southern intertie discussion

B O N N E V I L L E P O W E R A D M I N I S T R A T I O N

Pre-Decisional. For Discussion Purposes Only.September 10, 2014

Southern Intertie Discussion



Agenda

BPA’s approach to Intertie issues raised by Powerex

Effects on PF Rate Revenue Potential from Increased COB

Market Value Potential non-rates options

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BPA’s approach to Intertie issuesraised by Powerex

Presented as CAISO capturing a larger share of the intertie value through DA market policies• Analysis is complicated by water conditions and

market changes

Developed into transmission design questions• Does Hourly Non-Firm rate design provide correct

incentives to commit to long term investment?– “Existing rate formula contains inaccurate assumptions of HNF use on

Southern Intertie” – Powerex proposal to TX Rates Workshop

• Do Transmission policies artificially limit Long Term Firm resale market?

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Effect is driven by competition between Firm and Non-Firm TX

Mid C = $20

NP15 = $40

Non-Firm UserBid = $20 + $3.25 NF TX

Firm HolderBid = $??

CA Internal GenBid = $40

Firm HolderBid = $?? + Cong

NW

CA

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Our focus is on competition between BPA Firm and Non-Firm Products;Changes would drive customers towards LTF resale market.



Effects on PF Rates in the BP-16 Rate Case

Changing the Southern Intertie Non-Firm Transmission Rate has no impact on the PF Rate in BP-16.

The electricity prices used to estimate surplus energy revenues and power purchase expenses are not changed for the following reasons:• The production cost model (AURORA) used to calculate the prices received

when BPA-P makes surplus energy sales and power purchases models the WECC wholesale energy market as though it is operated by a single ISO. It does not deal with the issue of who gets what portion of the price spreads at various locations due to seams, market design, and market power issues. It also does not deal with the issue of the price differentials that accrue to firm versus non-firm transmission purchasers.

• The prices that BPA-P use for calculating its surplus energy revenues and power purchase expenses are all based on these sales and purchases being made at Mid-C prices. Changes to the Southern Intertie Non-Firm Transmission Rate will not have an impact on the Mid-C prices.

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Effects on PF Rates in the BP-16 Rate Case (cont.)

The BPA-P transmission and ancillary services expenses are not changed because all surplus energy sales and power purchases are assumed to be made at Mid-C.

If changing the Southern Intertie Nonfirm Transmission Rate requires that the Network Nonfirm Transmission Rate also be changed, then the BPA-P transmission and ancillary services expenses used in the PF rate calculations will increase to the extent that sales volumes exceed the BPA-P firm network transmission under contract.

The bottom line financial outcome of changing the Southern Intertie Nonfirm Transmission Rate involves the net revenue impact of the increases in BPA-P surplus energy revenues versus the increases in transmission and ancillary services expenses in actual operations, which impact the level of BPA-P cash reserves.

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BPAP Revenue Potential from Increased COB Market Value

Under a “equal value” COB market, potential BPAP revenue increase estimated at $7 – $13 million/yr, depending on utilization levels

We used historical BPAP utilization levels and a high utilization level.

Historical levels fluctuate year to year due to changes in water conditions, marketing strategies’ objectives and value proposition between the regions, including market design implications

Additional BPAP Revenue in theoretical “Equal Value” market

under Average and High Transmission Utilization Scenarios

FY Ave TU High TUFY15 $7,900,000 $12,300,000FY16 $8,300,000 $12,900,000FY17 $7,400,000 $11,400,000



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NP15 and MidC indices are ICE flat forward indices representing current forward market value

‘Low Value COB’ forward index constructed based on monthly historical relationships between NP15, MidC and COB• ‘Equal Value COB’ represents

midway point between MidC and NP15

Ave transmission utilization scenario based on historical BPAP transmission utilization rates over past 3 yrs• High transmission utilization

scenario assumes 90% TU in all months

Notes about this analysis:



BPAP Transmission Utilization In order to estimate the revenue

impact to BPAP if an ‘equal value’ COB market were captured, a transmission utilization assumption had to be made

BPA-P Transmission utilization can vary widely due to a number of factors (some in our control, other are not):

• Water year and seasonal variation• Marketing strategies which allocate

surplus to different markets (sales into CAISO, bilateral deals and RFPs, quantity of forward, DA and RT sales, etc)

• Long-term contracts with varying deliveries

• Changes in CAISO rules and regulations

The chart below illustrates how much one component of our intertie utilization (sales into CAISO) can vary with water year and advent of new initiatives in CA (i.e., CARB)

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Potential non-rates options to strengthen Southern Intertie

LTF resale market



Potential non-rates options to strengthen resale market

Proposed for consideration:• Allow normal tags to encumber transmission using the transmission

profile instead of the energy profile when calculating ATC (similar to capacity and dynamic tags)

• Only release nonfirm at T-60 • Only sell nonfirm if there is insufficient LTF available for resell on OASIS

Benefits:• Directly effects firm and non firm competition• Solutions would be developed outside of rates process

Risks:• Need to protect against transmission hoarding • Requires strong LTF resale market• Options could require significant systems changes

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southern intertie discussion

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