1. CapX 2020 Transmission Expansion Plan Realizing the CAPX2020 Vision South Dakota Energy Infrastructure Authority June 9, 2006 Terry Wolf, Missouri River Energy Services Manager, Transmission Services

2. 1 CapX Transmission Development Todays topics What does CapX 2020 propose to build? What does CapX 2020 propose to build? Background Project Group 1 Project participation What is the implementation approach? What is the implementation approach? Investment allocation and cost recovery Regulatory and communications Agreement development Key Drivers for Generation Development Key Drivers for Generation Development

3. 2 CapX Transmission Development Key Drivers for Generation Development – Need a Market Coal Generation Coal Generation Transmission Facilities Tariff Taxes Rail Water Wind Generation Wind Generation Transmission Facilities Tariff Taxes Wind Resources Ancillary Service Costs

4. 3 CapX Transmission Development Key Drivers for Gen. Development – Benefit of MISO Mkt Wind in MISO Market Wind in MISO Market Market Access / Market Price Locational Marginal Cost Lower Ancillary Service Costs Transmission Tariff Structure – NO PANCAKE Market Value for Wind in MISO Market Value for Wind in MISO High level analysis – 25-35% greater value for wind in MISO market than outside MISO market CapX doesnt solve the transmission or energy market tariff issues, it does helps with physical infrastructure CapX doesnt solve the transmission or energy market tariff issues, it does helps with physical infrastructure

5. 4 CapX Transmission Development CapX participation Core members Core members Great River Energy Midwest Municipal Transmission Group Minnesota Power Missouri River Energy Services Otter Tail Power Southern Minnesota Municipal Power Agency Xcel Energy Participating utilities Participating utilities Basin Electric Power Cooperative Dairyland Power Cooperative Minnkota Power Cooperative Rochester Public Utilities Wisconsin Public Power Incorporated

6. 5 CapX Transmission Development CapX 2020 – What is it? A vision for transmission infrastructure investments for Minnesota, currently only facilities being proposed are under MISO tariff. Intent is to meet growing loads of participating utilities with high reliability Geography defined by service territories, plus Regional transmission facilities for capacity and reliability that support load serving Generation and transmission to serve load Planning study with a 15-year horizon It will put risk issues in focus for utilities, regulators and other stakeholders

7. 6 CapX Transmission Development Overview – Why is CapX needed? Load growth in Minnesota is continuing New baseload generation is needed Major transmission projects are needed Some plans exist, but lack commitment Regulatory and business challenges must be addressed

8. 7 CapX Transmission Development CapX 2020 Technical Scope Will include new generation scenarios Will address transmission planning requirements for MN Renewable Energy Objective Will help address issues related to the achievement of market efficiency, congestion relief

9. 8 CapX Transmission Development CapX 2020 Assumptions Load Levels MAPP 2009 models with loads adjusted to 2020 levels based on MAPP Load and Capability Report Generation Levels Known planned resource additions Buffalo Ridge Wind, BSP II, etc Resource Planners Identify locations where they are studying Generation interconnection queue MISO, IS Stakeholder input

10. 9 CapX Transmission Development CapX 2020 Study Analysis Computer Modeling Steady state power flow Single contingency (ACCC) Voltage stability

11. 10 CapX Transmission Development System Modeling Significant analysis has confirmed the timing and critical need for CapX transmission assets 15 year plan Multiple planning studies Three scenarios Project group sequence driven by need criticality Estimated capital cost in excess of $3 billion over time Project Group 1

12. 11 CapX Transmission Development CapX 2020 Coordination Studies Upper Great Plains Transmission Coalition Northwest Exploratory Study Northern IA/Southern MN Exploratory Study Red River Valley Transmission Improvement Planning Study (TIPS) Dakota Wind Studies 2004 (WAPA) MISO Baseline Reliability Groups MISO Sub-Regional Planning Groups (SPG) in MAPP area MN State Transmission Plan

13. 12 CapX Transmission Development CapX 2020 Specific Project MISO MTEP State Plan CapX 2020

14. 13 CapX Transmission Development A message in todays briefing … a sense of urgency We have a transmission expansion plan We have a transmission expansion plan Regional 345kV system Design and project sequence driven by time critical needs These assets must be built in order to serve the regions customers reliably Collaborative efforts have achieved legislative and regulatory reform for cost recovery in Minnesota There are high expectations that we will deliver, and significant downside if we do not An execution model has been established There is participant consensus to move ahead

15. What does CapX 2020 propose to build? Background Project Group 1 Project participation

16. 15 CapX Transmission Development Regional Transmission Constraints TX KS OK AZ NM MO IA NE WY SD ND MN WI MI CO Constrained Paths East / West Interconnection

17. 16 CapX Transmission Development Vision Study Results Need for 345-kV Backbone System by 2020 8,000 MW of new generation, including 2,400 MW renewables, to serve 6,300 MW load, forecasted through 2020

18. 17 CapX Transmission Development Continuing work refines the plan, but the first project group is ready for implementation

19. 18 CapX Transmission Development Project Group 1 – $1.1 – 1.3 billion (planning estimate) * Project Group 1 – $1.1 – 1.3 billion (planning estimate) * Further revision of Groups II and III expected as detailed engineering proceeds Project GroupExpected In-Service Group I White, SD to SE Twin Cities (BSP II) / 345 kV SE Twin Cities to Rochester to LaCrosse / 345kV Fargo to NW Twin Cities / 345kV Bemidji to north central MN / 230 kV 2012 2011 2012 2011 Group II – Around the Twin Cities * Benton County to Chisago / 345kV Benton County to Granite Falls / 345kV Benton County to St. Boni / 345kV Chisago to Prairie Island / 345kV 2014 to 2020 Group III – Remote Generation Outlet * Antelope Valley to Maple River / 345kV Arrowhead to Chisago / 345kV Columbia to North LaCrosse / 345kV Forbes to Arrowhead / 345kV 2014 to 2020

20. 19 CapX Transmission Development Project Group 1 White, SD to SE Twin Cities This project, BSP II & 115 kV projects together provide outlet for 1000 incremental MW of wind and south metro reliability Scope – 180 miles (est), 345 kV Expected In-Service 2012 SE Twin Cities to Rochester to LaCrosse Reliability for south metro, Rochester, LaCrosse Scope – 140 miles (est), 345 kV Expected In-Service 2011

21. 20 CapX Transmission Development Project Group 1 Bemidji to North Central MN Grand Forks and surrounding region reliability Scope – 70 miles (est), 230 kV Expected In-Service – 2011 Fargo to St Cloud area Fargo, Central MN regional reliability and some outlet for ND generation Scope – 170 miles (est), 345 kV Expected In-Service – 2012

22. 21 CapX Transmission Development Minnesota Governments Response to CapX 2005: Significant legislation Improved investment recovery Streamlined license process by moving siting to the PUC Enabled the TransCo business model February 2006, DOC meeting: Were growing impatient – Why arent you moving ahead to build? [Deputy Commissioner Garvey, MN DOC] June 2, 2006, Minneapolis Star and Tribune: "Am I impatient that we don't have more transmission? Yes." [Deputy Commissioner Garvey, MN DOC]

23. What is the implementation approach? Investment allocation and cost recovery Regulatory and communications Agreement development Virtual organization

24. 23 CapX Transmission Development CapX has an approach to two key financial questions 1. Investment Allocation: How much does each organization invest? 2. Cost Recovery: How much cost is recovered from each organizations customers? MISO has developed a regional approach (RECB) for recovering transmission costs … key elements approved by FERC (02/2006) CapX seeks alignment between costs recovered, and the allocated opportunity to each participant to invest in the assets CapX members believe MISOs proposal is an acceptable model to allocate the investment opportunity among members/participants Non-MISO, CapX members recover costs on a basis defined by project agreements, not the RECB tariff RECB compatible with MN Tracker for IOU cost recovery

25. 24 CapX Transmission Development Group 1 Project Investment … Will the $$ be there? Key unknown – Will CapX utilities provide the capital to build? Approach in ranked order 1.Investment Allocation – project participants have 1 st right to invest 2.Shortfall Opportunity – if project participants choose not to fully fund, the other CapX members have the next opportunity 3.Access capital markets – if capital is unsubscribed, we will be forced to access the capital markets, including the possible formation of a TransCo, or special project entity

26. 25 CapX Transmission Development Building Support for Group 1 Projects Political, regulatory and communication strategy must match the scale and difficulty of the undertaking Pre-regulatory filing activities Develop intelligence through opinion leader surveys, political consultants Develop target audiences, messages, communication materials Make intial contact with legislators, local units of government, important stakeholders, media Post-regulatory filing activities Public information meetings, work with local government to co-sponsor introductory meetings Pro-active media contacts Begin route development process in parallel with CON proceeding, involve the public up front

27. 26 CapX Transmission Development Regulatory Plan Q2 2006Q3 2006Q4 2006Q1 2007Q2 2007Q3 2007Q4 2007 Regulatory Filings – Project Group 1 File Notice Plans Implement NPs Prepare Group 1 CON File Group 1 CON Hearings Resolution / CON Issued Route Development (separate but coordinated efforts)

28. 27 CapX Transmission Development Resource commitments require agreements Project Agreement for each project Defines investment commitment Defines investment recovery for non-MISO members Defines project development roles Details which components each member owns Specific operations and maintenance arrangements Establishes interconnection agreements CapX governance and operations cost sharing agreement Defines the CapX virtual organization and its activities Defines governance Commits members to sharing the operating costs

29. 28 CapX Transmission Development Regional Grid Growth Required MN is an net energy importer New plants to address the MN generation capacity shortfall require generation outlet Push for renewable power … not enough lines where the best wind blows SD is a net energy exporter now and will likely be into future As of June 2, 2006 – 1860 MW of generation interconnect in MISO and IS queues

30. 29 CapX Transmission Development Realizing the CapX Vision … with a sense of urgency We have a transmission expansion plan We have a transmission expansion plan Regional 345kV system Design and project sequence driven by time critical needs These assets must be built in order to serve the regions customers reliably There are high expectations that we will deliver, and significant downside if we do not There is participant consensus to move ahead Municipals, Cooperatives, and IOUs