1. SPP.org 1

2. Status Update for Reliability and Economic Assessments Stakeholder Meeting September 16, 2008 Austin, TX

3. SPP.org 3 Activities Completed Since Last Meeting Reliability Assessment  Include 69 kV assessment for 2012 Summer Peak case  Sensitivity with Cottonwood connected to ERCOT  Transfer analysis into ETI as a result of reliability projects Economic Assessment  Input assumptions into PROMOD IV revised based on stakeholder comments  Status Quo 2012 and Base Case run with reliability upgrades completed

4. SPP.org 4 Reliability Assessment

5. SPP.org 5 Reliability Study Cases Contingency analysis (N-1) for SPP- ETI system  More stringent reliability criteria in Western Region (N-1, G-1)  Monitored 69 kV and above Several potential thermal and voltage violations found SPP examined a set of reliability upgrades to mitigate these violations  New 500/230 kV Transformers at Orange County and Cypress  Reconductor nine 138 kV lines in ETI area High level planning estimate of projects required to meet SPP Criteria is $115 M COTTONWOOD IN SPP Projects to meet SPP Criteria  New Orange County 500/230kV Transformer + Substation work ($50 M)  New Cypress 500/230kV Transformer ($10 M) Planned Known Projects  ETI Proposed Projects for 2012  Local Reliability projects for Western Region  Transmission Reliability projects from the 2007 approved STEP Plan  ETI Transmission Construction Plan

6. SPP.org 6 Reliability Study Cases Two Step analysis to assess Cottonwood moving to ERCOT  Identified projects to address Cottonwood exiting SPP (Similar STEP plan, this cost is excluded from Cost/Benefit analysis)  Examined additional reliability projects to address SPP Criteria Major projects to meet SPP criteria include  New 500/230 kV Transformers at Orange County and Cypress  Reconductor six 138 kV lines in ETI area High level planning estimate of projects required to meet SPP Criteria is $90 Million COTTONWOOD IN ERCOT Cottonwood Related Projects Projects to meet SPP Criteria Planned Known Projects  ETI Proposed Projects for 2012  Local Reliability projects for Western Region  Transmission Reliability projects from the 2007 approved STEP Plan  ETI Transmission Construction Plan  New Webre – Richard 500kV line ($180 M)  New Orange County 500/230kV Transformer + Substation work ($50 M)  New Cypress 500/230kV Transformer ($10 M)

7. SPP.org 7 Cost allocation of ETI Reliability projects Reliability projects are required solely to integrate ETI into SPP SPP policy is to allocate these costs to the local zone  Similar to current discussion with Nebraska entities  Consistent with treatment with Pre Base Plan funding SPP analysis will measure benefits on an equivalent basis

8. SPP.org 8 Transfer Capability Assessment into ETI

9. SPP.org 9 Transfer Capability Assessment into ETI Observations based on Market Power Study  No mitigation needed for case with Cottonwood in SPP  Increase transfer capability into ETI by approx 500 MW in the case with Cottonwood in ERCOT Transfer Simulated between the rest of the Entergy and SPP combined into ETI Reliability Projects identified in Base Case are considered for this assessment  Series Compensation on Mt. Olive- Hartburg line also considered ($10 M) Found approx 460 MW transfer capability as a result of all projects above No additional projects recommended at this time

10. SPP.org 10 Other Activities In Progress Tie Back Analysis to evaluate SPP’s Reliability need for ERCOT QPR option Stability analysis performed by independent consultant (Powertech) for SPP QPR and ERCOT QPR study

11. SPP.org 11 Economic Assessment

12. SPP.org 12 Key Market Assumptions – Status Quo Model SPP Market Assumptions  SPP modeled as Day 2 Market planned by SPP Cost Benefit Task Force  System wide unit commitment  System wide treatment of spinning reserve requirements  Security Constrained Unit Commitment and Economic Dispatch  SPP operates as a Single Balancing Authority Entergy (including ETI) Operating Assumptions  System wide unit commitment  Security Constrained Economic Dispatch  Reserve Requirements set and met on Entergy System wide basis  ETI Must Run Generation modeled via transmission constraints that represent voltage constraints  ETI and Entergy IPP output consistent with current operations Hurdle rates between SPP / other Regions and Entergy / other Regions  Dispatch hurdle 7 $/MWh  Commitment hurdle 25 $/MWh

13. SPP.org 13 Key Market Assumptions – Base Model SPP Market Assumptions same as Status Quo model ETI is a Member of SPP ETI Local Area Operating Assumptions same as Status Quo case Hurdle rates same as Status Quo except no hurdle rate between SPP and ETI

14. SPP.org 14 Benefit Metric – ETI Adjusted Production Cost Same Benefit metric being used by the SPP Cost Benefit Task Force in the Future Market Design Study Adjusted Production Cost for ETI  Generation Total Variable Cost  + Purchase Cost at ETI Load-Hub Rate  – Sales Revenue at ETI Generation-Hub Rate

15. SPP.org 15 Entergy-TX Hub Prices On-Peak 2012 ($/MWh)

16. SPP.org 16 Transmission Congestion Impact on ETI Load Hub Status Quo – impact on $/MWH  Inland – Hartburg line under contingency  24.05 (Cottonwood in ETI) and 12.89 (Cottonwood in ERCOT)  Mt. Olive – Hartburg line under contingency  5.07 (Cottonwood in ETI) and 10.81 (Cottonwood in ERCOT)  Mabel line under contingency  -1.74 (Cottonwood in ETI) and -1.60 (Cottonwood in ERCOT)

17. SPP.org 17 Transmission Congestion Impact on ETI Load Hub Base Case – impact on $/MWH  Inland – Hartburg line under contingency  4.11 (Cottonwood in ETI)  Mt. Olive – Hartburg line under contingency  6.96 (Cottonwood in ETI) and 6.84 (Cottonwood in ERCOT)  Wyatt – Parnell under contingency  6.80 (Cottonwood in ERCOT)  McAdam line under contingency  4.05 (Cottonwood in ETI)

18. SPP.org 18 2012 Benefits to ETI Millions of $

19. SPP.org 19 SPP Load Hub Prices On-Peak 2012 ($/MWh) 2 - 7% increase if ETI joins

20. SPP.org 20 2012 SPP Generation Impact of ETI Joining SPP (Cottonwood in Eastern Interconnection)

21. SPP.org 21 2012 Benefits to SPP of ETI Joining SPP

22. SPP.org 22 Discussion of Findings - ETI Summary of Production Cost Analysis  $136.3 million in lower annual production costs to ETI area with Cottonwood in SPP  $167.3 million in lower annual production costs to ETI area with Cottonwood in ERCOT  Lower production costs driven by decline in ETI generation as ETI purchases more from SPP  Production Cost benefit greater in non-summer months due to lower seasonal demand allowing SPP lower cost generation to serve more ETI load  Major transmission congestion in Mt. Olive/Hartburg/Inland area and around Wyatt/Parnell had major impact on ETI hub prices Entergy – TX hub prices for load decline with inclusion of ETI into SPP about 12 - 20% Cottonwood reduces Entergy – TX load hub prices but lowest Entergy – TX load hub prices occur with ETI in SPP and Cottonwood in SPP

23. SPP.org 23 Discussion of Findings – SPP SPP/ETI generation increases but overall variable generation costs are lower by $173.4 million (if Cottonwood in EIC) due to more efficient commitment and dispatch SPP benefits due mostly to changes in load and generation hub prices which drive the cost of purchases and sales revenues SPP benefits more if Cottonwood is not included  $559.0 benefit with Cottonwood in SPP  $780.3 million benefit with Cottonwood in ERCOT SPP Load hub prices increase slightly with inclusion of ETI in SPP, about 2 - 7%

24. SPP.org 24 Questions?

25. SPP.org 25 Mak Nagle Manager, Technical Studies & Modeling (501)614-3564 mnagle@spp.org mnagle@spp.org