1. Grid Modernization in Minnesota Presentation for More Than Smart Webinar Chris Villarreal Minnesota Public Utilities Commission August 4, 2015 1

2. 2 Chris joined the Minnesota PUC in May 2015 as its Director of Policy. In this role, Chris will provide policy research and assistance to the Commissioners and analyze policy considerations for future and on-going policy development, including on issues such as grid modernization and cybersecurity. With the Minnesota PUC, Chris is active in the PUC’s on-going data privacy docket, as well as the e21 Initiative. Chris is an active participant in many national grid modernization efforts, including NIST Grid 3.0 and the Smart Grid Interoperability Panel. Chris is on the Board of Directors for the Smart Grid Consumer Collaborative, and is also on the Board of Directors and the Executive Committee for the North American Energy Standards Board (NAESB). At NAESB, Chris chairs the Energy Services Provider Interface (ESPI) Task Force which is the standard that supports Green Button. Prior to joining the Minnesota PUC, Chris spent the previous 9 years at the California Public Utilities Commission as a Senior Regulatory Analyst. At the California PUC, Chris worked on a variety of CPUC proceedings, including on Smart Grid, data privacy and data access, cybersecurity, demand response, and rate design. Chris also authored several White Papers on topics such as pre-pay, cybersecurity, and microgrids. Before the CPUC, Chris worked in Washington, D.C. as an energy law paralegal focusing on FERC matters. Chris has a B.A. in History from Baylor University. Chris Villarreal Director of Policy Minnesota Public Utilities Commission

3. Public Utilities Commission  Regulates  Permitting for power plants, pipelines, transmission lines  Local and in-state long distance telephone companies  Investor-owned electric and natural gas utilities – rates and services  5 Commissioners  Appointed by the Governor  Serve staggered terms  Full time employment  50 staff 3 mn.gov/puc 651-296-0406 1-800-657-3782

4. Minnesota Electricity Overview  5 IOUs, serve 1.5 million customers (about 65% of total sales)  Average cost is under $.09/kwh  Xcel is largest utility, serving Twin Cities  Majority of electricity generated by coal, with nuclear, natural gas, and renewables.  26,000 AMI in Minnesota Power territory under ARRA grant  Utilize Integrated Resource Plans to ensure utility meets customer needs at reasonable cost  Department of Commerce  Oversees Conservation Improvement Programs  CIP has spending and savings goals  Clean Power Plan 4

5. Why Minnesota?  Time  Not in reaction mode  Can get out front  Goals  RPS  Solar growing  Location  Not a coastal state  Vertically-integrated  Collaboration 5

6. E21 Initiative  Multi-stakeholder effort  Not a Minnesota PUC initiated effort  PUC is an observer  Recognizes that grid and customer expectations are changing  Maintain utility revenues  “Develop a more customer-centric and sustainable framework for utility regulation….”  http://www.betterenergy.org/projects/e21-initiative http://www.betterenergy.org/projects/e21-initiative 6

7. Goals of Phase 1  Recognize that utility business is changing  Shift from traditional utility business model (few options) to new model (many options)  Shift from traditional cost of service regulation…  Rewards sales of electricity and new capital  And to performance based  Meet agreed-upon outcomes based on a set of metrics or goals 7

8. Phase 1 Report  December 2014 Released Phase 1 Report  4 Recommendations  Performance-based Ratemaking  Customer Option and Rate Design Reforms  Planning Reforms  Regulatory Process  Grid Modernization  Need for proactive planning for new distribution grid  Future discussion 8

9. A few details of Phase 1 Report  Multi-year, performance-based ratemaking framework  15 year Integrated Resource Analysis  Replace existing integrated resource plan  Develop methods to determine value of grid and DER services  Consider time variant rate structures  Initiate a distribution planning process  More efficient regulatory process  More regulatory staff 9

10. Phase 2  Started in March 2015  Develop details to implement Phase 1 recommendations  Created three subgroups  Performance-based ratemaking goals and metrics  Integrated Resource Plan  Grid Modernization  Monthly meetings for full group  More frequent meetings for subgroups  Identify national trends and its impact in Minnesota  Speakers from Synapse, RAP, and California ISO  Goal is for new report in December 2015  PUC remains involved in effort as an observer 10

11. Meanwhile, at the MN PUC  Opened proceeding on grid modernization in June 2015 (15-556)  Three public meetings scheduled  September 25: Minnesota’s utility distribution systems  October 30: National efforts on grid modernization and best practices  November 20: Stakeholder perspectives, including current distribution planning processes and suggested next steps  Staff Report in mid-February 2016 on next steps 11

12. Framing for MN PUC Process  The Minnesota PUC’s grid modernization initiative will be designed to address the following key questions: 1. Are we planning for and investing in the distribution system that we will need in the future? 2. Are the planning processes aligned to ensure future reliability, efficient use of resources, maximize customer benefits, and successful implementation of public policy? 3. What commission actions would support improved alignment of planning for and investment in the distribution system?  Other state policies 12

13. Future Electric Grid  Tomorrow’s grid will:  Be more distributed, flexible, intelligent, real-time controlled, autonomous, open and secure  Be cleaner and reliable  Operate resiliently against attack and natural disaster.  Tomorrow’s distribution system will: –  Enable a high level of integrated Distributed Resources, both supply and demand side, with active participation by consumers;  Manage two way flows of electricity;  Provide for seamless integration and interoperability of varied systems and components;  Implement modern distribution management systems (DMS) including advanced control and communications;  Be planned in coordination with resource and transmission planning; could incorporate stakeholder informed planning scenarios. 13

14. Conclusion  Pro-active  Grid and customer demands are changing  Distribution grid planning processes becoming more important  Minnesota is positioned to be a leader in this national discussion  Come and participate! 14

15. Questions? Thank you! Chris Villarreal Director of Policy Minnesota Public Utilities Commission 651-201-2222 chris.villarreal@state.mn.us 15