Market Interface Committee

1. Market Interface Committee Report to the WECC Board of Directors December 7-8, 2006 Western Electricity Coordinating Council

2. Four Issues MIC is Addressing • Generator RC Redispatch Compensation • FERC OATT Reform – ATC Calculation • Seams Coordination • NAESB Coordination Western Electricity Coordinating Council

3. RC Redispatch Compensation • Assigned to Market Issues Subcommittee • White Paper framed the topic, reviewed existing methods in other regions, evaluated issues, and made initial recommendations • Comments due December 1st • 21 comments were received work group formulating responses to comments Western Electricity Coordinating Council

4. RC Redispatch Compensation Some comments: RC should be separated from redispatch cost issue Some support for methodology Western Electricity Coordinating Council

5. RC Redispatch Compensation Next Steps: • GRDC Task Force evaluates the comments • Develop recommendation to the MIS for the January 17 meeting • Present recommendation to the MIC in March • Report to the Board at the April meeting Western Electricity Coordinating Council

6. FERC NOPR OATT Reform ATC – Available Transfer Capability • FERC wants greater consistency and transparency in calculating ATC • FERC requested NERC and NAESB address existing standards and business practices • Joint NERC/NAESB Task Force • Three members from the WECC participating Western Electricity Coordinating Council

7. Seams Coordination Seams Issues Subcommittee evaluating potential seams concerns, California MRTU at the forefront of this effort • SIS is looking beyond just MRTU issues to look at seams throughout the WECC • BPA changes will be causing seams concerns before the MRTU • FERC Technical Conference Dec 14-15 on MRTU Seams Issues Western Electricity Coordinating Council

8. FERC Conference Thursday: Panel 1 – 1:15 TO 3:00 - Operational Seams between CAISO & other systems Brian Silverstein BPA Jerry Smith APS (SIS Chair) Chuck Durick Idaho Power Gary Harper SRP Robert Kahn NW Independent Power Producers Coalition Mark Smith FPL Energy Chuck King CAISO Western Electricity Coordinating Council

9. FERC Conference Friday: Panel 2 – 8:30 TO 10:00 – Commercial, Contractual & Financial Issues Jeff Sterba PNM Sean Gallagher CPUC Pedro Pizarro SCE Marilyn Showalter Public Power Council Jim Shetler SMUD Gary Ackerman Western Power Trading Forum Yakout Mansour CAISO Western Electricity Coordinating Council

10. NAESB Coordination • MIS is the primary interface with NAESB with increased WECC staff involvement • WECC Webpage summary matrix to track NAESB activities • Position Papers will be developed when appropriate Western Electricity Coordinating Council

11. MIC Approval Items • MIC Organizational Guidelines – Charter • Approved under consent agenda • Operating Reserve Requirement • BAL-002-1 Disturbance Control Standard • Approved in the MIC • Failed in the OC Western Electricity Coordinating Council

12. BAL-002-1 Disturbance Control Standard Questions have been raised related to this issue for many years in Compliance/Readiness Audits and related to specific transactions. Various attempts to resolve issues have been made – no success Western Electricity Coordinating Council

13. Examples from Readiness audits Edison MM&T 1998 Both control-area staff and power marketers must be aware that occasionally they use the same words with different meaning. Of particular concern is the term “firm.” In marketing transactions, “firm” may have financial implications but does not imply whether the sending or receiving control area is providing reserve. In fact, if the energy was bought from another marketer, the quality of the generation backing up the transaction may not even be known. Western Electricity Coordinating Council

14. Edison MM&T 1998 (cont.) Ambiguity over the use of the term “firm” will probably continue unless auxiliary services such as “spinning,” “10 minute,” et cetera, are clearly separated from energy transactions as is done by the New England Power Pool. Each load-serving control-area engaging in energy transactions should recognize the ambiguity, and accept the responsibility of ensuring that it has adequate capacity to meet its reserve obligations Western Electricity Coordinating Council

15. Modesto Irrigation District 1998 • MID does not schedule firm resources over non-firm transmission paths. WSCC is encouraged to ensure that appropriate criteria are in place to require that only firm transmission paths be used for the scheduling of firm resources. • Why is this recommended? Firm paths can go away just like non-firm paths. Non-firm takes the first hit, but not necessarily the only hit. We need reserves to respond to the loss of a path! Western Electricity Coordinating Council

16. Portland General 2000 PGE reported there is inconsistency in interpreting WSCC reliability criteria because the terms “firm” and “non-firm” are used but not defined. In addition PGE reported that the definition for “interruptible” needs refinement. The review team concurs with PGE’s suggestion and recommends that the Minimum Operating Reliability Criteria Work Group in coordination with the Reliability Subcommittee recommend definitions for these terms. Western Electricity Coordinating Council

17. History Issue of definitional concerns were being worked on within MORC Work Group - after years of effort a recommendation to CMOPS was voted down (Jan 05) The ORSTF process began in 2004 when the MIC and OC began discussion of creating a task force to look at reserve rules and practices for the WECC this was formalized in early 2005 through creation of the task force Western Electricity Coordinating Council

18. Basic Changes Minimum Level of Contingency Reserves Existing: Greater of 5% hydro / 7% thermal generation related to load responsibility (many commercial concerns) or MSSC Proposed: Greater of 5% BA load or MSSC (with appropriate adjustment for legacy contracts) Becomes BA centric – minimizes transfers between BAs (except legacy contracts) Western Electricity Coordinating Council

19. Formulas Existing: 5% Hydro Gen + 7% Thermal Gen - purchases on which the seller is providing reserves + sales on which the seller is providing reserves + interruptible purchases + on demand obligations Proposed: 5% (Net Generation – Net Interchange + Net Legacy Contracts) Western Electricity Coordinating Council

20. BAL-STD-002-1 Western Electricity Coordinating Council

21. MIC Minority Opinions • No technical basis. (3) • Opposed reference to the FERC tariff for definition of Firm Transmission • Does not improve reliability and is concerned about a cost shift to Balancing Areas and their load. (3) • FRR will supersede Western Electricity Coordinating Council

22. MIC Minority Opinions, cont. • Uncertain if it will help or hurt reliability and may be a disincentive to expedite development of an FRR standard. (3) • Opposes the burden of tracking legacy contracts. • Effective date is an issue for California due to MRTU implementation. • Concern about the tagging changes. • FERC NOPR on NERC standards requires NERC to develop a contingency reserve standard and WECC should participate in its development instead of approving this change. Western Electricity Coordinating Council

23. OC Vote Failed Western Electricity Coordinating Council

24. Combined OC / MIC Vote Western Electricity Coordinating Council

25. Issues No technical basis for change – there is no technical basis for existing reserve calculation Reserve level will change – to extent generation and load are balanced calculation of reserves based on load should give same level as based on generation Western Electricity Coordinating Council

26. Proposed Board Motion The MIC recommends the Board approve the BAL-STD-002-1 Disturbance Control Standard as modified and approved by the MIC on October 27, 2006. Western Electricity Coordinating Council

27. Market Interface Committee QUESTIONS? Western Electricity Coordinating Council