Northwest Energy Review Transition Board |
John Etchart, Montana |
| 851 SW Sixth Av. Suite 1100 Portland, OR 97204-1348 |
Roy Hemmingway, Oregon |
| Phone 503-222-5161 or 1-800-452-5161 FAX 503-795-3370 |
Mike Kreidler, Washington |
| Todd Maddock, Idaho |
April 9, 1998
TO: Interested Parties
From: Transition Board
Subject: Draft of Progress Report on Development of the "Northwest Chapter" of National Utility Restructuring Legislation (TB 98-4) and Strawman Proposal on FERC Regulation of BPA (TB 98-5)
The Transition Board is compiling a progress report on the efforts in the region to implement the recommendations of the 1996 Comprehensive Review of the Northwest Energy System. This progress report will be provided to the congressional delegation of the four Northwest states, for their information as they participate in the discussions of national legislation to restructure the utility industry. We expect that part of that legislative effort will be a "Northwest Chapter" to deal with unique features of our region’s electricity system.
The Transition Board invites comment on the attached draft report (TB 98-4). Written comments will be accepted until close of business April 24, 1998, at the above address. Oral comments will be accepted at the Transition Board’s meeting at the offices of the Northwest Power Planning Council at the same address in Portland on April 23, 1998.
Transition Board staff have developed a strawman proposal for FERC regulation of BPA (TB 98-5), which is also attached. The Transition Board will take comments on this strawman proposal beginning with its meeting on April 23. The Transition board expects to continue to take comments and consult with interested parties on this topic, in the process of the development of a Transition Board proposal before July 1.
Among its other recommendations, the Comprehensive Review recommended that Bonneville be "legally separated into two organizations – a power marketing organization ... and a transmission organization." The Transition Board formed a Transmission Work Group to explore the issues and suggest the best path to legal separation of Bonneville into power marketing and transmission entities.
Since its formation in April 1997 the Transmission Work Group has examined various forms of separation. It considered such issues as legislative difficulties, perceived impacts on the security of WPPSS bonds, and assignment of Bonneville’s current treaty obligations. The group eventually decided that the most practical option is functional separation of Bonneville’s business lines with regulation by FERC that is "equivalent" to FERC’s regulation of investor-owned utilities (IOUs). The work group has found considerable agreement on what FERC’s regulation of Bonneville should look like, but has not reached consensus on all aspects. This strawman proposal by the Transition Board staff is intended to move discussion toward a proposal that all parties can support.
Two alternative legislative approaches to FERC regulation of Bonneville were discussed in the work group. One is based on Bonneville’s "organic" statutes [ These include the Bonneville Project Act of 1937, the Flood Control Act of 1944, the Regional Preference Act of 1964, the Federal Columbia River Transmission System Act of 1974, the Northwest Power Act of 1980 and others.] , with amendments to these statutes as appropriate to redefine FERC’s authority. The other approach is based on the Federal Power Act and FERC’s authority over investor-owned utilities, with appropriate modifications to reflect Bonneville’s special circumstances. While it should be possible to come to the same definition of FERC’s authority by either path, the work group could not come to agreement on which path to take.
The staff’s proposal starts with FERC’s authorities in sections 205, 206, 211, 212 and 213 of the Federal Power Act, with modifications for Bonneville. This choice does not imply we are convinced that it leads to a different definition of FERC’s authority than starting with Bonneville’s organic statutes. This approach, however, will make it easier to demonstrate to the rest of the country that Bonneville’s transmission system is subject to regulation that is fundamentally the same as for other transmission systems elsewhere. It also seems simpler to make an explicit list of modifications to the FPA than to comb through Bonneville’s organic statutes to find all the places where changes are necessary. Finally, it is more consistent with FERC final authority for FERC to be interpreting its own statute than Bonneville’s statutes, however modified.
Some have argued that there are, in addition to the sections listed above, other sections of the Federal Power Act that might reasonably apply to Bonneville. The staff suggests that a small (no more than 4 people) group of attorneys from the Transmission Work Group meet to see if they can agree on additional sections of the FPA that should apply to Bonneville.
1. Total cost recovery. Generally, FERC should apply the "just and reasonable" standard to Bonneville’s transmission rates. However, Bonneville has no stockholders to absorb losses, so FERC cannot disallow recovery of Bonneville costs already incurred.
2. Nothing in FERC’s regulation of Bonneville should adversely affect Bonneville’s priority of payments or the security of its third party debt.
3. Bonneville’s environmental obligations (e.g. to control nitrogen levels at hydro projects by generating to avoid spill) sometimes require access to transmission. To the maximum extent possible, the Power Business Line should obtain this access and pay for it through a normal open access transaction. In rare instances, open access transactions may be inadequate to assure access. In those rare instances, the PBL will require priority access, with equitable compensation determined by an after-the-fact mechanism.
4. Except to the extent that the FERC may be given authority over Bonneville’s stranded costs, there should be no expansion of FERC authority over Bonneville power costs.
5. Congress can override a FERC order to build transmission facilities.
6. Cost shifts among customers resulting from FPA compliance should be phased in over time.
7. The FERC should provide for efficient Federal and non-Federal system sales through billing based on point of delivery (as opposed to points of interconnection) and redispatchability.
8. The redefined authority of the FERC should apply only to transmission tariffs and other transmission matters proposed by the Administrator to be effective on or after October 1, 2001.
9. Bonneville should be permitted to join a FERC-regulated independent system operator.
The staff’s philosophy in constructing this strawman has been to concentrate the departures from usual FERC regulation in the guidelines for FERC decisions, rather than in the decision process. Most of the differences of FERC regulation of BPA, compared to its regulation of jurisdictional utilities, are in the explicit list of exceptions, above. The staff’s proposed process for FERC review of Bonneville transmission rates is intended to be identical to that followed for investor-owned utilities, except that hearings on Bonneville rates would be held in the Pacific Northwest. The result, hopefully, is a "clean" process that is familiar to FERC, with clear direction at those points where regulation of Bonneville is different than regulation of investor-owned utilities.
The following summarizes the existing Federal Power Act process for filing, approval and appeal of Bonneville transmission rates, with slight modification. We propose that this process apply in the absence of stranded costs:
1. Bonneville conducts a regional negotiation to gain a transmission rate settlement, if possible. As is the current practice, in its proceedings FERC would give substantial weight to settlements.
2. Bonneville files its transmission rate schedules with FERC.
3. FERC may accept or reject the filing, or order a hearing. Hearings are conducted by a FERC administrative law judge in the Pacific Northwest, and result in an initial decision by the ALJ.
4. FERC considers the ALJ’s initial decision and other information from interested parties, and issues its final decision on rates.
5. Bonneville (and other parties) can request a rehearing with FERC.
6. If FERC’s decision is unchanged by rehearing, Bonneville (and other parties) can appeal FERC’s decision to the Circuit Court of Appeals (Ninth Circuit or District of Columbia Circuit). The court reviews FERC’s order.
7. Given that Bonneville will be appealing another federal entity ruling, they should be allowed to provide their own legal representation.