FMPA Strawman Proposal: Order 1000, Regional Planning and Cost Allocation Stakeholder Meeting May 2,

Regional Planning FRCC planning process augmentation Hybrid of roll-up and central planning Roll-up for local issues More centralized, collaborative planning for non-local FRCC staff, Planning Committee and its working groups develop and evaluate alternatives Anyone can also sponsor an alternative to be evaluated 2

How do we assess more “cost-effective and efficient” to select projects for the Regional Plan? FMPA believes that benefits need to be captured. Order 1000, P 2 identifies two major benefits: 1.“Relieve congestion” which implies production cost simulations 2.Fulfill “public policy requirements” 3

Select Projects for the Regional Plan that Result in the Lowest Costs to Consumers in Peninsula Florida Considering transmission costs and benefits including congestion relief and fulfilling public policy requirements Use a prudent benefit to cost ratio threshold to mitigate uncertainties of assumptions (e.g., fuel costs, load growth, etc.) Possibly involve the FPSC in the production simulation assumptions so that there is “buy-in” to the results 4

Proposal to Allocate Cost in Proportion to the Benefit of Return on Investment The benefit to cost ratio threshold is not appropriate for cost allocation since all of the costs may not be covered. Allocating costs based in part on production cost savings is somewhat difficult due to uncertainties in fuel forecasts, load growth, etc. Hence, FMPA proposes to “allocate cost roughly commensurate with benefits” to the benefit of a return on investment 5

Strawman Idea – Competition for Capital Assume the project meets the benefit to cost ratio threshold, so, the project “makes sense” and should be considered “prudent” and allowed into rate base Transmission is an attractive investment and there should be no shortage of willing investors If we open up costs and returns to competition, then, each entity would be incentivized to bid what they believe the project is worth 6

Quasi-IPO Bids would look like “Offer X dollars of capital for Y ROE” Establish prudent criteria for acceptable bids and for “financial and technical resources” of the bidder Auction process to establish winning bidders based on ROE bid Auction settled from lowest bid for ROE to the highest until all of the capital needs of the project are satisfied FMPA proposes a “Dutch Auction” process, e.g., last bid on ROE that clears the auction sets the auction price Consumer is protected through open competition

Quasi-IPO (cont.) Bid caps Volume cap to balance shareholder and customer interests and to allow multiple owners and a more robust market ROE cap (maybe capped at a prudent incentive rate) for increased consumer protection How does a non-incumbent transmission developer earn a return? Hold a portion of the project equity in reserve as venture capital to the project sponsor if not developed in FRCC Committee with an ROE as determined by the Dutch Auction, in addition to the opportunity to bid into the auction 8

Regional OATT A regional OATT platform to collect revenues required for new project(s) … Allows a non-incumbent transmission developer to earn a return on investment while … Allocating costs in a way that equitably impacts consumer rates. 9

Formula Rate for New Projects In order for ROE bids to be apple-to-apple comparisons … A common capital structure (or imputed capital structure) and … Other parameters (e.g., a common treatment of depreciation) … Are needed. Which implies a formula rate for new projects A formula rate would also help with rate consistency between equity holders (owners) (e.g., O&M costs) 10

Construction, O&M and R&R Construction FMPA proposes that the projects be bid out as EPC fixed price contracts to control costs and schedule O&M Negotiated O&M contract(s) Expensed, pass through costs R&R Allocated in proportion to equity position in project Capitalized, rate based 11

Questions? 12