MISO Wisconsin Relationship Public Service Commission Randel Pilo, Assistant Administrator August 7, 2008

Potential Benefits from an ISO Production Cost Savings for Ratepayers By Dispatching Generation Over Larger Footprint. {~3-4% Savings} Increased Use of Transmission System in Terms of Flow without Decreasing Reliability Less Reliance on Physical Curtailments on Congested Transmission Lines. Prevent Utilities that Own Generation and Transmission From Exercising Vertical Market Power, Whereby Grid Access is Denied or Overpriced to Other Utilities. Better Price Signals for Construction of New Generation or Transmission. Consolidation of Functional Areas like Contingency Reserves and Regulation to Create Savings Coordinated Inter-regional Transmission Planning & Analysis

Potential Downsides to RTOs Set Up Costs for Control Centers, Computers, and Operation. Central Dispatch needs Effective Market Monitoring to Make Sure No Strategic Pricing or Capacity Withholding Occurs. Market Design Must Be Correct Loss of Economies of Scope. Utilities Who Were Efficiently Operating Their Combined Transmission and Generation Assets May Experience Increased Costs Due to Disaggregation. Settlements Process for Transactions Can Be Complex and Subject to Dispute. Seams Can Exist Creating Operational and Cost Disparities Federal and State Jurisdiction Legal Issues Abound.

Present Issue Areas $420 million Arrowhead-Weston Line was Excluded from Regional Cost Sharing; PSCW is Challenging this in Federal Court. Transmission Planning—MISO, Xcel, ATC, and PSCW roles – Several Ongoing Transmission Studies with Results Due in Transmission Cost Allocation—RECB1 and RECB2. – Presently, regional cost sharing is set at 20% of project cost. Resource Adequacy—MISO has proposed an administrative fee approach in conjunction with a voluntary excess capacity auction. Prevention of Non-competitive Pricing by Market Generators. Targeted Load Shedding in Real Time. Should US DOE and FERC have Siting Autority over Projects in Wisconsin? – Congestion Conference in Chicago mid September 2008.

MISO Membership PSCW continues to monitor Stakeholder study suggested staying in MISO because there would have been a $51 million exit fee, and the other options did not look much more appealing. Need to constantly assess due to membership changes, ongoing construction of new lines in MISO footprint, and cost sharing implications. Make sure MISO continues to bring value.

PSCW Watchdog Functions PSCW participates with Regional State Committee, Organization of MISO states containing 14 states, or OMS. PSCW interacts directly with RTO Board, Management, and MISO Staff. Dedicated Commissioner with 6 technical staff as backup. PSCW Intervenes in Appropriate FERC Dockets Costs Examined in Rate Proceedings

Appendix Congestion Fixes In Progress—ATC Energy Prices in Key MISO Zones. Market Monitor Synopsis on MISO pricing. Potential Transmission Improvements in Upper Midwest under study in MTEP.

Executive Summary: The Midwest ISO energy markets performed competitively in Although certain suppliers in the Midwest ISO have local market power, there was very little evidence of attempts to exercise market power in Hence, mitigation measures were employed infrequently to address economic withholding that would have increased energy prices or uplift costs. The most frequent mitigation occurred in Minnesota New Narrow Constrained Area (“NCA”) defined in January Higher fuel prices, played a primary role in the 13 percent increase in average energy prices in 2007 and other rising costs, including: A 26 percent increase in uplift costs associated with revenue sufficiency guarantee payments (“RSG”) that was due to higher fuel prices and increased commitment of peaking resources to manage congestion. A 28 percent increase in congestion costs that was due to the increased redispatch costs caused by higher fuel prices and other factors discussed in the report.

Wisconsin Projects Under Study Only