Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of April 2, 1997 MeetingPortland Airport Sheraton
The Federal Power Subscription Work Group reviewed the list of business interests that participants submitted to PNUCC after the last meeting. Consultant Al Wright briefed the group on the Transition Board's plan for responding to the Northwest Congressional delegation's recent letter, and BPA presented a proposal for marketing a limited amount of post-2001 power before the subscription process is complete. About 35 people attended. The next meeting will be April 16 at the Lloyd Center Red Lion.Index (click item to move to topic)
- Response to Northwest Delegation
- A Discussion of Business Interests
- The Presubscription, Post-2001 Marketing Plan
- The Legal Perspective
- What's Coming Up Next?
Dick Adams, Executive Director of PNUCC, welcomed participants and explained how they could get on the work group's mailing list.
Al Wright reported on the Transition Board's efforts to assist the governors in responding to the Northwest Congressional delegation's letter. The letter asked which recommendations of the Regional Review may require federal legislation. The Board will take public comment on issues to include in the response at its April meeting. After that meeting, the Board will formulate a draft response and likely schedule a session in May to finalize it. The plan is to have a letter to the governors by June. Wright indicated that the Board is still deciding whether to hold its April meeting on the 22nd or 24th. (The meeting has been moved to the 22nd, in Portland).
Wright said the Board is likely to include several items in its response: the Regional Review Steering Committee's report; the Board's work plan; and work plans and timelines for groups that are addressing such issues as subscription and transmission. He recommended the work group avoid "wordsmithing" and stay with a list of points for the Board to work into a letter response.
Wright and Adams offered several items that could be included in the subscription portion of the response. Atop the list was a "working assumption" that no legislation is required to accomplish a successful subscription process. Several members of the subscription work group offered comments: emphasize our focus on commercial and business interests; characterize our effort as seeking to accomplish subscription without legislation, but add that any legislation should be narrowly focused; delete the reference to a need for federal power contracts longer than 20 years; indicate the subscription timeline calls for assessing obstacles by the fourth quarter of 1997; call the "obstacles" something else, such as "conditions." The overall message is "we're working as fast as we can," one customer representative said. He suggested that uncertainties about "below-the-line" items like fish and wildlife costs could use Congressional attention now.
Wright stated that the Transition Board will have a discussion about the issue of stranded costs in the response to Congress. It is "a hot issue," he said, that would likely "be elevated to the governors' offices" for consideration. Customers asked how and when they could "make our case" on stranded costs. Wright said he would recommend the Transition Board make its expectations clear about that in announcing the April meeting. Several participants said that if the subscription process is successful, there would be no stranded costs on the federal system: "the definition of success is `no stranded costs.'"
Will other groups send their own letters to the delegation? Wright said there is a high probability that will occur. He encouraged work group members to consult with their Washington, D.C. contacts about what is likely to happen in Congress, saying the Transition Board would be interested in these points of view. Wright and Adams agreed to revise the list of bullets before the next work group meeting.
Adams explained that after the meeting on March 19, a number of participants submitted lists of their business interests. PNUCC compiled the submissions and grouped the items into the following categories: Business Relationship, Subscribing, Customers, Contract Period, Contracts, Products, Resale Rights, Pricing/Costs, Transmission, Existing Contracts, and BPA's Financial Stability. The list identified the author of each item. In addition to several dozen statements of business interests, the list included an opening passage entitled "The Future." This preamble drew immediate fire from customers who felt the document should be limited to statements of business interests.
One customer representative observed that the document seemed to be aimed at traditional customers, and he suggested that the subscription process should define customers as broadly as possible. Others agreed the definition should be broad. A number of questions and comments focused on the role of BPA in a competitive market and the level of both financial and political risk that is appropriate for a federal agency. There are two ways to go with the analysis, one participant suggested: debate micro-management details and minutiae, or analyze particular actions with regard to products and services and determine where benefits and losses would flow. Not everyone agreed that the analysis should be done "product-by-product."
There was discussion about how to constrain the risks to customers and the need to produce contracts under which customers would be clear about what they are committing to in terms of federal costs. Wright offered a reminder of the group's mission: the Regional Review asked you "to design the auction," and the Regional Review decided that the bulk of the products should go to a hierarchy of customers. The questions are: What do you want? What are you willing to pay? And what are the risks? he said.
The group decided to use the meeting time to clarify items rather than debate them. The following are some highlights from the discussion:
- Business Relationship. BPA was asked to clarify what it meant by "BPA should avoid `most-favored-nation' contract clauses." Syd Berwager said BPA meant it did not want to include contract language that indicates "if something is offered to one customer, it is offered to all." The agency wants the flexibility to make specialized transactions, another BPA staffer indicated.
- Customers. Participants discussed several items dealing with load aggregation and aggregators. In particular, there were questions about a statement that utilities will need flexibility in the subscription process "to pursue loads outside of their service territory in an open-access environment." There were a number of questions on customers' take-or-pay obligations and where to allocate the risk of load loss.
- Resale Rights. Two statements urge that customers have the right to resell BPA power. One participant said the Regional Review called for "unrestricted" resale rights and that the subscription process should assume "you can sell to whomever without restriction."
- Pricing/Costs. A customer representative observed of one of the interest statements that a low-density discount "would walk and talk like a subsidy in the market environment." There were questions about the statement that "stranded historic costs" be recovered from "the specific historic customers for whom those costs were incurred," and about the suggestion that BPA may need to offer "market-based" prices to be competitive and subscribe its system fully.
- Transmission. What portion of the transmission question is this group biting off? one customer asked. The group discussed whether transmission would be offered in a process separate from subscription. "I'm interested in power supply" -- power combined with delivery, a customer representative asserted. There was a suggestion that the transmission issues belong "below the line," but will have to be resolved for the subscription process to work.
Paul Norman of BPA said the agency is facing a dilemma with regard to customers who are requesting to presubscribe for power in the post-2001 era. We want to make the subscription process work, but a handful of customers have come to us with an urgent need to have a contract now, he explained. BPA is not proposing to be out actively marketing power for post-2001 sales, but our leaning is to respond to these customers and make transactions within well-defined boundaries, Norman said. We want everyone to be clear about what is going on, and we want the sales activity to be limited enough that it does not prejudice the subscription process, he added.
Norman said BPA "is sounding people out" about whether it makes sense for the agency to enter into some post-2001 sales contracts now. BPA's plan is to go to the Transition Board in April with a proposal to do so. Norman outlined the boundaries BPA is proposing to place around this activity. These would include: capping the total amount of the post-2001 sales; limiting the term of the sales; using PF-96 rates as a pricing guideline; maintaining preference rights; counting the sale as part of a customer's federal subscription allocation; and prohibiting customers from replacing these contracts with subscription contracts at a later date. BPA would not "shield" these contracts from future stranded cost treatment.
Some customers said the price was too conservative and would set up the effort for failure. Others said if the business need is out there, BPA should be allowed to make the deals. One customer asked how BPA would allocate power if there were more requests than expected. Norman said BPA did not anticipate a big rush of customers and was not attempting "to take eggs from the subscription basket and put them into a presubscription basket." He noted that BPA is not contemplating "making an offer," but responding to those who have requested a post-2001 contract. A couple of customers reiterated that the presubscription transactions should not roll over or convert to contracts that will be offered during the subscription process.
There was a question of whether an "option fee" would apply to the early contracts and whether BPA would build or acquire resources to serve them. Norman said he would take the comments and questions into consideration in working on a proposal to take to the Transition Board in April.
BPA counsel Thomas Miller gave a preliminary view of the legal issues raised in the statements of business interests and whether there are interests that cannot be achieved under current statutes. The initial reading is that a lot can be accomplished administratively and that 90 to 95 percent of the actions proposed are "doable through one construct or another." The legal report gave the business interest statements one of three ratings: "doable, maybe, or needs additional study." A more detailed analysis will be developed as the process evolves. The following are excerpts from the overview:
- Subscribing. The interests appear doable, as long as they are consistent with preference.
- Customers. Several interests related to aggregation need additional study, particularly in light of the fact that state legislatures are also considering action in this area. There could be some legal issues posed if aggregators include both preference and nonpreference customers in their mix.
- Products. It is unclear whether all of BPA's products and services could be offered in the subscription process.
- Resale Rights. The issue needs more study; quite possibly, it could be handled contractually.
- Pricing/Costs. Some aspects of pricing and contract duration are under the jurisdiction of the Federal Energy Regulatory Commission. The issue of controlling fish costs poses "a political rather than legal problem" for subscription.
- Refine Business Interests. Work Group participants should refine and rewrite their statements of interests based on the questions and discussion, Adams said. New interests can be submitted as well. The deadline for submittals by Work Group particiants is April 9.
- Organize and Focus. Adams encouraged participants to think about how to organize the interests and to focus on a set of issues to analyze and resolve.
- Response to Congress. Adams and Wright will redraft the bullets the subscription work group will submit to the Transition Board.
Archive of content originally posted or last updated on: April 1997.
Content originally provided by: Carolyn Whitney, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
Page maintained by: BPA Web Team.