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<br />003408 <br /> <br />Method One: Wholesale Markets <br /> <br />TYDeS And ExamDles of Transactions <br /> <br />Generally, Co10rado's utilities are tied together by a transmission system <br />that allows power to be shipped from one utility to another. This <br />transmission system is weak between the eastern slope and the western slope, <br />so transactions east and west are somewhat limited. But eastern slope <br />utilities are tied to a transmission system that allows them to purchase <br />power from New Mexico, Wyoming, Montana, and the Dakotas. Western slope <br />utilities have ties with the Southwest although these ties are less well <br />developed. <br /> <br />Transactions among utili ties are generally of three types: "rirm. <br />purchases, "economy" transactions, and "emergency" transactions. <br /> <br />Firm Purchases. Most valuable to a utility is a firm contract to provide <br />capacity or energy or both to other utilities. (For definitions of <br />"capacity. and "energy," see Appendix A). Firm contracts normally cover <br />periods of several years to twenty years. The selling utility obligates <br />itself to deliver power in fixed amounts whenever power is required by the <br />purchasing utility. The purchasing utility ensures reliable electric <br />service to its customers without tying up capital in the construction of its <br />own generation units. It can draw on the generation faci1itiea of the <br />selling utility as if those facilities were its own. <br /> <br />Consider two utilities with interconnecting transmission systems. Suppose <br />that "Utility A" expects growth on its system over the next ten years and <br />therefore builds a large power plant. Assume that the new plant at first <br />produces more power than Utility A can use itself and that it incorporates <br />the latest technology and therefore has very low operating costs. "Utility <br />B" meanwhile might also expect load growth, but it has no new plant, or it <br />has one under construction that could take five to seven years to complete. <br />Since Utility B's plants are older than Utility A's, its cost of operation <br />is higher. Utility B might therefore enter into a contract with Utility A <br /> <br />4 <br />