Southern California Energy SummitPalm Springs, California • October 4, 2013

Jonathan M. WeisgallVice President, Legislative and Regulatory Affairs

MidAmerican Energy Holdings Company

THE FUTURE OF CLEAN ENERGY & THE STATE OF

THE INDUSTRY

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• 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?

Industry: utilities under great pressure to change

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• 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

Can regulation handle these changes?

Growth in electricity use expected to slow

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• 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

Changes in assumptions

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• 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?

Electricity market challenges

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• 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

Uncertainties in the market

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• 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

Uncertainty – renewables

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MidAmerican Regulated Wind Resources

MidAmericanEnergy CompanyIn-service –2,284.8 MW

1999200420052006200720082009201020112012

Total

PacifiCorpMidAmerican

Energy

32.1--

100.5140.4381.7265.5111.0

--

1,031.2

$2.1

-160.5200.0

99.0201.5623.3

--

593.4407.1

2,284.8

$3.9

32.1160.5200.0199.5341.9

1,005.0265.5111.0593.4407.1

3,316.0

$6.0Investment (billions)

Owned Wind Generation (MW)

PacifiCorpIn-service at acquisition date –32.1 MW

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

–29% of total owned generation capacity

–In addition,109 MW contracted

through purchased power agreements

Total

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• 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)

Renewable energy myths – cost

Western U.S.: 37 Fiefdoms

REDM

Beaumaris Castle, Wales

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• 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

Energy imbalance market

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• 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?

California challenges – other panels

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• 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)

Washington DC – gridlock, shutdown

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• 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

Federal