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Comprehensive Energy Review
Steering Committee

Thursday and Friday, November 21-22, 1996

Red Lion Lloyd Center, Portland, Oregon

 

THE COMPREHENSIVE ENERGY REVIEW steering committee met in a two-day marathon session to complete deliberations on its draft report. Many issues were resolved, but some thorny ones, such as resale of federal power and stranded cost recovery for BPA, are still open. Staff said a revised draft would be out November 27. All members were present; there were approximately 45 audience members.

Next Meeting: December 5 in Portland (Airport Sheraton Hotel).

In This Issue:

• Opening Remarks
• BPA Presents Scenarios on Treasury Deferrals
• Let's Do the Bump
• Engaging The Public Purposes Issues
• A Proposal For Retail Access by Mid-1999
• Can Customers Resell Federal Power?
• Much Ado About Stranded Costs
• Fish Amendments Stir Debate
• Designing an Oversight and Implementation Board
• The Future Role Of A Four-State Entity
• In Closing

OPENING REMARKS:

At 8:30 a.m., steering committee chair Chuck Collins set a 10 a.m. deadline for new language for the draft report. He noted there were several packages of amendments from committee members, and said he wanted "to get all of the language in front of us at once." I'm trying to avoid continued "whispering in ears" that results in more big proposals, Collins stated.

Rick Applegate said there was still public comment to consider, and a summary was not yet available. Staffer Jim Middaugh acknowledged that significant comment came in after the deadline. Collins asked why, and Mike Kreidler indicated that at one of the last public meetings, the audience asked for, and was granted more time.

BPA Presents Scenarios on Treasury Deferrals

Collins said BPA would present an analysis of the impacts of managing a significant increase in the fish budget by deferring payments to the U.S. Treasury. He characterized what he had heard about sentiment toward the idea in Washington, DC: 50 percent think an occasional deferral -- once every ten years -- would be acceptable; another 30 percent think it would be okay to have more frequent deferrals; and 20 percent think no deferrals are acceptable, and "that percentage is growing."

Jim Curtis explained that the BPA analysis compared: 1) BPA's planned repayment schedule; 2) the draft proposal, with an additional $300 million in fish costs on top of the current cap; and 3) the draft proposal, with no additional fish costs.

Curtis said the analysis does not assume further cost-cutting at BPA and sticks to current repayment methods. Everyone will find something they don't like in the assumptions, Curtis observed, and he urged the committee to look at the trends, not specific numbers.

Scenario 1 showed what would happen with the market price low (low gas prices). Curtis said the low price was assumed to be 16.5 mills. With no additional fish costs incorporated, there would be an ending deferral balance of $2.9 billion in 2026. With additional fish costs, the balance would be $14.6 billion.

What do you assume about BPA rates? Ken Canon asked. We're assuming our rates can't be above the market, Curtis responded. We're also assuming we keep low monetary reserves, and there are no risks from water conditions, he indicated.

In the draft report, the region's share of additional fish costs is $250 million, Collins observed. Obviously, this is not a credible position, he stated. Curtis agreed, noting that Treasury should be concerned about the current repayments, if there is a low market.

The medium-market scenario presents substantially less Treasury risk, Curtis said. The ending deferral balance is zero, both with and without new fish costs. There would be some deferrals, he noted, but they would be made up in later years.

Curtis showed another scenario with the $300 million in additional fish costs imposed, and BPA customers paying up to the market to cover it. The system doesn't get back to cost until 2020, Collins noted, and you're running the business with a week's worth of operating capital.

Applegate asked to see slides of the medium market. I'm not sure what this does except "give a horrifying picture" of what happens if we do nothing and the market is low, he said. What we'd like is a picture of what we can do, Applegate said.

Do these slides assume there is a full subscription? Bob Gannon asked. Yes, Curtis said. Later, Curtis showed the medium market slide again, noting it illustrates the status quo compared to an additional $300 million in fish costs. What this shows is that you periodically pay Treasury less than you would under the status quo, he said. There is a clear regional net benefit here, Collins said. And some Treasury benefit, John Saven added. Clearly, there is a difference depending on the kind of market you try to impose the fish costs into, Curtis said.

What if the Region Pays More of the Fish Costs?

Council staffer Pete Swartz presented additional analysis of the option fee proposed for short-term federal contracts. The previous analysis of the option fee assumed there was an additional $500 million in fish costs, split 50/50 between Treasury and customers, he explained. The question posed here is how to make Treasury whole, Swartz said. In this analysis, the customers pick up $375 million of the $500 million.

In the analysis, virtually everyone goes short and pays the option fee, Swartz explained. With the addition of fish costs, the resubscription rate post-2007 breaks at about 50/50, he said. The option fee generates about $140 million per year for five years, and with interest, that means $700 million to $800 million, Swartz continued. The Treasury is okay for stranded costs, but we have extra fish costs for it to pick up, he explained. What can you do about that? Swartz queried. If you impose a 2-mill stranded cost fee on 8,000 megawatts, Treasury would break even, he said.

Are you showing us something Rick might propose? Saven asked. My reaction to our power marketing proposal is we need to be more realistic, Applegate responded, adding that he wanted to look at what happens with increased fish costs.

Bill Drummond asked how the formula would work for customers in 2007. Would I pay an additional 4 mills to stay on the system, the option fee plus the stranded cost fee imposed on the entire 8,000 megawatts? he asked. You pay 2 mills for the option fee, and if you leave, you pay 2 mills for stranded costs, Applegate said. In 2007, isn't there a stranded cost fee across all 8,000 megawatts? Drummond asked. Swartz said there would be the 2-mill option fee on those who stay and a 2-mill stranded cost fee for those who leave. Everybody is paying 2 mills, he explained. The real cost is to those who go short and leave, Applegate said.

Under this, the total system benefits would be "damn small," Collins observed. The total benefit is $175 million, Swartz said. There are big costs in the short term and a big benefit in the long term; it breaks even, he stated. There is no net present value to the region? Collins asked. That's right, Swartz said.

Collins said the analysis had been done to try to deal with indications that a 50/50 split would be unacceptable to Treasury. I thought Rick should take a shot at something that might be a more credible proposal, he explained. This shows that if you expect additional fish costs, which you should, how you might deal with them, Applegate said. Collins said he was surprised the analysis did not show greater net benefits to the region.

What Do We Do With the Fish Numbers?

It is fair to say that with the fish issue unresolved, it crowds out other resolutions, Collins remarked. You need to get the fish budget sized and decide who's paying, he continued. A decision will be in abeyance until this issue is resolved, Collins said. My opinion is we go ahead and reach some resolution that recognizes this contingency, he stated.

In the end, there have to be benefits or there's not much incentive to put your name on the document, Applegate observed. When we talk about benefits to the region, we talk about power only, he said. When we talk about fish, it's only about the costs. If we make an investment in fish, it's with the expectation that we'll turn the situation around, Applegate said. Fish investments aren't "a nuisance," he continued; let's be careful not to cast fish costs "as unfortunate." It's a real mitigation responsibility -- to stop the decline that has been transpiring, Applegate stated.

Sizing the fish obligation is not possible without knowing the market for power, Roy Hemmingway said. The 50/50 proposal was unsuccessful because the Treasury will not kick in with the market way above cost, he observed. The fish obligations will be set every few years; the decisions will be made incrementally, Hemmingway said. Increasing fish costs is possible only when the market rises or when Treasury comes to the table. There is no one else to pay the costs, Hemmingway said.

I am wary about making decisions about structure with so many things unknowable, he continued. We can get there if we understand that fish costs will be re-budgeted and customers will make decisions based on the costs, Hemmingway explained. We have to structure incentives to get people to stay with BPA until the market changes, he stated. The only way to do more for fish is for the Treasury to step in, Hemmingway said. Otherwise, there is no one to pay for it -- the customers will walk, he said.

That is as good an exposition as I've heard in 11 months, Collins observed. I agree, Saven said. He added that there may be a scenario in which we don't need to spend as much on fish as we do today; that is one possible scenario. We can't plug in spending levels, Saven said, but added that we know intuitively that if BPA spending is out of control, the customers will leave. I am not anti-fish or anti-spending, he stated. I represent customers who want to stay with BPA, and they want BPA to meet its responsibilities for public purposes, Saven said.

Let's Do the Bump

Collins explained that staff had summarized the issues "parked" at the last meeting and listed them on wall charts. There are also indications of where linkages between issues exist, he explained. First up are federal power marketing bumping rights, Collins said.

Saven explained that the question was whether a regional load, other than a preference, DSI, or IOU residential/small farm load, could be bumped. Would there be an ability to recall a contract to serve a public agency load? Is that right resalable to another party? he stated.

Is that a legal right under preference now? Gannon asked. No, preference power cannot be resold, Curtis replied. Currently, a preference customer who loses load can have BPA remarket the power for them, he said. Can preference customers bump under the present legislation? Gannon queried. Curtis said there is a mandatory recall with five-years notice in non-preference contracts.

Whether preference loads have access to the federal system for load growth is in the law and in contracts, Gary Zarker said. Do we want to continue the public preference right to bump loads in that circumstance? And there's the question of, does anyone get to resell power? I don't see these linked, Zarker observed.

Saven raised the issue of bumping rights for preference customers who return to the system and instances in which public agency load growth could require that other contracts be limited. Curtis said the Bonneville Act requires BPA to have a five-year recall provision in IOU contracts. I don't know if IOUs and industrial customers are interested in 20-year federal contracts, but such contracts would represent a major change in what we view as preference rights, Saven said.

The draft report conveys the sense that we all benefit from the system, yet if IOU commercial and industrial customers sign up, they could still get bumped, Canon said. This seems to say that these customers aren't part of the region, and they don't get the benefit. To be able to sign up, but then get bumped sends a mixed message if we want long-term contracts, he stated.

Kreidler suggested that bumping could limit BPA revenues. It's self-defeating for what we're trying to do, he said.

Can I buy a pure "call" option? Drummond asked. That's way outside what we've talked about, Collins observed. I'd oppose it, Saven said. It could alleviate Mike's concern, Drummond responded. There might be a way to do that, Collins said. If the system expands and everybody can buy, what's the value of preference? But if the system doesn't grow, the ability to bump becomes significant, he observed.

Why do you assume there aren't rate pools? Curtis asked. A preference customer can displace another customer into a higher-cost pool, he said. It's as Roy has said -- everybody buys at 7(b), and that's what's wrong with the Act, Brett Wilcox responded.

You wanted the system to stop acquiring resources, Collins said. Should the only people with exposure be the IOUs or the industrials? he asked. If you have bumping rights, don't the folks who stay pay more? K.C. Golden asked. It depends on the fees you impose, Saven said.

The critical issue is how do you provide incentives to keep people on the system, Hemmingway said. Constraining the system is a dramatic improvement for preference customers, Wilcox said. You aren't going to get people to sign up long term if they can be bumped, he said.

From a practical point of view, every year you would work through the hierarchy for subscriptions, Drummond said. This situation would occur only if the system is fully subscribed. I don't see it as being that big a problem, he added.

No Fun

As we move to choice, would this potentially allow a preference customer to bump off one of our industrials and take over our customer? Gannon asked. The reply was yes. That isn't much fun, and I would not like to do that if we could avoid it, Gannon said.

The committee decided it could not resolve the issue without considering the conditions under which a preference customer could return to the federal system. I proposed that customers who did not commit to BPA in 2001 could come back, but only at market rates, Hemmingway said. Clearly, it's the greatest incentive to stay; otherwise they can game the system, he added.

New publics would be excepted, Drummond said. And maybe load growth, Hemmingway added. We've already said that IOU residential and small farm customers own their preference rights, Zarker said. What about IOU loads that aren't participating? Drummond asked. Residential and small farm loads are not bumpable, Collins stated.

If a public doesn't sign up in 2001, they could come back later, but never do better than market, Drummond said. The same should be true of IOU and small farm residential customers, he stated.

What if you distinguish between new systems coming in at cost and bumping rights? Collins asked. Entitlements always distort markets, Sharon Nelson pointed out. You are creating incentives for municipalization, she added.

A new municipal may be required to go through a waiting period to get service, Saven said. This could be tied to whether BPA has resources, he added. If you have minor load growth or there is a new public agency, you should get power at cost, Saven continued. If you leave and come back, what you pay is not as important as not losing the right, he observed.

That's a willingness to come back at market? Applegate queried. There are a lot of ways to do this, Saven responded. Although we can continue to argue, I'd yield to a scenario that helps people in the short term and retains preference in the long term, he said. That solves the problem, Collins observed.

Does this address the new public entity? Gannon asked. If there is a new public, it would have the opportunity to get cost-based power from BPA, maybe with a waiting period, Saven explained. You're distinguishing load growth and new customers from those who don't sign and don't renew, Collins said. BPA should be able to meet load growth, but if, for example, Portland is suddenly a public, there could be an issue of the availability of power, Saven said.

If we're getting into this level of detail, I'm concerned about new publics, Hemmingway said. Could we force a new allocation as new customers come in? he asked. I'm concerned about "haves and have nots," Hemmingway said, if preference customers take up the entire federal base system. He also expressed concern that an option fee could be a disincentive to sign up for federal power. BPA could have a differential in rates, but I'm concerned about when the market is lower than cost that fewer customers will sign up, Hemmingway continued. I'm worried that we would create a disincentive for people to get on, he said. We've said pricing should not be a disadvantage, Saven agreed.

What do you say to Treasury? Collins asked. We say that we're meeting our costs, Hemmingway replied, indicating that the issue would come up again in the discussion of stranded costs. "We have a hell of a job in D.C.," Collins observed, and he indicated that Roy and John would refine the federal power marketing proposal.

Engaging The Public Purposes Issues

The discussion moved to the linkage between the date for allowing customer choice and the mechanism to fund public purposes. We're probably constraining this too narrowly by linking them, Canon said. We still have proposals on public purposes floating around, and this could affect whether we want a linkage, he observed.

When we first talked about this, I said I was uncomfortable with 3 percent of revenues for public purposes, Canon continued. K.C. suggested open access would confer benefits so we should go with a linkage of the dates. I agreed, he continued. That assumed a voluntary 3 percent for public purposes so I'm interested in engaging public purposes first, Canon stated.

Do you have a proposal? Collins asked Golden. We are interested in consumer protection, which means stranded costs, and in stable funding for public purposes, Golden responded. We need to have explicit language, Collins said. Golden noted that with public purpose revenues linked to power revenues, as the price goes down, we lose funding. He said the statement on the chart, "local control versus minimum funding standard," should be "local control and minimum funding standard." The local control issue has been fought and won; this proposal has local control in it, Golden said.

Local Control with Legislative Backup

Jim Davis said he agreed with Golden's change to the statement on the chart. I don't want "versus" anything, he said.

Public power thinks it met the test on public purposes set out in the draft, Davis continued, explaining his proposal. We had 90.5 percent of the public power load show up with a commitment; only two publics in the region said no, he added. The overriding concern is local control, Davis said.

The key features of the proposal are to recognize the commitment the publics made and let them perform, Davis stated. We're proposing local control and a voluntary commitment that utilities will meet the 3 percent target by 2001. Each utility will publish an annual report of its public purpose investments, he said, and the report will be reviewed by the Regional Technical Forum.

What if they don't? Collins asked. Their BPA contract requires it, Drummond responded. If a utility doesn't publish a report, it goes into the "didn't make it" group, Saven suggested.

"Voluntary" is an unfortunate word, Collins observed. How do we know they'll do it? And if they don't, what do we do? he asked. If we don't make it, states should take some action, Davis replied, adding that a transmission charge for public purposes is unacceptable.

We tried to throw this open to state regulation, Drummond said, and we tried to provide the linkage K.C. wanted. We've suggested a mechanism that allows utilities to prove they'll follow through, with a fallback to state regulation, he said.

If you fail to meet this in 1998, what happens? Collins asked. We turn up the heat, Davis replied. The drop-dead date is 2001, he explained. We give people a chance to correct the default. Every year we evaluate the progress, and if you aren't making any, you get "a swift kick in the tail," Davis said. Chuck Hedemark said the proposal responds to his governor's and PUC's concerns.

We haven't prescribed where you allocate the 3 percent, Davis continued; it may vary from utility to utility. It may go wholly to renewables in some areas and totally to low-income in another, he said.

Collins said the proposal would require each utility to publish its results annually. Failure to do so indicates the utility has no program. If in 2001, we are not at a collective 3 percent, the publics will support state legislation? he queried. We'll assume the mantle of responsibility, Davis said. Transmission access is the hammer to see that this happens, Kreidler said.

This is not credible without a specific mechanism, Zarker said. If it is not transmission, then what? he asked. I don't think it's credible to say, if we don't do this, we'll come up with something later, Zarker stated.

If we've committed to a voluntary mechanism and we have a failure, we said we'll support legislation, Davis responded. What are you sanctioning? Zarker asked. Are we talking about losing contract rights to preference? There's got to be something specific, he said. That gets to states' rights, Davis said. Idaho may go for a meters charge, others for something else. If we screw up, we'll face consequences, he concluded.

It's difficult to imagine that the governor of Washington will buy something without more certainty, Kreidler stated. I don't see how you do that without "a more tangible club," he added.

Collins noted that some of the contingencies could require FERC policy changes or national legislation. I don't think California had a hammer, Drummond said. It had a tax, Nelson responded. You don't need a hammer if you have a tax, she said.

Our proposal backs up state action to achieve public purposes, Golden said. Every place a restructuring bargain has been struck, it includes a statewide standard. The Green Book [public power's commitment statements] represents less than 40 percent of the region's load, he said. We have no commitment from the IOUs or DSIs; you can't get to a credible answer without that, Golden stated. The publics are committing on behalf of future boards that represent less than half of the regional load, he pointed out.

We were asked to approach this in view of competition, Rachel Shimshak said. We can't do that without a minimum standard for everyone. I don't understand why the publics object, she added.

A Good Issue, But the Wrong Issue

I think K.C. is right, Gannon said. We're getting caught up with the issue of local control. I don't downplay it, but I think it's the wrong issue, he stated. Let's get on with it, Gannon urged.

Our concern is with state regulation we don't currently have, Drummond said. How about a mandatory standard that would go into place at a future time? he asked.

The IOUs "won't put their toe in the water" if you don't, Nelson stated. I can't force them to; only the legislature can, she said. The name of the game is cost avoidance in a competitive market, and they'll try to avoid the costs, Nelson explained.

Can we have a standard that would trigger if the contingency is not met? Collins asked. Yes, Kreidler responded; you could draft legislative language that postpones implementation contingent on something else happening. You'll wait four years to have something in place, Nelson cautioned. This doesn't preclude states or the feds from taking action, Hedemark observed. Reciprocity issues are very important, Gannon pointed out. We won't move until we know that others will, he said. Can we remove the deadline? Collins asked.

The Green Book is "a moral commitment," Davis responded. I don't want this group to shun these people and have them oppose anything else we do, he stated. "I'd rather play the conservation game than the blame game," Davis asserted.

The principle we're trying to deal with is that by virtue of local control, we don't face regulation, Drummond said. We don't want to fall under it; it takes away autonomy, he stated. But we are saying we'll take regulation if we fail to honor the commitment, Drummond concluded.

We've gone as far as we can go and still have a proposal that survives competition, Golden said. In California, the publics pay at the low end of the standard, and they have broad discretion about how they'll meet it, he said.

If you have a minimum standard, what discretion do the publics have? Collins asked. They have alternatives for meeting it, Golden said. Drummond pointed out that there is a wide variation in public systems and what is cost-effective in each; a system could be 75 percent irrigation load. Do we need to go beyond saying this is a state issue, and we are willing to turn it over to them with a recommendation of a 3 percent minimum level? he asked.

If we have this less binding than other parts of the proposal, we might as well go home and leave it all to the states, Golden said.

Talk Over Lunch Yields Progress

There is a strong body of opinion to move on and leave this topic, Collins observed, following the lunch break. But I think it would be a mistake. If you can't climb the first mountain, you can't climb any, he said.

Golden reported on discussions with Davis and others, and said there was a proposal in the works to urge state legislatures to act in 1997 to establish a standard and a mechanism to implement it statewide. The mechanism could be a uniform meters charge, he explained. The same standard would apply to the publics and the IOUs. If the publics are there, you don't need a charge, but if not, it kicks in, Golden continued.

Talk Over Dinner Yields More Progress

Our intent is to have the states act in the next legislature to establish a standard consistent with our report, Golden said, and to establish a mechanism that goes into effect if the utilities are out of compliance. This may take two legislative sessions in some states, he noted. The date we talked about for the state legislative backup is January 1, 1999. In the meantime, utilities will be filing tariffs and passing ordinances, Golden explained. Large customers could get credit toward the conservation standard, he continued.

We're still optimistic about the utilities' commitment in the Green Book; this is a backup, Davis pointed out. There was unanimous support in the group for the existing Market Transformation Trust, Golden said.

Shimshak delineated three unresolved issues: how the investments for various purposes would be allocated within public power; the specifics about what IOUs are doing; and how to know if investments are being made. Golden said a tariff or ordinance would be the assurance. On the first issue, we're near the end of our rope, Golden acknowledged. He noted that there needs to be closure on how to treat states where the legislatures meet every other year.

Canon said he was concerned about the shift from a percentage of revenues to something based on loads. This causes a proportional shift onto industrial customers. I just want to raise the issue, he noted.

Talk Over Breakfast Yields Even More Progress

Golden returned Friday morning with another go at the public purposes language. We strongly urge state legislation in 1997 to establish a standard and to provide for a uniform system benefits charge, if the standard is not being met by July 1999. There would be a six-month period in which all utilities would put together a tariff or rate ordinance. These would be in place by July 1, 1997 for 90 percent of the region's load, or the region would seek a federal backup to take effect in 1999, Golden said.

There was some discussion about the purpose of the tariff filings, and Drummond suggested there could be a tariff or "a showing in some other way." We want the IOUs to be comfortable coming forward with tariffs, Golden stated.

The federal backup "will raise hair," Nelson said. The notion that we are going to dictate to state legislatures will have a political backlash, she predicted. We will not dictate to sovereign legislatures, Golden explained. We are trying to come up with a package we can agree on. If we don't have something credible enough for the publics, the IOUs won't come forward, he said.

We're all aware that what we're doing amounts to a set of recommendations, and we have no control over what happens, Canon said. Our elected officials will react to the pace, Zarker said. We can't put this out and say, if you don't act, we'll go around it, he said.

We're not dictating anything, Golden said. The reason for the dates is to establish goals to help this move forward, he said. We're not drafting legislation, he added. I was opposed to the federal redress, Hedemark said. I'd rather have dates than federal redress. We always have the option of that, but we don't need to have it in the plan, he counseled; it comes across as a threat.

Canon voiced concern about a load-based calculation for contributions. For a company such as the Wauna mill at Clatskanie, the formula adds up to 5.5 percent on revenues, he explained. There are a few systems in which the math is insurmountable, Golden acknowledged. We've come onto the horns of the dilemma; it will require calculators and compromise, he declared. We're still focused on $210 million, we just don't know how to get there, Shimshak said.

We have to resolve this, Collins said. He directed Golden and staffer Tom Eckman to prepare language for the draft. Your charge is how to collect $210 million, Collins said.

This strikes me as a level of specificity we don't need, Zarker observed. I think we could say $210 million, with an equitable allocation procedure, he offered. Gary may have a good idea, Canon agreed. Let's go with that, Nelson concurred.

Leaving it vague won't give us as strong a proposal, Golden said. I wouldn't mind spending a little more time on it, Zarker said, but Ken's people will do what they want to do. This isn't an open ticket for Ken's members, Collins cautioned, acknowledging that "he got them from 1.5 percent to 3 percent." I can't take this to my members and say, we went to 3 percent, but now it's higher, Canon stated. We'll give this a little more time, Collins said.

We want to preserve the overall goal of expenditures in various categories of public purposes, Shimshak said. And we have agreed upon a definition of renewables: solar, wind, geothermal, organic biomass, and new hydro -- "I've been assured there isn't much of it," she added.

This is as good an effort as I've ever seen, Collins said of the public purposes proposal. I think it's sensational -- really well done, he added.

Another Lunch, Another Proposal

Golden presented new language on public purposes Friday afternoon. Davis said he was concerned the language implied there had been agreement on regional renewables activity. Drummond suggested the word "industrials" be deleted so that any large customer could be credited for conservation investments, commercial or industrial, and Gannon suggested that board resolutions or affidavits be acceptable, along with tariffs, as evidence of conservation investments. I still have concerns about the salability of this, Nelson observed.

A Proposal For Retail Access by Mid-1999

Canon offered a proposal that no later than July 1, 1999, all retail distribution utilities would provide retail access for those customers that desire it. He said he and Jason Eisdorfer had talked about the consumer protections that would need to be in place. They are also listed in the proposal, and include stranded costs, pilot programs for aggregation of small commercial and residential customers, public purposes funding, and energy assistance funding, he said. Instead of having a direct linkage, we just have a date for access, Canon reported.

It seems that we just lost the date for the public purposes, Eisdorfer observed. It is better to select a date for access, Canon said. I'm willing to entertain a linkage, he added.

Do you want to do "one size fits all" or say that as the market opens, you'll take care of public purposes? Nelson asked. Does this mean that whenever a legislature provides for choice, it also includes a mechanism for public purposes? Shimshak asked.

here is going to be authorizing legislation, Canon said. You have the 3 percent right now in place, given the commitment the utilities have made and the backup offered, he said. Is the linkage the right idea? Collins asked. This issue can't remain unresolved, Golden said. It needs closure, and I'd say pushing them together is desirable, he added.

In Washington state there aren't defined utility service areas so it is harder to make that connection, Kreidler said. Retail choice is already under way, he said.

I thought the reason for this exercise was to go forward on the issues and go forward together, Shimshak said. Isn't that the goal? she asked. Yes, Collins said. He asked that the parties discuss the issues at the dinner break. Canon and Eisdorfer worked on the issues and reported back to the committee.

What if you have a BPA contract until the year 2001? Saven asked. Canon said the idea was to set up a situation in which publics would know what is available -- what's out there -- before the federal power subscription process takes place.

Gannon said the proposal seemed inconsistent with what is going on in Montana, and he asked if changes could be made. Canon said he recognizes that utilities will have other ideas, but he indicated it would be difficult to change the language. Saven asked about the pretext for the proposal, and Canon said it assumes that state legislation to accommodate choice will be considered. Do you object to saying that? Saven asked. Canon said he did not.

Zarker asked if Canon would support linking the date for access with resolving the public purposes issues. One reason we are linking them is they will be linked elsewhere, Canon said. I think this will hurt low-income people, Zarker said, and that's the reason to link them. This proposal doesn't presume a specific resolution for low-income customers, Canon pointed out. With a little further clarification, the committee accepted Canon's proposal.

Help for Low-Income Customers

Eisdorfer offered new language for low-income assistance. There are two goals: one is to let states know this is an important issue, and the second is to give states flexibility and not mandate a solution. States are free to establish their own standards, Eisdorfer explained. We offer a mechanism, but do not mandate one, and the goal is to meet the standard, he added. The language recognizes the historic role of the energy system to collect for low-income energy assistance, Eisdorfer said.

Drummond noted that language on ensuring low electricity prices had been deleted, and it would seem to be an important point. Eisdorfer agreed it should be added back. Collins asked about the difference between this language and the draft. We strengthened the language, Eisdorfer replied. We indicate that states should pick up the role, and we got rid of the portfolio standard. Those in the low-income community thought the language was insufficient to highlight the problem, he added.

Wilcox pointed out that instead of a choice of payment mechanisms, the new language directs that there be a Universal Service Fund. Golden said the proposal states firmly that states should act for people who are paying 5 percent of their income for electric service. They should have access to assistance and it suggests the fund, he stated.

Initially, the fund was going to be just one of several things, and now it says there will be a fund, Wilcox said. It's much more mandatory here, he observed.

I disagree with your characterization, Shimshak said. This selects one of the choices we put forward in the draft. You can put money into the fund in whatever way you want, she said.

I don't read this that way, Wilcox responded. I want to know who pays how much, he said. If it is just a meters charge, that's okay. But if it is a big cost-shift to commercial and industrial customers, it's not, Wilcox indicated. Was this problem in the draft, too? Collins asked. In the draft, there were a number of different options, Wilcox said.

Nelson noted that Congressman Schaefer's bill gives states choice, and she said the proposal was consistent with telecommunications legislation. Saven asked how the proposal would work in terms of states apportioning funds. We were not trying to be prescriptive about what states could do, Eisdorfer said. States should be allowed to come up with their own mechanism, he stated. Collins suggested Eisdorfer add "state and local" to the other sources of funds. Canon asked Eisdorfer to add that a flat meters charge was an option, in addition to the distribution system access fee.

Hedemark questioned whether the proposal needs to specify the percentage of a person's income that would determine eligibility for a rate discount, and Golden responded that it was important to establish a goal. Canon also suggested the reference to a Universal Service Fund be moved to the end of the paragraph. Nelson said it was appropriate to have a laundry list of possibilities. Golden suggested it be made clear that a meters charge is not the only form of a retail distribution access charge, and the language was tweaked to do so.

Can Customers Resell Federal Power?

The idea is to sell power to customers in the region who want to use it, Zarker said, when the question of reselling federal power was raised. It gets very difficult to track dollars with other possibilities, he said.

You're saying that as a practical matter, how do you follow the dollars if power is resold? Collins asked. Yes, Zarker said. If you take the power, you've got to use it unless you lose load, he explained.

I thought Al [Alexanderson] wanted the condition that you could resell so long as the benefits stay in the region, Collins said. But Gary says it would be hopeless to track the dollars; so you use the power, unless you lose load, he summarized.

I agree with Gary generally, Eisdorfer said. But I don't want to foreclose the possibility of getting access to the system, he said.

If you take the power, you have to use it unless you lose a customer because of customer choice, Zarker stated. I don't think you can just monetize this benefit, he reiterated. The committee deferred on the question until Al Alexanderson was present.

Let There Be Resale

Alexanderson offered language on the residential exchange and resale. He said the loss of the exchange would increase rates for residential and small farm customers. Small irrigation customers in southern Idaho could see an increase of up to 60 percent, Alexanderson stated. For a Portland General Electric space heat customer, the increase is a couple of hundred dollars a year, he continued.

The timing of the increase is particularly troublesome, Alexanderson said. It will hit next October, he said, when the work of this committee is being implemented, and when the DSIs and public customers will see a decrease in BPA rates. It's a significant political and dollar issue, with troublesome timing, Alexanderson declared.

If there is a value in BPA subscriptions, everyone agrees the value needs to go to residential and small farm customers, Alexanderson stated. Do the electrons have to go to the same people? he asked. There has to be a mechanism to monetize the value and have the money go to the intended customers, Alexanderson urged. He said there will be "a big fight" when the exchange benefits go away. One way to avoid that is to get the subscription process under way before 2000, and allow the value to be monetized, he said. Alexanderson proposed language that would allow power purchased on behalf of IOU residential and small farm customers to be resold.

Let's get away from the rhetoric that divides us, Zarker suggested. I'm willing to talk about funding stable exchange benefits, but without the prelude, he said, referring to Alexanderson's proposed language. The fundamental principle is, if you take power, use it, Zarker said. Why would you be running a higher cost resource? he asked. If you take the power, use it, and regulators will say, if you take it, use it, Zarker stated.

If regulators want to think that, fine, Alexanderson responded. I'm arguing in this body, he said.

Why is it important to resell? Collins asked. I'm concerned about devaluing the exchange, Alexanderson replied. To what degree does this have to do with expensive resources? Collins queried. Nothing, Alexanderson answered. It has everything to do with that, Zarker stated.

Why does it matter what leaves the inventory? Collins asked. I'd put that question back to you, Alexanderson said.

There are legal and political remedies to 7(b)(2), Drummond pointed out. How do you get the benefits to residential and small farm customers and how do you track them? he queried. If you sell the power outside the region and if those residential customers leave your system, would you flow the benefits to them? Drummond asked. If you sell at one price and the market moves, what value do your customers get? he queried.

We've gotten to the crux here, Eisdorfer said: the benefits before 2001 and access to the system post-2001. When the exchange starts to go away, there will be political fallout and it will be directed at BPA, he stated. Eisdorfer said he wasn't sure there could be a detailed solution post-2001.

Curtis said there had been a legislative fix for the exchange, and he indicated that BPA is paying out $160 million in exchange benefits this year. It doesn't fall off to nothing, he said. Our analysis is that the average rate impact is 5 percent, and the 60 percent increase in Idaho does not occur in 1997-98 alone, he explained. We have offered shaping in the out-years to reduce rate shock, Curtis said.

Alexanderson noted that if there is controversy over whether people are reselling BPA power, there is no way to track the electrons. I am concerned about the situation in which we have people peering at contracts to try to determine this, he said. I'd like to know if regulators are in a position to track the value to intended customers, Kreidler said.

Nelson said she had "heard umbrage being taken" with the rhetoric in the prelude. I agree with Al that the governors need to be warned about the political pressures that could result, but she suggested deleting some of the language. We need to make sure the benefits stay with the intended beneficiaries, Nelson stated.

The exchange was to provide equal access, not monetary benefits, Wilcox observed. We should urge BPA and the IOUs to settle the problem, he said, but not be prescriptive. Wilcox suggested that if there is a benefit that someone can sell, then a rate disparity could exist again in the future. You'll be right back to the same place, he cautioned.

I think it can get more complicated, Curtis said. The problem today is instead of a power sale, we have a monetary exchange, he explained. Curtis suggested that power could be transferred to utilities that want to resell in competition with BPA. Does this mean that all IOUs can buy, even utilities whose customers have no benefit from the transaction? he asked. Curtis said this could mean that a utility could get an allocation ahead of the industrial customers of an IOU. It will take power that would be available to lower ranks in the subscription process, he added.

Alexanderson said the only issue is whether "someone could run around and look at contracts." Saven asked, if I support this language, do you support that in the subscription process, we've solved the exchange pre-2001? Is this issue put to bed? he asked Alexanderson. Would you personally support that? Saven queried. Give me five minutes to think about it, Alexanderson replied.

Whatever you think of the Regional Act, it ended up with a 15-year peace treaty, Hemmingway observed. If one thing will shatter our efforts, it will be rate inequities, he warned. Politicians will see that as a problem, Hemmingway said.

We can't deny the existence of this problem, Alexanderson said. The open question is, does this end the debate about pre-2001? Collins observed.

The purpose of the exchange was parity, Wilcox said, when the topic arose later in the day. You could have an IOU with better than parity, he observed of the resale proposal. Wilcox suggested that the issue of rate disparity could come up again in the future if "equal access" is expanded to include resale rights.

It's arbitraging, Drummond said. By allowing arbitrage, you could kick others out of the line, he stated.

We're on "a merry chase," Alexanderson said. He suggested that parties are arguing that the exchange was for access, but at the same time it seems to be a problem if utilities with low-cost power participate. There is a profitability issue for BPA, Collins observed. Pragmatically, we recognize who gets bumped, he continued. In the subscription process, these residential customers are subscribing along with the DSIs. What would get bumped are out-of-region, commercial and industrial customers, and maybe new municipals, Collins stated.

All we're operating on now is assumptions, Canon said. I need to look at a range of scenarios to see if this is a problem, he added.

Collins asked the committee if the amended Alexanderson proposal could go into the draft. It allows for resale, with the condition: the resale transaction shall be subject to conditions imposed by state PUCs, including, but not limited to allocating all monetized benefits to the distribution system serving the residential and small farm customers, or directly to such customers.

Much Ado About Stranded Costs

Two proposals were introduced for treating BPA's stranded costs: the first was Nelson's, and it proposed that BPA establish a stranded cost mechanism and conduct a 7(i) process to impose the costs. The second proposal rewrote Nelson's without specifying the 7(i) and calling for a public process, with FERC resolving disputes. Applegate and several consultants were identified as drafting the second.

I stand by my original language, Nelson said, except that I would change the sentence with BPA establishing the stranded cost recovery mechanism to FERC establishing it. Eisdorfer asked what the pros and cons of BPA's 7(i) process are versus a FERC process.

Drummond responded that BPA has control of the 7(i) and is "both judge and jury." He noted that the FERC review of 7(i) only addresses where the rates will cover BPA's costs, not whether the revenue level was appropriate. Do we need to include something about the standard of review? Collins asked.

I read Sharon's proposal to mean BPA has broad discretion, Wilcox said. With FERC Order 888, there is a standard, he explained. I can't swallow BPA having broad discretion, Wilcox said.

Nelson read her proposal and noted that the rewrite is quite different. Golden said the Nelson proposal seems to "dance around" applying the FERC standard in Order 888. Why not just say that? he asked. Curtis questioned whether the committee would be proposing a new standard of cost recovery for BPA.

Applegate asked if the committee could get some legal advice. What is the difference between FERC and the 7(i) process? he queried.

Zarker noted that the rewrite "is not what we talked about at lunch." My understanding of what was discussed at lunch is more like what Sharon wrote, he said. I think there is clear evidence we don't have the ability to solve the stranded cost issue in the region. We need an outside regulator to allocate costs, he said.

That creates no mechanism for determining whether costs were prudently incurred, Collins noted. The message that has to come out is we have to satisfy the WPPSS bondholders, and we want FERC to help us with that, Zarker said.

I don't think WPPSS is the issue, Wilcox stated. Right now we recover those costs, he continued. The BPA Administrator came before us and said BPA needs the same stranded cost treatment as IOUs receive, and that is what we're trying to do, he said. We're making BPA subject to the same criteria as the IOUs, Wilcox explained.

Canon suggested the proposal include language that differentiates between past costs and those incurred post-1996. My understanding of the phrase "all costs incurred" means already incurred costs, Nelson said, not "future strandable costs."

We need to work in the FERC criteria, Wilcox suggested. I would like to keep my point two, as I amended it with FERC, Nelson said. The amended introductory sentence reads: "FERC should establish stranded cost recovery mechanisms for BPA which parallel Order 888 in order to. . ." Drummond asked about the sentence stating that the mechanism should be specific to transactions that result in costs being stranded, in order to avoid shifting costs generally to all transmission users. Nelson said the idea is "targeted stranded cost recovery." Who caused the cost to be stranded is the issue, not who caused the cost, she explained. Drummond pointed out that the language seems to create transmission as the collection method.

Wilcox asked if the committee could agree that the goal is to get to FERC Order 888. Collins noted that it would be difficult to tell a federal arbitrator to address this issue and then tell the arbitrator what standard to apply.

The idea is we want a stranded cost provision in this report, Curtis said. But we're changing the standard of review from full cost recovery, he cautioned.

Randy Hardy has said he is willing to take what the IOUs have, Collins noted. How can we get to 100 percent? he asked. Curtis responded that DOE could end up writing the language, and the law directs the Administrator to recover BPA's full costs.

It Looks Like a Blank Check

I read this as you have a blank check, Wilcox said. Curtis noted that the slides he showed earlier have the taxpayer "hemorrhaging" if Treasury payments are deferred.

Roy, is it a non-starter to have something other than full-cost recovery for BPA? Collins asked. Agencies don't have to take jurisdiction just because they're asked to, Hemmingway said of the proposal to go to FERC. But they are required by law to see if BPA rates are recovering full costs, he said. So it takes legislation to solve the problem, Collins observed.

The draft says we will have a different way to deal with stranded costs, Collins said; BPA will have resolved it through the subscription process. But stranded costs keep coming back. Last week we said we should set up "a tribunal" and let it see if the subscription process is feasible, Collins continued. Can we do better than that? he asked.

I hate to punt to some committee we don't know, Applegate said. It seems like we're close, Golden said; we want to move to a FERC-like standard. BPA wants any difference between costs and revenues to be recoverable, Wilcox said. That's not acceptable, he added.

We have "a tar baby," Collins observed. I've interpreted Randy's statement to mean he could talk about partial recovery, he said.

That was so "topsy-turvy" for BPA to say it would take the states' approach, Nelson said. We're looking for a neutral forum, she said. We didn't want to just leave this to the Administrator's discretion. We're trying to find an appropriate venue and give the customers some comfort, Nelson stated.

Curtis noted that the current draft leaves "the pen in DOE's hand to do what they want." The draft pretends there will never be stranded costs, Hemmingway observed. I'm content to talk in general terms, but we have to say we know it's a possibility and must be dealt with, he said. If we can't agree, why spend more time? Hemmingway queried.

I'm not agreeing that my current contract obligates me to stranded costs, Drummond said.

It's a non-starter to take something back to D.C. that says Treasury is going to get stiffed, Hemmingway said. When you're dealing with prudency at the PUC, you're talking about stockholders. We've never said the Treasury took risks by building the system, he stated. That's hopeless; you won't win that argument, Hemmingway cautioned.

Don't they perceive risk now? Golden asked. You won't get it on prudence, Hemmingway replied. We need a new inspiration, Collins declared, and the issue was pushed to later.

An EPA 1992 Submission May Do the Trick

When the topic resurfaced, Curtis explained that BPA's transmission rates were submitted to FERC under the standards of the Energy Policy Act (EPA) of 1992. We took Sharon's proposal as laid out, he said. BPA could conduct a 7(i) and submit the results to FERC under the 1992 EPA, which has a broader standard. Applegate noted that the 1992 act brings in a lot more issues than a 7(i).

I don't agree, Wilcox said, indicating this could still give BPA "a blank check." Curtis said alternatively, we could ask staff to distinguish between FERC Order 888 and EPA 1992 and see if they can come up with language. I'd like to see that -- we should try to resolve this, Applegate said. Can you see if this could be done administratively or will it need legislation? Eisdorfer queried.

This involves complex legal issues, Drummond said. I'm wary of passing judgment about my contract rights. I can't pass judgment if I am handed this tomorrow, he said. Collins agreed it was important to take a look early in the day.

The Committee Approach

A committee of agency staffers met to craft a stranded cost proposal Friday morning, but confusion arose at the committee meeting over who was offering it and who supported it. After several accounts of what had transpired, BPA General Counsel Randy Roach presented a proposal that had an introductory paragraph and three principles: determination of any BPA stranded cost recovery would be consistent with EPA 1992; disputes between BPA and customers regarding stranded costs should be resolved by FERC; and the approach to recovery is not intended to alter BPA's statutory obligation to recover its costs and repay the U.S. Treasury.

BPA would file for stranded cost recovery under EPA 1992, which Roach said had a provision uniquely applicable to BPA. BPA contends that Order 888 does not pertain to its situation, he stated. We do not think we can go to the standards in 888 and work in the government's interest, Curtis added.

Wilcox said the draft that bore his name was what he supported. I'm not willing to deal with this other draft, he said. What does it do to have BPA under Order 888? Zarker asked. Wilcox said there would be an obligation to mitigate the stranded costs.

It sounds like if the mechanism doesn't allow for full recovery, BPA has to impose the costs anyway, Alexanderson observed. Curtis said Hardy had wanted to have recovery be the same as what the IOUs would receive, but he has the obligation to recover full costs.

Canon said in October, he had asked Hardy whether BPA wanted the same treatment as the IOUs. The response was yes; I have a hard time following where the ball bounces next, Canon stated. Have we reached an impasse? he asked.

We should not stop because BPA feels an obligation to protect the Treasury, Alexanderson counseled. There are lots of votes to impose the FERC process, Collins observed. We could ignore it or we could state the dilemma, he suggested.

Nelson said the committee's interest is in completing the proposal. She noted that Harvey Spigal of BPA had said he would not open the transmission system until he can recover stranded costs. The Administrator's desire to cover costs is like a CEO's obligation to get shareholder value, Nelson observed.

We do have an impasse, Hemmingway said. Let's state that BPA has an obligation to recover stranded costs, and the committee is aware of it, he suggested. Can we say we'll take Order 888? Wilcox asked. No, we can't agree on that, Hemmingway replied. BPA is different, and it will open a process when the time comes, he said.

We started with the 888 standard, Roach said. It's more concrete than "wanting" to cover costs, he said. BPA is not profit-making, Collins observed; I don't think we can put BPA in that position.

We need an independent body to make the decision, Alexanderson said. I like a lot of what Brett did, he added. We're trying to resolve a rate, contract, and legal issue, Drummond cautioned.

Wilcox proposed crossing out the principles in Roach's draft, and adding a sentence: While the committee didn't agree on a specific stranded cost mechanism, it did agree on giving FERC an enhanced role and upon criteria maximally consistent with FERC Order 888 principles. The committee agreed the language would go into the draft, but not all members agreed to the language. "I think we all feel a little goosey," Saven observed.

Fish Amendments Stir Debate

Applegate introduced a series of amendments relating to fish and wildlife (F&W). He urged the committee to take a closer look at the comments of the Columbia River Inter-Tribal Fish Commission (CRITFC), the Shoshone-Bannock Tribes, the National Marine Fisheries Service (NMFS), and other fish advocates. It's clear there is not support for what the committee is doing, he said. What I have tried to do is come up with ways to address the major points raised and see if we can reach a consensus, he said.

There are both procedural and substantive concerns, Applegate continued. He pointed to the first reference to fish in the draft report. The first thing you see is a limitation, Applegate said.

My first two amendments state that the committee recognizes the fish protection and restoration obligations outlined in treaties, executive orders, and other documents, Applegate continued. I put in a clause that states we don't want to see anything proposed that would take away from these obligations. This language affirms our F&W restoration commitment, Applegate said. I propose to delete the existing language on F&W costs and insert my amendments 1, 2, and 6, he stated.

Hedemark said he had a problem with saying it was "obvious" these obligations have not been met. Zarker pointed out that it was inconsistent to say the committee is not the right group to reach these conclusions, but then reach them. Who wants to argue that the obligations have been met? Applegate asked. Nobody, he said.

Todd Maddock said he had talked to the Shoshone-Bannock Tribes, and they have concerns that what we're doing is to try to abrogate treaty rights. We ought to have language that states that is not the case, he advised. But it goes beyond what we are doing to have these other statements, Maddock said.

I don't believe F&W matters are my charge, Drummond said. The governors didn't say that, he added.

We've said repeatedly that these aren't being addressed, Applegate said. When the process was designed, we hurt our chances for an early consensus by not addressing them, he stated.

Applegate's language proposed that major features of the restructuring package be held up until fish matters are resolved. Drummond said the committee had received repeated admonitions from Congress to reach a conclusion on restructuring. Now you're saying that we go to these people and say "time out"? he queried. We haven't solved the fish issues for 15 years, Drummond pointed out.

They also said, get consensus in the region, Applegate replied. If you try to move a controversial package without an understanding with the fisheries interests, "it won't be pretty," he predicted.

An Objection to Vagueness

My objection to this is that it's very vague, Hemmingway said. We heard a lot about this at the hearings, with people reading off the Northwest Conservation Act Coalition "cheat sheet," he continued. I'd like to know what they want us to do, Hemmingway said. Clearly we aren't going to go through the issues of flows, drawdowns, etc. We got not one word of testimony about what river governance could be, but we got lots of criticism for ignoring fish in a very vague way, Hemmingway concluded.

I tried to steer clear of details, Applegate responded. I don't speak for the tribes, and they most dramatically raised these issues, he stated. Rather than itemize the issues, I've said we need to engage them, Applegate said. I don't know what those issues are, Hemmingway said. I'm trying to say we've heard your concerns, Applegate replied. If you try to move forward, you'll run into the federal fish managers, he added.

I've had long conversations with the regional director of NMFS, and he has said he's very comfortable with what we're doing, Hemmingway said. If they want to come in at the last minute and reverse course, I haven't heard that, he stated. I've talked to Will [Stelle], too, Applegate said, and I haven't heard that they were comfortable. And that doesn't reflect their comment letter, he added. This has to say what they want done, or I can't support it, Hemmingway said.

You've asked us "to suspend the laws of gravity," Davis said of the request to hold up the package. Government-to-government consultations have to be done, Applegate replied. You're about to move forward with a package without regional consensus, he said, and that's not just the signatures around the table.

You say we have to have these matters addressed before something else happens, John Etchart observed. Who decides when the conditions have been met? he asked.

When you see that you have a working consensus; that is when you move forward, Applegate said. When BPA moved forward with the fish cap without a public process, we ended up with a bitter battle that has been resolved with an uneasy truce, he continued. The negative feelings over that still resonate, and we could compound that kind of mistake, Applegate cautioned.

Rick is indisputably right, Golden said. We don't have a consensus. We are under pressure to move forward aggressively, he said. Events are in motion, and our ability to affect them depends on a consensus, Golden continued. I share Roy's concerns, but we need to come to closure on the fish issues or "we'll be wallowing in this forever," he said.

How does losing the benefit of the hydro system give the fish managers incentive to come to closure? Drummond asked. The moment is now, and it's a short window of time, Golden said. If as part of that, we can get closer on the fish issues, it's that much better, he added.

There is an understanding that a healthy power system is important to fish, Applegate stated. On the matter of specificity, the question to clear up is whether this package improves the ability of the system to meet F&W obligations. That's something we need to be clear about, he said. If this package keeps the benefits in the region, but without a system to pay for fish, it is not a winner, Applegate said.

I agree we should try to push for resolution of the fish issues, Wilcox said. I have a problem with holding collateral issues hostage over this, he added.

If you move forward, you risk exposing the region to a big fight, Applegate warned. I've done some negotiating in my time, Collins said. And once I've said, I won't move my issues forward without agreement on yours, that's not pressure, he observed. We have a package without a major component in agreement, Applegate said. There is not consensus with the agencies and tribes, he reiterated.

I support the notion of encouraging the governors and others to resolve these issues, Zarker said. I'd like consensus on the fish issues, but someone has to articulate where this fits with the power issues, he observed.

Kreidler said specificity isn't always desirable. I think in this case it might be more desirable to be less specific, he observed. I'd reinforce what Mike is saying, Maddock said. We've talked about this for eight months, and we've tried to avoid specificity, he said. If we get into this quagmire, we'll never get out. We need to make a simple statement of concern and say that the governors should address it, he concluded.

There are many who are disappointed we are not resolving F&W issues, Golden said. If we can help create "the moment" for that, it would be helpful, he added.

I've read Will Stelle's letter, Hemmingway said. We are moving to resolve all of the issues he mentions in the direction he wants to go. He says we should abandon cost-based rates so we'll have lots of money, but otherwise we are moving in the same direction. I've gone nine months without hearing what fish issue we're supposed to resolve, Hemmingway concluded. I'm disappointed to hear that, Applegate stated.

Amendment 6 recognizes that additional restoration investment will be needed, Applegate said. It also states that the current means of expressing the costs of F&W investments unfairly characterizes them as "lost power revenues." This assumes that the water in the system is for power, Applegate pointed out. We make a lost revenue calculation and represent that we are spending that on fish, he maintained. The amendment also states that F&W funding caps "have proven extraordinarily devisive," and recommends that caps not be pursued or used in the future.

The committee moved on to Applegate's amendment 3, which addresses the future role of the Council and river governance. The amendment states that the issues can only be resolved with relevant federal, state, and tribal sovereigns meeting to address all governance issues simultaneously.

Amendment 4 addresses the use of transmission revenues to meet F&W obligations if BPA separates transmission and generation. Would it be the intention of the group that F&W obligations not be diminished? Collins asked. We aren't making a judgment about what the obligation is, but we're saying we don't intend legislation to affect it, he explained. We could say that to the extent transmission is legally responsible for cost recovery, this should not change, Drummond suggested.

Don't Fuzz It Up

I'm uncomfortable with that, Applegate said, adding that he did not want "to fuzz it up." Does anyone intend to go for legal separation and preclude the fish costs? he asked. My sense is we can get clarity from BPA, Applegate said. This is not one that is helped by vagueness, he added.

The Administrator's obligation is to cover costs, Curtis said. I don't think you'll find the crystalline distinction you're looking for, he added. Alexanderson observed that the issue is similar to stranded costs. Stranding them on those who use the transmission system is not acceptable, he said.

We would not have had just a generation or just a transmission system, Applegate said. They grew up together. The revenues go into the fund that pays for F&W, he continued. If you are a member of a tribe or a fish advocate and you see a sizable portion of revenues being moved off and made legally separate, how would you feel about it? Applegate queried.

If any portion of BPA cannot cover its costs, there's a loan between funds, Wilcox said. Is that law or practice? Applegate asked. Curtis said a BPA lawyer would be present Friday to address the question.

Applegate's amendment 7 calls for an independent evaluation of below-cost power marketing arrangements and the appropriateness of continued ratepayer payment for nonpower portions of the federal system. Collins asked about Saven's proposal on this issue. Saven said he proposed an independent study to be conducted by an advisory group convened by the Northwest governors. We're not interested in "ducking the issue," but there could be extreme harm associated with a GAO study, he stated.

Aren't you and Rick talking about the same thing? Collins asked. Saven indicated that his proposal looks at a wider range of purposes. I've suggested $500,000 out of the Council budget for this purpose, he added. I don't know if we should be explicit about raiding the Council budget, Applegate suggested. The key agreement is to do it in the region and not involve the GAO, Zarker said. We want to make sure it's genuinely independent, Applegate observed. Later, Applegate withdrew amendment 7, saying he and Saven couldn't agree on the language.

Saven said he was proud of the work on federal power marketing and that its emphasis has been on creating a financially strong BPA. These amendments are long and vague, he said, and I don't see anything that adds to the body of the report. I think acknowledging the obligation is good, but the rest isn't consistent with our work, Saven said. I don't support them, he concluded.

I seriously object to the language on lost power revenues, Drummond stated. That fight has raged for years, he observed. I know you object to the fish cap, Drummond continued, but it enabled customers to sign up for federal power. It's a tool I'm not willing to concede, he said.

A Sense of Ennui

I share John's "sense of ennui" at these amendments, Nelson said, adding that they arrived quite late. You deserve credit for bulldogging this, she said to Applegate, but we've run out of time. She suggested the committee say something "short and sweet" on F&W.

I appreciate that, and I'll think about it, Applegate said. These amendments were drafted on the schedule we're on, he noted.

We're going to distribute the governors' guidance again, Collins said. We need to rely on their judgments about what they want. There are some things we can do on fish, he said. We don't want to upset the Treaty rights, and we can support multiyear budgets, Collins acknowledged. After the analysis we saw this morning, under fairly conservative circumstances, these fish costs won't allow for any other benefits, he observed.

That analysis said the feds don't pick up any other costs, Applegate responded. My amendments don't advocate zero benefits. But we've got to stop thinking about this as a problem for the people around the table, he urged.

We can suggest a process to accomplish river governance, Wilcox said. That's another thing to work on, Golden said. It's going to be tough to get the consensus we want with the bitterness that's there. Let's focus on the governors convening an effort to resolve the issues, rather than holding this up, he suggested.

Roach Lays Down the Law on Transmission Obligation

If BPA is divided into two entities, transmission and generation, what liability for fish costs would be transferred to the new transmission entity? And what is the current liability? These questions were posed to Randy Roach of BPA.

The Northwest Power Act requires that BPA rates be set to recover total costs, Roach said. The basic point is that the expectation is total cost recovery, he continued. While transmission can be made to bear other than transmission costs, he stated, the expectation is that this would be based on necessity. The "superior legal argument" would say it is mandatory for transmission to bear the costs; it is an obligation to the degree it is necessary for BPA to meet its costs, he concluded.

The transmission system currently is liable for all costs BPA can- not recover any other way, Collins restated. BPA has interpreted this differently in the past, Wilcox pointed out. Clearly there is a legal dispute, but it's also a practical matter, he continued. How much can transmission absorb? Wilcox queried.

Does the nature of the cost matter? Alexanderson asked. People expect each function to pay its way, Roach said, but I don't believe it makes a difference.

Zarker said the rhetoric should be deleted from Applegate's amendment 4, which deals with the transmission issue. The words "as necessary" were added to the end of a statement of BPA's obligation to meet F&W mitigation and restoration requirements. The amendment as revised was approved for the draft report.

Saven offered new language to replace several of Applegate's amendments: 1, 2, 3, 6, and 8. I felt the urgency to draft something that reflects my view of what we did and did not do as a steering committee, he said. Collins asked if Saven's language met Maddock's concerns that the report say we are not trying to diminish treaty or trust rights. I don't mind expanding this, Saven replied. John has taken the right approach, Maddock agreed.

The committee meshed some of the language from Applegate's amendments with Saven's proposal. Collins noted the concern about holding the committee's proposals hostage to the fish issues. Applegate restated that the committee needs regional consensus and should not try to move major controversial things forward when big differences exist. Saven said his language captures the concern. Beyond that, "it sounds like lecturing," he stated.

I think Rick is trying to tell us that people out there are unhappy, Shimshak said, and that this is not done until both pieces are resolved. Collins said he did not want "the mandatory mea culpas" in the report. Let's acknowledge we didn't do it, Shimshak urged. We were not asked to, Canon responded. Why flog ourselves by saying we failed? Collins added.

We can say we did our job, but we think other things need to be addressed, Shimshak offered. And we can urge resolution of the fish issues, she added. Applegate said the governors did not say all fish issues were off the table. Collins offered to re-read the governors' charge.

Does Rachel's language do it? Collins asked the committee, and the members assented.

Zarker proposed a sentence to replace most of amendment 3, stating that river governance is a fundamental part of any effective utility restructuring. The remainder of the amendment says that until the governance deliberations are concluded, prospects for regional consensus are diminished.

Amendment 6 in particular illustrates the dilemma you present when you get into a discussion of lost power revenues, Collins observed. Applegate pointed out that other agencies don't carry forward revenues in the way the lost power revenues are calculated. The Forest Service doesn't carry forward revenue lost because trees are not cut when it changes its practices, he said. We can't continue the argument that we're spending $435 million on F&W, Applegate argued. Ted Strong has called it "a lie," he stated.

Rick is absolutely right in his analysis, Hemmingway said, but it doesn't belong here. It doesn't add anything and doesn't get to recommendations that are useful, he added. Does anyone support the amendment? Collins asked.

The region is stuck on F&W, Golden said. This lost power revenue is a conceptual block, he stated. It's time to get away from caps, Applegate said. It's the way you open the door to get consensus with the tribes and fish interests, he urged.

As I said last night, we worked on the power marketing language and the other interests were comfortable with it, Saven said. I have reservations about going back and changing it, he stated. We agreed that going to the government for more money for fish was not a good strategy, Saven continued. In bad times, we talked about going for deferrals, and people thought it was a good idea. This does not represent those views, he repeated.

In the draft, we opened the prospect for more funding, Applegate said. The reaction to cost sharing was that the region was not being generous enough, he stated. At some point we have to step beyond the situation we have now where we all wrangle over costs, Applegate continued. I thought we were trying to acknowledge that a sharing strategy could work, he said.

Hemmingway suggested preserving language in the amendment that says the cost of additional F&W investments is unknown and expressing the need for five-year rolling F&W budgets.

Applegate's proposed amendment 8 augments "the base case" in the report. The amendment says power system benefits came at a cost to F&W, and that restoration could be jeopardized without a healthy power system. "Adjectives aside," this is balanced, Drummond said. A few adjectives were struck, and the amendment was accepted.

Language specifying that river governance would be considered in a "government-to-government process with tribal authorities" was added at Applegate's request, and Hemmingway pointed out that other parties, such as the DSIs, are important to that process as well.

Designing an Oversight and Implementation Board

Collins noted that the committee's report would not be "self-executing." How the governors choose to deal with this is up to their discretion, but they'd like our proposal, he said. The follow-on group is not for policymaking; it's to make decisions on implementation, Collins explained. The draft report suggests a board of five or six individuals. These would be independent people, representing no constituency, he said. One possibility would be to have a representative of each governor and end it there, Collins said.

Does this imply they would hire full-time help? Alexanderson asked. I think it would be mandatory, Collins replied.

Wilcox disagreed, saying he saw the review as an evolutionary process. We aren't at the end, he stated. Keeping this type of process going is part of the evolution, and it would keep people from going their separate ways, Wilcox said. Hemmingway said if the board is to go beyond the governors' representatives, it could not be smaller than the steering committee. We left a few interests out, he noted, which had caused unhappiness.

Some of the unrepresented interests were mad, Collins acknowledged. No group will succeed if it fails to include the constituencies, he said, adding that "anyone can buy an airplane ticket that lands them at Washington National."

This role of referee/adjudicator is very important, Etchart stated. He said Governor Racicot would want the role of implementation pursued diligently. This is pivotal and a key part of the recommendation, Etchart said.

Nelson noted that the committee had also created a customer advisory board, and its functions needed to be separate. The cost-control issue doesn't belong on the implementation board, Collins affirmed.

I disagree with your comments, Saven said. An ongoing advisory committee is useful for ensuring contract terms are met and that BPA is controlling costs. Before that, there is a threshold question about BPA preparing for those new contracts, he said. The governors and their representatives should have this on their plate, Saven continued. I think it's appropriate that a group address BPA's role in a competitive market as we launch these things, he observed. The customer advisory board is in the context of customers that sign contracts, Saven added.

Maddock said it makes sense to have some language that expresses the importance of the follow-on activities. There is nothing wrong with having the governors' representatives carry on without having prescriptive language, he added. Wilcox said he agreed. I don't believe this is the final product, he said. The board will also decide what requires legislation and what does not, Wilcox stated.

I think the central issue will be river governance, he continued, and we're not ready for it.

We've deferred a lot of details, Eisdorfer said. While we shouldn't dictate to the governors, the decisionmakers do need input from other parties, he added. Gannon noted that it was important to keep the ball rolling and that a lot was happening in the administrative realm.

Collins cautioned against undoing what has been done. I don't know how many of you will sign up to continue, he said, but we don't want to throw this up for "a jump ball" again. Hedemark said he was comfortable with the four governors' representatives we've had. I'm happy to advise the governors to keep these representatives going, Wilcox said. We can ask the governors to have this board provide liaison with the delegation and with key constituencies, Nelson suggested. That's the central role, Collins agreed.

Alexanderson suggested that at a minimum the board will need to determine details of a subscription process that will work. Curtis asked about the 12 to 18 months in the draft language. That makes no sense to me, Saven said. The sequence of events includes designing a subscription process, making projections about fish costs, having a BPA rate case, and offering contracts, he explained. adding that's three or four years.

Originally we thought we'd write a subscription process to supplant the current one, Alexanderson said. We wrote one up that is plausible, and then we heard that people wouldn't sign up for it. He questioned whether the process to design another one should "grind out" while new contracts are being generated. It's one thing to say we won't get this done in November, but it's not acceptable to say we won't get this done this century, Alexanderson stated. We need a milestone, he added.

The conceptual design is different than an outcome, Saven said. You need a fish budget because customers need some certainty so BPA can get the load commitment, he explained. You're saying we can't do that in this time frame? Alexanderson asked. I think we can capture language for designing subscription process in the next 12 months, Collins said.

New language on the oversight board was offered later and amended slightly. The proposal calls for a board with one representative from each state and a chair. The board is charged with overseeing the federal power subscription process, but not to propose a stranded cost mechanism for BPA. The board is directed to report periodically on the subscription process, rather than in a prescribed 12 months.

The Future Role Of A Four-State Entity

Hemmingway offered his write-up of the role for a four-state body, noting there was some testimony about the Council at the public hearings. There was agreement that the power planning role is over, but the oversight role still exists, he said. There has been a healthy tension in Council/BPA relations, Hemmingway noted. The most important point to me is that the Council has provided the opportunity for a neutral public forum for electricity and F&W issues, he continued.

Kreidler said he was concerned about the F&W language. It shouldn't be there, he said. Etchart said he thought the language was neutral and easy to reconcile with what is elsewhere in the draft. Are you saying Washington may not want the four-state body? he asked. I don't want to second-guess, Kreidler said, but others may be involved in resolving the issues described in the draft. Collins agreed the F&W paragraph should be removed.

Nelson noted that it would take legislation to change the Council's charge. It is important to define what it is not, she said, and to suggest future roles. The useful future roles are education, information-sharing, and multistate coordination, Nelson stated. Golden said he thought the proposal stated the type of role the Council should have.

The language sounds very regulatory, Canon said, suggesting "ensuring" and "monitoring" market development might be inappropriate language. Drummond noted that Council funding is not addressed, and he suggested there needs to be some other mechanism. It's not fair to ask the DSIs and publics to fund a regionwide body, he said. Funding is a common complaint about the Council, Davis concurred. Nelson suggested the report say Congress needs to recognize that in a competitive environment, a new funding source needs to be considered.

There was more discussion about the various charges outlined for the Council. I'm not sure that monitoring the state of competition is something I'd pay a dime for, Zarker said. Is there a particular niche for this body to monitor? he asked. This set of duties, absent fish, is for a much smaller organization; it's not worth $8 million, he said. It is specifically to assess reaching the goals of the Act, Golden said, adding that he feels strongly about those goals.

When I started at the Oregon PUC, there were so many questions we didn't have the analytical ability to answer, Hemmingway noted. He said information that was needed when the PUC was working on code adoption was not available until 1983, when two full-time Council staffers did a creative analysis. I know we'll miss that ability if we let it go, he said. I want to preserve the technical capability, without the planning role, Hemmingway stated.

The creative tension between BPA and the Council is positive -- every Administrator has said the same, Curtis observed. He suggested Council staff do a matrix to show any overlap in missions for the entities created in the draft report.

Collins reiterated a comment Wilcox had made -- we have very few numbers around here. On the Council, Roy and I got used to being around good numbers, he said. If the only guy throwing up numbers is from BPA, we've got a problem, Collins remarked. He asked the members to give comments to Roy for the final draft.

IN CLOSING:

Gannon asked if there would be a dissenting opinion prepared along with the report. It would be nice to have the ability to dissent in some way, he said. In particular, Gannon said he was concerned about the amendment related to F&W and transmission rates. If everyone wants to add their reservations, it will be a much longer document, Collins said. We've said we would retain the ability of the transmission system to be encumbered with fish costs, he said.

The fish cost piece may be encumbering BPA's ability to participate in an Independent Grid Operator (IGO), Hedemark observed. I'd like Rick to be happy without that, he said. Gannon said his position is that transmission should not be exposed to other than transmission costs. If the statement in the report means something else, I have a problem, he stated. Alexanderson said he took the language to mean the funds could be used for fish costs, but not to justify a transmission rate. They would not be a new cost for ratemaking, he explained.

Golden said he thought the language in the report "sidesteps" the legal issue. It just says not to diminish what exists now, he stated. If there is a move to insulate the transmission system from F&W costs, there's a big problem, Applegate said. That's exactly what the amendment was aimed at, he added.

We're not making new law; we're just saying if it's a liability, it will remain so, Hemmingway said. It's maintaining the liability that exists now, Collins concurred. The "guts of the problem" is in going forward and targeting the transmission system for future costs, Gannon said. Applegate said he would like to see the positions in writing, and there was agreement some new language could be added to the draft on this issue.

I hope we haven't put together a product that people will try to go around during implementation, Shimshak said. I hope that we have consensus and something we can go forward with, she added.

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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