Reserves Issue

1. Reserves Issue • For years there has been disagreement over reserves issues and what constitutes firm power. • We’ve been able to function as a market, despite this, largely because nothing has forced these issues to be decided. • Recent developments are now forcing the issue to a head.

2. Letter from WECC MIC to WSPP EC and OC Chairs • Upcoming changes to contingency reserve responsibility. • Two objectives of the letter: • Inform the members of the issue • Request that WSPP evaluate actions available to WSPP that would mitigate market (and reliability) impacts. • Encourages resolution of short-term issue (December 4) and long-term issues.

3. What the Agreement says • Service Schedule C • C-3.10 Seller shall be responsible for ensuring that Service Schedule C transactions are scheduled as firm power consistent with the most recent rules adopted by the applicable NERC regional reliability council. • For years we’ve had tacit agreement over what the WECC rules were. Now they have changed.

4. WECC Interpretation of “Load Responsibility” • Approved on September 7, 2007 • “Energy product definitions are determined by the entities that are parties to the transaction. • It is up to Purchasing Selling Entities to determine their level of acceptable deliverability risk and determine who has contingency reserve responsibility.”

5. INT-BPS-014-0 (Identification of Contingency Reserve Responsibilities in the e-Tag) • B. Requirements • WR1. When both the Source and Sink Balancing Authorities (BAs) are within the Western interconnection, e-Tag Authors will identify the BA or Reserve Sharing Group member responsible for including the transaction in their calculation of Contingency Reserve requirements. This entity will be referred to as the “Responsible Entity.” Only one selection will be made.

6. INT-BPS-014-0 (Identification of Contingency Reserve Responsibilities in the e-Tag) • C. Measures • WM1. Interchange Authorities will provide evidence that they only accept e-Tags containing the Responsible Entity…. • WM2. Balancing Authorities…will provide evidence of correctly adjusting their Contingency Reserve Obligations by the amounts shown on the implemented e-Tag.

7. NWPP Response • NWPP RSG members (if the source) will not carry reserves for exports outside the NWPP unless the e-Tag states otherwise. • NWPP RSG members (if the sink) will carry reserves for imports into the NWPP unless the e-Tag states otherwise. • For transactions in the NW where the source and sink are NWPP RSG members, the source BA will carry the reserve responsibility.

8. California/BPA situation • Sellers claim they can not arrange to provide reserves, as this is a function of the ISO. • ISO is the BA for many of the transactions originating in California. • BPA claims it’s merchant can not obligate its BA to provide reserves for sales. It can for purchases, as the sink BA is the provider of last choice for reserves.

9. What the Agreement says • Operating Procedure No. 1 • Requires sending control area to notify receiving control area (and all intermediaries) of the “reserve responsibility.” • Seller, if different from the sending control area, shall notify sending control area. • Buyer, if different from the receiving control area, shall notify the receiving control area.

10. ICE issue • Significant quantity of preschedule and term trades done on ice. • Does not specify who carries reserves. • Do not know who your counterparty is until transaction is consummated. • Discussions with ICE.

11. Actions available to WSPP • Amend the contract to have a default, with the ability to agree otherwise. • Amend the contract to have different default provisions specific to different regions/transaction. • Post a list of members on the website who interpret the agreement a certain way. • (ICE interface) • Let market forces shape itself.

12. At a minimum… • “Get the word out” campaign notifying members of the issue. • Letter from Sempra. • Long-term thinking – next steps.