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

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

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.

3. Agenda and Outline • Welcome and Introductions • Objectives • Review • Context • ST Rate Design Elements of BCTC Report: Review of Rate Design Alternatives • Discussion • Replacement of the $55 Minimum Fee; • Discounting transmission reservations beyond one day; and • Directional pricing of discounted short-term service. • Next Steps

4. Objectives • Review ST Rate Design elements of BCTC report: Review of Rate Design Alternatives • 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. • Discuss other alternatives, as necessary • Determine the need for additional customer consultation

5. 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

6. 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

7. 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

8. Context - Current ST Rate Design • 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)

9. Context - Current ST Rate Design • Discounted ST-PTP rates based on the hourly rate formula and rate caps

10. 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

11. Context - Sales and Revenue

12. Context - Sales and Revenue

13. ST Rate Design – Consultation Questions • BCTC seeks customer input on the following questions: • Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)? • Should short-term discounting be available for transmission reservations beyond one day? • Should the pricing of discounted short-term service be directional?

14. 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

15. 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?

16. Question 2 – Considerations • 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

17. 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?

18. Question 3 – Considerations • 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): • northbound (from the US into BC or from BC into Alberta): 81% of hours • southbound (from Alberta into BC or from BC into the US): 99% of hours • forward (toward higher market prices): 93% of hours • reverse (toward lower market prices): 87% of hours • Energy scheduled in both directions ~ 81% of hours.

19. Question 3 - Discussion • Should the pricing of discounted short-term service be directional? • Comments?

20. Next Steps • BCTC will post its presentation on its website following this consultation session • BCTC will notify you of the next steps after it: • Identifies the need for further customer consultation; and • Finalizes recommended changes to the ST Rate Design • Additional Questions? Please contact: Brenda Ambrosi Customer Services Manager British Columbia Transmission Corporation Suite 1100, Four Bentall Centre Vancouver, BC V7X 1V5 Phone: (604) 699-7391 / Fax: (604) 699-7539 brenda.ambrosi@bctc.com