# Presentation: 087723

## Overview of Integrated Proposal forDecision Point 2

***Overview of Integrated Proposal for******Decision Point 2***
***Briefing for the Oregon Public Utility Commission***
***August 17, 2005***

## Summary Points

**Proposal is designed by and for the region**
- Addresses region’s 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

## Summary Points

**Grid West is an independent transmission provider that is responsive to the region**
- Independence strengthens the region’s 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

## Summary Points

**Grid West proposal is an integrated package**
- All elements united in a single entity
- Governance balances independence with regional responsiveness
- Operational design meets region’s functional needs and supports voluntary, organized markets
- Pricing design eliminates rate pancakes and provides for transmission cost recovery
- Provides estimated benefits and costs
- Identifies budget and funding for next development steps

## Potential Grid West Area

**Over 62,000 circuit miles of transmission lines**
**Includes most transmission facilities shown in this region owned by the following companies:**
- Avista Corporation
- Bonneville Power Administration
- BC Hydro & Power Authority
- Idaho Power Company
- Nevada Power Company
- NorthWestern Energy
- PacifiCorp
- Portland General Electric Company
- Puget Sound Energy, Inc.
- Sierra Pacific Power Company

- Note: The Grid West proposal is designed to accommodate participation by Canadian transmission owners and operators in British Columbia and Alberta.

## 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
**Dec****ision Point 3 – Offer transmission agreements to transmission owners?**
- Deadline – 12 months after Dev. Board first meets
**Dec****ision Point 4 – Execute transmission agreements and adopt Operational Bylaws?**
- Deadline – 12 months after Decision Point 3 offer

## Governance

**Governance**

## Grid West Governance

**Grid West has t****h****ree governance stages**
- Current (until Decision Point 2)
- Interim Board – transmission owners, limited authority
- Decision Points 2 to 4
- Developmental Board – five elected, independent trustees
- Operational Stage (after Decision Point 4)
- Operational Board – nine elected, independent trustees

## Grid West Governance

**Grid West regional consultation process**
- RRG (Regional Rep. Group) – until Dec. Point 4
- Member committees and voting rights
- Members entitled to vote on key issues, such as
- whether to launch operational stage
- major changes in Grid West’s scope
- Members Representative Committee (MRC)
- Operational stage committees that include members
- Budget Committee
- Planning Committee
- Board Advisory Committee
- Governmental Committee

## Grid West Governance

**Five member classes**
- Major Transmitting Utilities
- Transmission-Dependent Utilities
- Generators, Power Marketers, Large Generating End-Use Consumers, and Others
- End-Use Consumers
- State and Provincial Energy Authority/Tribes/Certain Public Interest Groups
**Member classes have equal voting power**
- One additional vote for State and Provincial Energy Authority Sub-Class if enough Sub-Class members

## 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

## Operational Design and Voluntary Markets

**Operational Design and Voluntary Markets**

## Provision of Services

_**Regional Services**_
- Regional Transmission Service
- Reconfiguration Services
- Reliability Authority
- Regional Scheduling Services
- Market Monitoring
- Regional Planning & Capacity Expansion

**Consolidated Control Area**

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

_**Control Area Services**_
- Reserve Market
- Real-Time Balancing Service

***Provision of Services***

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

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

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

## Market and Operational Functions

## Adopting Flow-based Scheduling

## Release of Residual Capacity

***Available Flowgate Capability (AFC), along with offered Injection-Withdrawal Rights (IWRs), is made available to meet a request by IWRs buyers***
***Grid West will have discretion in determining the percentage of the residual capacity to be offered in auction markets***
***The payments received for release of residual capacity (i.e., AFC) is used to reduce potential lost revenue***

***The design reserves adequate headroom for existing rights...***

## Reconfiguration Service(Short-Term IWRs)

*** ******Reconfiguration cannot be done on a bilateral basis.  ***
*** ******An independent party must operate the auctions and be responsible for managing capacity for the combined system... ***

***R***

***S***

***T***

***U***

***V***

***P***

***Ownership Boundaries***

***Inj @ A***

***Wthd @ B ***

***Wthd @ D ***

***Inj @ C***

***Constraining Flowgate***

## Planning & Capacity Expansion

- Background
- Not the focus of recent work because regional parties felt earlier proposal was comprehensive and broadly supported
- Process Overview
- One-utility approach to provide system-wide planning
- Dynamic, open, and unbiased planning process
- All interested stakeholders may participate
- Grid West Planning Committee
- Includes representatives of all member classes
- May also include independent Board members
- Grid West professional staff
- Will have expertise in transmission system planning and operations within the Grid West region

## Planning & Capacity Expansion

- Biennial Transmission Plan
- Overarching goal:
- Address the region’s transmission infrastructure needs in the most cost-effective manner consistent with meeting reliability standards
- More specific goals:
- Meet transmission adequacy standards
- Maintain transfer capability
- Maintain or improve reliability
- Consider alternatives (including non−wires approaches)

## Planning & Capacity Expansion

- Capacity Expansion Process
- Create new capacity to grant IWRs for long-term transmission service requests when existing AFC is insufficient
- Long−term IWRs granted to sponsors of participant− funded expansion projects
- Backstop authority for reliability (transmission adequacy)
- Transmission owners will have contractual obligations to build if necessary to meet transmission adequacy standards or maintain transfer capability
- If transmission owners cannot or do not meet their contractual obligations, Grid West can arrange for third parties to step up
- When appropriate, Grid West can identify beneficiaries and allocate costs of reliability backstop projects to follow benefits

## Ancillary Services forConsolidated Control Area (CCA)

- Reserve Markets
- Contingency Reserve
- Regulation Reserve
- Real−Time Balancing Service
- Balancing Authority for CCA
- Grid West buys for CCA needs
- Accepts offers from suppliers both within and outside CCA
- Selects from offers for most economic result for CCA participants

## Grid West – Not an RTO

| Comparison – Grid West to SMD-Style RTO  |  |
| --- | --- |
| Grid West Basic Features  | SMD-Style RTO  |
| No generation resource adequacy standard imposed  | Generation resource adequacy standard imposed |
| No centralized unit commitment  | Centralized unit commitment |
| No day-ahead energy market | Day-ahead energy market  |
| Physical IWRs (Injection-Withdrawal Rights)
	No conversion of pre-existing 
	transmission rights | Obligation-type FTRs (Financial Transmission Rights)
 	Requires conversion of pre-existing
     transmission rights |
| Centralized scheduling with balanced schedule requirement
	Must have physical transmission       
     rights to schedule
	No explicit congestion charges | Centralized scheduling w/o balanced schedule requirement (can be energy-short)
	Transmission rights not needed
	Explicit day-ahead congestion
    charges |

## Grid West – Not an RTO

| Comparison – Grid West to SMD-Style RTO  |  |
| --- | --- |
| Grid West Basic Features  | SMD-Style RTO  |
| Centralized scheduling (cont’d)
	Reconfiguration service with annual,
     monthly, intra-monthly, and day-
     ahead auctions | Centralized scheduling (cont’d)
	Only monthly and annual FTR
    	Auctions |
| Loss factors established in advance for IWRs and legacy rights | Full marginal losses charged after the fact |
| Post-day-ahead schedule adjustments  | No post-day-ahead schedule changes  |
| Real-time market for balancing service (only within control areas that voluntarily consolidate)  | Real-time balancing service, with all deviations between day-ahead and real-time settled  |
| Market monitoring  | Market monitoring  |

## Pricing

**Pricing**

## Three Sources of Funds for Transmission Owners’ Revenue Requirements

**Payments **
**Associated **
**with **
**Legacy **
**Services**

**Three Sources of Funds for Transmission Owners’ Revenue Requirements**

**Allocation**
**Of AFC Sales**
**Revenues**

**Replacement**
**Revenues**
**(if needed)**

**Total Transmission Owner Revenue Requirement**

## Pricing for New Service (AFC)

**Pricing Work Group Recommendation:**
- Embedded-cost pricing for new long-term IWRs from existing capacity (AFC) – rate tied to location of withdrawal point
- Some parties believe that other options should continue to be explored
- Need to address issues related to overlapping, common, and contiguous facilities
- Concerns about co-existence of long-term IWRs at cost-based rates with a short-term IWRs at auction
- Fits Operational Bylaws concept of “company rate”

## Pricing for New Service – Upgrades and Expansion

**Pricing Work Group Recommendation:**
- IWRs from system upgrades or expansion – greater of embedded or incremental cost
- Protects existing customers from rate increases caused by new service requests
- Can accommodate other approaches (such as open seasons, voluntary joint projects, etc.)
- Grid West can evaluate benefits from each expansion project and make cost allocation decisions when appropriate
- Tracks FERC’s “or” pricing policy

## Revenue Allocation

- Pricing Work Group Recommendations:
- Allocate revenues from AFC sales (short- and long-term IWRS) to transmission owners in proportion to revenue losses resulting from Grid West implementation
- Any revenue loss from Grid West implementation not offset by AFC revenues to be replaced by a charge against all schedules (MW-hours)
- Replacement revenues would be allocated to transmission owners in the same proportion as AFC sales revenues

## Allocation of Revenues from 

**Done**

**Allocation Mechanism**

**Allocation of Revenues from **
**Grid West AFC Sales**
*(Long-Term and Short-Term)*

**Replacement**
**Revenue**
**Mechanism**

**Revenues**
**Adequate for TO**
**Recovery? **

**$**

**No**

**Yes**

**$**

**AFC Revenues**
** ****Long-Term **
**IWRs**

**AFC Revenues**
** ****from **
**Reconfiguration**

**$**

**$**

**$**

**$**

**$**

**$**

## Grid Management Charge

**Pricing Work Group Recommendation:**
- Grid Management Charge would be a formula rate to recover:
- Start-up, operating, and development costs
- Funding for Grid West development amortized over a finite time period
- Market monitoring costs
- Cost to administer planning and expansion process
- Aggregate annual expenses of $91 million would translate to $0.31/MWh

## Estimated

**Estimated**
**Benefits and Costs**

##  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

## Estimate of Quantifiable Benefits

| Cost Saving Category | 4 Control Areas Consolidated |  |  | 10 Control Areas Consolidated* |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | High | Med | Low | High | Med | Low |
| 1.  Contingency Reserve | 39 | 30 | 20 | 73 | 55 | 37 |
| 2.  Regulating Reserve | 10 | 8 | 5 | 26 | 21 | 14 |
| 3.  Redispatch Efficiencies | 65 | 56 | 41 | 385 | 332 | 128 |
| 4.  Bulk Electric System Reliability | 83 | 50 | 27 | 83 | 50 | 27 |
| 5.  Power Delivery System Reliability | 98 | 58 | 17 | 203 | 119 | 36 |
| 6.  Eliminating Rate Pancakes | 61 | 20 | 4 | 61 | 20 | 4 |
| 7.  Reconfiguration – Transmission Utilization | 52 | 30 | 18 | 52 | 30 | 18 |

- (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.

## Building a Cost Estimate from the “Bottom Up”

***Building a Cost Estimate ******from the “Bottom Up”***

**Functional Scope**

**Identify Basic Features**
**Define scope of each feature**

**System Requirements**

**Estimates**

**Define system needs**
**Obtain vendor quotes**
**Estimate initial capital cost**
**Estimate ongoing O&M costs**

**Process**

**Inputs**

***The cost estimate is based on Grid West’s specific functional design...***

**Organization Requirements**

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

- Start-up Costs

- Annual
- Operating Expenses

**Implementation Plan**

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

## The Cost Estimates

***Start-Up***

***Operating***

***Estimated Per Unit Cost***
***$0.31/MWh***
*(Based on Grid West load of 291,000,000 MWh)*

## Overview - Funding

**An affirmative outcome at Decision Point 2 would mean:**
- Sufficient funding is committed by transmission owners to cover the maximum two-year period to reach Decision Point 4 (whether to proceed to operational stage)
- The requirement in the Developmental Bylaws that at least three Major Transmitting Utilities sign the Funding Agreement, one of which must be BPA, has been satisfied
- Developmental Board is elected by the Grid West Members Representative Committee (MRC)

## Overview - Funding

**Two-year funding:**
- Developmental Board can draw maximum of two-thirds of total funding in first year (to provide flexibility to enter into two-year commitments)
- Board must use funds to carry out purposes specified in Developmental Bylaws
-  Basic two-year funding total: $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

##  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**

## Summing Up:

**Summing Up:**
**Grid West Solutions**
**to Regional Problems**

## Solutions for Regional Problems

***Solutions for Regional Problems***

***Although the system is fully subscribed, the transmission system is currently underutilized...***

- The contract path model fails to deal with actual flow effects
- There is no way to effectively trade transmission rights on a system-wide basis

_**Identified Problem**_

## 
When path/line loading problems occur, they are seldom known in advance but appear without warning in real-time

Individual transmission owner curtailments either under- or over-correct line loading problems

***The transmission system has the following operational challenges...***

- When path/line loading problems occur, they are seldom known in advance but appear without warning in real-time
- Individual transmission owner curtailments either under- or over-correct line loading problems

_**Identified Problem**_

***Solutions for Regional Problems***

## 
Requests for service must go through multiple providers 

Connection between regional planning and actual expansion is weak

Cost recovery is uncertain without a means to establish long-term rights and consider beneficiaries

***Lack of transmission expansion continues to be a problem...***

- Requests for service must go through multiple providers
- Connection between regional planning and actual expansion is weak
- Cost recovery is uncertain without a means to establish long-term rights and consider beneficiaries

_**Identified Problem**_

***Solutions for Regional Problems***

## 

Need for open and transparent ancillary services markets (balancing and reserves)

***There are currently few, if any, open and transparent ancillary services markets...***

- Need for open and transparent ancillary services markets (balancing and reserves)

_**Identified Problem**_

***Solutions for Regional Problems***

## More Information

***More Information***