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

Summary of July 23, 1997 Meeting

Portland Airport Sheraton
 

The Federal Power Subscription Work Group discussed sample product offerings presented by the Bonneville Power Administration and revisited a proposal for an "umbrella" business relationship with BPA. About 40 people attended. The next meeting is August 6 at the Portland Airport Sheraton.

Index (click item to move to topic)

CONSENSUS ON A GAME PLAN?

Dick Adams, Executive Director of PNUCC, presented a "game plan" for the subscription effort that lays out four topics for the group to address: product and service definitions; business relationships between BPA and its customers; product and service prices; and implementation of subscription. The plan also includes a set of milestones:

  • Define specific products and services - August 1997
     
  • Consensus on business relationship(s) - October 1997
     
  • Consensus on implementation approach - January 1998
     
  • Develop prices for "basic services" - June 1998
     
  • Bilateral contract negotiations - July 1998
     
  • All contracts signed - no date established.

"Is this the general thinking on where we're headed?" Adams inquired. Does this proposal hold off BPA's ability to make sales until mid-next year? asked a customer representative. The Transition Board approved a framework for a limited amount of pre-subscription sales, replied Syd Berwager of BPA. If we reach that target and think we want to increase it, we'd go back to the board for its endorsement, he said. Berwager noted BPA is in discussions with "a limited number of folks" now. Have any deals been made? he was asked. One with Enron, Berwager replied.

Berwager distributed a report on BPA sales between January 1 and June 30, 1997, pursuant to the 1997 FPS-96 settlement agreement. Were any sales made before January 1? asked a participant. BPA representatives said yes, and that they would provide information on those sales as well.

Questions and Comments. Members of the group asked whether BPA's fish budget would be known when the game plan's milestone dates occur, and when the pricing discussions will get under way and end. What we're talking about is whether BPA can get the pricing work done so that it can offer a "not-to-exceed" set of prices by July 1998, stated a customer representative. Getting the basic products nailed down is the first step, said Berwager.

We need to know what the basic product includes, said a customer representative. You should make sure the list of products and services with preliminary prices will entice enough people to sit down and talk with you, he said. We need to understand the relationship of rate cases and tariffs to negotiated prices and what rate schedules will mean in the environment we're moving into, he added.

What's the point of publishing prices and pricing principles if customers can negotiate lower prices? asked a utility representative. If BPA can't vary from the rate tariff, then "all they will be is a big sitting duck," suggested a participant. If the bulk of BPA's revenues comes from bilateral negotiations, then you're at market-based pricing, said a public interest representative. We need to decide on market-based or cost-based pricing in order for this group to get to where it needs to be, he urged. We need to hear from BPA how this will work with constituencies such as the Treasury, suggested another participant. There aren't that many basic products, and it won't be so difficult for BPA to put a cost on them, one individual observed. Another said there could be "dozens and dozens" of products tailored to individual situations.

This group has to figure out how to get to the milestones in the game plan, said Berwager. There are lots of implementation questions we've skirted around that we need to discuss in the next three to four months, he said. We'll revisit the game plan as we go along, stated Adams.

 

BPA PRESENTS SAMPLE PRODUCTS

Berwager distributed a description of three sample products. He said if the group thinks the format works, BPA will use it to describe other products and services customers have said they are interested in buying. Each of these products was described with eight factors: term, transmission, amount and shape, load growth, economic load loss, retail access load loss, basis for payment, and resources. The handout includes a list of "additional products to be described."

Are these three generic contracts that are "not tailorable"? asked a participant. These are not contracts, they are products, replied Berwager. We want to get feedback so we can "put flesh on these bones" -- as we do, we may land on a "basic product" we can put a price on in a way we could use for a rate case, he said.

The products presented were:

  • Full Service Product, under which BPA would provide all the firm power and services a customer needs to meet actual loads, including transmission. The example assumes the customer has "some small generating resource."
     
  • Firm Power Block Product, which BPA would offer a Direct Service Industrial Customer or others who have expressed interest in purchasing power blocks in predefined shapes and amounts that could vary by month of the year.
     
  • Partial Service Product, under which BPA would provide firm power to serve a customer's loads beyond a specified amount of contract purchases and small generating resources.

The "economic load loss and retail access load loss" features of the products attracted the most attention. The Comprehensive Review didn't envision BPA increasing its risk, and "this is BPA getting into the insurance business," commented a utility representative. There needs to be a mechanism to make sure other customers don't bear costs associated with these features, said a participant. You can't put BPA in the insurance business, but it needs to offer this type of service for those who want to pay for it, observed another. There is a market for such a product, and some utilities will pay a higher price for it -- they "just want retail access to go away," said a customer representative. Other questions involved resale rights, the relationship of the transmission business line to the power business line, and the difference between a subscription product and "anything BPA sells."

Most people commented that the format BPA used was helpful. We'll refine these three products, based on today's comments, and then describe additional products in this format, said Berwager. We will also describe other partial service products for different types of customers and come back with a package, he stated. One person suggested BPA include a separate "variable load factor product." "Reserves" and "loss compensation" were put on the list of additional products to be described.

 

BUSINESS RELATIONSHIP: THE UMBRELLA GOES UP AGAIN

The group took another look at a proposal from a DSI representative that outlines a contract framework consisting of a long-term umbrella agreement that specifies an amount of power a customer has the right to purchase at cost. Under the umbrella, customers would enter into periodic subsidiary agreements that define actual power transactions. The proposal's purpose, said its author, is to preserve the benefit of the hydro system for the region. The benefit is the right to purchase low-price power, he stated. The proposal provides a mechanism for BPA to get a premium for its power for some time, preserves competitive markets, and it would prevent the region from moving to a compulsive set of arrangements to ensure cost recovery, he said. Under this framework, cost would be defined as an algorithm. BPA would be obligated to sell at cost, but customers would not be obligated to buy. As long as a customer buys power, it preserves its option to buy at cost in the future.

The group asked about Treasury's willingness to allow BPA to defer costs into the future, and if there were a deferral, whether the costs would fall on customers. For a company that can spend money now to save more in the future, this works; for a utility that has customers who can leave if it decides to buy above market, this may not be useful, observed one participant.

There were questions about how preference fits into the proposal. The framework uses the same incentives as the Comprehensive Review -- if you don't buy, you lose the right to buy in the out-years -- I'm not sure that's entirely consistent with the law, said the proposal's author. If this is an attractive option and contracts have renewal rights, those who didn't buy, even if they have certain rights, may find that the power is not available, he added. This structure is at odds with preference rights, and pursuing this umbrella should not be confused with a waiver of the rights that people who don't sign contracts have, said a customer representative.

The proposal's author flagged these major issues associated with it: defining costs to make the cost-cap guarantee real; and defining what kind of purchase is adequate to qualify as a "subscription," and in the out-years, "when you have valuable rights, what does that cover?" A customer representative stated, I don't think anyone I work for is interested in a 20-year contract with BPA, even if it's called an umbrella. Their experience in signing long-term contracts and then trying to enforce their rights hasn't been good, he said. The Comprehensive Review is inconsistent with current laws, he added.

If there is a large group of preference customers who don't agree with the Review's recommendations, you need to tell the Transition Board, said consultant Al Wright. Let's not have the fight in the abstract before we know whether the products people want to buy force us to have it, responded a customer representative. If those who want to go long term can be negated by those with preference who want to go short term, we need to tell someone, suggested another individual. There needs to be market discipline and cost control -- the solution is to find out what is to be sold at what prices, asserted the proposal's author. The solution "is in this room, not downtown" -- we're not saying this whole thing is broken and let's go home, said a customer representative.

Several people suggested it would be advantageous to pursue the umbrella proposal further. A BPA representative noted that the proposal has features applicable to any business relationship chosen. We need this group to coalesce around some construct so that in the next four to five months, we can deal with the implementation issues that have been raised, he said.

It was suggested BPA get together with interested customers to flesh out details of the idea and relate it to how the subscription process would work, keeping in mind that this isn't the only route customers want to go down. A task force "volunteered" to work with BPA. I want to see products and prices -- if this gets in the way of that, "we've got horse-and-cart problems," said a customer representative. If people have other models or views of the business relationship for the group to consider, it's time to put them on the table, urged Adams.

 

WHAT'S COMING UP NEXT?

  • More Products. BPA will present more sample productdescriptions.
     
  • Business Relationship Follow-up. More discussion of the "slice of the system" proposal is anticipated, as is a report from the "umbrella agreement task force."
     
  • September 3 Meeting Change. This meeting will be a half-day morning session at the Northwest Power Planning Council offices. (The Transmission Work Group will meet at that location in the afternoon.)
 
Adjourn
   

Archive of content originally posted or last updated on:  July 28, 1997.
Content originally provided by:  Syd Berwager, BPA Power Business Line.
Content currently provided by:  PBL Requirements Marketing - PS.
Page maintained by:  BPA Web Team.
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