Queue Reform at the Midwest ISO

NARUC

February, 2008

Current Tariff Requirements

• First in-first out (FIFO) approach as mandated by FERC

• Results of first queued study must be known before second queued study can start

• Dependencies on early queued projects hard-wired as contingencies in Interconnection Agreements of subsequent projects—uncertainty range too wide for commercial decision making

• Literal interpretation of the Tariff rules would allow us to complete processing of all requests currently in the queue on August 26, 2362

• Steps MISO has taken so far only reduce that date to 2050

5843 51

99

164

15

85

1

9

4

1120

18

18

2

5

1

1

7

25

1213

12

14

104

7990

131

212

2003 2004 2005 2006 2007

Currently Active:

306 Requests (243 wind)

Currently Active:

306 Requests (243 wind)

Queue Evolution*

*All requests received as of December 31, 2007

WindNatural GasCoalNuclearOther

Currently Active:

72.8 GW (57.6 wind)

Currently Active:

72.8 GW (57.6 wind)

5 3 4

14

45

33 1

1

2

2 5 5

8

23

2

1

11 11 12

24

54

1

2003 2004 2005 2006 2007

Number of Requests GW of Requests

Steps Taken to Improve Queue Processing• Parallel processing

– Realized immediately that projects in Michigan have no discernable impact on projects in North Dakota

– Start processing next request once conflicting requests are into the system impact study phase

– Delay definitive completion until prior study complete

– This moves the expected finish date for the current queue to about 2150

• Group Studies– Group together requests in close geographic and time proximity to

expedite study times

– Moved expected finish date of queue processing, not including time to make upgrades, to the 2050 timeframe

Suspended After GIA 8%

Exit Queue Before Study Work Started 42%

Exit Queue After Feasibility Study 7%

GIA Completed 31%

Withdraw After IA Complete 1%

Exit Queue after Facilities Study 2%

Exit Queue after System Impact Study 9%

Project Completion RatesProject Resolution Status (Inactive and Complete)

100% = 377 interconnection Requests since Dec 15 2001

• Steps taken to date only allow for so much progress in eliminating queue backlogs because of low project completion rates– Low project completion rates lead to restudy, which results in additional

time and uncertainty for later queued generators

3 P’s of Queue Reform• Success in queue reform rests on

addressing each of the 3 P’s

• Midwest ISO is currently working with stakeholders on solutions targeted at interconnecting generation more efficiently through improvements to Physics and Process– Focus study efforts on those generation

projects most ready to achieve interconnection (Process)

– Use alternative network upgrade identification methods to support interconnection of large quantities of generation in remote areas (Physics)

• Opening dialogue with regulators on items such as cost sharing and recovery

Physics

Process Politics

Proposed Queue Reform – First In-First Out Process Alternative

• Working with Midwest ISO Stakeholders since September 2007 (Interconnection Process Task Force) on an alternative study prioritization scheme

– Create new or increase current milestones (e.g. level of deposit, data completion requirements, site control, suspension costs, etc.) to reflect increased project readiness

– Allow projects in relatively unconstrained areas, that meet the milestones, to proceed when ready

• Key consideration is ensuring milestone selection and alternative prioritization scheme is not unduly discriminatory (such as to small generators)

• Targeting a Q2 tariff filing on this concept

Current Queue Example: Buffalo Ridge Area

A snapshot of the Buffalo Ridge area indicates that generator requests significantly exceed current transfer capability.

A snapshot of the Buffalo Ridge area indicates that generator requests significantly exceed current transfer capability.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

MW

s

Cummulative Generation Requested Nominal Buffalo Ridge Outlet

Add BRIGO, 1200

Add CapX, 1900

Next upgrade, 825

Today’s level, 425

Jun-05

Jul-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

604 MW8 Requests

580 MW7 Requests

Start Feasibility

StudyCompleteFeasibility

Study StartImpact Study

Complete Impact Study: $122M in

upgradesInterim Results:

$164M in upgrades

244 MW3 Requests

Start Impact Restudy; Start part of Facilities

Study

194 MW2 Requests

Complete Impact Restudy; $14M

in upgradesComplete

Facilities Study (Phase I)

Start Impact Restudy; Restart Facilities Study

Complete Impact Restudy; $14M

in upgrades

Current Queue Example: Group Study Process

Under the current group study process, all generation requests meeting the location and time-based criteria are considered, independent of demand

for power in the region, resulting in restudy

Under the current group study process, all generation requests meeting the location and time-based criteria are considered, independent of demand

for power in the region, resulting in restudy

What is the Midwest ISO doing from a Transmission Planning perspective to

integrate wind?• Designing Transmission to connect Wind to high

demand areas

– Development of a high-voltage overlay to deliver wind; coordinating with PJM, SPP and TVA through Joint Coordinated System Plan (JCSP)

– Beginning targeted planning study around Regional Generation Outlet transmission projects

• Working with local regulators in support of policy initiatives (e.g. Minnesota Renewable Energy Study)

• Developing a more efficient Interconnection process to allow wind resources to interconnect more quickly– Interconnection Process Task Force

Proposed Queue Reform - Regionally Planned Generator Interconnection Projects

• Overview

– Goal is to increase integration with long-term planning process to allow more efficient generator interconnection

• Instead of restudying until supply / demand balance is achieved, use demand assessment up front to size the analysis and identify total supply need; define transmission upgrades accordingly

– Began developing ideas to integrate projects of this type into current queue and cost sharing protocols through whitepapers and stakeholder discussion in June 2007

• Path Forward– Regional Wind Outlet Targeted Study started in February 2008 to

identify projects

– Interconnection Process Task Force to continue evaluation of integration with current queue (e.g. subscription methodology)

– Outreach to states on cost sharing and allocation issues

Conditions Precedent• A robust business case for the plan

– Need to demonstrate that the hypothesized benefits exist, including evaluation of alternatives

– Regulators are the judge of the business case

• Increased consensus around regional energy policy– Does not exist today around wind, for example, across the

Midwest ISO footprint

• A regional tariff that matches who benefits with who pays over time– For example, beneficiaries of wind may be due to public policy,

rather than load flow or economic benefit analyses which are the current basis for cost allocation

• Cost recovery mechanisms that reduce financial risk– Investors in these projects need to be assured of cost recovery