Download the full text version of the June 6 meeting.
THE COMPREHENSIVE ENERGY REVIEW STEERING COMMITTEE heard status reports from the work group co-chairs. John Etchart described the Northwest Power Planning Council's 180-Day Fish and Wildlife (F&W) Review, Walt Pollock presented BPA's "base case" model, and Jay Minthorne briefed the committee on a tribal resolution urging inclusion of F&W issues in the regional review. All members were present, except Sharon Nelson. The audience was about 85.
Next Meeting: July 11 in Seattle. Final work group reports, with a public forum on the following day.
Northwest Power Planning Council Chairman John Etchart explained that last fall Congress asked for a report within 180 days on "the most appropriate governance structure to allow more effective regional control over efforts to conserve and enhance anadromous and resident fish and wildlife within the Federal Columbia River Power System." He described the directive as an outgrowth of the work on BPA's F&W budget.
The Council got people from around the region involved in the review, Etchart said, and sought alternative approaches to F&W governance. We had a F&W workshop, he reported, at which people "brainstormed" for a couple of days. The outcome was a published report, which the Council took as the "base case," Etchart continued. We took comments on the report, and then prepared our final report, he said, which was sent to Congress on May 15.
Etchart said the Council heard consensus around the region on several points. People said:
There was a big debate over whether legislation is needed, Etchart reported. We have asked the Administration for an executive order, he said, to get a higher level of cooperation among the federal agencies. A memorandum of understanding from the Administration would assure that the agencies implement the "regional will" on F&W, Etchart continued. If an agency did not do so, it would be asked to submit an explanation to the Council, he said.
BPA is now required to operate in accordance with the Council's F&W Plan, Etchart observed, but other federal agencies are not. If we had the same amount of attention from them, "we'd be light-years ahead," he stated. If the MOU does not come about, we'll urge Congress to pass legislation, Etchart reported. This is an incremental step to giving the region a bigger hand to play in F&W matters, he concluded.
Rick Applegate said "our interest" is to assure the existing F&W protections are not weakened, and there is "some risk of that with this report." We are seeking collaboration that would give the agencies and tribes "a seat at the table as equals," Applegate stated. Simply establishing consistency for the federal government is not sufficient, he added.
Many are surprised by the apparent progress the regional review is making, particularly with respect to power marketing, observed steering committee chairman Chuck Collins. He referred to a paper submitted by Roy Hemmingway and asked Hemmingway for comments.
Hemmingway said it is apparent there is one issue that could keep utilities from signing on with a federal power entity: price risk, and risk that the product they sign up for won't be there. The fish costs are a major component of that risk, he continued, and we must find a formula to limit the risk. The paper lays out a series of options, Hemmingway explained. The principal option is to look at ways fish costs could be capped, with the Treasury picking up the costs above a cap, he said. We must have a deal here that we can sell to Treasury, Hemmingway concluded.
Last year, during the controversy in D.C. over the fish cap, we were able to work out a compromise, Applegate noted. The feds have an interest in fish protection and recovery from the standpoint of the ESA, the treaty with Canada, and tribal trust responsibilities; they should be willing to contribute, he said.
We started out with an explicit statement that the regional review isn't going to deal with fish, John Saven said, and I took that at face value. Roy has done an excellent job of describing mechanisms for utilities to determine the risk, he said. The question is whether somebody or some entity is going to provide us with a potential view of the future in that regard, Saven added.
The governors said they did not want fish to be at issue, Hemmingway responded. They did not want this process to falter on the issue of whether John Day should be drawn down or Hungry Horse or Libby drafted lower. We wanted that off the table, he explained. But when you are talking about a new system for allocating federal Columbia River power, you must talk about how the fish costs will be handled, Hemmingway stated. The idea in the paper is to "put brackets on the exposure in the system," he said. We think we'll continue to have increasing expenditures on the Columbia River, and the question is how do we share that with the owner of the system, the federal government, Hemmingway stated.
Saven said he was still not certain about the context. You're raising an excellent point here, Collins responded. He asked Saven if his work group could "size" the fish issue. We have a direct stake in the discussion, but I'm not looking for ownership, Saven replied. Is there something your work group can do? Collins inquired. We want a common understanding of what's relevant, and what we're talking about, Saven acknowledged. Applegate added that he had some numbers that could assist in sizing the fish costs.
Jay Minthorne, a member of the board of trustees of the Confederated Tribes of the Umatilla Indian Reservation, said that in 1855, the tribes signed a treaty that gave away millions of acres of land on the condition that F&W resources be protected. The decline of the salmon means that treaty has not been honored, Minthorne said.
The regional review will affect the region's ability to protect salmon, Minthorne said. Some feel that F&W should not be addressed here, but we don't agree with that view, he said, noting the Umatillas had written to Governor Kitzhaber and to Oregon's representatives on the Council, Joyce Cohen and John Brogoitti, on the matter. We believe a broader view is necessary, he said.
Energy and power cannot be separated from F&W, Minthorne continued. We won't do a good job of either if we do them separately -- they must be considered as a whole, he urged. The failure to consider this connection is the reason salmon are going extinct, Minthorne said. The Affiliated Tribes of Northwest Indians (ATNI), with members from all of the Northwest states as well as Nevada, northern California, and Alaska, recently passed a resolution on including F&W issues in the comprehensive review of the Northwest energy system, Minthorne reported.
The ATNI resolution says that the comprehensive review may result in policies for the Northwest energy system that will be difficult to change later and that have a significant impact on salmon, Minthorne said. F&W cannot arbitrarily be divorced from the review, he cautioned. The resolution says the tribes support a process that incorporates F&W issues and fully considers the public purposes in the Northwest Power Act, including conservation and renewables, Minthorne said. He urged the committee to consider configuration and operation of the existing dams to protect salmon and other F&W resources. The power system cannot continue to be operated at their expense, he stated.
"We'd ask you to conduct your review with these principles as a guide," Minthorne stated. The Umatillas are proud to tell of their success in returning salmon to the Umatilla River, after 70 years of extinction, Minthorne continued. He noted that sportsmen have been catching chinook in Pendleton as a result of the tribal restoration efforts.
Etchart said the steering committee has not done "an optimum job" of communicating with the tribes. All of the governors' reps are making trips to the tribes and will engage the appropriate officials to assure they're involved in a better way, he said. One thing that may grow out of this is a meeting between the steering committee and the tribes, Etchart noted.
That kind of meeting would be appropriate, Applegate concurred, commenting that one of the "bright days" for the Council was the restoration of salmon to the Umatilla River. Collins asked Etchart to explore a meeting, and Minthorne urged the committee to contact the Umatilla's tribal chairman, Don Sampson, to "set the meeting immediately."
Jim Davis, co-chair of the Public Purposes Work Group, said the primary focus of the group is conservation and renewables. The group was also given the task of identifying the costs of other "public purposes," including postage stamp rates, average-cost pricing, low-density discount, residential exchange, irrigation costs, and public preference.
Davis provided a chart identifying the source and magnitude of costs, and the risks industry restructuring could pose to those costs. He described the chart as "a work in progress." We are not excluding anyone's numbers in the ranges of costs provided, he said. With regard to their value, the steering committee will have to consider where the numbers come from, Davis noted. There are 26 public purposes listed on the chart. They are divided into the following groups: rural development, low-density discount, residential exchange, irrigation, flood control, navigation, recreation, public preference, and low-income energy assistance.
Public agency interest rates, and income and property tax exemptions are unlikely to be affected by any restructuring, Davis noted. Discussions of public preference could devolve into a "quicksand" type of process, Davis said. It's an open and unresolved issue, he added.
Co-chair Rachel Shimshak noted the work group has been open to anyone who has come in to offer cost information. We did endeavor to get people to list the sources for their numbers, she added.
The charge to the work group was to inventory the costs and bring them back to the steering committee, Collins noted. The ball is in our court now, he said.
Applegate noted that he had offered additional numbers and was advised there might be some trouble with them. "I accepted those observations," he said, and will get more work from the authors to document them. The numbers had "a rough ride" at yesterday's work group meeting, Applegate said.
Davis likened the work group process to preseason conditioning in college football. "Only the strong survive," he quipped; that's how Rachel and I feel.
A subgroup is working on the question of low-income energy assistance, Davis explained. They are trying to characterize goals, he said, and answer questions, such as what responsibility does the power system have for low-income assistance and should there be minimum standards? The subgroup has endorsed voluntary energy assistance -- voluntary action is preferable to a legislatively designed solution -- and agreed that there is a need to provide more than one mechanism, Davis reported.
The low-income customer is in danger of being "red-lined" by a competitive, market-driven industry, Davis said. We, as a society, have an obligation to consider the issue, he added, noting that the subgroup is considering ways the system can provide a basic level of access to energy. Low-income customers are not a "treasured class of customers," as are some others, Shimshak said.
Bob Gannon asked if the group is considering what state governments are doing in this area. Davis said yes. Shimshak noted there is a great diversity of approaches across states and utilities.
Shimshak reported on the conservation and renewables subgroup. "Everything we've done is `an area where there is not agreement,'" she said. One of the difficulties that has cost the group time, Shimshak reported, is that despite the governors' charge, there are still some who refuse to quit arguing that the market "will do everything." We need to get beyond that, she said.
Roy has said he won't go to Governor Kitzhaber without a conservation and renewables element, Collins pointed out. And I have been around governors myself for about 20 years, he continued; if we do not have that component, the governors will not support us. If we come out with "the market is going to take care of this," we've wasted our time, Collins admonished. Those arguments may be good economic arguments, but if you're arguing for zero, you're arguing for a dead end, he added.
One of the reasons for our involvement is to assure that the public purposes of the system are continued, Hemmingway stated. That feeling is widely shared across the political spectrum, he said. Anything we send to Congress would be "dead on arrival" without a conservation and renewables element, Hemmingway cautioned.
The public purposes group has really tried to adhere to the charge that we gave them and that the governors gave them, Todd Maddock said. The governors made it clear public purposes are going to have to be a component of the solution, he advised.
Shimshak said there are essentially two proposals in the group. One is a "Commons" proposal, and the other is "Market Only." The first incorporates timing and transformation issues, she said. The group has built on efforts BPA put forward, including the $15 million the agency committed for market transformation activities. The goal is to obtain another $15 million from utilities, Shimshak said. The group discussed a 10-year sunset on this effort. It is safe to say there is no agreement on how to achieve market transformation, she added.
The subgroup has considered distribution and transmission charges, both volume and access, to fund activities, Shimshak said. We may be moving toward access, but that's not settled, she added. The Commons option also includes a state or regional conservation entity and a minimum amount of revenues for conservation. A local utility could choose to do its own spending or let the entity implement measures, Shimshak explained.
As for renewables, Shimshak said goals and objectives have been agreed upon, and the group has distributed copies of them. We are building on the goals, she said, and a subgroup has identified the activities people want to maintain. We have agreed upon two things: people heartily support completion of projects that are currently in progress, and we've agreed there should be some level of R&D spending, Shimshak reported. Work on the market option is still to be done.
This subgroup has asked the staff to prepare the pros and cons for the various approaches to distribution and transmission charges, she said. We want to talk to the customer choice group about where our issues overlap, she added.
The market transformation work sounds really exciting, Pollock commented. It sounds like the group agrees that the market transformation trust is a good idea and something we can go forward with now, he said. Davis said the group was as close on that as on anything else. K.C. Golden noted that the success of the public purposes group hinges on the success of other groups. For example, do you design a transmission and distribution system that provides incentives for accomplishing public purposes? he queried. I'd like to make sure those questions are in front of the transmission and power marketing groups, Golden said. Shimshak said her group has a list of issues to provide to the transmission group.
Co-chair Al Alexanderson said the Competition and Customer Choice Work Group "noticed about a week ago that it was almost June" and started writing its report. We've got a good dialogue going and can report on the state of things: there is consensus on the introduction, he acknowledged.
Alexanderson reported that recent work has focused on case studies, which were built around real examples of what is occurring in the region. In the midst of this, BPA came forward with a set of questions on how it should address the transmission policy issues it is facing, he said. The group has taken the questions, but has not yet tried to answer them, Alexanderson said. Absent answers from this group, BPA's position is that all decisions will be up to the agency; it gets to decide access case-by-case, he summarized.
We're now working on identifying principles for "a desired end state," Alexanderson reported. The question is, what would it be like if we got there, he said; we're considering this apart from the transition issues. We started trying to define "the end state" and found that people would agree on things conditioned on the outcome of various transition issues, Alexanderson explained. The transition issues posed all kinds of constraints, he said. So we agreed to start with describing the end state and then move back to the transition issues. If we can get there, then we can tackle implementation issues, Alexanderson added.
We've discovered two areas where there are work group crossover issues to be addressed, he continued. One involves transmission and full retail access. If 50 or 100 entities order transmission services in an open market, that's one thing; if every retail customer orders services, that's a very different world. We're asking, what are the issues with full retail access to which an Independent Grid Operator (IGO) would have to respond? Alexanderson explained.
The second question is for power marketing. There is a strong point of view in our group in favor of full retail competition, but only if we've thought about the issue of "market power," Alexanderson said. This is directed at BPA, he noted. We can't reach consensus on retail competition without consideration of that issue, he added.
Co-chair Ken Canon said the group will continue to work and refine its product; we'll ask the participants to write sections of the report, he added. Jason Eisdorfer said there are also crossover issues with the public purposes group.
When you are done, will you have identified safeguards so that smaller customers will feel comfortable about a competitive future? Shimshak asked. Yes, Canon responded. One premise is that the desired end state is access for all customers, he added. Is the stranded cost issue in your group? Pollock asked. Canon said that the models the group studied contained proposals for dealing with stranded costs. In terms of a comprehensive solution, we're not there yet, he added.
Bill Drummond, co-chair of the Transmission Work Group, said there is "no agreement we should do anything regarding transmission." He characterized two primary viewpoints in the group. The "majority" says we need to do something and leans toward the Independent System Operator (ISO) as the superior option. Some see FERC Order 888 as a transition step toward total divestiture, he said. The ISO gets you part of the way down that path, Drummond said.
A minority group supports a Transmission Coordination Agreement (TCA) in lieu of the ISO, Drummond continued. They view federal legislation as a significant risk and feel that whatever you are trying to fix, you would replace it with an ISO bureaucracy, he reported. Some people didn't see the TCA as going far enough, and they think it may not be workable, Drummond said. If a participant didn't like it, they could quit, he explained, but that won't buy you very much. Within the ISO option, there is discussion of an entity that has ownership and could eventually build facilities, Drummond said.
Co-chair Golden said what seems like a majority/minority split is probably a spectrum of views, depending upon what the specifics are and who controls an ISO. As for governance, he referred the committee to brief write-ups the group provided, explaining that there are three models: the Bonneville Transmission Corporation, a Mixed Federal/Private Transmission Corporation, and a Cooperative Corporation Model. We've had an active discussion of the models, he reported, and there is not much "dug-in resistance" to any. "We're still approaching them with open minds," he said. Governance is an area where we can contribute to what PNUCC has done, Golden noted.
As for pricing, Drummond said there are 10 to 15 different schemes. There are lots of theories, but not many numbers, he said. Zonal pricing appears to have attractive qualities; one is ease of implementation, Drummond reported. Zones tend to follow the geographic nature of the transmission system, he pointed out. Such a scheme also allows you to do congestion pricing. Where there are bottlenecks, you can charge more and provide proper price signals, Drummond noted. It's also not as likely to cause "bizarre distortions" as some other pricing structures. The big issue is where you draw the zones, Drummond said.
The early indication on pricing is that most of the cost is in access rather than usage, Drummond said. The modeling indicates congestion pricing will result in less than 10 percent of the revenues, which means there are few bottlenecks in the system, he added. On July 11, we'll have a list of the preferred alternatives and preliminary model results, Drummond concluded.
Where is a reasonable place for the review to end with this issue? Collins asked. Will there be closure? We won't have information about pricing, Drummond replied. Pricing aside? Collins queried. We'll have general directions and characteristics of the system, Drummond said. We'll have something rather than just "let FERC happen," he added.
Will you have the operating structure for an ISO? Collins asked. There's still the threshold question of should there be an ISO, Drummond replied. If I had to bet today on what the group would produce on July 11, he said, I'd say we'll have the ISO governance structures narrowed down, but whether we come up with "The One," I don't know, he said.
Not everybody has crossed the threshold, Golden reminded the committee. Without everyone crossing, we're trying to make progress and consider the better and worse ways to do this, he said. In response to a question from Hemmingway about BPA's WPPSS bond presentation, Golden said the work group has on its list of issues the question of how separation of generation and transmission would affect the system's ability to meet other obligations. We had "a read" on how big an obstacle the WPPSS bonds are to separation, he said. There is also the question of how transactions over the transmission system would be affected by collecting revenues for other purposes, Golden added.
We have a subgroup working on questions relating to "wires charges," Golden reported. They are trying to give us a sense of whether this is a big or small issue, he said. Where we want to go next is to bring those efforts together with the public purposes and power marketing folks, Golden said. Lots of people are still fighting the "whether" battle over wires charges, and we are going to come to that issue, he said. I hope we come to it with the best information on "how" to implement a wires charge, Golden stated, so we can have a better discussion about "whether."
Drummond said there are two issues with regard to operations: control areas and ancillary services. If there is an ISO, how many control areas should there be and how should they function? As part of the ancillary services discussion, we addressed what is necessary for system stability, he reported. Would an ISO acquire ancillary services, or should the ISO get into generation? Many of these services are provided by generation, Drummond pointed out.
The group has discussed a three-step process for planning expansions to the transmission system under an ISO: a needs assessment; identifying alternative solutions; and if an expansion appears to be the likely solution, a transmission assessment. The ISO would stand ready to construct additions, he said, but the owner would have "the right of first refusal."
There were no "indigenous proposals" for pools, Golden said, and there is a feeling that voluntary pools will develop. We're trying to compile the best arguments available on why they are necessary or unnecessary, he said.
Mike Kreidler noted the co-chairs reported little discussion of an independent transmission company. "We came to the edge of that cliff," Drummond responded, and realized that change of ownership had such significant issues, it would take far more time than we had. Some folks think that's ultimately where we will go, he acknowledged.
If the transmission group does not come up with a best answer, it could "hang up" the solution for the other three groups, Davis suggested. Collins said that is a good point. If we don't get closure in some areas, will we cause problems in other areas, and if so, which? he restated.
Golden observed that pricing "is a piece we don't have control over." Drummond noted that the transmission group hadn't yet considered the questions raised by the competition and customer choice group about an ISO being deluged with requests for access.
I'll be happy if we have ideas, Saven observed; I don't expect prices. That's on a par with what we can do, he added. He noted that assumptions about what the WPPSS debt could mean need to be the same among groups. That is a major driver of some options, Saven pointed out. We are strongly interdependent, Golden concurred. To the extent you don't get to a specific risk allocation with WPPSS, we are stuck, he told Saven.
Pollock noted that the issue that will cause trouble between the two groups is having one BPA fund. There has got to be a common solution; if the power marketing group has one, transmission can't have another, he cautioned. It's a solvable problem, but a real critical one, Pollock said.
Collins asked whether leaving the transmission governance issue unsettled would preclude defining a power marketing governance structure. Pollock said it could be left open. If the bondholders' perception is that governance has to do with risk, there could be a problem with the WPPSS bonds, he acknowledged.
We are not going to get a lot of numbers in most areas, Collins said. I don't know if that is the kind of thing we're designed to do very well, he commented. We have to get up to speed on what options we're closing out with the WPPSS debt, he said. How do we get the answer? he asked Pollock. From Harvey Spigal?
We have to be confident we can define something that doesn't change the risk, Pollock answered. Harvey is happy to give counsel as we go along, he added.
Can someone describe the threshold where bondholders begin to say, you can't do that? Alexanderson asked. Where can they enter the debate? he queried.
The covenants describe the structure of the security behind the bonds, Pollock replied, and there are provisions that could trigger an acceleration in payment. Those kinds of triggers should be avoided, he counseled. There have been changes in the past, Pollock continued, and we've dealt with them. The other place for caution is the tax-exempt status. The IRS can change the tax status even retroactively, he advised. It's a big deal if you trigger those, and we can avoid it, Pollock said.
The majority of the WPPSS 1,2,3 bonds are held by institutional investors who will be watching closely, Drummond observed. If you separate the BPA funds, and remove transmission as part of the security, that could change the security, Collins explained. That's right, Pollock said.
What if you remove the marketing function? Alexanderson asked. It's hard to believe that changes in the way you market power could jeopardize the security of the bonds, he said. I doubt very much if BPA has to keep a monopoly position to secure them. I understand that if you divest assets, it changes the security. The need to do this separation has to do with the size of the marketing function, Alexanderson said.
Let's assume you have the transmission system separated, and you have only the power business to pay WPPSS debt, Pollock said. Is that an action that reduces the probability that the bondholders will be paid? If you reduce the likelihood in their perception, you are in trouble, Pollock counseled. None of us wants to engage in reducing the likelihood of payment if we can come up with something else, he added.
Pollock walked the committee through a BPA "base case", which he said is useful to illustrate how things work or don't work under the present structure. The base case describes what the agency can and cannot do within current statutes. I'm hopeful this will help us frame comprehensive alternatives, he said. Pollock emphasized that the base case is not BPA's "proposal," nor is it an attempt to preserve the status quo. It is illustrative, he stated.
The base case presentation was divided into several major areas: power and transmission separation, power marketing function, public purposes, transmission function, competition, and debt management.
Today we're on a course to separate the administration of generation and transmission, Pollock explained. We will remain one agency with a single fund, but the businesses are separated for bookkeeping, and there will be a separate executive structure internally, he said. Power and transmission will have nothing to do with one another day-to-day. The Administrator would remain a single function for the entire agency, Pollock said.
The power marketing function is a business line within BPA, with Congress having final oversight. The Power Planning Council advises BPA and has a major role in policy, Pollock explained. BPA has treaty obligations with regard to Canada, and the federal government has trust responsibilities with Indian tribes.
BPA has an obligation to provide requirements power under existing law. Contracts can be for up to 20 years. "We have lots of flexibility in fashioning contracts," Pollock said. BPA establishes terms and conditions for preference, including notice provisions; the agency has not set terms for power purchases after 2001. BPA currently exchanges power with investor-owned utilities, but is seeking to phase out the exchange by October 2001, he added.
BPA rates are set through a process established in section 7(i) of the Northwest Power Act. The process "has become almost unworkable," Pollock said. It was written for a reality that doesn't exist, he explained. It can be changed somewhat under BPA's existing authority, Pollock noted. FERC confirms and approves BPA rates, but the review is limited to specific areas. FERC has little authority to review rate design, he said.
Power is sold at cost to those who have priority, except where market-based rates better assure cost recovery. Surplus firm is sold at market-based rates, and nonfirm is sold on the spot marketing, seeking full cost recovery on average. Pollock said the agency has some rate flexibility under current law.
BPA is obliged to serve the load growth of customers. Pollock said the agency could be relieved of that obligation "if all customers agree." There may be legal problems for the public agencies in relinquishing that requirement, he noted. Existing power contracts require customers to take or pay for power. New contracts could specify different obligations, Pollock said, adding that there is a lot of contract flexibility.
Reselling BPA power is generally prohibited. There are policy reasons behind that law we should be mindful of, Pollock said. As for risk, ratepayers and the Treasury bear the risk if the price at which power is sold fails to cover the cost of its production. BPA can fund capital projects through Treasury borrowing or third-party financing. Corps and Bureau capital projects can be directly funded by BPA, as well.
BPA has statutory obligations to provide for a number of public purposes and benefits. The agency has broad discretion in this area, Pollock noted. The benefits BPA provides are decided upon through public processes, chiefly managed by BPA or the Power Council. BPA supports these public benefits both by carrying out activities and by making payments to others. As for environmental obligations, BPA complies with laws, such as the ESA and NEPA, that apply to federal agencies.
Pollock said BPA has discretion it has not exercised with regard to transmission. Congress has final oversight over the agency's transmission business. BPA can build and own transmission within the region. Transmission rates are set through the 7(i) process, and FERC also approves these rates. Pollock noted that there is a whole series of new FERC requirements, including standards for ancillary services and functional unbundling. BPA may be "tending toward probably" as to whether the agency could participate in an IGO, Pollock said, but there are issues to be resolved.
BPA has authority to provide transmission access for retail wheeling, but has not decided whether it will do so. As for whether the agency will market to retail customers, Pollock said, "we have broader marketing authority today than most people know." It's a big issue, he added, and is not yet decided. It is uncertain how BPA could recover its stranded investment in generation, if there is any, Pollock said.
There has been no change in the pledged security for the net-billed WPPSS bonds, but the security and tax-exempt status are big issues, Pollock said. A capital transfer between transmission and generation may be necessary to preserve the security of the bonds and satisfy FERC requirements for separation of functions. He noted that some people have a strong desire to see BPA move toward FERC's Uniform System of Accounts. The agency could do this without new authority, Pollock said.
Can you describe the next five years? Brett Wilcox asked. How do you see the negotiations when contracts end in 2001? he queried. That's an issue I want to get direction on from the regional review, Pollock responded. If there are no changes in the law, I'd want to start quickly, he said. We'd try to look for longer term commitments, perhaps changes in governance, and closer association between the costs and benefits of the system, Pollock said. We don't have a lot of time to figure it out, he added.
As you went through the process of separating generation and transmission, did you examine the market power question? Canon asked. I don't think market power, as FERC defines it, is any issue at all for BPA, Pollock responded. The issue is about a federal entity in a competitive market. I don't think there's an issue in a strict legal sense, he said.
Gannon said the Federal Power Marketing Work Group, which he co-chairs, spent time with Walt on the BPA base case paper. There are probably some questions about the assumptions, he noted. The group also spent time on Roy's paper, Gannon reported. The WPPSS debt and the implications of industry restructuring for the credit quality and tax-exempt status have been up for discussion, he said. I don't think it's "a phantom issue," as Al was alluding to it, but I don't think they're unanswerable concerns, Gannon stated.
We've had a fair amount of discussion about WPPSS, co-chair Saven concurred. In Tuesday's session, we didn't get into any big argument about that. It was comforting to know we're not all over the map. No one said BPA has just launched this issue to keep us from doing the most creative things, he said.
Saven said he could characterize three major options that most proposals under discussion would fit within. The first he termed "The BPA Stretch" option. There's a fair amount of enthusiasm for what we can do on our own, he reported. The second option is "BPA Lite," a minor legislation option, with a potential federal corporation and "small fixes," Saven said. Third is "The Major Change" option, which could entail a federally chartered corporation and includes models for allocation of federal resources and ownership and control by customers.
We also have proposals for divestiture and alternatives for revenue collection, Saven reported. Some proposals have "hit hard times" on the WPPSS debt issue, he acknowledged. The final report won't feature a lot of quantitative information, but will line up the risks and rewards, Saven said.
Shimshak asked if "a center of gravity" was forming around any of the three options. No, Saven replied. There are many perspectives from "what's wrong with what we have today projected into the future" to "major changes are needed," he said. Some say you need a long-term perspective, and others say you should take a short-term perspective and "put your toe in the water," Saven explained.
Applegate asked how much emphasis has been put on river operations. There has been a very active discussion on governance, Saven said. Most of that discussion has been on the question of management of the federal power entity. The "wild card" is what other forces could come in to diminish or improve the system, he added. Is it your sense that the work group will be the arena for that question? Applegate queried.
The question of river operations may have left the arena, Collins suggested. My sense is the work group assumes those operations are controlled elsewhere, he said. The Corps and the Bureau own the projects and BPA markets the output, Saven pointed out. The question is the output -- how are the risks and rewards balanced, he said.
I don't hear anyone saying the entity would be directive of these other agencies, Collins observed.
Is the work group comfortable with standing at the end of a pipe not knowing if it's full of water or air? Applegate asked. What are you talking about? Davis asked. The whole spectrum of operations and governance structure, Applegate replied. We thought the 180-day Review would get at that, but it's still there, he added. When we get there, please define it in common terms that we all understand, Davis requested.
Drummond asked if there was a parallel in the work group with the Power Council's preference not to go with legislation in the 180-day Review. "No legislation is better than any," Saven responded.
Collins referred to the unanimous opinion that BPA not be in "the resource acquisition mode." Where is that question? he asked. It's in BPA Stretch, Saven said. Pollock concurred. We could go back to the people who require that we meet their requirements, and they could waive the right, he said. What about the issue of limiting BPA's ability to compete? Collins asked. We have the administrative ability to do that, Pollock replied.
I don't think that fits into BPA Stretch, Wilcox stated. The Regional Power Act gives BPA the obligation for net requirements and purchase authority. It is inevitable that it's "a big deal," he said; there are no short cuts.
You don't need any more legislation to say you can't compete, Gary Zarker remarked. It's not a given. That's one of the issues that is really dividing us, he observed.
The BPA Administrator has an obligation to act if revenues start to drop, Collins noted. Pollock agreed. That goes back to my question about what happens when contracts expire, Wilcox said. "Walt gave a good academic base case." But the "real world" is that BPA will be lucky to get the load commitments it needs. It may be able to accomplish that now "by a series of threats and bribes," but in 2002, no one has to buy from BPA, Wilcox continued. When prices are in the teens, you'll have a different view of things, he said.
We asked Bill to come up with ideas about what the comprehensive proposals should look like, Collins said, referring the committee to a draft outline. Drummond explained that he wanted a mechanism to compare the proposals and identify what elements they should cover. The staff turned my thoughts into this outline, he said, noting not every proposal would answer every question.
They can say "none or no" to some of the items, but they should
respond, Collins suggested. Should we add river operations? Applegate queried. Who is really addressing this? Chuck Hedemark asked. It's hard to address it without more clarity, he observed.
"Let me be real argumentative," Collins said. We just got done with a 180-day Review that was supposed to address river operations. We realize that the risk on fish is something we can't ignore, he acknowledged, but what reason is there to believe anything will come of it from us after this 180-day Review? he asked.
Some proposals will address river operations, Applegate responded, noting that Wilcox's paper had included it. "I'm not trying to open a new can of worms," he said, "but it's an issue we've got." There are transmission and marketing governance boxes emerging, and river operations is starting to emerge, Applegate said. Everyone is nodding yes, Collins observed. Are there any nos, but me? he asked, and got no response.
Collins said the co-chairs had a conference call about a format for work group reports. He asked for comments on the outline offered. Zarker suggested there be something on implementation, with emphasis on legislative issues. Shimshak asked about including cost information. Collins suggested economics could be incorporated under "major characteristics."
What will groups do on issues where they can't reach consensus? Drummond asked. The governors' letter said where there isn't consensus, the other views should be stated, Etchart said. Canon suggested the groups should strive for a limited number of alternatives and define the differences between them.
I've heard a lot of unease about the next 30 days, Collins said. If all that the work groups can submit is consensus, "it will short-circuit the debate," he observed. If what you submit is a few alternatives, the steering committee can deal with that, Collins said. Saven noted that the 10-page limit on work group reports was very useful.
Collins said that on the evening of July 11, there is an opportunity for the committee to get together socially. Zarker reported he is putting together a dinner for the steering committee and perhaps a reception for a broader group after the meeting on that date.
The committee discussed a meeting schedule for July and August. After July 11 and 12, we'll have a lot of crossover issues to resolve, Collins said. The members decided that following July 12, they would meet in Portland for one and one-half days every other week through August 22. The schedule will be: July 17 and 18; July 30 and 31; August 14 and 15; August 21 and 22, with the 19th and 20th reserved in case they are needed. August 22 is the date by which the steering committee will make decisions for the draft report on the comprehensive review.
Shimshak said that the work groups had benefitted greatly from the efforts of Council staff, and she thanked them for their work.
Glen Swift, a member of the audience, asked that there be some process at which the public can participate with the steering committee in the review. I hope it's not all we can do to come to the meetings and watch, he said. I wanted the opportunity to share ideas and suggestions, Swift said, and he asked to be on a panel on July 12. Collins replied that there would not be an opportunity in July, but a public process was being planned for September.
Austin Collins, a member of the audience, told the committee about the outcome of his experience in helping a member of the Yakama Tribe restore fish to a waterway near Toppenish, Washington.
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.
Last modified: June 11, 1996
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