NORTHWEST ENERGY REVIEW TRANSITION BOARD
Thursday, June 25, 1998
NWPPC Conference Room, Portland, Oregon
The Northwest Energy Review Transition Board took public comment on proposals for FERC regulation of BPA’s transmission and a contingent cost recovery mechanism. Fish advocates said they are willing to take the Northwest’s problems onto the national stage if that’s what it takes to get a comprehensive fish recovery plan with adequate funding. Opponents of a transmission surcharge said they are loathe to pay the taxes while others enjoy the benefits. All board members were present; the audience was about 50.
Next Meeting: July 23 in Portland.
Headlines______________________________________________________________
FERC Regulation and Cost Recovery Proposals Take Some Heat . . . . . . . . p. 1
Unresolved Issues Delay Federal Power Subscription. . . . . . . . . . . . . . . p. 8
Public Comment Reprise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p. 9
ORDER OF BUSINESS_________________________________________________
FERC Regulation and Cost Recovery Proposals Take Some Heat
Transition Board Chairman John Etchart opened the meeting for public comment on two draft proposals: "Federal Energy Regulatory Commission (FERC) Regulation of Bonneville Transmission" and "Contingent Cost Recovery Mechanism."
Jim Baker of the Sierra Club introduced several representatives of fish advocacy groups. They are going to tell you that "these pieces are not adequate," and they are not something we can support, unless they are part of a comprehensive package that includes salmon and steelhead recovery in the Columbia River Basin, he stated.
We have serious concerns about the proposals and what you are failing to address in them, according to Bill Arthur of the Sierra Club. We have said that we cannot support "a piecemeal approach" to salmon recovery, he said, adding that salmon and BPA’s operations are intertwined. You cannot extract one part from the other and fix it -- "you either fix the whole system, or they both go down together," Arthur stated.
He said that a comprehensive package must address the following elements: a Columbia River fish recovery plan; the BPA subscription process; BPA’s reserve levels, which must be "substantial" going into the period post-2006; phase-out of BPA’s subsidies to industries; and conservation, renewables and other public purposes. Arthur pointed out that the House Appropriations Committee recently "zeroed out" the region’s salmon recovery funds. This should be "a stark signal" to the Northwest that Congressional appropriators are tired of waiting for a unified salmon plan, he said. Failure to have the money spent, and spent on the right things jeopardizes the region’s ability to meet its treaty and Endangered Species Act (ESA) obligations, Arthur stated.
In addition, the committee "vaporized" language that prohibits Congress from considering the sale of BPA, he said. The committee’s action is starting to raise the specter of what could happen to BPA, Arthur stated, adding that this attention is going to expose the Northwest’s "deal" to others. They will begin to ask "why should the rest of the country send a subsidy to Northwest industries," he indicated. "Our fish bowl is very transparent, and others are starting to look in," Arthur said.
The comprehensive package needs to build in a high level of BPA reserves so we can do what is needed post-2006, he continued. With regard to a cost recovery mechanism, Arthur said it should trigger in time to protect reserves and not be geared to a default on a Treasury payment. There should be no overall cap on the stranded cost recovery mechanism -- the $500 million is an arbitrary number, he stated. There should also be no limit on the duration of the mechanism, and there should be no annual cap, Arthur said.
The Sierra Club "is agnostic" about the future of BPA, he stated. If the agency wants to embrace a mission that includes protecting public values, along with providing a reliable power supply, "then sign us up," he indicated. But if not, "we do not care if BPA lives or dies," Arthur said. We won’t sign up for "a halfway deal, it has to be a full deal," he concluded.
According to Chris Balliet, Save Our Wild Salmon also opposes the draft proposals, because "they are not part of a comprehensive package." Such a package must include a unified fish recovery plan, a plan for BPA subscription post-2001, a phase-out of subsidies, and measures to protect public purposes, she said. To improve the drafts, Balliet recommended that the trigger on a cost recovery mechanism be linked to the level of reserves BPA needs to meet its Treasury payment long term. The cost recovery mechanism should allow for raising BPA’s rates to market prices, and there should be no caps on the recovery amount -- BPA must recover all costs, she said. When rates are below market, 50 percent of the difference between cost and market should go to fund public purposes, Balliet recommended.
If BPA is being separated into pieces, "why not have a WPPSS piece," said Dan Rohlf of the Pacific Environmental Advocacy Center. We could just declare that it is a separate piece, he said, suggesting that it would not endure on its own. But we know the WPPSS debt "is part and parcel" of everything BPA does, Rohlf continued, and he questioned why, if WPPSS is a secure part of BPA, the region seems to take a different tack with fish. People say "it’s a tough problem, so let’s separate fish out," Rohlf said.
The very fuel that fuels the low-cost electricity in the region is the habitat for salmon, he pointed out. We cannot solve BPA’s problem without addressing salmon as part of the package, Rohlf stated. We recently filed a notice of intent to sue BPA over federal power subscription precisely as "an echo of this problem," he said. As for structuring future power sales, BPA is obliged under the ESA to consider the way its actions affect salmon, Rohlf explained. We fear that BPA is embarking on a process that does not do what it needs to do for salmon, he stated. Fish need to be treated equitably with other uses of the river, Rohlf said, adding that "we are seeing the fish set aside." It’s bad policy, and it is illegal, he concluded.
Fish and power issues are integrated, according to Jeff Curtis of Trout Unlimited. As a Congressional aide, I sat next to members of Congress and heard their comments when people testified, he said. At a hearing on Mitchell Act funds, Curtis recounted hearing Congressmen say, "the Northwest has quite a bit of nerve asking for money when their power is so low cost." There was a lot of resentment, he stated. There are people out there who are not in tune with the region on the benefits of our low-cost power, Curtis indicated.
The decisions made on subscription could foreclose options to fund "the more robust proposals" for fish recovery, he said. That’s why we are challenging the subscription process, Curtis stated. We believe there needs to be a regional consensus on a broad scale for salmon and energy together, he concluded, adding that Trout Unlimited supports the governors on the Three Sovereigns process.
Was the message from the House Committee that we "didn’t have our act together" or that we should be paying more? asked Mike Kreidler. The language took a shot at the barging program, saying that it does not work, and the members also expressed frustration that we didn’t have a unified plan, Arthur responded. And, he added, they did remove prohibitions on discussing the sale of BPA. The committee does not care if it funds salmon recovery, Arthur continued. They could "nickel and dime us," and we could have a hard time getting the money back if it is taken away, he added.
If the region is going to continue to fail to address the issue, I’d like to see a national debate, Arthur stated. My basic message is, I wish not to have a national debate and to have BPA continue to give benefits in the Northwest, he said. But if we continue to worry about the finances of BPA and not the other side of the issue, fish advocates will nationalize the issue and bring it to the attention of the rest of the country, Arthur indicated.
It might be easy for people in the audience to dismiss this message because of the source, but what you say is fundamentally accurate, Roy Hemmingway observed. BPA is on the cusp of the largest debate ever about its role, he said. The question is, should it continue to exist, according to Hemmingway. My state says, if BPA behaves as a power company, it will be sold, and if so, we won’t object, he stated. If it behaves as a public agency and goes about solving problems, including natural resource problems, we ought to keep it, Hemmingway said. Is it a power company or is it a government agency? he asked. I’m not sure the region understands this issue yet, Hemmingway added.
BPA is in "the cross hairs" of the national restructuring debate, Arthur responded. You might not like us or you may hate our message, but either there will be a strong regional consensus on this, "or it will go down in flames," Baker said. We have named our price for being part of the consensus: a comprehensive package with salmon recovery, he stated.
Is there time for this to be resolved before subscription, with all of the pieces that you have called for? Etchart asked. The current subscription process will be "so far off the mark, it will blow up -- we will blow it up, if possible," Arthur replied. We can take time out on subscription to reconcile the decision that will be coming out of the National Marine Fisheries Service (NMFS), he said. Subscription "will run up against a hard wall if it proceeds as it is laid out now," Arthur stated.
You want no cap on the cost recovery mechanism, Etchart observed. Will the subscription product move under those terms? he asked. You can have both a long-term subscription product and a short-term product, or a product that sells at market, Arthur responded. There are a number of ways to do subscription, he said. BPA is faced with oversubscription, Baker added. We need to send a message to the other 46 states that BPA is going to pay its way, he stated. We will not stiff the Treasury -- "that’s political and financial suicide," Baker said.
At what point should Congress be involved in subscription? Hemmingway asked. If the region is going to change the fundamental operation of the hydro system, should Congress be involved? he inquired. At some point Congress has to be involved, Rohlf answered. It’s largely a matter of what is necessary to recover fish, he stated. Congress will have to provide authority to carry out some of the measures, but if the region puts together a package in which we can recover fish and pay the costs, it will be "an easier sell" in Congress, Rohlf said.
The cap in our proposal is seen as a way of moving the issue to Congress,
Hemmingway commented. Would you prefer there be no cap and have some other issue
move things to Congress? he asked. If there is a strong regional consensus, we
should keep legislation to a minimum, Baker said. There is no political
requirement that there be legislation to put together a new structure for BPA
that will save salmon, he indicated. We know the stranded cost mechanism will go
away when the WPPSS bonds are retired, Baker continued. We know that in the
absence of some other "debacle" like WPPSS, this region will enjoy
"the cheapest power on the planet," he stated. Arthur warned that the
region "had better not bid too low" about what it will take on. It is
incumbent on us to put together a strong effort -- it only works if we have the
whole package, he added.
Steve Weiss of the Northwest Energy Coalition (NWEC) said his organization has been participating in the process since the Regional Review. For many NWEC interests, "the deal" for public purposes, including conservation, renewables, and low-income assistance, was less than they sought, and "the deal" for salmon was clearly inadequate, he said. We were reassured to know that implementation of the Regional Review recommendations was going to be overseen by high-level representatives of the four Northwest governors, Weiss stated.
According to Weiss, "the deal" from the Regional Review had several parts and included: a commitment to seek out a means for adopting a single, unified salmon recovery plan; a subscription process that would spread the benefits and risks of the BPA system "in a carefully balanced and crafted manner"; separation of BPA’s transmission and power businesses; a stranded cost recovery mechanism that would provide for full payment of BPA’s costs; cost reductions at BPA; and a backup mechanism to fund public purposes if states did not act to codify the recommendations.
NWEC thought "a deal was a deal," but over the last 18 months, "very little of substance" has happened, he stated. We have a forecast that says market prices will either stay pretty low or move up, and we have a general idea that FERC should regulate BPA’s transmission, he said. After a year of meetings, there is little resolved and many questions remaining with regard to subscription, Weiss stated. We have definitely not decided how much customers will be entitled to subscribe to, if subscription prices will be the same for all customers, what rights subscribers will actually get, and "we’re having the same food fight" over the residential exchange that we had in the late ‘70s, he said.
The proposal for stranded costs would drain reserves before there is any financial pressure on BPA, and it would limit BPA’s existing authority to surcharge transmission customers, according to Weiss. For salmon, BPA says it might raise reserves a little, but not enough to send the message to Congress that we will be able to pay for salmon restoration, and we have "virtually no progress" toward a fish recovery plan, he said. For public purposes, "we have carefully looked the other way and hoped no one notices," Weiss stated.
While we have accomplished almost nothing of any substance, many have not been wasting their time, he went on. There has been "a significant and cynical altering of the terms of the debate" in the region and in Washington, D.C., Weiss said: "BPA’s troubles have been blamed on fish." If BPA were two utilities, a hydro and a nuclear, BPA-hydro could easily pay its bills, but BPA-nuclear would be in deep trouble, he continued. By framing the debate as a fish, rather than a nuclear issue, those for whom BPA incurred the nuclear obligations can avoid paying them, Weiss indicated. Perhaps instead of spending so much time separating transmission and power, we should separate BPA’s hydro and nuclear businesses, he said, with the express purpose of preventing the shift of stranded nuclear costs onto fish.
We are seeing piecemeal solutions going forward, "while our issues are left behind," Weiss said. The Transition Board seems to be limiting itself to only two or three of the six or so issues, and BPA is moving ahead to sign long-term deals in a matter of months, he pointed out. Weiss called it "a dangerous development," which could jeopardize the region’s chances of reaching unity and keeping the benefits of the Columbia River system in the Northwest. Many in our coalition are beginning to feel they are getting so little out of the Regional Review’s compromises that it is no longer worth supporting, he stated, adding that some feel if they are not going to get their part of the deal, there is no reason BPA should not be privatized or federal power sold at market prices.
Weiss called on the Transition Board to exert the leadership necessary to honor the Regional Review’s compromises "in order to get significant buy-in on the final package." He suggested the board take an active role in subscription discussions. Weiss called the stranded cost proposal "unacceptable." It allows customers "to drain BPA dry and then skip out," while limiting BPA’s authority to look to transmission revenues as a backup, he stated. The region has just a few months to do better "if it has any hope of standing up to a hostile Congress," Weiss said.
IOUs Register Concerns
Pam Jacklin, an attorney for PacifiCorp, said that one of the key issues under debate is the legislative starting point for bringing BPA under FERC regulation. We agree with the route you have chosen, amending the Federal Power Act (FPA), but we disagree that you can get to the same point if you start with BPA’s organic statutes, she said. Jacklin indicated that PacifiCorp has met with officials in Washington, D.C., and we heard "unequivocally" that FERC would not treat BPA the same as it does investor-owned utilities, unless BPA is under the FPA.
She said she would provide written comments on what changes should be made in the FPA to accommodate BPA, but noted that in the draft proposal, it is not clear if the modifications are intended to be statutory or report language. We think a number of the exceptions to the FPA listed in the draft are unnecessary and could lead to "a perverse result," Jacklin stated. If you start with the FPA, all of the precedent developed under the statute would apply, and you’d be assured of the same approaches, she said. If you start with the organic statutes, it is unclear what the interaction would be between the FPA standards and the laws that govern BPA, Jacklin stated.
Your proposal is limited exclusively to transmission and ignores power, she continued. Jacklin suggested that there has to be some regulation of power. BPA could set a power rate that is anticompetitive, she stated. We could be in the position that an entity with 80 percent of the region’s transmission and lots of the power would operate without oversight, according to Jacklin.
She said the regulation is important from the standpoint of subscription. BPA is saying "we will have cost-based rates, but you can come in and negotiate with us to reach a negotiated price," Jacklin pointed out. The price could be determined "behind closed doors," she contended.
IOU consultant Jim Litchfield said he thought the substance of the contingent cost recovery mechanism conflicts with the principles laid out at the front of the proposal. The first principle is to align the benefits and risks, and while Stage 1 of the mechanism would meet that principle, Stages 2 and 3 do not, he stated. Stage 2 caps the rate adjustment, and it is not tied to a market rate, Litchfield pointed out. If BPA’s PF rate is below market, the cost recovery mechanism could take effect, and because of the cap, rates could still be well below market, he said. Then in Stage 3, you turn, via a transmission surcharge, to third parties, who are not beneficiaries of the system, because you have capped the rate adjustment clause, Litchfield said. You need to find a better way to align the risks and benefits, he stated.
Your second principle says that subscribers should be better off than the market, Litchfield continued. That’s a useful objective, since there has to be something in it for them, he observed. But it is not clear why we need to look to others in the region to shelter the subscribers when there are difficulties, Litchfield said. Why allow BPA to charge below market rates and surcharge others, while subscribers benefit? he asked.
The Transition Board was concerned originally that customers would have to be enticed into buying from BPA, and principles 3 and 4 are ways "to sweeten" the deal to get subscribers, Litchfield said. The facts have changed, he stated, noting that a Northwest Power Planning Council staff analysis shows that if the market is high, the value of the river could be as much as $20 billion. Even in a low market, the value is nearly a billion dollars, Litchfield noted. There are large benefits available, he stated. If the trigger for a cost recovery adjustment clause is default on a Treasury payment, "the game is up by the time you do anything about it," Litchfield contended.
When I read the term "broad regional participation" in the fifth principle, I thought you were talking about public involvement, but then I read it again and realized that it meant "tax everybody," he continued. Have you really thought through the implications of this? Litchfield asked. He listed several of the complexities that would be involved with taxing the bills of customers whose rights are spelled out in contracts. Who is going to give up contract rights? How will you apply this? Are you going to change future demand charges? Litchfield inquired. These are issues you have to get into in order to change transmission charges, he said. Are you planning to surcharge California, British Columbia, and any marketers or brokers who come through here? If not, how would you keep from doing that? Litchfield asked. A uniform transmission charge will take real hard work, he stated.
The charts BPA used in its Issues ‘98 program indicate the likelihood of Treasury payment at various rate and market levels, Litchfield went on. This does not seem to me to be "an economic crisis waiting to happen," he said, in explaining the charts. BPA can manage its way through, Litchfield added. You can create a problem by setting rates below costs -- "if you set it up so it won’t work, it won’t work," he added.
The "staging" is a good idea, Litchfield said of the proposal, and he encouraged the board to shoot for a 97.5 percent probability of repayment. He also suggested arraying "a whole set of measures," including: 4(h)10(C) credits; decreases in BPA’s discretionary spending; planned net revenues for risk; an energy cost adjustment clause; and pre-sales of future rights to power. Also think about the triggering points, Litchfield advised. There needs to be a sequence of triggers, such as low reserves, he said.
I question whether it is really necessary to shift power costs to transmission, Litchfield stated. It’s not right and will create a backlash, he said. If BPA needs to modify any of the transmission contracts, consider modifying those that deliver subscription power, Litchfield suggested. Otherwise, some without benefits will pay to support the benefits of others, he said. A straight surcharge tied to the subscription transmission contracts does not have to be a loan, as the proposal now suggests, Litchfield said. If you "reach out and take" from those who can’t subscribe, a loan is the minimum you should do, he added. But how do you get the money back to the people who paid it? Litchfield asked.
Are you suggesting the IOUs have not benefited from the BPA system? Kreidler asked. The search for who benefited is never ending, Litchfield replied. The question is, who will benefit in the future, he said. One-third of the loads in the region will see benefits from subscription, according to Litchfield, and under the proposal, "the other two-thirds will have to pony up to help the one-third get benefits."
Would you see the cost recovery adjustment clause set up to capture the difference between cost and market? Kreidler asked. This proposal says we’ll cap the cost recovery mechanism, Litchfield said. That’s not market, it’s something else, he stated. There is nothing wrong with the idea of adjusting rates to market, Litchfield said. To cap the adjustment when you are surcharging others on transmission is not politically sustainable, he added.
The deal has changed, and you need to align the proposals with that world, Litchfield said. People seem to think BPA is a good bet, so locking down the certainty for subscribers is less important than seeing that the benefits are spread more broadly, he stated.
Industries Cry Foul
Paul Murphy, who represents Kaiser, Reynolds, Goldendale, and Northwest Aluminum, said the new draft is an improvement over the original strawman. Given the change in perception about the near-term value of BPA, it is easier to align the risks and benefits of the system, he observed.
We take issue with the contingent cost recovery mechanism, Murphy said, adding that the proposal is "unfair, unnecessary, and counterproductive." He said the proposal is an attempt to preserve the benefits for power customers, while the transmission customers may pay "a tax" without getting any of the benefits. There is enough interest in BPA power to assume that it can be sold without relieving the buyers of all risk, according to Murphy. Individual customers can assess the risks and decide for themselves, he said. There is no reason to turn to a transmission tax, Murphy added.
Why do something that directly misaligns the risks and benefits, if BPA can have contracts that align them? he asked. My reading of the Regional Review is that we go through subscription, and then we ask whether there is a problem, Murphy stated. This proposal is counterproductive because it will intensify the fight over federal power, he suggested. Without any risks internalized in power contracts, there will be even more fighting for power, Murphy indicated.
We urge you not to make this a recommendation for legislation, he continued. If you put this in the Northwest chapter, many players will want to get involved, Murphy said. The Regional Review wanted the region to deal with its own problems, so why take this one to Washington, D.C.? he asked. Let BPA deal with this through its contracting flexibility, Murphy stated.
As for FERC regulation of BPA transmission, Murphy said it is critical that BPA conform to standards of conduct -- "that it not do for itself what it will not do for others." And BPA should be expressly prohibited from subsidizing the Power Business Line with revenues from the Transmission Business Line, he stated. There does not seem to be any reason to allow cross-subsidies, Murphy added. We also have to have fair and nondiscriminatory rates, he said.
Murphy noted that language that prohibits cost shifts is no longer in the draft, and he said it should be. There is the possibility that the magnitude of rate shock could be great, Murphy stated. There has to be a quantification of the magnitude, Murphy said, urging the board to reinstate prohibitions on cost shifts and language that addresses rate shock.
It becomes obvious in looking at the FPA that the issues in applying it to BPA are far more complex than initially met the eye, Murphy stated. There are very complicated questions involved in how you would draft provisions and what should apply, he explained. We think there has to be "a disinterested third party" to oversee transmission rates, Murphy said. As we move forward to figure out what changes need to be made, we might find there is less consensus than we thought, he said. The region should try to draft the provisions here, Murphy added.
Ken Canon of the Industrial Customers of Northwest Utilities addressed what he called "the uniform transmission tax." BPA has 6,300 megawatts (MW) of firm power available, he said, noting that in addition to Phase 1 and 2 subscription customers, there are Phase 3 customers, who are hoping "something might fall through the subscription cracks." There is also a Phase 4 group of extra-regional customers, so there is potentially thousands of megawatts that might want to sign up, Canon observed.
The transmission tax does not align the benefits and risks, he stated. Canon questioned why a cost recovery mechanism should provide for "broad regional participation." For commercial and industrial customers, "it’s nothing they are encouraged about participating in," he said. It does not align the benefits and risks, and it does not avoid cost shifting, Canon stated. Even if there is a provision that the transmission tax is to be repaid, my members have lots of experience in trying to get benefits back from the gas companies, and "it is very, very tough," he stated. Credits don’t mean a lot to us, Canon added.
He pointed out that BPA’s rates could be below market, and yet, it could go through a process to charge others to meet its costs. "That’s not fair, and you won’t be able to sell it in this region," Canon stated. We view the Transition Board as having broader responsibility than looking out for BPA, he said. Drop the tax, have a cost recovery adjustment mechanism that goes to market rates, and go through subscription first to see if there is a problem, Canon advised. If there is a problem, "it is fundamentally bigger than we thought even in the Regional Review," he concluded.
Kreidler pointed out that the credit described in the transmission charge would not go back to individual customers, but to the system. Canon said he understood that it would be a big credit back to the transmission system. But the problem is in getting the credit -- "it’s a huge regulatory morass," he stated.
What about the people who would say that these companies you represent have benefited from BPA? Etchart asked. If everyone had benefited equally, why doesn’t everyone get to buy in Phase 1 of subscription? Canon responded. It’s a matter of the level at which people have benefited, he said. Those people who can subscribe should take advantage of it, but don’t off-load the risk on those who have not benefited, Canon said. Why aren’t you proposing that everyone subscribe in Phase 1? Hemmingway asked. "That engenders a big fight," and the next step is to grow BPA -- we don’t want that, Canon responded. Every other Power Marketing Administration in the country is in a situation where there is not enough power to meet the demand, Hemmingway observed.
Public Power Sees Something to Like
At one time you sought our advice about what you should draft for Congress, Public Power Council Manager Jerry Leone said. Your proposal would be positioned best as "high-level legislative principles," she said, rather than drafted in statute form. The end-product of the board’s deliberations need not be a statutory proposal, according to Leone.
The contingent cost recovery mechanism is much improved from the earlier draft, she stated. She noted, however, that the draft permits FERC to reject a transmission surcharge. There’s a problem here in assuring that BPA can cover its costs, Leone said. The approach also "unwittingly enhances" FERC oversight of BPA’s Power Business Line and could allow for "a backdoor incursion" by FERC, she added.
Leone said the rate adjustment clause could increase uncertainty and reduce the appeal of BPA’s power products. Customers would not know when it triggers or the level of the adjustment, she pointed out. If costs are near market and the adjustment clause triggers, customers could leave the system, Leone said.
As for FERC regulation of BPA’s transmission, BPA’s enabling statutes cannot simply be overlaid with the FPA, she cautioned. Someone would have to comb through the organic statutes before that could happen, and it would be difficult no matter what, according to Leone. She also said that FERC should not be able to mandate BPA’s participation in an Independent System Operator (ISO). Nonjurisdictional utilities will participate in an ISO if it is in their customers’ interests, Leone stated.
You indicated that subscription should go forward, Etchart said. Will it have enough regionwide support -- is it politically tenable? he asked. Yes, we think so, Leone responded. "If all the hogs are at the trough, the delegation can fend off the rest of the country," she said.
Unresolved Issues Delay Federal Power Subscription
PNUCC Executive Director Dick Adams offered the Transition Board a list of topics the Federal Power Subscription Work Group has addressed. The topics are divided into three categories, he explained. A "ü" means the work group either understands the direction BPA is going to go or has talked about the issue as much as it can "and is probably done," Adams said. A "o" means there have been ideas developed, and work is still under way, he continued. There are four issues that are outlined with a large box, Adams pointed out: whether all subscribers will have the same rates for core products; limits on purchases and eligibility; residential exchange; and BPA’s acquisition policy. These issues are intertwined, and no matter how hard we try, when we address them one at a time, we can’t resolve them, he said.
BPA had said it would start subscription in July, but we have now said there will be a brief delay, primarily to give us time to deal with the issues of availability, residential exchange, rate differentiation, and acquisition, according to Syd Berwager of BPA. He explained a chart that shows the four issues as they overlap with one another. All of these questions have to be dealt with simultaneously, Berwager said. We don’t want a long delay -- it’s in our interest to get on with subscription as soon as we can, he added. We also want to resolve the issues of the "slice of the system" product, General Transfer Agreements, and a stranded cost mechanism, Berwager said.
Would you start subscription if you don’t resolve these issues? Hemmingway asked. We have to resolve them before we start, either by regional consensus or by BPA proposing a solution, Berwager said. You will not offer power sales contracts until these are resolved? Hemmingway asked. There are some deals that were waiting to be finalized when presubscription closed, including the Hungry Horse reservation, but nothing more is contemplated, Berwager responded.
Can you assign a probability on BPA resolving these problems? Etchart asked. There are folks motivated to resolve them, Berwager stated, and if they don’t, BPA will develop a proposal. If this doesn’t work, does BPA have the latitude to do things differently than it has in the past? Etchart asked. Yes, Berwager responded, but our chances of doing this without litigation are higher if there is regional consensus.
How willing is BPA to assume the role of coming up with a solution? Kreidler asked. It is in our business interest to move forward somehow, but we prefer regional consensus, Berwager replied. Early next week, we’ll announce a new schedule for subscription, he said. We have to ask ourselves how much time to allow for a regional consensus to develop, Berwager stated.
The flavor of the work group has been for the participants to see if they can come to consensus and for BPA to listen, Adams said. I’ve seen BPA make changes in its thinking that indicate it is listening, he added. Adams reported that the work group has meetings scheduled through August.
Kreidler asked how BPA could sign contracts before a rate case. It would be the same as it was in 1981, Berwager said, when customers agreed to buy at the PF rate established in the rate case. I’m assuming there would be other items that would need to be left blank in the contract, Kreidler said. The stranded cost mechanism would be "left blank," Berwager replied. A year ago, the discussion was about how to deal with stranded costs in legislation, Adams observed, but there has been a shift toward dealing with them through contract mechanisms.
Berwager pointed out that BPA expects "the great majority" of sales to be in the category of "core products," which are full service, firm power block, and partial service. We are not talking about negotiated prices in these, except for customers who want some additional flexibility, he said.
I thought the discussion with the salmon panel was "most intelligent," Jason Eisdorfer of the Citizens Utility Board said. BPA customers have an interest in seeing several issues resolved, he said: a salmon recovery plan; stranded costs; IOU residential access to BPA; and the public purpose role of BPA. If the interests I represent don’t see that we have anything to lose, "I don’t mind going to Congress to get a fix, even if it means the whole region loses," Eisdorfer said.
I’ve suggested for a long time that subscription can’t go on without resolving the residential exchange, he stated. BPA said it would not make contractual commitments in the next two months, Eisdorfer said, and he suggested that the Portland General Electric residential exchange settlement is "a pre-commitment." "I don’t want the system to be divvied up without knowing whether it’s equitable," Eisdorfer stated. BPA’s announcement that there will be a delay motivates parties to compromise, he continued. If there are no contracts until there is a compromise, "this may be our best shot" to get one, Eisdorfer added. I applaud BPA for delaying, he stated. I don’t know if we can do it -- all customer groups will have to make compromises, Eisdorfer concluded.
Baker said he also wanted to thank BPA for calling a delay. "We intend to work with BPA to makes this fruitful," he said. Baker indicated that he has been attending meetings on future fish and wildlife funding and was asked "to put on my thinking cap" about how we can resolve these issues. Either you have a single, unified recovery plan in place, or BPA must keep the options open by not selling power from the dams proposed for breaching, and by building its reserves to a point sufficient to cover all options over the long term, he stated.
If BPA collects revenues to pay for only those costs during the next rate period, "we’ll go off a cliff in 2007," Baker said. BPA needs to be sure to have its reserves high enough to keep all of the options open, he added. Both of these paths are difficult and controversial, but as an advocate for salmon, I’ve found no other way for BPA to go forward with subscription, Baker concluded.
I hope these two months will provide the time to resolve the issues, Weiss said. He indicated that NWEC would be putting out a report on how the region is doing on its conservation and renewables obligation. None of the states, other than Montana, have done much, Weiss said. The utilities "have dropped the baton," not because they are "bad guys," but because they are in a competitive situation, he stated. It’s time to start talking about this, Weiss said, adding that NWEC has a proposal to give a discount in subscription to customers who meet the 3 percent funding for conservation and renewables. It would be like a matching fund, he explained, adding that if BPA’s rates go to market, the discount would go away. It would give those customers who are getting the benefits an incentive to do conservation, according to Weiss.
Council staffer Dick Watson offered a schedule for completing the Northwest chapter for national restructuring legislation. Written comments are due June 30 on the draft contingent cost recovery mechanism and FERC regulation proposals, he said. The Transition Board will seek opinions and do consultations until July 23, at which time it will make a decision on its recommendations, Watson continued. We will also look at the issues that are outstanding with subscription and have a discussion with a panel of Subscription Work Group participants on July 23, he pointed out. The board will have a decision to make about whether it can aid in resolving the subscription issues, Watson concluded.
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).