| Thursday, January 30, 1997 | NORTHWEST ENERGY REVIEW |
NWPPC Conference Room |
Next Meeting: February 13, 1997 in Portland.
HEADLINES________________________________________________________
ORDER OF BUSINESS________________________________________________
Staff Outlines the Transition Board's Job
Staffer Dick Watson presented a preliminary draft work plan that outlines the Transition Board's role in implementing the recommendations of the Comprehensive Review. He noted that the goal is to have a draft plan completed by mid-February. Watson also reported that BPA and a group of its customers are meeting under the auspices of the Pacific Northwest Utilities Conference Committee (PNUCC) to work on issues related to the federal power subscription process.
Watson called the draft work plan "a work in progress." We are presenting it today to get comments from the board and others, he said, adding that a revised draft would be presented on February 13. Watson noted that preparing the draft has "been a hurried process," with the staff requesting comments on where the board should focus its attention from "a small, broadly based" group of interests. "We got a whole sheaf of comments," he reported.
The first page of the draft work plan describes why the board was formed and the charge it was given, Watson explained. The board's function is "to ensure public accountability, regional acceptance and prompt implementation" of the Comprehensive Review steering committee's recommendations, he said, and to work with regional interests and BPA in a public process to oversee the subscription process. The board is also to provide liaison with the Northwest congressional delegation, he said. The committee asked the board to review BPA's marketing plan and the agency's role in the competitive marketplace, Watson added. While the federal power issues are of particular interest, the committee directed the board to look at all of the recommendations, including transmission, customer access, and public purposes, he noted.
The plan is intended to be a working document, Watson stated. In general, we see the Transition Board's role as providing monitoring and coordination, and working with other interests to implement the recommendations, he said. We've tried to orient the activities toward those goals, Watson concluded.
Staffer Wally Gibson described the board's proposed role in overseeing the subscription process. The big issues, he said, are with timing. There is a conflict between getting things done to show Congress we're moving quickly to implement the Review's proposals and addressing BPA customers' concerns that the process be methodical so they aren't faced with signing something before all of the issues are resolved, Gibson explained. Balancing these two pressures is important, he added.
We're suggesting a couple of checkpoints in the development process, Gibson continued. The process would likely require a clear determination of whether BPA's legal authority is adequate to allow the subscriptions to go forward, he said, proposing a preliminary checkpoint in early 1998. After eight or nine months it should be clear "what can be done and what cannot be done," Gibson noted. If there are legal problems, the 1998 checkpoint would allow time to draft remedies and present them to Congress in 1999, he said.
We'd like to see BPA and the customers propose milestones to measure their progress toward a successful subscription process, Gibson explained. He also said that the draft work plan calls for BPA and the customers to develop a list of critical issues and a plan for resolving them, to be presented to the board within two months.
Gibson said the board would monitor progress and work with BPA and customers to resolve issues. "We see your role as ensuring the Comprehensive Review's recommendations are maintained and that progress is made toward them," he stated. BPA and the customers could bring conflicts to the board, Gibson explained, and BPA would bring its plan for marketing "unsubscribed products."
John Etchart asked about the checkpoints. We propose to determine by the end of 1998 whether the subscription process will work, Gibson responded. The schedule will need to be modified if Congress moves to make changes in BPA, he noted. By the end of 1997 or early in 1998, there should be a check to be clear about what BPA can do or can't do, Gibson clarified.
Efforts to establish IndeGO, an independent grid operator, were launched during the Review, Gibson said. We are recommending that the Transition Board maintain a liaison with this effort, he said. Gibson noted that there are outstanding legal issues concerning BPA's participation in IndeGO.
With regard to separation of BPA's transmission and generation functions, Gibson said the main point is that a single regional effort go forward. The "various tracks" on the issue should be pulled together and the timing issues resolved, he advised. The draft work plan calls for regular briefings on separation issues and Transition Board guidance on incorporating the Review's goals.
Todd Maddock asked how the board's role would fit with the efforts of IndeGO and the Northwest Regional Transmission Association (NRTA). The board "represents another observation post," Gibson replied. IndeGO has 13 signers, including BPA, he said, and they hold weekly meetings. NRTA has focused on pricing issues, Gibson explained. He said staff is participating in these processes and could bring issues to the board.
Keeping Watch On Access and Public Purposes
Watson described the consumer access and public purposes sections of the draft work plan. The ball is in the court of state governments, legislatures, regulators, and local officials to implement the recommendations, he said. The Review tried to allow for the greatest possible local authority while assuring there would be a minimum investment in public purposes, Watson stated.
The Review set forth a minimum standard of investment for conservation, renewables, and low-income energy services, Watson explained. If the standard is not met by July 1, 1999, the Review recommends that state legislatures impose a uniform system benefits charge, he said. The Review recommends tracking what is happening with local efforts, Watson added. By July 1, 1997, local entities should be investing in public purposes to the equivalent of 3 percent of revenues from electricity sales, he explained. If a large proportion of the load is not meeting that standard, the region should seek a federal backup, Watson added.
The goal of the direct retail access recommendation is to provide access to the market by a date certain for those who desire it and to assure that conditions for fair and effective competition, as well as consumer protections, are in place at that time, Watson continued. It is acceptable for states to phase in access, he noted. Principles for effective consumer protection were laid out by the Review, Watson said, adding that the committee chose July 1, 1999, to "explicitly link" open access and public purposes. He noted that since legislatures in the Northwest states meet on different schedules, some states will have more time than others to implement the recommendations.
The draft work plan proposes a number of activities to acquaint legislatures, regulatory commissions, and local utilities with the Review's recommendations, Watson explained. The board would also be a repository where proposals that come forth from the region could be analyzed, he said, and staff would be available to provide testimony on proposals. An Internet web site and a print newsletter would be used to disseminate information, Watson noted.
The board would evaluate utility efforts to offer pilot projects for retail access, Watson continued, and look for ways to promote policy consistency among various jurisdictions. He said the work plan proposes the board work with the region's utilities to find a mechanism to determine if their efforts are consistent with the Review's recommendations on consumer access and public purposes.
Maddock asked about phasing in consumer access. In Idaho, the legislature needs "an immense amount of education," he observed. Lawmakers are reluctant to move forward without more information, Maddock said, noting that pilot programs could help to provide that. Watson responded that in steering committee discussions, a phase-in seemed acceptable if it was in the vicinity of the target and didn't extend for an extraordinary length of time.
Mike Kreidler said at least one utility in Washington will want to address stranded costs. "It will be contentious," he predicted. It could take a phase-in to accomplish access, Kreidler added.
The board would also function as a liaison with the Northwest's congressional delegation, Watson said. The board would keep track of what is happening with federal legislation, he stated, noting that the web site and newsletter would provide information to the public on legislative events, he stated.
The work plan builds upon three goals for fish and wildlfe (F&W) and river governance, Watson said. The first goal is to provide greater certainty about F&W costs and the productivity of the federal hydro system. The second is to provide greater certainty about the measures to be undertaken to meet F&W goals. The third is to provide a better system for making decisions that affect operation and configuration of the hydro system. The approach we're thinking of is to provide relative certainty in five-year increments, with five-year F&W budgets, Watson explained.
He described three parts to the draft work plan's approach to F&W: determining five-year budgets for funding projects; developing a strategy to define how the river is to be operated with relative stability over the five-year period; and devising a process for reaching decisions on major system configuration or operational changes for F&W. The draft work plan assumes we won't see major changes in system configuration between now and 2001, Watson said.
We're dealing with "simultaneously moving parts," Roy Hemmingway observed, following the staff presentation. Have you had discussions with the Administration on proposed transmission legislation? he asked. I'd like to have an idea of when the legislation will be introduced, Hemmingway said. Staff stated such discussions had not been held. Hemmingway said the Administration is looking to introduce legislation this year. I think we should be thinking on that timeline, he advised.
Kreidler said he thought the staff had a good start on the draft work plan. He noted there is no mention of stranded costs. The issue "will hang like a cloud," Kreidler suggested, noting there are interests that don't want to foreclose transmission as a mechanism to recover other costs.
NW Delegation Dogma: Protect Hydro Benefits
Jeff Stier, a staffer for Congressman Peter DeFazio, described what is being discussed among members of the Northwest's congressional delegation, adding, I'll give you "my gut feeling" on what is likely to happen in Congress.
In the House, the region's members are forming a Northwest energy caucus, Stier said. Senator Slade Gorton sent a letter to organize a similar process on the Senate side, he reported. I assume we'll meet to coordinate the effort, Stier added.
There is "a real sense of urgency," he continued, adding that the chance of restructuring legislation moving from committee to the floor of the House "is high." The chance for passing legislation in the House "is dicier," Stier said. "The likelihood of legislation moving in the House demands that we in the delegation talk early to get the Northwest component together," he added.
According to Stier, the delegation's discussion of policy options will be coincident with work in the region. It's important we stay in touch, he counseled. On the House side, "we'll put pen to paper this year" to develop legislation, Stier said. We'll discuss what the components should be in the bill and how to sell them to our Congressional colleagues, he explained.
"The message is, we've got to work together," Stier stated. We want to present this as "a fait accompli" and discourage people from drawing up their own bills, he said.
The "dogma" in the delegation is to retain the benefits of the hydro system, Stier said. "We'll be swimming against the current to do that," he stated. We have to convince Congress that the impact to the Treasury is as good or better than the status quo, he explained, adding that a stranded cost mechanism is part of that discussion. Any risk to Treasury is not acceptable, Stier added.
Etchart asked about discussions of selling the federal power marketing administrations. "It's a real threat," Stier responded. Congressman John Doolittle of California chairs the House Subcommittee on Water and Power Resources, he elaborated, and the committee staff has said BPA will be its top priority. "They want to explore privatization options," Stier reported. "Those ideas will be in play, and people will be strongly advocating them," he stated.
It strikes me that our timeline for a piece of legislation needs to be shortened, Hemmingway observed.
Congress is not likely to wait until early 1998 to see "a full-blown regional consensus," Stier responded. We'll start working on something soon, he added. You have the demands of your own process, Stier acknowledged, but it may be desirable to move the timeline up.
We can accomplish a great deal in a short time if that is what we've got available, Hemmingway replied. To the extent things are squared away here, our job is easier, Stier said. Timing is very important -- the House is likely to go first, and hearings will be scheduled relatively soon, he added.
When we met with Charles Curtis (Department of Energy), it seemed clear that more, rather than less legislation on the subscription process was desirable, Kreidler said. This says we should move along quickly to craft it; is that right? he queried.
I'm inclined to stay away from legislation on the subscription process, Stier replied. I'd like to do no more than we have to do, he said.
Hardy: BPA Won't Reinterpret the Review's Recommendations
BPA Administrator Randy Hardy reported he had given his staff two pieces of guidance in developing the federal power subscription process. First, work with customers to design a process that is commercially viable. Second, we don't want to reinvent the Comprehensive Review's recommendations. "That's our policy guidance," he said of the Review. Hardy assured the board that if BPA finds, in working with the recommendations, that something needs to be changed, "we'll discuss it with you." "We at BPA aren't out to change or reinterpret what the Review said," he stated.
Hardy said the Transition Board needs to find a balance between the need to get going "so there won't be a political vacuum that is filled by others," and the needs of customers to overcome uncertainties, including F&W costs. Finding the balance could lead us to something "that will not be a purely linear process," he suggested, adding that the reality could be more like "a two or three-ring circus," during which "we'll have to exercise some judgments" so we don't hang things up during the subscription process. BPA needs to define other products and services so customers know what's available when they subscribe, Hardy said. I'm encouraged -- we're off to a good start, he added.
Hardy reported that BPA has begun to develop a retail wheeling policy. Issues related to pre-2001 stranded costs could become part of that process, he pointed out. "We're feeling a lot of pressure from the PUCs," Hardy said. BPA is getting retail wheeling requests, and we're feeling we must refine a policy -- this could lead to the need to resolve the stranded cost issue, he acknowledged. I hope the effort to develop the policy over the next six months will support and not interfere with implementing recommendations from the Comprehensive Review, Hardy added.
Kreidler asked if there is a connection between BPA developing a retail wheeling policy and IndeGO. There isn't a direct connection, but if we work on legislation for separating BPA's functions they will overlap, Hardy explained. He told the board that BPA has signed the Memorandum of Understanding for IndeGO. BPA could be the IGO, but would have to have legislation to participate in IndeGO transactions, Hardy indicated.
What would you like to see in the subscription process? Kreidler asked. I don't want to prejudge it, Hardy replied, adding that a lot of creative thinking has already gone on. In referring to a non-linear subscription process, Hardy said he meant that you can't hold up 8,000 megawatts of product until after 2000, when the last publics could decide whether to sign a contract. You'll have to do something else, such as set an allotment aside, so BPA can continue to offer power to others, he stated. "You'll have to make some judgments about how much will be subscribed," Hardy explained.
Customers and BPA Outline Their Progress
John Saven, executive director of the Northwest Requirements Utilities, kicked off a presentation by federal power customers and BPA staff on the subscription process. He said the Comprehensive Review is an excellent framework, but added that the recommendations "are not the Ten Commandments, which we read word-for-word and say, we have to do this thing."
There are benefits in the Northwest, a stakeholder in the form of the U. S. Treasury, and the public interest to consider in developing the subscription mechanism, Saven said. In order to build the process, he said the group is addressing such questions as: What is the business interest between BPA and the customers? and How do we come up with something that fulfills that interest?
Saven gave an overview of a document that outlines the group's scope of work. The goal of the effort is to implement the federal power marketing recommendations of the Review and to do so through a collaborative process, he stated. BPA needs to develop and offer products, and customers need an agreed-upon order of march for subscribing to the products, Saven explained.
We see two steps in our approach to the subscription process, he continued. In the first step, we need to define the business interests collaboratively and assure that customers have a full understanding of the products and prices, Saven stated. The second step is bilateral negotiations, he said.
Saven said the group is looking to bring interests together to discuss the issues openly in step one. The discussion is available to everyone, but the emphasis is on products and services, he added. The questions are: What do the customers need? What does BPA need? Saven explained. Once the portfolio of products and services is developed and prices identified, customers would enter bilateral negotiations with BPA, he said. A rate case may be needed, Saven added.
The customer and BPA group would like to report to the Transition Board quarterly to get feedback, Saven stated. The board would be our liaison with federal officials, including Congress, he added. We want you to see if we have a package that still meshes with what's going on in Washington, D.C., Saven said. In addition, there is "the broader question" of getting input from all groups, and seeing how this relates to other issues, such as fish costs and public purposes, he stated. The board would be the forum for looking at those issues and monitoring them, Saven explained.
We need a vehicle to help us get from here to there, Saven said. We determined to try to use PNUCC as "an umbrella," to be the convener and organizer and help us deal with the process issues, he reported. We've agreed that makes sense, Saven stated, adding that the group does not look to PNUCC to take positions nor would the PNUCC board have a decision-making role.
If this framework is acceptable, over the next 30 days we would develop a work plan with milestones, Saven said. He noted that the timeline attached to the handout proposes that the group spend 1997 identifying business needs. By the first quarter of 1998, we would come back to see if it works or not, and to consider whether we need federal legislation, Saven explained. Products and pricing principles would be identified by 1999, with bilateral negotiations to follow in the third quarter of 2000. That would give BPA a year or two to plan for implementation, he said.
Saven noted the group's timeline also includes customer choice, public purposes, transmission, and F&W. The timing suggests that key decisions on these would be made before customers go into negotiations with BPA.
Paul Norman of BPA said the collaborative process is important. He noted that BPA entered the discussions thinking the subscription process would need to be in place by July 1, 1999, but the customers said 2000 would be fine. Norman reiterated Hardy's concern that BPA "not hold all inventory to the last minute," and he suggested the group would talk more about how "to orchestrate an outcome that is successful."
I'm struggling with the timing of legislation and what needs to be in it, Hemmingway said. There are indications a bill will need to address more than transmission, he said. If we're looking toward transmission legislation in the first three quarters of 1997, we need to know what else should be there, Hemmingway urged.
Kreidler concurred that the proposed timeline "may not be compatible with what we heard in D.C." I understand that customers need certainty, but I'm concerned we may wind up with something other than this timeline, he said.
Terry Mundorf, who represents the Washington Public Agency Customers (WPAG), said the timeline is a "best estimate" and remains a work in progress. "Lines stretch out and compress depending upon what reality brings us," he said. The group intends to find out as early as possible what is needed legislatively for the subscription process to work, Mundorf added.
Norman said he agreed with Mundorf and was "sanguine" about the group's ability "to pull this off" within the given constraints. "The best outcome would be to implement the Comprehensive Review's recommendations without legislation," Norman stated. I'd like not to give up on that too soon, he added.
Glen Swift said he thought it was becoming more clear that "we can't expect Congress to keep its hands off BPA." He suggested that a Northwest entity accountable within the region be formed to oversee the hydro system. We should not be so focused on the details of the subscription process, he advised, but instead work to create a framework for regional decision-making.
Michael Tedin of the Columbia Basin Institute said the board should address what irrigation assistance costs the federal hydro system. He reported that a $650 million obligation is looming for BPA. This obligation falls to BPA when irrigators have paid off their portion of the hydro debt, Tedin said. But the irrigators have not finished paying their obligation, so why is BPA picking up the debt? he asked. According to GAO, the $650 million will be closer to $800 million, Tedin added. This issue fits into the area of uncertain costs and the Review should address it, he urged.
Rick Applegate of Trout Unlimited pointed out that fish issues are wedded to power issues. While the union may be "an unhappy marriage," we have to make progress on this, he said.
The power community wants certainty on fish costs, Applegate continued, and he called for a general framework or set of prototype provisions for the new federal power contracts so parties have some idea what to expect in the subscription process. He told the board that the five-year F&W budgets may pose problems if they don't square with the contracts.
Applegate said there is "an important underlying disagreement" on the issue of separating BPA's transmission and generation functions, which has to do with insulating transmission from F&W obligations. If these functions are separated, he said, the mechanism must work to fulfill BPA's F&W and other obligations.
The Review's recommendations suggest a need for a parallel process for fish, Applegate said. I want to encourage that to happen to avoid collisions later, he urged. "The relevant sovereigns" should be convened to work toward a restoration plan that meets the requirements of the Northwest Power Act, the Endangered Species Act, treaty trust obligations, and the provisions of the salmon treaty with Canada.
"I think we're overstating fish costs," Applegate concluded, referring to a recent letter from a congressional source that indicated $400 million is spent annually on F&W. He said he wanted to impart an urgency to resolving fish and power issues.
Kreidler said he was interested in the specifics of how the board should approach river governance. Applegate responded that the right sovereigns should be involved and a mechanism developed for dispute resolution. Kreidler added that he saw the issue as two- pronged: cost and governance. He noted the need to resolve the stranded cost issue. Applegate agreed that treatment of stranded costs was left vague in the Comprehensive Review.
Should we discuss this only with sovereigns? Hemmingway asked. No, but I don't think we want something as large as the Salmon Summit, Applegate replied. Etchart asked about squaring the five-year F&W budgets with long-term BPA contracts. Applegate said he would like to see a longer-term solution. "I hope we don't get hamstrung on these five-year blocks," he said. There is pending litigation, and that may be the forum for resolution, Applegate added.
Maddock referred to an analysis of projected hydro system benefits presented to the Comprehensive Review by staffer Pete Swartz. He asked about sharing the benefits with F&W efforts.
The concept of benefit sharing is a good one, Applegate replied. He observed that a role for the U.S. government in F&W restoration may be appropriate, and the topic should be explored in light of federal treaty obligations with Canada.
Rachel Shimshak of the Renewables Northwest Project said the public purpose issues are now before state legislatures. In my conversations with legislators, they are looking for information, they want to know where the governors are on this, and they are skeptical of a process they didn't participate in, she reported. Shimshak urged the board to have direct communication with legislative leaders, and to send a letter from the governors to reinforce the Comprehensive Review's recommendations.
Angus Duncan of the Columbia/Pacific Policy Institute for Energy and the Environment told the board it is important that discussions to shape the federal subscription process "not be a black box for everyone but the customers and BPA." There is always the risk of people raising extraneous issues, he pointed out. But the issues that were not resolved in the Comprehensive Review relate to risk: stranded costs, fish costs, and ecosystem costs, Duncan stated. These risks have to be addressed in the contracts because they are so central to the public interest, he added. If all interests are involved in shaping the statements of risk, problems can be addressed systematically, Duncan said. "We want to have contracts that can be signed rather than contested," he concluded.
IN CLOSING________________________________________________
A schedule for the board, which calls for meetings every four to six weeks through November, was circulated. The schedule is subject to change and highly flexible, Etchart commented.
Hemmingway asked staff to include a timeline in the draft work plan. Maddock said it would be helpful to look at "a wide range of scenarios" with regard to river management and asked if staff could make some assumptions about the range of scenarios. It would be helpful to us and to customers working on the subscription process, Maddock said. Kreidler agreed, suggesting staff cost out some scenarios to give "parameters and sideboards" to the discussion.
Etchart said the work plan is to be validated at the February 13 meeting and then forwarded to the governors. "The work plan will be alive and subject to change," he said, suggesting that nothing done in preparing the draft would preclude changes later.
Kreidler reported that Congress may be looking at non-power costs to the Columbia River system as part of its debt reduction discussions. He noted that such costs were addressed in a recent GAO report. "This may have implications for subsidies, or what they think may be subsidies," he said, adding that the board should monitor the issue as Congress tries to balance the federal budget.
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.