| 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, March 19, 1998
Spokane Valley Doubletree Hotel, Spokane, Washington
Despite previous reports to the contrary, a Congressional staffer told the Northwest Energy Review Transition Board that it is unlikely national restructuring legislation will pass this year. The board continued to shape its work plan for developing a "Northwest chapter" for such legislation, when and if it does start to move, and various groups explained their proposals for stranded costs and other topics. All board members were present. The audience was about 30.
Next Meeting: April 9 in Portland.
HEADLINES_____________________________________________________________
ORDER OF BUSINESS____________________________________________________
Staffer Dick Watson said the Transition Board, at its last meeting, asked staff to prepare a work plan for developing a "Northwest chapter" for federal restructuring legislation that would have broad regional support and be ready for delivery by July 1, 1998. The board, he said, recognizes there is a chance of legislation moving in Congress this spring, but also that it is important there be a deliberative process if the chapter is to have broad support in the region. A draft of the work plan was sent out last week, and today we’ll take comment on it, Watson stated.
In April, the board plans to provide a "progress report" to the Congressional delegation discussing efforts and achievements to date on subscription, transmission regulation, stranded cost recovery, BPA cost control, future fish and wildlife (F&W) costs, and river governance, according to Watson. Some of these will be "good stories," and for some, we can’t provide much detail yet, he said. The intention is to give the delegation a concise summary of where the different parties are on these topics and to identify points at issue, Watson said. The target date for delivering the progress report is April 9, he stated.
The main part of the process for putting together a Northwest chapter will be the development of a "strawman" proposal by staff dealing with subscription, transmission regulation, and stranded costs, Watson explained. The staff proposal, stated as principles, not in bill language, will be presented to the Transition Board at its April 23 meeting, he said. Current work on assessing future market prices and BPA costs will feed into this, Watson pointed out. The board will take comment on the staff proposal and then direct staff to revise it into a "Transition Board strawman," he said. That will be the subject of hearings and consultations from mid-May to late June, and during that time, staff will try to develop actual statutory language, Watson continued. We are aiming to have final recommendations by June 25 and to deliver the legislative proposal to the governors by July 1, 1998, he said.
Rather than taking a month to come up with a draft, have you considered using the House delegation’s staff draft of legislation as the strawman proposal? asked Rob Walton of the Public Power Council (PPC). You could use that and save a month right off the bat, he suggested. We want to think about it more before we commit ourselves to that, Watson replied.
Consultant Al Wright said he promised the Subscription Work Group that he would bring two comments on the draft work plan to the board. First, they felt it was very important that the board carefully design the consultation process in April and May -- you should spend some time thinking about the design, he advised. Second, there was an interest in having the board define "what you think consensus is" before you get to July 1, according to Wright. You should invest some time in thinking about how much regional consensus is enough to say "we’ve got victory here," he suggested. What guidance do they offer on the consensus question? asked Transition Board chairman John Etchart. They didn’t, Wright replied. We tried to avoid using the word "consensus" in the draft work plan, Watson noted.
Would you clarify the scope of the staff’s strawman proposal? asked Walton. We don’t think river governance will be at a point that it can be addressed in the recommendations, said Watson. The cost review recommendations include legislative elements regarding BPA’s administrative flexibility, and one of the questions we have is whether electricity restructuring legislation is the appropriate vehicle for such items -- maybe they should be in appropriations language instead, he stated. And at this stage, we don’t think F&W funding will be addressed in the restructuring legislation, Watson said.
This Just In: The Chances Of A Bill This Year Are Low
Jeff Stier, staff for Congressman Peter DeFazio (D-Oregon), appeared via speakerphone to discuss the draft legislation put together by the House delegation staff. Etchart thanked the delegation staff for putting the draft together. It reflects a lot of work, and we are happy to have it, he said.
Stier reported that a number of members of the delegation had met that morning to discuss the draft and that the members are unanimous in their support for staff working with the Transition Board and other interests in the region to "move the ball forward." There is disagreement in the delegation on whether we want to be part of a national restructuring bill or not, and everyone agrees there will be no law this year, he said. Rep. Crapo (R-Idaho) said he doesn’t favor having a Northwest chapter in a restructuring bill, while Rep. White (R-Washington) feels strongly such legislation should contain a Northwest chapter, according to Stier. We’ll continue to discuss this, he added.
There is "far from unanimous" support in the delegation for a stranded cost mechanism, Stier indicated. Rep. Dicks (D-Washington) thinks any wires charge is undesirable, he said. Etchart asked about the range of stranded cost numbers being discussed. Rep. Furse (D-Oregon) is uneasy with the dollar limits on stranded cost recovery because they leave funding questions with respect to dam breaching unanswered, Stier said. DeFazio and Crapo agree there should be a federal share for salmon recovery costs, he continued. In the staff draft, we punted the question of cost allocation to Congress, Stier said, adding that if dam breaching is decided upon, Congress would have to deauthorize the dams.
Is Rep. Crapo alone in his sentiment on not being part of a national bill? asked Mike Kreidler. At today’s meeting, Crapo was the only one expressing strong reservations, replied Stier. Some members think if we are not represented, we face the chance of hostile amendments, and that it’s better to have a proposal of our own, he said. If you were a proponent of having a Northwest chapter, how strongly would you push a restructuring bill? asked Kreidler. If there were a federal mandate for retail access in a national bill that included a Northwest chapter, Rep. DeFazio would vote against it, replied Stier.
What is the justification for your approach to the stranded cost triggering mechanism in your draft? asked Todd Maddock. We are being restrictive, replied Stier. In an earlier draft, we had a prospective mechanism, but in the latest draft, we chose to say only that stranded cost recovery would trigger in the year following an actual deferral, he noted. How do you see the relationship between the BPA Administrator and the Federal Energy Regulatory Commission (lFERC) playing out in setting transmission rates? asked Maddock. The staff intends to sit down with other folks next week and work through the regulation issues, responded Stier. The approach in this draft is that the Administrator would propose rates to FERC, and FERC would review and approve, or remand them to the Administrator, he said.
Is there support in the delegation for that? asked Watson. There’s general agreement on what we have -- the issue is, will we create a "parallel universe" for BPA to mirror Federal Power Act requirements, or put BPA under the Federal Power Act directly, with some special provisions, Stier said. In this draft, we favor the parallel universe approach, he stated. Stier added there is a need to discuss the BPA transmission regulation issues with the DSIs, who have now come out with a proposal.
Am I correct that the stranded cost mechanism would recover costs entirely through a transmission charge -- there would not be a meters charge or any other mechanism? asked Roy Hemmingway. Yes, answered Stier. So an entity could bypass the federal transmission system and thus bypass the charges? asked Hemmingway. Yes, replied Stier. You didn’t put in any guidance to BPA or FERC on how to develop those charges? inquired Hemmingway. That’s the "toughest nut" -- who pays, replied Stier. It’s the biggest equity problem, he added. The DSIs have protection against stranded cost charges in their power sales contracts, Stier stated. The proposal implies everyone in the region would share stranded costs, but it’s difficult if you can’t target the charge without exempting the DSIs, he stated. We dodged the issue in the draft, Stier said.
What are your thoughts on the possibility of action occurring this year? asked Maddock. The members today agreed unanimously that there won’t be national restructuring legislation passed this year, Stier responded. There might be committee action, and possibly something could get to the floor, he said. As for PUHCA (Public Utility Holding Company Act) reform, I have heard that Senator Gorton (R-Washington) is preparing some Northwest amendments, Stier said. "If I was handicapping any law passing this year, I’d say the chances are pretty low," he stated. But the members of the delegation do want to be represented in all the processes, Stier continued, noting that the Northeast/Midwest Coalition is pursuing market rates for the power marketing administrations, which "could play havoc with BPA." There is other legislation "floating around out there," he added.
Have you seen our schedule for the Northwest chapter? asked Etchart. It sounds great, replied Stier, noting that he would be in Portland in April, and that if any Transition Board people are coming to Washington, D.C., he would be happy to set up meetings for them.
With the low probability of significant action in 1998, how about 1999? asked Kreidler. If the region develops something that is carried by the delegation, that creates a benchmark and a starting point for the following year, answered Stier. If we haven’t established a track record for a Northwest chapter in 1998, it will be harder to come back in 1999 and say, here’s a Northwest chapter, said Kreidler. One of the biggest benefits of the "sound and fury," or rather, "the smoke and fizzle" in the Northwest energy caucus is that we’ve made a visible effort to put our own house in order, stated Stier. All the members of the delegation believe it’s been a worthwhile effort that we need to continue, whether or not there is a law this year, because we’ll need it sometime in the future, he said.
When will the Administration release its restructuring proposal? asked Kreidler. They will release something "in fairly short order," replied Stier. Before the end of this month? asked Kreidler. It’s possible, said Stier.
What will you do with your staff draft? asked Wright. It is a point from which to commence discussion -- we’ll work with the region and interests in Washington, D.C. to see what we need to do, Stier replied. You won’t see any new drafts of it for a month or month and a half, he stated. Some members may start working on their own bills, but there’s a strong sense in the delegation that we need to work together, Stier said.
How does your non-legislative forecast dovetail with Elizabeth Moler’s statement there will be no subscription without a stranded cost recovery mechanism? inquired Steve Weiss of the Northwest Energy Coalition (NWEC). I don’t know, replied Stier. BPA can start working on contracts this summer, and I don’t know how DOE will feel about that, he said. There will need to be oversight to make sure BPA doesn’t do anything in the contracts that precludes future options for Congress -- we’re concerned about that, Stier stated.
We are interested in hearing from the Transition Board in writing on our draft, Stier stated. We hope you will continue your process and that we’ll "cross-fertilize" as we work our way through this, he added.
Different Strokes for Different Folks
Watson kicked off a series of presentations on stranded costs and legislative proposals by noting that the PPC Executive Committee had approved a piece of draft legislation.
The PPC Approach
Walton explained that the PPC decided it needed to come up with some proposed legislation, rather than "create a vacuum" in the Northwest. PPC’s proposal establishes enhanced FERC oversight of BPA’s transmission, he said. It provides for nondiscriminatory access to transmission services provided by BPA; "additional authorities to BPA to meet its unique financial obligations and remain a competitive wholesale supplier of electricity"; and "adequate separation of BPA’s transmission and power marketing functions," Walton said. This is "a centrist approach" to the problems, he stated. The House staff’s draft proposal has picked up on a lot of these measures, and we’re pleased with that, Walton added.
How much support in the PPC do you have for this? asked Kreidler. It was adopted by the Executive Committee, and it is PPC’s position, responded Walton. There are some different perspectives on different issues, but this represents a compromise within PPC, he stated.
The Transmission Work Group has discussed the decisionmaking process for adopting transmission rates and how FERC’s authority fits into that, as well as FERC’s role in establishing a stranded cost mechanism, said Watson. How do you see decisionmaking proceeding from the region to FERC and back? he asked. Under our proposal, there would be a decision on transmission rates by an administrative law judge (ALJ), and the BPA Administrator could adopt or modify that decision, which then would go to FERC, replied Walton. FERC can approve, or reject and remand the rates submitted by the Administrator, and court challenges would be based on FERC authority, he said.
What is the effect of the FERC remand to the Administrator? asked Watson. I’m not sure I can give a detailed answer, but our draft establishes an additional level of FERC oversight over BPA for transmission rates, replied Walton. You’re right that this is an issue to highlight, he added.
With respect to stranded costs, under our proposal, there would be a uniform charge on all users of the federal transmission system, Walton explained. We want the legislation to affirmatively establish the BPA Administrator’s authority to impose a transmission charge and not have it punted to FERC, he stated. You should also highlight this issue, said Walton.
Does the Administrator or the ALJ make the wires charge decision in your proposal? asked Kreidler. It would be made by the Administrator, subject to FERC review, replied Walton. Maddock asked Walton about the triggering mechanism. We suggest it be in the event BPA is unable to make its entire payment to Treasury, said Walton. The PPC proposal states that "the Administrator may impose the transition charge for one fiscal year in any fiscal year immediately following a fiscal year in which BPA failed to make all or any portion of forecast payments of interest or amortization to the U.S. Treasury." You should highlight this issue too, Walton advised.
Etchart asked Walton to explain the language stating that "prior to imposing any transition charge, the Administrator shall take all reasonable steps to minimize and reduce such transition charge." The intent is to make it difficult to impose the mechanism, replied Walton. BPA has to take reasonable steps, rather than automatically adding a surcharge onto rates, he added.
In response to a question from Kreidler, Walton stated that the proposal would add a layer of FERC oversight over BPA for transmission rates. We have a centrist position, he reiterated, in which FERC would have limited oversight. It is different from others’ positions, some of which, Walton said, would transfer authority for rates to the other side of the country. Lawsuits, he added, would be based on what FERC decides, not BPA.
You should note that our transition cost numbers are different from what is in the House staff draft, Walton said. Another issue to be highlighted involves "what number to pick," he suggested. Our draft says a limit of $50 million a year over 10 years for a maximum of $400 million, while the House draft says $100 million a year over a 15-year period for a total of $600 million, Walton pointed out. He concluded by stating that the public power community wants to work with the board as it prepares its recommendations.
NWEC-SOWS Joint Proposal
Weiss of the NWEC and Jim Baker of the Sierra Club presented a joint NWEC-Save Our Wild Salmon (SOWS) Coalition proposal for an "emergency cost recovery mechanism," and comments on the House delegation’s staff draft. We think that BPA has a stranded cost recovery mechanism now -- it’s the ability to move power costs onto the transmission system, said Weiss. We want to make sure if we trade that for something else, that the something else is better, not weaker, he stated. If we can’t come to agreement on a new stranded cost mechanism, our position is we should keep the old one, Weiss said. The NWEC-SOWS proposal states that "the BPA Administrator shall be responsible for developing the emergency cost recovery methodology and allocation process" and that FERC will issue rules to govern and oversee implementation of the methodology and minimize bypass.
We think the BPA Administrator should develop the methodology and FERC should oversee it, rather than having FERC develop it, Weiss stated. This is not "a drop-dead position" for us, he explained. There are some good arguments that it should go to FERC, Weiss said. Some members of our coalition like the position in the proposal and some don’t, but we felt we had to pick a position, he stated.
Weiss pointed out that their proposal calls for initiating the charge in the year following "a decline in BPA reserves below $ ____ million." We are leery of the PPC position that says the charge would be imposed when BPA actually misses a payment, he said. We left a blank for the reserves number -- we’d like to talk to BPA about it, Weiss stated.
The proposal includes a provision which says that a charge would be initiated "in any year of a 10-year forecast where there is less than a ___ percent probability of meeting Treasury payments." Weiss called this a "forecasted charge," which could be imposed if a forecast indicates that an action like a major dam modification would cause stranded costs. While BPA plans for normal risks, this would be for the big issue you see coming 10 years in advance -- you need to collect the money ahead of time "to smooth the bump," he explained. Such a charge would be initiated after Congress acts, Weiss said. So you would wait for Congress to make a decision, for example, to take out dams in a certain year? asked Kreidler. Yes, we’d start collecting the day Congress says we will do it, Weiss replied. We would do a forecast of market prices, and if we see we won’t have the money needed to carry out the action, then we’d start collecting, he said.
The NWEC-SOWS proposal also states that there will be "an arrangement between federal parties concerning a budget for the Administrator’s financial responsibilities to F&W" and "a substantive river governance plan agreed to and in place," and that the charge (or charges) would be implemented based on these agreements. Weiss said their proposal calls for a total recovery of $200 million in any one year. This figure, he noted, is consistent with BPA’s transmission bypass study, but is just "a placeholder" until additional cost projections are completed. Weiss indicated that their proposal took out the $600 million lifetime cap on the charges, but stayed with the 15-year duration provided for in the House staff draft.
Weiss pointed out a provision in their proposal which he called "a sharing of benefits." In years when there is a positive difference between BPA’s costs and the market price, the difference would be shared between fish and public purpose measures and lower customer bills, and "the non-customer portion may be accumulated for future forecasted revenue shortfalls," he explained. Given that BPA has had to drop funding for public purposes and F&W in recent years, if there are good years, we expect a sharing of the benefits, Weiss said, adding that "we’ve tossed around a 50 percent figure." This "isn’t just a grab for money," he continued. Politically, we think it would be unsustainable to have subscribers paying below market when the region has to kick in a stranded cost mechanism that would be paid by people who are non-subscribers, he said.
Hemmingway asked about the circumstances for levying a stranded cost mechanism when costs are below market. Weiss suggested that an index-type rate could be used. Would the benefit-sharing money accumulate in addition to the $200 million cap? asked Etchart. We assume the accumulated funds would be held in reserve separate from other BPA funds, replied Weiss. The money "would be squirreled away," and if it is never needed, it could be used as prepayment of Treasury debt, he stated.
Weiss said their proposal includes a provision for "federal backup for funding conservation, low income energy services, and environmentally responsible renewable resources," and he noted that the Regional Review called for such a backup mechanism. The two options proposed for this, he said, are: 1) set an annual transmission charge for access to the BPA transmission system for all in-region users; or 2) require utilities and DSIs to demonstrate public purpose spending at 3 percent of retail revenues as a condition of eligibility for BPA’s subscription contracts.
Weiss also described a provision for a "non-federal dam decommissioning fund." We’ve talked with our national colleagues about this, and we think the issue of decommissioning dams should be handled like nuclear plants, he said. The NWEC-SOWS proposal suggests non-federal dam owners would contribute to a national dam decommissioning fund "through payment of a fee by all electric utilities and power sellers with hydroelectric facilities in their power portfolios."
Baker said the NWEC-SOWS proposal reflects our concern that there be a strong salmon recovery in the Columbia River Basin and that there be strong funding for it. If you want us to buy into any regional consensus, that’s what there needs to be, he stated. At a minimum, we want the option kept open to include river governance and salmon recovery in the Northwest chapter, Baker said. The best way to proceed for river governance is through the Three Sovereigns, he indicated.
Baker noted that the joint proposal calls for the Northwest chapter to: reaffirm legal and treaty obligations to restore fishable populations of wild Columbia and Snake River salmon and steelhead; establish a single federal, state, and tribal governance body with binding dispute resolution to restore salmon and steelhead and make joint decisions on Columbia/Snake River management; develop, by 1999, and implement a unified federal/state/tribal restoration plan "to re-express more natural river-like conditions"; secure stable funding for such a plan; and ensure scientific and fiscal accountability and oversight in implementation of the plan. Don’t these provisions envision near-term legislation? asked Wright. I’m not sure that’s true -- it depends on what the Three Sovereigns come up with, replied Baker.
Six Aluminum Companies’ Proposal
Michael Early presented "a legislative package for BPA" on behalf of six aluminum companies: Alcoa, Goldendale, Kaiser, Intalco, Northwest Aluminum, and Reynolds. He said his handout attempts to define the problem the legislative package is intended to address. Studies in the region have shown that BPA’s customers in the long term and over the average will see lower than expected market prices, Early stated. "Customers in the Pacific Northwest are fortunate because BPA has no stranded costs," and "the average value of the annual federal power output exceeds, over time, the full cost of the federal power system (including repayment of debt to Treasury and WPPSS)," according to Early’s handout. At most, it states, the region "must address the potential that BPA may experience short-term cost overruns and temporary cash flow problems, particularly if BPA does not manage its costs efficiently." We think the legislation should address these actual needs, Early said.
Like the proposal presented by the Industrial Customers of Northwest Utilities at a previous meeting, this proposal says the legislation should give regional customers the option, through the subscription process, to choose cost-based rates or to rely on markets, he explained. In addition, it should assure cost-based transmission rates for all customers; allow BPA and regional customers to share market risks for their mutual benefit; and assure that BPA is "motivated and empowered to manage and control its costs," according to the handout.
The legislative package calls for amending BPA’s rate directives "to allow for contracts with mutually beneficial sharing of risks between BPA and customers while assuring that the costs of federal power will be recovered from power customers on cost-based contracts over the life of such contracts." The idea, according to Early, is to let BPA compete more effectively by offering products utilities are willing to buy. Risk-sharing contracts must provide that BPA be required to recover any cash shortfall as soon as market conditions permit, and that any payment to Treasury delayed for any reason should bear interest at market rates, according to the proposal.
Other elements of the aluminum companies’ package include: providing customers that sign cost-based contracts the priority right to renew them when they expire; authorizing BPA to sell power, not purchased at cost-based rates by regional customers, at market prices and other terms (subject to priority access for regional customers) that are in the best interest of the Treasury; increasing FERC oversight of BPA transmission; and prohibiting BPA from charging "stranded cost fees," "wire charges," or "any other transmission taxes," or "from using its monopoly power over transmission to subsidize power sales or distort power markets."
If BPA experiences a period where its costs are above market, would that show up as a Treasury deferral? asked Watson. We say those deferrals should be treated separately -- they would accrue interest at market-based rates and be repaid as soon as market conditions allow, Early said. Are those the obligations of BPA or customers? asked Watson. The proposal says the arrangement would be pursuant to a long-term contract and the expectation is that those costs would be recovered, replied Early. In defining the short-term problem, are you considering only the first subscription period? asked Etchart. No, Early replied, well beyond the first five-year period, and including the post-2012 period when the Supply System costs start to go away.
Could you elaborate on FERC oversight with respect to this? asked Kreidler. The words in the description were chosen carefully -- it’s not "equivalent FERC jurisdiction," and it’s not "regulate BPA as an IOU," responded Early. Beyond that, I don’t have the authority to say, he added. "Is this handout it," or is there a more elaborated version? asked Hemmingway. We expect to bring more information forward shortly, Early said. FERC oversight isn’t that important because you propose to prohibit a wires charge? asked Kreidler. BPA’s authority to impose a wires charge is disputed, replied Early. If there were legislation saying treat BPA as an IOU, we’d factor that into our position on FERC oversight, he stated.
IOU Proposal
Consultant Jim Litchfield handed out an "IOU Proposal for Implementing the Regional Review’s Recommendations for BPA’s Transmission." He noted that the key issues and principles underlying the IOUs’ legislative proposal have been discussed previously before the board.
It’s become apparent that many of the recommendations of the Regional Review are not remembered, and it’s important to go back and look at them, commented Litchfield. He listed four of the Review’s recommendations: a BPA transmission system whose structure and operation ensure a fully competitive regional power market; full and legal separation of power marketing and transmission functions; legislation to subject BPA’s transmission to FERC regulation equivalent to FERC regulation of IOUs; and meeting all of BPA’s financial obligations.
Litchfield went over the transmission principles underlying the IOUs’ proposal. The first principle is that "the legislation must create clear standards and authorities for FERC’s regulation of BPA’s transmission system that are `equivalent’ to IOUs." FERC should be responsible for regulating BPA’s transmission with respect to rates, open access, and separation of transmission and power marketing functions, Litchfield said. Exceptions should only address BPA’s "unique institutional characteristics and structure," he stated. For example, FERC can levy a fine on IOUs, but fines for BPA are not meaningful because they just show up in the next rate case, Litchfield said. Also, because BPA does not have shareholders and must repay Treasury, FERC will need to be involved in reviewing and approving new BPA investments, such as new transmission facilities, he stated. Another special characteristic is the fact BPA has a single fund and that both transmission and power feed revenues into it, Litchfield said. This raises issues such as the need for interfunctional loans to be formalized, he stated.
Litchfield said the IOUs’ principles differ from what PPC is proposing and that "we should pay attention to the differences." The IOU proposal says, for there to be equivalent regulation, FERC must be the "decisionmaker," using the standards and directions in the Federal Power Act. Litchfield described a decisionmaking process which would start with BPA submitting an initial rate proposal to FERC and end with FERC ordering BPA’s transmission rates, terms, and conditions under the Federal Power Act. The IOUs think the other approaches leave uncertainties that the courts would have to deal with, so the IOUs say BPA should fall under the provisions of the Federal Power Act and that BPA’s other statutes must conform to that regulatory framework, he said. The IOU proposal also states that federal power "would no longer enjoy priority access to BPA’s transmission system"; that FERC would adopt rules to functionally separate BPA’s generation and transmission; and that interfunctional loans would be permitted, but would not change the revenue requirement for ratemaking purposes.
As for stranded costs, the IOU proposal says: "the potential for future costs in excess of BPA’s subscription cost-based rate should be addressed through traditional risk mitigation and cost-adjustment-recovery mechanisms in the power rate case and in subscription contracts"; and that "the Northwest chapter should authorize FERC to establish a mechanism for transition cost recovery that is consistent for both BPA and jurisdictional utilities." It’s difficult to come up with "one size fits all" for stranded costs because the facts may be different in different cases, Litchfield said. It makes no sense to tax transmission to support a below-cost sale, he stated, citing the example Weiss gave of imposing a transmission charge regionwide while BPA’s costs are below market. A rational decisionmaker would do one thing in that case and would take a different approach if BPA’s costs were above the market, said Litchfield.
We’ve talked about "how to find the guilty parties" -- to decide who pays, and we’ve talked about historical beneficiaries and future beneficiaries, he continued. You need someone that is independent to address BPA’s cash flow problem, Litchfield said. This is a plea that if such problems occur, we find a decisionmaker that can rationally address the problems and try to fix them, he stated.
What’s the trigger in your proposal? asked Kreidler. FERC wouldn’t deal with day-to-day operations at BPA, replied Litchfield. The legislation would define what constitutes "a significant problem" -- it would probably be "some financial disaster definition," he said. You refer to the Regional Review’s recommendation for separation, but separation "seems fuzzier" in some of the points you raise, said Kreidler. We’ve all agreed full legislative separation is "a bridge too far," responded Litchfield. Given where we are and our political clout, the substitute is to put all our energy into equivalent FERC regulation, he said. If we can do that, that’s good enough for now, Litchfield concluded.
Once More, with Feeling: The Updates
Wright said the Subscription Work Group is continuing to delve into the implementation phase, working on pricing of products and services and what the contract arrangements should be. There are lots of unresolved questions, such as, what if you leave the system now and want to come back later, treatment of the regional exchange, and under what circumstances can you sell subscription power if you lose customers, he stated. The answers to such questions may be different if you have an oversubscription or an undersubscription, Wright observed.
We are now about to take the subscription concept into a 7(i) ratemaking process, he continued. In the next 30 to 60 days, we will identify a whole new set of issues with respect to how the 7(i) process fits in with subscription, said Wright.
The issues for the Transmission Work Group boil down into four categories, said Wright. The first is the decisionmaking process with respect to FERC oversight, he explained. The options are to have FERC as the decisionmaker and BPA as the "editorial commenter," or to maintain somewhat of the status quo, with the Administrator issuing a Record of Decision, FERC commenting on it, and having the courts rule on the Administrator’s decision, Wright said. Either can be made to work, and there have been some attempts to find a hybrid approach between the two, he stated. There is a consensus that we should do it one way or the other -- we should identify the decisionmaker and the standards under which the courts deal with the decision, and we should not try to do something that is "semi-FERC, semi-BPA Administrator," Wright stated.
The second category is standards for ratesetting, and the options are a total cost-recovery directive versus the "just and reasonable" standards that FERC imposes on IOUs, said Wright. The third category involves legal approaches, he stated. One option is to take the Federal Power Act as it is and make a list of "carveouts" because BPA doesn’t fit the Federal Power Act mold, an approach the IOUs prefer -- the other is to take BPA’s statutes and insert Federal Power Act provisions into them, which is the PPC’s general approach, said Wright.
In the fourth category, you take the first three categories and apply them to functionalized transmission costs and total recovery of transmission costs, he continued. Then you wall them off and discuss a surcharge for non-transmission recovery of costs, Wright stated. We have a consensus that there needs to be a trigger mechanism for stranded costs and probably that FERC would make that assessment, Wright stated. The amount to be collected varies from zero to $100 million a year for 15 years, he noted. Everyone agrees that you don’t mix transmission standards and terms with this other mechanism, Wright said. If you are going to use it, you should use it clearly as a surcharge, he added.
Final Comments
Jim Stromberg of Columbia Falls Aluminum, in brief comments on the draft work plan for the Northwest chapter, said it would be helpful if the Transition Board would articulate clearly what the problems are, what the "non-problems" are, and what the positions of the various parties are on them. I think we have several non-problems being discussed that people are trying to devise solutions for, he stated. Stromberg cited FERC equivalency as an example, stating, I don’t think there’s a problem with rate design. He asked the board to try to identify these kinds of issues.
At the next meeting, we’ll talk more about the progress report to Congress and begin discussing transmission and subscription issues for the strawman proposal, said Etchart.
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).