Overview of Power Supply Resource Management Services By Rob Sirvaitis The Energy Authority

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Overview of Power Supply Resource Management
ServicesBy Rob SirvaitisThe Energy Authority

• NWPPA Power Supply Conference
• September 25, 2008

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What is The Energy Authority

• A stand-alone not-for-profit corporation created
  by Public Power for Public Power in 1997.
  
• The Wholesale Marketing and Trading arm of its
  Members.
  
• Serves as Members Portfolio Manager and Risk
  Manager experts.
  
• Today, serves 40 public power entities across the
  U.S., representing more than 25,000 MW of
  combined generation assets of all types

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Power Supply Management Specifics

• TEA provides power supply management services to
  14 entities
  
• Generating resources under management
• Hydroelectric (738 MW, 486 aMW)
• Natural gas-fired (170 MW)
• Wind (490 MW, 147 aMW)
• Cogeneration (35 MW)
• Landfill Gas (10 MW)
• Unit contingent coal (150 MW)
• Load Management (190 MW)
• Nuclear (840 MW)
• Various Contracts (600 MW)
• Total (3223 MW)

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Why was TEA formed

• Need to be competitive with the emergence of
  power marketing companies.
  
• Formed by like-minded public power utilities
  interested in achieving economies of scale.
  
• To be an entrepreneurial organization singularly
  focused on the wholesale energy markets.
  
• To enjoy the value of a national footprint with
  local control and expertise.
  
• To manage our Members risks.

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What does TEA do

• Identify, develop and execute plans to reduce
  energy risk exposure
  
• Optimize the value of our Members and Partners
  resources in the market
  

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Benefits of TEA

• Greater rewards and savings that come with a
  national energy trading capability
  
• Reduced wholesale energy risks through robust
  risk management services
  
• Lower transactional costs through economies of
  scale
  
• Rating agency recognition with TEAs reputation
  as a benchmark in Public Power risk management
  
• Portfolio-wide perspective with coordinated fuel
  purchasing, power management and hedging
  
• Robust risk policies that are consistent with
  your Public Power philosophy

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Benefits of TEA

• Exceptional personnel in energy trading and risk
  management
  
• An un-paralleled record of success
• Stringent credit risk management
• Retain local control of your resources as well as
  all the benefits TEA can bring
  
• Open books and individual tracking of your
  entitys transactions
  
• Outstanding service from an organization
  exclusively dedicated to meeting the needs of
  Public Power

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TEA Partners Benefit Without Establishing A
Formal Pool

• Aggregate odd-lot requirements of individual
  utilities to create standard market blocks
  
• Match partners with offsetting positions at
  mid-market price
  
• Joint scheduling of shared resources
• Shared personnel expert in trading and risk
  analysis
  
• Access to state of the art information technology
  systems
  
• Ability to share knowledge and experience of
  lessons learned in other markets (e.g.,
  Californias MRTU is a lot like MISO)
  

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What is the role of the wholesale power market to
your future portfolio?

• Resource decision may dictate need to operate in
  wholesale power market
  
• Wholesale power market place is one of your most
  important resources.
  
• Covers short falls
• Provides economy energy
• Provides revenues in exchange for your surpluses
• Provides products for hedging operational and
  price risks
  
• Most importantly, serves as an energy resource
  alternative when designing your future portfolio
  

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What is the role of the wholesale power market to
your future portfolio?

• Comes with its own bag of risks.
• Requires solid contracts and credit management
• Requires skilled trading personnel
• As activity grows, requires sophisticated systems
  to track, monitor, and measure results
  
• Regulatory and market changes

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Power Management is Focused onPhysical Operations

• Activities to be performed
• Scheduling and tagging
• Load forecasting
• Short-term trading
• Short- and long-term planning
• Resource optimization
• Level of effort needs to be scaled to requirements

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Approach for Managing Power Resources

• Each Entity signs a contract for services with
  TEA. Fee for services
  
• TEA trades as principal for buying and selling
  power in the market.
  
• TEA interfaces with market
• TEA takes title to power
• TEA optimizes each portfolio
• Full value of each transaction directly accrues
  to each Entity
  
• All transactions fully transparent to each
  Entity. Daily access to each transaction and
  monthly summaries
  
• Full audit rights to each Entity

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Benefits of TEA Trading as Principal

• Better pricing due to greater market access
• Trade with each and every TEA counterparty
• Minimize credit concentrations and maximize
  counterparty diversity
  
• More counterparties result in better market
  knowledge which in turn produces better prices by
  trading in multiple markets and regions
  
• TEA is able to aggregate small amounts from two
  or more partners to sell a larger standard size
  power block and thereby, receive better pricing
  
• Reduced counterparty credit exposure due to
  netting
  
• Maximum potential to achieve economic benefits
  due to netting
  
• Transaction settlement is greatly improved
• TEA partners settle only with TEA
• All information including price, counterparty,
  and value derived from transactions are placed in
  the specific partners portfolio.
  
• Preliminary transaction information is reported
  (via TEAs member portal) in real time. More
  detailed reports are produced daily. All
  information is available on all transactions
  conducted on the partners behalf via TEAs
  open-book policies and audits

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Creditworthiness Requirements

• TEA owners provide use of their credit for market
  transactions
  
• TEA may require credit assurance from each Entity
  or its utilities depending upon the ultimate
  organization structure and market activity
  executed on behalf of each Entity or its
  utilities
• Individual utilities of each Entity are
  responsible should a loss occur due to
  counterparty failure
  
• TEA Credit Dept actively monitors financial
  stability of over 240 counterparties on daily
  basis
  
• TEA has never experienced a counterparty failure
  during 11 years of operations

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TEA Fees for Power Mgmt Services

• Function of
• Scope of services
• Complexity of services for power management and
  risk management
  
• Volume and number of transactions
• Administrative requirements
• Without defined scope, very difficult to estimate
  fees.

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Membership Criteria or Ground Rules

• No membership criteria
• Each Entity signs contract for power management
  services with TEA and are responsible for payment
  of management fees
  
• TEA must be actively engaged in optimizing the
  power portfolio(s) and in buying and selling
  power for the Entities
  

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Information For Tracking Portfolio Costs

• TEA can provide
• Hourly and daily schedule data
• Daily access to each transaction and monthly
  summaries
  
• Monthly settlement documents

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Other Services TEA May Provide

• Possible collaboration on future resource
  acquisition or exchanges of power
  
• Possible review of BPA bills for Tier 1 service
  for general accuracy
  
• Management of Renewable Energy Certificates
• Transmission acquisition and management
• Assistance in developing creditworthiness
  standards and risk management policies
  
• Assistance in NERC or WECC compliance for
  utilities using TEA services to manage
  non-federal power supply

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Questions?
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Risk Management is Focused onFinancial Impacts

• Risk Measurement
• Identifies risk through modeling portfolio in
  larger market
  
• Strategy Development
• Specific strategies developed to achieve desired
  risk/return objective.
  
• Includes physical financial products
• Transaction Approval
• Hedge products must be approved
• Buy or sell forward
• Purchase options
• Model how hedge product changes financial
  outcomes under range of scenarios

TEAs Risk Management Process
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Risk Management is Focused onFinancial Impacts

• Transaction Execution Management
• Risk Monitoring and Reporting
• Net position
• Credit exposure
• Mark-to-market

TEAs Risk Management Process
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The Energy Authority - Equity Members
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Our Resource Management Partners (Cont.)

• American Municipal Power Ohio
• Benton Public Utility District
• City of Fulton, MO
• Clallam Public Utility District
• Clatskanie People's Utility District
• Columbia, MO, Water Light
• Cowlitz Public Utility District

• Emerald People's Utility District
• Energy Northwest
• Flathead Electric Coop, Inc.
• Florida Municipal Power Agency
• Franklin Public Utility District
• Grays Harbor Public Utility District
• Klickitat Public Utility District
• Lafayette Utilities System

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Our Resource Management Partners

• Piedmont Municipal Power Agency
• Rochester Public Utilities
• Port of Seattle, Seattle-Tacoma International
  Airport
  
• Southern Minnesota Municipal Power Agency
• Springfield, IL, City Water Light Power
• University of Missouri
• Wisconsin Public Power, Inc

• Lewis Public Utility District
• Louisiana Energy and Power Authority
• Mason Public Utility District 3
• Merced Irrigation District, CA
• Okanogan Public Utility District
• Pend Oreille, Public Utility District