2010 ESI Alternate Economic Study Process

1. 2010 ESI Alternate Economic Study Process E-RSC Meeting October 21, 2010

2. ESI Economic Study Process (ESP) Background Each year, in accordance with Attachment K to the Entergy OATT, the ICT identifies and performs a preliminary study of five economic transmission projects that may provide benefits to the users of the Entergy transmission system. This process is known as the ICT Strategic Transmission Expansion Plan, or “ISTEP.” In early 2009, ESI developed a study process, known as the ESI Economic Study Process, or ESP. The purpose of the ESP was to take the five projects identified by the ISTEP each year, and any other projects identified by ESI, and to perform additional study and analysis to determine if any of these projects could be expected to provide benefits to the native load customers of the Entergy Operating Companies sufficient to justify building these projects. The ESP, a seven to nine month process, involves production cost analysis of the proposed upgrades to determine whether the upgrades can reasonably be expected to produce benefits that merit proceeding with the project. Using the ESP, ESI evaluated selected projects from the 2008 ISTEP that was released in January 2009.

3. ESI Economic Study Process Background The ICT released its 2009 ISTEP results in February 2010. One of the projects – the Jackson Area projects – is already addressed in the Entergy Construction Plan. Two of the projects – Central Arkansas and Baton Rouge/S. Miss. -- did not show any projected savings. The other two projects – SC Ark/NE LA and Lake Charles – showed projected congestion cost reduction of $1M or less on an annual basis; the cost of these two projects was estimated at less than $10M * each. New Process Development ESI determined that it was appropriate to streamline its ESP for purposes of evaluating certain lower cost projects. The result is a streamlined study process, termed the “Alternate Economic Study Process” (AESP) to evaluate potential economic projects the cost of which is estimated at $10M or less. • 2009 ISTEP Results Summary * Project cost estimate developed by the ICT for the 2009 ISTEP report.

4. ESI Economic Study Process AESP The AESP was developed to study projects that (based on the results presented by the ICT in its ISTEP report) meet certain criteria based on specific business principles. AESP Guiding Principles Use the Alternate Economic Study Process for transmission projects that cost $10 M or less (the full Economic Study Process will be used to evaluate other, more costly transmission projects). Determine if economic projects can defer or eliminate future investments or reliability projects. Qualitative Analysis will be used to evaluate the benefits of the projects. Simplified economic analysis will be used. Detailed generation cost simulations may be performed as needed. Perform analysis to determine the impact of the project on historically constrained flowgates using operational simulations. In general, if the estimated cost of the proposed project is $10M or less AND the answer is “yes” for three of the five criteria questions, then the project qualifies for consideration in the Alternate Economic Study Process. Perform Alternate Economic Study Process

5. Alternate Economic Study Process Power flow studies using a variety of sensitivities will be performed to determine the impact of the proposed project on various system parameters: Interface/Import Limits Constraining flowgates Benefit to planned Network Resources Elimination or deferral of planned reliability projects Identify historical issues that could potentially be mitigated by the transmission projects. Sensitivities may be used to develop operational scenarios to simulate real time congestion. TLR – LAP Determine the benefit to existing Network Resources Simplified economic analysis will be used along with detailed generation cost simulations (as needed). Alternate Study Process Outcome Summary of the potential benefits (if any) provided by the project with respect to various parameters (import limits, etc.) that impact system behavior. Summary of project impact on planned resources andflowgateissues. Study team will make recommendation regarding construction of the identified transmission projects. ESI Economic Study Process – Alternate Economic Study Process Development

6. ESI Alternate Economic Study ProcessDescription • ESI Economic Study Process Criteria & Timeline • The Alternate Economic Study Process (AESP) is used only for evaluation of economic projects which construction cost is estimated to be less than $10M (the full Economic Study Process will be used to evaluate other, more costly transmission projects with greater potential benefits). • This process is divided in three phases and is designed to be completed within approximately five months. • The AESP is performed using mainly power flow models to determine the impact of the proposed transmission projects on: • Interface/Import limits • RMR unit requirements • Constraining flowgates • Historical TLRs and LAPs • Existing Network Resources • Planned Network resources • Deferral of planned reliability projects ICT - ISTEP Process ESI - AESP Process ~ 5 months

7. 2010 ESI Alternate Economic Study ProcessProject Selection The ISTEP 2009 Projects are: 1. South Central Arkansas/Northeast Louisiana constraint 2. Central Arkansas Constraint 3. Lake Charles 230 kV Loop 4. Baton Rouge/South MS Constraint 5. Jackson Area (Approved Project) • Jackson area project is already being addressed in the 2010-2012 Construction Plan • The cost of the proposed SC Ark/NE La upgrade is approximately $7.4M*; because the estimated construction cost is $10M or less, the AESP (not the full ESP) will be used to evaluate it. *Original project cost estimate included in the 2009 ISTEP report. During June 2010, ESI selected only the South Central Arkansas/Northeast Louisiana project (Project 1) to be evaluated as part of the AESP.

8. ESI Alternate Economic Study ProcessProject Selection • Project Selection ESI selected the following projects to be evaluated collectively using the AESP: • ISTEP Project 1 - South Central Arkansas / Northeast Louisiana Constraint • Critical flowgates identified are: • Sheridan-El Dorado 500kV FTLO Etta-McNeil 500kV (SHRELD_ETTMCN) • White Bluff-Sheridan 500kV FTLO Mabelvale-Sheridan 500kV (WBSHE_MABSHE) • Mabelvale-Sheridan 500kV FTLO White Bluff-Sheridan 500kV (MABSHE_WBSHE) • White Bluff-Keo 500kV FTLO Sheridan-Mabelvale 500kV (WBKEO_SHEMAB)* • ISTEP Project 2 - Central AR Constraint ** • Critical flowgate identified is: • Sheridan-Mabelvale 500kV FTLO White Bluff-Keo 500kV (SHRMAB_WBKEO) FG3 FG4 FG5 FG1 North-South flow FG2 FG2 North-South flow FG3 North-South flow FG1 FG4 South-North flow FG5 South-North flow * Proposed transmission upgrades do not effect flowgate FG4. ** ISTEP Project 2- Central Arkansas Constraint is considered due to common limiting element as shown for Project 1(i.e.Sheridan-Mabelvale 500kV line)

9. ESI Alternate Economic Study ProcessProject - Transmission Upgrades Project 1 Description The solution consist of upgrades to terminal equipment to the following lines: Sheridan - El Dorado 500kV White Bluff - Sheridan 500kV Mabelvale - Sheridan 500kV * Equipment upgrades & Total Project Cost estimate Project impact on transmission line ratings *This upgrade will also address the critical flowgate issue identified for Project 2. ** Revised total project cost is based on an Entergy Class 5 estimate. A Class 5 estimate is generally referred to as an order of magnitude estimate which is typically used for market studies, initial viability, alternative evaluations and project screening based on very general project scope description. ***New transmission line ratings arecontingent on the results of system stability studies.

10. ESI Alternate Economic Study ProcessProject Evaluation AESP Results Summary

11. ESI Alternate Economic Study ProcessDecisions • Final Decisions • Based on the AESP evaluation,a decision has been made to implement the following transmission upgrades: