Juan C Cartagena Manager, Power Resource SchedulingMay 11th, 2010

Iberdrola RenewablesPower Resource Scheduling

Elk River Wind Power Project, Kansas Elk River Wind Power Project, Kansas

Generation CapacityGeneration Capacity(52% emissions-free)(52% emissions-free)

Gas 19%

Nuclear8%

Traditional Thermal 18%

Hydro23%

Renewables21%

Gas Mexico12%

More than 43,300 MWs of installed capacity More than 43,300 MWs of installed capacity

About Us: Iberdrola Group

33,000 employees in 40 countries33,000 employees in 40 countries

108-year history with roots in hydroelectric

108-year history with roots in hydroelectric

Leading wind producer worldwide with 10 GW installed, 58.4 GW pipeline

Leading wind producer worldwide with 10 GW installed, 58.4 GW pipeline

Strategic focus on US, UK, Latin America and Spain

Strategic focus on US, UK, Latin America and Spain

Installed wind represents 1/12 of the world’s total capacity

Installed wind represents 1/12 of the world’s total capacity

One of the lowest CO2 emissions levels in the electricity sector

One of the lowest CO2 emissions levels in the electricity sector

52%52%

Updated Feb. 24, 2010

Iberdrola Renewables:North American Business

A collection of exceptional assetsA collection of exceptional assets

#2 developer in the U.S. with nearly 3.6 GWs

(1,311 MWs of wind started up in 2009)

#2 developer in the U.S. with nearly 3.6 GWs

(1,311 MWs of wind started up in 2009)

826 employees in 28 U.S. states,DC, India and Canada

826 employees in 28 U.S. states,DC, India and Canada

621 MW of CCGT & peaking capacity on the strategic CA-OR border

621 MW of CCGT & peaking capacity on the strategic CA-OR border

155 BCF of owned & contracted natural gas storage positioned for a volatile future

155 BCF of owned & contracted natural gas storage positioned for a volatile future

U.S. represents 1/3 of earningsU.S. represents 1/3 of earnings

24.5 GWs of wind development pipeline is in the U.S.

24.5 GWs of wind development pipeline is in the U.S.

Wind Power Gas 1,311 MW in‘09 521 MW CCGT

100 MW peaking155 BCF Owned

& Contracted

Updated Feb. 23, 2010

North American Asset Portfolio

Updated March 1. 2010

Wind projects owned or controlled

Gas storage owned

Thermal generation

Biomass cogeneration

Western Wind Assets

Stateline 300 MW

Big Horn 199.5 MW

Klondike24 MW

Klondike II75 MW

Klondike III223.6 MW

Klondike IIIa76.5 MW

High Winds 162 MW

Shiloh150 MW

Dillon 45 MW

Mountain View III 22.44 MW

Twin Buttes75 MW

Colorado Green81 MW

(162 MW Project)

WESTERN REGION

PleasantValley 144 MW

Updated :January 25, 2010

Operating wind projects

Pebble Springs 98.7 MW

Hay Canyon100.8 MW

Dry Lake63 MW

Star Point60.9 MW

Mid-Continent Wind Assets

Updated March 1, 2010

Operating wind projects

MID-CONTINENT MID-CONTINENT REGIONREGION

MinnDakota150 MW

Flying Cloud43.5 MW

Elk River150 MW

Moraine 51 MW

Trimont 101 MW

Winnebago20 MW Providence

Heights72 MW

Top of Iowa II80 MW

Moraine II 49.5 MW

Elm Creek99 MW

Buffalo Ridge50.4 MW

Farmers City146 MW

Penascal202 MW

Barton Chapel

120 MW

Barton160 MW

Rugby149.1 MW

Streator Cayuga Ridge300 MW

Northeast Wind Assets

NORTHEAST NORTHEAST REGIONREGION

Maple Ridge II45.4 MW

(91 MW Project)

Maple Ridge 1115.5 MW

(231 MW Project)

Casselman34.5 MW

Locust Ridge 26 MW

Updated January 25, 2010

Lempster24 MW

Locust Ridge II 102 MW

Operating wind projects

Rae ManseauResource Scheduler

Rae ManseauResource Scheduler

Steve CousenauResource Scheduler

Steve CousenauResource Scheduler

Tara GuilloryResource Scheduler

Tara GuilloryResource Scheduler

Mike PurcellResource Scheduler

Mike PurcellResource Scheduler

Jessica BrizResource Scheduler

Jessica BrizResource Scheduler

Dan TaylorResource Scheduler

Dan TaylorResource Scheduler

VPTim McCabe

VPTim McCabe

ManagerJuan Cartagena

ManagerJuan Cartagena

Resource SchedulingWest / East

Resource SchedulingWest / East

Resource Scheduling – Org Chart

04/10/23 CONFIDENTIAL

9

The Function of Resource Schedulingwithin our Organization

Cash Trading DeskPrompt Month & Dailies•Proprietary Sales & Purchases •Asset Sales and Purchases•Transmission Purchases•Structured Trades•Gas Balancing

Resource DeskDay-Ahead •Scheduling/Pathing•Generation Coordination•Transmission Purchases•Tagging•ISO Scheduling

Forward Trading DeskBOM thru Prompt 2 Cal Years•Proprietary Sales & Purchases •Asset Sales and Purchases•Forward Hedging•Fundamental Based Trading

Hourly DeskIntra-Day•Trading & Marketing•Scheduling/Pathing•Transmission Purchases•Tagging•ISO Bids/Scheduling•Generation Coordination•Transaction Integrity•Gas Balancing

Deal Path

Deal Path

Deal Path

Beginning of our Scheduling Day

10

Signs on Road

11

Frustration Encountered

12

Ending of our Scheduling Day

13

Bunch of Happy Cats

14

04/10/23 CONFIDENTIAL 15

Understanding Transmission & Resource Scheduling

Resource Desk Day0500-0600: Wind forecasts downloaded, scheduled and sent to customers by 0600.

0600-0800: Coordinate transmission, balance positions at all hubs, balance generation assets. Submit MISO intermittent resource schedules .

0800-1200: Create schedules and communicate to counterparties, E-Tags created, Schedules captured in ACES. Submit ERCOT bilateral transactions and resource plan.

0900-1000: Submit CAISO generation trades. Submit APN and PHYS IST transactions.

1000-1400: Transmission & generation schedules are communicated & balanced with BPA, CAISO finals are confirmed.

1400-1500: Real-time folders are prepared, Set-up for next day completed, all day ahead schedules complete by 1500 deadline.

0500 0600 0700 0800 0900 1000 1100 1200 1300 1400 1500Scheduling Timeline

04/10/23 CONFIDENTIAL 16

Understanding Transmission & Resource Scheduling

Deadline Driven Business

Resource scheduling handles over 4.2 million MWhs per month

All power transactions, whether thermal, biomass, or wind, are touched by this group

Anticipate volumes increasing at least 20% Year on Year as Iberdrola Grows Wind and Power Trading businesses

7 day scheduling coverage for CAISO, MISO, and ERCOT

Coordination of schedules with up to 60 counterparties on a daily basis

Support our Realtime Desks with scheduling questions

Regulation & Market Structure

Variable Generation Integration

Laura BeaneManager, Western Market StructureMay 11, 2010

18

Overview

Wind Integration Costs (WIC) are caused by wind’s variability and the difficulty of forecasting its output precisely which drives the need for flexible generation

Historically, the costs associated with integrating wind have been paid by load

Regions with increasing penetration levels of variable generation are starting to re-evaluate the current load-based cost allocation regime and are beginning to allocate integration costs to the generator– Cost-causation reason for allocation shift

Wind Energy’s Impact to the Power System

Wind energy has four characteristics that affect how it is integrated into power systems: its variability its near-zero variable cost the difficulty of forecasting its output precisely its remoteness

These characteristics can be better accommodated in some markets structures than others

The diversity of the US markets has made integration a difficult and fragmented effort

Wind Penetration LevelsCurrent Estimate of Installed Wind Capacity as a Percentage of Peak Load

30 %

6 %

7 %

13 %

5 %

2 %

4 %1 %

Regions that have moved or are moving toward allocating WIC to generators

Source: Ventyx

21

FERC NOI on the Integration of Variable Energy Resources FERC’s recent NOI solicited comments on virtually all aspects of integration of

variable resources Data & Forecasting Scheduling Flexibility Scheduling Incentives Day-Ahead Market Participation Reliability Commitments Balancing Authority Coordination Reserve Products & Ancillary Services Capacity Markets Real-time Adjustments

Iberdrola Renewables submitted comprehensive comments addressing each of the subject areas

The NOI may lead to a rulemaking to establish a policy framework to ensure integration is addressed consistent with the principles of the Federal Power Act

Wind Integration Solutions

HighCost

LowCost

Source: UWIG

Low Wind Penetration Level

High Wind Penetration Level

Markets

Additio

nal

Flexible

Generation

Wind

C

urtailment

Storage

Accessing Intra-hour flexibility

Price Responsive Load

Demand Response

Dynamic Scheduling

Simple Cycle GT

Combined Cycle GT

In Range of 1-2%

Pumped Storage

Batteries

Flywheels

SMES

CAES

Capacitors

PHEV

A

ccurate

Forecasting

Real time forecasting

Centralized Forecasting

• IBR is working to encourage regions to exhaust solutions on the lower half of cost curve before moving to the next solution.

Wind Integration in ISO/RTO Markets

ISO/RTO markets have more favorable integrations characteristics that can better accommodate higher penetrations of wind generation at lower integration costs

– Large electric balancing area with access to neighboring markets– Robust electric grid– Short-term electricity generation markets– Access to Flexible generation and load

However, dysfunctional ISO/RTO markets, such as MISO, could result in increased exposure to wind integration cost at lower penetration levels

– MISO has a high concentration of transmission constrained wind generation (ND, SD, MN)– Examples of dysfunction that could result in emerging wind integration costs include:

• Large concentrations of wind not responding to LMP price signals creating negative LMPs• Interconnections do not address deliverability constraints• Increase in Minimum Generation Events resulting from a supply surplus that result in requests to

reduce output from generators – wind curtailment

Merchant projects could have significant exposure to emerging WIC charges in ISO/RTO markets.

Optimal Wind Integration Conditions

Large electric balancing area with access to neighboring markets– Wind integration costs are significantly lower in large balancing areas– More opportunity for excess generation in one region to be offset by shortfalls in

generation in another region– Larger pool of flexible resources to accommodate variations in electric supply or demand

Robust electric grid– Allowing power flows to neighboring regions requires robust regional interconnections

Short-term electricity generation markets– Shorter dispatch and scheduling windows capture time periods when wind power is

relatively constant (ten-minute intervals) instead of periods when generation may be inconsistent (sixty-minute intervals).

– In regions with hourly markets, significant deviations in wind output over an hour are often accommodated through regulation services, which are expensive

– Since RTOs and Independent System Operators (“ISOs”) often operate both sub-hourly markets, they do not have to rely on expensive regulation services to respond to output variations and thus, typically have lower integration costs.

Optimal Wind Integration Conditions, Cont.

Access to Flexible generation and load– Systems with more flexible generators, i.e. hydro and natural gas, tend to

have lower integration costs

Effective integration of wind forecasts into utility operations– Reliable wind forecasts allow system operators to significantly reduce their

uncertainty about future wind output, thereby lowering the amount of reserves they need to hold to accommodate variations in wind output

Flexible transmission services– Conditional Firm service

– Dynamic line ratings

Northwest Integration Solution

Self-Supply Pilot Program

BPA 2009 Rate Case Outcomes

$5.89/MWh WIC rate Reduced level of allocated operating reserves based on assumed improvements to

scheduling accuracy

Enforcement of Persistent Deviation penalties

Implementation of Phase II of Dispatcher Standing Order 216 (DSO-216) October 1, 2009 BPA implemented DSO-216 to:

– limit wind generation to the scheduled value when there is insufficient DEC balancing reserves available to offset the over-generation of wind

– curtail wind plant’s schedules/e-Tags when their actual generation output is less than their scheduled amount and there are insufficient INC balancing reserves available to offset the under-generation of wind

BPA unbundled the WIC into the three separate categories of reserves to allow customers the option of providing all reserves or a portion of reserves

Regulation Reserves – reserve required to balance error every 4 seconds Following Reserves – reserve required to balance error every 10 minutes Generation Imbalance Reserves – reserve required to balance error outside of 10-

minute window through the balance of the hour

Option for generators to self-supply imbalance reserves

27

Self-Supply Pilot Introduction

Iberdrola Renewables is the only wind generator that has elected to self-supply Generation Imbalance Reserves

Regulation Reserves and Following Reserves will continue to be purchased from BPA

Because Iberdrola is choosing to self-supply only a portion of the balancing reserves, no Balancing Authority (BA) certification is required as BPA will continue to provide the second-to-second balancing of Iberdrola’s generation portfolio

Iberdrola Renewables self-supply program will initially be implemented as pilot program with both parties given the option to discontinue if the program proves to be unworkable

The pilot has a target implementation date of August 1, 2010 and will continue through September 2011

28

Self-Supply Pilot Structure

Today, all if Iberdrola Renewables’ plants are scheduled on an individual basis

Under self-supply all of Iberdrola Renewables northwest wind resources will be aggregated into a single signal and schedule and will be measured on a net basis

BPA will allocate a portion of Regulation and Following reserves to Iberdrola’s generation portfolio and Iberdrola will be responsible to self-supply generation imbalance reserves to resolve any remaining error between the net schedule and net output of the portfolio

Klamath Cogeneration/Peaking facilities will be utilized to provide a portion of the needed INC and DEC to keep Iberdrola’s portfolio balanced

Iberdrola has entered into contractual relationships with dispatchable resources to provide additional INC and DEC capability

29

Self-Supply Diagram

30

Net Actual

Net Schedule

BPA Balancing Authority

K3a

Iberdrola’s Self-Supply Portfolio

Hay Canyon

K1

K3

K2

StarPoint

Big Horn I & II

Stateline

Klamath Cogen

Juniper Canyon

Pebble Springs

PortfolioError

Other ContractedResources

(External to BPA’s BA)Other Contracted

Resources

U.S. CORE

Constellation EnergyAGC Infrastructure

Self-Supply Balancing Illustration

31

-400

-300

-200

-100

0

100

200

300

400

11

:00

a.m

.

10

:00

p.m

.

12

:00

p.m

.

1:0

0 p

.m.

2:0

0 p

.m.

3:0

0 p

.m.

4:0

0 p

.m.

5:0

0 p

.m.

6:0

0 p

.m.

7:0

0 p

.m.

8:0

0 p

.m.

9:0

0 p

.m.

Portfolio Error(Schedule vs. Actual)

Allocated ReserveBand from BPA

Error that must beBalanced underSelf-supply(i.e. the companymust move resourcesto keep the PortfolioError within the band)

Legend

MW

s

Constellation Energy Control & Dispatch

Iberdrola has engaged Constellation Energy Control & Dispatch (CECD) to provide consulting services and Automatic Generation Control (AGC) infrastructure

CECD provides balancing services for 15 Balancing Authorities across the United States including the nation’s first wind-only Balancing Authority

BPA’s willingness to move forward with the pilot program largely stemmed from their confidence in Constellation’s ability to leverage their experience and successfully balance our portfolio

Constellation’s Responsibilitieso Respond on a 4-second basis to the Portfolio Error

Execute dispatch of resources per resource stack– Klamath Cogen & Peakers– External contractual resources– Wind resources

o Monitor and respond to applicable compliance parameters

o Report all aspects of self-supply portfolio Tracking of exercise of external resources Generation Imbalance accounts Compliance with performance parameters

32

Self-Supply Timeline

May 2010: BPA Wind Portfolio Netting Target Implementation Will apply to DSO-216 Should lower curtailment/limit risk

August 1, 2010: Self-Supply Pilot Implementation

33

December2009

August2010

September2011

Self-Supply Pilot Period

Self-Supply PilotImplementation Date

BPA LaunchesSub-hourly Scheduling

October2010

New WIC Rate in EffectDSO-216 Implementation

May2010

Wind Portfolio NettingTarget Implementation