BCTC_N ETWORK E CONOMY AND C8-7 O PEN A CCESS T RANSMISSION T ARIFF - Exhibit Alberta Coalition Presentation BCUC Workshop - August 23, 2006 BCTC Network Economy and Open Access Transmission Tariff August 23, 2006 Alberta Coalition 1
Overview of AC Evidence August 23, 2006 Alberta Coalition 2
AC General Approach 2. Examine 1. Examine Inappropriate Appropriate Uses Uses 3. Identify Distinguishing Tests which are: • clear, transparent, enforceable, and • facilitate a more competitive and open energy market. August 23, 2006 Alberta Coalition 3
General Approach – Step 1 2. Examine 1. Examine Inappropriate Appropriate Uses Uses 1. Appropriate Uses General Principle: Serve Network Load with least cost supplies. Types of Appropriate Import Transactions: A. Emergency & Deficiency – Generation insufficient to meet Network Load. B. Economy Energy – Imports which are lower cost than generation which would be otherwise used to meet Network Load. August 23, 2006 Alberta Coalition 4
General Approach - Step 2 2. Examine Examine Inappropriate Appropriate Uses Uses 2. Inappropriate Uses General Principle: Imports for trade purposes, not needed for Network Load. Types of Inappropriate Import Transactions: A. For Export – Imports to be exported. B. Other Trade – Imports which are not needed for Network Load. August 23, 2006 Alberta Coalition 5
General Approach – Step 3 Examine Examine Appropriate Inappropriate Uses Uses 3. Distinguishing Tests & Key Elements Enhanced Economic Test Capacity Test Utilization Test Enforcement (Penalties) Monitoring August 23, 2006 Alberta Coalition 6
Proposed Network Economy Model Types of Transactions Economy Emergency Deficiency Trade Energy Network Permitted Permitted Permitted Not Economy Permitted Use Identification BC Hydro TPA 5.2 for Offers to BC Hydro Surplus of declarations of Purchase and Mid-C or AB Condition. Transaction emergency. indicator to deem fulfillment Conditions of offer. Set Network Economy Inadequate volume = fulfilled offer to Capacity without purchase amounts. Network Economy. Forward Not applicable TPA 11.1 for Network Purchases Economy volumes. Identification August 23, 2006 Alberta Coalition 7
Economic Test • Needed to identify between imports providing service to Network Load and other imports being used for Trade. • Transfer Pricing Agreement appears to provide an opportunity to identify imports used for Network Loads. • Base on known prices to increase certainty. August 23, 2006 Alberta Coalition 8
Page 1 - Illustration of Purchases by BC Hydro from Powerex under the Transfer Pricing Agreement BC Hydro is presumed to develop a view of average forward market price Price $/MWh BCH sets Threshold Purchase Price (1) BCH Benefit vs. Threshold (4) Transfer Price (DJMC) (3) Powerex Margin (5) Powerex Actual Purchase Price (2) Notes 1. It is presumed that BC Hydro sets the Threshold Purchase Price (TPA 5.2) considering its energy needs for native load (not exports), its view of forward prices and its view of costs of thermal generation. BC Hydro may also establish a maximum purchase quantity. 2. Powerex will attempt to purchase energy at prices lower than the Threshold Purchase Price. Powerex is incented under the TPA to only purchase if its actual purchase price is lower than the Transfer Price. 3. Energy purchased by Powerex is sold to BC Hydro at the Transfer Price which is the DowJones Mid-Columbia index (DJMC as per TPA Appendix A 1.3). 4. BC Hydro benefits by purchasing the energy at the DJMC. If the DJMC is greater than the Threshold Purchase Price, BC Hydro would not purchase the energy. 5. Powerex retains a positive margin provided its actual purchase price is below the DJMC reference. If Powerex cannot purchase at prices below the DJMC, it is incented to forego purchases as that would result in a negative margin. August 23, 2006 Alberta Coalition 9
Page 2 - Illustration of Sales by BC Hydro to Powerex under the Transfer Pricing Agreement Actual Powerex Sale Price (2) Powerex Margin (5) Transfer Price (DJMC) (3) BCH Benefit vs. Threshold (4) Price $/MWh BC Hydro sets Threshold Sale Price (1) BC Hydro is presumed to develop a view of average forward market price Notes 1. It is presumed that BC Hydro sets a Threshold Sale Price (TPA 5.1) if its energy supplies are surplus to native load needs. BC Hydro is expected to consider its view of forward prices. BC Hydro may also establish a maximum sale quantity. 2. Powerex will attempt to sell energy at higher prices than the Threshold Sale Price. Powerex is incented under the TPA to only sell if its actual sale price is higher than the Transfer Price. 3. Energy sold by Powerex is purchased from BC Hydro at the Transfer Price which is the DowJones Mid-Columbia index (DJMC as per TPA Appendix A 1.3). 4. BC Hydro benefits by selling the surplus energy at the DJMC. If the DJMC is less than the Threshold Sale Price, BC Hydro would not sell the energy. 5. Powerex retains a positive margin provided its actual sale price is above the DJMC reference. If Powerex cannot sell at prices above the DJMC, it is incented to forego sales as that would result in a negative margin. August 23, 2006 Alberta Coalition 10
Page 3 - Illustration of Trade Transactions by Powerex BCH Threshold Sale Price (1) Powerex Sale Price (2, 4) Price $/MWh BC Hydro Powerex Margin (3) View of average Forward Market Price Powerex Purchase Price (2, 4) BCH Threshold Purchase Price (1) Notes 1. If BC Hydro sets a Threshold Sale Price which is high (TPA 6.1), indicating it is not significantly in surplus and a Threshold Purchase Price which is low (TPA 6.2), indicating it is not significantly short of energy, there will be no activity under Clauses 5.1 and 5.2 of the TPA. 2. Under such circumstances, Powerex is expected to continue to trade (purchase and sell) for Powerex’s account. 3. Powerex would retain the margin between purchase prices and sale prices. 4. Trade transactions by Powerex may be back-to-back (a purchase and a sale at the same time) or Powerex may use available capacity of BC Hydro to time shift sales and purchases. If BC Hydro’s storage is used, the storage amounts are tracked in a Trade Account (TPA 6.1 and 6.2) August 23, 2006 Alberta Coalition 11
Page 4 - Illustration of Potential Trade Transactions by BC Hydro Under the Transfer Pricing Agreement Actual Powerex Sale Price (2) Powerex Margin (4) Transfer Price (DJMC) (3) BCH Benefit vs. Threshold (5) BCH Threshold Sale Price (1) Price $/MWh BC Hydro BCH Potential View of average Trade Margin (5) Forward Market Price BCH Threshold Purchase Price (1) BCH Benefit vs. Threshold (5) Transfer Price (DJMC) (3) Powerex Margin (4) Actual Powerex Purchase Price (2) Notes 1. If BC Hydro establishes a relatively small spread between buy and sell prices by setting a Threshold Sale Price which is relatively low (TPA 5.1), indicating a desire to sell and a Threshold Purchase Price which is relatively high (TPA 5.2) indicating a desire to purchase, there will be activity under both Clauses 5.1 and 5.2 of the TPA. 2. Powerex will attempt to sell energy at higher prices than the Threshold Sale Price and purchase energy at lower cost than the Threshold Purchase Price. The diagram depicts an off-peak purchase at a low price and an on-peak sale at a higher price. 3. Energy bought and sold by Powerex is sold to and purchased from BC Hydro at the Transfer Prices which are the DowJones Mid-Columbia index (DJMC as per TPA Appendix A 1.3). 4. Powerex retains a relatively small margin provided its actual sale/purchase price is above/below the DJMC reference. 5. BC Hydro captures the majority of trade margin, including the increase above or below the Threshold Prices. August 23, 2006 Alberta Coalition 12
Capacity Test • BCTC Principle: “The principle of the capacity test is that Network Customer may not use Network Economy at the same time it is making third party sales, unless it has adequate generation capacity to support exports independently of imports delivered using Network Economy.” (BCTC Response to AESO 1.9.1) • Note: General agreement on use of capacity test, significant issues remain on details. August 23, 2006 Alberta Coalition 13
Utilization Test • Needed since there is no incremental charges associated with reserving Network Economy. • Provides a consequence for over- reserving. August 23, 2006 Alberta Coalition 14
Enforcement - Penalties • Greater of: – 125% of maximum Short-Term PTP rate or; – Market differential for the period (AB & Mid C). • Penalties doubled for repeated violations within 12 months. • Penalty dollars compensate interrupted participants where identifiable. • Remaining penalty dollars used to reduce charges of other Non-Firm PTP customers. August 23, 2006 Alberta Coalition 15
Monitoring • Reporting – Usage – Parameters used in tariff • TPA prices and volumes • Officer Attestation • Audits • Review in 2 years. August 23, 2006 Alberta Coalition 16
Alberta Coalition Presentation Part 2 BCUC Workshop - August 23, 2006 BCTC Network Economy and Open Access Transmission Tariff August 23, 2006 Alberta Coalition Part 2 1
Issues • Differences in approach • Economic principles - leads to disagreement in Capacity and Economic Test • Need for Utilization test • Use of TPA • Penalties • Monitoring August 23, 2006 Alberta Coalition Part 2 2
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