+---+-----------+----------------------------+----------+-----------+---+
| ! |           | ## Department of Energy    |          |           |   |
| [ |           |                            |          |           |   |
| ] |           | Bonneville Power           |          |           |   |
| ( |           | Administration\            |          |           |   |
| m |           | P.O. Box 3621              |          |           |   |
| e |           |                            |          |           |   |
| d |           | Portland, Oregon           |          |           |   |
| i |           | 97208-3621                 |          |           |   |
| a |           |                            |          |           |   |
| / |           |                            |          |           |   |
| i |           |                            |          |           |   |
| m |           |                            |          |           |   |
| a |           |                            |          |           |   |
| g |           |                            |          |           |   |
| e |           |                            |          |           |   |
| 1 |           |                            |          |           |   |
| . |           |                            |          |           |   |
| w |           |                            |          |           |   |
| m |           |                            |          |           |   |
| f |           |                            |          |           |   |
| ) |           |                            |          |           |   |
| { |           |                            |          |           |   |
| w |           |                            |          |           |   |
| i |           |                            |          |           |   |
| d |           |                            |          |           |   |
| t |           |                            |          |           |   |
| h |           |                            |          |           |   |
| = |           |                            |          |           |   |
| " |           |                            |          |           |   |
| 1 |           |                            |          |           |   |
| . |           |                            |          |           |   |
| 1 |           |                            |          |           |   |
| 6 |           |                            |          |           |   |
| 4 |           |                            |          |           |   |
| 5 |           |                            |          |           |   |
| 8 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| 3 |           |                            |          |           |   |
| i |           |                            |          |           |   |
| n |           |                            |          |           |   |
| " |           |                            |          |           |   |
| h |           |                            |          |           |   |
| e |           |                            |          |           |   |
| i |           |                            |          |           |   |
| g |           |                            |          |           |   |
| h |           |                            |          |           |   |
| t |           |                            |          |           |   |
| = |           |                            |          |           |   |
| " |           |                            |          |           |   |
| 1 |           |                            |          |           |   |
| . |           |                            |          |           |   |
| 1 |           |                            |          |           |   |
| 6 |           |                            |          |           |   |
| 5 |           |                            |          |           |   |
| 9 |           |                            |          |           |   |
| 7 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| 2 |           |                            |          |           |   |
| i |           |                            |          |           |   |
| n |           |                            |          |           |   |
| " |           |                            |          |           |   |
| } |           |                            |          |           |   |
+---+-----------+----------------------------+----------+-----------+---+
|   |           |                            |          |           |   |
+---+-----------+----------------------------+----------+-----------+---+
|   | August 4, |                            |          |           |   |
|   | 2005      |                            |          |           |   |
|   |           |                            |          |           |   |
|   | In reply  |                            |          |           |   |
|   | refer to: |                            |          |           |   |
|   | R-3       |                            |          |           |   |
+---+-----------+----------------------------+----------+-----------+---+

To: Our Customers and Interested Parties

#### Introduction

For the last decade, Northwest utilities have been considering ways to
improve operation and management of the Northwest transmission system.
Now, the region has developed two alternative strategies. One option,
the Transmission Improvements Group (TIG) approach, would work primarily
through multilateral contracts and, to the extent possible, through
existing organizations. The other, the Grid West approach, would work
through a new transmission entity.

In September, BPA will decide whether to provide additional funding to
Grid West to seat a Grid West Developmental Board and further develop
the proposal. Alternatively, BPA could support further development of
the TIG alternative. Or the region could abandon any effort to
coordinate regional transmission under a "one utility" vision, and each
transmission owner, including BPA, would continue separate operations.

This letter briefly outlines the choices as BPA sees them today, invites
you to comment before BPA makes a decision, and lays out questions to
consider when commenting (Attachment 1). Since neither the TIG proposal
nor Grid West design is a BPA product, we ask that you read the
proposals of the respective organizations carefully before commenting.
Links to these materials are provided later in this letter.

#### Background

Two years ago, the Grid West stakeholders forum, the Regional
Representatives Group (RRG), began a multi-stage decision-making process
for creating a new regional transmission entity. The process includes
four decision points spread out over several years. The Grid West
process will end if at any decision point the region decides not to
continue with further development of the Grid West proposal.

Grid West moved past the first of these four decision points in December
2004 with the adoption of the Grid West Development Bylaws. The region
decided to move forward to further develop the Grid West proposal, and
is now at Decision Point 2.

The TIG developed a conceptual proposal about a year ago. Since the
beginning of this year, the TIG has engaged in a public process to
improve its proposal. Parts of the TIG proposal were presented at the
RRG's May and June meetings.

### What is the Decision to be Made?

Decision Point 2 under the Grid West process presents the question
whether to seat a Developmental Board, shift toward an alternative
developed by the TIG, or abandon both efforts and stay with the current
approach where each transmission owner, including BPA, continues its
separate operations. A decision to support Grid West or TIG would be a
decision to support further development of the chosen alternative, not a
decision to implement the proposal.

If the Grid West Developmental Board were seated, it would: (1) further
work to refine the Grid West proposal; (2) develop a tariff for the
services it would provide; (3) negotiate a proposed transmission
agreement with transmission owners; and (4) if Grid West members
approve, initiate regional transmission planning activities with
transmission owners that choose to participate. At Decision Point 3,
Grid West would offer negotiated agreements to transmission owners for
use of their transmission systems. Within a year of Decision Point 3, at
Decision Point 4, the transmission owners would decide whether to
execute the offered transmission agreements. If so, the members of Grid
West would determine by majority vote whether to adopt the Grid West
Operational Bylaws, seat a Grid West Operational Board and implement
Basic Operations.

If a decision were made to implement the TIG proposal, BPA and other
regional stakeholders would commit funds and staff resources to complete
the TIG proposal over the next six to 12 months, and then decide whether
to execute agreements to implement the TIG proposal.

If the region were to continue with the current approach of separate
operations, individual utility activities, such as enhancement of BPA's
ATC methodology, would proceed without parallel utility development.
Stakeholders would continue to try to coordinate transmission planning
through voluntary forums such as the Northwest Transmission Assessment
Committee.

#### Applying the "One Utility" Vision to Transmission 

A high level of utility cooperation has characterized Northwest power
generation since 1964, when Northwest utilities began coordinating their
water releases and thermal generation as if one utility owned and
operated all of the region's generating resources. The Pacific Northwest
Coordination Agreement (PNCA) has increased the combined firm power
production from the Northwest's hydro-thermal system by hundreds of
megawatts.

BPA believes now is the time to apply the "one utility" vision to
transmission. Under the "one utility" vision, the Northwest transmission
system would be operated and managed as though owned by one utility. To
varying degrees, this could be implemented through contracts and
existing organizations (the TIG approach) or through a new entity (the
Grid West approach).

The benefits of doing so include:

(i) More efficient and equitable system-wide "one utility" planning for
    grid expansion supported by a backstop authority that would support
    the implementation of projects important to reliable grid operation;

```{=html}
<!-- -->
```
(ii) Voluntary consolidation of control areas. This would enhance
     reliability over time because operators would have greater
     visibility of the consolidated grid and would improve the
     efficiency of providing required ancillary services;

(iii) Better management of Available Transfer Capacity (ATC) through
      application of a common, flow-based methodology to support
      additional transactions without having to invest in additional
      facilities;

(iv) Better management of congestion on the grid. This should achieve
     more economical voluntary redispatch of generation and less
     curtailment of transmission schedules;

(v) Market monitoring to provide effective grid-wide detection of market
    abuse; and

(vi) "One stop shopping" for transmission service to ease and simplify
     access to the multiple transmission systems and reduce the
     administrative costs of doing business on the grid.

### 

### What's Happened Since Decision Point 1, December 2004?

# [Developing the TIG Proposal Since Decision Point 1]{.underline}

BPA has actively participated in the TIG effort to strengthen its
proposal. BPA submitted a number of ideas to address certain issues
including transmission planning and backstop authority, voluntary
consolidation of control areas, and others. The strong desire of the TIG
group to avoid additional FERC jurisdiction and to avoid creating a new
entity governed by an independent board were also key drivers in the
range of options TIG considered. BPA believes the TIG proposal is
considerably stronger and more robust than the limited solutions the TIG
group had put forward in July 2004.

A detailed description of the complete TIG proposal can be found at:

[http://www.tig-nw.kristiwallis.com](http://www.tig-nw.kristiwallis.com/)
A preliminary cost estimate is also included in the TIG proposal.

# [Refining the Grid West Proposal Since Decision Point 1]{.underline}

The Transmission Services Liaison Group (TSLG), a working subcommittee
of the RRG, has published an overview of the technical papers generated
by the TSLG. Grid West has published a comprehensive overview of the
Grid West proposal as well as a "road map" to explain the proposal.
These documents, as well as other pertinent information about the Grid
West proposal, can be found at <http://www.gridwest.org/DP2Info.htm>

An RRG subcommittee has prepared a cost estimate and preliminary
risk-reward study. A pricing subcommittee of the RRG has developed a
pricing proposal that addresses recovery of existing transmission owner
costs, reduces pancaked rates, and minimizes cost shifts.

To address certain concerns about FERC's authority over
non-jurisdictional participants and protection of the regional focus of
the proposal from being modified by FERC to fit a national agenda
without regard to regional interests, BPA, PacifiCorp, and Idaho Power
Company requested FERC to issue a declaratory order on their concerns.

On July 1, 2005, FERC responded favorably on all issues, including an
acknowledgement of FERC's limited jurisdiction over non-jurisdictional
and limited-jurisdictional participants as well as a determination that
Grid West would not have to be an Order 2000 RTO. BPA believes this
ruling provides significant reassurance that the major elements of the
Grid West proposal, if implemented, would be respected by FERC. While
this ruling cannot bind a future commission, BPA believes it sets a
strong precedent that will be difficult for future commissions to set
aside. Of significant interest is that FERC also recently cancelled its
Standard Market Design proposal.

Grid West has retained Russell Reynolds Associates, an executive search
firm, to find candidates to serve on the Developmental Board. A
preliminary candidate list was announced at the July 27 RRG meeting.

Concurrent with Grid West development, BPA has entered into an agreement
providing certain assurances to its General Transfer Agreement
customers. In addition, contract lock, a proposal by BPA's customers to
maintain certain features of BPA's current transmission service policy,
is moving ahead, but progress has slowed because a number of difficult
issues remain. BPA plans to provide a draft contract before the end of
this comment period. Contract lock would only be available to BPA's
transmission customers with open access transmission services if the
Grid West proposal were implemented.

#### What are the Alternatives?

Some have suggested that the region continue discussing alternatives and
delay picking a path. BPA believes further delay in picking a path is
not a preferred outcome. The region has been discussing alternatives for
ten years incurring substantial costs in the process. Continued delay
will increase planning costs with limited value in terms of solving the
region's real transmission issues.

BPA sees three basic alternatives for the region:

-   Transmission owners continue separate operations

-   The TIG proposal

-   The Grid West proposal

# [Alternative 1. Each Transmission Owner, Including BPA, Continues Separate Operations]{.underline}

There is a perception among some that it is possible to deal with
approaching transmission problems without making significant changes. We
do not believe this to be true. Our industry is undergoing dramatic
change that will continue with or without the region's participation.
The region's transmission system is currently under significant stress
from demands that are growing and are likely to continue to grow. Under
this alternative, BPA would continue to evolve its policies to adapt to
a changing industry and to changing conditions in the region.

To do this, BPA would likely continue to refine its flow-based ATC
methodology. BPA would likely need to develop new transmission products
such as conditional firm service. BPA's system would likely become more
stressed as BPA sought to accommodate increasing requests for
transmission, both to serve growing loads and new resources, such as
wind.

Curtailment of schedules would remain the region's dominant method of
managing congestion. This would force scheduling entities to switch to
alternative, more costly sources of power to meet their obligations even
when less expensive methods of making deliveries would be available
through a redispatch market. The number of constrained cutplanes on
BPA's system likely would increase as congestion worsens unless BPA
invests significant amounts in transmission infrastructure. New methods
to manage congestion such as zonal scheduling may be implemented.

There would be limited regional planning through the Transmission
Assessment Committee. Each transmission owner would continue to develop
its transmission plans driven primarily by its priorities, with less
focus on those of the region. Expansions, if they are built, may not be
built in the most efficient location because of the lack of an effective
regional, one utility plan. There would be no corresponding backstop
authority for projects needed for reliability and no process to allocate
costs of new projects among those transmission owners that benefit. Any
joint efforts to plan and develop transmission projects would be subject
to negotiation. Thus, each transmission owner could refuse to contribute
to projects it opposes for whatever reason, even if that owner reaps the
benefits.

Most transmission owners, including BPA, would likely continue to be
"open access" providers, and would adopt changes to its standard tariff
based on FERC direction.

It is unlikely that we would see consolidation of control areas and the
reliability improvements that could result, although some pooling of
regulating reserves through the Northwest Power Pool may be possible.

Because the problems facing the transmission grid today go beyond the
borders of any one utility, the "Continue Separate Operations"
alternative is not compelling and could result in the region becoming
more fragmented and more out of step with national trends toward better
coordination of grid operation.

[Alternative 2. The Transmission Improvements Group
Proposal]{.underline}

The TIG had produced a conceptual draft of its proposal by late 2004,
but the effects and prospective benefits were at that stage unclear. In
our December letter to the region, BPA noted that any proposal for
moving forward must at least address the following:

-   Effective "one utility" system-wide planning with an adequate
    backstop, so that important grid additions are implemented and costs
    assigned to those transmission owners that benefit;

-   Effective regional market monitoring to detect market abuses;

-   A common OASIS that provides real one-stop shopping using a common
    flow-based ATC methodology;

-   Reliability enhancements through voluntary consolidation of some
    control areas, with an ancillary services market for those who want
    to participate in consolidation; and

-   A flow-based method for managing congestion on a forward basis.

BPA challenged TIG "to determine how an alternative independent entity
would be structured to capture these benefits while avoiding or
minimizing FERC jurisdiction and actively engage a broader range of
regional stakeholders in the process." We also challenged TIG to develop
an effective decision-making process independent of market participants.

The TIG proposal now includes regional transmission planning guided by
an independent planning staff and overseen by a committee with
representatives of transmission owners, transmission users, and
independent representatives. TIG regional planning includes preparing a
biennial transmission plan, management of studies for transmission and
interconnection requests, and a defined process for a backstop authority
to assure transmission needed for reliability gets built.

The TIG proposal includes a common OASIS, common provisions among the
participating transmission owners\' separate tariffs, a common
flow-based ATC methodology, independent market monitoring, and the
potential to improve reliability through improvements to operational
visibility, bulletin board markets for ancillary services and congestion
management, and voluntary consolidation of reliability and balancing
functions. The TIG proposal includes some governance features to help
ensure effective decision-making that is not unduly influenced by market
participants, but transmission owners remain the primary
decision-makers.

# [Alternative 3. The Grid West Proposal]{.underline}

Grid West would create a regional transmission provider that would be a
non-profit Washington corporation. Its board would be financially
independent of market participants, but responsive to the region.
Representatives of the corporation's members would elect and remove
members of the Grid West Board of Trustees. The Grid West proposal
envisions operating under Order 888; it would not be an Order 2000 RTO.

The Grid West proposal envisions an active and independent regional
planning process that makes decisions in the best interests of the
region rather than for individual transmission owners or market
participants. Grid West would have backstop authority to contract to
build transmission needed to maintain reliability and would allocate the
costs of doing so to transmission owners that benefit. The proposal also
includes "one-stop shopping" through a common OASIS for new, region-wide
transmission-related services offered under a single Grid West tariff, a
region-wide flow-based ATC methodology, market monitoring, and a
voluntary reconfiguration service to allow transmission rights holders
to sell their unused transmission rights through an auction run by Grid
West.

In addition, the Grid West proposal anticipates voluntary consolidation
of control areas. The consolidating entities would create a voluntary
day-ahead operating reserves market (regulation, spinning, and
non-spinning reserves) and a balancing energy market for the benefit of
those that voluntarily consolidate. Congestion within the consolidated
control area would be managed in real time using redispatch.

Prior to moving to the Operational Stage, the Grid West Developmental
Board may engage in regional transmission planning activities if a
majority of the members approve and a sufficient number of transmission
owners agree to participate.

#### Comparison of Alternatives on Several Important Factors

Of these alternatives, only two hold the potential to capture the
benefits of the "one utility" vision, the TIG proposal and the Grid West
proposal. The third, the Continue Separate Operations alternative, would
make efforts to capture the benefits of planning and operating the
region's transmission system under the "one utility" vision more
difficult.

In our December 2004 letter closing our the comment period on Decision
Point 1, we noted that a number of concerns must be addressed
successfully before BPA could sign a transmission agreement to join Grid
West, or in the alternative join TIG. BPA makes the following
observations about these alternatives based on several factors. A
summary matrix to use for a quick comparison of alternatives on various
factors is attached (Attachment 2).

##### Independent Decision-Making

For some time, BPA has stressed the importance of decision-making
independent of market participants on many important issues. In our
December 2004 close out letter, we noted:

\[A\]n independent entity is probably necessary to define the need for
new transmission projects and allocate the costs, get the most ATC out
of the system as possible, distribute it equitably, and improve
reliability. In our view, purely voluntary organizations have a place,
but alone have not proven to be sufficient to solve the region's very
real transmission problems.

The Grid West proposal envisions creating a new entity independent of
market participants. Regional stakeholders, through their
representatives, elect and remove members of the Grid West board,
participate in developing Grid West budgets, and participate in Grid
West committees. Approving expanded functions are subject to a seven out
of nine supermajority vote by the Grid West board to adopt policy over
the objection of Grid West member representatives.

TIG incorporates features that provide for input from many regional
interests, but decision-making in the TIG proposal for many functions
remains with transmission owners that are also load serving utilities.
TIG would employ an independent planning staff to develop the regional
transmission plan and guide transmission and interconnection studies. A
committee that includes stakeholders and independent members would
approve the regional transmission plan. The market monitor would be
independent and would send its reports to FERC and regional regulators.
An objective flow-based ATC methodology will be developed and
administered by staff independent of transmission owners and users. The
reliability function would be independent.

Under the Continue Separate Operations alternative, BPA would act
unilaterally.

# [Regional Planning Including Backstop Authority]{.underline}

The Grid West proposal envisions the Grid West Board being responsible
for approving a regional transmission plan developed by a transmission
committee. The proposal includes a backstop authority for reliability
projects.

TIG proposes to develop a regional transmission plan. The TIG proposal
creates a regional Transmission and Expansion Review Committee (TERC)
with authority to adopt a regional plan and to recommend which utilities
should fund and construct the facilities. An agreement signed by
transmission owners would establish an alternative dispute resolution
process to resolve disputes and specify transmission owners' obligations
for plan implementation and identify enforcement procedures.

The Continue Separate Operations alternative entails each transmission
owner doing its own planning---from its own perspective with some
regional coordination through Northwest Power Pool committees and
separate negotiations. There would probably be no central, regional
transmission plan, and there would be no backstop to assure needed
transmission gets built and the costs allocated to those transmission
owners that benefit.

# 

# [Reliability Through Consolidation of Control Areas]{.underline}

Grid West provides for voluntary consolidation of control areas with
Grid West as the Control Area Operator. While each consolidating utility
would be responsible for providing resources sufficient to meet its
share of Interconnected Operating Services (IOS), Grid West would
operate voluntary real time ancillary services, imbalance energy, and
redispatch markets to facilitate efficient operation and dispatch of the
consolidated control area among the consolidating transmission owners.

TIG also provides an option for utilities to voluntarily consolidate
control areas but in a different fashion than Grid West. Utilities would
keep their control area metering and electrical boundaries but turn over
the reliability and balancing authority responsibilities to an
independent contractor, similar to the arrangement with the Pacific
Northwest Security Coordinator.

This contractor would not run real time ancillary service, imbalance
energy, or redispatch markets. Rather, it would ensure that each of the
consolidating utilities meets their IOS requirements and operates in a
reliable manner and that the overall planned operation of the
consolidating utilities meets reliability and balancing requirements.
The contractor would have the authority to direct the utilities to
modify operations if needed to meet reliability needs, but would not
have direct operational control of consolidating utilities\' systems.
The proposal would allow all control area utilities to pool regulating
reserves, probably through a Northwest Power Pool agreement similar to
the operating reserve sharing agreement.

The Continue Separate Operations alternative would not provide for
consolidation of control areas.

# [Congestion Management]{.underline}

The Grid West proposal includes a voluntary flow-based reconfiguration
service under which unused transmission may be sold at auction to help
relieve congestion on a forward basis. The Grid West proposal includes
creating a voluntary real time redispatch market to manage congestion in
real time within the consolidated control area.

The TIG proposal calls for creation of a voluntary, bulletin board based
redispatch market that parties can utilize to meet load requirements if
transmission service is curtailed.

The Continue Separate Operations alternative relies on curtailing
schedules as the primary method of managing congestion. Redispatch by
each transmission owner may be limited to its own resources for service
to its native load and network tariff load. BPA may need to move to a
more detailed scheduling methodology on the BPA grid to ensure
reliability and a more efficient approach to curtailment.

# None of the proposals envision creating a day-ahead energy or a day-ahead redispatch market.

# [FERC Jurisdiction]{.underline}

The Grid West Developmental Board would not be FERC jurisdictional or
conduct activities subject to FERC jurisdiction. If the Grid West Basic
Operations were implemented after Decision Point 4, several of the
Operational Stage functions would be subject to FERC jurisdiction. The
July 1 FERC ruling addressed a number of concerns regarding FERC
jurisdiction over non-jurisdictional participants, including BPA, and
over FERC's intentions with respect to Order 2000. Because regional
stakeholders elect Grid West board members and have other powers under
the Grid West bylaws, Grid West would be responsive to regional
stakeholders. BPA will also include termination rights in its
transmission agreement with Grid West.

The TIG proposal seeks to avoid additional FERC jurisdiction, although
FERC jurisdictional entities joining the TIG effort may have to file TIG
contracts to implement the proposal and any subsequent changes, and
would continue to be subject to Order 888 changes.

The Continue Separate Operations alternative would not raise questions
of FERC jurisdiction, although under the energy legislation that
Congress just passed, FERC would have expanded authorities to regulate
reliability for all participants, including BPA and publicly owned
utilities.

# [Costs and Benefits]{.underline}

The Structure Group, a consulting firm retained by Grid West to estimate
Grid West costs, estimated the start up costs of the Grid West proposal
to be about \$124 million. It estimated Grid West annual operating costs
to be about \$86 million, including the costs of financing start up.

If the roughly \$20 million in costs to support the Grid West
Developmental Board in 2006 and 2007 were added to the startup costs and
financed under similar assumptions as the Structure Group assumptions,
BPA estimates that Grid West annual operating costs would increase by
about \$3 million. BPA estimates the annual internal costs BPA and other
utilities would incur in doing business in the Grid West environment to
be roughly \$12 million, about half of which would be BPA costs.
Combining these rough estimates with the Structure Group estimates, BPA
estimates the total annual operating costs of Grid West, including
utilities' internal costs, would be about \$101 million.

Based on its analysis of the benefit study prepared by the TSLG, BPA
believes the quantifiable benefits of Grid West would be between \$106
million and \$181 million per year. Attachment 3 summarizes BPA's
perspective on Grid West benefits.

These figures do not include Grid West's cost to repay the filing
utilities for Grid West developmental costs to date, currently estimated
to be about \$16 million. Grid West would recover these costs in its
grid management charge when Grid West begins operations in 2008, if the
Grid West proposal were implemented. They would add about \$2.5 million
to the annual costs of Grid West depending on financing assumptions.

TIG costs are estimated to be between \$51 and \$61 million a year. BPA
expects TIG benefits to exceed costs. BPA has asked TIG to produce an
estimate of the benefits it expects from the TIG proposal by Decision
Point 2.

The benefits of both the TIG and Grid West alternatives are higher if
more entities participate. The benefits of both proposals are augmented
by significant unquantified benefits associated with improved
transmission planning, construction deferral, coordinated maintenance,
and unmeasured reliability benefits.

Costs of the Continue Separate Operations alternative have not been
estimated. They are part of the base line against which both TIG and
Grid West are measured as incremental costs above and beyond these base
costs.

#### Conclusion

The Northwest has made significant progress since Decision Point 1 in
December 2004. The region has developed two viable alternative
strategies that are consistent with a "one utility" vision for improving
the management and operation of the region's high voltage transmission
system. While they differ in some important respects, they share many
similarities.

There are serious problems with Northwest transmission that need to be
addressed. BPA believes the region should adopt a regional strategy that
captures the potential inherent in the "one utility" vision for
transmission.

Implementation of either the TIG or Grid West proposals will be most
effective if they have significant support from the region's
transmission owners and control area operators, transmission customers,
and other key stakeholders. We hope the region will be able to reach
greater alignment around a preferred approach as we move forward.

Sincerely,

![](media/image2.jpeg){width="2.3069444444444445in"
height="0.9048611111111111in"}

Stephen J. Wright

Administrator & Chief Executive Officer

Attachment 1

Public Comment Period - Decision Point 2

Bonneville Power Administration

**August 4 - September 9, 2005**

# 1. What am I commenting on?

BPA is soliciting comments on how the region should proceed to manage
and operate the region's high voltage transmission system. Should we
proceed to seat a Developmental Board for Grid West, abandon Grid West
in favor of the TIG alternative, or abandon the "one utility" vision for
Northwest transmission altogether and adopt the Continue Separate
Operations alternative?

In preparing your comments, we ask that you consider the following
points. A number of comments we received on earlier proposals
demonstrated a lack of understanding of the proposal. In some instances,
people strongly criticized ideas that were not part of the proposal.

We are hoping to avoid these problems here by asking people to please
take the time to carefully read the materials that describe each
proposal.

Previous comments focused at a high level of generality. BPA has a good
understanding of which stakeholders support which alternatives. In this
round of comment, BPA is seeking to gain deeper insight into why people
support the alternative they do.

###### We have developed a list of questions designed to provoke more insight into the alternatives and a better understanding of why people see the choices the way they do. The questions BPA would like you to consider are:

1.  Do you agree with BPA's goal of applying the "one utility" vision to
    the region's transmission system?

2.  Please describe how well you think each alternative achieves the six
    benefits described on pages 2-3 of this letter (planning and
    expansion, reliability, ATC, congestion management, market
    monitoring, and "one stop" stopping).

3.  How well do you believe the Grid West and TIG proposals meet the
    goal of effective decision-making that is not unduly influenced by
    market participants?

4.  If BPA supports the TIG proposal, are you committed to all of the
    elements of the TIG proposal? If not, which ones are troubling? And
    why?

5.  If the TIG proposal were to be chosen, how likely would it be that
    the proposal would be successfully implemented?

6.  If BPA supports Grid West, are you committed to all of the elements
    of the Grid West proposal? If not, which ones are troubling? And
    why?

7.  If the Grid West proposal were to be chosen, how likely would it be
    that the proposal would be successfully implemented?

8.  If you are a supporter of the TIG alternative, please explain why
    adopting the TIG alternative will be in the collective best
    interests of all of BPA's customers who depend on the Northwest
    transmission grid and of other stakeholders who have an interest in
    regional transmission issues.

9.  If you are a supporter of the Grid West alternative, please explain
    why adopting the Grid West alternative will be in the collective
    best interests of all of BPA's customers who depend on the Northwest
    transmission grid and of other stakeholders who have an interest in
    regional transmission issues.

10. The RRG recently completed an examination of the benefits of the
    Grid West proposal. Do you have additional views on the benefits of
    the Grid West proposal that you have not already brought to our
    attention?

11. Do you have additional views on the estimated costs of the TIG and
    Grid West proposals.

12. What 2-3 improvements might you suggest for each alternative?

13. The Grid West and TIG alternatives seem to be quite similar. Please
    suggest how these alternatives may converge?

14. Where do you think the region will be in ten years under each
    alternative?

```{=html}
<!-- -->
```
2.  **Where can I find a more complete description of the proposals?**

BPA asks that you take some time, research both proposals on their
respective web sites, and consider their comments in the light of their
own needs and concerns and those articulated by BPA. The materials to
use in these considerations are:

1)  BPA materials (posted on BPA web site):
    http://www.bpa.gov/corporate/business/restructuring/

    a.  BPA letter on this Decision Point 2 comment period (Aug. 4,
        2005)

    b.  Q&A

    c.  BPA preliminary regional cost-benefit analysis of Grid West

    d.  Keeping Current - WANTED: One-Utility Transmission for the
        Pacific Northwest

    e.  BPA letter on Grid West Decision Point #1 (Dec. 2004)

    f.  BPA Principles for RTO participation

2)  Grid West materials (posted on Grid West web site)
    http://www.gridwest.com/DP2Info.htm

    a.  Grid West bylaws (adopted Dec. 2004)

    b.  Grid West preliminary benefit analysis

    c.  Grid West preliminary cost analysis

    d.  Transmission Services Liaison Group proposal on Grid West
        services.

    e.  Grid West Pricing Group proposal on Grid West pricing.

    f.  BPA/PAC/IPC request to FERC for a declaratory order and FERC's
        response.

3)  TIG materials (posted on TIG web site)

> http://www.tig-nw.kristiwallis.com/

a.  TIG proposal, including chapters on its proposed five services

b.  TIG very preliminary cost analysis

```{=html}
<!-- -->
```
3.  **How can I get my questions and concerns answered?**

Should you have any questions about the process, or if you would like to
meet with Allen Burns about these alternatives, please contact your
Account Executive or Constituent Account Executive. Or you may contact
Tara Exe, Project Coordinator at 503-230-4169.

# When does the comment period open and close? When will a decision be made?

The comment period for Decision Point 2 opens August 4, 2005. Comments
will be accepted through September 9, 2005.

BPA expects to announce its decision by September 30, 2005.

# How do I submit comments?

The preferred way is to submit your comments on-line at:
[www.bpa.gov/comment](http://www.bpa.gov/comment).

You may also mail your comments to:

> Bonneville Power Administration
>
> Attn: Communications - DM-7
>
> P.O. Box 14428
>
> Portland, OR 97293-4428

Or fax your comments to 503-230-3285

When sending in comments, please refer to the following project title:

**Open Comment Period - Decision Point 2**. 

  ----------------- ----------------- ----------------- -----------------
  **Function**      **Continue        **TIG**           **Grid West**
                    Separate                            
                    Operations**                        

  **Independent     Transmission      Independent       Creates
  Decision Making** decisions made by decision-making   non-profit
                    individual        in some areas,    corporation run
                    transmission      but much of the   by board members
                    owners            decision making   and employees
                                      is done by        that are
                                      existing          independent of
                                      transmission      market
                                      owners            participants;
                                                        stakeholders
                                                        elect and remove
                                                        members of the
                                                        Grid West Board

  **"One Utility"   No, each          Yes, if it        Yes
  Transmission      transmission      includes all the  
  Vision**          owner would       TIG features,     
                    continue          including         
                    operating         consolidating of  
                    separately        reliability       
                    according to its  authority and     
                    own interest      balancing         
                                      authority         
                                      functions         

  **Broad Regional  Yes with respect  The multi-lateral Extensive
  Participation**   to BPA's system;  contract          stakeholder
                    no commitment to  structure of TIG  process;
                    do so with        functions allows  stakeholders
                    respect to other  for full          elect and remove
                    transmission      participation of  members of the
                    owners' systems,  transmission      Grid West Board,
                    although many     owners with an    help prepare Grid
                    utilities         advisory role for West budget, etc
                    participate in    transmission      
                    NWPP and NTAC     customers;        
                    discussions with  planning, common  
                    neighboring       OASIS, and market 
                    systems regarding monitoring allow  
                    upgrades          for broader       
                                      participation,    
                                      and TIG is        
                                      looking for other 
                                      areas to increase 
                                      stakeholder       
                                      participation     

  **Geographic      Each transmission Potentially broad Potentially broad
  Scope**           owner is          scope             scope
                    responsible for                     
                    its own system                      
  ----------------- ----------------- ----------------- -----------------

  ----------------- ----------------- ----------------- -----------------
  **Function**      **Continue        **TIG**           **Grid West**
                    Separate                            
                    Operations**                        

  **Potential to    Yes, on a         Potential to      Potential to
  Evolve to Respond transmission      evolve exists,    evolve subject to
  to Changing       owner by          but changes are   compliance with
  Conditions**      transmission      subject to        bylaws processes,
                    owner basis       unanimous         including input
                                      approval by       from stakeholders
                                      parties to the    and board
                                      multi-lateral     approval
                                      agreements        

  **Regional        Planning and      Yes, central      Yes, central
  Planning &        Expansion done    regional          regional
  Expansion**       transmission      transmission plan transmission plan
                    owner by owner    envisioned        envisioned
                    based on its own                    
                    interests; no                       
                    central, "one                       
                    utility plan;"                      
                    NWPP provides                       
                    opportunities for                   
                    regional                            
                    coordination                        

  **Backstop        No                Yes. Relies on    Yes. Allows Grid
  Authority to                        contract          West to contract
  Assure Needed                       obligation to     with a third
  Facilities Get                      implement needed  party to
  Built**                             transmission      construct needed
                                      facilities for    transmission
                                      reliability and   facilities for
                                      firm obligations  reliability and
                                                        to protect
                                                        existing TTC and
                                                        allocate costs to
                                                        those
                                                        transmission
                                                        owners that
                                                        benefit

  **Flow Based      BPA is moving to  Empowers TIG      Empowers Grid
  ATC**             a flow-based ATC  contractor to     West to apply a
                    methodology       apply a common,   common, flow
                                      flow based        based methodology
                                      methodology to    to determine ATC
                                      determine ATC for for each
                                      each transmission transmission
                                      owner that joins  owner that joins
                                      TIG               Grid West
  ----------------- ----------------- ----------------- -----------------

  ----------------- ----------------- ------------------ -----------------
  **Function**      **Continue        **TIG**            **Grid West**
                    Separate                             
                    Operations**                         

  **Reliability**   Current practice  Establishes        Grid West would
                    is evolving to    incremental steps  become the
                    zonal scheduling; to improve         operator of a
                    schedule          regional           consolidated
                    curtailment and   visibility,        control area
                    load shedding are reserve-sharing,   likely to include
                    primary tools to  congestion         at least Pac
                    maintain          management         East, Pac West,
                    reliability       (voluntary         Idaho Power
                                      Bulletin Board to  Company, and BPA;
                                      post available     CCA will create
                                      assets) and        ability to detect
                                      voluntary          and respond more
                                      consolidation of   quickly to a
                                      Reliability        broader array of
                                      Authority and      problems than
                                      Balancing          Continue Separate
                                      Authority          Operations or TIG
                                      functions for      proposal
                                      existing control   
                                      areas, but it is   
                                      uncertain if there 
                                      will be any        
                                      consolidation of   
                                      control areas      

  **Congestion      Relies on         Relies on          Creates forward
  Management**      schedule          voluntary bulletin reconfiguration
                    curtailment to    board of available service to
                    manage            assets and         release unused
                    congestion, which schedule           transmission
                    is likely to      curtailment to     rights; creates
                    increase; limited manage congestion, real time
                    ability to affect which is likely to redispatch market
                    power flows;      increase           for CCA
                    moving toward                        participants to
                    zonal scheduling                     manage congestion
                                                         in real time

  **Economic        Bilateral markets Bilateral markets  Bilateral markets
  Efficiency**      remain the only   remain the primary preserved; in
                    method of         method of          addition,
                    achieving         achieving economic establishes
                    economic          efficiency with    voluntary real
                    efficiency        new bulletin board time ancillary
                                      markets for        services,
                                      congestion         imbalance energy,
                                      management         and redispatch
                                                         markets that
                                                         include the
                                                         potential for
                                                         economic dispatch
  ----------------- ----------------- ------------------ -----------------

  ----------------- -------------------- ----------------- -----------------
  **Function**      **Continue Separate  **TIG**           **Grid West**
                    Operations**                           

  **"One Stop       No                   Yes               Yes
  Shopping"**                                              

  **Market          No                   Yes               Yes
  Monitoring Unit**                                        

  **Honor Existing  Yes                  Yes               Yes
  Contracts**                                              

  **Voluntary       Yes, bilateral       Yes, bilateral    Yes, bilateral
  Markets**         markets remain       markets remain    markets are
                    voluntary            voluntary; some   voluntary. The
                                         voluntary         new markets for
                                         bulletin board    real time
                                         markets will be   ancillary
                                         established       services, energy
                                                           imbalance, and
                                                           redispatch are
                                                           voluntary; BPA
                                                           may opt out of
                                                           these markets to
                                                           preserve ability
                                                           to meet non-power
                                                           obligations

  **Day Ahead       No                   No                No
  Energy or                                                
  Redispatch                                               
  Market**                                                 

  **Federal Control Yes                  Yes               Yes
  over Federal                                             
  Generation and                                           
  Transmission                                             
  Preserved**                                              

  **Practical Exit  Not an Issue         Yes               Yes
  Strategy**                                               

  **FERC            Transmission owners  Jurisdictional    Some of the Grid
  Jurisdiction**    will continue to     utilities will    West functions
                    modify their Order   file the TIG      will be subject
                    888 tariffs in       contracts with    to FERC
                    response to FERC     FERC as           jurisdiction
                    directives; new      necessary, but    under Order 888,
                    energy legislation   none of the TIG   not Order 2000;
                    gives FERC authority functions is      FERC influence
                    to regulate          intended to       controlled by (1)
                    reliability,         expand FERC       ability to remove
                    including BPA and    jurisdiction or   Grid West board
                    other historically   create a new FERC members who do
                    non-jurisdictional   jurisdictional    not act in the
                    entities             entity            region\'s best
                                                           interests, and
                                                           (2) ability of
                                                           BPA to implement
                                                           a practical exit
                                                           strategy
  ----------------- -------------------- ----------------- -----------------

  ----------------- ----------------- ----------------- -----------------
  **Function**      **Continue        **TIG**           **Grid West**
                    Separate                            
                    Operations**                        

  **Costs**         Base Line; costs  \$50 to \$60      Structure Group
                    likely to         million in annual estimates are
                    increase in       operating costs   about \$124
                    response to                         million in start
                    changing market                     up costs; annual
                    conditions                          operating
                                                        expenses of about
                                                        \$86 million,
                                                        including the
                                                        costs of
                                                        financing start
                                                        up. BPA estimates
                                                        the total annual
                                                        costs of Grid
                                                        West would be
                                                        about \$101
                                                        million once the
                                                        costs of
                                                        completing the
                                                        Grid West
                                                        proposal are
                                                        included as well
                                                        as BPA's rough
                                                        estimate of the
                                                        internal costs
                                                        BPA and other
                                                        utilities would
                                                        incur in doing
                                                        business in a
                                                        Grid West
                                                        environment.
                                                        These figures do
                                                        not include about
                                                        \$16 million the
                                                        filing utilities
                                                        have incurred to
                                                        date to develop
                                                        Grid West. This
                                                        would add about
                                                        \$2 million
                                                        annually to Grid
                                                        West's costs to
                                                        be recovered
                                                        through its grid
                                                        management charge

  **Benefits**      Base Line         BPA has asked TIG BPA's estimate of
                                      to produce an     the annual
                                      estimate of the   benefits of Grid
                                      benefits of the   West is between
                                      TIG alternative   \$106 and \$181
                                      before Decision   million.
                                      Point 2           
  ----------------- ----------------- ----------------- -----------------

######## **BPA Grid West Benefit Assessment for Decision Point 2**

***REGIONAL BENEFITS OF GRID WEST WITH 3 CONSOLIDATORS (PAC, BPA,
IPC)***

  ---------------- ------------------------- --------------------------- ---------------- -------------
  **QUANTIFIED                                                           **\$              
  BENEFITS**                                                             Million/year**   

  **Item**         **Potential Benefit**     **Facilitating GW           **High**         **Low**
                                             Policies**                                   

  1                Reliability: Cascading    1\. GW DA Scheduling 2.     \$62             \$27
                   Outage Prevention         Planning\                                    
                                             3. Outage Coordination 4.                    
                                             Consolidation of CA\'s\                      
                                             5. CCA Redispatch 6. CCA                     
                                             Reliability Authority                        

  2                Increased Transmission    Reconfiguration Service &   \$15             \$9
                   capacity.                 Single Scheduling Entity                     

  3                Regulating Reserves       CCA regulating pool         \$8              \$5

  4                RT Redispatch             CCA RT redispatch market    \$56             \$41
                   Efficiencies                                                           

  5                Contingency Reserves      CCA AS Market               \$30             \$20

  6                De-pancaking              Reconfiguration Service     \$10             \$4

  * *              * *                       ***TOTAL***                 ***\$181***      ***\$106***

  **UNQUANTIFIED                                                                          
  BENEFITS**                                                                              

  **Item**         **Potential Benefit**     **Facilitating GW           **Magnitude of   
                                             Policies**                  Potential        
                                                                         Benefit**        

  7                Improved Transmission     One Utility Planning        Significant      
                   Planning (ability to get                                               
                   trx built in the most                                                  
                   economical location)                                                   

  8                Long Term Gen. Siting     Reconfiguration auction,    Significant over 
                   Efficiencies              Redispatch mkt.             time             

  9                Improved ability to       Reconfiguration auction,    Small            
                   monitor markets           Redispatch mkt.                              

  10               Transmission Construction Reconfiguration auction,    Medium           
                   Deferral                  Redispatch mkt.                              

  11               More efficiently          Coordinated trx.            Medium           
                   coordinated maintenance   maintenance protocol                         

  12               More efficient load       Redispatch market           Medium           
                   following                                                              

  13               Other reliability         See reliability policies in Medium           
                   benefits (avoidance of    quantitative table                           
                   momentary outages, cost                                                
                   of spoilage, reduction of                                              
                   utility costs of                                                       
                   recovery)                                                              

  14               DSM Benefits -            RCS auctions, demand        Small to medium  
                   Accelerated deployment of response to RBS                              
                   conservation leading to                                                
                   construction deferral                                                  

  15               Potential for up to 6                                 Significant      
                   more CCA Participants                                                  
  ---------------- ------------------------- --------------------------- ---------------- -------------

**Summary: BPA Grid West Benefit Assessment for Decision Point 2**

# Quantitative Estimate Method Description

# *Note: Analyses are described in detail in BPA's "Grid West Benefit Assessment for Decision Point 2"*

# Item 1: Reliability (Cascading Outages)

Benefits that could result from avoiding catastrophic outages were
derived from the 2004 Gross Product for Grid West. Based upon US Census
Bureau wage and earning data, it was assumed that 85% of total
production occurs during weekdays and 15% on the weekends. The existence
of Grid West was assumed to enable avoidance of one (1) catastrophic
outage every 20 years or 1 catastrophic outage of 1 productive day every
15 years. An outage is assumed to result in 50% loss of a pro-rated
daily GDP (the remaining 50% would be recovered or protected by back-up
generation). The high estimate reflects results of 1 avoided weekday
outage every 15 years, the low estimate reflects results of 1 avoided
weekend outage every 20 years.

These estimates are supported by the work of Bill Mittelstadt, BPA
transmission engineer and reliability expert who assisted in analyzing
the causes of the East Coast outage. Mittelstadt reviewed NERC records
of large disturbances in the WECC over the last 12 years and found that
45% of the causes of these outages would be mitigated by Grid West. See
the BPA Grid West Benefit analysis for details.

# Item 2: Increased Transmission Capacity

Benefits derive from increased access to existing transmission capacity
as a result of more liquid and transparent transmission markets and as a
result of GW's charge to merge regional schedules through
before-real-time single area scheduling. This estimates what the
benefits would be if the these features yield 3% or 5%, more available
flow capacity (AFC). Grid View was run to estimate the least cost
dispatch to meet loads over 1 year in the Grid West footprint with
different transmission availability numbers. The measured benefit
derives from the less expensive generation dispatch that occurs when
more transmission is available. The high estimate assumes a 5%
improvement over the baseline, the low assumes a 3% improvement.

> (*Note: These figures were derated by 50% as compared with the RRG
> results, to account for the potential overlap between measurements of
> the benefits of increased transmission capacity and those accruing as
> a result of a real time balancing market).*

# Item 3: Regulation Reserves

These benefits accrue when regulating reserves are pooled and the
magnitude of expected variation in load is reduced, resulting in a
reduced need for regulating reserves. Studies were performed by TBL's
Bart McManus in 2005 - he examined the actual variation in loads for
BPA, PacifiCorp and Idaho Power over 3 years and 4 seasons. The benefits
cited are based on a 60 minute rolling average deviation from average
load. The high estimate values the resulting capacity savings, 109 MWs,
at \$6 per kW month, the low was valued at \$4 per kW month (based on
PBL trader estimates of the value of capacity).

# Item 4: Real Time Redispatch Efficiencies

PowerWorld optimal power flow analyses were used to calculate potential
production cost savings resulting from the CCA Real Time Balancing
service. PowerWorld was run using generator data from SSG-WI and
transmission, load, and unit commitment data from WECC operating cases.
The model was used to simulate a base case where least cost real time
dispatch would be achieved with each GW control area minimizing
operating costs independently. The future allows Idaho Power Company,
PacifiCorp, and BPA (the consolidators) to minimize real time control
area costs amongst themselves without regard to scheduling constraints.
The difference in production costs between the base and future case is
the anticipated Grid West benefit. Benefits for 8 representative hours
in a year were estimated (heavy load and light load hours for each of
the 4 seasons) and multiplied up to represent a full year's savings. .

The sensitivity of the resulting dispatch efficiencies to the price of
hydroelectric surplus sales (which are a function of the value of power
in California into the storable future) was tested. Five different cases
were run: \$20/MW-hour, \$30/MWh; \$40/MW-hour; \$50/MW-hour; and,
\$65/MW-hour, as well as a run using Dow Jones average prices at mid C.
Bonneville's low estimate of benefits is a summation of the lowest
benefits for each season of the year. The high estimate is based upon
the Dow Jones runs.

# Item 5: Contingency Reserves (Spinning and Supplemental)

The NWPP already pools contingency reserves -- but they do not meet
those reserves on a *regional* least-cost basis (each control area meets
its reduced reserve requirement on an internal least cost basis).
Consolidating Control Areas will meet their reserve requirement through
a reserves market that combines resources and allows for a more optimal
commitment of generating units. This more optimal commitment translates
into a more optimal dispatch of generation in real time.

Henwood Energy Services conducted a study of these benefits on behalf of
Snohomish PUD in September of 2004. BPA's high estimate de-rates their
results (\$73 million in benefits for the Grid West Region) by 44% as
only 56% of Grid West load is assumed to participate in the CCA. This
estimate is de-rated again to reflect the fact that short term reserves
trades occur to a small degree today. We assumed a 25% to reduction in
our high estimate and a 50% in our low case.

# Item 6: Pricing Pancakes

BPA's estimated benefits of eliminating price pancakes were derived from
two different studies. The high estimate is based on the PacifiCorp's
runs of its GridView model wherein they simulated an optimal security
constrained dispatch in the Grid West region with and without wheeling
rates. The PacifiCorp results were de-rated by 50% to reflect potential
overlap with the Real Time Balancing service analysis. The previously
mentioned Henwood study also looked at the effects pancaking under
extremely conservative assumptions and found there to be about \$4
million in potential benefits -- this figure comprises our low estimate.