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Competitive Bid Process for Standard Service Offer Ohio Edison Cleveland Electric Illuminating Company Toledo Edison

Competitive Bid Process for Standard Service Offer Ohio Edison Cleveland Electric Illuminating Company Toledo Edison. William D. Byrd – Aug 16, 2007. Disclaimer

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Competitive Bid Process for Standard Service Offer Ohio Edison Cleveland Electric Illuminating Company Toledo Edison

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  1. Competitive Bid Process for Standard Service OfferOhio EdisonCleveland Electric Illuminating CompanyToledo Edison William D. Byrd – Aug 16, 2007

  2. Disclaimer The information contained in this presentation material is intended to provide generally descriptive and summary information. Any conflict between the information contained in this material, or conveyed orally by FirstEnergy or NERA personnel, and the information contained in docketed material is unintentional and the docketed material controls. The information contained herein is subject to change during the regulatory process.

  3. Company Objectives • Secure competitively priced power supply for 2009 and beyond • Process design should encourage large number of bidders • Proper assignment of risk • Neutral financial position for utilities • Utilities neither make nor lose money as POLR • Mitigate wholesale market volatility • Multiple solicitations • Provide customers with rate options

  4. Two options proposed: • Load Class Alternative • Supply procured separately for residential, general service-small, and general service-large • Winning prices for a class directly determines retail price for all customers in the group • Slice of System Alternative • Supply procured on a total load basis • Retail prices administratively determined based upon outcome of competitive bidding process.

  5. Procurement Process • Declining clock bidding format • Suppliers bid to provide energy, capacity, transmission service, transmission ancillaries • Nominal 100 MW tranches • Multiple solicitations; Three year ladder

  6. Procurement Process • Independent manager for competitive bidding process, with PUCO oversight • Affiliates may bid but all bidders limited to 75% of volume • Load Class – applies separately to each class • PUCO to approve solicitation results within 2 business days • Proposed annual review of process conducted by PUCO

  7. Procurement Process • Load being served under Hourly Price Service option procured separately • Renewable Energy • One tranche will be filled through separate process in September 2008 • Suppliers provide same product plus 1 Renewable Energy Credit for every megawatthour supplied • Slice of System: one tranche from September 2008 • Load Class: one tranche from Residential, 41 month, August 2008 auction • CEI ‘special contract’ load supplied through auction • Winning bidders paid clearing price

  8. Master Supply Agreement • Standard for all winning bidders • Seasonal Payment factors • Protection for bidders from new RTO charges • Suppliers have no uncollectible risk due to retail customer non-payment. • Winning bidders must be MISO market participant • Winning bidders assume MISO’s Load Serving Entity responsibilities • Must join MISO’s Planning Reserve Sharing Group

  9. Retail Rates and Programs • Generation rates conform to distribution tariff changes • No declining block rates; no demand charges • Market based seasonality reflected in retail rates • More appropriate price signals to customers, encouraging conservation during higher priced summer months • Quarterly Reconciliation • Ensures that Companies neither make nor lose money

  10. Retail Rates and Programs • Time of Day Rates (optional) • Customers can benefit from managing usage patterns • Hourly Priced Service (optional) • Load Response Program (optional) • Potential Phase-In of Rates for Residential Customers • 2009 only • Limits change in average rate to 15% • The Companies would defer purchased power expense to reduce rate increase to 15% with maximum deferral of $150 million

  11. Avoidable Charges • Load Class: • Equal to the SSO Generation Charge • Slice of System: • Class Allocation Factors generally maintain relationship between existing average kWh generation and transmission rate of the load classes • Avoidable charge equal to the lower of the blended competitive bid price multiplied by the supplier seasonal billing factor adjusted for distribution line losses and applicable taxes, or the customer’s SSO Generation Charge

  12. Procurement Process Competitive Bidding Process for 2009 and BeyondChantale LaCasseNERA Economic Consulting Technical ConferenceAugust 16, 2007

  13. Agenda • Products and options • Qualifications • Timetable • Bidding Rules

  14. Tranche Structure And Supply Periods • A tranche: • Is a fixed percentageof Standard Service Offer (SSO) load • Corresponds to approximately 100 MW ofeligible SSO load • Quoted at an “all-in” price in $/MWh • A supplier that wins a tranche provides full-requirements service for a percentage of SSO Load • Three supply periods to align with MISO planning year: • 17-month: January 1, 2009 to May 31, 2010 • 29-month: January 1, 2009 to May 31, 2011 • 41-month: January 1, 2009 to May 31, 2012 • Toward a rolling three-year procurement where one-third of SSO load is procured each year

  15. There Are Two Options with: Different Numbers Of Products Load Class • Nine products • Three supply periods for each of three customer Load Classes • Residential • General Service – Small • General Service – Large Slice of System • Three products • Three supply periods for the slice of system • 17-month • 29-month • 41-month

  16. Illustrative Numbers Of Tranches

  17. Different Schedules Slice of System • Foursolicitations in 2008 • January • April • September • November Load Class • Three solicitations in 2008 • March • August • November • Residential and GS-S Classes • All three dates • GS-L Class • March and November only • One 41-month residential tranche for renewable energy (Aug. 2008) • One 41-month tranche for renewable energy (Sept. 2008)

  18. Important Information Released Ten Days Prior To Applications • Range of possible round 1 prices • Final number and size of tranches • Load Cap(s) • Bid Participation Fee

  19. Two-Part Application Process for each Solicitation Bidders are qualified Bidders are registered Part 2 Applications including pre-bid security and indicative offers Start of Bidding Part 1 Applications 3 days after Application Deadline 5 days after Application Deadline 6 weeks before bidding 4 weeks before bidding

  20. Bidding Process CBP – Solicitation – Bidding Solicitation 1 (March 2008) Pre-Application Information Application Process 2009 Competitive Bidding Process Solicitation 2 (August 2008) Bidder Training Commission Decision Solicitation 3 (November 2008)

  21. Part 1 Qualification Requirements Are Simple • SSO Supplier must be a MISO Market Participantby the start of supply period • In the Part 1 Application: interested parties • Certify that they are or have no impediments to becoming a MISO Market Participant • Certify that if they become winning suppliers, they will join the MISO Planning Reserve Sharing Group • Agree to the CBP Rules and the terms of the SSO Agreement • Submit financial information for creditworthiness evaluation • There are no state licensing requirements • Financial information determines Pre-Bid Securityrequired with Part 2 Application

  22. Part 2 Requirements Include Pre-Bid Security • In the Part 2 Application, Qualified Bidders: • Make certifications regarding associations and their handling ofconfidential information • Provide an indicative offerand preliminary interest in each product • Provide Pre-Bid Security proportional to indicative offer • Pre-Bid Security: • All Qualified Bidders: Letter of credit of $500,000 per tranche of the indicative offer at the maximum starting price • Some Qualified Bidders: Additional security (Letter of Reference and/or Letter of Intent to Provide a Guaranty)

  23. Additional Details • Abbreviated Application Process: A prospective supplier that has become a qualified bidder for a Solicitation will be able to take part in an abbreviated qualification process for future Solicitations • Confirm that there is no change or refresh information • Indicative Offer: Sets the maximum number of tranches that a bidder can bid and win in a solicitation

  24. Application Process: First Solicitation (Load Class) Bidders Qualified Pre-Application Information Part 1 App Information Session Part 2 App due Bidders Registered

  25. Final Bidder Events And Bidding: March 2008 (Load Class) Bidders Registered Bidder Tutorial Practical Training Bidding Begins Commission Decision on Results

  26. Application Process: First Solicitation (Slice of System) Part 2 App due Pre-Application Information Information Session Bidders Registered Part 1 App Bidders Qualified

  27. Final Bidder Events And Bidding: January 2008 (Slice of System) Bidders Registered Bidder Tutorial Practical Training Commission Decision on Results Bidding Begins

  28. Bidding Format: Simultaneous Descending Clock • Multi-product design • Tranches for all products are procured at once • Bidders can switch freely among the products • Bidding proceeds in rounds • Bidders state how many tranches they want to supply at prices suggested by the CBP Manager • Prices tick down if there is excess supply • Bidders can switch their bids from one product to another

  29. Bidding Rounds Occur In Phases Round 1 Starts Bids are numbers of tranches for each product that suppliers are willing to serve at the starting prices Bids at Round 1 Prices = Starting Prices • Indication of total excess supply in round 1 • Any reduction in volume • Going Prices in Round 2 • (Price for a product ticks down if number of tranches bid is greater than tranches needed) Bidding ends; Information to Bidders Round Ends

  30. Prices Tick Down When There Is Excess Supply

  31. When Does A Price Tick Down? • If there aremore tranches bid than the number of tranches neededat the current round price for that product • The price for a product ticks down for the next round At the start of the solicitation, prices tick down by more than at the end • Start (regime 1): 0.5% to 5% • End (regime 2): 0.25% to 2.5%

  32. A Bid Is A Number Of Tranches For Each Product Load Class bid Slice of System bid • Bidding rules: Total number of tranches bid on all products combined cannot exceed bidder’s eligibility • Load Cap: In the Load Class Bid, the load cap is applied to a Class

  33. Sample Report: Round 1 Total Excess Supply: 181-185 Round 2 Price ($/MWh) Product 75.50 17-month 71.00 29-month 41-month 72.80 Information Is Provided To Bidders Between Rounds Bidder sees: • Range of total excess supply • The next round prices • The bidder’s own bid Bidder has no information about others’ bids

  34. In Round 2+, A Bidder Can Switch And Withdraw • After round 1, a bidder may be able to: • Withdrawsome tranches • Switchbids between products • Both withdraw and switch • A bidder can always keep the number of tranches bid for each product the same as in round 1 • Bidders cannot increase the total number of tranches on which they bid

  35. Solicitation Ends When Total Excess Supply Is Zero • Bidding on all products stops at the same time • A product’s price does not stop ticking down the moment enough tranches are bid for that product • All bidders who win tranches for a product are given the same price • Bidders are paid as a function of the final prices and seasonal factors – retail rate translation, customer billing and collections have no impact on payments to suppliers • Retail rates will be developed directly from the final prices and a reconciliation mechanism will be included

  36. Bidders connect to software via the Internet to submit, withdraw or switch bids Emergency back-up bidding procedures • Back-up Computers • Alternative Internet Connection • Telephone + Password/Fax CBP Manager Office Bidders’ Locations do not matter Electronic Bidding Method CBP Manager Bidder 1 Bidders submit their bids via a Secure Internet Connection to the CBP Manager Bidder 2 Bidders connect to the software via the Internet to view round results Bidder 3 Bidders Can Conduct Bidding from Normal Place of Business

  37. Retail Generation Rates and Retail ProgramsChuck IdleDirector, Asset Utilization - Regulatory

  38. Load Class Standard Service Offer Generation Charge (SSOGC) Calculations Blended Competitive Bid Price for Residential: • Residential Customers • Adjust for: • Distribution Loss Factor Residential • Seasonal Application Factor Residential • Commercial Activity Tax • Result is the SSOGC for Residential Repeat the above for the below customer classes: • General Service - Small Customers • General Service - Large Customers

  39. Load Class SSOGC Calculations cont’d • Seasonal Application Factors • Based on Historical Load Weighted Locational Margin Prices

  40. Load Class SSOGC Calculations cont’d • Time-of-Day Option SSOGC Calculation • Time-of-Day Application Factors • These Factors to be Applied to Appropriate Seasonal Standard Service Offer Generation Charges

  41. Slice of System SSOGC Calculation Blended Competitive Bid Price for Slice of System : • Residential Customers • Adjust for: • Distribution Loss Factor - Residential • Seasonal Application Factor - Residential • Commercial Activity Tax • Class Allocation Factor – Residential Repeat the above for the below customer classes: • General Service - SmallCustomers • GP Customers (Primary Voltage Served) • GSU Customers (Sub Transmission Voltage Served) • GT Customers (Transmission Voltage Served )

  42. Slice of System SSOGC Calculation cont’d • Class Allocation Factors • Residential - 1.000 • General Service - Small - 1.252 • GP (Primary) - 0.900 • GSU (Sub Transmission) - 0.800 • GT (Transmission) - 0.769 Generally Based on Historical Ratio of Generation and Transmission Revenues

  43. Slice of System SSOGC Calculation cont’d • Seasonal Application Factors

  44. Slice of System SSOGC Calculation cont’d • Time-of-Day Option SSOGC Calculation • Time-of-Day Application Factors • These Factors to be Applied to Appropriate Seasonal Standard Service Offer Generation Charges

  45. CEI SSOGC Temporary Calculation • Necessary since CEI will not have the new distribution rate design in effect in January, 2009. • Effective until CEI’s Regulatory Transition Charge terminated, and its new distribution rates go into effect, estimated to be late spring 2009. • Every rate block of every CEI rate in the same class that exists today will be increased by the same percentage. • Percentage increase shall be calculated seasonally such that on a projected basis, CEI generation revenues will equal generation expenses.

  46. Optional Rates • Hourly Priced Generation Service • Available to all customers • Companies will be the Load Serving Entity (LSE) • Hourly Market Priced Energy Charge • Hourly MISO Day Ahead LMP • Miscellaneous Fees (all other costs incurred by the Companies as the LSE) • Reconciliation Charge • Hourly metering requirement • Costs borne by customer for metering and communications equipment

  47. Optional Rates cont’d • Optional Load Response • Available to Standard Service Offer Generation customers being served at 69kV or higher, that have at least 1 MW of Realizable Curtailable Load (RCL) • Program Credit = RCL * $x.xx/kW • Emergency Curtailment Event • Customers usage at or below firm load within 10 minutes • Severe penalties for non-compliance and removal from program • Economic Buy Through Event (EBT Event) • Up to 1,000 hours per year • Anytime MISO Day Ahead LMP > 125% Blended Competitive Bid price for 3 consecutive hours • EBT charge based on LMP and customers usage > firm load

  48. Optional Rates cont’d • Street or Traffic Lighting • Standard Service Offer Generation Charge (SSOGC) will be the lesser of 3.0 cents or the SSOGC for Rate GS • Available to governmental entities unless they take service for some or all of their other electric accounts through opt-out governmental aggregation

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