Texas Panhandle Synchronous Condenser Solution Presented to ERCOT Regional Planning Group April 22, 2014

Outline DATC Introduction Problem Description DATC Proposal DATC Advantages

Duke-American Transmission Company (DATC) DATC is a 50/50 joint venture, formed in April 2011 to pursue transmission development on a national scale Founded on a vision of transmission as the key to efficient power markets Committed to developing projects that deliver a strong portfolio of reliability, economic and public policy benefits Publically announced projects and assets: DATC Midwest Portfolio – new transmission line projects in Iowa, Wisconsin, Illinois, Indiana and Ohio Zephyr Power Transmission – planned 500 kV HVDC transmission line from Wyoming to California Path 15 – DATC owns 72 percent of the transmission service rights the 500 kV transmission line in central California Strategic focus on ERCOT, Texas and SPP as areas of high potential Interest in pursuing a variety of platforms for transmission development including partnerships, greenfield, and acquisitions

Overview of Duke Energy Corporation (NYSE: DUK) Headquartered in Charlotte, NC 150+ years of service ~ 30,000 employees $50 Billion market cap 57,200 MW of generating capacity 85% regulated franchise utilities and 15% commercial enterprises

Infrastructure Development Duke Energy Regulated and Non-Regulated Operations Mix Commercial Businesses Franchise Electric & Gas Midwest Generation Ohio generation (~4,000 MW) Midwest gas-fired generation (~3,600 MW) Solar 50MW Wind – 1,900 MW Infrastructure Development Commercial Transmission Wind Solar Guatemala 283 MW El Salvador 296 MW Fuel Type Natural Gas Hydro Wind Coal / Oil Solar Ecuador 162 MW Peru 825 MW Brazil 2,113 MW DEI Latin American assets National Methanol Argentina 523 MW

Duke Energy Texas Presence Offices in Houston and Austin Over 100 employees in Texas 950 MW operating generation Sweetwater Windpower Project, Nolan County 283 MW 2003 (2007) Ocotillo Windpower Project, Howard County 59 MW (2008) Notrees Windpower Project, Ector & Winkler Counties 153 MW (2009) Blue Wing Solar Power Project, San Antonio 14 MW (2010) Notrees Battery Storage Project, Winkler County 36 MW (2012) Los Vientos I Windpower Project, Willacy County 200 MW (2012) Los Vientos II Windpower Project, Willacy County 202 MW (2012) Wind Solar Battery Office

Overview of American Transmission Company First multi-state stand alone transmission utility in U.S. Formed in 2001 Privately held with diverse ownership made up of investor- owned utilities, municipalities and cooperatives Tremendous growth since formation Over $3.3B in assets in 2012 Largest transmission owner in MISO

ATC Municipalities, IOUs, and Co-ops ATC has 29 owners, including several cooperatives

PREZ Problem Statement Original CREZ plan called for ~5.5 GW of capacity in Panhandle, but reactive support equipment initially installed for ~2.4 GW. Panhandle transmission, remote from ERCOT load and synchronous generation, is stability constrained. Panhandle Renewable Energy Zone (PREZ) study has determined additional transmission upgrades are required to support generation located in the panhandle when GI queue reaches 3,000 MW financial commitment. PREZ study (phase 1) recommends additional transmission and 200 MVAR of reactive support be installed initially (1,650 MVAR ultimately) in the panhandle area in the form of synchronous condensers1 due to their superior inertia and fault current characteristics. 1 Synchronous Condensers are generators that operate like a motor to supply inertial response, reactive support, and frequency response - synchronized with the grid, requiring no fuel, and produce zero emissions.

PREZ Upgrade Requirements Synchronous condensers located at Windmill and Ogallala stations in all 3 PREZ planning scenarios Synchronous condensers and linear upgrades required concurrently

PREZ Upgrade Plan

DATC Solution Project Phoenix is the DATC response to ERCOT’s identified need for reactive support in the Texas panhandle to facilitate wind generation interconnection currently in the queue with confirmed financial commitment to build. DATC proposes to install repowered generators from the Duke fleet operated as Synchronous Condensers at Windmill Substation and/or other ERCOT locations to supply the needed reactive power. DATC is eligible to offer and own this solution to ERCOT under ERCOT Nodal Protocol 3.11.2 (3) which states, “ERCOT shall attempt to meet these reliability criteria as economically as possible and shall actively identify economic projects to meet this goal.” If endorsed by ERCOT, a PUCT CCN application will follow.

Duke Preferred Synchronous Condenser Inventory Unit Manufacturer MVA Capability MVAR Capability Retirement 1 Westinghouse 192 155 / -116 March 2014 2 GE 288 205 / -125 May 2015 3 512 379 / -256 4 105 103 / -76 April 2016 5 145 115 / -67 6 7 156 144 / -94 8* 496 320 / -250 October 2013 9* 128 101 / -59 April 2013 10* 297 250 / -130 September 2012 11* 150 100 / -65 April 2012 12* 160 110 / -80 October 2012 * Recently rewound

DATC Proposal Proposal Units to be Repowered Capability MVAR Cost A DATC is also amenable to collaborating with ERCOT on ERCOT’s preference of available Duke units. Proposal Units to be Repowered Capability MVAR Cost A #10 #12 Total 250 / -130 110 / -80 360 / -210 $39M B #8 320 / -250 570 / -380 $41M

DATC Solution Advantages DATC provides a cost advantage over all other incumbent providers due to full depreciation ($0 book value) of Duke generators to be repowered. Anticipate 20-30% savings over new Synchronous Condenser equipment. Duke retired generator inventory is immediately available providing a time advantage over new equipment long lead time delivery. DATC Proposal B can satisfy PREZ Phase 2 reactive reinforcement requirements at Windmill thereby avoiding approximately $88M additional cost. DATC Synchronous Condenser solution is “repeatable” at other ERCOT locations requiring reactive support.

Duke / ATC Strengths Applicable To the TX Panhandle Large fleet of retired and soon to be retired units and spare parts inventory History of operating generation and transmission providing a unique skill set in ERCOT when considering synchronous condensers as transmission assets Supply chain economies of scale Expert in planning, designing, and constructing transmission lines, substations, generating plants, and related infrastructure History of reliable interconnection and operations in the ERCOT system History of meeting stakeholder expectations

Contact Information www.datcllc.com Jeff Peterson 713-375-0709 jeff.peterson@duke-energy.com Bob Burner 704-382-6889 g.burner@duke-energy.com Mark Bruce 512-810-1516 mark.bruce@stratusenergy.com