Xcel Energy Inc. · NASDAQ:XEL

Xcel Energy — Technical Presentation (April 2021)

57 slides from Xcel Energy's technical presentation, Apr 19, 2021

1. Slide 1: Tolk Analysis: 2nd Technical Conference

   Tolk Analysis: 2nd Technical Conference 04/19/2021 © 2020 Xcel Energy 1

2. Slide 2: Agenda

   Agenda 2nd Technical Conference 1. Introduction 2. Tolk Analysis Overview 3. SPS System Overview 4. Conclusion 1: Replacement Resources 5. Conclusion 2: Preliminary Results 6. Final Review © 2021 Xcel Energy 2

3. Slide 3: Disclaimer: Preliminary Results

   Preliminary Results Disclaimer The results presented today are preliminary and are subject to change Xcel Energy / SPS will release a new natural gas forecast between now and filing the Tolk Analysis. SPS will update the results preliminary results presented today to incorporate the new natural gas

4. Slide 4: Introduction

   INTRODUCTION © 2020 Xcel Energy 4

5. Slide 5: Introduction: Stipulation

   Introduction Stipulation The uncontested comprehensive stipulation in New Mexico Case No. 19-00170-UT requires SPS to submit a robust analysis of Tolk abandonment and potential means of replacement by June 2021 (“The Tolk Analysis”) • The Tolk Analysis will be incorporated into SPS’s 2021 Integrated

6. Slide 6: Introduction: Technical Conferences

   Introduction Technical Conferences • First Technical Conference – Present and solicit feedback on the basic parameters and approach of the Tolk analysis  Completed four technical conferences between June 2020 and February 2021 • Second Technical Conference – Provide and solicit feedback on the prel

7. Slide 7: Introduction: Replacement resources via RFP or RFI

   Introduction Replacement resources priced based on an RFP or RFI process • The intent of the 2020 request for information (“RFI”) is to provide SPS with the type, technical characteristics, and cost of the resources needed or available to conduct the Tolk Analysis • The expansion plans presented tod

8. Slide 8: Introduction: Preliminary Conclusions

   Introduction Preliminary Conclusions Conclusion 1 – Resources Submitted in the RFI Process • The Tolk analysis provides indication that SPS should continue to explore the acquisition of economic energy resources • Potential cost savings provided by new resources are highly dependent on critical vari

9. Slide 9: The Tolk Analysis Overview

   THE TOLK ANALYSIS OVERVIEW © 2020 Xcel Energy 9

10. Slide 10: Tolk Station – Overview of Benefits & Costs

    Tolk Analysis Overview Tolk Station – Overview of Benefits & Costs Benefits captured in Encompass • Relatively low-cost, dispatchable energy • Over 1GW of year-round capacity Costs captured in Encompass (not exhaustive) • Cost Recovery of Capital Investment • Fixed Costs  Operations and Maintenance

11. Slide 11: Tolk Analysis Overview: Objective

    Tolk Analysis Overview Objective Establish the optimal operation and retirement dates of the Tolk Units, considering availability of economical water. The Tolk Analysis evaluates alternative benefits (and costs) provided by the Tolk Units: 1. Maximize Energy Value  Continue to operate the Tolk unit

12. Slide 12: Tolk Analysis Overview: Scenarios

    Tolk Analysis Overview Scenarios Maximize Energy Preserve Capacity Early Retirement Hybrid Approach Value Value • Scenario 1 • Scenario 2 • Scenario 3 • Scenario 4  Operate the Tolk Units  Operate the Tolk Units  Operate the Tolk Units  Operate the Tolk Units year-round seasonally year-round yea

13. Slide 13: SPS System Overview

    SPS SYSTEM OVERVIEW © 2020 Xcel Energy 13

14. Slide 14: Capacity & Planning Reserve Margin

    SPS System Overview Capacity & Planning Reserve Margin • To provide reliable service, all electric utilities must have more capacity available than the projected peak load • The available capacity in excess of the projected peak load is referred to as the “ planning reserve margin” (“PRM”) • SPS is

15. Slide 15: Meeting the capacity need

    SPS System Overview Meeting the capacity need • SPS currently has sufficient accredited capacity through the late 2020’s to early 2030’s • The early retirement of the Tolk Units will create an immediate capacity need – requiring SPS to acquire additional resources • Renewable resources are treated a

16. Slide 16: Firm Resources / Fuel Diversity

    SPS System Firm Resources / Fuel Diversity • For the purposes of the Encompass analysis, SPS utilize standard modeling inputs, such as weather-normalized load forecasts and average annual production profiles • While extreme events like Winter Storm Uri are not fully captured in capacity/price modeli

17. Slide 17: Existing System

    SPS System Overview Existing System SPS currently has: • 7,781MW of generating resources  5,140MW of firm resources  2,641MW of wind and solar resources • 5,548MW of accredited summer capacity • 1,600MW of gas steam generation • 1,100MW scheduled to retire by EOY 2030 • 1,350MW scheduled to retire

18. Slide 18: Capacity Position

    SPS System Capacity Position • As discussed in detail in the next section, all scenarios modeled add significant renewable generation between 2023 and 2025 • Generally, the accredited capacity of the new renewable generation initially fulfills the lost capacity of the Tolk Units (green). However, th

19. Slide 19: Conclusion 1 – Resources Submitted in the RFI Process

    CONCLUSION 1 – RESOURCES SUBMITTED IN THE RFI PROCESS © 2020 Xcel Energy 19

20. Slide 20: Additional Resources: Overview

    Additional Resources Overview The Encompass production cost model will not necessarily replace the Tolk Units with like-in-kind generation. Instead, the model will optimally create an ‘expansion plan’ for each scenario based on the resource need, for example, replacing the Tolk Units could consist o

21. Slide 21: Replacement Resources: Overview

    Replacement Resources Overview As the Encompass model must maintain SPS’s planning reserve margin, the early retirement of over 1GW of generation could be expected to produce a substantially different optimized expansion plan than the continued operation of Tolk Station (i.e there is a greater ‘need

22. Slide 22: Expansion Plan: Planning Load Forecast

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement Expansion Plan Sample Expansion Plan using Planning Load Forecast • Regardless of the retirement of the Tolk Units both Scenarios aggressively acquired the same amount of wind, and large quantities of solar generation betwe

23. Slide 23: Expansion Plan: Financial Load Forecast

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement Expansion Plan Sample Expansion Plan using Financial Load Forecast • Lower load forecast provides similar results (Large-scale renewable build out, before firm generation resources are required © 2021 Xcel Energy 23

24. Slide 24: Expansion Plan: Critical Variables & External Drivers

    Expansion Plan Critical Variables & External Drivers Questions: Why are the short-term expansion plans so similar between scenarios? Why does the model select such large quantities of renewables between EOY 2023 and EOY 2025? Answer: Critical variables and external drivers fundamentally impact the e

25. Slide 25: Expiring Renewable Tax Credits: Impact to Replacement Generation

    Expiring Renewable Tax Credits Impact to Replacement Generation Generic Renewable Cost Assumptions ‘Generic’ Wind Wind Solar $45 • Increases from $24.65/MWh to $40 $39.20/MWh after 60% PTC expires $35 • Relatively flat thereafter $30 $/MWh (nominal) $25 ‘Generic’ Solar $20 $15 • Increases from $26.4

26. Slide 26: Expiring Renewable Tax Credits

    Expiring Renewable Tax Credits Impact To Replacement Generation Generic Wind Driver: Without an extension of Production Tax Credits, wind generation will permanently, and substantially, increase in cost EOY2025 Result: Regardless of the retirement of Tolk Station, Encompass will add additional wind

27. Slide 27: RFI Proposals vs Generic Costs

    RFI Proposals vs Generic Costs Impact To Replacement Generation • SPS used the approximate average cost of proposals received in the RFI process to baseline generic resource cost assumptions after 2025 • By default, multiple RFI proposals are lower cost than the generic resources available for selec

28. Slide 28: Future cost of Generic Resources

    Future cost of Generic Resources Impact To Replacement Generation • The Tolk Analysis incorporates conservative assumptions about the future costs of renewable generation – particularly wind generation (i.e generic wind gets more expensive after PTCs expire and technological / cost improvements do l

29. Slide 29: Generator Interconnection Costs

    Generator Interconnection Costs Impact to Replacement Generation • Generic Overnight Construction Costs (excluding network upgrades):  Wind: ~$1,500/kW  Solar: ~$1,000/kW • Developers ‘typically’ include up to $100k/W for network upgrades • Multiple proposals received in the RFI did not include ne

30. Slide 30: Generator Interconnection Costs: 1st Phase Study

    Generator Interconnection Costs 2017-01 DISIS Study 1st Phase Study • 25 projects totaling 3,795MW • $3.5 Billion of network upgrades assigned • Average $933,522 / MW © 2021 Xcel Energy 30

31. Slide 31: Generator Interconnection Costs: 2nd Phase

    Generator Interconnection Costs 2017-01 DISIS Study 2nd Phase • 11 projects totaling 1,000MW dropped out • $2.5 Billion of network upgrades still assigned • Average $933,648/ MW • 20% of network upgrades costs due by Mid- May © 2021 Xcel Energy 31

32. Slide 32: Generator Interconnection Costs: Impact to Replacement Generation

    Generator Interconnection Costs Impact to Replacement Generation • SPS assigned various indicative network upgrade costs to all proposals that do not require a new GIA* • Network upgrade costs assigned: $200/kW, $400/kW and $600/kW • The same costs were applied to all wind, solar and combined cycle

33. Slide 33: Replacement Resources: Conclusion

    Replacement Resources Conclusion • Drivers and variables, such as expiring PTCs/ITCs, generic costs assumptions (both present and future) and the cost of network upgrades (both present and future), fundamentally impact when the expansion plans for each scenario • This often results in the earlier se

34. Slide 34: Conclusion 2 – Preliminary Results

    CONCLUSION 2 – PRELIMINARY RESULTS © 2020 Xcel Energy 34

35. Slide 35: Tolk Analysis Overview: Sensitivities

    Tolk Analysis Overview Sensitivities Tolk Analysis Planning Financial Load Sensitivity Forecast Forecast Network Upgrade Sensitivity $200/kW $400/kW $600/kW $200/kW $400/kW $600/kW Fuel Cost Sensitivity Low Gas / Base Gas / High Gas © 2021 Xcel Energy 35

36. Slide 36: Tolk Analysis Overview: Scenarios

    Tolk Analysis Overview Scenarios Maximize Energy Preserve Capacity Early Retirement Hybrid Approach Value Value • Scenario 1 • Scenario 2 • Scenario 3 • Scenario 4  Operate the Tolk Units  Operate the Tolk Units  Operate the Tolk Units  Operate the Tolk Units year-round seasonally year-round yea

37. Slide 37: Preliminary PVRR Analysis: Base Gas, $400/kW

    Preliminary PVRR Analysis Base Gas - $400/kW Network Upgrades Excludes potential revenue for selling existing Water rights – Estimated at $0 - $20M (if sold TODAY!) © 2021 Xcel Energy 37

38. Slide 38: Preliminary PVRR Analysis: Base Gas, $200/kW

    Preliminary PVRR Analysis Base Gas - $200/kW Network Upgrades Excludes potential revenue for selling existing Water rights – Estimated at $0 - $20M (if sold TODAY!) © 2021 Xcel Energy 38

39. Slide 39: Preliminary PVRR Analysis: Base Gas vs Low Gas

    Preliminary PVRR Analysis Financial Forecast - Base Gas vs Low Gas - $400/kW Network Upgrades Excludes potential revenue for selling existing Water rights – Estimated at $0 - $20M (if sold TODAY!) © 2021 Xcel Energy 39

40. Slide 40: Sample Expanded View – Planning Forecast

    SAMPLE EXPANDED VIEW – PLANNING FORECAST © 2020 Xcel Energy 40

41. Slide 41: PVRR Analysis: Planning Load Forecast

    PVRR Analysis Planning Load Forecast including $400/kW network upgrades • Scenario 2 (seasonal operation 2032) vs Scenario 3 (2023 retirement) Comparison  Over the 4-year action period Scenario 3 is $88M higher cost than Scenario 2 (PVRR)  Between 2022 and EOY 2032, Scenario 3 is $203M higher cost

42. Slide 42: Expansion Plan: Planning Load Forecast

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement Expansion Plan Sample Expansion Plan using Planning Load Forecast • Regardless of the retirement of the Tolk Units both Scenarios aggressively acquired the same amount of wind, and large quantities of solar generation betwe

43. Slide 43: PVRR Analysis: Annual Comparison

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement PVRR Analysis Scenario 3 vs Scenario 2 – PVRR Annual Comparison PH1 PH3 PH2 PH4 • Ph1: Cost recovery of Tolk assets (Sc3), Ph2: Cost recovery of Tolk assets (Sc2) / Similar expansion plans capable of fulfilling capacity nee

44. Slide 44: PVRR Analysis – Cost Recovery of Tolk Asset

    PVRR Analysis – Cost Recovery of Tolk Asset Scenario 3 vs Scenario 2 The cost recovery of the existing Tolk Assets causes rate shock in the action period, but is less impactful over the planning period PH1 PH2 Blue: Annual PVRR Deltas (same as previous slide), Orange: Cost Recovery of Tolk Assets Ph

45. Slide 45: PVRR Analysis – Operating Costs

    PVRR Analysis – Operating Costs Scenario 3 vs Scenario 2 Annual PVRR delta excluding cost recovery of existing Tolk Assets (plus on- PH3 going capital expenditure) PH2 PH4 Ph2: Similar expansion plans capable of fulfilling capacity need, Ph3: Deferred generation (Sc2), Ph4: Additional generation (Sc

46. Slide 46: PVRR Analysis – Operating Costs

    PVRR Analysis – Operating Costs Scenario 3 vs Scenario 2 PH2 PH2 PH4 PH3 Ph2: Similar expansion plans capable of fulfilling capacity need, Ph3: Deferred generation (Sc2), Ph4: Additional generation (Sc2) © 2021 Xcel Energy 46

47. Slide 47: Sample Expanded View Financial Load Forecast

    SAMPLE EXPANDED VIEW FINANCIAL LOAD FORECAST © 2020 Xcel Energy 47

48. Slide 48: Preliminary PVRR Analysis: Financial Load Forecast

    Preliminary PVRR Analysis Financial Load Forecast including $400/kW network upgrades • Scenario 2 (continued operations) vs Scenario 3 (2023 retirement) Comparison  Over the 4-year action period Scenario 3 is $85M higher cost than Scenario 2 (PVRR)  Between 2022 and EOY 2032, Scenario 3 is $49M hi

49. Slide 49: Expansion Plan: Financial Load Forecast

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement Expansion Plan Sample Expansion Plan using Financial Load Forecast • Lower load forecast provides similar results (Large-scale renewable build out, before firm generation resources are required © 2021 Xcel Energy 49

50. Slide 50: PVRR Analysis: Annual Comparison

    Scenario 2: Seasonal operations, 2032 retirement Scenario 3: 2023 retirement PVRR Analysis Scenario 3 vs Scenario 2 – PVRR Annual Comparison PH1 PH3 PH2 PH4 • Ph1: Cost recovery of Tolk assets (Sc3), Ph2: Cost recovery of Tolk assets (Sc2) / Similar expansion plans capable of fulfilling capacity nee

51. Slide 51: PVRR Analysis – Cost Recovery of Tolk Asset

    PVRR Analysis – Cost Recovery of Tolk Asset Scenario 3 vs Scenario 2 The cost recovery of the existing Tolk Assets causes rate shock in the action period, but is less impactful over the planning period PH1 PH2 Blue: Annual PVRR Deltas (same as previous slide), Orange: Cost Recovery of Tolk Assets Ph

52. Slide 52: PVRR Analysis – Operating Costs

    PVRR Analysis – Operating Costs Scenario 3 vs Scenario 2 Annual PVRR delta excluding cost recovery of existing Tolk Assets (plus on- PH3 going capital expenditure) PH4 PH2 Ph2: Similar expansion plans capable of fulfilling capacity need, Ph3: Deferred generation (Sc2), Ph4: Additional generation (Sc

53. Slide 53: PVRR Analysis – Operating Costs

    PVRR Analysis – Operating Costs Scenario 3 vs Scenario 2 PH2 PH2 PH4 PH3 Ph2: Similar expansion plans capable of fulfilling capacity need, Ph3: Deferred generation (Sc2), Ph4: Additional generation (Sc2) © 2021 Xcel Energy 53

54. Slide 54: Final Review

    FINAL REVIEW © 2020 Xcel Energy 54

55. Slide 55: Final Review: Conclusion

    Final Review Conclusion 1 • The acquisition of economic energy is not dependent on the retirement of the Tolk units • Regardless of the operation and retirement dates of the Tolk units, the Tolk Analysis indicates there could be opportunities for SPS to acquire economic energy • Large uncertainty wi

56. Slide 56: Final Review: Conclusion

    Final Review Conclusion 2 • Retirement of the Tolk Units creates an immediate resource need • The acquisition of potentially economic renewable energy could theoretically fulfill a short-term capacity shortage • However, load growth and/or plant retirements will require SPS to add firm resources and

57. Slide 57: © 2020 Xcel Energy

    © 2020 Xcel Energy 57

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