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Comprehensive Energy Review
Steering Committee

Thursday, December 5, 1996

Airport Sheraton, Portland, Oregon

 

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THE COMPREHENSIVE ENERGY REVIEW steering committee approved, on a 13-1 vote, a set of recommendations to the governors aimed at restructuring the Northwest energy system. Rick Applegate voted no. The ex-officio members (four governors' reps and BPA) and the committee chair did not vote. All committee members were present at some time during the meeting. There were approximately 40 audience members.


Next Meeting: December 12 in Spokane (Ridpath Hotel).


In This Issue:


OPENING REMARKS:

"This is the day -- there are no tomorrows," said steering committee chair Chuck Collins, as he opened the meeting. He read a preamble for the report, proposed by Jim Curtis. It said:

"While participants on the Comprehensive Review Steering Committee represented, by design, many divergent interests, they were fundamentally interconnected through one unifying value. Collectively, they share an abiding interest in the stewardship of a great regional resource -- the Columbia River and its tributaries. The river is the link that brought all the parties together and continues to unite them in a single, overriding goal. That goal is to protect and enhance the assets of this great natural resource for the people of the Pacific Northwest."

I've been struggling to figure out what this report really is, said Ken Canon. As we go into the 1997 legislative sessions, we'll discuss many of these issues, and I expect my members will make me take positions in variance to this report, he said. I suggest a short preamble that says, we are setting out major policy recommendations. The details are important, but will be subject to future compromises in legislative and regulatory bodies, Canon said.

That's right on, said Bob Gannon. Such a statement would help all of us. I'm in a position where one part of this report is inconsistent with something Montana Power is trying to do, he added. Some of the customers I represent, said John Saven, have misgivings about parts of the report. If this document is something I can agree to, I'll agree to it, he continued. But the people I represent may take actions in the future that are different, and I can't bind those I represent, Saven said.

No one expects any of us to create a future that no one in our constituencies will disagree with, said Rachel Shimshak. If at the end of the day, it seems like a good product and we can agree to it, we have a responsibility to bring our constituents along and build consensus in the greater community, she stated.

believe that what will happen is evolutionary, said Brett Wilcox. We're defining something today that ultimately, I believe, will become the sale of BPA, and its customers will buy it, he observed. I'd like the report to recognize the evolutionary process of this, Wilcox said.

The governors put this group together to represent the interests in the region, stated Roy Hemmingway. To fully represent them would take a much bigger room, and it wouldn't work, he said. We're not representing every point of view so we're trying to speak generally, Hemmingway noted. The report is not a contract that nails everything down. It sets out parameters for future discussion. I do hope that if someone goes to Washington, D.C. and advocates something outside this document, the Northwest delegation will say, "why are you here?" he said.

Today the task is to get the document in the best shape for the next steps to be taken, said Rick Applegate. This is an evolutionary process. We will need to take the fish issues and wed them to this package, he added.

This document simultaneously is precise and "punts," commented Sharon Nelson. I've been trying to explain it to editorial boards, and it's hard to explain, she stated.

I'm disinclined to see language that puts distance between our constituencies and the document, stated K.C. Golden. We've lived for 15 years with the Northwest Power Act and that is weak in some areas, noted Collins. "People didn't park their first amendment rights when they signed up here," said Nelson, adding, we need to try to honor the process here.

The difficulty isn't in the overriding policies -- the pain is in the details, said Collins. Federal Power Marketing is "a collection of pain," he said. If we sign our names to only two or three overriding things and omit all the details, we don't have much, he said. If the pluses and minuses don't add up to you, you should vote no, Collins stated.

In the end, I work for my constituency, said Canon. If they want me to do something in variance with this report, I will do it, he said.

There is one instance in the report that needs to be resolved, and if it isn't, I'll go back to Montana and next week will do something in total conflict with it, said Gannon. In an FCC negotiation I participated in this summer, we did a unanimous decision with separate statements, said Nelson. That could be a procedural remedy for this, she suggested.

Public Purposes: One More Time

Golden proposed language on regional market transformation, renewable resource R&D, and distributed renewables that, after some editing, was approved. The language reads: "BPA currently funds the consumer-owned utilities' share of the regional market transformation effort. After 2001, funding for efficiency market transformation, renewable research and development, and direct application renewables should be collected through BPA rates in proportion to the share of regional firm loads that is served by federal resources. We have proposed that the total budget for these activities would be $36 million annually. Therefore, if 40 percent of the region's firm loads were served by federal resources, 40 percent of $36 million, or $14.4 million, would be collected in BPA rates. Investor-owned utilities, consumer-owned utilities, and DSIs whose regional firm loads are served in whole or in part from resources other than direct or indirect federal firm purchases would fund the remainder ($19.8 million) independently."

If the Northwest goes to the "California solution," who would collect the money? asked Bill Drummond. The distribution utility, Golden replied. Then basically it's a meters tax? asked Drummond. This makes it easier for publics who buy BPA power, said Shimshak. This is a good idea and would be useful for smaller utilities, Saven said.

Golden proposed language regarding the minimum investment standard for utilities and DSIs for public purposes. It would set the minimum annual investment per utility (or DSI) at 3 percent of a utility's 1995 electric service revenues and 3 percent of power bills for DSIs, with adjustments for inflation, prices, and/or changes in metered load. Utilities that qualify for BPA's low-density discount could choose to calculate their minimum standard using an alternative load-based formula that would generally be lower than the 3 percent revenue-based standard.

This deviates from the draft substantially, said Drummond. I have difficulty going back to the 3 percent, he said. This ties the hands of state legislators and says, "thou shalt set 3 percent," Drummond stated. I have a similar problem, said Wilcox. This has specifics that go way beyond the draft, he added.

If the region reaches the $210 million, do you care how it was generated? asked Drummond. There's a target in the region for how much we want to accomplish, and it should be collected in a way that is as competitively neutral as possible, said Gary Zarker. Can't we say the states need to accommodate rural utilities? he asked. We want to say to the legislatures, the overall accomplishment is important, and you should do it as fairly as you can, Zarker continued. How you figure it out in Idaho will be different from Washington or Oregon, he added.

I supported the load-share approach in the draft, said Al Alexanderson. This fix "makes a new brick," he commented. This specifies how the standard is determined, said Golden.

If I were a legislator, I'd read this as a 3 percent tax, Drummond said. Wilcox proposed a minimum annual investment based on a target of 3 percent of 1995 revenues (estimated to be $210 million). I'm opposed to that, said Alexanderson.

We went out with a percentage of revenues in the draft, then we changed to a percentage of load -- that's a big change, said Canon. We should go back to the 3 percent, but exempt high-distribution cost utilities, said Alexanderson, asking, who would pick up the difference? It would not be picked up at all -- 3 percent is 3 percent, said Golden.

How many are opposed to going back to a percentage of revenues? asked Collins. Several hands went up.

These are details that will be debated in the state legislatures, Nelson pointed out. We've avoided the mechanism, we're trying to define a standard, said Golden. You should state the goal is 3 percent of revenues, said Jim Davis. Let's take Brett's amendment, suggested Collins.

Should we delete minimum annual investment "per utility"? asked Drummond. We could add "per state," Golden suggested. The language the committee approved said that states should enact legislation that determines the minimum annual investment per state based on a target of 3 percent of 1995 electric service revenues (estimated to be $210 million). Public utilities, IOUs, and the DSIs should allocate their investments according to a table presented in the report.

The Unbearable Temptation of Fuzz

Davis proposed language to recognize adverse impacts on small high-cost systems. Could we agree on a sentence that says, we recognize the revenue-based approach may be inequitable in some circumstances, and that load-based calculation may be used in some cases? asked Alexanderson. I don't want to nail down the principle that people who pay the highest rates pay the largest share of this tax, he said. Shimshak suggested some new language, and Alexanderson said, "if we fuzz it up, we'll get there." We do agree on the goal, he added.

Al is opening up the notion that it may be inequitable for high-cost utilities, noted Collins. Maybe we should heed Sharon's advice that legislators will deal with these kinds of things, he said. We could put in a statement which says that a target is important and that states will have to deal with inequitable situations -- some very fuzzy language, Collins suggested.

Fuzzing it up is not a service to the legislatures, said Golden. Language was adopted which said, the committee recognizes a revenue-based approach may be inequitable in some instances, for example, low-density systems. In those instances, alternative approaches may be employed, provided the overall minimum target is met.

The committee adopted other amendments proposed by Davis, including an acknowledgment of public power's resolutions and letters of support for public purposes, and language urging public power systems to follow through on those commitments. Also approved was the statement: the committee believes the report contains an approach which provides for maximum local control while establishing a minimum standard.

The committee adopted Davis' amendment that said utilities should be permitted to invest renewable resource funds with BPA in order for BPA to make new renewable resources purchases on their behalf.

Davis asked about the language on the 10-year sunset for market transformation activities. If you sharpen the language any more, we'll bring in the idea we might be going to end our commitment to this, said Zarker. I want it to say there's an end in sight, that if we're successful and the new market picks up transformation properly, as we think it will, we won't have to worry about this, Davis said.

I agree "sunset" has a connotation that implies something goes away, said Saven. What we are saying is this is what we'll do for 10 years, and at the end of 10 years, we'll revisit it, he suggested. The committee adopted a sentence proposed by Shimshak that said, the committee believes it is appropriate to re-evaluate the commitment to $210 million per year for conservation, renewable resource development, and low-income weatherization after 10 years.

Drummond observed that the report doesn't say how information from Regional Technical Forum (RTF) reviews of progress toward meeting conservation and renewable goals would be used. Why bother to have the RTF report if we aren't going to use the information? he asked. The first five-year report will define the nature of the program, and the RTF will probably feed considerable change to the program, Zarker said. It seems like the level of funding should be revisited, said Drummond.

Are you saying the five-year look will determine if investments are going in the right direction and whether the program might need retooling to take advantage of new technologies? asked Shimshak. I suggest the review look at the level of funding and the distribution of funds, Drummond replied. The committee inserted a sentence in the report that says the periodic RTF reviews should acknowledge changes in the market, and any recommended changes should be communicated to appropriate decisionmakers.

Retail Access Bones Connected to the Public Purposes Bones

Gannon pointed out that Montana Power will soon file a proposal for a three-phase retail access transition program, which "won't allow the big trucks to go first," and that those plans conflict with the report's recommendation that open retail market access for customers that desire it be provided by July 1, 1999. He proposed amending the report to say the committee recommends all utilities submit plans by July 1, 1999, for customers that desire open retail market access and that the committee recognizes that states and regulators may authorize transition plans. With language like that, who knows what the timing is? asked Canon. Timing is important, he added.

The tradeoff that Ken agreed to was retail access by a certain date in exchange for a commitment to a public purposes funding date, noted Wilcox. If you fuzz it up in this area, you will need to go back and do it in public purposes as well, he suggested.

Is the principle that there's to be a linkage between retail access and public purposes? asked Collins. Anything that affects one affects the other, Golden replied. My problem is that with the present language in the report, all customers who want access will get it by July 1, 1999, and that date conflicts with the MPC filing which will provide access to customers on a one-third, one-third, one-third basis, said Gannon. Big customers don't go first, and access will be in place by 2002, he continued. We've spent a lot of time on this in Montana, and it's inconsistent with the report, Gannon said.

Since Montana has this and the Idaho PUC has said no, maybe we should make the linkage explicit, suggested Nelson. The target for conservation is soft,and the date for access is hard, noted Zarker.

If Idaho votes no on retail access, does Idaho go forward on public purposes? asked Collins. Can we make "simultaneity" a controlling principle? he inquired.

I don't have a problem with Bob's proposal, said Zarker. The legislature may say the right way to do open access in his state is one-third, one-third, and one-third, he stated. We have suggested some goals and relationships, and the legislatures are going to do the best they can, Zarker said. We can't get too particular because it will play out differently in different states, he added.

We've gotten very particular about public purposes, said Canon. It's not only legislation that makes the link, it's the implementation date for access and a system benefits charge, said Shimshak. Bob has a specific problem; can we accommodate it without violating Ken's notion that those who want access can get it by July 1, 1999? she asked.

I want to avoid saying that we don't move on public purposes until every single kind of customer gets access, said Golden. If some customers in Montana do not have access until 2002, will they pay the system benefits charge before then? asked Canon. They may be paying for some existing programs, but would not be subject to what we're talking about here, Golden replied.

The concern I have is that the more specific these recommendations are, the greater assurance we have they're going to be wrong, said Chuck Hedemark. If Montana is a year or two out, is that going to harm the region? he asked.

The problem is, "we are writing the separation contract at the same time as the pre-nuptial agreement," commented Nelson. We're trying to dictate the terms of how to break the deal, she continued. The report contains both specificity and "punts" in different parts, and that's causing distrust here, Nelson said.

Zarker and Golden suggested amendments to Gannon's proposed language, and the committee adopted this: the committee recommends that beginning no later than July 1, 1999, all retail distribution utilities will offer retail market access for those customers that desire direct market access. The committee recognizes that states, regulatory agencies, or retail distribution utility governing bodies may authorize plans that provide a transition or phase-in to full retail market access. That may result in a similar transition or phase-in of the full implementation of the public purposes program recommendations linked to the open access recommendations in those specific cases.

I don't love it, but I can live with it, said Golden, adding, I do want to note that we are not implying that there will be no public purposes funding before 1997-1999. We clarified the linkage in the competition chapter, so we need to do it in the public purposes chapter, said Wilcox. The committee agreed the public purposes recommendations section would state: "the timing and the details of these recommendations are directly linked to the timing and details of open retail access in the following chapter."

Saven suggested adding to the list of "activities to be accomplished" before implementation of direct retail access, "a determination of the extent to which BPA's distribution utility customers have the ability under their power sales contracts with BPA before 2001 to accomplish this recommendation." What's an example of what they could not do? asked Canon. Provide direct open access, replied Saven.

It seems like you are asking BPA to make a decision on it, Canon said. BPA management representatives are telling me, that absent state laws being passed, there's no ability in the contracts to provide direct open access, Saven responded. The question is unclear as to whether BPA customers can allow load to flee and leave BPA with potential stranded costs, and John is noting that a determination would need to be made, said Curtis.

There are many such issues, and if we compile a long list, "we'll be making a road map for failure," Canon stated. I disagree that we should start trying to anticipate contract problems, he added.

There are two issues for public utilities with contracts, said Drummond. One is, can BPA assess stranded investment charges? and two, once a PUC takes action, can public utilities compete for load under existing contracts? he said. I agree we can't have a laundry list, but these are important, Drummond stated.

We shouldn't write it like we'll never get there because there are 50 things to get resolved before we can do it, stated Alexanderson. Let's change the tone and list important issues to resolve so that retail access can be implemented promptly, he suggested. Is a laundry list important? asked Collins. Yes, many in the group replied. The group agreed to recast the sentence to make it more positive and to add "resolution of any outstanding contractual issues" to the list.

Transmission: A Congressional Slug-out?

Gannon said he was concerned about shifting generation costs to the transmission system, and offered language revisions to the transmission section of the report. It's not appropriate to recommend, after BPA's generation and transmission are separated, that transmission funds be used to support generation costs, he said, adding, I think this is going to get "slugged out" in Congress.

Whether fish and wildlife costs are a transmission cost is a fundamental issue, said Applegate. We think yes, but the IOUs take a different view, he said. I agree that it will be fought out in Washington, D.C., Applegate continued. Bob's language isn't okay with me because I don't support the argument that fish is a non-transmission cost that rests only with the generation system. This doesn't clear up the fundamental debate, and I disagree with it, he said. Rick will say that fish costs are a legitimate transmission cost and should be reflected in rates, said Collins.

I'm willing to go along with Bob's language as long as it doesn't cause Rick "to fall off the table," said Saven. There are many unresolved issues about the separation of the Bonneville fund, he added. Rick, you are going to vote no on the report, and this is not a controlling issue, right? asked Collins.

I have concluded I will vote no, Applegate confirmed. We all know there will be next steps, and right now, we need to get this document in the best shape and not worry about the votes, he added. My understanding is that nothing we can do on transmission will solve a sufficient amount of the problem for you; is that right? asked Collins. This report is an accurate reflection of where we got in the discussions, and this is one of the things we couldn't close on, Applegate responded. Gannon's amendment was accepted.

The committee also accepted an amendment from Wilcox to the introduction (page 2). Wilcox suggested substituting "power system" for "hydroelectric generation and transmission system," and the new sentence reads: Native Americans and fishery-dependent communities, businesses and recreationists have suffered substantial losses due in significant part to construction and operation of the power system.

F&W Accountability at the Council

Drummond proposed new language for the Fish and Wildlife (F&W) section of the report (page 37) under "Role for a Four-State Regional Body." He said the impetus for the amendment is to try to provide greater accountability for F&W expenditures and to hold the Northwest Power Planning Council accountable to the governors for expenditures approved and made. Drummond's language calls on the governors to request the Council include in its F&W program a prioritized budget for investments in F&W measures, including the relative priority of operational changes to the hydropower system.

Do we have a fish and wildlife section in the report? asked Mike Kreidler. I'm surprised we are even talking about it, he added. It was clear the section on F&W in the draft was deleted, said Applegate. I don't think we reached agreement, said Collins.

I'm trying to make it explicit the Council has a responsibility to the governors for this and to try to make it accountable, said Drummond. The Council isn't thought to be credible on fish issues, commented Zarker. They make those decisions, Drummond responded. That's why they are in dispute, rejoined Zarker.

What about passing the accountability off to the new river governance structure once it is established? suggested Zarker. I wouldn't object to that, but my problem is, under the Act, the Council has had responsibility, but no accountability, said Drummond.

Let's put this in the report under governance, suggested Kreidler. Let's write it so it isn't so pejorative, recommended Applegate. It's important to keep the language in there because it helps to suggest accountability has been a problem in the past, Drummond countered.

Zarker suggested putting the Council "or its successor agency" in the paragraph. Collins recommended deleting the sentence that talks about lack of accountability in the past. Drummond noted that the draft contains a "detailed recitation" of what the power system has done to regional F&W, and he noted, we've gone a long way to accommodate a lot of different concerns. This is a concern I've got, said Drummond.

All this language was deleted last time, said Applegate. Let's pick up the accountability point and move it to governance, and make the point in "a non-inflammatory way," he suggested. Saying "I don't like it," Drummond agreed to the editorial changes, and the language was approved.

The Last Federal Power Marketing Hurrah

Nelson submitted a series of editorial revisions to the report, all of which were accepted, except for her proposed language on resale of power.

Saven offered numerous revisions to the Federal Power Marketing section of the report. He proposed to change language about the Phase 1 subscriptions (page 7) to enable public utilities to subscribe up to the average of the contractual entitlements of the highest two consecutive years of the 1997-2001 contract period, "plus some provision for load growth." The draft report said, "plus some provision for minor load growth."

Would this get BPA back into acquiring resources? asked Collins. I don't think so, but there could be periods of time when that could happen, in the event, for example, of a massive degrading of the system, replied Saven.

Are you prepared to make it explicit that long-term Phase 2 contracts with other entities wouldn't be interrupted to accommodate this need? asked Collins. BPA should be ready to serve public agency loads, and if it requires callback on some of the contracts, I'm not prepared to give a 20-year "carte blanche" for anyone else, Saven responded.

My concern is with the smaller publics, historically reliant for 100 percent of their requirements on BPA, said Hemmingway. How would they approach getting into the market to buy power for load growth? Preserving the historical relationship with BPA has value to prevent the chaos of all these people having to get into the market, he said. Maybe we need to distinguish between the size of customer, Hemmingway suggested.

At least for the DSIs, can we make it clear they are not subject to recall? asked Wilcox. What about all Phase 2 subscribers? asked Jason Eisdorfer.

In the contracting process now, BPA encourages us to lock up a lot of load growth in the contracts, noted Zarker. Does the proposal preclude a different charge for a load growth and a non-load growth contract? asked Alexanderson. Are you asking for a valuable option right to come at no charge? he queried.

There is a cost -- BPA has charges for various services, said Saven. It's a question of whether you value that additional service based on the cost to the system of providing the service, and John is saying it would be built into the cost, said Curtis.

This is a fundamental issue, stated Wilcox. When you move to a system that commits to all load growth, "the subscription bankrupts from day one" -- that's the effect of the load growth proposal, he said.

We have to resolve the competing principles of making the subscription process work and giving people certainty they will get power over time, with the historical relationship of certain customers with BPA, observed Hemmingway. We're probably at a too detailed level of discussion, said Saven. The people I've talked to say the report proposes utilities that leave come back at market, and there is only provision for minor load growth, he continued. This is a major difference from rights these public utilities have today; it's going to be a major problem, Saven said.

Every governor told us not to hurt rural areas, and if we have to make an exception, then we should do it, said Zarker. Does anyone object to a solution based on small, full requirements customers? asked Collins.

If I sign up for 100 MW today, the question is, will I get them 20 years from now, and you're saying no, said Wilcox. You're asking us to give up existing rights, said Saven. There needs to be discussion among the parties to see what's in their business interests, said Curtis. What about the customer advisory board we've established? he suggested.

If load growth insurance were sold to the "truly needy," that could modify the option fee, said Nelson, inquiring, could we write language "to disincentivize gaming?" I represent utilities who believe they have paid for BPA and that is their resource, said Saven. The notion to pay more in the future for load growth won't work for customers who have said this is their resource, he stated. Public utilities want BPA as an option and ought to have the ability to tell BPA to serve load growth or not to, Saven said.

There's sympathy around the table for a class of utility for whom BPA is the resource, noted Collins. I'm not advancing this as a small utility-only issue, said Saven. Collins deemed it "unresolved" and moved the group on to the next issue.

Later Wilcox reported recommendations of a Saven-Wilcox-Alexanderson caucus on the issue. They proposed that the first phase of subscriptions would be reserved for publicly owned utilities to subscribe up to the average of the contractual entitlements of the highest two consecutive years of the 1997-2001 contract period, plus some provision for minor load growth "of small, full requirements utilities representing no more than 1,000 aMW of BPA load. Additional load growth of these small utilities and the load growth of other public utilities may be met through bilateral contracts or tiered rates."

Saven proposed an amendment dealing with subsequent subscriptions (page 9) that said, "contracts subject to recall for public preference under current law would be subject to recall for loads of new public utilities and after a waiting period of up to five years from formation of the utility, depending on availability of power." Your point is that if power is available, it could be less than five years? asked Collins. Yes, Saven replied.

Canon suggested the report include: "As a principle, the steering committee believes that in-region customers of BPA should have the ability to secure nonrecallable BPA contracts for a time period at least equal to out-of-region customers of BPA." The committee accepted that language, as well as Saven's recommendation that the report be silent on the issue of resale of options.

Resale of Power - Controversial as Ever

Saven proposed the resale of power section (page 9) read "subscribers may resell the power for which they have subscribed in cases of loss of load" and deleting "power purchased on behalf of residential and small farm customers of IOUs may be resold by them or their representatives under arrangements that direct the monetary benefits to such customers."

The question is, should IOUs be able to resell cost-based product from the Federal Base System and monetize the value for residential and small farm customers? asked Saven. Public power says no, and is unanimous on this point, he stated. It is inconsistent with current law and runs afoul of our philosophy in the Northwest of preserving the resources of the federal system at cost. This creates the appearance that IOUs are better off than the publics and can get cost-based power and then achieve further premiums for the benefit of their customers, continued Saven. This is a fundamental issue for public power, he emphasized.

I'm discouraged to hear about the reversal on this issue, said Alexanderson. It's important to distinguish exchange customers from the IOUs, he added. The question is, what's good and fair for residential and small farm customers, Alexanderson continued. No one would buy a good they couldn't resell -- it damages its commercial value, he said. We are trying to get people to subscribe and to devalue the power is detrimental to the subscription process, Alexanderson contended. Why devalue it by limiting its commercial use? he asked.

The tracking issue boils down to trust, Alexanderson continued. Someone has to decide whether the intermediary has sold or not sold BPA power, he said. There are two issues, according to Alexanderson. One, the power is more valuable if someone can't tell you what to do with it, and two, trust in the process that decides whether a resale has taken place.

The argument has gone in two directions, Alexanderson said. First, no one can tell if the intermediaries have conveyed the monetary benefits to residential and small farm customers -- that's the "we don't trust you" argument, he said. Sharon's language on resale of power helps, he suggested, and added, we've got 15 years experience in tracking the dollars. There's no reason it can't be done in the future, Alexanderson said.

The second line of argument is, it looks like the IOUs are getting better rights than the publics, he stated. IOUs are not in the same tier for allocation, and there hasn't been a proposal that we can sign up for load growth -- it is not an equivalent set of rights, Alexanderson said. The solution to this, he added, is to get rid of the restrictions and make BPA power as valuable as possible and move on, he concluded.

I don't know a compelling reason it wouldn't work to take direct service for residential and small farm customers, Saven responded. If we can't track the electrons, who's suffered as a result? asked Collins, adding, what are we arguing about?

Sharon's language covers it, said Hedemark. If it is resold, the benefit accrues to that class. It's all trackable after the fact and can be audited, he added. Sharon's language takes care of both concerns, Hedemark said.

I agree with John -- the goal is to keep the benefits in the region, said Wilcox. I'd like broad resale rights for my economic interests, but it isn't what we're here to do, he said. What was proposed in the draft is a significant expansion of exchange rights under existing law, Wilcox observed. I don't think we want to provide a "superpreference" for exchange loads, he added. The question is who gets access to low-cost federal power, and we haven't dealt with that question, Wilcox continued. Unless we do, we're not doing the region a service, he said.

It appears to be the consensus of this group to include domestic customers in the allocation mechanism, and thus IOUs will have access to federal power, said Alexanderson. The basic argument that we shouldn't devalue the product applies to however you look at the exchange, he said.

How to deliver benefits to the residential consumer is a huge issue for me, said Eisdorfer. There are pros and cons to direct delivery and to resale, he added. I don't want to eliminate any possibility -- the parties need to sit down and talk about this, Eisdorfer stated.

Al's arguments are well taken, but I'm looking for a remedy to get us through this for Jason, said Nelson. We are faced with residential customers realizing they will have much higher costs than their neighbors across the boundary lines, she said. The issue was sent to a caucus to resolve.

Stranded Costs - Another Hot Button

Saven suggested the report language on stranded costs (page 13) include: While the committee was unable to agree on a specific stranded cost mechanism, it did agree that FERC should have an enhanced role in making this determination and that any stranded cost mechanism should be consistent with existing contracts, statutes, and regulations. His changes deleted reference to FERC Order 888 in the draft.

The language "maximally consistent with the principles of FERC Order 888" caused us a big problem, Drummond explained. It raises a contract issue about which parties might be responsible for stranded costs, he added. Are we better insulated with this language? asked Collins. It's a question of who else might be held responsible, said Drummond. Let's just say, "the committee was unable to agree on this topic," suggested Nelson.

We have to say more, stated Wilcox, something beyond, "if we implement this fairy tale, there won't be any stranded investment costs." We need to explain more about the nature of the disagreement, stated Collins, asking, would you give me license to include broad language? No, the group replied.

Later, Collins proposed specific stranded cost language for the report, which he subsequently withdrew. The committee returned to Saven's proposed language, and Wilcox commented, we are better off saying nothing than using John's language.

There are circumstances outside a successful subscription process that could result in stranded costs, noted Curtis. This language was adopted: The committee believes that the recommendations in this report, prudently implemented, should dramatically reduce any risk that BPA would need to seek stranded cost recovery. Nevertheless, BPA, like other Northwest utilities, faces the prospect of load loss due to increased competition associated with greater customer choice at the wholesale and retail levels. It is this committee's expectation that BPA will do all that it can to first manage costs and take other appropriate actions to avoid a stranded cost charge. However, to the extent that unmitigable stranded costs remain, a mechanism to recover those costs is needed.

Sorting Out the Committees

The group considered a series of questions identified by staff that had arisen in the preparation of the draft. One discussion involved the Customer Advisory Committee. There are concerns this committee crosses the line into river governance and is not appropriate, said Golden. I came away from the BPA energy services business discussion feeling that it is healthy for BPA to have folks in its face asking questions, Saven stated.

We need to look at both the customer committee and the oversight body proposed in the draft, suggested Wilcox. Maybe the Northwest Power Planning Council should be the oversight body, he added. Of all the things listed for the continued existence of the Council, this is the only one that matters to me, said Zarker. I'm not averse to the Council doing it, but it's the governors' choice, said Saven. Collins appointed a subcommittee of Drummond, Canon, and Golden to reconcile the recommendations on the two committees.

The subcommittee recommended setting up the Customer Advisory Committee as a long-term ongoing committee and the Oversight Board as a transition entity, Canon reported. We propose to change the responsibilities of the Customer Advisory Committee to reviewing budget requests, overall budgeting and operating cost levels, rate setting, key marketing issues, and providing input to the power-related capital and operating cost decisions of the Corps of Engineers and the Bureau of Reclamation, explained Drummond. Final decisions on fish measures "should remain squarely within the purview of the existing or future mechanisms for river governance," he said. The subcommittee also proposed language that says: BPA contracts would contain an ability for subscribers to call for binding arbitration on specific power cost-related items "that do not affect implementation of fish recovery measures."

The group proposed to change the name of the oversight entity from the Northwest Energy Review Oversight and Implementation Board to Northwest Energy Review Transition Board. The board would remain in place until the recommendations of the comprehensive review are implemented, or 2001, whichever is sooner, Canon said.

The tasks of the board would be to work with regional interests and BPA in an open process, to oversee the subscription process, and provide liaison with the Northwest Congressional delegation and affected constituencies, Canon explained. It would determine whether the subscription process is making adequate progress and report findings periodically to the governors.

The Transition Board, Canon said, would review BPA's progress on the development of procedures for offering and pricing products and services, BPA's role in the competitive market, and assisting the region in responding to federal legislation. The board would make recommendations to assist in the implementation of the review's report, he said. "It's a huge improvement," said Collins of the trio's work in sorting out the two committees, and the steering committee approved the proposed changes.

Final Federal Power Marketing Decisions

Wilcox reported that the Saven-Wilcox-Alexanderson caucus proposed that under Phase 2 of subscriptions (page 8), "each IOU customer subscription would be limited by the average total actual regional exchange load of their residential and small farm customers in the two highest consecutive years between 1997 and 2001." The committee approved the change.

Alexanderson reported the caucus' Resale of Power proposal was that subscribers may resell the power for which they have subscribed in cases of loss of load "and/or to the extent allowed by existing law." New language would be added that says: "power will be considered to be delivered to regional loads if at the time of delivery, the subscriber serves or delivers to qualifying loads equal to or greater than the amount delivered. Other commercial transactions by the subscriber should not disqualify the purchase of federal power."

I have a concern that we've eliminated a substantial portion of the customer base of the IOUs from getting access to BPA, and that we are allowing the DSIs to access power and manipulate their own load based on loss of load, said Eisdorfer. Does your first sentence remedy that? he asked. The new language describes what is not a resale, replied Alexanderson.

Your concern, Jason, is that DSIs would go out and get power, shut down a facility, and decide it's a better business decision to sell electricity? asked Canon. The first sentence might say that DSIs can resell by shutting down, said Alexanderson. My sentence says that if someone continues to deliver, they won't be considered to have resold, he added. The language applies to anyone who buys a subscription, said Wilcox, adding, I see it as mitigation of loss if you shut down.

What if the Administrator had the right to reclaim the power at cost if you terminate? asked Collins. Would he do that for all utilities? asked Wilcox. If it turns out it's more valuable to make paper than aluminum, why do we want to force them to make aluminum? asked Alexanderson. And why return the power to the Administrator when our objective is to sell the power? he inquired.

It's unfair to single out the DSIs, commented Wilcox. Weyerhaeuser could get a subscription in Phase 3 and do the same thing, he said. There's a difference between the priority of Phase 2 and Phase 3, said Collins. What we have here has very restricted resale rights, Wilcox stated, adding that you don't shut down your plant "flippantly." I see it as a mitigation provision, he said.

There are two important principles to me, Wilcox stated. One is that we be put in the same position as everyone else, and two is the "mirror image," that if you can have the loss, you can also get the gain. You have to have resale rights, or you'd never sign up, he said.

My problem is that you're creating a property right to power that at some point becomes incredibly valuable, said Drummond. That's why people would sign up when federal power is above market, responded Wilcox. If you want to be a broker, you should have to get in line with the brokers, commented Golden.

I'll live with the same rights you'll live with, said Wilcox. Suppose Cowlitz loses Weyerhaeuser to PGE, do they lose the right to that block of power? asked Wilcox.

Should Cowlitz take power forever even though the power "is going to Chuck Collins' place in the desert?" asked Collins. The notion that it could become a permanent property right and could go on long after your risk has been compensated bothers me too, Collins said. The right attaches to the load, and the load can't wander off, said Alexanderson.

If the remainder of a 20-year contract was assigned to a non-qualifying load, it would only last to the end of the contract, said Curtis. I don't know where this notion of rights in perpetuity comes from, stated Saven.

I don't have a problem with restricting resale to other customers in the Northwest, offered Wilcox. It would be easiest to say "for the remainder of the contract period," said Collins. I'll live with that, but I don't think it's right, said Wilcox.

After 20 years, everyone has to restate what they are and what they do, said Saven. And you have to have a qualifying load to renew -- can the publics agree to that? asked Collins. I can, said Saven. The property right in perpetuity is the issue for me, stated Drummond.

Alexanderson noted that the "and/or to the extent allowed by existing law" language was put in "to finesse the question," can IOUs monetize the benefits for residential and small farm customers?

You have a right to 20-year contracts with procedures for renewal, said Curtis. Unless there is a specific plan to change the 20-year provision, I don't think there is an evergreen right, he said. Qualifying loads was the compromise that was reluctantly agreed to, said Wilcox. If you sell to a non-qualifying load, the contract would not be renewable, stated Curtis.

If Brett has a 20-year contract as a DSI, but shuts down and sells power, and the person he sells to is not in the pecking order, that's it at the end of the contract, said Shimshak. If Cowlitz sells to Seattle, it's a qualifying load and could be renewed, noted Collins.

What's not a qualifying load? asked Collins, suggesting that it's out-of-region sales. No, you're talking about IOU industrial customers, said Canon. What if we say a qualifying load is within the region? asked Collins. How do you define the region? asked Davis. The definition in the Regional Act, Wilcox responded.

I need assurance that once your contract is up, and you're not what you were, that's it, said Saven. Brett and John will write some language, said Collins. They subsequently proposed that customers should have broad rights, except as specified or constrained elsewhere in the report, to extend, renew, or convert their contracts to longer terms, up to 20 years, at any time during the contract life, independent of the length of the existing contract "provided at the time of renewal they have a qualified load."

Alexanderson pointed out that the language changed (on page 8) to say "each IOU customer subscription would be limited by the average total actual regional exchange load of their residential and small farm customers in the two highest consecutive years between 1997 and 2001" would limit the benefits to IOUs that are currently exchanging or are in deemer status. I want to note that some utilities that would be affected by this change are not represented here, he said. This limitation is not likely to become effective unless the system were oversubscribed, Alexanderson added.

Until the resale provisions were put in the draft last week, it didn't seem likely that east-side utilities would sign up, said Curtis. The draft as it was written for a long time appeared to broadcast subscription rights for residential and small farm IOU customers -- "this may appear to be a sudden turn," said Alexanderson.

I too am concerned about the perception issue, stated Collins. Al's comments stand, said Zarker. I don't think this will jeopardize the regional consensus anymore than it already is, he added. Do you propose any specific language in regard to this? Collins asked Alexanderson. Language is not required, but the concern should be reflected in the meeting minutes, replied Alexanderson.

Preamble to the Vote

The last time we did a major regional power negotiation, said Hemmingway, those who worked within the regional consensus process were winners, and those who worked outside of it were losers. The only gain you will get by working outside the process will be to make sure the entire effort fails, he said. We've got some broad outlines of positions that we have got to stick to, or we won't have anything, Hemmingway stated.

The governors started this because they recognized that any one of the interests here could torpedo things, he continued. We need to work together to pass something, not try to kill something. We need to hang together or we'll hang separately, stated Hemmingway. He offered three paragraphs of "preamble language on consensus," which stated that the steering committee's recommendations represent a consensus "achieved only by compromise and sacrifice by each of the interests represented on the committee."

The test for each of you, said Collins, is to look at what you like and what you don't like in the report, and if the good outweighs the bad, vote yes, and if a bad is too compelling, vote no. If you vote yes, you are asked to support the proposal, he continued.

There are two things that will serve the governors badly, Collins stated. One is to hand them a document that "everyone knows doesn't mean anything," and the other would be to give them a document "with dissents so numerous that we haven't agreed on anything," he said.

There's a difference between what we can say as individuals and what we can anticipate that our constituents intend to do, commented Saven. I've viewed this as, is this something that in the end I can say, "this is a good deal," and if so, others can deal with me as they may, he said, noting that some of the wording in the preamble needed modification. The preamble should talk about what a vote means, suggested Collins.

There are three issues, said Wilcox. Is it our opinion or that of the groups we represent? I can't bind the DSIs, he added. Second, are we leaving all the specific details in? Third, "in our heart of hearts," is this the most desirable end-state, or the best consensus we could reach at this point in an evolutionary process? I'm not saying it has to be this end-state or nothing, said Wilcox. This is the best these 15 people can do, noted Golden.

There are evolutionary things beyond this, Hemmingway agreed. If you think this is a good set of steps to implement, that's what we're voting on, he said. We're voting based on what we know at this point in time, noted Canon.

Saven suggested that the preamble make a positive statement urging others to join in implementing the recommendations. We need to capture the notion that we do not agree on every point, but that on the whole, this package is better than the alternatives and that we are individually committed to supporting it, said Collins.

The group agreed to a revised preamble as follows:

"The steering committee has worked for 11 months to develop the recommendations contained in this final report. These recommendations represent a consensus of the steering committee, consensus which has been achieved only by compromise and sacrifice by each of the members on the committee. We support the report and will work to educate and persuade others, but our support here does not commit all of the groups we represent. These compromises, as difficult as some may find them, are worth making for a simple reason: we have more to lose as a region than we have to gain as disparate interests.

There is still much work to be done. This final report is specific in some areas and general in others. More detail and further refinement will be required to convert these recommendations into the contracts, legislative bills, rules and policies that will implement them.

As regional interests work further on these restructuring initiatives, there are bound to be disagreements and new issues to be worked out within the outlines of these recommendations. However, we believe that the principles outlined here must remain if any regional consensus is to be hoped for. With a consensus position, the Pacific Northwest has the best hope of retaining the benefits of the federal hydropower system and transitioning to a competitive electricity system in the region in a way to maximize benefits for all consumers in the region. The work embodied in this report will not easily be replicated if the regional consensus is destroyed by unilateral actions of any party.

Finally, the committee recognizes that electric utility restructuring is evolving rapidly and that efforts in Congress and the states almost certainly will change some of the assumptions underlying this report. Although our recommendations may not reflect the ultimate end-state of this restructuring, we nevertheless believe that it does reflect a workable outcome in itself and a very positive step in this process."

The Committee Adopts the Report

I am dissenting from the outcome because I differ on important and contentious issues, stated Applegate, noting that he would be issuing a written statement on the matter. I respect the work done by this committee and appreciate the courtesy shown to me as I raised the issues I was sent here to raise, he said. I look forward to working with you on the next steps as we attempt to solve fish and wildlife issues, Applegate stated.

You've had a difficult role here, Collins told Applegate. I admire you and everyone here for how that's been handled, he said. I appreciate the contributions Rick made to this, commented Golden. My "yes" vote wouldn't have been possible without those contributions, he said.

Collins called for the vote, and it was 13 for, and one against.

IN CLOSING: Closing Remarks

Collins said the next and last meeting of the committee would be with the governors in Spokane December 12. Saven, Shimshak, Drummond, and Canon will make presentations, and the governors will respond, he noted.

I've had the same ups and downs as you have, but it's not possible to describe what a privilege this has been, Collins told the committee. "You are remarkable people and have done remarkable things," he said.

What you've done took good will, intelligence, and integrity, and I've been inspired frequently by the personal courage you've shown, Collins stated. This has been something special in my life, and I thank you very much, he added. We wouldn't have landed the plane if you hadn't been the pilot, said Wilcox.

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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