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Federal Power Subscription Work Group
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Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)

Summary of May 21, 1997 Meeting

Portland Airport Sheraton
 

The Federal Power Subscription Work Group proposed accelerating its schedule, heard from BPA about "2 cents in 2000," and continued discussing products of interest to customers. About 40 people were present. The next meeting will be June 4 in Portland.

Index (click item to move to topic)

GETTING ON A FASTER TRACK

Dick Adams, Executive Director of PNUCC, suggested that the group's progress to date may mean it can complete its work earlier than scheduled. He distributed a proposed revised timeline. It moves the date for the group to complete definition of products and pricing principles forward a year to mid-1998, instead of mid-1999. Preliminary solicitations would begin in mid-1998; the dates to "assess obstacles" would accelerate; and the deadline for customers and BPA to resolve issues would move up, to mid-1998. One participant noted it may be hard for utilities to make decisions sooner given the uncertainties about how all the states will act on retail access legislation. Another stated an accelerated schedule would send the message that the subscription process is working and is on track. A customer representative said that the accelerated schedule means BPA will need to have product prices available by mid-1998. BPA's representatives said they will look into how this can be done. Adams said a subgroup would work more on the timeline and discuss how it can fit with BPA's ratemaking. PNUCC will then circulate another version.

 

SUMMARY OF BUSINESS INTERESTS

The group reviewed a 13-point revised list of "common BPA/customer interests." Changes in this version include a preamble, which notes that the full set of interests is set forth in the 15-page statement developed at previous work group meetings, and deleting the item about exploring the potential for a customer ownership share in the federal system because "it didn't seem to be a common interest." The group went over the rationale for various word changes in the different items, and decided to change the first interest expressed to: "a successful outcome to the subscription process (i.e., BPA's products are fully subscribed and its costs are fully covered after 2001) through voluntary commercial transactions." Let's be clear that success involves BPA's recovery of its costs without a stranded cost mechanism, one customer representative stated. What's the problem with saying you don't want to have stranded costs? asked a utility rep. The goal is for customers to enter into contracts that cover costs, the goal is not to avoid stranded costs, replied another. In the "other world of deregulation out there," stranded costs are part of the solution, observed a public interest representative. BPA isn't agreeing to forgo possible use of a stranded cost mechanism if we get to the point where it is needed, said a BPA representative. The group agreed a few more changes, based on the discussion, should be made to the list and then it should be recirculated.

 

AN INTRODUCTION TO "2 CENTS IN 2000"

Syd Berwager of BPA made a presentation on BPA's stated goal of "2 cents in 2000." He said it is BPA's intention "to manage costs so it can succeed in a post-2001 market that values energy at 2 cents per kilowatt-hour." The "2-cent product" would be a flat block of firm energy delivered across BPA's transmission network and would not include load shaping, load regulation, or transmission load shaping. Is this your forecast of where the market will be? asked an individual. It's BPA's commitment that if the market is there, we'll have our costs in line so we can compete in that market, Berwager replied. If the market is lower, this commitment won't get it done; if it is higher, this will get it done, and we can succeed in that market. It's a statement of intent to control our costs so we can sell in a 2-cent market; it is not a rate commitment, he said.

According to Berwager, BPA's approach is twofold: aggressive cost management and successful sales that produce revenues covering costs. The power business line would aim to keep post-2001 costs at $1,891 million annually, in nominal dollars, he stated. Berwager presented examples of expense reductions that could achieve the savings required to meet the target. He reviewed cost-cutting actions BPA has taken to date as well as progress on the revenue side.

The group asked many questions about the numbers and assumptions. For example, what transmission does it cover? Does it include General Transfer Agreements? Does it include losses? What's the commodity rate for the power? How does it compare with the Northwest Power Planning Council's plan? How do the projected reductions affect WPPSS debt and the residential exchange?

Berwager said BPA would look into the questions raised and continue analyzing the concept. One customer asked what BPA expects its reserves to be at the end of the rate period. BPA's current projection is $600,512,000.

One customer said his reaction to 2 cents in 2000 is that it's "doable and maybe not challenging enough." We need a better understanding of actions being taken now to see if last year's rate case projections were too high, another said. The reductions BPA has shown today "don't convey a feeling of pain" -- don't go back and tell your management this scenario is widely accepted by your customers, advised a customer representative. Two cents in 2000 is not the right goal -- you have to be close to the market whatever it is, suggested another participant.

The Flight Plan. Berwager said BPA is putting together a "Flight Plan" to provide internal direction for planning and operating in the post-2001 environment, as well as a Strategic Plan for FY 1998-2003 as part of its FY 1998 budget submittal. The schedule calls for the Flight Plan to be completed in late August and for BPA to submit the Strategic Plan to OMB in mid-August and to Congress in late September. The Strategic Plan will outline steps to be taken to position BPA to carry out the Flight Plan, explained Carolyn Whitney of BPA. BPA's power business line has been asked to put together a specific plan to get to 2 cents in 2000 and that will be a component of the Strategic Plan, she added.

[BPA Editorial Correction (05/27/1997): BPA is included as part of the DOE budget submittal in August and as part of that submittal we will have a paragraph or two about our strategic plans, but we will NOT be submitting our Flight Plan to OMB or Congress.]

Consultant Al Wright suggested BPA needs a regional discussion of these plans. If you take them to Congress without a regional buy-in, "that's a formula for disaster," he warned. Members of the group concurred that BPA needs to work with customers and others in developing the plans.

The group discussed whether it should or could function as a "Sounding Board" in the development of the Flight Plan. Some thought they would need to review the details of the plan, while others said the subscription process can't "get bogged down in a numbers debate with BPA" and that a "separate, but equal" group should help develop the Flight Plan. Group members suggested BPA consider a model like the "Customer Review Group" used in past processes, and that the sooner BPA can segregate proprietary information from public information for the plan, the easier it will be. They asked to be kept informed about the progress of the Flight Plan.

 

A FULL REQUIREMENTS PRODUCT

John Saven of Northwest Requirements Utilities led a discussion of what a full requirements product might look like. He mentioned six points: contract duration, net requirements service, flexibility to mix and match BPA products, flexibility to respond to emerging market conditions, price, and "other." The group asked questions about load attrition, BPA's role in load growth, resale of power, and the flexibility for customers to leave, and indicated that what Saven was proposing didn't seem to contain any "showstoppers."

There are some principles I hear everyone saying that seem to be universal, Wright noted: that cost-based power contracts should have a fixed price for some period of time; that the most promising contract appears to be five years; and that customers might be willing to take a fixed price "a bit above the market" if there is the ability to control costs. Could we consider these "baseline subscription principles?" he asked. The group expressed an interest in trying to identify such "common threads." They also said they wanted more discussion of this product and others at the next meeting.

 

PROPOSAL FOR A STEWARDSHIP CLASS OF CUSTOMERS

Jeff Nelson of the Springfield Utility Board presented a proposal to create a "stewardship class" of customers that would have an ownership-like relationship with BPA. This class would have a long-term commitment to a cost-based Federal Base System (FBS) and participate in the management of the FBS. Under the proposal, all in-region publics, DSIs, and IOUs could join the class. They would sign up for a set amount of energy and assume an amount of BPA's debt. The proposal suggests a limited window of opportunity, such as through 2001, for customers to become class members and provides a "marching order" of eligibility. It sets a signup threshold of 50 percent of the total firm energy of the FBS in order for the class to be formed. The group asked several questions; for example, wouldn't this require legislation? Nelson suggested it could be one of the Transition Board's recommendations for legislation.

A utility representative said if this helps make the subscription process successful, it should be considered. Another individual said, we spent months on this idea last year, and found the WPPSS debt issue so overwhelming, we stopped. "The folks I work for just want to buy some power," he added. Others expressed concern customers might "sign up for a blank check" for fish costs; that the WPPSS debt extending beyond the contract period is a problem; and that ownership rights wouldn't provide enough pressure to keep BPA costs down. A public interest representative said the proposed class would be a "non-starter" with the environmental community and tribes because it could give customers too much influence over fish costs and river operations. Nelson said if the BPA situation isn't solved by the region, people in Washington, DC might have a "fire sale" of the federal system. One person suggested giving more thought to how the proposal could be done administratively. Nelson said he would do this and asked people to send him their comments on the proposal.

 

RIVER GOVERNANCE REPORT

Several people reported on the River Governance workshop held May 15-16 in Spokane. A customer representative called the meeting "shots fired across the bow of the subscription process." If we think we can get a fish number to use in this process without addressing fish measures, such as drawdown, we can expect a real fight, he said. The notion of only $435 million to pay for fish was "fighting words," even to some federal agencies, he added. Other observations:

  • There was a lot of familiar discussion about fish goals and "general malaise," but no real conclusion. There was talk of the "three sovereigns" -- the states, federal government, and the tribes -- getting together to resolve problems, but no action plan. The process was put on hold pending the June 3 meeting of the tribes with the governors.
     
  • The tribes are increasingly frustrated; one tribal leader said he'd give the region a year to solve the problem, or he'd play the "treaty lawsuit card."
     
  • It was frustrating, but it was a meeting that needed to be held to "let people talk about the shape of the table. I'm optimistic they'll reconvene and get to work."
     
  • It was "a huge letdown" -- we're each so defensive about our position, we prefer chaos to getting it resolved. We won't see resolution of salmon governance in the foreseeable future, and the default that people see is going to court.
 

REPORTING TO THE TRANSITION BOARD

Adams asked what messages should be given to the Transition Board at its June 2 meeting. The group responded:

  • We've put together a list of interests and issues, and are starting to identify "common threads" in what we want out of the subscription process.
     
  • We need an understanding of BPA's fish costs for a certain period of time.
     
  • We haven't identified any showstopping legislative needs so far.
     
  • We are making good progress on accelerating our schedule.
 

WHAT'S COMING UP NEXT?

  • The DSI Proposal, Revisited. The group will talk more about the proposal submitted by a DSI representative outlining a proposed contract framework and will consider a graphic prepared by BPA that attempts to capture its essence.
     
  • More Discussion of Products. The group will discuss the full requirements product again and other products group members want to propose or hear about.
     
  • Getting On Board the Flight Plan. BPA will report on opportunities for customers and others to get engaged in the development of the Flight Plan. BPA will also bring a written update on the status of its Firm Power Products and Services (FPS) rate settlement agreement.
 
Adjourn
   

Archive of content originally posted or last updated on:  May 27, 1997.
Content originally provided by:  Carolyn Whitney, BPA Power Business Line.
Content currently provided by:  PBL Requirements Marketing - PS.
Page maintained by:  BPA Web Team.
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