PURPOSE

Staff recommends the City Council authorize the General Manager, BWP to execute a three-year extension of the webTrader Service Agreement (three originals attached) between the City of Burbank and Open Access Technology International, Inc. (OATI) for energy trading products.  These products provide for the tracking and recording of all energy transactions and provide the necessary functions so that trading is properly monitored and recorded, so that those who have a need for information concerning a transaction will have that information in the event of a transmission or generation outage and so that invoices may be generated or approved for payment based on accurate records.  In the past, the agreements were year-to-year agreements.  This first three-year OATI webTrader Service Agreement fixes the pricing for the webTrader application to the current level and provides additional training than that provided by year-to- year agreements.

BACKGROUND

Wholesale electricity trading has grown dramatically over the last ten years.  BWP wholesale trading has grown from less than a million dollars a year to over two hundred million a year.  This growth in electricity trading has been widespread, resulting in thousands and thousands of electricity transactions every hour throughout the United States.

Due to this huge increase in the volume of wholesale electricity transactions, automated methods to track, manage, and record such transactions have become increasingly important.  While as early as 1992, BWP employed electronic spreadsheets to replace its paper records and by 2001, it was clear that electronic spreadsheet record-keeping was not adequate.  BWP looked for a better approach.

The records required to record electricity transactions have grown so large that a single day�s spreadsheet is so vast that navigating it is difficult.  These spreadsheets had grown in size to over ten pages with each page so large that printing out these pages was impractical.  Compiling a multi-day transaction over the course of a month required opening thirty separate spreadsheets, each over 4 million bytes in size, searching through each spreadsheet to find a specific transaction, coping such transaction, pasting it into another spreadsheet until the entire month can be compiled.  Such human searches are also subject to error.  Cross checks of totals is required to insure that all transactions across a given period are accounted.

Managing these thousands of transactions on a regional basis became a very difficult process.  In the event a power plant fails or a power line becomes over-loaded or fails, certain transactions would need to be immediately cancelled.  Searching for such transactions among tens of thousands would be impossible to perform by hand.  Compounding this difficult task is the fact that such cancellations often required that multiple energy control centers coordinate such cancellations and appropriate transactions be substituted for the supply cancelled, as soon as possible.

In 1997, energy tagging was developed by the North American Electric Reliability Council, the organization that jointly develops electricity operating standards, so that each electricity transaction would be identified with a specific number and that associated with each transaction would be the source of the electricity, the seller, the buyer, the transmission path for the power, the various utilities which the power would pass through, special handling issues, and where the power would be delivered.  Each tag would be approved by the seller, the buyer, the transmission owners, and the utilities the power would pass through.

While these tags provided uniform collection of information it was still difficult to sort through such vast amounts of data.  OATI, as well as other companies, recognized the need for a central clearing role to store and maintain all these tags.  Power operators found the OATI system a reliable system and very quickly OATI became the most popular system for tagging energy transactions.

This first OATI product, webTag, met the requirements for tagging an electricity transaction as well as automating the process associated with modifying or confirming the transaction.  BWP has been using webTag since 2002.

WebTag was an easy installation.  Basically, it is loaded onto a computer, connected to the Internet, and turned on.  The set up was clear and the form design out-of-the box was satisfactory and it has been trouble free. 

In 2003, BWP issued a Request for Proposal for an energy trading and accounting system.  OATI was selected as the vendor for this system.  The OATI approach was unique in that it utilizes a centralized data warehouse approach with an associated on-going monthly service fee. The OATI system was selected as the lowest cost system to purchase, had the lowest life cycle cost, and as part of the monthly service, was the only system to be regularly updated as regional trading practices evolve.  Scott Mellon was selected as the Project Manager.

Implementing the OATI system was much more difficult than expected.  In May 2004, the OATI system was placed into operation, but only its most basic features were implemented, pending further refinement.  In addition, it would not be practical to implement the OATI system until the changes in energy trading and accounting associated with Magnolia was fully known.  Magnolia uses its own scheduling system, a stand alone system, as the OATI system was unable to perform the complex functions required to schedule Magnolia.  In addition, Magnolia does not require the trading and accounting features of OATI as Magnolia is expected to sell its power to the same participants in roughly the same amounts for the life of the facility.

In the fall of 2004, BWP management reviewed the decision to use OATI to perform the electricity trading and accounting.  It was found that the OATI system requires, as do other digital systems, a complete understanding of the business processes involved and the associated work flow.  It was determined that in order to best use webTrader, a commitment to formalizing the business processes and the structure of the trading function would be required for OATI or any other similar system.  Scott Mellon was not available to attend to further implementation of OATI because he was required to develop the control system interfaces required for integrating Magnolia into the BWP system.

In the fall of 2004, BWP began the implementation of the scheduling system for Magnolia.  This system is comparable to webTrader; in fact, it was among those systems considered when OATI was selected.  That scheduling system cost over $500,000 and required an additional $300,000 to set that system up to handle Magnolia�s operations.  WebTrader, in comparison, cost $230,000 to acquire.  The annual costs of both systems are comparable as the Magnolia system requires multiple communication lines to the various participants scheduling power from Magnolia.  Implementing the Magnolia scheduling system helped BWP staff gain experience in working through the necessary understanding of the business process and modeling such processes within the application.

In order to fully implement the OATI system it was necessary to incorporate the users of the system so that they could fully define how the OATI system could best be set up and define the underlying business practices.  In order to define these business practices and determine how the OATI system could be best set up, it would take the dedicated attention of a real time electricity trader.  A volunteer was sought from the real time traders and Lou Ann Basham, a real time trader, volunteered to do this task.

In February 2005, Lou Ann began the process of determining how to best set up OATI webTrader.  OATI webTrader is a new system and there were no utilities with all of the features of webTrader fully implemented.  Each utility was implementing those features that were most important leaving other features for a later time, just as BWP had done.  By June 2005, Lou Ann had found an approach that appeared to meet all of our needs and by October, Lou Ann was ready to begin the implementation of that approach.

Initially, OATI was set up on a geographical basis, with resources divided up according to region and associated transmission system.  Unfortunately, this approach caused processes and procedures more difficult to implement.  Other approaches associated with fuel type, contract term, wholesale/retail, load/resource, local generation/purchase and operational roles were considered and eliminated.  Other utilities had developed configurations associated with their corporate structures that provided for splits between its regulated and unregulated companies or regional operations.  Finally, staff decided that for the BWP setting, the OATI system set up based on the long term positions, the current month, the current day, Magnolia, and historical would be the best.  WebTrader is now in use by the real time trading desk.

Lou Ann Basham and Scott Mellon have now moved out to the SCADA center and are implementing the OATI webTrader so it may now capture all retail and wholesales transactions, aid in the trading, and provide the support for proper record keeping of these transactions.

In addition to webTrader and webTag, the OATI applications that were discussed above, BWP also utilizes webSAS, webSweep, and OATInet.

WebSAS came into being in response to the need to curtail transactions in the event of transmission line congestion.  Because of the dramatic increase in electricity trading over the last ten years and the lack of new transmission construction, transmission lines often become overloaded.  When transmission lines become overloaded the overload must be relieved.  In order to relieve the line loading, the operator cuts some of the electricity transactions using the line.  These transactions are cut using very specific rules regarding the order for such cuts.  WebSAS notifies the parties of such transactions and informs them of the curtailment associated with such transactions.  The parties then re-dispatch generation to meet this adjusted level.  Using WebSAS, such curtailments can be done immediately and are often complete in just a couple of minutes.  Prior to WebSAS, such curtailments were impractical.

WebSweep is a program that queries the availability of transmission of regional Transmission Providers for potential wholesale trades.  When transmission is required, WebSweep  automatically secures transmission for trading power and incorporates the transmission path into the transaction.  WebSweep does instantly what would otherwise be impractical to do manually, thus making wholesale trades possible that were not possible before.

OATINet allows for connection to the OATI servers in Minneapolis over a dedicated T-1 line rather than through the Internet.  This approach improves the performance of the OATI applications as well as the security.

The OATI applications, webTrader, webTag, webSAS, webSweep and OATINet provide BWP with six essential tools needed to coordinate and record electrical energy transactions for retail and wholesale sales.

ANALYSIS

The OATI webTrader application currently has approximately thirty-five clients across the United States with about 90% in production.  In the WECC, there are currently six clients in production with several more in development.

One user of OATI webTrader, Split Rock Energy, in Minneapolis, Minnesota has been using the system for three years.  Split Rock Energy is owned by Great River Energy Power Cooperative.  It is a system ten times larger than BWP.  Split Rock Energy transacts electricity throughout the

Eastern United States.  Split Rock Energy had some problems with webTrader when they first installed the system but have now worked out the problems.  They originally installed the system without understanding their business processes and how to set up those processes within the OATI system.  Split Rock Energy has been helpful in defining how to best model business process within the OATI system.

Another user of the OATI webTrader, Public Service of New Mexico, in Albuquerque, New Mexico, has been using OATI for two years.  Public Service of New Mexico is a larger utility than Burbank, also, but their requirements of such a system are very similar to Burbank. Public Service of New Mexico has established business processes and procedures with the functionality of webTrader as a guide.  Both of these companies have helped BWP best incorporate regional aspects associated with electricity trading into the OATI system.

Probably the greatest difficulty there will be in implementing the OATI system is gaining the support of the users.  Implementing these systems is a considerable change and it is disruptive.  Getting the users to participate in such a change is a challenge, even when the users believe that such changes are necessary because change is never easy.  Change takes time and it takes consistent effort from all those willing to lead it.  Having Lou Ann Basham and Scott Mellon take up the effort and each do what they have done in the past to make this system a practical tool is an example of the kind of grass roots support the system needs in order to be successful.

The OATI system is working now and in order to fully implement it, the adoption of this system must continue to the trading desk, risk management, and wholesale billing of BWP.  Over the course of the next several years, we will be adding new tools and methods to better manage our power supply and control its costs and risks.  The OATI system allows us to work best with others as it is possible to securely and reliably access the OATI system over the Internet.

By committing to the OATI system, BWP is able to keep its costs at current level, receive 140 hours of additional training, and be assured of a stable trading platform for three years.    

FISCAL IMPACT

OATI has proposed a three-year webTrader Service Agreement at the 2005 prices and has included three weeks of training for BWP staff.  The fixed monthly costs will be $6,000 for the proposed three-year OATI webTrader Service Agreement. The previous year-to-year agreements were subject to a 7% a year increase and prices had been raised by this amount in the past. Funding for this three-year OATI webTrader Service Agreement is included in the Fiscal Year 2005-06 budget under 496.PS12T.62085 (copy attached).   Approval is sought from the City Council as this three-year OATI webTrader Service Agreement is a multi-year agreement. 

RECOMMENDATION

Staff recommends that the City Council authorize the General Manager of BWP to execute Change Order # 08 to the OATI webTrader Service Agreement, providing for an extension of the term of the Agreement through and including June 30, 2008. 

If the Council concurs, the appropriate action would be a motion to adopt the Resolution entitled �A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK APPROVING CHANGE ORDER # 08 TO THE webTRADER SERVICE AGREEMENT BETWEEN THE CITY OF BURBANK AND OPEN ACCESS TECHNOLOGY INTERNATIONAL, INC. FOR THE PURPOSE OF EXTENDING THE TERM OF SAID AGREEMENT THROUGH AND INCLUDING JUNE 30, 2008.�

RD:FF:LB:SM

OATI to Council, 11-22-05

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