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Southern California Energy Summit Palm Springs, California • October 4, 2013

Southern California Energy Summit Palm Springs, California • October 4, 2013. Jonathan M. Weisgall. Vice President, Legislative and Regulatory Affairs. MidAmerican Energy Holdings Company. The Future of Clean Energy & the State of the Industry.

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Southern California Energy Summit Palm Springs, California • October 4, 2013

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  1. Southern California Energy SummitPalm Springs, California • October 4, 2013 Jonathan M. Weisgall Vice President, Legislative and Regulatory Affairs MidAmerican Energy Holdings Company

  2. The Future of Clean Energy & the State of the Industry

  3. Industry: utilities under great pressure to change • Plants • Aging (Brattle Group: $2.0t investment over next 20 years) • EPA requirements (GHG, coal ash, water restrictions) • Pressure to change resource mix • Flat to declining sales of electricity • New technologies: smart grid; electric vehicles • Move from centralized power to distributed generation • Huge risk to utilities – customer as generator • Eroding customer base and rate base • Force utilities to spread fixed costs onto fewer customers • Spiral effect? Increase rates further  accelerate the shift to distributed energy?

  4. Can regulation handle these changes? • May not reward utilities for desired behavior • Lack of incentives for: • Clean energy investments • Energy efficiency • Innovation • Rate structures need revision • Adversarial, judicial-like process; hard for regulators to communicate well with stakeholders • Orientation is toward the utility as seller of a commodity, not a service

  5. Growth in electricity use expected to slow

  6. Changes in assumptions • U.S. oil and natural gas policy for the last 40 years has been based on: • Resource scarcity • Growing demand • Both assumptions have changed recently • Huge new shale gas/oil supplies (10-3-13 Wall Street Journal lead: “U.S. Rises to No. 1 Energy Producer”) • U.S. 2011 electricity demand 2007-2012: virtually unchanged; why? • Impact of slow economy • Distributed generation (solar roofs) • Energy efficiency

  7. Electricity market challenges • Goals: • Reliability • Affordability • Sustainability • How to accomplish, given tensions among them? • How to de-risk them? • How to accomplish these goals in light of: • Flat to lower growth? • Pressure from low natural gas prices? • Growing pressure for lower greenhouse gas emissions?

  8. Uncertainties in the market • No price on carbon, but utilities act like there is one • Renewables (and nuclear) need a price or penalty on carbon emissions in order to grow • Renewable integration costs and variable resources • Minimal growth vs. RPS, transmission, EPA rules • Natural gas: • Flexible; peaker; complements renewables; easier to integrate • Will low prices continue? Volatility? Crowd out renewables? • Coal: Not CA issue, but 35-50 GW being retired • Coal 45% of electricity mix in 2011; 38% in 2012 • Natural gas: 25% in 2011; 31% in 2012

  9. Uncertainty – renewables • Renewable barriers • Boom-bust cycle of tax incentives (PTC) • Transmission delays – planning, permitting, pricing • Low natural gas prices • Policy drivers – which will continue? • Tax policies: PTC; ITC; MLP; state tax policies; or comprehensive tax reform? • Investment policies – government loan guarantees • Mandates: 29 state with RPS programs – and bills in 14 states to water down or repeal them all rejected • EPA regulations of coal plants

  10. MidAmerican Regulated Wind Resources • Owned Wind Generation (MW) MidAmerican Energy Total PacifiCorp 1999 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total 32.1 160.5 200.0 199.5 341.9 1,005.0 265.5 111.0 593.4 407.1 3,316.0 $6.0 32.1 - - 100.5 140.4 381.7 265.5 111.0 - - 1,031.2 $2.1 - 160.5 200.0 99.0 201.5 623.3 - - 593.4 407.1 2,284.8 $3.9 MidAmerican Energy Company PacifiCorp In-service at acquisition date – 32.1 MW In-service – 2,284.8 MW • 29% of total owned generation capacity • In addition, • 109 MW contracted through purchased power agreements In-service since acquisition – 999.1 MW • 9% of total owned generation capacity • In addition, 896 MW contracted through purchased power agreements • 200 megawatts planned 2020-2023 Investment (billions)

  11. Renewable energy myths – cost • Wind resources approved by our regulators as just and reasonable – 31% wind today for MEC • Iowa: Rates frozen 1995-2013 • Just commenced rate case (environmental) • May 2013: Announced plans for additional 1,050 megawatts in Iowa ($1.9 billion investment) • Largest economic development project in Iowa history • > $360 mm in property tax revenues over 30 years • Landowner payments of > $3 million per year • Rate reduction – starting at $3.3 mm in 2015, up to $10 mm/year by 2017 • Completion by 12/31/15 (39% wind)

  12. Western U.S.: 37 Fiefdoms REDM Beaumaris Castle, Wales

  13. Energy imbalance market • PacifiCorp MOU with CAISO to explore EIM (regional real-time market service): • Balances supply and demand every five minutes by choosing least-cost resource to meet grid’s needs • Accesses a wider portfolio of resources • Leverages geographical and resource diversity • Results: • Saves costs for customers • Enhances reliability • Optimizes integration of renewable energy • Makes highly efficient use of transmission lines • Good news for customers, renewables, reliability and oversupply challenges

  14. California challenges – other panels • 50% RPS? • How to achieve? • Greater regional cooperation/collaboration (EIM)? • Transmission policy? • SONGS/once-through cooling replacements • Natural gas? Renewables? Both? • Impact on greenhouse gas emissions? • Impact on cost? • Transmission implications? • State already about 62% dependent on natural gas • Eggs in one basket? • Future of baseload power?

  15. Washington DC – gridlock, shutdown • Mood: rancid • House Republicans: Who are they? • About half: <3 years (72 freshmen from 2010) • Motivations? • 1990’s and 2000’s – driven by national security concerns • Drivers now: debt, deficit, anger at Obamacare; they see the world differently • Average GOP district: 73% white voters; Democratic district: 52% • House Republicans: How did they get there? • 117 (1/2) won with >60% of vote. Their concern: GOP primary • Democrats got 1.4 million more votes for all House seats, but GOP controls, 234-201. Why? Redistricting after 2010 census: • Republicans controlled state governments in 21 states land redrew districts • Obama won PA, VA and OH in 2012, but GOP dominated redistricting • Democrats won only 5 of 18 House seats in PA, 3 of 11 in VA, 4 of 16 in OH • Republicans may control the House until 2022 (after 2020 census)

  16. Federal • Outlook for any: 31 bills passed in 2013 • Outlook for any energy legislation: bleak to zero • U.S. energy policy? No; tax/environmental policies • Tax: • Fate of PTC fell in with broader negotiations around a comprehensive overhaul of the tax code • Tax extenders now in play; deep political divide over PTC • Carbon tax? No, but what about in return for stripping EPA of GHG and other authority? Major source of revenue • New tax structure for renewable energy investments (master limited partnership/REIT): unlikely • Role of states in crafting energy policy increases

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