1 Spare Transformer Equipment Program (STEP)

2 STEP Objectives Industry initiative to increase the number of available spare transformers for use following a terrorist attack Participating utilities commit to share their spares by means of a binding agreement Participating utilities obligate themselves to provide a calculated number of spares to different voltage classes (required obligation) Required obligation varies depending on connected load and current level of preparedness

3 Current Industry Participation Number of utilities involved in the project to date –54 Number of utilities that have signed the agreement –20 Number of utilities with signatures pending –17

4 Utilities That Have Signed The Agreement Allegheny Power American Electric Power American Transmission Company Cinergy Corporation Duke Power First Energy Corporation Florida Power and Light Company Michigan Electric Transmission Company Northeast Utilities Pacific Gas and Electric Company Pepco Holdings Public Service Company of New Mexico Public Service Electric & Gas Puget Sound Energy San Diego Gas and Electric Southern California Edison Southern Company Texas-New Mexico Power Company TXU Electric Delivery Company Xcel Energy

5

6 Binding Sharing Agreement - 1 Open to all types of utilities A Utility does not become a participating utility until it secures any necessary regulatory approvals and two other utilities are participating in a class. Obligation –Calculated by voltage class –Recalculated each year –Two years to meet initial obligation –If a committed spare is used, a utility agrees to replace the transformer

7 Binding Sharing Agreement - 2 Triggering Event Call Rights – A participating utility is qualified to exercise a call right if: –It is in compliance with its obligations under the Sharing Agreement, –Has suffered the loss or long-term disabling of one or more substations in connection with a triggering event, and, –After taking all actions necessary to use all spare transformers that it owns or has rights to access, it is still unable to satisfy an N-0 contingency.

8 Binding Sharing Agreement - 3 Committed Spare Transformers can be jointly owned Spare transformers committed under the Sharing Agreement are to be maintained in accordance with Good Utility Practices. Governance under Sharing Agreement –Agreement provides for an overall Equipment Committee, –Equipment Sub-Committee for each equipment class, and –Eleven-member Executive Committee (8 current NERC Regions, 1 small, 2 at large) Utility may withdraw its membership from an equipment class only upon a minimum of two year's prior written notice to the Equipment Committee and the relevant Equipment Sub- Committee.

9 Voltage Classes Currently Under Consideration

10 Voltage Obligation Calculation Step 1 for Self Assessment Each Utility Reviewed the five most critical substations in each voltage class Assumed all equipment and spares in the substation were destroyed Assumed system recovery to N-0 condition Each utility identified how it would respond to the loss, e.g. –Serving the load from other substations –Re-dispatching generation –Moving in a spare from another location –Moving in an in-service transformer from another substation Acquiring a spare from outside their system

11 Voltage Obligation Calculation Determining Transformers Required Utilities determined number and sizes of transformers needed to restore their system after a 5 substation attack Data for all participating utilities within a voltage class is compiled Total need for the class is determined by worst case utility’s need Each utility is assigned an obligation (MVA) based on their proportion of spares needed to restore their system and their proportion of total connected transformer MVA in class Utilities can meet their obligation with any combination of existing spares or newly acquired spares, including jointly owned spares

12 Current Activity The STEP Agreement has been sent out for execution Companies are currently signing up Obligation calculation and subcommittee leadership election meeting will be April in Dallas

13 For Additional Information Sharing Agreement –Sylvia Foya – General Administration –Gail Royster – Obligation Calculation –Ken Hall –