Download the full text version of the July 11 meeting.THE COMPREHENSIVE ENERGY REVIEW STEERING COMMITTEE heard final reports from its work groups and videoconferenced with members of Congress. All committee members, except Chuck Hedemark, were present. The audience ranged from about 50 to 75.
Next Meeting: July 17-18 in Portland. Discussion of decisions facing the steering committee and development of a work plan.
"This is the last scene in Act 2 of our ongoing drama," remarked steering committee chair Chuck Collins. Act 3, which promises to be exciting indeed, starts tomorrow, he said.
Collins reported receipt of a letter from the Columbia River Inter-Tribal Fish Commission and a resolution from the National Congress of American Indians about incorporating fish and wildlife issues into the review. They requested a meeting with the committee, he said, adding, "I'll figure out what to propose."
Collins also noted that Congressman Dan Schaefer of Colorado has introduced a bill to deregulate retail electric utility service and provide for full retail choice no later than December 15, 2000.
"The plane has landed, and it's time to examine the cargo," stated John Saven, co-chair of the Federal Power Marketing Work Group. Saven said the group contended with a number of major variables. WPPSS bonds topped the list, with issues related to security of the bonds and their tax-exempt status. Another issue is the Appointments Clause of the U.S. Constitution, which requires that those who exercise federal authority be federal officials, he said.
Contracts is a third issue, according to Saven. There are limits to contracting authority; for example, BPA cannot contract away authorities of the federal government, such as budget setting. There are also concerns about enforcement mechanisms in BPA contracts, he noted.
Customers have questions about whether they can sign long-term take-or-pay commitments without being able to exercise direct control over their exposure, Saven said. If they could exercise such control, it would raise Appointments Clause and/or state authority issues. Also, there are issues associated with BPA's requirements service and utilities' ability to waive existing rights to such service. These contract issues are significant to us, he said.
Our group supported separation of BPA's generation and transmission, but any non-federal transmission solutions will pose debt and taxation issues that need examining, Saven stated. The group considered BPA's future competitiveness and ability to meet Treasury payments. As long as the market remains at 20 mills or above, BPA will be able to compete in the wholesale market, he said. As for "future unknowns and risks," Saven indicated that the fish cost issue is of major concern to customers.
Model 1: Stretched BPA
The work group focused on two models, "two goalposts on a football field," said Saven. At one end is the "Stretched BPA Model," which assumes BPA can be competitive without new federal legislation. The model requires a broad interpretation of existing statutes and assumes BPA can offer a variety of products and services to meet diverse needs of customers, negotiated on a bilateral basis.
The model assumes a limited obligation to serve and that BPA will move out of the resource acquisition business. "That stretches quite a bit," Saven observed. The model sees the same form of governance, with streamlined ratesetting, an extension of the fish cap beyond 2001, and an effort to match BPA revenue levels to any additional commitments to fish, he noted.
The Joint Ownership Model is at the other end of the spectrum, said Saven. It provides for an ownership-like right for customers to a proposed power marketing entity. The model envisions a private corporation. Power would be allocated for 30 to 40 years to public utilities and the DSIs and IOUs. If there is power left over, it could be allocated outside the region, he said. We talked about the ability to resell allocations, and about load growth being met only on a bilateral basis, Saven continued. Prices would be cost-based, he said. There was a lot of discussion of whether purchasers could opt out of take-or-pay obligations if fish costs get too high, he reported.
Saven said proposals received from public interest groups were consolidated into a third model. It would have BPA sell the output of the Federal Base System (FBS) at market prices. The output of WNP-2 would be separately marketed, and if it is not economical, the plant would be shut down, he explained.
In good revenue years, BPA would put money into a public purposes trust fund, and in bad years, payments to the Treasury would be deferred, said Saven. BPA could surcharge transmission rates as a last resort. Exit fees would be imposed on customers leaving BPA until the WPPSS debt is paid off, he said. An executive board of sovereigns -- federal, state, and tribal -- would set policy for Columbia river operations, Saven stated.
I didn't hear any customer support for the public interest group model, and the public interest groups haven't bought into the other two models, Saven noted. You'll be hearing a lot of strong views as we get into this, he told the committee.
Gannon Hits the High Points
Committee co-chair Bob Gannon said the group had reached 14 "major points of consensus," which are listed in the committee's final report. We came to these recommendations, he said:
There was general agreement that BPA should not compete beyond the wholesale level except to retain existing DSI customers, Gannon said. If retail wheeling is mandated, we disagreed about whether BPA should be limited to wholesale markets, he added.
Gannon noted these major points of disagreement:
The three big issues we couldn't solve were: river governance; customers' ability to control BPA through a board, in light of the Appointments Clause; and the funding of fish recovery, Gannon said.
Decisions for the Committee
He identified these key decisions for the steering committee:
Did you really agree that BPA shouldn't compete for retail customers other than the DSIs? asked K.C. Golden. I thought so, replied Gannon. We said that given certain market conditions, BPA shouldn't compete at retail, Saven said. There was the question of shifting stranded costs around if BPA is allowed to compete on the retail side, Gannon added.
If you don't think BPA should compete on the retail side, how could you prevent it? asked Brett Wilcox. It happens today, he added. The issue is whether a federal agency should compete with non-federal entities, said Gannon. There was recognition that third parties could get involved, and different views on federal power getting to a third level through a third party, stated Saven. But we were trying to make a policy decision on this, he added.
It's a false distinction, responded Wilcox. If I were BPA, I'd do a joint venture with a marketer, so either BPA would get a full market price or a facilitator would get a share. If you constrain BPA, there'll be additional cost problems, and BPA will find a way around it, he added.
Did you talk about the distinction between a federal agency and a large publicly owned utility competing? What is the distinction? asked Ken Canon. It is the federal government -- its size and the fact it exercises significant market power -- the "federal presence," replied Saven. We didn't discuss local utilities or other entities, he added.
We spent a lot of time on Brett's issue, noted Al Alexanderson. We found requiring an intermediary was important because a non-federal intermediary is subject to state laws, taxes, and consumer protection laws, he said. An intermediary helps break up a large block sold by a single seller, Alexanderson continued.
This is the central issue with respect to the future of BPA, stated Roy Hemmingway. In the group's report, it's evident that people want to limit BPA's ability to compete, but I contend you can't limit it "a little bit," he said. Why can't you? asked Gary Zarker. The marketplace will find a way to bypass limitations on competition through a joint venture, or through "things that we don't even have a term for yet," Hemmingway replied.
As for the issue Ken raised about large publics, Hemmingway said, local utilities have limited uses for debt and are limited by their constituents, while BPA has much more flexibility. For example, local utilities can't slip their bond payments -- that's a big difference, he said.
The difference between retail and wholesale has to do with jurisdiction for such things as transmission, observed Walt Pollock. FERC says its jurisdiction is limited to wholesale and defers to states to deal with retail, he said. BPA worries, can we pay our bills? If yes, we can operate at the wholesale level, Pollock continued. When we have heard from all four work groups, we may be able to solve this question and the stranded cost issue by "weaving things together," he suggested.
Are You Ducking the Major Issue?
By saying "BPA remains a federal agency," aren't you ducking the major issue? asked Sharon Nelson. Referring to a letter from Senator Slade Gorton, which says legislation will be necessary, she said, I'm concerned you avoided the major question: What do you do with a federal sovereign power in the middle of this market?
We struggled with it -- everyone was welcome at our meetings, replied Saven. There was no attempt to duck the issue. If we missed the boat, we should talk about it, he said. I'm saying if BPA were a private entity with that market presence, there would be much more discussion of how BPA could be "a congenial competitor," Nelson said.
If we were starting from ground zero, we wouldn't create a federal agency to do what BPA is doing. But we aren't, said Gannon. We have constraints like WPPSS, and to our group, those seemed to be major hurdles to overcome, he said. Some group members only signed onto that provision in the report because of the WPPSS debt, noted Hemmingway.
BPA as a competitor at the retail level is a question that is never going to be answered until some of the other questions before the committee are answered -- it's the final deal, observed Mike Kreidler. If there were assurance that the public purposes could be funded, you would find more willingness to constrain the level of competitiveness for BPA, he added.
It seems that three "tangential issues" have turned out to be controlling, commented Collins. They are: the WPPSS debt; governance -- we've run into the Appointments Clause, and we need to get more information on it; and "an imponderable political issue" -- when you enter the fray in Washington, D.C., will matters get out of your control?
These "overhanging issues" may limit where the committee can go, Collins observed. We have to take these on specifically, he said. It may be these three things that inhibit our ability to deal with this "huge competitive anomaly," said Collins.
It was not possible to reach unanimity on all issues, but we made progress, reported Transmission Work Group co-chair Golden. The principal issue that divided the group was the magnitude of inefficiency in the existing system and the difficulty in ascertaining how big the problem is. Is it possible to squeeze more efficiency out of the system, and what are the costs and risks in doing this? he said. Those are questions the committee will have to deal with, Golden stated.
The majority of the work group agreed on these things:
Co-chair Bill Drummond said the group is preparing a more detailed "progress report," which will be available in about 10 days. There was consensus on the short report, but not the progress report, he added.
We have a fantastic transmission system, but most agree it needs to change, said Drummond. Current FERC policies mandating "administrative separation" may be a first step toward moving to divestiture or IGOs, he suggested.
The first rule in medicine -- do no harm -- guided our group's thinking, Drummond said. One of the main problems with the current system is "pancaking," the multiple terms, conditions, and prices for passing through each owner's transmission system. It raises the costs of transactions, he explained.
The group thought an IGO could provide for fuller utilization of the physical transfer capability of the system and reduce pancaking, Drummond reported. It could lead to coordinated planning for upgrades, development of least-cost alternatives to remove bottlenecks, and more efficient O&M. It is difficult to determine available transmission capacity when many people are making the calculation, he noted.
What If We Do Nothing?
We tried to develop a base case, to look at what if we do nothing, Drummond said. In our base case, current ownership and operational control of existing and new transmission facilities would continue. The Northwest Regional Transmission Association (NRTA) would continue to develop mechanisms for resolving transmission disputes. Numerous alternative rate designs could be developed and used by current transmission owners. The base case is viable, but is "not a particularly pretty one," he said.
The majority preferred an IGO to the base case, Drummond said. Utilities would retain ownership of their transmission facilities initially, and the IGO would control and operate facilities owned by others under long-term contracts, he explained. Utilities could retain their own control areas. The IGO could build and/or own transmission facilities, and it would be regulated by FERC, Drummond said.
The IGO would be the system planner, he explained. It would oversee expansions, monitor reliability, implement congestion pricing, and try to find the least-cost alternative to solve problems. The work group looked at two alternatives for system operations, Drummond stated. The first is a single control area, managed by the IGO, and the second involves multiple control areas. Under this concept, the region's multiple control areas and the IGO would manage system control for the region as peers, with the IGO managing a control area for its transmission. Other control areas would manage their loads as they do currently, he said.
The IGO would need to control major portions of the transmission grid, Drummond pointed out. Specific facilities included in the grid would have to be negotiated between the IGO and current owners. To free owners from obligations to respond to Section 211 requests, the IGO would need to control facilities to the point at which service is requested, he indicated.
This raises an issue for rural utilities that don't own transmission, Drummond noted. How the regional grid is ultimately defined will be important to these utilities' ability to provide the benefits of a competitive market to their customers, he added. These issues could be addressed through pricing, transition period policies, or options for rural systems to take over ownership. The issue needs more work, Drummond said.
NRTA is working on transmission pricing and believes concerns about cost shifting can be accommodated without giving up pricing features that provide for efficiency, Drummond said. NRTA is looking at a pricing system that would address congestion in the short term and investments in system expansion. Cost shifting is a big issue, but is as yet unquantified, he said.
IGO governance dominated the group's early discussions, but not the later ones, Golden said. Governance depends on BPA's role in the IGO, which depends on resolution of third-party debt issues, he said. The group identified four models for IGO governance:
The group received a proposal for an Independent Grid Scheduler (IGS), based on the idea that the IGO goes too far, Golden reported. The IGS would be a more incremental set of steps to independent grid operations. It wouldn't require much statutory change and would initially have no ability to construct or own facilities. The IGS proposal was submitted late in the game and hasn't been fully fleshed out, but it will be, he said.
What About Wires Charges?
The group looked at public purposes and the question of whether the transmission system could carry other costs than transmission costs, Golden said. It recommended:
We did not push the issue of mandatory power pools forward, Golden said. There was no objection to voluntary pools, he noted.
Assuming wires charges are put on a fixed element (capacity, not kilowatt-hours), other than the jurisdictional difference, is there any difference between that and a universal meters charge? asked Alexanderson. The group thought that a charge on fixed components would be similar to a distribution charge, Golden responded.
The question is, do you pay a toll to get on the highway or on every mile you go? said Drummond. The group thought an access fee that is less elastic would be least disruptive, he said. The question is whether it is annual, monthly, or daily, said Alexanderson.
I question the idea BPA couldn't participate in an IGO without legislation, said Wilcox, adding, I know BPA would like to be the IGO. I believe the IGO could be designed so that BPA could participate. Don't assume you have to have legislation to design an IGO, he advised. "Fair point," responded Golden.
The problem for BPA is legislative language in the past designed to prevent the sale of BPA and prevent turning over the use of its assets, said Pollock. That language was broad, but there may be mechanisms we can come up with, he added. "BPA can be creative if it wants to be," responded Wilcox. It bears more examination, Pollock agreed.
Saven suggested more attention to the issue of subtransmission when considering whether we would be better off in the future with an IGO. It's a major issue to me, he said.
Under an IGO, you said that transmission would stay in the hands of the owners initially. What does that mean? Is that a "briar patch?" asked Jim Davis. The IGO could construct facilities and own them, but at the beginning, it wouldn't have to own the facilities it controls, Drummond replied. The IGO would have authority to construct facilities when an owner refuses to relieve a bottleneck, and/or to upgrade the system in the most cost-effective way when necessary, he added.
Collins said the videoconference hookup with members of Congress was being provided free by Electric Lightwave of Vancouver. First to beam in was Rep. Michael Crapo of Idaho, who chairs a task force on the future of BPA and the Columbia River power system. He summarized provisions of the Schaefer bill, the Electric Consumers' Power to Choose Act of 1996. The bill would deregulate all retail electricity customers no later than December 15, 2000. States could implement it how they choose, but if states do not implement retail competition, FERC would do it for them, Crapo stated.
The legislation repeals PURPA, the Public Utility Regulatory Policies Act of 1987, and PUHCA, the Public Utility Holding Company Act of 1935. It establishes a renewable energy credits program for electricity generated from organic waste, biomass, dedicated energy crops, landfill gas, geothermal, solar, or wind resources.
Schaefer realizes this is a first draft and that many people will have questions, concerns, and recommendations to improve it, Crapo said. My interest is to get it as broadly dispersed as possible, he added. The legislation will be evaluated in this Congress and will move to the floor in the next, Crapo stated.
In light of the Northwest's salmon recovery efforts, the management of BPA, the public purposes of the dams, and what has been learned through his task force, Crapo said that he has told Schaefer the bill may have to include language in it specific to the Northwest. Have hearings been scheduled? asked Kreidler. Not at this time, Crapo replied. Don't wait for hearings to express your opinions on this bill, he counseled. I'll try to hold further task force hearings to develop language to put in the bill if we find it is necessary, Crapo added.
Northwest Power Legislation Is Likely
Has there been discussion of whether there is a need for legislation to deal with separating BPA's generation and transmission? Do you think it is necessary? asked Todd Maddock. There's a difference of opinion on whether to have legislation or rely on an Executive Order or something like that, Crapo replied.
I believe we'll have to go to some type of federal legislation that will deal with how the Columbia and Snake River system should be operated and managed, how transmission and retail issues should be managed, how public purposes will be taken care of, and who should be the entities responsible -- "where the buck stops," said Crapo.
Collins said BPA has talked about three scenarios: no legislation, minor legislation, and major legislation. Is there such a thing in this environment as minor legislation? he asked. Once any legislation is working in Congress, all the issues will come up, responded Crapo. We can't avoid the problem of how the entire Columbia-Snake River system should be managed and who should operate it, he said.
I'm pleased the Schaefer bill has a renewables component, commented Rachel Shimshak. How do your colleagues view the Northwest? she inquired, adding, in the past, some have seen us as "crybabies" with our low electric rates. Is that a prevalent attitude, or is it that we have unique circumstances and need to come to our own decisions? she asked. A little of both, Crapo replied. In the pressure to privatize or sell the power marketing administrations here, BPA was left out because we made the case that salmon recovery and other issues were unique to BPA and made a sale impossible. But the issue hasn't gone away, he added.
The question is whether members of Congress understand that "unique circumstances" is not "special treatment," Crapo said. Some in Congress envy Northwest power rates and feel there's been a subsidy. I expect we'll have success as we work on this bill, as we did in the privatization discussions, he said. I believe we need a governance structure based in the Northwest, not in Washington, D.C., he added.
In light of the Schaefer bill recommending repeal of PURPA and PUHCA, and the renewable energy credit program which sets a national portfolio standard that may be in conflict with the Northwest Power Act, is there a prospect that we need to look at repealing the Power Act? asked Davis. It raises issues, and we'll have to look at it, replied Crapo.
Since the committee "turns into a pumpkin" in December, are there areas the task force will deal with that the committee should look at? asked Rick Applegate. We are trying to figure out what the universe of issues is, which I've described as "trying to hold a water balloon -- you squeeze some place and it pops out somewhere else," Crapo said. The concern is if we go ahead with a national deregulation effort and don't look at how it affects the Northwest, we could end up with an impact on our rates we could have avoided, an impact on our salmon recovery efforts, or on keeping our decisionmaking here in the Northwest, he explained.
I'd like to have your help in "putting a frame around this picture," Crapo said. We need to look at testing of some of the spill issues, and at the proposals being made by the Independent Scientific Group for evaluating the entire river as a system. Those are the kinds of specifics we have to work on and work into the legislative process, he advised.
Is it fair to conclude that there will be national legislation sooner or later, and in the absence of a regional consensus, we'll be subject to it, whether we like it or not? asked Wilcox. That's a fair conclusion, answered Crapo. We will be better off if we have a unified, bipartisan consensus in the Northwest, he stated.
Rep. Peter DeFazio of Oregon said there are potential benefits and real pitfalls to moving ahead with retail wheeling, as the Schaefer bill proposes. My concerns go primarily to residential and small business consumers, and what it means to public purposes, salmon recovery, and commitments to conservation and renewables, he said.
BPA's recent contracts with the DSIs will have an impact on ratepayers served by the IOUs in the Portland area, and I'm concerned about that, said DeFazio. BPA's cutting spending on energy conservation programs, and political pressures to reduce efforts to restore salmon runs are also concerns, he said.
The question is, how are we going to bring the Northwest Power Act into this brave new world of deregulation and restructuring and still meet our stewardship concerns? said DeFazio. Deciding how to bring the goals of the Act forward is difficult, and I encourage all the diverse interests to stay at the table, he said. Don't let anyone end run you back in Washington, D.C., he advised.
Congress is changing, DeFazio noted. With the retirement of Senator Hatfield, we won't have the tremendous power and clout in the next Congress. We may need a legislative package to expedite federal repayment or to reduce federal liability for nuclear debt repayment, he said. One option is a charge that deals systemwide with stranded investment and WPPSS debt, DeFazio suggested. That would relieve the Treasury from taking care of the WPPSS debt. We need a mechanism to accomplish that end, he added.
We may need to bite the bullet with salmon recovery, DeFazio suggested. BPA needs to be economically viable and to make its Treasury repayments, he said. We need to deal with all the costs of the system. A lot of people "bang on fish," but we have the WPPSS debt, huge irrigation discounts and subsidies, navigation -- we need them all at the table, he said.
Some say, keep the status quo, but that's not a viable option, DeFazio stated. I'm concerned about cutting back on the residential exchange and dismantling conservation and renewables, he said, adding, "I see political fights looming."
If we chase after the cheapest kilowatt-hours, we're looking short-sightedly at the problem, DeFazio suggested. Conservation has to be part of the solution. Is there an infinite supply of gas? If so, it will be the first such natural resource, he observed. Our relationships with Canada have been good, but..., he said.
"We must all hang together or we shall all hang separately," DeFazio said, quoting Ben Franklin. If we don't resolve our problems, then we'll see those in other regions coming forward with their own solutions, and I'm concerned about that, he said.
BPA is paying for nuclear power mistakes in the Northwest, while elsewhere, consumers have to pick up nuclear debt in their rates -- will that come back to bite us? asked Kreidler. We are unique in our mixture of a federal PMA, public purposes, and salmon -- it's more complex for us than other regions, DeFazio responded.
Too Many Bowling Balls or A Slam Dunk?
What's your opinion of our options, which are: doing some things administratively at BPA to fix some problems; doing "minor" legislation -- a "quick fix"; or seeking major legislation, which could "get many bowling balls rolling around Washington, D.C. that we can't control?" asked Collins. You'd be better off with a mix of one and two, "unless you've got a slam dunk" because in the legislative environment, you're opening yourself up, DeFazio replied.
If the Democrats take the House, I will chair the subcommittee that writes the legislation, said DeFazio. If the Republicans take it, John Doolittle of California would chair it. There's a big difference there -- "Doolittle has his mind set for privatization," DeFazio said. Given the diversity on the steering committee, if the region can come together with a substantial consensus, we can come to Washington, D.C. with a strong package and move it through without too much risk, he advised.
Is legislation that will affect the Northwest imminent? asked Drummond. We can't avoid some legislative changes given the strong push to retail wheeling in the next Congress, DeFazio answered. BPA can't just be administratively restructured -- there are questions about debt obligations at the point of separation and about stranded costs, he said. We can't just defend the status quo; we need to offer our own alternative, DeFazio urged.
Are there other issues from the BPA task force we should address? asked Applegate. The WPPSS debt is a tough nut to crack, replied DeFazio. I can't see the generation side of BPA carrying WPPSS, salmon, and public purposes without a share from transmission, he added. The questions are, could the states find a way to assess the costs, and could people end run the transmission system? he asked. You'll have to look at all those things in your crystal ball, DeFazio stated. I'm hopeful we can continue the tradition of the region, he said. It wasn't pretty putting together the Regional Act, but in the end, we had a little pain and a lot of benefit for everyone, DeFazio concluded.
Washington Senator Patty Murray, by telephone, said she hopes the committee will move issues ahead so they will become manageable for the delegation. No other region has the Northwest Power Act like we do, she said. And we're now on the eve of another crucial period. In the next Congress, we'll be debating issues like retail wheeling and stranded costs. It's critical the Northwest delegation go into the debate with a unified vision. The work of the steering committee is the best chance we have to establish this regional vision, she stated.
My priorities include transmission, retail wheeling, stranded costs, and public purposes, Murray said. Don't think of winners and losers with respect to transmission, she suggested. Retail wheeling presents a new set of problems for the region, and it may be best to let state regulators craft solutions -- I'll look forward to your recommendations on that, she said.
Stranded costs are "the big monster under the bed," Murray said. "You know it's there, but you're afraid to look at it." The region has to take responsibility for decisions made in the past, she stated. Congress won't look favorably on putting nuclear debt onto the Treasury, she added. As for public purposes, our task is not to scale them back, but to find better ways to accomplish these things we have cherished since 1980, she said.
One principle should guide your thinking in this process, she suggested. Any action you take must keep in mind the benefit to the end-use consumer to the maximum extent possible. Those are the people whose household budgets include paying for the lights in their homes and who aren't concerned with topics like retail wheeling, she said. I hope you can make a "clean handoff" to the delegation, Murray concluded.
Alexanderson, co-chair of the Competition Work Group, said the group's report was the product of a strong consensus. Areas of strong agreement he listed as:
Areas of "less agreement" he noted as:
Our group recommends the four states encourage and facilitate choice for all customers and all utilities, said Alexanderson. Don't just let it evolve, and don't develop regulatory substitutes for customer choice, he said.
Policymaking According to Yogi Berra
We spent a lot of time discussing the question "why develop policy?" Alexanderson noted. He said the group's answer, in the words of Yogi Berra, is: "If you don't know where you're going, you will end up somewhere else."
As for reasons it is important to develop public policy on retail access, Alexanderson cited:
The breakthrough in our deliberations came when we divided topics into transition issues and a "desired end-state," according to Alexanderson. The point is, if we could solve the transition issues, what would the desired end-state look like? Here's what the group suggested it would be:
Fair competition implies there would be no retailer with special advantages, said Alexanderson, adding that requires separation of the regulated and competitive segments of the industry. There is a concern about suppliers or consumers that are too large and about the development of the retail electric service sector, as in Sears getting into the business. Other concerns involve protecting small consumers and low-income customers, and the fact BPA is exempt from rules and taxes other competitors face, Alexanderson stated.
Our group had the least agreement about transition issues, he continued, listing them as:
Canon, co-chair of the group, said that separating things into transition vs. end-state helped the group get definition on the issues. Jason Eisdorfer referred to the recommendation that says "all customers should have choice of electric supplier." I participated in the group to say I don't agree with that statement in isolation. It should say "choice is good as long as it is doing right," he said. Competition carries significant dangers for the smaller consumer, Eisdorfer continued. Choice is good as long as we do it correctly. The transition stage is quite important, and if we don't do it right, this isn't something I want to go toward, he said.
Did the group get updates on technology available by 2000 for end use metering and other things that would facilitate full customer choice? asked Gannon. Our report suggests using sampling may be the best way to solve the problem, replied Alexanderson. Otherwise we may need a new computer and meter at each house; with sampling, we may only need one for 20 houses. We thought there were ways to deal with it without having to wait for technology, he concluded.
Will Distribution Utilities Have A Role?
I've been reading about AT&T stating that it would provide one bill for electricity, natural gas, telephone, solid waste, water, etc., said Drummond. And right now IOU subsidiaries are selling fuel switching in the territory of the utilities I represent. What is the role for distribution utilities? he asked.
I'm not sure we'll see a standard model -- the benefit of a competitive market is that people can try different things, answered Alexanderson. As for the distribution role, of having the wires in place and maintaining them to meet the needs of customers, your question may apply to the customers I represent as well as yours, he continued. Where are the economies of scale? Will there be a need for lots of distribution utilities? "I don't know -- let's find out," Alexanderson suggested.
There will be other competitors, said Canon. There's the question of whether monopoly utilities can move fast enough to take advantage of the advantages you enjoy now; for example, the fact that presumably your customers feel good about you. Utilities can do these things just as easily as a Sears or a Wal-Mart, he said.
What are our obligations? What are we required to do? asked Drummond. There will be the obligation to connect, and some customers will waive that, responded Canon. "Jason raised the question of whether there's a role for a default aggregator if someone chooses not to leave," Canon noted. Some said, we don't want that, we prefer everyone make a choice, but there wasn't unanimity, Canon said.
We Don't Need To Race Into This
From my perspective, it's taking too much license to say there's agreement on some of these things, stated Zarker. The report lists some terribly complicated problems, such as billing. It assumes many things can be done fast -- by 2000 makes me particularly nervous. We don't need to be racing into this with that speed. I hear regularly from customers, he continued, that the Northwest has problems with wholesale access. And we've had blackouts twice in the 18 months I've been in this industry, Zarker said.
Many of our customers are concerned about the erosion in reliability and power quality and will not stand for it, Zarker stated. If we are going to rush into retail wheeling, we need to get our act together, to solve some of these problems so we can ensure quality. There's a huge issue of governance, Zarker said. And significant differences in how the industry has developed in the four states. Washington is a public power state, and the others are less so. What the role of the steering committee is in guiding the four states in decisionmaking, I don't know. It's not a compelling regional problem, he suggested.
There's the prospect of a rise in the Northwest's low rates if there's a free retail market here, said Zarker. And the question of the few benefiting at the expense of the many. I have to convince my board that won't happen, he added. We've identified more problems than we've solved. We need an intense period of study to resolve these things, Zarker stated.
Your reliability concerns reinforce the conclusions of the Transmission Group, said Pollock. We need to discuss whether we are being attentive to the right things. Schaefer's proposal says not "whether," but that it's a question of "when" and "how," and it's up to the states to do it, he noted. Did you talk about the need for state legislation? Pollock asked.
No one's in charge of this, replied Alexanderson. We didn't spend time on implementation. If this is where we want to get to, we can test this in various states and see if it will get us where we want to go. I don't know how to get all the people in a room and do a "top-down recipe for implementation," he said.
My concern is that states might need to assure entities they can buy down above-market power, said Kreidler. Asked what he meant by "above-market power," Kreidler said, if you are Puget Power with cogeneration plants in Whatcom and Skagit counties, or Idaho Power "with the same problems" in eastern Oregon, being able to absorb those plant costs into rates is buying down, he explained. Do the industrial customers and DSIs support that? Kreidler inquired.
We've said we recognize that is going to be an issue, replied Canon. We and other customers have a lot in common to make sure those costs are as low as possible and shared as equitably as possible, he said. I'm delighted you are not using the term "stranded costs," Canon told Kreidler, adding, "we don't buy into that nomenclature."
We are covering transition costs, said Wilcox. The market is 15 mills, and we're paying over 22 mills to BPA for five years. That's a pretty hefty contribution to the transition, he said.
We need to kick these issues around and see how they fit together, Saven said. I have the impression that the "big trucks" have more money than the "little trucks." The utilities I represent are interested in transmission and might want to acquire it eventually. As we plan for the future, we need to understand what utilities really need to do to get ready, he stated.
Do It Right or Just Do It?
Gary and Jason say "do it right," commented Collins. You're saying there's a set of precedent conditions that need to be satisfied that may or may not add up to the year 2000. Do we feel we have a good set of conditions to satisfy the concerns? he asked.
We're getting started down the path, Canon responded. There will be valuable learning as the experimental programs take place. Until now there hasn't been a need for technology to respond to anything coming out of the utility industry, but technology can move fast if it chooses to, he added.
The year 2000 isn't a long way away, commented Nelson. Jason said if the death spiral ensues, who will be the class of captive customers, and will they have a responsibility to pick up costs whether prudently incurred or not? The transition is terribly, terribly important, and the details are terribly, terribly important, she stated.
We can't do it by just sitting around and debating -- we should start experimenting, suggested Alexanderson. The year 2000 is unrealistic, said Zarker. It would be nice to have common ways to interpret costs, and we don't have that. Then there are differences for some of us in that we have to bill for water, solid waste, etc., he pointed out. The tasks are daunting, and people we talk to say the industry isn't prepared for this, Zarker continued. We haven't thought through the details of power quality, and it's not good to talk about more players coming onto the grid without doing that, he added.
Your report makes a strong pitch for vertical de-integration. Are consumer-owned utilities happy with that? asked Golden. They were the largest percentage of participants in our group, responded Canon. There were discussions by the different types of utilities, but no clear answer, said Eisdorfer. There's at least one customer-owned utility that's not happy with that idea, interjected Zarker. "I think it's a dead non-starter." he said. There's a clear agreement that some separation is required, said Alexanderson.
As for the role of distribution utilities raised earlier, I'd say, "I have no fear that Bill Drummond will find something productive to do with his life," quipped Golden. Did you talk about how incumbent advantage could prohibit development of the competitive market? he asked. Yes, explicitly, answered Canon.
When telephone service was deregulated, smaller customers were subsidized by large customers. Does the group have that impression of the electricity industry? asked Hemmingway. We decided not to argue that, replied Canon. There was disagreement? inquired Hemmingway. Yes, smaller customers have fears with respect to the stranded cost issue, Canon said. Telephone is not deregulated yet, not at the local level in most states, commented Nelson. In response to the question, I think most would say the industrial customers are not carrying their weight, she said.
Davis, co-chair of the Conservation, Renewables and Public Purposes Work Group, said there was a "hard core" of about 80 people that came to their meetings. The last 100 days were very intense, and I'd like to tell you we've made a lot of progress, he continued. But not a lot of consensus was reached, although we spent some good time together, Davis said.
The group did reach consensus on goals and objectives for public purposes and more specific goals and objectives for conservation and renewable resources, he pointed out. The question of "trust" and trying to characterize it was a problem for the group, Davis said. Some trust markets, some trust command-and-control structures, and some think "when you get in bed with the government, you're probably going to get more than a good night's sleep," he said.
There are two ways to acquire conservation -- market transformation and local efforts, Davis stated. We reached consensus on market transformation in these five areas, he said:
That was where our consensus left off, said Davis. We have pages of non-consensus proposals, he added. For example, with respect to the need for a contingency plan to assure market transformation activities continue, three viewpoints emerged, Davis indicated. Some thought it should be dealt with if and when events occur that would not allow for funding from BPA and the IOUs. Some thought the board of the market transformation entity should report to the four governors within three years on whether existing funding is sustainable. A third group thought a "fallback" mechanism should be created now to assure funding for at least 10 years. The mechanism favored is a nonbypassable "public benefits charge," Davis said.
Some think that little, if anything, remains to be done to ensure that local conservation opportunities are developed, given the regional market transformation effort, he said. Others believe that much conservation will still be left on the table, Davis added. Mechanisms for achieving local conservation include a "market-based" model, a "service standards" approach similar to the model conservation standards, and a "commons" model. This model would have utilities that are unable or unwilling to offer conservation programs pay a public benefits charge to a third party to provide such programs in their service territories. Given this diversity of views, no consensus emerged in favor of any of the alternatives, Davis said.
There was also no consensus on level of funding, he noted. Proposals for the appropriate level of local conservation funding ranged from zero to $185 million, Davis said.
The group reduced the number of items under discussion for "public purpose costs, obligations, and cost transfers" from 29 to 15, Davis noted. We didn't spend a lot of time on this, he said, noting the report shows a chart of where the transfers occur and annual cost estimates. This is not a consensus document, Davis stated. He urged the committee to consult the group's detailed report for citations for the chart "in order to get any value out of this at all."
Low Income and Renewables Report
I'm not sure the group meetings changed many minds, but it did give people a chance to listen to others' views, commented group co-chair Shimshak. I'd like to think that all of us learned more about all the issues in public purposes, she said. "It was a very interesting ride," Shimshak observed.
For low-income energy assistance, the group agreed on three things, she reported. There is a significant problem for low-income people under the present system, and second, the need for low-income weatherization and energy assistance is larger than the funding currently budgeted. Third, we agreed on the range of funding required to meet energy assistance needs, Shimshak said.
As for "who's responsible," there were two points of view, according to Shimshak. The first is that general purpose government bears primary responsibility for low-income energy assistance; the second is that the energy system bears primary responsibility and advocates a uniform standard of service and/or a system benefits charge.
As for renewables, Shimshak said the group talked about their benefits and the economic constraints in an increasingly competitive energy market. They agreed on eight goals and objectives for renewables. The group also endorsed five consensus proposals for renewables, as long as no new dollars were required to carry them out, she said. They are:
There were also "non-consensus proposals" from those who believe more actions are needed to promote renewable resource development. Funding for these efforts could come from a nonbypassable public benefits charge or a renewables portfolio standard, she said. Other work group members opposed any mandatory financial support for renewables, arguing that they are too expensive, the west coast has an energy surplus, and renewables are a "matter of personal taste," she reported.
Is hydro a renewable resource? asked Drummond. We left it up to the steering committee to decide how to define renewables, Shimshak replied. In California, the definition of biomass even extends to the burning of tires, she noted.
If customers have full choice, and there's significant competition with energy service companies (ESCOs), where do distribution utilities fit in? What is our obligation in providing conservation and low-income services and to estimate what ESCOs will do? Did your group have an answer to that? asked Drummond. The short answer is, we didn't, said Davis. We talked about a system benefits charge, but not a meters charge in any detail, he added.
Lost Baggage on the Public Purposes Flight?
Rachel and Jim did a good job of flying a heavily loaded plane and landing it, said Applegate. "But I want to point out that some of the baggage didn't arrive with the final product." Important information on subsidies is not in the final report, he said. Applegate reminded the committee of the issues raised by CRITFC and the tribes on the power system and fish recovery.
Zarker referred to a paper titled "Conservation in a Competitive World: A Realistic View," by Seattle City Light, the Northwest Conservation Act Coalition, and others which discusses the need to move to a regional consensus on conservation. There remains a lot of cost-effective conservation to acquire, and I hope the paper will encourage discussion, Zarker added.
Jay Minthorn of the Confederated Tribes of the Umatilla Indian Reservation urged the committee to meet with the tribes. He said treaties with tribes are not "public purposes," they are contracts between nations. He referred to a letter he sent to Northwest Power Planning Council members and Governor Kitzhaber about the review. It's important we begin to resolve these issues between co-managers and to work on a government-to-government basis, Minthorn said.
In preparation for next week's meeting, Collins suggested that staff could go through the work group reports and "tease out" decisions that the committee needs to make. Would preparing a list of major decisions be worth doing? he asked.
Maybe we should ask for validation of the points presented as consensus by the groups, suggested Alexanderson. I liked the Competition Group's division of issues between transition and a desired end-state, stated Wilcox.
Legislation or No Legislation?
The staff could identify issues that need more research, like the Appointments Clause, suggested Pollock. Should we try to segregate issues into legislation vs. no legislation? asked Collins. Given what we heard today, it seems that one way or another, we're going to have legislation, said Canon. It's not realistic to spend time on a no-legislation alternative, he suggested. We should determine what to accomplish in legislation, not seek to avoid it, commented Hemmingway.
There still may be things the committee could recommend that aren't related to legislation, said Pollock. I'm not saying we shouldn't do that, but let's not be afraid to be in the legislative column and also to do things administratively, Hemmingway stated.
There's a high likelihood of legislation, and we should get an open debate going in the region, said Saven. I'm trying to determine if there is any interest in pursuing a package that wouldn't lead to legislation, stated Collins.
We should start down the path to decide what we want to do and not get stuck on legislation or no legislation, recommended Shimshak. I assume there will be legislation whether we promulgate it or not, said Drummond. We need to decide what we want to do, he added.
We could identify things that could be started right away if we agree on them, suggested Applegate. Legislation/no legislation is a distinction that won't help, he said.
So we won't foreclose taking administrative actions, and "no legislation" won't be a constraining principle, said Collins, adding, I've talked to people who say that we need to avoid legislation. I'm not convinced legislation is a wise idea, stated Zarker, but he added, "it's not the first sieve to put this through." Collins said staff would draw up a set of decisions for the committee to consider next week.
Meeting Adjourned
Steering Committee Members: Chair Chuck Collins, Colsper West Corporation; Al Alexanderson, Portland General Electric; Rick Applegate, Trout Unlimited; Ken Canon, Industrial Customers of Northwest Utilities; Jim Davis, Douglas County (WA) PUD; Bill Drummond, Western Montana Electric Generation and Transmission Cooperative; Jason Eisdorfer, Citizen's Utility Board of Oregon; John Etchart, Montana Governor's Representative; Bob Gannon, Montana Power; K.C. Golden, energy consultant; Charles Hedemark, Intermountain Gas; Roy Hemmingway, Oregon Governor's Representative; Mike Kreidler, Washington Governor's Representative; Todd Maddock, Idaho Governor's Representative; Sharon Nelson, Washington Utilities & Transportation Commission; Walt Pollock, Bonneville Power Administration; John Saven, Northwest Requirements Utilities; Rachel Shimshak, Renewable Northwest Project; Brett Wilcox, Northwest Aluminum Company; Gary Zarker, Seattle City Light.
Please contact whitney@newsdata.com if you have questions or comments
about this website or call 206/285-4848.
Last modified: July 15, 1996
rr10.html