://www.webcms.pima.gov/UserFiles/Servers/Server_6/File/Government/Environmental%20Quality/Air/EmissionsInventory/pima_final_ei_report_erg_072817.pdf

Water Consumption

24

Surface water use is eliminated in all Portfolios with the retirement of Four Corners

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

(000

) gal

lons

Cumulative Consumption 2021-2035

Surface Water Groundwater

Portfolio Comparisons

25

P01aL1M1E1

P01bL1M1E1P02aL1M1E1

P02bL1M1E1P02cL1M1E1

P02dL1M1E1

P02eL1M1E1 P06aL1M1E1P06bL1M1E1

P06cL1M1E1P08aL1M1E1

P08bL1M1E1

P09aL1M1E1

P09bL1M1E1P10aL1M1E1

P16aL1M1E1

P16bL1M1E1

P02bL3M3E2

P06aL3M3E2

P02bL6M2E1P06aL6M2E1

P16bL6M2E1

P08aL1M1E2

P16bL1M1E2

P08aL1M2E1

$12,600,000

$12,800,000

$13,000,000

$13,200,000

$13,400,000

$13,600,000

$13,800,000

$14,000,000

$14,200,000

$14,400,000

60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 110,000,000 120,000,000

NPV

Rev

enue

Req

uire

men

ts T

hrou

gh 2

035

($00

0)

Total CO2 Emissions - Tons Through 2035

RESOURCE PORTFOLIOS

L1M1E1 L3M3E2 L6M2E1 L1M1E2 L1M2E1

Preliminary Data -

CO2 EMISSION TARGET

BEN MCMAHAN, PHDWILL HOLMGREN, PHD

UNIVERSITY OF ARIZONA

ADVISORY COUNCIL COMMENT

PUBLIC COMMENT