Randy Manion:           Good morning or good afternoon, wherever you may be. And welcome to the eighth webinar of the 2017 DOE Travel Energy Webinar Series. Today's webinar Fundamentals of Organized Energy Markets for Tribes. I'm Randy Manion, today's webinar chair and manager of Western Area Power Administration Renewal Resource Program. Let's go over some event details before we get started.

Today's webinar is being recorded and will be made available on DOE's Office of Indian Energy Police and Programs website along with copies of today's PowerPoint presentation. About one week. Everyone will receive a post-webinar email with the link to the page where the slides and recording will be located.

Because we are recording this webinar, all phones have been muted for this purpose and we'll change things up a bit today with questions. You can still submit your written questions by clicking on the webinar question button and typing your question. And we'll get to your written questions at the end of the webinar. But we're also going to pause periodically throughout the webinar today to answer any questions. And our speaker, Al Austin, will indicate those period when we will pause for questions throughout the webinar.

So we'll try to keep the webinar to no more than two hours. And let's get started with opening remarks from Lizana Pierce. Ms. Pierce is a senior engineering and deployment supervisor in the Office of Indian Energy Policy and Programs. She is stationed in Golden, Colorado. Lizana's responsible for managing technical assistance, services, implementing national funding, financing programs and administrating the results in tribal energy product grants and agreements. She has more than 20 years of experience in project development and management. And has been assisting tribes in developing their energy resources for the las 18 years. She holds a bachelor's of science degree in mechanical engineering from Colorado State University. And pursued a master's in business administration through the University of Northern Colorado. And Lizana, the virtual floor is now yours.

Lizana Pierce:            Thank you, Randy. And hello everyone. I join Randy in welcoming you to the eighth webinar of the 2017 series. This webinar series is sponsored by two US Department of Energy Organizations – the Office of Indian Energy and Programs or Office of Indian Energy for short and the Western Area Power Administration.

The Office of Indian Energy directs, fosters, coordinates and implements energy planning, education, management and programs that assist tribes with energy development, capacity building, energy infrastructure, energy costs and electrification on Indian lands and homes. To provide this assistance, our deployment program works with the department, cross-government agencies and with Indian tribes and organizations to help Indian tribes and Alaskan native villages overcome the barriers to energy development. Specifically, our deployment program is composed of a three-pronged approach consisting of financial assistance, technical assistance and education ad capacity building. And this particular tribal energy webinar series is just one example of our education and capacity building efforts.

The webinar series is part of the Office of Indian Energy's efforts to support fiscally responsible energy, business and economic development decision making. And information sharing among tribes. It's intended to provide attendees with information on tools and resources to develop and implement tribal energy plans, programs and projects, to highlight tribal energy case studies and to identify business strategies tribes can use to expand their energy options. And develop sustainable, local economies.

Today's webinar will deviate a bit from our typical format, as we have only one speaker who is tasked with covering a broad topic – organized energy markets and how these markets are relevant to tribes. Since the de-regulation of electricity industry in the late '90s, we have seen major changes in the advent of independent system operators, regional transmission organizations and organized energy markets. In this webinar, attendees will learn about power marketing administrations and energized energy markets and how the possible expansion of establishments such as the Southwest Power Pool and the California Independent System Operator and the Queso Energy Imbalance Market may create more opportunities for those looking to expand their energy opportunity resource options or to buy and sell energy resources specifically those on tribal lands.

We do hope this webinar series is useful and we welcome your feedback, so please let us know if there are ways we can make this series better. Specifically, after the webinar, you will be receiving an email for post-webinar feedback. We urge you to complete the form. Specifically, we'll address topics that you'd like to hear about for our 2018 series. The webinar series is put on for you and we'd like to ensure that we're meeting your needs. So, again, we welcome your feedback.

And with that, Randy, I'm going to pass it back, over to you.

Randy Marion:           Thank you, Lizana. And our speaker today is Al Austin. Mr. Austin is the lead energy management marketing specialist in Western Area Power Administration's Energy Management and Marketing office located in Phoenix, Arizona. He has worked in the energy market for the past 34 years and has spent time in both the public and private sectors. He spent the early part of his career working in the distribution wire side of the business but then shifted his focus to transmission generation and marketing side of the business where he has spent the last 20 years. One of his current responsibilities has been to keep abreast of the rapid changes that are occurring in the energy markets and to identify possible impacts to WAPA and its customers.

And Al, just give me a moment to get your slide deck pulled up. And, again, I want to reiterate to the audience that when Al breaks for questions, click the raise the hand icon and I'll see that your hand is raised. And I'll unmute you so you can ask your question directly to Al at that time. And then you can also type in written questions, and we'll get to the written questions at the end of the webinar.

So, Al, just give me a moment to get your deck up here. And we'll get going. Okay, Al, your slide deck is up and the virtual floor is yours.

Al Austin:                    Well great, thank you very much, Randy and Lizana. I appreciate the opportunity to spend the next couple hours talking about something that's near and dear to my heart. I guess, I don't know if it's near and dear. But it's certainly a part of my daily routine and function. And as Randy said, I've been tasked with trying to keep abreast what's going on in the energy industry. And there's really been quite a bit.

I don't now, really ­– this is a unique situation for me in terms of presentation. I'm normally used to presenting in front of a group where I can see who I'm speaking to, so this is a real challenge for me just looking at my phone. So be patient with me if I seem a little nervous. I'm usually pretty good in front of people but this is new for me.

But I really am honored by the opportunity to come and present to the tribes. And help educate. And provide information. And be a resource. It's something I really feel passionate about. And the energy business has really been, very, very, fascinating to me because it's changing.

And what I find, the longer I've been in the industry energy is something that has really become woven into the fabric of society. It's something that we really take for granted it's there. We depend on it all the time. And it's been fascinating to work in the industry because you find that so much of the industry is really just a mystery.

People have no concept about what really goes on behind the scenes. It's almost like walking down Main Street in Disney Land. Or any amusement park. You see the facade, but you have no idea what's going on behind the scenes. And the energy industry is really like that. Most people see some power poles, some wires. They maybe see their light switch. They just want things to turn on at the flip of a switch but they have no concept about what's really going on.

So my goal today is I really want to open people's eyes and help you to see a part of the initiative you're not familiar with. Or that you haven't really explored much because there really are a lot of changes that are occurring in the industry over the last few years that I think really can have and may have if not a direct, certainly an indirect impact on you as energy consumers.

As Randy said, though, I want this to be interactive. If there's information that's new to you, that's great. I don't anticipate being able to cover things in a great level of detail but I certainly want to give everyone an overview of some concepts so that you have some understanding of what energy markets are, how they work and what they do.

Before I do that, though, I want to take a few minutes and explain who WAPA is, who I work for and what we do. So if we could go to the next slide, I'll go ahead and share a couple of things about the agency I work for. As was said earlier, we are a federal agency. We work under the Department of Energy. Western Area Power Administration, or WAPA, was formed in 1977.

Prior to 1977, there'd been a number of dams along the various rivers in the West that had been built to reclaim water. And the Bureau of Reclamation and the Corps of Engineers were the federal agencies that owned and operated these dams. Now, most of these dams were built for water reclamation and to secure a long-term, stable supply of water. And for flood control and various other purposes. As an ancillary product, though, energy obviously can be produced and is produced off of a lot of these dams.

And in 1977 after the oil embargo and situations occurring in America, the DOE decided to form the Western Area Power Administration as an entity that would be charged with the responsibility of marketing and administering all of the energy produced off of these various federal hydro-dam projects. And so that's how Western really got its start. Next slide.

So WAPA is one of four power marketing administrations that are under the Department of Energy. You've got BPA up in the Northwest, Southwestern Power Administration, Southeastern Power Administration and then Western Area Power. Next slide, please.

So our service territory covers 15 western states and we're divided up into four regional offices. We're responsible for the marketing and delivering of energy off of 56 various hydro plants that range in size from one or two megawatts all the way up to a couple of thousand megawatts. So we have a varied portfolio of generation assets that we're responsible for. We have over 10,000 megawatts of installed capacity. And many of these federal projects were also built along with transmission lines to deliver that energy to our preference customers. So we also operate, manage and maintain over 17,000 miles of high-voltage transmission lines in the west. Next slide, please.

Our power comes from various  power plants that are located all over the west. The energy is produced at these dams that are owned by the Bureau of Reclamation or the Corps of Engineers. And we, by contract with the Bureau and the Corps, take the energy off those dams. And are responsible for the marketing and delivering of that energy. And the maintenance and operation of the associated transmission system.

These projects were multi-use projects. Water really rules the river. And so, we constantly coordinate with the Bureau of Reclamation in terms of water releases. And, as you release water, it affects how much energy is produced off the dams, so there's a real balance and coordination to that. Next slide.

Interestingly enough, WAPA's various hydro resources are broken up by project. As these various dams in the west were built, they were built at various times obviously. And so when they were built, a lot of times they were built with transmission systems at the same times the dams were built. And so, they were grouped together by projects. And these projects are marketed on a project-specific basis. Marketing meaning the rules that say the criteria for selling the energy and then who that energy is going to be sold to. And in what amounts. All of those decisions are laid out in marketing plans, which are developed through a public process.

And this map here shows you all of the various federal hydro projects that we manage, in the West. When we say how the power is sold, some of the power can be bundled together. And, in some of our projects, the energy recipient pays what we call a bundled rate. So they pay a certain amount for the energy they receive. And, in fact, what's included in that bundled rate is the energy produced at the dam and everything is included, like shipping and handling. We move it down the transmission path, deliver it to their doorstep and they usually take it into their system. And it runs across somebody else's system and ends up at their loads. But we deliver it to them in a bundle product. Now there's also different products that we also deliver.

So some of our federal hydro energy is what we call capacity contingent, or unit contingent. And what that means is that the customers who have a contract with us to receive that energy can take that energy as long as the units or the generators are producing energy or there's enough water to run through that dam and produce the energy. And so, the amount that they get is contingent on hydrology and whether or not the units are available.

In other projects, the federal hydro energy has actually been marketed and there is not contingency on whether the units are there or not. It's just been marketed as what we call a firm product. And so, the federal government has a firm obligation to deliver to those customers whether the hydro dams or the hydrology supports that or not. And so what we do is we will make those deliveries and we'll generate as much as we can with the dams. But if there is insufficient energy to deliver and meet our obligations, then we will turn around. And we will supplement that energy so we can support those deliveries through the market. And we will make purchases. Or we will shuffle things around to assure that we can keep our delivery obligations to our customers.

And so you can see by that that there's different products sold. Some are contingent on a unit. Some we hold the obligation to deliver. And whether a resource is there or not, we still have that obligation. And that's what we do. And that happens all over the power industry.

So another point to make on these hydro projects is that these allocations that we give to federal customers are not intended to cover their entire load. Okay? It was never intended that anyone should be able to cover their entire load with federal hydro. But that it should be there to supplement their energy needs. Next slide.

As Randy said, I work for the energy managing marketing office located in the desert southwest region here in Phoenix, Arizona. What we do is we provide additional services to many of the preference customers that receive federal hydro allocations. And this is a list of a lot of the ancillary or some of the services that we provide to many of our customers, above and beyond the services we provide by simply generating transmission and delivering their federal hydropower to them.

A lot of our customers, as I stated, their federal hydro allocations are not large enough to cover their entire load or demand. And so a lot of our customers have a need to make supplemental energy purchases or to procure energy to serve their loads. And so they've come to us to facilitate the procurement of the supplemental energy to make those supplemental energy procurements. We also provide a contract negotiation services, we schedule energy which is something anyone who operates in the wholesale electricity market – you have to schedule energy. And we're going to talk about that. We do resource management and optimization.

We do demand forecasting. And we do demand forecasting on various horizons. For some customers, we are forecasting what their load is doing each hour. So we're doing it in real time. Or we're doing a load forecast for the next day. And, in some cases, we're doing forecasting for what we think their demand is going to be next summer, depending on what their needs are and what we're trying to accomplish for them.

We also develop market bidding strategies. Obviously, we're trying to provide them services where they can keep the cost to serve their load as low as possible. We do real-time monitoring and mitigation. We do planning on various time horizons.

What I'll say here is regardless of what your situation is in terms of an energy consumer, somebody out there is performing these services for you. And you're paying for it, whether it's in your rate, the per kilowatt hour. Your monthly bill. Somebody is doing this. It might be the utility that you're connected to. Or it might be that you're a tribal utility. And you're doing this. But some of it is done by somebody else. I don't know. But the reality is somebody out there in the industry has to be doing this kind of stuff in order for you to have a reliable constant available supply of energy. And you're paying for it. We all pay for it in various ways. So we're going to talk about that so you get an understanding of all the activities that have to go on in order for us to be able to turn on the lights and have the energy be there. And what role markets play.

Let's go to the next slide. As I said, the energy landscape is really, really changing. Some of these terms might be new to you. And I may very well be speaking a foreign language. And that's okay. But we're going to talk about some of these things.

I don't know where everyone's located and I'm sure there's people from all over the country. My experience, I have focused – my work has been in the west exclusively so everything from Texas west is what I've spent my entire career focusing on. And it happens to be the area in the country where there seems to be the most change occurring right now. Because you're going to see that the west has been very balkanized, it's very fragmented in the way the system is operated, the way we operate. And that's evolving. And so these energy markets are evolving. And the west is really focused on developing and changing the way they do business. And one of the things is the California Independent System Operator.

There's an energy market established in California. Most of the state, not all of the geographic state, is inside this organized, energy market. And that market opened up in the late '90s. And you probably remember the huge energy crisis in California back in 2001, 2002 where everything was going along for a couple years and then prices just exploded. And energy was super expensive. PGE went bankrupt and it was just an absolute disaster. And the state had to jump in. So there were a lot of lessons learned, but California has been running an energy market since the late '90s. And they've run it successfully through today.

What they've also done is implemented what we call an energy imbalance market. And the reason they've done that is because there's been such an influx of renewable generation. Wind, solar, which is variable. It's really impacted the way they operate their system. And so they see it as a mechanism through which people can more easily integrate variable generators into their physical utility systems more efficiently. And more cost effectively.

So we're going to see a map. And I'll talk to you a little bit about what the EIM is. But that's expanding. And we can see over the last three years that that market has really expanded quite a bit, outside of the state of California. So there's quite a few non-California utilities who have joined up this energy imbalance market.

California has also been working on expanding as an RTO, which is a regional transmission organization. And what they want to do is expand their RTO footprint so all of the transmission system is pulled together, under one umbrella. And it's operated as one big system. They feel it's more coordinated. There's a lot of benefits to that. So that's going on.

What we've also seen recently is that there are utilities in the Rocky Mountain region who are currently in negotiations with the Southwest Power Pool, which is another regional market that is located in the Midwest – North Texas up through the Midwest there. And these utilities are now in negotiation with the Southwest Power Pool. And are strongly considering possible membership in the Southwest Power Pool.

Included in these groups would be two of our federal projects. There's two co-ops, two independently – investor-owned utilities. And a couple municipalities. So there's this group in the Mountain West area in negotiations right now to join.

And then you've got utilities in the Southwest that have formed a group to explore possible market participation. Out in California, you've got Community Choice Aggregation which is expanding. And it's actually expanding in other states, as well. And Community Choice Aggregation is interesting because what it allows is it's a law that's in six, seven different states which allows cities and municipalities and certain types of districts to go out and actually procure energy on their own rather than the incumbent utility and being subject to the incumbent utility.

And so, they're able to go out and procure and have control over what types of energy are used to serve their load. And what's driven those is not only price but having a control as to what type of energy, whether it's renewable, solar, geothermal. And so, as those issues have become brought forth, there's a lot more interest in controlling what type of energy people consume.

And so, these Communities Choice Aggregation groups have provided that option to customers. So they'll come in and a customer can either join in with the group. If the city joins the aggregated group, each customer can either opt in or opt out. But the city is free to go out and aggregate all of that load. And go out and procure and control the mix of energy used to serve that load. And the incumbent utility has to step aside and facilitate that. So that's a huge deal. Next slide, please.

More excitement in Las Vegas. Over the last couple years, there are some large casinos in the Las Vegas area that have filed petitions because they didn't have control over their power mix and supply. And because they felt like they weren't getting as good a rate as they could and should. They filed petitions with the Nevada Public Utilities Commissions to go out and serve their own load. And procure their own energy. And as a result of these petitions, NV Energy, the incumbent utility, came back to the casinos and said, "Okay, that's fine. We'll allow you to do that. But we're going to charge you an exit fee."

And they said, "Look, we've invested millions in dollars. As the utility, I've had to plan and create these long-term plans. And invest millions of dollars in infrastructure. And wires. And generators because I've assumed your load is going to be there. And I'm the one that's responsible to serve your load anyway. And I'm the provider of last resort. And so, I've had to invest this money. If you just turn around and leave, then I'm left holding the bag." And their concern is that the cost of those investments would then get shifted over to their remaining rate payers.

And so, the public utility commission agreed with the energy company. And let me just share with you some numbers. The Sands Resort – these are folks that have already said, "We're out. We're going to control our own destiny. We're going to get energy on our own because we want it cleaner. We have different views about what kind of mix. Plus, we want to control our supply." The Sands Resorts is paying NV Energy $24 million to leave. Wynn Resorts is paying $16 million. The Peppermill Resorts in Reno, Nevada is paying $3.3 and the MGM Grand is paying $86.9 million – just to leave. That's the exit fee.

What you can see here is those numbers are just huge. But why? It's because they want choice, because they feel like, "I want to control my own destiny and I want a say as to what kind of energy I'm going to consume." And so that's going on. The process for developing net metering rates has become very contentious. Net metering – very interesting.

Now, what's going on in the net metering arena is if I'm a residential customer or industrial customer, I come in and I put some solar panels on my roof. What these net metering policies say is, "If you think about it, you put a solar panel on your roof. You're now self-providing instead of utility because the solar panel is on your side of the meter. So whatever you generate on your side of the meter is energy you don't have to take from the utility. And that's great, makes a lot of sense."

What's happened though is the net metering policy says, "If you produce more energy with your solar panels than you consume at whatever facility you're at we will take whatever excess energy we produce and we will pull it into our system and use it for everyone else. And we will compensate you for that excess energy."

And these net metering policies – initially, the utilities were like, "We'll just pay you at the retail rate." So whatever you were paying us for retail, we'll pay you back. Well, that was a great deal so people started throwing solar panels on the roof like gangbusters. Finally, the utility said, "Whoa, retail rate? That's shifting a bunch of costs. If I'm paying toy back for me not producing, then I'm shifting a bunch of costs onto the other customer who don't have solar."

And so that became the issue. Why should I pay you full retail rate because, embedded in those retail charges are a bunch of costs for ancillary services that I have to absorb to maintain the wires, do all the maintenance and all these services so if your solar panel breaks, you're going to have energy. Everyone wants it right there. And so the utilities came back and said, "It's not fair for me to pay you full retail rate." So they came back and said, "I'm going to pay you some sort of reduced rate." That's where the contention arose.

These net metering policies are controlled on a state by state basis, depending on the public utility commission and what the structure is. It's been a hot issue, as you can well imagine. And each of those rate structures is controlled as well by the utility. So if it's an investor on the utility, then it's subject to a public utility commission. If it's a co-op or a public power, then it's different.

That's a huge issue. And the last one I'm going to say is as a result of the increase in solar and wind generation, California, the Kaisos, experienced over-generation during certain hours of the day. And as a result, has had to pay utilities to balance their system, which is just crazy. It's a real phenomenon occurring over the last couple years as a result of shifts in people's demand for the type of energy that they want. And as you put all these variable generators onto the system – when the wind doesn't blow and the sun doesn't shine, those generators back off. And the utilities system operators have to have enough capability or capacity online to make up for those short falls when it goes away.

During hours when the sun is shining bright, we have seen over the last couple years that there hasn't been enough demand inside the state of California for all that generation that's online. And so, California has had to export energy outside of their market footprint. And as a result, the price of that has actually been $0. They've given it away. There's hours when they've had to pay people to take the energy because they have to balance al their demands with their supply from an operational perspective.

There have been hours when they've been exporting energy and paying people to take it. It sounds crazy, but that's what's going on. It's not the norm but it's really occurring. So why do I bring all this stuff up? Next slide, please. You might even be asking yourself, "Yeah, that's interesting, but really, what does it mean to me?"

It really depends. That depends on where you fit in the energy supply chain. All of those things I talked about may or may not impact. And as I said earlier, some of that may impact you directly. And a lot of it may have an indirect impact. But it's good to understand what's going on. And it's imperative for you to understand where you fit into the energy supply chain because you need to know where you fit into the supply chain, understand what the forces are at play and whether or not who you're depending on and who you need. And if you have anything to supply someone else. Do you have something you can offer someone? Or do they have something you need?

We're all consumers of some sort. Somebody is providing the energy that is being delivered to your system whether it's residential, commercial buildings. But there's some questions you have to ask yourself. Do you have any rooftop solar? Do you self-supply? Are you a travel utility? Maybe you've taken control and you are running a utility. And it's your responsibility to operate and maintain the wires. And you're already out there, in the wholesale. Maybe you've got some generation. Do you have a co-gen unit?

There's a lot of co-gen out there where somebody has a manufacturing process and as a byproduct they're actually taking that heat and transferring it into electricity through a generation process as a byproduct of some manufacturing process. You may have some of that, whether it's pulp burning or whatever.

Do you take transmission service from someone? Energy is produced in one place but it's consumed somewhere else. And it has to flow along the transmission system. And somebody has to provide that service to you. Is your load residential, commercial, industrial? Is it highly concentrated or fragmented and dispersed? Next slide.

You also have to ask yourself what are your energy goals? Are you trying to be a more responsible or informed consumer? Do you want to maintain? Are you concerned about long-term price stability? Do you have an interest in ensuring a long-term supply? Do you want to be more environmentally conscious or are you looking to generate revenue and jobs? Are you looking to create economic opportunities? Or are there other things you're interested in?

If you don't have answers or well-defined goals, my suggestion is you need to develop a plan because in order for you to accomplish anything, you have to know where you fit in the energy business, what you're trying to accomplish. And then when you understand where you fit, what you need, what you can offer and what you're trying to accomplish, then you can do something. But if you don't have a plan, that's the first step. Develop an energy plan. Part of that plan development requires you understand the supply chain.

Let's take a break. Does anyone have any questions of anything I've talked about up to this point?

Randy Marion:           Let me review this list here. If you have a question, click the raise your hand icon and I'll unmute you. If you did not enter your audio pin, I won't be able to unmute you. Doesn't look like any raised hands right now, Al.

Al Austin:                    Okay. What I wanted to talk about today, I put together this agenda. I want to present to you and outline what the energy supply chain looks like and where you fit in. I want to talk about energy availability and affordability. And these are two forces that really affect market. We'll talk about the bilateral market versus an organized market. And the bilateral market is really what's going on today out west. Then we're going to talk about what this means for you guys and what opportunities there might be for tribes. And then where you can go to get some help. Next slide.

If you're talking about energy, energy has its challenges. It's a unique animal. Here are a couple things I wanted to share with you so you can appreciate the challenges. This plays into the situation with markets. Electricity requires a physical path to move from one place to another. There really is no wireless electric network. It's not like your phones. It requires a physical path. It's like a water system. You got to have a pipe system to deliver water or put it in a truck and truck it somewhere. Up until recently, you haven't been able to store electricity. At least on any large scale.

Now, obviously batteries have been around for a long time. But storing electricity on a large enough scale to utilize it on a utilities scale has really been impossible just up until the last few years. That is one of the emerging technologies right now. And there's a lot of focus on battery storage. But by and large, the storage just hasn't been there.

The physics of electricity require constant balance between supply and demand. Or bad things can happen. In understanding and looking at electrical systems, it's imperative to understand that you always have to balance the supply with the demand. It's a law of physics. I produce electricity but I have to have enough load there to consume that. If your supply or amount you're producing gets out of balance with the amount you're consuming, then bad things can happen. The frequency can get off. There's people out there every single second of the day who are monitoring the system to make sure that things are kept in balance so that when you turn the lights on, your energy is there.

If things really get out of balance, things will start to shut down. There's protective equipment on transmission lines that sense when things are getting out of hand. And if they do get out of hand, then they will automatically shut down certain elements in the grid just to protect the grid. Reliability is a huge deal.

Note that producing electricity and the necessary producing infrastructure is a capital intense effort. Producing electricity, building a power plant, building the transmission lines and delivering electricity to load centers is not a cheap undertaking. There's billions of dollars of capital invested. And is invested annually into production and the expansion of transmission system. And the production of new facilities. It is a capital-intensive effort. Historically, utilities – if you're a utility or a player or participant in that system, you're talking about big money. If I'm going to invest billions of dollars, I want insurance that I'm going to be able to re-coop those costs.

The industry has been very regulated and up until the last 10 or 15 years, it's been monopolistic. You've got a utility that's got a well-defined service territory. And they supply. And they've got a captive audience.

Let's talk about the power grid. You've seen these components. I don't know if you've taken notice or not but this is a simplified view of the power grid. A hydro-electric dam. Energy is produced at a power plant. The energy coming out of the power plant goes into a switch yard. And the voltage on it gets stepped up to a high voltage. And that high voltage is what pushes and provides the pressure to move that electricity down these transmission lines. And of these large transmission towers you see going across country or between cities where the energy being pushed from a generator somewhere. And then it's being brought into an area where it's consumed. So you've got the generation, a transmission line and then you get to some sort of urban area. And the voltage then is stepped down. And distributed across these wires to residences, small businesses, industrial customers and the like. From production to consumption, you can see the grid here.

The power grid is similar to our roadways. The high voltage transmission system is like our interstate highway system. The city distribution system is like our city streets. In order for me to move across states, I got to get on the highway, drive across states, be where I need to be. And in order for me to get to that house or that factory, I have to get off the highway system and take a route, along the distribution system, to arrive at my destination. The transmission system is much like our interstate system.

With electricity, though, I can't control where the electrons go. Electrons are produced, pushed out, into the grid. And electricity is going to take the avenue of least resistance. Next slide, please.

There's four components into the supply chain. The supply side, or the generation. The transmission system, which is the roadway or delivery system. The distribution is the lower voltage and typically occurs in urban areas. And the loader demand is where the energy is actually consumed. Next slide please.

There's two demands that affect that supply chain – reliability and economics. Reliability is the demand for a reliable, safe and constant supply of electricity all at the flip of a switch. When I flip a switch, I want the power to be there and I don't want it to be gone. I need it there. That's why hospitals have backup systems. Electricity has become so critical to our way of life that people expect a constant supply at all times and they get very upset when it's not. In some cases, the results of electricity not being there can be catastrophic.

There's a demand for affordable least-cost products and services. While I want that energy all the time, available to be 100% of the time, I want it inexpensively. I want the lowest-cost product possible. There's an inverse relationship with these two demands and they're constantly fighting with each other. Low-cost versus reliability. It's very difficult to strike the balance between maintaining a reliable system at a reliable, low cost. But those are not the only two forces. There are other forces that impact the supply chain but these are the two I want you to focus on.

Let's take a look at reliability. The North American Electric Reliability Organization, or NERC, is the organization whose primary focus is reliability of the grid. NERC was formed after the Northeast blackout back in 1965. What NERC was formed to do was to take a look at reliability and to establish mechanisms and a structure so these blackouts wouldn't occur. To increase reliability.

The way NERC approached it was the first developed a functional model. They said, "We have what we call this bulk electric system. The grid." They divided up the grid into a functional model that defines all the roles and tasks that have to be performed to ensure the reliable functions of the grid. They also developed and maintain a set of reliability standards that establish how the grid needs to be operated. NERC has developed these standards that anyone that has anything to do with the grid has to adhere to. If you don't NERC can levy sanctions against you for noncompliance. There are monetary sanctions that can be levied against you if you don't comply with these reliability standards NERC has established. How do they do that? Let's take a look.

NERC also formed regional reliability organizations. And what these organizations are there for are they are responsible for compliance monitoring and enforcement. So they ensure that the utilities and grid operators in these various regions are compliant with NERC standards. If they find that they're not, they report that to NERC who, in turn, can levy sanctions. The way these organizations monitor performance is they perform regular audits. They maintain a model of the electric system for planning activities.

They coordinate the planning activities in their region. And they also develop region-specific standards because the grid, in certain parts of the country is different. There's certain characteristics about the grid that are unique in certain areas. And so, they've developed these standards unique to those areas. Next slide, please.

All right. One of the main components from a reliability perspective is what we call a balancing authority, or BA. The BA is the entity responsible for running a specific portion of the power grid. The BA is also responsible to maintain that balance I mentioned earlier between resources, supply and the loads or demand. They also manage energy flows between BAs and they also monitor the energy flows on transmission lines to assure that these lines don't get overloaded.

What'll happen is if you flow too much energy down a transmission line, that line will heat up. Think about it like this. Look at your light bulb. In an older style, incandescent bulb what happens is the electricity comes into a vacuum. There's a coil of wire. That wire heats up and that's what makes the light. The absence of oxygen in that incandescent lightbulb assures it doesn't burn up and you're able to replicate it. But the principal is it's no different. If you run too much energy down a high-voltage transmission line, the line will heat up, begin to sag and eventually it'll burn up.

One of the things these BA operators do is monitor flows on all their transmission lines to make sure the flows on those transmission paths are kept within standards. Or kept within reason. They must adhere to stringent reliability standards and then they assure ancillary services are in place. These ancillary services are services that the BAs have to provide to make sure the grid is operated reliably. An example is they have to keep what we call spinning reserves or operating reserves.

If I'm a balancing authority and I have a bunch of generators in my area, I have to balance my second bullets. I have to maintain balance between resources and loads. And what happens is, if I get too much resources and I'm producing too much electricity, I have to back something off. I have to either add load to the system to consume that electricity or I have to produce less. Or I have to send some somewhere else for somebody else to produce or to consume. On my system, I'm constantly maintaining that balance.

What happens is sometimes a generator will trip offline. Something will happen. A generator trips. The BA then has to quickly replace that electricity to maintain that balance. To do that there are NERC standards that say you have to keep so much energy in reserve in the event you have a catastrophic event because what happens if one generator trips offline and the BA is unable to replace that. And doesn't have enough reserves online. You can get cascading outages and things can really get out of hand. And you can get major outages. And that's something NERC just doesn't want. Next slide.

Out west, we've got 38 different BAs. And, again, forgive me. I know the west. My presentation focuses on the west. But it applies all the way across the country. This is what I know so forgive me if I'm a little biased. But out west, this is really where the action is happening if you will. All these various BAs are out here. You could look at it and say, "Well, that's also utility." If I'm looking down here, in Arizona, I know that SRP is Salt River Project and AZPS is Arizona Public Service. And TEPC is Tucson Electric Power Corporation. PNM over in New Mexico is Public Service of New Mexico. So these balancing authorities most often are also what we know as utilities.

These utilities have a part of the system or grid they're responsible for. And there's certain things they have to do. They have to make sure their portion of the grid they're responsible for operating is being operated according to NERC standards. That it's being operated reliably so bad things don't happen. Let's go to the next slide because I have a couple common utility functions.

What does it take to run a utility? What are some of the things that you do? If I'm a utility, what are some things I have to do? Maintain an adequate amount of resources to serve my demand obligations. I have to look at that not only for next hour or next day but I may also be looking out to say, "Hey, I've got to supply this load for the next 10 years." So I'm looking at all these various horizons and I have to plan so that I can maintain this adequate supply of resources not only for next hour but the next year, next 10 years. It's my responsibility to construct and maintain that distribution network. And this is the wire side of the business.

As a utility, I'm most likely a balancing authority, so I have to meet all of the NERC responsibility standards. I have to plan for future load growth. I have to plan for transmission services under a FERC filed tariff. We haven't talked about this, but if I own a transmission system – the electric utility business is very regulated. And one of the areas is the transmission system or the wires business. And the reason it's regulated is because FERC, or the Federal Energy Regulatory Commission, has said, "We want to provide people equal and fair access to the transmission system. Rather than have everyone put up –"

In the early days of the utility business, in the early 1900s when electricity was just starting out, people would come in and they would put wires into houses and stuff. And nobody wants three or four sets of wires coming into the same house. We don't want all that redundant wire hanging in our backyards and in our alleys. Or running across the country. We don't want a bunch of extra wires we don't need. What happened as a result of that, they said, "It's not very practical."

The utilities agreed and said, "You give us a dedicated service territory that we will maintain and, in return, we'll allow you to regulate us." The utility business really became a regulated business because you only have one person with the wires. But a lot of the high-voltage transmission system crossed state lines. And it's used by a number of different people. They're not entirely owned and operated or used by a single utility. They're shared.

They're very capital-intensive projects. A lot of these transmission lines are co-owned by multiple owners. But what FERC said is, "If you have any excess capacity on your transmission system, you have to make it available for other people to utilize. And you're able to charge a fair rate." What happens is people that own and operate transmission systems have to have a tariff filed with FERC that says, "Here's the rates that I'm going to charge with my transmission system." And they have to subject themselves to the FERC rules about how the transmission system is run.

Another thing you have to do if you're a utility is establish rates. And those rates have to be established through some sort of a regulated process. And that process is either going to be regulated by some sort of public utility commission, if you're an investor-run utility. But if you're a co-op or a GMP or a public power in some fashion, then you have some sort of a board. But somebody is looking at the rates. You're answerable to someone, whether it's a public utility commission or a co-op electric board. Or something like that. But generally, if you're a utility, you've got to go through a regulated rate process. These are things all the utilities have to take care of. Next slide.

All right. How do they? Let's take a look at how these utilities secure these reliable, low costs of energy. What do they have to do in order to assure that they can meet all these reliability standards, keep their customers happy, keep their systems running and make sure the electricity is there when needed? One thing they do is forecast their demand obligations.

And what that means is they have to forecast what their load is, anyone that's connected to their system. But they may have some obligations to some neighboring system that they export. They may be making wholesale energy deliveries to their neighbors. So that's a demand, an obligation, that the utility has. That export is no different than if that load was connected directly to their system because it's an obligation that that utility has. They have to forecast all their obligations.

Then what they do is they have to develop a day-ahead plan as to how they're going to meet their energy and ancillary services requirements. So they've got people looking every single day, developing plans for the next hour, for the next day, for the next week. They're always looking ahead and developing day-ahead plans as to how they're going to meet their energy and requirements. They have to then identify what resources they have available to meet the demand.

And those resources might be internal generators that they have. If I'm a utility, I may have a share of a new plant. I may have some hydro. I may have some solar and wind, some renewable generation resources. I may have some thermal, some natural gas units available to me. I have a portfolio. Depending on my service territory, most utilities have a portfolio of resources that they can then utilize to serve their demand.

The utilities are constantly looking ahead, saying, "I have to file a resource plan with the public utility commission to show that I have adequate resources on hand to make sure that the load is going to be served." These guys have gone out and they usually have a portfolio of generation products or assets that they can call on. But what they can also do is turn on one of their own generators and produce it themselves. Or they can say, "One of my neighbors has a less expensive generator than I do so rather than turning on my expensive generator, I'm going to go ahead and import some of my neighbor's generation because he's got cheap energy. And he's got some excess energy that he's willing to ship my way. And I can buy it from him."

That's where the market comes in. So I can either do imports of resources I might have outside of my BA, or I can go out on the market and make purchases to supplement, to make sure I can meet my demand for the next day. And what I'm going to do is economically dispatch my resources. I've got this portfolio of generators. I forecast my demand. I come up with a plan and then I say, "How am I going to meet that load on an hourly basis?"

They sit there and develop an economic dispatch where they commit their various resources to serve their load, because they have to go into the next day with a plan. And they have to know how they're going to meet their load.

Once you get into real time, they have to make adjustments in real time to account for any changes in demand or resources. I may forecast my load to be X, but something happens. And the weather changes. And it's a couple degrees hotter today than forecasted yesterday or a couple days before. My demand, people are consuming a lot more energy than I thought they would. Because I'm running a grid, I've got to balance my resources and my loads.

What they do is they have to adjust in real time for those changes to demand. And the way they do that is go to their pool of resources. And they can fire up a generator. They can ramp something up that maybe is already on. They can increase the output. Or they can go out and make a purchase. And procure energy in the market  to cover their demand for that next hour. Next slide.

These are all things utilities have to do on an ongoing basis to balance and make sure they have that balance between loads and resources. One of the things utilities do, back in the late '90s –Lizana said in her opening –the utility business, up until that point, was pretty much a monopoly. But what they decided to do was, "Hey, let's de-regulate." And they de-regulated the supply side, the generation supply side.

They opened it up and they said, "You can generate electricity and you can be an independent generator." But they didn't want to de-regulate the wires piece. The transmission and distribution. When we say de-regulation, what really happened was the supply side got de-regulated so various suppliers can go out there and produce electricity. The way they sell it is they can sell it through contracts to people who need to consume it. And a lot of the consumers are utilities, people that have a system, people that have obligations. And that sort of thing.

What we operate in, out here in the west, is what we call a bilateral market and it's different than these organized markets we're going to be talking about in a few minutes. What the bilateral markets do is these fragmented utilities, or balancing authorities' utilities, constantly compare these wholesale market prices relative to their own production cost. And then what they do is buy and sell accordingly. These bilateral markets are typically – there are various time horizons.

We trade in the forward market. I could go out and may be procuring energy for next summer. There's a market that trades daily for next year. There's a market that trades every day for the next day. And then there's a real-time market that every hour somebody is trading for the next hour or two. Or any hours in advance. These bilateral transactions are occurring in real time on an hourly basis, a day-ahead basis and looking out ahead in what we call a forward transaction.

Each of these transactions are priced at a dollar per megawatt hour. What that means is I will pay you a certain dollar amount for one megawatt of electricity produced and delivered for one hour's worth of time. The bilateral market is typically a full hour. We've gotten to the point where people will transact on sub-hourly volumes. And we're able to actually purchase energy for 30 minutes, at the half-hour mark, for the remaining second half of an hour. But there's just really not a lot of activity.

These bilateral markets are typically between two people. Their time horizons are forward, day ahead, real time. They're priced at dollars per megawatt hour. They're very limited sub-hourly volumes, it's typically full hours. And, on a day-ahead basis, you typically will buy X amount of megawatts for a number of hours in a row.

Now the contracts, once I agree to purchase or to sell, those contracts are agreements to buy and sell are settled directly between the two counter parties. If I'm a balancing authority or a utility and my neighbor has energy that's cheaper than what I can produce it for, then I get on the phone and I can call him or communicate with him on a day-ahead basis and say, "Hey, I'm looking to buy. Do you have anything to sell for tomorrow?" And they'll say, "Yeah, I can sell you X megawatts at this price and here's when I can deliver it to you."

And if the price is less than what you can produce it, then it's probably in your interest to go out. Those transactions occur all the time because utilities will have generators online with excess capacity. And they're like, "If I can get a certain price for it, then I will produce it. And I will make a profit on it."

Me, as a consumer, if I'm buying and I have a fleet of generators, if the wholesale market is cheaper than what my next most expensive unit is, and my load is heading up, rather than generate it myself, I'll go ahead and buy it from someone else. And let them product it at a lower cost. And import the electricity into my system.

Liquidity can be limited, depending on where you're at. These bilateral markets have been around since the late '90s when the industry got de-regulated. Prior to that, you would have a reliability dispatcher sitting there at a 24-hour desk who was dispatching generation. He watched his load go up and down. And he would be turning on units. And putting units off to make sure that he could balance his loads and resources.

And he would pick up the phone and call some dispatcher at their neighboring utility and say, "Hey, can you send me some energy for next hour or next couple hours? My load is really climbing. Can you send me some energy?" "Yeah, let's do it." And so you had reliability people actually trading. Buying and selling. And that got separated so the marketing and merchant function got shifted, carved out and separated from the reliability function. That's what FERC did as part of de-regulation is they separated that market activity from anything to do with the market transmission because the transmission remains regulated.

And their focus is they didn't want any of those market activities for anyone who had access to transmission information to have an unfair advantage over somebody that didn't have information. So they separated it by statute so that whoever's doing merchant functions is buying and selling can't be working with anything to do with the transmission system. So that was part of that de-regulation.

But these bilateral markets are out there. We are in the markets every single day. All right, next slide. They've been working pretty well. This is just a graphic to see when your utility bills a supply plan, this is kind of what they're doing. You've got your load here as the purple arc. It's just a representation. You've got this arc. Anything below the arc represents load that you have to serve.

And so you've got your load in megawatts on the y-axis. And then time, in hours, on the x-axis. Anyone putting together a plan, whether it's next hour or next day, next year, they're going to be doing some sort of a forecast of what the demand looks like. And then they have to account, "How am I going to meet that demand?"

Often times, they'll commit resources down here and something in that red zone – when we say base load, maybe someone has a nuclear plant that they're an owner of or part owner of. Well, nuclear plants don't operate well being turned on and turned off. They're designed to start up and run non-stop. That's what we call base load. Coal plants in base load. There are certain types of generation that just run really, really well and they're most efficient when they're loaded. Those are what we call base load resources.

You may commit your base load resources to cover a bulk, chunkier load. And then, as you get closer to the peaks and stuff, you may be turning on other resources that maybe might be more expensive but may be more flexible. And that's where you'd be making those kinds of decisions to say do I generate it myself or can I go out, into the market, and make a purchase? Can I go out and buy? And have that energy imported. And import that energy cheaper than what I can produce it myself.

This is just a graphic depicting that activity going on constantly is trying to fit to meet and balance loads and resources. Next slide.

Once you've developed your plan, we operate in the bilateral market. What's happened in the west, going way back one of the big things that's currently happening is that the problem with working in the bilateral market and living in this fragmented – remember the slide where there's 38 separate utilities? Some of the challenges with living in that balkanized, fragmented world is the balancing of fragmented resources oftentimes isn't very efficient.

The market only supports hourly transactions, generally. I may transact and make some adjustments and import some energy. But I don't get to adjust it until the next hour. What happens is the different – why these centralized markets have really picked up is because what the centralized markets do is they say, "It's not efficient to serve all of this load with only the resources that are in a single balancing authority." The organized, centralized market is a more efficient way of dispatching and providing the people who are there to serve load access to the least-cost suppliers of generation.

What I've put together here is a comparison of what the bilateral and central markets do. Let's go down the list here. I've explained that in bilateral markets, one party sells to another. It's like buying a car.

I go out there and I know what I want. Excuse me. I make some inquiries. I find somebody willing to sell me what I want. And I go ahead and consummate the deal with that particular counter party. We make arrangements. We have contractual terms we've already pre-arranged with. And then we go ahead and we schedule that import of the energy. After the day is done, we come back and we have to settle. And figure out what actually happened. And then money is exchanged. But it happens bilaterally between me and somebody else.

What we do at WAPA is we're primarily purchasers because we're serving load. We're not a big supplier. We're a consumer. We have our federal hydro that supplies all of our hydro customers, but a lot of our other customers who have those supplemental energy needs, we're out buying or facilitating them purchasing energy. So we go out, make a purchase and then we help them with the settling. And we do all sorts of stuff that way.

The bilateral markets, they're hourly transactions. Often times, they're poorly matched to the increasing amounts of renewable generation. The bilateral markets occur in a fragmented operating footprints and result in a lot of capital inefficiencies. Capital and property inefficiencies. And you have little divisibility to the conditions of the neighboring systems. You really don't know what's going on. A lot of things and have effects on prices.

If I'm a utility selling energy, I just have some excess capacity and I've been selling along, I'm going to price it with a little bit of a mark-up. I'm obviously going to sell it for something over what my production cost is. But what happens if I lose a unit? One of my cheapest units trips offline because it has a mechanical problem. I now have to fire up more expensive units. What's that going to do to my sale price? I'm going to have to charge more because I now have to produce that energy with a more expensive resource.

As a buyer, I have no visibility of what's going on in anybody else's system or in terms of prices other than what I'm getting on the phone. And I'm making calls. And I'm finding out where the prices are at. And I'm talking about real time. A day ahead and forward, there are indexes. I can see where prices have been for previous days I've traded. But I have limited visibility.

Under a centralized market, what happens is the footprint broadens. And rather than having just on balancing authority, you take multiple BAs and you put them under one umbrella. And now what happens is those BAs, those utilities, ban together. And they are operated as one big system. And the centralized markets, what they do is they're operated by this market operator. And what happens is the centralized market operator forecasts a load for the entire footprint. And through the market structures, they are able to satisfy.

What they end up doing is they say, "Here's my load forecast of the next day or the next hour." And through the market, they procure energy from all of the generators who have offered in their capacity. Who have made offers and said, "I will produce. And this is my price." Under a centralized market, one construct to be aware of is if I'm a load, then I pay the market for the energy delivered to me.

If I'm a generator, I'm going to get paid for any energy I produce. If I'm a generator, I'm going to get a paid. If I'm a load, I'm going to pay. So all the generators offer their capacity and their generation into the market. And what the market does is it facilitates the matching up of energy offer prices with consumers. And it facilitates that. And it does it on a five-minute basis.

So every five-minutes, the market operator is constantly revising their forecast of what the load is over the market footprint. And then it's optimizing all of the generators and the resources within its footprint. And then, it's economically dispatching and issuing orders to the generators to go up or down depending on what they were awarded.

It's called a security constrained economic dispatch engine. And what they do is it sits there and it churns. And it comes up with a solution to most economically dispatched, all of the resources within the market footprint to cover the load in the market footprint. And it does that every five minutes.

And with larger footprints that have more resources, it's able to do that infinitely more efficiently than 38 individual BAs trying to do that with their own resources, limited to their own resources. The other thing it allows them to do is by broadening the footprint and having the market operator take a look at the system as a whole, it increases their situational awareness and their control of the system. And there truly are reliability benefits. They can see the system as a whole, not just their own independent BA area. They have a responsibility for a bigger footprint. Next slide.

I like this graphic because it depicts what I was just telling you about. How is a centralized market different than what I have now? Without a market, you've got these four BAs here and they need to balance their loads and resources within their borders. They can buy and sell throughout the bilateral market. They can import or export so they can balance through the bilateral market. But the limitations to the bilateral market is it will go down to hourly scheduling. Or possibly half hour. You're not able to respond quickly, you can only respond in 15 or 30 minute increments. It's not as responsive as an organized market.

It gives you a limited pool of resources. If I'm a BA down in Arizona and the cheapest resource for me is actually up in the Northwest because of their spring run-off, how do I get access to that energy? The way I do it today is I have to buy energy at a particular point. And somebody who brings that energy form the Northwest to Arizona has to pay the transmission charges of wheeling that energy across. And if they wheel across multiple transmission systems, they have to pay multiple transmission rates.

What does that do? It adds to the cost. So it's inefficient. And we get rate pancaking where you pay multiple transmission rates to move it over multiple systems. But under a market construct, all of that transmission system would be under one system. And you would pay one rate. It really eliminates a lot of the expense incurred on the shipping and handling of energy in a bilateral, fragmented world.

The BAs are not as flexible. We carry high levels of reserves because I have to keep enough reserves to keep me whole. Whereas, under a market, they've got a broader footprint to absorb that reserve obligation and so you have to carry fewer reserves as a whole because there's more resources available to absorb that resource obligation. There are certain economic inefficiencies outside of a market.

And there's increased cost to integrate wind and solar whereas, in a market, the market dispatches resources across the BAs to balance the energy. They're looking at it. The market looks at it as one entire BA, not multiple fragmented BAs, so it operates the system more efficiently. It gives them better situational awareness and control. You've got a broader, diverse pool of resources.

 It increases the flexibility because they have this security constrained economic dispatch engine that creates the dispatch and is constantly forecasting and looking ahead, they're able to do that on a five-minute basis so that as circumstances in the grid change – and they're always changing – the market is able to address or react to these changes within a five minute period as opposed to  30-minute period.

They're able to respond a lot quicker, more efficiently than you would as standalone balancing authorities. They carry decreased levels of reserves. It's more efficient economically. And it's easier to integrate renewable resources. Next slide.

What is an RTO? An RTO is a regional transmission organization. It's an independent operator who runs a generation system and operates generation resources. An RTO operates all the transmission but they don't own it. And they don't own any of the generation. They just operate it on behalf of the utilities. They maintain the wide area overview of the entire footprint. They operate and oversee a centralized market for energy and ancillary services. They do other stuff. They monitor the market. They perform transition planning. And those kinds of things. Next slide.

What's the difference between an RTO and the EIM, so the energy imbalance market? The California EIM has really exploded out west and there's a lot of entities outside of California that are participating in an EIM. But what is it?

An RTO is an energy and ancillary services market, so it produces and facilitates the exchange of energy to serve load and all of those ancillary services that are required by a BA operator to maintain that balance in the grid. An RTO market runs both day ahead and real time, so you've got two markets.

The RTO is responsible for all those NERC reliability functions, so they perform all those BA functions. And they're the ones that get audited and are responsible for all that. They do transmissions and operating planning. They administer the transmission tariff. And they balance the loads and resources across the entire footprint.

The EIM is a real-time balancing energy only market, meaning it's sub-hourly. The BAs are responsible for all of their own ancillary services and the BAs have to do whatever they do today. They operate the same way they do today and do everything they do day ahead and hour ahead. And all that. But the EIM allows them to balance their loads and resources within a given hour more efficiently on a five-minute basis. So it really just addresses that short time from of anything that's in what we call sub-hourly.

EIM is a real time sub-hourly balancing energy market. And it allows them to more efficiently balance their loads and resources in real time. It's been very successful. A lot of utilities have realized some pretty significant savings. And it's because they're able to balance their loads and resources not only utilizing their own resources, their BA resources. But they're now able to access all of these resources from other EIM participants across the western interconnection with other EIM participants in that sub-hourly balancing activity. It's really taken off. But there are some real differences. It's only real time, whereas the RTO is a lot bigger. There's a lot more going on there. Next slide.

These are the RTOs in North America today. You can see that you've got the California Independent System Operator in California. And then, really, pre-dominantly from the Midwest out East, everything is in an organized market with the exception of stuff in the Southeast. And then the West. These are all the RTOs or organized markets in the US. Let's go to the next slide. Let me show you what's going on out West.

Out West, there's some different initiatives going on. Number one, as I mentioned, you've got this energy imbalance market. But you can see here that there's a ton, a bunch of these utilities that either have joined and are an active participant or they have announced that they intend to join. And you can see them here. There's NV Energy and PacifiCorp joined the Cali RTO. And then the Arizona Public Service in Arizona. These are all EIM participants right now. Tucson Energy Northwest. But then you've got Idaho Power is planning on general. Portland General. Los Angeles Department of Water and Power. And Salt River Project here, in Phoenix. These are all entities that have announced – and Powerex up in Canada – has been announced that they also will be joining that real-time energy imbalance market. So that's happening today.

In the middle there, we've got what we call this Southwest Market Alternatives Group. And there's a small group of utilities in the Southwest that are looking at possible participation, some sort of organized market. They're starting to do study work and really looking at it. But they're a ways a way.

Out here, on the far right side of the slide, you've got the Mountain West Transmission Group footprint. As I noted earlier on in my presentation, what the Mountain West Transmission Group has announced is that they are in discussions or negotiations with the Southwest Power Pool. And to potentially join the Southwest Power Pool. Southwest Power Pool is an RTO, so all of these various utilities in the Mountain West Transmission Group then would turn their transmission systems over to the Southwest Power Pool for them to operate. They would turn over their balancing authority obligations and responsibilities. And then they would, in return, get access to all of the energy that's being offered in the marketplace. It would be a huge change. And they've done studies and determined that that's something that really provides long-term benefits for them. Next slide.

I know this is a lot of new information and I only have the last 10, 15 minutes. So I want to just mention I've given you a lot of information. Hopefully I haven't deluged you. But what are some of the options that you have, as a tribe, with all of this in mind? And we just touched on the surface with these various markets going on. It's a different way of doing business. What options do you have?

Number one I think is if you don't have an energy plan, develop one. Take some time to sit down and figure out, "Where do I fit in the supply chain? What services do I depend on somebody else to provide me? Am I able to provide somebody else some services?" Where do you fit? And then what's your plan?

Some of the other things that you can do is explore partnership opportunities with your host utility. Get to know your utility. You've got a relationship with them whether you like it or not because they're your wires company. If you're not a utility yourself, then you're taking those services. Somebody's providing them to you today. Somebody's reading your meters, maintaining your wires, delivering your electricity. Find out who they are, how they operate and are there opportunities that you could partner with them. What do they need? What could you supply them?

Maybe your energy plan is, "I just want to cut my energy consumption costs." All right. Maybe what you want to do then is you want to be a self-supplier. You could look at opportunities to maybe self-supply and reduce your dependency on your utility. Another thing tribes have done is form tribal utilities. There are utilities out there that are very successful. It's a big undertaking but it could really provide a lot of benefit.

Get to know where you fit in the supply chain and what that means. Engage with other tribes. There's a lot of tribes who've done some pretty cool things. There are tribes that have already formed utilities. There's tribes that are self-supplying. There's tribes that have done, hosted and built – have commercial utility scale renewable projects on their land. There is experience out there you can leverage.

There are not a lot of specifics because two hours, I didn't really have time to get too much – my goal here is to provide information to get you thinking about what's going on in the industry, to question where you fit and how you fit in to that supply chain. And then think about what you're trying to accomplish. and where you fit it.

And, if anything, I just want really to stimulate some questions in your minds. Things that you say, "I really don't understand where I fit. I need to figure that out." Or, "I didn't realize that I'm actually paying for some of these services. There's a lot more to this bill than what I'm paying. So maybe I need to figure this out. What am I really paying for? And what pieces of that do I have some control over?" Next slide, please.

I want to thank you for your time and I'd really like to open it up if anyone has any questions. I'll also say, though, my contact information is here. I've got a reference sheet on the next page. I've got a couple of references that are fairly general. But I've got my name and contact information if anyone has information or questions that they have – oh, there's a typo here. It's actually W-A-P-A.gov. I mistyped my own address, so forgive me for that.

Randy Manion:           We'll correct that.

Al Austin:                    Yeah. But does anyone have any questions or comments?

Randy Manion:           Let's see.

Al Austin:                    Is anyone still awake?

Randy Manion:           If folks want to ask Al a question directly, just raise your hand and I'll unmute you. And, Al, I think there may be a written question or two. So let's see here. Al, can you give a little more info on how tribes can utilize their WAPA hydro power allocations?

Al Austin:                    Well, yeah. Your federal hydro allocation is a super valuable asset. In order to utilize that, it really depends on where you are, who your utility is and where you're located, what your situation is. We would really have to – I'd want to talk to them specifically to get more information on a specific tribe. Where they're located, what utility they're in, who provides their wires and stuff.

But in general, one of the things that you want to do is if I'm looking ahead, to the next day, and I'm trying to figure out how I'm going to supply my load, I want to take my cheapest resource. And I want to utilize that hydro resource in those hours of the day that are most expensive because I want that hydro resource to displace more expensive resources that I ultimately may end up having to pay for.

So one way that you can get most value out of it is to how you schedule it. Which hours do you take your hydro? We have a lot of hydro customers that we provide these marketing services to. And what we do is we take their hydro allocation on a monthly basis. And we figure out. And we schedule it. And we determine which hours of the day we're going to go ahead and schedule it. And utilize it so we can get the most value.

Another thing is a lot of our tribes do benefit credit arrangements with other tribes by saying, "Hey, I may not need the energy here right now but I can lay it off." Or, "I can let another tribe utilize it. And I can get some benefit off it that way." So there's opportunities there. And then there's other tribes that have arrangements with their host utility to say, "I've got this wholesale hydro resource that I'm going to deliver to your doorstep. Can I displace some of my load – I want to serve some of my load with that hydro resource instead of paying your full retail rate."

Looking at opportunities to potentially utilize that federal hydro to displace some of your utility consumption. But that would require us getting more information and finding out where you're at. But that's a great question.

Randy Manion:           How do you present gaming in an organized market?

Al Austin:                    Each of the market operators is required by FERC to have a market monitor. And so what the market monitor's role is they are an independent entity that sits on the side. And looks at all of the transactions that occur in the market. And they're looking to see if anyone is exerting what they call market power. They want to make sure that people aren't over bidding or artificially inflating prices, that nobody is exerting market power. And so there are mechanisms in place to really look at that stuff.

To be honest, a lot of people say, "These markets are really free and open markets." And it's like, "No, they're very regulated." They're very, very regulated. There's people that monitor them all the time. It's kind of a misnomer. We think of free market as I'm going to go down to the farmer's market. And if I don't like the tomatoes here, I'm going to go over to this guy. And I can get them two cents cheaper. Or I like to look at this. And I just kind of walk over there and get them. Well, it's not that easy in the energy business.

You don't have that optionality of just kind of walking over and picking up from somebody else. But there are people that watch the markets to make sure that doesn't happen. And people have become very savvy to prevent that kind of stuff from happening because it has happened in the past.

Randy Manion:           If a tribe tries to move power out, onto the grid, are they subject to NERC?

Al Austin:                    It depends on – let's say there is a transmission line that runs across the tribal lands. One question to ask is who owns and operates that transmission line? Because that transmission line is the responsibility of someone. Someone has the responsibility of operating that transmission line because, under that NERC reliability model I talked about where they divided up the grid into all these functions, transmission operator is one of the functions. And there's reliability standards that you have to comply to.

And so, every transmission path in the grid sits in somebody's balancing authority. You don't have a transmission line just hanging out there in la la land. Somebody has a responsibility for it. So I would find out who owns the path, who owns capacity on that path. And so if somebody were to come in and I were to build a solar plant. And I wanted to interconnect to that transmission line, I'd have to find out who the transmission provider is, who operates it and then I would have to go in and request to interconnect to that system, to that transmission line.

And all the rules about applying to that transmission connection are laid out in that transmission provider's tariff, which is the contract or the agreement that FERC says everyone who is a transmission provider has to have. It lays out all that. So there's a process for that. Ultimately, would they be subject to NERC? It would depend. Is the tribe going to be the generator operator? Are they going to take on that role? Or is somebody else going to be the generator operator?

But that's something to consider because if I take a generator and I plop it down on a piece of land and interconnect it to the grid, and that now is a resource, that generator has to sit in somebody's control area, somebody's BA. Somebody has to be responsible for the running of that generator. And there are NERC standards that have to be adhered to.

So a lot of that might be from a tribal perspective, if somebody were coming in to say, "Hey, I want to put a solar plant on your land." Well, okay, that's fine. Some of the things to think about are what's your role? What does the tribe want to do? Do you want to be just the land holder and get lease revenue? Do you want to build and be a financial participant and the ownership of the actual plant or the generator? Who's going to operate it? Because there are costs associated with operating and maintaining it. And then there's costs to comply with standards and stuff.

So those are things that you need to be aware of so that you can see how that generator fits into the supply chain and all of the aspects that you need to consider. So you may or may not. It just depends on whether or not you take on that role of being a generator operator.

Randy Manion:           Last question. We're out of time – the hour. If a tribe has a merchant generator, renewable or conventional, how can they find a buyer for their energy in a bilateral market?

Al Austin:                    A lot of it is knowing where you're at, where you're physically connected to the grid, where are the closest energy trading hubs because energy gets traded at these common hubs. And those are physical locations, typically like a switchyard or a generator somewhere. And they get traded at those hubs. So where are you? What are the closest hubs? And if you want to know, you find out who the wholesale suppliers are.

You can put out an RFI, request for information or request for interest. There are ways to go out and find out – gauge what kind of interest there might be. We can assist in that. We're in the wholesale market quite a bit. And if we can't specifically, if there's a tribe that we're ultimately not familiar with, we can certainly give them suggestions on who to contact. But there's people out there that they could contact to say who potential consumers might be. It's typically an RFI process.

Randy Manion:           Excellent. Al, that was just a terrific presentation. I'm showing the slide here where you can download this recording and Al's slide deck. And that will be included in a follow-up email to you all after today's webinar.

Also, a Lizana mentioned, we're pulling together ideas for the 2018 webinar series and we want to find out how we've done in 2017 so you will be receiving an email from Penny Casey, who works for WAPA and the DOE Office of Indian Energy, with a brief webinar feedback form. So please fill out that feedback form.

We're very curious whether or not you want power industry related webinars like this one or renewable topics. Or topics on energy planning. Or topics on technology trends, et cetera. So please complete that feedback form. It will help us as we pull together ideas for next year's webinar.

And, again, thank you everyone for participating today. And we'll hopefully have you all on for next month's webinar. Thank you so much. Bye.
 

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