1. Financial Impacts of Renewable Energy Policies in the Pacific Northwest Fred Wellington and Mark Cira Navigant Consulting, Inc. Renewable Energy in the Pacific Northwest Law Seminars International Conference August 5, 2010 Navigant Consulting, Inc. One Market Street, Spear St. Tower, 12 Floor San Francisco, CA 94114 415.356.7132 www.navigantconsulting.com

2. Introduction » Navigant’s Clean Energy Service Offerings Navigant Consulting has extraordinary depth of expertise in issues that are central to the future of Clean Energy. Navigant Consulting Clean Energy Service Offerings Clean Energy Policy & Regulation Carbon market structure advisory; emissions analysis; policy integration Greenhouse Gas Business Strategy Carbon market risk & opportunities; policy & regulatory response; macroeconomic analysis; market impact; investment opportunity assessment Strategy; policy and standards; marketing & implementation (e.g., DSM); regulatory analysis/support Energy Efficiency Renewable Strategy & Management Strategy; RPS management; technology and market assessments: project/technology due diligence; investments/M&A advisory Cleaner Electric Generation, Transmission, & Distribution Performance optimization; portfolio management; project due diligence; Smart Grid strategies; process improvements Cleaner NG Production, Transport, & Marketing Market risks and assessments; transport strategies; process improvements; product optimization Navigant Consulting named "Best Advisory – Renewable Energy" in the 9th and 10th Annual Environmental Finance and Carbon Finance Market Survey. Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

4. Table of Contents 1 RPS Overview RPS Gap Analysis 2 Strategic Options and Costs 3 Conclusions 4 Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

5. There are several structural variations of RPS regulations. Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy RPS Overview

6. Table of Contents 1 RPS Overview RPS Gap Analysis 2 Strategic Options and Costs 3 Conclusions 4 Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

7. Available Wind Resources Washington and Oregon have good wind resources and have already developed 43% and 45% of economic wind potential respectively.1 Installed and Remaining Wind Capacity1 Economic Wind Capacity by Class Source: Western Governors Association and DOE “Western Renewable Energy Zones – Phase 1 Report.” June 2009 Source: Navigant Consulting, Inc. based on EIA data and Western Governors Association/DOE report “Western Renewable Energy Zones – Phase 1 Report.” June 2009 1 Includes exports to California Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

8. Remaining Wind Resources and RPS Requirements The remaining economic wind potential in Washington and Oregon is likely not enough to meet either state’s 2020 RPS requirements. Available Wind Generation Capacity and 2020 RPS Targets Source: Navigant Consulting, Inc. based on Renewable Northwest Project 2009 analysis http://www.rnp.org/ (accessed July 11,2010) and AWEA Data http://www.awea.org/projects/ accessed July 11, 2010. RPS Gap estimates assume an average 30% capacity factors for projects installed in 2009. This apparent wind resource shortage can lead to utilities acquiring in-state wind resources more quickly or to utilize other renewable resources. Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

9. Table of Contents 1 RPS Overview RPS Gap Analysis 2 Strategic Options and Costs 3 Conclusions 4 Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

11. Higher quality resources could be imported from Montana or Wyoming, although this would include transmission costs.

13. There are limitations on RECs for compliance in Oregon.

14. REC supply from the broader WECC region could be constrained, especially if California allows TREC trading.Rely on Non Wind Resources or REC Imports from WECC These options entail different costs. Navigant modeled potential revenue requirements of a hypothetical utility under three different scenarios that rely on wind resources. Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

16. We constructed three portfolios that envision different compliance scenarios:An Accelerated scenario that procures wind quickly, taking advantage of higher quality, Class 4 resources before they are depleted. An Incrementalscenario that procures wind incrementally and therefore relies on lower quality resources. An Importscenario that relies on imports from Montana (including transmission) due to unavailable in-state resources after 2015. 1 Includes a simplifying assumption that RPS requirements are met solely with wind resources Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

17. Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy Structure of Analysis » Wind Build Out Scenario The three scenarios vary by the quality of the wind resource, the timing of its procurement and its geographical location. Assumed Annual Wind Capacity Additions Under Each Scenario Earlier Class 4 capacity leads to lower future capacity needs Delaying capacity additions means relying on Class 3 resources Imports may not be available for 5-7 years MWs Import Scenario1 Incremental Scenario Accelerated Scenario 1 Includes estimates of the cost of new transmission lines from Montana

18. Analysis Results » Revenue Requirement Increases Procuring higher quality wind earlier reduces costs over the long term…but at higher near-term costs – balancing the two is utility-specific. Annual and Cumulative Percent Change in Revenue Requirement Bars on Left Axis Lines on Right Axis Higher rates earlier lead to lower long term costs Cumulative Percent Change Annual Percent Change Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

19. Table of Contents 1 RPS Overview RPS Gap Analysis 2 Strategic Options and Costs 3 Conclusions 4 Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

21. Utilities that are aggressively procuring renewablesearly are less likely to see significant increases in revenue requirements later.

22. Public utility commissions and public power utility boards will increasingly scrutinize renewable energy procurement decisions to determine whether compliance strategies are conducted in a cost effective manner.

23. If utilities commissions decide that renewable energy compliance decisions are imprudent (i.e. not cost effective), this can lead to potential disallowance of cost recovery.

24. This can lead to financial risks insofar as shareholders (in the case of IOUs) are required to bear compliance costs and not ratepayers.

25. For POUs, this can impact credit quality insofar as rating agencies believe there is risk to cost recovery.Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

27. There is no uniform strategy to increase the cost effectiveness of RPS compliance. Although at a minimum this would likely include:

28. Viewing RPS compliance in a more holistic manner alongside energy efficiency, distributed generation and carbon reduction.

29. Closer assessments of buy versus build decisions, especially as rating agencies more closely scrutinize long-term liabilities of power purchase agreements.

30. More competitive procurements of renewable PPAs to drive down costs.

31. More sophisticated benchmarking of REC prices – either to ensure best available prices for REC-only contracts or in evaluating lower cost options between REC-only or direct renewable energy purchases.

32. Pursuing new business models associated with distributed (i.e. rooftop) solar photovoltaics.Confidential and Proprietary, ©2010 Navigant Consulting, Inc. Do not distribute or copy

33. Fred Wellington, CFA Managing Consultant San Francisco, CA 94105 phone: 415.356.7132 fred.wellington@navigantconsulting.com Mark Cira Senior Consultant Chicago, IL 60606 phone: 312-583-2722 mark.cira@navigantconsulting.com Questions?