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

Summary of August 26, 1998 Meeting

BPA Rates Hearing Room
 

BPA announced plans to publish a draft proposal for resolving outstanding subscription issues on September 16 and to hold a conference September 29 that focuses on allocating the system. Agency staffers briefed the Subscription Work Group on risk management mechanisms that could be used to cover cost uncertainties in the 2001 to 2006 rate period. The group responded with questions on the nuts and bolts, as well as on the tone of a BPA briefing paper, which was geared toward addressing fish and wildlife expenses. About 45 people attended.
Next (and possibly final) meeting: September 22.

The following handouts were distributed at this meeting:
Draft Standard Power Product Descriptions (PDF, 86 kb)
Variable Load Factor, Block Flexibility, & "Resource" Factoring (PDF, 17 kb)
 
Index (click item to move to topic)

SETTLEMENT SEARCH ENDS WITHOUT THE QUARRY

The search for "the elusive global settlement" is unlikely to bear fruit, according to Syd Berwager of BPA, and the agency expects to publish a document on September 16 that will lay out how it intends to resolve the outstanding subscription issues. He indicated that BPA will meet with other federal agencies in Washington, D.C. to discuss the principles on fish and wildlife funding that will guide the subscription and power rate processes.. BPA plans to have two public comment meetings, Berwager said. In addition, a conference on September 29 will focus on "to whom does BPA offer the ability to subscribe," he reported. A five-week comment period on the subscription proposal will end October 23, and a final decision will likely be made in mid-November, Berwager said.

Questions. Is this going to be a formal process, with this being the Record of Decision (ROD)? a customer rep asked. I have not been thinking of this as a draft ROD, but as a proposal, Berwager responded. At the end of the comment period, there will be a formal decision, so it may be helpful to think of this as a draft ROD, he added. Why is it being done this way? the rep asked. I thought we were en route to implementing the Regional Review recommendations, and I hadn't anticipated a process that would "kick-off litigation," he commented. We will be putting out something that resolves the subscription issues, and that involves "a significant federal action," Berwager responded.

Is this a final action "we have to challenge"? another participant asked. These will just be contract issues, and we won't have rate issues or a final rate resolved, a BPA staffer pointed out. The focus on whether it is a ROD "is immaterial," a public agency rep said. If people think their rights have been infringed, they will litigate, he added.

When will subscription start? a customer rep asked. We will not sign contracts until there is a ROD, which will be sometime in November -- the ROD will become the opening of subscription, Berwager stated. How early will BPA enter contract negotiations? another rep asked. When the subscription window opens, we can negotiate, Berwager replied. It's unclear what happens when subscription begins, and whether there will be contracts "with blanks" in them until the rate case concludes, a customer rep observed. We are thinking that the contracts we sign will point to what comes out of the rate case, Berwager said. "It will be muddy water until the end of the rate case," he acknowledged.

There were several questions about the number and types of issues the subscription proposal will cover. The list is pretty "fluid," but the topics are the ones this group has seen and discussed, Berwager said. Others questioned whether the timing of subscription and the conclusion of the rate case are out of sync. If you have a legal guarantee of federal power, I assume you could come in on the last day the subscription window is open and get what you need, a public agency rep said. There could be a limited quantity, and it could be "first come, first served," Berwager responded. There's a lot buried in the definition of "guaranteed federal power," he added.

 

TRANSITION BOARD UPDATE

The latest version of the Transition Board's contingent cost recovery proposal is dated August 13, and the Board is taking comment until September 4, consultant Al Wright told the group. The proposal will be finalized by September 14, he added. The transmission proposal is final and will now go to the governors as a recommendation, Wright said. The future of the Transition Board is "under discussion," he continued. I assume the Board will go public on September 14 with its thinking and what the governors want, Wright said.

 

CUSTOMERS SUMMIT KTOO EXPLANATION

Ed Bleifuss and Geoff Moorman of BPA explained the risk management mechanisms BPA is proposing to use in the next rate period. Bleifuss proposed that customers discuss the mechanisms in detail at a rate case workshop on September 24.

Moorman said BPA's approach to risk management has been to "keep the options open" (KTOO). This will allow the agency to move forward without having certainty on what will happen with the alternatives for fish mitigation and protection, he explained. Moorman listed a set of six principles that are guiding BPA in evaluating financial strategies: take into account the range of potential fish and wildlife costs associated with all the hydrosystem configuration alternatives being considered; demonstrate a high probability of Treasury payment in full and on time over the five-year rate period; produce significant financial reserves by the end of the rate period if market prices over the period are high; minimize rate impacts on Pacific Northwest power and transmission customers; be easy to implement and administer; and the approach must be flexible to respond to a variety of different fish and wildlife cost scenarios.

A public agency rep suggested BPA analyze the impact of using any accumulated reserves to pay down debt. Some of the principles conflict with each other, an industry rep pointed out. Can you raise reserves while you minimize rate impacts? he asked. Another industry rep noted that the principles indicate BPA has "made the link" that fish are an obligation of the transmission system. Overall cost recovery is the responsibility of both power and transmission, Moorman replied.

What about a fish funding alternative that is less than the current spending level? a customer rep asked. Moorman said the 13 alternatives displayed on the charts in the handout were developed in other processes in the region. Will there be a "keep the options open" approach to other elements in the Northwest Power Act, like conservation and the residential exchange? a public power rep asked. The risk management mechanisms pertain to all risks, but we have focused on fish because there is a large upward pressure on costs, Moorman responded. You seemed to indicate a priority on the fish costs, the public power rep continued. Will other obligations be treated like this? she asked. I'd rather you address those questions in the rate case, Moorman said. The risks impact the customers I represent, she said, and I would recommend we find an opportunity to examine these issues prior to the rate case.

The range of average annual fish-related costs is $438 million to $724 million during the next rate period, Moorman said. With an adjusted schedule, which takes into account the Congressional appropriations process, the range is $438 million to $632 million, he added. One chart in the handout shows the level of Congressional appropriations required for the alternatives, and Moorman noted that some require large levels of appropriations. There is a question of whether "Congress will be in the mood to appropriate this much money," he added.

The Disappearing Inventory. A chart entitled "Subscription Does Not Lock-In Revenues" provoked a number of questions. With the chart, we were trying to show that subscription would not lockup our entire inventory at a fixed price, Moorman explained. A substantial portion of the inventory will be sold at something other than fixed prices, he said, and we laid out a "hypothetical" illustration that shows 56 percent of the inventory would be sold at fixed and 44 percent at floating prices. Within the fixed-price category are "old" contracts; fixed-price subscription contracts; and presubscription contracts. The floating-price category includes short-term contracts; indexed subscription sales; and short-term surplus sales.

When we started the Regional Review, we talked about there being 8,400 megawatts (MW) for subscription, a participant noted. Then we went to 6,400 MW, and this chart seems to indicate something less than that, he said. Moorman explained that within the various categories of sales, there are 6,400 MW for subscription. Will you subdivide power and reserve amounts within the categories? a participant asked. No, Moorman said, this is a way of building in more flexibility.

This handout has lots of examples on the cost side, but only one on revenues, an IOU participant stated. Will you do more analysis that shows what mix of contracts will give you the most cost recovery? he asked. Moorman said BPA has developed a number of "packages" to illustrate cost-recovery scenarios. If you want to recover stranded costs, you will have to demonstrate you have done what you can to optimize cost recovery, the IOU participant said. You need that analysis going into subscription, he urged. This packet is to explain the general approach, so we can get agreement within "the federal family" and move forward on the specifics, Moorman responded. Nobody has to sign these contracts -- we could maximize revenues with contracts no one would sign, Berwager said. BPA is searching for a relationship with customers that will give them choice and get us where we need to go, he added.

A public interest rep said he felt he was hearing different things at different meetings. Paul Norman has said there is "an affirmative strategy" to get customers to sign different types of contracts, rather than let subscription sales fall out wherever they may, he observed. He indicated Norman did not say BPA would "force fit" the sales into various contract categories. I don't see an inconsistency, but I won't disagree that we may actively try to get certain types of contracts, Moorman responded.

An IOU rep said he is concerned the risk could end up being borne by customers with fixed-rate contracts, who would have to make up any revenue deficit through a cost recovery adjustment clause. "The feedback loop" is the issue that bothers me, he stated. An industry rep said he is concerned the document on September 16 will not have anything about this allocation of contracts, and that could be a problem, if BPA has sold the scenario to Washington, D.C. How are you going to get me to sign up for these other types of contracts? asked a participant. A product has to do something for me and help solve some of my problems for me to get interested, he said. Moorman suggested there are ways BPA could provide incentives. These tools are aimed at mitigating BPA's future risk, the participant continued. You have to have enough flexibility for both of us to benefit, he said.

You could use these different contracts as a way to allocate the system, an IOU rep suggested. If one of your targets is to have full cost recovery, you could use this as a way to allocate supply to meet that target, he said. You could do an analysis that provides you with which contracts give you the most financial security, the rep said.

Moorman described a dozen packages BPA put together to analyze various combinations of an average BPA power rate and the cost recovery mechanisms. Did you assume that all customers pay the option fee? an industry rep asked. Yes, Moorman said. The option fee collected about $12 million in the scenarios, he added.

In analyzing the packages, we looked at three variables, Moorman stated: Treasury payment, financial reserves, and net revenues. He explained a summary table displaying how each of the packages performed at various market levels, and whether they would deliver an 88 percent or greater probability of Treasury payment. An additional analysis was done to give an indication of what this all means for the second rate period, which is the five years beyond 2006, Moorman said. The analysis used three assumptions about the market price, a low and a medium case, and a medium case during the first rate period that drops in the second, he explained. This was a simple way of analyzing how well we could address fish costs with differing market scenarios, Moorman said.

What about the risks associated with hydro? a customer rep asked. Moorman said they were reflected in the analysis. The Transition Board has a different cost recovery mechanism, a public interest rep pointed out. Are you going to analyze that? he asked. We have not dealt with that yet, Moorman responded. What kind of signal do you expect from the Administration? an IOU customer rep asked. Will they pick one of these cases and ask you to implement it? he asked. We will have principles to follow, Moorman said, but they won't be picking a specific case. He noted that the federal family includes agencies with disparate interests.

My read is that the federal agencies and tribes wanted to get the fish funding alternatives right, get a fix on costs, and then do an analysis of how likely BPA would be to meet the costs, a public interest rep said. They think the costs are reasonably well done, and they are now trying to determine if BPA used the right probabilities and mechanisms, he explained. They will push to see that the fish costs are met, and they expect the customers will push the other direction to get price certainty, he added. Will there be another Memorandum of Agreement? a participant asked. We are a ways from anything final, the public interest rep responded.

Bleifuss said BPA will have a rate case workshop September 24 to address the cost recovery mechanisms, as well as rate design and market forecasts.

 

ALLOCATION ISSUES TO BE AIRED

Carolyn Whitney of BPA described the conference on September 29 as an opportunity for BPA Administrator Judi Johansen to describe the subscription proposal to the region and for people to ask questions. She wants to hear from the governors, Whitney said, adding that members of the Transition Board are likely to be there to represent their governors. Johansen wants to focus on the availability of the federal system and allocation, Whitney said. Does that mean the residential exchange? a participant asked. Yes, Whitney responded. The conference will be in Portland at the Doubletree Janzten Beach, she said.

 

THE LAST WORD, ALMOST, ON PRODUCTS

A customer rep kicked off the product discussion by asking whether BPA will serve aggregated or pooled loads. BPA is restricted in selling to pooling entities -- we sell just to customers who serve end-use loads, Berwager said, adding that there is an effort under way to change statutory language to allow such sales. I think the limitation is who you can sign a contract with -- who the signatory is -- rather than what happens to the power, a customer rep said. For example, a group of PUDs could individually sign contracts and then pool the power, with one PUD acting as a scheduler, he suggested. You would have no legal problem, he added. What does that construct achieve? a participant asked. On the operational level, I have a question about what that will get you, he stated.

If you start to mix and match full and partial-requirements loads, it gets more complicated, a BPA staffer observed. There may not be a legal impediment, but there may be a technical one, he suggested. A customer rep said that Deputy Administrator Jack Robertson has said there would be no legal impediment if the transaction takes place under the auspices of legal signers. From the operational and Power Business Line side, we intend to make this work, Berwager stated.

Kathy Hoffman of BPA said the partial service team is still refining its two products: actual and block. Anyone interested in those products should get on the distribution list for that group, she stated. Will any of the non-subscription products have posted prices? an IOU rep asked. If any of them do, it will be a product of the work the partial service team is doing, Hoffman responded. There will not be any, other than the ones the team comes up with, she added.

One of the customized subscription products will be a variable load factor, Hoffman said, and we haven't discussed what we mean by that. She explained that if, for example, a customer's load factor varies in a range from 70 to 90 percent, when the load factor drops below the range, there is a take-or-pay requirement, and when the load jumps above the range, there is a penalty incurred.

A customer rep asked about a reference to the option for follow-on subscription rights. Hoffman acknowledged that the reference is "vague." I was punting the issue to the contract negotiations, she said. Is load growth included with the full service product? a public interest rep asked. You can't have full service without serving load growth, Berwager responded. It's a huge topic within the agency, Hoffman said, adding that people should look to the subscription proposal to see how it will be treated.

With regard to "Complements to Core Products," there is no energy associated with the block flexibility product -- you can purchase block flexibility for some amount of shaping, Hoffman explained. Which products are take-or-pay? a customer rep asked. Core subscription products and customized subscription products, Hoffman responded.

The length of the subscription process should be based on when the rate case ends, a public customer rep stated. There should be a year beyond the end of the rate case for customers to subscribe, she said. You have stated here that you will close subscription on September 30, 1999, and that's "an inadequate period," she added. We have heard you, Berwager said. We will have to discuss what a "reasonable" period is, he suggested.

At one time we had a paper with ways to address retail load loss in the take-or-pay contracts, a customer rep pointed out. You might want to add what you are willing to do about take-or-pay in the subscription products, he suggested. It could have been part of the product or of the contract, and we've flipped it into the contract, Hoffman responded. Then you need to add a footnote that there are mechanisms in the contract to mitigate it, the rep said.

Will firm power as a non-subscription product be available during subscription? an IOU rep asked. We will offer it first in subscription, Berwager said. We have said we will reserve our available firm inventory for subscription and will monitor the risk of reserving it as we go along, he explained. Our intent is to sell firm power through subscription, but we won't say we will never make those sales outside of subscription, Berwager added.

 

HAPPY TRAILS ON 9-22

Adams suggested the group have a final meeting after BPA has put out its draft subscription proposal. It would be an opportunity for clarification, a participant agreed. A day-long meeting was set for September 22.

 
Adjourn
   

Archive of content originally posted or last updated on:  September 8, 1998.
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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