APS Top Renewable Transmission Projects Arizona Public Service Company November 23, 2009 Brian Cole John Lucas

2 Overview Background & Objectives Policy Issues Analysis of Candidate RTPs Economic Analysis Qualitative Assessment Cost Recovery APS’s RTP Projects Outline of Presentation

3 Select a set of transmission projects that have the potential to advance renewable resource development within Arizona while minimizing the possible rate impacts to wholesale and retail transmission customers. The key criteria for determining the top RTPs for APS customers is the economic evaluation of the resource/transmission pair options Questions that are also relevant to achieving this balance include: What is the appropriate development approach? Does the transmission project bring other benefits? What is the renewable resource potential in the area? Is success dependent upon actions outside of Arizona? The Objective

4 Advancement of renewable resources will require two types of transmission projects: –Connecting renewable resource areas to the transmission system and market hubs –Facilitating deliveries of renewable resources to the load center(s) Project timing (downside to being too early or too late) Importance of taking proactive steps to reduce the mismatch between development lead-times for transmission projects and renewable resource projects Recognizing a need for flexibility in the CEC permitting process –Allow for a more general description of need –Longer potential time frame before construction start requires a longer duration CEC Transmission projects that can provide multiple benefits are preferred Assurance of cost recovery is critical: –RTPs advance timing and drive need which is beyond normal planning needs Review of Policy Comments

5 Utility Evaluation Process Overview

6 APS conducted an economic analysis to compare the potential renewable transmission projects: Purpose was to identify which potential transmission projects could provide the best economic value to APS customers Export projects were analyzed as well Some of the specifics: Analysis looked at the resource sensitivity areas developed by ARRTIS and the candidate transmission projects developed by the SWAT RTTF Subcommittee (based upon the ARTTIS work) Each resource area is coupled to one or more transmission segments to either: –Deliver resources to load, or –Deliver resources to export point (CA border) Economic analysis assessed “value” (as opposed to simply comparing average delivered cost) Economic Assessment

7 Wind Resource Evaluation Areas

8 Solar Resource Evaluation Areas

9 Summary of analysis steps: Select appropriate renewable resource areas Determine required transmission segments using RTTF map »Segments from renewable resource area to load center or export point Estimate capital cost for renewable resource and transmission »Transmission is approximately $2 million per mile (includes right-of-way) Location-specific renewable resource performance: »NREL’s Western Wind Resource Dataset (WWRD) »DOE’s Solar Advisor Model (SAM) »Analyzed both solar thermal and solar PV Compute average delivered cost of renewable energy Determine “value” components: »Time of renewable energy production (daily and seasonal patterns) »Contribution to meeting summer peaks (capacity value) »System integration costs Compute “value-adjusted” delivered costs: »Compare resource/transmission pairs Economic Analysis Process

10 APS Comparative Economic Analysis Results Not showing 6 additional solar areas

11 General Findings of Comparative Economic Analysis Solar resources were economically superior to wind resources Best solar resources are located west and southwest of valley and in relatively close proximity to APS load Palo Verde – East transmission was a common component for 3 of APS’s top RTPs

12 Qualitative Analysis Factors Potential to support multiple potential renewable energy markets Potential to bring benefits beyond renewable resource access for APS customers Likelihood of attracting participants to the project Expected permitting sensitivity (resource and transmission) Interconnection queue robustness for resource area Expected immediate utilization level Ability to support phased implementation to spread out customer rate impacts Current requests for long-term transmission service that might help support cost recovery Potential ability to secure land for resource development in resource area (Bureau of Land Management (“BLM”) vs. private, etc.) Market test verification/availability of existing transmission/other

13 Examples of Qualitative Analysis

14 Transmission Cost Recovery APS 10-Year Plan Contains Transmission Needs Transmission Project In-Service File Annual Rate Update at FERC (FERC Approval) TCA Adjustment (ACC Approval) APS Applies for and Receives CEC for Transmission Project from ACC Transmission Project Development & Construction Note: Current transmission cost recovery split between retail and wholesale transmission customers is 80% retail and 20% wholesale Biennial Review of Overall State Transmission Plan Adequacy in BTA

15 Definition of RTP Per the RTTF Finance Subcommittee Final Report: Identification of RTPs, which includes the acquisition of transmission capacity, such as, but not limited to, (i) new transmission line(s), (ii) upgrade(s) of existing line(s), or (iii) the development of transmission project(s) previously identified by the utility (whether conceptual, planned, committed and/or existing), all of which provide either: –Additional direct transmission infrastructure providing access to areas within the state of Arizona that have renewable energy resources, as defined by the Commission’s Renewable Energy Standard Rules (A.A.C. R , et seq.), or are likely to have renewable energy resources, or –Additional transmission facilities that enable renewable resources to be delivered to load centers.

16 RTAP and RTP Approval APS plans to file for approval of the APS RTAP and the individual RTPs (including the associated development plans) –Approval needed for cost recovery certainty since RTAP/RTP plans are in excess of “normal” transmission needs –ACC approval supports the FERC rate-setting process

17 RTP Approval & Cost Recovery Process Transmission Project In-Service File Annual Rate Update at FERC (FERC Approval) APS Requests ACC Approval of RTAP and RTP Plans RTP Development & Construction (includes CEC acquisition) Note:Process depicted is for RTP projects only; the current cost recovery process continues to apply for traditional 10-Year Plan transmission projects APS RTAP and RTP Identification and Plans APS Early FERC (if applicable) Occurs Either Within or in Parallel With BTA Process TCA Adjustment (ACC Approval)

18 APS’s Top RTPs 1)Palo Verde to Delany 500kV 2)Palo Verde to North Gila 500kV 3A)Palo Verde to Valley Load (Liberty) 3B)Gila Bend to Valley Load (Liberty) 4)Delany to Blythe 500kV

19 APS’s 10-year transmission plan identifies transmission required to meet APS’s future expected customer needs: Provides for system reliability Provides sufficient transmission for import of remotely-located resources Transmission to support renewable resources as specified by APS’s resource plans Transmission projects identified thru the BTA Order process are beyond the normal planning process: New project, or Accelerated timeframes for previously identified project not required by normal planning consideration APS’s Existing Transmission Plans

20 APS 10-Year Plan Transmission Projects

21 APS 10-Year Plan and BTA Order Transmission Projects

22 BTA Order Transmission Projects - Exports Wind Geothermal & Solar

23 Arizona Utilities' BTA Projects

24 Palo Verde to Delany RTP Development and Cost Recovery Approach Development Approach –Acquire CEC – This step is already completed 1 –File CEC compliance stating intent to utilize Delany to Palo Verde portion of the CEC –Finalize participant agreements for project –Acquire ROW –Engineering Design –Construction-ready to meet an in-service date of December 2012 Cost Recovery Approach –APS Current Estimate of Project Cost (APS 80% Share): $55M –Cost recovery through annual formula rate filing at FERC –ACC approval of the FERC rate through the TCA will provide for cost recovery from retail customers 1 ACC Decision No (August 17, 2005)

25 Palo Verde to North Gila RTP Development and Cost Recovery Approach Development Approach –Acquire CEC – This step is already completed 1 –Develop participant agreements (in process) –Acquire land/ROW (on timeline to support current in-service date and subject to second bullet) –Engineering design (on timeline to support current in-service date and subject to second bullet) –Construction for in-service date of 2014 (subject to completion of work described above) Cost Recovery Approach –APS Current Estimate of Project Cost (APS 40% Share): $97M –Cost recovery through annual formula rate filing at FERC –ACC approval of the FERC rate through the TCA will provide for cost recovery from retail customers –Note that additional transmission development within California may be necessary to allow for the full export benefits of this line 1 ACC Decision No (January 23, 2008)

26 Palo Verde to Valley and Gila Bend to Valley RTP Development and Cost Recovery Approach Development Approach –Perform technical studies to determine the optimal electrical connection and best project approach –Conduct open season –Prepare CEC application and file application for CEC approval –Acquire land/ROW (proceed once needed based on in-service date) –Engineering design (proceed once needed based on in-service date) –Construct line – Proceed once a need exists – either a load serving need, PPA, or a TSA Cost Recovery Approach –Cost recovery through annual formula rate filing at FERC –ACC approval of the FERC rate through the TCA will provide for cost recovery from retail customers

27 Delany to Blythe (Arizona Portion of Devers II) RTP APS believes that this project could influence additional solar resource development –Potential export capability to California –Potential to allow for solar resources to be delivered to Arizona utilities at the Delany switchyard APS will continue to encourage and support other transmission developers to move this project forward –Includes WAPA and the potential use WAPA’s ARRA borrowing authority –Includes merchant transmission developers –APS currently has not concluded that an ownership participation in this project is appropriate for its customers Additional transmission development within California may be necessary to allow for the full export benefits of this line

28 Thank You! Questions?