NORTHWEST ENERGY REVIEW TRANSITION BOARD MEETING SUMMARY
Thursday, May 14, 1998; NWPPC Conference Room, Portland, Oregon
Stranded costs and strawmen took center stage at the Northwest Energy Review Transition Board’s meeting. The board approved a final version of its progress report on development of a Northwest chapter of national restructuring legislation. All members were present, except Roy Hemmingway. The audience was about 35. Next Meeting: June 11 in Spokane at the Doubletree Hotel City Center.
• THE PROGRESS REPORT GOES FORTH -- Staffer Ken Corum explained changes that were made in response to comments in the board’s "Progress Report on Development of the `Northwest Chapter’ of National Utility Restructuring Legislation." He noted that language was changed to reflect that while there is "reasonable agreement" on the kinds of problems contributing to BPA’s cost risks, there is little agreement on which problems should be called stranded costs and on the mechanisms to collect such costs. While the previous draft said prospects for a successful outcome to subscription appeared likely, this version says "much remains to be resolved and timing is critical to a successful outcome," Corum pointed out. Transition Board chair John Etchart said the report would be sent to Congress.
• GOOD NEWS AND BAD NEWS ON STRANDED COSTS AND SUBSCRIPTION -- Jim Baker of the Sierra Club said good features in the strawman proposal on stranded costs include a commitment to "sharing the benefits" and to "total cost recovery" in BPA transmission rates. What’s missing are a salmon recovery plan, proposals about subscription, and a timetable for phasing out subsidies to navigation, agribusiness, and aluminum, he stated. Shawn Cantrell of Friends of the Earth introduced "The Salmon Chapter of National Energy Legislation," stating that the Northwest chapter will be a salmon chapter because "the Federal Columbia River Power System (FCRPS) is both the heart of our energy system and the primary cause of the Columbia Basin’s salmon extinction crisis."
Paul Murphy of the Pacific Northwest Aluminum Group said we haven’t plumbed the degree to which potential BPA customers are willing to accept risks for a chance at the benefits of the system, and we need to let that process go further before we decide on a contingency mechanism. He presented a proposal for a new business relationship between BPA and customers that focuses on contractual arrangements that align the risks and benefits and suggested an "advanced power sales option" in which customers could prepay for future rights to power. We think we need long-term contracts to preserve the benefits, Murphy stated. It’s nice to hear there’s interest in long-term contracts once more, said Todd Maddock.
Steve Weiss of the Northwest Energy Coalition (NWEC) said the strawman proposal creates a no-risk subscription product, with going to market the worst condition a customer would face. If it’s a no-risk proposition to subscribers, it puts the risks on Treasury or transmission users, he stated. Weiss said costs for major system configuration changes shouldn’t be excluded. The problem BPA faces is not a fish problem, it is a nuclear problem, said Weiss, adding we find it troubling "to watch parties who supported WPPSS publicly walk away from those obligations while blaming fish for BPA’s troubles." IOU consultant Jim Litchfield said the strawman has gotten customers engaged and that new ideas for innovative cash management techniques for BPA are under discussion. He said public power, IOUs, DSIs, and industrial customers are part of an informal group formed to work on the issues. I’m hopeful we’ll find a compromise package and bring it back to you, Litchfield stated.
"Now for the bad news," stated Jason Eisdorfer of the Oregon Citizens’ Utility Board, who represents residential customers of IOUs. He said the problem is that those who don’t have access to the market will have to pay stranded costs, but they won’t get the access to BPA power we thought was there during the Regional Review. If most of the power available for subscription goes to the publics, and they can do no worse than market, we’ve lost the premise that access to BPA should link up with the responsibilities that go along with it, and "it’s a politically unstable solution," Eisdorfer said.
Maureen Carr of the Public Power Council (PPC) said the key to preserving the benefits of the federal hydro system is maintaining cost-based rates, public and regional preference, and BPA as a financially and operationally viable power supplier. The strawman proposal threatens the value of the FCRPS for the Northwest, she said. The proposal to "share the benefits" gives credence to those who argue that below-market, cost-based rates confer an inequitable benefit to BPA customers, and PPC "opposes appeasement of these interests," Carr stated. The proposal punishes subscribers by layering charges on them through an inequitable and complicated scheme, she said. PPC’s stranded cost proposal offers a simple, direct, and easy-to-understand mechanism that can be implemented within BPA’s current statutory framework and on a timetable consistent with subscription and the rate case, Carr stated.
Angus Duncan of the Columbia/Pacific Policy Institute said we need to delineate what mechanisms short of "pulling customers to market" are available, such as building reserves, more cost cutting, different ways of disposing of WPPSS costs, and aggressively negotiating option rights with customers. The idea of bringing customers up to market should be written into the contracts, he stated.
• FINAL REMARKS: BPA NOTES A FEW NUMBERS -- Steve Hickok of BPA said BPA’s Firm Energy Load Carrying Capability is about 7,800 average megawatts (aMW) and after taking into account Treaty and non-subscription obligations, about 6,300 aMW remains for subscription. Under the Regional Review formula, the publics are eligible for about 4,300 aMW, leaving about 2,000 aMW for Phase 2 of subscription -- fighting over the 2,000 aMW is "the question in play now," he stated. Transition Board members said they intend to stick to their plan of having a preliminary draft of proposals ready by June 11, with the goal of giving something more final to the governors in July.
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Please Note: This summary is based on detailed reports of the meetings of the Northwest Energy Review Transition Board. The reports are prepared by Resource Writers Northwest and distributed by the Northwest Power Planning Council. The Pacific Northwest Utilities Conference Committee (PNUCC) contributes financial support for these reports. To request a copy, please call the Council at 1-800-452-5161.