Major Elements of FERC's December 20, 2002 RTO West Order

1.  [TOA vs. Tariff]{.underline}: Filing Utilities argued that certain
    provisions of the TOA need to be protected and committed to
    submitting a proposal for a more limited list of TOA provisions that
    FERC must respect. FERC accepted this proposal and deferred further
    action pending receipt of that proposal:

    "Applicants state that . . . they will propose in a future filing a
    modified list of TOA provisions that may not be changed without
    agreement of RTO West and the Participating Transmission Owners. At
    that time, the Commission will have the opportunity to judge these
    controlling TOA provisions.

    "The blanket nature of section 25.18 of the TOA, which provides that
    the terms of the TOA will always govern in the event of a conflict
    between the TOA and the terms of the RTO West Tariff or rate
    schedules, is not acceptable because it does not adequately reflect
    the need to provide for a non-discriminatory tariff to govern
    transmission access in the region and an independent entity to
    administer the tariff. However, we recognize that many TOA
    provisions may reflect longstanding negotiated contractual
    arrangements or treaty or statutory obligations of the parties. We
    also recognize that the willingness or ability of some entities to
    participate in the RTO may hinge on particular agreed upon
    provisions in the TOA. Accordingly, we must balance the need to
    ensure independence of the RTO and operation of an efficient
    non-discriminatory transmission grid with the legal obligations and
    interests of the parties joining the RTO. To appropriately undertake
    this balancing, we accept Applicants\' commitment to provide a list
    of the specific TOA provisions that are essential to meeting
    members\' legal obligations or affect their ability to participate
    in the RTO (and also a list of the tariff or rate schedule
    provisions with which the TOA provisions may conflict) and an
    explanation of why these provisions are essential. Once we have this
    list of TOA provisions and the RTO West Tariff, we will allow all
    interested parties an opportunity to comment on the provisions and
    we will make a decision at that time."

2.  [Pre-existing Transmission Rights:]{.underline} preference
    customers' asserted that, in addition to protection of rights
    incorporated in contracts, BPA's tariff provisions and business
    practices need to be protected. FERC did not directly respond but
    stated that, "\[g\]iven that Bonneville's participation in RTO West
    is still being negotiated," the September 18 Order did not "address
    . . . the pre-existing transmission rights of Bonneville's
    preference customers \[and did not intend\] to alter any
    pre-existing statutory protections afforded to Bonneville's
    preference customers."

3.  [Facilities Inclusion:]{.underline} FERC accepted Filing Utilities'
    proposal to (1) include in their informational facilities list those
    distribution feeders used for wholesale service at 34.5 kV and below
    but not include other distribution facilities at 34.5 kV and below
    that are used only for retail service and (2) identify wholesale
    points of delivery and customers on any facilities above 34.5 kV
    that are not part of RTO West Controlled Transmission Facilities.
    FERC clarified that it reserves judgment on the issue of which
    facilities must be included in RTO West pending receipt of this
    additional information.

4.  [Company Rate Period:]{.underline} FERC removed the uncertainty
    about the length of the Company Rate Period engendered by its
    September 18 :

    "Upon further consideration, we believe that the September 18
    Order\'s directive that the Market Monitor specifically evaluate and
    make a recommendation concerning the length of the transition period
    would introduce unnecessary uncertainty regarding the length of the
    transition period. Consequently, we will grant rehearing and not
    require the Market Monitor to evaluate this issue."

5.  [Export Fee:]{.underline} FERC reiterated (1) the use of an export
    fee based on the average cost of the RTO West transmission system is
    reasonable as a transitional pricing mechanism; (2) it is the
    Commission's intent that full embedded costs be recovered; (3)
    Filing Utilities are expected to continue to work through SSG-WI to
    address the issue of export charges to find an appropriate cost
    recovery solution for the Western RTOs; (4) if RTO West becomes
    operational before a resolution is reached regarding inter-RTO price
    reciprocity, RTO West may impose an export fee; and (5) Duke's
    assertion that it was discriminatory to allow grandfathered
    customers to avoid the Export Access Fee and obtain congestion
    hedges is misplaced ("Affording existing customers their contractual
    rights . . . is not discriminatory."). The order did not directly
    respond to Duke's request that FERC specify the length of the
    transition period during which an Export Access Fee may be used.

6.  [Authority Over Planning, Expansion and
    Interconnection]{.underline}:

    -   Regarding Filing Utilities' objection that the broad planning
        and interconnection directives in the September 18 can be read
        as overriding TOA provisions which (1) preserve Bonneville's
        statutory obligations with respect to Federal transmission
        facilities or (2) allow state regulation over state-regulated
        distribution facilities, FERC reiterated that it will consider
        in a future filing those TOA provisions which the Filing
        Utilities believe are necessary to address participation by
        various entities.

    -   Regarding UAMPS' objection that RTO West did not have sufficient
        construction "backstop authority," FERC reiterated that RTO West
        has sufficient backstop authority and encouraged RTO West to
        continue working through SSG-WI to develop an appropriate
        planning process for the entire Western Interconnection.

    -   Regarding UAMPS' objection to a PTO's right to participate in an
        upgrade or expansion proposed to RTO West by a third party, FERC
        finds "that Applicants do not explain or justify why this
        provision is necessary. We therefore grant rehearing on this
        matter and direct Applicants to explain the applicability of
        this provision in a future filing."

7.  [Congestion Management:]{.underline} FERC rejected Public Power
    Council's argument that FERC was arbitrary to recognize the
    uniqueness of the Northwest region but also require the Filing
    Utilities to work toward a seamless congestion management scheme.

    "While we recognize the uniqueness of the region, our goal is to
    promote seamless trading across RTOs in the Western Interconnection.
    For this reason, Applicants must demonstrate that their proposal
    will not create a barrier to trading across the regions and will in
    fact promote seamless trading."

8.  [Cost-Benefit Study:]{.underline} in response to arguments that the
    September 18 should have addressed the Tabors Study, FERC stated
    that "\[w\]e will consider such studies . . . before issuing a final
    order on an RTO proposal. However, because the September 18 Order
    was a preliminary order on Applicants' proposal, it would be
    premature to address such an analysis now."

9.  [Relationship of SMD Rule to RTO Orders:]{.underline}

    -   "We clarify that the relationship between our prior declaratory
        orders in this proceeding and the SMD final rule is the same as
        that in the [SeTrans]{.underline} and [WestConnect]{.underline}
        orders, as we further clarify herein . . . In approving various
        aspects of the RTO West compliance filings, we have tried to
        provide substantial assurance that the Commission has no
        intention of \"undoing\" solutions developed by the RTO, and
        approved by the Commission, in order to \"replace\" them with an
        alternative solution that may ultimately be developed in the
        generic rulemaking . . . \[W\]hile we have approved much of the
        conceptual framework for the creation of RTO West and have
        encouraged Applicants to continue working to develop appropriate
        solutions to the many outstanding issues that remain, the
        obligation remains to address any seams issues that may be
        created where different solutions are proposed by different RTOs
        in the Western Interconnection . . . We are encouraged by the
        efforts being made by RTOWest, WestConnect, and the California
        ISO under the SSG‑WI process and we appreciate their recognition
        that these issues deserve to be examined and ultimately resolved
        on a West-wide basis. We take this opportunity to reiterate the
        importance of this process and that our approval of any
        individual RTO market design solution is based on our
        expectation that the parties will continue to identify and work
        towards a successful resolution of any resulting seams issues."

    -   "In this order, we also clarify which RTO elements have been
        approved by the Commission. (Footnote omitted.) We do not intend
        to revisit these prior approvals upon issuance of the Standard
        Market Design final rule. These elements include:

> • with respect to governance, the board and advisory committee
> structure and the board selection process;

• with respect to transmission pricing, the use of license plate pricing
and the length of transition period (8 years) and the use of an export
fee based on the average cost of the RTO West transmission system as a
transitional pricing mechanism;

• with respect to transmission service, the use of catalogued
transmission rights with voluntary contract conversion;

> • with respect to congestion management, the development of a proposal
> reflecting the use of locational pricing and financial options to
> hedge against congestion charges;
>
> • with respect to market monitoring, the stand-alone market
> monitoring, if a west-wide market monitor is not in place upon
> start-up of RTO West; and

• the planning and expansion proposal.

All of these areas are elements of market design that have been
identified in the SSG-WI process as elements that must be examined to
determine if the differences create seams problems. As such, it is
possible that the SSG-WI process may identify seams that need to be
addressed. If so, we will consider what steps are necessary to
rationalize those seams, taking into consideration any recommendations
developed by SSG-WI."

-   "Finally, we note that the September 18 Order did not make
    determinations concerning other elements of market design that are
    currently being considered in the Standard Market Design NOPR and/or
    through the SSG-WI process. These elements include resource
    adequacy, market power mitigation measures, outage coordination and
    limited liability. We expect that these issues will be addressed
    through the SSG-WI process. We further clarify that any issue not
    specifically addressed in our prior orders or that is subject to
    further development by Applicants may be reviewed for consistency
    with our findings in the SMD Final Rule."

    10\. [Effect of September 18 Order:]{.underline} "The September 18
    Order was a declaratory order that provided guidance in response to
    the Stage 2 filing . . . Applicants are not bound by our guidance,
    in that they would be free to propose alternatives in Stage 3 . . .
    ."