1. WestConnect RTO Remarks of Charles Reinhold Project Manager FERC’s Regional Technical Conference Phoenix, Arizona September 24, 2003

2. FERC Regional Conference -- Phoenix, Arizona 2 Topics Background on WestConnect RTOs Major Initiatives Status in Light of White Paper Where Do We Go From Here?

3. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 3 Background Major Initiatives of Past Several Years Create and File Market Design Proposal Joined with California ISO and RTO West to resolve seams issues Initiated Cost-Benefit analysis for local regulatory processes Exploring phase-in of RTO functions prior to RTO formation

4. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 4 Efforts to Create Market Design Lengthy stakeholder process to develop the new market design. Market design broadly accepted by FERC in order dated October 10, 2002. Several key market design elements not approved by FERC.

5. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 5 Efforts to Create an RTO Development discussions, focused on DesertSTAR, began in early 1997. Conversion to WestConnect in mid 2001, with a request for a declaratory order at FERC on October 16, 2001.

6. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 6 WestConnect Participants Arizona Public Service Company El Paso Electric Company Public Service Company of New Mexico Tucson Electric Power Company Salt River Project Western Area Power Administration Southwest Transmission Cooperative Filing Entities Funding Entities Participating Entities

7. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 7 Efforts to Create an RTO FERC generally approved RTO formation on October 19, 2002. –Governance structure –Board selection process –Physical rights congestion management model Day 1 –License plate pricing (transition period until 2009) –Transmission Adjustment Component (Western Area Power Administration lost revenues) –Requested additional information on certain design elements.

8. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 8 Efforts to Create an RTO - More FERC did not approve several key elements of the WestConnect proposal. –Suite of Transmission Owner rights contained in TCA –Congestion Management beyond initial operations –Self-Tracking systems –FTRs for native load past Day 1 –Right of first refusal for TOs to build/own new transmission facilities Elements not approved are critical to securing non- jurisdictional entities’ participation.

9. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 9 Efforts to Create an RTO DOE Cost-Benefit analysis showed costs outweighed benefits for the southwest. Currently performing a cost-benefit analysis. –Effort includes 16 Study Participants –Will assess costs and benefits of “with” and “without” WestConnect scenarios –Will assess costs and benefits of phasing in RTO functionality prior to creation of independent RTO.

10. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 10 Study Participants ACESPlatte River Power Authority Arizona Public Service CompanyPublic Service Co. of Colorado Basin Electric Power CooperativePublic Service Co. of New Mexico Bureau of ReclamationSalt River Project Colorado Springs UtilitiesSouthwest Transmission Cooperative El Paso Electric CompanyTri-State G & T Association Imperial Irrigation DistrictTucson Electric Power Company Nevada Power CompanyWestern Area Power Administration

11. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 11 Efforts to Create an RTO Phased implementation approach being developed. Current thoughts of key milestones are: –Phase 1: Creation of a common OASIS system with energy trading bulletin board. –Phase 2: Implement a WestConnect grid-wide transmission tariff, a formal transmission congestion management methodology and arrange for independent auditing of Phase 1 and 2 functions. –Phase 3: Create WestConnect RTO, LLC with the tariff, features and functions described in the October 10, 2001 filing.

12. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 12 Wholesale Market Platform – White Paper Issued April 28, 2003. Latest Commission direction on market design. Significant differences from Standard Market Design proposal: –Regional variation –Cost justification

13. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 13 WHITE PAPER ISSUES CATEGORY: Independence/Governance 1.All public utilities are to join an RTO or ISO. 2.RTOs must meet independence requirements of FERC Order 2000. 3.Each RTO must have an independent market monitor and clear rules on market participant conduct.

14. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 14 WHITE PAPER ISSUES CATEGORY: Tariff Administration and Design 4.RTOs must administer its own transmission tariff. 5.RTOs must provide a forum for state officials to participate in decision-making. 6.RTOs should eliminate export fees in the absence of identifiable trade imbalances. 7.Limit liability of RTOs to direct damages resulting from gross negligence.

15. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 15 WHITE PAPER ISSUES CATEGORY: Interregional Coordination (Seams) 8.RTOs must pursue interregional coordination. CATEGORY: Transmission Upgrade Cost Treatment 9.State and local authorities may play a role in determining regional pricing policy with regional flexibility in choice of cost allocation methodology.

16. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 16 WHITE PAPER ISSUES CATEGORY: Transmission Planning 10. RTOs to produce planning assessments of the regional grid. CATEGORY: Regional Adequacy 11. Regional flexibility to determine appropriate regional adequacy mechanisms with participation of state and local regulatory authorities.

17. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 17 Transmission Owners Concerns Major presence of non-jurisdictional transmission owners in the region Consensus and collaboration required to have all transmission owners participate FERC’s “takeaways” from WestConnect design significantly slowed the forward momentum that existed for full RTO implementation SMD-like market, with its centralized energy markets, not viewed as necessary or cost justified in the southwest Large implementation costs and protracted implementation timelines for RTO development

18. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 18 Transmission Owners Reassessment Need to provide real benefits to wholesale transmission system users while keeping costs and benefits in proportion Many issues raised by RTO formation are contentious, raise jurisdictional issues, and will not be resolved in the near term (access for native load, divestiture of operational control/authority, financial risk, etc.) Building incrementally on what works today, enhancements to the wholesale market can be realized in months rather than years Interest in a phased-in approach is growing. Includes many TOs outside the historic footprint of WestConnect

19. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 19 Phased Approach Key Principles –Initially implement only those wholesale market elements that add value for users of the system –Defer low benefit/high cost activities and contentious issues –Create organizations, hire staff, acquire hardware/software only when and as necessary –Implement additional market elements when needed and cost-justified Phased Approach to Market Enhancement

20. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 20 WestConnect RTO Phased Approach Phase 1 New Regional Common Market Interface Phase 2 Grid-wide Tariff Phase 3 RTO,LLC One stop shopping for transmission access Remove redundant OASIS sites Secondary Market for transmission rights Bulletin Board – Energy Related Services: Congestion management & ancillary. Parallel Path Flow Mitigation Regional Planning Participation Auditing of ATC calculations & transmission service requests Interregional “Seam” Coordination continued Form small organization Establish zonal, rate based tariff Establish market monitor/auditor function Formal Congestion Management Establish Independent Board TOs transfer operational authority Consolidate Control Areas Real-time energy & ancillary services market

21. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 21 Opportunities and Issues Additional phases may be defined and other beneficial changes to the approach may become apparent as the concept evolves Participants will remain flexible and be willing to make changes around the edges of the original concept Independence –FERC has other ideas –Exploring ways to acquire oversight function “Seams” concerns must continue to be discussed and resolved, including the development of a regional planning process and creation of a west-wide market monitoring entity

22. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 22 Where Are We Now ? –Continuation of seams efforts with SSG-WI Planning Congestion Management Market Monitoring –Cost benefit analysis underway. 1Q 2004 –Phase 1 OASIS Implementation. Contracts have been signed with third-party vendor. 1Q 2004

23. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 23 Where Do We Go From Here? Complete Cost-Benefit analysis. Implement RTO functionality in phases. Form RTO when cost effective.

24. September 24, 2003FERC Regional Conference -- Phoenix, Arizona 24 Contacts and Information WestConnect RTO –Charles Reinhold – Project Manager reinhold@globalcrossing.net 208-253-6916 –www.westconnectrto.com SSG-WI –www.ssg-wi.com