Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of January 21, 1998 MeetingBPA Rates Hearing Room
The work group met all day after a month-long hiatus, during which subgroups continued to hammer on specific issues. The group discussed a schedule for completing its work prior to a BPA rate case; a proposal for sequencing the rate case; a revised set of contract principles; a plan for implementing subscription; and the evolving product descriptions. About 40 people attended. Next meeting: February 18 at the BPA Rates Hearing Room.Index (click item to move to topic)
- Timing a Rate Case
- Fashioning a Subscription Right Via Contract
- Implementing Subscription
- Updating the Subscription Plan
- Truing Up with the Transition Board
- Product Definitions Head for the Shelf
Shauna McReynolds of PNUCC presented a timeline that would put a subscription work group report "on the street" in time for a BPA rate case this summer. According to the schedule, the group would complete its work and prepare a Phase I report by May, prior to pre-rate case workshops. What about DOE's admonition on a stranded cost mechanism? a participant asked. Syd Berwager of BPA said the agency hopes the region will come up with a mechanism and that it will be in place by July. "I don't know what Plan B is," he added.
Diane Cherry of BPA offered a proposed timeline for the 7(i) rate case, which indicates BPA would hold workshops in the spring and publish a rate proposal some time between July and September. A customer representative asked if the rate case would include products with prices based on embedded costs as well as those with market prices. Cherry responded that the rate case would deal with a total agency revenue requirement that incorporates both types of products.
Cherry explained three options for the rate case: a combined power and transmission case now; a combined case before the year 2001; or a bifurcated rate case. There are advantages and "lots of disadvantages" to each approach, she observed. The power business line (PBL) can't wait -- we have to move forward, Cherry said. A staffer for the transmission business line (TBL) said timing is a problem because so many transmission issues, such as IndeGO, "are percolating now." The uncertainty makes it awkward for the TBL to make assumptions about what the world will be like post-2001, she said. A customer representative said she assumed in the PBL rate case, BPA would decide how to "functionalize" costs between its power and transmission businesses.
Several people said a bifurcated case is a problem since customers will want to know transmission rates when they subscribe for federal power. An IOU representative noted that some customers like the idea of transmission rates being set in the post-2001 time frame. Issues regarding General Transfer Agreements (GTAs) will have to be resolved prior to subscription, participants stated. BPA staffers said GTAs are under discussion, and there should be a plan in place before July 1998.
The bifurcated rate case seems more likely to produce "a speedy result" and give BPA a better opportunity to market successfully, a customer representative stated. If you do a bifurcated rate case with the PBL first, BPA's total revenue requirement would be established, and only rate design would be left for the TBL, a DSI rep said. A BPA staffer said segmentation and ancillary service issues would also remain. The DSI rep suggested BPA could do a combined rate case, with contingencies for reopening some transmission issues later. Cherry said the TBL is reluctant to commit staff to rate case work right now.
BPA's preference is to have a bifurcated rate case, with the PBL this summer and the TBL later, according to Cherry. She listed several issues to be resolved: rate design for posted rates; deciding which products will have posted rates and which will be negotiated; calibration of the supply pricing model; the industrial power (IP) link to the PF rate; GTAs; and the low-density discount. The customers agreed a subgroup should meet soon to determine whether a bifurcated rate case would work. We can't wait until May to figure this out, a participant urged.
A public interest representative explained a proposal to establish the subscription right as an optional contract provision. "It's relatively simple," he said, noting that the right would be in addition to a customer's other statutory rights regarding power supply and rate methodology. The proposal states that regional firm power customers could add a contract provision that establishes a right to purchase future power from BPA at "a contractually determinable rate." The duration of the right, the amount of power the customer is entitled to purchase, and the price would be subject to bilateral negotiations.
What does the option buy you? a customer representative asked. It buys you a high degree of price certainty in follow-on contracts, the proposal's author replied. Do you foresee a secondary market in the options? a participant asked. No, it is tied to a purchase, was the reply. A customer would negotiate the price of power and the price of the option, too? asked a participant. People could be paying different prices for the same product? asked another. The response was yes to both questions. Is there a commitment to purchase with the option? a BPA staffer asked. It's neither required nor prohibited, was the response. There were questions about resource considerations, and whether an option could be for more than the initial purchase to cover load growth.
A participant questioned the equity of having one set of customers make up the revenue if underruns result from negotiated rates. We are transitioning from a world in which there were uniform contracts to one in which there will not be, another participant replied. Small customers may need to band together and negotiate jointly, and BPA will have to exercise prudence and thoughtfulness in dealing with its customers, he said. To say this discussion heightens my interest in the rate case "is an understatement," a public agency customer said. Another question is what to do with revenues that are raised with the option, a public interest rep said, suggesting that the money could be used in the future to fund fish mitigation and dam removal.
A customer representative outlined several other contract principles, adding that they had not changed from previous discussions. Are contracts between BPA and its customers public? a state agency rep asked. I'd be interested in knowing whether the contract outcomes are available to the public, he said. Not necessarily, BPA staffers agreed.
Customers took a look at BPA's revised timeline for implementing subscription. Does subscription begin before the rate case or are you still in presubscription? a customer rep asked. Berwager said BPA would be "open for business" during the case and would make sales at prices based on the expected outcome. The current presubscription sales are based on the PF 1996 rate, he added. I thought there was to be presubscription at rates equivalent to the `96 rates up to the time of the rate case, a customer representative said. Then there would be a rate case to set 2001 to 2006 rates, she said. Some customers may wait until the rate case concludes, and under this schedule, they could lose access to federal power, she contended. There are customers who will want to make deals, and we want to be in the market, Berwager said.
People who want to buy subscription products are precluded during the rate case, another customer observed. Aren't they at a disadvantage? he asked. If you sell more than the 1,300 MW authorized by the Transition Board, you could dig into the amount reserved for other groups of customers, he said. The reservation amounts could be "eaten into," another participant agreed. Issues in the rate case can "push costs around," she said, and some customers may want to wait. That's why we said we needed a rate case ahead of subscription, another customer added. Do we open the doors during the rate case or after? Berwager asked. Sales during the rate case should be made under the presubscription allotment, a participant suggested.
Is the amount of presubscription power likely to be insufficient? a participant asked. Berwager said it could be. Consultant Al Wright pointed out that BPA guaranteed the Transition Board presubscription sales would be at the '96 rates. If a bunch of megawatts sign up during the rate case, will the rate be negotiated? Does anyone think that will fly? he asked. If buyers other than those eligible for subscription are diminishing the power supply during the rate case, "you will have losers in the process," a customer representative said. If a sale is made at less than cost recovery, you could have a cost-shift problem, another added. I'm concerned about whether BPA would hold subscription harmless if costs are not recovered in presubscription, said a public agency customer.
An IOU representative suggested "a reasonable compromise." Allow sales to continue up to 1,300 MW, and if BPA exhausts that amount, come back to see if the region "wants you to sell more," he said. Availability is the issue, not price, he added. Another customer rep agreed, saying he is uncomfortable with starting subscription during the rate case because "you have people in two different rooms talking about rates," he said. We've offered a compromise, and "we'd like you to chew on it," a participant told BPA.
Several preference customers objected to BPA's proposal to hold its initial reservation of cost-based power only until April 1999 and suggested the language be left more general. We are reluctant to agree to that deadline -- we feel we are losing rights we have statutorily, a customer representative said. Having preference customers buy more than their established quantity is not consistent with the Regional Review, an IOU representative pointed out. BPA has bought into the concept that if preference customers want that much and are willing to sign contracts early, that is the one exception we'd make to the Regional Review, Berwager responded. The public interests and tribes are concerned about what happens if BPA is way off in its revenue or if fish costs are higher than expected, a participant said. There will be a problem if that happens; there could be pressure "to try to derail subscription," he added.
Scott Wilson of BPA laid out a revised proposal for communicating with customers and updating the subscription plan during the subscription period. The key dates are when rates are published and the initial reservation established, and when subscription begins, he said. During subscription, BPA would make progress reports every four to six months and review reservations, Wilson explained. Information about deals signed and the remaining inventory would be posted on the Internet, he said. Wilson presented an example of what the posting might look like, and he detailed a process for making changes in reservation amounts. Wilson said estimates for the reservation amounts would be based on information BPA's account executives gather from customers next spring. Under the plan, BPA would hold a public meeting before revising the reservation amounts.
Wright asked what to report to the Transition Board if some of the group's leanings are away from Regional Review recommendations. Several participants said the group's products are in various stages of "draft." We're working on a total package to make subscription work, a customer representative said, and some pieces may differ from "the literal word of the Regional Review." The Board's direction was not to adhere to the recommendations as "the Bible," but to tell them if you're going to deviate, Wright advised. Berwager suggested setting up a briefing with a couple of Board members. Others said they thought the group should first have a "package that we think will work." I'd tell them the package is coming together, but there are some "bulges," a state agency representative suggested.
Kathy Hoffman of BPA said a subgroup agreed the product descriptions are sufficient for now, and the focus should turn to pricing. I still view this as "a work in progress," she said, adding that she would not expect to see material changes to the list. A participant asked for reactions to his description for a product to cover load and resource swings; members offered suggestions.
Hoffman said "the slice of the system" product is not on the list, and a decision needs to be made about whether BPA can offer it. The customers' desires about the slice are defined, but there are issues from BPA's standpoint yet to be resolved, a customer representative said. BPA and the PGP have formed a team to try to resolve the issues, he added. "From your standpoint, you think it is well defined," Berwager responded. He agreed BPA "has issues," and "if and when" it decides to offer the product, he will report to the group.
Archive of content originally posted or last updated on: January 30, 1998.
Content originally provided by: Syd Berwager, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
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