GENERAL OVERVIEW OF DRAFT PEAK RELIABILITY FUNDING AGREEMENT

Transcription

1 GENERAL OVERVIEW OF DRAFT PEAK RELIABILITY FUNDING AGREEMENT DISCLAIMER: This document is a general overview that is intended to provide a plain language overview of a number of provisions of the Draft Agreement. This general overview is not, and cannot be relied upon as, legal advice or as a comprehensive description of the Draft Agreement. In all instances, any description of the Draft Agreement in this document is subject to, and qualified by, the Draft Agreement itself. This document provides a general overview of the Reliability Coordinator and Interchange Functions Funding Agreement Among Peak Reliability, Inc., and Funding Parties (Draft Agreement). The current draft has been circulated to Peak and posted to the Peak website with a draft date of December 5, 2014 (11 a.m.). Although the Draft Agreement is substantially complete, there are several outstanding clean-up items that need to be addressed. The opportunity for comment on the Draft Agreement provided by Peak and the process of negotiating and finalizing the Draft Agreement should provide an opportunity for consideration of those outstanding items. The Draft Agreement was developed to establish a contractual funding mechanism for Peak s performance of the Reliability Coordinator function and the responsibilities required for the distribution of Arranged Interchange information under the Reliability Standards. The Draft Agreement will replace the current statutory section 215 funding by those who sign such an agreement with Peak. The Draft Agreement has been negotiated by a group of potential Funding Parties 1 over the course of more than a year. The terms of the Draft Agreement reflect an attempt to: balance the need of Peak Reliability, Inc. (Peak) to retain its independence with the need of the Funding Parties for transparency and meaningful input on the services that are to be funded under the Draft Agreement and the costs of those services that the Funding Parties (and their customers) will bear. Balancing these needs is essential to the long-term viability of an agreement funding Peak as a Reliability Coordinator in the Western Interconnection I. SCOPE (Section 2) a. The Draft Agreement provides that the Funded Services include the following: i. RC Functions fulfilling the responsibilities of the RC under the Reliability Standards and demonstrating compliance with the Reliability Standards applicable to the RC; 1 Unless specifically defined in this overview, capitalized terms refer to defined terms in the Draft Agreement.

2 See Section 2. ii. Interchange Functions fulfilling the responsibilities required for the distribution of Arranged Interchange information under the Reliability Standards; and iii. Secondary Services other services specified in Attachment A to the Draft Agreement, modification of which requires written approval of Peak and 75% of the Funding Parties. b. The Draft Agreement specifically states that nothing in the agreement prevents Peak from performing Peak Additional Services (i.e., services other than the Funded Services listed in I.a, above) if they meet certain conditions: the Draft Agreement makes clear that Peak Additional Services (i) are not to be performed or funded through the Draft Agreement, (ii) are to be allocated an equitable share of Peak s costs, and (iii) shall not be undertaken if they would interfere with Peak s ability to meet its obligations under the Draft Agreement to perform the Funded Services. See Sections 2.4, We understand that Peak has entered into, or is currently contemplating entering into, certain agreements for performance of certain services, including agreements with BC Hydro and the NWPP. Services provided under such separate agreements would be subject to the provisions of the Draft Agreement applicable to Peak Additional Services. II. FUNDING AMOUNT (Section 4.1) a. The Draft Agreement allows Peak to specify an amount in the Final Funding Amount as financial reserves. See Section b. The Draft Agreement requires Peak to post on its website by May 1 of each year a Draft Funding Amount the amount it expects to expend the following year to perform the Funded Services. Peak is required to provide supporting detail to each Funding Party, including the amount allocated to financial reserves, and specific breakdowns for RC Functions, Interchange Functions, and Secondary Services. See Section c. Under the Draft Agreement, there is 30 days to comment on the Draft Funding Amount. See Section d. After consideration of comments, Peak shall post a Proposed Funding Amount, and that amount becomes the Final Funding Amount for the next calendar year, unless 75% or more of the Funding Parties object to the Proposed Funding Amount. See Sections 4.1.5,

3 e. If 75% or more of the Funding Parties object to the Proposed Funding Amount, the most recent approved Final Funding Amount (exclusive of extraordinary or one-time expenditures) becomes the Carryover Funding Amount and Peak is funded at that level for the following calendar year. See Section f. The Final Funding Amount can be adjusted in cases of unforeseen circumstances or error, with written notice to the MAC and the Funding Parties. See Section g. Any adjustment to a Carryover Funding Amount requires approval by Peak and a Majority Vote of the Funding Parties. See Section h. The Draft Agreement prohibits Peak from seeking funding by a Funding Party under Section 215 of the Federal Power Act. See Section 4.2. Note: Allowing Peak to independently determine the Draft Funding Amount and any adjustments to a Final Funding Amount (that is not a Carryover Funding Amount) while allowing Funding Parties to reject a Draft Funding Amount but only by a high (75%) threshold of Funding Parties attempts to balance Peak s need for independence with the Funding Parties need for meaningful input on the amounts that they will pay for the Funded Services. Requiring a high threshold (75%) of Funding Parties for rejection ensures that a Draft Funding Amount will not be rejected without a broad consensus of Funding Parties that a Draft Funding Amount is not appropriate. Providing that, in the event that a Draft Funding Amount is rejected by the Funding Parties, the most recent approved Final Funding Amount (exclusive of extraordinary or one-time expenditures) becomes the Carryover Funding Amount and Peak is funded at that level for the following calendar year ensures continuity of funding for Peak s performance of the Funded Services. III. COST ALLOCATION (Section 4.3) a. The Draft Agreement calls for costs to be allocated to Balancing Authorities (BAs) and Transmission Operators (TOPs) based on Net Energy for Load (NEL). i. Any BA or non-ba TOP (unless aggregated as discussed below) receiving an allocation pays at least a Minimum Charge equal to 0.015% of the Final Funding Amount for a calendar year. This Minimum Charge can only be changed upon written approval of 75% of the Funding Parties. The concept of a Minimum Charge is consistent with the fact that the NERC Rules of Procedure require BAs and TOPs to be under the oversight of an RC and the concept that BAs and TOPs should not be under such oversight without paying some amount to fund such oversight. 3

4 ii. At least one BA has a joint registration or coordinated functional registration for the TOP function with TOPs in its BAA pursuant to section 507 or 508 of the NERC Rules of Procedure and oversees the scheduling of energy and transmission services on the behalf of at least a majority of such TOPs. In such a situation, imposition of a Minimum Charge on such TOPs may not be justified. iii. Under the Draft Agreement, BAs can elect to aggregate their allocations with certain non-ba TOPs in their respective Balancing Authority Areas (BAAs). See Section Such aggregations may be elected by a BA regardless of whether it has such a joint registration or coordinated functional registration and performs such scheduling services. b. Peak is obligated to perform the cost allocation calculations, post documentation of the results, and provide documentation to each Funding Party supporting that party s allocation c. As discussed below, certain Funding Parties receive an allocation and are invoiced for and responsible for paying that allocation; other Funding Parties receive an allocation, but the amount of that allocation is invoiced to another Funding Party. IV. BILLING AND PAYMENT (Section 4.4) a. No earlier than October 15, Peak is to invoice each Funding Party for its allocation of costs for the following calendar year (except that Western Area Power Administration and Bonneville Power Administration as Funding Parties would be invoiced monthly pursuant to Attachment C (Federal government Contract Provisions) of the Draft Funding Agreement). b. Section 4.4 contains a breakdown of the different invoice calculations for (i) Funding Parties that are BAs and do not elect an aggregate allocation, (ii) Funding Parties that are BAs and do elect an aggregate allocation, and (iii) Funding Parties that are non-ba TOPs but are not BA Funded TOPs. c. The invoicing provisions are intended to allow, but not require, the payment by a BA of an allocation to certain TOPs in its BAA. Attached is a summary of examples of various cost allocation/invoicing scenarios. d. Funding Parties are obligated to pay the amount invoiced within 90 calendar days of receipt of the invoice. V. FINANCIAL REPORTING AND AUDIT (Section 4.7) 4

5 a. Peak is obligated under the Draft Agreement to provide an unaudited report of expenditures under the agreement to the Funding Parties within 120 days after the end of the calendar year. b. Peak is required to audit its finances annually and promptly provide a copy of the audit report to each Funding Party. c. Each Funding Party retains certain rights (with some limitation) to inspect Peak s accounts and records at the Funding Party s expense. VI. EFFECTIVE DATE AND TERM (Section 5) a. The Draft Agreement calls for Peak to begin performing Funded Services on January 1, b. The initial term of the agreement is five years, with automatic renewal for five year terms thereafter unless Peak or at least 50% of the Funding Parties object to the renewal. c. The agreement terminates if: (i) all Parties agree to termination; (ii) Peak is deregistered or loses its certification as the RC; or (iii) Funding Parties paying not less than 75% of the Final Funding Amount give written notice of withdrawal. d. Funding Parties can withdraw upon 18 months written notice. VII. Government Contract Provisions (Section 6) a. This section of the Draft Agreement reads as follows: [[ALTERNATE FIRST PARAGRAPHS]] [[The provisions of Attachment C hereto contain provisions applicable to certain contracts entered into with the federal government. The provisions of Attachment C are applicable to a Party if and to the extent required by applicable law and if not otherwise exempted.]] If Congress does not make the necessary appropriations required for the continued performance of Western s obligations under this Agreement, Western shall promptly give each of the other Parties written notice of such failure and Western shall from and after the occurrence of any such failure no longer be a party to this Agreement, 5

6 b. The term [[ALTERNATE FIRST PARAGRAPHS]] and brackets in the paragraph following that term are extraneous and should be omitted. c. NOTE: At least one non-federal entity has requested language recognizing a circumstance in which a non-federal governmental entity s obligation to pay is required to be subject to appropriations. A provision similar to the last paragraph quoted above and applicable to non-federal governmental entities should be considered. VIII. RELIABILITY STANDARDS VIOLATION PENALTIES (Section 8.3) If Peak is assessed a penalty in connection with a Reliability Standards violation, Peak has the discretion to pay, settle, or challenge the penalty. Any such penalty Peak pays shall come from its financial reserves. 6