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

Summary of September 17, 1997 Meeting

BPA Rates Hearing Room
 

After a quick briefing on the September 9 Transition Board meeting, the Federal Power Subscription Work Group discussed BPA's approach to marketing surplus energy and whether BPA has the administrative ability to differentiate rates as part of the subscription process. About 35 people attended. Next meeting: October 1 at the Rates Hearing Room in Portland.

Index (click item to move to topic)

WHAT "D.C. INSIDERS" TOLD THE TRANSITION BOARD

Dick Adams, executive director of PNUCC, reported that at its September meeting, the Transition Board teleconferenced with Congressional and Administration staff and lobbyists about the outlook for restructuring legislation in 1998. The bottom line from the "D.C. insiders" was "there's most likely more smoke than flame," but there will be some activity and markup of bills, according to consultant Al Wright. They said the Northwest has developed a reputation for being ahead of the game, and their advice was: keep up the image that you're working on solving your problems -- don't slow down, go faster if you can, he said. The D.C. insiders thought the Transition Board's plan to have all the processes come together in March 1998 was "a little late," and that the first of the year would be better, Wright added.

There was a consensus that some issues "are solidifying on a national basis," and "if we try to write Northwest exceptions to them, it will be an uphill fight," Wright said. Three examples are: the Federal Energy Regulatory Commission (FERC) 888/889 doctrines; the idea that cost shifting in any way is bad; and the notion that FERC is "the center of the universe for transmission," he stated. As for subscription, if we can get a subscription that "eliminates the stranded cost hysteria" without legislation and doesn't take the matter back to Washington, D.C., it's a good thing, Wright said.

The Transition Board is frustrated with how long it is taking to come up with "the package" (including subscription and transmission decisions) and is looking for ways to move this more quickly, Wright reported. As we move into fall and winter, you'll see them push harder, he predicted.

 

BRIEF WORDS ABOUT BUSINESS RELATIONSHIPS

A customer representative said that at the last meeting, the group went over a series of questions about the umbrella/subsidiary business relationship, and there "was some confusion" about whether a revised version of that relationship was being created. The answer is no, he said. He noted that PNUCC has prepared a matrix comparing the umbrella and commercial contract relationships and suggested that interested parties do some additional work on developing the matrix.

Syd Berwager of BPA said the agency has participated in meetings about the umbrella, but hasn't been "terribly aggressive." He asked when BPA should present a description of a business relationship it could accept. The group indicated BPA should make it clear what it needs in a business relationship, and the sooner the better.

 

BPA GIVES A SURPLUS MARKETING OVERVIEW

Allen Burns, manager of BPA's trading floor, said the overall objective of BPA's surplus energy marketing program is to get maximum value for the energy sold. The revenues from the program are used to keep rates low and repay the U.S. Treasury, he explained. We don't sell much secondary energy as nonfirm, Burns said, because a fairly efficient marketplace has developed, and BPA has adapted to it.

Burns described a "BPA organizational structure for marketing" with four categories:

  1. Long-term sales, under which a group of BPA account executives makes customized deals for 12-18 months and longer.
     
  2. Quarterly, Monthly trading, which he called the "newest development." A group of BPA traders, working by phone, sells to customers who call and ask for basic standard products for periods of 12 months or less.
     
  3. Weekly, Daily trading, where customers respond to BPA's daily offerings posted on the Internet, and the short-term trader desk makes deals for part of a month or for the next day.
     
  4. Realtime, Hourly sales, where BPA power schedulers deal with an hourly surplus firm product.

Our hydro planning section looks at all of BPA's rights, obligations, and constraints and forecasts what the surplus will be in the next four to six months; that's what we're trying to move in categories 2, 3, and 4, Burns explained. Most of what we do involves selling basic heavy load-hour and light load-hour products, he said. The subscription process will dictate how much of a surplus marketing program we will have, Burns said. He noted that in 1996, a good water year, BPA sold about 4,000 average megawatts in categories 2, 3, and 4. In response to a question, Burns said he "was not comfortable" saying how much BPA sells in each category.

A participant asked about the idea of having an auction where customers bid for a priority position to buy "what was traditionally called nonfirm energy." Basically, you're describing an option, replied Burns. If there's interest in an option based on water, we're willing to talk about it, he said. Calling the discussion "frustrating," a customer representative told Burns, your expressed goal contradicts the Comprehensive Review report which says that BPA shouldn't be an aggressive marketer. "Where is your marketing plan?" he asked. I want to gauge this new secondary energy product that a group of customers may want against a BPA marketing plan, he continued. I want to know what BPA's business approach is for things that don't get subscribed, he said.

Berwager said BPA has an interim marketing plan for 500 MW of in-region and 800 MW of extraregional pre-subscription, post-2001 sales, and that the agency had sent out an update on its long-term FPS (surplus firm power) transactions. We are not marketing at retail and are not out "speculating and trying to make money," stated Burns. Within those two sideboards, we're trying to maximize the value, he said.

If a customer wants a non-traditional product, just go to BPA and ask, suggested another customer rep. We did a non-traditional deal with them recently, and "it advantaged us both," he said. I see this work group dealing with long-term firm power for subscription, not these short-term issues, he added. BPA has been waiting for the subscription process to "take more form and substance" before doing a full marketing plan, as described in the Comprehensive Review, noted Paul Norman of BPA. We are thinking of doing such a plan early next year -- if you want it sooner, tell us, he said.

 

CAN BPA DIFFERENTIATE? YES

Adams noted that the Comprehensive Review recommended differences in rate treatment for customers who subscribe and those who don't, and that the work group has yet to respond to that issue. To do so, we need to know what flexibility BPA has under its statutes to have different rates for requirements service, he said. The question BPA tried to answer, Berwager explained, is: "what administrative ability does BPA have to differentiate the price of requirements service between those who subscribe for such service beginning in 2001 and those who do not subscribe, but ask for such service after 2001?" The question could involve, for example, a preference customer who does not subscribe in 2001, but comes back in 2011 and wants to exercise its statutory rights, he said.

See BPA slide presentation on
"Rate Differentiation for Requirements Service" (PDF, 5 pages, 66 kb)

Section 7(b) of the Northwest Power Act authorizes BPA to develop a rate or rates for preference customers' requirements loads, noted Berwager. We think the "or rates" language gives BPA the administrative flexibility to differentiate between rates for requirements service, he said. His example presented two rates:

  • PF' - BPA would charge the average embedded cost of FBS (Federal Base System) resources.
     
  • PF" - If a customer comes in later and exercises statutory rights, the charge would be "the blended cost of higher-cost FBS resources," but not lower than PF'. If the system is fully subscribed, the customer would be charged the highest-cost FBS resource or BPA's cost to acquire power to serve the load, but not lower than PF'.

Questions? Yes. Do you think BPA can develop multiple rates for other than preference customer loads? Yes, replied Berwager. In your example, the variable that changes the rate is time -- are there other variables? There could be others; the Comprehensive Review talked about additional risk to the Treasury, Berwager said.

Can you set the second rate to market price? There would be some constraints there, replied a BPA attorney but a preference customer who doesn't buy and then buys later should expect to pay higher costs for their priority firm service than those who buy now. If a customer comes back and BPA is fully subscribed, would there be bumping rights? If you've subscribed at average embedded cost in Phase 1, 2, or 3, you couldn't be bumped by someone coming back in 2011, Berwager replied. What if BPA is fully subscribed and part of that is from IOUs, in or out of the region, and a preference customer comes back -- is an IOU's power purchase limited to seven years even though it signed a 15-year contract? It depends on whether the IOU bought surplus power or excess federal power from BPA. If they bought surplus power, then for regional IOUs there is a 5 year termination right that BPA has to exercise to serve preference loads, for extraregional nonpreference customers buying surplus power, there is a 60 day termination which applies to the energy sale. If the customer bought excess federal power (a different class of power), then those sales are firm to the customer for their duration and cannot be terminated by BPA to meet other loads. If a preference customer wants service after subscription and BPA is tapped out, BPA is obligated to serve both that preference customer's request and all its other firm contracts -- BPA would have to acquire resources to serve the preference customer, and that's one reason why there would be a different PF rate, said a BPA attorney.

Is this limited to PF service? It could apply to excess federal power or surplus power service under the FPS rate, noted Berwager. Could the PF" rate be set based on the risk to BPA of non-subscription, rather than on the cost of resources? This approach seemed to be a good starting point; there are other ways to do it, said a BPA attorney.

Do you envision re-opening subscription for the PF" rate and everyone coming in at once, or would it be whenever a customer "knocks on the door"? We would prefer a bilateral contract process but we would set the PF" rate every rate period, and it would be fixed for the duration of that period, said Berwager. We'd need a "robust discussion" of how risk is quantified and included in the rates, said a customer representative.

"Not that the Comprehensive Review is the bible or anything," but it said that people who come back later get market rates, not PF", said a public interest rep. If you can come back and get lower than market prices, there is less of an incentive to subscribe at the beginning, he stated. PF will be cost-based, but may be different for the later customer prchases and turn out to be close to market, he said.

The question is whether this arrangement would keep people from going back to Washington, D.C. to ask for statutory changes, and if so, that's a benefit, suggested Berwager. BPA has some higher-cost resources, and I bet they could come up with a blend that almost matches market, stated a customer representative.

Has BPA decided to adopt this? asked a participant. This isn't a formal proposal, but it's "beyond an idea," replied Berwager. We think it is a workable approach to implement the Comprehensive Review that doesn't require legislation, he added.

 

WHAT'S COMING UP NEXT?

  • Business Relationships and Products. Look for reports on the slice of the system and the business relationship matrix. Adams said after BPA finishes "tuning up" the list of products and services, it will be mailed out and then put on a later meeting agenda for additional discussion.
     
  • Wading into Implementation Issues. At the next meeting, the group will start to talk about implementation issues, such as the phases of subscription, Adams noted. A list of such issues will be sent out, he said.
 
Adjourn
   

Archive of content originally posted or last updated on:  November 8, 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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