RECOMMENDATIONS FOR FERC EQUIVALENT
REGULATION OF BPA TRANSMISSION
1) Provides meaningful increase in the role of FERC in reviewing BPA rates, terms and conditions to insure open access is achieved.
2) Ensures that evidentiary proceeding for transmission rates, terms and conditions remains accessible to Northwest customers, permits BPA and its customers to work out consensual solutions through settlement, and ensures that regional solutions to unique regional problems can be implemented.
3) Does not infringe upon or otherwise diminish BPA's existing statutory authorities to set rates at levels necessary to recover total system costs, including stranded costs.
| Strict FERC Equivalency: | Unless otherwise allowed under the just and reasonable standard, transmission rates would be required to be based exclusively on transmission costs as defined by the FERC Uniform System of Accounts. | |
| Recommended Standard for BPA: |
A. | BPA should be required to account for its costs (both expense and investments) pursuant to the FERC Uniform System of Accounts. |
| B. | BPA’s transmission rates would be established consistent with the just, reasonable, nondiscri minatory and nonpreferential standard, subject to satisfying the requirement that the combined power and transmission rates be set to recover total system costs and assure repayment of the U.S. Treasury over a reasonable number of years. Such a standard would permit costs from one function to be covered by the expected revenues of another function, on either a forecast or actual basis, but only when and if necessary to recover total system costs or assure repayment to the U.S. Treasury | |
| C. | In the event of a forecast or actual shortfall between costs and revenues, in either function, primary reliance should be on using all lines of credit, unused borrowing authority, cost reduction opportunities and repayment flexibility reasonably available to the function with the shortfall. | |
| D. | After exhausting all options available to the function with the shortfall, surpluses from the other function should be made available to the function with the shortfall. It has been suggested that this be done on repayable loan basis. Before such an approach is adopted, it should be determined whether the repayable loan will be considered an impairment of the security of the net billed debt. A similar issue arises regarding the reflection (if any) in future rates of past unanticipated revenue shortfalls or surpluses (see Issue 3). | |
| Strict FERC Equivalency: |
BPA's capital recovery would include only deprecation and interest. However, BPA would be provided a cash reserve (working capital) to account for variability between its costs and revenues. |
| Recommended Standard for BPA: |
For purposes of the capital recovery portion of its transmission rates, BPA should be permitted to utilize methodologies which it deems appropriate and which methodologies satisfy the just and reasonable standard. |
| Strict FERC Equivalency: |
Retroactive ratemaking is not permitted. |
| Recommended Standard for BPA: |
BPA transmission rates should be allowed to recover (or return) deficits (or surpluses) from the transmission function over a reasonable period of time. Further, a function which has relied on revenues or cash from the other function to cover a deficit should be allowed to recover such deficit in order to repay the other function. |
4. Does FERC have any role in determining the reasonableness
or prudency of BPA's expenditures so as to include or exclude them from
transmission rates?
| Strict FERC Equivalency: |
FERC would be required to approve recovery of past costs (including costs associated with historic commitments) but, FERC could disallow for rate purposes the costs associated with imprudent post-separation expenditures. (In effect, past expenditures are grandfathered.) |
| Recommended Standards for BPA: |
FERC would have the ability to exclude non-transmission costs from transmission rates, unless their inclusion was required to satisfy the recovery of total system costs standard. FERC would be able to determine the reasonableness of forecasted expenses and deficits. FERC decisions in these areas would be subject to the decisional standards set forth in Section 5 below. Because ratemaking is prospective in nature, FERC would have no reason to disallow expenses as opposed to judging the reasonableness of forecasted expenses. It is not necessary to give FERC any regulatory authority to determine if BPA's transmission investments are prudent, so long as such investments are subject to Congressional appropriations. |
Sub Issues:
A. How is the record developed?
B. On what substantive standards are rates based and judged?
C. What issues are appropriately part of rate-setting?
D. Who decides
- Policy Issues
- Issues of Law
- Issues of Fact
E. What deference is owed to BPA
- By FERC
- By courts on review
F. Procedural Issues
- Location of hearing
- Ex-parte rule
- Role of Hearing Officer
| Strict FERC Equivalency: | The 7(I) process would be eliminated, and BPA's proposed transmission rates would be approved or modified based on a just and reasonable standard as determined in an evidentiary proceeding before FERC in which BPA would have the burden of proof. FERC's decision would be reviewable by a U.S. Circuit Court (D.C. or Ninth Circuit) which would grant substantial deference to FERC decisions. | |
| Recommended Standard for BPA: |
A. | Record Development. BPA transmission rates should be established based on a record developed in an evidentiary proceeding conducted in the Northwest. |
| B. | Substantive Standards. As stated in Section 1(b), BPA's transmission rates must meet the just, reasonable, nondiscriminatory and nonpreferential standard, subject to satisfying the requirements that the combined power and transmission rates recover total system costs and assure repayment of the U.S. Treasury over a reasonable number of years. This standard would be applicable to decisions by the administrative law judge, the Administrator and FERC. | |
| C. | What Issues are Appropriate. All issues relevant to formulating transmission rates would be appropriate, including forecasts of expenses and deficits, rate design, terms and conditions and ancillary service rates and cost allocation. Fixed obligations flowing from historical decisions would not be appropriate issues for a rate case, but the means by which fixed obligations are managed would be appropriate for a rate case. | |
| D. | Who Decides. At the evidentiary level,
the administrative law judge would initially decide all issues of policy,
fact and law, and would render an initial decision containing findings and
conclusions dealing with all issues necessary to establish transmission
rates and terms and conditions which comply with the standard set forth in
Section 5(B) above.
The Administrator would review the initial decision of the administrative law judge, and would adopt those portions of the initial decision with which he/she agrees. The Administrator could modify the initial decision upon a finding that a preponderance of the evidence in the record supported a different decision. |
|
| E. | What Deference is Due BPA. BPA's
decision would be subject to FERC review based on the standard set out in
Section 1(B) above, which proceeding would be open to participation by
rate case parties. FERC would be able to invalidate a BPA decision if,
based upon the record developed below, FERC can find the decision of BPA
is clearly erroneous. Such a finding by FERC would result in a remand.
Court review would be in the Ninth or District of Columbia Circuit, at the election of the petitioner, and would be a review of the BPA decision. The standard of review would be arbitrary, capricious, unsupported by the record, not in accordance with law. |
|
| F. | Procedural Issues. BPA's transmission
rate hearing would be conducted in the Northwest before an administrative
law judge. Proceedings for Section 211 requests would be conducted as
determined by FERC.
Proceedings would be subject to the ex parte rule at the evidentiary level, on review by the Administrator and by FERC. As discussed in Section 5(D) above, the administrative law judge would have substantive decisional authority over issues of fact, law and policy, and would render an initial decision. The administrative law judge would need experience with transmission rate proceedings, and would be either a sitting or retired FERC administrative law judge. Following the Northwest hearing, transmission rates and supporting documentation would be filed at FERC under current procedures applicable to BPA. |
6. For what period are BPA's transmission rates valid?
| Strict FERC Equivalency: | FERC approves rates for an indefinite period, and it can investigate the continued reasonableness of existing rates on its own motion or in response to customer complaints. BPA can submit new rates at any time. |
| Recommended Standard for BPA: | BPA transmission rates should be approved for an indefinite period, subject to BPA's right to initiate a rate process to revise rates when it is deemed appropriate. BPA should be required to base its rates on a single-year test period. FERC should not have the authority to require the initiation of a rate process, or independently investigate BPA transmission rates. Upon customer complaint, FERC may require BPA to demonstrate the continued reasonableness of its rates. |
7. Does FERC have jurisdiction over a decision by BPA to
offer, modify, withdraw or discontinue any class of service?
| Strict FERC Equivalency: | Yes. |
| Proposed Standard for BPA: | Subject to the evidentiary and standards for review set forth in section 1(B) and 5(E) above, FERC would have jurisdiction over BPA decisions affecting offers, withdrawals or discontinuing any class of service. |
8. Does FERC have jurisdiction over BPA transmission
contracts?
| Strict FERC Equivalency: | BPA would file all transmission contracts with FERC and FERC would review contracts for reasonableness prior to the effective date and could modify rate terms in contracts in certain narrow circumstances (i.e. threatens financial viability of the utility). FERC also has the authority to interpret and resolve disputes arising from approved contracts. |
| Recommended Standard for BPA: | All new BPA transmission contracts should be
subject to full FERC review.
FERC should have no role reviewing or modifying existing transmission contracts. FERC should be available to interpret existing contracts to resolve disputes. |
9. On what criteria should FERC judge requests for access to
BPA's transmission system?
| Strict FERC Equivalency: | BPA would be subject to non-discriminatory comparable access with a preference for "native loads" in the event of competing requests over constrained paths. |
| Recommended Standard for BPA: | No position has been reached on this issue at this time. |
10. Should legislation remove any unique barriers to BPA
joining an ISO?
| Strict FERC Equivalency: | By definition, any barriers unique to BPA are inconsistent with equivalency. |
| Recommend Standard for BPA: | It is premature to attempt to remove any barriers to BPA participation unless and until the proposed ISO offers benefits to BPA's customers from BPA’s participation. |
11. What role should FERC have regarding BPA's participation
in an ISO?
| Strict FERC Equivalency: | FERC has broad authority over ISOs, but it is uncertain whether FERC can order participation in an ISO. |
| Recommended Standard for BPA: | FERC should have jurisdiction over ISOs. FERC should not have authority to require or prohibit BPA participation in an ISO. |
12. How should BPA recover stranded costs from bundled power
customers that become transmission only customers?
| Strict FERC Equivalency: | Unless otherwise covered by contract, BPA would only recover legitimate, verifiable and prudent costs previously incurred with the reasonable expectation of continuing service to specific customers through targeted charges to such individual customers. Stranded costs would be calculated as the difference between expected revenues from the reasonably expected sales and the market value of the power. |
| Recommended Standard for BPA: | This issue regarding how to collect stranded costs is the subject of a separate proceeding. |
13. Would FERC policies regarding the collection of stranded
costs apply to BPA?
| Strict FERC Equivalency: | See the "Strict FERC Equivalency" portion of Section 12 above. |
| Recommended Standard for BPA: | FERC stranded cost recovery policies, as set forth in Orders 888 and 888A would not apply to BPA. Stranded cost collection by BPA would be as permitted under current statutes, subject to the evidentiary and review standards set out in Sections 1(B) and 5(E) above. |