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Conditional Resales
NAESB Assignment Update
April 16th, 2014
Bob Zerfing, Rebecca Berdahl
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Response to the NAESB OS Request
The NAESB OS requested information to clarify the
following issues:
 For Option 1 – what are the complexities associated
with implementing C&P for Resales (e.g. make WEQ
013 consistent with WEQ 001) and describe if/why this
option might be ‘unworkable’
 For Option 2 – what is FERC’s general policy with
regard to Resales and does their guidance provide
NAESB an opportunity to modify the current C&P
standards to align with this overall guidance
 Is there merit in completing the Reservation Merge
Project R09015 as part of the STCP project
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Option 1 Components
 Option 1- treat Resales as Scheduling Rights only
• ROFR remains on the conditional parent
• Resales lose scheduling rights if the parent loses
capacity
• Implementation Guide (WEQ-013) mirrors the
Business Practices (WEQ-001)
– Current WEQ-013 is not aligned with WEQ-001
– Realigning WEQ-013 requires significant redesign and
industry-wide implementation changes.
– This realignment effort must be taken on by the NAESB
OS.
– The timeframe for this has not yet been identified.
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Option 1 Complexities
1. Current Implementation Guides and Templates
(WEQ-013) do not support C&P of Conditional
Resales (WEQ-001).
• Resales are Scheduling Rights Only
• ROFR (and thus encumbering capacity) remains with the
parent of the Resale
• Resales are permissible from conditional parents
• The Resale inherits the conditionality of the parent
• Resales can be resold or redirected
• Resales are a temporary tool for consolidation of
reservations for ease of scheduling
• If the conditional parent loses capacity to a P&C, then
the TP has the right to annul any Resales associated
with that lost capacity to guard against over scheduling.
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Option 1 Complexities (cont’d)
2. Industry-wide commercial systems are built upon the
WEQ-013 implementation guide where the capacity
moves from the original reservation to the resale. These
systems are foundational for the commercial viability of
the market. The impact of changing these foundational
systems to accommodate the Preemption and
Competition of conditional reservation is significant.
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OASIS
ATC/AFC Calculation and Evaluation
Transmission Scheduling
Data Warehouses
Ancillary Services
TP and Customer Custom Applications
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Option 1 Complexities (cont’d)
3. Industry-wide Business Models and Practices
supporting a robust secondary market are built upon
these Industry-wide Systems.
4. To modify the current implementation to match the
WEQ-001 Preemption and Competition Standards for
Resales would be a major impact to the industry and a
major disruption to the NW Regional Secondary Market.
5. These foundational commercial systems need to
separate ‘scheduling capacity’ from ‘encumbering
capacity’ which requires a change to WEQ-013.
6. The ability to track ‘encumbering capacity’ with
‘scheduling capacity’ both upstream and downstream
through the daisy-chain of possibilities with the
secondary market is critical and challenging.
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Option 1 Complexities (cont’d)
7. Tracking aggregations to determine which scheduling
capacity is tied to which original reservation if:
• The aggregated reservation is partially redirected, or if
• one of the parents loses capacity due to STCP.
8. A massive data conversion effort is needed to take the
existing capacity residing on the resale reservations and
creating the encumbering capacity on the original
parent.
9. The financial middleman aspect of tracing who paid
what to whom would be complex given the daisy chain
of potential resales and redirects of resales allowed by
the current standards.
10. The complexity of the above items require that NAESB
OS determine the time needed to address the
implementation modifications and additions to OASIS
and impacts to other commercial systems
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Major Challenge for the OS for Option 1
NAESB OS must provide an assessment of the changes
needed to WEQ-013 to make it consistent with WEQ-001.11
‘Resales’
 Ability to Comply concern
• Once FERC adopts the BPs, TPs need to comply
• If the NAESB Implementation Guide is inconsistent with the BPs or
does not address the BPs, then TPs cannot fully comply with the BPs
• The NAESB OS STCP should include the development of the
implementation to enable compliance with the BPs
• The NAESB OS STCP project should include modification to the
Implementation Guide to ensure consistency with WEQ-001
 Because of the compliance exposure, NAESB OS STCP project
completion must consider the implementation templates and
systems
 TP must be able to ‘unwind’ and ‘track’ secondary transactions
including multiple downstream transactions resulting in a ‘daisychain’ affect.
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Option 1 Questions
????
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Option 2 – Treat Resale as a capacity reassignment
 Change WEQ 001-11 to align with WEQ-013
 FERC Guidance history analysis supports that a
Resale is both scheduling and capacity reassignments
 C&P Rules for Resales
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Inherits the conditionality of the parent
Transaction is ‘delinked’ from the parent reservation
Cannot be a Challenger
Can be a defender if the parent is conditional and can
‘extend’ if challenged
• Parent Reservation continues to be billed under it’s
original agreement with the TP
• Assignee is billed separately for the matching extension
(same billing issue as Motion 11)
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Option 2 - FERC Description of Resales
FERC history (as far back as Order 888) refers to Resale as ‘capacity reassignment’
 Order 888, Page 178: ‘…a public utilities tariff must explicitly permit the voluntary
reassignment of all or part of a holder’s transmission capacity right to any eligible
customer.
 Order 888 Page 179: ‘In effecting reassignment, the assignor does not have to
return it’s capacity entitlement to the TP but may deal directly with the assignee
without involvement of the TP.
 Order 890 P 808: ‘In Order No. 888, the Commission found that allowing holders
of firm transmission capacity rights to reassign capacity would help parties
manage the financial risks associated with their long-term commitments, reduce
the market power of transmission providers by enabling customers to compete,
and foster efficient capacity allocation.’
 FERC Order 676C ¶ 46 “The assumption of a customer's scheduling rights by an
assignee for one or more hours does not mean the transmission provider is
offering hourly service to the assignee. As the Commission explained in Order
No. 890-A, the reassignment of transmission capacity simply results in the
reseller obtaining the right to schedule the reserved capacity during the period of
the reassignment, consistent with the original customer's reservation. Indeed,
permitting such resales is consistent with the Commission's determination in
Order No. 888 that “a public utility's tariff must explicitly permit voluntary
reassignment of all or a part of a holder's firm transmission capacity rights to
any eligible customer.
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Key Points Concerning FERC Language
1. FERC does not divorce scheduling and capacity rights
in their discussion of Resale and therefore lends
credence to the argument that NAESB OS should
reconsider it’s current treatment of Resales as
scheduling rights apart from capacity.
• To have separate scheduling rights apart from the
corresponding capacity right is meaningless.
• Current WEQ-001 standards treat them as separate,
WEQ-013 implementation (and current systems) treat
them as the same, as two sides of the same coin.
Encumbering
Capacity
Scheduling Capacity
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Key Points Concerning FERC Language
2. FERC implies that the Assignee has the same
right to resell excess scheduling capacity that the
reseller has
• 890A ¶’s
– 427 ‘…Just as the original transmission customer
may find that it has excess capacity it can reassign,
so may an assignee. Denying the assignee's right
to further assign its scheduling rights would inhibit
customers who value the capacity most from
accessing it and thereby contradict the Commission
goal of creating a competitive secondary market for
transmission capacity. …’
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Key Points Concerning FERC Language
3. FERC implies that transmission should go
to the customer who values it the most
• This is the whole justification of Preemption and
Competition
• The Assignee values the reassigned capacity
more than the Reseller
• The Assignee should therefore be allowed to
make the decision on defending that scheduling
capacity
• It would seem that the Resale, not the original
reservation, should have ROFR rights since
they value it most.
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Key Points Concerning FERC Language
4. There appears to be a FERC Priority Conflict
• FERC would like a robust secondary market,
including resales from conditional reservation
• FERC would like a robust Preemption and
Competition market.
• The two don’t mix. Preemption and Competition
actions for a conditional reservation with secondary
transactions associated with it is in conflict with a
robust secondary market. In fact, it suppresses or
discourages a robust secondary market due to
inherent uncertainties.
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Implementation Advantages of Option 2
 The majority of Option 1 complexities listed
above are greatly reduced for Option 2
 Much of the implementation processes
used today are unaffected
 It requires minimal changes to existing
WEQ-001 BPs
 Auditing and Tracking of Resale activity is
easier
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For Further Consideration (Next Steps)
 NAESB OS discussion with FERC
• Straw Poll of support at the OS
• Request FERC Staff attendance at the OS May
2013 meeting to further evaluate an Option 2
approach
 Parking Lot Re-evaluation:
• Option 2: Rescind Resale Motion 14
 Do we need a mitigation plan
• Suspend conditional resales
• Annul all associated downstream transactions
• Neither are popular with the NW Region
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Option 2 Questions
????
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OS Project R09015
Does tackling the Reservation Merge Project
make sense to be worked on as part of the
STCP?
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Reference Material for R09015
 R09015 Restated
 BPA 2012 Service Increment Transaction
Volumes
 Transaction Reservation Merge Project
value considered for conditional Resale
C&P
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Transmission Reservation Merge (R09015)
‘Transmission Customers may from time-to-time
have a portfolio of transmission service reservations
from a single provider on a single path. For ease of
tracking and efficiency, the customers desire to
combine or merge like reservations (i.e., firm, nonfirm, etc) into a single reservation. Under existing
OASIS business practices and protocols, customers
must use the Resale mechanisms to merge two or
more like reservations under a single assignment
reference number. In other words, customers sell
their reservations back to themselves.’
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Revised Volumes for BPA’s Secondary Transaction
 A recent BPAT review of 2012 secondary transaction
volume lends support to a third Option for C&P issues
associated with Resales.
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Why Tackle the ‘Tx Reservation Merge’ Project?
Daily Resale Activity - Summary
 38% of Daily Resales were done on the same day as the start day of the
parent. (Parent Reservation is Unconditional, e.g. Resale cannot lose
scheduling rights.)
 18% were done after the start date of the parent. (Parent Reservation is
Unconditional, e.g., the Resale cannot lose scheduling rights.)
 28% were done within 1 calendar day before the start date of the
parent. (Really close to having the Parent Reservation Unconditional,
lowers the probability that the Resale would lose scheduling rights.)
 This means that 84% of Daily Resale activity is done within 1 calendar day
of the start day of the parent
 Another 11% of Daily Resales are done more than 1 calendar day ahead of
the start day of the parent (but these 11% are also safe because they are
within 1 pre-schedule day of the parent start time). So, more than 95% of
Resales are done within 1 pre-Schedule day or later.
 Of the 5% of Daily Resales that are done in the conditional window, 45%
are Resale to self. Mitigate the 2.7% of the total Daily Resales addressing
the ‘Transmission Reservation Merge’ NAESB request e.g., for Resales
that could be recalled due to a Conditional Parent, the ‘Transmission
Reservation Merge’ project would mitigate 45% of this exposure.
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R09015 value in the C&P project
 Utilities with a high volume of secondary transactions may
reduce C&P exposure to conditional Resales that are
used for the consolidating of transmission inventory. For
BPAT,
• Addressing the R09015 project now apart from option 1 and
limiting conditional reservations only solves half of the
problem. To fully address the issues with Option 1, you would
need both the reservation merge and limiting resales to
unconditional reservations.
• It might simplify the ‘fix’ to the inconsistencies between 001
and 013 if Option 1 is chosen.
• The volumes are low enough in the pro forma markets that
though it is a good idea, doing R09015 now does not provide a
lot of value to the STCP project.
 BPA recommends that R09015 stand on its own merit
and not be taken on as part of the STCP.