EXHIBIT 99.200
SECTION 9:
COST BASED
TRANSMISSION PRICING
(C) Shir Consultants
1
OUTLINE
- - General cost based transmission pricing process
- - Transmission pricing schemes
- - Transmission pricing models
(C) Shir Consultants 9-2
TRANSMISSION PRICING PROCESS
[FLOW CHART]
(C) Shir Consultants 9-3
TRANSMISSION PRICING PROCESS
[FLOW CHART]
(C) Shir Consultants 9-4
TRANSMISSION PRICING SCHEMES
- - The basic process of translating transmission costs to charges for
transmission customer
- - The distinguishing features of various transmission pricing schemes are
based on the the following features:
- Cost responsibility
- Spatial resolution for transmission prices
- Time resolution for transmission prices
- Payment responsibility for transmission prices
(C) Shir Consultants 9-5
COST RESPONSIBILITY
- - Rolled-in pricing scheme
- All transmission costs are rolled ?????
- - Incremental pricing scheme
- - Composite embedded/incremental pricing scheme
(C) Shir Consultants 9-6
ROLLED-IN PRICING SCHEME
[FLOW CHART]
(C) Shir Consultants 9-7
INCREMENTAL PRICING SCHEME
[FLOW CHART]
(C) Shir Consultants 9-8
COMPOSITE EMBEDDED/INCREMENTAL PRICING SCHEME
[FLOW CHART]
(C) Shir Consultants 9-9
SPATIAL RESOLUTION FOR TRANSMISSION PRICES
- - System-wide pricing
- Cosntrant transmission prices system wide
- - Zonal pricing
- Constant transmission prices in selected zones
- - Nodal pricing
- Transmission prices change for every node
(C) Shir Consultants 9-10
TIME RESOLUTION FOR TRANSMISSION PRICES
- - Annual pricing
- - Seasonal pricing
- - Daily pricing
- - Hourly pricing
(C) Shir Consultants 9-11
TIME RESOLUTION FOR TRANSMISSION PRICES
- --------------------------------------------- --------------- --------------- -------------- ---------------
ATTRIBUTE ANNUAL PRICE SEASONAL DAILY PRICE HOURLY PRICE
PRICE
============================================= =============== =============== ============== ===============
Ability to differentiate based on the Low Medium High High
level of service
============================================= =============== =============== ============== ===============
Ability to recover transmission revenue High High High High
requirement
============================================= =============== =============== ============== ===============
Acceptability to regulators High High High High
============================================= =============== =============== ============== ===============
Ease of implementation High Medium Medium Medium
============================================= =============== =============== ============== ===============
Ability to maximize the utilization of Low Low Medium High
existing transmission resources
============================================= =============== =============== ============== ===============
Ability to provide efficient economic Low Low Medium High
signal to select least cost transaction
============================================= =============== =============== ============== ===============
Ability to provide efficient economic Low Medium High High
signal for locating generation and load
- --------------------------------------------- --------------- --------------- -------------- ---------------
(C) Shir Consultants 9-12
PAYMENT RESPONSIBILITY FOR TRANSMISSION PRICES
- - Load pays for transmission services
- - Supplier pays for transmission services
- - Both load and supplier pay for transmission services
(C) Shir Consultants 9-13
ATTRIBUTES OF TRANSMISSION PRICING SCHEMES
The criterial why a particular transmission pricing scheme may be selected for a
paticular application
- - Ability to differentiate based on the level of service
- - Ability to recover transmission revenue requirement
- - Acceptability to regulators
- - Ease of implementation
- - Ability to maximize the utilization of existing transmission resources
- - Ability to provide efficient economic signal to select least cost
transaction
- - Ability to provide efficient economic signal for locating generation and
load
(C) Shir Consultants 9-14
SELECTING COST RESPONSIBILITY FEATURE
- ------------------------------------------------------- ------------------ ------------------ ----------------
ATTRIBUTE ROLLED-IN INCREMENTAL COMPOSITE
SCHEME SCHEME SCHEME
======================================================= ================== ================== ================
Ability to differentiate based on the level of Low High High
service
======================================================= ================== ================== ================
Ability to recover transmission revenue requirement High Low High
======================================================= ================== ================== ================
Acceptability to regulators High Low Medium
======================================================= ================== ================== ================
Ease of implementation High Low Low
======================================================= ================== ================== ================
Ability to maximize the utilization of existing Low High High
transmission resources
======================================================= ================== ================== ================
Ability to provide efficient economic signal to Low High High
select least cost transaction
======================================================= ================== ================== ================
Ability to provide efficient economic signal for Low High High
locating generation and load
- ------------------------------------------------------- ------------------ ------------------ ----------------
(C) Shir Consultants 9-15
SELECTING INCREMENTAL COST RESPONSIBILITY FEATURE
- ------------------------------------------------------ --------------------------- ------------------------
ATTRIBUTE SHORT RUN COSTS LONG RUN COSTS
====================================================== =========================== ========================
Ability to differentiate based on the level of Medium High
service
====================================================== =========================== ========================
Ability to recover transmission revenue requirement Low-High Medium-High
====================================================== =========================== ========================
Acceptability to regulators Medium Medium
====================================================== =========================== ========================
Ease of implementation Medium Medium
====================================================== =========================== ========================
Ability to maximize the utilization of existing High High
transmission resources
====================================================== =========================== ========================
Ability to provide efficient economic signal to High High
select least cost transaction
====================================================== =========================== ========================
Ability to provide efficient economic signal for Medium High
locating generation and load
- ------------------------------------------------------ --------------------------- ------------------------
(C) Shir Consultants 9-16
SELECTING THE SPATIAL RESOLUTION FOR TRANSMISSION PRICES
- ------------------------------------------------- -------------------------- ------------------ ------------------
ATTRIBUTE SYSTEM-WIDE PRICE ZONAL PRICE NODAL PRICE
================================================= ========================== ================== ==================
Ability to differentiate based on the level Low Medium High
of service
================================================= ========================== ================== ==================
Ability to recover transmission revenue High High High
requirement
================================================= ========================== ================== ==================
Acceptability to regulators High High High
================================================= ========================== ================== ==================
Ease of implementation High Medium Low
================================================= ========================== ================== ==================
Ability to maximize the utilization of Low Medium High
existing transmission resources
================================================= ========================== ================== ==================
Ability to provide efficient economic signal Low Medium High
to select least cost transaction
================================================= ========================== ================== ==================
Ability to provide efficient economic signal Low Medium High
for locating generation and load
- ------------------------------------------------- -------------------------- ------------------ ------------------
(C) Shir Consultants 9-17
PAYMENT RESPONSIBILITY FOR TRANSMISSION PRICES
- ---------------------------------------------- --------------------- ---------------------- ----------------------
ATTRIBUTE LOAD PAYS SUPPLIER PAYS BOTH PAY
============================================== ===================== ====================== ======================
Ability to differentiate based on the High Medium High
level of service
============================================== ===================== ====================== ======================
Ability to recover transmission revenue High High High
requirement
============================================== ===================== ====================== ======================
Acceptability to regulators High Low Medium
============================================== ===================== ====================== ======================
Ease of implementation High High Medium
============================================== ===================== ====================== ======================
Ability to maximize the utilization of Medium Medium High
existing transmission resources
============================================== ===================== ====================== ======================
Ability to provide efficient economic High Medium High
signal to select least cost transaction
============================================== ===================== ====================== ======================
Ability to provide efficient economic Medium Medium High
signal for locating generation and load
- ---------------------------------------------- --------------------- ---------------------- ----------------------
(C) Shir Consultants 9-18
EXAMPLES TRANSMISSION PRICING SCHEMES
- ------------------- ------------------------------------------------------------------------------------- -------------------------
ENTITY PRICING SCHEME SOME IMPLEMENTATION
----------------------- --------------------- ------------------- ------------------- DETAILS
COST SPATIAL RESOLUTION TIME PAYMENT
RESPONSIBILITY RESOLUTION RESPONSIBILITY
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
WEPEX: California's Composite: Embedded costs: Embedded costs: Embedded costs: - Applicable to all
Transmission - Embedded costs - System-wide - Annual - Loads? transactions.
Pricing (proposed) based on demand (utility specific) Incremental costs: Incremental costs: - Embedded costs are
(access fee) and Incremental costs: - Annual for - Both loads allocated using postage
energy (use fee) - Nodal for losses and suppliers pay stamp model
- Incremental costs losses - Hourly for for short run - Losses assigned to
based on short run - Zonal for congestion costs suppliers according to
costs (including congestion - Daily for - Loads for average marginal values
ancillary services) - Zonal for most ancillary ancillary - Congestion assigned
ancillary services? services (some services? based on SRMC model to
hourly)? both suppliers and
loads
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
PJM (preliminary Composite: Embedded costs: Embedded costs: Embedded costs: - Applicable for all
proposal) - Embedded costs - Zonal and - Annual - ? transactions
based on demand based functional Incremental costs: Incremental costs: - Embedded cost
reservation charge Incremental costs: - Hourly for - ? allocation based on
- Incremental costs - Nodal for short run costs postage stamp or PFBCA
based on short run short run costs (MW-mile) method
costs (including (congestion and - Non-firm users pay 10%
ancillary services) losses) of embedded costs
- Congestion (and
losses?) assigned based
on SRMC model
- ------------------- ------------------------------------------------------------------------------------- -------------------------
(C) Shir Consultants 9-19
EXAMPLES TRANSMISSION PRICING SCHEMES
- ------------------- ------------------------------------------------------------------------------------- -------------------------
ENTITY PRICING SCHEME SOME IMPLEMENTATION
----------------------- --------------------- ------------------- ------------------- DETAILS
COST SPATIAL RESOLUTION TIME PAYMENT
RESPONSIBILITY RESOLUTION RESPONSIBILITY
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
UK: National Grid Composite: Embedded costs: Embedded costs: Embedded costs: - Applicable to all
Company (in place) - Embedded costs - System-wide for - Annual - Both loads transactions
based demand only security fee Incremental costs: and suppliers - Transportation fee
(security fees) Incremental costs: - Hourly for Incremental costs: assigned based long run
- Incremental costs - Zonal for short run costs - Both loads incremental cost model
based on short run transportation fees - Annual for and suppliers (MW-km)
costs (including - Nodal for short long run costs (incl. ancillary - Security fee (embedded)
ancillary services) run costs - Daily for services) based on postage stamp
and long run costs - Zonal/system-wide most ancillary model
(transportation fee) for ancillary services (some - Incremental costs
services annul) (congestion, losses)
assigned based on SRMC
model
- ------------------- ------------------------------------------------------------------------------------- -------------------------
(C) Shir Consultants 9-20
EXAMPLES TRANSMISSION PRICING SCHEMES
- ------------------- ------------------------------------------------------------------------------------- -------------------------
ENTITY PRICING SCHEME SOME IMPLEMENTATION
----------------------- --------------------- ------------------- ------------------- DETAILS
COST SPATIAL RESOLUTION TIME PAYMENT
RESPONSIBILITY RESOLUTION RESPONSIBILITY
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
ARGENTINA Composite: Embedded costs: Embedded costs: Embedded costs: - Applicable for wheeling
- Embedded costs - Nodal - Annual - ? transactions
allocated based on Incremental costs: Incremental costs: Incremental costs: - Embedded cost
demand ("connection - Nodal - Hourly - ? allocation based on
fee") PFBCA model
- Incremental cost - Short run costs
based on short run assigned based on SMRC
costs model
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
CHILE Composite: Embedded costs: Embedded costs: Embedded costs: - Applicable for wheeling
- Embedded costs - Nodal - Annual - Load and transactions
allocated based on Incremental costs: Incremental costs: supplier - Embedded cost
demand ("additional - Nodal - Hourly Incremental costs: allocation based on
toll") - Load and PFBCA model
- Incremental cost supplier - Short run costs
based on short run assigned based on SRMC
costs ("transmission model
rent") and long run - Long run costs assigned
costs ("transmission based on LRIC model
toll")
- ------------------- ----------------------- --------------------- ------------------- ------------------- -------------------------
(C) Shir Consultants 9-21
WEPEX'S TRANSMISSION PRICING SCHEMES
[FLOW CHART]
22
TRANSMISSION PRICING MODELS
- - Presents prevailing and promising transmission pricing models
- - Present models in the context of evaluating, assigning and allocating
transmission costs
- Models for evaluation and assignment of incremental system costs
- Methods for partitioning of transmission revenue requirement to rate
components
- Models for allocation of the revenue requirement
(C) Shir Consultants 9-23
TRANSMISSION PRICING MODELS FOR INCREMENTAL COSTS EVALUATION AND ASSIGNMENT
- - Short run (operating) costs
- - Long run (reinforcement) costs
(C) Shir Consultants 9-24
EVALUATION OF SHORT RUN COSTS
- - To ensure short run efficiencies
- - Cost of generation redispatch resulting from potential congestions and
losses caused by the transaction
- - Short run costs may be negative
- - Requires chronological simulation of the transmission system
(C) Shir Consultants 9-25
EX-ANTE VERSUS EX-POST EVALUATION OF SHORT RUN COSTS
- - Ex-Ante evaluation
- Timely economic signals
- Price certainty
- Inaccuracies may blunt usefulness
- - Ex-post cost evaluation
- Ensures accurate results
- Too late to help transmission customers make optimal use of the
transmission system
- - Often both ex-ante and ex-post price calculations are carried out in order
to true up costs in the long run
(C) Shir Consultants 9-26
EX-ANTE VERSUS EX-POST EVALUATION OF SHORT RUN COSTS
- --------------------------------------------- ----------------------------- ---------------------------------
ATTRIBUTE EX-ANTE EX-POST
SHORT RUN COST EVALUATION SHORT RUN COST EVALUATION
============================================= ============================= =================================
Ability to differentiate based on the High Medium
level of service
============================================= ============================= =================================
Ability to recover transmission revenue High High
requirement
============================================= ============================= =================================
Acceptability to regulators High High
============================================= ============================= =================================
Ease of implementation Low-Medium Medium-High
============================================= ============================= =================================
Ability to maximize the utilization of High Medium
existing transmission resources
============================================= ============================= =================================
Ability to provide efficient economic High Low
signal to select least cost transaction
============================================= ============================= =================================
Ability to provide efficient economic Medium Medium
signal for locating generation and load
- --------------------------------------------- ----------------------------- ---------------------------------
(C) Shir Consultants 9-27
PROXIES FOR SHORT RUN COSTS
Short Run Marginal Cost Pricing Model
(Transmission Pricing Model 1)
- - Estimates the short run costs by multiplying the marginal operating cost
($/MW) by the amount of transacted power (MW)
- - The marginal operating cost is the cost of accommodating a marginal
increase in the magnitude of transacted power
- - Alternatively:
[FORMULA OMITTED]
- - The hourly costs can be summed up for the duration of a transaction
(C) Shir Consultants 9-28
PROXIES FOR SHORT RUN COSTS
Short Run Marginal Cost Pricing Model
(Transmission Pricing Model 1)
- - Advantages of the SRMC pricing model
- Straightforward
- - Disadvantages of the SRMC pricing model
- The dispatch model can be very complex
- The dispatch model may not represent the actual behavior of the
power system
- The dispatch model may not converge
- SRMC based prices can be very volatile
- SRMC pricing model can work based on the approximate formulations of
SRMC pricing model
(C) Shir Consultants 9-29
EVALUATION OF LONG RUN COSTS
- - To ensure long run efficiency in investment and operation of the
transmission system
- - Reinforcement costs (cost of adding new system facilities) and long run
operating costs
- - Normally system reinforcements are only considered
(C) Shir Consultants 9-30
ACCURATE EVALUATION OF LONG RUN COSTS
- - Compare the least cost (optimal) transmission expansion plans for the
system with and without the transaction
- - Optimal transmission expansion plans
1. Simulate the operation of the system over many years.
2. Evaluate the cost of system operations
3. Relieve system congestion through least cost transmission
reinforcements
[SYSTEM OPERATING COST CHART]
(C) Shir Consultants 9-31
ACCURATE EVALUATION OF LONG RUN COSTS
- - Extremely complex, tedious, data intensive and subject to potential
dispute
- - Has been successfully deployed for radial transmission and distribution
configurations
- - Transmission planners have been practicing an approximate version of this
process
(C) Shir Consultants 9-32
PROXIES FOR LONG RUN COSTS
Long Run Marginal Cost (LRMC) Pricing Model
(Transmission Pricing Model 2)
- - Roughly estimates the long run cost
- - Studies the impact of a marginal increase in the magnitude of transacted
power on the "flows" on transmission facilities
- - Calculation of LRMC based prices:
- Marginal long run cost
[FORMULA OMITTED]
- The proxy for long run cost is then calculated as:
[FORMULA OMITTED]
- - Similar to UK's NGC minimal "spanning tree" approach
(C) Shir Consultants 9-33
PROXIES FOR LONG RUN COSTS
Long Run Marginal Cost (LRMC) Pricing Model
(Transmission Pricing Model 2)
- - Advantages of the LRMC pricing model
- Evaluation is straightforward and robust
- - Disadvantages of the LRMC pricing model
- Only rough proxies of the actual long run costs (the value for
economic efficiency?)
(C) Shir Consultants 9-34
PARTITIONING OF THE TRR INTO RATE COMPONENTS
- - To differentiate between the prices charged to transmission users with the
similar demands but with different load factors
- - Traditionally, based on the experience and judgment of the rate designer
(C) Shir Consultants 9-35
TRANSMISSION PRICING MODELS FOR ALLOCATION OF TRR
- - Allocate the access charges based on the "extent-of-use" of the
transmission system
- - Two broad family of models
- Extent-of-use based on demand on the entire system
- Extent-of-use based on demand on individual transmission facilities
(C) Shir Consultants 9-36
POSTAGE STAMP PRICING MODEL (TRANSMISSION PRICING MODEL 3)
- - It is assumed all parts of the transmission system are used by all
transmission transactions
- - Allocates the transmission revenue requirement (embedded costs) according
to the MW demand of the transmission users
- - Postage stamp pricing model for use charges is the same
(C) Shir Consultants 9-37
POSTAGE STAMP PRICING MODEL (TRANSMISSION PRICING MODEL 3)
- - Advantages of the postage stamp pricing model
- The advantage of this method is its simplicity
- - Disadvantages of the postage stamp pricing model
- No capability to differentiate among various types transmission
transactions
(C) Shir Consultants 9-38
POWER FLOW BASED COST ALLOCATION METHOD (TRANSMISSION PRICING MODEL 4)
- - Conceptually, allocates the TRR to transmission users one facility at a
time: "FACILITY-BY-FACILITY APPROACH"
- - Allocation based on the change in flow on a transmission facility with and
without the transaction
- - Actual implementation uses the concept of facility by facility cost
allocation to develop an extent-of-use measure
- - Dimension of extent of use is power (MW) and distance (mile): "MW-MILE
METHOD"
(C) Shir Consultants 9-39
POWER FLOW BASED COST ALLOCATION METHOD (TRANSMISSION PRICING MODEL 4)
- - Advantages of the PFBCA pricing model
POWER FLOW BASED COST ALLOCATION METHOD (TRANSMISSION PRICING MODEL 4)
- - Different implementations:
- Embedded versus replacement costs
- System versus facility loading condition
- Coincident versus non-coincident peak load conditions
- Nodal (zonal) versus point-to-point transactions
- Time differentiated versus fixed prices
(C) Shir Consultants 9-40
POWER FLOW BASED COST ALLOCATION METHOD (TRANSMISSION PRICING MODEL 4)
- - Advantages of the PFBCA pricing model
- Ability to differentiate among transmission transactions even when
used to implement a rolled-in transmission pricing scheme.
- - Disadvantages of the PFBCA pricing model
- Somewhat complex to implement
(C) Shir Consultants 9-41