**TIG Benefit Estimate**

*BPA Review and Response*

*10/4/05*

*Background:* Global Energy Decisions (a.k.a. Henwood Energy) was hired
by the TIG steering committee to conduct an independent study estimating
the regional benefits of implementing a RABA-enhanced TIG proposal, as
currently envisioned by the TIG steering committee. The contractor
worked independently, but his work was reviewed by a benefit assessment
sub-committee.

Following is a review of the GED results and BPA's response to those
results.

**Benefit:** **Reliability**

**TIG Source:** RABA, single AFC calculation

**Method of Analysis:** Quantity -- survey of hours of NW load lost over
last 12 years

Value: displaced GDP used in GW work.

**GED Benefit Estimate:** \$6-\$12 million/year

**Conclusion:**

"Because of these reliability organizations (PNSC) and the actions they
have taken to improve reliability since 1996, Global Energy does not
expect reliability in the next 20 years to deteriorate below levels from
the last 20 years, even if TIG does not form."

"Under the Energy Policy Act of 2005, reliability focus will only
increase, even without TIG".

"On the high side . . . the TIG proposals would eliminate an amount of
cascading outage equal to all of the cascading outages that occurred
over the last 20 years, equivalent to saving 5 hours of outage of the
entire Northwest load over the next 20 years . . valued at \$13
million/year".

**BPA Comment:**

-   Global Energy Decisions (GED) used a different method for estimating
    avoided outages than did BPA in our GW work.

-   The hours of outage listed are not comprehensive -- not all
    cascading outages were counted.

-   The hours of outage estimated is actually for a 12 year period
    ('88-2000). Using the same analysis as GED, adjusting for this fact,
    the high estimate would be \$21 million.

-   BPA *does not* believe that reliability will be the same in the
    absence of Grid West or TIG. While we recognize that there have been
    reliability improvements in the Northwest since 1996 (addition of
    the PNSC, among others). However, as time passes, the heightened
    awareness of reliability will decline. Transmission loading will
    increase, schedules will increase, inadvertent will increase -- in
    all probability, without more sophisticated tools for understanding
    schedules and redispatching generation, these pressures are likely
    to lead to increases in system disturbances that lead to lost load.
    Indeed, we believe that reliability could be twice as bad as it has
    been historically. That would lead, using the GE analysis, to an
    annual cost of outages of \$42 million/year.

-   TIG benefits are less than Grid West because it does not combine as
    much transmission in RABA as does GW in the CCA (#s), nor does its
    operator have the same power to act as does the Grid West . GW
    consolidators are assumed to be PacifiCorp, BPA, and Idaho Power.
    RABA participants are assumed to be Puget, PGE, Seattle City Light
    and Bonneville. TIG does, however, deliver more of the I-5 corridor
    (under given assumptions) than does GW. This is estimated to make up
    for about 25% of the loss in benefits due to the loss of PacifiCorp
    and Idaho.

**BPA Estimate of TIG Reliability Benefits:**

BPA stands by its Grid West value of reliability estimate. We believe
that TIG will reap roughly 47% of the reliability benefits of Grid West,
based on the net transmission investment amongst the TIG participants
compared with the net transmission investment amongst the Grid West
participants. This yields an *estimate of \$12.7 to \$29.1 million/ year
in benefits* that Bonneville would expect to see from TIG if there is
full participation in RABA.

**Benefit: Increased Transmission Capacity**

**TIG Source:** Common AFC calculations.

**Method of Analysis**: Hourly dispatch modeling on a 3% and a 5%
increase in OTC

**\$ Value**: \$441,000 to \$646,000 /year

**BPA Comment:**

-   The Grid West analysis, conducted by Pacificorp using very similar
    methods on the Grid View model found these benefits to be in the
    \$18-\$30 million/year range. The large discrepancy between the two
    estimates calls for a closer look at the methods, assumptions, and
    databases used in both analyses.

-   TIG is expected to have less of a transmission capacity benefit than
    Grid West. This is because it has a more restricted pool of
    participants, and because the method for submitting and pooling ATC
    information is more limited in TIG than in Grid West. Also, TIG will
    not have the reconfiguration auction as does Grid West. This
    reconfiguration auction is expected to help to free up transmission
    capacity.

-   There are some questions as to GED assumptions about transmission
    conditions in the Northwest, hydro fuel costs, and whether they
    model the congestion typically seen in the Northwest. GED provides
    little to no explanation of these results.

**BPA Estimate:**

Lacking a clear explanation of the model used for the GED estimate, and
lacking time to review it, BPA will stick with its original estimate of
the value of increases in transmission capacity. We begin with our Grid
West estimate of \$9-\$15 million and derrate those by 53% to reflect
the difference in transmission capacity that will be combined in TIG vs.
Grid West (as measured by net plant investment. *This yields an estimate
of \$4.2 to \$7.1 million/year* in benefits that Bonneville would expect
to see from TIG single AFC calculations.

**Benefit:** **Reduction in Regulating Reserve Requirements.**

**TIG Source: RABA consolidation**

**Method of Analysis:** Assume (based on McManus study) 100 MW reduction
in

requirement. Used hourly dispatch modeling to assess production cost
result. Also valued the 100 MWs as capacity that could be resold in the
WECC at the opportunity cost of a CT.

**\$ Value**: \$0 - \$8.5 million/year

**BPA Comment:**

-   The 100 MWs of reduced regulating capacity requirements measured by
    BPA's McManus is the result of combining the loads of BPA, PAC and
    Idaho. A similar exercise for RABA consolidators would yield a
    different benefit than the benefit estimated for Grid West (\$5 to
    \$8 million/year).

**BPA Estimate:**

Lacking the data needed to examine actual load variance in the RABA
control area, we adopt a load-ratio share of the benefits anticipated
for the GW CCA. Assuming that RABA includes Puget Sound Energy, Avista,
Grant, and Bonneville (the TIG participants who have indicated a
possible interest in RABA), RABA will have about 65% of the load of the
Grid West CCA (based on NWPP load data). Accordingly, BPA expects TIG
regulating reserve benefits of \$3.3 to \$5.3 million/year.

**Benefit: Redispatch Efficiencies**

**TIG Source:** Centralized redispatch bulletin board for congestion
clearing

**Method of Analysis:** Examined actual adjustments to generation in
real time -- came to

1%. Then assume \$5/MWh savings/every MWh thermal

rescheduled. Then assume 10% of that to be captured by TIG.

**\$Value**: \$2.5 to \$6.5 million/year

**BPA Comment**:

-   Assumes that the opportunity cost of hydro is close to zero -- this
    is not true, even on a theoretical basis, when there are
    opportunities to sell surplus into California. In that case, the
    opportunity cost of hydro can be as high as the expected value of
    generation in California. This would lead to a higher savings figure
    for congestion-based redispatch.

-   We disagree with GED's statement that there is a low level of
    congestion that occurs in the Northwest -- especially if looking out
    into the future.

**BPA Estimate:**

We do believe that TIG will yield significantly less redispatch
efficiencies than Grid West. This is because TIG's consolidators own
less transmission and less generation than the GW consolidators, and
because it will only redispatch to get around congestion. Lacking an
alternative analysis, however, we will adopt the \$2.5 to \$6.5
million/year in redispatch benefits estimated by GED.

**Benefit: Contingency Reserve Efficiencies**

**TIG Source:** Contingency Reserve Bulletin Board

**Method:** Hourly dispatch modeling, using a base case wherein
contingency reserves are met by individual control areas and a future
case wherein contingency reserves are shared among RABA consolidators.
RABA consolidators are assumed in one case to be BPA, PAC and Idaho, in
another they are assumed to be BPA, Puget and PGE.

**\$Value**: \$40 - \$80 million/year (BPA, Puget, PGE, Seattle)

**BPA Comment:**

-   GED's results indicate that the consolidation of BPA, PACE, PACW and
    Idaho Power would yield \$15-\$30 million/year in benefits, whereas
    the consolidation of BPA, Puget and PGE would yield \$40-\$80
    million per year. This is a curious result, given the difference in
    size of generator pool in the two redispatches. It also seems to
    indicate that, in the GED model, Puget and PGE are running thermal
    units for their reserves which do not reflect the normal practice of
    those companies.

-   The base case includes the assumption of an existing consolidation
    of BPA, Seattle, Tacoma, and the Mid-C's. We question whether this
    base is a reasonable foundation for the estimate of consolidated
    contingency reserve benefits.

**BPA Estimate:**

Because of the counter-intuitive Operating Reserve result generated by
GED's model, and because this counter-intuitive result is not explained
in the report, Bonneville will adopt the lower benefit figure of \$40
million/year.

**Benefit: Depancaking**

**TIG Source: ?**

**Method:** Hourly dispatch modeling

**\$ Value:** \$2,429,000/year

**BPA Comment:**

-   Global Energy depicted all transmission sold by BPA as depancaked,
    then measured the benefit of depancaking all other transmission
    charges in the Northwest. We question the validity of this
    assumptions. BPA contracts commit the holder to a path through BPA
    and can prejudice users against alternative paths where pancakes
    must be paid, especially paths that don't cross over the BPA system.
    This can lead to inefficient dispatch. Furthermore, the opportunity
    cost of selling a point-to-point right and purchasing an alternate
    service is influenced by the existence of pancakes and can prejudice
    dispatch against least cost solutions. Finally, unused but
    previously sold transmission capacity is re-sold by TBL on a
    pancaked basis in close to real time. Thus we believe that this
    value is a bare-minimum value for pancaking.

-   BPA does not believe that the TIG proposal allows for significant
    depancaking of transmission rates.

**BPA Estimate**: \$0/year