WestConnect, RTO1 Western Electricity Coordinating Council Board of Directors Meeting June 5, 2002 WestConnect RTO Cary Deise Arizona Public Service Co.

WestConnect, RTO2 WestConnect Transmission Participates Jurisdictional Utilities Arizona Public Service Company El Paso Electric Company Public Service Company of New Mexico Tucson Electric Power Company TransConnect utilities have expressed a strong interest in the WestConnect model Translink is pursuing a MOU to explore Public Service of Colorados participation Non-Jurisdictional Utilities Salt River Project Agricultural Improvement and Power District Southwest Transmission Cooperative, Inc. Western Area Power Administration

WestConnect, RTO3 A Little History Discussions on the formation of DSTAR started in early 1997 In October 1999, a set of By-Laws were approved that established an independent Board of Directors The Board was elected by the Advisory Committee and took office in May 2000 Informational filing at FERC July 2001 Change to WestConnect September, 2001 WestConnect FERC filing October 16, 2001

WestConnect, RTO4 WestConnect Organization

WestConnect, RTO5 Governance WestConnect will be a for-profit LLC Will be governed by nine voting independent Directors Board of Directors are independent of Transmission Owners and other market participants The Board may receive recommendations from the Advisory Committee prior to taking any action Does not initially have to own transmission assets of participating transmission owners, but will exercise functional authority Market participants are limited to passive ownership as defined by FERC Will have authority to build and may acquire transmission assets of any transmission owner willing to sell

WestConnect, RTO6 Advisory Committee The Advisory Committee consists of two representatives per class elected by each class 8 Member Classes: Transmission Owners Load Serving Entities Generating Entities Transmission-Dependent Utilities Power Marketers Large Retail Customers Small Retail Customers Utilities Commissions ex officio

WestConnect, RTO7 Why a for-profit RTO? Creates an entity motivated to control costs and ensure system efficiency Aligns planning and expansion responsibilities with ultimate financial responsibility for the construction Facilitates system expansion for reliable service by financially incenting the RTO to develop upgrades

WestConnect, RTO8 Why a for-profit RTO? (cont.) Creates flexibility in when, and if, assets are divested -no asset transfer initially Creates an entity motivated to innovate in the services it provides. For-profit model accepted by the FERC and strongly endorsed by the FERC mediator for the Southeast RTO

WestConnect, RTO9 The WestConnect Design

WestConnect, RTO10 Market Design Features Summary One hierarchical control area with existing control centers utilized for dispatch implementation Bi-lateral transactions presumed No day-ahead energy market under WestConnect operation Voluntary commitment of generation (except Local Generation Requirement) Balanced Schedules required Transmission Rights to manage inter-zonal congestion Intra-zonal congestion managed through congestion redispatch bids by RTO or self-tracking systems of PTOs Zonal balancing energy prices result from the dispatch of resources in the WestConnect-wide Balancing Energy Stack

WestConnect, RTO11 Transmission Rights Inter-Zonal Congestion is managed through the use of Transmission Rights Firm Transmission Rights (FTRs) Recallable Transmission Rights (RTRs) Non-Firm Transmission Rights (NTRs) Non-Converted Rights (NCRs) FTRs are auctioned annually, monthly and daily Physical instruments Provide users the right to schedule on specific interfaces No additional costs for inter-zonal congestion except during curtailments

WestConnect, RTO12 Allocation of Transmission Rights Anti-hoarding provisions Annual, monthly and daily Release Non-scheduled FTRs released as RTRs NTRs released for counterflows, etc. Entities with native load obligations and/or converted Existing Contract (EC) designation are allocated FTR auction revenues FTR auctions set a maximum bid price Load Serving Entities serving native load are given tie- breaker status when the demand for FTRs at the maximum bid price exceed the available quantity

WestConnect, RTO13 Existing Contracts ECs will be honored by WestConnect, EXCEPT Transmission-only PTO-PTO Contracts must be converted PTOs have the obligation to make good faith effort to convert other contracts Contract rights holders must continue to make transfer payments for Converted Contracts Non-converted ECs are not assessed the Grid Management Charge (GMC)

WestConnect, RTO14 Transmission Pricing License plate rates by Access Areas (initial state) All Participating Transmission Owners (PTOs) determine their Annual Transmission Revenue Requirements (ATRRs) WAPA lost revenues recovered through GMC Component (TAC) GMC for WestConnect costs End-state pricing (highway-zonal) begins 2009

WestConnect, RTO15 Transmission Planning WestConnect responsible for transmission planning Create Transmission Planning Working Group Chair and Secretary appointed by WestConnect - staff members of WestConnect All Stakeholders and interested parties can participate Within 1 year of operations WestConnect will develop Planning Standards PTOs must provide 10 year expansion plans Market participants may propose projects WestConnect must consider non-transmission alternatives

WestConnect, RTO16 FERC Standard Market Design (SMD) FERC Major Points - Single Transmission Tariff - New Transmission Service - Energy Market Design - Market Power Monitoring/Mitigation - Long-Term Generation Adequacy - System Security WestConnect Issues - Retail Load - LMP - FTR allocation - Deference

WestConnect, RTO17 Implementation Schedule October 16, 2001 July th Quarter st Quarter st Quarter 2006 WestConnect RTO request for Declaratory Order filed with FERC Receive FERC approvals Begin LLC formation activities Pursue applicable state and other approvals. Staffing. Execute TCAs. Control system acquisition & testing WestConnect operational