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  2. 2. Welcome <ul><li>Bob Reeping </li></ul><ul><ul><li>General Manager, Electric Supply </li></ul></ul><ul><li>Helen Taylor </li></ul><ul><ul><li>Specialist, Electric Supply </li></ul></ul><ul><ul><li>RFP Coordinator </li></ul></ul><ul><li>Frank Mossburg </li></ul><ul><ul><li>Boston Pacific </li></ul></ul><ul><ul><li>Independent Monitor / Technical Consultant </li></ul></ul>
  3. 3. GoToWebinar Attendee Interface 1. Viewer Window 2. Control Panel West Penn Power Company RFP Pennsylvania Default Service - Pre-bid Webinar 1:00 PM - 3:00 PM EDT Time: Wednesday, March 25, 2009 Date:
  4. 4. Conference Objectives <ul><li>Gain a better understanding of the context in which the Request for Proposal (“RFP”) is being conducted </li></ul><ul><li>Inform interested wholesale electric suppliers of the power supply process for West Penn Power </li></ul><ul><li>Review the bid structure </li></ul><ul><li>Review aspects of the Supply Master Agreement (“SMA”) which will govern the terms and conditions of all transactions resulting from the RFP </li></ul><ul><li>Answer questions on all of the above topics </li></ul>
  5. 5. Background <ul><li>In accordance with the Electricity Generation Customer Choice and Competition Act and with a series of Commission Orders extending a majority of West Penn Power’s (“WPP” or “Company”) generation rate caps, the Company’s generation rate caps are scheduled to expire on December 31, 2010 </li></ul><ul><li>In October 2007, in accordance with Commission regulations WPP filed with the Commission its Default Service and Competitive Procurement Plan (“DSP”) at Commission Docket P-00072342. The DSP contained the Company’s plans to procure generation service for its default service customers who do not subscribe for generation service from a third-party supplier </li></ul>
  6. 6. Background <ul><li>Approximately 16 parties participated in the proceeding </li></ul><ul><li>Hearings and briefing were conducted in the Spring of 2008 with the Commission entering its Order approving the DSP on July 25, 2008 </li></ul><ul><li>On September 23, 2008, WPP filed its compliance filing to update the DSP documents to comport with the Commission’s July 25 th Order </li></ul><ul><li>In January 2009 WPP filed updated RFP pages associated with the procurement schedule per the Commission’s December 22, 2008 Order </li></ul>
  7. 7. Background <ul><li>On February 6, 2009, WPP filed a request with the Commission to advance the initial procurement for residential service from June 2009 to April 2009 </li></ul><ul><li>At the March 12, 2009 Public Meeting, the Commission approved the Company’s request </li></ul><ul><li>On March 20, 2009 the Commission issued its Order </li></ul><ul><li>On March 23, 2009, WPP filed its updated compliance filing based upon the issuance of the Commission’s March 20 th Order </li></ul>
  8. 8. RFP – Supply Requirements Overview <ul><li>The RFP we will be discussing today is for the procurement of full requirements supply to serve WPP’s Pennsylvania default service customers for the 29-month term from January 1, 2011 through May 31, 2013 </li></ul><ul><li>The full requirements service herein will be made available to those retail customers who: </li></ul><ul><ul><li>Do not affirmatively select an alternative supplier; </li></ul></ul><ul><ul><li>Are unable to obtain service from an alternative supplier; or </li></ul></ul><ul><ul><li>Have contracted with an alternative supplier who fails to perform </li></ul></ul>
  9. 9. RFP – Supply Requirements Overview <ul><li>Full requirements service generally includes energy, capacity, ancillary services, losses and renewable portfolio requirements; excludes network transmission </li></ul><ul><li>Supplier’s obligation will be in terms of a fixed percentage for a specific service type of retail load </li></ul><ul><li>Wholesale supply will be at fixed prices based upon the awarded winning bids for the Base Load. The Incremental Load, if applicable, will be supplied by buyer at a variable price (PJM spot market). Base and Incremental loads are defined by Volume Risk Mitigation (VRM) mechanism (SMA 6.2) </li></ul>
  10. 10. RFP – Supply Requirements Overview <ul><li>Suppliers will have to qualify only once for this multi-procurement process, however if changes occur that materially affect supplier’s financial condition or its status with PJM or FERC, supplier is responsible for notifying WPP </li></ul><ul><ul><li>Credit ratings </li></ul></ul><ul><ul><li>PJM membership in good standing </li></ul></ul><ul><ul><li>FERC authorization for market based rates </li></ul></ul><ul><li>Suppliers are eligible to qualify throughout the multi-procurement process </li></ul>
  11. 11. RFP – Load Overview 1,139 Type 40 (Schedule 30 > or = 500kW demand, Schedules 40, 41, 44, 46, 86 & Tariff 37) 375 Type 30 (Schedule 30 < 500kW demand) 603 Type 20 (Schedules 20, 22, 23, 24 and Street Lighting Schedules 51, 52, 53, 54, 55, 56, 57, 58 & 71) 1,530 Type 10 (Schedule 10) Eligible PLC as of 3/4/09 Service Type
  12. 12. RFP – Load Overview 23     23           12-month 1/1/11-12/31/11 40                       1                 Spot   8 4 4             12-month 6/1/12 - 5/31/13   8     2 2 2 1 1 0 17-month 1/1/11 - 5/31/12 30                       1                 Spot   8 4 4             12-month 6/1/12 - 5/31/13   3     1 1 1 0 0 0 29-month 1/1/11 - 5/31/13   8     1 2 2 2 1 0 17-month 1/1/11 - 5/31/12 20                       6                 Spot   15 7 8             12-month 6/1/12 - 5/31/13   9     1 1 1 2 2 2 29-month 1/1/11 - 5/31/13   15     2 2 2 3 3 3 17-month 1/1/11 - 5/31/12 10 Total Apr-12 Jan-12 Oct-10 Jun-10 Jan-10 Oct-09 Jun-09 Apr-09 Term Type
  13. 13. RFP – Load Overview <ul><li>Service Type 10 </li></ul><ul><ul><li>50% 17 and 12-month agreements </li></ul></ul><ul><ul><li>30% 29-month agreements </li></ul></ul><ul><ul><li>20% spot </li></ul></ul><ul><ul><li>17-month term = 1/1/11 to 5/31/12 </li></ul></ul><ul><ul><li>12-month term = 6/1/12 to 5/31/13 </li></ul></ul>6 15 9 15 Block # 51 51 51 51 Block MW 3.33% 3.33% 3.33% 3.33% Block % 306 765 459 765 PLC Spot 12-Month 29-Month 17-Month
  14. 14. RFP – Load Overview <ul><li>Service Type 20 </li></ul><ul><ul><li>64% 17 and 12-month agreements </li></ul></ul><ul><ul><li>27% 29-month agreements </li></ul></ul><ul><ul><li>9% spot </li></ul></ul><ul><ul><li>17-month term = 1/1/11 to 5/31/12 </li></ul></ul><ul><ul><li>12-month term = 6/1/12 to 5/31/13 </li></ul></ul>1 8 3 8 Block # 54 48.25 54.33 48.25 Block MW 9% 8% 9% 8% Block % 54 386 163 386 PLC Spot 12-Month 29-Month 17-Month
  15. 15. RFP – Load Overview <ul><li>Service Type 30 </li></ul><ul><ul><li>88% 17 and 12-month agreements </li></ul></ul><ul><ul><li>12% spot </li></ul></ul><ul><ul><li>17-month term = 1/1/11 to 5/31/12 </li></ul></ul><ul><ul><li>12-month term = 6/1/12 to 5/31/13 </li></ul></ul>1 8 8 Block # 45 41.25 41.25 Block MW 12% 11% 11% Block % 45 330 330 PLC Spot 12-Month 17-Month
  16. 16. RFP – Load Overview <ul><li>Service Type 40 has approximately 1,139 MW of eligible load </li></ul><ul><li>ST40 customers are required to express an interest in the fixed price option prior to the solicitation (9/17/2010) </li></ul><ul><li>WPP will then conduct a single solicitation for the fixed price service (10/18/2010) </li></ul><ul><li>ST40 customers who expressed an interest in the fixed price option will be advised of the resulting price and given thirty-one (31) days after the PUC’s acceptance of the ST 40 bids to opt-in to the fixed price option for the term January 1, 2011 through December 31, 2011 </li></ul><ul><li>Customers that do not affirmatively elect the fixed price option shall receive hourly price service </li></ul>
  17. 17. RFP - Supplier Eligibility Criteria <ul><li>Submittal of the Expression of Interest Form </li></ul><ul><li>Execution of the Confidentiality Agreement </li></ul><ul><li>Submittal of PJM qualification and FERC authorization </li></ul><ul><ul><li>Qualified market buyer and seller in good standing with PJM </li></ul></ul><ul><ul><li>FERC authorization to make sales of energy, capacity and ancillary services at market based rates </li></ul></ul><ul><li>Submittal of Credit Application & related financial information </li></ul><ul><ul><li>For supplier or financial guarantor </li></ul></ul><ul><ul><li>Unsecured credit requires a rating of unsecured senior long-term debt by S&P, Moody’s or Fitch </li></ul></ul><ul><li>Submittal of Binding Bid Agreement </li></ul>
  18. 18. RFP - Eligibility Overview <ul><li>Confidentiality Agreement April 1 </li></ul><ul><li>Credit Application and financial information April 1 </li></ul><ul><li>Alternative Letter of Credit Form(s) April 1 </li></ul><ul><li>Alternative Form of Performance Assurance April 1 </li></ul><ul><li>PJM and FERC qualifications April 1 </li></ul><ul><li>Executed Binding Bid Agreement April 1 </li></ul><ul><li>Issue applicants' eligibility status April 8 </li></ul>
  19. 19. RFP - Bid Assurance Collateral <ul><li>$300,000 per bid block is required from the supplier with each bid </li></ul><ul><li>Form of collateral must be either cash or Letter of Credit (LC) </li></ul><ul><li>A Bid Assurance LC form acceptable to AP has been provided as Appendix 6 in the RFP </li></ul><ul><li>Bid assurance collateral will be returned to the supplier upon execution of contract(s) or rejection of bid(s) </li></ul><ul><li>Bid assurance collateral will be forfeited in the event that the supplier does not execute contract(s) on its awarded bid(s) </li></ul>
  20. 20. RFP - Alternate Forms of Bid Assurance Letter of Credit <ul><li>Suppliers that wish to propose an alternative Bid Assurance LC form or some other form of security may do so by the April 1 st eligibility requirements due date </li></ul><ul><li>Acceptance of such alternative forms of collateral is at AP’s discretion, and will be communicated to the supplier by the April 8 th eligibility notification due date </li></ul>
  21. 21. RFP - Bid Form Spreadsheets <ul><li>All bids must be submitted using the appropriate Bid Form Spreadsheet </li></ul><ul><li>Contained within the Bid Form Spreadsheet, and fully transparent to the supplier, is the transformation of the supplier’s price offer into a “Discounted Average Term Price” to be used as the only parameter to rank bids </li></ul><ul><li>All of the fields within the Bid Form Spreadsheet that require the supplier’s input must be completed in order for the bid to be conforming; e.g., if it is the supplier’s intent to submit a zero price for any component of the pricing structure, the supplier must enter the numeric value of zero, rather than leaving the field blank </li></ul>
  22. 22. RFP - Bid Submission & Validation <ul><li>Conforming Bids Must Be: </li></ul><ul><li>Submitted by the due date and due time </li></ul><ul><li>Accompanied by the appropriate amount of bid assurance collateral </li></ul><ul><li>Submitted using the Bid Form Spreadsheet(s), completed in full and without modification </li></ul><ul><li>Submitted by an eligible supplier </li></ul><ul><li>Submitted by fax to 724-830-7805 </li></ul><ul><ul><li>Electronic submissions by email are non-conforming </li></ul></ul><ul><ul><li>Faxes sent to other company machines are non-conforming </li></ul></ul>
  23. 23. RFP - Evaluation of Bids <ul><li>Discounted Average Term Price calculated on each Bid Form Spreadsheet will be the single parameter used to compare all offers </li></ul><ul><li>Each Service Type and term will be evaluated independently </li></ul><ul><li>Winning suppliers will be paid their offer prices, not the Discounted Average Term Price </li></ul>
  24. 24. RFP – Bid-Week Outline <ul><li>The typical bid week will look like the following: </li></ul><ul><ul><li>Monday: Bids due by 4:30 pm </li></ul></ul><ul><ul><li>Monday: Bids awarded by midnight (award as early as possible) </li></ul></ul><ul><ul><li>Tuesday: WPP forwards partially executed contracts to supplier </li></ul></ul><ul><ul><li>Wednesday: Supplier forwards fully executed contracts to WPP by 2:00 pm </li></ul></ul><ul><ul><li>Wednesday: WPP files executed contracts with PUC </li></ul></ul><ul><ul><li>Friday: Commission rules on contracts </li></ul></ul><ul><li>Bids expire the earlier of rejection notice or midnight of bid award day </li></ul><ul><li>Awarded transactions are contingent upon the Pennsylvania PUC and any necessary FERC approvals (SMA 16.13) </li></ul>
  25. 25. SMA - Transaction Confirmation <ul><li>One SMA will be executed under which multiple transactions can be executed </li></ul><ul><li>Should the SMA need to be updated during the procurement cycle the new SMA will be executed with winning bidders from that point forward </li></ul><ul><li>Prior executed SMAs will be unaffected by future SMA changes (prospective only) </li></ul><ul><li>Each awarded bid will be a transaction </li></ul>
  26. 26. SMA - Transaction Confirmation <ul><li>A transaction confirmation will specify, among other details, the following: </li></ul><ul><ul><li>delivery period </li></ul></ul><ul><ul><li>number of bid blocks </li></ul></ul><ul><ul><li>percentage of load equivalent to each bid block </li></ul></ul><ul><ul><li>monthly on-peak and off-peak energy quantities to be used in determining the MtM exposure </li></ul></ul>
  27. 27. SMA- Full Requirements Service Obligations <ul><li>Seller must provide all services (other than network transmission) to meet its share of the load obligation as accounted for by PJM </li></ul><ul><li>Seller’s obligations include, but are not limited to the following: </li></ul><ul><ul><li>Energy </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><ul><li>Transmission other than network transmission </li></ul></ul><ul><ul><li>Ancillary services </li></ul></ul><ul><ul><li>Renewable energy resource requirements </li></ul></ul><ul><ul><li>Transmission & distribution energy losses </li></ul></ul><ul><ul><li>Congestion management costs </li></ul></ul><ul><ul><li>New PJM charges, other than the Regional Transmission Expansion Plan (RTEP) and Transition Market Expansion Charges (TMEC) exceptions </li></ul></ul>
  28. 28. SMA - Full Requirements Service Obligations (continued) <ul><li>Buyer’s obligations include the following: </li></ul><ul><ul><li>Network integration transmission service </li></ul></ul><ul><ul><li>Future PJM charges assessed to network transmission customers for PJM-required transmission system enhancements pursuant to the PJM Regional Transmission Expansion Plan (RTEP) </li></ul></ul><ul><ul><li>Future PJM charges assessed to network transmission customers for the transition costs related to the elimination of through-and-out transmission rates (TMEC) </li></ul></ul><ul><ul><li>Distribution service </li></ul></ul>
  29. 29. SMA - PJM Declaration of Authority <ul><li>An agreement between Buyer and Seller for the benefit of PJM to appropriately account for the respective obligations contained within the SMA </li></ul><ul><li>Required by PJM </li></ul><ul><li>Executed by both Buyer and Seller at the time of SMA execution </li></ul><ul><li>Copy of Declaration has been provided as Exhibit I in the SMA </li></ul>
  30. 30. SMA - Scheduling & Forecasting <ul><li>Seller is responsible for all scheduling with PJM to meet the obligation </li></ul><ul><li>Seller is responsible for monthly settlements with PJM pertaining to their obligations </li></ul><ul><li>Buyer will provide to the Seller on a reasonable efforts basis: </li></ul><ul><ul><li>On each business day after execution, Buyer’s estimation of Seller’s capacity PLC for the seventh following day for each service type </li></ul></ul><ul><ul><li>On each business day of the delivery period, Buyer’s estimation of Seller’s energy and capacity obligation as is provided to PJM for settlement purposes for each service type </li></ul></ul>
  31. 31. SMA - Determination of Delivered Quantities <ul><li>All historical load profile data provided for this RFP is at the generation level, i.e. includes distribution and transmission losses, unadjusted for marginal losses </li></ul><ul><li>Daily load responsibilities will be determined at the generation level and posted on a day-ahead basis to our web-site respective to each awarded Supplier </li></ul><ul><li>WPP will pay Suppliers for load as quantified at the generation level </li></ul>
  32. 32. SMA - Billing and Settlement <ul><li>Buyer will develop and deliver the invoice to the Seller on or before the 6th business day of each month for load quantities delivered in the previous month </li></ul><ul><li>Buyer will pay Seller by electronic funds transfer by 12:00 p.m. on the day PJM settles </li></ul><ul><li>Seller is responsible for its settlements with PJM for its awarded load obligations </li></ul><ul><li>Should PJM change to weekly billings, as anticipated, the billing and payment provisions hereunder will be adjusted accordingly </li></ul>
  33. 33. SMA - Congestion Management <ul><li>Seller is responsible for all congestion management costs </li></ul><ul><li>Buyer will transfer to Seller its congestion revenue rights in proportion to the Seller’s share of the load, i.e., revenue rights will follow the load </li></ul><ul><li>The nominations for congestion revenue rights for the PJM planning year will be made by the entity recognized by PJM as having the right to make such nominations, i.e., the supplier who has the load obligation effective June 1, the first day of the planning period </li></ul>
  34. 34. SMA – Alternative Energy Portfolio Standard Obligation 6.2% 0.0510% 4.0% 6/1/2012 to 5/31/2013 6.2% 0.0325% 3.5% 6/1/2011 to 5/31/2012 6.2% 0.0203% 3.0% 1/1/2011 to 5/31/2011 Tier 2 Photovoltaic Tier 1 Compliance Period
  35. 35. SMA – Volumetric Risk Mechanism <ul><li>An “increment/decrement” concept to mitigate volume risk associated with customer migration: </li></ul><ul><ul><li>The Base Bid Block Size is established on the first day of power flow </li></ul></ul><ul><ul><li>Thresholds for the difference between the daily block size and Base Bid Block Size: inc = +5MW, dec = -3MW </li></ul></ul><ul><ul><li>Upon trigger of an inc, inc load = load above Base Bid Block Size + 5MW </li></ul></ul><ul><ul><li>Upon trigger of a dec, Base Bid Block Size is ratcheted down in increments of 3MW with more then one reduction per day allowed. </li></ul></ul><ul><li>Buyer has the increment load obligation </li></ul>
  36. 36. Condition Seller’s Price • Load anywhere All load @ bid price within dead band • Load above 55 MW @ bid price dead band 2 MW @ Buyer’s obligation (e.g. 57 MW) • Load reaches All load @ bid price lower band (e.g. 47 MW) dead band 50 MW base load 47 MW 55 MW 52 MW 47 MW base load 44 MW Bid Block Bid Block dead band • Base load adjusted down to 47 MW and new dead band established Base Load and Increment Load Example
  37. 37. SMA - Performance Assurance <ul><li>Security against Seller’s default </li></ul><ul><li>Nominally represents Buyer’s exposure above Seller’s unsecured credit limit </li></ul><ul><li>Formulaic and transparent methodology for determining Buyer’s exposure </li></ul><ul><li>Forms of performance assurance are cash and LC </li></ul><ul><li>Calculation done daily: </li></ul><ul><ul><li>Each transaction with a Seller is marked to market & the exposures are netted </li></ul></ul><ul><ul><li>If Buyer is exposed, the exposure is reduced by the value of the amount delivered but not yet paid </li></ul></ul><ul><ul><li>If Buyer is still exposed the exposure is compared to the Seller’s unsecured credit amount </li></ul></ul><ul><ul><li>If the exposure exceeds the unsecured credit amount by at least $500k, a call is made on performance assurance </li></ul></ul><ul><li>In the event of a Buyer’s Downgrade Event the Seller may request weekly payments </li></ul>
  38. 38. SMA - Performance Assurance <ul><li>The MtM exposure will equal the change in the PJM western hub forward energy prices relative to initial forward prices for each forward month times the estimated forward monthly energy quantities </li></ul><ul><li>Estimated forward energy quantities will be derived from the quantities stated on each Transaction Confirmation associated with 50 MWs of PLC. The quantities will be scaled for the current size of each contract </li></ul><ul><li>The forward prices used at the western hub will be the on-peak prices </li></ul><ul><li>The forward off-peak prices will be derived using an historic ratio of the day-ahead off-peak and on-peak prices </li></ul><ul><li>An independent pricing agent will be retained by AP to provide the forward prices </li></ul>
  39. 39. SMA - Unsecured Credit <ul><li>Initially determined from financial data provided by supplier in the pre-bid qualification process </li></ul><ul><li>Reviewed daily for changes in credit rating </li></ul><ul><li>Based on Seller’s financial parameters, or Seller’s guarantor’s financial parameters </li></ul><ul><ul><li>Form of guaranty is non-negotiable and can be found as Exhibit F in the SMA </li></ul></ul><ul><li>Seller’s unsecured credit will be the lower of: </li></ul><ul><ul><li>Seller’s (or Seller’s guarantor) unsecured credit cap </li></ul></ul><ul><ul><li>Seller’s (or Seller’s guarantor) relevant tangible net worth </li></ul></ul><ul><ul><li>Guaranty amount from Seller’s guarantor </li></ul></ul><ul><li>Seller’s unsecured credit cap will based on S eller’s lowest credit rating (see chart on page 27 of the SMA) </li></ul>
  40. 40. Important Upcoming Dates <ul><li>Confidentiality Agreement April 1 </li></ul><ul><li>Credit Application and financial information April 1 </li></ul><ul><li>Alternative Letter of Credit Form(s) April 1 </li></ul><ul><li>Alternative Form of Performance Assurance April 1 </li></ul><ul><li>PJM and FERC qualifications April 1 </li></ul><ul><li>Executed Binding Bid Agreement April 1 </li></ul><ul><li>Issue applicants' eligibility status April 8 </li></ul><ul><li>Bid Assurance Collateral April 13 </li></ul><ul><li>Bid Form Spreadsheets April 13 </li></ul>
  41. 41. RFP Website <ul><li>All materials associated with the RFP can be found on the Company’s website at www.alleghenypower.com/rfp </li></ul><ul><ul><li>RFP and exhibits </li></ul></ul><ul><ul><li>PUC Orders </li></ul></ul><ul><ul><li>Q&A forum </li></ul></ul><ul><ul><li>Historic load profiles </li></ul></ul><ul><ul><li>PLC and NSPL data </li></ul></ul><ul><ul><li>Customer counts </li></ul></ul><ul><ul><li>Loss factors </li></ul></ul><ul><ul><li>RFP coordinator contact information </li></ul></ul>
  42. 42. Independent Monitor <ul><li>Boston Pacific Company (“BP”) has been selected as the independent monitor and technical consultant for the solicitation </li></ul><ul><li>BP’s activities hereunder will include: </li></ul><ul><ul><li>The monitoring and review of all pre-bid activities between WPP and the bidders </li></ul></ul><ul><ul><li>Monitoring the bid day processes to assure conformance with the bid plan </li></ul></ul><ul><ul><li>Evaluation of bid results </li></ul></ul><ul><ul><li>Present bid results to the PUC as part of their evaluation </li></ul></ul>
  43. 43. <ul><li>Questions </li></ul>