Transfer Service Issues Meeting Bonneville Power Administration (BPA) Considerations

1. Transfer Service Issues MeetingBonneville Power Administration (BPA)Considerations FromExhibit A, of the 20-Year Contract OTHER ISSUES AS THEY RELATE TO TRANSFER SERVICE Garry Thompson Scott Wiley Connie Howard Dec. 8, 2005 (This is a working document for discussion purposes only, and does not constitute an offernor a commitment to provide service nor an agreement on cost recovery or allocation)

2. A1. Development of Direct Assignment Guidelines for Transfer Service Customers • Treatment of costs and allocation of responsibilities associated with facilities not included in the definition of Transmission Component Costs. (Low Voltage Service, below 34.5 kV) Current Practice: • BPA provides low voltage services to GTA customers pursuant to section 8(f)(2) of the Power Sales Contract. This provision requires BPA to continue to pay for wheeling across third party systems for delivery to existing low voltage PODs. Currently low voltage is defined as below 34.5 kV. Transfer Customers with low voltage PODs pay the GTA Delivery Charge, currently $1.119 per kW/month.

3. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) Considerations: • Under the 20-year contract, BPA is obligated to arrange for transfer service, to include low voltage. Should BPA encourage customers to arrange for their own low voltage service in the future? • Should BPA maintain the existing cost recovery mechanism, or propose a new method? • Leave cost recovery charge consistent with TBL delivery charge? • All transferor assessed Low Voltage transfer costs are rolled into a new PBL transfer delivery charge? • Direct pass through of individual assigned costs to each customer?

4. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) • Treatment of costs and allocation of responsibilities associated with upgrades on facilities not included in the definition of Transmission Component Costs: Current Practice: • BPA does not want to expand low voltage service beyond what is currently provided, and therefore, will seek to directly assign costs that are directly charged to BPA that are associated with expansion or upgrade (requiring the installation of new equipment) of facilities. This practice is supported by the Principles identified in section 8(b) of the Agreement Regarding Transfer Service.

5. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) Considerations: Need guidelines that cover the following situations: • Existing Facilities that need upgrades (new equipment installed) or expansions due to customer needs. • Existing facilities that need upgrades or expansions due to transferor needs, which result in costs being assessed to all users of the facility. • Replacement of existing facilities due to catastrophic failure. • New Facilities and New PODs: • Transferor requires new facility or POD. • Customer, not transferor, requires new facility(load growth on customer’s system). • New customer POD using existing transferor facilities

6. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) Recommendations: For new Low Voltage PODs: BPA will accept the addition of new transfer PODs at low voltage levels, and will directly assign to the customer any charges assessed to BPA as a result of capital improvements, or any costs resulting from the construction of the new substation. BPA will charge the customer the greater of [a] the the charge assessed by the transferor (pass through) (assuming the charges for low voltage delivery are separately identified), or [b] the GTA Delivery Charge. Examples on pages 7 and 8 For existing PODs: • If a replacement to equipment is necessary due to failure, the customer will not be directly assigned any costs related to the replacements, due to BPA’s commitment to provide transfer customer existing service to which they are accustom. Example on page 10 • If a replacement is required to accommodate load growth, and the transferor directly assigns costs to BPA for the replaced capital equipment, the costs will be treated the same as a new POD. Examples on pages 7 and 8

7. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) EXAMPLE 1 Customer request a new low voltage Point of Delivery, at an existing, transferor owned substation: • Transferor invests $100,000 for the set up for a new feeder position to serve BPA’s customer at the existing substation, and rolls that cost into their use of facilities rates. Transferor assess use-of-facilities charges* for both Primary Distribution, at $.75, and a Substation charge of $.25, for a total of $1.00 per kW/Mo. • BPA charges customer the GTA Delivery charge; the greater of the GTA Delivery Charge or the Transferor assessed charge. *Generally the cost of I&A (Interest and Amortization); A&G (Administrative and General) and O&M (Operation and Maintenance) and taxes are recovered in these charges

8. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) EXAMPLE 2 Customer Request a new low voltage Point of Delivery: • Transferor builds new substation to accommodate request, charges BPA (contract holder) use-of-facilities charges for Primary Distribution (low voltage), in the amount of $2.00 per kW/Mo., and Substation, in the amount of $1.00 per kW/Mo, for a total of $3.00 per kW/Mo. based on demand. • BPA charges the customer the $3.00 kW/Mo. charge, the greater of the GTA Delivery Charge or the transferor assessed charge. • Customer does not pay BPA’s GTA Delivery Charge.

9. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) Example 3 If a Transferor notifies BPA that an existing low voltage substation needs to be upgraded in order to accommodate load growth for both the Transferor’s native load, and BPA’s transfer load, the following will apply: • Transferor upgrades their substation at a capital cost of $1,000,000. Transferor’s native load equals 50% of the total load being served across the substation, and BPA’s load equals 50%. • Transferor charges BPA a one time fee of $500,000 for the 50% share of the capital cost of the substation. Transferor also assess use-of-facilities charges for Primary Distribution in the amount of $3.00 per kW/Mo based on demand. • BPA directly assigns the $500,000 charge to the customer(s) whose load is being served through the substation. BPA passes through the $3.00 per kW/Mo demand charge, the greater of the GTA Delivery Charge or the transferor assessed charge.

10. A1. Development of Direct Assignment Guidelines for Transfer Service Customers (Continued) Example 4 If a transferor notifies BPA that an existing substation has experienced an equipment failure, and the transformer needs to be replaced. The substation serves a single BPA customer, the following will apply: • Transferor charges BPA the cost of the replacement transformer, and cost of installation. • BPA pays for directly assigned costs, which is rolled into the PF, or other previously designated rate. • BPA charges the customer the GTA Delivery Charge.

11. A2. Quality of ServiceBPA does not have a proposal at this time in regard to Quality of Service, and welcomes customers views with regard to this issue. The following is what was previously provided in an earlier presentation: The PBL acts on behalf of transfer customers to ensure service is in accordance with established contracts and tariffs. When negotiating new or follow on contracts, PBL ensures customers’ needs are met in the best possible way and that customers are treated as well as the transfer providers’ native loads. The PBL’s ability to make transfer service exceed the quality of service offered by the transfer provider to its native load is limited.

12. A3. Respective roles of customers and BPA in management of General Transfer Agreements (GTA), including whether to do periodic evaluations of the costs or benefits of replacing GTA with Open Access Transmission Tariff service. • In Section 3 of the 20-year Transfer Service contract BPA has committed to arrange for Transfer Services for the duration of the agreement. However, BPA and the customer may agree to make other arrangements. Considerations: • Should BPA continue to hold and manage the agreements, with continued input from the customers with regard to cost control? –or– • If the customer holds the contract, what reimbursement mechanism should BPA establish to limit its costs, including those for administration and scheduling?

13. A4. Treatment of costs, and allocation of responsibility, for ancillary services. Current Practice: • In general, PBL pays transferor; customer pays for Scheduling, System Control, Dispatch, Reactive Supply and Voltage Control from generation sources under their transmission contract with BPA. • Contingency reserves (spinning and supplemental) are the customers’ responsibility and choice (purchase from TBL, self supply or third party supply). • PBL generally pays transferor for Regulation and Frequency Response, and the customer reimburses the PBL the lesser of TBL’s Regulation rate or the transfer provider’s rate. • For Energy Imbalance the PBL pays the transferor for Full and Actual Partial customers whose contracts contain load-matching provisions. Transfer customers that do not have load matching service provided to them under their Subscription contract (such as those purchasing the Slice product) reimburse PBL.

14. A4. Treatment of costs, and allocation of responsibility, for ancillary services. (Continued) Recommendations: • In response to customer feedback to date, it is recommended that BPA continue to follow the current practice associated with the treatment of ancillary services, with one proposed change: Proposed Change: PBL will acquire Regulation and Frequency Response service from the Transferor, and the customer will reimburse the PBL at the TBL posted rate for this service.

15. Scenario BPA TX Contract Generation Wheel Segments A Network Integration Interconnected to BPA Two (2) wheels – BPA network & Transfer TP B(1) Network Integration Interconnected to Transfer Provider Two (2) wheels – BPA network & Transfer TP A Network Integration Interconnected to BPA One (1) wheel – BPA network B(2) Network Integration Interconnected to BPA Neighboring Transmission Provider (not Transfer Provider) Three (3) wheels – Neighboring TP & BPA network & Transfer TP B Network Integration Interconnected to Neighboring Transmission Provider Two (2) wheels – BPA network & neighboring TP C C Network Integration Network Integration Interconnected to System in California Interconnected to System in California Three (3) wheels – BPA Intertie & BPA network & Transfer TP Two (2) wheels from NW/CA border – BPA network and BPA Intertie B1. Treatment of costs associated with the transmission service provided by Third Party Transmission Providers, other than BPA or an RTO, for delivery of non-federal power. • As a starting point for discussion of this topic, the following examples are provided: Example of Transmission Wheels Necessary for Energy Deliveries Assuming no change in existing BPA transmission contract BPA Network Integration Service  Assumptions: ØAll examples assume OATT service ØAll Transfer Service Customers have NT for load service with BPA ØBPA NT Billing Factor –Customer’s Network Load on hour of Monthly Transmission Peak Load minus Declared Customer Served Load specified in contracts as of October 1, 2005. (Assumes no new Customer Served Load added to contracts after midnight on September 30, 2005) Directly Connected Customer Transfer Service Customer

16. Load Load 1+ 2( BPA NT ) G Transfer Provider G 1 3 2 3 Transfer Provider G 1 2 G IOU 1 2 Load 2 IOU 2 2 1 1 Load G 1 BPA 1 G BPA CA/OR border CA/OR border To be comparable to directly connected: possibly pay for Transfer Service cost if Generation moves across FCRTS. NW Transmission Wheels for Movement of Generation for Transfer Service Customers with BPA NT NW Transmission Wheels for Movement of Generation for Directly Connected Customers B1. Treatment of costs associated with the transmission service provided by Third Party Transmission Providers, other than BPA or an RTO, for delivery of non-federal power (Continued)

17. B2. Transfer Service for Annexed Load Service to load in annexed territories, as defined in the Customer’s Power Sales Contract

18. B2. Transfer Service for Annexed Load Current Practices: • Definition of “Transfer Service” in the 20-year Transfer Service contract (Agreement Regarding Transfer Service, or ARTS agreement) means: …the service provided by a Third Party Transmission Provider to deliver Firm Power sold by BPA pursuant to a Power Sales Agreement, to (Customer). Transfer Service does not include service to loads in territory annexed by (a Customer) served by transfer except as provided for in such Power Sales Agreement • Definition of “Annexed Load” in current Subscription contracts: “Annexed Load” (9/5/00 version) means the amount of load, including the increase in load associated with an annexation, that is added to the customer’s distribution system after 9/30/00, due to the customer’s acquisition by condemnation, purchase or other legal process, as authorized under applicable state law, or distribution facilities and the obligation to serve the retail electric power consumers connected to the facilities. Annexed Load amounts are shown in Exhibit A, Rate Commitments.

19. B2. Transfer Service for Annexed Load Current Practices (continued): • Under the Delivery Section of the Subscription contract, it states: The customer shall obtain transfer service over any non-Federal transmission systems necessary to deliver Contracted Power used to serve the customer’s Annexed load. However, PBL agrees to continue to transfer service for Annexed Loads being served through transfer by PBL at the time of annexation. • In the Special PF Load Treatment Section of Exhibit A of the Subscription contract it states: Customers may make a written request for service to Annexed Loads. Annexed Load amounts that were served by PBL under section 5(b) of the Northwest Power Act immediately prior to becoming an Annexed Load will be provided service under rates, terms, and conditions that, within the constraints of BPA’s applicable policies, are as comparable as possible to what such Annexed Load would have received if the load had not become an Annexed Load.

20. B2. Transfer Service for Annexed Load Concerns with Current Approach: • Customers required to arrange for Transfer Service for small amounts of Annexed Load. BPA’s role in acquiring Transfer Service is confused when customers are arranging for part of the Transfer Service. • BPA’s current treatment of annexations does not require transfer customers (situations where the Annexed Loads was previously served by transfer) to resolve any outstanding inter utility annexation issues before approaching BPA.

21. B2. Transfer Service for Annexed Load Future Practices: • BPA will not arrange nor pay for Transfer Service of hostile annexations. • When Annexed Load does not result in any facility or capital costs being directly assigned to BPA, BPA would arrange and pay for the Transfer Service costs of the annexed load, except in cases of hostile annexations. • If Annexed Load results in network facility or capital costs being directly assigned to BPA, BPA would arrange for the service and assign the direct assignment costs to the customer for the period BPA incurs the direct assignment costs for the annexed load. • Any low voltage cost or issues will be treated per the Low Voltage guidance. Open Issues for Annexed Load: • How should hostile annexations be defined ? • Should customers who have to pay the annexed load Transfer Service costs be responsible for their Transfer Service arrangements? • Does the definition of Annexation need clarification for the new contract?

22. B2. Transfer Service for Annexed Load Annexed Load – Examples: All the Annexed Load examples, use the following assumptions: • “Customer A” is the Transfer Customer gaining the Annexed Load. • Any increased Transfer Service costs related to the Annexed Load that are directly assigned to BPA shall be passed through to Customer A: • Customer A will pay for any lump sum capital costs charged to BPA. • Customer A will pay for any capital costs that are charged to BPA through an increased Transfer rate. • Any low voltage issues will be treated per the Low Voltage guidance.

23. B2. Transfer Service for Annexed Load Example 1 – “Friendly Annexations with no Directly-Assigned Transfer costs” Customer A is a transfer service customer. Customer B is not. Customer A annexes load from Customer B amicably. Will BPA cover the cost of transfer service associated with the annexed load? Current Practice – No. The load annexed was not previously served by transfer service before the annexation, and therefore, Customer A must arrange and pay for transfer service. See Slide 16. Future Practice – Yes. As long as the annexation is not hostile (i.e., mutually agreed to by Customers A and B), BPA would pay for Transfer Service for the annexed load.

24. B2. Transfer Service for Annexed Load Example 2 – “Friendly Annexations with some costs directly assigned to BPA” Customers A and Customer C have amicably agreed that Customer A will annex a load from Customer C. Both customers are served by transfer. The Transfer Service for the Annexed Load was previously arranged and paid for by BPA. In order to serve the Annexed Load via Customer A, the transferor has to upgrade their facilities. The facility upgrade costs have been directly assigned to BPA. (1) Will BPA cover the cost of transfer service associated with the annexed load? (2) Will BPA cover any of the new facility or capital costs? Current Practices –(1) Maybe; (2) No. • If the annexation does not result in increased Transfer Service costs to BPA, then the Transfer Service costs for the Annexed Load is paid by BPA. If there are increases in Transfer costs above the amount that BPA incurred prior to annexations, then BPA will pass on those incremental costs to Customer A. • Any new direct assignment costs assigned to BPA would be passed onto Customer A. • BPA intends to continue to arrange for Transfer Service. Future Practices – (1) Partially; (2) No. • As long as the annexation is not hostile (i.e., Customers mutually agreed), BPA would arrange and pay for Transfer Service for the annexed load except for the upgrade costs. • Customer A would pay BPA any new facility or capital costs directly assigned to BPA because of the upgrades from the annexation.

25. B2. Transfer Service for Annexed Load Example 3 – “Unfriendly annexations of load” Customer A (served by transfer over Customer D) is annexing a large load from Customer D. The annexed load is served directly from Customer D transmission network since the end consumer owns the delivery substation. Customer D is objecting to the annexation. Will BPA cover the cost of transfer service associated with the annexed load? Current Practice – No. Since the annexed load was not previously served by transfer, BPA would not pay for the Transfer Service costs. Customer A is responsible for arranging for transfer service. See Slide 16. Future Practice – No. Although there is no new facility or capital costs directly assigned to BPA, BPA would not arrange nor pay for any Transfer Service costs since this is a hostile annexation.