Relationship-Based • Member-Driven • Independence Through ... minutes and attachemen… · Alternative 1 Examples: Three1 -MW TSRs ($000s) - CPOs for Subsequent Service Are Base

Relationship-Based • Member-Driven • Independence Through Diversity

Evolutionary vs. Revolutionary • Reliability & Economics Inseparable

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SOUTHWEST POWER POOL Z2 TASK FORCE MEETING

June 27, 2017 AEP Offices, Dallas, TX 9:00 a.m. – 3:00 p.m.

Agenda Item 1 – Call to Order, Introductions and Welcome Denise Buffington, Task Force Chair, called the meeting to order and welcomed everyone to Dallas, TX. There were 20 in attendance (Attachment 1 – Attendance List) and several on the phone and Webex. Denise reminded everyone that we are taking motions to the MOPC in July. The Task Force will be reviewing the final options under consideration determine if they should be recommended for implementation.

Agenda Item 2 – Review and approve June 7 meeting minutes The minutes for the June 7, 2017, meeting were reviewed. Secretary Rew presented an additional sentence under Agenda item 3c and some minor edits. One additional edit was made during the meeting and the minutes were approved by general consent. (Attachment 2 – June 7, 2017, meeting minutes) Agenda Item 3 – Review approvals from prior meeting Bruce reviewed the approved items from the prior meeting. The Task Force has approved removal of non-capacity upgrades as part of the Z2 implementation. Removal of Short-term transmission service as was also approved. Agenda Item 4 – Review proposal for Z2 improvements

a) Standard CPO Rate Design Charles Locke presented an update on the standard Credit Payment Obligation (CPO) Rate Design proposal (Attachment 3 – Standard CPO). The proposal provides for a simplified CPO calculation. This simplification does not require modification of the remaining components of Z2 other than determination of the Base Plan portion of the CPO. The Task Force had significant discussion to get a complete understanding of the CPO process and the impact it has on Z2. The standard CPO would be applied to both Network and Point-To-Point reservations and would use the same value for upgrades of the same type. Today the CPO is different for each separate upgrade and each separate reservation. Charles covered examples of the calculation and the potential



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impacts. Significant discussion occurred regarding the possibilities of this proposal but ultimately no motion was brought before the Task Force.

b) Eliminate DAUC Stacking Next Grant Wilkerson and Charles Locke presented Z2 crediting with limited roll-in (Attachment 4 – Eliminate DAUC Stacking). This proposal would apply a cost cap, referred to as a “Creditable Upgrade Limit.” Charles reviewed two examples of handling service upgrades. Alternative 1 includes CPOs in applying the Safe Harbor and Alternative 2 does not, but Alternative 2 applies the Creditable Upgrade Limit in a more restrictive manner. After some discussion, the Task Force did not make a motion in favor of either alternative.

Agenda Item 5 – MOPC Preparation The Task Force discussed action items for the MOPC. The two motions approved at the June 7 meeting will be presented. The Task Force had limited discussion on ILTCR’s and the potential for them in the future. A motion was made by Greg McAuley and seconded by Paul Malone:

Motion: Move that we conclude the work of the Task Force, allow the Task Force to expire under the charter and bring forward two approved motions.

This motion was approved by voice vote with Richard Ross and Grant Wilkerson opposed. Abstaining were Larry Holloway, Bill Grant, and John Stephens.

Agenda Item 6 – Next Steps The Task Force recommendations will be presented at the July MOPC meeting.

Agenda Item 7 – Action Items Task Force members are encouraged to provide pro’s and con’s on the recommendations being presented to the MOPC. No additional action items were documented from the meeting.

Agenda Item 8 – Next Meeting At this time, the task force is recommending completion of its tasks and no additional meetings are scheduled. The Task Force recognized the Chair, Denise Buffington, for her excellent work in guiding them through the difficult discussions. With no other business, the meeting was adjourned at approximately 1:40 p.m. Respectfully Submitted – Bruce Rew, Z2TF Staff Secretary

Eliminate Stacking of Directly Assigned Costs

1

Elimination of DAUC Stacking

• Apply a cost cap: Creditable Upgrade Limit

• E&C cost up to the Creditable Upgrade Limit would be eligible for compensation through creditsñ Credits would be paid only to the extent of subsequent

service impacts

• E&C cost above the Creditable Upgrade Limit would be eligible for compensation through ILTCRs

2

Treatment for Each Upgrade Type

• GI and Sponsored Upgradesñ The sponsor’s DAUC would be allocated between the amount

eligible for credit compensation and the amount eligible for ILTCR compensationñ This allocation would be based on E&C cost of the upgrade

relative to the Creditable Upgrade Limit

• New Upgrades Constructed for Transmission Serviceñ At least two alternatives can be considered

3

New Upgrades for Service – Alternative 1

• When conducting the Aggregate Study, apply the Safe Harbor first to CPOs that result from impacts caused by the TSR under study

• If the CPOs exceed the Safe Harbor, Base Plan fund the TSR’s remaining CPO amounts as well

• After CPOs are covered, apply any remaining Safe Harbor to new upgrade cost

• New upgrade cost in excess of the Safe Harbor will be DAUC

• DAUC will be eligible for potential compensation:ñ Eligibility for compensation via credits is based on the DAUC up to the C.U.

Limitñ Eligibility for compensation via ILTCRs is based on any DAUC above the C.U.

Limit4

New Upgrades for Service – Alternative 2

• When conducting the Aggregate Study, do not include CPOs under the Safe Harbor

• Base Plan fund CPOs for impacts caused by the TSR under studyñ However, limit CPOs based on the initial sponsor’s eligibility for credits

• Apply the Safe Harbor to new upgrade cost only

• New upgrade cost in excess of the Safe Harbor will be DAUC

• DAUC will be eligible for potential compensationñ Eligibility for compensation via credits is based on the E&C cost up to:

C.U. Limit less amount covered by Safe Harborñ Eligibility for compensation via ILTCRs is based on any E&C cost above the

C.U. Limit

5

Comparison of the Two Alternatives for Handling Service Upgrades

• Both alternatives fully Base Plan fund CPOs

• Alternative 1 includes CPOs in applying the Safe Harbor, but Alternative 2 does not

• Alternative 1 would result in more:ñ Initial sponsorsñ Initial sponsor DAUCñ Creditable Upgrades

• Alt. 1 limits credit eligibility to DAUC amount up to the C.U. Limit but Alt. 2 limits credit eligibility up to the amount by which the C.U. Limit exceeds the Safe Harbor covered cost

6

ALTERNATIVE 1

7

Alternative 1 Examples: Three1-MW TSRs ($000s)- Apply Safe Harbor to CPO before New Upgrade Cost

8 $-

$100

$200

$300

$400

$500

$600

1 2 3

Base PlanFunded CPOfor this TSR

Base Plan FundedNew Upgrade

Base Plan FundedCPO for this TSR



DirectlyAssigned

Cost ofNew Upgrade

DirectlyAssigned

Cost ofNew Upgrade


Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Alternative 1 Examples: Three1-MW TSRs ($000s)- Split DAUC between ILTCR and Credit Eligibility

9 $-

$100

$200

$300

$400

$500

$600

1 2 3




ILTCREligible DAUC



C.U.Limit

C.U.Limit

CreditEligibleDAUC

CreditEligibleDAUC


Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Alternative 1 Examples: Three1-MW TSRs ($000s)- CPOs for Subsequent Service Are Base Plan Funded

10 $-

$100

$200

$300

$400

$500

$600

1 2 3




Credit EligibleBut No CPO

Base PlanFund

Future CPO

ILTCREligible

Base Plan FundFuture CPO

CreditEligible

But No CPO



SubsequentTSR Impacts

SubsequentTSR ImpactsC.U.

Limit

C.U.Limit


Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

ALTERNATIVE 2

11

Alternative 2 Examples: Three1-MW TSRs ($000s)- Apply Safe Harbor without CPO

12 $-

$50

$100

$150

$200

$250

$300

$350

1 2 3

Base PlanFundedCost of

New Upgrade


New Upgrade


New Upgrade

Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

DirectlyAssigned

Cost ofNew Upgrade

DirectlyAssigned

Cost ofNew Upgrade

Alternative 2 Examples: Three1-MW TSRs ($000s)- Split DAUC between ILTCR and Credit Eligibility

13 $-

$50

$100

$150

$200

$250

$300

$350

1 2 3

C.U. Limit - - - - - - - - - - - - - -

C.U. Limit - - - - - - - - - - - - -

ILTCREligibleDAUC


New Upgrade


New Upgrade


New Upgrade

C.U. Limit - - - - - - - - - - - - - -

Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CreditEligibleDAUC

CreditEligibleDAUC

Alternative 2 Examples: Three1-MW TSRs ($000s)- CPOs for Subsequent Service Are Base Plan Funded

14 $-

$50

$100

$150

$200

$250

$300

$350

1 2 3

Base PlanFund

Future CPO

BPF Future CPO

C.U. Limit - - - - - - - - - - - - - -

C.U. Limit - - - - - - - - - - - - -

ILTCREligible

Credit Eligiblebut No CPO


New Upgrade


New Upgrade


New Upgrade

C.U. Limit - - - - - - - - - - - - - -



Safe Harbor - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Credit Eligiblebut No CPO

Cost Allocation Questions

• With either alternative, CPOs would be Base Plan funded due to TSRs that would not qualify for Base Plan funding under current Tariff rulesñ One third of CPO cost due to impact of a wind power TSR on an

upgrade that is not located in the TSR’s sink zoneñ TSR does not qualify for Base Plan funding because of 20% wind rule,

125% reserve margin rule, etc.

• Because these types of cost are not covered by Schedule 11 rates, no default rate allocation method exists under the Tariff

• Therefore, determination of allocation method(s) would be needed if Base Plan funding is to be applied

15

Creditable Upgrade Cost per MWof Added Capacity

< 100 kV $42, 552

100kV < x < 200 kV $26,417

230 kV $26,994

345 kV $40,039

All Voltages $31,643 16

Creditable Upgrade Cost per MWof Added Capacity

Service $15,636

Sponsored $84,617

GI Capacity $26,378

All Capacity $31,643

17

QUESTIONS?

18

Z2 Simplification with a Standard CPO Rate

June 27, 2017

2

Standard CPO Rate

• The proposal is to simplify calculation of:ñ The Credit Payment Obligation (CPO) ñ The Base Plan funded portion of CPO

• This will not require modification of the remaining components of the Z2 system

3

What Issue Does a Standard CPO Rate Address?

• The Att. Z2 approach effectively creates a CPO rate ($ per MW-impact) for each upgrade-TSR combination

• When multiplied by the impact amount, this creates a separate CPO for each upgrade-TSR combination:

• The Z2 system effectively has over 1,200 CPO rates for long-term service

• This number will grow as additional upgrades are built and TSRs approved

• Many CPOs are still subject to true-up because the costs are not final 4

Creditable Upgrade

A B C → y

1 CPO1A CPO1B CPO1c CPO1y

2 CPO2A CPO2B CPO2c CPO2y

TSR 3 CPO3A CPO3B CPO3c CPO3y

↓

x CPOxA CPOxB CPOxC CPOxy

Overview

• Credit Payment Obligation = Standard CPO Rate x MW Impact

• Same CPO rate for both Network and PTP

• A CPO rate for each upgrade type rather than for each specific upgrade

• The value applicable to each long-term TSR would be that which is in effect when the customer accepts service in an aggregate studyñ This would provide more certainty and predictability for the customer than one

or more CPO estimates that are subject to true-up

• CPOs for existing service would not change. Therefore, no increase or decrease in directly assigned upgrade cost (DAUC) associated with CPOs currently in effect

5

Additional Points

• All or a portion of the standard CPO would be covered by Base Plan or PTP rates, as is done with existing CPOs

• The method of calculating the standard CPO rate would be detailed in the Tariffñ The value could be updated annually through a formulaic process

• The rate calculation could be formulated in different ways. For example:ñ With outstanding DAUC balances (as currently proposed), orñ With average ATRR of Schedule 11 upgrades

Regardless of the method used, simplicity should be a key goal

6

Calculation

One relatively straight-forward method of computing the rate:

Std. RateUpgrade Type = ∑ DAUC initial sponsors / ∑ Upgrade Capacity

Total CPOTSR = Std. RateUpgrade Type x MW ImpactTSR

Monthly CPOTSR = Total CPOTSR / Term of ServiceTSR

DAUC and capacity of the upgrade would be included in the calculation of standard rate if that upgrade has any sponsors (initial or subsequent) with uncompensated balances

7

Directly Assigned Cost Per MWof Capacity Added ($thousand)

8

GI Capacity Upgrades 25$ Service Upgrades 26$ Sponsored Upgrades 253$

All Capacity Upgrades 62$

Source: Preliminary data from initial Z2 settlements database

Standard CPO Rate Compared to Current Effective Rates ($thousand)

9

Mean Median

GI Capacity Upgrades 25$ 31$ 18$ Service Upgrades 26$ 92$ 55$ Sponsored Upgrades 253$ 178$ 174$

All Capacity Upgrades 62$ 88$ 44$

Source: Preliminary data from initial Z2 settlements database

CPO per MW Based on Z2 System Results

Potential Standard CPO Rate

Total CPOs for Capacity UpgradesOver the TSR Term ($Million)

10

Current Z2 CPOs 633$

CPOs Based on Estimated Standard Rate 495$

Difference (138)$

Percentage Difference -28%

CPOs for Capacity Upgrades Over the TSR Term

11

Median Difference Per Customer -6%

Number of Std. CPOs Higher than Current CPO 617

Number of Std. CPOs Lower than Current CPO 651

Base Plan Funding with a Standard CPO Rate

Allocate Upgrade E&C to Subsequent TSR:

Subsequent TSR Cost = (MW impact / Upgrade Capacity) x Upgrade E&C Cost

Base Plan Funded Portion of the Standard CPO Rate:

Base Plan Funding = (Safe Harbor / Subsequent TSR Cost) x Standard CPO Rate,

where the Base Plan funded amount will not exceed the Standard Rate

Regional and zonal allocation of the resulting Base Plan costs would be handled with the current Tariff approach

12

Implementation Steps

• Stakeholder development and approval of the formula rate and related processes ñ Six months

• Tariff filing

• System changes (design, code, test, implement)ñ Six months or less

• Process changes to implement the formula rate

• Effort: medium/high

13

Advantages of the Standard CPO Rate

• Reduces the data requirements for calculating the rate, which currently is dependent on:ñ Upgrade cost, upgrade in-service date, TO carrying charge, TO cost of

capital, TSR start date, TSR type of service, TSR point of delivery, FERC interest rate

• Eliminates need for true-ups (if approved as proposed)

• More transparent for Sponsors, Customers, and TOs, which reduces the shadow settlement burden

• The calculation would be performed once per year rather than every time a subsequent TSR is approved

14

Drawbacks

• For Network Service, the value is not as specific to the upgrade as the current calculation

• Pay off upgrades with low DAUC more quickly than upgrades with high DAUC

• Time required for:ñ Stakeholder process to development new rate formulañ FERC approvalñ System implementation

15

QUESTIONS?

16



1

SOUTHWEST POWER POOL Z2 TASK FORCE MEETING

June 7, 2017 Kansas City Power & Light offices

10:00 a.m. – 4:00 p.m. Agenda Item 1 – Call to Order, Introductions and Welcome Denise Buffington, Task Force Chair, called the meeting to order and welcomed everyone to Kansas City, MO. There were 20 in attendance (Attachment 1 – Attendance List) and several on the phone and Webex. The objective of the meeting was to have final selection of the proposals for improving Z2. This would provide focused effort on an improvement recommendation for the MOPC no later than July.

Agenda Item 2 – Review and approve May 10 meeting minutes The meeting minutes for the May 10 meeting were reviewed. Under Agenda Item 3, in the second sentence, the word working was changed to task force. No other changes to the minutes were noted and the meeting minutes were approved by consent. (Attachment 2 – May 10, 2017, meeting minutes) Agenda Item 3 – Review proposal for Z2 Sponsored Upgrades

a) ILTCR’s Ty Mitchell presented ILTCR overview (Attachment 3 – ILTCR’s). The implementation of ILTCR’s would replace Z2 for future upgrades. Ty discussed the pros and cons of the conversion. The task force discussed the impacts of ILTCRs. This would require some process changes. The task force also discussed the requirement for a secondary market and believed that it was not required. Concern was expressed because customers would have uncertainty converting to an ILTCR process. Due to timing, the first full annual implementation would be for the 2018-2019 year.

c) Z2 Crediting with limited roll-in Next Grant Wilkerson presented Z2 crediting with limited roll-in (Attachment 4 – Z2 Crediting with limited roll-in). Only facilities that create transfer capability will be included. The funding will occur through a Schedule 11a mechanism. The current safe harbor provision will continue to be applied in determining how much of the new cost is



2

included in Schedule 11. In order to cap the amount of credit payment obligation included in the new Schedule 11a, a Creditable Upgrade limit (per MW of capacity added) will be applied. The task force reviewed the 4 examples and had a lot of discussion on the application of this approach.

b) Simplification of the Current Z2 Process Charles Locke presented a simplification of the current Z2 process update (Attachment 5 – Simplification of Current Z2 Process). Possible adjustments to the Z2 process include elimination of short-term service credits, elimination of new upgrades that do not provide new transfer capability, and developing a standard Credit Payment Obligation (CPO) rate. Elimination of short-term credits would have the upgrade sponsors seeing a slower reimbursement period estimated to be approximately 2.5% longer. Transmission Customers would see a slightly lower transmission rate. The CPO calculation is complex because each upgrade has its own determination and this makes tracking and shadow calculations much more difficult. The proposal is to develop a standard rate that would be detailed in the tariff. This would provide simplicity from the current process and provide more transparency.

Agenda Item 4 – Z2 Enhancement proposal selection In the previous meeting the Task Force had tabled a motion made by Paul Malone and seconded by John Stephens. This motion was brought back before the Task Force as stated below:

Motion 1: To move to adopt the ILTCR process to replace the Z2 process. (note:

prospective for all three upgrade types and removes non-capacity upgrades)

The Z2TF began discussion of this motion. Discussion included the need for the ARR/TCR

process to be improved in order to successfully implement this for Z2. After more discussion

the Task Force voted and the motion failed with 6 in favor, 9 opposed and 1 abstention as

shown below.



3

Z2TF Roster MOTION 1: ILTCR Member Company Group Yes No Abstain Denise Buffington KCPL TO 1 Meena Thomas TPUC CAWG 1 Bill Grant SPS TO 1 Davis Rooney SUNF TO 1 Grant Wilkerson Westar TO 1 Greg Garst OPPD TO 1 Greg McAuley OGE TO 1 Julie Tackett WFEC TO 1 Paul Malone NPPD TO 1 Richard Ross AEP TO 1 Aundrea Williams NextEra TU 1 Bruce Walkup AECC TU 1 John Stephens CU TU 1 Larry Holloway KPP TU 1 Les Evans KEPCo TU 1 Lisa Szot Enel TU 1 Results 6 9 1

Next Davis Rooney motioned and Les Evans seconded:

Motion 2: Eliminate credits from new upgrades that do not add transfer capacity.

There was some discussion around the impact that this will have to Z2 upgrades. Lisa Szot and

Steve Gaw stated that this motion eliminates a substantial amount of upgrades from Z2. While

these facilities may not immediately provide improved transfer capability, many if not most of

these will be used as part of the transmission interconnection for future transmission or load

interconnections. After some additional discussion, the Task Force voted and approved motion

2 with 12 in favor, two opposed and 2 abstention as shown below.



4

Z2TF Roster MOTION 2: Remove upgrades that do not add transfer capacity

Member Company Group Yes No Abstain

Denise Buffington KCPL TO 1

Meena Thomas TPUC CAWG 1

Bill Grant SPS TO 1

Davis Rooney SUNF TO 1

Grant Wilkerson Westar TO 1

Greg Garst OPPD TO 1

Greg McAuley OGE TO 1

Julie Tackett WFEC TO 1

Paul Malone NPPD TO 1

Richard Ross AEP TO 1

Aundrea Williams NextEra TU 1

Bruce Walkup AECC TU 1

John Stephens CU TU 1

Larry Holloway KPP TU 1

Les Evans KEPCo TU 1

Lisa Szot Enel TU 1

12 2 2

Next a motion was made by Meena Thomas and Richard Ross seconded:

Motion 3: Eliminate credits from short-term service under Z2.

After short discussion this motion was passed with 12 in favor, 1 opposed and 3 abstentions as

shown below.



5

Z2TF Roster

MOTION 3: Eliminate Credits from Short-Term Service under Z2

Member Company Group Yes No Abstain Denise Buffington KCPL TO 1 Meena Thomas TPUC CAWG 1 Bill Grant SPS TO 1 Davis Rooney SUNF TO 1 Grant Wilkerson Westar TO 1 Greg Garst OPPD TO 1 Greg McAuley OGE TO 1 Julie Tackett WFEC TO 1 Paul Malone NPPD TO 1 Richard Ross AEP TO 1 Aundrea Williams NextEra TU 1 Bruce Walkup AECC TU 1 John Stephens CU TU 1 Larry Holloway KPP TU 1 Les Evans KEPCo TU 1 Lisa Szot Enel TU 1 12 1 3

The final motion was made by Greg McAuley and seconded by Greg Garst:

Motion 4: Table discussion on the Partial Roll-in and CPO proposal for discussion with

the MOPC. Move forward with what is already approved.

There was some concern expressed over this motion. Several members expressed the desire to

obtain more information on the proposed partial roll-in and CPO proposals. After some

discussion the motion was withdrawn.



6

Agenda Item 5 – Next Steps The Task Force discussed the benefits of continuing to evaluate the partial roll-in proposal and potential to have a fixed CPO. The task force will focus on those two and have more examples at the June 27 meeting in Dallas. The potential elimination of credit stacking will also be reviewed in more detail at that meeting.

Agenda Item 6 – Action Items No action items were documented from the meeting. Staff will bring additional examples of the limited roll-in, credit stacking, and fixed CPO to the next meeting.

Agenda Item 7 – Next Meeting The task force confirmed the June 27 meeting and revised the start time to 9 am. Future Z2TF Meetings: Z2TF Meeting – Tuesday June 27, 2017 (9:00 a.m. – 3:00 p.m.) Location: AEP Offices – Dallas, TX Room: 42nd Floor With no other business, the meeting was adjourned at approximately 3:56 p.m. Respectfully Submitted – Bruce Rew, Z2TF Staff Secretary

Documents

Relationship-Based • Member-Driven • Independence Through ... minutes and attachemen… · Alternative 1 Examples: Three1 -MW TSRs ($000s) - CPOs for Subsequent Service Are Base