Bonneville Power Administration (BPA)
Pacific Northwest Utilities Conference Committee (PNUCC)
Summary of April 29, 1998 Meeting827 Building, Portland, Oregon
The work group talked a little about BPA's proposed product pricing and the draft compendium and a lot about what issues remain on its plate. About 35 people attended.
Next meetings: May 12 and 13; 9-noon both days. [ Note: The May 13 meeting was later cancelled.]
- Transition Board Update
- Residential Exchange Status
- Proposed Product Pricing
- What are the Remaining Issues?
- Comments on the Compendium
Consultant Al Wright reported that the Transition Board has three main efforts under way: a "progress report" to Congress on development of a Northwest chapter of national utility restructuring legislation, likely to be sent to Washington, D.C. next week; a strawman proposal for FERC-equivalent regulation of BPA's transmission, up for discussion by the Transmission Work Group on May 5; and a strawman proposal on stranded costs, still under development.
Some members of the Transition Board, Wright said, are concerned about the subscription process -- they've heard from BPA that everything is on track to start subscription "43 working days from now," while others have told the board the process is going too fast and that subscription cannot start in July. Some think, he stated, that there is less than 8,500 megawatts (MW) left to subscribe, and if that is below market, "it's 1979 all over again." "That's a big-picture subject that needs to be talked about," Wright stated.
A public interest representative noted there is concern about going into subscription and a rate case before "reasonably reliable" fish numbers are available. Wright suggested the work group tell the Transition Board what schedule the group thinks would work best for subscription. BPA is still planning to start subscription July 1 and the rate case September 4, noted Syd Berwager of BPA. Having a date in mind helps people start sorting out issues, he added. Berwager said BPA plans to hold a public process in May to explain "how the pieces fit together at the 30,000-foot level."
Given that you've been negotiating presubscription contracts, what will change July 1? asked a utility rep. We'll have contracts that reflect the business relationship we've discussed in these meetings, and we'll get into the "subscription rights" issue, replied Berwager. The time to go to the Transition Board is when we are done with our work here, said a customer rep. If we had a common understanding of what is left to be done, we could make a work plan, carry it out, deliver a report to the board, and move on to subscription, he stated. I think we're close to shifting gears to the next phase, where BPA starts operating in a commercial environment and tailors contracts to meet customer needs, he added.
I think there are a lot of unresolved issues, stated a utility consultant. "I see July 1 as a cliff, not a finish line," said a public interest rep.
Is there any move to tell BPA to stop making presubscription sales until some of the issues about the amount of power remaining are resolved? a participant asked. No one has brought that issue to the board, Wright replied. I've heard BPA will handle fish costs in the rate case by plugging in a variable number, representing a range that would cover all scenarios; is that so? Berwager was asked. The current plan is to establish a power rate that includes a base-case fish cost, but what's in the power rate may not be sufficient for all the options on the table, Berwager stated. The question is what mechanisms are there to cover BPA's stranded costs, if needed, and these are being discussed elsewhere, he said.
Dick Adams of PNUCC said the residential exchange group has discussed several options and determined "the best hope" is a power sale, but the group hasn't decided whether it would be an in-lieu sale or not. The question is how much would be available as a power sale to exchange loads, he said. The exchange group will meet next Wednesday to discuss what BPA thinks its loads and resources will look like in the 2001-2006 period, Adams added. We were "chagrined" at the numbers we've seen so far, said a public interest rep. After you account for presubscription sales and other commitments, it looked like only 5,000 or 5,500 MW were left for subscription, he said. The demand may be way higher than the amount available, and BPA should stop making presubscription sales now if we have a problem, he continued. We need the numbers, and we shouldn't wait too long to talk about this, he added.
BPA staff is working on a set of numbers, noted Berwager. Assembling them, he said, involves such questions as: What does having an eight-month critical period mean with respect to characterizing the firm capability of the system? What loads are out there in the various phases identified in the Regional Review? What is the relationship of presubscription sales to loads eligible for subscription? We should have the numbers by the middle of next week, Berwager stated.
Another question, said a customer rep, is what quantity of market purchases is BPA making now, and are they included in your inventory? Also, we've heard that there may be another 600 MW lost due to additional fish constraints -- we need to know "how the fish impacts rack up on your inventory," he stated. In addition, there's the question of whether fish flush energy is credited across the year or constrained to the months it actually occurs, said another customer rep. Another question, said an agency rep, is to what extent does the PGE settlement affect the availability of power, and what does it mean for exchangers? We'll dig into the numbers at our next meeting, said Adams.
Kathy Hoffman of BPA presented a paper discussing BPA's approach for pricing products in the post-2001 period. She indicated that "the biggest thing to note" is that we do intend to offer a core subscription posted-rate partial service product. We will develop that product to meet the needs of customers who have dispatchable generation, she stated.
A public power representative explained that he and others had suggested to BPA the need to find a way to convert the firm power block into something useful to serve requirements loads of generating customers. BPA said it would explore such a product in parallel with the work it is doing on other partial service products, he stated. We will write product descriptions that we will propose to BPA, he added. Are you asking BPA to unbundle its full service product? asked an agency rep. "You could view it that way," was the response. Clarifying questions ensued. So you've got a posted price, but people can go behind closed doors and come out with something different, commented a private power rep.
The idea behind the customized subscription products, Berwager explained, is to meet the needs of customers who request requirements service to serve load, but want flexibility to reshape their purchases from BPA. The products would not have posted rates, but would have elements priced using the posted rates for core subscription products, he continued. They would also have additional elements reflecting the flexibility desired by customers, and these elements would depend on customer needs and be priced through negotiations, Berwager explained. The intent was to try to give comfort to people who thought we wouldn't negotiate anything that varied from standard products, said Maureen Flynn of BPA. It's either cost-based or it's not -- if you negotiate everything, it's the market, stated a private power rep.
I think our work on redefining the firm power block and the partial service product will result in our not needing "to staple on" this partial service posted rate product, Flynn stated. That's my hope and projection, and we'll see if we can get there, she said, noting that the partial products team would meet the next day and on May 6. We'll revisit this at the May 12-13 meetings, stated Adams. Hoffman asked for questions and comments on the pricing construct to be e-mailed to her at email@example.com.
Adams said the group should identify "what issues we need to address before declaring victory." He noted that the Public Generating Pool (PGP) has circulated a list of "outstanding issues for subscription and the rate case." These include issues with respect to "cost basis and unbundling," the slice of the system product, presubscription sales, BPA's revenue requirement, the residential exchange, risk management, and transmission. These issues need to be resolved before we can have a subscription process and rate case that make sense, said a PGP rep. While the rate case workshops may be the forum to discuss some of the issues, we'd be reluctant "to see the subscription racehorse get out of the gate before a lot of these issues are resolved," he stated. We want the starting line to be the same for everyone, he added.
A private power attorney suggested the list of issues should include the notion that "totally bilaterally negotiated contracts" conflicts with that of long-term cost-based contracts and raises risk-shifting issues. If the risks of an individual bilateral agreement fell only on that one customer, it would be okay, but what if the impacts fall on other customers? asked another participant. We are talking about aligning costs and risks, and while the rest of the world is moving to the market, we here are setting up a situation that is not market-based, said the private power attorney. We want to be sure that if we do that, we align the costs and risks and that the people who sign contracts pay cost and take the risks, she said. The question is the extent to which "uniquely negotiated contracts" shift risks to other customers, said another private power rep. The attorney summed up the issue as "the extent to which you have standard contract provisions."
Another customer rep said the group has three tasks: conclude production definition and pricing; get a better understanding of BPA's inventory; and reach agreement on how to approach the residential exchange.
A PGP rep suggested that the list of five principles BPA gave to the PGP, in conjunction "with a particular product that will go unnamed," could be used more broadly, as something "to center these discussions around." The issue of risk shifting, he suggested, might be a useful basis on which to categorize remaining issues.
A public interest rep submitted this issue: a description of rights that go with subscription and how they are priced. He also raised "the option idea" -- an advance payment for rights to be exercised in the future, and indicated that the group needs to discuss what to do with the money from options.
We need to flag "residential exchange rights" as a "huge, unresolved issue, with lots of subissues," stated a public interest rep.
The inventory issue, the question of how much flexibility BPA has to replace lost power, and under what circumstances BPA can acquire resources need attention, said another public interest rep.
An agency rep said the group should address "what the implementation process looks like." I thought we reached agreement on implementation, said a participant. It may depend on the supply of power available, said the agency rep. Inventory and implementation go "hand in glove," stated Berwager. I thought the implementation approach would work, but we need to test it against the new inventory, he said.
The status of the slice of the system and integrating it into the subscription process is another issue for the list, said a private power rep. There is the issue of how much power the publics have rights to, stated a public power rep. Another question is: will purchases after 2001 be limited by purchases before 2001, or limited by what the statute says? stated a customer rep.
Aren't we just looking again at the inventory to see if the subscription process still makes sense, and if not, what do we do? asked a participant. And in light of that, to see if the Regional Review still makes sense, suggested another.
Berwager suggested the list of issues include "the firmness of any FPS sales done through subscription."
An agency rep stated that the questions on the PGP list "are really good ones," and he suggested the group needs to explore "what percentage of BPA's post-2001 revenues are expected to derive from market-based prices?" and "how much power will be sold under the various product groupings?" Some of these sound like rate case issues, said a BPA staffer. Yes, but there is "the macro question" of how much power will BPA sell as firm power, the agency rep replied. My interest is in the big picture -- "what does the whole thing look like?" he continued. I'd like to know how much of BPA's sales will be in the traditional mode -- whether most sales will be cost-based or negotiated, he stated. Most will be cost-based sales, replied Berwager. The problem is if 25 percent are not, it could trigger repercussions elsewhere, and that's a concern, said a customer rep.
We also need to identify and agree on "an index of what the market is," said a public interest rep. I'm not sure what forum all these questions will be answered in, but it has to be a very visible one, commented a utility rep.
The Burnout Factor. How do we make the distinction between things we have agreed on, and things we've "talked about until we reached burnout," but not agreement? asked Adams. For example, we spent months on the umbrella agreement and long-term pricing -- I assume we've reached agreement on those issues, said a customer rep. Those are part of the "contract provisions" issue that's on the table, stated a utility rep.
Three issues that need early attention, according to a public power rep, are: inventory, the residential exchange, and product definition and pricing. Contract provisions is a compelling issue, but if only 100 MW are left, it may not be so important, he added. Is it inherent in the inventory and exchange issues that if there are less resources than previously thought, there's an allocation question? asked Wright. We've never talked about the allocation issue, he noted. The statute deals with the allocation issue -- it's less important than the acquisition issue, said a public power rep. It's less important to preference customers, interjected a public interest representative.
An agency rep brought up the 4,500 MW allocation for the publics, and asked, if there's enough public load to take everything, is that a politically sustainable situation for the region? "And the converse as well," said a public power rep. When the Transition Board hears about the allocation issue, will it make them rethink the restriction on BPA resource acquisition? asked an agency rep. It would mean rethinking that or changing the Northwest Power Act, responded Wright. The Regional Review steering committee, if presented with that question, would have said, change the Act -- they didn't want BPA in the resource acquisition business, he stated.
Syd and I will take this list of issues and develop a game plan for the month of May, said Adams.
Shauna McReynolds of PNUCC said the draft compendium is intended to "collect some pieces this group has looked at and chewed on for some time." It's a notebook documenting the collaborative effort and progress of the group, she stated. McReynolds said she would like comments on whether the compendium needs pieces added to it, taken out of it, and any other changes desired. A public power rep questioned a statement in the compendium that says "subscription sales would begin immediately after the rate case is filed." Do you mean filed here or filed with FERC? he asked. BPA may think it is when the rate case is initiated, but customers think it is when the rate case is completed and filed with FERC, he said, asking for that to be clarified in the document.
McReynolds noted that she would put the latest product descriptions in the compendium. We need to clarify which parts of the document reflect agreement, and which reflect "where we ran out of gas" and need to capture a variety of viewpoints on an issue, said Adams. Who's the audience for this? a participant asked. The Transition Board and anyone else who is interested, McReynolds replied. "I assume all these issues [in the compendium] are re-openable," stated a public interest rep. Adams pointed out that the group expects to wind up its work by the end of May.
An agency rep noted language that says any customer purchasing firm power from BPA "will be offered the option of including a provision in the contract which will secure the rate at which power may be purchased from BPA in the future" and asked why that isn't included as a subscription product at a negotiated price. It could be added as a non-subscription product, said Berwager. But it's not stand-alone -- you agreed that you had to be a subscriber in order to get that, noted Wright. Adams said people with questions or comments on the compendium should call or e-mail McReynolds.
Archive of content originally posted or last updated on: May 5, 1998.
Content originally provided by: Syd Berwager, BPA Power Business Line.
Content currently provided by: PBL Requirements Marketing - PS.
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