Resales and the Northwest Market

1. Resales and the Northwest Market A High Level Preview presented by Pacific Northwest Customers*

2. White Paper Background • Snohomish PUD, along with a group of Northwest customers, developed a White Paper to help explain the Resale Market in the Northwest and the impacts of potential NAESB standards • The White Paper was presented and discussed at a regional meeting on Thursday, May 8 • Due to the time constraints involved in the drafting process, the White Paper is still undergoing regional approval • This presentation is meant as a high-level preview of that White Paper to help put some context to the deeper discussion on Resale mechanics anticipated today • Some concepts, such as how NT customers participate in the Resale market, while not specifically opposed, have also not been individually endorsed by any particular utility or customer and may be subject to change in the final White Paper draft

3. Introduction • The resale market plays an important role in the Pacific Northwest for many market participants • Varied generation sources, Balancing Authority geography and the differing properties of Federal power products result in transmission capacity being used in many different ways

4. The Northwest Resale Market • PTP customers who have purchased sufficient capacity to meet high-load or high-generation conditions are left with excess inventory during most hours of the year • Other customers, due to the variety of activities in the Northwest power market, purchase this surplus on a regular basis to engage in their own business processes • Many of these customers rely on this transmission being available in the resale market

5. Why the Status Quo Doesn’t Work • As it stands, ROFR rights for resales rest with the parent reservation; this creates a number of problems for the market • Assignees have no control of their purchased capacity • Sellers must make or implement business decisions on behalf of their counterparties • Uncertainty surrounding recalled capacity • 50 MW recalled from a 100 MW parent with 25 MW resold; is none, some or all of the resold transmission recalled? • All of these points devalue the resale product and could have significant business impacts in the Northwest

6. Conditional and Unconditional Windows • Customers value the ability to plan how to use potential capacity acquired through resales • Because there are a variety of customers and business objectives in the Northwest, flexibility of resale products is valued • To restrict resales on conditional parents eliminates an entire aspect of the resale market, devaluing the product as a whole • Planning decisions must be pushed farther into the future; assignees must wait until the unconditional window to make final decisions about business operations, which may include generation schedules or load service • Undermines the FERC objectives of promoting longer duration reservations and placing capacity with those value it the highest

7. Option 2 • While still under regional discussion, many customers support Option 2 as their preferred alternative: • Transfer of capacity and ROFR rights along with the resale • Allowed under FERC Order 676C, Paragraph 60, in the case where a standard is unworkable, standards may be adjusted as needed • Supports FERC goals for Preemption and Competition • Maintains the value of existing transmission capacity • Supports market dynamics and liquidity • Promotes longer duration reservations as assignees will have rights to extend through competition; if they do not extend, then: • Allows customer who values capacity the highest to obtain (and control) that capacity

8. Conclusion • Any standard developed will have some impact on the resale market in the Northwest • Final impacts will be driven by the actual mechanics of the standards being implemented • Though still under regional discussion, many Northwest customers support Option 2, understanding that some mechanical details are still to be determined