December 9, 2003

1. Proposed Analytical Approach-Modeling Phase 3 - Formation of new team December 9, 2003 Steering Committee Presentation

2. RMATS Goals RMATS Deliverable: Commercially Viable Alternatives Need Clarify Phases 2 and 3 Scope and Approach to Modeling Form Team Cost Assignment/Recovery Issues Economically sound and technically feasible transmission alternatives • Criteria and alternatives: • Benefits determination • Cost Assignment • Cost Recovery Benefits/beneficiary criteria Draft Proposal

3. “Commercially Viable” means . . . • Serves the load • Technically feasible • Maintains or increases reliability/security and price stability • Adds flexibility and robustness to the RMATS network to facilitate competitive wholesale markets • Cost-effective; benefits are commensurate with risks • High probability of cost recovery; investment community is likely to look favorably upon • Likely to pass muster with state regulatory bodies • Likely to pass muster with FERC -- Draft -- Draft Proposal

4. Modeling phases 2 and 3

5. To meet the RMATS deliverable, Phase 2 of the modeling should include . . . • Production cost modeling for the system as a whole, using ABB Market Simulator • Focus on variable costs and nodal prices of the system as whole • Two modeling steps: Step 1: Three resource/transmission alternatives to serve load, two alternatives for export. Includes two gas price sensitivities Step 2: Refined alternatives from Step 1. Includes five gas/hydro/load sensitivities • Objective: Arrive at 2-4 alternatives that appear technically feasible and economic from a variable cost/locational marginal price standpoint Draft Proposal

6. And Phase 3 of the modeling should include . . . • First-pass cost/benefit analyses for Phase 2 alternatives • Regional economic perspective • Takes into account investment and other fixed costs, as well as variable costs • Should also includes more thorough technical assessment • Sensitivities: • ü Emissions/CO2 adders • ü Loads • ü Gas prices • ü Coal prices • ü Market prices • ü Capex & financing costs Draft Proposal

7. Phase 3 continued -- • Uses 2013 as analysis year; No multi-year cash flows and discounting as a full-fledged cost/benefit study would require • Approximates the beneficiaries • Takes into account findings from cost assignment/recovery team, as available Objective: Arrive at 2-4 alternatives that are “commercially viable” -- that merit detailed planning and financial consideration Draft Proposal

8. Form a cost assignment/recovery team

9. To meet the RMATS deliverable, the Steering Committee should also . . . • Form a cost assignment/cost recovery team • Participants: • State Regulators • Utilities • Developer Representatives • FERC staff (consultation) • Purpose: Research, develop, and evaluate cost assignment/recovery alternatives • Scope: Transmission alternatives coming out of RMATS • Reporting relationship: to RMATS Steering Team (at least initially) • Life of team may extend beyond RMATS Recommendation Draft Proposal

10. Issues the new team would address • 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 risks to cost recovery • What investors require • Potential solutions Recommendation Draft Proposal