RTO West Briefing for Congressional, Senate Staff

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RTO West Briefingfor Congressional, Senate Staff

• February 22, 2001

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Key Elements

• The Northwests energy system
• National policy background
• RTO West filing utilities
• TransConnect
• Stage I, II filing development
• Why RTO West is different from California
• Constituent concerns

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• The Northwests Energy System
• Some Facts and Characteristics
• Who Operates the NW System

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The Northwest Area of the Western Interconnection

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Load Serving Entities

• Hundreds of entities serve the customers of the
  NW
• Investor - Owned Utilities
• Public Utility Districts
• Municipalities
• REAs and Cooperatives
• Bonneville Power Adminstration (largest Federal
  PMA)

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Northwest Control Areas - 16

• BC Hydro Power Pool of Alberta
• Puget Sound Energy Avista Montana Power
• Seattle City Light Chelan PUD Idaho Power
• Tacoma City Light Douglas PUD
• PacifiCorp-W Grant PUD
• Portland General Elec. PacifiCorp-E
• Bonneville Power Admin.
• Sierra Pacific Power

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Northwest Control Areas

• Picture of NW Control Areas (from NWOASIS site)

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Northwest Power Pool Area Load

• Coincidental peak load on Dec. 11, 2000 -
  56,004 MW
• Coincidental peak load on July 31, 2000 -
  49,961 MW
• Average Annual Energy Load - 40,000 MW
• Recent Load Annual Growth Peak loads - 1.6
• Recent Load Annual Growth Energy loads - 2.0

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Resources - Winter Capability

• Hydro 46,318 MW 64.0
• Steam Coal 17,258 24.0
• Steam Gas ICs 2,579 3.5
• Nuclear 1,170 1.5
• Combustion Turbines 2,541 3.5
• Combined Cycle 1,497 2.0
• Other (Geo,Wind, Bio) 1,080 1.5
• Total 72,443 MW

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Current Situation

• Most of the generation in the NW is located east
  of the major load centers
• Hydro and weather conditions affect transmission
  flow patterns
• Low Hydro expectations and virtually no imports
  this winter reduces operating flexibility

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Hydro February 2001

• Columbia River streamflows at Bonneville Dam
• Average Flow in 2000 200 kcfs
• Actual Flow in 2001 130 kcfs
• The January 1 July 31 Forecasted Volume Runoff
  at The Dalles dam is 59 of Average. From this
  time forward, it would take more than 150 of
  Normal precipitation to achieve 100 of Average
  Runoff by end of runoff period.
• 62.1 Million Acre Feet volume runoff (project
  from current snowpack) would be the third worst
  in the 70-year record reservoirs likely will not
  refill by the end of July.

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December 2000

• Energy Emergency Plan - (NWPP and PNSC)
• Purpose - increase NWs ability to avoid
  power emergency or longer-term adequacy problems
• Warning of Potential NERC Alert
• Dec. 11, 2000 Actual (became the drill)
• Temperature Departure 16 F
• Total Peak Load ? 56,000 MW
• North American Electric Reliability Council

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Energy Emergency Plan

• Promotes coordination and communication
• Planning and load - resource analysis is
  continuous
• Warning of a potential Regional Power Emergency
• Short-term, triggers Energy Response Team
• Warning of a potential Energy Adequacy Problem
• Long-term, triggers Adequacy Response Team

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Major Transmission Grid
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Adequacy and Security

• Transmission previously
• Numerous long term, firm contracts
• Adequate resource supply
• Predictable bulk power transactions
• Limited competition
• Significant operating margin

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Adequacy and Security

• Transmission Now
• Contracts shorter in duration and non-firm
• Bulk power transactions less predictable
• Increasing competition
• More players in market
• Loadings on transmission system at times are
  closer to limits
• Transmission constraints affect ability to
  utilize and maintain system
• Approximately 15,000 MW of generation is
  considering potential siting in the NW
• Principle need is new generation - Upgrade of
  existing system is needed to integrate new
  generation to serve growing NW loads

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National Policy Background
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Background

• Federal Power Act
• Grants FERC authority over transactions of
  investor-owned electric utilities (jurisdictional
  utilities) affecting interstate commerce
• National Energy Policy Act 1992
• Granted FERC explicit authority, based on
  individual complaints, to order transmission
  providers to provide transmission service to
  third parties
• Sets the stage for deregulation and open access
  transmission
• FERC Orders 888 889 (1996)
• FERC relied on section 206 of Federal Power Act
  to order all jurisdictional utilities to file
  open access transmission tariffs to remedy undue
  discrimination and anti-competitive effects

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Background (cont.)

• FERC Orders 888 889 (cont.)
• Set guidelines for open access and industry
  restructuring (standards of conduct, functional
  separation OASIS)
• Non-jurisdictional transmission providers (PMAs
  and publics) encouraged to adopt open access
  tariffs to obtain access to jurisdictional
  utility systems
• FERC Order 2000 (January 2000)
• Established required characteristics and
  functions of an RTO
• Jurisdictional utilities required to file plans
  for participation in RTO or describe problems
  with participation.

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(No Transcript)
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What is an RTO?

• RTO (Regional Transmission Organization)
• Federal Energy Regulatory Commission (FERC) term
  for transmission organizations (e.g. ISO,
  Transco).
• To enable competitive wholesale power markets
  (through open access and related transmission
  services)
• FERC believes RTOs will
• Increase reliability
• Foster competition and markets
• Lower cost to consumers
• Promote transmission investment
• Improve efficiency of delivering power

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What is an RTO?

• FERC Order No. 2000, Dec., 1999
• Calls for Formation of RTOs
• RTOs will be FERC-regulated entities
• File by Oct. 15, 2000
• Operational by Dec. 15, 2001
• Sets minimum characteristics and functions

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O2K Characteristics

• FERC Order 2000 (O2K) Minimum Characteristics
• Independence from market participants
• Appropriate Scope Geographical Configuration
• Possesses Operational Authority for All
  Transmission Facilities under the RTOs Control
• Exclusive Authority to Maintain Short-Term
  Reliability

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O2K Functions

• FERC Minimum Functions
• Tariff administration and design
• Congestion management
• Parallel path flow
• Ancillary services
• OASIS and TTC ATC
• (Open-Access Same-Time Information System, Total
  Available Transfer Capability)
• Market monitoring
• Planing and expansion
• Interregional Coordination

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RTO West filing utilities
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RTO Formative Actions

• RTO Filing Utilities
• Developed principles
• economic incentives for reliability and
  efficiency
• RTO Filing Utilities
• One PMA (BPA) and eight IOUs
• IOUs include Avista, Idaho, Montana,
  PacifiCorp, Portland General Electric, Puget
  Sound Energy, Nevada, and Sierra Pacific
• RTO West formed
• Filing utilities pooled funds to develop filing
• BPAs participation
• DOE opinion, 1998
• Delegation letter to BPA, Feb. 15, 2000
• DOE Memo to PMAs, May 16, 2000

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RTO West Principles

• RTO West Filing Utilities developed principles to
  address
• Transmission Reliability Remote Utilities
• Customer Benefits Open Architecture
• Open Wholesale Markets Non-Discriminatory
  Treatment
• Economic Incentives Compliance with FERC
  Timelines
• Financial Impacts Public Involvement
• Federal Treaty Obligations Retail Access
• Characteristics and Functions
• Financial Structure

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RTO West Model

• Legal Structure
• Private, non-profit corporation -- Independent
  System Operator to start
• Non-profit likely seek 501(c)(3) status
• Asset Use
• Flexible Model. Allows for transmission
  operating agreements (TOAs) with RTO.
• Federal assets stay federal
• Governing Structure
• Independent Board of Trustees, Advisory Board
  (Stakeholder), Trustee Selection Committee
• Geographic Scope
• Large geographic area

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Benefits

• By putting all transmission under one operator,
  the RTO should
• Increase reliability through planning and
  improved operation of grid
• Identify extent of congestion on the grid and
  identify necessary improvements
• Eliminate pancaked rates, or multiple rates per
  transmission transaction
• Facilitate needed physical improvements on a
  timely basis

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GEOGRAPHIC SCOPE

• Includes
• Washington, Oregon, Idaho, Montana, Utah, Nevada
• Covers
• gt 90 existing high voltage facilities in
  proposed region
• gt 51,000 line miles
• 580,000 square miles
• BPA
• 70 high voltage in NW
• 50 in RTO West

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TransConnect, LLC
February 22, 2001
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Outline of Presentation

• What is TransConnect?
• Why does it make sense?
• The October 16 Filing.

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What is TransConnect?

• TransConnect is a for-profit, independent
  transmission company designed to optimize the
  reliability, performance, efficiency, service
  innovation, and profitability of its transmission
  assets.

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• TransConnect is organized to own transmission
  assets currently owned by
• Avista Utilities
• Montana Power
• Nevada Power
• Portland General Electric
• Puget Sound Energy
• Sierra Pacific Power

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TransConnect -Part of RTO West
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Corporate Structure of TransConnect
Utility A
Utility B
Board of Directors
TransConnect Corporate Manager, Inc.
Assets
LLC Units
Utilities combined will have no more than 15
voting shares. The remainder of economic interest
must be independent. Corp. Mgr. may facilitate
independence test and the raising of public
capital
TransConnect LLC
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Benefits of TransConnect

• LLC structure to maintain business flexibility
  and minimize tax
• passive ownership while retaining limited rights
  needed to protect investment
• passive rights can convert to full voting rights
  if owner is not considered a market participant
  by FERC
• Members can maintain investment in TransConnect
  or fully divest, depending on business strategy
• TransConnect can and will evaluate and undertake
  new transmission investment

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TransConnect
TransConnect
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A Billion Dollar Company

• Transmission facilities that pass the Order 888
  Seven Factor Test
• Estimated YE 2000 Net Plant (based on 7 factor
  test)
• Nevada Power 353 million
• Sierra Pacific 271 million
• Montana Power 217 million
• Puget 204 million
• Portland General 129 million
• Avista 109 million
• Total 1,282 million

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Why does TransConnect Make Sense?

• Focus on the transmission business
• Aggregates transmission assets to achieve
  economies of scale scope
• Provides a flexible business structure that will
  attract capital stimulate new transmission
  investment
• Separates market participants from ongoing
  transmission operations capital decisions
• Will work efficiently within the RTO West
  framework

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RTO West without TransConnect
1999 book value before 7-factor test
3,000
2,500
2,000
Net Transmission Plant
( millions)
1,500
1,000
500
0
BPA
PAC
PSE
SPP
NPC
MPC
IPC
PGE
AVA
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RTO West with TransConnect
1999 book value before 7-factor test
3,000
2,500
2,000
Net Transmission Plant
( millions)
1,500
1,000
500
0
TransConnect
BPA
PAC
IPC
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TransConnects October 16 FERC Filing
(Docket No. RT01-015-000)

• Request for Declaratory Order that
• TransConnect is independent of market
  participants and
• the limited RTO functions, related to rate
  filings and transmission planning and expansion,
  that TransConnect plans to undertake are
  acceptable.

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October 16 Filing (con.)

• Filing included
• request for expedited action
• pro forma governance documents and standards of
  conduct and
• a schedule for future action.
• Filing did not include
• tariff or rate filings.

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Next Steps For TransConnect

• Make a rate filing that will include incentive
  and innovative rate treatments.
• These incentives are critical to TransConnects
  ability to attract capital as a pure
  transmission company.
• Seek additional necessary state and federal
  regulatory approvals.
• Board approvals by each company.
• Transfer assets and begin operations no later
  than RTO West commencement date.

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Stage I, II filing development
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Major Substantive Elements

• Governance
• Scope
• Market Design
• Operations Planning
• Pricing
• Congestion Management
• Inter-regional Coordination

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Governance

• Board of Trustees
• Independent
• Nine members, three-year term
• Advisory Committee
• Stakeholders
• Membership 1000. States, provinces, tribes
  free
• Five classes
• 1. Major Transmission Owners
• 2. Transmission Dependent Utilities
• 3. Nonutility Entities
• 4. Retail Customers and
• 5. State and Provincial Energy Authorities/Tribal
  Utility Regulatory Authorities/Unaligned
  Entities.
• Trustee Selection Committee
• Six members in each class
• Trustee candidates selected by search firm

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Governance
Trustee Selection Members Select BOT
Board of Trustees Independent Governance
Advisory Board Stakeholder Membership Five Classes
RTO
Member Issues
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Stage One
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Stage Two Products

• RTO Tariff
• Generation and Load Integration Agreements
• Congestion Management Plan
• Scheduling
• Commercial Practices
• Planning Process
• Market Monitoring
• Pricing

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Milestones

• Stage II filing Development
• FERC Approval Process
• State Commission Approval Process
• Congressional Briefings
• Implementation

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Public Process

• Public collaborative process
• To foster regional participation
• Led by independent facilitator
• Includes
• RTO West Filing Utilities
• Regional Representatives Group (RRG)
• Work Groups
• Web Site
• www.rtowest.org
• BPA
• NEPA (National Environmental Policy Act) Public
  Process
• Tribal Consultations
• Ongoing involvement

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Public Process

• Public collaborative process
• Led by independent facilitator - chartered to
  foster regional participation in and to help
  develop filing
• Includes
• RTO West Filing Utilities (Avista, Idaho,
  Montana, PacifiCorp, Portland General Electric,
  Puget Sound Energy, Nevada, and Sierra Pacific)
• Regional Representatives Group (RRG) - broad
  stakeholder input to advise RTO West filing
  (customers, enviro. groups, tribes, state reps.,
  etc.)
• Work Groups - technical research and analysis of
  issues
• Web Site www.rtowest.org - primary means for
  communicating information
• RTO Regional Workshops - inform and receive
  advice from regional interests
• BPA
• NEPA Public Process/Tribal Consultations
• Administrators ROD NEPA ROD

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Why RTO West is different from California
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California Lessons Learned

• RTO West is taking the opportunity to learn from
  the California ISO (CAISO)
• Key concept ? what happened in California
  happened in the electric power markets ? RTOs are
  about transmission.
• Examples include
• No Power Exchange (PX) and no mandatory PX
  buy/sell provisions
• The CAISO ineffectively address transmission
  planning needs
• The Board of Trustees for RTO West will be
  independent
• The CAISO didnt address congestion management
  problems
• These assets will not be sold
• Utilities will be allowed to buy and sell forward
  to manage transmission price risk volatility

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California

• FERC Order (Nov. 1)
• Finds that electric market structure and rules
  are seriously flawed
• Clear opportunities for market power abuse and
  gaming
• Urges states to address issues in their
  jurisdiction
• Proposes remedies to address dysfunctions in
  wholesale bulk power markets ensure reasonable
  wholesale power rates
• Examples of proposed remedies include
• Rid requirement for IOUs to buy/sell transmission
  through PX
• Establish independent Board
• Address congestion management proposal
• Changes to auction practices
• Allow utilities to buy forward to manage price
  risk volatility

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Constituent Concerns
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Potential Stakeholder Concerns

• Making sure the benefits outweigh the costs
• Loss of influence and control
• Avoiding the California situation
• Cost-shifts and increases
• Reliability and planning consequences
• Increased complexity of doing business
• Ability to accommodate the needs of utilities in
  jurisdictions that elect to deregulate and those
  that elect not to deregulate