Northwest Energy Review Transition Board	John Etchart, Montana
851 S.W. Sixth Avenue, Suite 1100 Portland, Oregon 97204-1348	Roy Hemmingway, Oregon
Phone 503-222-5161 or 1-800-452-5161 FAX 503-795-3370	Mike Kreidler, Washington
	Todd Maddock, Idaho

NORTHWEST ENERGY REVIEW TRANSITION BOARD

Tuesday, March 3, 1998

NWPPC Conference Room, Portland, Oregon

The Northwest Energy Review Transition Board focused on reports from Washington, D.C., that national restructuring legislation may be on the move. According to a panel of Congressional insiders, the House could mark up a bill in March, and in the Senate, efforts to repeal the Public Utility Holding Company Act could trigger a full-blown restructuring debate. The board heard a number of opinions about how it should respond to the news and directed staff to put together an outline and schedule to move transition activities along more briskly. All board members were present, with Todd Maddock participating by telephone; the audience was about 45.

Next Meeting: March 19 in Spokane, Washington.

Headlines______________________________________________________________

Restructuring Wheels Are Turning in D.C. . . . . . . . . . . . . . . . . . . p. 1

An Abbreviated Work Group Report. . . . . . . . . . . . . . . . . . . . . . p. 4

A Deliberative Plan For Writing the Northwest Chapter. . . . . . . . . . . . p. 5

ORDER OF BUSINESS_________________________________________________

Restructuring Wheels Are Turning in D.C.

Staffer Mark Walker introduced two Congressional staffers and two industry representatives, who gave an update on what is going on in Congress with regard to industry restructuring. The panelists joined the Transition Board meeting by telephone from Washington, D.C. We have been hearing lots of rumors about what might and might not be happening on both the House and Senate sides, and the Transition Board wants to gauge its activities against what?s taking place there, Walker said.

Glynda Becker, a staffer for Representative Rick White (R-Washington), said the Republican leadership in the House has scheduled "floor time" in April to consider national restructuring legislation. A bill will likely be marked up in March, she reported. There will be a Northwest title in the bill, and we are relying on the region to come up with a consensus, Becker stated. Representative White would like the region "to take a shot" at resolving its restructuring issues, "especially stranded costs," she said. The delegation staff is deliberating on the contents of the Northwest title in the bill and will be seeking a consensus in the region, Becker indicated.

Walker asked about the schedule for getting a bill to the floor. Becker said committee members have taken the first couple of steps toward markup, and both majority and minority members are now working on a bill. When will a draft be ready for circulation? Walker inquired. There will be a draft within the next couple of weeks, Becker responded. "There should be paper floating around soon, and we will look to you to point out the issues and concerns," she said.

On the Senate side, "things are happening sooner than we thought they would a couple of months ago," according to Phil Moeller, an aide to Senator Slade Gorton (R-Washington). The debate is being pushed by legislation to repeal the Public Utility Holding Company Act (PUHCA), he reported. PUHCA reform might be the only time the Senate deals with restructuring this session, and if a PUHCA bill comes to the floor, several members of the Senate have indicated they will have amendments, Moeller explained. There are currently negotiations going on as to the number and timing of amendments, he said, and Senator Gorton has put himself in line for a couple of amendments "in case this becomes a full-blown restructuring debate."

Moeller predicted that nothing would happen with PUHCA before Congress? Easter recess, but when it does, he said it is likely to become a broad debate of restructuring issues. "We?ll be asking the region to give us input on the approach we ought to take," Moeller said. PUHCA was originally scheduled to come to the floor on April 21, but the negotiations fell apart, and "it?s still up in the air," he added.

How far will restructuring get this session? Mike Kreidler asked. The odds are still against a bill ending up on the President?s desk for signature, but "we have to presume that is a possibility," Moeller replied. It is prudent to take it seriously in order to look out for our interests, he added. "I could not agree more," Becker stated.

We?ve heard there is pressure on the White House to release its version of restructuring, Kreidler commented. Senator Frank Murkowski (R-Alaska), Chairman of the Senate Energy and Natural Resources Committee, has committed to holding some more workshops to get the Administration talking about its bill, Moeller said. We hear rumors the bill is ready to come out any day, he stated, adding that in the next few weeks, "we may see where the Administration comes down" on restructuring.

Will Senator Gorton?s amendment look like a more fleshed-out version of his proposal last fall? Walker asked. That will be our starting point, but we will be getting more input, Moeller responded.

"I would echo the seriousness of this effort," according to Bob Hayes, a private attorney, who represents several aluminum companies. He said he thought it unlikely, but possible that a PUHCA bill would reach the President?s desk. You never know what will happen in the September/October negotiations, Hayes said. "This is a serious effort, and there is potential for a bill to pass," he said of PUHCA reform. Reaction to potential legislation "has been positive," Hayes continued, and people are starting to seriously consider BPA -- "what is BPA?s long-term problem and how to solve it." The time pressure has turned on "the creative process," and ideas will be coming up in the next couple of weeks, Hayes indicated. "This is something we ought to take very, very seriously," he added.

I have to agree, stated Gary Barbour, who represents the Pacific Northwest Generating Cooperative. The question is, at what point does the region lose its ability to influence things in Washington, D.C., he said. The amount of dialogue on restructuring is intense, Barbour reported. Senator Murkowski is putting pressure on the Administration, and in a recent speech, the chairman of the Federal Energy Regulatory Commission (FERC) said that he wants to bring the federal Power Marketing Administrations (PMAs) under greater FERC scrutiny and will look for that in a restructuring bill, Barbour said. We have to look at this within that broader dialogue, he counseled. There are a lot of conversations and alliances taking shape, which could point to a bill being framed "within which we would have to live," Barbour said.

Walker asked about rumors that Senator John Glenn (D-Ohio) would offer an amendment to PUHCA requiring PMAs to sell power at market rates. We?re not fearful of this, but it is a possibility, Moeller responded. TVA would be the most nervous about such a proposal, he added. TVA has big problems, and the Salt River Project has come under pressure as well, Barbour said, noting that a PMA hearing is scheduled in the House on March 19.

John Etchart asked about Hayes? reference to "creative new ideas" regarding BPA. I?ve heard rumors -- "people are talking about what the real problem is with BPA," Hayes responded. He indicated that the question had come down to how BPA can repay its debt within a market-based system. People are thinking about how to do that, Hayes said.

If there were a longer time schedule, what would the members? desires be on hearings and a public markup? What about the region?s ability to influence what is going on? Roy Hemmingway asked. If we had a longer timetable, we?d look to the chair to have more hearings, Becker said. From the perspective of Representative White and others, we?d want a public process to flesh out the issues, she added. What we?re faced with is, we don?t have that much time, Moeller stated. If we did, we could have field hearings this summer, he said. I?ll be asking the region for input, and people should feel free to contact us with their thoughts, Moeller continued, but as for an in-region event between now and April, "we?ll have to get real creative."

I realize that this is out of our control, but this is a major issue, and there is no language that has had a public hearing, Hemmingway said. If there is a Northwest title, we would encourage the committee to have a hearing on it, Becker responded. My boss would be comfortable asking for that, she said. It?s a legitimate problem, a panelist agreed. The Northwest?s House Energy Caucus and Gorton are saying they will be ready if an energy debate happens -- they can?t control the situation, but they have given warning that a debate could happen, he said. The staff has been open to specific language, and our ability to provide input on language has been good in many instances, he added.

"For those playing inside baseball, but for folks 3,000 miles away, that is not the perception," Hemmingway responded. He predicted that when and if the legislation moves, there will be editorial opinion in the Northwest that says it is going too fast.

I represent businesses in which energy prices and transmission are the lifeblood, Barbour said. He suggested that unlike governors, industry representatives do not have ready access to Congressional members and have to act when the opportunity presents itself. Maybe that?s the way it?s supposed to be, Barbour said. We don?t have the ability to place a phone call and get a member off the floor for a consultation, like a governor does, he added.

I try to be as open and accessible as possible, Moeller said. My boss is getting involved in this at some risk in order to help the region, he said. The perception around the country is that "we have a great deal," and people want a part of it, Moeller explained. We?ll take people?s input, he said, urging the Transition Board "to get the word out."

There is no criticism inferred in my questions, Hemmingway stated. But you can expect that we will push for a more deliberative public process as this moves along, he said. A process that involves only the professional advocates is not one that will have the widest acceptance, added Hemmingway.

Todd Maddock said the activity in Congress comes as "a real alert." We had not anticipated this, he said. Maddock noted that the board has only two meetings before mid-April. We have to do what we can if we are going to engage in a discussion on this timetable, Maddock said. Do we need a greater presence back there? Do you have any suggestions? he asked the panelists. "The sooner the better," Moeller responded. To the extent the region can come together, that?s what we?re looking for, he added. This is going to change our mode of operation, Maddock observed.

Kreidler said both White and Gorton are to be commended for stepping in for the Northwest on the restructuring issue, and he added that doing so is not without "certain risks." It would not bode well for the Northwest chapter if Northwest members were not involved in shaping it, Kreidler indicated. I can assure you "the touchier points" with regard to transition are still not resolved here, he told the Congressional staffers.

"Rick is working hard to mobilize his colleagues," and any help and advice would be appreciated, Becker said. Etchart asked what Becker meant when she referred to building consensus on the staff. We are trying to understand the various proposals, she responded. Representative Tom Bliley (R-Virginia), Chairman of the House Commerce Committee, wants consensus, she said.

The region has been working on six issues -- subscription, transmission, stranded costs, a fish budget, BPA cost control, and river governance, Hemmingway said. Which of these issues is likely to be present in the legislation? he asked. Transmission and stranded costs, Moeller replied. The Administration has insisted that stranded costs be addressed, he added. I agree, Becker said. Will river governance be present? Hemmingway asked. No, Moeller responded. "My boss has made it clear it?s too early for that," he said.

An Abbreviated Work Group Report

Consultant Al Wright said that the Transmission and Transition Cost work groups "have not made much progress." He indicated that the groups are scheduled to meet again later in March.

On the other hand, the Subscription work group is doing quite well, Wright reported. There are encouraging signs that the subscription process can work, and we?re seeing more enthusiasm for BPA products, he said. A proposal such as Senator Glenn?s to require PMAs to sell at market rates would be detrimental to BPA subscription, Wright observed. The Northwest would need to communicate that "this PMA has a better solution," he stated. "It would not be politically smart to ask for another exception to national legislation, but we would need to communicate that we have something here that will work," Wright said.

In response to a question, Wright acknowledged that the national trend is toward pricing power at competitive market rates and away from anything that looks like a subsidy. In the Northwest, we need to recognize that "we?re bucking the trend" toward competitive market prices, he said.

As the Transition Board, we want to be positioned to respond to Congress to communicate our unique situation -- we want to be able to give strong support to the region?s position, Kreidler commented.

Staffer Dick Watson observed that the issues that stemmed from the BPA cost review, along with river governance and a fish budget, are unlikely to be part of the current legislative discussion. The cost review indicated some legislative changes, and there may be some opportunity, Kreidler pointed out. Watson said that the kinds of recommendations that came from the cost review are "sufficiently different from restructuring" that the melding of the two would not appear to be "a marriage made in heaven." But if there is opportunity there, we ought to take it, he added.

A Deliberative Plan For Writing the Northwest Chapter

What should we do given the report from Congress? Etchart asked. Hemmingway said the Transition Board has two choices: "abandon the field" or "try to make the deadline." If we abandon the field, we conclude that this situation is out of our control and that the action has shifted to Washington, D.C., he said. "The lobbyists are there, and those who aren?t are making plane reservations" -- we can decide "we should get out of the way," Hemmingway said.

If we try to make the deadline, we would need to come up with a regional consensus and send it to Washington, D.C., he continued. Given the time schedule, the latter is not possible, Hemmingway opined, adding that if the interests in the region don?t agree with what the Transition Board proposes to do, they will want to meet "with our bosses." We need a process that can allow for public involvement and the involvement of the governors, and we cannot do that on this timetable, he said.

Those who have been around the legislative process know there will be "speed bumps" to slow things down, Hemmingway said. I suggest we have "a speedy, but deliberative process," he stated. By summer, we could get to recommendations the governors are comfortable with, Hemmingway said. I would suggest we aim for July 1 as the date for completing a set of recommendations, he stated, adding that the board could ask staff to come up with a schedule and work plan.

What about early drafts of the legislation? Etchart asked. We will be asked to react, and we can, Hemmingway said. But it should not be "our individual gut reactions" -- we have to find a way to conduct a public process, he added. Our duty is to allow as much public input as possible; to hear from people and incorporate their thinking, Hemmingway said.

I do not disagree with a goal of having recommendations by July 1, Maddock said. But we need to lay out a decision path with critical thresholds along the way to measure our progress, he stated. Hemmingway said he agreed.

Kreidler suggested that what was going to happen in Congress would be "the opening volley" and that the debate would unfold over a couple of years. But he cautioned that once Congress has covered an issue, "they won?t go back over the same turf." I would be inclined to follow the July 1 time line, along with an interim process to put out some "bookends" on transition costs and transmission, Kreidler said. We could explain that we are putting out "a placeholder" and are having a more thoughtful process in the region, he said. "There may be a train pulling out of the station," Kreidler said, adding that he feared if the Northwest did not act, Congress could embark "on a course of action that we don?t like." I would put something forward that is as specific as we can push it, so that as our delegation works this issue, they have something from us, Kreidler recommended.

What we need more than anything else is to evaluate what we are trying to prevent and what we are trying to achieve, according to aluminum company representative Paul Murphy. We heard there may be some effort to develop national restructuring policy, and that the PMAs could have greater FERC oversight and be required to sell at market versus cost-based rates, he said. This is the status quo if we sit on the sidelines, Murphy stated. If we make recommendations, "they should be better than the status quo," he said. Murphy suggested that proposals offered to date, such as a wires fee, would not improve things for some customers. If we also had rates capped at market, like Senator Glenn would propose, we could be paying rates that are "market plus," Murphy said. Is the problem that we don?t want to pay market rates? he asked, reiterating that it is important to define the problem early on.

Steve Weiss of the Northwest Energy Coalition said people are concerned about two things: there may be times when BPA?s costs are below market, and customers would prefer to pay cost-based rates; and there may be times when costs are over market, and customers would prefer not to pay cost-based rates. The Regional Review tried to balance the situation in determining that you could have cost-based rates, if people are willing to pay over the market occasionally, he stated. A BPA wires charge "is part of the status quo," but it works out to be fairly inequitable, Weiss continued. It is incumbent on us to do better than that, he said. There are advantages to coming up with a package and hopefully we can, Weiss concluded.

The likelihood of a restructuring bill passing Congress this session still seems extremely unlikely, Steve Hickok of BPA told the board. The bad news is that the Northwest chapter is going to be drafted in the next couple of weeks, he said. "We are not in placeholder mode now -- we need to focus and narrow the debate," Hickok stated. The thing that struck me as new in the report from Washington, D.C., is that PUHCA reform could create an action time frame in the Senate, in addition to what is going on in the House, he continued. If we are facing a Glenn amendment, it seems that the "best defense is a good offense" -- show them what we?ve worked out in the region, Hickok said.

We have a lot of processes going on that we have been trying to shepherd to work products, he stated. BPA is trying to gather the pieces together in April to show the region how we would balance our financial equation and proceed to subscription, Hickok explained. That time frame is unchanged by these developments, he added. We know the work groups have not produced a resolution on stranded costs and transmission, Hickok said, and we need a stranded cost piece in our financial equation "so people can see if it works." Our hope is to have those discussions in May, he reported.

What is your imperative? Etchart asked. We plan on starting subscription this summer, and we need to keep the rate case as close to the opening of the subscription door as we can, Hickok replied. We know that we cannot let subscription and the rate case become totally disconnected, he stated, and we want to have an initial rate proposal out within two months of opening the subscription door. We have also been keeping our ear to the delegation about what they need, and they have said they want a work product in April because the Administration plans "to move into the fray," Hickok said. The Administration is "about to move out into the battleground in Congress, and they want to know what the Northwest chapter looks like," he said. The April time frame is still our focus, and I worry about letting anything wander outside that schedule, Hickok added.

Trying to put something together on a shorter time frame is problematic, Kreidler observed. The delegation is asking us for guidance because now they are working in a vacuum, he said. Do we give the guidance on a quicker time frame? Kreidler asked. The problem is that we can encounter "fractiousness" as soon as we have something on paper that tries to get the region to agree to sideboards on the issues, he stated.

If stranded costs or transmission were easy problems, the work groups would have kicked out something months ago, Hickok responded. "We heard the House and Senate staffs begging for input" -- we know the lobbyists will respond, he added. This is the only process that has a possibility of consensus, Hickok said. You have heard from the work groups, and you have heard the positions; the gaps are apparent, he continued. Perhaps you ought to hazard your own strawman and see what the parties think, Hickok suggested.

What is it that you expect in April? Hemmingway asked. The six items you mentioned, minus river governance, need resolution -- cost review, fish and wildlife costs, stranded cost mechanism, transmission, and subscription, Hickok replied. You feel this board will be ready to act on those next month? Hemmingway inquired. When I said July 1, I expected the work products would be completed in April, and we would have time to process them, he continued. We are not in a position to take the product from the work group and say "okay, this goes to D.C.," Hemmingway stated. We need a public process in order to say whether there is consensus in the region, he added.

The issue is how Congress? work marries to our process, Hickok observed. I don?t think it?s possible for us to meet their schedule, if we act as governors representatives, Hemmingway responded. "Otherwise, we just become four guys with our own ideas about what belongs in the legislation" -- we need to have a deliberative process, he said. "It may be that Congress takes off and we miss the boat," Hemmingway stated. Our best guess is they can?t operate on that fast schedule, and we want a process that has been deliberative for the people in the Northwest, he said. "We can?t ignore Congress -- they will want to know what we are doing, and we will have to react to what they tell us," Hemmingway continued. "But we have to have a product that represents our best thinking," he stated.

Hemmingway pointed to the three sovereigns process, where he said "we are beginning to get criticism for doing this without public input." This criticism has made me aware of the intense demand that exists for the public to be part of the process, he said. With this Congressional schedule, "I?m afraid people will feel left out," Hemmingway said, "and we can?t be governors? representatives and leave people out."

"We need to know what zone things are in for planning assumptions," Hickok said. Congress needs to know the zone, without every detail for the chapter, he said. "There may be a way in which they can be served, given the legislative process, and we can be served, given the rate case," Hickok stated. No one thinks that stranded costs will be legislated in July, he said. Our concerns are what we need for the rate case, not what will ultimately be in legislation, Hickok said.

We need to produce something for Congress, Kreidler urged. It?s important to get something back to them formally -- we need to hand something to them, he said. It would be fairly general in a couple of areas, "but we should at least attempt to put something forward that gives cover for the Congressional delegation since they are trying to step out in an area where there is risk," Kreidler suggested. I recommend we at least produce a document that has as much definition as possible, knowing that it is not the final product, he stated.

Maureen Carr of the Public Power Council (PPC) reported that the PPC executive committee will be approving language that was developed in a December policy statement regarding the way to deal with transition costs and FERC-equivalency issues. She also advised the Transition Board "to think about what you want to do if there is no consensus" on these issues. "There may very well be none," Carr stated. We would urge you as governors? representatives to think about whether "you are willing to come to a consensus, if there is none behind you," she said.

"I endorse exactly what Roy said about the necessity for a systematic public Transition Board process, "stated Angus Duncan of the Columbia/Pacific Policy Institute. There is not going to be a consensus on transition costs, and "the more we insist on this, the less likely it is," he stated. You have to set a date on which your deliberations will begin, and the interests will have to bring forward their best efforts, Duncan advised. Setting a date will impose a discipline that has been absent in the work groups, he added. We heard well-informed folks give their best guess on what will happen in Congress, Duncan continued. One way that this can be made to accommodate our process is to say that by July 1, 1998, we will have a definitive product, he said. "We can insist on latitude in return for a drop-dead date," Duncan stated. "I don?t feel like the pressures back there are being driven by factors we cannot influence," he added.

As Roy said, you need to outline a deliberative process, according to Wright. This may be the only place for public debate, he said, and that would be worthwhile from the governors? perspectives. The work groups have done some good things -- we?ve outlined the problems of having BPA under FERC-equivalent regulation, he said, and the progress in subscription ought to be communicated to the delegation. With regard to transition costs, we?ve proven that you can?t lump a bunch of problems together and solve them, Wright said. This ought to be communicated -- it?s good work, he reiterated.

We need to deliver you an outline with problem definitions and a time frame, Watson said. We can get that out to people before March 19, he added. Kreidler suggested there also be a draft "of what we have done."

Have we got a plan? Etchart asked. Yes, the staff replied.

Meeting Adjourned

Transition Board Members: John Etchart, Montana Governor?s Representative; Roy Hemmingway, Oregon Governor?s Representative; Mike Kreidler, Washington Governor?s Representative; Todd Maddock, Idaho Governor?s Representative. This meeting report is a service provided by the Northwest Power Planning Council, with financial assistance contributed by the Pacific Northwest Utilities Conference Committee (PNUCC).