Transmission Issues and Solutions:Independent Developer Perspective

2010 Power Association of Northern California Annual Seminar

Christian Hackett

February 19, 2010

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Important Notice

The information contained in this presentation is given without any liability whatsoever to Pattern Energy Group LP or any of its related entities (collectively “Pattern”) or their respective directors or officers, and is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or thoroughness of the content of the information, including, without limitation, any financial forecasts or projections. The recipient should consult with its own legal, tax or accounting advisers as to the accuracy and application of the information contained herein and should conduct its own due diligence and other enquiries in relation to such information.

This presentation does not carry any right of publication. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Pattern. Neither this presentation nor any of its contents may be reproduced or used for any other purpose without the prior written consent of Pattern.

Neither the existence of this presentation nor its delivery to you shall constitute or be construed to be an offer to sell any securities of Pattern.

© 2010 Pattern Energy Group LP

Pattern Energy

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Pattern is Committed to Renewable and Transmission Development

• Formerly Babcock & Brown’s North American energy group, the developer of transmission projects (including Trans Bay Cable project) and over 2,000 MW of wind projects

• Pattern is an independent, fully integrated energy company that develops, constructs, owns and operates clean energy and transmission assets across North America and parts of Latin America

Riverstone Holdings LLC

• Riverstone is an energy and power-focused private equity firm with $17B of assets under management; it has the largest renewable energy fund in the world

• Riverstone has committed a significant amount of capital to support and expand Pattern’s business

• Pattern will be the sole wind energy platform for Riverstone in North America

Growth Projected Strong & Steady

• Pattern’s wind development pipeline exceeds 4,000 MW in a variety of states and countries, in addition to multiple transmission and natural gas projects

• Pattern has 283MW in operation and 239MW under construction.

Transmission Need, Opportunity and Challenges

• Significant need for new transmission (even leaving aside renewable issues):– L-T trend in many areas: reserve margins decreasing & congestion increasing– Much of the existing infrastructure built in 1950s-1970s reaching end of service life

• Energy Policy Act of 2005– Encourages the development of transmission lines

• FERC Order 890– Seeks to increase openness and transparency of transmission planning processes

• Push for renewables has further increased the need for new transmission– 36 states have RPS / renewable goals (CA=33% by 2020; ME=40% by 2017)

• Considerable efforts at State level to increase transmission capabilities– Eg Texas, California

• But there are significant challenges for independent developers:– Siting, cost recovery and allocation, the number of utilities and local, State and

Federal regulatory authorities (210 IOUs, 2009 POUs, 883 Co-operatives, 9 federal electric utilities) and Rights of First Refusal (“ROFR’s”) etc

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36 States Have Renewable Or Alternative Energy Portfolio Standards In Place

5Source: The Pew Center on Global Climate Change.

What If We Had A 15% RPS By 2020?Differences Between Required And Available Renewable Energy By NERC Region*

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*

*Source: Thomas Key, EPRI, “Role of Renewable Energy and Implication of RPS in a Sustainable Electric Generation Portfolio,” presented July 16, 2007 at NARUC Electricity Committee, 2007 Annual Conference.

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Issues For Independent (or, Long-Distance) Transmission Line Development

• Is there sufficient need for a Project?

• If sufficient need, is there an incumbent that would exercise a pre-emptive ROFR?

• If no ROFR, is there a fair and impartial process for selection of an independent?– RFP, stakeholder process, open season / request window– Reasonable analytical processes for evaluation?– “Self selection” opportunities?

• Has it been determined how the Independent will get paid?– Cost-based rates under a Tariff– Market-based rates under a capacity contract– “Gen-Tie” costs associated with the renewable project included in delivered PPA price

• Has the cost allocation been determined?

• Are there any particularly difficult “other issues”?– Difficult regulatory issues, siting authority, eminent domain rights– Generator/transmission line/power purchaser “Chicken and the Egg” issues– Defined interconnection process, system impact issues– Financing issues

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Case Study In Process:CAISO Request Windows / RETPP

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• In response to Order 890 and other things, California Independent System Operator (“CAISO”) undertook ‘Request Window’ process in 2008 & 2009– Categories included Reliability, Merchant, Economic projects (and others)– Independent transmission developers tended to submit economic projects; IOUs

(with ROFRs over reliability projects) tended to submit reliability projects• We understand that all of the reliability projects submitted through the 2008 and 2009

Request Windows have been reviewed by the CAISO• We understand that none of the 44 economic projects submitted through those

Request Windows (including the 5 submitted by Pattern) have been reviewed by the CAISO

• CAISO now proposes to replace the Request Window process with the Renewable Energy Transmission Planning Process (“RETPP”)– Strong rationale: Transmission planning on network basis (not project-by-project)– Based on input from Renewable Energy Transmission Initiative (“RETI”) and

other stakeholders, the California Transmission Planning Group (“CTPG”) will develop a ‘conceptual plan’

– With the CTPG conceptual plan as a starting input, CAISO scheduled to approve the RETPP plan (including “no regrets” renewable lines) in December 2010

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• CTPG lines – middle of California

Case Study In Process:CAISO Request Windows / RETPP

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• CTPG lines – Southern California

Case Study In Process:CAISO Request Windows / RETPP

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• Approval process of economic projects previously submitted in prior Request Windows has changed considerably (to the detriment of project proponents)– Proposed RETPP would have economic project proponents lose their currently

existing rights to undertake the economic projects they proposed

• Unclear selection process for competing projects / project sponsors (regarding both ‘no regrets’ renewable transmission projects and economic transmission projects)– CAISO determines technical feasibility– If more than one competitor technically feasible (which is not unlikely) then no

defined process, particularly if projects subject to different regulatory agencies

• Role and composition of the CTPG may raise ‘level playing field’ questions – CTPG will be a central part of the future CAISO Transmission Planning Process– There have been improvements, but key stakeholders still omitted from CTPG

• Rights of First Refusal still troubling to non-incumbents – Explicit new ROFR deleted from the most recent draft, but ambiguity remains

Case Study In Process:CAISO Request Windows / RETPP

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Thanks 

 

Pattern Energy Group

Pier 1, Bay 3

San Francisco, CA, 94111

www.patternenergy.com