BCTC Customer Consultation Short-term Point-to-Point Rate Design March 5, 2007

Page 2 Welcome Introductions Emerging Context  FERC Order No. 890: Preventing Undue Discrimination and Preference in Transmission Service −Amendments to the regulations and the pro forma open access transmission tariff adopted in Order Nos. 888 and 889. −Issued February 16, 2007  BCTC Plan −BCTC is evaluating and developing its approach to Order No −BCTC expects that it will consult with its customers on the implications of Order No −BCTC’s ST Rate design consultation plan is not directly affected by Order No. 890.

March 5, 2007Page 3 Agenda and Outline 1.Welcome and Introductions 2.Objectives 3.Review −Context −ST Rate Design Elements of BCTC Report: Review of Rate Design Alternatives 4.Discussion −Replacement of the $55 Minimum Fee; −Discounting transmission reservations beyond one day; and −Directional pricing of discounted short-term service. 5.Next Steps

March 5, 2007Page 4 Objectives 1.Review ST Rate Design elements of BCTC report: Review of Rate Design Alternatives 2.Seek customer input on:  Whether to replace the $55 Minimum Fee per transaction with a minimum $/MWh charge (price floor);  Whether to discontinue discounting transmission reservations beyond one day; and  Whether directional pricing of discounted short-term service is appropriate. 3.Discuss other alternatives, as necessary 4.Determine the need for additional customer consultation

March 5, 2007Page 5 Context – 2005 OATT Decision, Order No. G ST Rate Design Elements  Updated discounting formula −Replaced California-Oregon border (COB) price index with more liquid Mid-C price index, −Replaced the Alberta gas-based electricity price with actual values from Alberta Power Pool.  Eliminated $1 price floor for non-firm service and instituted a $55 minimum scheduling fee  Allowed discounted ST PTP rate to go to zero in the opposite direction of market opportunity

March 5, 2007Page 6 Context – Commission Directives BCTC directed to file a Rate Design Report that includes:  Evaluation of the directional aspect of short-term service price discounting  Evaluation of $55 Minimum Scheduling Fee BCTC Compliance Filing - Review of Rate Design Alternatives, includes:  Analysis of three directional aspects of BCTC’s current ST-PTP rate formula: −Zero-price reservations and schedules in the opposite direction of market prices −Discounting of multiple-day transactions −“Blocking” effect of various rate formulae, including the impact of a non-directional formula  Analysis of $55 Minimum Scheduling Fee

March 5, 2007Page 7 Context - Current ST Rate Design ST-PTP Service  Available firm and non-firm for reservation periods up to one year.  Undiscounted Service −ST PTP transmission service to load serving points within BC  Discounted Service −Export and wheel-through transmission services –Hourly Firm and Non-firm Service –Daily Firm and Non-Firm Service –Weekly Firm and Non-Firm

March 5, 2007Page 8 Context - Current ST Rate Design ST Pricing Formula  Firm hourly rate formula approximates 1/4 of the value of the gains from trade −Difference between posted market prices in Alberta and at Mid-C −Adjusted for exchange rate and transmission system losses. Example:Discounted ST Firm Hourly Rate for Transactions to US: [(Mid-C Price * ex.r) – (AESO Price * Loss Factor for AB*Loss Factor for BPA )] / 4  Minimum ST firm hourly rate = 0  Maximum ST firm hourly rate = LT PTP rate (“ST Firm Cap Rate”)  Non-firm hourly rate = Min. (Firm Hourly rate formula - $1/MWh, Firm Cap Rate)

March 5, 2007Page 9 Context - Current ST Rate Design Discounted ST-PTP rates based on the hourly rate formula and rate caps Discounted RateFormula Hourly Firm RateMinimum (Firm Hourly Formula, Firm Cap Rate) Hourly Non-Firm RateMinimum (Firm Hourly Formula - $1/MWh, Firm Cap Rate) Daily Firm RateSum of 24 Hourly Firm Formula / 24 Daily Non-Firm Rate(Sum of 24 Hourly Firm Formula / 24) - $1/MWh 1 Week Firm RateDaily Firm Rate +.5 (Firm Cap Rate – Daily Firm Rate) 1 Week Non-Firm Rate(Daily Firm Rate =.5 (Firm Cap Rate – Daily Firm Rate)) - $1/MWh X Week Firm Rate(1 x Weekly Firm Rate) + ((X – 1) x Firm Cap Rate)) / X X Week Non Firm Rate((1 x Weekly Firm Rate) + ((X – 1) x Firm Cap Rate)) / X – 1 $/MWh Where X is the number of weeks in the reservation

March 5, 2007Page 10 Context - Sales and Revenue Analysis Over a comparable period April-September ’05 – ‘06:  PTP transmission volumes increased by 30%  PTP transmission revenues declined by 17%.  Average revenue for all ST-PTP service declined by 50%, from ~ $4 to $2/MWh. Conclusion  Roughly 1/3 of reservations were zero-price  Increase in reservations  Change in reservation patterns

March 5, 2007Page 11 Context - Sales and Revenue PTP Reservations MWh (000’s) Before OATT April – September, 2005 After OATT April – September, 2006 Difference BCHOtherTotalBCHOtherTotal % LT Firm PTP1, ,3061, , % ST Firm PTP1,755921,8475,659175,6763, % ST Non-Firm PTP3, ,6401, ,990(1,650)- 45 % Total7, ,7939, ,1372,34430 %

March 5, 2007Page 12 Context - Sales and Revenue PTP Transmission Revenues ($ million) Before OATT April – September, 2005 After OATT April – September, 2006 Difference BCHOtherTotalBCHOtherTotal % LT Firm PTP$ 11.1$ 2.4$ 13.5$ 10.1$ 3.6$ 13.7$ % ST Firm PTP$ 10.3$ 0.5$ 10.8$ 11.5$ 0.1$ 11.6$ % ST Non-Firm PTP$ 10.5$ 0.6$ 11.1$ 3.5$ 0.4$ 3.9($7.2) % Total$ 31.9$ 3.5$ 35.4$ 25.1$ 4.1$ 29.2($6.2) %

March 5, 2007Page 13 ST Rate Design – Consultation Questions BCTC seeks customer input on the following questions: 1.Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)? 2.Should short-term discounting be available for transmission reservations beyond one day? 3.Should the pricing of discounted short-term service be directional?

March 5, 2007Page 14 Question 1 – Considerations Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)? Regulatory Approvals  A price floor was previously approved by the Commission as an appropriate minimum price for transmission service (1998 WTS Decision)  The $55 minimum fee was introduced when the price floor was removed (2005 OATT Decision). Minimum Scheduling Fee  Applicable to all ST transactions on export and flow-through transmission paths  Intended to ensure that all transactions make some contribution to costs  Issue −$55 Minimum Fee disproportionately increases the price of transmission on small reservations −Commission directed BCTC to re-assess the impact of the Minimum Scheduling Fee  Analysis −Incremental BCTC revenue (April – September, 2006): roughly $100,000

March 5, 2007Page 15 Question 1 – Discussion Should the $55 Minimum Fee per transaction be replaced by a Minimum $/MWh charge (price floor)? Discussion Points  BCTC supports concept of ensuring that all customers make some minimum contribution to costs  BCTC seeks to alleviate the disproportionate impact of the minimum fee on very small transmission users.  Replacing minimum fee with a minimum $/MWh charge would have no detrimental financial impact on BCTC  Therefore, BCTC would propose to reinstate a price floor of $1/MWh, based on the price floor previously approved by the Commission −The price floor under WTS was $1/MWh (non-firm) and $2/MWh (firm), based on a firm “premium” of $1/MWh - made necessary by a formula that computed a non-firm price −The updated ST discounting formula under OATT calculates a firm price and determines the non-firm price by subtracting a $1/MWh firm “premium” −A separate price floor for firm and non-firm service as provided under WTS is unnecessary because the updated formula under OATT calculates a firm price. −Predicted increase in blocked transactions from 11% to 14.7% Comments?

March 5, 2007Page 16 Question 2 – Considerations Should short-term discounting be available for transmission reservations beyond one day? Issue  Current rate formula relies on data that is two days old  Stale price data: market price too far removed from time trades take place  Direction of trade often reversed from that predicted by formula in volatile Alberta market  Overly simplified approximation of trading opportunity Analysis: Accuracy of the Discounting Formula  HLH price difference on day t has, on average, a 61% chance being a directionally correct forecast of the price difference on day (t+2)  LLH price difference on day t has, on average, a 73% chance as a directionally correct forecast of the price difference on day (t+2)  Performance degrades in subsequent days

March 5, 2007Page 17 Question 2 – Discussion Should short-term discounting be available for transmission reservations beyond one day? Discussion Points  Current rate formula a poor predictor of directional value by the time data are two days old  Highly volatile Alberta Power Pool price contributes to formula inaccuracy  Erroneous zero-price: 40% of HLH, 30% of LLH −Pricing error increases for reservations of longer than one day. −Market volatility and trading practices suggest relatively short trading horizons underpin most actual use of the transmission system  Discounting reservations longer than one day does little to encourage throughput. Comments?

March 5, 2007Page 18 Question 3 – Considerations Should the pricing of discounted short-term service be directional? Issue  Inaccuracy in capturing the direction and size of transmission value  Trading opportunities more complex than assumed under ST PTP rate formula Analysis: Reservations & utilization by price point and path  Roughly 1/3 of reservations were zero-price  Energy schedules in four directions (April – September, 2006): 1.northbound (from the US into BC or from BC into Alberta):81% of hours 2.southbound (from Alberta into BC or from BC into the US): 99% of hours 3.forward (toward higher market prices): 93% of hours 4.reverse (toward lower market prices):87% of hours  Energy scheduled in both directions ~ 81% of hours.

March 5, 2007Page 19 Question 3 - Discussion Should the pricing of discounted short-term service be directional? Comments?

March 5, 2007Page 20 Next Steps  BCTC will post its presentation on its website following this consultation session  BCTC will notify you of the next steps after it: 1.Identifies the need for further customer consultation; and 2.Finalizes recommended changes to the ST Rate Design  Additional Questions? Please contact:Brenda Ambrosi Customer Services Manager British Columbia Transmission Corporation Suite 1100, Four Bentall Centre Vancouver, BC V7X 1V5 Phone: (604) / Fax: (604)