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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 April 15, 1998 Meeting

BPA Rates Hearing Room
 

The Subscription Work Group chewed on BPA's recommendations for dealing with load growth and load loss, and BPA staff presented an approach to pricing products. Group members offered divergent opinions on how to describe their progress in a report to Congress. About 40 people attended. The next meeting is April 29.

Index (click item to move to topic)

NEWS ON THE EXCHANGE

A participant in the residential exchange subgroup reported that four options are under discussion: an in-lieu power sale; a surplus firm power sale; a cash buyout; and a year-to-year cash-based exchange. He said members of the subgroup would get together to develop the options more fully, with the aim of reaching consensus in four or five weeks.

 

A STATEMENT ON PRICING PRODUCTS

Kathy Hoffman of BPA presented BPA's written statement on how it intends to approach pricing products. She noted that a group of customers helped to put the paper together. Hoffman said BPA must consider a number of factors in pricing: whether a customer is requesting firm power requirements service or surplus power; whether the service is to serve firm load or to support off-system sales or resource operation; and whether a customer is requesting flexibility to make an economic choice, which could cause BPA to incur additional risk.

She explained the three categories of products BPA envisions: core subscription products available to customers who request requirements service and accept constraints on their ability to shape purchases from BPA due to fluctuations in market prices; customized subscription products available to customers who request requirements service and want flexibility to shape purchases from BPA in order to optimize their resource operations or take advantage of fluctuations in market price; and non-subscription products available "off the shelf" at negotiated rates, which include all products that do not fall in the other two categories.

According to the paper, "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 risk associated with such flexibility in the price of that service . . . 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."

With regard to the cost basis for core subscription products, the forecasted sales revenues will be credited against BPA's overall revenue requirement before the cost of firm energy is determined, according to the paper. The cost basis for negotiated products depends on the type of flexibility a customer is seeking and could vary from one customer to another, Hoffman said.

Would the "constraints" on core subscription products mean there could be no adjustments for such things as a customer's demand-side management (DSM)? a customer rep asked. Hoffman said the constraints mean that BPA would not stand behind a customer's economic resource choices. A BPA staffer said the concern was less one of DSM than of generation resources a customer might put on. Do people think we need to worry about DSM? he asked. Yes, a public interest rep responded. Customers who get cost-based core products should be required to do DSM and to meet the 3 percent for public purposes called for in the Regional Review, the rep said. Which category of products covers economic displacement? a customer rep asked. The non-subscription products, Hoffman responded.

A public power rep asked BPA to explain how the revenue crediting would work. A rates staffer said BPA proposes to credit forecasted revenue against the total revenue requirement, and it would go against both capacity and energy. He noted, however, that the final rate design will be determined in the rate case.

A participant asked about a statement that the price of non-subscription products will be negotiated under the cost-based cap set by BPA's FPS rate schedule. Then you are talking about a market rate, an IOU attorney pointed out. You will have a market-power rate in the rate case, she said. I don't think we're obligated to take the FPS into the rate case, a BPA staffer responded. If you choose not to, it will be an issue, the attorney stated.

Do you plan to market WNP-2 separately? Which of the product groups would incorporate it? a state agency rep asked. The BPA Cost Review panel made that recommendation, and we are thinking about it, a BPA staffer responded. Will we have a chance to discuss the division you've made between the cost-based and market-based products? a customer asked. The most important distinction here is the posted versus the non-posted-rate products, a BPA staffer said. But we do need to discuss the cost versus market-based pricing, she acknowledged.

How will customers know that the revenue is being credited properly? How transparent will that be? a customer asked. The crediting occurs during the rate case, Hoffman responded. We forecast what we expect and design the rate on a prospective basis, she said. The work group decided to revisit the pricing approach at its next meeting, when members have had more time to review the paper.

 

LOAD GAINS AND LOSSES

Garry Thompson of BPA presented recommendations related to load growth and loss. In developing the recommendations, we determined that we did not want "to look behind meters" and that we would develop "a tagging and scheduling" system, he said. BPA also considered what the Regional Review recommended for dealing with growth/loss issues, Thompson noted.

BPA broke the issues into four categories: load growth, load loss, retail access load gain, and retail access load loss. Thompson offered definitions for the terms and pointed out that "an overriding principle" in the proposal is that new large single loads (NLSL) are not covered by load growth and are subject to the new resources (NR) rate.

He presented a chart showing the four categories of load gain and loss, along with BPA's proposal for addressing them:

  • Full-service customers -- load growth and load loss would be covered by BPA; retail access load gain would be served at the PF" rate; and retail access load loss would be addressed through "mitigation products."
     
  • Partial-service customers -- load growth would be served at PF", with no PF' load growth above the purchase commitment; a load loss recommendation is being developed; retail access load gain would be served at PF"; and retail access load loss would be addressed through mitigation products.
     
  • New publics and exchange loads -- load growth would be at PF' or PF", depending on inventory availability; load loss would be covered for full-service loads; retail access load gain would be served at PF"; and retail access load loss would be addressed through mitigation products.

An IOU participant questioned whether BPA was thinking of the reservation of power in the initial subscription phase as a "cap." I thought the reservation was so power would not be "snapped up" before customers had a chance to decide, he said. A BPA staffer confirmed the reservation would not be a cap, but a way to manage sales, depending on how the market is going. Originally, BPA was concerned about getting stuck with extra power, but now it may be that we'll have an allocation problem, he added. The Regional Review recommended BPA give priority to long-term over short-term contracts, the participant pointed out.

A public power rep questioned the difference in the way BPA is proposing to serve the load growth of full and partial-requirements customers. He suggested that if a portion of a public agency's load is served by a supplier other than BPA, BPA should cover the residual under the same provisions it would use for a full-requirements customer.

Would annexation be considered load growth or retail access gain? a participant asked. If an existing public annexes the distribution system of another entity, is that considered a new public? another asked. If two publics merge, that would be considered growth, a BPA staffer said, but if a public acquires an IOU system, that would be considered gain. That is a distinction that has no foundation, a public power rep said. The distinction depends on who is currently serving the customers, a BPA staffer said. The distinction should be based on timing of the request -- is it while subscription is ongoing or not, an IOU rep suggested.

The thrust of the Regional Review was that BPA not be in the business of acquiring resources, a participant stated. We are getting into some "squirrely issues" about annexation, he said, adding that the real issue is for whom BPA would be acquiring resources. We said we would serve the load growth of small customers who are fully reliant on BPA -- it is not a broader definition covering those who diversify, a BPA staffer replied. The total load of customers likely to want full service is 1,030 MWa, with 30 MWa the largest single load, he said. These customers have grown at six-tenths of a percent annually, which means we might have 40 MWa of growth to serve, he explained. That's consistent with the Regional Review, a participant said.

The bulk of the utilities I represent have diversified in the market, and they are used to placing their residual load on BPA, a public power attorney said. There is a strong market for that relationship, and "you would not be doing the agency any favors if you elect not to serve it," he said. A utility might choose to "stair-step" its BPA purchases up each year to cover load growth -- why couldn't one do that? he asked.

I understood the subscription purchases would be "a flat block" for 60 months, a BPA staffer stated. We have not considered what we would do if a customer comes in with a subscription request during "year five," another staffer said.

If BPA has to shape a customer's residual load, it costs more, a public interest rep said. Service should reflect the price it imposes, he said. All sorts of customers will want to do all sorts of things to maximize the economics, but that's "kind of gaming," he said of the stair-step approach. If you want the rights to PF', you do what everybody else does, he added.

I take exception to the term "gaming" -- it's an unfounded characterization, the public power attorney responded. I have clients who want to put load growth on BPA, and "they have a statutory right to do that," he stated. If they can stair-step their load up, I don't think it's gaming, he continued.

Participants had numerous "what if" questions. Are customers buying a flat block of power in subscription or can the amount vary? If a smelter potline is down at the time of subscription, could it restart later at the PF' rate? If a customer wants to postpone delivery of a subscription purchase for three years, what cost does that impose on BPA? If a public utility is buying less than its load from BPA, is its subscription entitlement limited to load or to historic purchases? If a full-requirements customer merges with a partial-requirements customer, would load growth be covered at PF' or PF"?

BPA staff indicated that many of the questions have not been explored. You need to coordinate this work internally with the staff working on implementation, a public power attorney said, adding that in the implementation protocol that has been offered, subscription is not tied to an historic purchase. It would appear an NLSL "gets stuck" with the NR rate, she added, and if the region gets to retail access, we should revisit that. A customer said it is unfair to differentiate between partial and full-requirements customers "based on their historical choice."

We're talking about rate design, a BPA attorney said. We will serve the load, but the question is whether the price will be PF' or PF", he said. If you are buying firm service to meet load, you must be serving that load from the beginning -- that is the proposition, he continued. You retain the right to the lowest cost-based price for the amount of power you buy during subscription, he added.

I'm assuming a customer still has the option of covering load growth with an FPS purchase and that this is not the exclusive tool to deal with load growth or the prospect of gaining load through retail access, a customer rep said. That's true, a BPA staffer said, but with FPS, you are agreeing that BPA will serve power only when there is surplus.

If a full-service utility acquires load and serves it by some means other than BPA, it no longer fits into full service, a DSI rep pointed out. You would no longer be entitled to the full-service load growth and load gain coverage, he said. We had not thought about that, a BPA staffer acknowledged. Can you "wall off" an industrial load? another staffer asked. I'm confused about "a full-service customer that is not full service," an IOU attorney commented. There are additional options customers are interested in -- this is a limited list, a customer rep said. There is the option of paying an exit fee and switching from PF to another BPA product, he said. Are you still full service if you are buying everything from BPA? Yes, you are, he stated. If not, you're not, he added.

Load loss for full-service customers is covered; the partial-service team is developing its proposal, Thompson said. What do you mean by covered? a customer rep asked. Are you saying that if a utility loses a 20-MW group of industrials, BPA would do what it could with the 20 MW and not seek a penalty from the utility? he asked. Yes, a BPA staffer responded.

Our product list has retail access curtailment, a BPA staffer said. What happens if retail access load loss occurs prior to the customer signing a contract? an industrial customer rep asked. I'd suggest full service for the residual load, he added.

Thompson said in presubscription interviews, customers have asked BPA about how to address large industrial loads they do not feel are secure and for which they don't want to take responsibility in their power sales contracts. Utilities with large industrial customers may come to BPA and say, "let's cook up a deal," a customer rep suggested.

A BPA attorney pointed out that a utility could voluntarily allow retail access, or it could be mandated by the state, and he suggested the two circumstances might be treated differently by BPA. If you are not obligated to serve the load, we'd say it is not your load, and we don't expect you to buy for it, he said. If that is the case, once a state allows retail access, all PF sales would cease, a customer observed. It depends on how the state structures the legislation and whether it has a default-provider provision, the attorney replied. I have seen nothing in the state of Washington that would obviate a default to the local utility, a customer rep said.

The team will go back and discuss these questions and comments, Thompson concluded. We'll provide more detail in a month, he added.

 

LONG-TERM SCENARIOS

BPA offered written responses to several subscription scenarios tendered by the Oregon PUC. The questions related to the long term, not the near term, on which this group has focused, Scott Wilson of BPA said. In responding, BPA had some general principles in mind: no change in the federal statutes; BPA can acquire resources for those who want to cover the costs; and public and regional preference is preserved.

An OPUC rep asked whether BPA could recall power to serve a request from a new public utility. PF contracts and IOU exchange contracts are not recallable, but other IOU contracts are, Wilson said. In response to a question, a BPA attorney also said that under the law, the in-lieu amount of power BPA sells to an exchange customer under the PF rate cannot be reduced below what BPA acquires on behalf of the customer. BPA staffers also said contract provisions would assure exchange customers there would be PF" power available to meet load growth.

 

T-BOARD DRAFTS PROGRESS REPORT TO CONGRESS

PNUCC director Dick Adams said the Transition Board is planning to send a progress report to Congress at the end of April. The board will take comments on the draft until April 24, he reported.

We have written the subscription section "in a positive fashion," consultant Al Wright said. The work group has 52 days to resolve issues before subscription is slated to begin -- it makes one more skeptical than this report indicates, he said.

We need to think about who is the audience and what message we are trying to deliver, an IOU rep said. There is still quite a bit of uncertainty, he suggested. I can see that BPA can do much of this through contracts, but we are a long way from a clear view that BPA can deliver it all, he said. This draft also implies the stranded cost issue has been severed and is in "another court," he said, questioning whether that is accurate.

If I were a member of the Transition Board, I would want to give "the right heads-up" to Congress, an IOU attorney said. So do you want to say that things aren't "as rosy" as this letter indicates? Adams asked. Yes, I would say that we have a window to resolve the issues, we are working hard on them, but it is not clear we can resolve them all without legislation, the attorney replied.

If we cannot resolve the issues here, it is not clear there will be consensus for pursuing legislation, a public power attorney said. I presume there is a large group that would say, "if we can't make subscription work, I'll opt for the status quo," Wright observed. There would be strong and varied opinion about which of the two, legislation or status quo, is most desirable, the attorney said.

The write-up also describes the process as though we will all go into bilateral negotiations at some point, an IOU rep said. It doesn't say anything about phasing or a standard contract format, he said. Administrative efficiency dictates that we will need some level of standardization, a BPA staffer responded. Does this group want to deal with those issues? he asked.

There has to be uniformity on the definition of costs, a participant said. If you're buying at an unspecified price, it's critical to understand how the costs will be determined, he said. The benefit here is low-priced power, and you have to define that, he added. If you have a rate in one contract that is "hell or high water," and you have the same rate in another contract that has a 14-day cancellation, you lose the consistency of pricing, an IOU attorney said. There are differences in those costs, and you are shifting risks, he said.

BPA used to come up with "a few amenable contract forms," but BPA's competitors won't be held to such constraints, a public power rep said. BPA came up with different arrangements and worked on them until people thought they were okay, he said. "It would be foolhardy to bring that process in here -- I don't negotiate my contract with the IOUs in the room," he said. We can come up with standard approaches to costs, but when we negotiate, different customers will want different things, he said. Customers will find different ways to get their rights, and I don't want to be constrained, he added

Cost-based rates imply that "everybody watches everybody else," an IOU rep said, and they assure everyone they are getting an equal deal. "The other world" is the purely competitive, market-rate environment -- that's where BPA prices its products based on what the market will bear and customers get a customized deal, he said. There are no checks on cost shifting in that world, he suggested, and if we want to preserve cost-based rates, we need to stick with the historical approach, he said. We are somewhere in between the two worlds, a public power rep replied. You have the costs defined, and then you go into a room and come up with the terms and conditions, he said. We're in neither world completely, and "you can't have standard offers in this world," he said.

 

ON THE SCHEDULE

A Public Generating Pool rep offered a list of issues that remain outstanding. Adams encouraged others to do the same. What is it we need to get closure on to move forward with subscription? he asked.

The work group decided to meet more frequently and to schedule some two-day sessions. The next meeting is all day April 29; the full group will meet mornings and subgroups will meet afternoons on May 12, 13, 27, and 28.

 
Adjourn
   

Archive of content originally posted or last updated on:  May 5, 1998.
Content originally provided by:  Syd Berwager, BPA Power Business Line.
Content currently provided by:  PBL Requirements Marketing - PS.
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