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Federal Power Subscription Work Group
Sponsored by:
Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)

Summary of June 24, 1998 Meeting

BPA Rates Hearing Room
 

The work group talked about the implications of BPA's soon-to-be-announced delay in the opening of subscription, load growth issues, and the residential exchange. About 35 people attended.
Next meeting: July 1: 9 a.m. to noon. [Note: The July 1st meeting was cancelled. The next meeting will be on July 15th, 9 a.m. to 4 p.m.]

Index (click item to move to topic)

BPA WILL NOT START SUBSCRIPTION JULY 1

Syd Berwager of BPA told the group BPA has decided to delay the start of subscription because "there are a number of basic decisions the region hasn't coalesced around, and BPA hasn't pursued its own proposals to deal with those issues." He said the delay, likely to be for a couple of months, and a revised schedule would be formally announced the next week. BPA prefers that the region reach consensus on some of the big issues, but BPA needs to prepare itself to deal with the issues if a regional consensus doesn't develop, Berwager stated.

Berwager distributed a diagram showing seven items that need to be dealt with before subscription can begin. The first four are:

  1. Availability -- how much power will be available at the lowest cost-based rate and how much of that will be available to individual customers?
     
  2. Rates and Rate Differentiation.
     
  3. Resource Acquisition -- to what extent will BPA acquire resources or purchase power to firm up some of the currently nonfirm inventory?
     
  4. Residential Exchange.

BPA thinks it can't decide any one of these four without simultaneously deciding the other three, Berwager explained. Does this mean that, by the end of this period of delay, BPA will have a position on these four issues? he was asked. Yes, Berwager replied. Will this affect rate case timing? a participant inquired. You can expect a delay in the rate case roughly equivalent to the delay in subscription, Berwager said.

The final three items on Berwager's list of seven are:

  1. Stranded Costs.
     
  2. Slice -- whether to offer the product and if so, what would it look like?
     
  3. General Transfer Agreement (GTA) Costs.

My clients haven't been enamored with the idea of delay, said a public utility rep. Six months ago, no one wanted to buy from BPA, but now BPA is "looking like the best thing since sliced bread," he continued. You should "strike while the iron is hot," he advised. Our concern is if you wait too long, you could be back to the "old image" and have stranded cost problems, he said. If you are going to delay, you should structure the delay so that it's helpful, he stated, offering three suggestions: 1) have "a drop-dead date" by which BPA's final decisions will be made -- announce the date and stick to it; 2) give the region two months to reach a consensus before BPA comes out with its proposal to resolve the issues and state explicitly that BPA won't take action before then; and 3) consider that BPA's execution of the Portland General Electric (PGE) settlement "won't make the regional atmosphere conducive" to settlement of the other issues. If BPA knows when it will make a decision on the PGE settlement, put that in your notice too, he recommended.

A private utility rep "seconded" the second of the three proposals. In the past, the region has reached consensus when we have a real deadline, she said. She thanked BPA for recognizing that more time is needed and deciding to delay subscription. A public power rep noted that there are a number of small publics who tried to get presubscription contracts, but were unable to complete them in the time available. I'd like you to consider a way to accommodate a limited amount of contracts to meet their needs -- they want to move in a more timely fashion than the schedule being described here, she stated. Another public power rep pointed out that the Eugene Water and Electric Board suggested in Issues '98 that the rate case should be held before subscription opens. You should rethink the proper sequence, he advised. A private utility rep agreed. That way, "when the subscription window opens, people would be ready to sign," she said.

A public interest rep said there is a contradiction in public power urging BPA not to commit to the PGE settlement, but to commit to certain small utilities who want contracts now. The order of magnitude in the amount of power involved is quite different, responded a public power rep. People have been talking about the PGE settlement for a year and a half, he replied.

I'm concerned about having contracts before the important issues in the rate case are resolved, said a regulatory agency rep. The integrity of the rate case could be affected if there is the appearance of constraints being placed upon it due to negotiated positions in contracts, he said. I don't think of the rate case as the right ground to debate all these issues, stated Berwager. We think we could do the rate case quickly if we went into it with broad regional agreement on the key issues, he added. Knowing the price and the product is a good prerequisite for subscription, commented a private utility rep. We've heard that some utilities want to sign up for products, once they know what the products will be, and we want to hold open the possibility of that, said a BPA rep. It would be helpful if BPA explained how formal the process will get from this point forward, stated a customer rep.

 

SCOPING OUT THE LOAD GROWTH OPTIONS

Dick Adams of PNUCC said it would be good for the group to do a "check-in" on various outstanding issues in order to get a better understanding of the scope of possible solutions. The group began with issues associated with changes in load.

Garry Thompson of BPA presented a chart of the pros and cons of six options for meeting the load growth of full and partial customers. (PDF file size = 18 KB) The first four options, he explained, provide load growth at some rate above the lowest cost-based rate. Option 5 is the Regional Review's recommendation, and Option 6 is the status quo, he said. Have you analyzed the legal risks posed by Options 1-4? asked a public power rep. Load growth is not the driving issue, replied Thompson. We'll hold off on choosing one of these options until the issues of phasing and "who's eligible for what" are determined, he said. So customers couldn't choose from among these options? he was asked. Right, Thompson replied. Can you legally distinguish between load growth versus load growth due to retail access? a participant asked. That's a larger issue. and we'll select the option once the larger issues are decided, he said. The options assume changes in state law with respect to retail access, noted another BPA staffer.

What about new publics that form -- would they be PF' or PF"? asked a public interest rep. If a new public comes in, and there is PF' inventory left, it could buy, but if we're into the higher rate, that would be it, replied Thompson. Is it legal to distinguish between new and old public utilities? he was asked. We've made the determination we can differentiate rates, Thompson responded. Is BPA looking at recalling Excess Federal Power sales it has made? asked a utility rep. We would have to consider the economics of such a decision, Berwager replied. Excess Federal Power is sold on a firm basis for seven years and is not interruptible -- the question is whether you renew the delivery at the end of seven years, explained a BPA attorney.

A few participants registered option-by-option likes and dislikes. We're leaning toward Options 3 and 4, Thompson noted. A customer rep said Option 6 is consistent with BPA's statutory obligation -- you have the obligation to serve and the obligation to acquire if necessary, he stated. Option 5 "is flatly illegal," and BPA lacks authority to do it, he added. Generally, these options fail to take the products we are developing into account, he observed. He noted that PF customers would have the option of having BPA serve their load growth or not. Customers could purchase a load growth product and pay an additional charge on all BPA purchases, or they could purchase a block product, or maybe the slice, which would not cover load growth, he said.

I think resource variability can be handled in something other than a load growth charge, stated another customer rep. My clients want their load growth served, to a point, he said. They want to be able to serve their new customers at the BPA rate or a market rate, and they want to keep that option on the table, he added. To the extent you can offer non-load growth products, a lot of the complexity of these options will go away, observed a utility rep. We need to get to the point where those who don't want to pay for load growth aren't required to do so, and we are getting close to that in the partial products discussions, said a customer rep.

Load Loss. Typical load loss, for which BPA assumes the risk, includes such things as a plant closing or a facility burning down, Thompson said. With retail access load loss, a utility would have a take-or-pay obligation, but BPA would offer several ways to mitigate a loss, such as an insurance product or remarketing, he said. BPA will be able to track hourly amounts of load that are lost to retail access competition because there will be schedules which serve that load, said Kathy Hoffman of BPA. While we can't track things like plant closures, we can track other service into a service territory, noted Thompson.

He said that BPA considers retail access load gain to be service scheduled into another territory. Someone would see the schedule, Thompson said. Do you see the schedules now? he was asked. Would there be sharing of information across the Power and Transmission Business Lines? another participant asked. Our revenue analysts that prepare the bills will have access to the data, replied Berwager. Thompson said BPA won't go any further with these options until the other issues are resolved, but he urged anyone with comments to contact him.

 

ANOTHER ROUND ON THE RESIDENTIAL EXCHANGE

One of the problems that's prevented us from resolving the exchange issue is recall, said a public interest rep. He noted that BPA has floated the idea of an indemnification clause, but didn't address the question of who would pay. He suggested that power prices to customers who want load growth could include money to pay for the indemnification if there's a recall. If you don't like that, you could buy products without load growth, he said. That way, once the exchangers "get a chunk of power," they would be assured they would get power or cash, if the power is taken away from them, he continued. Maybe no one would go into the pool and BPA wouldn't have to deal with load growth, or else many would, and the recall problem would be taken care of, he added. Recall is not relevant from a rate perspective -- the recall period is longer than the rate period, commented a public utility rep.

I don't think the exchange power group is interested in getting served through Excess Federal Power, said a regulatory agency rep. It's no secret Oregon is looking at serving half of the residential/small farm load, and we have a strong preference for power, not cash, he stated. Is BPA contemplating re-examining the 7(b)(2) methodology? he asked. No, was the response. A discussion ensued about aspects of sales that could be made to private utilities under Section 5(b) of the Northwest Power Act. Excess Federal Power doesn't work because it allows public agencies to step in front, commented a regulatory agency rep. And "we would," said a public utility rep. It's good in negotiations to try to pursue your position, but it's also good to try to make sure other parties' interests are satisfied for the sake of political sustainability, commented a public interest rep. You may have to face what happened with the original Act, when compromises had to be made, he said. We're not willing to give up the rights we have that no one else has except as an agreement that has all parties making compromises, said a public utility rep. The public customers of the Northwest "can't hold off the whole East Coast," responded the public interest rep. The threats to privatize are real, and not making a deal makes them more real, he added.

It would be useful if someone would jot down the various options for treatment of the exchange that stay within the structure of the Act, suggested Adams. The question is, said a public utility rep, which problem do you want to resolve? If you go down the exchange road, it's a rate test problem; if you go down the surplus road, it's a recall issue, he stated. Beyond price, there's the issue of quantity, added a participant. "If we could find an agreeable mix of dollars and megawatts, the mechanics would be taken care of in a heartbeat," said a public utility rep. But I'm not authorized to trade away what we have as a statutory entitlement until we have something that makes sense, he added. You can't serve the expected loads of all parties that have bought from BPA in the past, plus half of the exchange load, with the supply constraints we have, he continued. If you increase the supply, you'll have a PF rate that is not attractive, so some people will have to take less than they want, he said. So far people are not willing to compromise, but BPA can't "grow the pie" to satisfy everybody and still have a rate that's attractive, he added.

The DSIs. Why do the DSIs have an equal seat at the table for purchasing power? asked a regulatory agency rep. Given the amount of DSI load at cost that has stayed on BPA through thick and thin for 60 years, the DSIs should have the ability to buy from BPA, replied a DSI rep. I haven't given up on the idea there's a package that works for everybody, and I'm working hard to get to it, he added. Do you think there's a benefit the DSIs ought to have beyond the idea it's in BPA's economic interest to sell to you? asked the regulatory rep. I don't know what you're driving at -- I'm not saying all DSI load has to be served by BPA -- there's a balance that needs to be struck, replied the DSI rep. Your comments at the Issues '98 meeting suggesting the DSIs should leave the system weren't helpful in achieving a compromise, he told the regulatory agency rep.

One question to ask about serving the residential/small farm load is, does it change the load shape on BPA? said a BPA staffer. In 1979, when we argued this issue, it was pointed out that most of the DSIs are in public utility service areas and would request service through those utilities, he continued. I can't say if the DSIs don't buy directly "that there isn't going to be a consequence that gets you where you don't want to be," he told the regulatory agency rep. Wouldn't it be PF" if the publics served the DSIs? asked a public interest rep. Are we having a conversation about "whose load is better than whose load?" asked Adams.

"Since we're in the 1978-79 world," it would be useful for there to be a paper describing the options and tradeoffs for different kinds of sales BPA can make to serve the exchange load, suggested a regulatory agency rep. BPA is reluctant to put something more on the table, said a BPA attorney. We've had requests that BPA not make a decision on the PGE settlement, and I don't think putting BPA's legal interpretation out would advance our discussion at all, he stated. It would be better to try to understand the economics of the decisions, and that will show the pluses and minuses of the different approaches, he recommended.

"There are a lot of people affected by this who don't spend most of their lives in rooms in Portland living the Act," commented the regulatory agency rep. It would be good for those people to be able to see what is being negotiated so they can make judgments, he added. A public utility rep volunteered to write a summary, with citations to the Act.

We've done analyses in the past few months about the risks to BPA of serving exchange loads, said a regulatory agency rep. Have there been similar analyses of the economics of serving other customers' loads? he asked. I don't see why the residential and small farm customers "should be at the bottom," he continued. We're trying to have a different relationship for the next 20 years than the one we've had for the preceding 20 years, he added.

Progress Check. How do we make progress on this? asked a public interest rep. I don't have a clear sense of what the process will be in the next month or two, he stated. There are ideas outside this room -- when will the people here get to look at them? he asked. If we keep having discussions like today -- "a mixture of posturing and 'we can't do it because we've got the statute on our side'" -- "it ain't going to happen," he said. Adams asked if he had any suggestions on how to proceed. He replied no. Is it time to get a mediator or facilitator? a participant asked. We have each other's phone numbers, said Adams. He suggested participants "try to connect with each other" and with those "you want to engage." Ideas will evolve from smaller discussions, he suggested. I hope that BPA's announcement of the new schedule next week will inspire some creative discussions, Adams said.

 
Adjourn
   

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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