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Northwest Passage: BPA's Changing Role

The treacherous journey toward a more efficient and transparent Northwest power market may be nearing its conclusion.
Fortnightly Magazine - July 2004

consumers (termed direct-service industries [DSIs]).

"Some customers started to drop off Bonneville, to find power in the deregulated market," says Jim Kempton, Idaho member and power committee chairman for the Northwest Power & Conservation Council (NWPCC, formerly the Northwest Power Planning Council).

During this time, some stakeholders in the region began arguing that in a deregulated power market, Bonneville's structure created some fundamental problems. Namely, its dominating position, by virtue of the massive transmission system and generating assets that it controlled, would make it difficult for wholesale competitors to make inroads in the region.

"Institutionally, the transmission business line has been a handmaiden to the power business line," says Robert D. Kahn, executive director of the Northwest Independent Power Producers Coalition (NIPPC) in Mercer Island, Wash. "We as generators are transmission customers of BPA, and regularly we are treated as second-class citizens."

Bonneville voluntarily agreed to functionally unbundle itself, creating separate business lines for power generation and transmission. A group of state governors and other stakeholders in the region, however, saw issues that unbundling alone could not address. So they collaborated to develop a set of recommendations for BPA's future-the Comprehensive Review of the Northwest Energy System. 3

"BPA's vertical footprint was so huge that the region was incompatible with the concept of a deregulated electric industry," Kempton says. "The 1996 review was an attempt by the region to accommodate the real world as the U.S. Congress had defined it." Key features of the proposal included the recommendation that BPA sell its output through long-term (20-year) contracts, reducing uncertainty and creating a more distinct allocation of the resource. Additionally the review concluded that Bonneville should minimize its acquisition of power supplies from outside its existing asset base, to limit its exposure to wholesale market risks and more appropriately allocate incremental costs (i.e., to the utilities or DSIs that would request the power).

This proposal failed to yield a consensus, but it staked out the territory for debate that would resume in later proceedings.

RTO Redux

When the Federal Energy Regulatory Commission (FERC) issued Order No. 2000 in 1999, the region's transmission operators began collaborating to develop a proposal for the RTO West organization. Then two things happened: the Western energy crisis hit, and FERC proposed a rulemaking on standard market design (SMD).

FERC's SMD proposal worried various stakeholders because of the prescriptive nature of the market it envisioned. "It created substantial alarm among many of the interested parties," says Bud Krogh, a partner with Krogh & Leonard in Seattle, and coordinator of the region's RTO-development process. "The perception was that FERC wasn't going to be responsive to the unique aspects of the system in the Northwest. That one act led to tremendous opposition from a number of regional parties, and we fundamentally lost the base of support in the Northwest region to continue going forward on those specific proposals."

Stakeholders felt that the SMD was a mismatch to the region's heavy reliance on hydropower-a resource that responds primarily to environmental and operational factors rather than the economic needs of the market.

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