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

Summary of August 20, 1997 Meeting

BPA Rates Hearing Room
 

The Federal Power Subscription Work Group discussed more sample product offerings presented by the Bonneville Power Administration, a proposal for a secondary energy product, the umbrella business relationship, and an upcoming status report to the Northwest Energy Review Transition Board. About 35 people attended. The next meeting is September 3 from 9 am to 12 noon at the Northwest Power Planning Council offices in Portland.

Index (click item to move to topic)

PROPOSED SECONDARY ENERGY PRODUCT

A customer representative reported that a subgroup met and talked about "an auction-type secondary energy product." BPA would sell secondary energy on an auction basis for one, two, or possibly three years into the future, she explained. The proposal includes setting aside secondary energy for BPA to optimize its firm output and meet its obligations. The auction would be based on price and duration. If more than one entity were competing at the same price, regional and public preference would be the tiebreaker. The proposal includes a rate cap, and no limitations on how the power could be used. We talked about a floor for the product so BPA wouldn't have to sell at inordinately low prices, she stated. This could be an alternative to the nonfirm product BPA has proposed, she said. She added "three cautionary points" about the proposed product: it's not clear BPA would benefit from a revenue standpoint; it could result in "game-playing"; and it could be costly to administer. We thought we'd need to hear from BPA on this, she said.

A participant asked if BPA would be obligated to deliver the power after the auction. "You put money in the bin and buy a place in line, and if secondary energy is available, you get it in that order," she replied, adding that in a bad water year, you could get nothing. That's what prompted the idea of more than one year -- if you don't get the product one year, you might get it the next, she said. Syd Berwager of BPA stated that internally, there are a lot of questions about the proposal and suggested that more discussion is needed "to develop a product that might make sense for BPA."

I'd like to see a presentation on BPA's overall marketing strategy for nonfirm energy, said a customer representative. I'd call it "portfolio management," said a BPA representative. We need a presentation by BPA and by the customers proposing the secondary energy product so we can compare them, see where the risk is, and whether BPA would be better or worse off, suggested an agency representative. Berwager said BPA would put together a presentation on BPA's current portfolio management approach.

 

BPA PRESENTS MORE SAMPLE PRODUCTS

Berwager distributed updated sample product descriptions. My hope, he said, is that we can conclude discussing products and BPA can go off and focus its further development and pricing work on these products. Berwager presented four products.

  • Scheduling Services Product. BPA would provide scheduling services for customers that purchase nonfederal power as well as power from BPA. Scheduling fees would not be charged for power purchased from BPA.
     
  • Displacement Product. This would allow a customer to purchase less power from BPA, for any reason, than what it committed to purchase. It would be offered in conjunction with BPA's firm power block product. An individual asked the difference between this and the retail access curtailment product. This "doesn't look behind the meter," replied Berwager, whereas the other product is priced on the basis that the only thing BPA is covering you for is loss of retail load. We'd have to look behind the meter to make sure that's what it is, he said. A utility rep said he was "troubled" by BPA monitoring what's happening with retail loads and stated that it could be a huge administrative burden. Berwager suggested the group needs more discussion of "what is driving some of the coverage BPA is offering."
     
  • Variable Load Factor Product. BPA would provide the purchaser with a specified amount of capacity and the right to take energy within a specified load factor range. A customer representative suggested the group put together a "laundry list" of penalty charges that would be imposed if customers take more or less than they said.
     
  • Block Flexibility Product. This would allow BPA to provide coverage for the difference (up to a specified amount) between actual and forecasted retail loads. This product, which bases billing on the amount of variance and not total retail load, is a major change from the way we do things now, said a BPA representative.

A customer observed that the work group had little representation from the operations folks and suggested they have an opportunity to review the products. Berwager suggested a task force may be an option to figure out "how to operationalize" the products discussed thus far. A customer representative asked which of the products are tied to BPA sales and which are stand-alone. Berwager said BPA would identify the linkages. A discussion of whether some of the linked products could stand alone would be useful, an individual suggested.

Dick Adams, executive director of PNUCC, asked if there are other products, besides the secondary energy product, that people are interested in, but are not on the BPA list. The "slice of the system" proposal is not, stated a customer rep. We will meet with BPA next week and presumably have something to present on September 3, he added.

 

THE UMBRELLA STAYS UP

A customer representative reported a subgroup had met to further develop the proposal for a long-term umbrella agreement with BPA, under which individual products could be purchased using subsidiary agreements. The subgroup decided since another customer group is working on transition costs, the umbrella agreement should not deal with that issue, he said. He reported there are different definitions within the group of the market rates a customer would pay prior to the time BPA's cost-based rates are below market. One is tied to an index like the price of power at the California/Oregon border; the other is a rate negotiated between a willing buyer and seller. He said other questions about the umbrella need resolution, including: the premium negotiated between BPA and a customer for the right to retain access to cost-based power after the market price of power exceeds BPA's costs; cost certainty when BPA's costs are less than market; allowance for a re-opener when more cost-based power becomes available; and ensuring a customer's freedom of choice to participate in the umbrella or not to participate.

The Knot of Preference. If a customer goes with the umbrella, it has certain rights as a result; customers who don't may not be able to come back at cost, said a participant. Others believe there are rights to come back at cost, he noted. At every Transition Board meeting, I am asked, said consultant Al Wright, is it clear the business relationship is going to be at cost or at market, and I say, "we haven't crossed that bridge yet." The board is becoming dissatisfied with that answer because they want to come to grips with the need for legislation, he said. The issue that has been raised before in this group is that "while implementation of subscription is interesting, it doesn't carry the statutory weight the preference laws do," said a participant. The question is, said Wright, do you want to change those statutory provisions? There are those who think you should, he said. And those are those who think you shouldn't, responded several others.

What if the cost line presented with the umbrella proposal does not show the right relationship? asked an agency representative. I'm troubled by the historic inability to accurately predict costs and prices -- how do we know we want to proceed using this model? he asked. The umbrella is not the only business relationship we are discussing, said a customer representative. The group also discussed issues related to in-region versus extraregional BPA sales, and it was suggested that a subgroup be organized to discuss the topic further.

After issues associated with the umbrella proposal were summed up, the customer representative who made the presentation said, I will try to answer these questions and keep this moving along. "I think the umbrella has life," he added.

 

WHAT TO TELL THE TRANSITION BOARD

We are scheduled to report to the Transition Board September 9, Adams told the group. He suggested the report could give examples of the kinds of products the group has talked about, and describe the business relationship proposals under discussion. Adams noted that this is the time by which the group had committed to identifying any obstacles it sees in its way. "Have we really asked ourselves that question?" he inquired.

If BPA continues to have out-of-region sales with costs dumped onto in-region customers, there will be a problem, said a utility representative. The question, according to Wright, is does the subscription process drive the design of BPA's new marketing plan or vice versa? BPA may be getting mixed messages, he suggested, with some saying, provide customers flexibility and a broad array of products, and others saying, "don't rock and roll in the marketplace." It's not as dramatically inconsistent as you describe, asserted a customer representative. We're working on basic products and services and how to accommodate other things BPA will sell -- it's more than selling two products, but "it's not a pizza with 17 different toppings," she said. The question, said Wright, is should BPA be taking arbitrageur risks and offering new services just to make money, and does BPA belong in those territories?

It's okay to tell the Transition Board, we've just begun the business relationship debate, and we need more time, but we need to commit to when we'll go to the board and say, we've found obstacles or we did not, said Berwager. We identified a key item today -- do we want to change the fundamental character of customers' rights under preference? said a utility rep. Public power may not be able to come to a unified conclusion on incentives for people to stay with the system in the short term, said a participant. The board thinks the Congressional delegation may ask them about legislative needs in late winter or early spring, Wright indicated.

We need a refresher on whether BPA thinks it needs legislation to accomplish its objectives, said a customer representative. It should include BPA's interpretation of its and its customers' rights under current law, an individual suggested.

A List of Obstacles. Let's list some of the obstacles we've run into and discuss alternatives to them, suggested a customer representative. He listed: resale rights; the Comprehensive Review's recommendation that BPA no longer meet customer load growth; rate structures; the "slice of the system" relationship with BPA; and preference. Others contributed to the list: reaching agreement with Treasury about whether BPA is a business ("is Treasury a shareholder or a banker?"); Treasury deferrals; and the Comprehensive Review's influence on the subscription process ("is the Comprehensive Review an obstacle to implementing subscription?") We could present our latest work plan, note there are issues associated with it, and say there may be legislative questions and that we'll let you know if we find there are, suggested Berwager. You have to forecast to them when you will do this, urged Wright.

 

WHAT'S COMING UP NEXT?

  • More Discussion of the Report to the Transition Board. Adams said he would work with BPA and bring a proposed outline for the presentation to the Transition Board to the next meeting.
     
  • Reports from Subgroups. Small groups working on such topics as the "slice of the system" and a secondary energy product will likely make reports.
 
Adjourn
   

Archive of content originally posted or last updated on:  August 22, 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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