1. Forming a Cost Assignment/ Cost Recovery Team RMATS Steering Committee January 13, 2004

2. RMATS S:\MIPoffice\Strategic Analysis\WorkInProgress\RMATS\Transmission cost assignment_Cost recovery team 01092003 2 2Draft Proposal Objective: Commercially viable alternatives To meet this objective, the alternatives must …  Pull together commercial parties  Be technically feasible  Maintain or increase reliability/security and price stability  Add flexibility and robustness to network to facilitate competitive wholesale markets  Show benefits to ratepayers/customers  Be cost-effective  Benefits commensurate with risks  Ensure a high probability of cost recovery (investors likely to look favorably upon)  Pass muster with state regulatory bodies  Pass muster with FERC Focus of new team

3. RMATS S:\MIPoffice\Strategic Analysis\WorkInProgress\RMATS\Transmission cost assignment_Cost recovery team 01092003 3 2Draft Proposal Steering Committee has approved forming a cost assignment/cost recovery team  Purpose: Research, develop, and evaluate cost assignment/recovery issues and alternatives  Scope: Transmission alternatives coming out of RMATS  Reports to RMATS Steering Team (at least initially)  Life of team may extend beyond RMATS  Seeking participants: State Regulators Utilities Developer reps from RM sub-region Market reps - export markets FERC staff (consultation)  Seeking co-chairs: state regulator and utility or market rep  Recommended schedule: Convene the team: early February Draft issues list and alternatives: early March Recommend alternatives for further consideration: end March Assist RMATS report writing, further develop and evaluate alternatives: April on

4. RMATS S:\MIPoffice\Strategic Analysis\WorkInProgress\RMATS\Transmission cost assignment_Cost recovery team 01092003 4 2Draft Proposal Starter list of issues  Benefits Define “benefits” and “beneficiaries” for this purpose How benefits should be measured How modeling should be conducted  Cost Assignment Current regulatory policies (Federal and State) What other regions are doing Principles/criteria that should apply Methodological alternatives  Cost Recovery Issues Role and policy issues – FERC and States Regulatory impediments and/or incentives for cost recovery Investor risks and requirements Potential Solutions