Mountain States Transmission IntertieMountain States Transmission Intertie(MSTI)(MSTI)

Open Season Update MeetingOpen Season Update Meeting

Wednesday, December 5, 2007Wednesday, December 5, 20079:00 am to 11:00 am9:00 am to 11:00 am

SOCC South Conference RoomSOCC South Conference RoomButte, MTButte, MT

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AgendaAgenda

MSTI Project UpdateMSTI Project Update» MFSA - Siting, Permitting, and EnvironmentalMFSA - Siting, Permitting, and Environmental» State and Federal Agency AgreementsState and Federal Agency Agreements» EngineeringEngineering

Public Outreach ProcessPublic Outreach Process

WECC and NTTG Planning ProcessesWECC and NTTG Planning Processes

FERC Tariff DevelopmentFERC Tariff Development

Indicative PricingIndicative Pricing

Project ScheduleProject Schedule

Next StepsNext Steps

MSTI Development Cost Sharing ConceptMSTI Development Cost Sharing Concept

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MSTI Project UpdateMSTI Project Update

Siting, Permitting, and EnvironmentalSiting, Permitting, and Environmental» SF 299 Applications Filed with BLM and USFSSF 299 Applications Filed with BLM and USFS» Cost Recovery Agreements CompletedCost Recovery Agreements Completed

♦ Separate Agreements with BLM, USFS, and State AgenciesSeparate Agreements with BLM, USFS, and State Agencies

» Baseline Studies 50% CompleteBaseline Studies 50% Complete♦ Inventory Done in FebruaryInventory Done in February

♦ Impact Assessment / Mitigation Planning in MarchImpact Assessment / Mitigation Planning in March

» MFSA / Environmental Report in 2MFSA / Environmental Report in 2ndnd Quarter 2008 Quarter 2008♦ MFSA for Montana OnlyMFSA for Montana Only

♦ ER with Studies Similar to an EIS that Covers IdahoER with Studies Similar to an EIS that Covers Idaho

EngineeringEngineering» Design Criteria Development UnderwayDesign Criteria Development Underway

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Public Outreach ProcessPublic Outreach Process

Public Comment ImportancePublic Comment Importance» To comply with the MFSA requirements and to identify To comply with the MFSA requirements and to identify

preliminary issues and concerns preliminary issues and concerns

Open House MeetingsOpen House Meetings» Ten Public Open House Meetings Held since June Ten Public Open House Meetings Held since June » Montana – Whitehall, Townsend, Ennis, Dillon, AnacondaMontana – Whitehall, Townsend, Ennis, Dillon, Anaconda» Idaho – Arco, Idaho Falls, Shoshone, Carey, AberdeenIdaho – Arco, Idaho Falls, Shoshone, Carey, Aberdeen

Elected Officials MeetingsElected Officials Meetings» Meetings with county commissioners and other elected Meetings with county commissioners and other elected

officials in counties potentially impacted by the projectofficials in counties potentially impacted by the project

Recording Public CommentsRecording Public Comments» Input received will be considered during the planning Input received will be considered during the planning

process to identify project alternativesprocess to identify project alternatives» Interactive GISInteractive GIS

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WECC and NTTG Planning ProcessesWECC and NTTG Planning Processes

WECC Regional Planning Process updateWECC Regional Planning Process update

WECC Path Rating Phase 1 updateWECC Path Rating Phase 1 update

NTTG Fast Track project updateNTTG Fast Track project update

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WECC Planning ProcessWECC Planning Process

CalendarCalendar

» N-1 ScreeningN-1 Screening

» N-2 ScreeningN-2 Screening

» Load-ability Tests (@105%)Load-ability Tests (@105%)

» Angle StabilityAngle Stability

» Draft Comprehensive Progress Report: 15-Dec-07Draft Comprehensive Progress Report: 15-Dec-07

» Final CPR: 31-Dec-07Final CPR: 31-Dec-07

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FERC Tariff DevelopmentFERC Tariff Development

NWE Engaged CRA InternationalNWE Engaged CRA International

Tariff Pricing AlternativesTariff Pricing Alternatives

White paper being developed – eventual pleading to White paper being developed – eventual pleading to FERCFERC

Request flexibility in pricing based on 10 “Merchant Line” Request flexibility in pricing based on 10 “Merchant Line” criteriacriteria

Allow multiple rates based on different terms of contractsAllow multiple rates based on different terms of contracts

Allow for contribution/development cost sharing Allow for contribution/development cost sharing

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Indicative PricingIndicative Pricing

ProcessProcess» Several scenarios were analyzed. The following illustrates three Several scenarios were analyzed. The following illustrates three

projects based on varying transmission capacity size and projects based on varying transmission capacity size and construction cost estimates.construction cost estimates.

» Capital construction cost estimates were developed based on Power Capital construction cost estimates were developed based on Power Engineering consultants in association with NWE personnel.Engineering consultants in association with NWE personnel.

» Pricing is based on a traditional FERC revenue requirement and Pricing is based on a traditional FERC revenue requirement and return on rate base analysis.return on rate base analysis.

» Return on rate base plus operating expense, depreciation expense, Return on rate base plus operating expense, depreciation expense, property and other taxes, and income taxes combine to determine property and other taxes, and income taxes combine to determine the net revenue requirement. the net revenue requirement.

» Pricing ranges are stated in terms of dollars per MWh. Pricing ranges are stated in terms of dollars per MWh. » Change from June meeting: pricing is based on levelized revenue Change from June meeting: pricing is based on levelized revenue

requirements over specific contract periods ranging from 10 to 30 requirements over specific contract periods ranging from 10 to 30 years, and a sliding ROE scale based on varying subscription levels. years, and a sliding ROE scale based on varying subscription levels. During the June meeting we illustrated a 30 year levelized rate and 10 During the June meeting we illustrated a 30 year levelized rate and 10 year step rate, which was the first year revenue requirement, and a year step rate, which was the first year revenue requirement, and a stable ROE. stable ROE.

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Indicative PricingIndicative Pricing

AssumptionsAssumptions» Rate base is the total of construction capital, AFUDC (8.9%), Rate base is the total of construction capital, AFUDC (8.9%),

mitigation required capital, Idaho sales and use tax (6%) for the mitigation required capital, Idaho sales and use tax (6%) for the portion of the investment assumed in Idaho (50%), working capital, portion of the investment assumed in Idaho (50%), working capital, and depreciation reserve.and depreciation reserve.

» Each scenario assumes a sliding return on equity, depending on the Each scenario assumes a sliding return on equity, depending on the subscription percentage, ranging from 13% to 10%. The debt rate is subscription percentage, ranging from 13% to 10%. The debt rate is assumed at 6.794% with a 50-50 capital structure. assumed at 6.794% with a 50-50 capital structure.

» O&M costs are assumed at 3.5% of the capital construction cost and O&M costs are assumed at 3.5% of the capital construction cost and escalate 3% per year over the 30-year period.escalate 3% per year over the 30-year period.

» Depreciation is based on 30-year straight-line for book, and 20-year Depreciation is based on 30-year straight-line for book, and 20-year MACRS for tax purposes.MACRS for tax purposes.

» Property taxes assume 50% MT at 3.132%, and 50% ID at 1.025%. Property taxes assume 50% MT at 3.132%, and 50% ID at 1.025%. » The plan and pricing could also be considered conservative, as we The plan and pricing could also be considered conservative, as we

are reviewing current legislation based on House Bill 3 and other are reviewing current legislation based on House Bill 3 and other potential impacts and savings regarding property tax rates or other potential impacts and savings regarding property tax rates or other state/federal incentives associated with new generation and related state/federal incentives associated with new generation and related development.development.

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Indicative PricingIndicative Pricing

230 kV 345 kV 500 kV

Project Capital ($ Millions)

Location Mill Creek to Borah Townsend to Borah Townsend to Midpoint

Line Miles 270 305 390

Capacity (MW) 625 900 1500

Base Construction Capital $231.0 $400.6 $662.0

Mitigation $53.0 $10.0 $60.0

Total Capital $284.0 $410.6 $722.0

AFUDC & Other $42.8 $62.0 $108.7

Total Rate Base $326.8 $472.6 $830.7Total Capital / MW $0.454 $0.456 $0.481Total Capital / Line Mile $1.052 $1.346 $1.851

Pricing Tables ($/MWh)

230 kVSliding ROE

Subsription % Load (MW) ROE % ROR % 1st 10 Years 1st 15 Years 20 Years 25 Years 30 Years 2nd 10 Years 3rd 10 Years 2nd 15 Years

100% 625 13.00% 9.90% $12.12 $11.73 $11.44 $11.26 $11.14 $9.67 $8.40 $8.72

90% 563 12.00% 9.40% $13.00 $12.58 $12.27 $12.08 $11.95 $10.47 $9.22 $9.51

80% 500 11.00% 8.90% $14.10 $13.65 $13.32 $13.11 $12.97 $11.47 $10.23 $10.51

70% 438 10.00% 8.40% $15.52 $15.03 $14.67 $14.44 $14.29 $12.76 $11.54 $11.80

345 kVSliding ROE

Subsription % Load (MW) ROE % ROR % 1st 10 Years 1st 15 Years 20 Years 25 Years 30 Years 2nd 10 Years 3rd 10 Years 2nd 15 Years

100% 900 13.00% 9.90% $12.35 $11.94 $11.64 $11.44 $11.32 $9.81 $8.43 $8.78

90% 810 12.00% 9.40% $13.25 $12.82 $12.49 $12.29 $12.15 $10.63 $9.26 $9.59

80% 720 11.00% 8.90% $14.38 $13.92 $13.57 $13.34 $13.20 $11.66 $10.30 $10.61

70% 630 10.00% 8.40% $15.84 $15.34 $14.96 $14.71 $14.55 $12.99 $11.63 $11.93

500 kVSliding ROE

Subsription % Load (MW) ROE % ROR % 1st 10 Years 1st 15 Years 20 Years 25 Years 30 Years 2nd 10 Years 3rd 10 Years 2nd 15 Years

100% 1,500 13.00% 9.90% $12.74 $12.27 $11.92 $11.69 $11.54 $9.82 $8.04 $8.52

90% 1,350 12.00% 9.40% $13.66 $13.16 $12.78 $12.53 $12.37 $10.64 $8.84 $9.31

80% 1,200 11.00% 8.90% $14.81 $14.28 $13.87 $13.59 $13.41 $11.66 $9.83 $10.30

70% 1,050 10.00% 8.40% $16.29 $15.72 $15.27 $14.97 $14.77 $12.97 $11.12 $11.57

Levelized Rate Levelized Rate

Levelized Rate Levelized Rate

Levelized Rate Levelized Rate

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Project ScheduleProject Schedule

File MFSA Application – Spring 2008File MFSA Application – Spring 2008

MFSA Accepted – Summer 2008MFSA Accepted – Summer 2008

NEPA / MEPA EIS Scoping – NEPA / MEPA EIS Scoping – Summer 2008Summer 2008

Draft EIS Published – Spring 2009Draft EIS Published – Spring 2009

EIS Record of Decision – Late 2009 EIS Record of Decision – Late 2009 to Early 2010to Early 2010

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Next StepsNext Steps

Select Preferred Route and Two AlternativesSelect Preferred Route and Two Alternatives

File MFSA Application and Obtain CECFile MFSA Application and Obtain CEC

Prepare MOU for Third Party Contractor to Prepare EISPrepare MOU for Third Party Contractor to Prepare EIS

Refine Project Costs and Indicative RatesRefine Project Costs and Indicative Rates

Present Pricing Mechanisms to FERC for ApprovalPresent Pricing Mechanisms to FERC for Approval

Develop Long-Term Transmission ContractsDevelop Long-Term Transmission Contracts

Continue Public Outreach ProcessContinue Public Outreach Process

Keep Open Season Participants Informed of Project Keep Open Season Participants Informed of Project Progress and StatusProgress and Status

Schedule Next MeetingSchedule Next Meeting

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MSTI Development Cost Sharing Concept MSTI Development Cost Sharing Concept

NWE Exploring Mutually Beneficial Cost Sharing Process NWE Exploring Mutually Beneficial Cost Sharing Process with Participants with Participants

Need Commitment from MSTI Customers as Project Need Commitment from MSTI Customers as Project ProceedsProceeds

Risk Sharing Upfront in Exchange for Potential Reduction Risk Sharing Upfront in Exchange for Potential Reduction in Transmission Ratesin Transmission Rates

Will Need Necessary Regulatory ApprovalsWill Need Necessary Regulatory Approvals

Include Milestones and Off Ramps for Customers as Include Milestones and Off Ramps for Customers as Project AdvancesProject Advances

Following is a Development Cost Sharing Example for Following is a Development Cost Sharing Example for Discussion Purposes OnlyDiscussion Purposes Only

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MSTI Development Cost Sharing Concept MSTI Development Cost Sharing Concept

($ Millions except rates)2008 2009 Total

Development Costs 10.0$ 30.0$ 40.0$ Participant Share 50% 50% 50%Participant Contribution 5.0$ 15.0$ 20.0$

Rate Base Impact 230 kV 345 kV 500 kVOriginal Rate Base 326.8$ 472.6$ 830.7$ Less Contribution (20.0)$ (20.0)$ (20.0)$ Less AFUDC Savings (2.9)$ (2.9)$ (2.9)$ New Rate Base 303.9$ 449.7$ 807.8$

Rate Impact at 100% Subscription Level 230 kV 345 kV 500 kV10 Year Contract 11.43$ 11.86$ 12.45$ $ Change from Original (0.69)$ (0.49)$ (0.29)$ % Change from Original -5.7% -4.0% -2.3%

20 Year Contract 10.81$ 11.20$ 11.66$ $ Change from Original (0.63)$ (0.44)$ (0.26)$ % Change from Original -5.5% -3.8% -2.2%

30 Year Contract 10.55$ 10.91$ 11.29$ $ Change from Original (0.59)$ (0.41)$ (0.25)$ % Change from Original -5.3% -3.6% -2.2%

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QuestionsQuestions

And And

DiscussionDiscussion