STATUS OF BULK ELECTRIC SYSTEM DEFINITION PROJECT NERC PROJECT 2010-17

BES Definition PHASE 1 Proposed new BES Definition and Exception Process approved by NERC BOT and filed with the FERC in January, 2012 FERC NOPR issued proposing to approve the new definition and exception process but soliciting comments on some parts of the definition FERC Order issued on December 20—approved definition with some directed changes /clarifications FERC Order Major features/directed changes: Entities seeking exclusion of “local distribution facilities “ otherwise included in the BES would appeal directly to FERC (Seven Factor test used as starting point along with “other factors”) Lines >100 KV that are looped by a <100 KV line are not radial in nature and are not excluded under Exclusion E1 (although the < 100 KV loop(s) would be excluded unless brought in by the exception process). However, the entire system could qualify for Exclusion E3 (Local Network).

BES Definition FERC Order PHASE 1 Interconnection lines (>100 KV) for Generators included by I2 are directed to be included in the BES as part of E1 implementation. If owned by GO, NERC can register GO as TO/TOP with select set of applicable standards or consider tie-line as part of generator (applies to E3 also) Directs NERC to modify Exclusion E3 to include networks looped at voltages < 100 KV for consideration (proposed definition limited LNs to 100 KV to 300KV) Exception Process Confirms that burden of proof lies with submitting entity Expects Registered Entities and Regional Entities to identify sub-100 KV elements that should be included in the BES, but affirms FERC’s ability to order such elements (and any other elements) to be included in the BES

BES Definition PHASE 1 FERC Order Exception Process NERC can request the Regional Entities to include elements in the BES (aimed at sub-100 KV systems) Basic tenet is that Registered Entities will determine which of their facilities are part of the BES by the application of the BES Definition in its entirety. Registered Entities are required to notify the Regional Entities when an element is no longer part of the BES FERC suggested that other issues brought by commenters be pursued in Phase 2 by those stakeholders The FERC Order is subject to FERC’s due process for requests for rehearing, etc. and the BES SDT will respond to the final order.

BES Definition PHASE 1 Standard Drafting Team (SDT) posted for comments a detailed guidance document containing the BES Definition application methodology as envisioned by the SDT with detailed examples for various configurations Examples illustrated the hierarchy of applying the BES “core” definition and the Inclusions and Exclusions that make up the total BES Definition The comments and the FERC Order are currently being considered. Changes will be made to the guidance document when the FERC Order is finalized and again with the completion of Phase 2.

Phase 2—Standard Authorization Request (SAR) BES Definition Phase 2—Standard Authorization Request (SAR) The SAR was posted for comments in early 2012, comments incorporated and SAR was approved by the NERC Standards Committee SAR proposed four areas for further consideration Technical justification of appropriate thresholds for including Real and Reactive Resources in the BES Determine if there is a need to change the Phase 1 basis of a non-contiguous BES

BES Definition Phase 2--SAR Determine if there is technical justification to revise the 100 KV bright-line voltage level Determine if there is technical justification to allow power flow out of a local network (Exclusion E3) under certain conditions and, if so, what magnitude and duration should be allowed. In addition, the SAR proposed to clarify certain items based on industry comments and to determine if any other improvements in the definition could be made In addition, the SAR is broad enough to respond to changes due to the FERC Order on Phase 1 Definition

BES Definition Phase 2 The SDT formulated a problem statement containing details of the four Phase 2 issues--sent to the NERC Planning Committee (PC) for analysis by their appropriate technical subcommittees The PC recommended no changes in the definition with the exception of Exclusion E3 (Local Networks) PC recommended changes in E3 involve extension of “no outflow” to any of the interconnections of the LN with the BES and limiting the LN to 300 MW of load

BES Definition Phase 2 The BES SDT is considering changes in Inclusion I4 (Phase 1 dispersed power producing resources) to clarify I4 and more closely correlate with Inclusion I2 (traditional power producing resources) based on industry comments on the guidance document The BES SDT is considering a change in Exclusion E1 (radial line exclusion) also based on industry comments requesting clarification of the term “non-retail generation”

BES Definition Phase 2 In future meetings the BES SDT will be considering: Sequence of Exclusions in the definition based on the hierarchical application of the definition The NERC PC recommendations Possible changes to the ERO Statement of Compliance Registry Criteria based on revised BES Definition Additional Guidance Document revisions Response to directives in the FERC Order on Phase 1 Definition

BES Definition Phase 2 Schedule QUESTIONS? First Posting in April Successive Ballot in Q3 2013 Recirculation Ballot in Q3 2013 BOT Approval Q4 2013 QUESTIONS?