OPERATIONAL INVESTMENTS

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1 EB-0-0 Tab Schedule Page of OPERATIONAL INVESTMENTS REACTIVE CAPITAL Reactive capital investment includes funds for the replacement of failed distribution components and the restoration of system reliability. Based on past practice and trending, funds are allocated to capture all expenditures associated with this work. The main goal for allocating these funds is to address immediate and emerging needs that have not been identified in the sustaining capital plan, thereby maintaining system reliability or eliminating hazards. Reactive capital funds are allocated to three areas: overhead, underground, and stations. Overhead work includes replacement of poles, wires, transformers and overhead line hardware. Underground work includes replacement of cables, splices, joints, transformers, switches and civil infrastructure. Stations work includes all system components between the demarcation point with HONI supply and the line disconnect device on the distribution feeder circuit. The forecast for all of these investments is based on historical asset failure data that is captured within the THESL Enterprise Resource Planning ( ERP ) system. 0 Table summarizes the total capital requirements for reactive capital investments for the 0 test year, as well as the historical and bridge years. Table : Reactive Capital Investments Summary ($ millions) 00 Actual 00 Actual 0 Bridge 0 Test Underground Assets.... Overhead Assets.... Stations Assets Total Reactive Capital. 0...

2 EB-0-0 Tab Schedule Page of Reactive capital spending in 00 was $. million more than 00. This spending in 00 also includes the spending on feeders experiencing sustained interruptions to improve the reliability and reduce the power outages to the customer. The emphasis on reducing the frequency and magnitude of power interruptions to the customer and improving the reliability of feeders is continuing in 0 and 0. Total reactive investment for 0 is expected to increase over the forecasted 0 amount by $. million which is largely attributed to an expected increase in failures on aging underground and overhead assets. Although there is a Capital investment program in place to renew aging assets in the system on a planned basis, there is also an apparent recent trend of increased frequency of random failures of aging assets that are not included in the planned capital program. This trend is indicated in the charts provided below. Those failures need to be replaced under the reactive capital program. Selective equipment replacement, although necessary to address poor feeder reliability, is a costly short-term solution when compared to a sustaining capital rebuild of these areas. The latter approach is generally the preferred option to address eroding reliability caused by end-of-life equipment failures to address end-of-life sustainment issues.

3 EB-0-0 Tab Schedule Page of As of June, 0 a total of, work requests have been issued in 0 for the repair or replacement of failed assets. Equipment failures have been on the increase since 00 as shown in the plot on the annual corrective repairs. Almost 0 percent of the total deficiencies are attributable to underground equipment, comprised predominantly of primary and secondary cables, underground switches, and vault-related deficiencies. Underground corrective equipment repairs also show an increasing trend since 00. Direct-buried primary and secondary cables in areas requiring future rebuild are continuing to fail at an increasing rate. Replacement of these cables on a reactive basis is relatively costly and normally requires civil construction. In summary, underground distribution plant is costly to replace on a reactive basis and typically requires greater effort and time versus overhead equipment. THESL s aim is to stabilize these investment levels as asset renewal addresses the effects of decaying assets.

4 EB-0-0 Tab Schedule Page of Overhead equipment repairs also show an increasing trend since 00. Overhead pole replacement accounts for nearly 0 percent of asset replacement requests in 00. These poles have been tested by either internal resources or external pole testing agencies and deemed defective. The population of THESL poles is aged to the extent that a large number of poles require immediate replacement. THESL is experiencing an increase in the failure rate of automated, overhead, SCADAcontrolled switches. These devices are often first generation equipment and are typically not repairable. The replacement of this equipment and restoration of remote telemetry and control is vital to the feeder reliability strategy implemented at THESL. This same focus on feeder reliability is also driving the proactive replacement of components such as lightning arresters and fused cutout switches. Failure of these elements results in sustained outages to our customers and can be avoided with spot asset replacement.

5 EB-0-0 Tab Schedule Page of Lastly, when the root causes of feeder outages cannot be immediately remedied with spot replacement activities, the reliability risk to customers must be minimized. To this end, THESL is sectionalizing older feeders to avoid situations where any high voltage fault causes the station breaker to operate and all customers on the feeder experience an outage. Sectionalizing is a method of breaking the feeder into local portions, with fuses designed to isolate the outage to only a few downstream customers. In the event of an outage, typically less than 0 customers are affected, as opposed to more than,000 customers on the feeder. Stations reactive capital most often involves the replacement of SCADA telemetry/control equipment installed within the distribution plant. Increasing failures hamper remote control of the distribution grid and require local intervention by THESL crews. The amount requested for stations reactive capital is a small portion of the overall reactive capital budget because the costs associated with SCADA failures are typically incorporated into the replacement of the failed underground or overhead distribution

6 EB-0-0 Tab Schedule Page of assets and are being funded from those reactive capital budgets. THESL is projecting a continuation of the trend in failure rates for all classes of distribution and stations equipment through 0. These failure rates illustrate the aging and decay of THESL s distribution assets, which is being addressed over the long-term through sustaining capital investments. Funding for the reactive replacement of failed assets must be sufficient to address real-time problems and reduce the frequency and magnitude of interruptions experienced by customers. In the longer term, sustaining capital investments in plant renewal will overcome these failure rates and result in reduced reactive capital requirements.