Southwest Power Pool PROJECT COST WORKING GROUP MEETING August 13, 2013 Xcel (SPS) Office 600 South Tyler Street, Amarillo, TX MINUTES

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1 Minutes No. [27] Southwest Power Pool PROJECT COST WORKING GROUP MEETING August 13, 2013 Xcel (SPS) Office 600 South Tyler Street, Amarillo, TX MINUTES Agenda Item 1 Administrative Items a. Call to Order & Introductions Chair Terri Gallup (AEP) called the meeting to order at 9:00 am, welcomed those in attendance, and asked for introductions (Attachment 1 PCWG Attendance ). b. Staff Secretary Transition The Chair announced that Steve Purdy would be resigning as SPP Staff Secretary for the PCWG and that Cary Frizzell would be assuming the role, effective at the conclusion of the meeting. It was also announced that Jeff Stebbins was resigning from SPS, and would therefore have to also resign his post as Vice-Chair of the PCWG. c. Receipt of Proxies The Staff Secretary announced that no proxies had been received. d. Review of Agenda The Chair asked the PCWG for edits or additions to the agenda (Attachment 2 - PCWG Agenda ) and none were mentioned. e. Approval of Previous Meeting Minutes The Chair presented the minutes from the July 9 th meeting for review and asked for any additions or corrections. Tom Hestermann (Sunflower) moved and Peter Day (OGE) seconded that the minutes be approved as presented. The motion passed unanimously. Agenda Item 2 Review of Past Action Items The Staff Secretary led a review of the Action Item list (Attachment 3 - PCWG Action Items ). No additions or corrections were made. **The group decided to postpone Agenda Item 3 until members integral to the discussion were present** Agenda Item 4 FERC Order 1000 Update Cary Frizzell (SPP Staff) led the PCWG in a status update of SPP s compliance filing to FERC Order 1000 (Attachment 4- Order 1000 Regional Compliance Order). On July 18 th, FERC issued an order to SPP in response to its Order 1000 compliance filing. SPP must file a compliance filing to the new order by November 15, of 39

2 Minutes No. [27] The key decision in the new FERC order pertained to whether the Right of First Refusal (ROFR) provision would be allowed to continue for projects considered Byway projects in the Highway/Byway cost allocation methodology as defined in the SPP Open Access Transmission Tariff (OATT). Byway projects have a nominal operating voltage between 100 kv and 300 kv and a third of their costs are regionally funded while the remaining two-thirds are paid for by the host zone. FERC determined that ROFR should not be continued for Byway projects. However, an exemption to this provision was introduced in the order for projects determined to be needed for reliability issues within three years from the time of Notification to Construct (NTC) issuance. FERC accepted SPP s proposal to eliminate ROFR for projects considered Highway, or projects with a nominal operating voltage greater than 300 kv. SPP will petition FERC for a rehearing or clarification on other portions of the order, such as the consideration of state ROFR laws and the treatment of projects sourced from the Aggregate Study process. Staff will continue to provide updates to the PCWG as the compliance filing deadline approaches and the first stages of the Competitive Upgrade process begin. Agenda Item 3 MOPC Meeting Review The Chair provided the PCWG an overview of the discussions at the quarterly meeting of the Markets and Operations Policy Committee (MOPC) in July. The MOPC approved both Business Practice Revisions (BPRs) initiated by the PCWG titled BPR-035 PCWG Review of Legacy Projects and BPR-036 Definition of Applicable Project. In its discussion of BPR-035, the MOPC asked the PCWG to have a further discussion on the monitoring process of the Legacy Projects for costs that change over longer than the time frame of a quarter. Staff presented statistical analysis of the Legacy Projects that indicated how many have current cost estimates greater than 20% from the cost estimates indicated on their respective NTCs (Attachment 5 Legacy Project Analysis for MOPC Action Item 213). The PCWG membership suggested multiple ideas to increase the amount of scrutiny on the Legacy Project cost estimates. One suggestion was to keep the quarter-to-quarter evaluation, but decrease the bandwidth requirement from 20% to 10%. Another proposal was to move the Legacy Projects into the Standard process by allowing the designated Transmission Owners (TOs) to provide baseline cost estimates for those Legacy Projects not yet completed. Some supported this notion but felt that limiting the provision to only the Legacy Projects applicable to PCWG review would be adequate. Others expressed the desire to not apply a different process to projects based on classification to ensure fairness to all designated TOs with Legacy Projects. The PCWG asked Staff to update statistical analysis presented in a December of 2012 meeting that showed cost breakdowns of Legacy Projects. Staff will send the updated analysis to the PCWG membership as soon as it is available. The PCWG membership will use this information to discuss with their respective companies in preparation for a discussion of the topic at the September meeting. Agenda Item 5 Timelines for Cost Estimate Completion The Staff Secretary led the PCWG in a review of the current Aggregate Study process, focusing on the challenges that exist in providing ample time for Study Estimates to be developed by TOs (Attachment 6 Timelines for Cost Estimate Completion). Additionally, the Staff Secretary summarized the new study 2 of 39

3 Minutes No. [27] process proposed by stakeholders that incorporates improvements identified by the Aggregate Study Improvement Task Force. In the new proposed process, TOs would be given approximately 30 business days to complete Study Estimates for projects identified in the study. Some expressed concern that this would not constitute enough time to complete cost estimates expected to be within a ±30% bandwidth of the final cost, especially if the cost estimate requests occurred during a period that overlapped with the cost estimation time periods of any of the Integrated Transmission Planning (ITP) study processes. The PCWG asked the Staff Secretary to report back to the group in September the feedback he receives from presenting the new process and associated timelines to the Transmission Working Group (TWG). Agenda Item 6 Exclusion of Aggregate and DPA Studies from NTC-C Process The PCWG discussed the language in Business Practice 7060 that prohibited projects that originate out of the Aggregate and Delivery Point Addition (DPA) study processes from receiving a Notification to Construct with Conditions (NTC-C). It was noted that if the NTC-C process was modified to include the Aggregate and DPA Study processes, the amount of time give to the designated TOs would need to be defined like they are for the ITP study processes. The PCWG members agreed to discuss the issue with those who develop cost estimates at their respective companies in preparation for further discussion of the topic at the September meeting. Agenda Item 7 Other Items The Chair asked if there were any other items to discuss, and none were mentioned. Agenda Item 8 Summary of Action Items The Staff Secretary reviewed the new action items: 1. Staff will update statistical analysis presented in the December 2012 meeting that showed cost breakdowns of Legacy Projects and send the update to the PCWG membership as soon as it is available. 2. Staff will bring to the September meeting any feedback received from the TWG regarding the new Aggregate Study process proposal related to Study Estimate timelines. 3. Staff will send a reminder to those that have yet to sign the Non-Disclosure Agreement to do so. Agenda Item 9 Develop Agenda for Next Meeting 3 of 39

4 Minutes No. [27] The Staff Secretary mentioned the following list as potential agenda items for the next scheduled meeting in September: Legacy Project discussion regarding MOPC Action Item Timeframes for cost estimate completion Exclusion of NTC-C from Aggregate and DPA Study processes Election of Vice-Chair Agenda Item 10 Future Meeting Dates and Locations The PCWG decided to move the meeting in September from Tuesday the 10 th to Monday the 9 th, at 9:30 to 3:30. The group also decided to move the meeting from AECC s office in Little Rock, AR to AEP s office in Dallas, TX to accommodate the date change. The Staff Secretary also noted that locations and dates for meetings in 2014 will need to be discussed at the next meeting in September. The consensus of the PCWG was that the 2 nd Tuesday of each month was still a good meeting time for the group. Meeting adjourned at 2:30 pm. Respectfully Submitted, Steve Purdy Secretary Attachments Attachment 1 - PCWG Attendance Attachment 2 - PCWG Agenda Attachment 3 - PCWG Action Items Attachment 4 - Order 1000 Regional Compliance Order Attachment 5 - Legacy Project Analysis for MOPC Action Item 213 Attachment 6 - Timelines for Cost Estimate Completion 4 of 39

5 PCWG Attendance August 13, 2013 X=In Person P=Proxy T=Teleconference First Name Last Name Position Company Business Phone Attendance Terri Gallup Chair AEP (918) X Steve Purdy Secretary SPP (501) X Allen Ackland Member KCPL (816) T Scott Benortham Member Westar (785) X Brent Carr Member AECC (501) X Peter Day Member OGE (405) X Tom Hestermann Member Sunflower (785) X Larry Holloway Member KPP (316) X Leland Jacobson Member OPPD (402) T David Kimball Member NPPD (402) X Lloyd Kolb Member Golden Spread Electric Coop (806) X Tom Littleton Member OMPA (405) T Brian Slocum Member ITCGP (248) T Jeff Stebbins Member SPS (806) X John Krajewski Liaison Member NE Power Review Board (402) X Bruce Cude Guest SPS X Gerald Deaver Guest SPS T Jeff Ellis Guest AEP T Cary Frizzell Guest SPP T Noumvi Ghomsi Guest Missouri Public Service Commission T Bill Grant Guest SPS X Tony Green Guest SPP T Dan Jones Guest SPP T Thomas Maldonado Guest SPS X Debbie Prater Guest Oklahoma Corporation Commission X 5 of 39

6 Southwest Power Pool, Inc. PROJECT COST WORKING GROUP MEETING August 13, 2013 Xcel (SPS) Office 600 South Tyler Street, Amarillo, TX AGENDA 9:00 am 3:00 pm 1. Administrative Items... (5 min) a. Call to Order & Introductions... Terri Gallup b. Staff Secretary Transition... Terri Gallup c. Receipt of Proxies... Steve Purdy d. Review of Agenda*... Terri Gallup e. Approval of Previous Meeting Minutes*... Terri Gallup 2. Review of Past Action Items*... Steve Purdy (3 min) 3. MOPC Meeting Review... Terri Gallup (1 hr) a. Review of Legacy Project Monitoring (MOPC Action Item #213)* 4. FERC Order 1000 Update*... Staff (1.5 hrs) Lunch Break 5. Timelines for Cost Estimate Completion*... Staff (1 hr) 6. Exclusion of Transmission Service and DPA Studies from NTC-C Process*... Bruce Cude (1 hr) 7. Other Items... All 8. Summary of Action Items... Steve Purdy (2 min) 9. Develop agenda for next meeting... Terri Gallup (5 min) 10. Future Meeting Dates and Locations (Including 2014)... All (10 min) Sep 10 AECC Office, Little Rock Oct. 8 Airport Marriott, Kansas City Nov. 12 OMPA Office, Okla. City/Edmond Dec. 10 SPP Office, Little Rock * Background Materials Included Relationship-Based Member-Driven Independence Through Diversity Evolutionary vs. Revolutionary Reliability & Economics Inseparable 6 of 39

7 Southwest Power Pool, Inc. PROJECT COST WORKING GROUP Pending Action Items Status Report August 13, 2013 Action Item 13. As directed by MOPC at the January meeting, review and recommend any changes to the Quarterly Tracking Report process, including timing, data requested, format of data reporting, interaction with other project costrelated initiatives, etc. 63 The Chair will report to the TWG the decision of the PCWG to not modify the composition of SCERTs for projects meeting any criteria based on voltage level or cost estimate amount. 66 Staff will update the SCERT and the SCERT Data Dictionary to remove the requirements for escalation of costs within the Project s schedule. Staff will also review Business Practice 7060 to determine if changes are needed to document the removal of escalation for multi-year projects. 67 Staff will review the SCERTs of previously submitted baseline cost estimates to determine how many include costs for escalation in multi-year projects. 68 Staff will draft changes to the pertinent business practices that would allow SPP to reject a TO s commitment to an NTC if the corresponding cost estimate variance is substantial and an insufficient amount of supporting documentation is provided. Date Originated February 7, 2012 April 9, 2013 June 11, 2013 June 11, 2013 July 9, 2013 Status In Progress Complete Complete Complete In Progress Comments MOPC Action item complete. Ongoing project to identify improvements TWG Teleconference 7/24/ of 39

8 FERC Order on SPP Order 1000 Regional Compliance Filing August 2013 PCWG 8 of 39 1

9 SPP Regional Order 1000 Order - Dates Order issued by FERC on July 18, 2013 Commissioners Moeller and Clark partially dissented Petition for rehearing/clarification must be filed by Aug 18 SPP compliance filing to be filed by Nov 15, 2013 Conditionally accepted revisions to the OATT and Membership Agreement effective Mar 30, 2014 Prequalification Process starts April 2014 NTCs approved by the Board in January 2015 required to submit to competitive solicitation selection process 9 of 39 2

10 Order 1000 Mobile-Sierra Rejected argument that the ROFR provisions in the Membership Agreement are protected by Mobile- Sierra doctrine Found that the Membership Agreement does not the characteristics necessary to justify Mobile-Sierra protection Provisions of general applicability, not negotiated rate provisions Negotiated by parties interested in protection from competition FERC s reasons and rationale are nearly identical to 10 of 39 similar Mobile-Sierra claims invoked by other RTOs 3

11 Order 1000 Eliminate ROFR Accepted SPP elimination of federal ROFR for Highway projects Rejected SPP proposal to retain federal ROFR for Byway projects Confirmed that a transmission provider can not retain a federal ROFR for transmission if any of the costs of new facilities are allocated outside the provider s service territory Rejected SPP alternative request for a waiver regarding Byway facilities Must include Byway facilities as competitive upgrades 11 of 39 4

12 Order 1000 State ROFR Laws Rejected SPP language to eliminate projects from being considered competitive upgrades if project located in states with ROFR laws However, FERC stated that state laws may be considered at other points in the evaluation process Same language included in other RTO Order 1000 Orders 12 of 39 5

13 Order 1000 Multi-Owner Zones Approved proposal to treat cost allocation of new facilities in multi-owner zones the same way similar costs would be treated if allocated to a zone with a single TO In such cases the ROFR is retained Limited to the five existing multi-owner zones 13 of 39 6

14 Order 1000 Projects Needed for Public Policy Determined that SPP is partially compliant with requirement to consider transmission needed for public policy requirements Approved the definition of Public Policy Requirements proposed SPP directed to provide additional clarity regarding the process that will be used to consider transmission needed for public policy 14 of 39 7

15 Order 1000 Short Term Reliability Projects Conditionally accepted proposal to exempt projects needed in the short term to meet reliability needs Imposed 5 criteria that must be met for this exemption Limited to projects needed within 3 years Identify and post reliability violations explaining why needed Provide explanation to stakeholders with reason why not identified earlier Stakeholders should have opportunity to comment Post list of projects and file each January at FERC 15 of 39 8

16 Order 1000 Short Term Reliability Projects < 3 Years > 3 Years # of Upgrades Estimated Cost ($M) # of Upgrades Estimated Cost ($M) STEP 152 $ $212.0 Byway ( kv) Reliability Ag/DPA Studies ITPNT 60 $ $121.2 ITP10 0 $0.0 7 $109.8 Sub-Total 212 $1, $443.0 Ag Study 54 $ $70.5 DPA Study 16 $ $0.0 Sub-total 70 $ $70.5 Byway Total 282 $1, $513.5 STEP 6 $ $124.1 Highway (>300 kv) Reliability Ag/DPA Studies ITPNT 6 $ $3.5 ITP10 0 $ $1,164.6 Sub-Total 12 $ $1,292.2 Ag Study 1 $ $336.3 DPA Study 1 $ $0.0 Sub-Total 2 $ $336.3 Highway Total 14 $ $1, of 39 9

17 Order 1000 Cost Allocation SPP fully complies with all but one of the FERC regional cost allocation principles in Order 1000 SPP must modify the tariff to: Identify the consequences a facility selected in the regional planning process will have on other planning regions State whether SPP will bear the costs of any resulting upgrades in another planning region If SPP bears such costs how will they be allocated within SPP 17 of 39 10

18 Order 1000 Rights of Way Incumbent TOs will not be allowed to retain a ROFR for new transmission facilities built along the TO s existing right of way However, this situation could be considered during the planning process as part of the evaluation process 18 of 39 11

19 Order Rebuilds Proposal to retain ROFR for rebuilds of an existing facility found to be partially compliant SPP to revise tariff to include definition of rebuild that indicates its use in the planning process to distinguish between change to an existing facility and a new facility SPP must also clarify how projects will be classified that contain both upgrades to existing facilities and new facilities 19 of 39 12

20 Order 1000 Aggregate Study Projects Projects that result from the aggregate study process that receive Highway/Byway cost allocation should be considered competitive upgrades 20 of 39 13

21 Order 1000 Local Upgrades Ordered SPP to revise definition of competitive upgrades to clarify how a facility will be considered a local project To be classified a local project: It must be located entirely within the provider s retail service territory and It cannot be included in a regional transmission plan for purposes of cost allocation 21 of 39 14

22 Order 1000 Qualification and Evaluation Process Found SPP partially compliant with the transmission owner qualification requirement Applicant can demonstrate how it plans to meet NERC compliance SPP must either charge incumbents and nonincumbents the same application fee or explain the proposal to charge only non-incumbents in not discriminatory SPP must provide more justification regarding the points assigned to rate impact in the evaluation process 22 of 39 15

23 Next Steps? Issues to seek rehearing and/or clarification with FERC Mobile-Sierra Byway funding Removal of exemption on existing rights-of-way Treatment of Ag Study projects State ROFRs Treatment of Ag Study NTCs issued before Jan 2015 Working Groups to begin compliance process Includes cost allocation issue and state ROFRs 23 of 39 16

24 Legacy Project Analysis for MOPC Action Item 213 August 2013 PCWG 24 of 39 1

25 MOPC Action Item 213 PCWG to have a further discussion on the monitoring process of the Legacy Projects Procedure for costs that change over longer than the time frame of a quarter and bring back to MOPC in October. 25 of 39 2

26 Number of Legacy Projects Per Cost Estimate Amount % 16 Total Number of Legacy Projects = 93 % of Projects w/ Variance* > 20% = 46.2% 62.1% % Variance > 20% Variance < 20% < $5M $5M - $20M > $20M *Variance determined by comparing latest project cost estimate versus cost estimate indicated on NTC 26 of 39 3

27 Total Estimated Cost ($M) Per Cost Estimate Amount $2,500.0 $2,000.0 Total Estimated Cost of Legacy Projects = $2.64B % of Estimated Cost w/ Variance > 20% = 39.6% 38.2% $1,500.0 $1,000.0 Variance > 20% Variance < 20% $ % 36.7% $0.0 < $5M $5M - $20M > $20M 27 of 39 4

28 Number of Legacy Projects Per Voltage (kv) % % % % 6 Variance > 20% Variance < 20% % 13 75% of 39 5

29 Total Estimated Cost Per Voltage (kv) $2, % $2,000.0 $1,500.0 $1,000.0 Variance > 20% Variance < 20% $ % 83.6% 26.2% 92.86% 99.9% $ of 39 6

30 Number of Legacy Projects Per In-Service Year % % % Variance > 20% Variance < 20% % 13 20% % 0% of 39 7

31 Total Estimated Cost Per In-Service Year $1, % $1,400.0 $1,200.0 $1,000.0 $800.0 Variance > 20% Variance < 20% $600.0 $ % 33.6% 3.2% $200.0 $ % 9.1% 0% of 39 8

32 Timelines for Cost Estimate Completion (Aggregate Study) PCWG August 13, 2013 Steve Purdy Manager, Transmission Service Studies of 39

33 Aggregate Study Process (Current) YES Open Season (4 months) Facilities Study (60 days) Letter of Intent Response Period (15 days) Restudy Needed? Aggregate Study is an iterative process that continues until no customers withdraw. NO Write Service Agreement 33 of 39

34 Aggregate Facilities Study Stages Model Build 28 Models 7 Seasons: Years 1, 2, 5 Summer/Winter peak; Year 10 Summer peak 2 Cases: Base and Transfer 2 Scenarios: Projected Dispatch; Contractual Dispatch Contingency Scan Contingencies and Monitored Elements N-1 Facilities in SPP Flowgates for First-Tier areas and beyond Constraint Analysis Identify Upgrades Least-cost Solution Utilize expansion-plan upgrades where possible Cost Allocation Attachment J, Z1, and Z2 Allocate Upgrade Costs by Flow Impact, including Crediting Re-dispatch Calculation 34 of 39 3

35 Aggregate Facilities Study Iterations Current Process AFS-1 AFS-2 AFS-3 AFS-4?? Feedback on facility log posted with study report Informal data requests on specific upgrades Study Estimate (SCERT) Request 35 of 39 4

36 Current Study Queue As of July 30, 2013 Study Currently Active Iteration Due Date Requests Currently in Study MW Currently in Study Currently Posted Study Date Posted 2011-AG3 AFS-10 9/28/ AFS-9 7/15/ AG1 AFS-4 8/7/ AFS-3 4/5/ AG2 AFS-5 8/9/ AFS-4 3/4/ AG3 AFS-5 9/21/ AFS-4 7/8/ AG1 AFS-3 12/29/ AFS-2 6/17/ AG2 AFS-1 (LOI) 8/14/ AFS-1 7/30/ AG3 Open Season ends 9/30/2013 Total of 39 5

37 Number of Service Upgrades in 2011-AG Number of Service Upgrades Prior Study Completed between AFS-9 and AFS-10 AFS-1 AFS-2 AFS-3 AFS-4 AFS-5 AFS-6 AFS-7 AFS-8 AFS-9 AFS of 39 6

38 Overview of the Backlog Clearing Process Start Post AFS-4 and Tender ATSS Completion Agreement (ACA) Customer with thirdparty impacts may move to next study Customer Executes ACA Facilities Study Customers with requests that did not meet parameters may withdraw or must execute ACA amendment to remain NO Are New Completion Requirements Met? YES YES Did any customers withdraw? Accept all requests and Tender Service Agreements NO SPP Staff Action Customer Action Customer Does Not Execute ACA Request Withdrawn Collect Make-Whole Payments from Customer, if required Customer with Third-Party impacts postpones action Customer Does Not Confirm Service Stop Customer Confirms Service (and Executes Service Agreement) 38 of 39

39 Overview of the New Process 1. Customer defines maximum Example Dates acceptable directly-assigned upgrade cost & 3 rd party upgrade cost estimates 2. Customer defines acceptable deferred start date 3. Customer defines acceptable redispatch criteria 4. Execute study agmt. with obligation to take service. 5. Submit attestation for DR requests Day Days Process continues without customer intervention until all remaining requests are within the specified parameters Open Season Aggregate Facilities Study Agreement Aggregate Facilities Study Remove requests outside parameters from analysis Accept/Confirm all requests within parameters Tender Service Agreements Prohibit mutuallyexclusive requests Retract requests outside the parameters Post study results with cost estimates for all requests, including removed 39 of 39