Approach for ERCOT Independent Review of the 2013 Houston Import Project

1. Approach for ERCOT Independent Review of the 2013 Houston Import Project Jeff Billo, Manager, Transmission Planning September 2013 Regional Planning Group

2. Background • CenterPoint Energy, Garland Power and Light/ Cross Texas Transmission, and Lone Star Transmission independently identified a reliability need to increase the import capability into the Houston area by 2018 • Each submitted a project proposal to the Regional Planning Group (RPG) in July/ August 2013 • The projects received a large number of comments from stakeholders • ERCOT will conduct one combined Independent Review of the project proposals • The following slides discuss the proposed approach to the ERCOT Independent Review

3. Questions to be answered during the ERCOT IR • Is there a reliability criteria violation due to Houston power imports? • What are the study assumptions? • If there is a criteria violation, what is the best project set to solve the problem? • What options should be studied? • What is the capital cost estimate for each option? • What is the levelized cost of each of the options? • Consider the transfer capability of each option (including voltage stability) • Consider the impact of Category C and D contingencies • Consider what additional projects may be needed for reliability over the next X years • Consider staging the project • Consider the congestion-related impact • What sensitivities affect the project selection? • Consider older generation retiring

4. Questions to be answered during the ERCOT IR • Are there non-transmission alternatives that can solve the criteria violation? • Generation • Demand Response • Should ERCOT designate the project “critical to reliability?”

5. Question 1 • Is there a reliability criteria violation due to Houston power imports? • What are the study assumptions? • Latest 2018 SE case from the 2013 Regional Transmission Plan (RTP) • Contains more up-to-date load forecast than cases used in project submittals • Cobisa and Pondera King plants are not included in model • Both plants have interconnection agreements from several years ago but have not provided financial commitment to move forward • Deepwater Energy Storage, Deer Park Energy Center, Channel Energy Center plants are in the model • All contingencies and assumptions consistent with the 2013 RTP (http://www.ercot.com/calendar/2013/05/20130521-RPG) • Generator outage contingencies will include Cedar Bayou 2, STP (1 unit), Frontier, Gibbons Creek (for G-1 + N-1 contingency analysis)

6. Question 2a • If there is a criteria violation, what is the best project set to solve the problem? • What options should be studied? • ERCOT will review all options submitted in the three RPG proposals and studied in the 2012 Long-Term System Assessment • Options may be eliminated based on submitted reports • Options may be eliminated throughout the study process • Options may be added based on ERCOT judgment

7. Question 2b • If there is a criteria violation, what is the best project set to solve the problem? • What is the capital cost estimate for each option? • ERCOT will use an estimate provided by the Transmission Owner for the upgrade of existing facilities • ERCOT will use a per mile estimate based on CenterPoint Energy’s detailed cost estimates for new 345 kV line construction • Generally higher and more conservative estimate • CenterPoint Energy has experience with constructing 345 kV lines in the Houston area • ERCOT will work with TSPs on developing appropriate cost estimates for 500 kV facilities

8. Question 2c • If there is a criteria violation, what is the best project set to solve the problem? • What is the levelized cost of each of the options? • Consider the transfer capability of each option (including voltage stability) • Consider the impact of Category C and D contingencies • Consider what additional projects may be needed for reliability over the next X years • Consider staging the project • Consider the congestion-related impact

9. Question 2c continued • ERCOT will calculate the transfer capability of each option • ERCOT will study the impact of Category C and D contingencies for each option • ERCOT will determine what year the area load is projected to exceed the import transfer capability with the proposed upgrade

10. Question 2c continued • If import capability will be exceeded by 2028 the cost of additional upgrades needed by 2028 will be quantified and included in the analysis • Comments to the Brattle Group in regards to their review of ERCOT’s Long-Term Study earlier this year indicated that not all stakeholders are comfortable yet with a 20-year planning horizon • Considering history and the magnitude of the scope of the options (in terms of expense and landowner impact), 15 years (10 years after project in-service date) seems to be an appropriate horizon to analyze • If import capability exceeds 2028 load levels, no additional upgrade costs will be included in the levelized cost estimate • Note: use of levelized cost estimates is limited to aiding in the selection of the option that best meets the long-term needs for the area. Project justification will strictly follow the ERCOT Protocols and Planning Guide

11. Question 2c continued • ERCOT will consider if a project can be staged and the effect that may have on the levelized cost • ERCOT will consider congestion-relief related benefits that the studied options provide

12. Question 2d • If there is a criteria violation, what is the best project set to solve the problem? • What sensitivities affect the project selection? • Consider older generation retiring • ERCOT will conduct a sensitivity to determine the levelized cost of the options from a reliability perspective if gas generation older than 50 years (throughout ERCOT) were to retire (perhaps requiring additional upgrades by 2028)

13. Question 3 • Are there non-transmission alternatives that can solve the criteria violation? • Generation • Demand Response • If there is a reliability criteria violation ERCOT does not have the authority to compel generation additions or to compel load to participate in demand response • ERCOT may include a discussion in the final report on the effect resource additions in the Houston area may have on deferring transmission improvements • However, CenterPoint Energy’s report showed that new generation additions have been offset by generation retirements. Given the age and efficiency of the generation fleet in the area it is not unreasonable to expect this trend to continue

14. Question 4 • Should ERCOT designate the project “critical to reliability?” • See PUCT Substantive Rule 25.101 (b)(3)(D) • ERCOT will consult with the designated transmission providers at the end of the review to determine if the project can be constructed in time to meet the need without the critical designation • If it cannot, ERCOT will pursue the critical designation for portions of the project requiring a Certificate of Convenience and Necessity

15. Next Steps • The approach presented in this presentation is draft and subject to change based on ERCOT and stakeholder review • Please submit any comments to: Jeff<dot>Billo@ercot.com • ERCOT has begun to work on Question 1 • Updates will be provided at future RPG meetings

16. Comments or Questions?