1. Wind Project Ownership - An Investor Owned Utility Perspective John R
Wind Project Ownership - An Investor Owned Utility Perspective John R. Grimwade Senior Director Strategic Planning & Development
Presentation to the Kansas Renewable Energy and Energy Efficiency Conference
September 24, 2007

2. Agenda
KCP&L overview
Current trends in wind development and ownership interests
Reasons why rate regulated utilities are moving to have renewables in their energy portfolios
Potential wind ownership structures
Regulated Utility Economics 101
Reasons why regulated utilities want to own wind projects
Benefits to utility ownership
Assessment of risks and operational considerations of owning renewable projects

3. KCP&L Overview Completed merger with Aquila in mid 2008
Approximately 800,000 customers in 47 counties in Eastern Kansas and Western Missouri
Service territory of approximately 18,000 sq. miles
9 generation plant sites and 10 peaking facilities
3,309 miles transmission, 24,466 miles distribution, and 322 substations

4. Our Comprehensive Energy Plan represents a balanced approach to meet the needs of our customers
Affordable, reliable energy to fuel long-term economic growth
Environmental improvements to keep our area’s air clean
Renewable energy
Infrastructure investment to reduce frequency and duration of outages
Programs to give customers more control over their energy usage
In 2005, KCP&L began to execute on a Comprehensive Energy Plan designed to meet the needs of our customers. This plan was developed as part of a collaborative process where we received input and ideas from hundreds of people throughout our community, including residential and commercial customers, regulators, legislators, civic leaders, industry experts, and environmentalists. The plan was designed to deliver 3 key benefits:
Generate affordable electricity to meet the demand in our area
Stimulate the economy by creating jobs and keeping utility bills as low as possible
Improve our area’s air quality

5. Volatile growth in wind capacity has been spurred on by the continued renewal of PTC following a period of uncertainty

6. Reasons why investor owned utilities are now moving to have more renewable resources in their energy portfolios
Renewable Portfolio Standards (RPS)– mandate that requires a retail electric provider to provide a percentage of its total electric service from renewable sources
Regulatory settlement required as part of a broader agreement
Utilities want to take advantage of PTC while still available and where wind resource is competitive with other traditional resources
Wind is viewed as an appropriate hedge
Against volatile fuel prices
In anticipation for future RPS mandates and/or carbon legislation
Increases utility involvement and support to the state and community for increased economic development

7. Cumulative and Annual (2006) Wind Capacity Categorized by Owner Type

8. Cumulative and Annual (2007) Wind Capacity Categorized by Power Off-Take Arrangement

9. Status of State Electric Industry Restructuring Activity
(Source: EIA - February 2003 was the last update. No further updates are currently planned)

10. Status of State Electric Industry Restructuring Activity with top 20 wind resource states19 5 1 9 13 18 15 4 14 7 10 6 16 17 11 3 20 8 12 2
(Source: AWEA & EIA

11. Renewable Portfolio Standards by State

12. Potential Wind Project Ownership Structures
Project Financed IPP - Long Term Contract - The plant is built and owned by an IPP and financing is secured through one or more long term contracts (10-20 years) to utilities for the power at a fixed or indexed price.
Pure Merchant Plant - The wind facility is owned entirely by equity participants in a merchant or independent power producer (IPP) and sales of energy are made into the wholesale market on a real time or short term basis. Utility or retail provider would indirectly purchase the power from power marketers through the wholesale market.
Utility Ownership – The plant is owned by the utility although development and/or construction may be through a third party wind developer and transferred after completion
Hybrid – Innovative ownership structures between developer, institutional investors and possibly tax equity partner with mostly equity at the project level to take full advantage of tax credits. May include an option to transfer (flip) ownership to utility or primary developer after expiration of tax credit period.

13. Regulated Utility Economics 101 Basic structure of how revenue requirements are determined
Existing Power Plants
Annual Revenue Requirement
Depreciation
Return on Rate Base (profit)
Deferred Taxes
Taxes
Fixed O&M Expenses
Fuel & Purchased Power
(Wholesale Energy Sales)
= Revenue Requirement
÷ Retail kW Hours Sold
= net cost per kWh
Existing Distribution Assets
Fixed
Capitalized Maintenance
Ratebase
Variable
Existing Transmission Assets
New Investments

14. Reasons why investor owned utilities want to own wind projects
Regulatory structure – ROE rate based compensation to shareholders
Regulatory settlement requires the construction and ownership of wind
IOUs and parent holding companies generally have strong appetite for tax credits and can pass these cost savings on to customers in the form of reduced rates
Builds on current core competencies of most utilities for constructing and operating generating assets
Ownership is often the least cost resource
Utilities can take advantage of diversity in a balanced regulated portfolio allowing for a more efficient planning and management of risk
Allows for greater control over project both during construction as well as on-going operations throughout the life of the project
The dynamics for managing transmission scheduling can be more efficiently managed in a broader asset and power market portfolio
Increases utility involvement and support in the communities

15. Benefits to investor owned utility ownership
Higher than expected generation results in direct savings that are passed on to customers
Asset life beyond the 20 year PPA duration results in benefits to customers who can realize the continued value of as fully depreciated asset
Utilities can take advantage of diversity in a balanced regulated portfolio allowing for a more efficient planning and management of risk
The dynamics for managing transmission scheduling can be more efficiently managed in a broader asset and power market portfolio
Allows for greater control over project both during construction as well as on-going operations throughout the life of the project
Increases utility involvement and support in the communities

16. Assessment of risks for utility ownership vs. PPA
Description
Comparison of Impact – Mitigation Strategy
Rate Regulated Utility Ownership
PPA
Technology Risk
Wind turbine generator and components do not perform as designed – lower MWh production is the result
Risk: Loss of PTC as well as regulatory uncertainty as to whether higher costs from both full capital cost recovery and replacement cost of energy would be passed on to customers
Mitigation: Choose proven technology from reputable manufacturers
Under most PPA structures, utilities would pay for what is produced and therefore would have only the risk of the marginal energy price delta to be concerned with. Under an RPS mandate, the utility purchaser would be forced to go to the market to purchase RECs to replace shortfall
O&M Cost Risk
Similar to Technology Risk - Wind turbine generator and components could fail at a greater rate than expected increasing ongoing O&M costs
Risk: Utility owner would be exposed to increases in cost – regulatory uncertainty as to whether increases could be passed on to customers
Mitigation: Develop O&M expertise utilizing best practices; contract out to experienced O&M contractor with performance terms; Chose proven technology
Project owner would generally be exposed to increased O&M costs and not be able to pass on to off-take customer

17. Assessment of risks for utility ownership vs. PPA (cont.)

18. Assessment of risks for utility ownership vs. PPA (cont.)

19. KCP&L’s Spearville, Kansas Wind Generating Facility