RRG Integrated Proposal CREPC briefing Sept 20, 2005

1
Update on Integrated Proposal forDecision
Point 2 Briefing for the Committee on Regional
Electric Power Cooperation of the Western
Interstate Energy Board September 20, 2005
2
Grid West Decision Points

• Decision Point 1 Adopt Developmental Bylaws?
• Yes December 9, 2004
• Decision Point 2 Fund further Grid West
  development and elect independent Developmental
  Board?
• Decision scheduled for late September 2005
• Decision Point 3 Offer transmission agreements
  to transmission owners?
• Deadline 12 months after Dev. Board first meets
• Decision Point 4 Execute transmission
  agreements and adopt Operational Bylaws?
• Deadline 12 months after Decision Point 3 offer

3
Governance Update
4
Grid West Not an RTO

• FERC Declaratory Order has acknowledged key
  elements of Grid West proposal, including
• Not appropriate to apply Order 2000
  requirements if not filed under Order 2000
• Grid West governance does meet independence
  standards
• No authority to require changes to BPA legacy
  transmission agreements
• Transmission owners may continue as transmission
  providers for legacy transmission service
  commitments
• No deadline to shift away from license plate rate
  structure

5
Operational and Market Design Update
6
Provision of Services

• Regional Services
• Regional Transmission Service
• Reconfiguration Services
• Reliability Authority
• Regional Scheduling Services
• Market Monitoring
• Regional Planning Capacity Expansion

Non- Consolidated Control Area
Non- Consolidated Control Area
Non- Consolidated Control Area
Consolidated Control Area
Non- Consolidated Control Area

• Control Area Services
• Reserve Market
• Real-Time Balancing Service

7
Planning Capacity Expansion(Long-term IWRs)

• Organization
• Planning Committee that includes Grid West
  members
• Independent Grid West staff to support process
• Planning Process Biennial Plan Goals
• Meet transmission adequacy standards
• Maintain transfer capability
• Maintain or improve reliability
• Consider alternatives (including non-wire
  approaches)
• Capacity Expansion Processes
• Response to transmission service requests to
  provide long-term IWRs not available from AFC
• Long-term IWRs granted to participant-funded
  expansion projects
• Reliability backstop for transmission adequacy

8
Pricing
9
Three Sources of Funds for Transmission Owners
Revenue Requirements
Replacement Revenues (if needed)
Allocation Of AFC Sales Revenues
Payments Associated with Legacy Services
Total Transmission Owner Revenue Requirement
10
Pricing for New Rights

• IWRs from Existing Capacity (ATC)
• Embedded-cost pricing for new long-term IWRs from
  existing capacity (AFC) rate tied to company
  rate at location of withdrawal point
• IWRs from Upgrades and Expansion
• IWRs from system upgrades or expansion rate
  equal to greater of embedded or incremental cost

11
Allocation of Revenues from Grid West AFC
Sales (Long-Term and Short-Term)
AFC Revenues from Reconfiguration
AFC Revenues Long-Term IWRs


Revenues Adequate for TO Recovery?
Yes
Done
No

Replacement Revenue Mechanism
Allocation Mechanism





12
Grid Management Charge

• A formula rate to recover
• Start-up, operating, and development costs
• Market monitoring costs
• Cost to administer planning and expansion process
• Aggregate annual expenses of 91 million would
  translate to 0.31/MWh
• Includes amortization of Grid West development
  and start-up costs over a finite time period

13
Estimated Benefits and Costs
14
Benefits

• Quantifiable
• Contingency Reserve
• Regulating Reserve
• Redispatch Efficiencies
• Bulk Electric System Reliability
• Power Delivery System Reliability
• Eliminating Rate Pancakes
• Reconfiguration-Transmission Utilization

• Qualitative
• Improved Transmission Planning
• Long-term Siting Efficiencies
• Construction Deferral (G, T and D)
• Conservation and Demand-Side Management
• Load Following
• Market Innovation
• Market Monitoring

15
Estimate of Quantifiable Benefits
(All figures in million/year)
Included in the 10-control-area consolidation
are the control areas of Avista Corporation, B.C.
Transmission Corporation, Bonneville Power
Administration, Idaho Power Company, NorthWestern
Energy, PacifiCorp (east and west), Portland
General Electric, Puget Sound Energy, Inc., and
Sierra Pacific Power.
16
Building a Cost Estimate from the Bottom Up
The cost estimate is based on Grid Wests
specific functional design
Inputs
Estimates
Process
Start-up Costs
Functional Scope

• Identify Basic Features
• Define scope of each feature

• Define divisions/departments
• Define organization
• Estimate headcount
• Estimate payroll costs

Organization Requirements

• Define system needs
• Obtain vendor quotes
• Estimate initial capital cost
• Estimate ongoing OM costs

System Requirements
Annual Operating Expenses

• Define implementation plan
• Estimate effort
• Develop hiring plan
• Estimate contractor costs

Implementation Plan
17
The Cost Estimates
Start-Up
Operating
Estimated Per Unit Cost 0.31/MWh (Based on Grid
West load of 291,000,000 MWh)
18
Overview - Funding

• An affirmative outcome at Decision Point 2 means
• Sufficient funding is committed by transmission
  owners to cover the maximum two-year period to
  reach Decision Point 4
• A least three Major Transmitting Utilities will
  sign the Funding Agreement, one of which must be
  BPA
• Developmental Board is elected by the Grid West
  Members Representative Committee (MRC)
• Two-year funding
• Developmental Board can draw maximum of
  two-thirds of total funding in first year of
  two-year basic funding total of 18,810,000
• Up to an additional 1 million could be available
  if Grid West members approve pre-Decision-Point-4
  planning activities
• Maximum amount for developmental stage (Decision
  Points 2 to 4) is just under 20 million

19
Funding Agreement

• Each Funder will pay up to its pro rata share of
  the total committed funding
• BPA will fund by pre-purchasing Grid West
  services, and Grid West will provide credits that
  BPA can use to offset certain Grid West charges
• The investor-owned Major Transmitting Utilities
  will loan Grid West money at the FERC interest
  rate for refunds

20
Summing Up
21
Summary Points

• Proposal is designed by and for the region
• Addresses regions identified problems and
  opportunities
• Need for transparency and independence
• Current rules and practices that prevent full
  system utilization
• Impediments to efficient, region-wide
  transactions
• Rate pancakes
• Need for organized market structures that foster
  efficiency
• Operational challenges (loop flow, curtailments,
  etc.)
• Obstacles delay needed transmission
  infrastructure
• There is no independent market monitor for the
  region
• Uses best ideas from past regional work
• Adopts good ideas found elsewhere

22
Summary Points

• Grid West is an independent transmission provider
  that is responsive to the region
• Independence strengthens the regions position
  with FERC, DOE, and others
• Grid West is not an RTO and does not have to
  evolve into an RTO (FERC Declaratory Order July
  1, 2005)
• Independence is fundamental for many regional
  parties
• Independence is necessary to implement
  reconfiguration and ancillary service markets
• Independence aids planning and expansion
• Access to commercially sensitive data
• Single-system design viewpoint