| Thursday, February 13, 1997 | NORTHWEST ENERGY REVIEW |
NWPPC Conference Room, Portland, Oregon |
Next Meeting: March 13 in Spokane, Washington.
HEADLINES_______________________________________________________
Enter The Latest Work Plan, with a New F&W Section............p. 1
A Quintet Comments on the Draft...............................p. 4
Rob Walton of the Public Power Council
John Saven of Northwest Requirements Utilities
Steve Weiss of the Northwest Conservation Act Coalition
Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment
Plan Modified, Then Approved..................................p. 7
IndeGO: Getting Bigger and Moving Fast.......................p.11
OPENING REMARKS_____________________________________________
Transition Board chair John Etchart said the purpose of the meeting was to take comment on the work plan before forwarding it to the four governors as a draft. Mike Kreidler introduced Washington Governor Gary Locke's energy policy advisor, Marilyn Showalter.
ORDER OF BUSINESS________________________________________________
Enter The Latest Plan, with a New F&W Section
Staffer Dick Watson explained that at the previous meeting, the board asked staff to revise the fish and wildlife (F&W) and river governance sections of the draft work plan and do more work on the timelines. He noted that the Northwest Conservation Act Coalition (NCAC) and the Columbia River Inter-Tribal Fish Commission had provided comments on earlier versions of the draft plan. In developing the timelines, we aimed at carrying out recommendations of the Comprehensive Review and providing a forum for interested parties to comment on process as well as substance, Watson said.
Describing the Federal Power Marketing timeline, he said the goals are to have a successful subscription process and to define a rolefor BPA consistent with the Review's recommendations. According to Watson, the success of the subscription process depends on BPA and customers working through their business interests, determining what needs to be done to conform with the Review's recommendations, deciding what requires legislation and what does not, and doing all this in an open way. The Transition Board's plan builds on the work of the customer group being facilitated by the Pacific Northwest Utilities Conference Committee (PNUCC), he said, adding, we'll continue to rely on that process as much as we can.
Watson said the current contracts expire the first quarter of 2001, so the timeline calls for having contracts signed in the third quarter of 2000. The first phase of the process begins, he noted, with the customer work group defining business needs, interests, and principles. At the Transition Board's meeting on March 13, the customer group will identify critical path issues and present a more detailed plan of how it will proceed to define business interests, Watson said.
In the Comprehensive Review, we decided that as much should be done administratively as possible, Watson stated. The plan calls for the Transition Board to work with customers to identify obstacles and needs for legislation in 1997 and on into 1998, as necessary, he said. Legislation would be pursued in 1998 and 1999, if it is necessary, Watson stated.
The timeline calls for BPA and its customers to define products and pricing principles from late 1997 into 1999 and for BPA to develop a marketing plan by the third quarter of 1999, which would lead into a rate case and a NEPA process, Watson explained. Preliminary offerings would be defined by late 1999, he noted, with bilateral contract negotiations in late 1999 and the first half of 2000.
Watson pointed out that there are external events critical to the success of this timeline, for example, the target date for retail access of July 1, 1999. Also, when BPA customers begin to negotiate bilaterally, they need to know what the F&W budget is and how the river will be operated for as long as possible, he said. We'll need to know this in the 2006 timeframe, Watson stated.
There is also the issue of system configuration changes and how significant they will be, he said. We've targeted having five-year looks at F&W costs and river operations, Watson noted.
Have you discussed the legislative timetable with people in Washington, D.C.? asked Roy Hemmingway. This plan says we will take two years to decide if legislation is necessary -- during that time, someone may have passed legislation, he said. Isn't the question of whether legislation is needed something we could settle in 60 or 90 days? Hemmingway asked. We could get our lawyerstogether and consult with the Department of Energy (DOE) and Congress, he suggested.
The customers are concerned that the issue cannot be resolved until they define their business interests and what the obstacles are, and they can't do it that quickly, Watson replied. I understand the customers' concerns about what may or may not be in their interest, responded Hemmingway, but he added, there are some clear principles in the final report of the Review that ought to be a determining factor in whether legislation is needed.
My worry is that four or five months down the road, something will heat up in Congress, and "we'll be flatfooted" and involved in a long process, said Hemmingway. I don't want to be in a completely responsive mode to someone else's legislative wishes, he added.
DOE has said that they will be looking at more significant legislation than what is anticipated by some BPA customers, Kreidler stated. Is BPA reflecting what we heard from DOE about significant legislation, and have you heard that they are looking for a more comprehensive package than the customers think? he asked. Not as of yet, replied Watson.
Transmission and Other Timelines
The two main topics on the transmission timeline are the Independent Grid Operator (IGO) and the separation of BPA's generation and transmission, Watson explained. The goal in the plan is to maintain liaison with efforts to form an IGO, focusing on issues related to BPA's participation in the IGO. The question is, can BPA participate in the IGO without legislation? he said. We're working with the customers on that, Watson noted.
The timeline calls for convening BPA, customers, and others to identify issues and options for separation of BPA's generation and transmission in the first half of 1997, he stated. We've laid out this year for working with the parties on consensus legislation and 1998 for pursuing the legislation, Watson said, but he added, that may not be fast enough.
The Consumer Access/Public Purposes timeline calls for the Transition Board to assist efforts in the states, with the target date for retail access of July 1, 1999, Watson stated. He noted NCAC has raised the issue of how federal backup legislation would be pursued if utilities do not meet investment standards by mid-1999. We focus in the plan on tracking what's happening, but NCAC is concerned we are not focusing enough on the federal backup, Watson said.
It's probable that national restructuring legislation will haverequirements for a federal backup, commented Kreidler. Part of our effort is to collect data and monitor to determine if federal legislation is necessary, he said.
Todd Maddock said that the residential exchange has become "a hot item" in Idaho. Utilities have commented about the need to let residential and small farm customers in Idaho participate in the exchange, he said. I hope as we work with the customer group that this issue can be given consideration, Maddock stated. I'm hearing from legislators and others that there's an inequity involved and that residential and small farm customers in Idaho are being shut out of the exchange, he added.
F&W and River Governance Timeline
In the plan, we are trying to respond to the Comprehensive Review's call for five-year F&W budgets and recommendation that the governors initiate a broadly based discussion on improving the system for making river governance decisions, Watson reported. We propose to review existing responsibilities, authorities, roles, and processes and how they are evolving, he said. Once we develop this common basis of understanding, it would be the input to a regional forum, involving states, tribes, the Administration, and others, to discuss alternatives for the decision processes, Watson explained. The forum would produce alternatives, which could be taken to a regional consultation process that would come up with recommendations to the governors, the Administration, Congress, and the responsible agencies, he said. The target is to do this by the end of this year, Watson pointed out.
How does this fit with the Council's draft power plan? Etchart asked. We plan to finalize the power plan to reflect the recommendations of the Comprehensive Review and the Transition Board's work plan, Watson replied.
A Quintet Comments on the Draft
Rob Walton of the Public Power Council said there remain some conflicts with the F&W Program that managers are struggling with. "I'm worried we can't succeed until we agree on what we are trying to do with F&W," he commented. There are multiple forums for river governance in existence right now, Walton noted.
I observed the negotiations for "MOA 1" for the first five-year budget, Walton said, and Figure 4 in the draft plan (timeline for F&W and river governance) appears to indicate the need for MOA 2. It seemed the major problem with MOA 1 was that tribes didn't think they had a government-to-government role, he stated. Government-to-government relationships with tribes from the beginning are necessary to make MOA 2 succeed, Walton suggested.
If the Council does a F&W rulemaking this year, I'm not clear how that will coordinate with the timeline in Figure 4, said Walton. There's a need to coordinate all these forums -- it's a necessary ingredient for success, he added.
John Saven of Northwest Requirements Utilities commended the job staff did in preparing the plan and the timelines. What I find attractive about the F&W section is that it is laid out in stages, the fact that numbers will be produced by mid-1999, and that there will be a known budget, he stated.
With respect to Roy's question about federal legislation, Saven said "there are three camps": 1) major significant national legislation; 2) legislative issues associated with the separation of BPA's generation and transmission; and 3) cleanup or technical adjustments to the Regional Act to aid the subscription process. With respect to the third, it's more important to know what the business interests are and to solve problems associated with them than it is to say, let's pursue legislation right now, he said.
I'd like to "thrash through the issues" before we come to conclusions on legislation for category 3, Saven said. Some customers thought we'd need until the fourth quarter of 1997 to reach some conclusions and report back to you, he noted. It will take time to sort through the business interests and find ways to overcome technical problems, Saven continued. I still have a preference to not pursue legislation, but if it is needed, we'll tell you, he said.
Kreidler brought up the possibility that a "Northwest chapter" of legislation dealing with BPA's role beyond current law might arise in Washington, D.C. "I'm skittish about the Northwest chapter," replied Saven. I want to ask, what's in it, and why is it needed? I want to know what will be the future business relationship between BPA and its customers, and once that is determined, then we'll decide if legislation is needed, he said. I don't want others to preordain business relationships that might be the wrong business relationships, Saven continued. I'd be happy to talk to members of Congress and others, but this is our best advice on how long it will take to unscramble this, he stated.
Steve Weiss of the Northwest Conservation Act Coalition commented that NCAC is concerned that the work plan puts too much emphasis on what customers and BPA will do. In the past, customers were narrowly defined as the wholesale customers of BPA, but in the "new world," wholesale customers of BPA might have a reduced role or be minor players, he said. Much more of the market will be end users, such as residential and small business customers, and suppliers might not even be utilities anymore, Weiss suggested. We urge you to have public interest groups and other types of customers at thetalks about the work plan, he said. We're willing to be there, but it may require some recruiting to get other groups and customers out, Weiss stated.
Right now, NCAC is occupied with state legislation, he noted. We are sponsoring a bill in Oregon which is as close as possible to the recommendations of the Comprehensive Review, Weiss said. State legislators aren't aware of the Review, he pointed out. You need to be pro-active at the state level to help legislators find out how big an effort the Review was, and how much consensus was reached, Weiss advised. The utilities and industrial customers have kept to the Review in their efforts in Salem, as has NCAC --you need to be there too, he said.
The federal backup for public purposes recommended by the Review is still very important to us, said Weiss. We have recommendations on how to keep track of what the states are doing, and NCAC is working in all four states on this, he stated. We're keeping the faith with the Review, he emphasized. We didn't get all we wanted, but nobody did, said Weiss. You should make sure others keep the faith, he added.
Regarding Maddock's concern about the residential exchange, Weiss said that there was a question during the Review as to whether the second tier of subscriptions would apply to historical residential exchangers, "in which case Idaho was out," or to those who were eligible for the exchange, "in which case Idaho was in," he said. A deal was made, and "Idaho was screwed," Weiss stated. I think it should be revisited, he said, but he added, that may cause other people to want other items revisited.
I think it might be worked out through an agreement with customers, suggested Maddock. There is an inequity that can be worked out without disturbing the spirit of the whole agreement, he said.
Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment said he wanted to endorse the latest version of the draft work plan and the timelines developed by staff. The framework for setting five-year budgets exists pretty well in the MOA, Duncan noted. Although we still make decisions in multiple venues, they can be made so long as they don't involve major changes on the river, he said.
I have more concerns about how the region is going to make major system configuration decisions, Duncan stated. Resolution will depend on progress being made on two things, he said. First, finding a way to superimpose a unifying process on multiple venues -- what we have now is a fragmented system set up for confrontation, Duncan said.
Second, trying to reconcile multiple agency missions and agendas to regional priorities that we can collectively agree to, he stated. This will involve a change in philosophy from multiple use to a process that says, here are priorities that are a reference point that all agencies can operate against, Duncan said. The first is procedural, and the second is substantive, and both need to be on the agenda for a long-term river governance process, he stated.
Duncan offered three reasons why the river governance process needs to move sooner and in parallel with other Transition Board activities:
Alfred Canada of Grants Pass, Oregon, said he was interested to hear that the Northwest Power Planning Council is going to rewrite a draft plan which reflects zero investment in solar voltaic generation. He submitted a report, which calls for solar voltaic generation to be integrated into the BPA federal system by the year 2000, as testimony.
Canada quoted Brett Wilcox as saying the Comprehensive Review will not be the long-term solution, and that ultimately, the region will move to a NEWCO where BPA is sold to someone else. The draft plan's timeline didn't include such a date -- is there a date for selling BPA? he asked. Not to my knowledge, replied Etchart.
In sparsely populated, rural areas, there's concern about when customer choice will come and how to measure whether competition is occurring, noted Maddock. We may want to discuss in the plan specifically how to measure competition and what the threshold is, he said. "Some folks are feeling vulnerable as we move to customer choice," Maddock pointed out.
I have concerns about the F&W timetable -- whether we are getting ahead of ourselves -- and about the wording, said Kreidler. I'm not sure this timeline provides sufficient opportunity for meaningful participation of the parties, he said. I'll do moreanalysis of it, Kreidler stated, adding, it behooves us to keep an open mind on the section of the plan that deals with participation.
Do you disagree with the timetable? asked Etchart. I'm not sure we want to define the process the way we have here, Kreidler replied. We may need to develop it further with a number of the parties involved -- that would give us a better chance of getting their buy-in, he added.
In Washington, D.C., in the next year, there'll be chaos around the subject of energy, Hemmingway predicted. There will be a lot of proposals floating around, and then they will sort out, and national policy will emerge from Congress and the Administration, he continued.
The Transition Board effort "is on a slow bell," Hemmingway stated. We'll be putting our proposal in just when things start to settle out in Washington, D.C., he said. If ours is not the same as theirs, "we're dead in the water," Hemmingway added.
All in the Timing
We'd be better off having something in early before the coalescing starts to occur in Washington, D.C., Hemmingway advised. And having a deadline of the third quarter of 1999 for the development of BPA's marketing plan is "an extreme vulnerability" for the Northwest, he added.
All the timelines should move to the left, and I haven't been persuaded that they can't, Hemmingway said. The Northwest needs to decide what it wants to do before the nation decides what the Northwest should do. I know the timeline came from the customers, but I'm concerned the customers are vulnerable to having the nation know what it wants for the customers before the customers know what they want, he stated.
Are you recommending moving the timelines up? asked Etchart. Yes, I think we should consult with political folks at DOE and in Congress, replied Hemmingway. I wonder if the draft that goes to the governors should say that the timelines were done in consultation with customer groups and may not reflect political realities, said Etchart.
I'd like to note that the deadline for BPA's marketing plan did not come from the customers, stated Saven. Personally, I'd like to see the marketing plan deadline moved to 1997, he said.
Is your concern the timeline, or that others haven't reviewed this? Etchart asked Kreidler. I'm not sure whether the timeline is flawed, Kreidler replied, adding, I don't know about the TransitionBoard's participation in the river governance process. We may be defining a role with no authority to do so, he stated.
Should the plan say the process may be under the governors' offices, the Council, or some other auspices? Etchart asked Kreidler. It's important to hear from other parties and make sure they are comfortable with what we are going to do, he replied.
One of the objections I had with the earlier draft of the plan was that it seemed to imply the Transition Board would set up a process to make decisions about system configuration issues in 12 months, said Hemmingway. I suggested a more general process, developed through consultation with stakeholders, rather than something specific, and that's what the staff did, he stated. I'd like to see interested parties come forward and see if we can find a process for making recommendations to Congress, Hemmingway said. Keeping it general is a good idea -- I've also heard the process should be done as quickly as possible so it doesn't get too far removed from what's going on with power, he added.
My discomfort is with anyone thinking that we've dictated a process -- it might keep them from participating, said Kreidler. The board agreed with Kreidler's suggestion to have a conference call with interested parties on the matter.
Kreidler said the draft plan should be more specific about the federal backup for public purposes, to help the states know "this is one they can't walk away from." We could put in something about monitoring and evaluating compliance to see whether the federal fallback is required, he suggested.
I'd also like to see something in the plan on stranded costs, Kreidler stated. It's another issue that we might want to give guidance on, rather than end up having others tell us what to do, he added.
"A Living Document"
Should we chat further about F&W guidance before we finalize the draft? asked Etchart. We'll circulate the draft more broadly and seek comment, stated Watson. We can put it out now that we've highlighted a couple of areas that need changes, Kreidler said. When we hand it off to the governors, we should make it clear it's a "living document" that will be subsequently refined, noted Maddock.
Are you satisfied the plan is in a form that won't offend the people that we particularly don't want to offend? Etchart asked Kreidler. Fish and wildlife is the one area I have concerns about, but we can put it out and say that it is a "living document" thatwill evolve over time, and note that it may be changed before it goes to the governors, Kreidler replied.
Should we change the deadline for BPA's marketing plan? asked Hemmingway. We'll have some discussions to see where we can move that date, responded Watson. I'd prefer to let staff improve the draft and to put in something to make sure people know that the F&W section is still tentative and that there is a lot of latitude, said Etchart. I don't want to postpone approval, he said.
Why don't we approve the plan, indicating there will be changes with regard to the date for BPA's marketing plan, and to the F&W and river governance narrative? suggested Etchart. We can state that the process may not be undertaken by the Transition Board, but instead by the Council or the governors' offices, and that this section of the plan is still tentative, he said.
Let's reinforce the portion of the plan that deals with the threshold for determining whether competition is occurring in rural areas, Maddock suggested. And also the section that deals with monitoring issues with respect to the federal fallback for public purposes and stranded debt, Kreidler recommended. The question is, should we be more specific about a federal backup? he asked.
I have a concern about that, said Maddock. It seems to fly in the face of local control that we inserted all along in the Comprehensive Review report, he stated. Let's let local control play out and see what the states do before we trigger a fallback, Maddock recommended. A reason for us to address it is so that we can define the issue rather than having national restructuring legislation define it for us, Kreidler stated. Why do we want the Transition Board "to brandish this idea?" asked Etchart.
All we are saying is that our responsibility is to monitor what the states do, Kreidler responded. If they come up short and there is going to be a federal mandate, will we play a role or not? he queried. I think we would prefer to play a role, Kreidler said.
I'd like to see the state processes work out, said Hemmingway. That's my feeling too, commented Maddock, adding, I like the language in the work plan now. Further emphasizing this will be "a red flag" as far as state legislators are concerned, he said.
As "a survivor of the surcharge wars," I have a concern about proceeding to deal with state and federal legislation at the same time, stated Watson. I think we can work out language for the plan that gets to Mike's concern, he added. Maybe the language could say that we are monitoring state and federal activities, suggested Kreidler. I'll provide something along those lines, Watson stated.
IndeGO: Getting Bigger and Moving Fast
Kellan Fluckiger of Idaho Power, chair of the IndeGO operations working group, told the board that IndeGO is continuing to build momentum. At first, we had seven signatories, and now we are up to 15, including Seattle City Light and Tri-State G&T of Denver, Colorado, as the most recent additions, he said.
IndeGO is most closely associated with the "IGO-lite" alternative considered in the Comprehensive Review, said Fluckiger. We do not anticipate IndeGO will own transmission facilities, he said. It will schedule all transmission activities, handle the Open Access Same Time Information System (OASIS), be in charge of main grid expansion and maintenance standards, and control scheduled outages to allow for coordination across the region, Fluckiger explained. He presented a "tentative IndeGO pre-filing timeline" showing dates for resolution of various issues, such as revenue requirements, rate design, and congestion management. Our proposal is that costs reflect the actual costs of clearing congestion, Fluckiger noted.
Our timeline calls for the initial proposal to be completed by March 7, with public forums to be held starting March 17, he stated. The timeline calls for us to file with FERC and in seven Northwest states by July 15, he said. We anticipate nine months of regulatory process, Fluckiger added. We expect to appoint an independent board of directors and hire staff in 1998, he said.
We anticipate IndeGO will place primary emphasis on reliability, Fluckiger stated. IndeGO will have jurisdictional control and will be the security coordinator from the standpoint of the North American Electric Reliability Council process, he said. Among the "vexing problems" we need to talk about is trying to avoid cost shifting among utilities, Fluckiger stated. It is proving difficult to achieve efficient pricing while avoiding cost shifting, he noted.
In preparing the filing, we assume that BPA will participate in IndeGO, even though there are questions about the extent of that participation, Fluckiger said. We are planning an aggressive schedule of meetings in preparation for the filing, he concluded.
Vickie VanZandt of BPA reviewed the objectives of the Comprehensive Review's Transmission Work Group: Facilitate the broadest possible competitive market for power through non-discriminatory open access; provide fuller use of the physical transfer capability of the transmission system; eliminate pancaking of transmission rates; coordinate expansion planning and the development of least-cost alternatives to remove bottlenecks; accurate and easily-available posting of available transmission capability; more efficient operations and maintenance; and uniformity of regulatory policy andoversight. She said the transition goals are: to ensure no radical cost shifts between areas with differing transmission costs, for participants or ratepayers; and to honor existing contracts and arrangements. It is difficult to meet both these goals in developing a price structure, VanZandt noted.
IndeGO development is on an aggressive schedule -- proceeding "at ludicrous speed," she quipped. The goals are to file with FERC by July 15, 1997, begin scheduling in mid-1999, and begin operational control by mid-2000.
VanZandt said several IndeGO issues need resolution:
• Reliability. VanZandt said she felt most strongly about "scheduling before visibility and control of transmission facilities are implemented." She also listed: hands-on control of key facilities; acceptance of all requested schedules, which "allows for greater use of the grid but poses additional reliability concerns"; and eminent domain, the ability of IndeGO to ensure needed facilities are built.
• Efficiency. This is viewed to be incrementally more expensive, commented VanZandt. There's more work to do here because it shouldn't be more expensive, she said. "Duplication of facilities" was also listed under this topic.
• Pricing (allocation of transmission capacity reservations). There's more work to be done on this, she stated.
We need legislation to participate in IndeGO, VanZandt said. Any BPA/IndeGO legislation would need to be "trued up" with the Comprehensive Review's recommendations, she said. BPA will not draft the legislation, VanZandt stated, adding, we want to work with the Transition Board, customers, and others on it. In summary, there are a lot of concerns, and there are no easy answers, she said.
Scott Brattebo of PacifiCorp reminded the group of the geographic sweep IndeGO represents. IndeGO now includes the four Northwest states, Wyoming, Utah, and a portion of Nevada, and with the addition of Tri-State, a portion of Colorado, he said. When you think of IndeGO, don't just think of the four Northwest states --it's much larger, Brattebo pointed out.
Steve Larson of BPA said unless the law is changed, BPA has to pay the Treasury even if it doesn't control transmission facilities. The IndeGO contract, he said, has to ensure that we can pay Treasury, and if it can't, the question is, is there an exit ramp? This is not resolved, Larson noted.
We are also concerned about IndeGO's willingness to provide retail wheeling, he said. We are exposed to revenue losses on the power side without the ability to assert a stranded investment charge,Larson stated. If we give away control to IndeGO, we don't have the public utility commission protection that the IOUs do to ensure cost recovery, he said. We've raised this issue -- it's not resolved, Larson reported.
No Showstoppers?
We are sensitive to BPA's operational concerns in the development of IndeGO, said Fluckiger. None of the issues Vickie raised are "showstoppers," and I believe we can get them resolved, he said.
I don't think they are showstoppers either, stated VanZandt. You need pretty good authority to preserve western system reliability, and changes in the market will make it more difficult as time goes by, she cautioned.
As long as BPA has the legislative responsibility to Treasury and can surcharge its transmission, will that constrain IndeGO until the issue is resolved? asked Kreidler. All of the companies' participation is contingent on regulatory treatment, replied Fluckiger. There is no full commitment by the signatories until we have full regulatory treatment. If that treatment is consistent with the application, we'll get a monetary commitment, he said.
A BPA surcharge on transmission isn't consistent with the proposal now, Fluckiger stated.
Until this issue is resolved, it could be a showstopper, said Kreidler. The IndeGO pricing group got derailed every time a new utility came in, VanZandt noted. When it looked at the question of a surcharge for public purposes on some facilities and not others, the group decided to consider something more modular so parties can go in and out of IndeGO, she said.
The regulatory process is huge, noted Brattebo. Each IOU will file with the states and with FERC at the same time that IndeGO files with FERC, and BPA will have to do a 7(i) process, he pointed out.
Watson asked about "rifleshot" versus targeted legislation with respect to the separation of BPA's generation and transmission. Legislation is needed if BPA is to agree not to recover costs through transmission, Larson replied. If we think we can recover costs and can do it in mutual agreement with the IndeGO parties, then it isn't needed, he said. We could join IndeGO with rifleshot legislation, Larson stated, adding that what happens in Washington, D.C. with legislation may be out of our hands.
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.