Financing Transmission Expansion Open Season Model

1
Financing Transmission Expansion Open Season
Model

• WGA Finance Committee
• San Diego
• December 13 14, 2001

2
Gas Pipeline New Capacity Subscription

• Sponsor gauges market proposes project sized to
  need proposal includes configuration, costs
  estimates, rate impacts, specifies bidding
  procedures, etc.
• Capacity awarded on NPV of bids received in open
  season
• bidders credit qualified
• max rate bids, term length (and route length, if
  mileage based rates) determines winners
• shipper contracts for service (no ownership)
  market based rates or other terms negotiable
  (subject to FERC approval)
• process must not unduly discriminatory
• Project can be modified to match markets
  expressed needs (re-bid) or cancelled if
  insufficient market interest
• Subscribers responsible for up/downstream
  transportation, supply and market arrangements

3
Pipeline Financing

• Typically project financed on the strength of the
  shipper contracts
• May be limited recourse to sponsors during
  construction/ start-up phase
• Lenders look to
• credit strength/contract term of projects
  subscribers
• underlying project economics (re-subscription
  risk in case of customer failure or short
  contracts, competitive lines, etc.)
• regulatory treatment of cost recovery (rate
  design, capacity vs. volumetric charges,
  market-based rates, levelized or index rates)
• sponsors track record

4
Benefit Risk Balance

• Shipper takes market risk (demand charges)
• transport rights for contract term, right of
  first refusal to renew contract
• route flexibility (at lower priority outside
  primary path)
• capacity value exposure release mechanism
  enable cost management or profit on congestion
  (capacity holders manage/benefit from congestion)
• permanent release subject to credit of
  replacement shipper
• shippers include all market sectors local
  distribution companies, industrials/IPPs,
  marketers, storage operators and producers
• Pipeline takes credit and throughput risks
• cost based rates by FERC, largely demand charges
• revenue requirement assumes STF and IT revenues,
  pipelines active marketing short-term and
  interruptible capacity, putting pipeline in
  competition with its own customers

5
Application to Electric Transmission

• Rights definition, protection through time - How
  does the WSCC do it today?
• Unintended consequences, increases/decreases in
  capacity and value elsewhere in the system who
  benefits, who pays
• Physical differences increase risk to shippers,
  project sponsors, and lenders
• locational price differentials less likely to
  endure, generation location unpredictable, could
  render transmission economically obsolete
• DC transmission projects offer best chance of
  success isolation from the AC grid, rights
  definable enforceable, no system impacts
  to/from others

6
DC Merchant Lines

• Cross Sound Project
• 26 mile underwater HVDC link between Connecticut
  and Long Island
• rights allocated by open season, sponsor retains
  no capacity
• market based rates approved based on customers
  expectation of locational price differences
• Neptune Regional Transmission System
• 3.0 billion, 14 node HVDC system between NJ, NY,
  MA, CN, ME, New Brunswick and Nova Scotia, 4
  phases 2003 - 06
• Open season to allocate rights now in process,
  seeking 20 year bids
• Market based rates, secondary market