(Note: This is staff’s attempt to describe the positions and points of agreement, to help focus our next meeting. Any mistakes you find are clever devices to get vigorous discussion going quickly.)
What to do if Bonneville’s revenues don’t cover its obligations? The Comprehensive Review heard proposals to collect non-transmission costs in transmission rates as part of a solution. It also heard objections, based on both equity and efficiency considerations, to doing so. The Steering Committee did not resolve the issue; it recommended that Bonneville’s transmission be legally separated from power marketing, but in a way that does not reduce Bonneville’s obligations or its ability to meet them.
The transmission work group is now wrestling with how we might satisfy both parts of this recommendation. In its May 20 meeting it discussed two position papers on the subject.
Paul Murphy presented a position paper that argued that while Bonneville has some latitude in managing its cash during a period in which rates are set, it must keep separate accounts for generation and transmission and credit transmission for any transfers out of its revenues. He argued that Bonneville has no ability to set rates that are intended to collect non-transmission costs in transmission rates. Paul argued that if Bonneville finds that it is unable to recover all of its generation-related costs, Bonneville is required to defer payments to the U.S. Treasury, rather than increase its revenues from transmission service. Paul argued that equitable allocation of costs to federal and non-federal users of the transmission system, and national policy that relies on the transmission system to enable vigorous competition in the generation business, rule out collecting generation costs in transmission revenues.
Paul Majkut summarized BPA's paper. BPA stated that when the power business line is able to recover its costs through power rates, it should do so. BPA also stated, however, that when the power business line is unable to recover its costs through power rates, power costs may be included in transmission rates to comply with BPA's statutory requirement to cover its costs and repay Treasury. BPA agreed that it is required to keep separate accounts for power and transmission costs and that it should track power costs paid with transmission revenues. BPA cited several examples where the Ninth Circuit has deferred to BPA's exercise of its discretion when cost recovery was at issue, including the Intertie Access Policy litigation (LADWP) and the Trojan "fire sale".
Al Wright suggested that one way to characterize the to positions presented was to say that:
The group seemed to agree generally with his characterization and went on to discuss what might constitute "dire circumstances," whether such circumstances should justify departing from a strict separation of generation and transmission financing, how any transfers from one activity to the other would be treated (e.g. loan, early repayment of principal), and how rates to customers would be affected (e.g. "peanut butter" across all users or some sort of targeted charge).
The group’s discussion of the priority of Bonneville payments made it clear that, in the event of insufficient Bonneville revenues, payments to the U.S. Treasury would be deferred before other cash payments, and that billing credits, being paid in kind, have higher priority than cash payments to the Treasury or others. The possibility of deferring the Treasury payment creates a large buffer, so that there is very little risk of Bonneville failing to meet its other financial obligations (although the perceived security of the WPPSS bonds, in the minds of bondholders, is hard to judge).
Some members of the group have not yet taken a position on this issue. We hope to hear these positions at the next meeting. After these positions are presented, we’ll need to test if the apparent agreement on the first two points of the list above still holds. If so, we should return to the remaining questions: what are "dire circumstances," what is Bonneville authorized to do in "dire circumstances," and should its current authority be changed in any way?