Evolution of FERC's Open Access Transmission Tariff (OATT) and its Use in BC

1. OATT Policy Overview 3/11/11 Ren Orans

2. Agenda • History of the FERC pro forma Open Access Transmission Tariff (OATT) and its use in British Columbia • Evolving North American Industry Standards • Access to Transmission under the OATT

3. HISTORY OF OATT andUse in BC

4. Policy goals of FERC • A primary FERC policy objective is to encourage broad, competitive generation markets • The tools FERC can use to drive its policy goals arise from its jurisdiction under section 201(b)(1) of the Federal Power Act • Transmission of electricity in interstate commerce; and • Sale of electricity at wholesale in interstate commerce. • Since mid-1990s, FERC has driven much of its policy agenda through a pro forma transmission tariff, beginning with Order 888. • Subsequent orders have modified the pro forma tariff, spoken to market structures (such as RTOs), and defined flexibility both inside RTOs and in regions without RTOs.

5. FERC Order 888 (1996) Purpose: To open wholesale electric market competition • Order 888 set out a detailed pro forma open access transmission tariff (OATT) • Requires all public utilities to file an OATT that provides competitors the same services, on the same terms and conditions, as utilities provide to themselves and to their affiliates. • Allows third parties access to the transmission system without requiring utilities to separate transmission, generation, and marketing functions – no need for restructuring & divesting • Does not require direct retail access • Continues to provide certain advantages to domestic load service – flexible network secondary rights, for example. • Contains reciprocity provisions • Both OATT and SOC were created as companion orders and have evolved over time

6. FERC Landmark Orders – Beyond 888 Order 890 Order 717 Order 2003 Order 888/889 Order 2000 Order 2004 1996 2000 2003 2003 2007-2008 Requires all utilities to file an open access transmission tariff (OATT) that provides competitors the same transmission services it provides itself. SOC was introduced here too. RESULT: Opened wholesale electricity market. Sets standard procedure that must be followed by all interconnection customers and transmission providers. Includes cost and responsibility allocation, rights, and dispute resolution processes. RESULT: All costs associated with interconnection facilities before the point of interconnection assigned to the interconnection customer. Facilities beyond the point of interconnection are considered “network upgrades” and are paid for by the customer and refunded through transmission credits. Revised standards of conduct for transmission providers and their associated energy affiliates. It required transmission function employees to work independently of sales/marketing employees RESULT: Required corporate functional separation Required public utilities that own transmission to join pools and RTOs. RESULT: South/West U.S. complain and Congress sustains that utilities are not required to join RTOs. FERC is left with some pools and the rest using 888-type OATTs. Reforms a number of elements of Order 888 to further enforce comparability and undue discrimination. RESULT: Creates tiered imbalance charges and a conditional firm service. Also, FERC moves away from corporate separation approach

7. OATT has Tracked Evolution of FERC Policy • FERC has continuously amended the OATT to follow changing policy goals, to make the tariff more practical, to track jurisdictional definition by the courts, and to follow industry evolution • Flexible approach to RTOs and non-RTO regions • Modified OATT to address issues that arise with undue discrimination (e.g. Order 890) • FERC has also relaxed its requirement for strict adherence to the pro forma • Allows for regional or circumstantial differences, e.g. allows matters such as opportunity cost to be defined on a “case-by-case” basis if needed • Provides wide latitude for business practice flexibility

8. Functional Unbundling Example Independent Power Producers Heritage Vertically Integrated Separation of Transmission System • FERC Standard 888 OATT • Standards of Conduct Generation Generation Transmission Utility Distribution Retail Service Transmission Wholesale Customer Distribution Customer • FERC Standard 888 OATT • Standards of Conduct • Divestiture of generation

9. Adoption of the OATT in BC • BC Hydro introduced a FERC Order 888 pro forma OATT in the mid-1990s • Primary motivation was to ensure access to US markets by adhering to FERC’s reciprocity requirement (Powerex received its PMA in 1997, and continues to hold it) • As was common at the time, BC Hydro originally followed strict adherence to the pro forma, even though it was non-jurisdictional to FERC • BC Hydro OATT exclusively regulated by BCUC • BC Hydro adopted the original incarnation of FERC’s Standards of Conduct (SoC)

10. BC Electricity Policy has also Evolved • 2002 BC Energy Plan added new policy motivations for the OATT • Private sector opportunity joined preservation of market access • Generation divestiture and competitive generation markets were not pursued • BC separated transmission into a separate company, BCTC, during time of BC market structure changes • Common government ownership kept tariff structure designed and suited to vertically integrated utility • BC Hydro has recently modified its SOC, reflecting FERC’s Order No. 717 • Clean Energy Act continues to emphasize value of wholesale electricity trade and private sector opportunity

11. EVOLVING TRANSMISSION INDUSTRY STANDARDS

12. OATT as Industry Standard • The evolving pro-forma OATT remains the North American industry standard • BC Hydro remained generally aligned with the changes of OATT over time • Other non-jurisdictional entities to adopt OATT: • The Bonneville Power Administration is not federally regulated, but uses the FERC 888 pro forma OATT to remain consistent with industry practice in the West • Hydro Quebec TransEnergie also uses a FERC 888 pro forma tariff for similar reasons

13. Regions with Pools vs. FERC 888 OATT Transenergie Hydro Quebec BCH SaskPower Newfoundland & Labrador Hydro Puget Avista Northwestern Idaho Power BPA Portland Sierra PacifiCorp NV Energy PSCo/Xcel TVA Duke APS PNM Entergy Progress Southern FPL

14. Standards of Conduct Comparison: General Principles Both BCH and BPA follow FERC’s SoC General Principles BC Hydro BPA Transmission function employees must function independently of marketing function employees BPA employees and affiliates may not disclose, or use a conduit to disclose, non-public transmission function information to BPA’s marketing function employees BPA will comply with SoC in transparent manner through compliance with various posting requirements and will provide equal access to non-public transmission function information to all its transmission customers, affiliates and non-affiliates • Treat all transmission customers, affiliated and non-affiliated, on a non-discriminatory basis • Transmission function employees must function independently of marketing function employees • BCH employees and affiliates are prohibited from disclosing or using a conduit to disclose non-public transmission information to BCH’s marketing function employees • BCH must provide equal access to non-public transmission function information to all its transmission customers, affiliates and non-affiliates

15. OATT is Still Western Standard • There is no practical alternative for BC Hydro to operate without an OATT: • Trade objectives require following industry standards and regional practices, and preserving Powerex’s PMA • BC public policy has explicitly and repeatedly rejected adopting a competitive energy market • This places BC Hydro in the mainstream of transmission providers in the West • It places BC in the mainstream of energy market structures in the West • Exceptions: • Alberta • California

16. Comparable Access UNDER OATT

17. Impacts of OATT Design • FERC aims to enhance transmission use in order to enhance wholesale electricity markets • FERC also aims to preserve the rights of existing customers and native load • OATT aims to eliminate undue discrimination so that all eligible customers have a fair and non-discriminatory opportunity to use the transmission system • OATT is not designed to ensure that there is result-based equality for all eligible customers

18. Impacts of OATT Design • FERC has determined that it is not discriminatory when scheduling practices have disparate impacts on various types of users • FERC has not sought to use “set asides” or other tools to balance outcomes • Neither the BCUC nor BC policy makers have sought to modify FERC’s approach • Seeking to provide equality of opportunity • Not seeking to ensure equality of result

19. Key Takeaways • Key to non-discrimination is that BC Hydro’s terms and conditions of service are equal between BC Hydro’s own use of the system and third parties’ use • OATT provides the standard for non-discriminatory access in the West • OATT provides comparable access to transmission services but does not ensure equality of results