BPA Rates Hearing Room
August 19, 1998 Technical Meeting
About 20 people attended the technical meeting on the Slice of the System Proposal. Angela Wykoff (BPA) welcomed the participants. The purpose of this meeting is to review BPA's updated study of the Slice proposal, other study approaches and to discuss outstanding technical issues. Wykoff also announced that the next meeting would be changed to August 27 (formerly August 26) to accommodate scheduling conflicts. The meeting will be at the Portland Airport Conference Center.
Kristi Wallis (Facilitator) reviewed the agenda and stated that some participants were concerned about language in the scenario identification agenda item because it presupposes a Slice product would cause negative cost shifts and loss of benefits to non-Slice customers. Wallis said the point of her language was to acknowledge the concerns of some participants and try to address them.
General discussion suggested that there are still questions about the benefits and costs of the proposal, how BPA's general principles will be applied to this and other BPA products, and the degree some of the key elements of the proposal are understood by participants.
Handouts available at the meeting:
- Handout No. 1, Slice-50 Year Study Evaluation (Excel 97 spreadsheet, 661 kb).
- Handout No. 2, Methodology for Evaluating Slice of the System (developed by Jonah Tsui [PRM]).
[A copy of this Handout may be obtained from Jonah.]
B. Slice Proposal Evaluation
Jonah Tsui presented his approach to evaluating the Slice proposal. Tsui suggested that the proper assessment of the Slice proposal requires the adjustment of the financial impact of the Slice by the net revenue generated through traditional subscription sales. BPA's premise is that costs shifts would occur if the rate for the product is not set to the market. Cost shifts are a function of whether a price signal is removed. BPA suggests that some Slice purchasers could take their share when it is worth the most in the market and then BPA would have to make purchases for its non-Slice customers. This could create cost shifts. Tsui suggests that BPA really has three kinds of customers whose loads match, hurt or help BPA's ability to meet its obligations. According to his study, there could be no net cost to BPA or other BPA customers by the Slice because BPA is guaranteed to recover 100% of its cost. He also stated that if BPA operates the system to the maximum benefit, then there would be cost shifts regardless of Slice if the PF rate is out of line with the market.
Discussion focused around the premise of the redistribution of BPA's service obligation and the inherent change of risk that may occur. Whether price signals influence service requirements was also identified as an issue. Some participants believe that Slice customers could shift their deliveries from Light Load Hours to Heavy Load Hours and this could create a cost shift. BPA may have to adjust its purchases at the beginning of the month to cover the end of the month to ensure reliability. Purchases may cost more than the Slice is worth because they would be purchased at a different time period. Phil Mesa (BPA) was concerned that the loss of load diversity decreases the Federal system benefits and could create cost shifts because BPA must meet preference load regardless of its shape. Paul Murphy (DSIs) said that once prices are set, there would be a systematic bias and the Slice would cost BPA money. Keith Knitter (Grant) believes the Slice product would hedge the market risk because customers would assume BPA's market risk. Jeff Nelson (Springfield) was concerned that the analysis to date has not considered the potential benefits of shifting risk from BPA to the Slice customers. Others agreed that risk would be removed with Slice.
Wallis summarized the discussion as an issue of adequate compensation and further understanding of costs, benefits, risk shifts, etc. that still seem to be confused. Others noted a need for a clear understanding of the products being considered and some assessment of uncertainty in the analysis.
C. Fifty-Year Study of the Slice Proposal
Based on feedback on the first study, Phil Mesa made some changes to the 50-year study that he presented at the August 11 meeting. (See Handout No. 1, Excel 97 spreadsheet, 661 kb) The changes included:
- Market prices are now based on the Aurora model medium case (Excel 97 spreadsheet, 460 kb)
- PF prices based on the same cost assumptions as used in calculating the Slice payment and including a $3.10 Demand Charge
- Pre-Slice load is based on an assumed percentage of BPA's FELCC (15%) shaped in five alternative methods.
Mesa considered five different load cases that would be used in the base case (without Slice). (See Handout No. 1.) Mesa did not include any credits for the shifting of risk from BPA to the Slice customers. When questioned why there were so many load variations he stated it was difficult to have people agree on the load shape assumptions so some of the customer representatives formulated the 5 scenarios that were independent of any load forecast. Jim Litchfield (IOUs) suggested that the base case should include water and risk uncertainty and the residual risk left with PF purchases. Lon Peters (PGP) wants the revenue requirements to be the same in the analysis used for Subscription and for the Slice. He suggested that the input did not seem correct. Mesa offered to check the PF price consistency with the revenue requirement assumptions (after the meeting a check on the calculation of PF prices confirmed that the PF prices were calculated incorrectly and resulted in the costs of Slice being overstated). Participants also suggested a step-by-step description of how the numbers were derived.
D. PNGC Request to Consider Slice with a Partial Requirements Product
Phil Sher (PNGC) suggested a way for partial requirements customers to purchase a Slice product. The Slice has generally been considered to be incompatible with any load-following product. Sher stated that if Partial requirements customers would limit Slice to their own declared resources rather than their net requirement, then there should not be a problem. The Slice may be pre-scheduled because customers may not want to do it in real time. Maureen Flynn (BPA) said dispatching two resources dynamically might be a problem and optimizing two products at the same time may be a concern.
E. Identifying Scenarios
Wallis suggested that problems or impacts associated with Slice be identified by specific fact patterns (scenarios) so that the issues could more easily be understood and studied. Such scenarios could be developed to consider the following issues:
- Is BPA going to have to take certain actions to satisfy other customers? If so, what are the costs of those actions?
- Will BPA acquire new resources to serve its non-Slice obligation? If so, what would be the impact to Slicers and non-Slicers?
- Will there be parity for all parties?
- Will BPA need to increase its purchase of power or options for power because of Slice?
- Will BPA see benefits such as the revenue recovery fund being reduced?
- Will Slicers share in some of BPA's "system" obligation as part of the product package (such as the reserve obligation to unload the system for transmission)?
- What is the consequence if a customer exceeds its entitlement? What is the payback to the federal system?
- Are costs excluded from Slice also excluded from other products? If not, would the Slice concentrate some costs in a smaller pool of customers?
After some discussion about complications in regard to implementation, Wykoff suggested that the issues be separated into two categories, implementation issues that could be dealt later on and decision issues that must be resolved before BPA can decide whether or not it will offer Slice. In this way the proper focus and effort can be dedicated to the right issues so that BPA can meet its deadline for its initial rate proposal by September 15. Decision issues include many of the legal/policy issues such as what is BPA's role in the region, can BPA legally offer this product, etc. Cost shifts are considered an implementation issue since once identified actions could be taken to correct it. Other implementation issues such as operational forecasts (and other data) and dynamic signals are being looked at but could be addressed later.
Wykoff summarized that the objective of BPA staff is to give the Administrator a workable proposal so that if the decision is to offer Slice it can be done.
F. Nature of the Slice Product
Wallis asked for some clarification about the characteristics of the Slice product. If the product is a power product, then BPA probably has the authority to sell it. If it is a resource product, it is not as clear. PGP proposes that it is a power sale that is defined by resource capability. Wallis suggested that this issue be left to the legal group, which still has some questions about the sale of system capability and has made no conclusions about a relationship to 5(b) sales.
G. Mapping the Proposal
Wallis reminded the participants that there remains an outstanding issue about how the Slice would be mapped to determine a percentage. Dennis Parrish (Seattle) stated that the PGP believes the entitlement would be based on net requirements and there would be an annual test. The maximum percentage right would be a customer's annual net energy requirements divided by the annual FELCC of the Federal system (firm resources). Recently acquired resources would be outside the Slice. Meeting new loads would be outside the Slice, that is, load growth would be outside the Slice. The annual number could be changed to a number of months (such as the months within the Critical Period) if that would be more appropriate.
Flynn said that if net requirements are net of resources and if BPA and the Slice customer could reshape load mutually, that might be a win-win solution. She suggested that "business reasonableness" could be a measure used to resolve many issues. Parrish thinks an annual test is reasonable and that an hour-by-hour test would not be needed. Peters stated that the Slice customer would not be purchasing maximum rights under 5(b) anyway, that the Slice customer would not be close to the ceiling imposed by 5(b). Murphy stated that if the Slice customer has a right to non-firm also, then BPA cannot firm that non-firm. Peters said that BPA can firm the rest of the system that is non-Slice. Murphy believes that the percentage should be a percentage of load, not of system capability because Slice customers would get a higher percentage of the system capability than they do now. They would claim more than their net requirements. Murphy believes there is disagreement about loads exceeding firm energy now. His clients want something left over if Slice is offered. He suggested some kind of cap on the Slice to satisfy the concerns of other customers. Knitter said that this is a problem shared by other products.
Non-firm was identified by many as an issue that needs resolution. The question of risk was again expressed as a concern. Operations issues have not been resolved yet. Mesa also expressed a concern that the benefits spread through the region may be reduced and this is another issue to consider. There was a question about who would be included in the benefits bucket, that is should DSIs and IOUs be included.
H. Next Steps
The group needs to revisit the mapping issue. Wallis would like any scenarios that participants want to consider to be sent to her and she will distribute them. Input on Mesa's study should be sent directly to him. The assumptions for the study will be discussed again. The next public meeting is Thursday, August 27 at 8:30 a.m. at the Portland Airport Conference Center
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