| Northwest Energy Review Transition Board | John Etchart, Montana |
| 851 S.W. Sixth Avenue, Suite 1100 Portland, Oregon 97204-1348 |
Roy Hemmingway, Oregon |
| Phone 503-222-5161 or 1-800-452-5161 FAX 503-795-3370 |
Mike Kreidler, Washington |
| Todd Maddock, Idaho |
NORTHWEST ENERGY REVIEW TRANSITION BOARD
Thursday, October 9, 1997
NWPPC Conference Room, Portland, Oregon
The Northwest Energy Review Transition Board had a conversation with Will Stelle, Regional Administrator of the National Marine Fisheries Service (NMFS), about how the region’s transition activities fit with NMFS’s pending system configuration decision. Paul Norman of BPA gave an update on post-2001 power sales, reporting that BPA has sold about 160 MW of the 500 MW the Transition Board authorized. The Subscription Work Group is discussing pricing and implementation issues, and the Transmission Work Group has suspended its meetings to consider transition costs. All board members were present; the audience was about 30.
Next Meeting: November 20 in Spokane.
Headlines________________________________________________________
BPA Is Well Under Its Post-2001 Sales Ceiling
Stelle Tosses System Config Decision Into Transition Stew
The Work Group Report: Fits and Starts
Board Requests Workshop on Transition Costs
ORDER OF BUSINESS___________________________________________
BPA Is Well Under Its Post-2001 Sales Ceiling
Paul Norman of BPA reported on the status of post-2001 sales. Six months ago, BPA told the board that the agency was receiving inquiries from customers interested in purchasing power for the post-2001 period. BPA submitted an interim marketing plan, and the board decided it was appropriate for the agency to make post-2001 sales of up to 500 MW in-region and 800 MW out-of-region.
Norman said BPA’s plan was based on several goals. The agency did not intend to be actively marketing, but wanted to be in a position to respond positively to its customers and to avoid losing customers who would be potential subscribers, he said. BPA also wanted to avoid concentrating stranded costs on a small group of customers, and the contracts for post-2001 sales include a provision that future stranded cost decisions would apply to these purchases, Norman said.
Under the heading of "old news," Norman said BPA has signed contracts with Enron for 100 MW and Benton County Public Utility District (PUD) for 20 MW. The agency is in the process of signing contracts for 150 MW with eight western Montana cooperatives, he continued. The power will be provided under an agreement called the "Hungry Horse Reservation," which dedicates 220 MW of output from Hungry Horse Dam to Montana customers. The Hungry Horse power will not be counted against the 500 MW ceiling for the sales, Norman indicated. We also expect to sign contracts with three marketers in the next month, he added, resulting in 240 MW of sales. Of those, 40 MW would count against the in-region ceiling, Norman said.
If you count the unsigned deals, we’ve sold a little over 500 MW, but only 160 MW falls under the pre-subscription ceiling, Norman noted. "We aren’t bumping up against the ceiling," he said. As for out-of-region sales, there have been lots of discussions, but everyone is waiting to see the California Power Exchange (PX) prices in January before they decide on pursuing a purchase, Norman said. While he declined to be specific about price, Norman indicated that all of the deals are helping BPA to meet its "2 cents in 2000" target.
Stelle Tosses System Config Decision Into Transition Stew
NMFS Regional Administrator Will Stelle said he wanted to probe the issues related to federal power subscription, particularly with regard to timing of the process and the fish and wildlife (F&W) budget agreement. "I want to get the Transition Board’s views about how these pieces of the puzzle fit together," he said.
Stelle described what he views as the larger pieces of the puzzle from a F&W 7-7perspective. NMFS issued its Biological Opinion (BiOp) for operations on the Federal Columbia River Power System in March 1995, he said. The Corps, the Bureau of Reclamation, and BPA subsequently adopted the recommendations in the BiOp, which are now governing operation of the system, Stelle explained. The framework laid out in the BiOp contemplated interim operations through 1999, along with research on salmon survival and mortality. In 1999, there will be a decision on longer-term system configuration actions to contribute to restoration of the endangered species of Snake River salmon, he said.
Stelle noted that the BiOp has been challenged in a court case brought by American Rivers. Some of the claims have been dismissed, and a final decision is expected any time. "I hope the decision sustains the BiOp," he stated. Our approach is to have an interim strategy that is legally defensible, carry out the research, and make "a macro decision" in 1999 on longer-term remedies, Stelle summarized.
NMFS has not had adequate consultations on the upper Snake River and Hells Canyon hydro projects and is entering consultations with the Bureau of Reclamation regarding the upper Snake, Stelle said. There is the possibility of litigation on the Hells Canyon projects, he added.
NMFS has listed Snake River and upper Columbia River steelhead under the Endangered Species Act (ESA) and is now consulting with federal project operators, Stelle said. In addition, the agency is scheduled to make a decision on listing West Coast chinook early next year, he reported.
Stelle said he is optimistic about negotiations between NMFS and the three mid-Columbia PUDs for "multiyear, multispecies" conservation agreements. The PUDs are seeking ESA Section 10 permits for their five projects, and they are working with NMFS to develop the agreements, he explained. "It will be a major achievement," Stelle said, and it will result in better operations and "an ESA-friendly supplementation program."
The F&W MOA
I anticipate negotiations will begin soon on a new F&W budget agreement, Stelle said. I want a better understanding with you of what is intended by extending the agreement and its relationship with these other transition activities, he stated. Is it your view that the F&W memorandum of agreement (MOA) is a necessary element for entering into the subscription process, or is it a technique for ensuring cost stability? Stelle asked.
Subscription is a two-part process, Mike Kreidler responded. The first determination is the order in which customers will sign up, and the second part is pricing, he said. The mechanics are expected by the first of the year and pricing by the middle of the year, Kreidler stated. Is the MOA necessary to do this? Stelle asked. For the mechanics, no; for pricing, yes, Kreidler replied.
We haven’t had a discussion about what F&W budget arrangements need to be made, Roy Hemmingway stated. In general, we believe BPA must offer a fixed price it can live with so customers can sign contracts, he said. We haven’t had the discussion about whether the MOA is necessary, Hemmingway added.
There is an open decision on the long-term system configuration actions, Stelle pointed out. We contemplate a judgment in 1999, after the modeling and analysis are complete, he said. Did you consider the relationship of the MOA to the 1999 decision? he asked.
The schedule we have calls for being able to define the federal power product and the price in 1998, staffer Dick Watson answered. We aren’t contemplating that all contracts will be signed by the end of 1999, he said. BPA and the customers need to know where BPA’s F&W costs will land in 2001-2006, Watson said. Consultant Al Wright added that it is essential for customers to know what they are committing to for the life of a contract. By mid-1998, BPA will have to make an assumption about its F&W costs, he said, adding that it is unlikely such an estimate would go beyond five years.
Won’t Costs Lag The Decision?
If NMFS makes a decision for system configuration changes, there will be a lag before they can occur, Wright pointed out. "The bottom line is anything you can do to put more certainty around the pricing issue is good, and the sooner the better," he said. Kreidler added that it is difficult to have a pricing discussion without a resolution of the transition cost issue.
"To the extent that you can specify and lend certainty to your needs, that’s to everyone’s benefit," John Etchart told Stelle. "Step one is for you to specify what you think your needs are" so they can be worked into the subscription process, he added. We are working under the assumption that whatever your decision is in late 1999, it won’t impact BPA through 2006, Todd Maddock said.
Do you anticipate that the subscription process or the MOA should prejudice our 1999 decision? Stelle asked. How do we enter an MOA in 1998 that nails down costs in 2007, if we haven’t nailed down the long-term remedy? he asked. What you’re saying is that if BPA sets a price in 1998 that does not accommodate your decision in 1999, the legal viability of the BiOp would be subject to challenge, Hemmingway stated. Any decision in 1998, such as the MOA, should be consistent with our commitments and obligations under the BiOp, Stelle responded.
What does that mean? Is that a range of dollars? Etchart asked. The BiOp lays out several long-term possibilities, and we’re evaluating those, Stelle replied. The ROD covers a full range, from the status quo to drawdown of the four Snake River projects, he said. The question is how do we fit the pieces of the puzzle together so subscription can be successful and so we don’t end up in litigation, Stelle said. In fashioning the 1998 subscription decisions, how do you reconcile this? he asked. I’d assumed the MOA would accommodate the BiOp, Etchart replied.
What the Subscription Work Group has to address is at what level of certainty will those customers be comfortable so they can make a commitment for five years, Maddock stated. We don’t know what that level is, and we haven’t discussed it with them, he said.
I’ve assumed that the level of certainty would be price, Hemmingway said. The question is what does BPA need; BPA and Treasury assume the uncertainty, he added. We’ve dealt with this by having a fixed set of costs under the MOA, and the Regional Review assumed that mechanism would continue, Hemmingway stated. "The wrinkle here today is that a major set of decisions will be made late in the process," he observed. BPA is talking about nailing down the terms of the contract in 1998, which means they would have to be able to look out eight years -- to 2006, Hemmingway said. "It will be very, very difficult, maybe impossible, to nail down an eight-year MOA," he added. "If we put ourselves in the straitjacket of an eight-year MOA, we’ll quickly be at loggerheads," Hemmingway observed.
Stelle said the F&W budget and structuring a cost-recovery mechanism are essential elements of the MOA. It might not be possible to cover the cost of the long-term decisions out of the power system alone, he stated. "We may have to build in options," he said, adding that these need to be identified and developed.
Kreidler noted that the customer groups are working toward having a package together by March 1998 to send off to the Congressional delegation. We have a customer group and a public interest group working on a transition cost mechanism, Etchart added. We know we can’t allow this to fester, Kreidler stated. Hemmingway pointed out that the transition activity is moving along on six separate tracks, with the fish budget being the furthest behind. Our goal is to have most pieces coming to us by the end of the year to see if there is consensus on a package to take to Congress, he said. Stelle asked about the BPA cost reduction component, and Maddock said the timetable is to have recommendations to BPA’s new Administrator right after the first of the year.
Of the 1999 system configuration options, a large number of them could be accommodated within the MOA right now, Wright pointed out. And there are a few that could double the costs, he said. Those that could mean large costs would have "a sizable timeframe," Wright noted. It would be helpful to look at the whole implementation timeframe, he said. If our assumption on the timeframe is correct, there would be a five-year window in which to let the subscription process get started, Wright said.
MOA Must Be Consistent With the BiOp
"That’s getting close to what we are assuming is the fit," Stelle said. One of the themes here is that "everything is related to everything else," he added. These things have to have a clear relationship so "we don’t do things we didn’t intend to do," Stelle stated. Whatever we do, the F&W budget has to be biologically sound, legally defensible, and meet federal law, he said. And it has to be consistent with the 1995 BiOp, Stelle added.
We have made a commitment that no decision will be made on any of the options without discussions with the governors, Stelle continued. We also need to work out a practical way to discuss this with the states and tribes, he said. We have an enormous amount of work to do, Stelle concluded.
If NMFS decides major system configuration changes are needed, what kind of timing would the other federal agencies need to get their budgets through Congress? asked Rob Walton of the Public Power Council (PPC). Stelle described the multistage federal budgeting process. I don’t see any way to alter that system, he added. We need to know what the timeframe is for these things, Hemmingway observed. Kreidler suggested the staff draft a letter to NMFS asking for information on the timetable, and the board agreed.
What does all of this portend for customers? Etchart asked. I don’t anticipate any material changes in interim operations pre-1999, Stelle replied. Post-1999, we are going to be making judgments on a multispecies basis, he added.
The Work Group Report: Fits and Starts
Wright reported that the Subscription Work Group has spent its time describing what potential subscribers would be interested in purchasing. BPA has responded with a design for products and services, he explained. There has been quite a bit of talk about the form of the relationship between customers and BPA, including an umbrella contract with short-term subsidiary agreements, Wright added.
BPA has moved into pricing products and services, which will probably be an iterative process that will take time, Wright said. The work group is now taking up the issue of implementation, with discussions of how it will work and how offers will be made, he explained. Dick Adams, executive director of the Pacific Northwest Utilities Conference Committee (PNUCC), noted that in discussing implementation, the work group is dealing with a topic the Regional Review laid out in detail, including phases and amounts of power.
The group is still on schedule to have a process designed by the first of the year, with pricing completed on or before the middle of next year, Wright said. He added that a representative of the Sacramento Municipal Utility District had joined the subscription group at its last meeting. We’re seeing some out-of-region interest, Wright stated.
Steve Weiss of the Northwest Conservation Act Coalition (NCAC) said he feels the public interest and BPA’s interest "are fairly similar." He noted that BPA has written a paper indicating that two-thirds of its products will be cost-based and that the only way to assure a right to cost-based products is through subscription. Weiss went on to describe what he called "a disconnect" between a long-term commitment for purchasing power that preserves rights in the future and "where the world is going." Legislators, policymakers, public utility commissions, and others who are involved in state utility restructuring "may be designing a short-term world," he pointed out. Weiss said that some of the Subscription Work Group members may end up being "wires companies" in the future.
He noted that staffers from state utility regulatory agencies in Oregon and Washington are attending the meetings. It’s important to have these other interests involved "to make sure there are cross-references," Weiss urged. Because of BPA, the Northwest may need state utility restructuring that is different from elsewhere in the country, he said. We need to get more people to show up and get information about how subscription is evolving so it can work, Weiss concluded.
Some Delay and Discontent in the Transmission Group
The Transmission Work Group has spent a great deal of time on what Federal Energy Regulatory Commission (FERC) equivalency is, Wright said. There are many different opinions, and the upshot is a 31-page matrix, he added. On September 30, the public power participants requested a suspension of the group’s meetings until the issue of BPA cost recovery is resolved, Wright reported. The group canceled its October 14 meeting to allow customers to work on the transition cost issue, he said. There was a commitment that everyone would work hard in October and report back in November, Wright stated. The group will get back together on November 4, he added.
"Are you describing progress?" Etchart asked. "We are not moving backwards," Wright responded.
"I’m concerned about any piece in the process saying it will wait for resolution of another piece," Hemmingway said. There won’t be a total resolution until March, he added. I’ve always thought that nobody would sign on until the whole package is done, Hemmingway pointed out. That conversation went on in the group, Wright assured him. There’s a high level of uncertainty and discomfort about it, Wright added. There is uncertainty and discomfort in all of these areas, Hemmingway said. "The recipe for a stalemate is to say `I won’t talk about that until my issue is resolved,’" he observed.
Terry Mundorf of the Western Public Agencies Group (WPAG) said those who pushed for the suspension want to see the stranded cost issue "catch up." It is not at the same level of development as the other issues, he stated. We don’t expect finality on it, but we need to understand what compromises are available and what people are capable of and willing to do, Mundorf said. Our bottom line is "give us the opportunity to do this; we are working," he said. We were unable to make commitments because we don’t know what we are facing with stranded costs, Mundorf added.
We became convinced that a consensus was needed, according to Maureen Carr of PPC. The most difficult issue is stranded costs, and we thought if we got to a basic customer agreement and could come to you with consensus, "it would be a pretty powerful thing," she said.
Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment said he was unconvinced of the need for a suspension. We acknowledge there is a lot of work to do on stranded costs, but there are other issues we could have made progress on, he said. I regret that we won’t be talking about ratemaking or what deference to give the BPA Administrator or FERC, Duncan said. It was the will of the majority to suspend the meetings, he acknowledged. I strongly encourage the public interest, tribal, and customer groups to open lines of communication, Duncan said, or there could be "a confrontation" in November. We hear that, Mundorf replied.
Board Requests Workshop on Transition Costs
Mundorf offered a work plan and schedule for the customer process to formulate a BPA transition cost mechanism. He said the transition cost group "tried to start with a clean slate and come up with as many ideas as possible." We have identified a broad range of issues and we’re trying to narrow them down, Mundorf said. We want to come up with options that are broad-based, and we plan to have them sufficiently defined for the board’s November 20 meeting, he added. I’ve been vague, Mundorf acknowledged, but he said too much candor could have "a chilling effect" on the discussions. These are big money issues, and have implications for the viability of institutions, he said. "We are into substance and money," Mundorf stated. We are reaching understanding, if not agreement, he added.
Duncan said the public interests and tribes want "budgetary headroom" for certain costs and will be talking about how these elements "will meet up in space and dock." Ultimately, this depends on a stranded cost mechanism that is robust enough to deal with future fish costs, he stated. Duncan said he is concerned about a mechanism that would trigger only with the threat of default to the Treasury and could not deal with recurring costs the region may face.
Weiss presented a paper that he said deals with "the trigger" for a stranded cost mechanism, as opposed to the allocation of costs. There would first be a five-year projection of BPA costs and revenues, he said. Using market conditions, BPA would calculate the probability of repayment. If the probability falls below a pre-determined percentage, then the stranded cost recovery would be triggered, Weiss explained. He described "a huge give" on the public interest groups’ part to set a cap to assure customers they will never pay more than a certain amount. This stranded cost mechanism "is not open wallet," Weiss said. The amount of stranded cost recovery would be capped in any year, possibly at 2 or 3 mills, he said. That would seem to cover even major projects, Weiss observed.
The aim of the stranded cost mechanism is to avoid missing a Treasury payment, Weiss said. If that is not possible by collecting stranded costs up to the cap or if BPA revenues fail to meet projections, Treasury would push the payment forward, he continued. We think that deal can be made with Treasury, Weiss added. A small amount of stranded cost coverage may fit within BPA’s reserves, he said.
John Saven of the Northwest Requirements Utilities said he is in the camp of those who think there needs to be a solution to stranded costs. He said the board needs to ask itself several questions: Does Treasury have risk in the short term? In the long term, what decisions are to be made about the use of the river? You’ll see things from us that are produced in good faith, Saven stated.
Kreidler said he appreciated the public interest groups’ work. You’re pushing on the issues and have helped force some action, he said. If we accept November 20 as the date for you to bring a proposal, it has to be firm, Kreidler stated. Etchart suggested the staff and some Transition Board members try to get together with the customers in a workshop to see what’s involved in reconciling the differences. We may need "a refereed session" so we don’t get to the 20th without a final product, he stated. Maddock suggested the workshop take place sooner rather than later.
We are motivated to reach consensus, Carr said, adding that it would be difficult to meet soon. If we try to force consensus, we won’t have buy-in, she said. At a minimum, a greater degree of communication is needed, Duncan said.
Etchart reiterated his request for a workshop, saying that on November 20, the board does not want to see "two diametrically opposed views." What do you want to achieve? Mundorf asked. If you’re looking for a meeting to forge a compromise before the parties are willing or able, it blows up rather than enhances the process, he observed. Saven suggested there are "framework issues" that could be discussed at any time, such as financial risk to the Treasury and changes in river operations.
Mundorf suggested the customers take the request back to their constituencies and notify the board whether it would be workable. We’ll do it "as fast as humanly possible," he said. Saven noted that coming up with one position "is still a heroic assumption., he added.
"This makes me nervous," Kreidler said. A meeting would help us know where people are sitting, so "when we get the ball" without as much resolution as we’d like, it’s easier to resolve, he said. Are there things we could do to be a stimulus to solve problems? Kreidler asked.
There is an understanding that we need a joint meeting prior to the 20th, Etchart said. We take your suggestion that you will arrange it as soon as possible, he told the customers.
Meeting Adjourned
Transition Board Members: John Etchart, Montana Governor’s Representative; Roy Hemmingway, Oregon Governor’s Representative; Mike Kreidler, Washington Governor’s Representative; Todd Maddock, Idaho Governor’s Representative. This meeting report is a service provided by the Northwest Power Planning Council, with financial assistance contributed by the Pacific Northwest Utilities Conference Committee (PNUCC).