fall 2006 limited-term rfp

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Fall 2006 Limited-Term RFP

ENTERGY SERVICES, INC.

September 11, 2006

This presentation summarizes certain matters related to ESI’s Fall 2006 Limited-Term Request for Proposals (as it may be amended or modified, the “Fall 2006 Limited-Term RFP”).

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Agenda Items

Introductions

RFP Overview– 2006 Long-Term RFP Update– RFP Process - Elizabeth Benson– Fall 2006 Limited-Term RFP Products and Timeline– Proposal Submission Process – Credit Analysis – Proposal Evaluation Process & Overview of Resource Plan– RFP Evaluation Discussion - Potomac Economics

Lunch

Question and Answer Session*

TBU Presentation

* ESI requests that all questions be submitted in writing so as to allow ESI the ability to provide written responses which will be made accessible to all parties on the RFP website. ESI will respond orally to some questions during the Question and Answer Session today. However, to the extent that ESI also provides a written response to any question, the written response will be deemed to supersede any information provided orally.

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Introductions

Entergy Services, Inc.

– Bill Mohl VP, Commercial Operations

– Tony Walz Director, Planning & Analysis

– Mark Strength Manager, Supply Procurement & Asset Management

– Charles DeGeorge Manager, Supply Planning & Analysis

– Lee Kellough Manager, Transmission Engineering

– Tom Moran VP, Credit Risk

– Laura Berryman RFP Administrator

Independent Monitors

– Process IM Elizabeth Benson, Energy Associates

– Evaluation IM Potomac Economics (David Patton, Robert Sinclair, Michael Chiasson)

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RFP Overview

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2006 Collaborative Process

The purpose of the collaborative process was to allow formal discussion between ESI, Staff, and market participants regarding the design and scope of the RFP.

The schedule included two meetings and conference calls with the participants in June and July. The collaborative concluded at the end of July 2006, with the Staff filing its Final Report.

As noted in the Staff’s Final Report, “the collaborative process achieved a substantial narrowing and focusing of issues, although not a complete resolution of all issues.” While multiple issues were addressed in the collaborative, the following issues resulted in specific elements that are included in the design of the 2006 Long-Term RFP:

– QF Participation in the RFP

– Delivery Term

– Transmission Evaluation

– Proposal Submittal Fees

– Evaluation Process

While not all the issues were fully resolved in the collaborative, the parties regarded the progress achieved to be substantial.

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Key Attributes of Fall 2006 Limited-Term RFP

The primary objective of this RFP is to solicit competitive proposals to provide the Entergy Operating Companies with flexible and cost-effective generating resources to meet their retail customers’ needs in a reliable and economical manner.

Once these reliability needs are met, ESI will consider proposals that allow the Operating Companies to displace some of their existing gas- and oil-fired generating resources in a manner that results in a reduction of total System production costs.

The displacement of these units can take place through one or more of the following methods:

– Energy Substitution

– Capacity Substitution

– Enabling Transmission Service

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Operational Flexibility is Key

Over the past several years, the Entergy System has decreased its reliance on its existing gas- and oil-fired generation.

The System has successfully displaced capacity and/or energy for some of its existing gas- and oil-fired generation and will continue to do so to the extent the resources offered by the market are economical and offer the same operational flexibility and reliability as the existing gas- and oil-fired generation resources owned by the Entergy Operating Companies.

The System’s existing gas- and oil-fired generating units provide a range of operational functions that must be replaced before certain existing gas- and oil-fired generating units can or should be retired.

Thus, even if a proposed resource can displace an existing unit, it does not necessarily make sense to retire and shut down that unit entirely. However, it may make sense to shift the role of that unit and still maintain the operational flexibility needed to meet the ever-changing demands of the System.

In this RFP, ESI has attempted to design products that will provide dispatch flexibility, thereby facilitating opportunities for market participants to better meet the needs of the Entergy System.

– However, in order to displace a System unit through Energy Substitution and/or Capacity Substitution, a resource must be able to function in the same supply role as the System unit. Factors that influence this capability include the following:

» Access to flexible and dependable fuel supply» Load-following capability» Location of resource

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2006 Long-Term RFPUpdate

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2006 Long-Term RFP Response

Note: Non-conforming proposals are not included in the summary* Mutually exclusive capacity bid into multiple proposals

ESI received the following conforming proposals:

– CCGT Proposals

» 35 proposals

» 9 Bidders representing 12 resources

» Representing a total of 16,833 MW*

– Solid Fuel Proposals

» 8 Solid Fuel Proposals

» Bidders representing 6 resources

» Representing a total of 3,293 MW*

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2006 Long-Term RFP Update

CCGT Proposals

– Proposals submitted to TBU for SIS on June 1, 2006; initial results received on September 1, 2006.

– CCGT Preliminary Shortlist will be identified on or about September 15, 2006.

Solid Fuel Proposals

– Proposals submitted to TBU for SIS on June 27, 2006; results expected by September 27, 2006.

– Solid Fuel Preliminary Shortlist will be identified on or about October 13, 2006.

Proposal evaluation and selection timeline to be expedited

– At the July B&E meeting, the LPSC expressed a desire to expedite the RFP proposal selection process.

– In an effort to respond to this request, ESI, in consultation with the LPSC Staff and Independent Monitors, decided to begin the more detailed evaluation of Candidate Proposals sooner than the time contemplated in the RFP.

– ESI hopes that by expediting the process, ESI will better be able to identify the most economically attractive and viable proposals for inclusion on the Preliminary Shortlist(s) and, ultimately, expedite the final awarding of RFP proposals.

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RFP Process Overview

Elizabeth Benson Process IM

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Product and Timeline Overview

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Fall 2006 Limited-Term RFP - Highlights

ESI will accept written feedback from market participants and other interested parties on the draft RFP, provided that such comments are provided to the RFP Administrator by no later than September 29, 2006.

ESI also will employ the same posted question and answer process for Bidders that has been used in prior RFPs; this is another opportunity for Bidders to seek clarification regarding the RFP.

Final RFP will be issued on or about October 24, 2006.

The electronic proposal submission process used in previous RFPs will be used in this RFP; electronic submission simplifies the proposal submission process for Bidders and helps streamline and enhance the efficiency of ESI’s RFP evaluation process.

– All proposals must be registered during Bidder Registration.

ESI will have an RFP “Hotline” available during October 30 through November 2 to assist Bidders only with respect to technical questions regarding the electronic registration or proposal submission process.

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Fall 2006 Limited-Term RFP - RFP Participants

Potential RFP Participants

– Electric Utilities

– Marketers

– Wholesale Generators

– Independent Power Producers

– Qualifying Facilities

– Entergy Competitive Affiliates

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Fall 2006 Limited-Term RFP Process Timeline

RFP Preparation Evaluation Final Selection Regulatory

6/06

5/06 9/07

7/06 8/06 9/06 10/06 11/06 12/06 1/07 2/07 3/07 4/07 5/07 6/07 7/07 8/07

Solicitation

Registration

Electronic Proposal Sub.

Review & Evaluation Process

Final Selection & Begin Contract Negotiations

InitialDraft

Issued8/31

FinalRFP

Issued10/24

Technical & BiddersConferences

9/11

10/30 11/2

Comments from MarketParticipants Due

9/29

11/13 11/16

11/17 2/2

Bidders notified of inclusion on either thePrimary or Secondary Award shortlist

2/2

Notify secondary award shortlistBidder’s of ESI’s intent toproceed with negotiations

3/2

Execute DefinitiveAgreements

5/4

Post Notice of RFP

5/15 MarketCollaberative

6/28

Regulatory Approval Window5/4 9/1

Regulatory Approval Process

Fall 2006 RFP

Proposal Submittal Fees Due11/9

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Fall 2006 Limited-Term RFP Products

ESI is issuing this Fall 2006 RFP to solicit proposals for the delivery of electric capacity, energy, and Other Associated Electric Products.

ESI intends to acquire the majority of the resources sought in the Fall 2006 Limited-Term RFP for Delivery Terms of one and three years.

However, ESI is expanding its power purchasing strategy in this RFP to consider “intermediate term” proposals with Delivery Terms of four and five years.

– The specific purpose of these “intermediate term” products is to serve as a bridge between the initial delivery date specified in the Fall 2006 Limited-Term RFP, and the expected start date of any long-term solid fuel projects or purchases that may result from the 2006 Long-Term Supply-Side Resource RFP.

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Fall 2006 Limited-Term RFP Products

Baseload (Product Package A)

Dispatchable MUCPA (Product Package B)

Low Heat-Rate MUCCO – Day-Ahead (Product Package C)

Peaking MUCPA (Product Package D)

Peaking MUCCO (Product Package E)

Hour-Ahead Peaking MUCCO (Product Package F)

Three-Year Reserve Capacity MUCCO (Product Package G)

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Baseload Product (Product Package A)

Product

– Buyer shall schedule and dispatch energy in all hours of the Delivery Period and Seller shall be required to deliver such energy in all hours of the Delivery Period subject to availability provisions

– Delivery term of 1, 3, 4, or 5 years

– Can be linked with a call-option product with dispatch flexibility (Product Package C)

– Delivery term for combined products either 1 or 3 years

– Start date of the proposed delivery term must occur no later than September 1, 2007

– QF put rights retained if unable to obtain transmission service Capacity Quantity

– Minimum baseload capacity of 50 MW

– Combined products have combined minimum capacity of 100 MW Pricing

– Option Premium (minimum $12/kW-year)

– Energy payment (either fixed heat rate * Henry Hub, or propose guaranteed energy price)

– Variable O&M ($/MWh) Fuel

– Seller provides fuel

Term Sheet A of Appendix C and the Baseload Model Contract summarize the specific requirements for this product

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Dispatchable MUCPA(Product Package B)

Product– Scheduling on a day-ahead/intra-day basis – No minimum annual dispatch requirement– Delivery term of 1, 3, 4, or 5 years– Start date of the proposed delivery term must occur no later than September 1, 2007

Capacity Quantity– Minimum capacity - entire 1X1 CCGT train (~250 MW to 400 MW)

Pricing– Option premium ($/kW-year)– Variable O&M ($1.00/MWh) – Fixed start-up payment ($12,500 per CT-start)– Requires guaranteed heat rate curve (variation tolerance of +/- 3%)

Fuel– Buyer provides fuel– If the proposal is not for the entire facility, Seller must provide sufficient revenue quality metering

to allow for the segregation of fuel and all electrical output associated with the Buyer’s generating unit or portion of the facility

Term Sheet B of Appendix C and the MUCPA Model Contract summarize the specific requirements for this product

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Low Heat-Rate MUCCO(Product Package C)

Product

– Scheduling on a day-ahead/intra-day basis

– Reserve rights to 8 hour minimum day-ahead/intra-day dispatch

– Delivery term of 1 or 3 years

– May be combined with Baseload product (Product Package A)

– Start date of the proposed delivery term must occur no later than September 1, 2007 Capacity Quantity

– Minimum capacity of 50 MW Pricing

– Option premium ($/kW-year)

– Variable O&M ($1.00/MWh)

– Fixed start-up payment ($50 per MW-start)

– Heat-rate curve as follows:

» 7,500 Btu/kWh for 8-11 hour schedule

» 7,300 Btu/kWh for 12-15 hour schedule

» 7,200 Btu/kWh for 16+ hour schedule Fuel


Term Sheet C of Appendix C and the MUCCO Model Contract summarize the specific requirements for this product

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Peaking MUCPA(Product Package D)

Product– Scheduling on a day-ahead/intra-day basis – No minimum annual dispatch requirement– Delivery term of 1 or 3 years– Start date of the proposed delivery term must occur no later than September 1, 2007

Capacity Quantity– Seeking full capacity of specified CT generation unit

Pricing– Option premium ($/kW-year)– Variable O&M ($2.00/MWh) – Fixed start-up payment ($12,500 per CT-start)– Requires guaranteed heat rate curve (variation tolerance of +/- 3%)

Fuel– Buyer provides fuel– If the proposal is not for the entire facility, Seller must provide sufficient revenue quality metering

to allow for the segregation of fuel and all electrical output associated with the Buyer’s generating unit or portion of the facility

Term Sheet D of Appendix C and the MUCPA Model Contract summarize the specific requirements for this product

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Peaking MUCCO(Product Package E)

Product

– Scheduling on a day-ahead/intra-day basis

– Reserve rights to 4 hour minimum day-ahead/intra-day dispatch


– Start date of the proposed delivery term must occur no later than September 1, 2007 Capacity Quantity



– Energy payment (fixed HR of 10,500 Btu/kWh * gas price based on next-day or intra-day)


– Fixed start-up payment ($75 per MW-start) Fuel


Term Sheet E of Appendix C and the MUCCO Model Contract summarize the specific requirements for this product

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Hour-Ahead Peaking MUCCO(Product Package F)

Product

– Scheduling on hour-ahead basis

– Reserve rights to 2 hour minimum dispatch


– Definitive agreements subject to Transmission Service Study results from TBU

– Start date of the proposed delivery term must occur no later than September 1, 2007

– QF put rights retained for the capacity associated with this product Capacity Quantity



– Energy payment (fixed HR of 12,500 Btu/kWh * gas price based on next-day or intra-day)

– Variable O&M ($2.00/MWh) Fuel


Term Sheet F of Appendix C and the MUCCO Model Contract summarize the specific requirements for this product

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Three-Year Reserve Capacity MUCCO(Product Package G)

Product

– Scheduling on three-day-ahead basis

– Reserve rights to 4 hour minimum dispatch

– Definitive agreements subject to Transmission Service Study results from TBU

– Start date of the proposed Delivery Term must occur no later than January 1, 2008 Capacity Quantity



– Energy payment (fixed HR of 15,000 Btu/kWh * daily Henry Hub Index)


– Fixed start-up payment ($75 per MW-start) Fuel


Term Sheet G of Appendix C and the MUCCO Model Contract summarize the specific requirements for this product

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Other Key Considerations

Regulatory Approvals

– All definitive agreements shall be conditioned upon receipt of regulatory approvals, including the recovery of the cost of the resource, acceptable to ESI in its sole discretion.

» Because of shortened time period for regulatory approval, Model Contracts include a termination provision if regulatory approval has not been achieved by, or is denied, before December 31, 2007.

» ESI will need to request expedited regulatory approval.

Contract Terms and Conditions

– Term Sheets and Model Contracts detailing terms and conditions have been provided.

– These Model Contracts and Term Sheets are expected to serve as the basis for final contract negotiations and execution without any material changes.

– Bidders should take the terms and conditions specified in these Model Contracts and Term Sheets into consideration in the pricing of their proposals.

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Other Key Elements of the Fall 2006 Limited-Term RFP

Self-build / self-supply options are not being considered in this RFP.

Proposal submittal fees will be required for each registered proposal.

– Bidders submitting linked proposals (Baseload Product and Low-Heat Rate MUCCO product) that are to be evaluated on a combined basis only will be charged one proposal submittal fee.

No Bidder will be excluded or prohibited from participating in this RFP on the basis of credit.

Proposals from QFs will not be provided any form of preference or enjoy any priority of selection in the RFP based solely on their QF status. However, the RFP includes the ability to link two products and the design of a third product that have been developed in order to facilitate the participation of QFs in this RFP.

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Proposal Submission Process

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Bidder Registration & Proposal Submission Sequence

Final RFP Posted to Website

Bidder prepares proposals*

ESI’s automated data review

After conclusion of Proposal Submission period, segregated data reports generated for evaluation by

RFP Proposal Evaluation Team

ESI’s automated data review

Bidder electronically submits Bidder

Registration Form (Appendix B) to ESI

Return email sent to Bidder by

ESI

Bidders electronically

submits proposals to ESI

ILLUSTRATIVE

Return email sent to Bidder by

ESI

These data reports are reviewed by Independent Monitor and RFP Administrator prior to distribution to RFP Proposal

Evaluation Team

Registrationconfirmed

Registrationrejected(incomplete)

Proposal confirmed

Proposalrejected(incompleteor invalid orNon-payment ofProposal Submittal Fee)

Bidder faxes executed Bidder Registration Form

to ESI

ESI sends Bidder the invoice(s) for proposal(s)

submitted

Bidder remits wire payment of the Proposal

Submittal Fee(s)

Appendix B – Bidder Registration

Appendix D – Proposal Submission

* Proposals must be registered and Proposal Submittal Fees paid to ESI no later than November 9, 2006

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Electronic Bidder Registration Process

Proposal Submittal Fee

– Within two (2) Business Days of receiving the executed Bidder Registration Form, ESI will invoice Bidder, by Proposal Identification Number, the Proposal Submittal Fee that is due for each registered proposal.

– Bidders will be invoiced a $1,000.00 Proposal Submittal Fee for the first registered proposal. Combination products, as detailed in the Bidder Registration Form, will be invoiced $1,000.00 per combined product.

– ESI must receive the Proposal Submittal Fee for each registered proposal no later than

5:00 p.m. CPT on November 9, 2006.

– Failure to submit the Proposal Submittal Fee(s) by this deadline will cause the registered proposal(s) to be rejected as non-conforming and Bidder shall not be permitted to submit a Proposal Submission Form for such registered proposal(s).

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Credit Analysis

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Development of Credit Requirements

No Bidder will be excluded or prohibited from participating in this RFP on the basis of credit.

Through the collaborative process, market participants have requested flexibility in meeting collateral requirements.

ESI has agreed to consider alternate forms of collateral including liens on assets and taking into consideration a portion of the Bidder’s exposure to Buyer as incurred in the proposal.

All Bidders have the same credit requirements from initial proposal submission, through the awarding process, up to the signing of Definitive Agreements.

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Fall 2006 Limited-Term RFP Credit Requirements

None at time of proposal submission

None at time of proposal awards

Credit support requirements per 100 MW at execution of Definitive Agreement

Baseload Product: $3.5 million

Dispatchable MUCPA: $3.5 million

Low Heat Rate MUCCO: $2.5 million

Peaking MUCPA: $1.5 million

Peaking MUCCO: $1.0 million

Hour-Ahead Peaking MUCCO: $0.5 million

Three-Year Reserve Capacity MUCCO: $0.1 million

Acceptable forms of collateral for consideration by ESI may include:

– Parental Guaranty

– Letters of Credit

– Cash

– Lien On Asset

– Other acceptable solutions suggested by Bidder

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Credit Review and Collateral Timeline

Bidder Credit Rating (or Bidder’s Credit Support Provider’s Credit Rating) will be assigned by the Credit Evaluation Team (CET) for all proposals when they are received

Based on Bidder Credit Rating, determine the Maximum Uncollateralized Supplier Exposure for each Bidder

– The Bidder Credit Rating has no effect on the selection of proposals to the primary award list and/or the secondary award list

– It is possible that a Bidder could offer multiple proposals that in the aggregate exceed the Maximum Uncollateralized Supplier Exposure established by the CET. Consequently, in the evaluation of the awarded proposals, the Maximum Uncollateralized Supplier Exposure will apply to the combined aggregate exposures of all proposals submitted by a Bidder and will be provided to the negotiation team

Credit exposures will be evaluated and discussed with Bidders who are selected for the primary award list and/or the secondary award shortlist. At the time that a Bidder is notified of its selection to the primary and/or the secondary award shortlist, Bidders will be asked to discuss the appropriate forms of collateralization for their particular proposal(s)

During the negotiation of the Definitive Agreement, ESI will determine the required form of the collateral requirements, if any, for the selected proposal. This requirement will be due at execution of a Definitive Agreement.

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Fall 2006 Limited-Term RFPProposal Evaluation Process

& Resource Needs

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Proposal Evaluation Process - Objectives

The primary objective of the proposal evaluation is to identify the proposals that best meet the planning objectives and provide power at the lowest reasonable cost.

The Entergy System’s Strategic Supply Resource Plan (SSRP) is based on the following principles and objectives:

– Provide adequate resources to meet customer peak demands with adequate reliability.

– Provide low cost base load resources to serve base load requirements (the firm load level that is expected to be exceeded for at least 85% of all hours per year).

– Provide efficient, dispatchable load following resources to serve the time varying load shape levels that are above the base load requirement load levels.

– Provide a generation portfolio that is more efficient and avoids an over-reliance on aging resources.

– Mitigate the exposure to price volatility associated with uncertainties in fuel and purchased power costs.

– Risk Mitigation – Supply Diversity – Mitigate the exposure to major supply disruptions that could occur from concentrated or systematic risks, for example outages of a single generation facility.

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Proposal Evaluation Process – Resource Need

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0% 20% 40% 60% 80% 100%

10,6437,565

1,900

1,598

3,218 10,454

5,614

4,0283,602

1,331

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Entergy System Resource Requirements and Capability for 2008Forecasted Firm Load Plus 16.8% Reserve MarginOwned Units and All Contracted Resources

Intermediate

Base

High CF LF

Peaking

Reserves

Purchases Requirements Existing Portfolio

Capacity (MWs)Load Shape Requirements (MWs)

Resources (MW) 7,565 1,598 10,454 4,028 23,645Requirement (MW) 10,643 1,900 3,218 9,216 24,977Excess / (Deficit) (MW) (3,078) (302) 7,236 (5,188) (1,331)

TotalBase Load HCFLF Intermediate Peaking Plus Reserve

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Proposal Evaluation Process – Resource Need (continued)

Considerations for <1,300 MWs: Previously, the System has reserved up to 1,000 MWs of summer need for the short-

term market Potential for resources to be obtained through the on-going 2006 RFP for Long-Term

Resources Load and resource uncertainties in conjunction with amount of lead time before

summer 2008

Therefore: Reserve 500 MWs of reliability need, which results in an incremental need of 800

MWs Incremental resource need to be met through this RFP: 0 – 800 MWs

Considerations for >800 MWs: Greater savings due to energy substitution alone Greater savings due to energy substitution in conjunction with capacity substitution Greater savings due to capacity substitution alone

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Proposal Evaluation Process – Portfolio Design Criteria

Meet the planning objectives and provide power at the lowest reasonable cost

Match portfolio of resources to customer load shape

Add flexible, dispatchable capacity

Consider locational benefits

– Dispersed geographically

– Preference for resources located in WOTAB and Amite South regions

Mitigate price volatility

– Mix of products

– Varying contract durations

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Proposal Evaluation Process – Interaction & OverviewChart AProposal Evaluation Process

Delivered Fuel

CostsProposal Economic Evaluation

Fuel Qualitative

Aspects

Portfolio Design &

Evaluation

Candidate Portfolio

Key:Economic Eval Team Process

Fuel Eval Team Process

Transmission Analysis Group Process

Economic Eval Team Decision

Process Result

Final Portfolio Analysis *

Fuel Delivery Analysis

Transmission Analysis

Proposal Transmission Deliverability

Proposed Primary and Secondary Award

Shortlist

Portfolio Selection

Region Location

Redacted Conforming Proposals to Evaluation Teams

Portfolio Transmission Deliverability

TransmissionQualitative

Aspects

Candidate Proposal Rankings

* Includes Capacity / Energy Substitution

Satisfy incremental resource needs and lower total production cost.

Lower total production cost.

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Proposal Evaluation Process – Opportunities for Displacement

Energy Substitution

– The economic evaluation methodology analyzes proposed resources for their ability to substitute for energy generated by the Entergy Operating Companies’ existing gas- and oil-fired units (“Energy Substitution”).

Capacity Substitution

– The economic evaluation methodology also analyzes the ability of a proposed resource to allow certain existing gas and oil units to shift unit roles (“Capacity Substitution”). For example, a unit may be moved from a peaking role into a reserve role.

– The Capacity Substitution analysis, described in Appendix E-1, will be used to evaluate the inclusion of additional resources beyond the incremental needs of the Entergy Operating Companies after the Portfolio Evaluation has identified sufficient resources.

– In this Fall 2006 Limited Term RFP, the Capacity Substitution analysis will focus on the ability of a proposed resource to allow an existing unit to shift its role from an operational role to a non-operational role including but not limited to, extended reserve shutdown, inactive reserve and/or retirement.

– The Capacity Substitution analysis also will be considered in determining the total production cost benefits that may be achieved for a resource that also offers a benefit through Energy Substitution.

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Proposal Evaluation Process – Opportunities for Displacement (continued)

Capacity & Energy Substitution

$

“Premium” to lock in CCGT

heat rate.

Existing Reserve

Units

RFP MUCPA / MUCCO

Energy @ CCGT

HR

Energy Provided through market

purchases

$ Savings from reduced O&M: Capex; and/or Fuel / Purch

Power

Forward O&M and Capex for Existing

Reserve Units

Capacity Charges

Once incremental resource needs are

satisfied, Dispatchable MUCPAs and

MUCCOs may offer the potential for: Energy Substitution Capacity Substitution

Existing Reserve

Units

RFP Reserve Product

Capacity Charges

Savings from Reduced

O&M; Capex)

O&M / Capex)

$ $

Capacity Substitution

Reserve MUCCOs may offer the

potential for: Capacity Substitution

42

Proposal Evaluation Process – Potential Sources of Value

Satisfy incremental resource needs and lower total production cost.

Lower total production cost.

Energy Capacity Energy CapacityRFP Products Package Substitution Substitution Substitution Substitution

Portfolio Selection Final Portfolio Selection

Baseload

Dispatchable MUCPA

Low Heat-Rate MUCCO – Day-Ahead

Peaking MUCPA

Evaluation Stage

Peaking MUCCO

Hour-Ahead Peaking MUCCOThree-Year Reserve Capacity MUCCO

A

B

C

D

E

F

G

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Proposal Evaluation Process – Deliverability Evaluation Overview

Proposals ultimately are expected to qualify as Long-Term Network Resources.

Bidders will have access to the same information that SPO’s Transmission Analysis Group (“TAG”) uses to do the following:

– Identify whether potential constraints exist– Identify potential constraint mitigation alternatives

TAG will consider the validity of the constraint mitigation recommendations submitted by Bidders and provide to the EET those recommendations that the TAG considers to be viable.

For all products other than the Three Year Reserve Capacity MUCCO and the Hour Ahead Peaking MUCCO, ESI will utilize the results of the TAG analysis to determine whether to accept the risk of transmission for the first year of the Delivery Term.

– For year two and beyond, ESI will require SIS results from TBU that grant transmission service in a manner acceptable to ESI, unless, in its discretion, ESI decides to rely upon the results of a subsequent Deliverability Evaluation.

– Any decision by ESI to terminate the remainder of the Delivery Term will be explained to and reviewed with the IMs and with the staffs overseeing the Fall 2006 Limited-Term RFP.

For the Three Year Reserve Capacity MUCCO and Hour Ahead Peaking MUCCO, ESI will require acceptable SIS results for the entire Delivery Term.

44

Proposal Evaluation Process – Deliverability Transmission Analysis

Deliverability Analysis

TAG will identify

– The delisting/displacement opportunities or use Active Transmission Management for the identified transmission constraints during the respective contract terms

– In which of the 4 planning regions the proposed resource is located

– Any potential benefits that may be derived from a proposal

» Relieving reliability must run constraints

» Providing the ranking of the proposals counter-flow effects on the constrained regional interface limitations

TAG will provide this information to the EET for use in developing the

– Primary award list and secondary award shortlist

45

Proposal Evaluation Process – Deliverability Transmission Analysis

Delivery Terms

June 2007 June 2008 June 2009 June 2010 June 2011 June 2012

0 1 2 3 4 5

AFC information (monthly models)

Seasonal Models (yearly models)

Use the last 12 months of 18 monthly load flow cases available to represent monthly transmission service for years 1-3

Use Summer 2011 and Summer 2012

Use of the transmission models for the Deliverability Transmission Analysis

46

Fall 2006 Limited-Term RFPRFP Evaluation Discussion

Potomac EconomicsEvaluation IM

47

Question & Answer Session

fall 2006 limited-term rfp

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