| Monday, July 14, 1997 | NORTHWEST ENERGY REVIEW TRANSITION BOARD |
NWPPC Conference Room, |
The Northwest Energy Review Transition Board agreed to complete an analysis of transition costs by the end of the year. Consultant Al Wright reported that discussions in the Federal Power Subscription Work Group continue to move along briskly, while the Transmission Work Group may not be ready to draft legislation as early as this fall. Roy Hemmingway brought news from a July 9 Congressional hearing in Washington D.C., and he said the Northwest’s efforts on restructuring compare favorably to what is going on elsewhere in the country. All board members were present; the audience was about 25.
Next Meeting: August 14 in Portland.
Headlines______________________________________________________________
A Proposal to Slow Down Transition Cost Process Surfaces, But Goes Under
Cost Review Management Committee Will Meet in Early August
Tracking the Work Groups’ Progress
Northwest Outdistances Other Regions with Restructuring Plans
ORDER OF BUSINESS_________________________________________________
A Proposal to Slow Down Transition Cost Process Surfaces, But Goes Under
Transition Board chair John Etchart asked for comment on the staff’s background paper on transition costs. Staffer Dick Watson said the paper was released in late June to explain how transition costs have been treated in other jurisdictions. He noted that the paper points out how the Bonneville Power Administration differs from entities that would be covered by the provisions adopted elsewhere. The paper is not intended as a statement of policy, he said.
Watson indicated that the Transition Board is interested in comments on the paper. The Western Montana Electric Generation & Transmission Cooperative, the Pacific Northwest Generating Cooperative (PNGC), and the Direct Service Industries, Inc. (DSIs) have submitted letters. We are accepting comments until the end of the week, Watson said.
Watson went on to explain a proposed schedule for the transition cost process, which extends from June to December. The background paper was released in June, and the next step is to draft principles on transition costs and transition cost recovery, he said. Under the proposed schedule, staff would develop and circulate the principles, and the board would take comment on them at its August 14 meeting. The board would adopt principles in September.
Meanwhile, the schedule also calls for the staff to be developing options based on the principles. The options would be up for discussion at the September meeting, and the Transition Board would take comment on them in October, Watson explained. The options would be followed by development of a "straw" proposal to be presented in November, with consultations in December. In January, we’d see where we are with transition costs," he concluded.
Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment characterized his comments as "a lukewarm endorsement" of the proposed process. He observed that there is clearly "no appetite" for dealing with the transition cost issue in the work groups. It has been "dislodged" from the charge of either group, which "is not a bad outcome," Duncan stated. He said he could "almost" agree with the DSIs that conducting a process on transition costs in parallel with other transition efforts could siphon off energies that are being constructively applied elsewhere. Duncan urged the board to assure that the process takes place in a way that does not disrupt the work groups.
The various interests need to find common ground on the mechanism and allocation of transition costs, Duncan continued. He cautioned that developing principles could make that goal more difficult to achieve, if the process produces "mutually exclusive" principles. Duncan suggested that it might be more constructive to have "a pragmatic discussion" of how things could be done. He encouraged the board to add its voice to that of Deputy Secretary of Energy Elizabeth Moler, who said at a recent meeting that the Northwest could not defer the issue.
Etchart asked Steve Waddington of the DSIs why his letter proposes a six-month period to develop principles. The DSIs submitted a letter that recommends the board "defer its own deliberations on BPA `transition cost recovery’ for six months." Waddington responded that he views the staff’s proposed schedule as "naive." Waddington cited the work that is being done on separating BPA’s transmission from generation. Is that issue more complicated than transition costs? he asked. I don’t think so, but we’ve been working for six months and are now starting to make progress, Waddington observed.
Roy Hemmingway said the region was told in Washington, D.C. that a transition cost mechanism has to be part of a legislative package. The staff’s proposed schedule gives us a chance to put something together that could be submitted at the beginning of the next session of Congress, he pointed out.
Todd Maddock said he is not necessarily holding fast to the proposed schedule, but comments have indicated that "folks are willing to step up and deal with the issue." Mike Kreidler said he would be nervous about the region failing to press ahead aggressively on transition costs. We run the risk in Congress of getting lumped in with the Tennessee Valley Authority (TVA) and others that are not stepping up to the issue, he stated. We need to demonstrate that we’re ready to deal with it and not leave open the possibility that we’ll "stiff the taxpayers," Kreidler continued.
Etchart noted that correspondence to the Transition Board indicates customers are committed to working on the issue. "This is important, and I’m happy to see it," he stated. Etchart said he wanted to suggest the idea of extending the process by 60 days and rewriting the schedule so that it concludes on March 1.
Kreidler said he was inclined to move ahead with the principles and if the schedule is extended, to allow an extra 60 days later during the options component. Hemmingway pointed out that if the schedule is pushed to March 1, "we’ve blown off legislation with this Congress." If we don’t start to put together legislation before March, we can’t do it next session, he stated. Hemmingway said he agrees with PNGC’s reference to the transition cost mechanism as "a last resort." But he said that no legislation would move without the mechanism in place. "It’s part and parcel of everything we do," he stated. We have to think about what we want to accomplish legislatively in the next year, Hemmingway counseled.
Staffer Mark Walker concurred that "the safe bet" is to have something ready for Congress in January or February. He added that Congressional staffers said they want to be working on the region’s legislative proposals early in the year.
Maddock said the goal is to be able to engage the issue when Congress wants to deal with it, and that seems to mean sticking with the staff’s proposal. Etchart concluded that the board’s consensus is to stay on the proposed schedule.
Watson noted that the staff plans to have draft principles out for discussion in early August.
Cost Review Management Committee Will Meet in Early August
Watson reported that comments on the paper outlining the BPA cost review focus on defining the boundary between "what’s inside and what’s outside" the scope. A backgrounder on the review said BPA’s internal costs, including capital and operating costs of the Corps of Engineers, the Bureau of Reclamation, and the Washington Public Power Supply System (WPPSS), would be part of the review. BPA’s business strategy and opportunities for increasing revenues are outside the scope, according to the paper.
Ultimately, the management committee for the review will decide its scope, Watson said. The committee will be made up of the Council’s Power Four, a BPA senior staff person, and four or five people from outside the industry, who have experience in reducing costs within a large organization. We are engaged in discussions with many potential committee members, Watson reported, and he indicated that the committee’s membership could be announced by the middle of the week.
BPA is currently preparing its budget, and the agency hopes that the review will yield some useful information to feed into that process, Watson explained. The primary focus of the cost review is on the 2001-2006 period, he noted. We won’t let the pressures of BPA’s near-term FY 1998 work overwhelm our process, Watson added.
The cost review management committee will hold its initial meeting the first week of August, Watson said. A preliminary scope for the review is being developed and will go out to the tribes and others before that time. Conference calls and consultations during the last week of July will provide "fodder" for the first committee meeting, he stated.
Tracking the Work Groups’ Progress
Consultant Al Wright said participants in the Federal Power Subscription Work Group are working in two major areas. First, they are exploring what services customers are looking for and what services BPA can offer, with the goal of seeing how these match up, he explained. The second area is identifying the type of relationship BPA will have with its customers, including how contracts would be fashioned.
Wright said the group has expressed great interest in cost control on the federal system, and that customers want to be consulted during the cost review. The "good news" is that discussions are moving along quickly, he reported. Throughout the rest of the year, you’ll see progress, Wright told the board.
Etchart asked at what point customers would obligate themselves to purchases. Wright suggested that some bilateral discussions would get under way in late 1998 and early 1999. By 2000, you’ll have a good feel about how many customers will step up, he predicted. Actual obligations will come within six months of 2001, Wright said.
Dick Adams, executive director of the Pacific Northwest Utilities Conference Committee, said by this time next year, the work group aims to have products and prices from BPA. That will mark the beginning of the bilateral discussions, he noted. I’ve heard there may be commitments as early as late 1998, Adams said, suggesting that could signal an earlier juncture for BPA to determine if the subscription process has been successful.
Wright concurred. Some people say that a pile of signed contracts is all that counts, he said, but I disagree. Wright said he thought it likely customers would make strong and predictable indications of what they intend to do.
The Transmission Work Group is no longer dealing with the issue of transition costs, Wright reported. The group’s efforts can be divided into five topic areas, some of which have already occupied a lot of time, while others remain to be addressed, he said. The topics are:
The Transmission Work Group is falling behind on its plan to draft legislation this fall, Wright indicated. He suggested the group may end up with a sequence of legislative proposals, with, perhaps, a 1998 and 1999 component.
Hemmingway observed that there are other players, including the Administration, Congressional committees, and interest groups, that would be concerned about the idea of a sequential legislative package. I’m concerned about "how much stomach" Congress has to take up controversial Northwest issues in a sequence, he stated. We need to be kept in the loop so we don’t get surprised at the end of the year, Hemmingway urged. Wright said the work group would know by fall how they intend to approach drafting legislation.
Etchart said he had heard concerns about transmission pricing, and Wright pointed out that pricing discussions are going on within IndeGO. Staffer Wally Gibson confirmed that IndeGO is doing a lot of work on pricing issues. Among the questions are what to do with the Pacific Intertie, and the impacts of various options on BPA and its customers, he said.
Northwest Outdistances Other Regions with Restructuring Efforts
Hemmingway reported on a July 9 hearing before the House Commerce Committee’s Subcommittee on Energy and Power. Northwest representatives followed panelists from TVA, he said. Congress is more concerned with the $46 billion TVA debt, than with BPA’s $16 billion debt, he observed.
It is important to recognize how much progress we have made, especially when compared to TVA, Hemmingway stated. We face the same questions as they do with regard to the Power Marketing Administration (PMA) role in a competitive market, assuring bond repayment, and recovering stranded costs, he continued. What we’ve done in the Northwest with the Regional Review and the work BPA has done in defining its role is "unprecedented" compared with what’s happening in the rest of the country, Hemmingway said.
Congress’ focus is on TVA and its problems, and "it’s not a friendly focus," he stated. TVA drew fire from the subcommittee for competing with investor-owned utilities, putting bondholders at risk, and trying to get stranded costs from historic customers, Hemmingway said. It was illustrative of what could happen if the Northwest does not have its act together, he observed. Congressman Dan Schaefer, chair of the Energy and Power Subcommittee, said the federal Treasury shouldn’t be seen as a way to bail out the PMAs, Hemmingway added.
What we’re doing here in the Northwest stands out in such contrast -- the subcommittee has been very deferential to what we’re trying to do, he said. We have the opportunity "to create our own destiny," Hemmingway reported. The hearing was largely an update opportunity, and it was favorable to what we’re doing, he 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).