Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of June 4, 1997 MeetingBPA Rates Hearing Room
The Federal Power Subscription Work Group discussed what had transpired at the Transition Board meeting on June 2 and the implications of the board's stranded cost actions. The group also took a first step toward developing a comprehensive list of the products and services customers want from BPA. About 30 people were present. The next meeting is June 18 in Portland.Index (click item to move to topic)
- Transition Board Report Raises Stranded Cost Issue
- Correction Noted
- Next Steps
- Old Definitions Won't Necessarily Fit New Products
- What's Coming Up Next?
Dick Adams, Executive Director of PNUCC, said he and Syd Berwager of BPA briefed the Transition Board June 2 on the work group's progress. According to Adams, he and Berwager made several points to the board, including:
- We are looking to accelerate our work to allow BPA to begin offering products and services by this time next year.
- Customers are interested in products with price certainty.
- Customers are interested in a menu approach to products and services.
- We have not identified any "showstoppers" or any needed legislation.
- Customers want BPA to control costs.
- Customers need certainty with regard to BPA's fish costs.
- The work group will focus on identifying products and services and will deal later with pricing and implementation.
Adams said that board member Mike Kreidler had raised the issue of a stranded cost-recovery mechanism at the meeting. The group members wanted to know if there were any new thoughts on treating stranded costs and whether the issue would wind up being dealt with at the end of the subscription process.
Adams reported that the board indicated there would be a process for dealing with stranded costs and had directed the Northwest Power Planning Council staff to put together "a think paper" within a month. The board will decide in July about what to do next, he said.
One customer representative said he viewed the subscription process to be about describing a commercial relationship between BPA and its customers that would assure all costs are recovered. The only reason for getting into the stranded cost issue now is "to use compulsion" on the customers to sign contracts, he contended. Some customers will be unwilling to participate in the subscription process if that becomes the case, he said.
Another customer representative stated he had tried to tell the board that if the stranded cost "wild card" is put into play now, it will get in the way of the subscription process. If we can finish this work and BPA can offer products and services by mid-1998, I hope there won't be a stranded cost problem, he continued. The outcome of the June 2 board meeting seemed okay, and the board is willing to let this group work, he added.
One group member said it would be a mistake to separate the subscription process from the stranded cost discussion. It is a mechanism to deal with BPA's obligations when its costs are above the market, he said.
A staffer from the Council stated that the discussion of stranded costs "has been opened." The question is intrinsically tied to the issue of separating out BPA's transmission system, he said, noting that the topic of stranded costs has come up in the Transmission Work Group sessions. The letter the board drafted to Congress basically said the issue needs to be addressed, he commented.
The goal is to recover BPA's costs through a number of products and services, not through some other mechanism, a customer representative said. We need to focus here on how to structure BPA's products to get voluntary agreements that will recover costs, he stated. If we get into a conceptual war about "what if," we won't get the job done, another participant said. One utility representative said the work group's mission is to devise contract structures. The question remains as to whether there will be stranded costs once that is accomplished, he observed.
"I'm amazed at the ability of a couple of fuzzy paragraphs to create winds of war," consultant Al Wright commented. He said that people are "reading too much" into the Transition Board's actions. Wright's interpretation of the language in the letter to Congress is that the board acknowledged the issue and indicated there are various points of view on it. The board said it intends to address stranded costs, he said. Don't read into it that this means an elaborate third process, Wright stated.
There are some people in the region who do not believe the subscription process will be satisfactory to cover stranded costs and that there will need to be a contingency mechanism, Wright said. "You'll have that debate; it will occur," he added. But Wright stated that the board is "light years away" from imposing any such mechanism. He indicated that group members have the opportunity to influence the Transition Board, as well as members of the region's Congressional delegation, on the stranded cost issue. The staff paper will be only a backgrounder and contain information about what is going on elsewhere in the country, Wright noted.
A customer representative said there is a fear that a stranded cost mechanism will be developed, and any numbers that come out of the subscription process will be plugged into that formula. That will have an effect on the group's work, she said.
Wright said the board is fully aware that the subscription process could "self-destruct," and is committed to handling stranded costs in a way that does not disrupt the subscription process. He added that the governors had made some language changes in the letter to Congress before it was sent out.
Berwager said one of the charts he presented as part of the "2 cents in 2000" discussion at the group's last meeting had an error. He said the Department of Energy, not BPA as the chart indicated, would be submitting a Strategic Plan to Congress. Paul Norman of BPA said the agency expects to have an updated business plan drafted by September and will create "a sounding board" to get feedback on it.
Adams handed out a list of four "next steps" for the work group: define products and services; identify business relationships between BPA and its customers; price products and services; and implement subscription. He said the first step is to define "a basic set of products for BPA to put some numbers on."
The participants began to discuss whether the group should first develop the business relationship or the product definitions. Berwager pointed out that BPA has a lot of work to do to formulate the pricing and that getting to a definition of the products is "Job One." One customer representative suggested that whether products or relationship definitions come first is "a chicken-and-egg discussion." Customers could indicate any terms and relationships they want as they identify specific products, he proposed.
One participant urged the group to specify whether pricing is to be cost-based or market-based. He suggested that the answer could bring the issue of allocating federal power to the forefront of the work group's considerations. Some said there would be a mix of cost and market-based pricing; others expressed frustration with delaying the discussion of defining products.
The law says BPA will charge cost-based rates, one customer representative said. She suggested that the group "put a stake in the ground" by identifying the services customers want and finding out what BPA can offer. A utility representative said after BPA establishes prices, customers will be able to gauge the amount of specific products and services they want.
Another participant asked how BPA would begin the pricing without knowing anything about what customers might purchase. What kind of assumptions will they use? he asked. The demand will depend on the price, someone else observed.
Our people internally are looking forward to addressing the issues of uncertainty with pricing and demand, according to Kathy Hoffman, leader of BPA's internal products team. But we need to know more about the products, she added.
A customer representative offered a set of nine products that he said would correspond to various customer needs. He prefaced the explanation of products with some observations about the changing market. As an example of the emerging market for energy services, he cited a recent Request For Proposals issued by the retailer COSTCO, which seeks bids for supplying power to all of the company's stores.
Other members of the group asked questions about the list and what exactly terms such as "full requirements power," "partial requirements power," and "risk management services" mean. In developing new products, BPA is not constrained to existing definitions, Berwager pointed out. Hoffman suggested that lists of products be more detailed and elaborate. "The old definitions will not work," observed one customer representative.
One participant suggested group members "go do their homework" and bring well-developed lists to the next meeting. He and others proposed that people with similar interests work together to develop a list. Several participants offered ways to make the lists most useful, including: differentiate between pricing and other types of product attributes; and incorporate the relationship information that is pertinent to the product.
A utility representative suggested the group remain aware of the need to coordinate its efforts with the cost-control initiatives and other activities of the Council and Transition Board.
Work group members will organize into informal caucuses to prepare product lists for the June 18 meeting. Berwager encouraged the subgroups to include Hoffman in their discussions.
Archive of content originally posted or last updated on: June 6, 1997.
Content originally provided by: Carolyn Whitney, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
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