Agenda

1. Agenda • Regulatory Overview • Interconnection • Transmission Service • Reliability Standards

2. Basics of Jurisdiction • Where is the line between FERC and state regulation? • Generally, FERC has jurisdiction over • Wholesale sales and transmission of electricity in interstate commerce • Sales of jurisdictional facilities • Most interconnections to the transmission system • Generally, state utility commissions have jurisdiction over utilities’ retail services (i.e., sales directly to the consumer) and most QF sales and interconnections

3. Public Utility HoldingCompany Act of 2005 • What does PUHCA do? • Grants regulators access to books and records and review over allocation of certain non-power goods and services among affiliates within a “holding company” structure • But there are exemptions to the regulation • Most common is holding companies solely with respect to exempt wholesale generators (EWGs) and qualifying facilities (QFs) and foreign utility companies (FUCOs)

4. QF Status under Public Utilities Regulatory Policy Act (PURPA) • Can the renewable project be a QF? • There are fuel use and size limitations • Why would I want a project to be a QF? • The QF is exempt from some provisions of the FPA, including for sales of energy and capacity from QFs 20 MW and smaller • The holding company of the QF may be exempt from PUHCA 2005 • Must-buy obligation under PURPA • How does a project become a QF?

5. EWG Status • Can the renewable project owner be an EWG? • There are no fuel use and size limitations BUT there is an “exclusivity” requirement • Why would I want a project to be an “eligible facility”? • The holding company of an EWG may be exempt from PUHCA 2005 • BUT there are NO exemptions from FPA • How do I become an EWG?

6. What Regulations Govern the Developer’s Sale of Output? • Wholesale sales: FPA section 205 rate regulation by FERC • Developer must have prior approval under Section 205 to make wholesale sales • Market-based rate authority • How to get it? • How to keep it? • Retail sales and PURPA sales: state regulated; statutes vary by state • Net metering

7. What Regulations Govern the Developer’s Sale of its Assets? • Generally, sales of FERC jurisdictional assets require prior approval under Section 203 of FPA • Examples: • Sales of existing generating facility • Sale of Project LLC with jurisdictional assets • Sale of ownership interests in Project LLC • Transfer of state-regulated certificates

8. Interconnection • Which interconnection procedures apply? • First, you need to determine if your interconnection is subject to state or federal jurisdiction • If Federal, the procedures that apply depend on the facility’s size • Small Generator = ≤ 20 MW • Large Generator = > 20 MW

9. Interconnection Services • What types of interconnection service are available? • Energy Resource service = Allows generator to connect to the transmission system and be eligible to deliver electric output using existing firm or non-firm transmission on an “as available” basis. • Network service = Allows generator to connect to the transmission system: • In a manner comparable to that which the TP integrates its own generating facilities to serve native load customers; or • In an RTO or ISO with market-based congestion management, in the same manner as all other Network Resources. • Which service should I choose?

10. Interconnection Services • How does the interconnection process proceed? • Generally, interconnection requests are processed and studied according to “first come, first served.” There are exceptions. • A deposit must accompany the interconnection request and all interconnection study agreements. • Choose a type of interconnection service, then continue with the studies. • As my project evolves may I make modifications?

11. Interconnection Studies • Which interconnection studies are performed and what will they tell me? • Feasibility Study – gives the developer a rough idea of the equipment required to interconnect • System Impact Study – analyzes a facility’s effect on the transmission system and gives a rough cost estimate • Facilities Study – provides the closest estimate of the cost required to interconnect a facility

12. Queue Reform • What is queue reform? • FERC directed RTOs and ISOs to reform their interconnection procedures to prevent delays • Generally, queue reform has abandoned the “first come, first served” approach in favor of a “first ready, first-to-proceed” approach • Examples: Midwest ISO; Cal ISO • What should I expect from queue reform? • Hopefully less time spent in the queue • More cluster studies • Also expect much larger deposits, stricter timelines, and fewer chances to delay

13. Cost Allocation • Do I pay for all equipment needed to interconnect my facility? • Generally, a developer pays the full cost of interconnection up front • The costs of interconnection facilities are not refunded; the cost of network upgrades are — with some exceptions for RTOs • How do I distinguish between a network upgrade and interconnection facility? • Network upgrades are “integrated” into the grid, and are located “at or beyond” the point of interconnection • Interconnection facilities are located before the point of interconnection and are not integrated

14. Negotiation of the Interconnection Agreement • Under FERC’s LGIA, many terms are standard and changes must be approved by FERC • Negotiations focus on: • Milestones (schedule and payments) • Cost allocation • Operational Characteristics • Facilitating use of one interconnection capacity by more than one project or owner • Phasing • Joint Ownership Agreements • Amendment or Modification of LGIAs

15. Transmission Service • My facility is already interconnected, why do I need transmission service? • Interconnection service provides no delivery rights • Unless your purchaser is taking power at the buss bar, you will need to purchase transmission service • Where do I reserve and buy transmission service? OASIS • What types of service are available? • Point-to-point vs. Network • Short-term vs. Long-term • Firm vs. Non-firm • Conditional firm

16. Transmission Service • Are transmission providers required to treat everyone by the same rules? • Yes, FERC Order 888 requires that transmission service be provided on an open, non-discriminatory basis • Transmission providers particularly may not favor affiliates • What are the types of transmission providers? • RTOs/ITCs are independent because they do not actually own or control electric generation resources • Many transmission owners, however, remain as integrated transmission and generation utilities • Some types of transmission providers (e.g., BPA, TVA, WAPA) are subject to limited FERC authority

17. Obtaining Transmission Service • Are there costs associated with requesting transmission? • If the system does not have available capacity, a developer may have to pay to upgrade the transmission system to accommodate the requested service • How much will transmission cost? • Integrated transmission/generation utilities may charge the higher of: • Incremental costs; or • An embedded cost rate associated with the requested transmission service • RTO transmission service may be priced on a different basis

18. Imbalances • When do imbalances occur? • When the hourly generation as scheduled is different than the actual hourly generation delivered from a facility • Someone has to make up the difference • How are imbalance penalties assessed? • The charges are tiered, i.e., the larger the deviation from your schedule, the larger the charge • Variable generators are exempt from the most expensive tier • How can I avoid imbalances? • Good forecasting • Shaping & Firming arrangements whereby the supplier will take or provide energy, as applicable, in hours when the actual generation differs from the scheduled amount • Participating in applicable RTO intermittent generation protocols • Delivering to the purchasing utility at the generation project buss bar • Delivering using network transmission service

19. Ancillary Services • Purpose = products designed to maintain reliability on the grid • Types of Ancillary Services

20. Intra-Hour Wind Integration • What is intra-hour wind integration service? • Some transmission providers claim that intra-hour variations in output of intermittent resources impose added costs on the transmission system operator • Integration service follows variable resources with dispatchable facilities in order to make up moment-to-moment differences in generation output within the scheduling hour • Example: BPA • Best Approach: pass the costs to your purchaser

21. Reliability Standards • Are reliability standards mandatory? • YES YESYESYESYES • Reliability standards became mandatory in 2006 • Who oversees compliance? • National compliance is overseen by the North American Electricity Reliability Corporation • Regional entities have delegated authority • Example: WECC

22. Reliability (cont.) • Do reliability standards apply to my facility? • Standard = users, owners, and operators of the bulk electric system who have a material impact on the bulk power system • “Bulk electric system” = electric generation resources, transmission lines, interconnections with neighboring systems, and associated equipment, generally operated at 100 kV or higher • Reliability standards are tailored to specific functions (e.g., Generator Owner, Generator Operator) • Who is subject to registration? • Check the Compliance Registry Criteria • Exemptions apply • There are also catch-alls!

23. Compliance Registry Criteria • What is the Compliance Registry Criteria? • It contains the standards for registering entities for compliance with reliability standards. • It is divided by function. Examples: Generator Owner; Transmission Operator. • Am I liable for violations that occur before I am registered? • No, but you are expected to be compliant immediately upon registration. • Upon registration, a non-compliant entity may be subject to sanction or remedial schemes.

24. Compliance • What is the best approach to compliance? • First, are you registered? • Implement an internal compliance program • Train your employees • Document everything • What are the risks of non-compliance? • Risks vary with risk factors • Highest risk factors equate to fines of $1 million per day per violation

25. Case in Point: Harquahala • 1,092 MW generating facility in AZ • Interconnected with Hassayampa substation via a 26-mile, 500 kV private interconnection line • Hassayampa impacts transmission of over 10,000 MW (4,100 MW of which directly interconnect there) • WECC registered Harquahala as a Transmission Owner and Transmission Operator using a catch-all provision • Harquahala appealed the registration to NERC (lost) and then to FERC

26. Case in Point (cont.) • Harquahala claimed that compliance alone would cost $1 million/year • FERC sided with NERC/WECC • Factors cited by FERC • Size and importance of Hassayampa • Not whether the interconnection facilities were integrated (they weren’t)

27. Resolution • FERC ordered NERC and Harquahala to settlement to determine the standards that should apply • Resulting settlement forced Harquahala to comply with 339 of 514 TO and TOP requirements