Draft for Discussion Purposes Only
Subscription Contract Principles
October 15, 1997
- Contract Types
A customer may choose the type of contract it wants from BPA. Current contract types include: Umbrella Agreement/Subsidiary Agreement and Commercial Contract. BPA remains open to considering other types of contracts. BPA will not favor customer's utilizing one contract type over another.
- Subscription Power Sales
BPA will sell Federal power at cost. BPA's intent is to get its 2001-2006 cost-structure in line with market prices. Thus, BPA anticipates that subscription will be successful. On the other hand, if market prices are below BPA costs, then it may be more difficult to market BPA power at cost. If BPA is unable to recover all of its costs through sales at cost, BPA will pursue sales at market prices and other avenues to recover its unrecovered and stranded costs.
- Long-Term Rights to Cost-Based Power
It is BPA's intent, in the 2002-2006 time period, that the customer will know at the time it executes a contract, the prices it will be paying for the products it is purchasing. This may occur by negotiating a contract which is binding only if BPA determines that the price limit established in the contract can be met after conducting a 7(i) rate case; or, by delaying contract execution until after the 7(i) rate process is concluded. It is not likely that BPA will have Federal Energy Regulatory Commission (FERC) approved rates (even on an interim basis) by the time it initially offers Subscription related contracts.
Purchasers who want the right to purchase BPA power at the lowest cost-based rate* applicable to them may do so by choosing among the following contract options:
Some customers have the option to not purchase Subscription related power initially and purchase BPA cost-based products later, but this may be at a higher cost-based rate** than that paid by those who had previously committed to BPA's cost based power.
- Make a commitment to purchase at cost for some period beyond 2001;
- Make an initial commitment to purchase at cost for some period for some period beyond 2001 and pay an option fee for a subsequent purchase of power at the then lowest BPA rate*; or
- choose a 10-year power purchase with an off-ramp (after 5 years), based on factors to be negotiated with BPA.
* For example, the PF' rate (as opposed to the PF" rate) in BPA's September 17, 1997 presentation, Rate Differentiation for Preference Service (PDF, 5 pages, 66 kb).
** For example, the PF" rate in BPA's September 17, 1997 presentation, Rate Differentiation for Preference Service (PDF, 5 pages, 66 kb).
- Cost Based Products
Following its section 7(i) rate case, BPA will offer a number of Subscription products (e.g., the Full Service, and Firm Power Block products) with fixed, published, cost-based rates. Most customers should be able to meet most of their load with these products.
A customer may choose to buy only these products (which will be sold under BPA's PF, IP or FPS rate schedules) or negotiate a customized variant of these products, combining it with one or more of the other products available from BPA. Pricing for other product packages will be negotiated. To the extent the customized product confers subscription rights, its price will have a cost-based component equal to that of the standard Subscription product component.
- Addressing Load Loss
BPA wants to give customers who are making take or pay purchases from BPA the maximum flexibility allowed by law to dispose of the power they are purchasing from BPA, if they suffer unplanned load loss. The statutory purpose of requirements service (to serve retail load in the region) has historically limited a customer's ability to resell requirements power.
In its new contracts, BPA wants the customer to be able to choose how to address the economic impact of load loss as follows:
- For small Full Service customers, BPA will absorb the load loss risk and that will be reflected in the price for BPA service;
- Customers will have resale rights;*
- BPA will remarket the power and credit the customer;* or
- BPA will offer a product, linked to a BPA sale, that manages the risk of load loss, and the product will be priced as a put option.
* See BPA's September 3, 1997 presentation, Resale/Remarketing Discussion (PDF, 5 pages, 79 kb).
Web page updated November 9, 1997.
Information provided by: Syd Berwager, BPA, firstname.lastname@example.org.