SPP.org 1

Economic Portfolio Update – CAWG Meeting – AEP Offices, Dallas August 27, 2008

SPP.org 3 Portfolios - Review Portfolio 3 is associated with wind levels beyond the 2,600 MW in 2008 Previous Analysis 1.(April, 2008) show strong benefits for generic wind growth modeled at 7 GW in the SPP footprint. 2.(July, 2008) without wind above current levels, Portfolio 3 is not cost- beneficial Modifications to Portfolio 3 are required for: 1.Specific, not generic wind locations 2.Sizing and location of wind collector systems matched with assumptions on levels of wind generation. Portfolio 3-A is associated to current wind levels Previous Analysis (Sep, 2008) demonstrates benefits exceeding costs under current wind levels in SPP Portfolio 3-A is used to separate out the impact of carbon policy from wind development by keeping wind at current levels.

SPP.org 4 Portfolio 3 (with S-K-A*) Lines: Spearville-Knoll-Axtell* Spearville-Comanche Co-Woodward-Tuco Tolk-Potter Sooner-Cleveland Iatan-Nashua Pittsburg-Fort Smith Substation Upgrades: Anadarko Transformer Chesapeake Transformer Swissvale-Stilwell Tap (at West Gardner) El Dorado-Longwood Series Compensation

SPP.org 5 Potter Iatan Nashua Pittsburg Ft. Smith/VBI El Dorado Longwood Tuco Tolk Woodward Spearville Comanche Co Cleveland Sooner Anadarko XF Swissvale – Stilwel Tap Knoll Axtell Chesapeake Substation Upgrade New 345 kV Transmission Circuit New 765 kV Transmission Circuit Portfolio 3, w/ SKA

SPP.org kV Construction and Additional Wind Higher wind levels identify greater benefit for P3 April 2008 analysis used generic wind locations P3 at 345 kV probably will not support 7GW of wind Numbers shown are indicative, refined high wind analysis currently being conducted and will consider specific more wind locations * Note: Incremental 765 kV benefits not considered. Benefits show are for 345 kV construction Quanta EHV Study identifies 4,600 MW as the point 765 kV is required SPP higher wind (7,000 MW) analysis presented at April, 2008 CAWG identified large benefits for higher wind injection at generic wind locations *

SPP.org 7 Wind Injection Locations Adjustments for wind location have a large impact on design For example, only 240 MW modeled on Finney – Potter 345 kV line (e.g. Hitchland) despite the fact that queue has large development in that area Generation Interconnect queue has 8,000+ MW on this transmission line Higher levels of wind injection will likely need 765 kV support similar to Figure 1 Spearville Finney Comanche Co. Loop 1 Woodward Hitchland` Figure 1 -

SPP.org 8 Portfolio 3-A: For Analysis for Current Wind Levels of 2,600 MW Lines: Spearville-Comanche Co-Woodward-Tuco Pittsburg-Fort Smith Seminole-Muskogee Wichita-Reno Co- Summit Substation Upgrades: Potter Transformer = removed

SPP.org 9 Iatan Nashua Seminole Muskogee El Dorado Longwood Tolk Reno Co Spearville Wichita Cleveland Sooner Anadarko XF Swissvale – Stilwel Tap Summit Knoll Axtell Potter Chesapeake Substation Upgrade New 345 kV Transmission Circuit New 765 kV Transmission Circuit Portfolio 3-A

SPP.org 10 Carbon Tax ($/ton) Sensitivity SPP Staff has conducted a sensitivity to Carbon Tax on the Balanced Portfolio $15/ton and $40/ton simulated No additional changes (e.g. extra wind, etc.) Carbon analysis performed on Portfolio 3-A to tie impact to current levels of wind (i.e. 2,600 MW)

SPP.org 11 Carbon Impact on Portfolio 3-A 2012

SPP.org 12 Generation Displacement for P3-A

SPP.org 13 Carbon Impact on SPP System Prices

SPP.org 14 Carbon Tax & High Wind Carbon Tax lowers the margins between coal and gas, thus decreasing potential benefit available Wind analysis needs to be combined to determine impact of Carbon Tax and Wind Wind will offset higher carbon based production costs

SPP.org 15 Going Forward SPP is currently in the analysis stage for the high wind and future analysis model building, updating generator database, mapping, etc. Next Steps - Future (2017, 2023) analysis High Wind analysis (stand alone and combined with carbon sensitivity) kV construction/operation Impact on reliability plan (negative and positive) Determine balance adjustments Leading portfolio moved to approval

SPP.org 16 Pittsburg Ft. Smith/VBI New 765 kV Transmission Circuit Pittsburg – Fort Smith/VBI vs. Seminole - Muskogee Seminole Muskogee

SPP.org 17 Questions/Comments

Charles Cates Engineering, Planning