GSPTF Schedule 13 Review for RTWG August 4-5, 2010

Presentation Outline 1.Purpose of SPP GSP Tariff 2.GSP Tariff Principles – Review of Orders 3.Station Power Procurement Examples 4.Netting Periods Review – Pros and Cons 3

4 Purpose of SPP GSP Tariff FERC has stated that non-utility generators cannot be forced to purchase station power at retail. FERC has implemented this rule at several RTOs by requiring compliance filings following a complaint by a market participant. MOPC, upon request from SPP members and with the support of SPP Staff, directed RTWG to look into developing station power rules for SPP. The intent was to forestall complaints and compliance mandates by the FERC as experienced by other RTOs.

5 Purpose of SPP GSP Tariff RTWG established GSPTF and eventually developed and proposed a unique station power tariff to FERC that had the support of SPP members. FERC Staff notified SPP that they could not approve the proposed GSP tariff, and SPP would need to withdraw the filing if it wanted to avoid rejection, and possibly a compliance filing mandate. RTWG is now developing station power rules consistent with those of other RTOs in order to satisfy concerns of FERC Staff with the original filing, but still attempting to maintain some of the agreed-upon benefits and aspects of the original filing.

6 Purpose of SPP GSP Tariff Consistent with SPP’s member-driven process, we are trying to develop consensus for the station power rules that will be submitted to FERC and avoid costly legal disputes. RTOs are permitted to fine-tune their station power rules, but must follow the fundamental principles laid out in FERC’s orders. With the variations in the proposed rules from the existing rules at other RTOs, we are attempting to reduce the cost of implementing new station power rules in SPP and the potential need for a utility to function as a provider of last resort for a non-utility generator.

7 GSP Tariff Principles – Order Review PJM I – October 2000; PJM tariff amendments accepted and suspended for review with comments. PJM II – March 2001; Station power defined and jurisdictional issues addressed. Third-party supply of station power is a sale for end-use not regulated by FERC. However, self-supply of station power is not a sale, for end-use or otherwise. A self-supplying generator, netting its use against actual power produced, cannot be required to purchase station power under a retail tariff. Capability to self-supply station power is an important, case-by-case determination.

8 GSP Tariff Principles – Order Review PJM III – June 2001; Clarifying Order; A self-supplying generator is generally not in need of either transmission or local distribution services. Netting to determine self-supply involves only one party, not two parties, in an energy exchange. Merchant generators should be able to self-supply their station power requirements to the same extent as integrated utilities and may engage in remote self-supply. FERC has never treated self-supply as a sale. PJM IV – June 2001; Monthly netting approved, no remote self-supply among affiliated companies, fees based on reservation and scheduling of transmission service waived.

9 GSP Tariff Principles – Order Review NYISO I – May 2002; FERC requires compliance filing from NYISO to provide reasonable station power rules in its tariff. NYISO II – Nov 2002; Compliance Order accepting station power rules similar to those of PJM; Delivery of station power over local distribution is a matter for the state commission; All energy received by a generator is netted against all energy produced, regardless of voltage or meter; All station power consumed is paid for at the marginal energy market price; Reasons for selecting one-month netting interval were reasonable.

10 GSP Tariff Principles – Order Review NYISO IV – May 2004; Denying Requests for Rehearing; FERC discourages collateral attacks on, and relitigation of, fundamental principles of station power supply as established in the PJM series of orders, despite the fact that it is the first time applying those principles to the NYISO tariff. However, parties are within their rights to object to non-fundamental differences (or similarities) between the two tariffs; FERC clarifies that it required NYISO to adopt the fundamental principles of station power from PJM orders, but allowed it to fine-tune its own rules to reflect NYISO’s unique circumstances;

11 GSP Tariff Principles – Order Review NYISO IV – May 2004; Denying Requests for Rehearing; (continued) Station power procurement and delivery rules operate to foster competition in electricity markets and cannot be forced to buy station power at prices higher than the costs of self-supply or competitive third party supply; In the event of a conflict between federal and state tariff provisions, the federal tariff provisions must control. The operation of a state tariff, such as demand ratchets, cannot effectively prevent use of the federal tariff; When a utility is neither providing station power nor providing local distribution service, no charges other than transmission rates may be imposed;

12 GSP Tariff Principles – Order Review NYISO IV – May 2004; Denying Requests for Rehearing; (continued) A state may approve whatever rate level it deems appropriate when a utility is selling station power at retail or is using local distribution facilities for delivery of station power; The question of whether a particular merchant generator is actually using local distribution facilities is case-specific; Monthly netting does not impact hourly energy price.

13 GSP Tariff Principles – Order Review Other related cases: NIMO vs NRG, Nov 2004; Nine Mile vs NIMO, Dec 2003; Nine Mile vs NIMO II, Jan 2005; NIMO vs. FERC, June 2006, DC Circuit Court of Appeals; MISO, Jan 2004; MISO II, March 2005; MISO III, Aug 2005; CAISO, Jun 2005; CAISO II, Feb 2006; CAISO III, Apr 2006.

14 Station Power Procurement Examples Example of station power use of generating facility starting up two units. Station power is bought from HE1 to HE6 from the EIS Market at the generator’s LIP. Net Output is sold into the EIS Market and/or bilaterally from HE7 to HE24.

15 Station Power Procurement Examples Example of Spring month with scheduled outage early and then output late in month. Output is net positive on monthly basis. Station power self-supplied during a monthly (calendar) netting period. Station power bought each hour from EIS Market and paid for in weekly invoices from SPP.

16 Netting Periods – Pros and Cons None / Infinite – Requested by SPP, not approved Yearly – Not used previously, best alternative to no / infinite netting period Monthly – Currently used in other RTOs Weekly – Not used previously Daily – Not used previously Hourly – Proposed in first PJM tariff, replaced with monthly netting period

17 Netting Periods – Pros and Cons

Rob Janssen Dogwood Energy, LLC