DRAFT REQUEST FOR PROPOSALS BY THE ARIZONA POWER AUTHORITY FOR SCHEDULING SERVICES AND/OR USE OF HOOVER DAM DYNAMIC SIGNAL.

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1 DRAFT REQUEST FOR PROPOSALS BY THE ARIZONA POWER AUTHORITY FOR SCHEDULING SERVICES AND/OR USE OF HOOVER DAM DYNAMIC SIGNAL March 31, 2017 Summary The Arizona Power Authority ( Authority ) recently signed and implemented contracts with its customers for delivery of Hoover Dam Power beginning on October 1, 2017 through September 30, 2067, a term of 50 years ( Power Sales Contracts ). The Power Sales Contracts include a provision requiring the Authority to identify, contract with, and utilize one or more Scheduling Entities to provide scheduling coordination services ( Scheduling Entity or Scheduling Entities ) to manage the delivery of Hoover Dam power to each of the Authority s 63 customers. The Power Sales Contracts also provide for the delivery of each customer s allocated share of Hoover Dam ancillary services covering regulation, ramping, and reserves, with access to control of Hoover Dam power output through the use of a dynamic signal. Further, in its Electric Service Contract with the Western Area Power Administration ( WAPA ), the Authority is required to identify one or more Scheduling Entities, which will provide schedule coordination services for the delivery of the Hoover power allocation to all of the Authority s 63 customers. The Authority requests proposals from qualified entities to provide scheduling coordination services for all or a portion of the 410 MW allocation that the Authority receives from Boulder Canyon Project and has further allocated to 63 customers within Arizona. Further, the Authority requests proposals from qualified entities for up to 410 MW of the dynamic signal 1

2 allocated to the Authority s customers, consistent with the terms of the Power Sales Contracts. The successful respondent(s) under this RFP as part of their bid must agree to enter into a contract with the Authority to provide scheduling coordination services to its customers in accordance with the Electric Service Contract and the Metering and Scheduling Instructions included thereunder. The successful respondent(s) will work in conjunction with any other Scheduling Entities, balancing authorities, the Authority, and the Authority s customers to schedule and deliver the Hoover power allocation to the Authority s customers. The term of the agreement is negotiable but is expected to extend from 1 to 5 years beginning on October 1 and continuing through September 30 of each year, beginning October 1, Interested parties are asked to respond to the following: 1) Expected cost (if any) of providing Scheduling Entity services for all or a portion of the 410 MW allocation. 2) Proposed payment for the use of Hoover Dam s dynamic capability for up to the 410 MW allocation, with the qualification that customers may not select the respondent for dynamic signal management. 3) The proposed term of the agreement. 4) Limits (if any) on the number of megawatts the Respondent is able and willing to manage. 5) How schedules will utilize the Authority customer s purchased and available transmission. 6) How transmission losses are accounted for. 7) How static schedules to balancing authorities will be managed. 8) How the respondent will interface with the Authority to manage and track the use of Hoover Dam power. 9) How day ahead and real time schedules will be handled. 10) Whether firming power purchases and sales will be made by the Scheduling Entity for the benefit of Authority customers. 2

3 11) How other provisions of the Power Sales Contracts, such as those concerning the MSI, will be implemented. 12) If applicable, how capacity and energy banking will work. 13) Other services that may be provided to the Authority and/or its customers. Introduction The Authority is a body corporate and politic created by the State of Arizona. The Authority purchases and receives Hoover power generated by the federal government at the Boulder Canyon Project and allocated to the State of Arizona. The Authority contracts for its allocation of Hoover power with WAPA. The Authority then sells and delivers that same amount of power less losses to its customers in Arizona. The Authority anticipates that much of the Hoover Dam power will be delivered statically to its customers; however, WAPA has given the Authority the contractual right to dynamically schedule its Hoover power on an instantaneous basis for the maximum benefit of its customers and the State of Arizona. The Authority has passed on that same contractual right to its customers in Section 5(e) of the Power Sales Contracts. Currently and until September 30, 2017, the Authority serves twenty-eight (28) customers with loads that are within the control boundaries of one or more of the five balancing authorities within the State of Arizona (APS, SRP, TEP, AEPCO, and WAPA) (NOTE: AEPCO is a sub-metered entity within the WAPA BA). Beginning on October 1, 2017, the Authority will service sixty-three (63) customers. To receive maximum benefit from the Hoover resource, the Authority wishes to contract with one or more respondents who are capable of providing schedule coordination services described in this RFP and are able to manage the dynamic signal for those customers who elect to provide their allocated share of ancillary services and dynamic signal to the respondent(s). The Scheduling Entity must work very closely and in coordination with the Authority s staff and will be responsible for scheduling power from Hoover to selected Authority customers in the most efficient manner possible. If the Scheduling Entity has generation and load responsibilities, it may utilize its resources along with Hoover power to meet a portion of the 3

4 combined loads of the Scheduling Entity and the Authority s customers. The Authority anticipates that the Scheduling Entity will utilize a dynamic signal to schedule the Authority s customer s allocated share of Hoover capacity and energy and that the dynamic signal will likely be split among two or more parties. The Authority intends to implement dynamic signal(s) in a way that maximizes the benefit of the Hoover resource to the Authority's customers at the lowest possible cost. A. NOTICE AND CONTROLLING DOCUMENTS All entities responding to this RFP are hereby notified that notwithstanding any terminology or descriptions contained in this RFP, the following documents contain the controlling rights, obligations, definitions, limitations and meanings upon which the entities responding to this RFP must rely: Documents Electric Service Contract between the United States of America, Department of Energy, Western Area Power Administration and the Arizona Power Authority Transmission Contract between the United States of America, Department of Energy, Western Area Power Administration and the Arizona Power Authority 1 Power Sales Contracts between the Arizona Power Authority and individual customers Appendix The respondent should review and evaluate all contract terms, which bind the Authority. The following contract terms are especially relevant to this RFP and are noted briefly here. 1 The Authority has a contract with WAPA to provide transmission service to those entities noted in Exhibit A to this RFP. Transmission for the balance of customers is either provided by the host utility or by customer specific transmission agreements. 4

5 Under section of the Electric Service Contract, subject to certain conditions, the Authority, through the use of a dynamic signal, has the right to use previously scheduled Synchronized Generation 2 for regulations, ramping, and reserves. Under section of the Electric Service Contract, the Authority must designate, in writing to WAPA, a Scheduling Entity (or entities) responsible for scheduling the Authority s Hoover energy and capacity allocations at least 60 days prior to energy deliveries. Under section of the Electric Service Contract, power deliveries must be made pursuant to the Metering and Scheduling Instructions. Under section 5(e) of the Power Sales Contracts, the customer has the right to a pro-rata share of available Ancillary Services based upon the Customer s Allocation. The customer may access its share of Ancillary Services through the use of a dynamic signal. The customer must notify the Authority of its intent to use Ancillary Services and establish a dynamic signal. Under section 5(f) of the Power Sales Contract, if the customer does not elect to use its share of Ancillary Services, then the Authority will use its best efforts to market any portion of the customer s share of Ancillary Services and dynamic signal that the Customer elects not to use. Under section 12 of the Power Sales Contract, the Authority will designate one or more Scheduling Entities responsible for scheduling the Authority s Hoover Capacity, Hoover Energy, Hoover C Energy, and other resources available to the Authority for use by the Customer under the Electric Service Contract. The Authority must execute a Scheduling Entity Agreement with one or more Scheduling Entities that will require each Scheduling Entity to adhere to Western s Metering and Scheduling Instructions. Additional documents are also discussed in this RFP that may provide insight into the operations and use of the Hoover generation. Those documents are identified as the following appendices: 2 Capitalized terms refer to defined terms in the contracts. 5

6 Documents Appendix Balancing Authority Report at Generation Including 4 Graphs Customer Usage Subdivided by Balancing Authority at 5 Delivery Hoover Master Schedule 6 Scheduling Imbalances Energy Banking Records 7 Current Scheduling Entity Agreement 8 The Authority's statutory powers and duties can be found in Arizona Revised Statutes et seq. and et seq. and its regulations at AAC R et seq., available at B. P U R P O S E O F R F P The Authority, through its Scheduling Entities, supplies contract amounts of capacity and energy to the Authority s customers pursuant to scheduled deliveries to the balancing authorities in which the Authority's customers' loads are located. All of the Authority s customer loads are located within the APS, AEPCO, TEP, SRP, or WAPA balancing authority areas. The Authority acting alone cannot realize the full value of the Hoover resource with its inherent flexibility. The Authority, however, recognizes there is significant value associated with dynamic control of the Hoover resource. This value varies over time as conditions change, such as with changing gas prices, hydrologic conditions, rules and regulations, etc. Each Authority customer has the right to dynamically schedule or have a third party dynamically schedule its share of the Hoover resource (up to its entitlement as specified from time to time) from WAPA in order to provide ancillary services such as load following, ramping, and spinning reserves to the customer and meet WECC and NERC standards. The purpose of this RFP is to receive bids to obtain the services of a Scheduling Entity (recognizing there may be two or more) for the Authority s customers. The Scheduling Entity 6

7 will coordinate use of its share of the Authority's customer s allocation/entitlement of power and energy from Hoover delivered by WAPA to the Point of Delivery Mead Substation in southern Nevada. The Scheduling Entity will utilize either transmission rights provided to the Authority by WAPA or transmission rights provided to the Authority s customers by WAPA from the Mead Substation, and ultimately deliver a like amount of power and energy, less losses, as scheduled on behalf of the Authority to the Authority's customers in Arizona. The Authority anticipates that the Scheduling Entity may integrate its share of the Hoover monthly entitlement with the Scheduling Entity's other resources for the maximum economic and operational benefit that the Hoover resource brings to Arizona. The Authority will likely utilize more than one Scheduling Entity to effectively and efficiently meet the needs of all 63 Authority customers and deliver the greatest value to Authority customers both through lower overall rates and improved operational flexibility. An additional purpose of this RFP is to receive bids to use and manage the dynamic signal for those customers who elect to provide their allocated share of ancillary services and dynamic signal to the respondent(s). Customers will notify the Authority of their intent to use their allocated share of the dynamic signal pursuant to Section 5(e) of the Power Sales Contract. The Authority hopes to receive responses to this RFP that include the following: 1) An offer to use the Hoover power and energy in accordance with the laws and contracts governing its use. This includes scheduling power and energy as needed to meet scheduled deliveries for the Authority's customers. 2) An offer to pay the Authority an amount each month, possibly a fixed value or payment determined on a $/MWh, $/MW/year, $/MW/month, or $/MW/day basis during the term of the agreement. 3) An offer that reflects the value of what the respondent will pay for various levels of a dynamic signal and for providing scheduling coordination services. The exact Hoover capacity and energy allotted to each Scheduling Entity is unknown 7

8 at this time, so respondents are asked to provide a bid assuming any amount up to 410MW will be available dynamically. A bid may be on an energy basis, expressed as a $/MWh value, for various increments of energy. 4) An offer to "bank" energy or provide a monetary means to store Hoover Dam power (kw/kwh) for later use by the Authority and its customers in a manner similar to the existing Scheduling Entity Agreement (Appendix 8). 5) An offer to coordinate purchases with other suppliers and/or to purchase supplemental or firming power for the Authority and designated customers. 6) An offer to participate in, and possibly coordinate, power pooling among groups of designated Authority customers. This RFP is open to utilities, power marketing organizations, independent power producers, or other eligible entities in the western United States (operating or doing business in the WECC area and more specifically within the Arizona market). C. DESCRIPTION OF AUTHORITY'S RESOURCES The Authority has received an allocation of Hoover power from WAPA in an amount approaching 410 MW and associated energy in the amount up to 815 GWh annually scheduled by WAPA and the Bureau of Reclamation ( Reclamation ). These numbers are generally referred to as the Allocation. The actual monthly Entitlement can be much less depending upon lake levels and run-of-the-river flows. Generally, the Authority has the right to pre-schedule available capacity for each hour of the next day or days up to the maximum amount of capacity available with limits in daily energy governed by water releases at Hoover. In real-time, the Scheduling Entity will coordinate Hoover deliveries for its assigned Authority customers, possibly using a dynamic signal, up to the amount of Hoover entitlement available to those selected 8

9 customers. Amounts of capacity and energy available vary by month, and available capacity reflects outages for maintenance and emergencies. Typically, maintenance outages are taken during the fall, winter and spring, with maximum capacity being available during June, July, August and September (see Appendix 4). The Authority can use its capacity and energy in a variety of ways such as serving load, or as spinning reserve, or providing load following and regulation services. The Hoover units have a combined unit ramping rate of 100 MW/min, a condense-to-generate time of 20 seconds and a shutdown-to-generate time of 2 to 3 minutes. Capacity and energy are delivered to the Authority's Hoover point of delivery at Mead Substation in southern Nevada (within the WAPA balancing authority). It is anticipated that the Authority or its customers will enter into or have entered into a transmission contract with WAPA that provides the means for Hoover power to be delivered from the Mead Substation, less losses of 3%, to various points on the federally-owned Parker-Davis (PD) transmission system and the Pacific Northwest-Pacific Southwest Intertie (Intertie) transmission system. Presently, the contract for the Intertie system delivers power from the Mead to the Liberty and Pinnacle Peak Substations; the contract for the PD system is from the Mead Substation to several delivery points in Arizona (see Appendix 2). The balancing authorities, in which the Authority's customers are located, take delivery at delivery points on these transmission systems for the accounts of the Authority's customers. The balancing authorities can "shape" these deliveries on a pre-scheduled basis to meet the needs of the balancing authority, so long as the amount of energy scheduled in any month does not exceed the entitlements of the Authority's customers in the balancing authority and the Authority s customers are not harmed by the scheduling practice. Small amounts of deviation are permitted, with imbalances returned in the following months as agreed upon by the parties. A list of the Authority's customer deliveries subdivided by balancing authority is found in Appendix 5. The Authority's Hoover entitlement of energy is limited. Thus, there will be many hours each day when the Authority s or customers transmission rights are available but are not being used to deliver Hoover power to the Authority's customers. In addition, during several months 9

10 of the year, the total capacity available from Hoover is much less than the 410 MW allocation and less than the available transmission. During periods when the Authority s or the customers transmission capacity is not being used to deliver Hoover or supplemental power to the Authority's customers, the transmission capacity may be made available to the Scheduling Entity(ies), under the proposed scheduling entity agreement, to engage in transactions so long as the use of available transmission capacity complies with the terms and conditions of the WAPA transmission contract. D. SCHEDULING CONSIDERATIONS The Authority's capacity and energy available each month is contained in the Hoover Master Schedule. The latest Hoover Master Schedule is included as Appendix 6. This schedule takes into account the intended water releases from Hoover in each month; the amount of capacity available based on Reclamation's maintenance schedule at Hoover; the Lake Mead elevation; and any interchanges from one federal project to another. The Hoover Master Schedule energy quantities are established at the beginning of each contract year (October through September), but the monthly quantities shown in the final Hoover Master Schedule can change if such things as water releases or maintenance schedules change. These values represent the total Authority entitlement that will be allocated to each Scheduling Entity based upon the Authority s customer base covered by that entity. The Authority's capacity allocation is subdivided into Schedule A capacity, Schedule B capacity and Schedule D1 and D2 capacity. Although such a curtailment has never occurred and scheduling issues may differ post-2017, the dynamic use of Schedule B capacity by contract can be reduced by 25% so as not to impede the use of Schedule A capacity for dynamic scheduling. Hoover energy with Schedule A capacity, Schedule B capacity, and Schedule D1 and D2 capacity is denoted as Schedule A energy, Schedule B energy, and Schedule D energy respectively. The Authority is also entitled to receive a third category of Hoover energy, 10

11 known as Schedule C energy, which is available when the energy available from Hoover in any contract year is greater than the contracted firm energy amounts. A more precise description of the Schedule C energy is found in Exhibit A to the Electric Service Contract. The Authority may also purchase and schedule supplemental energy (i.e., firming energy ) from third party sources for an Authority customer or customers at their request, up to the amount of transmission capacity available to the Authority s customer at that time. Depending upon system conditions, WAPA will supply reserve capacity described as unloaded synchronized generation by either partially loading generators or motoring generating units. This type of operation will result in less than optimal efficiency of the generating units, and when motoring, would use energy that otherwise could be delivered to the Hoover contractors (i.e., entities purchasing Hoover power from WAPA). This reduced energy production from lost efficiency and motoring is accounted for and is charged against the energy delivered to each Hoover contractor that uses the power plant for this purpose. Reductions in amounts of energy available to the Authority due to reductions in efficiency and motoring will be accounted for and charged to the Scheduling Entity who uses this Hoover capability. E. SCHEDULING PROCESS The schedule below summarizes the current information pertaining to the scheduling of Hoover capacity and energy. Mid-March The preliminary Hoover Master Schedule is prepared by WAPA and sent to the Authority. The preliminary Hoover Master Schedule gives the estimated Hoover energy entitlement by month for the next contract year that begins October 1. The estimated energy is broken down by Schedules A, B, C, and D. At this time, the Hoover contractors in the WAPA three-state marketing area (Arizona, California and Nevada) may plan and provide information on exchanges of energy among themselves during the year. In addition, capacity estimates are included and are broken down by Schedules A, B, and D. Each Scheduling 11

12 Entity will be provided copies of all drafts of the Hoover Master Schedule as soon as they are provided to the Authority. Mid-May WAPA sends a revised Hoover Master Schedule in the same format as the preliminary Hoover Master Schedule described above. This revised Hoover Master Schedule includes energy exchanges among the Hoover contractors. Mid-July WAPA sends out the Final Hoover Master Schedule in the same format described above including interchanges. The Final Hoover Master Schedule can be revised (and usually is revised) by WAPA throughout the contract year. These revisions are made as a result of changes in water schedules and down-stream requirements in the Lower Colorado River Basin. The Scheduling Entity may dynamically schedule (i.e., dispatch every two seconds) its allocated share of Hoover power within the limitations of the capacity and energy available each month and the terms of the contract. Mid-July The Authority distributes the Final Hoover Master Schedule that includes energy and capacity available to its customers and requests their individual scheduling information. This step is a responsibility of the Authority and requires no action by the Scheduling Entity. The Authority prepares a customer use report which summarizes the capacity and energy scheduled by each of its customers in each balancing authority and will submit this to each Scheduling Entity before the next contract year. This report is revised monthly, and the revised copy is sent to each Scheduling Entity prior to the next operating month. An example of the report is attached as Appendix 5. The Scheduling Entity will be required to schedule power and energy to, or for the account of Authority customers within the balancing authority areas in which the Authority's customers are located. Scheduling is accomplished pursuant to written scheduling and accounting procedures developed and agreed upon by WAPA, the Authority, and the Scheduling Entity. (See Exhibit A of Appendix 8). 12

13 By the end of each contract year, the Authority's customers must receive their respective entitlements of Hoover energy as shown in the revised Hoover Master Schedule. F. ADDITIONAL INFORMATION The monthly energy available from Hoover and the monthly amount of energy requested by the Authority's customers seldom match. In general, the Electric Service Contract requires the Authority to take or pay for more Hoover resource in the winter than there is Authority customer load. Conversely, in the summer, the Authority customer load is greater than the Hoover energy that is available. As a result of this imbalance, the Authority and its customers instituted a Resource Exchange Program ( REP ). Under the REP, some of the Authority's customers receive additional capacity and/or energy in a particular month when other customers ask to layoff and/or exchange capacity and/or energy that would be surplus to their needs. These temporary reallocations within the Authority customer group help to reduce the monthly discrepancies but do not eliminate them. The resulting discrepancies after the REP has been utilized are the monthly imbalances shown in Appendix 7. These mismatches are currently "banked" by the Scheduling Entity during the winter and returned kilowatt-hour for kilowatt-hour during the summer. The Authority requests a proposal to provide some type of banking arrangement with the successful respondent(s) to this RFP, unless another arrangement can be made which cumulatively provides equal or greater benefits to the Authority and its customers. The Authority does not supply all of the power required to serve its customers' loads. As such, some customers have entered into supplemental power contracts with their balancing authority. The Authority's customers, on their own or acting as a group possibly through the Authority, may find it beneficial to enter into a purchase power agreement(s) with the successful respondent(s) to this RFP. 13

14 G. INSTRUCTIONS TO RESPONDENTS The Authority requests firm proposals in writing from interested entities; proposals must include, at a minimum: The name of the organization and/or any subsidiary organizations that will seek to enter into an agreement with the Authority, and their relationship within their respective corporate structure. The address of the principal place of business of the organization(s). The name of the key individuals who will interact with the Authority on scheduling matters, contract matters, development of scheduling procedures, and any other function contained in the response to this RFP. A statement as to whether the organization is a qualifying exempt entity under Section 103 of the Internal Revenue Code. The current bond rating or credit rating of the organization(s). The location of the entity from which the dynamic signal will be sent, and from which real-time scheduling, pre-scheduling, and power accounting activities will be undertaken. Amount to be paid for use of the dynamic signal. This amount may be the net amount after consideration of all expenses incurred by the respondent in implementing the agreement. A fee/payment schedule for each year of an estimated five (5) year period, and any penalties associated with termination without a new agreement in less than five (5) years. The maximum amount of energy that can be banked on behalf on the Authority and its customers and associated time constraints. Location and description of generation and transmission resources that will be integrated with the Authority's resources to provide for power deliveries to the Authority's customers. A description of specific transactions to be included in the agreement that will provide benefits to the respondent commensurate with the dollars paid the Authority. Please include any third party arrangements envisioned to make the total "package" work. 14

15 A description of any new equipment or systems that will be needed to implement the transactions described in the proposal. In the event of a material breach of covenant or default under the terms of the agreement, the Authority shall have the right, among other actions, to require the Scheduling Entity to provide a letter of credit or other form of collateral from a credit worthy source satisfactory to the Authority in its sole judgment in the amount of one year's value of the agreement. It is anticipated that the Authority and the successful respondent(s) will enter into an agreement that will be effective October 1, It will be in effect for one to 5 years, with possible extensions, based upon negotiations. The respondent may also include any other information it believes appropriate to aid the Authority in making its decision. The Authority recognizes that some aspects of the transactions contemplated herein are complex and directly relate to the availability of specific power sources, transmission rights, and contract obligations. Because respondents are likely to have a number of questions about the RFP, the underlying resources, and the contracts, the Authority will hold a conference to receive and respond to questions concerning this RFP at the Authority offices, 1810 W. Adams Street, Phoenix, Arizona, on a date to be determined. Respondents are encouraged to submit questions in writing at least ten (10) days in advance of the conference, if possible. Proposals and questions should be sent to Mr. John T. Underhill, Jr., Interim Executive Director, Arizona Power Authority, 1810 W. Adams Street, Phoenix, Arizona The proposals will be received until 5:00 p.m., Phoenix time, on May 10, Evaluation of the proposals will take place in May 2017, and tentatively a recommendation will be made to the Authority Commission at its May 2017 meeting. During the evaluation process, the Authority may hold discussions with one or more of the respondents. Such discussions may include topics such as the Authority's interest in a proposal and its need for additional information for evaluation purposes. Such 15

16 discussions may assist in clarifying and judging the proposals in order to make a selection. Contract negotiations are intended to begin within ten (10) days of approval by the Commission, and a final agreement is expected to be approved by the Authority Commission at its July 2017 meeting, or a subsequent monthly or special meeting thereafter. Operations under the new agreement will begin October 1, 2017; however, scheduling activities may begin in August Material provided to the Authority as part of a proposal shall become the property of the Authority and shall be handled and used by the Authority for any reasonable purpose. The respondent will be responsible for all costs associated with the preparation, submittal and clarification, if needed, of its proposal, without exception. All material, information and data submitted by the respondent may be provided to Authority customers and others as part of the review process. This RFP creates no obligation upon the Authority nor does it require or obligate the Authority to select any proposal, or limit the Authority's right to reject any and all proposals in its sole and exclusive discretion. The Authority reserves the right to withdraw and terminate this RFP any time prior to execution of agreements. 16