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Regional Review

Comprehensive Energy Review
Steering Committee

Wednesday and Thursday, July 17-18, 1996

Sheraton Airport, Portland, Oregon

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THE COMPREHENSIVE ENERGY REVIEW STEERING COMMITTEE agreed on lists of "consensus" and "non-consensus" issues drawn from the July 11 work group reports, and the committee debated who should develop a "strawman" for a restructured Northwest electricity system. Council staff, the governors' reps, and consultant Al Wright were chosen. Committee members Bill Drummond and Bob Gannon were absent. The audience was about 40.

Next Meeting: July 30-31 in Portland. Consultation with the tribes and a look at the strawman.

In This Issue:

OPENING REMARKS

"We need to find middle ground, and we need to find it everywhere," steering committee chair Chuck Collins said. The market is doing things we can't control, but there is a lot "we have enormous influence over," he noted.

He said the group first needed to reach a conclusion about "the long-term competitive advantage" of falling water versus gas. Do you think the advantage is with falling water or with gas? Collins queried. Then you have to consider reality, Collins continued. In 2010, the first of the baby boomers will turn 65, he said; I have read articles that say that will be "a cataclysmic event." Retiring boomers will make up a huge segment of the voting population, and they have an incredible government entitlement, Collins said, noting that Medicare is expected to run out of money well ahead of 2010.

"My guess is that the federal government, between 2000 and 2010, will be picking up loose change wherever it can," Collins said. It is "incredible speculation" to assume the government will continue to sell power from the federal system for 20 mills "in the name of preference," he observed. If you think falling water has a huge value, you'd better lock it in now, Collins recommended.

When the WPPSS debt is gone, the available benefit will be large, Collins said, and "those kinds of dollars won't go unnoticed." You have to get closure on those questions, he said. If the answer to the question of falling water is yes and we fail here to preserve it, we have forfeited many things, Collins advised.

ORDER OF BUSINESS

Collins explained there were two lists to agree upon: a set of consensus items and a set of non-consensus items. He said Rachel Shimshak suggested "we need to get something up on the wall to react to." Our third task is to decide how to get a "strawman," Collins said. The possibilities include: asking the governors' reps to propose one; asking the work group co-chairs; or asking staff, along with Al Wright.

Reaching Consensus On The Consensus

Federal Power Marketing

1. A continued federal presence in federal power marketing, although not necessarily BPA as we know it.

This is true, but it could be a joint federal/nonfederal entity, Brett Wilcox observed. The feeling was that we move away from federal control, recognizing there is some need for a continuing federal presence, he said. John Saven noted that a goal stated in the work group report is for BPA to stay a federal entity. Roy Hemmingway said there had been considerable discussion about what is needed to ensure the quality of WPPSS bonds. You couldn't just create a stream of payments without a federal presence, he said.

I'm of the view there was consensus about concerns with the security of the bonds, Mike Kreidler said. It seemed there were few options available; dealing with a federal entity was a given, and not a debatable point, he added.

Saven reiterated that the group was clear about retaining a federal agency, with the idea the agency would not expand. The committee concurred that the statement represents consensus.

The committee concurred on items 2 and 3: The federal power marketing entity must be designed to be able to fulfill BPA's financial obligations, including public purposes; and the security and tax-exempt status of third-party bonds must be maintained.

4. Bonneville or successor does not have the obligation to serve load growth, although it may serve a customer's growth on a bilateral contract basis, take-or-pay.

I want people to know what that means, Wilcox said. If BPA doesn't serve load growth, you have to have an allocation system, he said, noting that the Regional Power Act gave BPA this charge. I think we need to be careful "not to impart a lot of language behind the words," Rick Applegate cautioned.

I come back to "the guts of the Power Act," Wilcox responded. "We took the lid off" the federal system and said that BPA could serve everyone; "we're putting the lid back on," he explained. How does this differ from the status quo? K.C. Golden asked. Right now, BPA is able to serve all load, Wilcox replied; but if it were short, it could go acquire resources. This statement says that wouldn't happen; we need to understand the implications of where this takes us, he stated. The committee concurred with item 4.

5. Resale of Federal Base System power purchased under long-term contracts is permitted.

In the marketing group, we had some qualifiers, Walt Pollock said. If we say it as bluntly as this, it could raise political problems and call preference into question, he added. To the extent you have "a fall-off in load," Saven offered, you have the ability to remarket -- it would not be a situation in which you need 90 MW, but want to purchase 150 MW, he said.

This seems inconsistent with customer choice, Al Alexanderson said. It seems strange that the power couldn't be resold when customers have choice, he added. We may not want to put a lot of restrictions if we want BPA to be able to meet its obligations, Ken Canon observed. Clearly there are restrictions people want to discuss, Collins said. We could add that it is permitted "under some circumstances," Applegate offered. The committee concurred.

6. BPA does not sell directly to new retail loads as long as it has stranded investment protection equivalent to that afforded IOUs, when full retail access becomes a reality.

Collins said this item was from Randy Hardy's speech at the July 12 Forum. There was consensus that BPA not go to the retail market beyond serving its existing DSI customers, but there was a qualifier addressing legislation and market changes, Saven said. We recognized BPA would want to compete or have the ability to recover stranded investment, he added.

This says if the IOUs can buy down their investment in "above-cost or non-performing generation," BPA can do the same, Kreidler stated. The equivalent of shareholders for BPA is the U.S. Treasury, Canon observed. I read Randy's statement to be that BPA needs either stranded investment recovery or access to retail customers, Golden said. Yes, Pollock responded; we were concerned about state-mandated retail wheeling. If it happened and we didn't have stranded investment recovery, we've got a problem, he said.

There are two issues here, Alexanderson said: BPA selling to retail loads and BPA's stranded cost situation. I don't agree that BPA should enter the retail market, he said. Stranded investments could be resolved with an exit fee or some other option, Alexanderson suggested. Kreidler disagreed. BPA should not be involved in an expanded retail role unless it can't meet its public purpose obligations any other way, he said. I'm reluctant to take that away, Kreidler added. Wilcox concurred; I think you have to keep the retail option open, he said.

There was no consensus on 6, and it was struck from the list.

7. Some form of increased regional (customer?) authority over the budget of federal power marketing entity.

I doubt we have consensus on this, Applegate observed. What effect would this have on fish and wildlife (F&W)? he queried. Saven pointed out there was a "preponderance of interest" in the work group in saying we have to have some control over budgets.

Collins noted that the issue relating to the Appointments Clause of the U.S. Constitution "is disappearing." We've become aware of an opinion from the Justice Department that may solve our problem, Pollock explained. I think we've got more room than it appeared, he said, adding that BPA's legal counsel is studying the issue.

I think this is big and broad enough, and we don't need to get hung up on it, Jim Davis stated. Applegate suggested the statement should not preclude federal involvement in both power and fish issues. I see two circles: one that encompasses BPA and one that encompasses the other federal agencies, Collins explained. "This is about invading the BPA circle," he said. If we're trying to get people to take more liability for the system, the tradeoff is more control, Collins stated.

We're talking about a long-term commitment, Saven stated. Some publics don't know if they can sign such a contract without some control for purposes of operating decisions, he explained. This is a different discussion than the obligation of the system for fish, Saven said. This is not a budget discussion, it's for purposes of controlling short-term operations, he added.

I'll sign up for the idea that risk and control ought to move together, Golden said. I'd ask that we not draw that circle so narrowly the public policy significance is lost, he added. The committee concurred on 7, deleting "customer" from the statement.

8. Preservation of public and regional preference in the form of "a first right of refusal."

Some folks think there's a disconnect between federal power marketing and the real world, Jason Eisdorfer said. "I'm willing to suspend disbelief," he said, but I believe the entities that serve residential customers today may not exist in the future. We need to think about what the world will look like in 2001, and the allocation mechanism must address that, Eisdorfer contended.

There are different ways of allocating the system, Hemmingway observed; in this case, the preference class can buy at a certain price, but can refuse the offer. It seems there was consensus on this, Pollock said, noting that the non-consensus list includes an item on preference for IOU residential and small-farm customers.

There's a compromise in this issue that relates to the rights set out in the Regional Power Act, Collins said. The discussion here has been in terms of public power utilities accepting long-term allocations; it would cede their right to give up the federal allocation of power and then come back later and say, "I want mine." It represents a fair amount of progress, he added.

If you don't want what BPA is offering and nothing else is available if you change your mind, you're out of luck, Saven said. This is also a recognition that public and regional preference are important, he added.

I'll let it go, Eisdorfer said, with the understanding we revisit it. Sharon Nelson said she agreed, and noted that she wanted to study Hardy's July 12 comments about a "junior preference right."

Is this first right of refusal at "cost" or "market"? Golden asked. I don't think this presumes that, Collins answered. Public preference is generally associated with cost, Davis stated. This does imply cost, Wilcox concurred. Are we okay on 8? Collins asked, and the committee agreed.

9. Preservation of future benefits of the federal power system for the region.

This is one where we should be careful "of not becoming too parochial," Applegate commented. We've got to be careful how we phrase this, he said. We'll be back in Washington, D.C. with this -- is it "our guiding principle" that all the benefits belong to us? Applegate asked. I don't think it's the best posture to come in the door with, he added.

"I think the risks and rewards are lined up," Chuck Hedemark observed. "I think it's a good bargaining position," Collins added. We are trying to preserve these benefits -- why mask it? he asked. We should think it, but not say it? Shimshak queried. It treats others across the border "like foreigners," Applegate responded. It sounds a lot like that, he said.

It is a lot like that, Collins answered. I don't think there is anything else to say, he added. We could be approaching the feds to share in some of this cost, Applegate observed.

That's good counsel, Rick, Collins said, but isn't this why "we're toiling in the vineyard?" The group agreed to leave 9 as stated.

10. Streamline the ratemaking process either administratively or legislatively.

Nelson suggested this statement raises the question of FERC jurisdiction. Wouldn't you want this in the hands of a regional board? Collins asked. I'm saying there should be some accountability and regulation similar to that for any similar entity, she replied. Canon agreed, suggesting "streamline" could become "change." That doesn't convey much about what we intend, Pollock said. People think the process is too complex, he added.

The concept was to "streamline," Saven stated, and we talked about ways to shorten the process. Eisdorfer suggested the wording be: "streamline and improve the accountability of the ratemaking process." The committee concurred.

Transmission

1. An independent grid operator (IGO) or equivalent should be formed. The committee concurred.

2. Bonneville is headed in the right direction with functional separation of power marketing and transmission. Bonneville should participate in the regional IGO to the greatest extent possible.

Canon asked if this statement assumes IOU functions would be separated, too, and the committee agreed that it did.

3. Legal separation of BPA into separate power marketing and transmission entities is desirable, consistent with the maintaining security and tax-exempt status of third-party bonds.

For some of us, "de-integration of the system" is not desirable until you figure out how to handle public purpose responsibilities, Golden observed. This statement has some conditions, but it omits another: devising a way to accomplish the public purposes carried by the integrated system, he stated. A de-integrated system is only okay if it achieves these, too, Golden said.

We all feel we have to honor the obligations of the past, Hedemark commented. But in going forward, it's not necessarily true that all of those things belong, he suggested.

The question is, should the transmission system be free of that? Should power marketing pick it all up? Collins asked. I don't know about that, Golden said. Are you saying, continue the monopoly system if you're not accomplishing these other purposes? Alexanderson queried. He's saying that monopolies are a good place to put public purposes, Nelson responded.

Should we write it that way without prejudging what's included in public purposes? Collins asked. The phrase "and carrying out viable public purposes" was added to the end of the statement.

Competition and Customer Choice

1. The goal is retail choice for all consumers, as quickly as is practical, with the caveat that small customer service and consumer protection issues must be dealt with.

Shimshak suggested that "timing" is a big issue in the statement and that "must be dealt with" should be "must be in place."

My concern is that we are equating "spreading benefits" with "more choice," Gary Zarker stated. They're not synonymous, he said. "The issue is equity," Davis added, and it has to be factored into "whatever solution." The committee decided there was not consensus, and the statement was removed from the list.

2. An important principle in implementing full retail choice is separation of regulated and unregulated portions of businesses. Separation may be functional, with regulatory oversight, or legal.

In the retail choice environment, you'll have two pricing mechanisms: monopoly and market, Canon explained. The separation into those two is crucial to going forward, he said. This is "a very familiar statement" of the goal for getting to markets, Nelson said, and it will be "controversial."

There was not consensus in the work group on the degree of the separation, Alexanderson stated. The responses ranged from "a mild" position that involves setting out distinctions on the customer bill to a total legal separation of functions, he explained; there was consensus on doing at least the minimum.

Gary's getting at a more basic question, Collins pointed out: Is there another way to get the benefits without customer choice? Of the models presented to the work group, this was the one we decided upon, Alexanderson responded. There was strong consensus that customer choice is important, Canon added.

There is one group of customers who will argue that the changes at BPA have brought about benefits -- the PF rate went down, tiered rates went away, Saven said. This group might subscribe to a model that was not presented to you, he observed.

I don't think there is consensus about full retail choice, but there is on maximizing benefits of the system and dividing them equitably, Golden stated. Is there another model? Collins asked.

Public power and local authority, Zarker responded. The board is an expression of customer choice, he said. When customers elect a board, they express choice, Zarker explained. Do you need to go beyond that? he asked. I'd argue that Chelan, Douglas, and Seattle, with something that looks like a monopoly, offer a good, low-cost product that has served the region well, Zarker said. I don't know if you can get us separated from our generation, he added. I don't think that was contemplated, Canon stated. This is fundamentally about how we operate the system, Zarker said.

How much did the group take up the issue of public versus private power? Hemmingway asked. We're talking about rules here for the privates, he added. Let publics do what they choose, he said, adding that when a big customer goes to the city council asking for retail access, "I suspect that's the end of the vertically integrated utility." I don't think we broke it out in that fashion, Canon responded.

I'm uncomfortable with this, Davis stated. "We're trying to make us all look the same, and we aren't," he said. Davis contended that having both public and private utilities has provided "a yardstick for competition." I don't know how you can treat them differently, Hedemark observed. I suggest we pull it now, he said. When we come back to this, we should consider the degree these principles ought "to invade" public agencies, and whomever they invade, consumer protection issues are important, Collins advised.

3. Recovery of legitimate, non-mitigable stranded investment.

In the whole time we discussed this, we never had a good example so we could decide whether it is a big issue for us, Zarker pointed out. There is also the policy question of whether investment is stranded, Alexanderson said. We're experiencing a situation in which some customers are trying to evade Puget's contracts, Nelson pointed out. She noted that FERC and NARUC disagree on the stranded investment issue. "Number three is a nice general statement, but it doesn't say much"; the companies will argue that public mandates were imposed on them, and they should be allowed to recover their expenses, Nelson added.

There was a lot of agreement that this is a problem, and we need a place to fix it, Alexanderson said. We were looking at stranded costs being created as a result of retail choice, he said. A lot of utilities are negotiating contracts with BPA, and the wording of the stranded cost provisions has become very contentious, Saven said. I can't agree to this one line on the issue, he said. The statement was removed from the consensus list.

We'll have to think about the audience for our report, Nelson advised. It will affect the tone, she said; for example, you don't tell state legislatures to legislate. The definition of "customer" also varies: for me, it's the customers of retail utilities; for John, it's wholesale customers of BPA, she said. There are multiple purposes and audiences for our work, Collins responded. We'll need to figure out to whom we're speaking and why, he added.

Conservation and Renewables

1. Some voluntary mechanism for carrying out conservation market transformation activities.

We're further along than this implies, Pollock observed. My understanding is, "it's in play," and the deal is not complete, Shimshak responded. Maybe it's a non-consensus item, Golden suggested. Could we agree that market transformation is important? Shimshak asked. BPA and the publics agreed on it, but the IOUs didn't agree on the funding, Davis stated.

I'd argue for reaching consensus on the funding; it is needed right now, Pollock said. We'll commit to five years, and 10 years, if this body agrees, he stated. The idea is, it's really important; the money is there for it, Pollock added.

Let's agree on two things, Shimshak advised: market transformation is important, and it will take 10 years. Davis added that the group also agreed a non-profit entity should be established to administer transformation. The committee agreed to both, and the statement was amended accordingly.

2. Renewables RD&D within the scope of current budget levels.

The committee concurred.

3. "Green power" marketing, i.e. providing customers the option to purchase renewable energy even if the market has not evolved to full customer choice.

In this item, does Idaho Power, for example, have to offer green power? Is it mandatory? Collins asked. Yes, Hedemark responded. There is no money involved for the utility, Shimshak clarified.

I have a problem with this on principle, Canon said. It's customer choice, but just for a select resource. Is this retail wheeling now for green power? Pollock asked; that raises lots of questions, he observed. If a large industrial customer can go out and find hydro, could we wheel that? Canon asked. That gets to how you define green power, Shimshak answered.

We did not get into the discussion of "the bag of tricks" this would bring with it, Hedemark noted. He said the group didn't put hydro in the package; solar and wind were the resources discussed.

Alexanderson said he thought trying to "shoehorn" this into a closed market brings problems. Saven suggested that if the statement was "a should," it would be okay. A small utility could incur costs trying to provide a customer with "a green portfolio," he said. If this is a mandate, I have reservations; I'd feel more comfortable if we include this with customer choice, Saven said.

"I should give you all the access code to my voice mail so you could hear the message the governor left for me," Hemmingway said. He's hearing rumors that this group has become divided in its commitment to conservation and renewables, he reported. The governor expects a strong commitment to conservation and renewables or "it's a non-starter" for him, Hemmingway said. If we're going to get to agreement, we have to give up "our own idea of purity" and what the perfect system might look like, he advised.

For the last two hours, it seems like non-consensus "is awful cheap," Alexanderson observed. He suggested things would be different if the committee were working with "a bigger package" and people were using "scarce vetoes." That's why we're discussing the strawman, Collins responded. We're attempting to take stuff off the table, he said. The strawman propose an across-the-board solution to the non-consensus items, Collins continued; it will assume that the consensus items are part of the package.

I'd hate to tell the governors and Congress we didn't include a green power option if the customer was willing to pay, Collins stated. This goes to the issue of retail choice, Canon said. Here, if it's non-competitive power, you have choice; if it's competitive, you don't, he observed. This shows one of the advantages of fully competitive choice, Canon added.

I don't want to offend the governor of Oregon, Saven said, noting that "rules" for the deliberations are being made up "as we go along." I have concerns, but leave it on the list, he said.

The committee concurred on item 3, and also on 4: non-discriminatory access to transmission for power from renewables, with as much flexibility as possible to accommodate the characteristics of renewable resources.

System Reliability

1. Any actions taken with respect to federal power marketing, transmission, or customer choice, should not compromise system reliability.

"This is motherhood and apple pie," Collins observed, and the committee agreed.

Is there consensus that federal legislation is inevitable? Is that the premise we start from? Hemmingway asked. If we assume there will be legislation, "people will put their issues out"; if we assume there won't be, "people will horde their issues," he stated.

Why ask that now? Collins queried. It will affect what proposals people put on the table, Hemmingway responded. I believe it's inevitable and that it can't be small in scope, he said. If that's a shared understanding, then we need to solve all of the issues; if not, then we don't, Hemmingway counseled. It's a question of the perception of the politics of the situation, he said.

What I took from our conversations with Congress is that "one vehicle is already there," Shimshak said. Kreidler questioned whether the discussion would be productive until "we've decided what we need to accomplish."

"Roy's right," Canon said. If we believe legislation is going to happen, that colors how we look at the issues, he explained. If you believe it's a matter of a few administrative questions, you don't need to worry about being comprehensive, Collins said; but if it's going to Washington, D.C., "every base needs to be tied down." And it makes a difference in whether we take issues off the table because "they're a little uncomfortable," Hemmingway observed.

I think we have a clear view from the delegation that it's inevitable, and it won't be small, Applegate commented. If we come up with something narrow, what have we really done? he asked.

"We've created a moment of enormous danger," Collins responded. Let's decide how we will draw the strawman, he advised, and then begin that debate the next time.

Can We Agree On The Non-Consensus?

We have to have some sense of magnitude, Collins said, as the group moved to the non-consensus list. There are a million things to disagree on -- let's try to temper this, he said.

Federal Power Marketing

The committee concurred on items 1 and 2 on the list: What form should greater customer budget authority over power marketing take? and What form should river governance take and what should its relationship be to customer budget authority over power marketing?

3. What should be the duration and output basis of contracts?

Does this assume some form of allocation? Collins queried. I agree with the statement as it's written, but I don't agree that means an allocation, Saven stated. If BPA is not required to provide load growth, "you back into allocation," Canon said. We have to have a way "to grow the pie" or a way to divide it, Alexanderson observed. There was agreement that BPA not be in the acquisition role, except with bilateral agreements; but we agreed that BPA might need to go to the market for power on a temporary basis, Saven explained.

I don't agree that we can say BPA is not in the acquisition mode, without a form of allocation, Wilcox stated; "they go hand-in-hand." I'm not there yet, Saven said. I assumed people wanted an entity that was not growing in size or scope, Pollock said, but the bilateral ability is there. If public agencies say they want that service, I didn't think it was automatically foreclosed, he added. It probably means a contingent allocation scheme, Pollock acknowledged. We've said if utilities put demand on BPA, the customer bears the full liability, Collins observed, but that's not the law. Anyone can put load on BPA, he said.

We could have gotten close to that with tiered rates, Pollock pointed out. Why don't we put something in here about BPA's load being allocated? Canon suggested. I don't think we should delete the load growth obligation without an allocation, Wilcox said. I'm not sure there is as much non-consensus as it seems, Pollock observed. What I hope we do with the strawman is look at who gets what and for how long, he added. The item remained on the list, and "Should there be an allocation of BPA power?" was added as a non-consensus statement.

4. Should prices be based on costs or on market levels with some sort of defined dividend policies to redistribute any excess of market price over cost? remained on the list.

5. How can fish cost risk be defined, predicted and constrained appropriately given the level of benefit under the contracts?

The committee agreed to Applegate's suggestion to change the statement to: How can the ability of the power system to meet fish obligations be improved?

6. For which public purposes will the federal power entity continue to be responsible?

Is this a dollars issue? Pollock asked. It's "which," Collins responded. It's "the whole shooting match," he said, including irrigation, navigation, and flood control. I will give you some advice, Collins added: you'd better "get real" fast on this.

I thought we'd get a list of these public purposes and have a discussion of them, Saven said, rather than have the strawman group figure it out. Shall we do that now? Collins asked. These are so large -- let's have the strawman take a cut at it, Applegate said.

7. BPA does not sell directly to new loads as long as it has stranded investment protection equivalent to that afforded IOUs, when full retail access becomes a reality.

This item was shortened to: Whether BPA can sell directly to new retail loads.

8. Is there some preference status for the residential and small- farm customers of IOUs?

I think it's an allocation question, Wilcox said. Is this different than regional preference? Alexanderson asked. The issue is how does IOU residential and small-farm load get factored in, Saven said. If we solve the allocation, do we solve this? Collins asked. Not over time, Nelson replied. There will be new entities, offering new options; it assumes a static universe, she explained.

If you answer the questions: who, what product, how long, and at what price, these issues go away, Pollock said. Those are "the four core" questions, Wilcox agreed. You also have to answer the question about any remainder, if it's not a fully subscribed allocation, Pollock observed.

Sharon's question is, what happens at the end of the contract? Collins said. It's a question of "distributional equity," Nelson said. One outcome is that at the end of 30 years, you go through the same thing again, Canon suggested.

If you believe the curve Randy [Hardy] put up on Friday, there will be a $2 billion benefit in 2010, Collins noted. If that curve continues and improves, he said, I can't imagine that you'll want a 20-year contract, and five years after the boomers turn 65, "you put it all up for a jump ball."

I'm concerned about the entities serving residential customers, Eisdorfer said. They may be very different from today -- I don't think it's "an end-of-contract issue," he asserted. The IOU entity that signs the contract may not be the entity serving customers halfway through the contract, Eisdorfer said. We need to discuss how that entity works in a different world, he urged.

You can write a contract that assures benefits to a third party, Pollock said. A more interesting question is, are we targeting benefits to certain customers? he said. Jason's question is whether we are targeting the benefits for customers in the Northwest -- so that they can't "be arbitraged off" to others, Collins responded.

It's not just geographic, but a customer class benefit, too, Nelson observed. We need to account for "a dynamic marketplace"; we have to acknowledge that the players may be changing, she added. It's an important question for us to be clear about -- whether the benefit goes to a Northwest entity or through to customers, Pollock said. If the benefits go to some other slice of customers, do they pick up the liabilities as well? Canon asked.

Some people say distributional equity "is tilting at windmills," Nelson observed. They say with markets, "people with money will get what they want and people without, won't," she added. The notion is that people in the Northwest should benefit from this geographic resource, Nelson asserted.

I think we've defined the problem well, Collins said. There is interest in equitable benefits in the Northwest, he reiterated. And there's agreement they should get to the end-user and not be captured by an intermediary, Alexanderson added.

There's no mention of WPPSS here, Shimshak remarked. If the allocation works, you allocate the power and the liabilities, Collins responded.

This question will keep coming up: Is the WPPSS debt special? Alexanderson asked. Randy said it wasn't useful to label it separately, and I agree, he said. A lot of people think nuclear debt is special and should be treated so, Alexanderson observed. It's special because it's big, Golden responded.

Who pays the debt if the system doesn't? Collins asked. That's the question, Golden replied. The WPPSS debt was assigned to BPA "when BPA was flush," Kreidler said. Now the question is about the form of the allocation between stockholders and ratepayers, he said.

The customers and stockholders are the same here, Hedemark stated. If we're going to retain the rewards of BPA, we have to accept the risks, he advised; "it's not going to fall to the federal Treasury." Our group viewed the question as a past decision in the portfolio, Saven said. There was very little support for segmenting WPPSS out as a separate item, he explained.

The WPPSS debt comes up because it's a major liability, and it impacts the funding for other purposes, Applegate responded. It's part of the search for ways to get the system to pay for those purposes, he added.

Is the question whether resources of the system should be segmented? What are we talking about? Saven asked. We're talking about "the most poison issue in the region," Collins answered. Wouldn't it be nice if someone else would pay it, Collins observed. "We got to stiff the bondholders on 4 and 5," and because the government is involved, we can't do it on 1, 2, and 3, he said. We can send a proposal to Washington, D.C. saying "we think you ought to pay for WPPSS," Collins continued, but I think "it's got a serious packaging problem."

I'm not prepared to see us dismiss it, Applegate said. The whole package may represent some opportunities, he stated.

I'm not getting "a tiny sliver of daylight" to any receptivity to even talking about it, Pollock said. I appreciate that, Applegate responded, but I'm not ready to say that disposes of the issue.

This idea is not going anywhere, Saven asserted, suggesting it should not even be punted to the strawman. "It's DOA," he said.

It's not "either/or," Hemmingway said. There are other mechanisms to consider like exit or access fees, he pointed out. Our problem is the scheme for marketing the federal system; we don't know what the value will be, Hemmingway stated. I think you make an excellent point about what the feds will do in 15 years, he told Collins. "That's a very logical way of looking at the future"; but is it one we can count on for designing the system? Hemmingway asked. We need to look at a way of marketing the system that deals with options. We cannot make a design around our judgment in July of 1996 of the market value of the system in 15 years, he said.

Isn't that the bidders' problem? Collins asked. Yes, but in setting up the bidding system, we shouldn't assume a value, Hemmingway replied. Trying to design a system based on market perceptions is very risky, he added.

Collins asked for closure on WPPSS. Do we agree the transmission system is open to look at WPPSS? he asked. The issue is whether WPPSS is special, Alexanderson said; whether the transmission system should bear other than transmission costs is a separate issue. We're talking about seeing how we can recover costs, Kreidler said. The WPPSS cost is not special, but it must be dealt with, he added.

The entire corporate entity is liable, Collins said. One of its revenue-raising parts is transmission. I'd say the transmission system has some of that liability, he concluded. Can the strawman committee consider transmission? Collins asked.

Roy's point is good, Nelson said. We should still be open and flexible in looking at options, and the strawman committee should be empowered to look at them, she stated.

Competition and Customer Choice

The committee revisited a couple of items from the consensus list. Public power should make its own choices with regard to separation of regulated from deregulated parts of the business, Hemmingway asserted. If customers don't like it, they'll throw out the board, he said. If an IOU is operating under choice and a public wants to sell into it's territory, what about reciprocity? Canon asked. You could require reciprocity, Hemmingway replied.

There are two issues here, Alexanderson said: divestiture and customer choice. Some are saying publics should be exempt from any policy going toward having customers "shop," he said.

My experience with public power boards is they don't make decisions with the same "cold-eyed economics" as IOUs, in terms of service and allocating costs, Hemmingway said. The decisions are geared more to the "social good," he said. That's a prerogative they want to preserve, Hemmingway said, and "as long as the voters feel that way," that should be okay. There is a very different philosophical approach about meeting community needs, Kreidler agreed.

The open market stuff "didn't get Zarker going," it was divestiture, Collins observed. Should you raise this for IOUs and not for publics? he asked. I'll push for separating the regulated and unregulated IOU business as far as possible, Eisdorfer stated. I don't feel that way about publics, he added.

The committee added a statement that items 1 and 2 on the non-consensus list do not apply to public power; item 3 did not change.

4. Should a specific target year be set for achieving choice for all consumers? e.g. 2000.

This depends on everything else we do, Canon said. It's clearly non-consensus on what year, but it's important to have one, he said. It's an important point for consumer information, too, Shimshak said. People didn't have much information and forewarning with telephone deregulation, she observed. Davis suggested adding a statement that open access be available to all customers simultaneously, and the committee agreed. Two other items remained on the non-consensus list: Whether a distribution access or meter charge would be appropriate to help fund conservation, renewables, or low-income programs; and the degree of separation needed between distribution and retail marketing in order to ensure consumer choice at the retail level.

Have we dealt with how to assign responsibilities to the distribution utility? Shimshak asked. The committee agreed to add an additional item: Whether existing providers have an obligation to serve, and if not, who does?

Transmission

The committee agreed to leave three non-consensus transmission items on the list: Relationship of BPA to the IGO, i.e., member or IGO?; form of governance of the IGO; and appropriateness of a charge on transmission to raise revenues for non-transmission purposes.

Conservation and Renewables

The committee concurred that items 1 and 2 are non-consensus: Establishment of a mechanism now that would ensure ongoing, long-term financial and institutional support for conservation market transformation activities; and establishment of a mechanism to ensure that cost-effective conservation that is best captured at the local level will be developed.

3. Some level of public funding for conservation to secure cost-effective conservation not captured by market forces.

I read this to suggest someone is at zero, Golden said, and that's troubling. He suggested that "some" be changed to "what." Canon said industries are frustrated with a system that "takes money from us" to use in conservation. As part of a package, "it's something we can work on," he added. Saven suggested that the item was a consensus item, and the committee moved it to the consensus list.

4. Electric power system responsibility for substantial funding of low-income weatherization and energy assistance services.

The committee decided to write two sentences -- one dealing with weatherization and one with low-income energy assistance.

5. Full and long-term support for research, development and demonstration activities for renewables and distributed resources. Full implementation will require funding in excess of that currently provided.

Do we agree these are money issues or are they philosophical? Collins asked. It's a market versus government argument, Alexanderson responded. Some folks I represent see the hydro system as a renewable resource, Saven said. Do we resolve these on a philosophical basis or on dollars? Collins asked.

To what extent are there large amounts of money involved? Hedemark queried. Shimshak noted the cost was $1 million. If it's $1 million, it's not worth a lot of time, Wilcox said, and the committee moved forward.

6. Completion of the renewables pilot and demonstration projects or merely honor the contracts.

We have no producing geothermal, Pollock reported, and nothing is budgeted for payment of those costs. The net cost of the projects is $35 million to $50 million annually, he added. There was consensus to do this in the work group, Shimshak noted. Did the group have the budget information? Collins asked. Yes, the dollars were on the table, she replied.

Item 6 remained on the non-consensus list, as did 7 and 8: Support of some minimum rate of new renewables project development in addition to the pilot and demonstration projects currently committed to by BPA and the utilities in the region; and regional support of projects and programs to overcome technical and market barriers to the development of distributed resources.

What's Missing?

Steering committee members raised several issues that were not yet been addressed on either of the lists:

Collins asked Nelson, who was leaving, to comment on an approach to the strawman. I'd ask the four governors' reps, with assistance from staff and a group of experts, like Jim Litchfield, Merrill Schultz, and a public interest rep, she replied.

Who Can Help Build The Strawman?

Applegate began the discussion on developing the strawman by saying he would like to have someone "who has observed our conversations and who hasn't taken a position." For that reason, "I'm partial to the governors' representatives," he said.

Saven listed the alternatives Collins laid out and offered some more, including having each of "the major groups" identify a person or appointing a small group from the steering committee. I don't advance the governors' reps, he added, stating that he thought it could put them in "an awkward position." Al Wright has been very involved and understands the issues, Saven observed. "It makes a lot of sense" for Al and the four Council staff who have been assisting the work groups to develop the strawman, he said.

Davis said he was uncomfortable with a group from the steering committee. "The conflicts are overwhelming." I prefer Al and the four council staff, he said.

I am inclined to the governors' reps, Golden said. They offer some distance from the constituencies, he added. Canon suggested a merger of the Al and staff plan with the governors' reps. Wilcox noted that the governors will be "the arbiters" of the final proposal. "We're likely to shoot the messenger," he said of the strawman developers; I vote for Al and the staff.

I don't have a problem with the governors' reps, Eisdorfer said. "They represent an ideological slice," and we won't rely on "one person's view of the world," he added. I want to ensure the edges are sharp on the strawman -- "no blurred lines or vague language," Hemmingway asserted. If it's Al, it should be clear that potential clients around the table don't hold him accountable, he said.

Collins noted there would be a great deal of work involved, and Hemmingway said some of the governors' reps would be in Washington, D.C. for one of the next two weeks. I'd defer to you as chairman, Hedemark told Collins.

Could you four get it down in two weeks? Collins asked. Kreidler suggested Washington state has staff resources to draw on. It was noted that John Etchart knew of the idea, but not Todd Maddock. [Neither were present for the discussion.] Saven said the work group report had required many hours; "It will be a Herculean effort," he said of developing the strawman.

Applegate said, "Al's got lots of strengths," but "I'm nervous" about his present and future clients. The governors' reps have independence from the final votes, he added. That resonates with me, Collins acknowledged, noting the reaction when Jim Litchfield was asked to work on the template.

However we do this, it must be somebody who can spend 60 hours in the next two weeks on it, with one individual to pull it together, Pollock stated. Let's let the Council staff do it, Wilcox said; staff has done a good job of shaping the debate so far. Let's pick them and get on with it, he added.

Will they take risks? Golden asked. I'd still like to see the governors' reps oversee this, Applegate urged. One of the worst things that could happen is we get a proposal, and it's not at all what we were after, he said. There's a danger that the proposal comes in, and we say "it's the wrong rock," Applegate said.

Let's take our first vote, Hedemark recommended. The governors' reps are here with us and are able to influence the debate, Alexanderson said. We've been treating them on the same terms as everyone else, he added.

Do you think it's significant that the governors' reps are ex officio? Collins asked. My impression is this process has to face the inevitable -- this will be decided in the political arena, Zarker observed. "The art of the political" argues for bringing the governors into the debate, he said.

Hedemark moved that Al Wright with Council staff draft the strawman. Six voted in favor and five opposed.

"I don't like the feel of this," Applegate asserted. "We'll all call and lobby the daylights out of them," he said. All lobbying should be in writing, Hemmingway proposed; I agree this could be a massive lobbying process. I'd ask that we rethink this, Applegate continued. I'm disappointed that we jumped to votes so soon. This is the second vote, and "both votes were kind of ugly," he stated. I don't have any difficulty with the governors' reps, and I'd ask we reconsider and meld these together, Applegate urged.

I don't think we precluded that, Alexanderson said; "until you raised it, I didn't think about this kicking off two weeks of lobbying." I'm moved by Rick's comment, Wilcox said; if it's that important, I'd change my mind. Let the governors' reps make the critical policy decisions and the staff can flesh them out, Shimshak offered. The difference with Rick's proposal is a formal expectation that the governors' reps will be involved, Golden said.

Staff with Al will do the writing, and the governors' reps will be involved -- let's consider a melding of the two, Applegate suggested. And they are free to call anyone they want, he added. This should not be an opportunity to lobby, Collins said.

If we go ahead with this, I'd underline Roy's caution about Al's clients: half are his clients, half aren't, Golden said. The point is that there be discipline on the clients to make sure there's no connection, Golden said. For the record, I've never been a client of his, Canon stated.

This has all arisen before, Collins said. Al brings something useful to the discussion: he has a knowledge of all the parties and issues, and "I've never seen him abuse it," Collins said.

If I understood correctly, we want to see sharpness here, Kreidler said. That might step on some toes; the governors' reps can take the heat for that better, he added. We want a sharp proposal, covering all points, Collins said. We'll have the staff, plus the governors' reps, and retain Al, he concluded.

Are we going to talk about what they will do? Saven said, referring to the issue of a legislative versus a non-legislative solution. It was a good point Roy brought up, he continued, but some of us do not rule out the possibility of no legislation or minor modifications. I want to have some discussion about the route that involves smaller solutions, Saven said.

The strawman will address all the points and make definitive proposals, Collins explained. By bringing in the governors' reps, we leave it in their hands whether "to take a high, medium, or low" approach, he continued. The strawman will not be a set of choices; it's the point where we start amending, Collins stated. Applegate suggested that the points of consensus be written into the proposal, too, and Collins agreed.

This process has been pregnant with "when is the time to deal?" Collins said. We're getting close, he stated. When we get to the strawman, if that's not the time to compromise, I don't what is, Collins said.

Would you anticipate at the end of the amendments that we have a vote? Golden asked. At the end of the amendments, I'd hope we'd say "is that good enough?" Collins said. Sometime in November we will have a final proposal, and "the best possible result would be no vote," he stated.

Let's keep foremost in mind that what comes out in August is a draft for public comment, Applegate said. Let's be careful about saying "this is it," he cautioned.

Public Comment

Doug Still of Emerald PUD: I think the public has a deep interest in the outcome of this process. I'd urge you to look at all of the data on the consequences of deregulation in other industries, such as the airlines and telephone. They have had many negative public impacts. The goal has to be a vision for the well-being of the public. Make sure that the public purposes are not lost sight of.

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.

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