A strawman proposal for stranded cost recovery took a number of hits at the Northwest Energy Review Transition Board meeting. Various interests also commented on the board’s progress report on developing a "Northwest chapter" of national restructuring legislation. All members were present, except Mike Kreidler, who participated by phone. The audience was about 40.

Next Meeting: May 14 in Portland.

• IS THE NORTHWEST CHAPTER MAKING PROGRESS? -- The Transition Board took comments on its "Progress Report on Development of the ‘Northwest Chapter’ of National Utility Restructuring Legislation." Paul Murphy representing the Pacific Northwest Aluminum Group said the stranded cost portion of the report "tees up" a new set of fundamental policy issues that go to the core of the role of BPA in the region’s energy market, including the question "is it appropriate for a federal agency to be manipulating power markets?" The report needs to address these issues, he stated. Maureen Carr of the Public Power Council (PPC) stated that the Congressional delegation should understand that the region has been working diligently since the Regional Review, and "we believe we are making significant progress." She said carrying out the Review’s recommendations is difficult because an underlying premise of the Review -- "an uncompetitive BPA" -- is dated, and today, there is a lot of interest in purchasing from BPA.

Jason Eisdorfer of the Oregon Citizens’ Utility Board raised a host of issues that he said may require federal legislation. His questions focused on whether access to the Federal Columbia River Power System for residential exchange customers of IOUs is really secure under subscription; the link between secure access to the BPA system and a stranded cost mechanism; and whether subscription will work with full retail access. Alfred Canada of Grants Pass, Oregon, said if BPA developed and integrated solar voltaic generation into its system, "a lot of this exercise to revise the statutes would be unnecessary." IOU Consultant Jim Litchfield said the report is inaccurate in saying the Transmission Work Group "abandoned" legislative separation and that the linkage between subscription and stranded costs "has been severed." The progress report should look ahead to a system where subscribers pay cost and understand there may be times when costs are above the market, he stated. Steve Weiss of the Northwest Energy Coalition said the residential exchange issue "could be the monkey wrench that stops subscription." He urged the report to talk about "backstop" legislation for public purposes. Ken Canon of the Industrial Customers of Northwest Utilities said the report should inform Congress there are "nuances for the Northwest system" that have to be kept in mind when others in the country are discussing restructuring. He urged the board to spell out principles in the report and indicate how they match up with the Regional Review’s recommendations.

• STAFF INTRODUCES A STRANDED COST ‘ORPHAN’ -- Staffer Dick Watson said the strawman proposal for BPA stranded cost recovery will "tee up a bunch of issues" and "tee off a bunch of people." Todd Maddock said the staff is courageous to "offer up this orphan to stimulate discussion."

Watson explained new forecasts of potential market prices and future fish and wildlife (F&W) cost scenarios. They indicate that with the base-case market price, all but one of the F&W scenarios would result in substantial present-value benefits for the system. While BPA has diminished cash flows, it’s looking quite good in relation to the market, he said. In the low market price situation, BPA would have to pass through some periods where its costs are higher than the market, Watson stated.

He explained the two-stage stranded cost proposal, noting that its trigger would be actual Treasury deferral. In Stage 1, if BPA rates are below market and costs are going up, subscriber rates would be adjusted to the lower of: the rate needed to recover the deferral in the succeeding year, or market. In Stage 2, costs not recovered in Stage 1 would be recovered through a transmission charge, limited to $100 million in any year, up to a total of $500 million over 15 years. Half of the charges would be recovered through a uniform surcharge (the "peanut butter approach") and half through a directed transmission charge levied by FERC in proportion to historic benefits from the system. Watson noted there is a "sharing the benefits" provision, wherein if BPA rates are below market, 40 percent of the difference would be collected from subscribers and used for accelerated repayment of federal debt. If major system configuration changes occur, the 40 percent would be a credit against power system responsibility for such costs, he said.

• NO ONE RUSHES TO ADOPT IT -- John Saven of Northwest Requirements Utilities said the strawman proposal is "built on premises that are not well founded," such as the notion there is long-term value in the federal system and that people are willing to make a long-term commitment. "Folks don’t think 20 years is in the playbook," he stated. Carr said the strawman proposal’s approach "makes subscription impossible." Litchfield warned the proposal starts "a dangerous debate" and that 40 percent is "a big hit" and wasn’t in the Regional Review. In Washington D.C., we met "uniform and heartfelt hostility to this idea," observed Transition Board chair John Etchart.

With respect to the transmission surcharge, you did it two ways -- peanut butter and historic benefits -- and both miss the mark, stated Canon. Weiss said his concern about the 40 percent is "the conditions for getting it back." It’s only for a limited use, and if we have to do things like flip lips, which are not dam modification, we can’t use it, he stated. _______________________________________________________________________

Please Note: This summary is based on detailed reports of the meetings of the Northwest Energy Review Transition Board. The reports are prepared by Resource Writers Northwest and distributed by the Northwest Power Planning Council. The Pacific Northwest Utilities Conference Committee (PNUCC) contributes financial support for these reports. To request a copy, please call the Council at 1-800-452-5161 and ask for Public Affairs.