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

Summary of November 19, 1997 Meeting

BPA Rates Hearing Room
 

The work group discussed the definition of subscription rights and how to secure a future right to purchase cost-based power. There was a lively debate about whether BPA should proceed with out-of-region sales before the subscription process concludes for in-region customers. Several issues, including products and pricing, were assigned to subgroups. About 35 people attended. Next meeting is December 3 at the BPA Rates Hearing Room.

Index (click item to move to topic)

UPDATES ON F&W AND TRANSITION BOARD

A PPC staffer reported on a November 25 workshop in Spokane that addressed how the region should proceed with future fish and wildlife (F&W) funding decisions. There was a lot of discussion about how the Memorandum of Agreement is working, he said. Some F&W managers would like to see subscription delayed to accommodate more work on F&W recovery issues, he added. A public interest representative said there is a tension between BPA's need "to do deals" early and the potentially costly F&W recovery decisions that will come later. There was no resolution in Spokane, he added.

Consultant Al Wright said the Transition Board is moving toward having a restructuring package in January or February. You ought to think about what you want in that package, he advised. "You can remain silent, but that's not a good idea," Wright said.

 

DEFINING A SUBSCRIPTION RIGHT

Syd Berwager of BPA presented the following definitions: "A subscription right is the right to buy an amount of power at BPA's lowest cost-based price for a defined period of time." In order to obtain a long-term (post-2006) right, a subscriber would follow one of two paths: "Make a commitment to buy an amount of power at BPA's lowest cost-based price for the period of time for which subscription rights are desired" or "make a commitment to buy an amount of BPA power at BPA's lowest cost-based rate for an initial period, and purchase an option to buy that amount of power at BPA's lowest cost-based price for the period beyond the initial commitment."

There were a number of questions, including whether the right would be attached only to the five products previously identified as "subscription products." Wright suggested the group write a one-page explanation of its efforts to create a contract right that is different from preference, but does not conflict with preference. A public utility representative disagreed the right would be "different from preference."

One participant asked about the minimum contract period for a subscriber to secure a subscription right. Several customers outlined scenarios for buying under each of the two paths Berwager outlined for securing a future right. If I buy for 10 years, with five years of known price, does the option buy me the lowest cost-based rate in the second five years? asked a participant. Yes, was the reply. I take it you could reduce your purchase in a later period, but not increase it, an IOU representative clarified. Another customer representative said he had understood the option was to apply in the period after an initial subscription contract expires.

Let's discuss whether either approach will work, suggested a public customer representative. I am assuming BPA's cost-based rate will be above market, he said. If you don't offer subscription customers anything other than price, you've given them nothing--you're already above market, he continued. I thought with subscription you would have the right to buy at cost in the next contract period, he said. If you want five-year deals, you need to offer a cost-based rate with the option to purchase cost-based power in the following period, he stated.

There is a risk to those who sit out, a BPA staffer said. The original signers could get a melded resource cost, and those who come in later may face paying for other resources, he explained. The question is, do you have "a re-up right"? he said. It makes sense to encourage buying at cost, and you ought to be able to re-up at cost, a public customer representative said.

A public interest representative said he saw the two paths as about the same. They only make sense if there is a third, he observed, and that would be buying at the surplus (FPS) rate, plus buying an option. When BPA is at or below market, it makes sales under paths 1 and 2. When BPA is above market, it makes sales at the FPS plus an option, he said. The option, as the Regional Review regarded it, is to enable purchase at the "PF prime" (lowest cost-based rate) at the end of the contract term, he said. The Review anticipated the option fee would bring in revenue over and above BPA's costs, with the extra to go to Treasury to accelerate repayment, he explained. "If BPA can generate revenues above cost, it ought to," he added.

Get customers to buy at cost and give them the follow-on; if they buy at the FPS and they want to buy the option, BPA should "take it," a customer representative urged. "Make the cost-based rate as attractive as possible--it pays your costs," he added.

People will take the lesser of market price/plus option or the cost-based rate, a BPA staffer observed. Let's not jettison alternatives, let's add to them, he suggested. The list has to be internally consistent, an IOU representative stated. I don't think it's rational for us to try to envision all situations, he added. Should you allow someone to buy a stand-alone option? asked a participant. That would force BPA to have to reserve power, another responded. The work group decided to have a subgroup further refine the subscription contract principles.

 

CUSTOMERS FEEL 'GOOSEY' ABOUT EXTRAREGIONAL SALES

Dick Adams of PNUCC offered a revised draft for implementing subscription. Under the proposed schedule, prices would be defined by the second quarter of 1998, followed by a 7(i) rate case. A subscription period would begin in the third quarter of 1998 and end two years later.

The draft indicates that all sales to non-regional customers would be negotiated after the subscription period. A BPA staffer expressed concern about concluding that the agency would not be talking to anyone out of region during the subscription period. We thought BPA would manage its inventory to meet in-region needs, but not be disabled from making out-of-region sales, another staffer said.

When we put together the new schedule, "we brought the subscription saga to a halt in 2000 to give BPA time to dump what was left. I thought extraregional sales were the dumping ground," a public customer representative stated. If you are already making extraregional sales, there's no need to bring subscriptions to a close so early, he said. Our intent is to work first on making those in-region, at-cost sales, a BPA staffer responded. As we move out in time, our expectations would need to reflect reality if we haven't signed many contracts, he said.

BPA has an affirmative obligation to reserve power for the preference load, a customer said. If we have a process that's open to out-of-region sales, I'd like assurance from BPA it will be consistent with that obligation, he continued. If it becomes apparent during subscription that there is not a regional market for power at BPA's cost-based rates, BPA needs to have conversations outside the region, a public interest representative said. Regional preference then operates as the right of first refusal, he said.

People may be delaying subscriptions because of uncertainty about retail access, one customer suggested. I see a whole lot of activity at the end of the subscription period, she said. We need an endpoint for subscription to complete our public NEPA process, a BPA staffer said. I think a year is reasonable, he added. There is "a business interest" here, another staffer said. We have little revenue assured after 2001, he said. What about using the presubscription model? a customer asked. You could go to the Transition Board with a proposal for the amount of power you want to sell out of region, he suggested. We're asking BPA to describe the "glide path," to have some sort of public check, a public interest representative stated. "We realize that BPA needs to pay its rent," he added.

One customer suggested BPA could post its proposed transactions. BPA would not consummate the sale within 60 days of the posting, he explained. BPA would still be doing what it needs to do, but we would have "a stop gap," he said. The concern is over the amount reserved for preference customers, not over price, he added. A customer representative suggested that BPA would manage its resources to serve preference. "Let's not over-engineer this," he said. I'm still worried about out-of-region sales, he continued. Some customers won't make a commitment until well into the subscription process, and "it makes me goosey having BPA consummate out-of- region sales," he said.

After July 1999, we'll know what Oregon and Washington are going to do about retail choice, a public interest representative observed. Do we have to wait for state action? a BPA staffer asked. If we anticipate too many futures, we won't be able to do anything, he said. How do you expect to implement preference statutes? a customer representative asked. We would apply our current policies, procedures, and practices, the staffer responded.

Is it possible for BPA to post a total of in-region and extraregional sales so we could watch them cumulate? a participant asked. What level would trigger concern? he inquired. There is a threshold question of whether we want to impose limits on BPA's sales, Adams stated. Do we want to do that? he asked. I'd strike the statement in our draft about out-of-region sales, with a reasonable commitment from BPA, a customer said. If these sales will be wide open, I want to know a lot more about the management of resources, another customer said.

Should BPA "take pen in hand" and describe our current policies and thinking about how they would apply in this situation? Berwager asked. Yes, the group agreed, and BPA should also provide a legal opinion on how it treats competing applications for power in light of preference.

 

A RETURN TO THE SLICE

A Public Generating Pool representative presented an updated version of principles for a "slice of system capability," including an example of accounting for the slice. Are you and BPA getting any closer? a participant asked. There is an improved understanding of the product and how it would operate, the PGP representative replied. We're working through the issues, he added.

What value would this have? asked another participant. A proponent of the slice said it would provide an additional resource that utilities could use to mesh with other resources to meet load. It has more cost certainty than buying products "piecemeal," he said. Would you pay a percentage of the revenue requirement associated with the slice? another participant asked. That raises some cost-shifting concerns, he said. Could a slice owner dispute decisions BPA makes and seek some remedy? he asked. Would the capability be subscribed long-term? a participant asked. We're thinking it would be multiyear, but the length adds more risk from nonpower constraints, the PGP representative replied.

Berwager said BPA will be working energetically to understand the needs the slice proposal represents and to see if there is "a more standard product that can scratch the same itch." An IOU representative said he thought there might be interest in the slice among his constituents, and a public customer reiterated his utility's interest.

 

WHAT'S COMING UP NEXT?

  • Pricing. Kathy Hoffman of BPA will set up a meeting on pricing products.
     
  • Products. Q/A on subscription product descriptions was delayed to December.
     
  • Schedule. The work group will discuss a 1998 meeting schedule in December.
 
Adjourn
   

Archive of content originally posted or last updated on:  December 15, 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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