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Summary of Comment

Phase One of the public involvement program in Washington State consisted of a series of public meetings, focusing sequentially on a series of interest groups. Its format revealed wide differences among those groups. The meetings also underlined the interconnected nature of the system -- physically, economically, and legally.

Despite their differences, the parties in the State expressed a near-unanimous faith in the efficacy of competition and market forces. And even with their differences, they have definite ideas about what they want in a future Northwest energy system.

Values

LOW COST: At least initially, there is widespread agreement that electricity costs will be low as a result of the move to a more competitive market. Some view this almost as a right; others see it as a direct result of competitive forces. There is also strong support for the concept of maintaining long-term, low-cost power by investing in least-cost resources.

Several participants expressed a desire for something more than lower costs. They foresee better service and increased value as the highest benefit of competition. New products and services, they hope, will raise the value received by consumers from the energy system.

INCREASED EFFICIENCY: Although they see the mechanisms differently, almost all parties expect more efficiency from a competitive system. Some predicted that producers would forsake inefficient powerplants and practices, making electricity a better buy. Others expect suppliers using inefficient business practices to fail if they could not or would not compete. The remaining suppliers would behave better, from the consumers' standpoint. Many express fear, however, that regulatory protections would be removed before competition is in place, leading to unregulated monopolies.

Similarly, many parties expect more efficiency in the use of energy, principally the result of increased competition for market share and for consumer products. They see customer choice yielding more efficient utilization of electricity.

As a direct result of lower prices, increased efficiency, and tailored service, parties expect meaningful growth in the Northwest economy.

PUBLIC PURPOSES: Parties value highly the public purposes associated with and affected by the Northwest energy system. The problem is that they do not agree on what those purposes are. Among those that were mentioned:

Fairness/Equity -- A sense that all consumers would share in the costs and benefits of the Northwest system.

Environmental protection -- A belief that global warming should be addressed in the Northwest; a desire to restore fish runs; a desire for clean water and healthy air.

Conservation and efficiency -- Investments in least-cost strategies would keep long-term costs down.

Non-power uses of the river system -- Support for fish, irrigation, flood control, and transportation.

Rural customers -- One of the reasons the Northwest was electrified was to support agriculture, and that goal should remain important.

Low-income assistance -- Support for all persons to receive the benefits of electricity, which has become an essential element of life.

Structure

CUSTOMER CHOICE: Parties were not unanimous about the extent to which the future market should be structured in a way that allows retail competition. Supporters believe that consumers' ability to choose among supplies and suppliers will improve the quality and service they receive with their electricity. In their view, providers will constantly offer better proposals, and they will benefit from the pressure to improve. Simultaneously, they see that pressure instilling creativity among providers, and they foresee changes to the institutions so that providers can bring new products and services to market.

Those who do not favor retail competition are skeptical whether retail competition will offer universal benefits, as opposed to merely transferring costs from one class of consumers to another. They are also concerned about too many changes to the structure happening to be beneficial.

Publicly-owned utilities, residential ratepayers and industrial customers spoke in favor of retaining local control of the utilities. Many of them, but not all, favor the public utilities' being able to choose either Bonneville as a sole supplier or another source.

ELIMINATE SUBSIDIES: Almost all participants urged the elimination of all subsidies. There was wide variation, however, on what constitutes a "subsidy." At the various meetings, numerous descriptions were received of what a "level playing field" should look like. Many commenters, but not all, expressed caution about eliminating cost allocations that were meant to promote or encourage particular societal benefits.

Questions of desirability aside, competition is likely to make visible any special cost allocations -- whether subsidies or not. Then conscious choices can be made about the benefits and drawbacks of continuing those allocations.

BONNEVILLE POWER ADMINISTRATION: Parties seem to have a love/hate relationship with BPA. "It's too big; it's too slow; we don't know what we would do without it; it's unresponsive; it has changed the Northwest for the better; we hate it; we want to keep it."

Almost all believe that Bonneville's transmission responsibility must be separated from its power marketing functions in order to bring the advantages of competition to the Northwest. They point out, however, the benefits of continuing the transmission function under a single operator. Similarly, many pointed out the benefits of coordination of the river system for power and other uses, implying some close cooperation among those operating facilities on the system.

A few commenters saw conditions under which BPA could be an effective competitor in the Northwest, bringing the benefits of competition to the region. These included eliminating the "unnatural advantages" it enjoys as a federal agency: tax-free operation, access to low-cost financing, and practices that are not subject to anti-trust provisions.

Several saw removing Bonneville's authority for resource acquisition as beneficial. They believe that Bonneville could serve effectively if it returned to its historical function of transmission and coordination alone. There was virtually no support, however, for selling the federal generating resources under BPA's control.

Process

Although parties were not unanimous, most believed that the transition to a more-competitive market should occur for all customers simultaneously. They compared the change to a country's switch from left-hand driving to right-hand driving, and observed that no country switched the trucks one month and cars the next.

Those who spoke about the duration of a transition period hoped that it would be relatively short -- one or two years at most. In their view, customers and suppliers will adjust much more quickly that way, there will be less disruption, and the benefits of competition will accrue sooner.

Many expressed reservations about premature deregulation, i.e., before competitive forces are in place. They desire some type of check and balance on the behavior of monopolies. The preferred check is some form of price regulation of monopolies.

Some commenters suggested the Northwest Power Planning Council could fill that role, after restructuring. Most, however, questioned the need for central planning by the Council, particularly as Bonneville becomes less dominant. On the topic of fish and wildlife expenditures, commenters suggested that the Council could continue making a contribution but must be held accountable for results of fish restoration and other non-power efforts.

Summary of the Process

Phase One of the state of Washington's public involvement program included eight meetings, organized around particular interests. Each meeting was "targeted" to a particular segment of stakeholders in Washington, although all meetings were open to the public.

Notification of the meetings occurred primarily via direct invitations, as well as outreach by individual organizations. Altogether, about 400 people attended the meetings. In addition, commenters submitted written remarks.

A number of Steering Committee members were able to attend some of the meetings, to hear directly from those making presentations.

Meetings were held in the following locations:

Organized labor, in Olympia February 8

Investor-owned utilities, in Spokane during the afternoon of February 1

General public, in Spokane in the evening on February 12

Industrial customers (non-DSI), at SeaTac Airport the afternoon of February 13

General public, at the University of Washington the evening of February 13

Public utilities, in Olympia the morning of February 14

Public utilities, agricultural interests and transportation businesses; in the TriCities the morning of February 23

Direct service industries, in Portland the afternoon of February 27

Meetings typically began with a short presentation on the conditions leading to the Comprehensive Review, its charge, and an outline of Phase One of the public involvement program. The remainder of the time, usually two or three hours, included testimony and less-formal discussion of the issues important to that stakeholder group.

The following sections in this report summarize the comments which were gathered during this phase of the public involvement process.

Organized Labor

Fourteen people attended the public involvement meeting on February 8, 1996, including seven representatives of organized labor. Three Steering Committee members were also present. Flooding conditions limited attendance.

The representatives emphasized the importance of working together to address various aspects of the problem. They noted that their members rely on strong industries, particularly Direct Service Industries (DSIs), for their employment and that the industries require highly reliable transmission and long-term rate stability in order to make investments and upgrade their facilities in the region. Reliability is highly valued by the DSIs.

They also emphasized that their members were also residential ratepayers, who are concerned about their electricity bills.

Those who work directly for Bonneville Power Administration fear the consequences if BPA is sold. They have witnessed how some industries have eliminated jobs and rewritten collective bargaining agreements after mergers and acquisitions. After layoffs in the timber industry, labor has participated in a habitat restoration program by instituting apprenticeships; perhaps a similar program could be instituted if jobs are lost due to deregulation and competition in the electric utility business.

A non-labor attendee accentuated the need for leadership and long-term vision. He noted the importance of accepting the moral obligation to watershed and wildlife preservation and restoration. He pointed out how people would willingly pay more for BPA power to meet its obligation to the environment if they believed in that acceptance. He extended the sense of obligation to pay for the WPPSS plants. These are all undertaken with a view to long-term and big-picture benefits for all.

On the question of loyalty to BPA, relative to retail wheeling, representatives pointed out the value that some large loads bring to the system. They are opposed to retail wheeling for its destabilizing influence. In California, retail wheeling led to downsizing and layoffs by businesses seeking to insulate themselves from changes and the unknown.

BPA has already been threatened with sale and/or debt restructuring, and the idea is likely to return. Regions that "get their act together" will be more likely to determine their future. If the Northwest delegation is not united, we will not have a chance to move beneficial bills, and we may not even kill bills that would be inimical. The big picture includes standing together against ideologues and budget hawks from other parts of the country, perhaps swallowing hard and accepting the responsibility ourselves to discharge the WPPSS debt. "We can't keep Grand Coulee if we don't pay for WPPSS."

Participants acknowledged that this would be a struggle, but would be worthwhile. Some noted that we are already paying now, and that the obligation is not permanent. They noted that customers and utilities can get a better price than Bonneville's in the short-term, but that it would not be beneficial in the long-term.

Representatives remarked on the problem of water over-appropriation, citing the need to wake up to the problem. Watercourses that used to feed rivers in the past do not flow any longer. Further irrigation in the Hanford Reach or farther upstream removes water for generation, requires more electricity, and removes water needed for other river uses.

Another participant noted "cost-effective conservation is still important."

Investor-Owned Utilities

The meeting specially aimed at gathering input from investor-owned utilities (IOUs) was held in Spokane on February 12, 1996. Fifteen people attended, mostly representing Washington Water Power (WWP) and Puget Sound Power & Light. In addition representatives for the Public Power Council, an independent power producer, Bonneville Power Administration, Seattle City Light, Kootenai Electric, the Washington State Energy Office and the Bureau of Reclamation were there.

Two themes emerged early in the meeting: the IOUs believe that Bonneville Power Administration -- or any other federal agency -- should not be part of a competitive retail market and should not acquire resources for the region; and that the region will be better off with wholesale competition.

Bonneville is thought to have too many artificial advantages over a privately-owned company to allow it to compete at retail: it does not pay taxes, has access to low-cost financing, is not regulated as to rates, and is not subject to anti-trust statutes.

The transmission function, they said, should be performed by a single entity legally separate from the generation function. It should continue to be a monopoly, regulated by the Federal Energy Regulatory Commission. BPA could be that monopoly entity, but only with the proper amount of oversight. In their view, any provider should have easy access to the transmission system. Both IOUs acknowledged the complexities of restructuring debt incurred for historical obligations which would be required by such an organizational restructuring. They expressed the belief that a regional transmission grid serving the entire Northwest could be operational within five years.

If Bonneville were to be part of that system, it might be structured and empowered similarly to the BPA before the Northwest Power Act was enacted, with its focus on operating the transmission system only. Washington Water Power indicated a preference for a different body taking responsibility for administering social programs , for conservation and renewables, and for fish and wildlife restoration. He pointed out that the Northwest Power Council is for accountable for these functions. Both utilities expressed their preference that the Review limit itself to examining Bonneville and its structure.

Neither utility expressed interest in purchasing the federal generating facilities, but pointed out that the Bureau of Reclamation and Corps of Engineers could auction output to wholesale providers.

With respect to regional preference, one participant expressed a need to relax the preference, as part of the general move to fewer political constraints on the system and as a means of increasing BPA's wholesale competitiveness.

Similarly, the obligations placed on BPA by Congress for social programs should be relaxed so that, after a transition, the programs would not be performed by a federal transmission agency. The exception to this might be fish and wildlife protection programs. Administration and funding for these programs might be moved to a new Northwest Power Planning Council, which could be held accountable for the costs and results of the program.

Neither utility thought that functional unbundling of Bonneville's functions would be sufficient to realize the benefits of competition. Just as FERC is requiring that private utilities legally separate their transmission and marketing functions, Bonneville should do the same.

Both utilities see reliability as the key to customer satisfaction. If there is a problem, customers will shop for a new supplier. Competition should work to maintain reliability at a sufficiently high level. State regulators may retain some power over this function, setting minimum levels reflecting society's desires.

Closely related is the concept of obligation to serve. Both utilities expressed the view that customers' being able to leave a retail supplier changes the obligation to serve if that customer later returns and wants service. There are costs associated with the leaving, and it doesn't make sense to ignore those.

In response to a question about what will protect isolated, more-rural customers, they pointed out that the physical connections, and therefore the costs, of serving these customers are already in place. The investments are pretty much recovered. The problem, which is a big one, is with "cherry-picking" by competitors. Investments were made to serve all customers in a system, and costs were spread over the entire system. With competition, niche markets are available.

Individual, residential customers may take advantage of the competitive market by accessing aggregators, or by demanding a base tariff. In general, however, the percentage of disposable income going to pay electricity bills was seen as too low to be a major problem. Where "lifeline" rates are thought to be needed, they might be part of a welfare program instead of a utility program. The costs for this program might put a utility into a non-competitive position. The transition to retail competition will take years, and this issue can be addressed during the transition. It should be decided by elected representatives.

The utilities emphasized that stranded costs from nuclear plants are being covered by the region and that no special mechanism is needed. They have each written down their own investments and feel that they have done their share. Their costs were not shared by Bonneville or the region. In addition, the allocation of costs for the joint investment for WNP-3 were settled; the matter has already been addressed.

These utilities' view of the DSI contracts is that BPA responded to a competitive situation in a manner that allows BPA five years to become leaner and more market-oriented. It is now turning to the public utilities and negotiating to keep them as customers during the transition, while competitors are already offering lower-cost supplies.

There may be instances where the overall model the Steering Committee recommends does not fit exactly for everybody, as with smaller utilities. They urged treating these instances as isolated situations, instead of distorting the whole system to accommodate these smaller utilities.

In response to a question about how to structure the future system in order to foster innovation in providing services beyond kilowatt-hours, the utilities re-emphasized their belief that a federal agency has size and resource advantages that should disallow it from competing to provide those services.

The utilities took different positions on whether Bonneville should be competing in the wholesale market. Puget opposes any federal agency in a competitive market; WWP is willing to let BPA expand in a controlled manner, perhaps in California in order to solidify its revenue stream. Within the region, its responsibility should first be restricted to the basic function of transmission -- dropping conservation/renewables funding, any other resource acquisition, and the subsidy represented by the "fish cap."

They speculated about what a for-profit marketer would do as a regional transmission provider. Some sort of cooperative would be an interesting structure to explore. The question would be what value would be added if the provider worked for a profit. One utility related the story of how it advertised for bids for a painting job in its own name. Subsequently, it advertised the same job in the name of a subsidiary. The bids in the second case were 40% lower. This illustrated how the structure can determine how well the benefits of competition are captured. It could be that a federal entity as wholesale provider would not achieve all the benefits available.

Public Interest Meeting in Spokane

The meeting, held in the Public Library in Spokane, attracted fifty-six people. Fifteen testified formally, and several others spoke from their seats.

The comments extended across a wide range of topics. One theme echoed by many was the need to protect salmon and other wildlife as a central value of the regional power system. Equally popular was the theme of ending all subsidies associated with electricity or other uses of the river system.

One speaker recommended a publication, River of Red Ink, which examines the costs of federal practices vis-à-vis the hydroelectric system in the Northwest. He asserted that the federal agencies have given away resources through subsidies and "sweetheart deals" which, if allowed to continue, would prevent the Northwest from achieving the goals that Governor Lowry set out at the kick-off meeting of the Comprehensive Review. This speaker was particularly rankled about new BPA contracts with aluminum smelters, which freed the smelters from paying their share of WPPSS debt.

Another speaker expressed concern that deregulation would lead to abandoning programs that have protected the environment and our social fabric. Although demand-side management is positive and achievable, it would be a victim of competitive pressures that do not value long-term cost-effectiveness. Numerous speakers supported investments in energy efficiency programs.

Another value expressed in the meeting was to protect lower-income consumers from any loss economically or politically, compared to the present system. Speakers asked that a guiding principle of the Review be to ensure that low-income people end up no worse-off that they are now.

Several speakers voiced a preference for keeping BPA as a monopoly provider at the wholesale level, so that the region would have the economic advantage that it presently enjoys.

Several other speakers stated emphatically that all consumers should share in paying the debt for WPPSS projects. They saw payment as a matter of accountability.

In addition, they indicated a willingness to pay slightly more in their electricity bills for "green power" and for saving salmon. They were unwilling to pay more in order to subsidize aluminum smelters or to irrigate the desert. The effects of continued reliance on fossil fuels and their contribution to global warming were worries expressed by a number of speakers.

With respect to the scope of the Steering Committee's work, a number of speakers indicated the belief that it must extend beyond to Bonneville to all the entities that are part of the electricity supply picture -- the Corps of Engineers, Bureau of Reclamation, investor-owned utilities, and public utility districts.

Several speakers pointed to the usefulness of public utilities as yardsticks to measure the performance of private utilities.

Industrial (Non-DSI) Customers

Industrial Customers of Northwest Utilities participated in the Comprehensive Review's public involvement program the afternoon of February 13. Thirty-one people attended.

Although they expressed a variety of points, parties emphasized two points repeatedly: the need for direct access to transmission and a deep faith in the power and wisdom of the marketplace.

Direct access is the number one goal of these industrial customers. They point out that they compete world-wide, and that access to low-cost power is essential to keep Northwest industries competitive. One participant shared that his company will introduce state legislation to allow retail competition in electricity.

In the case of natural gas, participants stressed the result of competition to be lower rates across the board. Direct access would allow ultimate customers to choose their own suppliers, producing lower prices, increased value, and more efficiency. They will receive better service and responsiveness from other providers, both utilities and non-utilities. In view of the advantages to be achieved, these commenters encouraged a relatively short (one- to two-year) transition to a competitive marketplace for electricity.

A number of these industrial customers observed that their publicly owned utilities provide better service and more responsiveness that private utilities. They expressed a strong preference for the open attitude which public utilities displayed, seeing it as a sign of a competitive spirit.

Representatives urged the Review to have faith in customers. Competition will raise the value to all consumers. They expressed the belief that a free market would serve all customers and would be self-regulating. The belief extended to several categories:

The industrial customers question why our society allows electricity to continue being marketed by a monopoly. It is simply a commodity. Retaining the monopoly detracts from customer service and stifles innovation. They believe that the benefits of consumers' making choices are far larger than the costs of a few bad choices. Electricity providers need to get close to their customers and see the benefits of meeting their customers' choices. This concept, they say, could be applied to the Bonneville Power Administration.

In addition to the two major points described above, the participants made a number of other points.

With regard to conservation, they understand that the best conservation projects are already done. However, their local utilities say they must do more, because it is in the Plan. The industries say that conservation funding does not fit into their circumstances or timing. They see further funding as a tax on electricity, where the utilities collect money from consumers and give it to Bonneville, which then allocates it to utilities to finance conservation projects. Instead, participants would prefer to make the investment directly, based on value to them.

With regard to the question of unbundling vs. divesting utility functions, participants see divestiture as the ultimate outcome. They question what will happen to the power marketing function at BPA, particularly the question of when -- at what percentage -- a power marketer has monopoly power.

Regarding generation, the industries recalled fondly the time before the Regional Power Act and before Net-Billing, when BPA marketed federal power and did so well. Bonneville is ill-suited, in their opinion, to acquiring generation. The system should be simpler; the organization flatter. Perhaps the generating function should be privatized.

With respect to stranded assets, the industries emphasized their experience with shutting down plants. They are unable to pass on such costs and do not feel that utilities are entitled to recover the costs of what they term "bad investments." Furthermore, they do not differentiate whether plants were begun with regulators' blessings or orders -- the consumers did not make the decision. In their view, between two parties (consumers or utilities), the issue of who controls the cost and decision rests squarely with the consumer. In addition to assigning responsibility fairly, such a choice will result in better, more prudent decisions.

The issue of stranded asset costs should not be joined until all other costs are wrung out of the system; industrial customers question why BPA is still contracting for uneconomic wind power at 35 mills/kWh but trying to assign WPPSS costs to consumers.

Industrial customers believe that the test of cost-effectiveness should be made against supplies available in the market in the present. The test should not be made against a new powerplant.

On the issue of system benefit charges, the industries find it incongruous that utilities are threatening to impose "exit fees" for investments that did not work before and a transmission charge for new investments that are not cost-effective [as measured in the previous paragraph]. The discipline of the marketplace will present obvious answers.

Where the market is imperfect, they urge addressing the instant problem, e.g., poor information, instead of building a structure to substitute for the market. Those imperfections are minor and can be solved with ad hoc measures.

Questioned about the use of special rates for certain customer classes, the industrial representatives argue that subsidies distort markets and should be ended. The best way to wean people from subsidies is abruptly. Innovation and creativity will result.

Public Interest Meeting in Seattle

Approximately 150 people attended the meeting set for members of the general public February 13 at the University of Washington. The meeting began at 7:00 PM.

People expressed many thoughts, and the most-often cited included the following six principles:

Comments supporting the "clean energy" theme include reference to the report issued last December about global warming. The speaker felt that the Northwest's moving to increased use of natural gas to generate electricity would exacerbate this problem. Another speaker noted that economics favored use of natural gas and existing coal-fired powerplants, which in his view would be a poor outcome. Several speakers expressed concern not only about global warming, but also the effects of air pollution close to their homes.

Many people supported restoration of salmon runs to earlier levels. They wanted fish and energy both to be fostered and linked in the future system. Not funding fish restoration efforts fully would amount to subsidizing irrigation, barging and power production -- a form of welfare, in this view. The supporters of this view see fish losses being socialized and benefits of the system being privatized.

Several speakers recommended a new report, "River of Red Ink," which they characterized as exposing and quantifying the numerous subsidies presently embedded in the system. They pointed out that subsidies may be used for certain purposes that society wants to support, but that many of these had outlived their usefulness. Then, the subsidies distort the market without producing a public benefit. For example, other speakers pointed out that the system presently results in running Washington Public Power Supply System Nuclear Plant 2, even though its operating costs alone are higher than the market price of electricity being sold today. Instead of raising rates, these speakers urged, end the subsidies.

For many speakers, the system's producing "public purposes" was a key consideration for the future. They saw using the hydro system for the benefit of the public-at-large, in particular the natural systems that are part and parcel of the river.

Even more commenters expressed the desire for fair rates in the system. Each class of customers, they said, should pay the full costs associated with serving that class. They particularly supported as equitable the concept of not off-loading costs from other classes onto captive residential customers.

A number of speakers noted that the market does not serve all the purposes the public may wish that it did. In response, they suggested, the public should include regulations which would capture and deliver those public purposes.

On a related topic, it was suggested that the system be designed around three principles: accountability, the rigor of Integrated Resource Planning, and limited regulation to accomplish long-term and public purposes that the market alone would not achieve.

Representatives of low-income groups emphasized that parts of society cannot afford their electricity bills. Simultaneously, Congress is cutting assistance programs and programs which finance conservation measures that could help these people.

Another suggestion was that the future system should have designed into it a dispute resolution process, so that the system could proceed without expensive and frustrating lawsuits.

Several people recommended that conservation should be the top priority of the new system, because it produces energy without pollutants. The same speakers were concerned about global warming, and they went on to suggest that renewable resources should be substituted for fossil fuels wherever possible.

Finally, several speakers want the Power Planning Council to "have more teeth" to end subsidies, fund conservation and renewable, and restore salmon runs.

Public Utilities

WESTERN WASHINGTON MEETING

Seventy-two individuals representing publicly-owned utilities shared their suggestions about the future of the Northwest energy system at a meeting in Olympia the morning of Valentine's Day. They came from public utility districts, municipal utilities, mutuals and cooperatives. Several submitted written comments.

They testified on a variety of topics, and almost everybody joined in an informal discussion. The chief issues were the following:

Quite a few utilities expressed their desire to keep BPA's low-cost power available to them, particularly the more rural entities. Their rationale includes the position that they have funded the public dams for decades and see themselves as a kind of vertically integrated system, lashed tightly to Bonneville. They are so tightly lashed, however, that some feel they are a captive of BPA. They see new competitors "cherry-picking" customers, so they also want the freedom to access alternative suppliers.

Some public utilities feel they have little room to compete, particularly those with almost all residential customers; they are typically sparsely populated. To remain competitive, they need lower-cost supplies but fear that BPA will not be competitive. Nevertheless, they feel a loyalty to Bonneville and asked the Review to help keep BPA's rates low, so that the status quo can be preserved.

The utility representatives described various elements of a competitive environment, including their view that the market should drive the amount of conservation in the system. Many testified that the region should retain the postage-stamp rates presently in effect, particularly for the full-requirements customers. Some of the most remote utilities pointed out that they would not have power if it were not for postage stamp rates. They believe that they have paid into the Northwest transmission system for decades, and they resent low-cost power's being sold in California instead of benefiting the Northwest's rural people. In their view, they are entitled to BPA's power. Although some will loyally stay with Bonneville, others will leave, and their costs will fall heavily on those utilities that stay.

The view of remaining loyal was not unanimous. At least one utility admonished the others to "get out of denial" about the arrival of competition. Customers want lower rates, and that means diversifying suppliers. In this view, competition will not destroy BPA. It needs to restructure itself to compete, however, so that it can respond positively to the new developments.

Participants had strongly held views about Bonneville itself. One commenter spoke of its unwillingness to deal with anything longer than five years, even while it expects its utility customers to change before the year 2001. Even though the utilities have competitive pressures, BPA is insensitive to utilities and the demands of the marketplace. The contracts presently being offered by BPA are an impediment to their serving customers, they said. Bonneville fears it cannot compete and is trying to hold its customers -- a self-defeating attitude.

BPA should be restructured and given the tools and ability to compete:

Public utilities' problem is that they have lost BPA as a partner. Some preferred a simple unbundling of Bonneville's functions; others urged structuring a system which does not rely on the federal government. The former group observed that Northwesterners have been paying for the federal system for decades and should be able to keep it. The latter group advocated having as simple a system as possible -- more of a service orientation, no ability or responsibility for resource additions.

For many public utilities, the cost of wholesale power is the biggest budget item they have. They have competitive pressures, they testified, but are different from investor-owned utilities in that they are headed by locally elected people. Local control is a key element in satisfying their consumers. Their structure mirrors that of America: democracy. They are more like a community than a utility.

Many of these officials view the obligation to pay for WPPSS plants as a simple matter of paying for something undertaken for the region. They are not convinced there are "stranded debts," because they are being covered. Any so-called solution may be worse than the problem. They believe that a well-managed payment system will pay the debt. Furthermore, they are tired of the investor-owned utilities' crying about its stranded investments; they see those utilities as wanting to recoup lost profits instead of repaying debt.

More than one utility shared that they are already facing retail competition. They would like a level playing field, however. The residential exchange is an artificial construct which now allows investor-owned utilities a subsidy to compete unfairly. Instead, they advocated allowing BPA to compete inside the IOUs' territory. They also thought it would be wise to publicize the fact that consumers can form their own utility if they are dissatisfied with an investor-owned utility's terms or service. This would allow better choice and increase efficiency for all.

EASTERN WASHINGTON MEETING

A meeting was also held in Pasco on February 23, 1996. The target audience included eastern Washington public utilities, irrigated agriculture, river commerce and dryland farmers. Thirty-six people attended.

Those in attendance generally urged the Review to shield small and rural customers from market forces. They pointed out that rural customers contribute food and other vastly important products to the economy, and that many rural utilities and even BPA were formed originally with the aim of bringing electricity to rural customers.

The presenters at this meeting were skeptical about the benefits of deregulation and competition. They view system reliability as being as important as price to the consumers, and they questioned whether competition would maintain the high level of system reliability that has been established. As a bottom line, they suggest the Review ask whether the ultimate consumer will be better off at the end of the process; at a minimum, the consumer should be no worse off.

They also pointed out that the federal government and local ratepayers have made large investments in developing the current system, and that they have been committed to this system for decades. They feel that those investments and commitments must be respected in any design for the future. For example, one speaker pointed to the Federal Base System as being a public resource which should not be given away to private interests.

Many speakers opined that low electricity rates are bound integrally into the agricultural and rural way of life. Any sudden changes to electricity structure will have unbalancing effects on long-standing social, economic and contractual relationships. One speaker mentioned large investments made to irrigate fields nearby.

In their view, only small changes are needed in any event. They believe that the benefits of larger changes would go to others. One example, widely cited, was the effect of taking away "postage-stamp rates."

These parties believe that a healthy, competitive Bonneville is the key to maintaining the benefits of the current system. They see BPA as their protector. However, as competition emerges, they would like the ability to shop around for suppliers.

These rural utilities hold local control as extremely important. Local control was one reason they were formed in the first place. They want local control and choice about their supplier, about investing in conservation and renewable energy resources, and about ratemaking.

One speaker, wearing the hat of a utility and of an irrigated farmer, expressed the view that irrigation started in the Northwest and has become important on a world scale. He urged the Review to keep irrigators whole and cautioned that discounts offered to initiate irrigation should not now be termed subsidies and taken away.

Deregulation holds no charm for many speakers. One asked whether we are better off with lower airfares but poor service. Another suggested that the push for deregulation is coming from the big suppliers and big customers only, not the small utilities and rural customers. Deregulation may hold great promise, but it has not worked for the telephone companies or the savings and loan companies.

Direct Service Industries

The meeting centered on Direct Service Industries (DSIs) was held February 27 in Portland. Sixteen people attended.

The industries expressed a strong opinion that retail competition works, and that it will bring increased value to the system. Much more efficiency is available, they believe, through a tough, active, competitive market. Furthermore, the longer the transition takes, the longer the wait for the benefits of competition. As soon as it begins, everybody will be able to adjust and learn to manage.

Electricity should not longer be supplied by a monopoly. All consumers will benefit from the choices to be made in an open market.

In the view of the DSIs, regional planning no longer works. Their preference is for planning to be done at the local level. For transmission, however, they expressed the view that a single system operator for the entire region should be empowered to carry on the business of transmission. This entity would not necessarily own the system, but would coordinate access and input. They believe this is an area of consensus and urged the Review to focus its work.

The industries value the structure and performance of BPA, as long as it focuses on its core function of electric power marketing. They expressed some interest in reviewing alternatives such as the WAPA model, or a cooperative of some sort.

With respect to the Northwest Power Planning Council, the industries believe there is a role but say the Council's function and structure should change. Although they cannot se a useful role in regional planning, they believe the Council should have responsibility for fish and wildlife issues. The Council, they said, should coordinate those issues with the energy issues and understand that there are tradeoffs in resources and outcomes. Then the Council could be held accountable for these tradeoffs. On the question of structure, the DSIs maintain that Washington is under-represented, based on population and economic status.

The industries believe that there will be no stranded costs in the future system. Therefore, there should be no designation of them. Opening up competition will increase BPA's success and efficiency. BPA's examining programs, products and services should allow it to sell enough power to cover all of its costs.

The DSIs do not favor a systems benefit charge to pay for conservation investments. Although they support cost-effective conservation from a market-based view, they see energy service companies providing this as a business venture. They recognize that the market will not deal with everything, and that subjects such as conservation, renewables and endangered species may need special treatment. Their advice, however, is to open the market and see where government has to step in, rather than starting with a predetermination of what needs to be dealt with.

Social issues -- including conservation, renewables, rates for rural customers, and salmon -- should be taken care of legislatively and funded through taxes or some other means. They should not be part of the cost of the transmission system. These pricing issues should be transparent, so that customers can evaluate whether to support the issues.


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