Transmission Cost Allocation Overview OSC Meeting April 27

Transmission Cost Allocation Overview OSC Meeting April 27, 2006 1

Cost Allocation Summary Rolled-in to Region- wide Rate Rolled-in to “Zonal” Rate Participant Funded CAISO X X X ISO NE X X X X PJM SPP X Entergy X OTHERS X X OSC Meeting April 27, 2006 Other X X X 2

CAISO Cost Allocation Rolled-in to Region-wide Rate – New High Voltage Facilities • 200 KV or greater – Capital Additions to existing High Voltage Facilities – Can be either reliability or economic upgrades – Included in CAISO Tariff High Voltage Access Charge OSC Meeting April 27, 2006 3

CAISO Cost Allocation Rolled-in to Zonal Rate – New Low Voltage Facilities • Below 200 KV – Capital Additions to existing Low Voltage Facilities – Can be either reliability or economic upgrades – Included in Utility specific Tariff as a Low Voltage Access Charge OSC Meeting April 27, 2006 4

CAISO Cost Allocation Participant Funded – Independent Transmission Project Proposal – Not determined as part of CAISO Planning Process – Project Sponsor • Market Participant or Group of Market Participants • Participating Transmission Owner – Project Sponsor pays full cost of upgrade OSC Meeting April 27, 2006 5

CAISO Cost Allocation Generation Interconnection Upgrades – Reliability Network Upgrades • Transmission facilities beyond the point of interconnection required to safely and reliably connect generator to the grid – Delivery Network Upgrades • Transmission facilities other than reliability upgrades required to relieve operational constraints on the grid • Economic upgrades are not required but may impact economic delivery of the generator OSC Meeting April 27, 2006 6

CAISO Cost Allocation Generation Interconnection Upgrades – Funded by the Interconnection Customer or Transmission Owner has option to fund – Interconnection Customer entitled to repayment ($ for $) over 5 year period from Commercial Operation Date or make other reimbursement arrangements – Interconnection Customer can receive Firm Transmission Rights in lieu of cash OSC Meeting April 27, 2006 7

ISO NE Cost Allocation Rolled-in to Region-wide Rate – Regional Benefit Upgrades • 115 KV and above • Meet all non-voltage level criteria for Pool Transmission facility classification • Included in Regional System Plan as either a Reliability Transmission Upgrade or a Market Efficiency Upgrade OSC Meeting April 27, 2006 8

ISO NE Cost Allocation Rolled-in to Region-wide Rate – Reliability Transmission Upgrade • Not required by a generation interconnection • Needed for continued reliability – Market Efficiency Upgrade • Not required by a generation interconnection • Designed to reduce the bulk power system costs to load system-wide OSC Meeting April 27, 2006 9

ISO NE Cost Allocation Rolled-in to Zonal Rate – Local Benefit Upgrades • Below 115 KV • Do not meet all non-voltage level criteria for Pool Transmission facility classification – Costs included in the local (zonal) service rates under the Tariff OSC Meeting April 27, 2006 10

ISO NE Cost Allocation Participant Funded – Localized Costs above the minimum requirements deemed necessary by the ISO NE for a Regional Benefit Upgrade – Elective Transmission Upgrades • Merchant Transmission will have its own OATT to recover costs – Generation Interconnection Upgrades • Direct Assignment Facilities • Interconnection related Network Upgrades OSC Meeting April 27, 2006 11

ISO NE Cost Allocation Participant Funded – Elective Transmission Upgrades and Generation Interconnection Upgrades • Eligible to receive Qualified Upgrade Awards • Revenues associated to additional Financial Transmission Rights made possible by the Upgrades OSC Meeting April 27, 2006 12

PJM Cost Allocation Rolled-in to Zonal Rate – Required Transmission Enhancements • Based on Regional Transmission Planning Protocol Schedule 6 of the PJM Operating Agreement • Based on Coordinated System Plan pursuant to the PJM-MISO Joint operating Agreement • Addresses both Reliability and Economic Upgrades OSC Meeting April 27, 2006 13

PJM Cost Allocation Rolled-in to Zonal Rate – Reliability Upgrades - facilities required to maintain system within reliability criteria – Economic Upgrades - facilities required to alleviate transmission congestion which can not be appropriately hedged OSC Meeting April 27, 2006 14

PJM Cost Allocation Rolled-in to Zonal Rate – Construction, Ownership and Cost responsibility of Upgrades is designated by PJM to one or more Transmission Owners – Cost responsibility is assigned to specific customers or groups of customers within the PJM zone(s) that receives the benefits of the Upgrades OSC Meeting April 27, 2006 15

PJM Cost Allocation Participant Funded – Interconnection Customers pay 100% • Attachment Facilities - facilities necessary to connect customer to grid • Local Upgrades - facilities required to maintain reliable local operations caused by the interconnection • Network Upgrades - transmission facilities required "But For" this interconnection to maintain reliable operations OSC Meeting April 27, 2006 16

PJM Cost Allocation Participant Funded – Merchant Transmission • Requested by Participant but not required in the Regional Transmission Plan • Funded 100% by Participant – Interconnection Customers and Merchant Participants are eligible to receive the revenue rights derived from the incremental Available Transmission Capability provided from the Upgrades OSC Meeting April 27, 2006 17

SPP Cost Allocation Rolled-in to Region-wide Rate and Zonal Rate – Base Plan Upgrades required for reliability • Included in the SPP Transmission Expansion Plan • Network upgrades associated with new or revised Designated Resources if three conditions are met 1. Commitment to DR is 5 years or more 2. DR shall not exceed 125% of Customer projected peak load 3. Upgrade cost is less than Safe Harbor Cost Limit - $180 K multiplied by capacity value • If conditions not met then may request a waiver OSC Meeting April 27, 2006 18

SPP Cost Allocation Rolled-in to Region-wide Rate and Zonal Rate – If Base Plan Upgrades are less than $100 k then cost is allocated to the zonal rate where project is located – If Base Plan Upgrades are greater than $100 k then cost is allocated as follows: • 33% to the region-wide charge • 67% to the zonal charge allocated to the zones based on MW-mile benefits OSC Meeting April 27, 2006 19

SPP Cost Allocation Participant Funded – Costs in excess of the Safe Harbor Limit are directly assigned to the Transmission Customer – Economic Upgrades are elective upgrades and construction must voluntarily be paid for one or more entities OSC Meeting April 27, 2006 20

SPP Cost Allocation Participant Funded – Requested Upgrades are normally associated with transmission service requests • All requests during a specific timeframe are aggregated an optimal upgrade plan is developed to accommodate all ATC requests • Costs for a given upgrade are allocated to each request which has an incremental power flow impact on the upgrade on a pro-rata basis in proportion to the total of all incremental impacts by requests in the aggregate study on the upgrade OSC Meeting April 27, 2006 21

SPP Cost Allocation Participant Funded – – Transmission Customers and other entities that pay for Economic Upgrades, Requested Upgrades and/or pay costs above the Safe Harbor limit are entitled to receive transmission revenue credits SPP is currently preparing a FERC filing on proposed modifications related to the pro forma Large Generator Interconnection Procedure and Interconnection Agreement • This filing may change the cost allocation for network upgrades associated with generator interconnections OSC Meeting April 27, 2006 22

Entergy Cost Allocation New Transmission Pricing Proposal approved conditionally by FERC on April 24, 2006 Part of the Entergy Independent Coordinator of Transmission (ICT) Proposal still pending final FERC approval SPP has been selected as the Entergy ICT OSC Meeting April 27, 2006 23

Entergy Cost Allocation Rolled-in to Region-wide Rate – Reliability Transmission Upgrade • Not required by a generation interconnection • Needed for continued reliability – Market Efficiency Upgrade • Not required by a generation interconnection • Designed to reduce the bulk power system costs to load system-wide OSC Meeting April 27, 2006 24

Entergy Cost Allocation Rolled-in to Region-wide Rate – Base Plan Upgrades • Necessary for long-term firm service commitments and maintaining reliable service for all LSEs in the Entergy region • Costs recovered through the Entergy transmission revenue requirement in their Tariff OSC Meeting April 27, 2006 25

Entergy Cost Allocation Rolled-in to Region-wide Rate – Base Plan Upgrade categories • Long-term Firm Pt-to-Pt service commitments • Network Integration Transmission Service commitments • Generation commitments under the Network Resource Integration Service • Maintain standards of safety and reliability applicable to the Entergy transmission system • Meet service commitments that have degrade due to circumstances beyond Entergy's control OSC Meeting April 27, 2006 26

Entergy Cost Allocation Participant Funded – Supplemental Upgrades are subject to "higher of" pricing rules • If revenues exceed costs then costs will be included in revenue requirement • If revenues are less than costs then service is charged on an incremental basis OSC Meeting April 27, 2006 27

Entergy Cost Allocation Participant Funded – Supplemental Upgrade categories • New generator interconnection costs under the Energy Resource Interconnection Service (ERIS) • Generators requesting new Network Resource Integration Service (NRIS) • Generators requesting designation as a Network Resource under Network Integration Transmission Service (NITS) • New or expanded Firm Pt-to-Pt transmission service • Investments requested to reduce transmission congestion • Investments requested to increase transfer capability OSC Meeting April 27, 2006 28

Entergy Cost Allocation Participant Funded – Supplemental Upgrade Rights • Schedule firm Pt-to-Pt over the duration of the reservation without paying congestion • Deliver from Designated Resources to load without paying congestion • Request Pt-to-Pt or designate a generator as a NITS resource up to the ERIS requested • Allow a generator to be designated as a Network Resource to any network customer after it passes the deliverability test for NITS OSC Meeting April 27, 2006 29

Next Steps ? • Research other cost allocation solutions – MISO – Transcos – Vertically Integrated Utilities – Others • Review and discussion at next OSC Meeting April 27, 2006 30