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

Summary of August 6, 1997 Meeting

Portland Airport Sheraton
 

The Federal Power Subscription Work Group discussed sample product offerings presented by the Bonneville Power Administration and two business relationship proposals. About 40 people attended. The next meeting is August 20 at the BPA Rates Hearing Room.

Index (click item to move to topic)

BPA PRESENTS MORE SAMPLE PRODUCTS

Syd Berwager of BPA distributed a set of sample product descriptions, noting all are presented in the format the group "found to work pretty well" at the last meeting. We want to get feedback on whether these products have the features you are looking for, he stated. We've revised the first three products on the list based on the comments you made at the last meeting, Berwager noted. Today we have writeups on a dozen more products, and we'll have them for four more on August 20, he said.

Partial Service Product

This is for a "moderately complicated partial service customer," Berwager explained. BPA would provide firm power to serve loads beyond customer-owned and consumer-owned resources (such as a cogeneration facility at an industrial plant) and contract purchases. Berwager noted that BPA may also develop a product for an "extremely complicated" partial service customer.

"There are a lot of hairs being split here," commented a customer representative. Another participant said, while these product features appear clear-cut on paper, in practice, they can be muddied, and people can put a twist on them that could give them an unfair advantage. One individual suggested that instead of "looking behind the meter and color-coding the bumps in the load," BPA should define the product more simply. Rather than audit cause and effect, BPA should look at the load shape and figure a cost to follow that load shape, he said. That's better than all these fine distinctions that lead to gaming, agreed another participant.

This product is set up to recognize there's an additional risk element and that's reflected in the price, stated a customer representative. The question is, does it create something that can't be tracked? said another. This is not the only moderate partial service product we could offer, Berwager pointed out.

The question of how much risk a utility puts on BPA and how BPA can calculate that risk adequately is a basic issue about all the products BPA is going to sell, said an agency representative. The difficulty is the great divergence in risk factors among customers and product uses, said a utility representative. If you go with the simpler approach, you average the risk among all the different customers, but not all customers may be happy to share the risk, he stated. The price of this risk is considerable, and there could be some major cost-sharing going on, he added. We didn't set out to average the risk-taking -- the intent is to reflect unique customer situations in the price, said Berwager.

This looks like "the old command-and-control BPA," commented a utility representative. I'd rather you get your prices right, tell us the price, and we'll respond, rather than doing a contract with "lots of analysts spending lots of time," he added. We need to decide if we are going to have infinite products where each customer's risk profile is evaluated by BPA and then gets a price, versus posting a price, which customers take if they want, stated a public interest representative.

The only way it could work with BPA negotiating one-on-one with each customer is if we can get BPA out of the position of being able to recover costs from transmission -- otherwise transmission users are the risk holders, said a utility representative. There needs to be more discussion about how to distinguish between economic load loss and retail access load loss, suggested a customer representative. Maybe the power and risk products should be sold separately, one individual said. The private sector could sell risk products, offered another.

I wonder if we as a group should try to design a better set of products than BPA has brought, or if we should just hear their list, a participant stated. There are a group of us who have made a career in rate cases finding "the seams" in what BPA offers and then exploiting them, and when you close those, new ones open up, observed a customer representative. We should find a way not to play the same game we've played for the last 20 years, he added. There's a fundamental difference in the contracts BPA is proposing and what customers want, and I think we need to give that issue some air time, said a utility representative.

New Renewable Resource Product

BPA would offer a block of power specifically supplied by new renewable resources with a price that reflects that, Berwager explained. We urge you do the same for WNP-2 output, said a public interest representative, adding, "if no one wants it, let's shut it off." Let's go to a market test for WPPSS as well as for green products, he urged.

At what point do you unbundle individual BPA resources and sell them separately? asked an individual. If I had a special fondness for turbine #1 at Grand Coulee, could I specify that, or power from one of the more fish-friendly dams? he inquired. We're only offering this for new renewable resources, Berwager replied. Why would you not just meld new resources into the system as has been done historically? he was asked. We are developing these resources not because of their cost-effectiveness, but because they will help the Northwest in the future, responded Berwager. Others who share those values can contribute to that, and we've heard from customers they're interested in this product, he added.

BPA is testing the waters for renewable products to see if people are willing to pay a premium price for them, said a utility representative. Participants suggested that this product would need to spell out the degree to which purchasers can be assured that replacement power would also be "green."

Nonfirm Power Product

This is BPA's traditional nonfirm power product, noted Berwager. One individual suggested BPA could sell priority rights to nonfirm over a longer period. There is a competitive market to be first in line for the first 100 megawatts of nonfirm, he said. BPA could establish "a pecking order" and auction off rights to it, he added. In these years of high flow due to the fish program, I've been surprised BPA hasn't offered this, said another. If you have a combustion turbine to back it up with, it's a great product, agreed a utility rep. A group of potential buyers for this nonfirm product agreed to meet to flesh out the idea.

Retail Access

Under the retail access curtailment product, BPA would assume a portion of a customer's load lost to retail wheeling in exchange for a curtailment fee. Participants asked whether BPA should be in this kind of business, how the product would be priced, and whether it had to be offered in conjunction with a BPA purchase. The group also discussed the "retail access remarketing service product," which Berwager described as "another way for a customer to mitigate retail access load loss."

 

ANOTHER TAKE ON THE UMBRELLA

A customer representative said some of his clients are interested in a long-term umbrella agreement with BPA, under which individual products could be purchased using subsidiary agreements. We thought we'd push the concept for such a business relationship (which a DSI representative introduced at an earlier meeting) further along, he said. This version of the umbrella agreement would not be mandatory, he stated, indicating that customers could make purchases from BPA under other agreements besides the umbrella. This agreement, he said, would be offered to customers consistent with preference.

He noted differences between his concept and the umbrella agreement proposed by the DSI representative. This approach allows for a re-opener if more power becomes available through the termination of prior contracts. It relies a lot on cost-based rates, he said. This rejects the idea of a premium in the out-years, he noted. It provides that BPA could sell power at market if the market is below cost, with the agreement that Treasury payments would be paid back, with interest, over a reasonable period of time, such as two or three years, he said. We're not thinking about an endless premium to the Treasury, he added. A participant commented that the premium in the DSI proposal would not be indefinite.

We need to negotiate with Treasury and have an explicit realization that BPA is not a risk-free enterprise, stated the proponent of the new umbrella proposal. If it involves negotiations with Treasury, why not "securitize the whole arrangement" by refinancing BPA's debt and drawing up a financial instrument to reflect BPA being above the market now and below the market later? asked an agency representative. Given the WPPSS debt, I don't think we could do that now, was the reply. We're talking about deferring payment to Treasury under this concept, and since we hear they aren't willing to accept deferrals, this is very speculative, observed a utility representative.

The new umbrella proposal assumes that stranded costs would be dealt with in other arenas, said its author. The guaranteed Treasury repayment within a short period essentially takes care of stranded costs, commented a participant. Others asked what would happen if a customer purchases for five years, during which time there is a deferral, and then the customer decides not to purchase. What's the residual liability for the five years when it did purchase? A subgroup agreed to look into these questions and consider the umbrella agreement further.

 

HOW ABOUT A COMMERCIAL CONTRACT?

Another customer representative presented "a brief recitation of what would go into a standard commercial contract." This has got "no umbrellas, no waders, no nothing," he said.

The contract would have standard terms: product purchased; quantity purchased; price terms; duration of agreement (one to 20 years); product scheduling (if any); payment provisions; and consequences for non-performance. Optional terms would be: rights to subsequent purchases; pricing for subsequent purchases; re-openers for specific provisions/events; rights for additional purchases; and dispute resolution.

This is just to keep on the table the notion you might do business under a subsidiary agreement without the umbrella, he said. If a customer wants to put stranded cost provisions in a contract, either affirmatively or protectively, this accommodates that, he added. When a transaction ends, the relationship comes to an end, he said.

If BPA costs are below market, this doesn't say anything about the rights of customers to get those benefits, observed an individual. People can put that in as part of the optional terms, but others may not want to, was the reply. Others may rely on statutory rights to get BPA power, and others may think they should put additional purchases in the contract, the proposal's author continued. This allows customers to forge relationships for as long as they want, to be as exclusive or inclusive as they want, and to choose the level of risk they want to have, he said. This is an outline -- a "fill-in-the-blanks" approach, observed a utility representative.

 

WHAT'S COMING UP NEXT?

  • More Products. BPA will present more sample product descriptions.
     
  • Slice of the System. The group working on this proposal will make a presentation.
     
  • Task Force Reports. The subgroups plowing forward on the nonfirm power product and the umbrella agreement will report progress.
 
Adjourn
   

Archive of content originally posted or last updated on:  August 12, 1997.
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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