Mountain States Transmission Intertie (MSTI) Open Season Update Meeting

1. Mountain States Transmission Intertie(MSTI)Open Season Update Meeting Wednesday, December 5, 2007 9:00 am to 11:00 am SOCC South Conference Room Butte, MT

2. Agenda • MSTI Project Update • MFSA - Siting, Permitting, and Environmental • State and Federal Agency Agreements • Engineering • Public Outreach Process • WECC and NTTG Planning Processes • FERC Tariff Development • Indicative Pricing • Project Schedule • Next Steps • MSTI Development Cost Sharing Concept

3. MSTI Project Update • Siting, Permitting, and Environmental • SF 299 Applications Filed with BLM and USFS • Cost Recovery Agreements Completed • Separate Agreements with BLM, USFS, and State Agencies • Baseline Studies 50% Complete • Inventory Done in February • Impact Assessment / Mitigation Planning in March • MFSA / Environmental Report in 2nd Quarter 2008 • MFSA for Montana Only • ER with Studies Similar to an EIS that Covers Idaho • Engineering • Design Criteria Development Underway

4. Public Outreach Process • Public Comment Importance • To comply with the MFSA requirements and to identify preliminary issues and concerns • Open House Meetings • Ten Public Open House Meetings Held since June • Montana – Whitehall, Townsend, Ennis, Dillon, Anaconda • Idaho – Arco, Idaho Falls, Shoshone, Carey, Aberdeen • Elected Officials Meetings • Meetings with county commissioners and other elected officials in counties potentially impacted by the project • Recording Public Comments • Input received will be considered during the planning process to identify project alternatives • Interactive GIS

5. WECC and NTTG Planning Processes • WECC Regional Planning Process update • WECC Path Rating Phase 1 update • NTTG Fast Track project update

6. WECC Planning Process • Calendar • N-1 Screening • N-2 Screening • Load-ability Tests (@105%) • Angle Stability • Draft Comprehensive Progress Report: 15-Dec-07 • Final CPR: 31-Dec-07

7. FERC Tariff Development • NWE Engaged CRA International • Tariff Pricing Alternatives • White paper being developed – eventual pleading to FERC • Request flexibility in pricing based on 10 “Merchant Line” criteria • Allow multiple rates based on different terms of contracts • Allow for contribution/development cost sharing

8. Indicative Pricing • Process • Several scenarios were analyzed. The following illustrates three projects based on varying transmission capacity size and construction cost estimates. • Capital construction cost estimates were developed based on Power Engineering consultants in association with NWE personnel. • Pricing is based on a traditional FERC revenue requirement and return on rate base analysis. • Return on rate base plus operating expense, depreciation expense, property and other taxes, and income taxes combine to determine the net revenue requirement. • Pricing ranges are stated in terms of dollars per MWh. • Change from June meeting: pricing is based on levelized revenue requirements over specific contract periods ranging from 10 to 30 years, and a sliding ROE scale based on varying subscription levels. 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 stable ROE.

9. Indicative Pricing • Assumptions • Rate base is the total of construction capital, AFUDC (8.9%), mitigation required capital, Idaho sales and use tax (6%) for the portion of the investment assumed in Idaho (50%), working capital, and depreciation reserve. • Each scenario assumes a sliding return on equity, depending on the subscription percentage, ranging from 13% to 10%. The debt rate is assumed at 6.794% with a 50-50 capital structure. • O&M costs are assumed at 3.5% of the capital construction cost and escalate 3% per year over the 30-year period. • Depreciation is based on 30-year straight-line for book, and 20-year MACRS for tax purposes. • 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 are reviewing current legislation based on House Bill 3 and other potential impacts and savings regarding property tax rates or other state/federal incentives associated with new generation and related development.

10. Indicative Pricing

11. Project Schedule • File MFSA Application – Spring 2008 • MFSA Accepted – Summer 2008 • NEPA / MEPA EIS Scoping – Summer 2008 • Draft EIS Published – Spring 2009 • EIS Record of Decision – Late 2009 to Early 2010

12. Next Steps • Select Preferred Route and Two Alternatives • File MFSA Application and Obtain CEC • Prepare MOU for Third Party Contractor to Prepare EIS • Refine Project Costs and Indicative Rates • Present Pricing Mechanisms to FERC for Approval • Develop Long-Term Transmission Contracts • Continue Public Outreach Process • Keep Open Season Participants Informed of Project Progress and Status • Schedule Next Meeting

13. MSTI Development Cost Sharing Concept • NWE Exploring Mutually Beneficial Cost Sharing Process with Participants • Need Commitment from MSTI Customers as Project Proceeds • Risk Sharing Upfront in Exchange for Potential Reduction in Transmission Rates • Will Need Necessary Regulatory Approvals • Include Milestones and Off Ramps for Customers as Project Advances • Following is a Development Cost Sharing Example for Discussion Purposes Only

14. MSTI Development Cost Sharing Concept

15. Questions And Discussion