# Presentation: 357248

## Grid West Business Plan Draft for Discussion – March 7, 2006 

- The Structure Group
- 2000 W. Sam Houston Pkwy. South
- Suite 1600
- Houston, TX 77042

- 7/14/04

## Agenda

- Summary
- Functions
- Requirements
- Work Plan
- Costs
- Timing of funding sources

***Today’s presentation will cover the following topics...***

- 7/14/04

**Summary**

- 7/14/04

## Move to Basic Features by implementing functions incrementally;
Implement the features that deliver the greatest benefit to the region;
Minimize cost to implement each set of functions; and
Allow for future functional expansion and increased participation.

- Implement the features that deliver the greatest benefit to the region;
- Minimize cost to implement each set of functions; and
- Allow for future functional expansion and increased participation.

**Summary***Background & Objectives*

***The TRG was tasked with developing a business plan that supports a logical evolution of functionality...***

- 7/14/04

## SummaryFunctional Evolution

***This incremental approach moves Grid West towards the original TSLG Basic Features through a defined functional evolution...***

**Function 1 – Tariff Assistance and  Planning**

**GW tariff assistance & planning**

**Independent tariff administration**

**Grid West  Tariff**

**Function 2 – Ancillary Services**

**ADI**
***(Not included in estimate)***

**Ancillary services and market monitoring**

**Full TSLG Market Design**

***Covered in this report***

***Covered in this report***

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## SummaryBusiness Plan Components

***The  functional evolution is described within the Business Plan, which is comprised of the following sections...***

- Part 1 - Functions
- Part 2 - Requirements
- Part 3 – Work Plan
- Part 4 – Costs
- Part 5 – Timing of funding sources

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## SummaryApproach

***To develop the business plan we used the following approach...***

**Requirements**

**Facilities**

**People**

**Systems**

**Work Plan**

**Dependencies**

**Activities**

**Duration**

**Costs**

**Operations**

**Development**

**Implementation**

**Funding**

**Revenue**

**Loans**

**Debt**
**Issuance**

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## SummaryDefinitions

**Development **– This includes all activities up to and including the sourcing process (e.g. protocols, market mechanics, etc. with _*sourcing*_ used here to mean all implementation options, whether that be through service contracts, issuance of RFP and hiring, or combinations of both).
**Implementation **– This includes all activities associated with the implementation start-up of the Grid West functions (e.g. requirements, design, build, test, cutover).
**Operating **– This includes all activities associated with the ongoing operation of the Grid West functions 1 & 2.

***The work plan and costs were broken down into development, implementation, and operating phases...***

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## SummaryScope

***The scope of the business plan and associated costs described here****** ******includes...***

**Development**

**Operations**

_**Included:**_
- Resources
- Systems
- Facilities
- Insurance & Other
- _Board of Directors_
_**Not Included:**_
- Amortization of funding to date or non-technical development costs
- Costs to move toward full Basic Features design

**Implementation**

_**Included:**_
- Technical Resources
- Systems
- Facilities
- Insurance & Other
_**Not Included:**_
- _Board of Directors_
- Non-technical support for administrative, funding and policy functions
- Funding to date and associated interest

_**Included:**_
- Resources providing technical support in preparation for implementation
_**Not Included:**_
- _Board of Directors_
- Recruiting, cost
- Non-technical support for administrative, funding and policy functions
- FERC, Legal etc.
- Funding to date and associated interest

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## Summary Tariff Assistance and Planning

**Summary*** Tariff Assistance and Planning*

**Requirements**

**Tasks**

**Costs**

**Funding**

_**Systems:**_
- Planning tools
_**Facilities:**_
- Interim facility
- < 2000 sq ft.
_**Labor:**_
- 9 FTEs
- Staggered hiring

_**Development:**_
- Define services, requirements, resources
- Determine facility
- Q2 2006
_**Implementation:**_
- Develop infrastructure, hire, prepare base cases etc.
- Q2-3 2006
_**Go-Live:  Q4 2006**_

_**Development:**_
- $150k
_**Implementation:**_
- $1.6m
_**Operating*:**_
- $2.4m before amortization
- $2.6 after amortization

_**Funding Sources:**_
- Interim Funding Agreement will cover the  development and implementation costs
- Annual operating costs will be recovered through case study and fixed payments

- Note:  *10-year amortization for only the technical cost of development and implementation costs of this function.
- 	Funding to date and non-technical development have not been included.

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## SummaryAncillary Services

-   *10-year amortization for only technical cost of development and implementation costs of this function.
- 	Funding to date and non-technical costs have not been included.
-  ** Development cost is for technical support only, not board, filing activities, etc.
- *** Square footage will accommodate incorporating planning group into permanent facility.

- Notes:

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## SummaryImplementation Timing

***The following summarizes the timing for the functions...***

**S**

| Activity | Q2 ’06 | Q3 ’06 | Q4 ’06 | Q1 ‘07 | Q2 ’07 | Q3 ’07 | Q4 ’07 | Q1 ’08 | Q2 ’08 | Q3 ’08 | Q4 ’08 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |

_**Function 1**_
**   ****- Development**
**   ****- Implementation**
_**Function 2**_
**   ****- Development**
**	****- Implementation**
_**ADI Go Live **_
- (Separate activity by TOs)

***ADI ***
***Live***

***A/S ***
***Live***

***Tariff Assistance & Planning Live***

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## SummaryValue Proposition

***By taking an incremental approach, Grid West can more quickly capture a large portion of the benefits at a reduced cost...***

- * Note:  Not including amortization of funding to date

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## Summary

- Incremental approach captures approximately 50% of identified benefits sooner with less than half the costs.
- $3.8 million of interim funding is estimated for technical support only:
- $1.7m to bring Tariff Assistance & Planning to operational state; and
- $2.1m to bring Market functions to state of readiness for an implementation sourcing decision.
- Momentum is created to provide coordinated approach to addressing identified “problems and opportunities” in the Pacific Northwest.

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**Part 1 - Functions**

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##  Part 1 - FunctionsOverview

***The proposed business plan includes the following functions...***

- Tariff Assistance and Planning
- Tariff Administration Assistance for TOs
- Regional Planning
- Ancillary Service Markets
- ACE Diversity Interchange (ADI)
- Regulating Reserve
- Contingency Reserve
- Real-Time Balancing Service
- Market Monitoring

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##  Part 1 - FunctionsRationale

- Implementing the planning function allows Grid West to develop a new revenue stream as early as Q4 2006.
- ACE Diversity Interchange will allow for netting the ACE of participating control areas to reduce regulation control burden.
- Implementation is intended to be Q4 2006, before implementation of the regulating reserve markets.
- Cost is not included in the estimates presented here.
- Implementing the ancillary service markets, especially the real-time balancing service, allows Grid West to capture approximately 50% of the identified benefits at a lower total cost.
- Standard software is available to support these functions.
- This reduced subset of functionality lowers implementation risk.

***The following rationale was used to select the functions to be included in the initial roll-out...***

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## Part 1 - FunctionsCapability Map

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##  Part 1 - FunctionsWhat’s Different?

** ****Part 1 - Functions***What’s Different?*

***There are important functional differences from the original TSLG Basic Features, including...***

**Reconfiguration:** Grid West will not implement the transmission markets in this stage.
**Reliability:** Grid West will not assume the Reliability Authority responsibilities in this stage.
**Control Area Operations:** Grid West will not assume Balancing Authority and Interchange Authority responsibilities in this stage.

_**Impacts**_
- Significant headcount reduction
- Reduced infrastructure
- Reduced systems
- Reduced implementation effort

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##  Part 1 - FunctionsTariff Assistance and Planning : Overview

- Objectives:
- Perform fee-based studies at the request of TOs that –
- Aid TOs in administering their OATTs; and
- Identify alternatives and develop information for merit based decision making regarding new facilities.
- Build planning knowledge base and capability within Grid West
- Assist TOs with long range planning development by –
- Focusing on the Grid West service area;
- Providing transmission evaluations for resource planners; and
- Addressing the commercial value of potential expansions.
- Service Fees & Tariffs:
- Study service costs – paid for by requesting TO.
- Data maintenance costs – paid for by a general recovery mechanism (e.g. an assessment, a users fee, a component of the grid management charge, etc.).

***The following is an overview of the proposed tariff assistance and planning function...***

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##  Part 1 - FunctionsTariff Assistance and Planning: Overview

***The following is an overview of the proposed planning ***
***sub-functions...***

- Case-by-case studies that:
- May be particularly valuable for addressing requests that involve multiple systems by providing a Grid West perspective;
- May include system impact, interconnections, etc.;
- Will be done as requested TOs to supplement their internal process for administering OATTs; and
- Starts with small staffing and grows as needed.
- Transfer capability determinations that:
- Evaluate the ability of the combined Grid West high voltage backbone system to –
- Reliably serve load; and
- Integrate new resources, particularly addressing                                    the real-time effects of alternative resources.
- Support A/S market operations by –
- Evaluating simultaneous transfers between control areas; and
- Evaluating other transfer capabilities under various operating conditions.

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##  Part 1 - FunctionsTariff Assistance and Planning: Overview

***The following is an overview of the proposed planning                     sub-functions (continued)... ***

- Long-range planning studies that:
- Are coordinated with the work of WECC, NTAC and ColumbiaGrid to avoid unnecessary duplication of effort;
- Support merit-based investment decisions;
- Evaluate commercial value of network expansion alternatives; and
- Examine both local delivery and regional trade implications;
- Consider specific projects, going beyond the “broad conceptual level” of existing regional studies, e.g., evaluating a direct connection between the BCTC network and the Grid West network.
- Collection and validation of physical system modeling data:
- Validates data gathered from TOs and other sources including –
- Load and resource data; and
- Transmission network data.
- As an independent entity, Grid West may be able to gather commercially sensitive data not otherwise available for planning studies.

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##  Part 1 - FunctionsA/S Markets: Overview

***The following is an overview of the proposed ancillary service function...***

- Objectives:
- Allow for efficient operating reserves and imbalance energy provision:
- Pooling ACE and operating reserve requirements;
- Enhancing reserve sharing through use of most efficient resources; and
- Providing balancing energy market using economic dispatch.
- Service Fees & Tariffs:
- A layer fee structure to collect a contribution from all part based on level of participate in markets – possibilities include:
- Grid management type charge for participating TOs; and
- Transaction based fees for suppliers outside Grid West, etc.

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##  Part 1 - FunctionsA/S Market: Ace Diversity Interchange (ADI)

***ADI can be implemented within the current utility infrastructure prior to the implementation of the regulating reserve market...***

- Not a part of the TSLG model but had been contemplated as a near-term activity – current plans are for implementation in Q4 2006.
- ADI is an established method for netting the ACE of participating control areas to reduce the control burden on regulating units.
- Can be implemented earlier by leveraging the existing infrastructure and systems of TOs.
- Will contribute to inadvertent interchange but experience in other places has shown that the impact tends to be more canceling than cumulative in nature.
- It is assumed that the personnel/vendor for each participating control area will implement the required changes to its systems and bear the associated costs.
- Operational aspects of the ADI function need to be defined and agreed upon by participating control areas.

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## Part 1 - Functions A/S Markets: Overview

**Part 1 - Functions ***A/S Markets: Overview*

***While the ADI function can be implemented early, the regulating reserve, contingency reserve and real-time balancing markets are tightly integrated and best implemented simultaneously...***

**Contingency**
** ****Reserve**

**Regulating**
** ****Reserve**

**Real-time **
**Balancing **

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## Part 1 - Functions A/S Markets: Regulating Reserve

- Will extend the ADI function with an auction process for selecting the unit(s) that will provide the required regulation services.
- Auction will be run each hour to select unit(s) that will provide services for the following hour.
- The pooled ACE calculated by the ADI function will be allocated to control areas where the unit(s) selected to provide regulation services are physically located.
- Settlement for associated energy transfers will be at imbalance energy prices –several operational aspects need to be resolved during the protocol development phase, e.g., must-offer requirements, ability to self-provide, settlement rules, etc.

***Regulating reserve includes the following features...***

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## Part 1 - Functions A/S Markets: Contingency Reserves

- Total Grid West reserve requirement will be calculated by aggregating the requirements of individual TOs.
- An auction process will be facilitated for selection of the units providing the reserve – auction will be run every hour to select providers for the next hour.
- Selection process will be same as in the original design and will take into consideration bid prices, contingencies and ATC.
- Grid West will identify the required transmission associated with use of the selected reserves - TOs not providing required transmission will be required to self-provide reserve.
- Several operational aspects need to be resolved during the protocol development phase, e.g., must-offer requirements, ability to self-provide, etc.

***Contingency reserve includes the following features...***

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## Part 1 - Functions A/S Markets: Real-Time Balancing

***Real-time Balancing Service (RBS) includes the following features...***

- Design is functionally the same as in the TSLG model and will be based on a Security Constrained Economic Dispatch (SCED).
- Grid West will have to implement the capability to develop a full State Estimator solution or will have to coordinate operations with PNSC/others to obtain one.
- TOs will be required to provide hourly balanced schedules.
- All qualified resources will be allowed to submit incs and decs.
- RBS will balance Grid West requirements every five minutes and will generate interchange schedule adjustments to balance the requirements of each control area for each interval.
- Settlements will be nodal for all generation but on a metered boundary level for loads.

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## Part 1 - Functions A/S Markets: Market Monitoring

***Market monitoring includes the following features...***

- Activity will be only in support of the organized ancillary service markets implemented by Grid West.
- This effort will be supplemental to broader market monitoring of bilateral markets considered in SSG-WI discussions.

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**Part 2 – Requirements **

**Requirements**

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## Part 2 - RequirementsApproach

***In evaluating the requirements for each function, we looked at the impact to our original people, systems, and facilities estimates...***

**Requirements**

**Facilities**

**People**

**Systems**

-  How many people are required?
-  When do they need to be hired?

-  What systems are required?
-  How much will it cost to implement them?

-  How large of a facility is required?
-  What upgrades are required?

**Requirements**

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## Part 2 - RequirementsTariff Assistance and Planning: People

_**Overview**_
- Divisions: 1
- 24x7 positions: 0 desks
- FTEs: 9
- 1 Managing Engineer
- 6 Planning Engineers
- 1 IT Support
- 1 Business Manager
- Hiring waves
- 3 Q3 2006
- 3 Q4 2006
- 3 Q1 2007

**Grid West**

**System**
**Planning**

- Group:  7

**Requirements**

***To implement and operate the Tariff Assistance and Planning function, the following organization is likely required...***

**Corporate **

**IT **
**Operations**

- Group:  1

- Group:  1

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## Part 2 - RequirementsTariff Assistance and Planning: Systems

_**Overview**_
- Power Flow Analysis - $ 175k
- GE PSLF
- PTI PSS/E
- PowerWorld
- Transient/Voltage Stability Analysis – $ 65k
- PSAT, TSAT, VSAT
- Math Packages - $ 10k
- MathLab, other
- Hardware - $25k

**Requirements**

***To administer the Tariff Assistance and Planning function, the following systems are likely required...***

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## Part 2 - RequirementsTariff Assistance and Planning: Facilities

| Interim Facility | Lease Rate | Unit Cost |
| --- | --- | --- |
| Interim Tariff Assistance and Planning Site
 | Start-up Leasehold Improvements | $25/sq ft build-out and site readiness
$0 UPS & back-up generation
$0 data/network |
|  | Annual Lease | $25/sq ft per year
1,800 sq ft |
|  | Annual Operational Expenses | $5/sq ft furniture
Building services
Utilities
Telecom
 |

**Requirements**

***We have assumed a temporary facility to house the Tariff Assistance and Planning function until the permanent facility is ready to house both Functions 1 and 2...***

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## Part 2 - RequirementsTariff Assistance and Planning: Assumptions

_**Unknowns**_
- Can hiring happen quickly and will resources move to new,  untried organization?
- Can planning services be defined appropriately for the region and will the demand for services cover costs?

**Requirements**

***To implement and operate the Tariff Assistance and Planning function, the following assumptions have been made...***

_**Assumptions**_
- ~6 month implementation to start quickly and then get rolled into larger organization

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## Part 2 - Requirements A/S Markets: People

_**Overview**_
- Divisions: 4
- 24x7 positions: 2 desks
- Staff per 24x7 position: 6
- FTEs: 93
- Hiring waves
- Q1 2007
- Q1 2008

**Grid West**

**Market **
**Operations**

**IT **
**Operations**

**Market **
**Development**

- Group:  14

- Group:  30

- Group:  26

**Corporate **
**Administration**

**Requirements**

- Group:  23

***To implement and operate the A/S market function, the following organization is likely required...***

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## Revised Employee Estimate Total:  102 for Functions 1 & 2

-   *Shift work
- **Corporate Administration is a total of 25 including 4 in Executive Management

- Market
- Operations

- IT
- Operations

- Dir of Markets (1)
- Scheduling
- Managers (0)
- Pre-Schedulers (0)
- Real-Time Schedulers (0*)
- Outage Coordination (0)
- OASIS (0)
- Market Administration (20)
- Manager (2)
- A/S (6*)
- RBS (6*)
- RCS (0)
- Net. Model (2)
- Procedures (2)
- Support (2)
- Mkt Analysis (1)
- Market Settlements (7)
- Manager
- Analysis
- Dispute resolution

- Dir of IT (1)
- Corporate Infrastructure & Systems (12)
- IT planning
- Asset management
- Network
- Desktop
- Security
- Enterprise
- Architecture
- Application Support (14)
- EMS (3)
- Market (6)
- Financial & Other (5)

- Group:  29

- Group:  27

- System
- Planning

- Dir of Planning (1)
- Interconnection Planning (2)
- Expansion Planning (2)
- Transmission Studies (2)
- AFC Mgmt (0)

- Group:  7

**Revised Employee Estimate ***Total:  102 for Functions 1 & 2*

***Tariff Assistance & Planning includes 7 in System Planning, 1 from IT and 1 Business Admin (9 total)***

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## Part 2 - Requirements  A/S Markets : Systems

**Requirements**

_**Overview**_
- Real-Time Monitoring Systems - $4m
- Market Systems – $11m
- Corporate Systems - $5m

***To administer the A/S market function, the following systems are likely required...***

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## Part 2 - Requirements  A/S Markets : Facilities

**Requirements**

| Facility | Lease Rate | Unit Cost |
| --- | --- | --- |
| Greenfield Administration
Site
 | Leasehold Improvements | $50/sq ft build-out and site readiness
$1.5 million UPS & back-up generation
$60,000 consoles 
$3.5 million data/network |
|  | Annual Operational Lease | $25/sq ft per year
30,000 sq ft |
|  | Annual Operational Expenses | $5/sq ft furniture
Building services
Utilities
 |

***Based on the defined organization, the following permanent facility is likely required...***

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**Part 3 – Work Plan**

**Tasks**

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## Part 3 - Work PlanApproach

***To develop an implementation plan we defined the activities, including effort and duration, for each function...***

-  What are the major activities associated with each function?

-  How much effort is involved with each activity?
-  How many people are required?

-  What dependencies exist?
-  What is the critical path?

**Work Plan**

**Dependencies**

**Activities**

**Effort**

**Tasks**

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## Part 3 - Work Plan Central Question

- Can we implement Stages 1 & 2 more quickly given their reduced scope?  **Yes...but how much faster?**
- What are we implementing? (scope)
- What key dates must be accommodated? (milestones)
- What activities must be completed? (tasks)
- How long will each activity take? (effort)
- What tasks are dependent on one another? (dependencies)
- When will the features become operational? (functional evolution)

***The central question we are trying to answer is...***

***To answer this question we must review the following....***

**Tasks**

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## Part 3 - Work Plan Parallel Paths

- Functions 1 & 2 are independent of one another.
- ADI will be implemented as a separate effort.
- They can be implemented in parallel.
- Since Function 1 is _not_ system intensive, it will follow a different implementation path.
- Since Function 2 is system intensive it will go through a standard system development lifecycle.

***As a part of our analysis we are looking at Functions 1 & 2 of the business plan...***

**Tasks**

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## Part 3 - Work Plan Phases

***Any project will have two phases...***

- _Development Phase_ – This phase includes all activities up to and including the sourcing process (e.g. protocols, market mechanics, etc.).
- _Implementation Phase_ – This phase includes all of the steps within the system development lifecycle (e.g. requirements, design, build, test, cutover).

***NOTE:  Subsequent functional releases will be considered major system implementation and go through similar steps***

**Tasks**

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## Part 3 - Workplan Tariff Assistance and Planning: Critical Path

***Function 1 does not need to follow the typical system development lifecycle...***

**Tasks**

| Activity | Q2’06 | Q3’06 | Q4’06 | Q1’07 |
| --- | --- | --- | --- | --- |
|  |  |  |  |  |

_**Developmental**_
**   ****- Define Services **
**   ****- Define Requirements**
_**Implementation Effort**_
**   ****- Hire Staff**
**   ****- Develop Protocol**
**   ****- Acquire systems and data**
_**Operations**_
**    ****- Offer study services**

***Development ~1-2 months***

***Implementation***
***~5-6 months***

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## Part 3 - Workplan Ancillary Services: Critical Path

***The following activities have been identified as critical path for the A/S market function...***

**Tasks**

**S**

| Activity | Q2 ’06 | Q3 ’06 | Q4 ’06 | Q1 ‘07 | Q2 ’07 | Q3 ’07 | Q4 ’07 | Q1 ’08 | Q2 ’08 | Q3 ’08 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |

_**Developmental Effort**_
**   ****- Finish Design**
**   ****- Protocols Development**
**   ****- Market Mechanics**
**   ****- Sourcing**
_**Implementation Effort**_
**   ****- Requirements**
**   ****- Design, Build Test**
**   ****- integration Test**
**   ****- Market Trials**
**   ****- Cutover**
_**Grid West Go Live**_
**    ****- Daily Operations**
_**ADI Go Live**__ _
_**(**_**Separate activity by TOs**_**)**_

***Development***
***~12 months***

***Implementation***
***~18 month***

***ADI***
***Live***

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**Part 4 – Costs**

**Costs**

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## Part 4 - Costs Approach

***To estimate costs, we performed a change case using our existing cost model.  ***

-  What are the cost associated with development activities?
-  When will those outlays occur?

-  What are the costs associated with start-up activities?
-  When will those outlays occur?

-  How much will Grid West cost to operate?
-  When will those outlays occur?

**Costs**

**Operating**

**Development**

**Implementation**

**Costs**

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## ScopeChange Case Cost Drivers

***The reduction in estimated costs can be explained by the following changes in cost drivers...***

- Employees: reduced to 102 from 305
- Facilities: 1 facility instead of 3
- Development:  12 months instead of 24 months
- Implementation: 18 months instead of 24 months
- Outside Services: reduced effort by 50%
- Systems: reduced number and complexity of systems

**Costs**

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## Part 4 - Costs Cost Summary

**Costs**

***The following is a summary of the costs associated with the Tariff Assistance and Planning and A/S Markets functions...***

**Planning Summary**

**A/S Market Summary **

| Cost | Total |
| --- | --- |
| Total Pre-Operation Costs | $65,538,000 |
|       - Development Costs* | $2,112,000 |
|      - Implementation Costs | $63,426,000 |
| Total Operating Costs** | $28,526,000 |

| Cost | Total |
| --- | --- |
| Total Pre-Operation Costs | $1,702,000 |
|      - Development Costs* | $144,000 |
|      - Implementation Costs |  $1,558,000 |
| Total Operating Costs* | $2,373,000 |

**Note: Development costs only include technical support.  Other costs were considered out of scope.*
***Note: Operating costs do not include amortization of development and implementation costs*

** Note: Development costs only include technical support.  Other costs were considered out of scope.*
*** Note: Operating costs do not include amortization of development and implementation costs.*
_*Cost of Board included in operating costs only.*_

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## Part 4 - Costs Tariff Assistance and Planning: Development Cost Detail

**Costs**

***The following is a summary of the development costs associated with the Tariff Assistance and Planning function...***

| Cost Category | Estimate | Comments |
| --- | --- | --- |
| Technical Support |  |  |
|      - Define Service Requirements |  |  |
|      - Define Resource Requirements |  |  |
|      - Define Technical Requirements |  |  |
|      - Secure Facility |  |  |
| Total | $144,000 |  |
| Preoperational Expenses |  |  |
|      - Non-technical support | TBD | Not estimated |
|      - Facilities | TBD |  |
|      - Hardware/Software Expenses | TBD |  |
|      - Insurance | TBD |  |
| Total | TBD |  |
| Total Development | TBD |  |

- Note: Development costs only include technical support.  Other costs were considered out of scope.

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## Part 4 - Costs Tariff Assistance & Planning: Implementation Cost Detail

**Costs**

| Cost Category | Estimate | Comments |
| --- | --- | --- |
|      - Grid West Labor & Employee Expenses | 487,000 |  |
|      - Outside Services* | 591,000 | Tech support & legal |
|      - Systems | 362,000 |  |
|      - Facilities | 111,000 | 6 months pre-operational |
|      - Insurance | 0 |  |
|      - Other | 7,000 | Meetings & communication |
| Total | 1,558,000 |  |

***The following is a summary of implementation costs associated with the Tariff Assistance and Planning function...***

- * Note: Outside services assumes 6 months implementation, 30 days external legal and 30 days financial & security consulting

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## Part 4 - Costs  Tariff Assistance and Planning: Operational Cost Detail

**Costs**

| Cost Category | Estimate | Comments |
| --- | --- | --- |
| Annual Operating Expenses |  |  |
|      - Grid West Labor & Employee Expenses | 1,320,000 |  |
|      - System Expenses | 54,000 |  |
|      - Outside Services* | 342,000 |  |
|      - Facilities | 132,000 |  |
|      - Insurance | 500,000 | Depends on services |
|      - Other | 25,000 | Meetings & Communications |
| Operating Expenses | 2,373,000 |  |
| Amortization (10-year) | 170,000 | Does not include allocation of funding to date & associated interest |
| Revenue Requirement | 2,543,000 |  |

***The following is a summary of operational costs associated with the Tariff Assistance and Planning function...***

- * Note: Outside services assumes 90 days technical support consulting; 60 days external legal; and 30 days financial & security consulting

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## Part 4 - Costs Ancillary Services: Development Cost Detail

***The following is a summary of the development costs associated with ancillary services market...***

**Costs**

**What are the categories for development**

| Cost Category | Estimate | Comments |
| --- | --- | --- |
| Technical Support | $2,112,000 | 5-6 FTE Q2 2006-Q1 2007 |
|      - Design |  |  |
|      - Protocols |  |  |
|      - Market Mechanics |  |  |
|      - Sourcing |  |  |
|  |  |  |
| Preoperational Expenses | TBD |  |
|      - Board of Directors |  |  |
|      - Non-technical support |  |  |
|      - Facilities |  |  |
|      - Hardware/Software Expenses |  |  |
|      - Insurance |  |  |
|  |  |  |
|  |  |  |
| Total Development | TBD |  |

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## Part 4 - CostsAncillary Services: Implementation Cost Detail

***The following is a summary of the implementation costs associated with the ancillary services market...***

| Cost Category | Estimate | Comments |
| --- | --- | --- |
| Capital Expenditures |  |  |
|      - Systems | 20,364,000 |  |
|      - Outside Services | 7,524,000 |  |
|      - Data, Voice, Network | 3,472,000 |  |
|      - Facilities (Leasehold Improvements) | 3,040,000 | Site build-out, UPS |
| Total | 34,400,000 |  |
| Preoperational Expenses |  |  |
|      - Grid West Labor & Benefits | 15,569,000 |  |
|      - Board of Directors | 0 |  |
|      - Facilities | 4,032,000 |  |
|      - Employee Expenses | 754,000 |  |
|      - Systems | 237,000 | HW maintenance |
|      - Insurance | 1,500,000 |  |
|      - Other | 534,000 | Meetings, tax |
| Total | 22,626,000 |  |
| Interest During Construction | 6,400,000 | Interest & bond flotation |
| Total Implementation | 63,426,000 |  |

**Costs**

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## Part 4 - CostsAncillary Services: Operational Cost Detail

***The following is a summary of operational costs associated with the ancillary services market...***

| Cost Category | Estimate | Comments |
| --- | --- | --- |
| Annual Operating Expenses |  |  |
|      - Grid West Labor & Benefits | 11,694,000 |  |
|      - Board of Directors | 700,000 |  |
|      - System Expenses | 2,493,000 |  |
|      - Data ,Voice, & Network | 689,000 |  |
|      - Outside Services | 2,291,000 | Includes market monitoring functions |
|  - Capital Enhancements | 2,036,000 |  |
|      - Facilities | 2,688,000 |  |
|      - Employee Expenses | 651,000 |  |
|      - Insurance | 1,500,000 |  |
|      - Other | 457,000 | Meetings, tax |
|      - Interest Expense | 3,327,000 |  |
| Operating Expenses** | $28,526,000 |  |
| Amortization (10-year) | 6,550,000 | Does not include allocation of funding to date |
| Revenue Requirement | $35,076,000 |  |

**Costs**

- * Note:  Operating expenses are based on one complete year of operation (i.e. 2009).  Amortization of development and implementation costs includes technical costs only.  Non-technical costs and funding to date are not included.

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##  Part 4 - Costs Reducing costs

_***Tariff Assistance and Planning function***_
- Can we use existing TO planning software?
- Do we need all the planning software?
- Can we “borrow” TO planning staff?
- Can we get cheaper office space by renting from a TO?
_***A/S Markets***_
- Can we use existing software: PNSC, Utilities?
- Can outsourcing lower costs and speed up delivery?

***Can costs be reduced and the implementation time reduced?***

**Costs**

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**Part 5 – Timing of funding sources**

**Funding**

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## Part 5 - Funding Approach

***Finally, we evaluated the timing of outlays and revenues to determine if the proposed funding agreement is sufficient...***

-  What money has been spent to date?
-  Is the proposed interim funding sufficient?

-  How much debt will be issued for Grid West start-up?
-  How will that debt be amortized and recovered?

-  What are the different Grid West revenue sources?
-  When will Grid West begin to collect revenue?

**Funding**

**Revenue**

**Loans**

**Debt**
**Issuance**

**Funding**

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## Part 5 - Funding Tariff Assistance and Planning

***The Tariff Assistance and Planning function will be supported by the following funding sources... ***

| Funding Source | Function | 2006 | 2007 | 2008 | Total |
| --- | --- | --- | --- | --- | --- |
| Interim Funding Agreement | Development | 0.1 |  |  | 0.1 |
|  | Implementation | 1.6 |  |  | 1.6 |
|  |  |  |  |  | 1.7 |

| Case Study Services | Operating |  | 2.4 | 2.4 |
| --- | --- | --- | --- | --- |
|  |  |  |  |  |

**Loan/Debt**

**Revenue**

**Funding**

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## Part 5 - Funding Ancillary Services

***Function 1 does not need to follow the typical system development lifecycle...***

| Funding Source | Function | 2006 | 2007 | 2008 | 2009 | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Interim Funding Agreement | Development | 1.6 | 0.5 |  |  | 2.1 |
|  |  |  |  |  |  | 2.1 |

| Bond Issuance | Implementation |  | 40.4 | 23.0 |  | 63.4 |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  | 63.4 |

| Market Operations Charge  | Operating |  |  | 7.1 | 28.5 |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |

**Funding**

**Loan/Debt**

**Revenue**

***The ancillary services function will be supported by the following funding sources... ***

- Notes:
- Market Operations Charge does not include recovery of amortized development and implementation costs*.*
- _Board costs are included for operations only_.
- Market Operations begin October 1, 2008.
- Development includes technical support only.
**	**

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## Part 5 - FundingConsolidated Activities: Function 1 & 2

| Bond | Function 2 Implementation |  | 40.4 | 23.0 |  | 63.4 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Subtotal |  |  |  |  | 63.4 |

| Market Operations Charge | Function 2 Operations |  |  | 7.1 | 28.5 |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |

**Funding**

| Interim Funding Agreement | Function 1 Development | 0.1 |  |  |  | 0.1 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Function 1 Implementation | 1.6 |  |  |  | 1.6 |
|  | Function 2 Development | 1.6 | 0.5 |  |  | 2.1 |
|  | Subtotal |  |  |  |  | 3.8 |

| Case Study Services  | Function 1 Operations |  | 2.4 | 2.4 | 2.4 |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |

**Note:  Total costs do not include admin costs during development (tech support only), Board, or interest expense on interim funding.****	**

| Funding Source | Function | 2006 | 2007 | 2008 | 2009 | Total |
| --- | --- | --- | --- | --- | --- | --- |

| Total | Total | 67.2 |
| --- | --- | --- |

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## Part 5 - FundingInterim Funding Requirements

**Funding**

| Interim Funding | Function 1 Development | 0.1 |  |  |  | 0.1 |
| --- | --- | --- | --- | --- | --- | --- |
|  | Function 1 Implementation | 1.6 |  |  |  | 1.6 |
|  | Function 2 Development | 1.6 | 0.5 |  |  | 2.1 |
|  | Technical Subtotal |  |  |  |  | 3.8 |

| Funding Source | Function | 2006 | 2007 | 2008 | 2009 | Total |
| --- | --- | --- | --- | --- | --- | --- |

| Total Interim Funding** | Total | TBD |
| --- | --- | --- |

| Interim Funding | Policy Administration | TBD | TBD |  |  | TBD |
| --- | --- | --- | --- | --- | --- | --- |
|  | Board of Directors* | TBD | TBD |  |  | TBD |
|  | Non-Technical Support | TBD | TBD |  |  | TBD |
|  | Non-Technical Subtotal |  |  |  |  | TBD |

-   * Note:  Board of Directors is only included in operations costs after go live date in Q4 2008.
- ** Note:  Funding to date is not included in this summary.  The funding to date is $14,066,000 principal with $2,187,000 interest accrued to date.

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## Summary

- Incremental approach captures approximately 50% of identified benefits sooner with less than half the costs.
- $3.8 million of interim funding is estimated for technical support only:
- $1.7m to bring Tariff Assistance & Planning operational; and
- $2.1m to bring Market functions to sourcing for implementation.
- Momentum is created to provide coordinated approach to addressing identified problems and opportunities in the Pacific Northwest.

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**Appendix**

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##  Grid West ScopeFunctional Scope: A/S Markets

***The easiest way to implement ADI pre-market is to leverage the existing infrastructure of the TOs. These are the major steps involved***:

- ADI (pre-market)
- Agree on a host control area;
- Configure the ICCP of all participating control areas to transmit their ACE to the host control area and to receive their ACE Adjustment from the host control area; and
- Implement the ADI function at the host control area (could be implemented as part of AGC, a separate function or perhaps as part of an existing calculation function):
- This function will basically net the ACEs of the participating control areas and calculate ACE Adjustments for each of them; and
- The resulting adjustments are then transmitted to the participating control areas.
- Participating control areas will modify AGC function as desired to accommodate use of the ACE Adjustments – this capability may already exist for some of the TOs.
- It is assumed that the personnel/vendor for each participating control area will implement the required changes to its systems.

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## Comparison of implementation Costs

| implementation Cost Category | July 2005 Estimate Basic Features | March 2006 Estimate Functions 1 & 2 |
| --- | --- | --- |
| Capital Expenditures |  |  |
|      - Systems | $40,111,000 | 20,726,000 |
|      - Development & Consulting | $18,648,000 | 8,115,000 |
|      - Data, Voice, Network | $8,514,000 | 3,472,000 |
|      - Facilities (Leasehold Improvements) | $5,436,000 | 3,040,000 |
| Total | $72,709,000 | 35,353,000 |
| Preoperational Expenses |  |  |
|      - Grid West Labor | $30,992,000 | 16,056,000 |
|      - Board of Directors | $1,400,000 | 0 |
|      - Facilities | $6,074,000 | 4,143,000 |
|      - Hardware/Software Expenses | $1,384,000 | 754,000 |
|      - Employee Expenses | $1,442,000 | 237,000 |
|      - Insurance | $1,500,000 | 1,500,000 |
|      - Other | $1,345,000 | 541,000 |
| Total | $44,137,000 | 23,231,000 |
| Interest During Construction | $15,836,000 | 6,400,000 |
| Total implementation | $132,682,000 | 64,984,000 |

- * Note:  March 2006 estimate does not include Board costs during implementation.  Neither include development costs.

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## Comparison of Operating Expenses

| Cost Category | July 2005 Estimate Basic Features | March 2006 Estimate Functions 1 & 2 |
| --- | --- | --- |
| Annual Operating Expenses |  |  |
|      - Grid West Labor & Benefits | $37,926,000 | 13,014,000 |
|  - Board of Directors | $700,000 | 700,000 |
|      - System Expenses | $5,232,000 | 2,547,000 |
|      - Data ,Voice, & Network | $2,967,000 | 689,000 |
|      - Outside Services | $4,186,000 | 2,633,000 |
|  - Capital Enhancements | $4,011,000 | 2,036,000 |
|      - Facilities | $3,569,000 | 2,820,000 |
|      - Employee Expenses | $2,135,000 | 651,000 |
|      - Insurance | $2,000,000 | 2,000,000 |
|      - Other | $2,838,000 | 482,000 |
| Operating Expense | $65,564,000 | $27,572,000 |
| Interest Expense | $6,574,000 | $3,327,000 |
| Operating Expense after Interest Expense | $72,138,000 | $30,899,000 |
| Amortization (10 Year)* | 13,268,000 | 6,720,000 |
| Total Revenue Requirement | $85,406,000 | $37,619,000 |

- * Note: Funding to date not included in amortization.

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## Glossary

| Acronym | Definition |
| --- | --- |
| ACE | Area Control Area |
| ADI | ACE Diversity Interchange |
| ATC | Available Transmission Capacity |
| CRM | Customer Relationship Management |
| DAC | Data Acquisition and Control |
| GE PSLF | GE Positive Sequence Load Flow |
| ICCP | Inter-Control Center Communications Protocol |
| NTAC | Northwest Transmission Assessment Committee |
| OATT | Open Access Transmission Tariff |
| PNSC | Pacific Northwest Security Coordinator |
| PSAT | Powerflow & Short-Circuit Assessment Tool |
| PTI PSS/E | Power Technologies International Power System Simulator for Engineering |
| SE/CA | State Estimator/Contingency Analysis |
| TSAT | Transient Security Assessment Tool |
| VSAT | Voltage Security Assessment Tool |
| WECC | Western Electricity Coordinating Council |

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