FORMULA RATE TASK FORCE CONFERENCE CALL TO DISCUSS GOLDEN SPREAD RECOMMENDATIONS

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1 FORMULA RATE TASK FORCE CONFERENCE CALL TO DISCUSS GOLDEN SPREAD RECOMMENDATIONS PARTICIPATION: (v) Jay Toungate AEP (v) Bob Oakes Westar Alan Hientz SPP Formula Rate Consultant (v) Dave Grover Xcel (v) Charles Locke KCPL (v) Larry Wilkens Aquila Diane Keegan AEP Steve Daniel Golden Spread (v) David Brian ETEC Mike Wise Golden Spread Craig Silverstein Golden Spread Barry Cohen Golden Spread Wes Berger Xcel David Kays OG&E Tim Wooley Xcel Roy Sundman SPP Pat Bourne SPP (v) Cara Whillock Tenaska (v) Bary Warren EDE (v) John Gunesch OG&E (v) Robert Elrod WFEC (v) Rob Jensen Redbud Energy (v) Robert Shields - AECC Dennis Reed - Westar (v) Voted on issues 1 of 6

2 VOTES REGARDING GOLDEN SPREAD RECOMMENDATIONS: ISSUE 1: Remove all retail cost items from cost of service. (See table on page 4) 11 votes cast: ABSTAIN: (1) ETEC (6) AEP, OG&E, KCPL, EDE, AQUILA, XCEL (4) WESTAR, TENASKA, WFEC, REDBUD ISSUE 2: Include full true-up process, using the roll-forward methodology. Note: A true-up process for capital additions will be included 12 votes cast: ABSTAIN: (5) WESTAR, AECC, ETEC,AQUILA, REDBUD (6) AEP, OG&E, WFEC, KCPL, EDE, XCEL (1) TENASKA ISSUE 3: Include modifications for each item on Other Issues list. Note: ballots received by Friday, December 2, 2005 Lead-Lag Study 4.a. (4) KEPCo, ETEC, AECC, AQUILA (6) EDE, AEP, OG&E, WFEC, WESTAR, XCEL (1) KCPL Miscellaneous General Expense 4.b. (4) KEPCo, ETEC, AECC, WESTAR (6) EDE, AEP, OG&E, WFEC, XCEL, KCPL (1) AQUILA Long-term Interest Calculation 4.c. (4) KEPCo, ETEC, AECC, AQUILA (5) EDE, OG&E, WFEC, WESTAR, XCEL (2) KCPL, AEP 2 of 6

3 Remove State & Generic Regulatory Proceedings Expenses (Note N) 4.d. (4) KEPCo, ETEC, AECC, WESTAR (6) EDE, AEP, OG&E, WFEC, XCEL, KCPL (1) AQUILA Transmission By Others (Note M) 4.e. (5) KEPCo, ETEC, AECC, AEP, AQUILA (5) EDE, OG&E, WFEC, WESTAR, XCEL (1) KCPL NOTE: Since this item had a split vote, it was separately discussed and voted on during the 12/15/05 conference call with this result: Should clarifying language be added to Note M? ABSTAIN: (10) WESTAR, ETEC, AQUILA, REDBUD, AEP, OG&E, WFEC, KCPL, EDE, XCEL (1) TENASKA Weighted Average Tax Rates (Note P) 4.a. (4) KEPCo, ETEC, AECC, AQUILA (7) EDE, AEP, OG&E, WFEC, WESTAR, XCEL, KCPL Freeze Common Plant, Depreciation & O&M Allocation (Note T) 4.g. (4) KEPCo, ETEC, AECC, AQUILA (7) EDE, AEP, OG&E, WFEC, WESTAR, XCEL, KCPL Transmission Lease Clarification (Note AA) 4.h. (5) KEPCo, ETEC, AECC, AQUILA, WESTAR (3) EDE, OG&E, XCEL (3) AEP, WFEC, KCPL Include Account 447 in Revenue Credits (Note AC) 4.i. (6) KEPCo, ETEC, AECC, WFEC, AQUILA, WESTAR (4) EDE, OG&E, XCEL, KCPL (1) AEP 3 of 6

4 ISSUE 4: Customer Protections (Protocols) FRTF received additional information regarding Golden Spread s Protocol recommendations the morning of the conference call. Therefore, the issue was tabled, and will be taken up by the RTWG directly with no FRTF recommendation. LIST OF ISSUES RAISED BY GOLDEN SPREAD YES NO 1. Retail-related Costs 1. a. through h. 2. Formula True-up (other than new projects) 2. a. through c. 3. Other Issues Lead-lag Study 4.a. Misc. General Exp. 4.b. Long-term Interest Calculation 4.c. Remove State & Generic regulatory proceedings expenses (Note N) 4.d. Transmission By Others (Note M) 4.e. Weighted Average Tax Rates (Note P) 4.f. Freeze Common Plant, Depreciation & O&M Allocation (Note T) 4.g. Transmission Lease Clarification (Note AA) 4.h. Include Account 447 in Revenue Credits (Note AC) 4.i. 4. Customer Protections (Protocols) 3. a. through b. Require filings whenever: i. ROE Changes 4.j.i. ii. Depreciation Rates Change 4.j.ii. iii. Post-Employment Benefits Change r.j.iii. 1. RETAIL RELATED COSTS REMOVED: a. Note Z: The note simply says remove retail related costs and items not related directly, or indirectly to transmission b. Note B: Includes retail revenues as credits reducing the revenue requirement, yet associated costs are removed by Note Z c. Changes to Intangible Plant to remove retail related costs: Investment, Accumulated Depreciation, and amortization (lines 33, 42, and 95; Attachment 1.3) d. Changes to Common Plant to remove retail related costs: Investment, Accumulated Depreciation, O&M and amortization (lines 34, 43, 87 [implied, but not changed], and 96; Attachment 1.4) 4 of 6

5 e. Changes to Prepayments to remove retail related costs: (line 68; Attachment 1.1) f. Changes to Other taxes to remove retail, Gross Receipts, and energy taxes: (line 103; Note O) g. Issues raised by these adjustments i. Trapped costs, not recovered here even though retail customers are customers at issue, and costs may not have been assigned to distribution in state proceeding ii. Over recovery: if costs are assigned to distribution in retail proceedings and not removed here h. Solutions: i. Retail costs are excluded in the base rate and a retail adder is calculated on a separate exhibit and assessed only retail customers. ii. Use standard FERC allocators and ensure states use similar allocators or make adjustments to ensure no over collection 2. FORMULA TRUE UP TO CURRENT YEAR COSTS: a. Conceptual proposal which needs to be developed b. Advantages i. Removes lag and ensures current recovery of current costs ii. Includes interest on true up amount c. Disadvantages i. Requires two formula templates ii. Interest on the true up amount may not be viewed as fully compensational (might consider it an adjustment to rate base since it is similar to prepayments or customer advance) 3. CUSTOMER PROTECTION (PROTOCOLS): a. Informational filing and Protocols: i. Have an informational filing every year with protocols as to what rights each party has ii. If this option is adopted, the language needs to be tightened to ensure that it is clear what exactly is meant, what can be raised, what issues are relevant, and whether it changes parties statutory rights b. Full disclosure of costs and a process for enforcing data exchanges, review process, dispute resolution process and appeal rights i. If this option is adopted, the data, the processes, and the appeal rights must be fully spelled out c. Requiring a filling whenever the following cost items change (Protocols): i. ROE this is already required by FERC and contained in the formula ii. Depreciation rates if adopted, the effective date must be timed such at the depreciation expense and the accumulated deprecation on the books is synchronized. Also, this provision clearly state the relevant account numbers for which it applies iii. Post-employment benefits other than pensions- if adopted, care must be taken to ensure that it does not become an annual or more frequent litigation 5 of 6

6 4. OTHER ITEMS: a. Zero Cash Working Capital unless a lead lag study is prepared (line 65; Note K) b. Adjustment to Misc. General Exp. (Account 930.2) to include transmission related Note the proposed implementation should be changed to mirror the treatment of Account if adopted (line 81; Note AB) c. Long term interest calculation change would not be necessary if the true up included a 13 month calculation or weighting of the outstanding balance and associated interest expense (I would suggest a 13 month weighting in any event to ensure no over or under recovery due to retirement of debt during the year (line 158; Attachment 1.2) d. Removal of regulatory expenses associated with state and generic ratemaking proceedings (Note N) e. Transmission by Others (Note M): i. I proposed changes to Note M to clarify what is included and excluded and suggest adoption ii. GSEC has proposed additional changes to clarify what is included and may be unnecessary given the changes proposed in (i) above f. Change the marginal tax rates to reflect a weighted average of the tax rates in effect for the service year (Note P). i. For the true up, if accepted, this ensures full recovery ii. With out true up, this should reflect the cost year not service year g. Freeze the Common Plant, Depreciation, and O&M allocation methodology (Note T) i. I would suggest requiring a statement as to how each utility allocates the common costs and a worksheet showing the calculation and note there is no FERC filing requirement to make such a change h. Clarify that transmission leases should only include leases that allow transmission customers paying the formula rate to use the facilities without additional charges if there is ATC (Note AA) i. Include Account 447 in the revenue credits (line 4 and Note AC) i. If adopted, it should include a method for calculation such credits for bundled sales, such as the transmission rate times the amount of service or the amount specified in the rate schedule 6 of 6

7 12/30/05 Subject to Review and Revision GOLDEN SPREAD ELECTRIC COOPERATIVE, INC. ( Golden Spread ) Draft Formula Rate Template Protocols On October 18, 2005, Golden Spread circulated comments on the June 17, 2005 Formula Rate Template ( FRT ) and attached a revised FRT as discussed on the Formula Rate Task Force ( FRTF ) conference call. No adjustment was made to the historical calculations to reflect a 13-month average rate base. In lieu of such an adjustment, Golden Spread proposed that the formula rate adopt a true-up mechanism which would function so as to calculate the actual costs for the calendar year as compared to the costs included in the historically based calculations for that year (e.g., actual costs for 2006 as compared to historical 2004 costs applied to January 2006 through July 2006 and historical 2005 costs applied to August 2006 through December 2006) and to roll the difference into the next year's historical calculation. It was noted that the details would have to be worked out if the FRTF were willing to proceed with such a true-up. If a true-up concept were not adopted, Golden Spread proposed that the historical-based calculations reflect a 13-month average rate base and exclude the projected future plant in-service component currently contemplated on lines of the FRT. Upon further reflection and discussion with the FRTF, it appeared reasonable that a true-up should take into account both changes in load as well as costs and thus a mechanism which attempted to roll any differences into the next year s projected formula rate calculation based on historical data would be cumbersome if not unworkable. Therefore, Golden Spread proposed the following: 1. For rate certainty for market purposes, short-term firm and non-firm services rates would be based on the historical-based Formula Rate calculation, with no true-up (e.g., actual billings for August 1, 2006 through July 31, 2007 would be based on 2005-based Formula Rate calculations) with such historical calculations being based on end-of-year rate base. 2. For long-term firm point-to-point service and network service, a true-up calculation would be made for each calendar year, based upon a 13- month average rate base with billing adjustments on a calendar year basis to be made to reflect the difference between the original billing and billing based on the true-up Formula Rate calculation for the calendar year (e.g., the original billings for August 1, 2005 through July 31, 2007 would be based on historical costs for 2005; the billings for August 1, 2007 through July 31, 2008 would be based on historical costs for 2006; and the true-up for 2007 would be based on 2007 actual costs, using a 13-month average rate base, and billing adjustments would be made to reflect the difference between the original billings and the true-up billings using 2007 billing units). Note: Given that there would be no true-up of the rates for 1

8 12/30/05 Subject to Review and Revision short-term firm and non-firm services, the charges as actually billed for those services would be used as revenue credits in all historicalbased Formula Rate calculations, including for the true-up. 3. Interest and the then applicable rate used by FERC would be applied to the billing adjustments. The FRTF, on December 15, 2005, discussed further the concept of a true-up based on billing adjustments, such as had been proposed by Golden Spread, and the alternative concept of a true-up with a roll-forward mechanism whereby any over- or underrecovery for a given calendar year would be included in the next year s rate calculation. The FRTF voted to support the latter. Since that time, Golden Spread has endeavored to develop such a roll forward true-up proposal that would take account of both loads and costs, but has been unable to develop a workable mechanism, given, among other things, calendar year costs being mixed with a fiscal year rate change date (i.e., August 1). Golden Spread, therefore, continues to believe that a true-up based on billing adjustments is both fair, reasonable and workable given the limited number of transactions likely to be involved with long-term firm point-to-point service and network service. Golden Spread, however, is willing to work with SPP and other interested parties to determine whether a workable roll-forward true-up mechanism can be developed. Golden Spread believes that certain of its other proposals are more appropriately set forth in a set of protocols that address implementation and administration of the FRT as finally approved by the FERC. It had submitted draft protocols to the FRTF on October 18, and December 14, 2005, however, such protocols were not discussed in detail at the November 21 and December 15, 2005 meetings. In that light and based upon the above-described true-up concept and after further discussions with the FRTF, Golden Spread proposes that the following concepts be incorporated in such protocols: 1. That on or before June 1 of each year, each Transmission Owner ("TO") that elects to utilize the Formula Rate, and that is a public utility as defined by Section 201 of the Federal Power Act ( FPA ) shall (i) make an Annual Informational Filing (the AIF ) with the FERC (which shall not be a Section 205 or 206 filing under the Federal Power Act, but which shall be noticed for comment and protest as noted below) that sets forth the calculations of charges required pursuant to the Formula Rate, based upon both an end-of-year rate base and a 13-month average rate base), and (ii) post such AIF on the SPP OASIS so as to be easily accessible by interested parties; 2. That on or before June 1 of each calendar year each TO that elects to utilize the Formula Rate, and that is not a public utility under Section 201(f) of the FPA (i.e., non-jurisdictional) shall post to the SPP OASIS website (so as to be easily accessible to interested parties) comparable information to that required to be submitted in an AIF ( NJ-AIF ). 2

9 12/30/05 Subject to Review and Revision 3. That the end-of-year-rate-base calculations under the AIF/NJ-AIF for a given calendar year under the formula rate would be the basis for projected billing of long-term firm point-to-point service and network service; and the 13-month-average-rate-base calculations under the AIF for a given calendar year under the Formula Rate would be the basis for the true-up adjustment determinations for that calendar year. 4. The acknowledgement that the Formula Rate is predicated upon the following: a. The FERC's Uniform System Of Accounts ("USOA") as it exists as of the date of the initial filing of the Formula Rate; b. The FERC Form No. 1 reporting requirements as they exist as of the most recent calendar year for which data is used in the initial filing of the Formula Rate; as to FERC jurisdictional TO s [similar references may be needed for underlying non-jurisdictional ( NJ ) TO documents] c. The accounting policies, practices and procedures of each Transmission Owner ("TO") that elects to utilize the Formula Rate as they existed for 2004 [or 2005 if 2005 data are ultimately used to support the Formula Rate filing]; and d. FERC's generally applicable transmission ratemaking policies as of December 31, 2005; 5. The acknowledgement that any change(s) to the underlying predicates set forth in item 3. above, subsequent to the dates specified therein, shall be ground(s) for presumption that the application of the Formula Rate, as to the affected TO(s), shall be modified to restore the intent of the Formula Rate as and when proposed by the SPP and accepted by the FERC (the intent being to prevent such changes to the underlying predicates from causing an automatic shift in the effect of the Formula Rate without input from other potentially affected parties); 6. The requirement that each TO that elects to utilize the Formula Rate must set forth with each posting on the OASIS of its Formula Rate implementation calculations supporting the specific changes to its accounting policies, practices and procedures, if any, since its last posting on (or since 2004 [or 2005 see note in item 3.c., above] for the first year of utilization of the Formula Rate if subsequent to its initial filing by the SPP and since the last posting thereafter); 7. That the following review procedures and concepts be incorporated in the l process applicable to the periodic Formula Rate updates and AIF/NJ-AIF: 3

10 12/30/05 Subject to Review and Revision a. Interested parties will have rights to seek additional information that is necessary to understand and determine the accuracy of the application of the Formula Rate as calculated by each TO, consistent with these protocols, up through June 30, with a ten (10) business day turn-around by the respondent; b. There will be a formal process for interested parties (i) to submit to the SPP and the affected TO a list of issues and (ii) a means to resolve such issues, including the following: (i) (ii) (iii) (iv) (v) A written list with accompanying explanations of issues to be submitted to the SPP and the affected TO by no later than July 15; A meeting among SPP, the interested party(ies) and the affected TO to be called by SPP no later than July 25 to discuss and resolve, to the extent possible, any outstanding issues; The right of the SPP or an interested party to file with FERC comments on and a protest of a TO s AIF to the extent there are unresolved issues, which filing shall be due no earlier than August 1; Consistent with applicable FERC precedent, the right of the SPP or an interested party to file with FERC a complaint relating to a TO s NJ-AIF to the extent there are unresolved issues, which filing shall be due no earlier than August 1; The requirement that the FERC institute settlement judge procedures as an initial step to resolve outstanding disputes and order a Track 1 proceeding to resolve any issues outstanding sixty (60) days after the appointment of a settlement judge, unless the settlement judge reports to the FERC that settlement is likely with up to a thirty (30) day extension if recommended by the settlement judge; [NOTE: Certain members of the FRTF stated that disputes should be resolved pursuant to Section 12 of the SPP OATT. Upon review of those provisions, Golden Spread has concluded that those procedures as written may not be adequate (e.g., may not apply to formula rates and charges and does not provide for participation by TOs, particularly where application of a formula rate to their costs is involved. Golden Spread would be willing to work with SPP and other interested parties to seek to develop appropriate amendments to Section 12.] 4

11 12/30/05 Subject to Review and Revision (vi) (vii) An agreed upon refund effective date of August 1 for charges pursuant to a given Formula Rate determination; and True-up billing adjustments with interest for long-term firm point-to-point service and network service will be made by the later of (a) September 1 or (b) thirty (30) days after final resolution of all outstanding issues regarding the Formula Rate calculations for a given calendar year. 8. The specification that, notwithstanding the accounting procedures or Form No. 1 reporting by FERC-jurisdictional TOs, no changes to the FRT itself may be included in the AIF/NJ-AIF and moreover, that cost components of their Formula Rate, including but not limited to the following components, shall be reflected without an appropriate filing with the FERC: a. Return on equity; b. Depreciation rates; and c. Post-employment benefits other than pensions. The basis for proposing the above-described AIF/NJ-AIF requirement is as follows. In a number of instances, transmission-owning members of RTOs have sought FERC approval to implement formula transmission rates. Most recently, a number of the PJM Transmission Owners sought such approval in Docket No. ER A number of customer representatives intervened and urged the Commission to adopt various customer safeguards, such as a requirement that the TOs submit annual informational filings for the rate year. FERC agreed with the customers in this regard, and ordered that each TO adopting formula rates must make an informational filing with the Commission one year from the date its formula rates go into service, and each year thereafter, providing a detailed list of the costs it has incurred, and the revenues it has received, to provide service. Allegheny Power System Operating Companies, 111 FERC 61,308 at P 48 (2005). We look forward to discussing the revised protocols at the January 5, 2006 Regional Tariff Working Group meeting

12 SPP LGIA Task Force Presentation to RTWG January 5, 2006 Confirmation of Network Upgrade Cash Flow Process

13 NETWORK UPGRADE CASH FLOW DESCRIPTION Allocate 100% of NU Revenue Requirement to Base Plan Region-Wide Charge 1 2 EXAMPLE = TO h pays for the NU $5,000,000 = IC reimburses TO h for cost of the NU $5,000,000 NU Cost TO h Formula Rate Calculation NU Revenue Requirement = SPP collects Base Plan Region-Wide Charge increased by NU Revenue Requirement $1,000,000/yr = SPP allocates revenue from Base Plan Region-Wide Charge $1,000,000/yr = TO h returns credits to IC from Base Plan Region-Wide Charge revenue allocation until IC has been fully reimbursed (including interest) $1,000,000/yr TO h = Host Transmission Owner (where the generator is attached) NU = Network Upgrades = Improvements to the Transmission System required for the interconnection of the generator to the transmission system. 1

14 NETWORK UPGRADE COST FLOW CHART Allocate 100% of NU Revenue Requirement to Base Plan Region-Wide Charge Interconnection Customer (IC) NU Cost Vendors, Contractors, & Labor, etc. Credits to IC from TO h share of Base Plan Regional Charge TO 1 TO h TO Base Plan Region-Wide Charge. Includes 100 % of NU Revenue Requirement SPP Transmission Owners & Transmission Customers across SPP 2

15 Interconnection and Upgrade Facilities Example B1 B2 B3 B4 B5 POI PCO M New line required for stability ~ = Existing Transmission Facilities = Interconnection Customer Interconection Facilities = Transmission Owner Interconnection Facilities = Attachment Facilities (B1, B2 and B3) = Network Upgrades (New line, B4 and B5) 3

Southwest Power Pool REGIONAL TARIFF WORKING GROUP February 3, 2005 DFW Airport Hyatt Dallas, TX 9:30 a.m. 4:00 p.m.

Southwest Power Pool REGIONAL TARIFF WORKING GROUP February 3, 2005 DFW Airport Hyatt Dallas, TX 9:30 a.m. 4:00 p.m. Agenda Item 1 Call to Order, Introductions and Receipt of Proxies Ricky Bittle (Chair)