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

Summary of September 22, 1998 Meeting

BPA Rates Hearing Room
 

The work group took a look at the fish and wildlife principles for BPA's rates and contracts, and then it slogged page-by-page through the subscription proposal, asking questions and making suggestions. About 65 people attended the group's final meeting.

Index (click item to move to topic)

AN END AND A BEGINNING

Syd Berwager of BPA said this last meeting of the Subscription Work Group is the first public meeting held since BPA released its subscription strategy proposal. He noted that there will be a regional meeting on the proposal September 29 in Portland, formal public hearings on October 8 in Spokane and October 14 in Portland, and that the comment period will end on October 23, 1998. Today's meeting is not a formal hearing, but it is the beginning of the public comment period, Berwager said. Participants asked about the timing of the rate case, and BPA staff responded that it will occur in early 1999, but an exact schedule has not been developed yet.

 

PRESENTING THE FISH AND WILDLIFE PRINCIPLES

Berwager pointed out that BPA had said it would not issue a subscription proposal until it had settled on fish and wildlife (F&W) funding principles. Those principles were agreed to last week and announced by Vice President Al Gore in Washington, D.C., he indicated. Bob Lohn of BPA said the principles are intended to "keep the options open" for future F&W decisions anticipated to be made in late 1999 on reconfiguration of the hydrosystem and in early 2000 on the Northwest Power Planning Council's F&W Program.

This isn't a Memorandum of Agreement like the one we have now, according to Lohn. The principles will guide us in the rate case, but they aren't a commitment to spend money for any option in any particular category, he said. The principles have been reviewed by the Office of Management and Budget, and the Administration expects BPA will follow them, Lohn stated. He noted that "the Columbia Basin has become the poster child for the Endangered Species Act in the United States" for some members of the Administration.

Lohn went over the eight principles, the first of which says "BPA will meet all of its F&W obligations once they have been established, including its trust and treaty responsibilities." Do you think the upper limit of $721 million in estimated potential F&W costs is a reasonable cap given the open-ended nature of Principle #1? Lohn was asked. Even under the most optimistic assumptions, there's only a certain pace at which construction can proceed and land on our books, Lohn replied. Many of the most expensive options don't have major impacts during the 2002-2006 rate period, he added. Lohn said the calculations of financial impacts on BPA of the 13 system configuration alternatives agreed to in the recently concluded F&W funding public process are the numbers BPA will take into the rate case. He noted that spreadsheets which break out the costs for all the options in each of the years are available at BPA's website and also upon request from the agency.

Lohn said BPA has decided to adopt a flexible approach in subscription in order to respond to different F&W cost scenarios. To avoid a contract "cliff" in 2006, BPA's goal will be to have 35 percent to 45 percent of its total post-2001 power sales, including secondary sales, in contract terms of three years or less, in short-term surplus sales, and/or in cost-based, indexed sales, he explained. Does the decision to go with short-term contracts mean BPA is going to be "less cost than market?" a participant asked. Yes, that's our goal, Berwager replied. In favoring short-term contracts, you could create stranded costs -- do you intend to put a charge on transmission if you find you "made a bad business decision?" he was asked. The idea in the subscription strategy is not just to go to shorter contracts -- the idea is to manage risk by avoiding a cliff, rather than having 6,000 megawatts (MW) of sales that end in 2006 and then the market plummets, Berwager said.

Lohn pointed out that the Administration has committed to: extend the availability of Section 4(h)(10)(C) credits for BPA's costs related to its F&W programs for 2002-2006 on the same terms as established for the 1995-2001 period; confirm continued access through 2006 to any funds remaining in the Fish Cost Contingency Fund on September 30, 2001 on the same terms as those established for 1995-2001; and "support BPA in its Cost Review and revenue enhancement objectives." A DSI rep said the money in the Fish Cost Contingency Fund was "collected from customers illegally" and asked if customers being denied the ability to purchase from BPA would get a refund. Lohn responded no, adding there may be statute-of-limitation issues.

A customer rep asked if BPA will prepare an Environmental Impact Statement (EIS) for its subscription proposal. A BPA staffer replied that BPA is relying on its Business Plan EIS to cover subscription and that all the comments the agency has seen thus far fall within that scope. A participant asked BPA to provide customers with a list of the types of contracts that would fall within the 35 percent to 45 percent range stated in Principle #7.

 

QUESTIONS AND SUGGESTIONS ON THE PROPOSED SUBSCRIPTION STRATEGY

Participants asked many clarifying questions and identified issues of concern. Highlights of the discussion are summarized below.

Section I.  Introduction -- Sharing the Benefits

  • Does BPA's stated intent to "keep its cost-based power rates significantly below market" extend over the entire range of fish cost exposure Bob Lohn just discussed? (Murphy). We intend to implement the F&W principles in a way that will allow BPA's rates to be below market, Berwager replied.
  • The proposal refers to new contracts "that would go into effect in October 2001," but some contracts end June 30 (Kari). We will amend the language, Berwager said.
  • What happened to the consensus agreement in the Comprehensive Review that customers who bought power from 1995-2001 should get first chance to buy power in subscription? There are statements in the Introduction about meeting "all our historic customers' needs" that are hard to reconcile with the contents of the actual proposal. (Murphy) We looked at the 6,300 MW available and in putting this proposal together, we attempted to balance the competing interests trying to buy from BPA, Berwager stated.
  • In the Comprehensive Review, the concept of additional loads was additional to the loads you are already serving at the lowest cost-based rate. (Murphy) This aspect of the proposal diverges from the Comprehensive Review, Berwager noted.
  • This indicates you won't offer the aluminum companies anything until November 1999 and that's without any slippage in the rate case. (Murphy) The proposal says there is firm power available to the DSIs, but there's a question of when BPA could sign the contracts, Berwager said. It also proposes another form of access for the DSIs, he noted.
  • How will you split the revenue requirement for a five-year fixed rate product? (Opatrny). We'll average the first three years and then average the second two years -- it's a stepped rate, replied a BPA staffer.
  • There's a question of how much authority you can delegate to the state PUCs -- what if there isn't agreement among them -- how would disputes be resolved? (Stauffer). We know there are limits on what a federal entity can delegate to non-federal entities, and we are still researching how to resolve this, said a BPA attorney. The PUCs told us in a recent meeting that they were confident they could get the job done, he added.
  • How will BPA manage the process to prevent oversubscription of three-year contracts that would exceed the 35 percent to 45 percent goal in the F&W principles? (Litchfield). We've proposed techniques and will work hard to land in that range, Berwager said.
  • Will you offer three and five-year deals and just see what happens, or will you manage the process by saying we'll close the three-year window sooner because we're at the goal? (Litchfield). We haven't gotten that detailed yet, replied Berwager.
  • Will you apply the F&W principles contract by contract or product by product? How will they affect specific negotiations? (Peters) The entire subscription strategy is intended to observe the principles, replied Berwager.
  • If you issue a Record of Decision (ROD) on a rate proposal, we're stuck with the rates. Will the Subscription ROD be that same kind of document? (Kitchen) The ROD will say, this is what we think will work for subscription at this time, but since the market is dynamic, we may have to go back and revisit the decisions, Berwager said. In that case, we would have a public process, he added.
  • The Public Power Council formally requests the BPA analysis referred to at the top of page 6 in Section I (Richardson).
 

Section II.  Subscribing to Federal Power

  • Since the rate case looks like it might go on six or seven months, I suggest you make it clear that the subscription window will exceed the duration of the rate case. (Mundorf) Our intent is to have a period of a few months between the rate case and the closing of the first subscription window, said Berwager. When we present a plan for the rate case, if we say it won't be done until November 1999, then we'll say the subscription window will be open into early 2000, but if we say the rate case will be done by July 1999, then what's here in the proposal likely won't change, he explained.
  • You should say that you will have 90 days of subscription time after the end of the rate case no matter what. (Mundorf)
  • What's the value of our comments on this? Will the Administration sign off on any changes we make in the document? We have participated in the process, but the proposal has "slid back" from what it appeared it would be. Are we just going through the motions? (Shelton) There is value in the comments we get, said Berwager.
  • If aluminum companies want to sign contracts in the first subscription window, can they? (Murphy). It depends on the extent of available power -- the contract could be contingent on the power being available, replied Berwager.
  • Is there anything in this document that prohibits BPA from firming up nonfirm or going out to markets to acquire power? (Hain) This lays out resource plans and what we intend to do with contracts going into the rate case, said Berwager. After we issue the final proposal, if it creates more firm inventory, we might have to re-open the subscription strategy, he said. But if we decide to do some buying in the secondary market, that wouldn't require redoing the strategy, Berwager added.
  • Delete the word "most" in the last sentence of the first paragraph under Section II, or explain what "most" means. (Jacklin)
  • Has BPA run the repayment study? (Kari) No, said a BPA staffer.
  • How has the overarching subscription process changed over the past year? We now assume the power will pretty much be subscribed in the region. The monitoring and management of subscription we talked about is no longer needed, and we assume everything will be subscribed among regional customer classes and that BPA won't likely make extraregional sales. (Schwartz) The probability of selling out our firm inventory in subscription is higher than we thought nine months ago, said Berwager. But setting the end of the window is a way to manage the possibility we might not sell out, he added.
  • Will the same residential exchange options available to the IOUs be offered to the publics? (Mundorf) We will sell requirements power to the IOUs, but are asking them to waive exchange rights, said a BPA attorney.
  • Is that option available to the publics? (Mundorf) That's not part of the proposal, replied Berwager.
  • Can you provide more information about what you have in mind with respect to "in-lieu transactions" in Section IIA? (Murphy) Circumstances have changed since 1980, and the term for notices for in-lieu transactions will be much shorter than seven years, said a BPA attorney.
  • Clarify the discussion about using the current Average System Cost (ASC) methodology for residential exchange forecasts in the rate case. Are you forecasting as though all are participating in the exchange "the old way?" (Williams) We'll collect the information as if all are participating in the old way, but we're not sure we'll do the exchange in the old way, said a BPA staffer. We will ask for ASCs and exchange load forecasts, and we will still have to do the 7(b)(2) rate test, he stated.
  • Why does Section IIA say for all load not currently being served by customers' generating resources "as of the release date of the final Subscription strategy?" (Carr) You can suggest an alternative if you'd like, said Berwager.
  • What does it mean in Section IIB where it says the New Resource rate is "approximately" equivalent to the lowest cost Preference rate? Whose values determine what "approximately" is, and what is BPA's commitment? The proposal needs more meat in this section to define BPA's commitment and what customers would get. For comparable products, the price ought to be the same. (Litchfield) This sets the policy that BPA will do things in the rate case that would result in the NR rate being very similar to the PF rate, said Berwager.
  • Why do you propose in Section IIB that actual power deliveries for these loads will be in equal hourly amounts? (Murphy) It's an operational issue for BPA, said Berwager. This reflects the system's need to have flat loads, he stated.
  • Do you expect that purchases utilities will make will be other than in the shape of their load? (Murphy) We'll give them rate signals and the opportunity to put flat loads on BPA, said Berwager. If we get it right, rates will reflect the costs of putting peak load on us, said a BPA staffer.
  • The proposal should have more information on this topic. (Murphy)
  • What resources are in the Federal Base System (FBS) pool and what are in the New Resources pool? Will we still plan to stack resources? (Opatrny) We are hearing that we need to be more specific in the proposal without predetermining the rate case, clarified Berwager.
  • At the end of Section IIB, what does the sentence that says an important consideration is that sales for residential and small farm customers of IOUs "not displace low-cost nonfederal resources currently serving regional loads and be used to serve loads outside the region" mean? (Kari) BPA is trying to spread the benefits of low-cost federal power to IOU residential and small farm loads, said Berwager. If those sales mean that IOUs will sell the power outside the region, there's no regional benefit, he said. This is a flag that BPA has intense interest in this, Berwager added.
  • It sounds like "the energy police" and restraint of trade. If it's a flag, it's okay; if it's a real proposal, I'd be more concerned. (Williams)
  • Is the 2,200 MW for IOU residential consumers a permanent entitlement after 2006? (Kitchen) We are thinking long-term and pointing to the potential of a different cap post-2006, Berwager said.
  • You need to clarify the discussion in Section IIB about meeting the 2,200 MW goal "subject to BPA meeting its public agency service obligations" and whether it deals with inventory or price. (Kitchen)
  • Spell out which financial arrangements would be determined in the rate case, which by a public process, and which by negotiations and when these would take place. (Mundorf)
  • Will the 1,000 MW of interruptible power for the DSIs be offered to the publics first? (Mundorf) That's not specifically spelled out in this proposal, said Berwager, adding that BPA would offer this product in a way consistent with its statutory obligations. BPA hasn't said that it would be nonfirm. It could be interruptible firm, he stated.
  • Suppose a public wants to take out an option for service post-2006 -- would the returning power from the expiration of long-term contracts go first to the publics? (Kitchen) We're saying we will meet public preference load, and we have a post-2006 goal of increasing the IOU residential load to 2,200 MW, said a BPA attorney.
  • In Section IIB, clarify whether IOUs are subject to an option fee. (Kitchen)
  • In Section IIC, clarify how interruptible sales compare with nonfirm sales -- what's "the important gray area?" (Hain)
  • Clarify whether the 1,000 MW of firm power to the DSIs would be available during the entire subscription window and what it means when it says "the full expected 2,000 MW is not guaranteed to be available to the DSIs." (Murphy)
  • With respect to the statement in Section IIC, "if DSI purchase requests exceed BPA's power availability, BPA proposes to give priority within the DSI class to DSIs who made larger purchase commitments to BPA in 1995," does it apply to both firm and interruptible power, and is it interruptible versus nonfirm by intent? (Murphy) Yes, that's our current thinking, Berwager replied. We envision these deliveries would almost be firm and that BPA would sit with the DSIs to structure something using secondary energy, he said. The goal is to have a product that makes operational sense to BPA and economic sense to the DSIs, Berwager added.
  • With respect to Scenario 2, I suggest you take the public process/rate case route as the appropriate forum to determine treatment of the additional 200 MW of "firm BPA purchased power and financial benefits equivalent to 500 MW of firm power delivery." My clients will be more receptive if they have a hand in crafting the arrangement. BPA has said this arrangement is consistent with the resource stack -- how do they work together? (Richardson) You could create a public process to decide that "x" number of dollars would be the cost of the 500 MW and fold it into the FBS, to go on anyone who buys from the FBS, said a BPA staffer.
  • What's the basis for picking 1995 for giving priority within the DSI class? (Richardson) That was the date of the DSI block sales and other decisions regarding whether to reduce contract demand under the 1981 DSI power sales contracts, said Berwager.
  • The Comprehensive Review had a concept that applied to loads other than the DSIs, but now that concept has been dropped for all but the DSIs. Publics that made diversification decisions are not being held to same concept as are DSIs that made diversification decisions. We modified contracts in 1995 to settle claims against BPA, and the cost of the claims fell unevenly across companies. To take this decision and apply the 1995 decision to it, when in 1995 we didn't know there would be a Comprehensive Review, is like passing a law and making it retroactive to actions that happened earlier when no one knew there would ever be such a law. This is bad policy. (Shelton)
  • What types of purchase requests and commitments are you talking about in Section IIC? Will some count more than others? (Mizer) We are talking about the five-year commitment placed on BPA at the IP rate in 1995, replied Berwager.
  • Do you mean "larger" in megawatts or a proportion of load? (Mizer) Larger in megawatts, Berwager answered.
  • What does "priority" mean? The one who bought first gets to choose the most? (Mizer) We were thinking about proportionality, said Berwager.
  • Clarify if the 1,000 MW sale to the IOUs would be subject to recall and clarify under which sections of the Act which sales would occur. (Richardson)
  • Has BPA made estimates of the financial impacts of power augmentation or financial firming? (Sheets) We have done some analysis, said Berwager.
  • Clarify what you mean by interruptible -- it appears it's the same as secondary. (Mizer)
  • Be more specific in the language dealing with the "market-minus-index rate" in the table at the end of Section IIB. (Opatrny)
  • Are you saying there will be a lot of discretionary choice on a real-time basis by BPA on whether to serve the DSI load or not? (Murphy) This suggests an innovative way to spread the benefits of BPA's regional system, replied Berwager. The nature of BPA's discretion, the notice requirements, and limitations on the frequency and the amount of interruptions need further definition.
  • So you are not closing the door to convert these into firm delivery at certain times of the year? (Murphy) No, said Berwager.
  • Where will the costs of that firming be dealt with? I suggest there be a rate forum to determine that, rather than bilateral negotiations. (Richardson)
  • I assume it would be part of the forecast in the rate case. (Murphy)
  • Where would the 1,000 MW of interruptible for the DSIs come from? Would it come from the slice? That starting point affects a lot of these questions. (Stauffer) The proposal points out that there is more work to be done on the Slice, responded Berwager.
  • I second that there should be a forum for determining this product -- essentially, it's "let's buy off the DSIs and make everybody happy." (Weiss)
  • Clarify whether delivery of the interruptible power to the DSIs would be part of your deliberations when you calculate whether to buy power or not. (Peters)
 

Section III.  Power Products and Services

  • Why was $100 million selected as the amount of revenue that could be gained annually by using a Cost Recovery Adjustment Clause (CRAC)? (Sheets) That will be a rate case issue -- it could be less, but not more, said a BPA staffer.
  • Is it a final decision that the CRAC will not go above $100 million for power customers? (Jacklin) No, that will be a rate decision, said Berwager. In the final version of this document, we'll point out which decisions reflect what will be in BPA's initial rate case proposal and which decisions are final, he added.
  • Clarify the sentence in Section IIIC that says "a Slice purchase will not affect purchasers' rights to BPA power after the Slice contract period." (Kari)
  • Why does slice have to be purchased for 10 years? (Opatrny) What types of contractual commitments with respect to the Slice are you thinking about? (Richardson) Dick Adams noted that the next meeting on the Slice is scheduled for October 13.
  • Explain how power other than firm is dealt with in this proposal. You should explain the Slice versus nonfirm versus the deal for interruptible power for the DSIs (Richardson).
  • Clarify the sentence in Section IIIC that says "If BPA and its customers can work through the issues, BPA will consider offering the Slice product in combination with Actual Partial Service." (Murphy)
  • I thought the slice would be available to all potential subscribers -- you should clarify who would qualify to purchase the slice product. If there has been a decision to limit who can purchase it, what is the basis for limiting it and who decided? (Waddington)
  • Clarify in Section IIIC what you mean when you say Slice purchasers would be responsible for providing operating reserves for the Slice. How do operating reserves and the slice fit together? (Waddington)
  • Expand on what you propose for a pilot or testing period for the Slice. (Waddington)
  • Should we comment on this section of the proposal or on the separate Standard Power Product Description list? (Peters) You should make your comments on the subscription proposal and the products now, even though "we may not get there" with some products, like the Slice, by October 23, a BPA staffer replied.
 

Section IV.  Pricing

  • Clarify the language about "loads currently served by BPA" in the table in Section IVA. (Opatrny)
  • You should rethink the rationale you offer for the changes in the low density discount. (Kitchen)
  • For a public agency that wishes to contract after November 30, 1999, what rate would they be charged? (Hellman) The PF(2) rate, replied Berwager.
  • I suggest there be a second window for those like the DSIs for whom the first subscription window was closed -- there ought to be "a period for simultaneous commitment." The DSIs can say they will take power on a contingent basis, but other customers can wait until the very last day to decide whether they want the power. (Murphy)
  • You should open a second window for the IOUs and the DSIs. If power is not taken by those who have the first right to subscribe, make it available at subscription prices to others. We are asking for the right to make the same commitment at the same price. (Jacklin)
  • Paul Murphy suggested we open a second window just for the DSIs because they couldn't buy in the first window -- he said "just giving BPA a put option" doesn't feel fair, clarified Berwager.
  • Can the IOUs state an interest in purchasing 2,200 MW and would that be a timely request? What about doing so in 2001, not 2006? (Hellman)
  • We were given the commitment on many occasions that the entire General Transfer Agreements (GTA) issue for both the transmission business line and the power business line would be "run to ground" in the subscription process and the power rate case. Without its resolution, utilities can't make business decisions. What happened to that commitment? (Kitchen) The proposal doesn't say that the issue will be "run to ground" in the power rate case, said Berwager. (NOTE: Subsequent to thes meeting, BPA did clarify that this issue will be resolve during the power rate case.)
  • Will this treatment of the GTAs be a final action in the November ROD? (Hain) No, the final decision will be made in the rate case -- this states BPA's initial decision, said Berwager.
  • Is this treatment of the transmission surcharge a final action? (Hain) It will be determined in the rate case, said Berwager.
  • Clarify in Section IVF whether you are referring to ongoing or post-2001 conservation and include more information about the regional forum. (Kitchen) Angus Duncan suggested that those who want to find out more call Terry Esvelt at BPA and indicate an interest in following this topic.
 

Section V.  Contract Elements

  • Do newly formed tribal entities get their entire load served at PF(1)? (Kitchen) Residential and small farm loads would get PF(1), regardless of who previously served the loads, said Berwager. The loads of new tribal utilities that form after subscription ends would be treated the same as other new publics, he stated.
  • All preference utilities should get PF(1) and Section VL should be clarified with respect to treatment of new preference tribal utilities. (Kitchen)
  • In Section VG, clarify how long surplus firm power contracts can be, and whether the rate design changes listed there are cumulative, or whether only one of them would trigger the mitigation. (Saven)
  • Expand on the treatment of nonrequirements contracts in Section VG. (Kitchen)
  • Explain how the public agency load growth coverage would work in Section VI. (Saven)
  • How would the public agency load growth coverage relate to the slice? (Hellman)
  • The proposal in Section VH dealing with conversion to excess federal power is "much more than one-sided." (Saven)
  • Do you envision there being more standard contract provisions than the seven listed in Section VB? (Williams) We don't envision any others so tell us if you think there should be other things, replied Berwager.
  • Is the contract boilerplate being developed? (Williams) Berwager asked the group if it wants an all-customer review of the boilerplate, and the answer was yes.
  • You could add in a CRAC for costs misfunctionalized between power and transmission. (Hain)
  • Clarify what BPA will do if 100 percent of the customers want contracts shorter than three years. (Jacklin)
  • For the last 18 months, we've talked about a procedure that would enable an IOU signing up for exchange power to be able to get regulatory approval. What if the rates come in late, and I sign up early -- later on, if the PUC doesn't like the rate, I'm out of luck. The proposal should address this question. (Jacklin)
  • It's a timing issue. We could talk to the commissions about how much time is needed. (Litchfield)
  • What about the issue of the cap on the transmission surcharge? (Sheets) The final decision on that specific question will be decided in a rate case, a BPA staffer said.
  • BPA should put out a list of issues indicating where decisions on them will be made. (Schlect)
  • BPA could have a contract clause saying nothing stops us from doing a wires charge, and nothing stops customers from objecting. (Jacklin)
  • Clarify whether there will be an initial determination of the indexed cost-based rate as part of the rate case. (Wolverton)

BPA staff noted there are additional meetings scheduled on risk and on products where more questions can be addressed.

 
Adjourn
   

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