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 |
MEMORANDUM
TO: Transition Board members
FROM: Ken Corum
Seven organizations submitted written comments: Columbia Falls Aluminum Company (CFAC), Columbia/Pacific Institute (C/PI), Columbia River Inter-Tribal Fish Commission (CRITFC), Power Resource Managers (PRM), Seattle City Light (SCL), Western Montana Generation and Transmission Cooperative (WMG&T), and Western Public Agencies Group (WPAG). Comments can be loosely grouped by topic:
Several comments emphasized the high priority of cost control efforts. The comments said that substantial reductions in Bonneville’s costs are possible and crucially important. Success in achieving these reductions would likely make the use of a transition cost mechanism unnecessary. (CRITFC, PRM, WMG&T, WPAG, ) In addition, WMG&T questions whether, given Bonneville’s federal status, a transition cost mechanism could leave Bonneville with appropriate incentive to minimize costs. CP/I suggested that Bonneville could be required to satisfy a third party that it had met cost-control and revenue-enhancement goals before Bonneville could use any transition cost authority, and that the authority could be limited in amount and time.
Staff comment: These comments underline the importance of the cost control process. Since Bonneville doesn’t get to keep profits, the incentive to reduce costs when its revenue requirement is being covered (whether by market prices or by a transition cost mechanism) is weak.
Some parties expressed the opinion (which the Board has also heard in oral public comment) that taking up the transition cost issue now will reduce Bonneville’s incentive to control costs, and will distract customers from constructive negotiations on subscription. (WPAG, PRM). CRITFC supports identifying assets to be considered stranded and collecting their costs with transition cost recovery mechanisms, arguing that the remaining power generation costs will be lower and easier to subscribe.
Staff comment: The issues raised by the commentors are very real concern. At the same time, the Transition Board must be responsive to the desires of Congress and the administration to see the "whole package" before they will approve of individual parts. Staff will develop time lines for the critical elements of a legislative/administrative package to determine when transition costs are best addressed.
Several parties referred to features of Bonneville’s situation that are different from other entities facing potential transition costs.
PRM mentioned Bonneville’s relationships with WPPSS bondholders, net-billed participants as examples of such unique features of Bonneville’s situation that must be taken into account.
WPAG said that while the usual basis for stranded cost mechanisms is that a formerly-monopoly utility is being exposed to increased competition, Bonneville has never had a monopoly like most utilities enjoyed. As a result, WPAG’s view is that Bonneville lacks the usual rationale for transition cost recovery. In addition, WPAG commented that because of limitations in the FERC’s jurisdiction over Bonneville and provisions in Bonneville’s power sales contracts with its customers, Bonneville’s ability to collect any transition costs from its customers is quite limited.
SCL comments also touched on the definition of transition costs. In their view, stranded costs are unrecoverable costs resulting from exposure to unexpected competition because of a change in law or regulation. Though SCL didn’t draw the conclusion, this definition could be interpreted to mean that Bonneville revenue shortfalls, should they occur, would be something other than stranded costs, by the same reasoning as WPAG.
Staff comment: WPAG’s and SCL’s comments may be at least partially accurate without changing the fundamental nature of the problem we face. Bonneville’s situation may not completely fit into the general definition of stranded costs, though staff would argue that BPA is exposed to more competition because of FERC 888/889 and even deregulation of natural gas. Either way, the underlying problem of who covers any losses by Bonneville remains. Even if Bonneville’s situation didn’t come about in the same way as an IOU’s stranded costs, if Congress is disinclined to let Treasury absorb the losses, then we need to think about how the region should deal with them.
PRM commented that consideration of a transition cost mechanism would need to take account of its effects on the competitiveness of the market.
Staff comment: The paper pointed out that transition cost recovery need not be anti-competitive. It isn’t clear whether the bullet in the background paper ("Transition costs are generally to be recovered in ways that will least distort competitive power markets") satisfies PRM’s concern, or whether they would make other specific recommendations.
PRM, C/PI, CRITFC and CFAC commented on the allocation of transition costs. PRM thinks that all ratepayers have benefited from the federal system and should pay their share if transition costs exist; PRM also would separate "costs undertaken on behalf of customers and those costs added onto the federal system by other, such as the federal government." CRITFC also advocates making a distinction between costs undertaken for different purposes; CRITFC would allocate the costs of non-productive assets to parties on whose behalf these investments were made. C/PI described allocation alternatives that included a charge to every party that touches the regional transmission system (not just BPA’s transmission, based on a concept of regional responsibility), and a more narrowly-targeted charge to historic beneficiaries of the Bonneville system. CFAC thinks that in contrast to its statutory obligation to serve public agency customers, Bonneville has had no obligation to serve the DSIs. It would follow that Bonneville would not have the same expectation of collection of transition costs from DSIs as from public agency customers.