July 26, Dear Mr. Millar:

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1 July 26, 2012 Mr. Neil Millar Executive Director Infrastructure Development California Independent System Operator Corporation 250 Outcropping Way Folsom, CA Dear Mr. Millar: As you are aware, Clean Line Energy Partners (Clean Line) is developing the Centennial West Clean Line transmission project, an estimated 900-mile 3,500 MW, high voltage direct current (HVDC) transmission line connecting renewable energy resources in Arizona and New Mexico to load centers in California. As an independently developed, privately financed interstate transmission line designed specifically to move renewable energy, the Centennial West Clean Line project has no clear way to attain Transmission Planning (TP) deliverability rights through the current Generator Interconnection and Deliverability Allocation Procedures (GIDAP). Without these rights, the project will be unable to deliver clean, low-cost energy to California from new generation in other states. These future wind and solar facilities are completely dependent on new, interstate high-voltage transmission projects, and cannot apply for interconnection through the existing CAISO process. With these concerns in mind, the CAISO interconnection process should be modified such that a transmission facility, alone, can be granted TP-deliverability rights. Clean Line appreciates the opportunity to provide a list of modifications that we believe warrant discussion in order to allow external transmission projects like Centennial West the opportunity to participate in the CAISO interconnection processes. The issues and modifications are discussed in more detail, including suggested modification to the CAISO tariff, in the attachment to this letter. 1. Large Facility Interconnection Agreement The CAISO should create a Large Facility Interconnection Agreement by modifying the language of its existing Large Generation Interconnection Agreement. The modified language would allow merchant HVDC transmission lines to interconnect to the CAISO system and receive TP deliverability. 2. Transmission Planning (TP) Deliverability Eligibility Criteria The current eligibility criteria in the GIDAP are too onerous for a merchant HVDC transmission project. Modifying the environmental permitting progress, financing and land acquisition criteria as indicated in Attachment 1 will provide a more reasonable path to deliverability for merchant transmission projects. 3. Site Exclusivity The current definition of site exclusivity, modeled on a generation project, should be adapted such that merchant HVDC transmission projects can demonstrate site exclusivity without having to acquire the right to build along the entire route of the line. 4. Refunds of Letters of Credit Tariff language providing for partial recovery of Interconnection Financial Security should be modified to make it applicable to merchant HVDC projects. 5. Network Upgrade Costs Responsibility for the cost of network upgrades should be divided amongst projects based not on the size of the project, but on the effect that a project has on identified constraints.

2 6. Modeling Software The CAISO should accept modeling files in both the currently required PSLF and the widely-used PSS/E formats to address an intellectual property concern with HVDC models in PSLF format. At your earliest convenience, we would like to have a meeting with CAISO staff to discuss these issues and receive feedback. Keith Sparks, Director of Development for the Centennial West Clean Line, will contact you to schedule this meeting. Respectfully submitted, Jayshree Desai, Executive Vice President Clean Line Energy Partners LLC CC: Keith Casey, VP of Market and Infrastructure Development CAISO Lorenzo Kristov, Principal Market Design Architect CAISO Robert Sparks, Manager of Regional Transmission, South CAISO Ashutosh Bhagwat, CAISO Board Robert Foster, CAISO Board Angelina Galiteva, CAISO Board Richard Maullin, CAISO Board David Olsen, CAISO Board Carlos Clay, Deputy Director of Electric Power Regulation, West FERC Saeed Farrokhpay, Energy Industry Analyst, CAISO FERC

3 Attachment 1 1. Large Facility Interconnection Agreements Summary: Large Generator Interconnection Agreements (LGIAs) serve to outline the scope of interconnection service; conditions, rights and obligations in management of the engineering, construction, and procurement activities for interconnection facilities; and many other items of importance for a new generation facility that is being interconnected to an existing transmission system. Without an equivalent agreement for transmission lines such as the Centennial West Project, it is unclear how such a facility would interconnect with a host transmission system and ensure proper operational agreements are in place to ensure reliable operation.. Ask: Clean Line requests that the CAISO modify Appendix V of the CAISO Tariff the Large Generator Interconnection Agreement (LGIA) in order to allow HVDC facilities to execute the equivalent of a LGIA. Clean Line proposes that the Agreement would be re-named to identify this new flexibility: e.g., Large Facility Interconnection Agreement or simply Interconnection Agreement. An example of this concept exists in the case of Hudson Transmission Partners, NYISO, and Consolidated Edison. 1 As in the Hudson case, a FERC approval of the LFIA may be required. CAISO may eventually choose to initiate a stakeholder process to implement an ongoing process for Large Facility Interconnection Agreements; however, projects currently under development and/or already in the CAISO queue cannot afford to wait for the completion of a stakeholder process. It is necessary to have an alternative process in the meantime, as outlined above. 2. Transmission Planning (TP) Deliverability Eligibility Criteria Summary: Attachment DD of the CAISO Tariff describes the eligibility criteria for projects to receive (section 8.9.2) and retain (section 8.9.3) TP Deliverability. Specifically, the language states that an Interconnection Customer must, at a minimum, meet criteria (1)d and (2)a or (2)d. Specific to projects like Centennial West, the language of these criteria is geared toward generators and not transmission lines and therefore meeting the minimum criteria is impossible unless additional language is added to reflect the nature of controllable transmission lines. Ask: Clean Line requests that the eligibility criteria for TP Deliverability be modified to incorporate the ability for HVDC transmission lines to meet the criteria. Examples are shown below through redline of the criteria as filed by the CAISO with FERC on May 25, (1) Permitting Status: An Interconnection Customer s Generating Facility must meet at least one of the following: as to the entire Generating Facility: 1 FERC Docket No. ER Merchant Transmission Facility Interconnection Agreement among NYISO, ConEd and Hudson Transmission Partners, LLC

4 a. The Interconnection Customer has received its final governmental permit(s) or authorization allowing the Facility to commence construction. b. The Interconnection Customer has received a draft environmental report document (or equivalent environmental permitting document) indicating likely approval of the requested permit and/or which indicates that the permitting authority has not found an environmental impact which would likely prevent the permit approval. c. The Interconnection Customer has applied for the necessary governmental permits or authorizations, has submitted an application to become a Public Utility or has filed with the FERC for negotiated rate authority and the authority has deemed such documentation as data adequate for the authority to initiate its review process. d. The Interconnection Customer has applied for the necessary governmental permit or authorization for the construction, and has submitted an application to become a Public Utility, or has filed with the FERC for negotiated rate authority. (2) Project financing status. An Interconnection Customer s Generating Facility must meet at least one of the following: as to the entire Generating Facility: a. The Generating Facility will be balance-sheet financed or has otherwise received a commitment of project financing, and the Interconnection Customer represents to the ISO that either it has a regulator-approved power purchase agreement or capacity contract (in the case of a Merchant Transmission Facility) or that the Interconnection Customer is proceeding to commercial operation without a power purchase agreement or capacity contract. b. The Interconnection Customer has an executed and regulator-approved power purchase agreement or capacity contract for the full MW generating capacity of the Generating Facility or of the full MW transmission capacity of the Merchant Transmission Facility as specified in the Interconnection Request. c. The Interconnection Customer has an executed power purchase agreement or transmission capacity contract but such agreement has not yet received regulatory approval. d. The Interconnection Customer does not have an executed power purchase agreement or transmission capacity contract but the Interconnection Customer is included on an active short list or other commercially recognized method of preferential ranking of power providers by a prospective purchaser Load Serving Entity. (3) Land acquisition a. The Interconnection Customer demonstrates a present legal right to begin construction of the Generation Facility on one hundred percent (100%) of the real property footprint necessary for the entire Generating facility or HVDC Converter facility. b. The Interconnection Customer demonstrates Site Exclusivity 2. 2 Clean Line also requests modification of the definition of Site Exclusivity as documented herein under #3.

5 3. Site Exclusivity Summary: A long-distance transmission line cannot be expected to provide site exclusivity, as defined in Appendix A of the CAISO Tariff, for a significant portion of the project right-of-way prior to receiving an interconnection agreement. Control of adequate land at the point of interconnection within California (or to CAISO facilities) is a more reasonable measure of site exclusivity for a Merchant Transmission Line. Ask: Clean Line requests that the definition for site exclusivity be modified as suggested in the redline of the Site Exclusivity definition as shown below. Site Exclusivity Documentation reasonably demonstrating: (1) For private land: (a) Ownership of, a leasehold interest in, or a right to develop property upon which the Generating Facility will be located consisting of a minimum of 50% of the acreage reasonably necessary to accommodate the Generating Facility or HVDC Converter facility; or (b) an option to purchase or acquire a leasehold interest in property upon which the Generating Facility will be located consisting of a minimum of 50% of the acreage reasonably necessary to accommodate the Generating Facility or HVDC Converter facility. (2) For public land, including that controlled or managed by any federal, state or local agency, a final, non-appealable permit, license, or other right to use the property for the purpose of generating, or converting and transmitting, electric power and in acreage reasonably necessary to accommodate the Generating Facility or HVDC Converter Station, which exclusive right to use public land under the management of the federal Bureau of Land Management shall be in a form specified by the Bureau of Land Management. 4. Refunds of Letters of Credit for HVDC Transmission Facilities Summary: There are several reasons why an Interconnection Customer is able to secure partial recovery of Interconnection Financial Security upon withdrawal of an interconnection request or termination of an interconnection agreement. Some of these conditions, as currently written in the tariff, are inapplicable to HVDC Transmission Facilities. Ask: Clean Line requests that the conditions for partial recovery of Interconnection Financial Security, as outlined in section of Attachment DD of the CAISO Tariff, be modified in order to incorporate provisions for HVDC transmission facilities. The following redlined tariff language is offered as an example:

6 A portion of the Interconnection Financial Security shall be released to the Interconnection Customer, consistent with Section , if the withdrawal of the Interconnection Request or termination of the GIA Interconnection Agreement occurs for any of the following reasons: (a) Failure to Secure a Power Purchase Agreement or Transmission Capacity Contract. At the time of withdrawal of the Interconnection Request or termination of the Interconnection Agreement, the Interconnection Customer demonstrates to the CAISO that it has failed to secure an acceptable power purchase agreement for the Energy or capacity of the Generating Facility or a transmission capacity contract for the HVDC Transmission Facility after a good faith effort to do so. A good faith effort can be established by demonstrating participation in a competitive solicitation process or bilateral negotiations with an entity other than an Affiliate that progressed, at minimum, to the mutual exchange by all counter-parties of proposed term sheets. (b) Failure to Secure a Necessary Permit. At the time of withdrawal of the Interconnection Request or termination of the GIA Interconnection Agreement, the Interconnection Customer demonstrates to the CAISO that it has received a final denial from the primary issuing Governmental Authority of any permit or other authorization necessary for the construction or operation of the Generating Facility or HVDC Transmission Facility. (c) Increase in the Cost of Participating TO s Interconnection Facilities. The Interconnection Customer withdraws the Interconnection Request or terminates the GIA Interconnection Agreement based on an increase of more than 30% or $300,000, whichever is greater, in the estimated cost of Participating TO s Interconnection Facilities between the Phase I Interconnection Study and the Phase II Interconnection Study, provided, however, that the Interconnection Financial Security shall not be released if this increase in the estimated cost is due to the Interconnection Customer s requested modification to the interconnection configuration. (d) Material Change in Interconnection Customer Interconnection Facilities Created by a CAISO Change in the Point of Interconnection. The Interconnection Customer withdraws the Interconnection Request or terminates the GIA Interconnection Agreement based on a material change from the Phase I Interconnection Study in the Point of Interconnection for the Generating Facility or HVDC Transmission Facility mandated by the CAISO and included in the final Phase II Interconnection Study. A material change in the Point of Interconnection shall be where Point of Interconnection has moved to (i) a different substation, (ii) a different line on a different right of way, or (iii) a materially different location than previously identified on the same line. (e) An Interconnection Customer having selected Option (A) in accordance with Section 7.2 is not allocated TP Deliverability and notifies the CAISO of its election to withdraw by the

7 deadline for the second posting of Interconnection Financial Security. This condition does not apply to an Interconnection Customer whose Generating Facility or HVDC Transmission Facility was allocated TP Deliverability for a portion of its Interconnection Request and elected to seek additional Deliverability in the next TP Deliverability allocation process. (f) For an Interconnection Customer having selected Option (B) in accordance with Section 7.2 an increase in the Phase II Interconnection Study cost estimates for ANDUs over the Phase I Interconnection Study cost estimates for ADNUs of either twenty (20) percent, or $20 million, whichever is less. Provided, however, that the Interconnection Financial Security shall not be released if this increase in the estimated cost of ADNUs is due to the Interconnection customer s requested modification to the interconnection configuration. 5. Pro-Rata Assignment of Network Upgrade Costs Summary: Reliability Network Upgrades (RNU) are identified during interconnection studies and, per section of Attachment DD of the CAISO Tariff, are then cost allocated to interconnection customers, pro rata, on the basis of the maximum megawatt electrical output of each proposed new Generating Facility This process does not take into consideration the fact that nearby projects might have greater impacts to the needed RNU. Ask: Clean Line requests that the cost allocation of identified RNUs be accomplished through pro rata cost allocation on the basis of a project s impact on the identified constraints that promote the need for the RNU. Impact here refers to a project s contribution to the constraint taking into account proximity to the constraint rather than just maximum megawatt electrical output of the facility. Without using a methodology that considers cost causation, as suggested here, larger projects are unduly taking on larger costs than otherwise would be the case. Under the CAISO s long standing policy of RNU reimbursement by the Participating Transmission Owner, this was not an issue; however, with the new designation of Option B projects under the GIDAP, the Participating Transmission Owner (PTO) is not required to pay back the cost of RNUs and therefore this issue becomes more important for large projects. 6. Generation Application Requirements PSLF Models Summary: GE s PSLF software is the package of choice for the CAISO to perform interconnection studies. Generation models are therefore required to be submitted in PSLF format. In consideration of HVDC transmission projects, however, vendor competition makes it very difficult to use PSLF due to the inability to encode modeling files and protect Intellectual Property. GE s recent acquisition of Chinese HVDC vendors has raised security concerns that make it impossible to procure necessary modeling files in PSLF format. PSS/E, a Siemens PTI software package, is used throughout the Eastern Interconnection as well as by some entities within the WECC to perform the same studies as are conducted using PSLF, including steady-state, powerflow-based analyses and stability analyses. PSS/E modeling files, however, can be encoded to ensure protection of intellectual property and are therefore preferred by vendors for provision of accurate model data.

8 The Centennial West Clean Line is a multi-terminal, VSC-based HVDC project. A model exists that can represent this configuration and technology but this model is only available in PSS/E format. Due to concerns of intellectual property protection, there is currently no plan to build a model that can be used in the GE PSLF format as needed by the CAISO for interconnection studies. Ask: Clean Line requests the ability to submit modeling files in either PSLF or PSS/E format in order to participate in the interconnection studies.