Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of June 17, 1998 MeetingBPA Rates Hearing Room
Members of the Subscription Work Group went over the list of products and got drawn into a debate over whether BPA can mix a cost and a market-based approach to pricing. BPA described financial tools for managing risk in the next rate period, and several participants said the issue of BPA acquiring resources has to be resolved hand-in-glove with the residential exchange. About 40 people attended.
Next meeting: June 24.
- Tell Us What You're Going to Tell Them
- Product List Sparks Pricing Debate
- The Tool Kit for Risk Management
- Now Accepting Residential Exchange Proposals
What are you going to tell the public tomorrow in Spokane about the timing of subscription? a customer rep asked. I'm going to say that BPA has announced that it will start subscription July 1, 1998, and that is still our intention, Syd Berwager of BPA responded. I will also say that we have heard comment, including from customers, suggesting that we delay subscription, and that we will be taking comments about that at the meeting, he continued. I will ask whether we should delay, and what it would mean to them, Berwager said.
Kathy Hoffman of BPA presented revised draft "standard power product descriptions." (22 pages, PDF version = 87 KB, MS Word 6.0 version = 54 KB) As we come close to the end of the Subscription Work Group, many thought it was important to put out something that culminates our thinking, she said. The list contains nine categories of products of which 1 through 3a are "core subscription products," Hoffman pointed out. We now have "two flavors" of firm power block, flat and shaped with parameters, and we have been working hard on the partial service product, she noted. Products 3b, 4, and 5 are "customized subscription products," which have "a PF energy component, with negotiated extras," Hoffman explained.
The non-subscription products include bilaterally negotiated products and services, and the idea is "whatever you need, we can negotiate," she continued. These products are priced under the surplus rate schedule, Hoffman said. People have come to BPA for product 7, reserves and resource support, she stated, adding that product 8, complements to core products, covers block flexibility and the options for retail access mitigation. Product 9 is an option for follow-on subscription rights, Hoffman said.
The list will remain "a work in progress," but will be finalized for purposes of the work group, she said. The plan is to have this reviewed internally and finalize it next week, Hoffman concluded.
A customer rep asked for more explanation of the "flexible partial" product. Does it differ from partial service? she asked. It's an attempt to say we are not fixed on forcing people into the core categories, and if you need it, we'll customize, Hoffman responded. A PUC rep suggested the "option for follow-on subscription rights" belongs under the core products. The fee could be determined in the rate case, he said. We don't expect to set an option fee in the rate case, according to Diane Cherry of BPA. We'll account for the revenue, but it won't be something for which we'll set a per-kilowatt charge, she said.
A public interest rep said the option fee raises many questions: If you have two preference customers and only one takes the option, do their rates differ? If there is a waiting list for federal power, should a customer who is willing to pay the option be first in line? A lot of the issues are hooked to what we do with allocation, if we are doing allocation, he stated.
A customer rep said he thought the option fee issue was settled, and that the price was subject to negotiation with BPA. That was my understanding, a DSI rep agreed.
Would the period for the option fee always be the same as the term in the contract? another DSI rep asked. My view is that you could sign a contract for five years, but if you wanted the right for years six to 10, you buy the option -- it's not an obligation to purchase, a BPA staffer said.
Where does the money from the option go? a public interest rep asked. It should not be treated like surplus sales revenue to decrease the cost-based rate, he stated. That money should be used to raise reserves and "help BPA get over the hump later," he added. That's a policy call, a BPA staffer said.
One participant said that the option fee should be the same for all customers. People would be buying the same service and should pay the same price, he said. If I were to negotiate an option, would I have information that tells me you are not charging me more than you are charging others? an IOU rep asked. Will you share the information, or "will this all be done in the dark?" she asked. In negotiations, the value of the option may change, a BPA staffer replied. We assume that when you negotiate, the outcome makes sense for you, he said. This is a risk-shifting issue, and we want customers to share the risks equally, the IOU rep responded. I think it is paramount that we know what others are paying, she stated.
You can't isolate one provision of the contract, a public agency rep said. All of the terms and conditions in a negotiated contract bear on each other, he indicated. Why wouldn't BPA seek to maximize the revenue from this? a public interest rep asked. If it is more valuable for one customer than another, why shouldn't that customer pay more? he asked.
That's a market-based concept, an IOU rep stated. This is supposed to be a cost-based system, and you are talking about a market-based negotiation, she suggested. Some parties want a cost basis, but they also want the benefits of negotiating in the market -- it won't work both ways, she stated. "You have to put your foot in one world or the other" -- BPA sells everything at market, or we stay in the old world, an IOU consultant said. The whole system is cost-based, but product-by-product, it does not have to be cost-based, a public interest rep said. The Regional Review did an analysis of the option fee, and they calculated about 2 mills, a participant stated.
I'm not hearing agreement, Hoffman said. I don't think we will not come to agreement -- does anyone disagree with that? she asked.
We appreciate the publics' position that they don't need an option fee, that they have a right, a BPA attorney said. The context for coming up with the fee was that BPA's rates would be at or above market, but after the WPPSS debt is paid off, BPA would be attractive again, he said. The idea was to bump up revenue in the near term, he continued. If the context is different now, maybe the option fee doesn't make sense, he added.
I'm concerned about this interaction of market and cost-based products, an IOU rep said. If BPA goes ahead on this basis, when you are asked if you have spread the benefits throughout the region and if you have gotten enough revenue for fish recovery, BPA may not be able to answer yes to either question, he cautioned.
Do you intend to price renewables at a cost-based, posted rate? a DSI rep asked. Hoffman pointed out that BPA will have an "environmentally superior resources" product, as well as a new renewable resources product. The former will be priced at a core rate, plus an adder; the latter will be bilaterally negotiated, she said. Participants asked questions about pricing and the risk BPA would take on in making "green" resources available. A BPA staffer said some small hydro is already in the system. This should be a topic for a rate case workshop, a DSI rep said.
Are there products that you want that are not on the product list? PNUCC executive director Dick Adams asked. What about separating out WNP-2 for marketing purposes, as the Cost Review recommended? a public interest rep asked. That was not a final Cost Review recommendation, a Northwest Power Planning Council staffer stated. I don't want to talk about that as part of products, Hoffman added.
Maureen Flynn of BPA reported that work is continuing to define the partial service product. Will that product be available to DSIs, and could you have a contract with flexibility and also purchase partial service? a DSI rep asked. Yes, and yes, but difficult, Flynn responded. Participants voiced several concerns and questions, including how unbundled products would be priced, and how measurement methodology, penalty, and resource declaration parameters would be brought together. Another public customer said that customers are interested in a "resource-based product," and everything so far is meter or load-based. If the product can't be developed in the partial service talks, we'll pursue it in the slice of the system product, he indicated. A customer rep said it appears some products may take a while to develop. When this group ends, "we need to agree on what we have closed on," he said.
Flynn distributed a list of BPA's general principles on slice. According to the principles, a slice proposal must not: shift risk or costs; enable purchasers to avoid fish protection and enhancement; interfere with BPA's operating decisions; or require changes in federal law. BPA will apply these principles to all products we offer, Berwager stated.
Byrne Lovell of BPA described goals and a list of tools BPA is considering to manage financial risk. BPA is aiming for a Treasury payment probability of 88 percent, he said. You have really raised the bar on the probability, and "if it's a higher goal, you should pitch it as that," a DSI rep said. If we have "doubled down on risk," we need to send the political message back East that this is a better deal than before, an IOU rep agreed.
A DSI rep asked if BPA is considering giving customers the option to pay a higher rate up front or have a lower rate, coupled with a potential surcharge. Lovell said such an option has been discussed.
Would it go into contracts? another customer rep asked. Yes, there would be a mechanism consistent across contracts, BPA staffers said. You indicated you could base the trigger on an absolute level of reserves, a change in reserves, or an external program cost, a DSI rep observed. "Don't even think about the third one," he advised. That idea was related mainly to a major fish decision, Lovell responded. I'm arguing against "let's get some money, and we can figure out how to spend it," the DSI rep stated.
You won't get support for collecting revenue in one period to meet costs in the next, a customer rep said. We are going to assert that BPA has to anticipate costs beyond the next rate period and set its net revenues for risk to meet anticipated costs, a public interest rep stated. That's a fundamental problem, a customer rep responded. Aren't the tools intended to meet BPA's cash flow needs of all kinds? he inquired. The risk is not materially different in the upcoming rate period than it has been historically, he added.
What more do we need to consider on this topic? Adams asked. As with all of the issues, it's related to other things, like the timing of subscription, an IOU rep responded.
We need to be much clearer about what we mean when we refer to BPA's acquisition plan, a DSI rep said. When the Regional Review recommended against BPA acquiring additional resources, it was thinking in terms of whether BPA should build resources, not about purchases to firm up the system, he stated.
I thought the Regional Review agreed BPA should acquire long-term resources only under bilateral agreements, a public customer rep said. The Review did not address a link between the residential exchange being converted to a power sale and BPA's obligation to buy energy to effectuate the sale, a DSI rep said. He added that if the exchange is converted to a sale, BPA is obligated to acquire resources, rather than take power from the pool that has generally been available to others.
The Regional Review focused on who pays, a participant said. What do existing statutes provide for? he asked. I can't solve that without solving the exchange, a DSI rep said. The exchange load is large and swings a lot of things, another participant said. Without the exchange, the available pool will meet the load, but if you take the exchange load out of the pool, there is not enough, he said. Couldn't you also say that about the DSI load? a PUC rep asked.
Can subscription begin without solving this? a participant asked. Yes, but others are saying no, Berwager replied. BPA needs to come here and say "this is our proposal," a participant stated. The time has come for BPA to lay on the table its preference for how to proceed, he added.
If we open subscription before the issues are resolved, we could sign contracts that say the customer will pay what comes out of the rate case and be subject to the allocation scheme, if there is one, a BPA staffer said. I thought we were involved in a public process to get somewhere, not to have subscription open, and BPA say "we gotta do what we gotta do," a state agency rep said.
Will you come forward at the next meeting with what you are going to do? a DSI rep asked. I'm not sure, Berwager said. The new Administrator will probably want to help shape any BPA proposal and next week probably doesn't allow time enough for her to do so. He suggested it might not be worth holding the next meeting if that is what people want. A public power rep suggested that anyone with a proposal on the exchange bring it to the next meeting. We would be derelict if we did not cue up the remaining issues, another participant said.
A Council staffer said the Transition Board would like a report on the work group's progress at the board's June 25 meeting. Adams noted that with the amount of unfinished subscription business, the group should consider meeting on July 1 and 15.
Archive of content originally posted or last updated on: June 30, 1998.
Content originally provided by: Syd Berwager, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
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