Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of October 1, 1997 MeetingBPA Rates Hearing Room
The Federal Power Subscription Work Group mulled over the evolving details of the "slice of the system" proposal, discussed business relationship alternatives, and began considering implementation issues. There were "new faces" among the 35 work group regulars, including a representative of the Sacramento Municipal Utility District. Next meeting: October 15 at the BPA Rates Hearing Room in Portland.Index (click item to move to topic)
- Plans for a Big Tent Meeting
- The Slice Report
- A Matrix of Business Relationships
- Are We Ready for Implementation?
- What's Coming Up Next?
Carolyn Whitney of BPA said the agency is contemplating a public meeting on subscription, perhaps in four to six weeks. The public kickoff meeting was in March, and BPA has since been asked for updates, she said. Whitney indicated the agenda would be geared to those who have not followed the process closely, and would likely include a session for educating people about subscription issues, followed by a report on the work group's progress.
Consultant Al Wright noted there is still much ground to cover with transition costs, subscription, and transmission separation. There could be many questions outstanding in six weeks, he pointed out, suggesting the meeting be held late in the year. Tribal and public interest participants expressed support for holding the meeting sooner. You may avoid confrontation later on, one participant said. Whitney said she would present a proposed agenda at the next work group meeting.
A PGP representative reported on efforts to refine "the slice," referring to it as "a slice of the capability of the system." The discussions are addressing a number of questions including how the slice would be integrated with hydro operations on the federal system, what kinds of forecast information would be provided for customer planning, how a storage account would work, and how rights would evolve over time. We've been sketching this as the beginnings of the components of a contract, he explained. Big questions remain, including "how complicated would this be to administer," he stated.
Syd Berwager of BPA noted that the agency's operations people see the slice as "very complicated." One alternative is to define the product as "a slice of the output" as opposed to a slice of capability, which could remove the necessity of assigning a cost to the flexibility in the system, he said. One slice proponent said he thought that is a calculation BPA would have to make under any circumstance.
The PGP and BPA will continue to work on the slice and report again in November.
Shauna McReynolds of PNUCC presented a matrix that compares the key elements in three business relationship alternatives: the Umbrella/Subsidiary, the Modified Umbrella, and the Commercial Contract. A customer representative pointed out that the group had heard about the umbrella/subsidiary arrangement on other occasions so the time was spent on the public interest groups' modified umbrella and the commercial contract proposal.
The Modified Umbrella. We visualize the umbrella as "a standard agreement," which outlines "the rules for subscription," a public interest participant explained. We want it made clear that the price for cost-based products is derived using an established algorithm, and that only customers signing an umbrella agreement would get those prices, he said. Wouldn't that require a change in federal law? a customer representative asked. "I hope not," especially since BPA indicated it can differentiate prices among customers, he responded.
Umbrella customers buy the right to pay no more than cost so long as they maintain a subsidiary agreement; non-umbrella customers do not buy that right, another public interest representative added. He suggested that the "umbrella" terminology is becoming confusing and should perhaps be dropped. It's essentially a contract in which you do or do not purchase a future right, he stated. Another customer representative cautioned against implying that customers outside the umbrella could not buy at cost-based rates. You can't restrain what BPA can or cannot do with other customers, he said.
"I don't want BPA to give away the store to some sharp negotiator if it affects rates within the umbrella," a public interest participant stated. Another customer representative said the umbrella agreement would give customers the protection of having cost-based rates as a ceiling, with BPA's commitment to maintain "the cost-based cap" into the future. But there would still be negotiation, and "BPA may still be striking unique deals," he said. Preserving that flexibility for BPA is probably a good thing, a public interest rep responded, but "it undermines what people thought they bought." Ultimately, there needs to be a distinction so umbrella customers perceive value in the arrangement -- "more value will generate more sales," he added.
The matrix indicates that under either umbrella scenario, customers would "have priority rights to lowest-cost BPA resources." Several participants pointed out that statement is not consistent with the law. The modified umbrella states that cost-based rates are available only to customers who commit 3 percent of revenues to public purposes, as recommended by the Regional Review. One customer representative said that prerequisite would also require a change in the law.
Commercial Contract. To "keep things simple" and make it "easy to buy from BPA," a customer representative outlined his proposal for a commercial contract. Anyone who legally qualifies could enter a contract with BPA, he explained. The amount of the purchase and a "freely negotiated" product price would be established in the contract. An option for future power purchases or a construct for future rate calculations could be included, he continued. I don't want BPA to be constrained, he said, suggesting the agency should feel it has flexibility, so long as what it is doing "is not illegal." And he added that preference customers "have a right to insist" on buying power at cost. "It's a legal right," he stated. This is "a breath of fresh air," one participant observed of the contract proposal.
"I think we should vote for the commercial contract, declare victory, and go home," a customer representative suggested. You may have slicers and other groups of contracts, but the basis has to be a commercial relationship, he said. I like the notion of the umbrella, and I'm interested in some long-term certainty about BPA's costs, another participant said. I want something "that is above and beyond 'everything is commercial,'" he stated. Let's go with the commercial arrangement, urged another participant. No, you need an allocation agreement, countered a public interest rep.
The BPA Point-of-View. A BPA staffer offered a list of "preliminary principles" the agency has developed for the business relationship.
- BPA is interested in emphasizing customer choice and maximum flexibility.
- BPA is open to different types of contracts.
- BPA would sell subscription products at cost-based rates.
Adams offered a handout on implementation issues, along with several questions developed by staffers at the Oregon PUC. He suggested that the elements for an implementation plan would be: priority, timing, and amount. Priority includes how BPA is to deal with such issues as preference; timing defines when the subscription period opens and closes; and amount identifies any limits or guidelines for allocation of power, he explained.
The priority discussion should address "who" is in line as well as in what order they stand, a participant suggested. Another pointed out that "pricing" is an implementation element as well. We have to have an understanding of how BPA is going to correlate executing contracts with pricing, he said. When will we know what the price is if there is no rate case? he asked. Several participants suggested the issue of "risk" be addressed in the implementation discussion. This includes the risk to Treasury, as well as the risk of cost-shifting among customers.
There was considerable discussion of the customer priority set out in federal law, what the Regional Review recommended, and how BPA currently administers preference, both in and outside the region. A BPA attorney outlined the legal standards for "a qualified purchaser," and he indicated that new categories, such as aggregators, may emerge as states restructure their utility industries. He also described the four-phase subscription process set out by the Regional Review.
"If you want to limit preference, you have to change the statutes," a public power representative said of the phases. Wright responded that the Regional Review steering committee was concerned about "oversubscribing" the federal system and did not intend to limit preference purchases. The participants decided a subgroup was needed to explore the implementation issues further. One participant suggested that the group prepare something "consistent with existing law."
- Implementation Issues. A small group will meet and
develop a proposal.
- Slice. BPA and PGP will continue refining and report in November.
Archive of content originally posted or last updated on: October 20, 1997.
Content originally provided by: Syd Berwager, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
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