BCTC Customer Consultation Short-term Point-to-Point Rate Design March 5, 2007

BCTC Customer Consultation

Short-term Point-to-Point Rate Design

March 5, 2007

March 5, 2007 Page 2

Welcome

Introductions

Emerging Context

FERC Order No. 890: Preventing Undue Discrimination and Preference in Transmission Service

− Amendments to the regulations and the pro forma open access transmission tariff adopted in Order Nos. 888 and 889.

− Issued February 16, 2007

BCTC Plan

− BCTC is evaluating and developing its approach to Order No. 890.

− BCTC expects that it will consult with its customers on the implications of Order No. 890.

− BCTC’s ST Rate design consultation plan is not directly affected by Order No. 890.


Agenda and Outline

1. Welcome and Introductions

2. Objectives

3. Review

− Context

− ST Rate Design Elements of BCTC Report: Review of Rate Design Alternatives

4. Discussion− Replacement of the $55 Minimum Fee;

− Discounting transmission reservations beyond one day; and

− Directional pricing of discounted short-term service.

5. Next Steps


Objectives

1. Review ST Rate Design elements of BCTC report: Review of Rate Design Alternatives

2. Seek customer input on:

Whether to replace the $55 Minimum Fee per transaction with a minimum $/MWh charge (price floor);

Whether to discontinue discounting transmission reservations beyond one day; and

Whether directional pricing of discounted short-term service is appropriate.

3. Discuss other alternatives, as necessary

4. Determine the need for additional customer consultation


Context – 2005 OATT Decision, Order No. G-58-05

ST Rate Design Elements

Updated discounting formula

− Replaced California-Oregon border (COB) price index with more liquid Mid-C price index,

− Replaced the Alberta gas-based electricity price with actual values from Alberta Power Pool.

Eliminated $1 price floor for non-firm service and instituted a $55 minimum scheduling fee

Allowed discounted ST PTP rate to go to zero in the opposite direction of market opportunity


Context – Commission Directives

BCTC directed to file a Rate Design Report that includes:

Evaluation of the directional aspect of short-term service price discounting

Evaluation of $55 Minimum Scheduling Fee

BCTC Compliance Filing - Review of Rate Design Alternatives, includes:

Analysis of three directional aspects of BCTC’s current ST-PTP rate formula:

− Zero-price reservations and schedules in the opposite direction of market prices

− Discounting of multiple-day transactions

− “Blocking” effect of various rate formulae, including the impact of a non-directional formula

Analysis of $55 Minimum Scheduling Fee


Context - Current ST Rate Design

ST-PTP Service

Available firm and non-firm for reservation periods up to one year.

Undiscounted Service

− ST PTP transmission service to load serving points within BC

Discounted Service

− Export and wheel-through transmission services

– Hourly Firm and Non-firm Service

– Daily Firm and Non-Firm Service

– Weekly Firm and Non-Firm



ST Pricing Formula

Firm hourly rate formula approximates 1/4 of the value of the gains from trade

− Difference between posted market prices in Alberta and at Mid-C

− Adjusted for exchange rate and transmission system losses.

Example: Discounted ST Firm Hourly Rate for Transactions to US:

[(Mid-C Price * ex.r) – (AESO Price * Loss Factor for AB*Loss Factor for BPA )] / 4

Minimum ST firm hourly rate = 0

Maximum ST firm hourly rate = LT PTP rate (“ST Firm Cap Rate”)

Non-firm hourly rate = Min. (Firm Hourly rate formula - $1/MWh, Firm Cap Rate)



Discounted ST-PTP rates based on the hourly rate formula and rate caps

Discounted Rate Formula

Hourly Firm Rate Minimum (Firm Hourly Formula, Firm Cap Rate)

Hourly Non-Firm Rate Minimum (Firm Hourly Formula - $1/MWh, Firm Cap Rate)

Daily Firm Rate Sum of 24 Hourly Firm Formula / 24

Daily Non-Firm Rate (Sum of 24 Hourly Firm Formula / 24) - $1/MWh

1 Week Firm Rate Daily Firm Rate + .5 (Firm Cap Rate – Daily Firm Rate)

1 Week Non-Firm Rate (Daily Firm Rate = .5 (Firm Cap Rate – Daily Firm Rate)) - $1/MWh

X Week Firm Rate (1 x Weekly Firm Rate) + ((X – 1) x Firm Cap Rate)) / X

X Week Non Firm Rate ((1 x Weekly Firm Rate) + ((X – 1) x Firm Cap Rate)) / X – 1 $/MWh

Where X is the number of weeks in the reservation


Context - Sales and Revenue

Analysis

Over a comparable period April-September ’05 – ‘06:

PTP transmission volumes increased by 30%

PTP transmission revenues declined by 17%.

Average revenue for all ST-PTP service declined by 50%, from ~ $4 to $2/MWh.

Conclusion Roughly 1/3 of reservations were zero-price

Increase in reservations

Change in reservation patterns



PTP Reservations MWh (000’s)

Before OATT

April – September, 2005

After OATT


Difference

BCH Other Total BCH Other Total Total %

LT Firm PTP 1,892 414 2,306 1,824 648 2,471 165 7 %

ST Firm PTP 1,755 92 1,847 5,659 17 5,676 3,829 207 %

ST Non-Firm PTP 3,430 210 3,640 1,832 158 1,990 (1,650) - 45 %

Total 7,077 716 7,793 9,315 823 10,137 2,344 30 %



PTP Transmission Revenues ($ million)

Before OATT


After OATT


Difference

BCH Other Total BCH Other Total Total %

LT Firm PTP $ 11.1 $ 2.4 $ 13.5 $ 10.1 $ 3.6 $ 13.7 $0.2 0.9 %

ST Firm PTP $ 10.3 $ 0.5 $ 10.8 $ 11.5 $ 0.1 $ 11.6 $0.8 7.5 %

ST Non-Firm PTP $ 10.5 $ 0.6 $ 11.1 $ 3.5 $ 0.4 $ 3.9 ($7.2) - 64.5 %

Total $ 31.9 $ 3.5 $ 35.4 $ 25.1 $ 4.1 $ 29.2 ($6.2) - 17.5 %


ST Rate Design – Consultation Questions

BCTC seeks customer input on the following questions:

1. Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)?

2. Should short-term discounting be available for transmission reservations beyond one day?

3. Should the pricing of discounted short-term service be directional?


Question 1 – Considerations

Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)?

Regulatory Approvals

A price floor was previously approved by the Commission as an appropriate minimum price for transmission service (1998 WTS Decision)

The $55 minimum fee was introduced when the price floor was removed (2005 OATT Decision).

Minimum Scheduling Fee Applicable to all ST transactions on export and flow-through transmission paths

Intended to ensure that all transactions make some contribution to costs

Issue

− $55 Minimum Fee disproportionately increases the price of transmission on small reservations

− Commission directed BCTC to re-assess the impact of the Minimum Scheduling Fee Analysis

− Incremental BCTC revenue (April – September, 2006): roughly $100,000


Question 1 – Discussion

Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)?

Discussion Points BCTC supports concept of ensuring that all customers make some minimum contribution to costs

BCTC seeks to alleviate the disproportionate impact of the minimum fee on very small transmission users.

Replacing minimum fee with a minimum $/MWh charge would have no detrimental financial impact on BCTC

Therefore, BCTC would propose to reinstate a price floor of $1/MWh, based on the price floor previously approved by the Commission

− The price floor under WTS was $1/MWh (non-firm) and $2/MWh (firm), based on a firm “premium” of $1/MWh - made necessary by a formula that computed a non-firm price

− The updated ST discounting formula under OATT calculates a firm price and determines the non-firm price by subtracting a $1/MWh firm “premium”

− A separate price floor for firm and non-firm service as provided under WTS is unnecessary because the updated formula under OATT calculates a firm price.

− Predicted increase in blocked transactions from 11% to 14.7%

Comments?



Should short-term discounting be available for transmission reservations beyond one day?

Issue Current rate formula relies on data that is two days old

Stale price data: market price too far removed from time trades take place

Direction of trade often reversed from that predicted by formula in volatile Alberta market

Overly simplified approximation of trading opportunity

Analysis: Accuracy of the Discounting Formula HLH price difference on day t has, on average, a 61% chance being a directionally correct

forecast of the price difference on day (t+2)

LLH price difference on day t has, on average, a 73% chance as a directionally correct forecast of the price difference on day (t+2)

Performance degrades in subsequent days


Question 2 – Discussion

Should short-term discounting be available for transmission reservations beyond one day?

Discussion Points

Current rate formula a poor predictor of directional value by the time data are two days old

Highly volatile Alberta Power Pool price contributes to formula inaccuracy

Erroneous zero-price: 40% of HLH, 30% of LLH

− Pricing error increases for reservations of longer than one day.− Market volatility and trading practices suggest relatively short trading horizons underpin

most actual use of the transmission system

Discounting reservations longer than one day does little to encourage throughput.

Comments?



Should the pricing of discounted short-term service be directional?

Issue

Inaccuracy in capturing the direction and size of transmission value

Trading opportunities more complex than assumed under ST PTP rate formula

Analysis: Reservations & utilization by price point and path Roughly 1/3 of reservations were zero-price

Energy schedules in four directions (April – September, 2006):

1. northbound (from the US into BC or from BC into Alberta): 81% of hours

2. southbound (from Alberta into BC or from BC into the US): 99% of hours

3. forward (toward higher market prices): 93% of hours

4. reverse (toward lower market prices): 87% of hours

Energy scheduled in both directions ~ 81% of hours.


Question 3 - Discussion

Should the pricing of discounted short-term service be directional?

Comments?


Next Steps

BCTC will post its presentation on its website following this consultation session

BCTC will notify you of the next steps after it:

1. Identifies the need for further customer consultation; and

2. Finalizes recommended changes to the ST Rate Design

Additional Questions?

Please contact: Brenda AmbrosiCustomer Services ManagerBritish Columbia Transmission CorporationSuite 1100, Four Bentall CentreVancouver, BC V7X 1V5Phone: (604) 699-7391 / Fax: (604) [email protected]

Documents

BCTC Customer Consultation Short-term Point-to-Point Rate Design March 5, 2007