Duke Energy Carolinas Transmission Tariff Rate Review

1. Duke Energy CarolinasTransmission Tariff Rate Review Network Customer Meeting March 29, 2010

2. Welcome & Purpose Joe Harwood, VP Wholesale Customer Relations

3. Welcome Safety Moment Meeting Logistics Attendee Introductions 3 Safety – Point out exits, watch for tripping hazards (chairs, cords) and pinch points (tables) Logistics – Rest rooms are down hall on left, breakroom across hall on right Lunch will be served in breakroom around noon … get lunch and bring back into this room to eat No formal break – feel free to take “individual breaks” as necessary Have attendees to introduce themselves and remind to sign attendance sheets if they did not sign in earlier – sheets will be on table during lunch after the meeting Safety – Point out exits, watch for tripping hazards (chairs, cords) and pinch points (tables) Logistics – Rest rooms are down hall on left, breakroom across hall on right Lunch will be served in breakroom around noon … get lunch and bring back into this room to eat No formal break – feel free to take “individual breaks” as necessary Have attendees to introduce themselves and remind to sign attendance sheets if they did not sign in earlier – sheets will be on table during lunch after the meeting

4. 4 Background Current Transmission Rate Approved by the FERC in 1996 Based on 1994 Costs “Stated” Rate that has not changed since 1996 Transmission Rates recover operating costs of the transmission system and return on transmission investments Since 1994, transmission improvements made to maintain adequate and reliable service By managing costs over past 15 years, Duke Energy Carolinas has avoided requesting a change in the transmission rate However, …………… Current Rate is a “stated” rate meaning that it was set in 1996 and does not change without a rate filing at the FERC Transmission investments have been made since 1994 and clearly the cost of doing business has increased in the last 15 years Duke is not able to continue to off-set increasing costs by reducing operating expenses, although we will try. As a result, Duke is proposing to change the stated rate to a formula rate that would adjust annually to reflect any change in costs for transmission system investment and operations (up or down). If we are successful in managing costs in the future, this will be reflected in the formula. Current Rate is a “stated” rate meaning that it was set in 1996 and does not change without a rate filing at the FERC Transmission investments have been made since 1994 and clearly the cost of doing business has increased in the last 15 years Duke is not able to continue to off-set increasing costs by reducing operating expenses, although we will try. As a result, Duke is proposing to change the stated rate to a formula rate that would adjust annually to reflect any change in costs for transmission system investment and operations (up or down). If we are successful in managing costs in the future, this will be reflected in the formula.

5. Today’s Objectives Purpose of the Meeting Duke Energy Carolinas is preparing a change in its transmission tariff to be filed at the FERC Want to engage and involve Transmission Customers in the process Timeline Late March 2010 – July 2010: Customer Meetings & Discussions Possibly hold customer meetings/discussions at least monthly Next meeting tentatively planned for April 26, 2010 By August 31, 2010 – File OATT Formula transmission rate filing with FERC By October 31, 2010 – FERC response to filing November 1, 2010 – Effective date of new rates using formula New rates in effect until May 31, 2011 Thereafter rate year will be June 1 of calendar year through May 31 of following year Begin Discussion to Reach Goal Agreement with Transmission Customers related to proposed Transmission Tariff revisions File a proposed settlement with the FERC to expedite the regulatory process 5 We want to keep this meeting informal and encourage each of you to ask questions Recognizing that Duke is subject to Code and Standards of Conduct and cannot address issues that are not “public” and recognizing the time constraints that we have today, we will have to ask that questions be limited to transmission tariff filing and the information being presented today We want to keep this meeting informal and encourage each of you to ask questions Recognizing that Duke is subject to Code and Standards of Conduct and cannot address issues that are not “public” and recognizing the time constraints that we have today, we will have to ask that questions be limited to transmission tariff filing and the information being presented today

6. Agenda Welcome and Introductions ………………… Joe Harwood Purpose of Meeting ………………………….. Joe Harwood Transmission System Update …………….. Ed Ernst Formula Rate Overview ……………………….. Jane McManeus Lunch Formula Rate Protocols……………………… Jane McManeus Formula Rate Template …………………….. Paula Moulton Next Steps and Closing …………………….. Charlotte Glassman 6 To give you an idea of what’s ahead lets go over the Agenda briefly In a minute, Ed Ernst will give an update on the …… Following Ed, Jane McManeus will give additional detail on the reasons for and impact of the transmission tariff filing and will discuss the general design of the formula rate After lunch, Jane will provide the schedule that will be mechanics that will be followed each year to update and revise the tariff. She will also give some more detail around the timeline related to the tariff development and filing. Jane will then provide and discuss an example of the tariff template (including 2008 costs) Finally, Charlotte Glassman will discuss the next steps and process going forward To give you an idea of what’s ahead lets go over the Agenda briefly In a minute, Ed Ernst will give an update on the …… Following Ed, Jane McManeus will give additional detail on the reasons for and impact of the transmission tariff filing and will discuss the general design of the formula rate After lunch, Jane will provide the schedule that will be mechanics that will be followed each year to update and revise the tariff. She will also give some more detail around the timeline related to the tariff development and filing. Jane will then provide and discuss an example of the tariff template (including 2008 costs) Finally, Charlotte Glassman will discuss the next steps and process going forward

7. Transmission System Update Ed Ernst – Director, Transmission Planning

8. Transmission System Duke Energy Carolinas system overview Transmission system facts and figures How we plan the Duke Energy Carolinas transmission system Where we spend money on transmission Significant transmission projects 8

9. Duke Energy Carolinas System Overview 9

10. Transmission System Facts and Figures Summer Peak of approximately 20,000 MW 21 interconnections with 9 neighboring control areas 13,000 circuit miles of transmission Transmission voltage levels of 44 kV, 69 kV, 100 kV, 161 kV, 230 kV, 525 kV Number of stations on the transmission system 175 transmission substations 1534 delivery stations 220 of the delivery stations are to munis and coops 10

11. How we plan the Duke transmission system Annually, perform an assessment and plan looking out ten years, with emphasis on first three to five years. Plan the system to meet NERC and SERC Reliability Standards as well as to meet company planning guidelines Perform assessments and studies with other utilities through SERC and other arrangements Develop a Collaborative Transmission Plan for the Duke Energy Carolinas and Progress Energy Carolinas systems through the NC Transmission Planning Collaborative 11

12. Where we spend money on transmission Capacity- load growth driven System upgrades to integrate new generation into the grid Reliability and Integrity Upgrades of equipment to deal with performance issues, aging infrastructure, end of life issues Transmission service request 12

13. Significant transmission projects Upgrade of interconnection between Duke and TVA 2007-2010 project Increased capacity from 216 MVA to 600 MVA Approximate total cost = $65M Caesar 230 kV line Upgrade- west of Hendersonville, NC 2010-2013 project Reconductor 22 miles of existing transmission line Approximate total cost = $43M Static Var Compensator for Northern Region grid support In service in 2007 300 MVAR capability Approximate total cost = $30M Swain County/Jackson County NC transmission reinforcements 2006-2011 project Approximate total cost = $58M Haw River 100 kV line upgrade 2008-2010 project Rebuild 22 miles of existing transmission lines Approximate total cost = $25M 13

14. Significant transmission projects (continued) Antioch Tie 500/230 kV tie station Completed in 1996 Approximate total cost = $30M 230/100 kV Autotransformer fleet Spending to rewind existing autotransformers Purchase of new autotransformers Fleet has grown from 94 autotransformers to 98 autotransformers Approximate spending since 1996 - $75M Relaying Upgrades Program Replace electromechancial relays with solid state relays On going program at approximate $5M per year Line rebuild integrity program 2010 budgeted spend is approximately $10M Dan River combined cycle transmission plant upgrades 2008-2012 project Rebuild 27 miles of existing 100 kV lines Approximate total cost = $30M 14

15. Formula Rate Overview Jane McManeus, Director Rates – Duke Energy Carolinas

16. Change in Costs Revenue requirement based on 1994 costs = $207M Revenue requirement based on 2008 costs = $244M Primary driver of increase is higher investment in transmission plant: net plant grew from $0.8B to $1.2B Transmission plant grew at approximately 3-4% per year over 14 years. Depreciation expense has increased in conjunction with growth in transmission plant. Depreciation rate change effective 2009 lowers annual depreciation expense about $12M per year. O&M expenses have increased by about 1.5% per year. Revenue credits offsetting revenue requirements have increased from $1M to $38M Transmission average peak demand has grown from 16,730 MW to 18,434 MW. 16

17. Determination of Revenue Requirements Basic calculation is return on rate base + operating expenses Rate base components: Transmission plant balance less accumulated depreciation Excludes generator step up transformers, interconnection facilities and <44KV facilities Allocated general and intangible plant less accumulated depreciation Transmission construction work in progress (CWIP) (specific projects) Accumulated deferred income taxes associated with items included in revenue requirements Working capital Other rate base adjustments necessary to reflect funds supplied by investors Contra AFUDC adjustments to properly reflect plant balances for wholesale jurisdiction 17

18. Determination of Revenue Requirements (continued) Return is determined by applying weighted average cost of capital percent to rate base Cost of capital rate incorporates cost of debt and cost of equity (i.e. ROE) weighted in proportion to capital structure Maintain option for incentive ROE if appropriate Operating expenses: Depreciation expense for transmission plant and allocated general/intangible plant O&M expense, including transmission O&M and allocated A&G expense Allocated general tax expense: Property tax, payroll tax, other non-income taxes Income taxes 18

19. Determination of Revenue Requirements (continued) Special items Amortization of GridSouth costs over 5 years Revenue credits: Revenues received that offset costs included in revenue requirements, primarily non-firm and short term firm revenues for transmission service, and lease payments associated with transmission facilities Losses: If billing demands are stated at the customer meter (i.e. exit point of the transmission system), revenue requirements are grossed up to compensate for losses. 19

20. Formula Rate Determination of revenue requirements is stated as a formula that uses cost inputs from FERC Form 1 and company records. The resulting revenue requirement is recomputed annually. For point-to-point service, the annual revenue requirement is divided by calendar year average transmission system peak demand for long term firm service to determine a rate per KW. For network service, individual customer load ratio share percentage is applied to annual revenue requirement. Numerator of percentage is customer 12 month average (rolling) transmission demand coincident with Duke Energy Carolinas transmission peak; denominator is Duke Energy Carolinas 12 month average (rolling) transmission peak demand for long term firm service. Revenue requirements and rates are billed initially using estimated annual revenue requirements and trued up to actual revenue requirements when known. 20

21. Ancillary Services Duke Energy Carolinas is reviewing current ancillary service revenue requirements to determine if sufficient to recover current costs 21

22. Formula Rate Protocols Jane McManeus, Director Rates – Duke Energy Carolinas

23. Formula Rate Protocols & Timeline Illustration Duke Energy Carolinas will implement a formula methodology to calculate its transmission service rates for Network Integration Transmission Service and Point-to-Point Transmission Service. The revenue requirements and rates will be recalculated annually using the approved formula and in accordance with the established formula protocols. The protocols are separated into the following categories: Annual update process Annual review procedures Resolution of challenges 23

24. 24 Annual Update Process Implementation year – annual transmission revenue requirement (ATRR) will be applicable to services on and after November 1, 2010 through May 31, 2011 Subsequent years – ATRR will be applicable to services on and after June 1 of a given calendar year through May 31 of the subsequent calendar year On or before May 15th of each year the ATRR and the PTP transmission rates will be recalculated. This represents the Annual Update for the upcoming rate year The Annual Update will be posted to the OASIS website An informational filing will be made with FERC The date on which these events occur is the publication date The Annual Update will include the true-up for the prior year ATRR True up amount (including interest) increases or decreases ATRR for upcoming billing period

25. Annual Review Procedures Each Annual Update shall be subject to the Annual Review procedures Interested parties will have up to 90 days after the publication date to serve information requests to Duke Energy Carolinas (i.e. Discovery Period) Duke Energy Carolinas will respond to requests within 15 business days in most circumstances Any interested party will have up to 120 days after the publication date to review calculations and notify Duke Energy Carolinas of any specific challenges Preliminary challenges will be posted to the OASIS website 25

26. Resolution of Challenges Duke Energy will respond to parties making the preliminary challenges within 30 days after the end of the review period For any preliminary challenges to the Annual Update not resolved, the interested party may make a formal challenge with FERC Each Annual Update shall become final either 1)12 months from publication date if no challenge has been made and FERC has not initiated a proceeding, or 2) the date that FERC issues a final order in response to a Formal challenge 26

27. Formula Rate Implementation Timeline 27

28. Formula Rate Annual Review/Resolution of Challenges Timeline 28

29. Formula Rate Template Paula Moulton, Rates Manager

30. Next Steps & Closing Charlotte Glassman, Transmission Contracts Manager

31. 31 Additional Questions Questions that have not been answered today or have not been asked should be submitted in writing. All questions should go to Charlotte.Glassman@duke-energy.com All questions should be submitted by April 12, 2010 – two weeks from today. Duke Energy will endeavor to provide written responses by April 26, 2010. All responses will be distributed to all who were invited to this meeting.

32. Customer Input How did this forum work? Do you want to continue with this type of meeting? How often should we meet? Will April 26, 2010 work for most customers? Should the second meeting be in person or via conference call? 32

33. Questions and Discussion 33