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Jody Sundsted, UGP Marketing Manager SDWEA Presentation January 23, 2014 Upper Great Plains Region.

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Presentation on theme: "Jody Sundsted, UGP Marketing Manager SDWEA Presentation January 23, 2014 Upper Great Plains Region."— Presentation transcript:

1 Jody Sundsted, UGP Marketing Manager SDWEA Presentation January 23, 2014 Upper Great Plains Region

2 Current Activity Pursuing formal negotiations with the Southwest Power Pool, a Regional Transmission Organization, concerning membership. – Federal Register Notice (FRN) published November 1, 2013, recommending pursuit of Negotiations with SPP, and is the start of the public comment period. – Administrators letter, dated January 9, 2014, authorizing staff to pursue formal negotiations with SPP 2

3 Meeting Agenda Overview Integrated System (IS) How we got here - AOS studies – Integrated System Business Model – Multi-Criteria Decision Analysis RTO statutory topics Where we are now and the next steps 3

4 IS Options for Future 4 Other Facility Owners: Missouri River Energy Services NorthWestern Energy

5 Western Area Power Administration Upper Great Plains Region – Organized Day 2 Markets MISO to our East SPP to our South – West Interconnection to our West Limited Access due to fully subscribed DC ties – Limited Access to Canadian market to the North 5

6 UGP Firm Power Customers 6

7 Where We Get The Power Pick-Sloan Missouri Basin Program-ED 7 Congressionally Authorized Project Purposes: Flood Control Navigation Irrigation M&I Water Supply Hydropower Recreation Fish & Wildlife (includes endangered species)

8 Basin / Western / Heartland Integrated System (IS) 8 And Other Facility Owners: Missouri River Energy Services NorthWestern Energy

9 Integrated System & SPP Regions 9

10 Balancing Areas/RTOs 10 SPP East West MISO

11 UGP Summer Load* 11 SPP = 37% * 2010 summer CROD peak East West MISO = 23%

12 UGP Winter Load* 12 SPP = 18% * 2010 winter CROD peak East West MISO = 27%

13 TLR Schedule Cuts for Market to non-Market Congestion Management 13 SPP Future market access is the predominant issue. East West MISO

14 TLR Summary 14

15 2002-2012 Bilateral Trading Partners* 15 * - Excludes ~4 entities in the Western Interconnect

16 RTOs and Federal Power Implications Historical and future operational concerns – Low & high hydro generation – Evolving market situations – Congestion and TLRs Regardless of the IS RTO decision, future operations for UGPR will have to change – Purchased power and surplus sales strategies will have to change 16

17 AOS Study Methodology 17 Integrated System Business Model Trade Benefits (Nodal Analysis) Administrative Costs Transmission Expansion Capacity Benefits IS Transmission Revenue (Costs Shifts) Drive-Outs Multi-Criteria Decision Analysis Marketing Plan & Rate Stability Agreements 1 2 3 4 5 6 1 2

18 Trade Benefits (Nodal Analysis) IS owners engaged The Brattle Group to perform a Nodal Analysis. Evaluate the benefits and costs of: – Staying Independent – Joining MISO – Joining SPP Looking at near-year of 2013 and out-year of 2020 Results will be quantified in an Enhanced Adjusted Production Cost metric Also analyzed several sensitivities 18 1

19 19 Trade Benefits (Nodal Analysis) 1 1

20 Administrative Costs Major components included: – RTO administrative fees – RTO FERC fees – Internal cost increases (staff & technology) – Savings in IS reliability coordination 20 2

21 21 Administrative Costs 2 2 1

22 Transmission Expansion Costs What will be built? – IS projects – MISO projects – SPP projects What is the cost allocation method? – Who pays? – UGP seeking exception from RTO-wide expansion costs linked to our Federal Statutory Exemption (FSE) status for Federal service to load 22 3

23 23 Transmission Expansion Costs 3 2 3 1

24 Capacity Benefits MISO and SPP have different approaches for resource adequacy, operating reserves, and planning reserves. No Benefit/cost shown for Western – Western assumed no additional water would be available to create more energy under any small changes in additional capacity benefits. 24 4

25 Capacity Benefits 25 4 3 2 1 4

26 IS Transmission Revenue (Cost Shifts) Fundamental Change in Transmission Pricing with an RTO IS utilizes a Postage Stamp pricing method. – One rate for moving into, thru, and out of the IS footprint MISO and SPP utilize a License Plate pricing method. – Only load in the license plate zone pays for the transmission costs in that zone. Generation sourced in one zone sinking to load in the another zone pays no sourced zone transmission costs. 26 5

27 License Plate Pricing Impact 27 Postage Stamp License Plate

28 UGP FSE Service 28

29 29 5 4 3 2 1 IS Transmission Revenue (Cost Shifts) 5

30 Drive-Outs IS owners and others have load off of the IS system but take IS service for that load. – Effectively a Drive Out charge for generation that sources in or thru the IS but serves load off the IS – Revenues are currently shared among the IS owners. Both MISO and SPP have Drive Out charges based on the RTO transmission rate. – Revenues are shared among all the RTO load. – Results in a loss of revenue to the IS parties UGP FSE impacts 30 6

31 Drive Out Costs – Independent Integrated System 31 SPP Drive Outs pay IS Rate Revenue shared between IS owners East West MISO

32 Drive Out Costs – Join MISO MISO/Integrated System 32 SPP Drive Outs pay MISO Rate Issue is Revenue Sharing East West MISO

33 Drive Out Costs – Join SPP SPP/Integrated System 33 Drive Outs pay SPP Rate Issue is Revenue Sharing East West MISO

34 Drive Outs 34 6 6 5 4 3 2 1

35 Summary Table of IS Business Model Overall Cost/Benefit Analysis 35 1 2 3 4 5 6

36 Economic Evaluation Comparison to Stand Alone ($M) 36 Western Join MISOJoin SPP 1 2 3 4 5 6

37 Multi-Criteria Decision Analysis Summary 37 Criteria Weight MetricWeight Optimized Stand Alone MISOSPP Marketing Plan & Rate Stability 65% Access to Bilateral Markets40% ExtremeInsignificant TLR Susceptibility30% MajorModerateMinor Peaking Contracts10% Extreme Insignificant Contingency Reserves20% MajorInsignificant Agreements 35% Flexibility40% InsignificantMajorMinor Governance30% InsignificantModerateMinor Seams Agreement(s)10% InsignificantModerate Withdrawal10% InsignificantMajorModerate East - West10% InsignificantMinor RISK SCORE ( Lower score is less risk )6242.222.3 1 2

38 Section 1232 of EPAct 2005 May enter into contract placing all or part of a Federal utilitys transmission system under an RTO Contract shall include: – Performance standards for operations and use that ensure: Cost recovery for facilities under the RTO Consistency with (1) existing contracts, (2) third party financing arrangements, and (3) statutes 38

39 Section 1232 of EPAct 2005 (contd) Contract shall also include: – Monitoring and oversight by the Federal utility – Right of the Federal utility to withdraw from the Agreement Does not confer FERC jurisdiction over: 1.Federal generation assets 2.Capacity 3.Energy 4.power sales activities 39

40 Next Steps Meeting with SPP to negotiate changes to the Bylaws, Membership Agreement, and SPP Tariff Mid-February 2014 Bylaws, Membership Agreement and SPP Tariff language ready for SPP Stakeholder process Late February – Early March 2014 SPP Member workshop to discuss proposals March 2014 go through the SPP Stakeholder process Late April 2014 approval of Bylaws, Membership Agreement, and SPP Tariff language by SPP Board SPP files Bylaws, Membership Agreement, and SPP Tariff language, after SPP Board approval, with FERC and FERC approval process begins May-July Western Administrator Signs Membership Agreement March 2014 – September 2015 integration process October 2015 become full members of SPP 40

41 AOS Study Website 41

42 What does Western Joining SPP mean to SDWEA members? Load and generation in Westerns east balancing authority will: – become a part of the SPP balancing authority & – be in an organized day-2 market. New transmission service on the IS system will be sold under the SPP Transmission Tariff Generation & load interconnections will be subject to the terms of the SPP Tariff 42

43 Questions 43

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