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Slice of the System

SUMMARY of
August 27, 1998 Public Meeting

Portland Airport Conference Center
 

A. Introduction

About 25 people attended the public meeting on the Slice of the System Proposal. Angela Wykoff welcomed the participants. Kristi Wallis announced that the meeting for August 31 is canceled. Another public meeting will be scheduled (this has been scheduled for September 3). Wallis reviewed the topics for the meeting: summarize the Slice proposal and its current status; consider the critical path toward proposal resolution; consider a pilot program for Slice; and compare BPA's Option 3 with the PGP's Slice proposal.

Handouts available at the meeting:


B. Summary of Slice Proposal and Current Status

Wallis summarized the elements of the Slice proposal that have been discussed during the public meetings on the Slice. The proposal as she understands it has the following components. The participants discussed the components as Wallis reviewed each one.

Product Description

  • The product would be a percentage of the current system (purchase of output, not ownership interest). PGP originally suggested the current system as of 1997, but is open to discuss the date.
  • Federal agencies determine operations, Slice customers take output.
  • The percentage is of permissible generation, including a percentage of flexibility to the extent there is any.
  • The product could be a long-term product.

Availability

  • It is a requirements product.
  • The percentage would be mapped to firm entitlement (whatever standard is applied to Subscription).
  • Used to meet Northwest loads.
  • BPA would be relieved of obligation to meet Slicers' unmet load in terms of deficiency/load growth.
  • If not a requirements product, then it would be a surplus product.

Remaining issues related to availability include:

  • legal questions about how it can be structured to be a requirements product;
  • how the percentage needs to be mapped; and
  • if there are impacts to downstream power.

The legal group is addressing these questions in a separate meeting.

Payment

  • Payment would be a corresponding percent of BPA's revenue requirement.
  • It would be inclusive of revenue requirement except some short-term power purchases, payments to some of the Transmission Business Line, and no credit for surplus sales.
  • A Slice customer will pay for implementation costs, assumption of risks for fish costs, critical water and changing market conditions.
  • There will be a true-up to actual costs annually. The Slice customer would pay its share of unforeseen costs for certain risks when the risks are realized.

Adequate compensation is the overriding issue. There may be a need to develop or consider some way to value risk without over or under valuing it. This need relates to the fairness of the amount of risk the Slice product requires and the amount of reserves that would be included or promised.

Miscellaneous

  • BPA would provide non-proprietary information about system operations.
  • A Slice customer would have an obligation to maintain operating reserves.

Participants expressed concerns about the impact of Slice on rates for other products. Timing for the description of the system, that is, when the snapshot of the system is taken, was also raised as an issue. Possible over-subscription, that is, if there would be any cap of the amount that could be sold as Slice, was an issue. There was concern that Slice could not be limited unless it was a pilot product. Also if any part would be available for customers who have already signed contracts until 2006. There were questions about the flexibility of the system and if the Slice would decrease this flexibility. Participants would like this question quantified, but that may prove difficult.

Whether the Slice would create cost shifts is still an issue. There is no agreement that the product will or will not create cost shifts. Wallis suggested that the product would be consistent with the principles that BPA set forth and that the discussion might be better focused on philosophical issues than actual dollars. Barney Keep (BPA) would like the 7(c) rate directive and the Low Density Discount considered.

The term for setting net requirements for risk has been set for 5 years in the past, but there were questions about whether the term would be different for the next rate case. BPA would like to end the rate period with the same amount of reserves as it started with, but the amount has not been decided.


C. BPA's Fifty-Year Study Evaluation

Phil Mesa (BPA) provided an updated version of his study using the assumptions and other changes that participants suggested in the technical meeting on August 19. Mesa studied 10 scenarios, using 5 loads and 2 operations (Slice optimized or Federal system optimized). Fifteen percent of the system was assumed to be sold as a Slice product, after Canadian entitlement and pre-committed contracts are removed. Mesa stated that after considering the comments from the last meeting concerning the PF Price assumptions, BPA staff reexamined its calculation of the PF rates and did find an error. Mesa explained that in its calculation of the PF rate, BPA inadvertently double counted the transmission costs, resulting in PF rates that were too high. The effect of the higher PF rates on the Slice analysis was to overstate the cost of the Slice product. The handout at the meeting reflected the corrected calculations. After reviewing the results, he believes that any cost shifts result from the market price, BPA's PF rate, the load shape before and after Slice and the assumptions made in the study. Mesa said the study is still a work in progress and referred the participants to Handout No. 3. Mesa pointed out that the corrected PF prices in the updated study had also been recalculated so that the revenues anticipated from the Demand charge would be covered by the HLH price. This method eliminates a separate demand charge calculation and more accurately reflects the revenues from the demand charge. The $1.9 billion revenue requirement assumption includes cross business line expenses.

Kevin Clark (Seattle) expressed that the Slice proposal assumes that the customer would take on the following risks: transmission; bad water years; fish costs; market prices; unplanned expenditures such as equipment failure and/or replacement; and a cost-based system operating in a dynamic market place system in a fixed rate period. According to Mesa, this assumption of risk is difficult to quantify and would not always translate to a 1:1 reduction of BPA's risks/costs. Dennis Parrish (Seattle) did not understand why it would not be a 1:1 ratio and would like an explanation. Clark suggested there might be a premium for bearing risk. There were again questions about how to value the risks, and if there is some way for the Slice customer to cover the risks so that the costs would be the same for all customers. How the proposal would address the added uncertainty about what the Slice request will be at any given moment and its impact if any, on the system's flexibility was added to the list of issues to come back to. Measurable and unmeasurable risks need to be discussed. Paul Murphy (DSIs) suggested using the same assumptions that were used in the growing the system study. He suggested the real issue is whether there would be changes in the rate schedules. Clark suggested that the main concern is who will be better off in dry years; there may be no costs shifts and all might be better off. Another question is whether the study is relevant if the Slice is a larger percentage than 15 percent, that is, would the impacts be different.


D. Next Steps

The next public meeting is scheduled for September 3, 8:30 a.m.- 3:00 p.m. in the Rates Hearing Room. The legal group will provide some input on availability. The issue of paying for risk, the pros and cons of a pilot program, and a review of BPA's Option 3 as a tool to analyze benefits and costs will be on the agenda for the meeting.

 

Archive of content originally posted or last updated on:  October 9, 1998.
Content originally provided by:  Angela Wykoff, BPA Power Business Line.
Content provided by:  Timothy Roberts, Slice Product Manager, 503-230-5450, tcroberts@bpa.gov.
Admin Assistant, Kimberly Brown, 503-230-3639, kabrown@bpa.gov.
Page maintained by:  BPA Web Team.
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