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Power Council Counsels BPA on Role in NW Power Future by Mike O'Bryant Columbia Basin Bulletin - December 13, 2002

Nearly every utility, power supplier, environmental group and government agency has an idea about the role the Bonneville Power Administration should play in the Northwest's power future.

This week, the Northwest Power Planning Council took all the comments it had heard during almost four months of public input and put together its own views.

Council members this week unanimously approved recommendations to BPA that told the federal power marketing agency how it should conduct its business, particularly its power supply, after 2006.

The recommendations drafted by the Council's staff and the four power committee members -- Tom Karier, Washington; Eric Bloch, Oregon; Jim Kempton, Idaho; and John Hines, Montana -- deal mostly with energy issues, but give a nod to BPA's fish and wildlife obligations.

Leading the pack of issues among BPA's customers is how to divvy up the power among public and investor-owned utilities (IOUs) and direct service industries (DSIs), the length of power contracts, and BPA's future role in resource development, a responsibility many customers want to take away from Bonneville.

It also cautioned Bonneville that the agency needs to satisfy the Northwest Power Act's goals for fish and wildlife recovery, but at an acceptable cost to the region's consumers. That caught the attention of Bloch, who wanted to clarify that BPA should conduct its business in an efficient manner, but that doesn't mean it should reduce its obligations to conservation and fish and wildlife.

"What we're saying is that BPA should act in the most efficient way, not that if we don't like conservation or fish protection, we can throw it overboard," Bloch said.

Larry Cassidy, Council chair from Washington, said he assumes that some utilities, like Seattle City Light, which is paying a portion of BPA's fish and wildlife costs, will be examining those costs.

BPA and the Council earlier this year launched a public discussion about the "Future Role of Bonneville," how the federal agency markets power and how it distributes the costs and benefits of the Federal Columbia River Power System. At the center of much of the comments received was the Joint Customer Proposal offered by a large group of BPA customers, including IOUs and public utilities. Considering it a major settlement agreement among utilities that have more often disagreed on how the federal power system should be used, the Council adopted much of this new plan in its recommendations.

The Joint plan suggested significant changes to Bonneville's role, but neither that plan nor the Council's recommendations endorse backing away from BPA's fish and wildlife obligations. The recommendations say that Bonneville's customers "will continue to pay the costs associated with Bonneville's fish and wildlife obligations."

Dick Watson, director of the Council's power division, said some of the issues have been around a long time, especially how public utilities and IOUs share the costs of the residential and small farm exchange program. However, other issues are newer, such as whether BPA should develop and purchase new generation to meet the region's load growth.

Recommendations include:

• Support a 20-year contract period with customers, which should stabilize BPA. Watson said that, although they endorsed the long contract period, customers worried that with such a long period, BPA would have no incentive to remain efficient. They feel that if customers can't leave the BPA system, then they would lose their leverage to encourage the agency to remain efficient. Watson said that if customers can develop some type of enforceable cost control mechanism that maintains BPA's long-term stability, then the Council should consider it.

• Support the Slice product, which gives customers who sign up for this product a piece of the BPA system, but they must also assume the risks that may occur with that ownership. BPA already offers the Slice product, but it's capped at 1,600 megawatts. This proposal would give more customers access to the product. Slice customers must develop generating resources to meet their own load growth, which could help to minimize the tensions between the growing and the non-growing utilities. In addition, it would reduce BPA's market impact, or "foot print," as Watson called it. That impact has Gene Derfler, Oregon Council member, concerned. He said BPA has made some poor decisions in the past few years and he would prefer to get BPA out of the market so the market would see the right signals and get the supply and demand system working again. "We need a true market system," he said.

  The Northwest Energy Coalition was also concerned with Slice because the product's provisions to share costs and revenues from emergency hydro operations proportionately with Slice customers "creates a perverse incentive to violate fish operations," according to Watson, who summarized the Coalition's concern, but said Slice should reduce the pressure on fish operations.

  "To the extent that slice contracts reduce pressure on Bonneville to alter system operations to meet load, this would be beneficial to fish and wildlife," the recommendations said. Yet, the Council also recognizes that Slice customers may want to have more say in BPA fish operations, but makes it clear that responsibility resides only with the federal agencies, not with customers.

• Continue to offer the requirements product to meet the needs of customers who don't want the Slice product, but require those customers to meet future load growth or expose them to the marginal cost of the new energy.

• Accept the settlement between IOUs and public utilities on the residential and small farm exchange. The exchange provides some of the benefits of the federal power system to residential and small farm customers of IOUs, in effect lowering their electricity bills. "This is the issue that brought everyone to the table in the first place," Watson said. He said the proposed settlement is much easier to understand than the exchange as it's written in the 1981 Power Act. Council staff has analyzed the exchange and generally found that the exchange is a better deal for Bonneville and its customers when market rates are low, but the reverse is the case when market prices are high. While the Council could question the settlement, the "agreement between the parties is strong evidence of equity," he said.

• Direct Service Industries don't have a legal right to BPA's average cost of power, Watson said. Increasing the size of the federal system to meet DSI electricity requirements would cost all customers more, yet DSIs are important to local economies. So, when the current contracts expire in 2006, BPA should support some level of service to the DSIs, but reduce their amount to no less than that proposed in the Joint Customer Proposal, which is 650 MW, but somewhat less than the 1,440 MW the DSIs now have in their contracts. Most DSI's are shut down now and with a long-term downward trend in aluminum prices, that may persist, Watson said. Although the power committee initially recommended that DSI contracts expire in 20 years, Watson said the market should tell BPA what to do.

  The Council also recommended that BPA capture the benefits of interruptible contracts with the DSIs, something that the Coalition supports, but only if workers are compensated. The Coalition adopted a number of goals urged by the United SteelWorkers. That would ensure that workers are available when the DSIs are brought back on line. And, the Council recommended that BPA investigate innovative contracts that would allow the plants to open when aluminum prices are high and there is adequate electricity. DSIs should also be required to develop some of their own resources, the Council recommended.

• Any changes in BPA's role in the region should ensure that all cost-effective conservation is achieved, something called for in the Power Act. However, with customers responsible for load growth, conservation poses at least one disincentive -- the more conservation, the greater the decline in revenues. To support the conservation principle, BPA needs to redesign its conservation and renewable discount program.

• BPA should support some level of above market renewable energy, such as wind generation, and should explore the potential of calculating external environmental costs in its cost-effective analysis of these resources.

Bonneville also has been holding a series of meetings with its customers "where they are tipping out their preferences and we've been engaged in that," Cassidy said. He expects BPA to release their draft proposal for public comment in late January or early February 2003. The timing of the Council's recommendations will allow BPA to take the recommendations into account. But, he said, "Their proposal in January or February is only the beginning of the game."

Related Sites:
NWPPC: www.nwcouncil.org
BPA: www.bpa.gov/indexmain.shtml