Recent FERC Interconnection Proceedings Setting Policy

1. Recent FERC Interconnection Proceedings Setting Policy • SCE / Wildflower Energy’s Indigo Project – Nov. 7, 2001 FERC Order Docket No. ER01-2609 • Entergy / Duke Energy’s Hinds Project – Mar. 15, 2002 FERC Order Docket No. ER02-405 (Duke Hinds I Order) • PG&E / Calpine’s LMEC Project – Oct. 25, 2002 FERC Order Docket No. ER02-1330 • Entergy / Duke Energy’s Orleans Project – Dec. 16, 2002 FERC Order Docket No. ER03-59 • Entergy / Duke Energy’s Hinds, Hot Springs & Southaven Projects – Jan. 28, 2003 FERC Order Docket No. EL02-107 & ER02-405 (Duke Hinds II Order) • PG&E, Entergy / Wrightsville & Mich. Electric Transmission Company / Kinder Morgan Genertion – Jan. 29, 2003 FERC Order Docket No. ER02-1330 et. al. • Duke Power / Santee Cooper – June 3, 2003 ALJ Certification of Settlement Docket No. ER02-994

2. Recent FERC Interconnection Proceedings Setting Policy (continued) SCE / Wildflower Energy’s Indigo Project – Nov. 7, 2001 FERC Order Docket No. ER01-2609 • SCE filed unexecuted IA identifying Interconnection Facilities, including Remedial Action Schemes (RAS), and System Upgrades required to interconnect Indigo Project • IA required Wildfire to be responsible for cost of all Interconnection Facilities, including Remedial Action Schemes, and any System Upgrades determined to be “but-for” facilities • SCE admitted Wildfire may be entitled to transmission service credits associated with System Upgrades but stated that SCE would not be charging Wildfire for transmission service and that the CAISO Tariff did not support such crediting mechanisms

3. Recent FERC Interconnection Proceedings Setting Policy (continued) SCE / Wildflower Energy’s Indigo Project – Nov. 7, 2001 FERC Order Docket No. ER01-2609 (continued) • FERC ordered re-classification of RAS to be network facilities • Network Facilities could not be directly assigned, but could be charged in accordance with FERC’s Pricing Policy – higher of incremental or embedded • Wildfire could be required to provide initial funding of network upgrades, but would then be entitled to receive transmission service credits • FERC required SCE and CAISO to develop crediting mechanism

4. Recent FERC Interconnection Proceedings Setting Policy (continued) Entergy / Duke Energy’s Hinds Project – Mar. 15, 2002 FERC Order Docket No. ER02-405 (Duke Hinds I Order) • Entergy filed original executed IA for interconnection of Duke Hinds reflecting Direct Assignment Facilities (DAF), Required System Upgrades (RSU) and Optional System Upgrades (OSU) • Entergy later filed amendments reflecting Duke’s election to have additional OSU and added provision to convert credits to FTRs in an RTO • Duke contested previously classified DAF, claiming they were RSU, contested limitations on transmission service credits which were not afforded to RSU and any related CIAC, and contested provision for credits to be converted to FTRs

5. Recent FERC Interconnection Proceedings Setting Policy (continued) Entergy / Duke Energy’s Hinds Project – Mar. 15, 2002 FERC Order Docket No. ER02-405 (Duke Hinds I Order) • FERC, ignoring Duke’s preserved FPA 205 / 206 rights to challenge costs assessed by Entergy contained in the original IA, denied Duke’s request for re-classification of facilities, stating proper standard of review was the “Mobile-Sierra Public Interest” standard, not the “J&R” standard • FERC agreed with Duke that the conversion of credits to FTRs was premature

6. Recent FERC Interconnection Proceedings Setting Policy (continued) PG&E / Calpine’s LMEC Project – Oct. 25, 2002 FERC Order Docket No. ER02-1330 • PG&E filed executed IA and related agreements to interconnect LMEC reflecting a new double-circuit 115kV line interconnecting LMEC to existing grid as a DAF, assigning 100% of the DAF cost to LMEC, assigning 100% of the cost of required network upgrades to LMEC, and assessing on-going O&M payment obligations associated therewith • LMEC later contested DAF classification of 115kV line; requested it be entitled to credits for any network facilities it funded; be relieved of on- going O&M payments on network facilities; and recognition of its preserved FPA 205/206 rights to challenge rates.

7. Recent FERC Interconnection Proceedings Setting Policy (continued) PG&E / Calpine’s LMEC Project – Oct. 25, 2002 FERC Order Docket No. ER02-1330 • FERC issued PG&E a deficiency letter requiring PG&E to develop crediting procedures and full explanation of facilities constructed or upgraded • Although generators not generally charged for transmission service in CAISO, PG&E proposed the following: • Network Facilities funded by gen. < $3 million refund over 5-yrs. • Network Facilities funded by gen. > $3 million refund over 10-yrs. • To qualify, 80% gen. capacity must be available 33% of time

8. Recent FERC Interconnection Proceedings Setting Policy (continued) PG&E / Calpine’s LMEC Project – Oct. 25, 2002 FERC Order Docket No. ER02-1330 • In its Oct 25 Order, FERC agreed with PG&E regarding classification of facilities • Denied LMEC’s request for re-classification of facilities it had previously agreed to, ignoring LMEC’s claim to having reserved its FPA 205 / 206 rights and consistent with Duke Hinds I, said proper standard of review was Mobile-Sierra Public Interest Standard • Required PG&E to revise its proposed crediting mechanism by eliminating any unit availability requirements and requiring full refund of all funds for network facilities over 5-yrs with interest

9. Recent FERC Interconnection Proceedings Setting Policy (continued) Entergy / Duke Energy’s Orleans Project – Dec. 16, 2002 FERC Order Docket No. ER03-59 • Entergy filed unexecuted IA for interconnection of Duke Orleans which reflected expansion of existing substation as Interconnection Facilities that were treated as DAF to Duke Orleans • IA provided Duke Orleans with credits against transmission service for funded network upgrades, but limited them by applying credits to each KW produced by Duke Orleans • Duke Orleans protested classification of upgrades to substation claiming them to be network upgrades, and requested FERC to remove limitation on credits such that credits would be available for any and all transmission services taken by Duke from Entergy

10. Recent FERC Interconnection Proceedings Setting Policy (continued) Entergy / Duke Energy’s Orleans Project – Dec. 16, 2002 FERC Order Docket No. ER03-59 • FERC ordered in favor of Duke Orleans finding that the substation expansion facilities were really network facilities by being located beyond the point where Duke Orleans connected to the Entergy system and that network facilities were prohibited from being DAF • FERC also found in favor of Duke Orleans regarding eligibility for transmission service credits citing the PG&E / LMEC case as precedent for determining that “up-front payment by the generator, followed by crediting, is a financing issue, and we have allowed credits to be amortized over a five year term without regard to transmission service charges.”

11. Recent FERC Interconnection Proceedings Setting Policy (continued) Entergy / Duke Energy’s Hinds, Hot Springs & Southaven Projects – Jan. 28, 2003 FERC Order Docket No. EL02-107 & ER02-405 (Duke Hinds II Order) • In addition to the IA for the Duke Hinds Facility, Entergy had also filed IAs for Duke’s Hot Springs Facility and Southaven Facility, to which Duke had raised all of the same issues it had raised in Duke Hinds, including the issue of the proper Standard of Review given that the IAs preserved Duke’s rights to challenge the rates as not J&R. • In a complete reversal of Duke Hinds I, FERC admitted it had incorrectly ignored Duke’s preserved 205 / 206 rights and thus the proper Standard of Review was in fact the J&R standard, and found the provisions in the IAs which classified any network facilities as DAF to be unjust and unreasonable and ordered them to be re-classified accordingly, and to afford them with transmission service credits

12. Recent FERC Interconnection Proceedings Setting Policy (continued) PG&E, Entergy / Wrightsville & Mich. Electric Transmission Company / Kinder Morgan Genertion – Jan. 29, 2003 FERC Order Docket No. ER02-1330 et. al. • Based on its admission of errors in Duke Hinds II, FERC issued its Jan. 29, 2003 Order where it applied the same correction to the PG&E /LMEC IA and ordered several other IAs to be revised consistent with their decision in Duke Hinds II, including the Entergy / Wrightsville Power IA and the Michigan Electric Transmission / Kinder Morgan IA.

13. Recent FERC Interconnection Proceedings Setting Policy (continued) Duke Power / Santee Cooper – June 3, 2003 ALJ Certification of Settlement Docket No. ER02-994 • Duke Power Company and Santee Cooper were in disagreement over the cost responsibility for interconnecting Santee Cooper’s Rainey Generating Station to Duke Power’s transmission system. • Not surprising, Duke Power eventually offered to settle with Santee Cooper on terms consistent with what its generation affiliate (Duke Energy) had been fighting for and eventually won in Duke Hinds II. • As such Duke Power agreed to apply transmission credits to Santee Cooper relating to the network upgrades over a 5-yr term with a balloon payment at end of term for any remaining balance. • Interesting to note, settlement sets Standard of Review for future changes to be the Mobile-Sierra Public Interest Standard.