Summary of December 17, 1997 Meeting

The work group discussed the standard power product descriptions and a revised draft proposal for implementing subscription. The group also reviewed a revised approach to calculating a price cap for BPA products purchased under subscription contracts. About 35 people attended. Next meeting is January 21, 1998 at the BPA Rates Hearing Room.

• Openers and Updates
• Bringing Standard Products into Focus
• Subscription Nuts and Bolts Revised
• What is a Subscription Right?
• Another Go at the Umbrella Price Cap
• Up Next?

OPENERS AND UPDATES

Dick Adams, executive director of PNUCC, asked the group to try to identify what remains to be done on each topic on the agenda. He suggested participants get an idea of what needs to be worked on, meet in subgroups over the next month, and convene again on January 21.

A customer representative reported that senior staff of the three sovereigns are working on draft principles for a governing agreement to be signed in January or February. The three sovereigns have set up work groups on fish and wildlife (F&W) costs and cost recovery, he added. There is "a potential collision course between some of their ideas and ours," he said. In particular, there is a question of whether subscription should proceed on the schedule we have contemplated, he stated. A public interest representative said the concern in the three sovereigns process is that the subscription work needs to incorporate a stranded cost mechanism. A BPA staffer reported that a subgroup on contract principles had "a good meeting" and that a revised proposal would be sent out for comment.

BRINGING STANDARD PRODUCTS INTO FOCUS

A BPA staffer offered a list of issues and clarifications related to BPA's standard power product descriptions. A subgroup met twice, and the list represents its work, she said.

• Item 1: Clarify the other products and services that must be purchased to complete a service package. One of the participants asked if items on the list, which include transmission, reserves, shaping, and load growth, could be purchased from sources other than BPA. Yes, was the reply. Has there been discussion about which services would be offered by the transmission business line and which by the power business line? a customer representative asked. Another customer asked how BPA would handle general transmission agreements (GTAs). BPA indicated these are issues that still need to be settled. Consultant Al Wright cautioned that if transmission separation is resolved by calling for FERC-equivalent regulation, FERC would not be sympathetic to using transmission to enhance subscription. You would want to be very clear in any legislative proposal about what you intend to do in dealing with GTAs, he said.
   
• Item 2: Clarify issues related to resources. With regard to a customer's small generating resources, BPA proposes to cover fluctuations for resources up to 3 megawatts (MW) in size or multiple small resources up to a total of 6 MW. The key is they are "nondispatchable," staff said. The group agreed it does not matter whether the resources are physically located within or outside the customer's service territory.
   
• Item 3: Comment on rate period/cost certainty. BPA's current thinking is to have a minimum commitment of five years. Many utilities will want a portfolio of resources with varying terms and duration -- you might deprive yourself of the market for three or four-year contracts, a customer representative said. BPA will be up against the cliff problem again, another participant said. Syd Berwager of BPA noted that if BPA makes a two-year term available, it could create a two-year cliff. We have a business interest in going with the longer term, he said. If BPA has a five-year rate, and a customer signs for two years but later decides to extend, there would be no prohibition against BPA changing the cost-based rate, if circumstances warrant, a participant said.
   
  Isn't there a tension between customers wanting to treat BPA as "just another supplier" and the region's desire to bind BPA to the Northwest through the subscription process? asked a state agency representative. I don't see how changing these details will achieve that policy goal, he observed.
   
  When we talk about options for cost-based purchases in the future, we are asking BPA to be the insurer and assume a risk, a participant stated. The option holders could come back at the worst possible time for BPA, which creates a fundamental problem of instability, he said. A subgroup agreed to draft a proposal on how to apply the option fee.
   
• Item 4. Clarify the mechanics of retail access remarketing. BPA set out the terms under which it would remarket power for a customer. We would set some threshold for protecting customers against load loss, and we could price that risk, Berwager indicated. For small customers, that cost would be zero, he said. If you don't charge for a service like that, you are shifting costs among customers, a participant pointed out. Small utilities should be able to pool the risk, a customer representative stated.
   
• Item 5. Resale. One customer representative asked if BPA would attempt to track where the kilowatt-hours go. "We aren't in the business of policing," a BPA staffer replied. The contract subscription right is regional, Berwager said. If you sign a PF contract and your load disappears, you can convert the sale to a surplus power sale and resell the power, he explained. If you sell outside the region, your subscription right would be diminished, Berwager said. That would be penalizing the customer, a participant said. Another individual suggested requiring a customer to offer the power first in the region and dropping the penalty. A DSI representative suggested there not be a penalty, but instead limit future subscription to the customer's actual load. That would preclude anyone from subscribing to BPA to perpetuate a sale outside the region, he said. That would work as long as you have to show real load to resubscribe, a public interest representative agreed.
   
• Item 6: Clarify guidelines on moving to a different business relationship and product mix. BPA would not anticipate fundamental change in the contract relationship within the rate period. This means "a contract is a contract," a participant observed.

The group moved to Item 9, slice of the system. A customer asked about BPA's work plan for resolving the details. Berwager said BPA has staff working full time on the slice. We're also seeing if we could offer a more standardized product that would work, he said. A PGP representative said more meetings would be set up. Another participant asked what is being done in terms of a renewable product. BPA indicated that is still an outstanding issue. The standard products subgroup will meet again January 7.

SUBSCRIPTION NUTS AND BOLTS REVISED

A BPA staffer offered a revised proposal for implementing subscription. Subscription would begin July 1, 1998 and end September 30, 2000. There would be a total of 8,300 MW available for subscription. Power would be offered in four phases: public agency and federal load at cost-based rates; active exchange and DSI load at cost-based rates; remaining regional load; and extraregional load. Initially, 2,000 MW would be dedicated to existing long-term sales; Transition Board-approved extraregional sales; and expected presubscription sales to subscription-eligible loads. BPA would reserve power for subscription and periodically review how sales are going. If sales are lagging and BPA believes it may not sell all the power by the end of subscription, power would be made available to the market.

There were a number of questions: Why would you reserve 800 MW for extraregional sales? If a utility comes in November 2000 and BPA has no power, would that be acceptable? How would BPA gather information about the potential for sales in the region and would there be an opportunity for customer input? Subscription gives first priority to regional customers, Berwager said. Customers may say they will buy, but then not buy, and it will be difficult to determine if they are "unable or unwilling" to purchase, he continued. We have to make a business decision if we have markets elsewhere that will pay for cost-based power, Berwager said. Account executives will ask customers about their plans and help BPA set up its expectations, a staffer said.

Do you contemplate these sales to be at cost with the "free market components" coming in at the end? a customer rep asked. If your price is 20 mills and a customer offers 19.5 mills, would such a deal be allowable throughout the process? he inquired. In the beginning, no, we'd want to cover all of our costs, was the response. "What BPA wants to do is make steady, robust sales," and we would like incentives to make the sales early, Berwager said. A public interest representative suggested BPA talk to the states and PUCs about the future of residential loads. There may be a shift in who is acquiring power for those loads; there may be aggregators, a participant said. The group asked BPA to report on January 21 how it would disseminate information on the progress of subscription sales and provide opportunities for customer input.

When will a Record of Decision for subscription be signed? a participant asked. A BPA attorney said the record would start coming together in April 1999 for signing in 2000. But we're signing contracts now, Berwager said. We think our current Business Plan EIS is sufficient to cover subscription, he added. A DSI representative said BPA needs to get going on a work plan to conclude a rate case by the end of 1998.

WHAT IS A SUBSCRIPTION RIGHT?

Adams said there are two questions with regard to a subscription right: what is it? and how do you get it? He suggested the group focus on the first question. Berwager said his definition of a subscription right entails quantity, price, and time. A subscription right is the right to buy an amount of power, at a pre-defined lowest cost-based rate, for a defined period of time, he said. It may be wise to leave the definition at the conceptual level, a customer rep recommended. Rather than try to narrow it down to contract language, our interests would be best served by letting BPA and customers work through what it means in their contracts, he said. That approach could result in each customer paying a different amount, a public interest rep observed.

Every third meeting "we go around this bush," a participant said. BPA says it will have a rate case and a fixed price for five products, then we talk about "custom fitting" the prices -- you can't do both, he stated. We are saying there is flexibility in the other products and services, a BPA attorney responded. I understand the add-ons, but for products one through five on your list, the lowest cost-based price would be the same for all customers, the participant stated. Is the rate case just the point of departure? asked a public interest representative. The rate case would initially determine the posted price, a customer representative responded. If you decide the cost-based price isn't what you want to buy, you're into the FPS (surplus) environment, he stated.

Are both FPS and PF purchases considered subscription? a BPA attorney asked. If you negotiate for a product that is not requirements, do you get the subscription right? he asked. Another element of the subscription right may be "when," a customer representative suggested. Is it at the end of the contract period? Is it forever? he asked.

ANOTHER GO AT THE UMBRELLA PRICE CAP

A customer representative presented a revised, simplified approach to calculating a price cap for BPA rates over the long term. The price cap would provide a limit above which rates would not go, during a 10 to 20-year period. We're trying to provide long-term price assurance, he said. The cap would be based on an analysis of BPA's fixed costs, he added.

This looks remarkably like our stranded cost proposal, a public interest representative said, adding "it makes a lot of sense." You make certain the cap is high enough to assure Treasury payments and low enough to keep customers with BPA, he said.

I wouldn't want to say this is an absolute limit on F&W costs and customers have no obligation for changes in system configuration, a customer rep said. We may have things we can cap, but we may need to talk about other costs in a more sophisticated manner, he added. If subscription were the only potential source for F&W funds, "this would be DOA," a public interest rep said. But discussions are going on "in other rooms," he said, and this can't be agreed upon until we know what's coming out of those rooms.

UP NEXT?

Subgroups and BPA will work on product descriptions, options and how to gain subscription rights, slice of the system, contract principles, and implementation.