POWER SYSTEM PLANNING CHARTER AND PROCESSES Presentation to TAC 10/09/2003 KENNETH A. DONOHOO, P.E. Manager of System Planning Transmission Services

© ERCOT /09/2003 PLANNING TRANSMISSION Link between generation and customers Transportation highway Must be flexible and robust Key to reliable and affordable electricity CONSTRAINTS Complicate operations and communications Increase electricity costs Reduce system reliability Increase risk of equipment damage IMPACTS FUTURE MARKETS Short term planning impacts operations Long term planning impacts additions

© ERCOT /09/2003 OPEN PROCESS DEVELOPED AND REVIEWED WITH: Regional Planning Groups (North, South & West) Transmission Owners Stakeholders Market Participants PUCT Staff PRESENTED TO ROS SEPT 10, 2003 PRESENTED TO WMS SEPT 17, 2003

© ERCOT /09/2003 PLANNING RESPONSIBILITIES DEFINES THEM FOR: ERCOT TDSP STAKEHOLDER/MARKET PARTICIPANT PUBLIC UTILITY COMMISSION Substantive Rules REGIONAL PLANNING GROUPS

© ERCOT /09/2003 PLANNING PROCESS POSTING AND COMMUNICATIONS Official notice exploder lists for each region System planning data area MAJOR PROJECT INPUT FROM STAKEHOLDERS Initial study scope Middle of study Completion of study Prevent iterative/repetitive work NEW OR ADDITIONAL GENERATION After Interconnection Agreement completed Impact studies posted Related trans projects submitted for regional group review TRANSMISSION PROJECTS FOR REVIEW Small projects – regional group review 138 kV to 60 kV not requiring CCN Large Projects – regional group and ERCOT independent review 345 kV and projects requiring CCN

© ERCOT /09/2003 PROJECTION OF OPERATING CONDITIONS DEPENDENT UPON AVAILABLE RESOURCES Includes known transmission and generation outages Two to Three Months Ahead Monthly zonal TCR or TFR amounts Adequate generation supply for the month Identify risk and possible unserved energy (loss of load) Project transmission congestion and limits Review dynamic stability and voltage transfer limits Seasonal to One Year Ahead Adequate generation supply for the season Identify risk and possible unserved energy Project transmission congestion and limits Identify dynamic stability and voltage transfer limits Over One Year Ahead Determine adequate generation supply Identify risk and possible unserved energy Project transmission congestion and limits Identify dynamic stability and voltage transfer limits Develop transmission additions Evaluate proposed transmission projects

© ERCOT /09/2003 QUESTIONS/DISCUSSION

© ERCOT /09/2003

© ERCOT /09/2003 Overview Transmission major purposes are to: Deliver electric power to areas of customer demand Allow economic and competitive exchange of electric power and improve liquidity Provide flexibility for changing system conditions The ERCOT Planning Criteria sets forth minimum transmission requirements for reliable operations Plan must encourage wind generators to site appropriately where transmission capacity is available

© ERCOT /09/2003 TRANSMISSION SYSTEM Is a Network Not a one way system Flows change with changing system conditions Events on the network can have far reaching effects across the whole system All customers share the benefits of a reliable interconnected network Is constantly changing and is very rapid Generation Output Changes Transmission System Changes

© ERCOT /09/2003 Reliability Transmission major purposes are to: Deliver electric power to areas of customer demand Allow economic and competitive exchange of electric power Provide flexibility for changing system conditions Interconnected transmission systems are principal means for achieving a reliable electric supply The NERC Planning Standards define the reliability of the interconnected electric systems using the following two terms: Adequacy — The ability of the electric systems to supply the aggregate electrical demand and energy requirements of their customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements. Security — The ability of the electric systems to withstand sudden disturbances such as electric short circuits or unanticipated loss of system elements. Guides in NERC Planning Standards describe good planning practices and considerations

© ERCOT /09/2003 Planning Criteria Due to its very nature, transmission planning is a continuous process and is constantly changing due to the addition (or elimination) of plans for new generation, transmission facilities, equipment, or loads Electric system reliability begins with good long term planning ERCOT Planning Criteria state the fundamental minimum requirements for planning and constructing reliable interconnected electric systems under: Normal conditions First contingency conditions Includes double-circuit outages (DCO) over 0.5 mile that result in collapse or uncontrolled outages, instability of generating units or interruption of service to firm demand or generation other than that isolated by the double-circuit loss, following the execution of all automatic operating actions such as relaying and special protection systems. Loss should result in no damage to or failure of equipment. Single faults resulting in multiple elements (SFME) out Second contingency conditions, with adjustment

© ERCOT /09/2003 Senate Bill 7 Sec DEFINITIONS (9) "Independent system operator" means an entity supervising the collective transmission facilities of a power region that is charged with nondiscriminatory coordination of market transactions, systemwide transmission planning, and network reliability. Sec ESSENTIAL ORGANIZATIONS (a) A power region must establish one or more independent organizations to perform the following functions: (1) ensure access to the transmission and distribution systems for all buyers and sellers of electricity on nondiscriminatory terms; (2) ensure the reliability and adequacy of the regional electrical network; (3) ensure that information relating to a customer's choice of retail electric provider is conveyed in a timely manner to the persons who need that information; and (4) ensure that electricity production and delivery are accurately accounted for among the generators and wholesale buyers and sellers in the region. (b) "Independent organization" means an independent system operator or other person that is sufficiently independent of any producer or seller of electricity that its decisions will not be unduly influenced by any producer or seller. An entity … (j) A retail electric provider, municipally owned utility, electric cooperative, power marketer, transmission and distribution utility, or power generation company shall observe all scheduling, operating, planning, reliability, and settlement policies, rules, guidelines, and procedures established by the independent system operator in ERCOT. Failure to comply with this subsection may result in the revocation, suspension, or amendment of a certificate as provided by Section or in the imposition of an administrative penalty as provided by Section

© ERCOT /09/2003 PUCT Substantive Rules § Transmission Service Requirements (a) Purpose. The purpose of Subchapter I, Division 1 of this chapter (relating to Transmission and Distribution), is to clearly state the terms and conditions that govern transmission access in order to: (1) facilitate competition in the sale of electric energy in Texas; (2) preserve the reliability of electric service; and (3) enhance economic efficiency in the production and consumption of electricity. (c) Nature of transmission service. Transmission service allows for power delivery from generation resources to serve loads, inside and outside of the ERCOT region. (d) Obligation to provide transmission service. Each TSP in ERCOT shall provide transmission service in accordance with the provisions of Division 1 of this subchapter. (3) A TSP shall interconnect its facilities with new generating sources and construct facilities needed for such an interconnection, in accordance with Division 1 of this subchapter. § Terms and Conditions for Transmission Service (c) Construction of new facilities. If additional transmission facilities or interconnections between TSPs are needed to provide transmission service pursuant to a request for such service, the TSPs where the constraint exists shall construct or acquire the facilities necessary to permit the transmission service to be provided in accordance with good utility practice, unless ERCOT identifies an alternative means of providing the transmission service that is less costly, operationally sound, and relieves the transmission constraint at least as effectively as would additional transmission facilities. § Initiating Transmission Service (d) Facilities study. (3) Pursuant to §25.195(c)(2) of this title, the TSP shall be responsible for the costs of any planning, designing, and constructing of facilities of the TSP associated with its addition of new facilities used to provide transmission service.

© ERCOT /09/2003 PUCT Substantive Rules §25.361Electric Reliability Council of Texas (ERCOT) (b) Purpose. ERCOT shall perform the functions of an independent organization under the Public Utility Regulatory Act (PURA) §39.151… (f) Planning. ERCOT shall conduct transmission system planning and exercise comprehensive authority over the planning of bulk transmission projects that affect the transfer capability of the ERCOT transmission system. ERCOT shall supervise and coordinate the other planning activities of TSPs. (1) ERCOT shall evaluate and make a recommendation to the commission as to the need for any transmission facility over which it has comprehensive transmission planning authority. (2) A TSP shall coordinate its transmission planning efforts with those of other TSPs, insofar as its transmission plans affect other TSPs. (3) ERCOT shall submit to the commission any revisions or additions to the planning guidelines and procedures prior to adoption. ERCOT may seek input from the commission as to the content and implementation of its guidelines and procedures as it deems necessary. (h) Interconnection standards. In performing its functions related to the reliability and security of the ERCOT electrical network, ERCOT may prescribe reliability and security standards for the interconnection of generating facilities that use the ERCOT transmission network. Such standards shall not adversely affect or impede manufacturing or other internal process operations associated with such generating facilities, except to the minimum extent necessary to assure reliability of the ERCOT transmission network.