Southwest Power Pool, Inc. July 21, 2011 Cost Estimates Katherine Prewitt kprewitt@spp.org Director, Planning Authorization to Plan (ATP) For more information please contact Katherine Prewitt - Director, Planning 501-614-3518, kprewitt@spp.org 2011 ITP10 Inputs, Assumptions & Analyses

RSC Motions (Oct 2010) MOTION 1: RSC recommends that SPP review what is the best manner to address significant cost increases and/or overruns of transmission projects that are regionally funded. MOTION 2: RSC recommends that SPP review the Novation Process and report to the RSC by April 2011. MOTION 3: RSC recommends that SPP consider establishing design and construction standards for transmission projects at 200 kV and above that are regionally funded. MOTION 4: SPP evaluate how cost estimates are established for transmission projects before Cost Benefit Analysis are performed. MOTION 5: CAWG to study various methods on how costs that exceed some standard can be addressed with different cost allocation mechanisms and recommend strategies to RSC. 2

Cost Estimation Improvements Standardized Cost Estimate Reporting Template (SCERT) All cost estimates Quarterly reporting Conditional Notification to Construct (CNTC) > $20 Million > 100 kV Establish Project Estimate baseline CNTC Project Estimate (CPE) NTC Project Estimate (NPE) 3

Cost Estimation Improvements Southwest Power Pool, Inc. July 21, 2011 Cost Estimation Improvements Project Cost Working Group Deviates or is expected to deviate +/- 10% from established baseline cost Report monthly Deviates or is expected to deviate +/-20% from established baseline cost Provide detailed cost variances via updated SCERT with explanations regarding the variances 4 2011 ITP10 Inputs, Assumptions & Analyses

Project Cost Working Group (PCWG) Oversee a quarterly report Study Estimate Design Guide (SEDG) Review estimation variances Regionally funded project >300 kV and >$20 million Explanation for the cost estimate variances as well as Reasons why the project should or should not move forward Develop business practices 5

Stages of Cost Estimation Conceptual Estimate (Staff) prepared by SPP from historical data used for screening purposes only Study Estimate (DTO) submitted by DTO if project passes Conceptual screening and requires more refined estimate NTC Project Estimate (NPE)/CNTC Project Estimate (CPE) (DTO) submitted by DTO in response to CNTC/NTC issuance established as baseline for project cost variance Design/Construction Estimate (DTO) submitted by DTO in quarterly tracking process for cost estimates as engineering and construction for project is underway/completed

Cost Estimate Stage Definition Estimate Name Stage Level of Project Scope Definition End Usage Precision Bandwidth   Projects > 100 kV & > $20 Million All other BOD Approved Projects Conceptual 1 0% to 10% Concept screening for ITP20/ITP10 -50% to + 100% Study 2 10% to 20% Study of feasibility and plan development for ITP10/ITPNT -30% to +30% CNTC Issued NTC Issued CNTC Project (CPE) 3 N/A 20% to 40% Final baseline (CNTC) -20% to +20% NTC Project (NPE) Final baseline (NTC) Design & Construction 4 40% to 100% Design after NTC issued and build the project

Conditional Notification To Construct (CNTC) Projects within the financial commitment window Study Estimate > than $20 Million and > 100 kV Additional time and cost recovery for DTO to refine estimate SPP re-evaluates project if CNTC Project Estimate (CPE) outside accepted bandwidth NTC issued Cost variance is acceptable BOD approves the refined cost analysis

Conditional NTC (CNTC)Project Estimate Variance CPE bandwidth exceeds Study Estimate bandwidth Re-evaluate project Make a recommendation to the BOD Possible SPP staff recommendations: Accept the cost variance and approve as is Modify the project Replace the project with new solution Cancel the project 9

CPE Evaluation Illustrations Study Estimate: $100 Million + 30 % - $ 100 M 130 70 $84 M $105 M $126 M CNTC Project Estimate: $105 Million Action: SPP Issues NTC to DTO If the +/-20% precision bandwidth of the project’s CPE is within the accepted range, an NTC will automatically be issued

CPE Evaluation Illustrations Southwest Power Pool, Inc. July 21, 2011 CPE Evaluation Illustrations Study Estimate: $100 Million + 30 % - $ 100 M 130 70 $96 M $120 M $144 M CNTC Project Estimate: $120 Million Action: SPP Re-evaluation and BOD Review If the +/-20% precision bandwidth of the project’s CPE is outside the accepted range, SPP Staff will re-evaluate the project and submit updated analysis to BOD for review 2011 ITP10 Inputs, Assumptions & Analyses

Study Estimate Design Guide 12

Study Estimate Design Guide Study Estimate Design Guide (SEDG) Establish Study Estimate Design Guide to be used by the SPP’s Transmission Owners (TOs) in developing Study Estimates for SPP footprint projects rated at voltages at 100 kV and greater. These SEDGs are intended to ensure consistency in TO Study Estimates. 13

Transmission Lines Minimum Conductor Sizing for normal ratings is specified, e.g., 1,200 Amps for 230 kV and 3,000 Amps for 345 kV Reconductoring should consider advanced conductors if possible Reactive Compensation costs should be included in project costs estimates 14

Reactive Compensation Voltage (kV) Reactive Compensation (MVAR / mi) 100 - 200 0.1 230 0.3 345 1 500 2 765 4.5

Substations Substations should be designed with : Accommodations for future expansion Suggested bus configurations by voltage class and number of terminals Minimum terminal equipment ratings Minimum bus ratings 16

Southwest Power Pool, Inc. July 21, 2011 Protection/Controls Protection and control designs should include: Redundancy PMUs or Intelligent Electronic Devices (EIDs) for 230 kV and above SCADA and RTUs 17 2011 ITP10 Inputs, Assumptions & Analyses

Southwest Power Pool, Inc. July 21, 2011 SCERT Questions Is there an instruction manual? Should there be a confidentiality statement on the estimate or documents? How should the forms be submitted? PDF or hard copy? Do ROW/Land Rights cost need to be broken down in more detail than one-line? Is there an instruction manual? Currently there is not one available, but one will be developed for use with the online tool. Should there be a confidentiality statement on the estimate or documents? If a member indicates that it is private, SPP will protect it. PCWG will develop confidentiality guidelines within Business Practice. How should the forms be submitted? PDF or hard copy? Forms should be submitted in Excel spreadsheet and email. A suggestion mentioned both PDF and Excel to prohibit unauthorized authorizations. Do ROW/Land Rights cost need to be broken down in more detail than one-line? PCTF decided not to break out details because of desire for high level estimates. 2011 ITP10 Inputs, Assumptions & Analyses

Southwest Power Pool, Inc. July 21, 2011 SCERT Questions Will NTC be issued on a program or project basis? Under Line Assumptions – Structure, are Tangents and Dead Ends the number of assumed structures and Underbuild? For Station Assumptions – Breaker Scheme, are you looking for information on substation arrangement? How should or who should questions be submitted? Will NTC be issued on a program or project basis? NTC’s will be continued to be issued on a ‘project’ basis (including all upgrades associated with the project). There will be a different SCERT for each ‘upgrade’ (Upgrade ID). Variances will be measured at the ‘project’ (Project ID) level. Under Line Assumptions – Structure, are Tangents and Dead Ends the number of assumed structures and Underbuild? Yes. For Station Assumptions – Breaker Scheme, are you looking for information on substation arrangement? Yes. The configuration field should indicate the arrangement (e.g. ring bus, breaker-and-a-half). How should or who should questions be submitted? Contact Cary Frizzell or use the Project Tracking Exploder (SPPprojecttracking@spp.org) 2011 ITP10 Inputs, Assumptions & Analyses

SCERT Question – Nominal vs Current $ Costs should be in current dollars Unless a project is considered ‘multi-year’ 1st year cost should be in current dollars regardless of start date Estimated as if they started today All multi years projects calculated with escalation rate chosen by DTO

SCERT Question – Nominal vs Current $ Example: Year 1: $100,000 Year 2: $200,000 Year 3: $100,000 Total $400,000 Using a escalation rate of 2%/yr Year 1: $100,000 = $100,000 Year 2: $200,000 @ 2% = $204,000 Year 3: $100,000 @ 2% = $104,040 Total: = $408,040

Southwest Power Pool, Inc. July 21, 2011 SCERT Form SPP provided SPP Project Name Project ID Upgrade ID RTO Determined Need Date Estimate Request Date added (New) DTO provided Estimate Provider Point of Contact 2011 ITP10 Inputs, Assumptions & Analyses