Department of Energy
P.O. Box 3621
Portland, Oregon 97208-3621
March 18, 1998
In reply refer to: P-6
Mr. Gary Zarker, Superintendent
Dear Mr. Zarker:
This letter is a follow-up to our March 12, 1998, discussion of the Slice proposal and its features.
First, I understand your disappointment in our response to your proposal. The Slice is a creative proposal that was intended to provide solutions to several perceived challenges to the Federal generating system in the Pacific Northwest and the Bonneville Power Administration (BPA). The proposal also was a way to assure that at least some portion of the vast benefits of the system would be retained for Pacific Northwest residents regardless of what changes may occur in the electric industry, the system, or BPA.
However, the proposal was and is dynamic. A recent letter from you to Steve Wright, BPA's Vice President of National Relations, reveals new insights that were absent from earlier Slice proposals and modify discussions among BPA, utility staff, and consultants. I suspect that the Slice concept varies from one person's mind to another.
Some things are clear, however, and we all are likely to agree on these. The Slice proposal is a major departure from BPA's traditional business form. It would form a new relationship between BPA and Slice purchasers. It would be both very limited in terms of the information passing from the purchaser to BPA, yet very intense in terms of information passing from BPA to the purchaser. The relationship would be very unlike BPA's relationship with any other types of power purchasers.
BPA expects that a large number of customers will want to retain a relationship with BPA that maintains BPA's fiduciary role for the management of the bulk of their power supply. Generally, these customers are not the members of the Public Generating Pool (PGP), but then, BPA has never played that role for the majority of PGP members. To a large extent, the majority of PGP members always have been highly independent of BPA, relying only on BPA as a source of power to supplement the utility's own resources. In fact several PGP members do not rely on BPA power at all.
To those who do not rely on BPA's management of the power supply a Slice looks like a very attractive opportunity. The Slice may have relatively low cost and many desirable features, and the substantial secondary energy and potential dispatchability of a Slice could create very large financial benefits for your customers. For utilities who have relied on BPA for power supply management, the Slice also may be an opportunity to acquire capabilities otherwise unavailable to them, although for those utilities the costs of independence are unknown and may be potentially great.
BPA must be mindful and very considerate of all of its customers, particularly those who see the costs of the challenge for independence to be prohibitive. Moreover, BPA must assure that power is not marketed in a manner which reduces its potential value, thereby harming its ability to protect the taxpayer interest and support our public responsibilities such as fish and wildlife mitigation.
For 8 months BPA staff investigated the Slice proposal. At last assessment the proposal was not a potential win-win for Slice proponents and for BPA's non-Slice customers and other stakeholders. The principles that I shared with you on March 12 continue to bear. I believe there are five rather than the four enumerated in Clearing Up, but you will find nothing here that we did not discuss on March 12.A proposal for selling a Slice of the system must not:
I believe from your statements that you agree with these basic principles and if you are willing to pursue a paradigm that is more likely to succeed in achieving these priniciples, we would be eager to discuss that paradigm.
Attached is an amplification of what we mean by these principles, including some specifics from your proposal as staff last saw it. I realize that as of March 12 your proposal was changing, so some of these points may no longer apply. Let us first focus on the principles: If you feel that the PGP can agree to these principles and remedy the problems we saw earlier, I will commit staff to pursue potential relationships that have a reasonable probability of successfully reaching win-win solutions for the Slice proponents and BPA as representative for other PNW purchasers and stakeholders. We will be as flexible as possible in meeting your business needs, but we will not deviate from these principles.
Any subsequent discussions of proposals will need to be conducted in public processes that will assure that interests and needs of all constituents can be addressed.
Please consider the attached items carefully. I look forward to your response and I look forward to your support in developing products that also may meet the needs of customers unable to utilize a Slice of the system.
Thank you for your attentiveness to BPA's concerns.
Jack S. Robertson
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