Presentation toPresentation to

Montana PublicMontana PublicService CommissionService Commission

October 27, 2004October 27, 2004

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Chaos…Chaos…

• The Chicken or the Egg conundrumThe Chicken or the Egg conundrum Transmission and generation historically has been built concurrently Transmission and generation historically has been built concurrently

• RTO developmentRTO development An uncertain future An uncertain future

• Constraints/path ratingsConstraints/path ratings The transmission grid was not designed for the type of interstate The transmission grid was not designed for the type of interstate

commerce we experience todaycommerce we experience today

• August 14, 2003 Eastern U.S. outage — a call for actionAugust 14, 2003 Eastern U.S. outage — a call for action Increased pressure on reliability by NERC and FERC — May further Increased pressure on reliability by NERC and FERC — May further

reduce path ratingsreduce path ratings

• Stranded generationStranded generation New projects on the drawing board are seeking marketsNew projects on the drawing board are seeking markets

• Regional politicsRegional politics Regional system studies: RMATS, SSG-WI, NCATRegional system studies: RMATS, SSG-WI, NCAT State governors involvementState governors involvement

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OpportunitiesOpportunities

Potential generation development in the West

44

744

13

2664

3000

330

1577

0

500

1000

1500

2000

2500

3000

3500

Wind Coal Natural Gas Other Total MT Existing Generation

Potential Generation Capacity in MontanaPotential Generation Capacity in Montana

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NorthWestern’s Unique PositionNorthWestern’s Unique Position

• Located between suppliers and marketsLocated between suppliers and markets

• Not a generation ownerNot a generation owner Not seen as a competitor by proposed project Not seen as a competitor by proposed project

developersdevelopers

66

OpportunitiesOpportunities

Path development opportunities

77

88

99

Montana to Idaho Path Montana to Idaho Path

• The Montana to the Southwest path (WECC Path 18) The Montana to the Southwest path (WECC Path 18) includes the 230 kV “AMPS” line and the 161 kV “Jefferson” includes the 230 kV “AMPS” line and the 161 kV “Jefferson”

• Owned by NorthWestern Energy, Idaho Power Company Owned by NorthWestern Energy, Idaho Power Company and PacifiCorpand PacifiCorp

• Path capacity to be reduced from 337 MW to 324 MW Path capacity to be reduced from 337 MW to 324 MW southbound during the summer of 2004 when BPA removed southbound during the summer of 2004 when BPA removed 65 MVAR caps at Anaconda65 MVAR caps at Anaconda

• NorthWestern Energy Southbound AMPS line capacity fully NorthWestern Energy Southbound AMPS line capacity fully utilized long termutilized long term

• NorthWestern Energy Southbound Jefferson line capacity NorthWestern Energy Southbound Jefferson line capacity fully utilized long termfully utilized long term

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Montana to Idaho – Some OptionsMontana to Idaho – Some Options

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Load Growth South of Montana – One ExampleLoad Growth South of Montana – One Example

• Idaho IRP process – Idaho IRP process – 2004 - 2013 add 800 MW and 940 MW capacity2004 - 2013 add 800 MW and 940 MW capacity Expected Portfolio to include 500 MW coal, 350 MW windExpected Portfolio to include 500 MW coal, 350 MW wind

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NorthWestern’s Open Season ProcessNorthWestern’s Open Season Process

• Phase 1 – Expression of Interest (EOI)Phase 1 – Expression of Interest (EOI)

• Opportunity for generators/suppliers/load serving Opportunity for generators/suppliers/load serving entities to come together to help NorthWestern entities to come together to help NorthWestern define the market for transmission capacitydefine the market for transmission capacity

• NorthWestern will use EOI to determine if sufficient NorthWestern will use EOI to determine if sufficient interest to continue with Open Seasoninterest to continue with Open Season

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Phase 1 – Expression of Interest (EOI)Phase 1 – Expression of Interest (EOI)

• Interested parties to respond with:Interested parties to respond with: Capacity requested – 25 MW blocksCapacity requested – 25 MW blocks Direction of capacity requestDirection of capacity request Start date for capacity needsStart date for capacity needs Term of agreement for capacity (minimum term Term of agreement for capacity (minimum term

requirement)requirement) Expression of interest dates: October 1 – 31, 2004Expression of interest dates: October 1 – 31, 2004 NorthWestern Energy EOI forms posted on OASISNorthWestern Energy EOI forms posted on OASIS

Expression of interest phase going well…Expression of interest phase going well…

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Phase Two – Capacity Open Season “Preview” PeriodPhase Two – Capacity Open Season “Preview” Period

• NorthWestern evaluates expressions of interest NorthWestern evaluates expressions of interest to determine most likely capacity addition(s)to determine most likely capacity addition(s)

• Mid-November 2004 – NorthWestern will post Mid-November 2004 – NorthWestern will post on OASIS the start and end dates to accept on OASIS the start and end dates to accept transmission service requests that will qualify transmission service requests that will qualify for the open season process (likely Dec. 1 - 31, for the open season process (likely Dec. 1 - 31, 2004)2004)

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Open Season ElementsOpen Season Elements

• Open Season is for Transmission Service Requests Open Season is for Transmission Service Requests with MT-SW (AMPS) as POR or POD with MT-SW (AMPS) as POR or POD ONLYONLY and for and for NEWNEW (not existing) capacity(not existing) capacity

• Same process for making Transmission Service Request Same process for making Transmission Service Request (TSR) as described in Section 17 of NorthWestern’s Open (TSR) as described in Section 17 of NorthWestern’s Open Access Transmission Tariff with these important Access Transmission Tariff with these important modifications:modifications:1.1. Completed Application for Transmission Service will Completed Application for Transmission Service will

temporarily be considered complete without the deposit of temporarily be considered complete without the deposit of approximately one month’s transmission service (OATT approximately one month’s transmission service (OATT section 17.3); the deposit will be section 17.3); the deposit will be DELAYEDDELAYED

2.2. System ImpactSystem Impact Study and associated study fee will be waived Study and associated study fee will be waived (NorthWestern will absorb cost of System Impact Studies)(NorthWestern will absorb cost of System Impact Studies)

As always, date/time stamped OASIS Transmission Service As always, date/time stamped OASIS Transmission Service Request will determine customer’s position in Transmission Request will determine customer’s position in Transmission Service QUEUEService QUEUE

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Open Season – Current CustomersOpen Season – Current Customers

• Current transmission customers with completed Current transmission customers with completed applications for new capacity requests for applications for new capacity requests for transmission service on MT-SW path will be transmission service on MT-SW path will be deemed to be part of Open Season (with QUEUE deemed to be part of Open Season (with QUEUE positions already established with reservation on positions already established with reservation on OASIS)OASIS)

• NorthWestern will work with these current NorthWestern will work with these current customers on treatment of deposits and study customers on treatment of deposits and study feesfees

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Open Season Elements – System Impact Study ResultsOpen Season Elements – System Impact Study Results

• Upon Open Season capacity request date closing, Upon Open Season capacity request date closing, NorthWestern will require approximately a 60-day NorthWestern will require approximately a 60-day period to evaluate total transmission requests and period to evaluate total transmission requests and physical options to serve such requestsphysical options to serve such requests

• Results of study work will be provided to each Results of study work will be provided to each Open Season Participant and posted on Open Season Participant and posted on NorthWestern’s OASISNorthWestern’s OASIS

• Participants will be given 30 days to review results Participants will be given 30 days to review results of studies and then will be provided a Facilities of studies and then will be provided a Facilities Study Agreement by NorthWestern to execute in Study Agreement by NorthWestern to execute in order to continueorder to continue

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Phase 3 – Facilities StudyPhase 3 – Facilities Study

• Facilities Study Agreement must be executed and Facilities Study Agreement must be executed and returned to NorthWestern within 15 business days returned to NorthWestern within 15 business days together with Facilities Study Fee AND together with Facilities Study Fee AND DepositDeposit approximating one month’s Transmission Service approximating one month’s Transmission Service (at this point, each Open Season Participant has (at this point, each Open Season Participant has returned to normal Transmission Service Request returned to normal Transmission Service Request Procedures)Procedures)

• Failure to comply with above will result in OASIS Failure to comply with above will result in OASIS reservation deemed withdrawnreservation deemed withdrawn

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Open Season BenefitsOpen Season Benefits

• Brings generators/suppliers/load serving Brings generators/suppliers/load serving entities togetherentities together

• Allows “preview” of system impacts prior to Allows “preview” of system impacts prior to significant financial commitmentsignificant financial commitment

• Potentially eliminates “lumpiness” in transmission Potentially eliminates “lumpiness” in transmission planning and construction (Ex. 200 MW expansion planning and construction (Ex. 200 MW expansion that no single party can commit to)that no single party can commit to)

• All parties cooperate, including the transmission All parties cooperate, including the transmission provider, to solve regionwide problem of “what provider, to solve regionwide problem of “what comes first, transmission or generation”comes first, transmission or generation”

2020

Potential Funding OptionsPotential Funding Options

• More to come…More to come…

• Dependent upon capacity requested and market Dependent upon capacity requested and market participationparticipation

• Funding options:Funding options: NorthWestern EnergyNorthWestern Energy Current path ownersCurrent path owners SubscribersSubscribers Project financing if adequate subscriptionProject financing if adequate subscription OthersOthers

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QuestionsQuestions

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CommentsComments