Remarks of Charles Reinhold Project Manager

WestConnect RTO

Remarks of Charles ReinholdProject Manager

FERC’s Regional Technical ConferencePhoenix, Arizona

September 24, 2003

September 24, 2003 FERC Regional Conference -- Phoenix, Arizona

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Topics

• Background on WestConnect RTOs Major Initiatives

• Status in Light of White Paper

• Where Do We Go From Here?


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Background

Major Initiatives of Past Several Years

• Create and File Market Design Proposal• Joined with California ISO and RTO West to resolve

seams issues• Initiated Cost-Benefit analysis for local regulatory

processes• Exploring phase-in of RTO functions prior to RTO

formation


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Efforts to Create Market Design

• Lengthy stakeholder process to develop the new market design.

• Market design broadly accepted by FERC in order dated October 10, 2002.

• Several key market design elements not approved by FERC.


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Efforts to Create an RTO

• Development discussions, focused on DesertSTAR, began in early 1997.

• Conversion to WestConnect in mid 2001, with a request for a declaratory order at FERC on October 16, 2001.


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WestConnect Participants

Arizona Public Service CompanyEl Paso Electric CompanyPublic Service Company of

New MexicoTucson Electric Power Company

Salt River Project

Western Area Power AdministrationSouthwest Transmission

Cooperative

Filing Entities Funding

Entities

Participating Entities


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• FERC generally approved RTO formation on October 19, 2002.– Governance structure

– Board selection process

– Physical rights congestion management model Day 1

– License plate pricing (transition period until 2009)

– Transmission Adjustment Component (Western Area Power Administration lost revenues)

– Requested additional information on certain design elements.


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Efforts to Create an RTO - More• FERC did not approve several key elements of the

WestConnect proposal.– Suite of Transmission Owner rights contained in TCA– Congestion Management beyond initial operations– Self-Tracking systems– FTRs for native load past Day 1– Right of first refusal for TOs to build/own new

transmission facilities• Elements not approved are critical to securing non-

jurisdictional entities’ participation.


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• DOE Cost-Benefit analysis showed costs outweighed benefits for the southwest.

• Currently performing a cost-benefit analysis.– Effort includes 16 Study Participants – Will assess costs and benefits of “with” and “without”

WestConnect scenarios– Will assess costs and benefits of phasing in RTO

functionality prior to creation of independent RTO.


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Study Participants

ACES Platte River Power Authority

Arizona Public Service Company

Public Service Co. of Colorado

Basin Electric Power Cooperative

Public Service Co. of New Mexico

Bureau of Reclamation Salt River Project

Colorado Springs Utilities Southwest Transmission Cooperative

El Paso Electric Company Tri-State G & T Association

Imperial Irrigation District Tucson Electric Power Company

Nevada Power Company Western Area Power Administration


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• Phased implementation approach being developed. Current thoughts of key milestones are:– Phase 1: Creation of a common OASIS system with

energy trading bulletin board. – Phase 2: Implement a WestConnect grid-wide

transmission tariff, a formal transmission congestion management methodology and arrange for independent auditing of Phase 1 and 2 functions.

– Phase 3: Create WestConnect RTO, LLC with the tariff, features and functions described in the October 10, 2001 filing.


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Wholesale Market Platform – White Paper

• Issued April 28, 2003.• Latest Commission direction on market design.• Significant differences from Standard Market Design

proposal:– Regional variation– Cost justification


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WHITE PAPER ISSUES

CATEGORY: Independence/Governance

1. All public utilities are to join an RTO or ISO.

2. RTOs must meet independence requirements of FERC Order 2000.

3. Each RTO must have an independent market monitor and clear rules on market participant conduct.


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WHITE PAPER ISSUES

CATEGORY: Tariff Administration and Design

4. RTOs must administer its own transmission tariff.

5. RTOs must provide a forum for state officials to participate in decision-making.

6. RTOs should eliminate export fees in the absence of identifiable trade imbalances.

7. Limit liability of RTOs to direct damages resulting from gross negligence.


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WHITE PAPER ISSUES

CATEGORY: Interregional Coordination (Seams)

8. RTOs must pursue interregional coordination.

CATEGORY: Transmission Upgrade Cost Treatment9. State and local authorities may play a role in determining

regional pricing policy with regional flexibility in choice of cost allocation methodology.


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WHITE PAPER ISSUES

CATEGORY: Transmission Planning10. RTOs to produce planning assessments of the

regional grid.

CATEGORY: Regional Adequacy11. Regional flexibility to determine appropriate

regional adequacy mechanisms with participation of state and local regulatory authorities.


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Transmission Owners Concerns

• Major presence of non-jurisdictional transmission owners in the region

• Consensus and collaboration required to have all transmission owners participate

• FERC’s “takeaways” from WestConnect design significantly slowed the forward momentum that existed for full RTO implementation

• SMD-like market, with its centralized energy markets, not viewed as necessary or cost justified in the southwest

• Large implementation costs and protracted implementation timelines for RTO development


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Transmission Owners Reassessment• Need to provide real benefits to wholesale transmission system

users while keeping costs and benefits in proportion

• Many issues raised by RTO formation are contentious, raise jurisdictional issues, and will not be resolved in the near term (access for native load, divestiture of operational control/authority, financial risk, etc.)

• Building incrementally on what works today, enhancements to the wholesale market can be realized in months rather than years

• Interest in a phased-in approach is growing. Includes many TOs outside the historic footprint of WestConnect


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• Phased Approach Key Principles

– Initially implement only those wholesale market

elements that add value for users of the system

– Defer low benefit/high cost activities and contentious

issues

– Create organizations, hire staff, acquire

hardware/software only when and as necessary

– Implement additional market elements when needed

and cost-justified

Phased Approach to Market Enhancement


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WestConnect RTO Phased Approach

Phase 1New Regional CommonMarket Interface

Phase 2Grid-wide Tariff

Phase 3RTO,LLC

• One stop shopping for transmission access

•Remove redundant OASIS sites

•Secondary Market for transmission rights

•Bulletin Board – Energy Related Services: Congestion management & ancillary.

•Parallel Path Flow Mitigation

• Regional Planning Participation

• Auditing of ATC calculations & transmission service requests

•Interregional “Seam” Coordination continued

• Form small organization

• Establish zonal, rate based tariff

•Establish market monitor/auditor function

•Formal Congestion Management

• Establish Independent Board

• TOs transfer operational authority

• Consolidate Control Areas

• Real-time energy & ancillary services market


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Opportunities and Issues• Additional phases may be defined and other beneficial

changes to the approach may become apparent as the concept evolves

• Participants will remain flexible and be willing to make changes around the edges of the original concept

• Independence– FERC has other ideas– Exploring ways to acquire oversight function

• “Seams” concerns must continue to be discussed and resolved, including the development of a regional planning process and creation of a west-wide market monitoring entity


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Where Are We Now ?

– Continuation of seams efforts with SSG-WI• Planning

• Congestion Management

• Market Monitoring

– Cost benefit analysis underway. 1Q 2004

– Phase 1 OASIS Implementation. Contracts have been signed with third-party vendor. 1Q 2004


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Where Do We Go From Here?

• Complete Cost-Benefit analysis.

• Implement RTO functionality in phases.

• Form RTO when cost effective.


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Contacts and Information

• WestConnect RTO– Charles Reinhold – Project Manager

• [email protected]• 208-253-6916

– www.westconnectrto.com

• SSG-WI– www.ssg-wi.com

Documents

Remarks of Charles Reinhold Project Manager