Summary of April 16, 1997 Meeting

The Federal Power Subscription Work Group agreed to set aside business interests for now. The group decided the next step is to move to specific discussions of products and services that customers want to buy. About 35 people attended. The next meeting will be May 7 at the Airport Sheraton Hotel in Portland.

• Kickoff
• Sorting Out Work Group Responsibilities
• BPA Activity Update
• Messages to the Northwest Delegation
• More Talk of Business Interests
• What's Coming Up Next?

KICKOFF

Shauna McReynolds, Deputy Director of PNUCC, welcomed the participants and explained the day's agenda.

SORTING OUT WORK GROUP RESPONSIBILITIES

Consultant Al Wright reported that the Transmission Work Group, which met the day before, had identified issues related to legal separation of BPA's generation and transmission. The biggest hurdle, he said, involves BPA's financial obligations, particularly the ramifications of a single Bonneville fund. The "good news" is that everyone now understands the single fund issue better, but understanding doesn't diminish the significance of trying to overcome the problem, Wright stated.

The Transmission Group recommended that it be the forum for discussing the redesign of BPA's transmission business line as well as BPA's power business line, since the two are closely related, he said. The Transmission Group suggested that the Subscription Work Group's purview should be business interests and power sales contract issues. The Subscription Work Group would feed information about commercial interests to the Transmission Group for its discussions of what BPA's power business line should look like. Participants endorsed the Transmission Group's recommendations for the division of responsibilities.

BPA ACTIVITY UPDATE

Syd Berwager of BPA said that agency staff have met with individuals outside of the work group about presubscription, post-2001 sales, and issues related to products and services. He indicated that the post-2001 marketing plan, which Paul Norman presented at the group's last meeting, has been revised. The plan now caps the amount of post-2001 sales to publics and the DSIs at 800 average megawatts and sets the Priority Firm (PF) rate as a price standard. BPA will present the plan to the Transition Board April 22 and expects to implement it soon after getting the board's feedback, Berwager said.

The group asked numerous questions about pricing; preference rights; and the relationship of these sales to other BPA sales, such as extraregional surplus sales. Participants inquired whether presubscription sales could create stranded costs; who would absorb the risks; and what might happen if customers declined to purchase the power under the terms offered.

Berwager distributed a draft outline for BPA's Congressional briefing on its power business line scheduled for April 28. He offered to send future revisions of the outline to anyone who requests them.

MESSAGES TO THE NORTHWEST DELEGATION

The Transition Board will take public comment April 22 on its response to the Northwest Congressional delegation's request for advice on what legislation is needed, Wright explained. The board plans to approve a final version of the response on May 15. The four governors would sign the letter on June 3, when they will be meeting with Northwest tribes, he said.

The group discussed what response it should make to the Transition Board and considered a list of possible "specific messages" compiled by PNUCC. There were suggestions that references to "stranded costs" and "below-the-line issues" be deleted, and that the response discuss the need for cost control by BPA and explain how the subscription process fits into the overall competitive environment.

During lunch, a subgroup redrafted the messages based on the morning's discussion. The proposed text noted the origin and purpose of the Subscription Work Group and said the goal of the subscription process, "together with solutions in other key aspects of the Regional Review's recommendations," is to provide BPA with reliable and predictable revenues sufficient to cover its costs. It also said the starting point for the work group is to try to design a successful subscription process "without needing additional legislative changes," and that the group's work plan provides for identifying, by the fourth quarter of 1997, any obstacles or issues requiring legislation. Finally, the proposed text noted that while the subscription process is under way, other issues need work. These include: the need for BPA to move quickly to control its costs; greater predictability of future costs, such as fish and wildlife costs; and resolution of how best to align risks and rewards for BPA and its customers.

One customer representative summed up the proposed response as: essentially, we're saying that the subscription process is under way, we have a work plan that can work, we don't see any major problems thus far, and we'll report back to you again this fall. The group agreed that PNUCC would write up the language and present it as a "handout" at the Transition Board's April meeting.

MORE TALK OF BUSINESS INTERESTS

McReynolds walked the group through a new compilation of Business Interests, based on the discussions at previous meetings and new submissions received by PNUCC. This is a list of interests expressed by different entities, not a consensus document, she noted. The following are some highlights from the discussion:

• BPA's Future Role. One participant questioned statements about what BPA "must not do" under this section. There is a concern about the federal government's role in competitive markets that will continue to be a fundamental issue throughout the subscription process, another responded. A customer representative objected to the title "BPA's Future Role." I thought this group was about what kinds of products and services people are interested in, he said. There's no consensus in this group that BPA will remain a federal entity, pointed out a utility representative. The group decided to delete the section on "BPA's Future Role" and move the interest stated there to the "Business Relationship" category of the report.
   
• BPA's Financial Stability. One interest states that BPA should reserve its rights to recover stranded costs through a transmission surcharge. Does this mean that the subscription process is expected to come up with a stranded cost mechanism? a participant asked. The author replied "no," observing that while "there's not a working group on stranded costs yet," some forum needs to tackle the issue because it affects subscription, transmission, and "when governance cranks up, it will affect that too." A utility representative commented, a transmission surcharge is not an interest I'd like to see taken up by this group. A customer representative suggested the issue needs resolution before or simultaneously with the subscription process, so people who want to subscribe "know what the vegetables are before they sit down to dinner."
   
• Subscribing. It was suggested that this section recognize the possibility of a customer-owned BPA in the future.
   
• Contracts. One customer group's interest list called for "no customer obligations beyond purchasing and paying for federal power" and also spelled out numerous options and choices that should be available to customers. It's fine that BPA offer all this flexibility, but your principles statement should recognize that "you're asking for a lot and that you're willing to pay for it," commented a utility representative. Another said, if we had the certainty that we wouldn't have to "eat the stranded costs," we could be more supportive of having such commercial flexibility on the part of BPA and its traditional customers. Somewhere you have to get at the question of the relationship between the "cost-based people versus the market-based people" and who bears the risks, Wright suggested.
   
• Pricing/Costs. A customer representative emphasized the importance of building BPA cost control into the subscription process. If BPA can't control costs, "the answer is new management," he said. A lot of BPA's costs are not under its control, and new management won't help, another responded. The National Marine Fisheries Service and the U.S. Fish and Wildlife Service are making decisions that put costs on BPA, others noted. In a discussion of structuring the subscription process so BPA's products sell at "market relative prices," one utility rep said, price is "where most of the discussion and work will reside, and if we can get there sooner, that's fine by me."

WHAT'S COMING UP NEXT?

• Show Us the Data. Members of the group said that at the next meeting, they would like to see more data on BPA's financial position, on risks to the U.S. Treasury, and more quantitative information on what products will be available at what price levels. Participants said they want to know: What does BPA's stated target of "20 mills in 2000" mean? Does BPA have a plan to get there? We need to have it "be more than a poster child," one person stated.
   
  Berwager said he would report on the status of that plan at the next meeting. Wright suggested that the BPA presentation start from the numbers presented during the last two or three days in the life of the Regional Review Steering Committee. If I interpreted that data correctly, the conclusion was "you can't come close to 20 mills in 2000," he said.
   
• Identifying Common Themes in the Interests. The group discussed what will happen to the Business Interests document now that it has been reviewed. It's the final product of Task 2 of the work plan, one individual suggested. One of the participants volunteered to distill the list into "key themes" that the diverse statements have in common.
   
• Getting Specific About Products. Group members indicated that it is time to get more specific about transactions -- to have people say "this is what I want to buy." We should begin a process to organize what people want into packages, one person recommended. There is also a need to resolve how BPA can meet both the cost-based and fixed-price needs of customers, several people stated.