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Third DRAFT Outline and Discussion
NCAC'S FEDERAL POWER MARKETING
PROPOSAL
FOR THE
COMPREHENSIVE REVIEW
April 18, 1996
Steven Weiss
NOTE -- This is a draft for discussion and does not represent NCAC's official position.
- BPA would sell the output of the FBS (except for WNP-2,
discussed later) at market prices with restrictions on the agency's
ability to wield market power. These restrictions would include:
- No direct sales to retail customers in jurisdictions where retail access was not available to all;
- All transactions and contracts are available to public scrutiny;
- Reliance on pools and/or open bidding auctions for standardized products, (as discussed in Angus Duncan's 4/5 draft proposal), which restricts BPA to become a passive price taker.
Discussion: A more aggressive "unchained" BPA (or its successor) might make more money but engender many problems due to its market power. An aggressive BPA, stealing retail loads and extracting monopoly prices on shaping services is probably not worth the extra income foregone from being restricted. Also, as Roy Hemmingway pointed out in his discussion of BPA's risks, there may be "little political tolerance" for such an entity.
Various models presented by others allocate percentage "slices" of the output of the FBS to customers or others. Preference and Exchange rights are dealt with by various first rights to these slices. For a complicated electricity system which has so many joint products such as energy and capacity, arguments over who got what could degenerate into processes resembling current ratecases, as the recent discussions on tiered rates (who gets tier 1, what is in it, etc.) demonstrated. While difficult, this is probably not an insurmountable problem as the Coordination Agreement which allocate Columbia River Dam operations (after fish restrictions) shows.
A more critical flaw in such models is that they do not work well in a world of direct customer choice. What utility can guarantee payments for its slice with no assurance of a continuing customer base? It is likely that only private marketers will be able to bid for these slices.
Models which allocate "shares" of the FBS, akin to corporate shares, work economically but don't deal with market power issues and thus get back to how aggressive a competitor this new successor to BPA would be, but with different governance.
Thus we believe leaving the FBS in BPA's hands (with some change in governance--see no. 6) but restricting the agency's ability to compete, makes the most sense for the region in meeting its public purpose and financial responsibilities.
- The output of WNP 2 would be separately marketed and no longer
melded with the rest of the FBS. If such an attempt fails to
recover the plant's avoidable (O & M, new capital costs) costs, it
would be shut down.
Discussion: WNP 2's sunk non-avoidable costs (decommissioning and debt service) would remain an obligation of the FBS, but the market would determine if it should continue to operate and not be subsidized by the hydro-system.
- To insure that the FBS output could always generate revenues
enough to cover costs, WPPSS debts would be collected separately
through either an exit fee on historic users or a transmission surcharge. This fee could be reduced if it was demonstrated that the
market was supporting the costs of the FBS and reserves were built
up to carry through dry years. Without such a shift of costs off he
back of the FBS, we (and probably the feds, WPPSS bondholders,
tribes, etc.) would have to oppose vigorously the insulation of
BPA's transmission from the obligation to be available for funding generation shortfalls.
Discussion: For some time the market may well be too low to support the costs of the FBS. That is due to several factors: an energy glut which will be reduced through load growth and the imminent shutdown of several nuclear plants; and, the existence of a market dominated by surplus, non-fully allocated power. Restricting BPA from more aggressive marketing measures also limits revenues some hat. Thus some mechanism to ensure the viability of the FBS is necessary, at least in the short run. If not, BPA must rely upon the transmission system to back up its financial obligations.
- Profits generated by sales of FBS output would be available for
return to preference customers and to exchange-eligible residential
and small-farm consumers in the form of periodic cash "dividends,"
and public purposes such as a fish and wildlife trust fund for dry
years.
Discussion: This implements preference and exchange rights to the benefits of the FBS without distorting the market. A means to identify those eligible would have to be developed given possible changes in vertically integrated utilities, however.
- The governance of Columbia River operations including the
determination of fish expenditures would be the responsibility of a
new governance body that includes Federal, State and Tribal representation.
It is anticipated that the highest priority of river operations would be
for fish restoration.
- The governance of BPA's marketing structure should be reexamined
with the goal of increasing its responsiveness to public policy
concerns (for example, a representative board of directors).
- Support for the public purposes of conservation and low-income services (and perhaps some portion of fish and wildlife restoration costs) would be provided through a non-bypassable system benefits charge collected at either the distribution or transmission level. Support for renewables would also be included in this charge and/or through other mechanisms such as a portfolio standard.
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Last modified: May 9, 1996
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