WEST PENN POWER COMPANY dba ALLEGHENY POWER REQUEST FOR PROPOSALS FOR FULL REQUIREMENTS WHOLESALE EL

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WEST PENN POWER COMPANY(dba ALLEGHENY
POWER)REQUEST FOR PROPOSALS FORFULL
REQUIREMENTS WHOLESALE ELECTRIC POWER
SUPPLYPRE-BID INFORMATIONAL WEBINAR

• March 25, 2009

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Welcome

• Bob Reeping
• General Manager, Electric Supply
• Helen Taylor
• Specialist, Electric Supply
• RFP Coordinator
• Frank Mossburg
• Boston Pacific
• Independent Monitor / Technical Consultant

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GoToWebinar Attendee Interface
1. Viewer Window
2. Control Panel
West Penn Power Company RFP Pennsylvania Default
Service - Pre-bid Webinar
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Conference Objectives

• Gain a better understanding of the context in
  which the Request for Proposal (RFP) is being
  conducted
• Inform interested wholesale electric suppliers of
  the power supply process for West Penn Power
• Review the bid structure
• Review aspects of the Supply Master Agreement
  (SMA) which will govern the terms and
  conditions of all transactions resulting from the
  RFP
• Answer questions on all of the above topics

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Background

• In accordance with the Electricity Generation
  Customer Choice and Competition Act and with a
  series of Commission Orders extending a majority
  of West Penn Powers (WPP or Company)
  generation rate caps, the Companys generation
  rate caps are scheduled to expire on December 31,
  2010
• 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 Companys plans to procure
  generation service for its default service
  customers who do not subscribe for generation
  service from a third-party supplier

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Background

• Approximately 16 parties participated in the
  proceeding
• Hearings and briefing were conducted in the
  Spring of 2008 with the Commission entering its
  Order approving the DSP on July 25, 2008
• On September 23, 2008, WPP filed its compliance
  filing to update the DSP documents to comport
  with the Commissions July 25th Order
• In January 2009 WPP filed updated RFP pages
  associated with the procurement schedule per the
  Commissions December 22, 2008 Order

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Background

• 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
• At the March 12, 2009 Public Meeting, the
  Commission approved the Companys request
• On March 20, 2009 the Commission issued its Order
• On March 23, 2009, WPP filed its updated
  compliance filing based upon the issuance of the
  Commissions March 20th Order

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RFP Supply Requirements Overview

• The RFP we will be discussing today is for the
  procurement of full requirements supply to serve
  WPPs Pennsylvania default service customers for
  the 29-month term from January 1, 2011 through
  May 31, 2013
• The full requirements service herein will be made
  available to those retail customers who
• Do not affirmatively select an alternative
  supplier
• Are unable to obtain service from an alternative
  supplier or
• Have contracted with an alternative supplier who
  fails to perform

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RFP Supply Requirements Overview

• Full requirements service generally includes
  energy, capacity, ancillary services, losses and
  renewable portfolio requirements excludes
  network transmission
• Suppliers obligation will be in terms of a fixed
  percentage for a specific service type of retail
  load
• 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)

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RFP Supply Requirements Overview

• Suppliers will have to qualify only once for this
  multi-procurement process, however if changes
  occur that materially affect suppliers financial
  condition or its status with PJM or FERC,
  supplier is responsible for notifying WPP
• Credit ratings
• PJM membership in good standing
• FERC authorization for market based rates
• Suppliers are eligible to qualify throughout the
  multi-procurement process

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RFP Load Overview
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RFP Load Overview
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RFP Load Overview

• Service Type 10
• 50 17 and 12-month agreements
• 30 29-month agreements
• 20 spot
• 17-month term 1/1/11 to 5/31/12
• 12-month term 6/1/12 to 5/31/13

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RFP Load Overview

• Service Type 20
• 64 17 and 12-month agreements
• 27 29-month agreements
• 9 spot
• 17-month term 1/1/11 to 5/31/12
• 12-month term 6/1/12 to 5/31/13

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RFP Load Overview

• Service Type 30
• 88 17 and 12-month agreements
• 12 spot
• 17-month term 1/1/11 to 5/31/12
• 12-month term 6/1/12 to 5/31/13

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RFP Load Overview

• Service Type 40 has approximately 1,139 MW of
  eligible load
• ST40 customers are required to express an
  interest in the fixed price option prior to the
  solicitation (9/17/2010)
• WPP will then conduct a single solicitation for
  the fixed price service (10/18/2010)
• 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 PUCs acceptance of the ST 40 bids to
  opt-in to the fixed price option for the term
  January 1, 2011 through December 31, 2011
• Customers that do not affirmatively elect the
  fixed price option shall receive hourly price
  service

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RFP - Supplier Eligibility Criteria

• Submittal of the Expression of Interest Form
• Execution of the Confidentiality Agreement
• Submittal of PJM qualification and FERC
  authorization
• Qualified market buyer and seller in good
  standing with PJM
• FERC authorization to make sales of energy,
  capacity and ancillary services at market based
  rates
• Submittal of Credit Application related
  financial information
• For supplier or financial guarantor
• Unsecured credit requires a rating of unsecured
  senior long-term debt by SP, Moodys or Fitch
• Submittal of Binding Bid Agreement

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RFP - Eligibility Overview

• Confidentiality Agreement April 1
• Credit Application and financial
  information April 1
• Alternative Letter of Credit Form(s) April 1
• Alternative Form of Performance Assurance April 1
• PJM and FERC qualifications April 1
• Executed Binding Bid Agreement April 1
• Issue applicants' eligibility status April 8

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RFP - Bid Assurance Collateral

• 300,000 per bid block is required from the
  supplier with each bid
• Form of collateral must be either cash or Letter
  of Credit (LC)
• A Bid Assurance LC form acceptable to AP has been
  provided as Appendix 6 in the RFP
• Bid assurance collateral will be returned to the
  supplier upon execution of contract(s) or
  rejection of bid(s)
• Bid assurance collateral will be forfeited in the
  event that the supplier does not execute
  contract(s) on its awarded bid(s)

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RFP - Alternate Forms of Bid Assurance Letter of
Credit

• Suppliers that wish to propose an alternative Bid
  Assurance LC form or some other form of security
  may do so by the April 1st eligibility
  requirements due date
• Acceptance of such alternative forms of
  collateral is at APs discretion, and will be
  communicated to the supplier by the April 8th
  eligibility notification due date

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RFP - Bid Form Spreadsheets

• All bids must be submitted using the appropriate
  Bid Form Spreadsheet
• Contained within the Bid Form Spreadsheet, and
  fully transparent to the supplier, is the
  transformation of the suppliers price offer into
  a Discounted Average Term Price to be used as
  the only parameter to rank bids
• All of the fields within the Bid Form Spreadsheet
  that require the suppliers input must be
  completed in order for the bid to be conforming
  e.g., if it is the suppliers 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

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RFP - Bid Submission Validation

• Conforming Bids Must Be
• Submitted by the due date and due time
• Accompanied by the appropriate amount of bid
  assurance collateral
• Submitted using the Bid Form Spreadsheet(s),
  completed in full and without modification
• Submitted by an eligible supplier
• Submitted by fax to 724-830-7805
• Electronic submissions by email are
  non-conforming
• Faxes sent to other company machines are
  non-conforming

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RFP - Evaluation of Bids

• Discounted Average Term Price calculated on each
  Bid Form Spreadsheet will be the single parameter
  used to compare all offers
• Each Service Type and term will be evaluated
  independently
• Winning suppliers will be paid their offer
  prices, not the Discounted Average Term Price

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RFP Bid-Week Outline

• The typical bid week will look like the
  following
• Monday Bids due by 430 pm
• Monday Bids awarded by midnight (award as early
  as possible)
• Tuesday WPP forwards partially executed
  contracts to supplier
• Wednesday Supplier forwards fully executed
  contracts to WPP by 200 pm
• Wednesday WPP files executed contracts with PUC
• Friday Commission rules on contracts
• Bids expire the earlier of rejection notice or
  midnight of bid award day
• Awarded transactions are contingent upon the
  Pennsylvania PUC and any necessary FERC approvals
  (SMA 16.13)

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SMA - Transaction Confirmation

• One SMA will be executed under which multiple
  transactions can be executed
• Should the SMA need to be updated during the
  procurement cycle the new SMA will be executed
  with winning bidders from that point forward
• Prior executed SMAs will be unaffected by future
  SMA changes (prospective only)
• Each awarded bid will be a transaction

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SMA - Transaction Confirmation

• A transaction confirmation will specify, among
  other details, the following
• delivery period
• number of bid blocks
• percentage of load equivalent to each bid block
• monthly on-peak and off-peak energy quantities to
  be used in determining the MtM exposure

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SMA- Full Requirements Service Obligations

• Seller must provide all services (other than
  network transmission) to meet its share of the
  load obligation as accounted for by PJM
• Sellers obligations include, but are not limited
  to the following
• Energy
• Capacity
• Transmission other than network transmission
• Ancillary services
• Renewable energy resource requirements
• Transmission distribution energy losses
• Congestion management costs
• New PJM charges, other than the Regional
  Transmission Expansion Plan (RTEP) and Transition
  Market Expansion Charges (TMEC) exceptions

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SMA - Full Requirements Service Obligations
(continued)

• Buyers obligations include the following
• Network integration transmission service
• Future PJM charges assessed to network
  transmission customers for PJM-required
  transmission system enhancements pursuant to the
  PJM Regional Transmission Expansion Plan (RTEP)
• Future PJM charges assessed to network
  transmission customers for the transition costs
  related to the elimination of through-and-out
  transmission rates (TMEC)
• Distribution service

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SMA - PJM Declaration of Authority

• An agreement between Buyer and Seller for the
  benefit of PJM to appropriately account for the
  respective obligations contained within the SMA
• Required by PJM
• Executed by both Buyer and Seller at the time of
  SMA execution
• Copy of Declaration has been provided as Exhibit
  I in the SMA

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SMA - Scheduling Forecasting

• Seller is responsible for all scheduling with PJM
  to meet the obligation
• Seller is responsible for monthly settlements
  with PJM pertaining to their obligations
• Buyer will provide to the Seller on a reasonable
  efforts basis
• On each business day after execution, Buyers
  estimation of Sellers capacity PLC for the
  seventh following day for each service type
• On each business day of the delivery period,
  Buyers estimation of Sellers energy and
  capacity obligation as is provided to PJM for
  settlement purposes for each service type

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SMA - Determination of Delivered Quantities

• 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
• 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
• WPP will pay Suppliers for load as quantified at
  the generation level

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SMA - Billing and Settlement

• 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
• Buyer will pay Seller by electronic funds
  transfer by 1200 p.m. on the day PJM settles
• Seller is responsible for its settlements with
  PJM for its awarded load obligations
• Should PJM change to weekly billings, as
  anticipated, the billing and payment provisions
  hereunder will be adjusted accordingly

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SMA - Congestion Management

• Seller is responsible for all congestion
  management costs
• Buyer will transfer to Seller its congestion
  revenue rights in proportion to the Sellers
  share of the load, i.e., revenue rights will
  follow the load
• 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

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SMA Alternative Energy Portfolio Standard
Obligation
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SMA Volumetric Risk Mechanism

• An increment/decrement concept to mitigate
  volume risk associated with customer migration
• The Base Bid Block Size is established on the
  first day of power flow
• Thresholds for the difference between the daily
  block size and Base Bid Block Size inc 5MW,
  dec -3MW
• Upon trigger of an inc, inc load load above
  Base Bid Block Size 5MW
• Upon trigger of a dec, Base Bid Block Size is
  ratcheted down in increments of 3MW with more
  then one reduction per day allowed.
• Buyer has the increment load obligation

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Base Load and Increment Load Example
Condition Sellers Price Load anywhere All
load _at_ bid price within dead band Load
above 55 MW _at_ bid price dead band 2 MW _at_
Buyers obligation (e.g. 57 MW) Load
reaches All load _at_ bid price lower band
(e.g. 47 MW)
55 MW
dead band
50 MW base load
47 MW
Bid Block
52 MW
dead band
47 MW base load
Base load adjusted down to 47 MW and new
dead band established
44 MW
Bid Block
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SMA - Performance Assurance

• Security against Sellers default
• Nominally represents Buyers exposure above
  Sellers unsecured credit limit
• Formulaic and transparent methodology for
  determining Buyers exposure
• Forms of performance assurance are cash and LC
• Calculation done daily
• Each transaction with a Seller is marked to
  market the exposures are netted
• If Buyer is exposed, the exposure is reduced by
  the value of the amount delivered but not yet
  paid
• If Buyer is still exposed the exposure is
  compared to the Sellers unsecured credit amount
• If the exposure exceeds the unsecured credit
  amount by at least 500k, a call is made on
  performance assurance
• In the event of a Buyers Downgrade Event the
  Seller may request weekly payments

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SMA - Performance Assurance

• 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
• 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
• The forward prices used at the western hub will
  be the on-peak prices
• The forward off-peak prices will be derived using
  an historic ratio of the day-ahead off-peak and
  on-peak prices
• An independent pricing agent will be retained by
  AP to provide the forward prices

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SMA - Unsecured Credit

• Initially determined from financial data provided
  by supplier in the pre-bid qualification process
• Reviewed daily for changes in credit rating
• Based on Sellers financial parameters, or
  Sellers guarantors financial parameters
• Form of guaranty is non-negotiable and can be
  found as Exhibit F in the SMA
• Sellers unsecured credit will be the lower of
• Sellers (or Sellers guarantor) unsecured credit
  cap
• Sellers (or Sellers guarantor) relevant
  tangible net worth
• Guaranty amount from Sellers guarantor
• Sellers unsecured credit cap will based on
  Sellers lowest credit rating (see chart on page
  27 of the SMA)

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Important Upcoming Dates

• Confidentiality Agreement April 1
• Credit Application and financial
  information April 1
• Alternative Letter of Credit Form(s) April 1
• Alternative Form of Performance Assurance April 1
• PJM and FERC qualifications April 1
• Executed Binding Bid Agreement April 1
• Issue applicants' eligibility status April 8
• Bid Assurance Collateral April 13
• Bid Form Spreadsheets April 13

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RFP Website

• All materials associated with the RFP can be
  found on the Companys website at
  www.alleghenypower.com/rfp
• RFP and exhibits
• PUC Orders
• QA forum
• Historic load profiles
• PLC and NSPL data
• Customer counts
• Loss factors
• RFP coordinator contact information

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Independent Monitor

• Boston Pacific Company (BP) has been selected
  as the independent monitor and technical
  consultant for the solicitation
• BPs activities hereunder will include
• The monitoring and review of all pre-bid
  activities between WPP and the bidders
• Monitoring the bid day processes to assure
  conformance with the bid plan
• Evaluation of bid results
• Present bid results to the PUC as part of their
  evaluation

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• Questions