1. Houston Area Dynamic Reactive Project March 11, 2011 1

2. Background  Houston area becomes high import area in 2002  NRG (formally Texas Genco) retires 3800 MW in early 2005  Dynamic reactive support lost  Houston imports 25% or more of load requirement from resources external to the CenterPoint Energy footprint  Local dynamic reactive supply has declined More vulnerable to voltage collapse Houston’s high concentration of residential air conditioning load makes the situation worse Load continues to grow 2

3. 3 With units on-lineWith units off (Voltage Collapse) 3-phase fault with delayed clearing Effect of Retiring 3800MW of Local Generation

4. Steps Taken to Address Voltage Stability Concerns  Under voltage load shedding (UVLS) scheme at CenterPoint Energy completed in 2005  Participation in EPRI load modeling efforts 2004-2010  More than 1550 MVAR of capacitor banks added to the transmission system since 2005  Houston Area Constraint Mitigation projects  STP – Hillje – WAP circuits  Singleton and Zenith substations  Fayetteville – Zenith circuits  Installed a total of 280 MVAR of dynamic reactive compensation in 2008  TSC’s at Bellaire and Crosby  140 MVAR each 4

5. Recent and Future system developments  Received Notices of Suspension of Operations for approximately 900 MW of generation (~470 MVAR of total continuous reactive capability) within the past year  2014 maximum Houston import UPLAN dispatched case with recently approved transmission projects shows an additional 1800 MW of local Houston area generation offline.  ERCOT’s December 2010 Long-Term System Assessment Report highlights the need for additional supply of local dynamic reactive power and “will conduct further analysis of these potential reactive needs in cooperation with the transmission service provider for the Houston area” 5

6. Houston Dynamic Reactive Study  Dynamic analysis is required to determine proper dynamic reactive compensation solution  2013 Summer Peak base case  UPLAN Generation Dispatch provided by ERCOT  Dynamic analysis requirements  Detailed generator models, complex load models including induction motors, UVLS models, and Over-excitation limiter models  Disturbance studied: 3-phase fault cleared by breaker failure relaying taking two elements out of service NERC Category D No more than 1250 MW of UVLS should be lost - Reserve a portion of UVLS as safety net due to modeling uncertainties and avoid over- frequency excursions Transmission system voltages must recover so that no generator terminal voltage remains below 90% of rated voltage for more than 10 seconds. 6

7. Study methodology  Contingency Screening  Time domain contingency screening to determine worst case event  Contingency #58 proved to be the worst case event leading to Fault- Induced Delayed Voltage Recovery violating both aspects of the performance criteria  Load modeling sensitivities  Various types of load models were considered including large, small, and air conditioning motor models  Load model sensitivity analysis also includes a variation of the motor model parameters  Load Model #1 – represents large and small motors with conventional induction motor models  Provided more reasonable and realistic results  Development research for Load Model #2 is still ongoing 7

8. Houston Dynamic Reactive Study 8  Load Model #1 - 2013 Base Case  Results in 5185 MW of UVLS  Eight local generator terminal voltages do not recover to 90% voltage within 10 seconds

9. Voltage Recovery Solutions  Dynamic reactive device technologies considered  STATCOM  STATCOM with Overload Capability  SVC  TSC  Additional option to package each technology with an additional Mechanically Switched Fixed Capacitor  Dynamic models of distinct characteristics of each technology were included  Primarily concerned with capacitive compensation to satisfy performance requirements 9

10. Location Considerations 10 2008 Installations New Proposed Installations Dynamic Reactive Projects ROTHWOOD ZENITH ADDICKS BELLAIRE CROSBY

11. Required Dynamic Reactive Devices Ratings 11 Type of Dynamic Reactive Device Addicks & RothwoodAddicks & Zenith MVAR capacitive output of each device measured at High side voltage Resulting MW Load Shed MVAR capacitive output of each device measured at High side voltage Resulting MW Load Shed STATCOM OC Short-term rating371 1190 347 855 Continuous rating139130 STATCOM OC w/140 MVAR FC Short-term rating278 1232 278 754 Continuous rating104 STATCOM383783360783 STATCOM w/140 MVAR FC2937832701185 SVC51812325181148 SVC w/140 MVAR FC4281157428783 TSC5401061540783

12. System voltage recovery with SVC Example 12  System voltage response with addition of 518 MVAR SVC  Results in 1148 MW of UVLS  All local generator terminal voltages recover to 90% voltage within 10 seconds

13. Proposed Schedule  February 2011: Project submitted for RPG comments  March – May 2011: ERCOT Independent Review  June 2011: Bid package and specification released to vendors  February 2012: Award contract to vendor  2 nd Quarter 2014: Complete Commissioning 13

14. Summary  Houston area in need of dynamic reactive support due to generation retirements, increased imports, and load growth  CenterPoint studies showed a need for 350 – 550 MVAR of dynamic reactive compensation at two sites each in order to satisfy performance criteria  Final amount of reactive compensation will be dependent on technology type and vender bids.  Estimated cost is $125 million  Estimated completion date in 2 nd Quarter 2014 14