Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of September 3, 1997 MeetingNWPPC Conference Room
The Federal Power Subscription Work Group had a packed agenda, which included reports from subgroups working on "slice of the system," a secondary energy product, and the business relationship between the Bonneville Power Administration and its customers. Syd Berwager of BPA outlined some options for resale and remarketing federal power, and the work group had a spirited discussion about how to characterize its progress to the Transition Board on September 9. About 35 people attended. The next meeting is September 17 at the BPA Rates Hearing Room in Portland.Index (click item to move to topic)
- A Game Plan
- The Skinney on the Slice
- An Option for Excess MAF
- Resale and Remarketing of Federal Power
- Singing in the Rain
- Transition Board Report: Various Views on Progress
Dick Adams, Executive Director of PNUCC, handed out a "Federal Power Subscription Game Plan" that divides the group's work into four categories: define products and services; business relationships between BPA and its customers; price of products and services; and implementation of subscription. The schedule raised questions about a BPA rate case overlapping with bilateral negotiations. Will the prices for basic products be known when negotiations begin? a work group member asked. Berwager acknowledged that the initial prices might be estimates or "not-to-exceed" figures. He noted that the agency is considering a redesign of its 7(i) ratemaking process and may need to consider further where the rate case would fit with negotiations.
Adams offered a list of 25 issues raised early in the subscription process by the public and the work group members. Many of the issues were attached to the group's work plan developed six months ago, he explained. "Before we can declare victory and stop meeting, we must deal with each of these," Adams said, noting that he had put a "check" next to those the group has addressed. I propose we use something like this to report to the Transition Board next week, he suggested.
Some members favored going through the list to see if there is agreement on the definition and the "state of completion" of each item. Another said it would be "going backwards" to spend time getting into such nuances. "We are working on all of these and none are resolved," another member stated. Maybe BPA "should lay out how they think they've addressed each one," a utility representative suggested. How about posting a couple of sentences about each item on BPA's website, and we can make comments about whether we have addressed it, someone offered. A discussion of this at the next meeting might make sense, but don't use this for the Transition Board report, a customer representative said.
"Obviously this is not ready for prime time," Adams acknowledged. "But we'll stop meeting at some point, and we have to know when we're done," he observed.
A customer representative reported on a subgroup meeting with BPA to define and clarify the "slice of the system" proposal. There are two possible ways to approach the definition: as a right to "a slice of actual system output," or as "a slice of system capability," he explained. The subgroup is putting the definitions on paper and refining them, he said. "This is very different from the other things on the product list, but we think we can define something useful," he added.
The slice is a combination of prescheduling rights, load regulation rights, and a "paper" storage account, he explained in response to a question. BPA continues to manage the water -- "that's a critical piece," another customer representative added. The slice customer would have "a paper pond," and BPA would tell them how much energy is there, he explained, likening the operation to how the mid-Columbia PUDs operate their mainstem run-of-river projects.
Several participants raised questions about pricing and the responsibility slice purchasers would have for contributing to BPA's overall revenue requirement. The discussion has so far focused on operations, was the response. Berwager observed that if BPA and the slice proponents cannot agree on operating details, there won't be any need to take on pricing. The subgroup will report again in October.
A customer representative reported that the subgroup working on a secondary energy product met with BPA to explore how the agency markets surplus power. We also talked about resources that are available under excess water conditions, she said, noting that the subgroup broadened its focus from nonfirm to secondary energy, in general. The subgroup identified million acre-feet (MAF) as the measure for defining the product, she explained. The secondary energy product would offer customers an opportunity to buy an option to purchase surplus power, if water conditions are above so many MAF, she said. "Customers would be buying an option for a resource that may or may not exist -- you would be buying your way into the queue," she added. A group member asked if the subgroup had dropped the idea of an auction for secondary energy, and was told it had not. You could still have an auction; "it would be a good way to price the option," he said.
A utility representative said he was concerned that the secondary product could conflict with the "slicers." What's the business interest behind this product? a participant asked. For BPA, it's to realize more revenue from nonfirm sales, and customers agreed it should be offered if it helps make the subscription process succeed, she replied. It could be a way for customers to displace thermal resources or to hedge resources that are in different watersheds than federal projects, and it could benefit industrial customers during production swings, she added.
We think it is worth exploring, she continued, noting that the subgroup meeting coincided with Enron's announcement that it would offer "a weather derivative" product. BPA will make a presentation on marketing secondary energy at the September 17 meeting.
Berwager laid out options BPA developed to address the issue of customers' rights to resell federal power and/or have BPA remarket power a customer has agreed to purchase but can no longer use. He noted the distinction between "resale," an activity a customer would undertake, as opposed to "remarketing," an activity BPA would undertake when requested by the customer.
See BPA slide presentation on
"Resale/Remarketing Discussion" (PDF, 5 pages, 79 kb)
Berwager used the example of a customer who agrees to a 100 average megawatt (MWa) contract and then loses 15 MWa of industrial load. How do we deal with that extra 15 MWa? he asked. BPA came up with several options that have varying degrees of risk for BPA and its customers, Berwager explained. Under one option, the customer could resell the excess and bear all of the associated risk. The advantages would be that the power product would be more flexible, and the customer would manage its own risk, he said. There is, however, a statutory restriction on resale rights, Berwager pointed out.
Under a second set of options, BPA would remarket, curtail, provide block flexibility, or build in a feature to address loss of load. If BPA were to remarket the power, the customer would receive credit against the purchase price. BPA has an established market presence that could be an advantage in remarketing, and the customer would avoid statutory restrictions on resale, Berwager continued. The customer would, however, lose some independence in managing its portfolio, he stated.
Berwager pointed out statutory differences with regard to reselling different categories of power. Requirements power cannot be resold; surplus firm power is available for resale at the wholesale level, but there are limitations on sales by a private entity; excess federal power can be resold in or outside the region for up to seven years. Is there "a bright line" between surplus firm and excess federal power? a participant asked. Paul Norman of BPA said there is a statutory definition for calculating the types of power.
Berwager outlined three options for customers to gain resale flexibility: purchase excess federal power; purchase surplus firm power, which for a public agency or co-op could be resold; and/or purchase a contract that provides for converting power from requirements power to excess federal power if and when load disappears.
Could a DSI convert its entire load and sell it for 20 years? a public interest representative asked. The response was yes on the conversion, but a customer representative pointed out that the sale could only be for the duration of the original contract. Another participant said that if a private entity buys excess federal power and a preference customer makes a call on it, the power would have to be relinquished at the end of the contract.
A customer representative reported on progress to further refine the umbrella/subsidiary business relationship. A subgroup met and made an effort to answer questions such as: whether the umbrella agreement would provide protection with regard to BPA's costs; the difference between in- and out-of-region sales; how the price of power is to be determined; whether all signers would pay the same price for identical products; whether umbrella customers would have priority in a shortage; and who would be eligible to sign an umbrella agreement. "This is a fruitful process. We're seeing we can answer some of these questions," he said.
I thought the usefulness of this was that some customers would be entitled to sign an umbrella agreement and get something for it, a participant observed. If the customers who sign and those who don't are treated the same, there's no point to it, he said. The value is that signers have certainty BPA will stay at cost-based rates, responded another participant. The "thin blue line" in the original proposal was that by signing the umbrella you could buy at cost in the future, a customer representative responded. You have to differentiate between the two types of customers, he urged.
We had hoped to work with the umbrella, a public interest representative said. But, he added, there should be "an explicit distinction" between umbrella and non-umbrella customers, and only those who sign should be entitled to power "at cost" in the future.
Adams said the Transition Board wants more than a "fly-by" report in September, and he offered a draft outline. A customer representative recommended reporting that the group is still working under the assumption that no legislative changes will be needed, but others said it is too early to tell if that is true. "I'm not convinced we've tapped out the administrative approaches yet," another customer representative said, adding, we should tell them "BPA is bringing imagination to resolving the issues."
Adams asked Consultant Al Wright what he thinks the Transition Board expects. Wright listed: a timeline -- how you're doing and the progress you expect to make by year's end; obstacles that may require legislation; and how far have you have deviated in developing a subscription process from the Comprehensive Review's report. I think you have deviated, he stated. I think we've stuck close, Berwager commented.
We're not going after cost-based rates, a participant pointed out. "I wouldn't call that a deviation, but a reality check," a customer representative responded. We've recognized that as a practical matter, cost and market have to be close together, he said. Another customer representative said the group has deviated from the Regional Review in going toward products that would have BPA take on market risks.
Adams noted that the Transition Board wants to hear more than one point of view. He encouraged work group members to attend the September 9 meeting.
Archive of content originally posted or last updated on: November 9, 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.