Western Area Power Administration

1. Western Area Power Administration Transmission Customer Meeting August 20, 2007

2. Agenda • CVP Transmission System – Mariam Mirzadeh • Compliance with NERC Standards – Arun Sethi • Western’s OATT – Darren Buck • Western’s Transmission Rate – Melinda Grow

3. CVP Transmission Network • Long Transmission Lines – High Reactive Losses • Integrating CVP Base Resource, Third Party Generation or Import to Load Hubs or Designated Loads at Elverta and Tracy and Other Delivery Points • Simultaneous Import Limitations – Nomogram • Internal (local) Generation vs. Import • COI Impact vs. the Parallel 230 kV

4. CVP Customer Loads • 50% Direct Connect • 50% Off-System • Project Use Loads • 50% Direct Connect • 50% Off-System

5. Network Reliability Projects • Sacramento Valley • 31 Miles of DCKT 230kV O’Banion to Elverta • Folsom Loop • Loop SMUD’s Orangevale/Lake into Folsom Substation • Two New 230kV Bays at Folsom

6. Long Import Lines to Load Center & Delivery Points

8. Questions/Discussion

9. Western’s Compliance with NERC Reliability Standards

10. Reliability Standards • Eighty-three mandatory standards, and 700 requirements became effective on June 18, 2007. • All bulk power system owners, operators, and users must comply with these standards.  • All entities are required to register with NERC through the appropriate regional entities.

11. NERC Registration • Western-SNR Operations has registered with NERC as: • Transmission Owner (TO) • Transmission Operator (TOP) • Transmission Service Provider (TSP) • Transmission Planner (TP) • Planning Authority (PA)

12. Western Standards Review & Compliance • Western has self-reported 14 Compliance Violations and Mitigation Plans to WECC. • Six Mitigation Plans have been completed. • All but one of the remaining Mitigation Plans will be completed in 2007.

13. Western Compliance Audits • As a TO and TOP, Western is required to perform a Self-Certification by December 2007. • Western is scheduled to have a WECC On-Site Compliance Audit in December 2008.

14. Questions/Discussion

15. Western’s OATT • Transmission Reservation Process • Transmission Upgrades

16. Western OATT Requests/Planning • Service or Interconnection Request Submitted • Feasibility Analysis Performed • System Impact Study (SIS) • Study of TX and impacts • Must be coordinated with neighboring TX owners and potentially WECC

17. Western OATT Requests/Planning (cont.) • Facility Impact Study (FIS) • Substation Impacts • Lands, Environmental • Design • Cost Estimates Determined • Mitigation On Neighboring Transmission • Anticipated Rate Impacts • Determined from FIS Estimates • Includes existing TX service and additional service as a result of the new line (if SIS indicates new TX results)

18. Transmission Service Constraints • Transmission Reliability Impacts All Customers • Firm Off-System Sales are Considered Direct Connect Load and are subject to Schedule Cut like On-System • Cuts due to Transmission Outages are shared Pro-rata for all customers • All Network Upgrades benefit All Customers

19. Network VS. Direct Assignment Upgrades • Network Upgrades: Modifications or additions to transmission-related facilities that are integrated with and support the TP’s overall Transmission System for the general benefit of all users of such Transmission System. • Direct Assignment Facilities: Facilities or portions of facilities that are constructed by the Transmission Provider for the sole use/benefit of a particular Transmission Customer requesting service under the Tariff. Direct Assignment Facilities shall be specified in the Service Agreement that governs service to the Transmission Customer

20. FERC Bright Line Test For Facility Designation (1) whether the new facility additions would improve service to existing system load (other than the load that requested it); (2) whether the additional facilities, that have been demonstrated to be the most cost-efficient alternative, are needed to maintain the reliability of the existing transmission system; (3) whether the new facilities are mandatory requirements for a load interconnection to satisfy a utility’s planning criteria, or whether they far exceed what those criteria require; (4) whether customers other than the customer that requested the facilities would experience a degradation in service if installation of the new facilities at issue were not undertaken; and (5) whether the facilities are integrated with the rest of the transmission system, and provide integrated benefits to the overall transmission grid.

21. Questions/Discussion

22. Transmission Revenue Requirement (TRR) • Recovered by: • Firm and Non-Firm Point to Point (PTP) Service • Network Integrated Service (NITS) • Must be fully recovered • Current recovery is estimated at: • 26 % - PTP • 74 % - NITS

23. Estimated Impact on TRR • Assumptions: • 50 year capitalization beginning in 2012 • Revenue impact represented as an annual average increase • % change reflected based on April 2007 TRR • Interest on loan (from third party) is expensed based on the amortization of loan payment • Capitalization of project for repayment will probably be different than represented but the approach used provides a standardized basis

24. Estimated Impact on TRR • “Partial Funding” ($22M) Option Scenario • Project Capitalization of $92 million • Loan Interest Paid off in 3 years

25. Estimated Impact on TRR • “Full Funding” Third Party Option Scenario • Project Capitalization of $97 million • Loan Interest Paid off in 18 years

26. Questions/Discussion