Cost Allocation Proposals associated with MISO Transmission Expansion WIEG Board Meeting May 6, 2010 WIEG Board Meeting May 6, 2010 Presented by: Kavita Maini, Principal KM Energy Consulting, LLC

Midwest Independent System Operator (MISO) 2

MISO: 2010 Generation Capacity Breakdown 3 Designated Capacity: 131,284 MW Demand: 104,288 MW Reserve Margin:25.9%

2009 MISO Transmission Expansion Plan Appendix A: Approved Projects ($903 M approved in 2009; $7.2 Billion to date) Appendix B: Probable Projects, $1.5 Billion Appendix C: Conceptual Projects, $23 Billion 4

Current Cost Allocation Methodology 5 Reliability Based Transmission Upgrades – Methodology results in localized allocation of costs with 20% socialization for lines 345 KV and above Economic Based Transmission Upgrades – Based on economics (production costs and energy prices) with 20% socialization for lines 345 KV and above; benefit/cost threshold to be at least 3:1 Generator Interconnections – 345KV and above used to be 50% to generator, 40% to transmission owner, 10% socialized; Temporary solution (2009) 90% generator, 10% socialized to fix the “Otter Tail Problem”

Revisiting Cost Allocation MISO needs to make a compliance filing on July 15, 2010 Provide a permanent solution to generation interconnection related upgrades Resources located remotely from load result Now, even cost allocation methodologies associated with reliability and economics open for debate and discussion 6

Cost Allocation Principles and Methods Beneficiaries /cost causers pay – License Plate High voltage benefits longer distances and therefore, region wide benefits – Postage Stamp FERC was remanded on its approval of PJM’s Postage Stamp method by Circuit Court of Appeals for 500 KV and above 7

8 Current Initiatives Investigating Transmission Planning and Cost Allocation CARP (Regulatory) RECB (MISO Stakeholders) MISO Transmission Planning CARP= Cost Allocation & Regional Planning RECB = Reliability Expansion Costs & Benefits MTEP/ Proposed Tariff Language for Cost Allocation

Transmission Expansion - Cost Allocation Issues 9 What should be cost shared? How should it be cost shared? How should it be recovered? Reliability Economic RPS/other mandates Regional/Local Generators/Load/ Export $/KWh $/KW

How MISO Discussion Started on Cost Allocation – Injection/Withdrawal 10 Injection/ Withdrawal Method – Annual Revenue Requirements Regional ($/MWH) ENG. ANALYSIS Local ($/MW Load Generators Exports Load Generators Planning/ What goes into Appendix A

How MISO Discussion Started on Cost Allocation – Mostly Withdrawal 11 Injection/ Withdrawal Method – Annual Revenue Requirements Regional ($/MWH) ENG. ANALYSIS Local ($/MW Load Generators Exports Load Generators Planning/ What goes into Appendix A

MISO Cost Allocation Proposal 12 ISSUEMISOTRANS. OWNERSREGULATORS Cost Share EligibilityReliability, Economics, Policy Mandates Policy MandatesEconomics and Policy Mandates Cost Sharing SplitLocal and Regional determined by Eng. Analysis Regional – Overlay and Underbuild Who Pays?Load and Export – Regional Load and Generators - Local Load and ExportsLoad (80%) & Generation (20%) Gen. InterconnectionHigher of local access rate or local portion of network upgrade costs Generators 80%;Load 20% Higher of local access rate or local portion of network upgrade costs Rate Design$/MWh - Regional $/MW - Local $/MW$/MWh

What are the relative cost impacts? Cost bucket magnitude between proposals not certain RPS related transmission overlay plus underbuild = $30 Billion for current RPS standards by 2024 MISO projects to date ( ) $7.2 Billion ; future reliability, economic, etc..??? 13

Guiding Principles Cost and benefit threshold at the planning stage and feedback loop for assessing projects that should be eligible for cost sharing A methodology where the right load pays internal and external to the footprint Rate design where fixed costs are represented in a demand charge 14