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Network Customer Meeting

Network Customer Meeting. Access Metric Update November 16, 2006. Agenda. 2006 Access Goal Purpose of Discussion April Metric Discussion and Decision Locational Marginal Prices and Net Ratepayer Benefit LMP Differentials in the Paddock-Rockdale Analysis Revised Metric Proposal

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Network Customer Meeting

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  1. Network Customer Meeting Access Metric Update November 16, 2006

  2. Agenda • 2006 Access Goal • Purpose of Discussion • April Metric Discussion and Decision • Locational Marginal Prices and Net Ratepayer Benefit • LMP Differentials in the Paddock-Rockdale Analysis • Revised Metric Proposal • Access Goal Update

  3. 2006 Access Goal • April: Define a metric to assess the value of access and congestion costs in ATC’s transmission system • September: Propose a 4/1/2010 target for this metric that addresses the access concerns of our customers • December: Propose changes to our construction plans to meet the 2010 target

  4. Purpose of Presentation • Discuss proposed changes to the Access metric • What we proposed in April • LMP differentials between ATC and neighboring hubs and within ATC • What customers said • Pursue projects • Pay attention to what customers are actually paying • What we are recommending now • Do not set target based on the LMP Differentials metric approved in April • Continue to report LMP Differential metrics as a way to track overall market position • Approve Expected Net Ratepayer Benefit as new metric for investment decisions and goal setting

  5. Purpose of Presentation • Why this proposal is an improvement • Net Ratepayer Benefit is a more direct measure of the benefit ATC can bring to our customers ($) • Net Ratepayer Benefit includes project costs • What you can expect on Access in December • Adjusted construction queue based on screening 200 additional projects and evaluating the top projects using Expected Net Ratepayer Benefit • Target value for Expected Net Ratepayer Benefit

  6. Review April Metric Discussion

  7. April Milestone: 2006 Access Goal Goal Status • Define a metric to assess the value of access and congestion costs in ATC’s transmission system • Completed April 30, 2006: • Weighted average of: • LMP differentials between ATC and 3 neighboring hubs (“Into” metric) • Absolute value of LMP differentials within ATC footprint (“Within” metric)

  8. ATC LMP is at a +$5.3/MWh (+11%) Premium to Outside Hubs with 1/3 weight on each hub October ’05 – September ‘06 MN $49 ATC $53 (MISO $50) NI $47 IL $47 April Review - Into-ATC Metric LMP Premium to Neighboring Hubs In April, the 12-month average LMP differential was 19%.

  9. Into-ATC Metric: LMP Differential to Composite Hub (monthly)

  10. Factors Within and Outside ATC’s Control Affect Metrics • ATC activities affecting metric • Expanding import capability • Upgrading transmission between ATC load zones • Upgrading transmission to low-cost ATC generators • Providing reliability-related transmission upgrades • Optimizing transmission outages • Factors affecting metric outside ATC control • More generation at congested nodes • More generation close to load • Load growth in already constrained ATC zones • More use of low-cost fuel in ATC • Anything reducing LMP in MISO but not ATC • Changing coal/natural gas price differentials

  11. Net Ratepayer Benefit • Net Ratepayer Benefit: Savings in energy costs to retail customers (over the life of the project) net of project costs • Energy cost to retail customers in the MISO market • Cost of supply at load LMP • Minus: LMP revenues to utility • Plus: cost of utility generation • Minus: FTR revenues to utilities

  12. LMP and Net Ratepayer Benefit • Locational Marginal Prices vary depending on • Size, location and behavior of load • Size, location, cost and behavior of existing generators • Additions and retirements of generation • Shifts in relative fuel prices • Size and location of transmission lines • Expected Net Ratepayer Benefit uses changes in locational marginal prices that result from adding transmission lines based on an ex-ante analysis

  13. Paddock-Rockdale Analysis Impacts on Into-ATC LMP Differentials and Net Ratepayer Benefit

  14. = Metric Without PR2 Into-ATC Metric in 2011 (%)Without Paddock-Rockdale • Significant differences in the metric due to different model assumptions regarding generation, load and fuel prices. • Transmission system is same in every future. Reference Robust Economy High Retirements Market Future High Environmental Slow Growth Fuel Supply Disruption High Growth Wisconsin 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Into-ATC Metric as a % of Outside Reference Hub LMP

  15. Contributors to Into-Metric Changes Note: Results are preliminary and not additive. So, what is the impact of transmission on LMP differentials?

  16. = Metric Without PR2 = Metric With PR2 Into-ATC Metric in 2011 (%)Impacts of Transmission Improvements 0.8% Reference 1.1% Robust Economy 1.2% High Retirements Market Future ($millions) 0.4% High Environmental 0.3% Slow Growth 5.1% Fuel Supply Disruption 1.1% High Growth Wisconsin 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Into-ATC Metric as a % of Outside Reference Hub LMP

  17. Net Ratepayer BenefitImpact of Transmission Improvements

  18. Lessons Learned • LMP differentials are impacted by market events beyond ATC’s control • ATC has developed a methodology for estimating net ratepayer benefits resulting from transmission improvements • Net Ratepayer Benefits are the best way to evaluate transmission investment decisions • We did not recommend setting a target based on the LMP Differentials metric approved in April.

  19. September Milestone 2006 Access Goal Goal Recommendation • Propose a 4/1/2010 target for this metric that addresses the access concerns of our customers • Adopt Expected Net Ratepayer Benefit as the metric • Put in service by 2010 projects that provide $xxx million of Net Ratepayer Benefit over the life of the projects • Will provide a target in December • Target will be measured on an ex-ante basis • New projects will be analyzed across a range of futures (details to be developed)

  20. December Milestone 2006 Access Goal Goal Status/Recommendation • Inserted Paddock-Rockdale and associated projects into construction queue • For additional projects • Developed an efficient economic screening process • Identified 200 projects for screening and prioritization • Evaluate Net Ratepayer Benefits of top projects • Adjust the construction queue based on net ratepayer benefit and in-service date of projects • Present target number • Propose changes to our construction plans to meet the 2010 target

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