Commissioners present: Dorothy Anderson, President; Peter Bartel, Susie Smith, and Sandra Bishop, Eugene Water & Electric Board of Commissioners; Bobbie Adams, Virginia Lauritsen, Joe Mathieu, Springfield Utility Board Commissioners; Tom Irwin, Blachly-Lane Electric Co-op Commissioners; Chris Attneave, Charles Leighter, Jim Nelson, Pat Dymouck, Lane Electric Cooperative Commissioners; Ron Benfield, Randall Kowalke, Central Lincoln PUD Commissioners; and Jim Brown, Bruce Pilling, Bill Tanner, Katherine Schacht, Emerald PUD Commissioners.
Others present: Randy Berggren, John Yanov, and Krista Hince EWEB staff; Bob Schmitt, Bob Linahan, Bob Fondren, and Mary Ann Rhodes, SUB staff; Frank Lambe and Alan Zelenka, EPUD Staff, Vickie Van Zandt, Vice President of Operations & Planning, Bonneville Power Administration, guest speaker, and Kris Aanderud, City of Eugene Minutes Recorder.
Eugene Water & Electric Board (EWEB) President Dorothy Anderson called the joint meeting of Utility Boards to order at 5:55 p.m. President Anderson welcomed those in attendance and asked those present to introduce themselves.
Randy Berggren, EWEB General Manager, introduced the guest speaker, Vickie Van Zandt, who will speak about the Regional Transmission Organization (RTO) West.
Commissioner Tom Irwin arrived.
Vickie Van Zandt, Vice President of Operations & Planning, Bonneville Power Administration, said it was a pleasure to speak before the group and to get comments about the Regional Transmission Organization (RTO). She distributed three handouts, which she reviewed with those assembled:
Ms. Van Zandt said that as utilities move through deregulation, it has become apparent to have some generators within the zone. As the margin that was used in the transmission grid and as the Transmission is very stressed during the summer months, while winter loads were characterized as "good" loads. In the summer, the heat causes the lines to sag and the transactions move from an east to west movement to a north to south movement, which is a longer distance, which was characterized as "bad" loads, much like good and bad cholesterol. The RTO would be able to see all of the systems together and oversee what was happening on the system real time.
Ms. Van Zandt reviewed the pricing proposal, which was designed to avoid cost shifts as much as practicable. The proposal collects the fixed costs of the current transmission costs through Company rates, a transmission reservation fee and in limited cases, transfer charges. The transmission reservation fee is applied to transactions that do not pay the company rate, specifically for new users of the system. The RTO would collect its costs through a grid management fee to be applied to all schedules.
Ms. Van Zandt highlighted the RTO planning backstop, as outlined on page three of the RTO Proposal Basics handout. She spoke about Path 15 in California and the events of last year in the California market. She noted that sufficiency of supply was not just a generator question, but also a transmission question. Market monitoring would be an important responsibility of the RTO. She also spoke about the need for safety nets in the system.
Milestones highlighted included:
Lane Electric Commissioner Charles Leighter asked how the new control center would deal with the "slices." Ms. Van Zandt said that each utility would continue to operate within their own control area within their boundary. In addition, there will be two control centers, with two control consoles, which would constitute the generation control entity. Obligations for existing generators, would move to the RTO.
EPUD Commissioner Katherine Schacht commented that this proposal flies in the face of terrorist activities. She asked how a safety net would be ensured given the recent events of September 11, 2001. Ms. Van Zandt said that this was an important question. She said that the filing utility hired two contractors to evaluate the benefits and costs of the RTO. In addition, the question of reliability was paramount. Ms. Van Zandt indicated that a study was done by a Dr. Schwitzer of Schwitzer Engineering Labs, and said that if an RTO was formed, one of his top eight items was to define mitigation measures to ensure that the safety provisions, cyber-security, and back-up systems are up in place.
SUB Commissioner Virginia Lauritsen asked how the RTO would be capitalized. Ms. VanZandt referred to the Preliminary Status Report, page 30 which summarized the initial findings. The capital costs were roughly $100 million, which may be slightly overstated. The annual operating costs, for employee costs, facility costs and debt service, would be approximately $124-$248 million. The difference was in the exclusion/inclusion of California. Ms. Van Zandt reviewed the matrix in depth. She said that generally, with RTO, it was anticipated that by 2004, the stock market price of electricity would go down.
EWEB Commissioner Peter Bartel left for another commitment.
SUB Commissioner Virginia Lauritsen asked how reliable the estimates could be considered. Ms. Van Zandt said that the estimates were based on a "normal year." She said that when tested, the results were fairly stable with other energy issues, except "pancakes."
SUB Staff Member Bob Schmitt said that there have been some skepticism about the results of the study. He said that people believe there will be some efficiencies, but there was concern that there would be higher transmission rates that might be benefit another area. He asked how this might impact the sustained power rates in the region. Ms. Van Zandt said that the modeling was very good for transmission modeling, allowing for path modeling. She said that the charts were meant to show "tendencies" but that actual dispatch for river flow was used in the models. She said that the variables were changed one at a time, both with the RTO/non-RTO models. Again, the only issue that continued to skew the results were the pancakes.
To the predictability of the market, Ms. Van Zandt said that for a market to work right, there needed to be a small surplus at any time. She said that the short supply from last year demonstrated the need to have surplus. The chronic significant congestion has been a long-standing problem, but if it could be fixed, it would be a benefit to the system. Predicting the market is not easy.
Blachly-Lane Electric Cooperative Commissioner Charles Leighter asked if assumptions were made with respect to the future and California. Ms. Van Zandt said that the entire west was included in the model and that the assumption was that existing generators and generators in-progress would be included in the RTO. She noted that there was an export fee for transmission outside the region of $3.80, which she said was a pancake.
SUB Staff Member Bob Schmitt said that one of the concerns was the blackouts that California experienced last year. He asked how RTO West would regulate transmissions to prevent blackouts. Ms. Van Zandt said that California had a situation that invited the problems they experienced. She gave examples of how the various conditions made the situation worse. She said that there needed to be incentives and disincentives to regulate loads. She said that the RTO would have shared responsibility, controlling the real time operating limits, but that utilities have continuing obligations.
EPUD Staff Member Alan Zelenka said that one of the costs showed that the generators would take less money. He said that in California, the generators took advantage of their ability to share in the market place. He said that FERC sat on their hands and allowed a ten fold increase. He said that there was a net benefit of $350 billion into the system and asked how that benefit was shared across the system. Ms. Van Zandt said that on page 35, it showed that the average energy price goes down overall, although it goes up in Montana. In addition, this chart also looked at control areas, seeking more specific results. She said that this chart gives an energy price by load bus. She said that more detailed information will be available by Friday. Ms. Van Zandt added that when the reserves were taken to zero, again the only problem was the pancakes.
SUB Commissioners Joe Mathieu asked how the members here can have access to new data and materials as it becomes available. Ms. Van Zandt said that information would be posted on the RTO West website, but if the utilities would like to have hard copies, RTO West could send copies to each. Mr. Mathieu said that he would like to have hard copies sent to staff so that staff could get information to Board Members. SUB Staff Member Bob Schmitt said that the web site may be sufficient. The website is www.RTOWest.com.
EPUD Commissioner Katherine Schacht asked if the goal of the various RTOs was to nationalize all of the energy within the United States. Ms. Van Zandt said that there were "cookies" to capture and that exercising due diligence was important. She said that there were AC systems in the fourteen western states and the two western Canadian provinces that are not connected to Texas or to the eastern states. She said that these other markets will always be markets unto themselves. Would FERC like to see fewer RTOs?- yes. What is doable and what works for our region is what RTO West has been studying for the last two years. She said that the parties have been working together to find the solution that works best for our region.
Blachly-Lane Electric Co-Op Commissioner Tom Irwin said that he was a conceptual skeptic, expressing concern about "putting all of the eggs in one basket." He said that lowering the reserves systemwide may cause other problems, noting that reserves are necessary for various reasons. He expressed concern that "we not get too carried away with how bright we are." He said that every utility has a different efficiency level. As the contributors are taken out, then there will be fewer contributors in the system. Mr. Irwin said that the idea was fantastic, but we need to proceed with care. Ms. Van Zandt said that she appreciated the comments, sharing the concerns expressed and noting that care should be given with how this proceeds. Staff training, system reliability and key components were paramount.
SUB Commissioner Virginia Lauritsen said that one way the utility boards can help is to use the materials presented tonight to share the information and to solicit comments from others.
Central Lincoln PUD Commissioner Randall Kowalke asked further about efficiencies and how the pancake issue and transmission capacity can be solved with millions of dollars for organization and nothing being spent on hardware and new transmission systems. Ms. Van Zandt said that it would not be responsible to start an RTO with significant transmission congestion. She said that the RTO would build 700 miles of transmission, although she said that she had recently heard the "BANANA" theory: "build absolutely nothing anywhere near anyone." Mr. Kowalke asked if the RTO could fix the problem that FERC and other agencies cannot require other agencies to fix their problems. Ms. Van Zandt said that she believed this to be so.
EWEB Staff member John Yanov asked what legislation might be needed. Ms. Van Zandt said that she did not know if any legislation was needed. She said that BPA believes they have the authority to participate, but that it might be clarified with legislation. The tort liability seems to be a big issue. Currently, there is some torte protection, but if an entity created a cascading failure, there could be liability that would need to be addressed, as the RTO would not have any assets to fall back on.
Mr. Yanov asked how insurance was being addressed. Ms. Van Zandt said it was being covered by a big insurance policy. She said that the liability issue may still need further attention and a solution.
Mr. Yanov said that in BPA's organic legislation, BPA had an obligation to serve through this system, but many utilities would maintain their own operations. He asked how this would work. Ms. Van Zandt said that there were many non-Bonneville entities that were carrying out operations.
EWEB Board President Dorothy Anderson thanked Ms. Van Zandt for her presentation. She asked if there was any information various members would like to share. She also asked if another utility would like to host the next meeting.
There were no volunteers for hosting the next meeting. Mr. Berggren said he would be in contact with other utilities about another meeting.
The meeting was adjourned at 7:35 p.m.
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Assistant Secretary President