Subscription WorkGroup (Work in Progress)
(Handout at April 29, 1998 Meeting)
 
 
BPA PRODUCT DIFFERENTIATION
 

PURPOSE

As part of its participation in the Subscription Work Group, BPA has developed an approach for pricing the products it will offer for the post-2001 period. This approach is intended (i) to reflect the business risks and costs to BPA, associated with the flexibility desired by some customers, and (ii) to ensure that BPA is not spreading those costs to customers who are not causing the risks to be incurred. The purpose of this paper is to share and test this approach with customers and other regional parties.


INTRODUCTION

BPA has assembled a list of 16 products which 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 anticipation of the emerging market on the West Coast, and to reflect these business interests, 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.


RISK SHARING WITHIN THE PF RATE POOL

To the extent customers are looking for some flexibility that is not usable by other customers purchasing PF power, BPA is not planning to include the associated risks in the PF Rate Pool. Some risks are assumed to be so minimal that they will be rolled into the PF Rate Pool, 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 risk to customers who are not causing BPA to incur those risks.

Cost basis for Core Subscription Products
(and for firm energy/capacity 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 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. BPA will use the financial instruments available in the market to price products which complement requirements service and will negotiate the price based on opportunity cost or replacement to the extent BPA forecasts that it would incur those costs.


 
BPA PRODUCT DIFFERENTIATION -- SUPPLEMENT
 
 

CORE SUBSCRIPTION POWER PRODUCTS:
(Transmission and ancillary services not included.)

Full Service: This product is designed to meet the regional firm power general requirements loads of a customer that wants to have all of its service from BPA. It includes energy, demand and any shaping necessary to support and follow load.

Firm Power Block: This product is designed to meet a portion the regional firm power consumer load of a customer that has sufficient resources, or purchases flexibilities from BPA or other market suppliers, which it declares would meet the swings in its general requirements load. The product provides a fixed amount of power in a block within a time period. Customer is responsible for variations due to changes in consumer loads or customer resource during the period.

Partial Service: This product is still under development. The three objectives of this product are: (i) Assure that BPA is making an appropriate effort to offer service to the requirements loads of generating customers as well as non-generating customers; (ii) Design a product which could be offered in the Subscription process at a cost-based-posted rate without greater business risk to BPA than that associated with the Full Service product; and (iii) Enable customers to dedicate resources to follow or help follow their actual load. Customer would be responsible for resource fluctuations.


CUSTOMIZED SUBSCRIPTION POWER PRODUCTS:
(Transmission and ancillary services not included.)

These products can be mixtures of Core and Non-Subscription products. BPA is ready to negotiate provisions and prices for customized provisions to meet customer needs which aren't met by the core products.

Flexible Partial Service: This product is designed to meet the regional firm power consumer load in excess of resources or purchases from other market suppliers (which it declares to meet part of its general requirements consumer load). Power will be shaped to load in a manner as requested by the customer. This product can be tailored to the specific customer needs: The customer's nonfederal declared resources could be distributed either to meet part or all of the customer's actual load shape, or flat within HHL and LLH periods. The federal power provides the remaining firm energy and capacity to meet the general requirements consumer load. Customized flexibility beyond that which is included in a posted-rate product, will be included in this product.

Variable Load Factor Service: This product provides a service similar to the Firm Power Block with a reduced take-or-pay minimum: the customer contracts for a block of power to meet its regional firm power general requirements consumer load and agrees to pay for a minimum amount of energy each month. Load variations in excess of the contract amount would be served by BPA, but at a charge other than the charge for the contract amount. Dedicated resources sold out of region may result in a reduction of BPA obligation to provide firm power.

Renewable Resource: This collection of products is designed to meet a fixed portion of power needs with amounts of power equivalent to the production of renewable or environmentally superior resources.


 
      Products Subscription Component Pricing Methodology
1     Full Service Core Scr Prod Cost-Based-Posted
2     Firm Power Block Core Scr Prod Cost-Based-Posted
3 a   Partial Service -- Under development *** Core Scr Prod Cost-Based-Posted
3 b   Flexible Partial Custom Scr Prod Cost-Based (Firm Pwr)
Neg. Price (Flex)**
4     Variable Load Factor Custom Scr Prod Cost-Based (Firm Pwr)
Neg. Price (Flex)**
5     Renewable Resource Custom Scr Prod Cost-Based (Firm Pwr)
plus
Premium
    Examples of Tailor-Made Products
6   * Secondary - Commodity non-Scr Prod Negotiated price **
7   * Loss Compensation non-Scr Prod Negotiated price **
8   * Capacity non-Scr Prod Negotiated price **
9     Block Flexibility non-Scr Prod Negotiated price **
10   * Storage non-Scr Prod Negotiated price **
11   * Load Factoring non-Scr Prod Negotiated price **
12 a * Supplemental AGC non-Scr Prod Negotiated price **
12 b * Operating Reserve non-Scr Prod Negotiated price **
12 c * Forced Outage Reserve non-Scr Prod Negotiated price **
13   * Preschedule Change Rights non-Scr Prod Negotiated price **
14   * Displacement Rights non-Scr Prod Negotiated price **
15 a   Retail Access - Curtailment non-Scr Prod Negotiated price **
15 b   Retail Access - Remarketing non-Scr Prod Negotiated price **
16   * Scheduling Services non-Scr Prod Negotiated price **

    * Tailor-made products currently available.

  ** Negotiated prices for these products will conform to the FPS price cap requirements.

*** BPA's intent is to develop a Partial Service product for which a cost-based rate can be posted.

 
 
Return to 4/29/98 workgroup meeting notes
 

Web page posted on May 8, 1998.
Information provided by:  Kathy Hoffman, BPA Power Business Line.