Bonneville Power "Subscriptions" Seen Among Sticky Issues
A panel of governors in the Pacific Northwest expects to issue a plan this month that proposes a restructured Bonneville Power Administration, primed for the regional free-market electric economy.
The panel would act on a steering committee report that resolved pressing energy matters in the Northwest. But the committee report left open other issues that some say could leave the BPA's future in doubt.
The 20-member Steering Committee of the Comprehensive Review of the Northwest Energy System issued its report December 12. Picking it up from there was the Northwest Energy Review Transition Board, which includes governors' reps from Idaho, Montana, Oregon and Washington.
The plan recommends that state regulators offer open access to electric customers no later than July 1999. It also suggests that BPA transmission facilities should be operated independently of generation plants, and that an independent grid operator should oversee Bonneville and other major transmission owners. Any changes in the agency would require federal approval.
What could prove more important, however, are three key issues the Review left unresolved.
• BPA Debt. The steering committee made clear that the BPA could provide an economic edge in attracting and keeping business. However, it left open certain points crucial to BPA's survival (em and its bottom line. The BPA, after all, remains $14 billion in debt, with about half representing construction debt from failed nuclear plants taken on via the Northwest Power Planning Act of 1980.
• Fish and Wildlife. The report also includes a single paragraph on stranded costs. If a stranded charge is needed, it should be considered later, the report says. The Review doesn't resolve fish and wildlife restoration issues, although some say that was never within its scope. Yet "fish costs" will run to more than $425 million annually until 2001.
Fish costs will be reflected in power costs and will push users into taking short-term contracts, says William Drummond, who sat on the steering
committee. And it wouldn't take even half that much to push the system to bankruptcy, adds Drummond, also manager of Western Montana Electric Generating and Transmission Co-op, Inc.
• Capacity Subscriptions. The largest gamble the report makes on BPA's future, at the expense of fiscal salvation, could be its proposed subscription process, where users buy the output of BPA's 8000-megawatt hydropower system. BPA customers include 16 direct service industries (primarily aluminum, pulp, and paper companies), 41 municipal utilities, 29 public utilities, 56 co-operatives, seven federal agencies and seven investor-owned utilities.
Subscriptions would be sold at cost-based rates in five to 20-year increments. Shorter-term contracts would include fees to make up any risk to the Treasury. The process would begin in 2001, when BPA's current contracts expire.
Essentially, the process requires subscribers to buy in at higher rates in promise of lower rates over time.
Dulcy Mahar, BPA spokeswoman, says agency figures show that cost-based rates should drop below market around 2001. Up through 2017, most of the agency's largest debt would be retired. Over the next five years, the BPA would trim $600 million annually from its budget. Mahar sees the critical period as the next five years, figuring in the impact of deregulation, new market entrants, and natural gas prices.
How will the agency get subscribers to think "long term" when the market cries "short term?"
"I anticipate we're going to be negotiating and working with our customers," says Mahar. "It's going to be like a rate-setting process. ... Everybody's united in this vision of preserving these federal assets in the Northwest. Then, if they don't coalesce and pull off something, something's going to be done to us from Washington, DC ... I don't know if you want to call it the carrot or the stick, but that's going to be hanging out there and motivating people to work together.
"Clearly, clearly, it's fasten your seatbelts time."
Sharon L. Nelson, chairman of the Washington Utilities and Transportation Commission, and a steering committee member, notes that the only reason Bonneville isn't competitive now is because the region, with the 1980 Act, decided to take on "all the debt that many, many other actors in this marketplace incurred for the region in the nuclear thermal program started in the 70s." If it weren't for that debt, Bonneville would be competitive with combustion turbines. Once the debt is gone, it will be competitive, she says. The region wants to keep the BPA as a resource and to forestall the bureaucrats and Congress who want "to sell the thing off to the highest bidder."
Still, Nelson says she's concerned with the subscription process because the emphasis on long-term contracts relieves the stranded cost concern but conflicts with "a more fast paced competitive market."
"It's difficult for many people to understand you can take a 50-year-old hydro system and make it more expensive than a new combustion turbine," Drummond says. "But that's exactly what we've got. Eventually this system is going to be a gold mine, but you've got to withstand 10 or 15 years of high-cost power in order to get there."
"You've got to become an owner, take on the obligations of that system," says Alvin L. Alexanderson, senior v.p. of Portland General Corp. and a steering committee member. "And then you'll be in a justifiable position later on to say, 'We paid for it when it was worth more than market, and the payback is when it's cheaper than market.'"
He says whether the subscription process takes off and runs is an open question and is in the hands of the governors' panel.
"It could fail," Alexanderson says. "That's sort of an OK outcome (em to find out the whole system's under water and no one wants it. But if we get to that outcome, we ought to take it to Congress and say, 'Let's deal with it that way.' On the other hand if other people do want it ... then come to the subscription meeting and sign the card."
Besides a regional stamp of approval, the Comprehensive Review will need federal legislation and support to be carried out. The DOE has carefully followed the review process, particularly acting secretary Charles B. Curtis. What happens to the Review on the federal level could well depend on Curtis, should he leave the department when the Senate confirms a new energy secretary.
A final issue that might hit a snag regionally is the funding of public purpose measures, such as renewables and low-income weatherizations. Hotly debated in the committee and finally agreed upon in the panel's waning days was a 3 percent solution (em 3 percent of electricity services sales, or about $210 million a year. But it's "iffy," says Mahar. "We're getting messages from the four states [public utility commissions] saying they're not going to support it. I think there's going to be a big question as to whether that sticks."
The BPA markets power produced by more than 30 federal hydro-electric projects. Generation from the projects accounts for about 40 percent of the region's power. The BPA also owns most of the Northwest's high-voltage transmission facilities. t
Joseph F. Schuler, Jr. is an associate editor of PUBLIC UTILITIES FORTNIGHTLY. E-mail: firstname.lastname@example.org
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