LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON Transmission Access Challenges for Wind Generation Developing solutions nationwide and in ERCOT

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 2 Fundamental challenge in wind development is still resolving the chicken and egg problem. “renewable projects cannot secure contracts under RPS procurement procedures without knowing whether existing transmission will be able to accommodate them. At the same time, utilities are wary of investing in renewable transmission without assurances of cost recovery, which is premised on the renewable generation being built.” [1] [1] [1] CEC 2005 Integrated Energy Policy Report at 99 (November 2005). [1]

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 3 In addition to the lack of adequate transmission system development, specific transmission-related challenges continue to inhibit development of wind generation, e.g.: Lack of comprehensive regional transmission planning process and limited RTO/ISO authority Imbalance charges in transmission tariffs Obstacles in the interconnection process and interconnection queue delays Transmission cost allocation and assignment methods Calculation of the available transmission system capacity Difficulties in the existing methods for evaluating requests for long-term firm point-to-point transmission service Rate pancaking

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 4 The FERC, DOE, and Congress are taking steps to respond to these impediments to the development of wind generation FERC Orders No. 661 and 661-A, Interconnection for Wind Energy FERC Order 890, Open Access Transmission Tariff Reform FERC CAISO Decision FERC Docket No. RM07-19, Wholesale Competition in Regions with Organized Markets DOE Designation of National Interest Electric Transmission Corridors Senator Thune Amendment to Energy Bill designating Clean Energy Corridors Senator Reid Clean Energy and Economic Development Act

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 5 FERC Orders No. 661 and 661-A, Interconnection for Wind Energy Standardizes interconnection agreements for wind generation above 20 MW Requires transmission providers to append new provisions to the standard agreement for interconnecting large generating facilities, which are required under their open-access transmission tariffs, in order to address technical requirements and procedures for integrating large wind power facilities into their transmission systems Requirements of wind generators: –Wind generating facility must remain operational during voltage disturbances on the grid. –Large wind plants must, if needed, meet the same technical criteria for providing reactive power to the grid as required of conventional large generating facilities. –Provides for supervisory control and data acquisition (SCADA), if needed, to ensure appropriate real-time communications and data exchanges between the wind power producer and the grid operator.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 6 FERC Order 890, Open Access Transmission Tariff Reform: Significant Reforms for Wind Generation Greater consistency and transparency in the available transmission capacity (ATC) calculation Provides for open, coordinated and transparent planning on a local and regional level Reforms energy and generator imbalance penalties Adopts a “conditional firm” component to long-term point-to-point service

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 7 FERC CAISO Decision: Addresses chicken and egg problem in California and provides a model for other areas. Approval of financing mechanism for the construction of transmission interconnection facilities to connect location-constrained resources to the CAISO grid. Financing mechanism rolls in the cost of transmission facilities through transmission revenue requirement (TRR) of constructing transmission owner Cost of the facility reflected in the CAISO transmission access charge (TAC), assessed on a gross load basis Each connecting generator responsible for pro rata share of going forward costs of using the transmission line. Once line is fully subscribed, all users of the grid pay the cost of the unsubscribed portion of the line through inclusion in the TAC. Once facilities are constructed, generators of any fuel type eligible to interconnect and contract for unsubscribed capacity.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 8 FERC Docket No. RM07-19, Wholesale Competition in Regions with Organized Markets: Docket to determine how to improve competition in regions with organized markets. Regional markets can integrate more wind energy than small balkanized balancing areas, thus docket provides an opportunity to address critical wind issues: interconnection queue logjams and insufficient RTO/ISO authority Interconnection queue logjams are inhibiting development in MISO and CAISO. Queue management difficulties mean that deadlines are being missed and interconnection costs remain uncertain. Given significant need for new transmission, RTOs/ISOs should have greater transmission planning authority and greater authority to order and approve construction.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 9 DOE Designation of National Interest Electric Transmission Corridors Corridors designated in the Mid-Atlantic Area (OH, WV, PA, NY, MD, VA) and Southwest Area (CA, AZ). Designations do not direct the construction of new facilities, but Energy Policy Act of 2005 authorizes FERC to issue permits for new transmission facilities within National Corridor. Senator Thune Amendment to Energy Bill designating Clean Energy Corridors Would further amend the Energy Policy Act to provide for Clean Energy Corridors to be designated by the DOE; specifies that FERC is to promulgate regulations for cost recovery of transmission providers that build and operate facilities authorized under the amendment.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 10 Senator Reid Clean Energy and Economic Development Act proposing National Renewable Energy Zone designation Based on Texas CREZ model National Renewable Energy Zone designation provides for areas with significant renewable energy resources to be connected to transmission grid through transmission lines to be paid for by all utility consumers.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 11 Transmission Access for Wind Generation in Texas Implementation of Competitive Renewable Energy Zones –PUCT Interim Order Designated Competitive Renewable Energy Zones and Established Tiers of Transmission Transfer Capacity for ERCOT Study

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 12 Zones Approved by Commission

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 13 Tiers of transmission transfer capacity the PUCT has asked ERCOT to review in Transmission Optimization Study:

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 14 Tiers of transmission transfer capacity as proposed by ERCOT as of November, 2007

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 15 Preliminary transmission issues identified by ERCOT in TOS What is the definition of a CREZ transmission line? Need to develop standardized terminology for direct interconnect, on- ramp, and other transmission interconnection terms What is the definition of transfer capability What is extent of ERCOT review of upgrades that are economic in reducing wind generation congestion? Should there be a differentiation between upgrades for CREZ units vs. other economic upgrades? What is potential impact of 765 kV and DC lines on system operation? Need to develop standardized transmission line parameters and cost assumptions, which now vary by region. Should transmission developed for lower MW scenarios be expandable? Where should hubs/interconnection points be located within a CREZ? Incorporate impact of Ancillary Services Study on TOS.

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 16 Public Utility Commission of Texas Docket No , Selection of Transmission Service Providers Related to Competitive Renewable Energy Zones Proceeding in which the PUCT will determine how it will select TSPs to build new CREZ related transmission infrastructure. Key issues: 1.Are there advantages to selecting transmission service providers on a competitive basis, in terms of cost or schedule, for the Competitive Renewable Energy Zone (CREZ) transmission projects? If there are risks associated with a competitive selection process, are the benefits sufficient that the Commission should implement such a process? 2.Does the PUCT have the latitude to implement a competitive process for selecting transmission service providers outside of a contested case, in which service providers bid on identified cost factors (such as cost of capital), these factors are used to select a service provider, and a service provider’s bid on a cost factor is then incorporated into the rates for the transmission project? 3.Does the PUCT have the latitude to adopt performance-based incentives (including CWIP in rates) and penalties for transmission service providers that are selected through a competitive process? 4.How could performance-based rates be implemented for candidates that are not incumbent Transmission Service Providers with rate bases? 5.What are the advantages and disadvantages of using the various components of the cost of capital as the chief criterion in the selection process? 6.Are the business and operating risks of transmission-only companies different than those of transmission and distribution companies?

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 17 Public Utility Commission of Texas Docket No , Proceeding to Establish Policy Relating to Excess Development in Competitive Renewable Energy Zones. Proceeding in which the PUCT will promulgate a rule to determine a dispatch priority policy vis-à-vis first movers and latecomers to prevent piling on problem. And, if transmission is not sufficiently sized, rule may determine dispatch priority among first movers. Key proposals: Nodal market will employ security constrained economic dispatch (SCED) to determine most efficient dispatch. No special dispatch mechanism. Allocation of Congestion Revenue Rights Adjusted Offer Curve Day Ahead Operating Limit with Last In First Off

ATLANTA AUSTIN CHICAGO DALLAS HOUSTON LONDON LOS ANGELES NEW ORLEANS NEW YORK SACRAMENTO WASHINGTON L OCKE L ORD B ISSELL & L IDDELL LLP 18 New challenge: allocating resources among wind developers