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John D. Carr Managing Director, Major Issues Projects PacifiCorp

WGA Transmission Finance Committee Update Committee on Regional Electric Power Cooperation Meeting San Diego, CA April 29, 2002. John D. Carr Managing Director, Major Issues Projects PacifiCorp. Western Power System. Generation diversity

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John D. Carr Managing Director, Major Issues Projects PacifiCorp

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  1. WGA Transmission Finance Committee UpdateCommittee on Regional Electric Power Cooperation MeetingSan Diego, CAApril 29, 2002 John D. Carr Managing Director, Major Issues Projects PacifiCorp

  2. Western Power System • Generation diversity • 41% hydro - Pacific Northwest, BC and Northern California • 23% coal - inland west, AZ, NM, UT, CO, MT, and WY • 23% gas - California and coastal Pacific Northwest • 13% nuclear, wind, other - California and Arizona • Peak load diversity • winter-peaking Pacific Northwest, summer-peaking California and desert inland areas • Long distances • dispersed population centers, remote resources • largest “importing” markets at the points of the triangle (Seattle, Southern California and Denver)

  3. Western Power System (2) • Cost, reliability and risk management made possible by regional long distance transmission • traditional inter-utility exchanges exploit complimentary seasonal peak demands, seasonal hydro production • hydro used to follow daily load, with coal/nuclear base loaded at high load factor returning water overnight • transmission enables system flexibility and risk mitigation: • fuel availability and cost • low water conditions • market power of sellers or buyers

  4. TraditionalTransmission Development • Integrated utility generation/transmission planning to economically meet and anticipate load growth, long time horizon • Planning and approval criteria can include non-economic, policy goals; fuel diversity, “green” projects, fish protection, etc. • Once “need” demonstrated and project approved, cost recovery reasonably assured by state regulatory process, returns commensurate with risks • Lenders comfortable with the traditional model • Financing through traditional utility borrowing

  5. Transmission in Transition • System being used in new, unintended ways, largely exploiting existing system; little new capacity • Incentives to expand transmission are diffused, unclear • Integration and long view of planning lost; independent generation projects may have shorter time horizon, focus on unit profitability, not overall system costs • Financial community unclear on cost recovery, unlikely to support a major, independent transmission project without financial assurances • California crisis called attention to limitations of the regional transmission system

  6. Regional Response • Early 2001 Western Governors’ Association commissioned a study of major west-wide transmission needs • First Round work group identified two bookend resource development paths and the associated transmission needs. • “All gas” case - all load growth met with gas fired generation near load centers, minimizing transmission needs • “Fuel diversity” case - half of growth met with new coal, wind & hydro; electrically remote requiring more extensive transmission upgrades

  7. WGA “Conceptual Plans” Study • Results: • “All gas” case requires only $2.4 billion in transmission upgrades through 2010 • “Fuel diversity” case requires $8 - 12 billion of transmission capital but projected regional fuel savings ranging from $3.4 to 5.4 billion annually • Identified issues for further study: • WGA sponsored effort addressing inter-state transmission siting coordination, among states and Federal agencies • WGA initiated a finance group to explore financing and cost recoveryfor new transmission infrastructure

  8. WGA Transmission Finance Group • Over 50 Western U.S. and Canadian stakeholders developed consensus recommendations over 5 months • power industry, public and private • financial community • state agencies

  9. Cost Recovery • Uncertainties of cost recovery: • Traditional regulation remains in place (direct assignment of benefit/cost responsibility) • Uncertainties of future property rights for transmission investment • Market structures still being defined • Two cost recovery models could support major transmission upgrades, • Market-driven model • Total system cost model

  10. Recommendations to Governors • Support early formation of RTOs • Encourage regulatory approvals by states • At an early stage of RTO development • Clearly define the property or financial rights accruing to a market participant making an infrastructure investment • Pre-RTO planning/expansion actions • Encourage Seams Steering Group - Western Interconnection (SSG-WI) to develop robust planning process across the three potential Western RTOs, especially for implementing total system cost model • Urge joint FERC/State panels to adopt interim cost recovery mechanisms that allow needed projects to move forward, and to consider financing incentives • Encourage IRS to issue permanent regulations related to tax exempt bonds • Urge Administration and Congress to approve reasonable requests by PMAs for transmission investment • Continue to work with Canadian provinces

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