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M E M O R A N D U M

TO: Members of the Comprehensive Review Steering Committee

FROM: Rick Applegate

DATE: March 27, 1996 as REVISED MARCH 28, 1996*

SUBJECT: Thoughts on the Working Group Activities

As we have continued our discussions of future changes in the power system, I have been assessing the impacts of some of the potential changes on the fish and wildlife resources of the Columbia River Basin. While it is still too early to discern all of those impacts, I have a few thoughts about how we should proceed to consider them as the review goes forward. I know some of you have reservations about how the fish and wildlife issues will be addressed in the review, and I will be discussing my thoughts with you further as we continue our work.

Transmission Work Group. A lot of preliminary work has been done by the PNUCC Transmission Task Force on this issue. To date, the prevailing utility and customer view seems to be that the transmission system should be separated from the generation system and that the transmission system should be somehow "insulated" from the WPPSS debt and the ratepayers' fish and wildlife obligations. You can imagine the reaction among fisheries interests as the potential impact of this proposition sinks in. Both of these notions raise serious concerns from the fish and wildlife perspective.

Look at it this way. The power system has recently complained about its ability to fund fish and wildlife mitigation and enhancement. The PNUCC proposal separates a substantial portion of the power system's asset base--transmission--leaving generation to shoulder the WPPSS debt, the future and largely unknown WPPSS decommissioning costs, the fish and wildlife obligations and the requirements to meet other public purposes.

Those are pretty tall orders for the remnants of a power system--even one that may very well be quite competitive once the WPPSS debt is paid off. What is the separation of the transmission asset likely to do to the system's ability to provide for public purposes and fish and wildlife? It's hard to be optimistic that the separation will be good for them--particularly if transmission is insulated from all those obligations. That is why I have asked the question whether separating transmission and generation will reduce the ability of the power system as we know it to meet its obligations. The question may appear rhetorical, and maybe it is. If the answer to the question is yes--as I suspect it is--then the transmission work group needs to address the question whether there is a way to protect the power system's ability to meet its obligations while separating transmission from generation.

I would like to see the transmission work group develop the circumstances and rationale for at least three major alternative approaches to this issue and bring them back for consideration by the full steering committee.

The alternatives that come to mind are:

  1. Separate transmission from generation and do nothing about the problems created for the obligations of the power system. Just leave the obligations and public purposes to the generation system. I suspect that the rationale for this alternative will look pretty pale, but for now I'll try to keep an open mind. In any case, it will be important for us to develop and discuss the rationale and the implications of this alternative as the review proceeds.
  2. Sell the transmission system and use the proceeds to help reduce the WPPSS debt, fund fish and wildlife obligations, provide for other public purposes, or some combination of all three.
  3. Separate the transmission system from generation, but provide a guaranteed way for transmission to help pay off stranded investments and/or permanently assist with fish and wildlife funding needs and other public purposes. This is similar to Mr. Kreidler's useful alternative and the details of implementing it should be fully explored.
This business of separating transmission from generation will be a very large issue in the review and I believe that we might as well flesh out the leading alternatives--not just one currently favored alternative--so we'll have ample time to discuss them. To be clear, I am hearing increasing concern about this issue from fisheries and tribal interests trying to follow the regional review and I don't think it is an issue that will diminish in importance or go away. We may need some additional outside expertise to assist in the exercise, but I will leave that for discussion in the work group. I will be happy to discuss this issue further with the work group as it begins its work.

Public purposes and obligations work group.This work group will be examining ways to improve the power system's ability to serve a variety of historical public purposes. These include conservation, renewable resources, fish and wildlife protection and restoration, other environmental quality measures, low income energy assistance, and so on. In the case of environmental costs, it is highly unlikely that we can just proceed merrily along with the assumption that other regulatory agencies will simply specify these matters in the future and the power system (generation system?) will then proceed to meet them. We need to look more closely at how the ability of the power system to meet these obligations will be affected by any new structure that is proposed by the regional review. Perhaps some of this issue can be addressed in the power marketing or competitiveness work groups as they assess future risks to Bonneville and related matters. One way or the other, they require a searching look.

In addition, in order to fully explore the ways to maintain and enhance the power system's financial ability to meet its obligations and serve public purposes, we'll need to review the current operational practices and subsidies that reduce the revenues of the power system--including the various embedded subsidies that can no longer be treated as "off limits" in power system discussions.

As I've noted before, I don't believe we'll need to spend a huge amount of time assessing and developing alternatives for these. However, we can't proceed as if they are too complicated or difficult to address. Here's how I believe we should review and consider them.

  1. Using the River of Red Ink document, the compilation by Bonneville Power Administration and other sources that are available to us, we should make sure that we have a comprehensive list of these revenue-impacting activities.
  2. We should assemble estimates of the costs of each of these activities. River of Red Ink has some estimates. Bonneville should provide estimates for its list.
  3. We should flesh out three alternatives for addressing each of the activities:
    1. . Do nothing about them. Simply leave them in place. For this alternative, we should at least lay out the reasons for retaining the activities/subsidies. Why do we believe they are still important?
    2. Indicate how each activity might be gradually phased out or scaled back over some reasonable period of time--as is now slated to occur for certain federal agricultural subsidies and programs, for example.
    3. Explore the effects of across-the -board reductions at some level in each--to be triggered immediately or perhaps under certain specified financial circumstances in which the power system finds itself suffering further financial difficulties that strain its ability to meet its obligations--including fish and wildlife protection and restoration.
As with my previous memo discussing a number of related matters, I hope these thoughts will generate some constructive discussion as the work groups assess these issues, as I believe they will loom large in the comprehensive review and the ultimate disposition of its recommendations.

*Revised to clarify the fact that Mr. Kreidler's approach to transmission is related to alternative #3, as it provides for transmission financial assistance in handling stranded debt.

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