Presentation to Montana Transmission Advisory Group (MTAG) September 8, 2004

1. Presentation toMontana Transmission Advisory Group (MTAG) September 8, 2004

2. Chaos… • The Chicken or the Egg conundrum • Transmission and generation historically has been built concurrently • RTO development • An uncertain future • Constraints/path ratings • The transmission grid was not designed for the type of interstate commerce we experience today • August 14, 2003 Eastern U.S. outage — a call for action • Increased pressure on reliability by NERC and FERC — May further reduce path ratings • Stranded generation • New projects on the drawing board are seeking markets • Regional politics • Regional system studies: RMATS, SSG-WI, NCAT • State governors involvement

3. Opportunities Potential generation development in the West

4. Potential Generation Capacity in Montana

5. NorthWestern’s Unique Position • Located between suppliers and markets • Not a generation owner • Not seen as a competitor by proposed project developers

6. Opportunities Path development opportunities

7. Low Hanging Fruit? RMATS Study • Recommendation #1 • Phase shifter in the AMPS line • Increase the capacity of the 500 kV system from Montana to the Northwest through additional 500 kV substations, additional series compensation and a 500/230 kV transformer at Colstrip • Recommendation #2 • Either a new 500 kV line from Broadview to the Mid-C or a new 500 kV line from Broadview to Borah, Idaho

8. Montana to Idaho Path • The Montana to the Southwest path (WECC Path 18) includes the 230 kV “AMPS” line and the 161 kV “Jefferson” • Owned by NorthWestern Energy, Idaho Power Company and PacifiCorp • Path capacity to be reduced from 337 MW to 324 MW southbound during the summer of 2004 when BPA removes 65 MVAR caps at Anaconda • NorthWestern Energy Southbound AMPS line capacity fully utilized long term • NorthWestern Energy Southbound Jefferson line capacity fully utilized long term

9. Montana to Idaho – Some Options

10. Load Growth South of Montana – One Example • Idaho IRP process – • 2004 - 2013 add 800 MW and 940 MW capacity • Expected Portfolio to include 500 MW coal, 350 MW wind

11. NorthWestern’s Open Season Process • Phase 1 – Expression of Interest (EOI) • Opportunity for generators/suppliers/load serving entities to come together to help NorthWestern define the market for transmission capacity • NorthWestern will use EOI to determine if sufficient interest to continue with Open Season

12. Phase 1 – Expression of Interest (EOI) • Interested parties to respond with: • Capacity requested – 25 MW blocks • Direction of capacity request • Start date for capacity needs • Term of agreement for capacity (minimum term requirement) • Expression of interest dates: October 1 – 31, 2004 • NorthWestern Energy EOI forms posted on OASIS

13. Phase Two – Capacity Open Season “Preview” Period • NorthWestern evaluates expressions of interest to determine most likely capacity addition(s) • Mid-November 2004 – NorthWestern will post on OASIS the start and end dates to accept transmission service requests that will qualify for the open season process (likely Dec. 1 - 31, 2004)

14. Open Season Elements • Open Season is for Transmission Service Requests with MT-SW (AMPS) as POR or POD ONLYand for NEW (not existing) capacity • Same process for making Transmission Service Request (TSR) as described in Section 17 of NorthWestern’s Open Access Transmission Tariff with these important modifications: • Completed Application for Transmission Service will temporarily be considered complete without the deposit of approximately one month’s transmission service (OATT section 17.3); the deposit will be DELAYED • System Impact Study and associated study fee will be waived (NorthWestern will absorb cost of System Impact Studies) As always, date/time stamped OASIS Transmission Service Request will determine customer’s position in Transmission Service QUEUE

15. Open Season – Current Customers • Current transmission customers with completed applications for new capacity requests for transmission service on MT-SW path will be deemed to be part of Open Season (with QUEUE positions already established with reservation on OASIS) • NorthWestern will work with these current customers on treatment of deposits and study fees

16. Open Season Elements – System Impact Study Results • Upon Open Season capacity request date closing, NorthWestern will require approximately a 60-day period to evaluate total transmission requests and physical options to serve such requests • Results of study work will be provided to each Open Season Participant and posted on NorthWestern’s OASIS • Participants will be given 30 days to review results of studies and then will be provided a Facilities Study Agreement by NorthWestern to execute in order to continue

17. Phase 3 – Facilities Study • Facilities Study Agreement must be executed and returned to NorthWestern within 15 business days together with Facilities Study Fee AND Deposit approximating one month’s Transmission Service (at this point, each Open Season Participant has returned to normal Transmission Service Request Procedures) • Failure to comply with above will result in OASIS reservation deemed withdrawn

18. Open Season Benefits • Brings generators/suppliers/load serving entities together • Allows “preview” of system impacts prior to significant financial commitment • Potentially eliminates “lumpiness” in transmission planning and construction (Ex. 200 MW expansion that no single party can commit to) • All parties cooperate, including the transmission provider, to solve regionwide problem of “what comes first, transmission or generation”

19. Potential Funding Options • More to come… • Dependent upon capacity requested and market participation • Funding options: • NorthWestern Energy • Current path owners • Subscribers • Project financing if adequate subscription • Others

20. Questions and Comments