As part of its participation in the Subscription Work Group, BPA has developed an approach for pricing the products that it will offer for the post-2001 period, and a proposed application of that approach to the product list developed in subscription. The purpose of this paper is to share and test the approach and its application with customers and other regional parties.
BPA has assembled a list of 16 products that are expected to meet most of the varied needs of its customers for the post-2001 period. Price is an important feature of BPA products. As with all suppliers in the marketplace, how BPA assigns costs and prices for products will influence whether potential customers will want to buy the product and whether BPA can cover its costs, including the cost of risk associated with individual transactions. In addition, unlike most suppliers, BPA must follow specific statutory guidance in setting its prices.
In order to reflect its business interests and statutory guidance in pricing its products, BPA must consider a number of factors in pricing its products:
- Firm Requirements Power vs Surplus -- Is the customer requesting firm power requirements service (which is an obligation that has first call on BPA's inventory) or is the customer purchasing BPA service only when BPA has inventory that is surplus to that needed to meet requests for firm power requirements service?
- Firm Load vs Resource Support -- Is the service used to serve firm power requirements load or to support off-system sales or the operation of resources?
- Economic Choice Flexibility -- Is the customer requesting flexibility that will enable it to take power from BPA only when market conditions are such that BPA's published rates are better than prices available in the market place? Is the customer requesting flexibility that will enable it to use its resources or power from other suppliers to displace BPA power when it is in the customer's economic interest to do so? To what extent and in what timeframes does the customer wish to have the right to make an economic choice between the BPA firm power product and some other power source?
CATEGORIES OF PRODUCTS
BPA is striving to deliver the benefits of the FCRPS as widely as possible to regional loads in accordance with preference and priority. BPA has proposed that its products would fall into one of three categories depending on the type of service and flexibility desired by the customer.
- Core Subscription Products are those that are available to customers who request requirements service to serve load and accept constraints on their ability to shape their purchases from BPA due to fluctuations in market prices. These products would have posted cost-based rates. Core subscription products for which BPA would post a rate include: Full Service and Firm Power Block; BPA also expects to offer a posted-rate Partial Service product. The products in this category are expected to fulfill BPA's power obligations under the NW Power Act.
- Customized Subscription Products are those that are available to customers who request requirements service to serve load and but who want flexibility to reshape their purchases from BPA in order to optimize their resource operations or to take advantage of fluctuations in market prices. Although these products would not have posted rates, they would have elements that would be priced using the posted rates for the Core Subscription Products. They would also have additional elements reflecting the flexibility desired by the customer. These elements would be priced through negotiations. Customized Subscription Products include: Flexible Partial Service, Variable Load Factor and Renewable Resource.
- Non Subscription Products include all products not in the other two categories. These include products that support the operation of resources and products that are purchased when BPA has inventory in excess of that needed to meet requests for requirements service. This category broadly includes power products and services that BPA might sell to any customer in the marketplace. The price for these products will be negotiated under BPA's FPS within the cost-based cap set by the FPS rate schedule.
RISK SHARING WITHIN THE PF RATE
Some customers are looking for the flexibility to make economic choices. To the extent customers are looking for flexibility that is not available under posted-rate products, BPA is planning to reflect the costs of the risks associated with such flexibility in the price of that service. Some risks are assumed to be so minimal that they will be rolled into the PF Rate, such as the risk of small generating resource fluctuations. Other risks, though small in quantity, may be of a larger nature, such as the risk of Retail Access Load Loss for even the smallest customers, or the risk of excessive load growth for customers who are not placing their full load on BPA. The primary reason for a distinction between the Core and Customized Subscription Products is to keep from spreading the costs of those risks to customers who are not causing BPA to incur those risks.
Cost basis for Core Subscription Products
(and for firm energy portion of Customized Subscription Products)
Revenue forecasts for sales, such as Non-Subscription Products, will be credited against BPA's overall Revenue Requirement, before determining the cost of firm energy. BPA expects the great majority of its sales volume and revenues to come from the sale of Core and Customized Subscription Products.
Cost Basis for Negotiated Elements of Customized Subscription Products
The specific price established for any transaction would be negotiated based on the amount of flexibility the customer desired, opportunity costs, the level of business risk being assumed by BPA, and other factors that arise during the negotiations.