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Capacity Reassignments, Aggregation & Redirects of Reassignments

Capacity Reassignments, Aggregation & Redirects of Reassignments. NAESB OS – May 13th, 2014 BPA Proposal. Agenda. Background & Context BPA Customer Perspective Regulatory Considerations Mechanics of BPA’s Proposal Next Steps. Background & Context.

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Capacity Reassignments, Aggregation & Redirects of Reassignments

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  1. Capacity Reassignments, Aggregation & Redirects of Reassignments NAESB OS – May 13th, 2014 BPA Proposal

  2. Agenda Background & Context BPA Customer Perspective Regulatory Considerations Mechanics of BPA’s Proposal Next Steps

  3. Background & Context Capacity reassignments, aggregation and redirects of reassignments present complex issues for the development of national business practice standards for preemption and competition. Regional transmission markets have also evolved differently with respect to reassignments and redirects which must be considered in developing national standards on these issues. This presentation sets forth BPA’s perspective on these issues and includes a proposal regarding how they should be addressed.

  4. Daisy Chain Illustration Customer A Conditional TSR01 Original 100 MW Customer A Unconditional TSR03 Original 100 MW Reassignments Reassignments Customer B TSR11 25 MW Customer B TSR12 25 MW Customer B TSR20 50 MW Customer B TSR31 25 MW Customer B TSR32 25 MW Redirect Redirect Customer B TSR41 25 MW Customer B TSR40 100MW Aggregated Reassignment Customer B TSR43 25 MW Schedule 50 MW Redirect Reassignments Schedule Customer B TSR51 25 MW Customer C TSR53 25 MW Customer C TSR52 25 MW Reassignment Redirect Aggregate Customer D TSR61 10 MW Customer B TSR62 15 MW Customer C TSR63 50 MW Schedule Schedule

  5. Issue No. 1: Capacity Reassignments in Preemption & Competition Currently, a transmission customer can reassign capacity from a conditional parent to another eligible customer. Under the current standards, the reassignment TSR is subject to the conditionality of the parent TSR. WEQ 001-11.1 (v.3). That is, the reassignment TSR can be annulled or displaced if the parent TSR loses its capacity via preemption and competition.

  6. Issue No. 1: Continued • As BPA explained at the April NAESB OS meeting, the current standards addressing reassignments in this context are unworkable. • Traceability of capacity is difficult when there are “daisy chain” transactions (illustrated above) involving multiple reassignments, aggregations and redirects. • Capacity is needed both to schedule on and to encumber for preemption and competition on the parent reservation. That is, you must effectively bifurcate capacity for scheduling and preemption and competition purposes to make the current standards work. Separating capacity in this manner makes managing it very difficult and complex. BPA believes this paradigm must be simplified in order to be implementable using automation. • The assignee, the entity with the right to schedule the capacity, has no control over its destiny since the reseller with the parent reservation makes decisions regarding preemption and competition under the present standards.

  7. Issue No. 2: Aggregation A transmission customer can aggregate multiple reservations into a single TSR as a capacity reassignment on OASIS. WEQ 001-11.3.2 (v.3). On BPA’s system, this is most often done for scheduling purposes. Customers may also do it for ease of conveying that capacity to another customer. As illustrated above, aggregation of multiple reservations creates a traceability issue when one or more of the parent reservations are conditional and subject to preemption and competition. Under the current standards, there is no way to know which parent reservation(s) the capacity came from. This issue is relevant and pertinent to Issue No. 1 described above but is separated here because BPA believes it should be addressed separately by the NAESB OS.

  8. Issue No. 3: Redirects of Reassignments The standards allow transmission customers to redirect reassignments. WEQ 001-11.6 et seq. (v.3). While the standards allow transmission customers this right, they do not address how redirects of reassignments should be dealt with when they are in a daisy chain involving a conditional upstream reservation subject to preemption and competition. As described in more detail below, BPA believes that the standards should address this issue. BPA proposes that when a redirect of a reassignment is confirmed, the capacity for both scheduling and preemption and competition purposes be moved to the redirect reservation. That is, the redirect reservation, once confirmed, should stand on its own for purposes of preemption and competition and not be subject to the conditionality of an upstream parent reservation. BPA believes that this scenario can be excepted from the Entergy ruling since there is an intervening transaction (a reassignment) between the redirect TSR and a conditional upstream parent TSR that is subject preemption and competition.

  9. Potential Solutions • BPA has identified at least three potential solutions: • Nuclear Option • Limit Reassignments to Unconditional Parent Reservations • Subject Reassignments to Preemption and Competition (BPA Proposal)

  10. Nuclear Option Under this option, all reassignments and redirects of reassignments would be displaced if a conditional upstream parent reservation loses capacity due to preemption or competition. This option would alleviate the need to precisely trace where capacity came from in “daisy-chain” scenarios. That is, all downstream transactions (reassignments and redirects of reassignments) related to the displaced upstream reservation would also be annulled or displaced. This option could potentially create unnecessary market disruption by annulling or displacing more downstream transactions than needed to consummate the preemption and competition activity involving the conditional parent reservation. This option would address all three issues identified above. This option is consistent with one plausible interpretation of the current business practice standards.

  11. Limit Reassignments to Unconditional Parent Reservation Currently, a transmission customer can reassign capacity regardless of the conditionality of the parent reservation. WEQ 001-11.1 and 001-11.7 (v.3). This option would limit reassignments to unconditional parent reservations. In doing so, the capacity for both scheduling and encumbering purposes could easily be moved from the parent to the child since the parent would not be subject to preemption and competition. The downside of this option is that it limits customers’ ability to reassign capacity. While this limitation can easily be overstated since the vast majority of reassignments (at least on BPA’s system) occur when the parent is unconditional, it is a limitation that should be acknowledged, particularly in light of FERC’s policy of promoting reassignments. This option would also address all three issues described above. FERC did open the door for this option in Order No. 676-C, paragraph 60.

  12. Subject Reassignments to Preemption and Competition This option would subject the reassignment instead of the parent reservation to preemption and competition. BPA is proposing this option and describes the particular mechanics for this option later in this presentation. This option would address Issue No. 1.

  13. BPA Customer Perspective Customers provide their perspectives on these issues.

  14. Regulatory Considerations • Section 23.1(a) of the Pro Forma tariff provides point-to-point customers the right to reassign their capacity rights. A Transmission Customer may sell, assign, or transfer all or a portion of its rights under its Service Agreement, but only to another Eligible Customer (the Assignee). The Transmission Customer that sells, assigns or transfers its rights under its Service Agreement is hereafter referred to as the Reseller. Compensation to Resellers shall be at rates established by agreement between the Reseller and the Assignee.

  15. FERC’s Treatment of Capacity Reassignments FERC consistently refers to capacity reassignments as transactions involving the bilateral conveyance of capacity rights. Order Nos. 739: “Promoting a Competitive Market for Capacity Reassignments” (2010) Paragraph 2, Order No. 739: In Order No. 888, the Commission concluded that a transmission provider's pro forma Open Access Transmission Tariff (OATT) must permit explicitly the voluntary reassignment of all or part of a holder's firm point-to-point capacity rights to any eligible customer. The Commission also found that allowing holders of firm transmission capacity rights to reassign that transmission capacity would help parties manage the financial risks associated with their long-term commitment, reduce the market power of transmission providers by enabling customers to compete, and foster efficient transmission capacity allocation. (footnotes omitted) Paragraph 4, Order No. 739: To foster the development of a more robust secondary market for transmission capacity, the Commission, in Order No. 890, concluded that it was appropriate to lift the price cap for all transmission customers reassigning transmission capacity. The Commission stated that this would allow transmission capacity to be allocated to those entities that value it most, thereby sending more accurate price signals to identify the appropriate location for construction of new transmission facilities to reduce congestion. (footnotes omitted)

  16. Regulatory Considerations-Continued • Notice Providing Guidance on the Filing of Information on Transmission Capacity Reassignments in Electric Quarterly Reports, FERC Docket RM01-8-011 (September 18, 2008) • Paragraph 4: Sales by transmission providers of reassigned transmission capacity must be made in accordance with the terms and conditions of the transmission provider's Open Access Transmission Tariff (OATT). In Order No. 890, the Commission determined that a transmission provider must have a transmission capacity reassignment agreement with each assignee receiving capacity. In addition, the Commission determined that this agreement and the transmission capacity reassignments under it must be reported in the EQR. In this notice, the Commission provides EQR filers with guidance as to how this information is to be reported in EQR filings.

  17. Regulatory Considerations-Continued • In Order No. 890-A, FERC was clear that the right of first refusal in the context of preemption and competition applied to primary transmission service (i.e., the parent reservation) and not secondary service (i.e., the reassignment). • Paragraph 819: With regard to reassignments of capacity in the secondary market, we clarify that the associated right of first refusal under sections 13.2 and 14.2 of the pro forma OATT to match a competing transmission service request applies to the primary transmission service, not the reassignment of scheduling rights.

  18. Regulatory Considerations-Continued • In Order No. 676-C, FERC also denied requests by BPA and Duke to limit reassignments to unconditional parent reservations. Paragraph 59: As the Commission explained in Order No. 890-A, and reiterates above, the reassignment of transmission capacity results in the reseller obtaining the right to schedule the reserved capacity during the period of the reassignment consistent with the original customer's reservation…. WEQ-001-11.1 makes clear that confirmation of a Reassignment “shall also convey any outstanding conditions that may exist on the Parent Reservation (such as conditional approval pursuant to section 13.2(ii) of the OATT).” WEQ-001-11.7 and WEQ-001-11.7.1 also address the transmission provider's right to nullify Reassignment transactions when a higher priority transaction displaces a lower priority transaction and when those rights apply to conditional firm transactions. (footnote omitted) • In doing so, however, FERC did acknowledge that if the standards are not workable, that they could seek to modify the standards through the NAESB process. Paragraph 60: Since these standards permit Reassignments of conditional firm transactions and give the transmission provider the right to nullify Reassignments of displaced transactions, we find that the standards address the concerns of Duke and Bonneville about the effective management of conditional firm transactions. If Duke and Bonneville believe that these standards are not workable upon implementation, they may submit a request to NAESB to modify these standards based on their experience with these standards.

  19. Reassignments v. Transfers under Pro Forma Tariff Section 23.1 Reassignment: A reassignment is a conveyance of capacity from one eligible customer (reseller) to another eligible customer (assignee) so that the assignee can schedule that capacity. The pro forma tariff requires a separate agreement (Attachment A-1) to consummate this transaction. The reassignment must be reported by the reseller on OASIS. It does not convey rollover rights under pro forma tariff section 2.2. The reseller also remains contractually/financially bound to the transmission provider should the assignee not pay the transmission provider. Transfer: A transfer is a conveyance of all rights and obligations associated with transmission service from one eligible customer to another. This includes conveyance of rollover rights. Once a transfer is consummated, the transferor is no longer contractually/financially bound to the transmission provider with respect to the capacity trasnferred. The transferee effectively steps into the shoes of the transferor for all intents and purposes.

  20. BPA Proposal

  21. Summary of BPA Proposal BPA proposes to subject capacity reassignments to preemption and competition instead of the parent reservation. As described in the following slides, BPA’s proposal addresses the key components regarding how reassignments would be subject to preemption and competition, including conditionality, priority, and the exercise of ROFR. BPA recognizes that FERC was clear in Order No. 890-A, paragraph 819, that reassignments are not directly subject to preemption and competition. However, BPA believes that if NAESB proposed a change to this paradigm that had broad industry support, FERC would likely be deferential and accept the change. FERC made a similar statement in the context of not allowing conditional parent reservations to be reassigned. See Order No. 676-C, Paragraph 60. BPA’s proposal does not specifically address aggregation. The issues around aggregation would have to be dealt with separately. BPA does include a proposal regarding redirects of reassignments.

  22. BPA Proposal Mechanics: Conditionality WEQ 001-11.1 (v.3) The confirmation of a Resale shall convey the rights to schedule PTP from the Reseller to the Assignee, but shall also convey any outstanding conditions that may exist on the Parent Reservation (such as conditional approval pursuant to Section 13.2(ii) of the pro forma tariff). POD B POR A • If the parent is conditional, then the reassigned capacity is conditional. • If the parent is unconditional, then the reassigned capacity is unconditional. Conditional 3-Month Reservation for 100 MW 50 MW Hole Capacity Moves Reassigns 50 MW for 3 days of the Middle Month 50 MW Reassignment

  23. BPA Proposal Mechanics: Conditionality How does it work? • What is meant by inheriting the conditionality of the parent? • The reassigned capacity will have the same unconditional date as the parent. • If the parent has already passed its unconditional date, then it and the reassignment are both unconditional. • If the parent has not yet passed its unconditional date, then it and the reassignment will remain conditional until the parent reaches its unconditional date, at which time they will both become unconditional. • Other Options • The reassignment becomes unconditional based upon its own start date as a weekly or daily? • The reassignment become unconditional based upon its own start date as a monthly?

  24. BPA Proposal Mechanics: Service Increment Priority WEQ 001-11.3 (v.3) A Resale shall retain all the same transmission service attributes, transmission service priority, and PORs and PODs of the Parent Reservation. For example, if one hour of a MONTHLY FIRM reservation is Resold, the Resale reservation shall be a MONTHLY FIRM Resale reservation lasting one hour. POD B POR A If the parent is a Monthly reservation, then the reassigned capacity is considered Monthly regardless of its duration. Conditional 3-Month Reservation for 100 MW 50 MW Hole Capacity Moves Reassign 50 MW for 3 days of the Middle Month A 3-day Monthly Reassignment 50 MW

  25. BPA Proposal Mechanics: Service Duration Priority According to WEQ 001-11.3, if the parent is a monthly reservation, then the reassigned capacity is considered monthly regardless of its duration. But what is the duration used in the priority? POD B POR A Conditional 3-Month Reservation for 100 MW 50 MW Hole Capacity Moves Reassign 50 MW for 3 days of the Middle Month A 3-day Monthly reassignment 50 MW

  26. BPA Proposal Mechanics: Duration Priority How does it work? • What duration is used in determining the priority of the reassignment? • The duration of the reassignment will be that time period between the start and stop dates/times of the reassignment. • Motion 3 • The simpler of the other options • Other Options • The duration is a minimum of 30 days for a monthly reassignment, 7 days for a weekly reassignment, and 1 day for a daily reassignment. • The reassignment inherits the duration of the parent.

  27. BPA Proposal Mechanics: Price and Queue Time Priority How does it work? • If service increment and duration are the same for multiple reassignments from the same parent, then how are they prioritized for choosing a defender? • Price of the reassignment • Queue time of the reassignment

  28. BPA Proposal Mechanics: ROFR Process • With the exception that the reassignment has inherited the service increment of its parent reservation (monthly, weekly, etc.), it will in effect be treated like any other reservation when it comes to being chosen as a defender and exercising its ROFR. • This is the simplest approach. Other options, such as the reassignment inheriting the duration, price, or queue time of the parent for competition purposes, create a host of other issues when it comes to exercising ROFR.

  29. BPA Proposal Mechanics: Billing • The current billing and crediting paradigm set forth in pro forma tariff section 23.2 should not be impacted by BPA’s proposal. • If the assignee of a reassignment extends its duration to match a challenger, • That billing for the extension of capacity will be between the assignee and the transmission provider. • The reseller is unaffected. • If the assignee does not match the challenger, • The challenger will be billed normally for that capacity gained from the assignee • The assignee will have a credit on his bill for the capacity lost. • The reseller is unaffected.

  30. BPA Proposal Mechanics: Redirect of Reassignments • While the standards allow transmission customers to redirect reassignments, they do not address how redirects of reassignments should be dealt with in the context of preemption and competition. See WEQ 001-11.6 et seq. (v.3). • BPA proposes that when a redirect of a reassignment is confirmed, the capacity for both scheduling and preemption and competition purposes be moved to the redirect reservation. That is, the redirect reservation, once confirmed, should stand on its own for purposes of preemption and competition and not be subject to the conditionality or attributes of an upstream parent reservation. • This scenario can arguably be excepted from the Entergy ruling since there is an intervening transaction (a reassignment) between the redirect TSR and a conditional upstream parent TSR that is subject to preemption and competition.

  31. BPA Proposal Mechanics: Aggregation • BPA believes that aggregation must be addressed prior to the implementing the above reassignment standards, but not as a part of developing them. Because of its uniqueness, BPA believes that aggregation should be addressed as a separate project (NAESB OS Project R09015 - Transmission Customer Reservation Merge) from the current ST Preemption and Competition project. • If it must be addressed now, then a simple solution that would fit with the BPA proposal would be: • If all of the reservations being aggregated are unconditional, then set the unconditional date on the aggregated reservation to today’s date resulting in the reservation being unconditional. • If one or more of the reservations being aggregated are conditional, then set the unconditional date of the aggregated reservation to the appropriate date based upon its service increment (monthly, weekly, daily) and start date/time. It will stand on its own conditionality, not the conditionality of one of the parents.

  32. Questions and Next Steps?

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