Northwest Energy Review Transition Board
Recommendations for
Federal Energy Regulatory Commission Regulation of Bonneville Transmission
Introduction
For the past three months, the Transition Board has listened carefully to the comments of various interests on the staff?s "strawman" and the Board?s own draft proposals for Federal Energy Regulatory Commission (FERC) regulation of Bonneville transmission and a contingent cost recovery mechanism or, as it is frequently called, a "stranded cost" mechanism for Bonneville. Based on our consideration of those comments and our analysis of the issues, we believe that the following recommendations on FERC regulation of Bonneville transmission represent a workable resolution of the issues. We intend to set this section aside and seek no further public comment on this topic.
We are continuing work on the contingent cost recovery proposal. We intend to reach a final decision on recommendations on that subject by mid-September.
Background
The Comprehensive Review recommended that Bonneville be "legally separated into two organizations ? a power marketing organization ... and a transmission organization." The Transition Board formed a Transmission Work Group to explore the issues and suggest the best path to separation of Bonneville into power marketing and transmission entities.
The Transmission Work Group examined various forms of separation. It considered such issues as risks and complexities of pursuing legislation, perceived impacts on the security of WPPSS bonds, and assignment of Bonneville?s current treaty obligations. The group eventually decided that the most practical option is functional separation of Bonneville?s two business lines, the power business line (PBL) and the transmission business line (TBL). It recommended regulation by FERC of the TBL that is "equivalent" to FERC?s regulation of transmission owned by the investor-owned utilities (IOUs). The work group found considerable agreement on the appropriate features of FERC?s regulation of Bonneville, but did not reach consensus on all aspects. These recommendations by the Transition Board include the Board?s policy judgment on those non-consensus aspects, with assignments to staff to determine appropriate implementation of that policy judgment.
Recommendations
1. FERC?s authorities over Bonneville should be based on Parts II and III of the Federal Power Act.
2. Section 201 of the Federal Power Act should be amended to make it clear that FERC?s authority under the Federal Power Act is limited to Bonneville?s transmission. Except to the extent that FERC may be given authority over Bonneville?s contingent cost recovery, there should be no expansion of FERC authority over Bonneville power costs.
3. Bonneville should be excluded from the FERC?s authorities under sections 204, 207, 209, 214, 302, and 305 of the Federal Power Act and that section 212(i) be repealed.
4. FERC?s tools to enforce its authority over Bonneville should be based on sections 307, 314, 315 and 316. The Board recognizes that these sections may require some modification, and has assigned staff the task of examining these sections to determine how they should be modified.
5. Legislation should include a provision that makes clear that the new authority given to FERC supersedes any conflicting provisions in Bonneville?s organic statutes. To help avoid confusion as to the intent of the legislation, the Board has assigned staff the task of examining the organic statutes to identify provisions that should be repealed or amended to avoid subsequent argument over implementation of the FPA.
6. Total recovery of Bonneville?s transmission costs should not be compromised. Generally, FERC should apply the "just and reasonable" standard to Bonneville?s transmission rates. However, Bonneville has no stockholders to absorb losses, so FERC cannot disallow recovery of Bonneville costs already incurred at the time of any such FERC process.
7. Nothing in FERC?s regulation of Bonneville should adversely affect Bonneville?s priority of payments or the security of its third party debt.
8. The environmental obligations of federal and non-federal users of Bonneville?s transmission (e.g. to control nitrogen levels at hydro projects by generating to avoid spill) sometimes require access to Bonneville?s transmission. To the maximum extent possible, users should obtain this access and pay for it through a normal open access transaction. In rare instances, open access transactions may be inadequate to assure access. In those rare instances, the users will require priority access, with equitable compensation determined by an after-the-fact mechanism.
9. The redefined authority of FERC should apply only to transmission tariffs and other transmission matters proposed by the Administrator to be effective on or after October 1, 2001.
10. Bonneville should be permitted to join a FERC-regulated independent system operator. Currently the participation of investor-owned utilities in ISOs is voluntary. The issue of mandated participation in ISOs is under discussion at FERC.
11. FERC hearings on Bonneville transmission rates should be held in the Pacific Northwest.
Next Steps
The Transition Board has assigned staff to examine sections of the FPA, and sections of Bonneville?s organic statutes, to identify specific changes to help implement the recommendations above. In addition, it has assigned staff to develop draft legislation in consultation with regional parties and legislative staff. This draft legislation should be ready for regional review before January 1999.
Discussion
Legislative starting point
Two alternative legislative approaches to FERC regulation of Bonneville were discussed in the work group. One was based on Bonneville?s "organic" statutes, [ These include the Bonneville Project Act of 1937, the Flood Control Act of 1944, the Regional Preference Act of 1964, the Federal Columbia River Transmission System Act of 1974, the Northwest Power Act of 1980 and others.] with amendments to these statutes as appropriate to redefine FERC?s authority. The other approach was based on the Federal Power Act and FERC?s authority over investor-owned utilities, with appropriate modifications to reflect Bonneville?s special circumstances. While it should be possible to come to the same definition of FERC?s authority by either path, the work group could not agree on which path to take.
The Transition Board?s recommendations start with FERC?s authorities in Parts II and III of the Federal Power Act, with modifications for Bonneville. We could arrive at the same definition of FERC?s authority by starting with Bonneville?s organic statutes. This approach, however, will make it easier to demonstrate to the rest of the country that Bonneville?s transmission system is subject to regulation that is fundamentally the same as for other transmission systems elsewhere. The Transition Board also believes it is more consistent with FERC final authority for FERC to be interpreting its own statute than Bonneville?s statutes, however modified.
Bonneville differs in several important ways from the utilities FERC currently regulates. Consequently, the transmission work group identified a number of exceptions to the usual application of the FPA that take Bonneville?s unique character into account. The Board has included these exceptions in its recommendations, above.
The Board also recommends including language that makes clear that the applicable provisions of the FPA supersede any conflicting sections of Bonneville?s organic statutes. Even given such language, there is some possibility of dispute as to the scope and effect of the application of the FPA. The Board has directed staff to search Bonneville?s organic statutes and propose changes to those statutes that would avoid such dispute.
Process
While the Transition Board is recommending substantive changes in the standards for FERC decisions, it is recommending very little change in the decision process. The differences in standards for FERC regulation of BPA, compared to its regulation of jurisdictional utilities, are included in the list of recommendations, above. The Transition Board?s proposed process for FERC review of Bonneville transmission rates is intended to be identical to that followed for investor-owned utilities, except that hearings on Bonneville rates would be held in the Pacific Northwest. The result should be a process that is familiar to FERC and clear to the participants, with clear direction at those points where regulation of Bonneville is different than regulation of investor-owned utilities.
The following summarizes the existing Federal Power Act process for filing, approval and appeal of Bonneville transmission rates, terms and conditions, with slight modification.
1. Bonneville conducts a regional negotiation to gain a settlement, if possible, on transmission rates, terms and conditions. As is the current practice, in its proceedings FERC would give substantial weight to settlements at any stage.
2. Bonneville files its transmission rates, terms and conditions with FERC.
3. FERC may accept or reject the filing, or order a hearing. Hearings are conducted by a FERC administrative law judge in the Pacific Northwest and result in an initial decision by the ALJ.
4. FERC considers the ALJ?s initial decision and record and briefs from Bonneville and other interested parties, and issues its final decision on rates.
5. Bonneville (and other parties) can request a rehearing with FERC.
6. Bonneville (and other parties) can appeal FERC?s decision to the Circuit Court of Appeals (Ninth Circuit or District of Columbia Circuit). The court reviews FERC?s order.
7. Given that Bonneville would be appealing another federal entity?s ruling, BPA should be allowed to provide their own legal representation.