| Northwest Energy Review Transition Board | John Etchart, Montana |
| 851 S.W. Sixth Avenue, Suite 1100 Portland, Oregon 97204-1348 |
Roy Hemmingway, Oregon |
| Phone 503-222-5161 or 1-800-452-5161 FAX 503-795-3370 |
Mike Kreidler, Washington |
| Todd Maddock, Idaho |
Transition Board Transmission Work Group
Meeting 4
May 20, 1997
Al Wright chaired the work group’s fourth meeting at the Northwest Power Planning Council’s offices in Portland. About 40 people attended.
The meeting began with a discussion of the latitude, if any, allowed Bonneville in allocating non-transmission costs to transmission rates. Paul Murphy’s position paper 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:
1. They agreed that Bonneville has flexibility in using money from one activity to meet the other activity’s obligations in the short run.
2. They agreed that separate accounting for generation and transmission is appropriate in "normal circumstances."
3. They disagreed about which concern, making the payment to the U.S. Treasury, or separation of transmission revenues from generation revenues, was the paramount concern under "dire circumstances."
The group went on to discuss the two positions and possible definitions of "dire circumstances." It also discussed a conceptual diagram suggested by Jim Litchfield, demonstrating the components and priorities of Bonneville payments. The diagram suggested that the possibility of deferring payment to the Treasury provides a substantial buffer against risk of nonpayment to other parties (i.e. WPPSS bondholders). The diagram used illustrative numbers, which Bonneville said they could refine for the next meeting.
Several public power representatives said they needed time to digest the material presented at this meeting and formulate their own positions. At our next meeting, we will continue the discussion of whether and how Bonneville might put non-transmission costs into transmission rates. Any others who have positions on the allocation of costs to transmission will come prepared to present them.
Robb Roberts of Bonneville explained the priority given to Bonneville’s payments to different parties. First priority for net billing credits for WPPSS bonds results from the credits being paid in kind (power and transmission services) rather than as cash payments from the Bonneville fund. Payments to the U.S. Treasury receive lowest priority, with other payments (not billing credits, and not to U.S. Treasury) falling in between.
Steve Larson went over a comparison of FERC regulation of Bonneville with FERC regulation of other transmitters. Bonneville will expand on this comparison for the next meeting. Group members should bring a list of those areas where it is most important that FERC bring its regulation of Bonneville into line with its other regulation.
The next meeting of the work group is scheduled for 9:00 AM, June 3, 1997 at PGE (the mezzanine meeting room at World Trade Center II, 121 S.W. Salmon, Portland).