![](media/image1.wmf){width="0.2923611111111111in"
height="0.26180555555555557in"} **PACIFICORP**

May 15, 2003

Dean Perry -- Chair PWG

Jeff Miller -- Chair Technical Subgroup

Marv Landauer -- Chair Planning Process Subrgoup

Gentlemen:

Now that development of the region-wide model and data are nearly
complete allowing the start of the PWG scenario study process on a
consistent and encompassing basis, we'd like to suggest an additional
study process to augment the PWG study plan.

The "Conceptual Plans for Electricity Transmission in the West: Report
to the Western Governors' Association", August 2001 showed that
transmission expansion to access and facilitate remote coal and wind
resource expansion could save the region an estimated \$3-5 billion per
year in fuel costs - enough to cover the additional transmission capital
in about 3 years (WGA Report p.44). Additionally this transmission
expansion saved customers between \$3 to\$7/MWh in delivered energy
prices while costing only \$1/MWh on a west-wide "Beneficiaries Pay"
rolled-in basis for the new transmission (WGA Report p.43).

The report showed that the total transmission and remote generation
expansion is economic, and that all customers in the region benefit from
the expansion. However, an analysis of cost allocation suggests that the
new remote generation would be uncompetitive (and therefore incented not
to build generation or transmission) if all of the new transmission
costs were assigned to only the new remote generation. Along with this,
the analysis shows that the new transmission reduces existing congestion
impacts to existing generation (free rider issue) making them much more
competitive.

The WGA study was done on the Western Region in total and the "bookend"
scenario included end state transmission expansion to fit a widely
dispersed remote generation expansion scenario. This required much more
transmission ultimately than that of a plan that might result from an
incremental and staged approach of generation and transmission expansion
in sub-areas of the west. In an incremental study, generation and
transmission expansion that added the biggest bang for the buck would be
added first until the point of diminishing returns for remote generation
was found.

Even though the "bookend" WGA transmission expansion was widespread, the
expansion was economic for the region in total. However, the costs and
benefits were also widespread and make determination of cost allocation
difficult under a "Participant Funding" or sub-area "Beneficiary's Pay"
mechanism. To determine if there is a stage-able subset of an ultimate
regional expansion plan that makes sense to a group or sub-region to
advance, we propose that interested subregions set up subregional
studies looking at expansion scenarios of particular

PWG Letter

Page Two

interest in that sub-region. For example, the eastern coal and wind
areas could do the studies looking at transmission expansion for the
generation scenario of wind and coal development in Wyoming and Utah,
parties interested in gas expansion could study the scenarios for
western gas plant expansion. The sub-regional groups could then bring
these studies together for review at PWG and further policy discussion.
Done this way, sub-regional interests could be identified for possible
sub-regional "Beneficiary's Pay" or Participant Funding".

Therefore, we ask that the SSGWI planning process adopt the formation of
sub-regional study groups. These sub-regional groups would identify the
associated costs and benefits derived from adding sub-regional
transmission and generation projects. This information would feed into
and be the foundation of an optimal west-wide plan.

This sub-regional planning would determine the best increment additions.
SSG-WI should encourage and bring together under it's umbrella new as
well as existing subregional planning efforts, such as the current
effort looking at a second Palo Verde -- Devers line. These sub-regional
efforts should attempt to fold in and include as many stakeholders and
solutions (transmission and otherwise) as possible. These efforts should
be coordinated and consistent with the SSG-WI efforts. As sub-regional
plans are developed and coordinated, some of the nagging issues (e.g.
who and how to pay) may solve themselves, or be fleshed out enough to
get solved.

One shortcoming of the current study and the original WGA study is that
the demonstrated benefits of new transmission are so global in nature
that no one is going to take ownership of a project and develop it.
Unless a westwide multi-state compact is created very little
economically justified transmission will ever get built using the global
production cost analysis planning model that we are now using. For this
reason we need to push the sub-regions to do studies similar to the
SSWGI study that is now underway to determine sub-regional projects that
make economic sense. Identifying local benefits of incremental
transmission additions is more likely to lead to transmission being
built than the top down approach we are following now.

This proposal is not meant in anyway to diminish the importance of the
current work-plan but is put forth as a way to strengthen it and enhance
the overall SSWGI planning process. Since RTOs are not yet formed and
functioning, our process out of necessity has been a top down view of
the world. Lets get sub-regional planning going to give us a bottom up
view to incorporate into future studies.

Of course, the short-term focus should be the delivery to FERC, of the
five scenarios agreed to by the SSG-WI Planning Work Group. Next, the
focus should be shifted to running the sub-regional incremental studies
to feed into the next west-wide regional study.

PacifiCorp is requesting the inclusion of an agenda item at the next
SSGWI Planning Meeting to propose broadening the scope of work to
include sub-regional planning processes as outlined above. Dean would
you schedule a conference call for the four of us to discuss this prior
to the June 12^th^ PWG meeting.

Sincerely,

Ken Morris -- PWG Member