1. 1 RTO West Update & Stage 2 Filing Overview WECC Board of Directors June 5,2002 Portland,OR RTO WEST Frank Afranji

2. 2 Energy Policy Evolution National Energy Policy Act (1992) Granted FERC explicit authority to order transmission providers to provide transmission service to third parties FERC Orders 888 & 889 (1996) Ordered all jurisdictional utilities to file open access transmission tariffs and establish standards of conduct FERC Order 2000 (January 2000) Established required characteristics and functions of Regional Transmission Organizations (RTOs) Required jurisdictional utilities to file plans for participation in an RTO or describe problems with participation X You are here Standard Market Design, revised Open Access Transmission Tariff, A NOPR on generation interconnection Time

3. 3 Order No. 2000 Basics Independence Scope and Regional Configuration Operational Authority Short-term Reliability Tariff Administration Congestion Management Parallel Path Flow Ancillary Services OASIS, TTC and ATC Market Monitoring Planning and Expansion Interregional Coordination 4 Characteristics8 Functions

4. 4 RTO West Geographic Scope Includes: Washington, Oregon, Idaho, Montana, Utah, Nevada, small portions of California and Wyoming, and British Columbia Covers: > 90% existing high voltage facilities in proposed region > 51,000 line miles ~ 580,000 square miles

5. 5 RTO West Filing - Stage 2 Overview Background What Was Filed in Stage 1 FERCs Response to Stage 1 Filing March 29, 2002 Stage 2 Filing Participating Filing Utilities Content of the Stage 2 Filing What the Stage 2 Filing Asked FERC To Do

6. 6 RTO West Filing - Stage 2 Overview Stage 1 Filing Stage 1 Filing asked FERC for limited declaratory action; most of the filing was informational Among the things FERC was asked to act on were Order 2000 characteristics 1 and 2: independence and scope and regional configuration FERC issued on order on April 26, 2001 indicating that, with minor changes, the proposal for RTO West met the independence and scope and regional configuration characteristics of Order 2000

7. 7 RTO West Filing - Stage 2 Overview Stage 2 Filing The Stage 2 Filing builds on the Stage 1 Filing, seeking affirmation of FERCs previous action on the Stage 1 filing The Stage 2 Filing also seeks FERCs declaratory action on all of the remaining Order 2000 characteristics and functions (operational authority; short-term reliability; tariff administration and design; congestion management; parallel path flow; ancillary services; OASIS, ATC, and TTC; market monitoring; planning and expansion; and interregional coordination) The goal is to receive FERCs declaration that the RTO West proposal as completed by the Stage 2 filing satisfies all Order 2000 characteristics and functions

8. 8 RTO West Filing - Stage 2 Overview Stage 2 Filing (continued) Elements of the Stage 2 Filing: Revised RTO West Transmission Operating Agreement Amended RTO West Bylaws Lists of Transmission Facilities Proposed for Inclusion Information about how the RTO West proposal satisfies the operation authority characteristic (Order 2000 characteristic 3)

9. 9 Potential RTO West Development Milestones 1 2 4 3 5 7 6 Stage 3 Begins FERC Approval of Market Design TOA Signed FERC Approves Seams Agreements State Regulatory Approvals Independence Day Major Financing Approved 8 RTO Start 4/01/025/02/0310/03/0310/06/0310/07/031/20/0612/08/03 © Andersen LLP 2002

10. 10 Western Market Vision One Seamless West-Wide Market Common Business Practices No Trade Barriers Minimum Transaction Costs Three RTOs - a Necessary First Step Retain Regional Accountability for Capital Expenditures, Reliability and Planning Retain Regional Operating Knowledge Share Services Capture Symbiotic Benefits (e.g., act as back-up control center for each other) Potential for fewer RTOs in the Future

11. 11 One Stop Shopping OASIS Ancillary Services Scheduling Market Monitoring Inter-Regional Planning Interregional Dispute Resolution Regional Accountability Selection of Boards of Directors Provider of Transmission Services Control Area Operation Security Coordinator Maintenance Intra-regional Dispute Resolution Outage Coordination Capital Expenditures Regional Planning FERC Compliance Shared Services Back-Up Control Centers Employee Training Pooled Human Resources Purchasing Settlements Enterprise Software IT Systems Standards and Practices Common Transmission Products Interconnection Standards Reliability Standards ADR Protocols & Data Standards Scheduling Practices Pricing Liability Protection Congestion Management ( w/ regional differences) Compatible Information Systems Tariff Design Western Market Vision

12. 12 Seams Steering Group-Western Interconnection (SSG-WI) A functioning Seams resolution forum for western RTOs Representation – RTO West, WestConnect and CAISO MOU – a framework for cooperation Currently addressing: Market Monitoring Common Systems Interfaces Transmission Planning Congestion Management Price Reciprocity

13. 13 How can WECC support RTO West ? This question is better answered after FERC responds to the RTO/ISO filings in the West by the end of July 2002. We would have better information from FERC to assist us in building the support and cooperation roles.

14. 14 RTO West Filing - Stage 2 © Andersen LLP 2002 Questions ?

15. 15 RTO West Filing - Stage 2 © Andersen LLP 2002 Additional Filing details

16. 16 RTO West Filing - Stage 2 RTO West Transmission Operating Agreement The RTO West Transmission Operating Agreement is a bilateral agreement through which a transmission owner authorizes RTO West to perform certain operational functions and provide transmission services across the transmission owners facilities The RTO West Transmission Operating Agreement imposes specific obligations on RTO West, such as complying with applicable laws and regulations and taking actions and providing rights and services that enable the transmission owner to fulfill all of its pre- existing transmission service obligations The RTO West Transmission Operating Agreement has been significantly revised from the version filed in Stage 1 to reflect changes in pricing, congestion management, and other areas

17. 17 RTO West Filing - Stage 2 Lists of Transmission Facilities Proposed for Inclusion There are individual lists for each of the Filing Utilities that participated in the Stage 2 filing The lists reflect the provisions in the RTO West Transmission Operating Agreement, which has a three-category approach: Facilities that must be included for pricing and operational control because they are part of the backbone system or affect its transfer capability Transmission facilities that do not affect the backbone system and may be included for pricing but without operational control Certain Distribution Facilities - primary function is distribution but can affect backbone system transfer capability

18. 18 RTO West Filing - Stage 2 Operation Authority (Order 2000 characteristic 3) Operational authority derived through the RTO West Transmission Operating Agreement RTO West has the obligation to use all reasonable efforts to cause interconnected load and generators to respond during system emergencies RTO West will perform the security coordinator (now call reliability coordinator) function for its control area; this is currently expected to be carried out through a contractual arrangement with the regions existing security coordinator, Pacific Northwest Security Coordinator (PNSC)

19. 19 RTO West Filing - Stage 2 Short-Term Reliability (Order 2000 characteristic 4) RTO West will operate a single control area that will encompass all of the control areas previously operated by the transmission owners participating in RTO West RTO West will have exclusive authority for receiving, confirming, and implementing all interchange schedules RTO West will have the authority to take actions necessary to maintain the reliability, security, and stability of the RTO West transmission system RTO West will have authority to approve or disapprove scheduled outage requests for the facilities over which it has operational control

20. 20 RTO West Filing - Stage 2 Pricing Proposal Objectives: Avoid price increases Minimize cost shifts Eliminate transmission rate pancaking Honor existing contracts All users contribute to fixed costs Minimize use of volumetric rates

21. 21 RTO West Filing - Stage 2 The pricing challenge: create a reasonable balance among competing objectives The solution: a minimum transition period (the Company Rate Period), a general license-plate rate structure (Company Rates), and an External Interface Access Fee

22. 22 RTO West Filing - Stage 2 Congestion Management Proposal (Order 2000 function 2) Provides for a market-based system of managing congestion from the beginning of RTO West commercial operations Relies on a voluntary bidding process open to generators and dispatchable loads RTO West will use the bids to compute locational prices and manage congestion based on security-constrained, least-cost redispatch Will provide RTO West transmission customers with efficient price signals that show the consequences of their transmission usage decisions

23. 23 RTO West Filing - Stage 2 OASIS, TTC, and ATC function (Order 2000 function 5) RTO West will maintain and administer its own OASIS site and will be responsible for calculation of Total Transmission Capability (TTC) and Available Transmission Capability (ATC) (although the concept of ATC does not exactly fit in an accept-all-schedules congestion management model with financial rights) Work through the Seams Steering Group - Western Interconnection (SSG-WI) to move toward a single point access to all OASIS sites for customers that wish to schedule transactions across any of the three RTOs proposed for the West: the California ISO, RTO West, and WestConnect

24. 24 RTO West Filing - Stage 2 Planning and Expansion Proposal (Order 2000 function 7) RTO West will have ultimate authority for planning its controlled transmission facilities - based on operational security and transmission adequacy standards Planning through inclusive public process that encourages and supports market-based expansion decisions and provides for coordination with appropriate state and provincial authorities Designed to result in market decisions about the need for system expansion that are rational and economically sound, taking into account non-transmission alternatives RTO West has authority to arrange for transmission expansions, additions, and upgrades - based on transmission adequacy standards and other backstopauthority under the RTO West Transmission Operating Agreement

25. 25 RTO West Filing - Stage 2 Interregional Coordination (Order 2000 function 8) SSG-WI is the focus of RTO Wests approach to interregional coordination Efforts underway or planned for SSG-WI: Coordination of West-wide system expansion planning Development of West-wide market monitoring Exploring pricing reciprocity among western RTOs Support for development of common and compatible systems and services and market design models Coordinating development of market interface and electric business practice standards for the Western Interconnection Inter-RTO discussions on sharing systems, procuring compatible hardware and software, and creating mutually beneficial service functions Coordination with and support of state and provincial policies