The Northwest Energy Review Transition Board wrestled with transition cost issues and heard presentations on BPA’s transmission surcharge study, IndeGO, and FERC-equivalent regulation of BPA transmission. All members were present except Roy Hemmingway, who participated by telephone. The audience was about 35.

Next Meeting: December 18 in Portland.

HEADLINES______________________________________________________________

What Would A BPA Transmission Surcharge Look Like?............................................p. 1

IndeGO Proposal Is Going Public.....................................................................................p. 3

Transmission, Subscription, and Cost Review Updates..................................................p. 4

The IOUs’ Twelve Steps to FERC-Equivalent Regulation.............................................p. 5

The PPC Responds.............................................................................................................p. 7

Quo Vadis Transition Costs and Transition Board?......................................................p.10

ORDER OF BUSINESS_____________________________________________________

Chairman John Etchart opened the meeting by noting the availability of an exchange of letters between the Transition Board and NMFS regional administrator Will Stelle on major hydro system decisions NMFS is considering in 1999. Etchart’s October 10 letter asks for information on "changes in configuration or operation that would result in significantly larger direct costs to the hydroelectric system or significant changes in the power production capability of the system." Stelle’s reply (October 29) notes that the alternatives under consideration range from the status quo to removal of five dams. It indicates NMFS will coordinate closely with the Transition Board and will endeavor "to frame a set of options for addressing the hydropower system and develop a schedule by which those options might be implemented."

What Would A BPA Transmission Surcharge Look Like?

Brian Silverstein of BPA presented the results of a study, done at the request of the Transition Board, which examined potential additional revenues from, and impacts of a transmission surcharge. BPA has not determined that a surcharge is necessary or appropriate, he noted. Even though BPA believes it will recover its costs, the agency thinks it is prudent to develop a cost-recovery mechanism in the event it is needed, Silverstein said.

The study found that some BPA customers have no practical near-term alternative to BPA transmission and would be subject to a substantial surcharge, he continued. About 20 percent of BPA’s existing transmission load could avoid a surcharge by leaving the grid, Silverstein stated. Because of customers’ varying abilities to bypass, significant equity concerns must be addressed, he said. The study found that a small surcharge, or one imposed for a short period of time, would not trigger significant bypass and would spread the charge across a larger group of customers, Silverstein added.

There is the potential for up to $200 million per year in additional revenues from a surcharge, according to Silverstein. The incentive to bypass is driven by the amount of the surcharge and the length of time customers expect the surcharge to be imposed, he explained. Approaches for avoiding the surcharge include: switching to existing unused nonfederal transmission; switching suppliers; constructing new transmission or new load-area generation; or reducing loads through demand-side management, fuel switching, or relocation, Silverstein said.

East Side, West Side Differences

With respect to geographic impact, a small surcharge would hit the region about in proportion to how loads are distributed east and west of the Cascades, noted Silverstein. In the case of a large surcharge, most of the opportunities to escape the surcharge are on the east side, he said. What’s a "small surcharge?" asked Mike Kreidler. One-quarter to half a mill, Silverstein replied. He also pointed out that the surcharge would hit loads roughly in proportion to the different classes of BPA customers.

If a surcharge of 1 mill were imposed for a year or two, the study indicates there would be limited bypass, Silverstein said. With a shorter duration, BPA would get more revenue, he added. If the surcharge extends five to 10 years, people would leave the system to the extent they can, Silverstein stated. If the surcharge were at 2.5-3 mills, it might be economic to build a cross-Cascades line to get off BPA, and people might begin to build generation, he noted.

Some customers have told us that 1-2 mills would cause people to bypass BPA -- that’s a dialogue that is under way, Silverstein said. He noted that Power Technologies Inc. of Schenectady, New York, had reviewed the methodology and findings of BPA’s study.

Are some customers saying you would force bypass at lower than 2 mills? asked Etchart. Yes, Silverstein indicated, depending on such variables as the cost of combustion turbines and the price of fuel. Kreidler noted that many people have asked for this information, and he thanked BPA for doing the study. It needs to be part of the equation, he said.

Asked to give an industry reaction to the study, Jim Reddy of Intalco Aluminum told the board that configuration of the units of new generation is an important consideration. We would look at building projects with smaller units, which are more efficient and competitive, he said. These units have lower capital costs and higher efficiency ratings than those used in the BPA study, Reddy said.

IndeGO Proposal Is Going Public

Bill Pascoe of Montana Power described the formation of IndeGO and noted that 21 participants have signed the Memorandum of Understanding (MOU). In the spring, we opened up to non-transmission owners, he noted. We will make our proposal available to the region on the IndeGO website next Wednesday, Pascoe said. We will also be holding a series of public meetings, he indicated.

Four technical workshops will be held: Dec. 2 in Salt Lake City, Dec. 3 in Denver, Dec. 9 in Portland, and Dec. 11 in Seattle, Pascoe said. At these, we’ll present the IndeGO documents, such as bylaws, tariff, and contracts, and be available for questions, he explained. Pascoe distributed a schedule for 12 public meetings to be held in January.

The purpose of these meetings is to get feedback from the public and to "begin funneling information into BPA’s process" so that people will be able to comment on whether BPA should participate in IndeGO, he said. This information will help BPA make its decision, he added. We will listen to public comments and "reshape the documents" to the extent it is appropriate after the public meetings, Pascoe said.

We will take written comment until early February, and at that time, we’ll be "at a go/no go point," according to Pascoe. If enough utilities want to go ahead, we would file with FERC at the end of March 1998, he said.

I’ve heard concerns from high-tech industries in Idaho about reliability, and they want to know how to engage early in the process, said Todd Maddock. We think IndeGO will provide better reliability, responded Pascoe. Since we opened to non-transmission owners, Micron has come to several meetings, he added. I think we’ve made progress in opening up the process, Pascoe stated.

What is the status of your negotiations? asked Kreidler. There are several issues being talked about, responded Pascoe. Cost shifting is one, he indicated, noting that IndeGO is adopting a price cap so that no one will see an increase of more than 2.5 percent per year in total transmission costs as a result of IndeGO participation. Another issue involves the costs and benefits of IndeGO participation, Pascoe said. The costs are not insignificant and are easy to calculate, while the benefits are harder to quantify, he stated. "It’s a challenge," Pascoe added. Presumably that was Washington Water Power’s trouble? asked Etchart. Water Power is still participating in the negotiations -- they haven’t "unsigned" the MOU, responded Pascoe. At this point, they are not comfortable that it is in their interest to proceed to the filing stage, he added.

Kreidler asked about BPA’s role in IndeGO and concerns about the duplication of facilities and staff. The issues of staffing and location are being discussed, replied Pascoe. Our current estimates show a net increase in staff when we compare reductions that would occur at the utilities to the number of staff needed to run IndeGO, he said. As for location, that decision should be made by the board after IndeGO is formed, Pascoe stated. BPA could donate or sell its control center, and it could propose to the board that it be the grid operator, he said.

Transmission, Subscription, and Cost Review Updates

Transmission. Consultant Al Wright explained that there were requests in October for the Transmission Work Group to suspend its activities while a customer group worked on the transition cost issue. We did suspend our work in October, and in November, we have tried to get the work group back up and running, he said. The group is now "trying to understand" BPA’s transmission surcharge study and the IOUs’ FERC-equivalency proposal, Wright reported. In December and January, we can get the group back up to speed and make progress on the FERC-equivalency issue, if the transition cost issue can be dealt with in some arena, he said. I hope we will have a transmission package to meet your January-February deadline, Wright concluded.

Subscription. Wright reported that the Subscription Work Group is discussing three issues:

1) Principles for defining subscription. Is subscription "a single word?" Are there layers of subscription? We’ve found that customers want different rights and privileges, Wright said.

2) Implementation of subscription.

3) Pricing. While we are talking subscription at cost, in reality, we are talking about contracts for subscription at a specific price based on assumed costs, he said.

The group has also discussed the slice of the system proposal, in which a customer would assume a percentage of system costs in exchange for a percentage of system output, Wright said. The Public Generating Pool and BPA are continuing to work on this idea, staffer Wally Gibson noted.

Wright said while the subscription process is "not on the same track" as transmission and stranded costs, if there is a Northwest legislative package in the spring, it would be wise to have it say something about the subscription process. In light of the fact there may be national legislation aimed at the power marketing administrations, mentioning subscription in the "Northwest chapter" could serve "as a shield" to keep BPA from getting caught up with the other PMAs, he stated.

Dick Adams of PNUCC said he wanted to underscore one of the principles laid out at the beginning of the Subscription Work Group effort. That was, he said, to do the job without requiring legislation. The implementation issues we are discussing now, such as what subscription rights are, are issues based in the statutes, Adams continued. Right now, we are still thinking, "no legislation," he reported. Adams pointed out that BPA will hold a meeting to inform the public about the status of the subscription effort and to get feedback on November 25 in Spokane.

Cost Review. Maddock reported that Monday’s meeting of the Cost Review Management Committee was "a watershed." We’ve begun to push to reach specific recommendations by January, he said. BPA management and staff have worked well with Council staff to look for significant reductions in cost, Maddock stated. The committee has made it clear that there need to be more sizable reductions so that BPA can test what its core functions are and evaluate where its future might lie, he said. The idea is for BPA not to just meet the market, but to beat the market, Maddock indicated.

Among the items the committee has suggested, according to Maddock, are: BPA needs to look at its overheads, and that a 50 percent reduction would not be unreasonable; BPA should look at its relationships with the Corps and Reclamation and try to provide incentives that would help provide better returns from the system; and BPA should review its non-core functions and see how quickly and far they can be reduced.

I’m encouraged, we’re making progress, said Maddock. The committee will look at another set of options at its December meeting and will make final recommendations in January, he said. I’ve been pleased with BPA’s participation, stated Kreidler. BPA has been there in good faith and is making a forthright effort on cost control, he said. Some things that BPA has been asked to bring back will likely be too draconian, Kreidler indicated. But I’m optimistic we’ll have some worthwhile recommendations, he added.

The IOUs’ Twelve Steps to FERC-Equivalent Regulation

Consultant Jim Litchfield described a 12-section proposal from the investor-owned utilities for "draft legislation to achieve equivalent FERC regulation of BPA transmission." He said that the IOUs began putting this together in mid-summer, but when they got the request from Senator Gorton, they felt the need to respond with a proposal. This isn’t "a take it or leave it," Litchfield said. We hope it’s a "straw proposal" -- we still want to work with the Transmission Work Group and others, he stated.

According to Litchfield, the proposal’s draft legislative goals are to: accomplish "equivalent" FERC regulation of BPA transmission and depart from "strict-equivalency" only where there is a compelling rationale; separate BPA’s transmission activities from its power marketing activities; give FERC the authority to regulate separation; ensure all BPA receipts are available to meet BPA’s financial obligations; and limit BPA’s sales to wholesale except for the DSIs that BPA has served historically.

How much of your effort is directed to BPA’s market power versus a transmission surcharge? asked Kreidler. Most of this addresses issues of market power, but one section deals with stranded costs, Litchfield replied.

The purpose of the legislation is to implement the Regional Review’s recommendations, stated Litchfield. We’re trying to remove barriers to BPA joining an independent system operator, if one is approved by FERC, he noted. Section 2 of the proposal calls for FERC to determine the degree of separation of BPA’s transmission and power sales. The "ultimate idea" is to subject BPA to the same degree of separation as currently applies to the IOUs, Litchfield said.

Section 3 deals with applying the "guts" of the Federal Power Act (FPA) to BPA, he explained. The essence of the section is to subject BPA to all FPA provisions that apply to public utilities, including "just and reasonable, non-discriminatory, and non-preferential requirements for rates, terms, and conditions," Litchfield said. BPA would be subject to FERC’s complaint and hearing proceedings, and interconnection requirements, he stated. FERC would have jurisdiction over BPA’s sales of surplus power and could tell BPA to grant transmission access, Litchfield continued. The section grandfathers existing transmission contracts, except for those with adjustable rate provisions, and "subjects BPA’s distribution facilities to FERC’s jurisdiction to avoid a potential regulatory gap," he said. There also is language encouraging BPA to get out of the business of owning and operating distribution facilities, Litchfield noted. Section 4 deals with accounting and cost allocation and says FERC would set BPA’s transmission rates following generally accepted ratemaking principles, he said.

Section 5 says that FERC would preapprove significant BPA transmission investments, Litchfield explained. The key thing in Section 6, Commission Proceedings and Judicial Review, he said, is to maintain regional control, so the section provides for informal consultations with customers prior to BPA submitting its rates to FERC. It requires BPA rate hearings to be held in the region and requires the courts to defer to FERC’s interpretation of the FPA and BPA’s organic statutes, Litchfield stated.

Section 7 identifies additional standards for transmission service. It is designed to prevent BPA "from anticompetitive actions, such as tying its transmission service to the purchase of federal power," according to Litchfield. The section gives FERC the ability to review BPA’s actions with respect to anticompetitive aspects, he noted. Section 8 would preclude BPA from entering into new electric power deals with retail customers other than existing DSIs, and new BPA power sales could only be made to wholesale purchasers that resell the power to others, Litchfield said. Industrial customers "don’t see this section positively," he noted, adding that "we’ll be talking with them about how to redraft it." Section 9 creates two accounts within the Bonneville fund, establishes a loan mechanism between accounts, and ensures contractual obligations to third parties are not impaired, Litchfield said.

Punting to FERC

Section 10, Stranded Cost Recovery, "came in at the last minute," Litchfield stated. The section says FERC is to adopt regulation providing for the recovery of any BPA stranded costs, and that BPA’s stranded cost method must be consistent with stranded cost policies for public utilities, he said. These recommendations are procedural, Litchfield explained. Since we are working on a regional solution to stranded costs, and it’s been "a difficult discussion," in lieu of not having a resolution, "this basically punts it to FERC," he stated. The section says that FERC must decide what type of environmental control costs could be included in stranded costs. Litchfield explained that BPA’s stranded costs are "not likely to be FERC-like costs, they are likely to be environmental costs."

Section 11 covers Commission regulations, and Section 12 repeals key sections of other statutes that are inconsistent with this proposal, Litchfield said. The "next steps," he noted, are to return to the Transmission Work Group and discuss the proposal with other customers and interest groups so that the BPA transition cost issue can be solved and equivalent FERC regulation achieved. We think this is a good "straw proposal," Litchfield said, adding, we tried to make it as fair as possible. We want to review it with everyone and help get to a proposal the region can make, he concluded.

Are you saying that the WPPSS debt is a potential stranded cost, but environmental costs are something else? asked Kreidler. In a hydro relicensing, FERC won’t entertain an IOU saying that it would like to put fish costs on the wires, replied Litchfield. FERC is deciding how to balance the competitive field of play when there are utilities with hydro problems and utilities with CO2 problems, he continued. This invites FERC to venture into how to recover environmental control costs -- "it’s a tough call," Litchfield acknowledged.

Are you nervous about FERC being the arbiter? asked Kreidler. No, I can’t predict what would happen, said Litchfield. The important issue is that there are a bunch of people competing in the market, and they are "all carrying baggage," he said. If you let some unload some of that baggage, they’ll get a competitive advantage unless you let everyone unload their baggage, Litchfield stated. You’re more uncomfortable with BPA than FERC, but you’re not sure about FERC? asked Kreidler. Yes, FERC is far enough away from the fight that it may be able to be objective, and it is also developing national standards on these issues, Litchfield responded.

I have some concerns about what you are saying about BPA’s selling or giving away distribution facilities, said Kreidler. Smaller utilities see some value-added from what the federal government brings to them with distribution facilities, replied Litchfield. We don’t, but there’s room to talk further about it, he said. A lot of larger utilities want to control their own facilities, and we think that’s a good way to go, Litchfield stated.

Is this an IOU-only proposal? asked Roy Hemmingway. It was presented to Senator Gorton with the support of the DSIs, answered Litchfield. We are talking about how to move it into the Transmission Work Group now, he added.

We thought the model was to try to work things out in the region without taking them back to Washington, D.C., said Hemmingway. This proposal doesn’t represent total regional input -- I hope you are serious about taking it back to the work group, he said. If we start to have an IOU proposal, a public power proposal, and a public generators’ proposal all floating around back in Washington, D.C., then someone in Missouri will be expecting to see a BPA proposal, Hemmingway stated. You should be cautious about seeing this as a proposal with a life of its own that represents one viewpoint that needs to be countered, he said. We need one Northwest proposal, Hemmingway stated.

Senator Gorton’s staff pushed us to respond, responded Litchfield. The IOUs are concerned about not abandoning the regional work that has been done, he added. We want to go back to the work group, and we’re serious about it, Litchfield said.

The PPC Responds

Jerry Leone, manager of the Public Power Council, said public power’s goal is to ensure BPA is fiscally sound into the future. We don’t have a joint customer consensus proposal to bring you, she reported. I’d like to summarize our differences with the IOU proposal just presented, Leone said.

The IOU proposal’s language, according to Leone, would strip BPA of the ability to move dollars between its transmission and power functions and would invite WPPSS security litigation and Treasury default. It would strip BPA of its ability to impose a wires charge of general applicability, she stated.

The IOU proposal would limit BPA’s stranded cost recovery to what’s permitted under FERC Order 888, Leone said. It would mean that no one would have to pay stranded costs to BPA, she stated. The DSI contracts have language that affords them stranded cost protection, according to Leone. The residential exchange subsidy to the IOUs is not a power purchase, she said. BPA has no expectation that public power will buy its power after 2001, and FERC Order 888 says without such a relationship, they wouldn’t have to pay stranded costs, Leone stated. The IOU proposal would cause BPA to lose the ability to recover its costs because "everybody has an out," she said.

Public power thinks that stranded costs and expanded FERC jurisdiction go together, Leone stated. The IOU proposal starts with the Federal Power Act and then brings in a few of BPA’s statutory requirements, she said. We do the reverse -- we start with targeted changes to BPA’s organic statutory requirements and then bring in a few FPA changes, Leone continued. She said that public power supports the following changes to BPA’s current laws:

-- FERC would ensure BPA’s costs are assigned to power and transmission, except when necessary to pay stranded costs as outlined in our proposal.

-- Subject to the Congressional budget process, FERC would have the authority to disapprove unreasonable costs in BPA’s transmission rates.

-- FERC would ensure that BPA’s transmission rates, terms, and conditions are not discriminatory.

-- FERC would have the authority to phase in or reject changes to rates that would cause significant cost shifts.

-- Transmission rate hearings would be conducted in the Northwest before an independent judge.

FERC Order 888 is not an appropriate starting point for developing a stranded cost-recovery mechanism; in fact, its use would exacerbate the problems, Leone said. A transition cost mechanism should be based on a wires charge calculated on a mills per kilowatt-hour basis and triggered by an actual shortfall, she said. The charge should be no more than 10 years and have an annual and cumulative cap, Leone stated.

The IOU proposal is an unacceptable starting point in any future discussions of the Transmission Work Group, she said. BPA is a regional institution, and the dams are regional assets, Leone stated. If they are in trouble, we should step up, she said. Public power will work with BPA and the delegation in fleshing out the proposal I’ve outlined, and if others want to join us, we welcome them, Leone said. The mechanism I’ve outlined ensures that all who have benefited will participate in the solution, she concluded.

We’re now in a new territory with separate proposals -- it’s a dangerous place to be, said Hemmingway. If we go down this path, we’ll lose control of our destiny, he cautioned.

It’s a risky proposition, agreed Kreidler. With polarized positions like this, we won’t have a united position, and that puts us in jeopardy, he said. Congress will act, and we need to identify our position or run the risk of not being able to define the Northwest issues, Kreidler said. The governor of Washington won’t sit by and allow this to fall apart, he stated. I encourage people to go to the Transmission Work Group and be more aggressive in trying to work out a position, Kreidler recommended. If we don’t, it will be done by someone else, he warned.

Other Voices, Other Proposals

I’m not as negative about this process as some, but I thought that the IOUs’ detailed response to Senator Gorton was ill-advised, said Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment. Everyone understands there are gaps among the interests that have to be closed, he said. The fact that the customers met behind closed doors and couldn’t reach closure is okay because the issue needs broader collaboration anyway, Duncan stated. We’re hopeful these discussions will "open up, not fly apart," he said.

I think there’s a lot of progress that can be made in the Transmission Work Group to figure out how to integrate BPA into the national grid and accomplish the functional separation that would assure self-dealing won’t be the outcome of the process, Duncan continued. An area of "reasonable disagreement," he suggested, involves the reasonableness of BPA’s budget and policy decisions. Who makes those decisions -- BPA or FERC? That’s a choice that has to be faced, Duncan said. The IOUs want to give FERC authority; other folks feel like access to the Administrator is important and that decisions ought to be kept nearer to home, he stated.

Steve Weiss of the Northwest Energy Coalition said, when we were asked about this by Senator Gorton, our comments were, we’re working with the Transition Board. We’ve held our people back from "running to Washington, D.C -- we think it’s dangerous," he said. We hope we can keep faith with the Regional Review, and we’ve tried to do that in our work with state legislatures, Weiss stated. Relying on FERC Order 888 would let too many slip out from under stranded costs he said, but he added "there is room in the IOU proposal." You can "tighten things up" to keep people from slipping out and bring the two proposals together, Weiss suggested. We have a proposal on the table that we think protects customers and the Treasury, and we’re willing to work with others on it, he said.

Ken Canon of the Industrial Customers of Northwest Utilities said that ICNU represents "the ultimate end-user." My members buy from the IOUs and the publics, he stated. The lack of consensus on this issue shows its magnitude and the challenge of restructuring the electricity industry, Canon said. Don’t jump to the conclusion that the alternatives are mutually exclusive, he advised. We would like to offer a "core/non-core alternative," Canon said.

Our alternative is premised on three things, according to Canon. These are: BPA has a cash flow problem; the Columbia River power system and BPA are directly controlled by the federal government; and the region needs to find a way to match post-2001 risk with post-2013 benefits, he explained. We propose that when we go to subscription, a customer can choose, as a one-time shot, whether to be "core" or "non-core," said Canon. Core customers would get the continued right to buy at cost forever, but would pay BPA’s costs in the near term, even if they are above market, he continued. There would also be an off-ramp with "force majeure" provisions, such as a major loss of hydro system capability, Canon noted. In 2001, non-core customers would go to market prices and give up the right to power at cost, but they would not have stranded costs, he said. If there’s a shortfall of power subscriptions, the federal government would come in and assume "core" status for the unsubscribed portion, Canon stated. The reward would be that they would be able to sell the power in the future when costs are below the market, he said.

There would also be "a safety net for net-billing" in the event of a revenue shortfall, according to Canon. This would involve a transmission surcharge on other than core customers, he said. You would have different accounting for core and non-core customers, Canon noted, similar to what regulatory commissions do with regulated and unregulated businesses. This proposal is an option for the region to consider that would "true up risks and rewards," he said. We will work with all the groups to resolve this issue, Canon added. I like the idea and look forward to seeing it put on paper, said Kreidler.

Does the safety net include missing a Treasury payment? asked Wright. The federal government would pick up the Treasury payment -- that would be the risk in the short term, Canon replied.

What About the Three Sovereigns?

Consultant Roy Sampsel reported on what a three sovereigns’ work group on transition costs has been doing. They met in June, and senior staff agreed to begin a process to deal with two issues: getting an outyear fish and wildlife budget and governance. Two months ago, it was suggested that it would be useful for the three sovereigns to deal with stranded costs, Sampsel explained. Since then, they have met on these issues and prepared an issue paper, which was reviewed with tribal leaders and staff in October, he indicated.

The group has put together draft principles on what stranded costs would have to deal with to have regional buy-in, Sampsel continued. Early in December, the group will meet again and then will release the principles to help begin a dialogue, he said. It’s critically important to have these issues debated and maintained in the region, Sampsel added.

Sampsel pointed out that earlier in the week a workshop on the Memorandum of Agreement for fish and wildlife had been held. We started a dialogue on questions that will allow you to deal with outyear costs in relation to subscription, he said. We are working to determine the agenda for future meetings and to find out what information needs to be developed, Sampsel said. These processes -- stranded costs, outyear costs, and governance -- are coming together, he stated. It would be useful if the Transition Board could arrange a dialogue with the three sovereigns’ senior staff and the Transition Board work groups so there will be less chance of misinformation, Sampsel suggested.

A proposal on how the governance issue might be approached will be released by the three sovereigns in early December, Sampsel said. The governors, the 13 tribes, and the Administration’s representatives will meet in mid-January or later to discuss these issues, he stated. This isn’t inconsistent with the schedule you have before you, Sampsel noted.

There’s a need for the tribes to have full access to what is taking place, said Kreidler. The commitment to a regional solution has been the glue to keep the three sovereigns process together, responded Sampsel. It’s appropriate that all the stranded cost proposals come together at some point, said Hemmingway. The governance discussions have been productive and have enough substance to move to a public discussion of the issues, he added.

Where are the three sovereigns’ stranded cost principles now? asked Etchart. The draft will come out after the December 2 meeting, Sampsel replied.

Quo Vadis Transition Costs and Transition Board?

We’ve waited to have a stranded cost proposal developed and blended, but we don’t have it, said Etchart. We’ve been patient to let the work groups deal with the issue, but we are not seeing that agreement coming forth, agreed Maddock. We have the obligation to try to bring some consensus on this, and we need to do it in a timely fashion, he said.

The challenge is to "move a shoebox of different ideas" to the delegation and the Administration, stated Kreidler. We need to make more progress and narrow the options, he said. We may need to do it with shuttle diplomacy or whatever it takes, because leaving it wide open is too uncertain, Kreidler said.

What’s the best approach from now on? asked Etchart. The notion we could reach a stranded cost proposal we could all agree on "seems like a couple of ice ages ago," commented Terry Mundorf of the Western Public Agencies Group. Given "the state of disrepair we’re all in now," I suggest you pick a day in December and say, we’ll have a meeting on stranded costs and see what proposals come to you, he said. That would give you a chance to see the range of alternatives and understand what ideas are in play, Mundorf continued. It may help you find out how much money is involved and help you to get to the narrowing down process, he said. After holding such a meeting, the Transition Board might be able to put together a straw proposal, suggested Kreidler. Sometimes straw proposals bring people together, and sometimes "like a thermonuclear device, they scatter people to the winds," responded Mundorf.

Instead of a straw proposal, maybe staff could work on a matrix of the proposals that have been made to date, suggested Duncan. The matrix could illuminate key issues and identify the positions of the different parties, said Maddock. It’s an excellent idea -- we could identify the areas of agreement and then concentrate on where there are differences, he stated.

There are two major things, said Weiss. There’s the question of "how much?" There’s a continuum that ranges from everything BPA could put into stranded costs to "not one buck more than the market will bear," he stated. The question is, where does the region have to be on the continuum to satisfy Congress? said Weiss. The other major item involves "who pays?" he indicated. That continuum ranges from everyone in the Northwest -- "the peanut butter approach" -- to the "you caused it, you pay" directed approach. The region has to find a point on that continuum as well, Weiss said. It will take political leadership, but if we could make decisions on those two continuums, we’d be 90 percent there, he stated.

We should involve the tribes, noted Duncan. Also, we may solve this issue within the region, but it will have to pass muster with the Treasury, and they’re not in the room, he said. We need everyone "under the same tent," including the three sovereigns process, stated Maddock.

The governors won’t take a proposal back to Washington, D.C. that doesn’t represent a regional consensus, cautioned Hemmingway. If some people are unhappy, it won’t work, he said. We’re here to forge a regional consensus; if not, then it’s everyone for themselves back in Washington, D.C., Hemmingway stated.

The Transition Board decided to devote its meeting on December 18 to the issue of stranded costs.

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).