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Comprehensive Energy Review
Steering Committee

Thursday, November 14 through Friday, November 15

Downtown Red Lion, Portland, Oregon

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THE COMPREHENSIVE ENERGY REVIEW steering committee slogged through a variety of issues, resolving some and setting others aside for later consideration. All committee members were present at some time during the meeting. There were 40-50 audience members.


Next Meeting: November 21-22 at the Red Lion Lloyd Center in Portland.


In This Issue:


OPENING REMARKS: THE HOMILY

"We start today the end," said steering committee chair Chuck Collins, noting there are four meetings left. We look at the draft final report on December 5; if it is successful, we'll present it to the governors on December 12, he said.

We've spent a great deal of time discussing the split between what becomes legislation in the states and Washington, D.C., and what becomes administrative action, Collins observed. It's the wrong question, he stated. The right question is how to settle our differences and reach a consensus that will be effective in any of the three environments, Collins said.

"There is a potentially hostile force mobilizing outside our borders," Collins suggested, and there are three courses of action: mobilize and attack; mobilize and defend; and "hope they don't attack." We need to determine if we have something worth defending, and if we do, we should mobilize, he said. We may choose to attack or defend, but both require that we mobilize, and mobilization is regional consensus, Collins stated.

Whatever our course, our differences should be resolved so we can speak with one voice, he continued. Some have suggested we do nothing, and we could decide to just "let it all go to market," Collins said. But if our best interest is in preserving the Federal Base System (FBS), then we need to resolve our differences, he urged.

Do We Need A No-Action Alternative?

During the public comments on the draft report, we were told that we've failed to lay out a base-case scenario, stated Bill Drummond. I am struck by the sentiment of public power folks that they do not see the need to do anything, he said. They would like to maintain the same business deal they have now. While we as a committee think all this change is inevitable, a lot of people out there don't share that, said Drummond. Some are in denial; some aren't convinced there's a need to do something proactive, he added.

The final report should include a base case -- at least to help the governors respond to questions of "why do we need to do this now?" We need to lay out that the region doing nothing, with no plan and no consensus, does indeed have consequences, Drummond said.

What are your thoughts on the likelihood the Northwest can insulate itself from involvement in federal legislation? asked Ken Canon. I don't think we can insulate ourselves -- it's just a matter of what it looks like, replied Drummond.

If we don't do much, we all end up in Washington, D.C. next year "all over the map," suggested K.C. Golden. We could decide "to have it out" there, to go the political route, rather than "slog through this." If we all made that calculation, some of us would be wrong, and there's the possibility that we'd all be wrong, he said.

Mike Kreidler noted that with just about everyone going to market prices nationally, "selling a cost-based system at the federal level" has some real risks attached. Politically in the region, it may be best to "maintain a vestige of a cost-based system, or more than a vestige," he said, but we are increasingly looking at more and more of the system likely to be sold at market.

Most of the power will likely be sold at cost with option fees, and little sold in long-term contracts, so for simplicity and because it would more closely "match what is going on," it may be better to sell all the power at market, with a rebate that comes back to the region and to the federal government, Kreidler suggested. In the debate before Congress, this will be an easier argument to make than having a cost-based system, he said.

If we take no action, what would the system look like in 10 years? Would it be a market-based system? asked Collins. Yes, everything seems to be leading that way, Kreidler replied.

I agree that "we can't live for yesterday," said John Saven. Does everyone agree that the no-action consequence is that the system goes to market? asked Collins. If we allow it to go to market without a game plan, the benefits of the system will be in doubt, Kreidler said. At Montana Power, we looked at five years ago, compared with today, and projected five years from today; that made it easy to see the dramatic changes, noted Bob Gannon.

I agree we've failed to communicate the base-case scenario properly, stated Collins. "There's a train running," but it is not being seen by a lot of people, he added.

Is there anything we can do to "convince a segment of the industry that wants to live in a different world and doesn't want to be convinced?" What can we say to convince people the status quo we've known is already gone? asked Canon. The first question is whether "living for yesterday is a permanent mind-set," responded Saven. The second question is, is the view of the future described in the draft one that people want to buy into? They may have been saying, "we don't like this vision of the future," he said.

The draft report needs work, Saven continued. I was willing "to let folks vent" without drawing the conclusion they want to live in the past, he said. Collins said staff will write up a scenario of what might happen absent any action, which may be included in the final report.

Mark Hatfield Lays It On The Line

I salute all of you and recognize the tremendous task you are undertaking, said Oregon Senator Mark Hatfield. Groups like this have been meeting for 60 years, with the goal of determining the future of the Columbia River system, and their primary objective has always been to maximize the value of the river and ensure the benefits are preserved for the region, he said.

While we've had some infighting, generally, we've worked out compromises between the publics and IOUs, urban and rural, and between the region and the nation, Hatfield noted. We made the agreements and many times wrote them into law, and we have prospered, sometimes embarrassingly so, he said.

My Senate colleagues are from time to time surprised to find BPA is not just another power marketing agency and that it does not depend on the Appropriations Committee to come forth annually to support it -- that BPA is self-financing. I might say this was a coup. Nothing like it will happen again in your lifetime, my lifetime, or that of our children, stated Hatfield. The regional benefits of that single law are astonishing. Alone, it has sustained Northwest industries, stabilized communities, created countless jobs, and helped restore the environment, he said.

"It is a legacy of giants" -- Jackson, Magnuson, Mansfield, McClure, and Church, and it is a legacy worth protecting, Hatfield stated. Gifts have been bestowed on this region because these leaders knew where they were going. They knew the value of the river and that they had to be prepared for battle at any time and any place, he said.

I'm not sure we in the region are ready for the next battle, and believe me, it is coming soon, said Hatfield. This is where the tremendous obligation rests on your shoulders. We have to look at where we are going in the new competitive environment, he said.

Legislation will be introduced next year, Hatfield stated. The chairman of the House Commerce Committee says electricity restructuring is a high priority, and he is committed to moving a bill in the House. The White House says electricity is one of five key legislative issues next session, he noted.

If You Don't Do It, OMB Policy Wonks Will

The White House is preparing a bill right now that will include a Northwest provision, and your actions at this forum can help shape the Administration's proposal, suggested Hatfield. If you decline the opportunity, "policy wonks at the OMB will write the section for you," he stated. Failure to rise to the occasion at this crucial time will give forces outside the region a chance they have been waiting 60 years to have, declared Hatfield.

He reminded the committee of what happened six years ago with BPA debt refinancing, and noted that the Administration is preparing a new deficit reduction package for next year. I've told my constituents in Oregon, "obligate money for 1997 as quickly as you can," because the first thing the Republicans are going to do in Congress is to introduce a rescission package, and so will the President, Hatfield stated. If the BPA refinancing package hadn't passed, I can guarantee the region would be facing that battle again right now. Fortunately, we made the right decision six years ago, and you don't have to add that fight with OMB to your current list of problems, he said.

It is time to be proactive again, only this time the stakes are much higher, asserted Hatfield. He suggested four questions that need response in the review's final proposal, which, he said, could become "wonderful ammunition" for the Northwest delegation and the governors to use in their battle to protect the value of the river.

1) Since the rest of the country seems to be headed to endorse market-based rates, what are you going to propose? If you propose cost-based rates, you will need a good explanation the governors and the delegation can use during the debate, he said.

2) As market-based rates fall nationwide and federal Treasury risk increases, how do you propose to ensure Treasury repayment and retain cost-based rates? I've heard some propose missing Treasury repayments as part of a solution. If you expect to be at a negotiating table with the OMB and Treasury, don't even think of missing payments, Hatfield cautioned. It plays into the hands of those at OMB who have wanted to destroy our system for many years under Republican and Democratic presidents alike, he said. If someone has suggested this as being acceptable to the Administration, they are either lying, or they lack any political acumen whatsoever, Hatfield declared.

3) Does your proposal for renewable energy and public purposes "pass the laugh test?" I understand your draft proposal may be too weak. Shore it up, urged Hatfield.

4) Since Republican control of Congress will emphasize the benefits of competition, what are you proposing that will further this objective in their eyes? Don't kid yourselves, Congress will not let competition bypass the Northwest, Hatfield said.

If you don't know the answers to these questions or are not willing to reach solid conclusions about them in the next few weeks, the citizens of the Northwest "are in for a rough ride," Hatfield warned. The Northwest delegation can be very effective in this battle, but you must give them the armor, he said.

A consensus-based, bipartisan set of recommendations on where the region is going is that answer, stated Hatfield. Once you've done that, the governors and the delegation will decide how to implement it. "Your job is to prepare the road map." Others outside the region will step in if you fail, he asserted.

If you don't succeed, you run a serious risk of squandering the value of the river system, a legacy given us by our past leaders, said Hatfield. You can't control the national agenda, but you can define the future and work as a whole for this region, to protect the value of the river and our precious inheritance, he concluded.

Federal Power Marketing: The Odyssey Continues

Saven explained he had reconvened the federal power marketing work group to consider changes to the draft report. He presented several proposed rewrites, adding that there are differences of opinion within the group on several topics. He said BPA would provide some numbers, based on modeling the base case versus the alternatives, next week.

Disposition of Federal Power - Priority For Subscription

The work group agreed this should be done administratively, without changes to federal laws, Saven said. There were differing views about what to do if a preference customer leaves the system and then wants to return, he noted, outlining five options considered. He proposed language that says returning customers would not be guaranteed the right to purchase without a waiting period or at the same cost in the future. Also, any accumulated revenue shortfalls caused by a returning customer "will be recovered as an additional assessment to cost-based rates, up to the limitations of market, and shall remain in place until fully recovered."

Can we have a system in which parties with lots of rights to return leave when circumstances are unfavorable and return when they are favorable? asked Collins. If Portland General signed a 20-year contract, and OHOP Mutual dropped out and then wanted to come back, would the PGE contract be canceled? he asked.

No, the 20-year Phase 2 contracts wouldn't be voided, replied Saven. He added that in Phase 4, BPA would be mandated to exercise recall for out-of-region sales.

Your position is that the matter can be settled with a waiting period and recognizing the costs BPA suffered in the period the customer was away? Collins asked Saven. It may result in a returning customer paying market costs for a very long time, he answered. How do you win by going long, versus going short and coming back and paying the penalty? asked Golden. If you go long, you are guaranteed power at cost, and if you come back, you pay a premium over cost to reflect the revenue BPA lost, replied Drummond. And a five-to-seven year waiting period is a long time, said Saven.

Collins brought up Roy Hemmingway's caution that if we want federal power to be available at cost 20 years from now, there needs to be a stranded cost recovery mechanism applied to all historic customers, or, the government must be allowed to benefit from the risk it assumes when customers take the option to buy power elsewhere. How do we capture the upside for Treasury? he asked.

Al Alexanderson commented that the proposed language saying BPA might serve exchange load with in-lieu resources, probably using available FBS resources "guts the exchange." The theory of your proposals is, let's leave the law alone and dispose of power administratively -- if that is what we're going to do, we should leave the exchange alone, he said.

Our draft recommendations said we are not going to get into the BPA-IOU debate on the exchange for the pre-2001 period, and post-2001, the IOUs can buy power for residential and small farm customers on the same basis as the publics, said Collins. BPA told us the way we can do this is through in-lieu power -- are you questioning the legality or desirability of this? he asked Alexanderson.

It's never been clear that the power could be resold and the monetary benefits would go to residential and small farm customers, Alexanderson replied. The draft report said there would be a new allocation scheme and a new exchange scheme, and the existing scheme would be gone, he continued. If we start down the road of no legislation, defending the exchange is a difficult job, and there is a longstanding dispute about whether the exchange is gutted by the language in this proposal, Alexanderson said. We have to decide whether there's equitable access for residential and small farm customers to the FBS, and someone else will have to decide how to do it administratively or legally, said Collins, adding, let's focus on the result and avoid speculating on how these things would be worked out. Saven suggested the sentence about "in-lieu resources" be deleted.

Disposition of Federal Power - Products and Services

Customers have said that a 30-year commitment doesn't work, Saven reported. We heard that five years is a long time, he added. People are saying, don't tell me what to do, let me pick the services I want, Saven said.

The proposal is for BPA to offer a basic energy product from the federal system at cost, and customers can choose other services to go with it during bilateral contract negotiations with BPA, Saven explained. There would be no preferred treatment of long-term over short-term in the subscription process, he stated. There would be a sliding-scale option fee of 0-2 mills per kilowatt-hour to balance the risk to Treasury of short-term subscriptions with renewal rights, Saven added. The work group looked at three options for how BPA should market unsubscribed power, but reached no conclusion, he said.

Are you satisfied with eliminating long-term contract preference and having an option fee for short-term contracts? Collins asked the group. The degree to which the federal government has the option to impose stranded cost recovery through the transmission system looms over this discussion, noted Hemmingway.

Whether a 2-mill fee is an adequate insurance policy for the federal government is also unclear -- there are no actuarial tables for this sort of thing, he continued. We can calculate an option fee if we know the level of risk, but the level of risk is "largely unknowable," Hemmingway stated. I'm concerned about the sharing of risks and rewards with the federal government -- these questions need to be answered, he said.

The option fee is in balance, given the numbers we've seen, suggested Saven. It matters to me to consider how likely it is that Treasury will have a loss as a result of the subscription process, said Alexanderson. If the government can impose a charge on transmission, I need to support a mechanism that guarantees full payment to the Treasury so it doesn't come back onto transmission costs, he said. We are going to have to sit down and talk about risk in the way you would with a loan officer, suggested Collins.

Saven noted there has been a follow-up to BPA's rate case regarding the agency's flexibility to market excess power. BPA will be meeting with parties on this and will have a proposal to make to us next week, he said.

When the contract negotiations start, is there a test for success? Alexanderson asked. Could you have five people sign 20-year contracts and that's it? he inquired. Any outcome is possible, Saven said.

What kind of a test are you looking for? asked Drummond. We were going to have a minimum number of long-term contracts before, replied Alexanderson. If everyone signed up for five years, would it fail the test? asked Collins. It might indicate the option fee was ill-designed, said Alexanderson.

Isn't there some point that if it doesn't seem to be working, the process has to be rethought? asked Chuck Hedemark. What's the difference between this and what we have today? asked Alexanderson. There's the proposed option fee, the recovery fee if you return, and the 20 percent repayment acceleration payment -- these make Treasury better off than today, said Jim Curtis.

I thought we recognized in the report that long-term subscriptions were what provided stability to the system, said Gannon. We heard a lot of testimony against that, Collins replied. The question is, do we have the option price set right to encourage long-term contracts? he asked.

It astonishes me to have a fee for returning customers, commented Alexanderson. How would you fix it? asked Canon. I assumed a process with contracts of different lengths that would not be effective unless there are an adequate number of subscriptions, he replied. If there are not, we'll default to a more sweeping market mechanism that puts power out to the world, and we'll find out what it's really worth, Alexanderson added. If it doesn't subscribe, do we recognize that it's gone? asked Collins.

Gannon suggested a subscription process in which the publics have first choice; if they go short, others can come in who want to go long. If the others go long, the publics have a chance to match that. It would force the most long-term subscriptions the market could bear, he said. Those that I represent say five years is a long time, commented Saven, adding, I agree that if public power doesn't sign up, "it's gone."

Is the option and exit fee proposal a good replacement for the allocation system in the draft? asked Collins. It's an improvement, said Brett Wilcox. It is simpler, said Hemmingway.

I wouldn't sign up until BPA costs were below market; I'm not so sure I see how this works, said Jason Eisdorfer. The question is, what do you do to get people in the system before 2011? said Collins. As a customer, you make a choice in 2001, whether to go short term and pay the option fee. If you leave and return to BPA, in essence, you pay market for the rest of the time, said Drummond. That's the choice you make, he added.

The three public power representatives think this is a better deal. That's important -- we're hoping to entice them to sign up, said Canon. That they say it's an improvement counts, he added. Are the fees properly set to reflect the risk to Treasury? asked Collins. We're trying to ensure that sufficient revenues are coming in so we don't have a deficit that "causes the wrath of the free-market folks to do in our system," Hemmingway said. It's not an ideal alignment of risk and reward, but it's closer, he added.

The ideal, Hemmingway continued, would be to have all customers understand what's at risk and sign up for cost for 20 years. We can't put a gun to their heads and say, sign, although the gun is clearly there, he said. Collins asked if everyone agreed staff should write up Saven's proposals on priority for subscriptions and products and services.

I oppose the proposal; it says start signing up customers without holding the whole package for a judgment to see if it is working, said Alexanderson. It raises the possibility eight to 15 people could have contracts, then the whole thing doesn't fly, and the region is stuck with those contracts, he said. It becomes administratively unfeasible to negotiate contracts if none is any good until we do the last clause of the last contract, said Curtis.

Didn't anyone but me hear Senator Hatfield say "doing what we're doing administratively is very dangerous?" asked Gannon. Don't make a judgment this is being done administratively -- if you think something better can be done legislatively, you should propose it, responded Collins. So we can offer amendments that are legislative or administrative, but we're not going to say it? asked Rick Applegate.

Public power and BPA oppose legislation, said Collins. A large group of us at the table believes major legislation is inevitable, and we'll be swept up in it, Applegate said. It's nice to know what you can do administratively, but don't bank on thinking that's what we will get to do, he added.

Is this as good as we can do? asked Collins. We're making it "a tad easier" to get on and off; maybe we should think about making it harder, said Applegate. You come back at market and may have to wait five to 10 years, said Drummond. With stranded cost protection, this would start to get somewhere, Golden said.

Wilcox asked why the proposal spells out priority for subscription in the event of oversubscription if it is based on existing law. That's a good issue, replied Saven. We tried to reflect current law and didn't deal with, what if the system is over or undersubscribed, he said. Did you change the order of march from the draft? asked Collins. We took the words from BPA's presentation; we had five categories, and now there are four, responded Saven.

There's no need for a priority order because existing law requires BPA to acquire resources, pointed out staffer Wally Gibson. The draft talked about changing the law, but this proposal does not, and there are some inconsistencies, he said.

To clear them up, should we say BPA would exercise purchase authority for that limited amount that is oversubscribed? asked Wilcox. Should we drop the order of march and substitute the existing law, with limited resource acquisition authority? asked Collins. That would leave thousands of industrials who buy from the IOUs at the bottom of the barrel, said Canon. We're defaulting to a system many think disadvantaged them in 1980-81, and was in fact the exact reason the Industrial Customers of Northwest Utilities was formed, he said.

We argued a long time about the order of march, and now it seems to be a trivial matter, said Collins. Do you want to relax the rule in the draft that says BPA would not acquire resources? he asked. To stand by the draft, we need to step up to the idea that we need to change the law, said Sharon Nelson. One route leads one way, and one route leads another way, and both open up different Pandora's boxes, she stated.

Is it possible to put aside the legislative versus administrative issue? asked Collins. You can't, said Wilcox. We have spent a lot of time on these issues, and now we are discussing dismissing them in a few minutes, noted Rachel Shimshak. She suggested resuming this portion of the discussion the next day, and the group agreed.

Implementation of Federal Power Marketing Recommendations

Customers want to know, if our federal power marketing recommendations are administratively implemented, who will do it and how will they know what happens, said Saven. The work group concluded there should be a short-term mechanism to do implementation, he said. The proposal envisions a short-term (up to two years) advisory body, working with BPA, and reporting to the governors, he said.

Randy Hardy has said that without some group like the steering committee, it will all fall on BPA, and that's not acceptable, stated Curtis. What representation would the group have, besides the governors' representatives? asked Applegate. Perhaps five or six people who understand customer interests, and there could be a public interest representative, Saven replied. The role seems similar to that of the Northwest Power Planning Council, noted Hedemark. The governors could designate their regional review representatives, Saven said.

I'm concerned about the governors' reps being on a "mixed body" with customer reps, said Hemmingway. It "creates a mixed message a governor could get tagged with," he added. I'm locked not into any particular structure -- I just thought we should not punt if our recommendations involve administrative solutions, said Saven.

What would be the advisory board's relation to the subscription process? asked Golden. The board would focus on the process and BPA's role in the competitive market, Saven replied. My concern is that if BPA functions in the subscription process like it does in a rate case, it's too controlling a role, said Golden.

It's clear there are problems with doing a subscription process in legislation or in a rate case environment, observed Collins. The governors have a broad political constituency and try to balance interests -- I would recommend the governors' reps for the role, he said.

Our recommendations to the governors ought to say, here's what you need to do to carry this forward, Collins said. Right now, there's a vacuum at the end. This allows implementation responsibility to pass in a defined way to another group, he said.

I do feel we need something that carries on, and my governor would probably designate me to carry this forward, said Todd Maddock. There will need to be an advisory group besides the governors' reps to reflect on the issues that emerge -- customers would probably have the most interest, he added.

What's the principal function of the group? asked John Etchart. It would oversee, at the policy level, how the subscription process is set up, replied Saven. Collins suggested it could be similar to how Congress used the review's help in deciding what to do about BPA's Energy Services.

Risk Mitigation and Ownership Benefits for Treasury

The work group considered what we need to offer as inducements to Treasury so it will say, this is a fair deal, said Saven. BPA has not deferred a payment for 13 years, he pointed out, but the question is, what's the prospect of deferral when the current contracts expire? BPA is scheduled to make over $2 billion in payments between 2002 and 2006 -- it's not an insignificant amount of money, Saven said.

In addition to BPA cost control, the group proposed three strategies: 1) If there is a deferral and BPA costs are below market, customers stay at market until the deferral is eliminated. 2) Revenues from option fees go to the Treasury, rather than stay in the region. 3) In the long term, if costs are below market, a share, such as 20 percent of the difference between cost and market would be returned to Treasury as a "repayment acceleration payment."

This seems to penalize people who sign up, not those who go elsewhere, commented Hemmingway. The exposure for customers who stay is limited to the market, if costs are below market, Saven explained. If a customer wants to come back, other parties must be made whole, which means different cost pools, said Saven.

Collins asked Saven to recount public power's reaction at a meeting the day before. People wanted to make commitments to BPA, Saven reported. While long-term contracts might work for residential and small farm customers, for bigger publics with industrial customers, even five-year contracts were considered a long time, he said. Short and long-term contracts were desirable, and to the extent there are risks to Treasury, we need to find mechanisms that balance the risk, Saven continued. They said this proposed framework was one they could work within, he added.

There was a lot of interest in short-term contracts because they influence BPA to keep costs low, said Collins. The desire for short-term contracts is driven by cost concerns and by a perception of the market -- small utilities can't deal with risk well except through short-term instruments, said Drummond. The proposal is something I can support, he added.

The goal is to create a situation in which the federal government, Treasury, and the governors are partners in getting BPA's costs down, said Gary Zarker. This seems to be a better structure, and for us, BPA will be part of our portfolio, he said. I think most public customers will likely sign up for some portion of BPA long and BPA short. It's going to sell out quickly, concluded Zarker.

Treatment of Fish Recovery Cost Risk

The proposal would treat fish and wildlife (F&W) costs in the same context as other BPA financial obligations, Saven explained. It eliminates the 50/50 sharing of costs above the existing cap and any reference to potential programmatic levels of funding, he said.

The proposal assumes there will be a five-year fish recovery budget by 2001 and that customers will be able to make decisions based on the totality of BPA's costs. The treatment of fish separately from the overall question of BPA costs becomes less compelling if customers can go short, Saven noted.

Applegate said that extending the cap into perpetuity received a lot of comment at the hearings. We are saying nothing here about future contingencies, except that some other forum will have to take care of it, he continued. There's a belief in the region that the review is "wrapping up" the power issues, but not wrapping up the fish issues, Applegate said. Should we say nothing about them when we believe there will be more fish costs in the future? he asked. Fish advocates and tribes are looking in this document for a commitment that we intend to restore fish runs and that we understand there will be additional costs, Applegate said.

With this, there's a good prospect of having a financially sound BPA, one which can accomplish all its public purposes, stated Saven. If the subscription process doesn't have a good result, what then? asked Applegate. We have a cap now that wasn't thought through carefully when it was put in, and we're going to have to revisit that before 2001, he predicted.

There is a limit to the ability of the federal system to capture customers who are contractually unbound in 2001, observed Collins. John is saying, let's make a budget, and let people see if they want to sign up, he stated. I want to give a signal that we know costs could go higher, but now we're saying, "we can't deal with this," said Applegate.

Do you support some level of cost-sharing? Drummond asked Applegate. Yes, we have a right to ask the federal government to share those costs, he replied. Is any cap unacceptable? asked Drummond. A cap in the absence of information is arbitrary; this cap is clearly not related to the fish objective, Applegate said.

So within eight days, coming up with a cap is not doable? asked Drummond. Yes, replied Applegate. But support for cost-sharing is? asked Drummond. Yes, replied Applegate.

I'm trying to create an environment with a level of comfort that funding will be there for BPA to accomplish its public purposes, including fish, said Saven. How will we get comfort beyond reading words on a page? asked Applegate. Next week, BPA will show us numbers that will be instructive in seeing if this is a better deal "than going into a free fall," said Saven.

The issue is whether the power system is in the position to fund the obligation through existing customers staying, or some other way, said Applegate. If customers go, there will still be an obligation, he added. In 2001, if people don't subscribe, the system's gone, said Collins.

If someone else wants to buy the system, the fish obligation still exists, said Applegate. The question is, are we working hard enough to convince the major constituents who are only interested in keeping the benefits even if costs don't cover fish obligations, he said. I heard many comments at the hearings that it looks like we are trying to avoid the fish obligation, Applegate stated.

If we shouldn't talk about F&W measures and a budget for fish recovery, that leaves three things it might be useful to talk about, said Golden: 1) changing risks in the cost-sharing formula so it works; 2) stranded costs; and 3) governance. What's the most fruitful? he asked. All of those, and I'd add insulation of transmission as well, said Applegate.

Stranded Costs -- Gotta Have A Gizmo

The work group did not agree on how to proceed on stranded costs, reported Saven. I think that the proposed federal power marketing package could work, and that BPA should get people to sign up now, not 2001, he added. Curtis volunteered to work on stranded cost language.

I'm concerned that this proposal does not represent enough change from the status quo, Treasury is not better off, and chances for repayment in the next 10 years are not enhanced, leaving us with considerable vulnerability to attack from the outside, said Hemmingway. We need to know BPA's intentions with respect to stranded costs. If BPA can collect them through transmission, the moment Treasury payments start to slip, those charges will be imposed, no matter what the review agreed to, he said.

I agree, said Nelson. Every state legislature has taken up stranded costs, and it looks odd if it is not taken up here. The rest of the regions in the U.S. will say, "where did your stranded costs go?" We can't be silent on this issue, Nelson stated.

Curtis suggested three ways to address the issue. You could talk in terms of how Treasury would decide whether this proposal is better than what it would get with a stranded cost mechanism; you could talk about a sequence of steps BPA would take before getting to stranded costs, like not paying the Treasury or salaries; or you specify policies and procedures for stranded cost recovery. There are many choices in how to approach the issue and no agreement on what's the right way to do it, Curtis said.

I'd settle for the stranded cost policy each state adopts, Collins said. That's hardly simple, responded Nelson. Why not use the precedent FERC set in recovering stranded costs in Order 888? asked Golden. It's not clear whether that language is appropriate to BPA, replied Curtis.

We agree the subscription process is an alternative to a stranded cost mechanism for Treasury, but Roy, you argue it may not be sufficient to get their concurrence, said Collins. How do you gain concurrence? asked Hemmingway, adding, do you sign a contract with Treasury? Have an MOU?

Do we need to define a stranded cost mechanism? asked Collins. I think we do, said Alexanderson. If we design a system with a high degree of probability of subscription, it's not an issue, but as we get further and further away, which it seems we are getting every hour, not defining stranded costs creates enormous risks for some of us around the table, he stated.

There are only two tests, Alexanderson said. "No, there are no stranded costs." "Yes, there are, and here's where they go." It can't be: "we don't know, and we don't care," he said.

Why do you think our proposal is moving further away? Collins asked Alexanderson. There's more and more interest in the short term, he replied. If the whole thing subscribes only for five years, we haven't done anything, in my opinion, Alexanderson added.

There are people who don't want the stranded cost mechanism because it might not give BPA incentive to cut costs, observed Shimshak, adding, we just haven't found the right "gizmo" to deal with it.

Part of the partnership is creating a situation that is predictable enough so this doesn't come up, said Zarker. He suggested the federal government could impose taxes to avoid stranded costs. "Now there's a gizmo," he said.

We could advise that a wires charge uniformly applied is perhaps an angle on stranded cost protection, but it's a federal issue, and they will have to step up to it, Zarker said. The IOUs will spread costs on the distribution system, or they'll charge exit fees, he added. If a wires charge is something we all have, it's a gizmo, Zarker suggested.

The gizmo may be FERC jurisdiction, suggested Nelson. Should we say, leave it to FERC? asked Collins. We are finding, with telephone, that the only thing that is nonbypassable is taxes, Nelson replied. I agree with the concept of a systems charge spread broadly and uniformly for everyone, said Hedemark.

A wires charge has a certain allure, but it has such a geographic impact, I can't see how it can be uniform or fair, said Gannon. It's a crude tool, but FERC will have few tools available to it, said Jim Davis.

Some parties have talked about potentially stranded future fish costs, and FERC is not thinking about it that way, said Curtis. If we pick fish as a stranded cost, it inflames the environmental community, said Zarker. The WPPSS debt more closely approximates stranded costs, he added.

I agree with Gary -- FERC is talking about prudently incurred stranded costs -- "historic fixed costs," said Nelson. The ongoing costs of fish are something else, perhaps an externality, she said. Collins assigned a subcommittee to continue work on the issue.

Consultant Al Wright told the committee, you have to have a solution, and you've identified the "button-pusher" -- FERC. He suggested getting an Executive Order that says BPA will abide by FERC's rules. I disagree we need a stranded investment clause, said Wilcox. No advice we give will constrain the Treasury, and we don't know enough of the details to do this "quick fix," he added.

Energy Services: New Name, New Budget, and Possible Sunse

Golden reported on work to develop a recommendation on the scope of BPA's Energy Services Business. The original proposal, he noted, included a spectrum of retail service activities judged by many to compete with the private sector. Folks were also skeptical, said Golden, that this activity could be self-supporting, let alone a revenue generator.

To address the first concern, BPA worked with the Northwest Energy Efficiency Council and others to develop principles to focus BPA's market development activities on increasing the market for privately delivered services, rather than competing in that market, he said. To respond to the second concern, we propose to limit BPA's net spending and capital borrowing during the rate period to levels substantially below the Oct. 31 proposal, noted Golden.

He described 13 recommendations, including: use the term "energy efficiency services," rather than the term "business"; establish an advisory board with private sector members to monitor BPA's compliance; and limit BPA's use of Treasury capital to $5 million per year and only for federal projects. This is a reduction of 50 percent compared to the October proposal, and a reduction of $71 million from the final rate case figure, Golden said. BPA's net costs for market development activities are capped at $8 million for the FY 97-2001 period, with the directive that the activities should be self-supporting by FY 1999, he added.

This is a good idea; it solves the questions raised about Energy Services, said Zarker. We've discussed whether there is a role for a customer board to look at this activity, and there's no question a customer board could have improved the numbers, he added. Have you talked with the people who raised concerns at the last meeting? asked Collins. I talked with the energy efficiency businesses, Golden replied, adding, by making clear that the objective is not to make money, we give this a fighting chance.

What happens if the effort is not self-supporting by 1999? asked Drummond. The advisory board gets called to task -- we didn't put in a penalty provision, Golden replied. The steering committee has no enforcement ability, he added. But we've been given a unique opportunity by Congress, and as a customer, I want to take full advantage of it, responded Drummond. Let's put in language that says, if these conditions are not met, the activity is shut down, he suggested.

The sense of the group is that we need a definitive cutoff, said Collins. Drummond recommended termination of the program by September 30, 1999, if conditions set out by the committee are not met. He also suggested amending the language to clarify that BPA is financially insulated from third-party borrowing.

If we were voting, I wouldn't vote for this, but I won't stand in the way, commented Canon. Sometime all of the rhetoric about cost control has to start meaning something, he added. I agree; let's adopt it, and move on, Collins said. The group agreed.

Federal Power Marketing: Some Decisions and A New Committee

I assume we reached consensus on BPA offering a variety of products and services yesterday, said Saven, beginning a reprise of the proposals for federal power marketing. With respect to the subscription process, I propose we keep the language on the priority order of subscription as it was in the draft report, he said, and the group agreed.

I recommend deleting references to the distinction between long and short-term subscriptions and commitment levels for long-term subscriptions, Saven continued. So we would delete the 60 percent commitment for long-term contracts and the tiebreaker between the DSIs and IOUs based on long-term contracts, Collins clarified.

Are you ready to drop the forced 60 percent allocation for long-term contracts and replace it with a sliding-scale option fee, an exit fee, and a re-entry fee, all of which need more definition? asked Collins. The draft stated that the preference for long-term subscriptions was a way to provide stability for the system -- will all the language about that be dropped? asked Gannon. There is still a value to long-term subscriptions; I'd like to keep the language in, said Saven.

If you drop the long-term preference tiebreaker, how do you decide who gets a subscription? asked Shimshak. It only comes up in the case of oversubscription, noted Saven. If it's a worthy tiebreaker, let's keep it, urged Collins. If we are negotiating bilateral contracts, as John suggests, how could you have a tiebreaker during that? asked Curtis.

Someone has to make a judgment whether the subscription process is coming together, after maybe a year, and then if there are competing claims, decide how to resolve them, said Alexanderson. BPA will negotiate "form" contracts, and no one will sign until they know the costs, said Wilcox. There will be a rate proceeding, and then contracts will be signed, he added. BPA and the customers can figure it out, said Zarker. The implementation committee could take a look after a year or so and see if the spirit of this proposal is being complied with, suggested Collins.

Should a returning public agency be able to bump an IOU or DSI contract, assuming notice requirements and payment of a re-entry fee? asked Collins. No, said Alexanderson, we're expressing a preference for a long-term contract. The existing law says there's a potential for recall, and people who sign contracts know they can get bumped by a public customer returning, said Zarker.

Why would an IOU sign a long-term contract if it could get bumped? asked Collins. It's a good deal, said Zarker. I thought the draft report stood for a couple of things, observed Nelson: use it or lose it, contracts should be honored, and the long-term should be incentivized. The idea that you can have a status that enables you to break a contract goes against the market; it's "medieval," she said.

Gaming the System?

We're at the heart of the issue, stated Hemmingway. I'm concerned that customers have the incentive to "game" the system, and I can't support this proposal, he added. We don't have the appropriate incentives for people to sign up when costs are higher than market, Hemmingway said. Returning entities have to make up the cost imposed on other customers, not just Treasury risk, said Collins.

Returning customers may pay market or more -- BPA could say that, said Saven, adding, all this proposal says is they are able to come back.

Suppose I am Benton PUD, and I sign up for 10 years at cost, which is 3 mills above market, said Hemmingway. Franklin PUD has bought no power in 10 years and then wants to buy, and the cost is now market, he continued. Does Benton get compensated by Franklin for the loss and for being a good citizen -- does Franklin get to come in at cost? asked Hemmingway.

If enough people sign up and BPA has been able to stay whole in its ability to remarket in or outside the region, the argument could be made that no one suffered, Saven said. Benton paid 3 mills above market for 10 years, Hemmingway said. They made a business decision, said Saven. They said part of my job is to keep the federal system in operation, realizing that if we abandon BPA, we won't get it back, said Hemmingway. I represent Benton and Franklin and others, noted Saven. If you or anyone has another proposal, let's look at it, he added.

John has tried to walk a fine line, stated Collins. The problem is that you know things about future BPA costs you normally wouldn't know. You know there's probably a big pot of gold out there, and it starts to grow in 2011, he continued. Roy said, you can game around it, and John said, we'll have a notice requirement and penalties that are burdensome to prevent gaming. Working within those two goal posts, is there something we can do? asked Collins.

Let's put in the report that there will be callback for out-of-region contracts, but that 20-year contracts in the region will be honored, suggested Wilcox. The principles the group is about to agree to are: that longer is better than shorter, and that we won't create new bumping rights, said Alexanderson. Is it probable an IOU would sign up for more than residential and small farm loads -- should we argue about that? asked Collins. We should leave open the idea of IOUs being interested in commercial contracts, Alexanderson replied.

Would a long-term contract for one of my members be sustained? asked Canon, noting that some industrial customers have signed up for 20 years of firm transmission service on the pipeline. Some of your members have said to my members, "if you think we'll go long term, drop dead," noted Saven.

The goal is to keep the benefits in the region. If you go through the march, and if any of Ken's members are willing to sign long-term contracts, they should not be bumped, said Wilcox. Can you distinguish between in-region and out-of-region contracts? asked Collins.

It's the distinction of preference itself and how that will be drawn, said Drummond. There'll be a firestorm of reaction to this, he predicted, recalling national public power reactions to the Northwest Power Act. The question is, said Drummond, if the system is fully subscribed, and a public comes back, can it force in-region recall after all out-of-region power is recalled? It's a low probability. I'm not willing to fall on my sword on this, he concluded.

I'm not willing to make a decision on this. We've framed the issue -- it's at the core, said Zarker.

We're dealing with two issues, bumping rights, and the price at which a party comes back in, said Hemmingway. We need to ensure sufficient customers sign up at cost to ensure repayment, and the incentives to game the system work against that, he stated. We could tell people who come back after they had the opportunity to buy at cost in 2001 that "when you come back, you buy at market, period," Hemmingway suggested.

As a region, we need to take responsibility for the system when it is above market, he continued. If we don't take responsibility, we'll lose it, Hemmingway warned. We need to tell folks they can sign up for cost or market, but they just can't game the system and go back and forth, depending on which is lower. If you come back, you buy at market; that's my proposal, he stated.

I don't think a lot of contracts in other customer groups will come to fruition, said Saven. I can't say as a public power representative that publics would concede current rights under the law, he added. I'm not prepared to recommend to Washington's elected officials that they abandon preference, stated Zarker. I recommend we leave this as "a core issue fully engaged" and see what other core issues emerge and how they relate, he said.

Staff should write up John's and Roy's proposals, and we'll vote, or decide not to agree, next week, said Nelson. That's not a punt, it's a great suggestion, said Collins. In the writeup, let's try to make the differences as small as possible, suggested Wilcox.

Aggressive or Passive Disposal of Unsubscribed Power?

We didn't reach consensus on unsubscribed power in the work group, Saven reported. He proposed language that says BPA should produce sufficient revenues to meet its obligations and sustain cost-based rates, but should not get into speculative risks and not be perceived as an aggressive marketer to new out-of-region customers if alternative strategies can produce equivalent revenues.

Hemmingway proposed this language: "BPA should sell its unsubscribed products, without substantial enhancement through additional purchases, by employing means, such as auctions or bulletin boards, that maintain for BPA a passive role in the competitive marketplace, to the maximum extent possible."

The law tells BPA to be a marketer, said Curtis, adding, we're talking about taking away a lot of money, maybe $180 million. The problem is that operating connected hydro projects doesn't always mean an auction is the best way to maximize value, he added.

The problem is BPA being an active participant in the competitive marketplace, responded Hemmingway. As the system is currently operated for fish, there's a high degree of certainty that we'll be a buyer at some time and a seller at some time. Not an arbitrager, but a buyer and seller to get the best value out of the electrons and molecules, Curtis said. I have a concern about dictating this without knowing the risk to Treasury, he added.

The process by which BPA markets power needs to be open and available, said Alexanderson. With a bulletin board, you can advertise when BPA thinks the product will have the most value, but it will be open to all, he said. To the extent that other marketers can sit with their customers and customize products for them, it's a disadvantage that would result in a revenue loss for BPA, said Curtis.

Roy's language is saying to BPA, in the emerging competitive marketplace, if you maximize revenues, "you will stick out like a sore thumb," and the private sector will try to shut you down, said Nelson. He is saying, think about yourself in a less aggressive mode; governments don't fit into competitive markets, she stated.

I want a more constrained environment than today, but I don't know that the bulletin board/auction approach is best, stated Saven. We need a balance for BPA between "don't get your nose bloodied," but be financially solvent, he said. We could strike "such as auctions and bulletin boards," suggested Hemmingway. The message is, BPA needs to be more passive than aggressive, he added.

The Public Utility Holding Company Act is likely to be repealed within the next year, and once it is, in time there won't be a lot of independent utilities, predicted Hemmingway. Big national utilities will come in, and in five years, I don't want to have to explain to a Congressman why BPA beat this big national company. It's a loser for the region, he said.

The Administration doesn't have the discretion to be passive if it results in losses to Treasury, said Curtis. John's language offers me much less cause for concern, he added.

How would we explain to Treasury not letting BPA maximize revenues? asked Collins. Just wait, "the time will come when there will be a competitive, dog-eat-dog, cruel market," and government entities will not be favored politically, said Hemmingway. I'm trying to give BPA as little profile as possible. Now is not the issue, but five years from now, it will be a huge issue, he said. My concern is if we have a "go-go government-owned enterprise" here, it will be vulnerable to political attack the same as if we miss Treasury payments. Imagine a government-owned airline, or a U.S. Forest Service-owned plywood mill, said Hemmingway.

Recently BPA beat Enron and Montana Power for several of my customers' loads, noted Drummond. BPA went head-to-head and provided a superior package, he said. As a consumer, I'd like BPA as a choice. We may in time run into the political buzz saw, but right now, it's hard to see, Drummond added.

To make an extra $100 million in the private sector, you have to operate with the belief you'll have someone bearing the risk if you are wrong, said Alexanderson. With the government, shareholders don't pay those costs, taxpayers do, he said. We made money last year and in previous years; if you take those dollars away, we won't have the money to pay the Treasury, said Curtis.

If we lost a bid to Enron, that's one story. But to lose a contract to the federal government is not acceptable, said Gannon. If the public understands that the winner of the bid doesn't pay state and federal taxes like we do, the political reality Roy suggests will come to the forefront. We're not going to sit still for it, he added.

I don't think any of us believe this report will be the long-term solution -- it's a transition step, the best we can do under current circumstances, said Wilcox. Ultimately, we'll move to a NEWCO where BPA is sold to someone else, he continued. Down the road, we'll deal with these issues, but given the reality today, I don't think we can, Wilcox said.

How do we resolve increased Treasury jeopardy on one side, versus an imprudent, aggressive BPA on the other? asked Collins. There is a level of managing the system to maximize productivity that is short of a go-go marketer, suggested Golden.

I think Roy's concern is going to be an issue in the future, but I'm not sure we need to fix it at this point, said Kreidler. I'm apprehensive about putting a restraint on BPA at this time. It would be premature, he added. Walking away from stewardship of the federal resource is the problem, not the question of passive or aggressive, stated Curtis.

The committee adopted this language suggested by Wilcox: "To the extent consistent with its obligation to repay Treasury, BPA should return to its historic role of marketing power generated by the FCRPS, rather than becoming an aggressive marketer of new products and services in the emerging competitive power market."

A Committee Is Born

Saven proposed the governors appoint a short-term advisory committee to oversee policy issues associated with implementing the review's recommendations. There is a long-term role for an advisory committee, said Zarker. Collins told staff to write up the recommendation for a committee.

I suggest there be a sufficiency test, an actual date where a second look is taken to see if the system has subscribed or not, said Alexanderson. How do we be clear about what success is? asked Curtis. It's like going to talk to a loan officer. We can specify the step where it feels fair to the region, but it may not satisfy Treasury as a standard of success, he said.

How about having the advisory committee judge success or not and be required to make a stranded cost recommendation if necessary? asked Collins. We have to have a date certain where someone, not BPA, judges whether what we hoped for has happened or not, said Nelson. The group agreed to Collins' suggestion.

Ownership Benefits for Treasury

Saven proposed to put in the report that all additional funds flowing to Treasury would be a "repayment acceleration payment," including the 20 percent of the difference between cost and market that goes to Treasury when BPA rates fall below market. Option fee revenues would also be dedicated to accelerating repayment.

What do we get for the 20 percent? asked Wilcox. We may attract an entity that is not interested in an entrepreneurial relationship, said Collins. It may not be a key issue to the federal government; I wouldn't put it in the report at this time, stated Zarker. Let's deal with it in a later discussion, suggested Collins.

I want to get closure that the purpose of an option fee is to mitigate risk to Treasury in the case of customer departure, and that fish risk is a different matter, Collins said. It's hard to get closure on one, while the other is open, stated Golden. Can we have staff write it on the basis of the option fee going to pay Treasury to compensate for customer departure? asked Collins. We may have to revisit, noted Golden.

More Treatment of Fish Recovery Cost Risk

I have a problem with the proposal to delete references to how much money may be needed for fish recovery, said Applegate. I'd like something stronger, he said, adding that he would come up with some amendments. By the way, Applegate said, "there isn't one soul in the fishery community" who supports the draft we put out.

He noted that Saven's proposal deletes the 50/50 sharing formula between customers and Treasury above the existing cap and refers to a five-year fish budget for BPA's rate projections. My concern with the 50/50 language is that the region is not being generous enough, commented Applegate. What position do you put on the table if not 50/50? asked Zarker. You should read the comment letters, responded Applegate. People said we did not make a realistic proposal, and some even suggested it was not offered in good faith, he said.

I read the comments, and most people don't understand the entirety of the proposal, Collins stated, adding, "most take a piece and tee off on it." I'd like a proposal, not a discussion of grand principles, said Hemmingway. It's important to allude in the report to additional fish costs -- that's different from putting in a specific number, said Golden.

Public Purposes: Golden's Proposal Advances to the Finals

We heard in the comments there are large numbers of utilities planning to invest in the next budget cycle at the levels we proposed for public purposes, Golden noted. There is a genuine commitment and local involvement, he stated. Other utilities have expressed interest in making investments, but have said they can't unless there is a minimum standard to protect them from competitive risks, Golden said. Sufficient voluntary commitments have not emerged to meet the steering committee's targets, he stated.

Golden proposed a fee to be assessed on Northwest loads that seek access to the Northwest transmission system. The fee would be based on the prior year's load of the entity seeking access. It would be designed to collect approximately $210 million per year. States could "unplug" the fee by establishing minimum funding standards for public purposes, he pointed out. There would be local control of how investments are made, within the standards, Golden said.

Large industrial customers can receive reimbursement for qualifying energy efficiency investments, up to some to-be-determined percentage of their contribution, Golden said. The proposal also includes a local option for renewables, in response to comments received, Shimshak noted.

I find merit in what K.C. has put forward, said Hemmingway. To do something fair, we need something with more teeth in it than what we proposed in the draft, he said.

Is there any assumption about the definition of renewables? asked Canon. We didn't get that much comment on it, and it's still an open question, Shimshak replied.

The issue was put on the table as to whether utilities would make a commitment, and they did, said Saven. But this still recommends an access fee. How do I explain that? he asked. Soliciting commitments was a worthwhile exercise to show that people think it is a worthy investment, but it didn't produce commitments that approached the aggregate investment level even for this year, and there's no commitment for boards in the future, Golden replied. We need to develop a system that will survive in a competitive market in the future, he added.

All the large publics committed significant amounts, and I don't reach the conclusion you did from analysis of the "Green Book," said Zarker. I think it shows "heroic" public power support for its share of public purposes, he added.

I'm concerned about the January 1998 implementation date, said Hedemark. Given legislative timetables and when this report will come out, it probably wouldn't be until June 1998 before anything could pass in Idaho. If the transmission access charge triggered before that, it wouldn't be viewed too favorably, he said.

I like this proposal, said Nelson. It sets up incentives for institutions to get at these problems and establishes a level playing field, she stated. A load base, instead of a revenue base, is good, she added. We have legislation in Montana we are circulating that proposes a universal access charge, said Gannon.

I don't endorse or reject it today; I need to do some analysis, said Davis. I like the local control emphasis, especially for renewables, he continued. To public utilities, this will feel like "they worked their butts off" to make commitments and got nothing to show for it, he suggested. I'd like to talk to my folks and discuss it at the next meeting, Davis said. There's a lot of local control preserved in this, Zarker noted.

The link between choice and public purposes is inevitable, and none of us wants a transmission charge as a solution, said Wilcox. Proposing a fallback we know is wrong in advance doesn't make sense, he said. The Model Conservation Standards come to mind, said Nelson. This forces all the states to move at the same time, she stated.

I do respect the achievement by utilities, Golden stated. We are trying to go as far as we can for local control while getting to a reliable system that will work in the environment we're heading into, he said.

This proposal is very constructive, and we'll park it for now, said Collins. The two issues that arose are local control, and whether the transmission access fee threat is the right motivation for the legislatures, he added. A threat that you wouldn't want to have in place is not a good threat to use, commented Wilcox. Staff will draft this up for next week, said Collins.

Stronger Low-Income Language Debated

Eisdorfer presented amendments to the low-income energy services portion of the report, stating, "it's the right thing to do." The proposal is to forestall some of the cynicism heard at the hearings that what the committee is doing is "divvying up big pieces for big players and the little people get shafted," he said.

The proposal would establish a Universal Electrical Service Fund, rather than use a portfolio approach, because it is easier and more doable, Eisdorfer explained. The amendments make the language in the draft stronger, he noted, and they encourage utilities to use the existing network of state and local low-income weatherization providers to accomplish these purposes. The fund could be supported by a non-bypassable retail distribution system access fee, Eisdorfer said.

In Idaho, it would take state legislation to authorize this, noted Hedemark. There's still a debate about whether to include energy assistance in our report, he added. Because this encourages and is not prescriptive, "there are pluses" in the way it is presented, Hedemark said.

I live in a state "bleeding and reeling" from passage of Measure 47, and social service programs may be most at risk, noted Saven. In that environment, I'm not comfortable advancing a proposal where a responsibility that is traditionally a general government function could fall back on a local distribution utility, he said. This change of language is much more focused, Saven added.

This proposal tries to forestall the worst consequences for the least powerful, said Golden. This is the wave of the future -- replacing tax-supported programs with ratepayer-supported programs, stated Nelson, describing the various programs telephone users now fund. It would be ironic if we simmer down the taxpayer rebellion only to incite a ratepayer rebellion, she commented. But it's good to propose this, Nelson added.

The original language was better, said Wilcox. This is too prescriptive and not "real world," given the budget problems in the states, he stated. The draft report focused on 3 percent for public purposes, but with this, we're at 4.5 percent -- it's a much more difficult sale, said Canon. We decided early on not to put assistance into the public purposes charge; otherwise, we would likely have looked at a different-sized charge, Eisdorfer said.

If not this, then what? asked Applegate. Noting the effects of the welfare reform bill on welfare mothers, Collins asked, is weatherizing their places one of the first things we need to do for them? If you want to put food and literacy program charges on utility bills, I'll vote for it, he added. This is bill-paying assistance, not weatherization, said Golden. Other things are noble, but not on the table here, he added. Legislatures will view them competitively, Collins said.

I think a recommendation is essential, said Zarker. One of the fundamental charges to us from the governors was to make sure we spread the benefits, he noted. Bill-paying assistance is more important than weatherization; the issues should be severed, said Nelson.

Why is electricity targeted? Why isn't it all energy? asked Alexanderson. That's a good question -- I'd like to see it fuel-blind, said Eisdorfer.

I suggest we include the proposal, said Kreidler. I think low-income programs will be difficult to pass in any of the four states, but it's not unrealistic for us to make a philosophical statement as to what we think should happen, he stated.

If we are going to philosophize, let's direct this cause to the federal government and Congress, suggested Davis. Congress could say that across-the-board, low-income people will benefit from competition, but the nuance is that it is unlikely to occur here, said Zarker. That's what we should carry forward to the governors and the states, he said.

Due to competitive markets, we just announced a $70 million rate decrease -- that will help low-income people, said Alexanderson. I don't think the proposals we are talking about will leave some people in the cold, he said.

I propose we leave the language as it was in the draft report, said Wilcox. It's a general government obligation, not a utility obligation, he added.

Having this piece as part of the deal is essential to me, stated Eisdorfer. The "cynicism that would recoil if we failed low-income" would be difficult to bear, he said. The committee decided to put the issue over until next time because several people had left the meeting.

Open Retail Access By 1999 or 2001?

Canon proposed language that says all retail distribution utilities "will provide" open retail market access for all consumers no later than 1999, instead of "should be prepared to accommodate" open access "by 2001." That's pretty fast, said Nelson.

BPA customers have contracts until 2001, said Saven. We understand the situation the publics are in, responded Canon. We know we need to work on that issue, he said. Would this be a directive to state legislatures? asked Kreidler. Yes, Canon replied.

You can't mandate the development of competition by a date certain, observed Nelson. There will be places no one wants to serve, and there need to be accommodations, she said. This sharpens it a bit too much, Nelson stated. Our plan is to have what you propose, but by 2001, said Gannon.

The linkage between public purposes and competition makes sense, even though it may not happen simultaneously, said Golden. Right now, public purposes are going down, and competition is on the rise, he stated.

I'm not prepared to respond to the request now, said Zarker. Ken speaks well for his members, but there are lots of customers who are not his members. We need to consider the link to Jason's proposal. There are some very complicated issues involved, he said.

To say it has got to be by a date certain isn't going to work and doesn't help advance the ball, said Wilcox. I'm struck by the fact that in other areas, we've provided legislative direction, but here, we're unwilling to do that, responded Canon, noting that Golden's proposal contained a date. We could go back to 2001 on the benefits charge, he suggested. I am amenable to a linkage in timing, Golden said. He and Canon agreed to meet to discuss acceptable dates for their proposals.

IN CLOSING:

Collins listed these things as "what we parked" at the meeting:

• Whether IOU commercial and industrial (non-residential/small farm) loads can be bumped.

• Prices and conditions for returning customers.

• Local control and minimum standards for the public purposes charge.

• Whether the transmission access charge is an appropriate tool.

• Low-income assistance.

• Tie between open access and system benefits charge.

Collins said he expected Applegate to bring a proposal on fish to the next meeting. Other items noted as unresolved included river governance, the role of the Northwest Power Planning Council, the GAO report, and reliability.

Collins reiterated that the committee had agreed the federal power marketing advisory committee should determine the feasibility of the subscription process, and if it finds subscriptions won't cover federal costs, it will propose a stranded cost mechanism to be implemented.

The stranded cost issue is a "long-standing, bleeding sore," Collins said. It's good to keep all customer groups exposed until we complete the subscription process, he suggested.

Who will be on the advisory committee? asked Applegate. We'll debate that next time, Collins replied.

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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