Texas Panhandle Synchronous Condenser Solution

1. Texas Panhandle Synchronous Condenser Solution Presented to ERCOT Regional Planning Group April 22, 2014

2. Outline • DATC Introduction • Problem Description • DATC Proposal • DATC Advantages

3. Duke-American Transmission Company (DATC) • DATC is a 50/50 joint venture, formed in April 2011 to pursue transmission development on a national scale • Founded on a vision of transmission as the key to efficient power markets • Committed to developing projects that deliver a strong portfolio of reliability, economic and public policy benefits • Publically announced projects and assets: • DATC Midwest Portfolio – new transmission line projects in Iowa, Wisconsin, Illinois, Indiana and Ohio • Zephyr Power Transmission – planned 500 kV HVDC transmission line from Wyoming to California • Path 15 – DATC owns 72 percent of the transmission service rights the 500 kV transmission line in central California • Strategic focus on ERCOT, Texas and SPP as areas of high potential • Interest in pursuing a variety of platforms for transmission development including partnerships, greenfield, and acquisitions

4. Overview of Duke Energy Corporation (NYSE: DUK) • Headquartered in Charlotte, NC • 150+ years of service • ~ 30,000 employees • $50 Billion market cap • 57,200 MW of generating capacity • 85% regulated franchise utilities and 15% commercial enterprises

5. Duke Energy Texas Presence • Offices in Houston and Austin • Over 100 employees in Texas • 950 MW operating generation • Sweetwater Windpower Project, Nolan County • 283 MW 2003 (2007) • Ocotillo Windpower Project, Howard County • 59 MW (2008) • Notrees Windpower Project, Ector & Winkler Counties • 153 MW (2009) • Blue Wing Solar Power Project, San Antonio • 14 MW (2010) • Notrees Battery Storage Project, Winkler County • 36 MW (2012) • Los Vientos I Windpower Project, Willacy County • 200 MW (2012) • Los Vientos II Windpower Project, Willacy County • 202 MW (2012) Wind Solar Battery Office

6. First multi-state stand alone transmission utility in U.S. Formed in 2001 Privately held with diverse ownership made up of investor-owned utilities, municipalities and cooperatives Tremendous growth since formation Over $3.3B in assets in 2012 Largest transmission owner in MISO Overview of American Transmission Company

7. ATC Municipalities, IOUs, and Co-ops ATC has 29 owners, including several cooperatives

8. PREZ Problem Statement • Original CREZ plan called for ~5.5 GW of capacity in Panhandle, but reactive support equipment initially installed for ~2.4 GW. • Panhandle transmission, remote from ERCOT load and synchronous generation, is stability constrained. • Panhandle Renewable Energy Zone (PREZ) study has determined additional transmission upgrades are required to support generation located in the panhandle when GI queue reaches 3,000 MW financial commitment. • PREZ study (phase 1) recommends additional transmission and 200 MVAR of reactive support be installed initially (1,650 MVAR ultimately) in the panhandle area in the form of synchronous condensers1 due to their superior inertia and fault current characteristics. 1 Synchronous Condensers are generators that operate like a motor to supply inertial response, reactive support, and frequency response - synchronized with the grid, requiring no fuel, and produce zero emissions.

9. PREZ Upgrade Requirements • Synchronous condensers located at Windmill and Ogallala stations in all 3 PREZ planning scenarios • Synchronous condensers and linear upgrades required concurrently

10. PREZ Upgrade Plan

11. DATC Solution • Project Phoenix is the DATC response to ERCOT’s identified need for reactive support in the Texas panhandle to facilitate wind generation interconnection currently in the queue with confirmed financial commitment to build. • DATC proposes to install repowered generators from the Duke fleet operated as Synchronous Condensers at Windmill Substation and/or other ERCOT locations to supply the needed reactive power. • DATC is eligible to offer and own this solution to ERCOT under ERCOT Nodal Protocol 3.11.2 (3) which states, “ERCOT shall attempt to meet these reliability criteria as economically as possible and shall actively identify economic projects to meet this goal.” • If endorsed by ERCOT, a PUCT CCN application will follow.

12. Duke Preferred Synchronous Condenser Inventory

13. DATC Proposal • DATC is also amenable to collaborating with ERCOT on ERCOT’s preference of available Duke units.

14. DATC Solution Advantages • DATC provides a cost advantage over all other incumbent providers due to full depreciation ($0 book value) of Duke generators to be repowered. • Anticipate 20-30% savings over new Synchronous Condenser equipment. • Duke retired generator inventory is immediately available providing a time advantage over new equipment long lead time delivery. • DATC Proposal B can satisfy PREZ Phase 2 reactive reinforcement requirements at Windmill thereby avoiding approximately $88M additional cost. • DATC Synchronous Condenser solution is “repeatable” at other ERCOT locations requiring reactive support.

15. Duke / ATC Strengths Applicable To the TX Panhandle • Large fleet of retired and soon to be retired units and spare parts inventory • History of operating generation and transmission providing a unique skill set in ERCOT when considering synchronous condensers as transmission assets • Supply chain economies of scale • Expert in planning, designing, and constructing transmission lines, substations, generating plants, and related infrastructure • History of reliable interconnection and operations in the ERCOT system • History of meeting stakeholder expectations

16. Contact Information www.datcllc.com Jeff Peterson 713-375-0709 jeff.peterson@duke-energy.com Bob Burner 704-382-6889 g.burner@duke-energy.com Mark Bruce 512-810-1516 mark.bruce@stratusenergy.com