[Federal Register Volume 64, Number 1 (Monday, January 4, 1999)]
[Notices]
[Pages 149-157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34788]
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DEPARTMENT OF ENERGY
Bonneville Power Administration
Power Subscription Strategy
AGENCY: Bonneville Power Administration (BPA), Department of Energy
(DOE).
ACTION: Notice of Record of Decision (ROD).
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SUMMARY: The Bonneville Power Administration (BPA) has decided to adopt
a Power Subscription Strategy for entering into new power sales
contracts with its Pacific Northwest customers. The Strategy equitably
distributes the
[[Page 150]]
electric power generated by the Federal Columbia River Power System
(FCRPS), within the framework of existing law. The Power Subscription
Strategy addresses the availability of power; describes power products;
lays out strategies for pricing, including risk management; and
discusses contract elements. In proceeding with this Subscription
Strategy, BPA is guided by and committed to the ``Fish and Wildlife
Funding Principles for Bonneville Power Administration Rates and
Contracts'' (Fish and Wildlife Funding Principles) that were announced
by the Vice President of the United States in September 1998. This
decision is a direct application of BPA's earlier decision to use a
Market-Driven approach for participation in the increasingly
competitive electric power market and is consistent with BPA's Business
Plan, the Business Plan Environmental Impact Statement (BP EIS) (DOE/
EIS-0183, June 1995) and the Business Plan Record of Decision (BP ROD)
(August 15, 1995). The complete text of the Power Subscription Strategy
ROD is below in the Supplementary Information section of this Notice.
ADDRESSES: Additional copies of this ROD, and of the BP EIS and the BP
ROD, may be obtained by calling BPA's toll-free document request line:
1-800-622-4520.
FOR FURTHER INFORMATION CONTACT: Katherine Pierce--ECP-4, Bonneville
Power Administration, P.O. Box 3621, Portland, Oregon, 97208-3621,
phone number (503) 230-3962, fax number (503) 230-5699.
SUPPLEMENTARY INFORMATION: In response to a need for sound policy to
guide its business direction under changing market conditions, BPA
explored six alternative plans of action in its BP EIS. The six
alternatives were: Status Quo (No Action), BPA Influence, Market-
Driven, Maximize Financial Returns, Minimal BPA, and Short-Term
Marketing. In the subsequent BP ROD, the BPA Administrator selected the
Market-Driven alternative. Although the Status Quo and the BPA
Influence alternatives were the environmentally preferred alternatives,
the differences in total environmental impacts among alternatives were
relatively small. Other business aspects, including loads and rates,
showed greater variation among the alternatives. The Market-Driven
alternative strikes a balance between marketing and environmental
concerns. It also helps BPA to ensure the financial strength necessary
to maintain a high level of support for public service benefits such as
energy conservation and fish and wildlife mitigation activities.
The BP EIS was intended to support a number of decisions (BP EIS,
section 1.4.2), including the:
Products and services BPA will market,
Rates for BPA products and services to be implemented in
future rate cases,
Strategy BPA will use to administer its fish and wildlife
responsibilities,
Policy direction for BPA's sale of power products to
customers, and,
Contract terms BPA will offer for power sales.
The BP EIS and ROD also documented a decision strategy for
subsequent actions. BPA's Power Subscription Strategy is one of these
subsequent actions and the subject of this tiered ROD (BP EIS, section
1.4.1 and BP ROD, page 1). Tiering subsequent RODs to the BP ROD helps
delineate BPA decisions and provides a logical framework for connecting
broad programmatic or policy level decisions to more specific actions
(see Figure 1--not included in this Notice). BPA reviewed the BP EIS to
ensure that power Subscription was adequately covered within its scope
and that it was appropriate to issue a tiered ROD (BP EIS, section
1.4.2). This tiered ROD, which summarizes and incorporates information
from the BP ROD, clearly demonstrates this decision is within the scope
of the BP EIS and ROD. This ROD describes specific information
applicable to the decision on BPA's Power Subscription Strategy, and
provides a summary of the environmental impacts associated with this
decision with reference to the appropriate sections of the BP EIS and
BP ROD. BPA will also issue an Administrative ROD describing the legal
and policy rationale supporting the administrative decisions made in
the Final Power Subscription Strategy.
Competitiveness in the Electric Utility Industry
BPA supplies about 40 percent of the Pacific Northwest's
electricity and about 75 percent of the region's high-voltage
transmission. Although it is a Federal agency, BPA does not receive tax
money. It must cover all its costs with revenues earned in the market.
From these revenues, BPA funds public benefits, such as fish and
wildlife, conservation, and renewable energy programs. It also uses its
revenues to meet its repayment obligations to the United States
Treasury (Treasury) on the Federal investment in the region's
hydroelectric dams and the transmission lines.
The electric utility industry is increasingly competitive and
dynamic. Four factors have substantially affected BPA's ability to
compete in a fully deregulated wholesale electricity market: market
change, increased nonpower obligations, the potential deterioration of
BPA's cost/price advantage, and lost hydro output. However, BPA must be
able to balance its costs and revenues. The emergence of a competitive
market for power creates supply choices for BPA customers and prevents
BPA from meeting costs simply by raising rates. Expected firm prices
set a power rate level, above which a rate increase would no longer
increase BPA's revenue and cover BPA's costs. This level is defined as
BPA's maximum sustainable revenue (MSR) (BP EIS, sections 1.1, 2.6.1,
and 4.4.1).
Allowing BPA's rates to exceed this level would not be consistent
with sound business principles. It would result in a reduction in BPA's
total revenue and BPA's ability to fund public benefits. Power
Subscription will facilitate BPA's ability to retain customers and
successfully compete in the market for the long term.
Customers
BPA sells at the wholesale level to public agencies, other
utilities, and to a few direct service industries (DSIs). Subscription
contracts will be available to BPA's public agency preference
customers, Federal agencies, investor-owned utilities (IOUs) and DSIs.
Preference customers--Public utility districts,
municipalities, and cooperatives to which, by law, BPA must give
preference for Federal power. These customers include utilities without
power generation that rely on BPA for all or nearly all of their
wholesale power needs, and those with generation that meet some of
their load with non-Federal resources.
Federal agency customers--Those Federal agencies in the
Pacific Northwest that buy most of their electricity directly from BPA.
Customers include Fairchild Air Force Base and the U.S. Department of
Energy (DOE), Richland Operations Office.
IOUs--Private, investor-owned utilities. Under the
Residential Exchange Program, as defined by the Pacific Northwest
Electric Power Planning and Conservation Act (Northwest Power Act),
regional IOUs have historically ``sold'' BPA an amount of power equal
to their residential and small farm load at a price equal to their
average system cost. In exchange, BPA has sold them an equal amount of
power at the Priority Firm (PF) Exchange rate.
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The benefits of this financial transaction have been passed on to their
residential and small farm customers in the form of lower retail rates.
BPA's Subscription Strategy proposes to offer IOUs a settlement of the
Residential Exchange Program comprised of a sale of power and the
payment of monetary benefits.
DSIs--Large industries, primarily aluminum smelters, that
buy electric power directly from BPA at relatively high voltages.
Under the Power Subscription Strategy, all customers serving
regional firm load are eligible to purchase firm power within the
constraints of existing statutes.
Public Process
As shown in Figure 1 (not included in this Notice), public process
is integral to BPA's decisionmaking. With the changing marketplace for
electric power, there is considerable regional interest in defining how
and to whom the region's Federal power should be sold. The public has
been involved at several levels during the development of BPA's Power
Subscription Strategy. In addition to the public meetings held
specifically on Subscription, BPA sought input from a wide range of
interested and affected groups and individuals. BPA collaborated with
Northwest Tribes, interest groups, Congressional members, DOE, the
Administration, and customers to resolve issues, understand commercial
interests, and develop strong business relationships.
The concept of power Subscription came from the Comprehensive
Review of the Northwest Energy System, which was convened by the
governors of Idaho, Montana, Oregon, and Washington to assist the
Northwest through the transition to competitive electricity markets.
The goal of the review was to develop recommendations for changes in
the region's electric utility industry through an open public process
involving a broad cross-section of regional interests. In December
1996, after over a year of intense study, the Comprehensive Review
Steering Committee released its Final Report.
The Final Report recommended that BPA capture and deliver the low-
cost benefits of the Federal hydropower system to Northwest energy
customers through a subscription-based system. Consistent with the new
competitiveness in the electricity market, the goals for Federal power
marketing were to: align the benefits and risks of access to Federal
power, ensure BPA's repayment of the debt to the Treasury, deliver the
low-cost benefits of the Federal hydropower system to Northwest energy
customers, and retain the long-term benefits of the system for the
region. In early 1997, the Governors' representatives formed a
Transition Board to monitor, guide, and evaluate progress on these
recommendations.
Also in early 1997, BPA and the Pacific Northwest Utilities
Conference Committee (PNUCC) invited 2800 interested parties throughout
the Pacific Northwest to help further define Subscription. The
collaborative effort to design a Subscription process began with a
public kickoff meeting on March 11, 1997. At this meeting, a BPA/
customer design team presented a proposed work plan, including a
description of the environmental coverage for Subscription. An
important element of the work plan was the formation of a Subscription
Work Group. The Work Group, which normally met twice a month (on the
first and third Wednesdays) from March 1997 through September 1998, was
open to the public. On average, 40-45 participants--representing
customers, customer associations, Tribes, state governments, public
interest groups, and BPA--attended. Three subgroups formed to more
intensely pursue the resolution of issues involving business
relationships, products and services, and implementation.
Over the past 18 months, BPA and its customers have discussed and
clarified many Subscription issues. During this time, BPA and the
public confirmed goals, defined issues, developed an implementation
process for offering Subscription, and developed proposed product and
pricing principles.
In addition to the March 1997 kick-off meeting, two other regional
meetings were held specifically to ensure the public understood and had
an opportunity to participate in the Subscription process. One meeting
was held in December 1997 and the other in June 1998. In addition, BPA
conducted a series of meetings around the region. These meetings, which
were part of the public involvement process known as ``Issues '98,''
covered many regional subjects. Issues related to Subscription were key
topics in the discussions at those meetings. The public comment period
for Issues '98 closed June 26, 1998.
Late in the summer of 1998, after considering the efforts of the
Subscription Work Group, public comments on Subscription, and the broad
information from Issues '98, BPA developed a Power Subscription
Strategy Proposal. BPA released its Power Subscription Strategy
Proposal on September 18, 1998. The Proposal, which incorporated the
information received from customers, Tribes, fish and wildlife interest
groups, industries and other constituents, laid out BPA's strategy for
retaining the benefits of the FCRPS for the Pacific Northwest after
2001. The public was invited to participate in two comment meetings:
one in Spokane, Washington, on October 8; the other in Portland,
Oregon, on October 14. The comment period closed October 23, 1998,
although all comments received after that date were considered. To
learn more about the issues addressed in BPA's Subscription Strategy
Proposal, interested parties were also invited to BPA's Columbia River
Power and Benefits Conference on September 29, 1998, in Portland,
Oregon. Over 250 people attended.
Summary of Key Issues and Concerns
BPA received over 200 separate written comments from Tribes,
States, utilities, industries, interest groups, and citizens. Most of
the comments presented at the two public meetings were followed with
formal written comments. Comments on BPA's Power Subscription Strategy
Proposal totaled almost 600 pages. In general, comments were readily
grouped by customer class or interest group. Many customers expressed
concern over BPA's proposed risk management strategy, especially the
potential level of financial reserves and the use of such reserves.
Similarly, most customer groups also voiced concern about the details
of a Cost Recovery Adjustment Clause (CRAC), including the levels and
disposition of cash reserves. Also, most customers encouraged BPA to
extend the Subscription ``window'' for three to six months beyond the
final rate decisions.
A summary of key issues and concerns by customer class or interest
group follows. The Administrative ROD provides a more detailed
evaluation of comments by issue.
Preference customers--In general, comments received from
preference customers and their associations were supportive of the
Proposal. However, these customers shared common concerns about
preference and sales to other customer classes. Preference customers
were adamant that BPA should avoid taking any actions that would
impinge on their statutory right to preference and priority to Federal
power. In urging BPA to extend the Subscription ``window,'' most of
these customers cited the need to understand the rates before they
could negotiate contracts and take the proposed contracts to their
elected boards for
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discussion and final action. Most preference customers were opposed to
tiered rates, noting they are entitled to BPA's lowest cost power.
Most preference customers did not object to BPA selling firm power
to the IOUs in settlement of the Residential Exchange Program as long
as all preference customer requests were met first. In contrast, the
preference customers were not generally supportive of BPA reserving
power for the DSIs. Much expressed concern that BPA might offer to sell
surplus firm power to the DSIs ahead of offering such power to them.
In addition, there were a large number of comments on issues
specific to individual or subgroups of public utilities. For example,
comments from utilities with rural systems focused on BPA's low density
discount (LDD) proposal while those dependent on general transfer
agreements (GTAs) for their BPA service focused their comments on GTA-
related proposals.
Also, some public utilities expressed concern that the range of
costs for fish and wildlife was too high.
IOUs--In general, the IOUs supported BPA's proposal to
sell firm power, in combination with some monetary benefit, to settle
the Residential Exchange Program. They also all urged BPA to make more
power available to them and to offer as broad an array of products as
possible to serve their residential and small farm loads. Some IOUs
noted that residential exchange ``deemer'' balances should not affect
proposed sales to them for residential and small farm customers.
The IOUs asked for greater assurance of rate comparability with the
PF rate. Several asked for lower rates than Priority Firm, citing the
advantage to the Federal system of the proposed flat block loads. The
IOUs were unanimous that BPA is obligated to make final decisions
regarding sales of power to individual IOUs rather than allowing the
state utility commissions to make the final decisions. They also all
pushed for a longer time period for Subscription, citing their
contracting and regulatory processes.
Most of the IOUs supported BPA's proposal to tier rates. This
support was based on the concept that marginal cost rates would prevent
undue growth of the Federal power system. In fact, the IOUs were
unanimous in recommending that BPA not ``grow the system'' by
purchasing power to firm its nonfirm power, or otherwise increasing the
size of the Federal Base System (FBS).
The IOUs commented that either no transmission surcharge should be
considered or a surcharge should only apply to Federal power being
wheeled. Some IOUs recommended that BPA allow delivery of non-Federal
power under applicable GTAs.
DSIs--The most significant issue for the DSIs was whether
or not BPA would have any firm power available to them after serving
preference customers and IOUs. Several of the DSIs were concerned that
BPA might make final power ``allocation'' decisions, which would
eliminate the possibility of power sales to them. They urged BPA to
delay any final Subscription decisions until BPA was actually engaged
in Subscription sales. They suggested BPA could then better judge what
its actual sales to publics and IOUs would be and could better decide
what level of system augmentation purchases were necessary and
affordable. The DSIs also disagreed with BPA over BPA's legal authority
under the Northwest Power Act section 5(b) to sell power to the IOUs
for their residential and small farm customers. They recommended that
BPA rely on the Northwest Power Act's section 5(c) statutory
Residential Exchange program as the primary mechanism to extend
benefits to the residential and small farm customers of IOUs.
The DSIs urged BPA not to declare that the inventory available for
Subscription would be absolutely limited to 6300 average megawatts
(aMW). Rather, they urged BPA to augment, or at least keep open the
possibility of augmentation, the Federal power system and meld the
costs into the existing FBS costs. As regional customers, they also
asserted ``first call'' rights on any surplus Federal power before it
could be sold outside of the region. Some DSIs expressed the view that
BPA should give special policy consideration to the DSIs that had
remained faithful customers during the first years of wholesale power
deregulation.
In addition, some of the DSIs claimed that BPA's proposal to tier
rates was not contemplated by the Northwest Power Act. Moreover, they
noted that if such incremental pricing were to be adopted, it should be
adopted across all classes of customers. Also, the DSIs commented that
the range of fish and wildlife cost alternatives being considered was
too high.
States--The four Pacific Northwest state public utility
commissions (PUCs) submitted joint comments. The PUCs encouraged
greater sales to the IOUs and they recommended the Slice product be
offered to IOUs for residential and small farm customers. The PUCs
encouraged BPA to continue a full separation of power and transmission.
They also suggested using a transmission surcharge only in an extreme
emergency. The states believe BPA's power should reach market rates
before any transmission surcharge is enacted.
The governors' offices strongly supported the positions taken by
the PUCs. In addition, the Office of the Governor of Montana reminded
BPA of Montana's deregulation legislation in encouraging BPA to ensure
the residential and small farm customers of IOUs share in the power
benefits of the Federal system.
Tribes--Several Tribes conveyed their support for the
Tribal Utility proposal, but expressed concern about the relatively
short timeframe for planning and developing a Tribal Utility and about
their lack of resources. Some Tribes also noted their concerns about
the allocation of the benefits of the FCRPS.
Interest groups--Public interest groups were generally
supportive of BPA's proposal. They were largely unsympathetic to the
DSIs plight and urged more power be sold to the IOUs' residential and
small farm customers. Alone among commenters, they asked how BPA would
cope with a major loss of resources. Some encouraged BPA to plan for
the highest cost scenario for fish and wildlife funding; some asked BPA
to drop the lowest cost scenario from consideration. The public
interest groups were universally complimentary of a proposed
conservation and renewable resource rate discount.
BPA also received letters from about 50 citizens--all of whom are
served by Puget Sound Energy in Washington State--urging BPA to make
Federal power available to them even though they are served by an IOU.
Several members of the Washington State Legislature also commented
similarly.
Relationship to Other Processes
Public input on BPA's Power Subscription Strategy Proposal revealed
regional interest in several other key issues, notably future fish and
wildlife funding and the 1999 Power Rate Case, facing BPA and the
region. The tiered ROD strategy (Figure 1--not included in this Notice)
supports the Power Subscription process being conducted simultaneously
with other processes on these key issues. As anticipated in the BP EIS
analysis, BPA has confirmed that prospective customers are not waiting
until 2001 to arrange their 21st century power supply (BP EIS, section
1.1 and BP ROD, page 2). Instead, many are looking for sellers who can
offer them low, stable, long-term rates now. By offering competitively
priced power in a timely fashion, BPA will be able to retain customers
and corresponding
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revenue. Without sufficient revenue, BPA would be unable to guarantee
full funding for its many responsibilities, including conservation,
fish and wildlife projects, and renewable energy programs (BP EIS,
section 2.6.1).
BPA's multi-faceted business is complex. To help ensure its
success, BPA decided to embark simultaneously upon independent
processes addressing these key issues. While contract negotiators would
benefit from absolute knowledge of all future program costs and program
negotiators would benefit from absolute knowledge of BPA's future
revenue, the realities of a competitive marketplace often preclude
waiting for such comprehensive information. To carry out its public
responsibilities within a competitive marketplace, BPA must have the
freedom to define the scope of individual business decisions without
having to resolve all of the region's problems at once.
BPA understands the extensive regional interest and concerns
regarding future fish and wildlife funding. The Fish and Wildlife
Funding Principles were announced by Vice President Gore on September
21, 1998. The announcement of the Principles followed a process that
began in November 1997 and continued until early September 1998. This
public process included over 60 meetings with concerned citizens,
Tribes, State and Federal agencies, BPA customers, and public interest
groups. The preamble to the Fish and Wildlife Funding Principles states
that the purpose ``of these principles is to conclude the fish and
wildlife funding process in which BPA has been engaged with various
interests in the region, and provide a set of guidelines for
structuring BPA's Subscription and power rate processes. The principles
are intended to `keep the options open' for future fish and wildlife
decisions that are anticipated to be made in late 1999 on
reconfiguration of the hydrosystem and in early 2000 on the Northwest
Power Planning Council's Fish and Wildlife Program.''
BPA has examined issues, including fish and wildlife funding,
related to fish and wildlife administration under different business
conditions (BP EIS, section 2.4.5). The analysis included a
determination of potential impacts. Therefore, BPA is well prepared to
make separate individual business decisions such as a Power
Subscription Strategy and the 1999 Power Rate Case that complement one
another and are guided by the Fish and Wildlife Funding Principles.
Proceeding with the Power Subscription Strategy is vital to
providing BPA with the financial predictability and stability it needs
to compete in a deregulated wholesale electric marketplace. As
explained in detail in the BP EIS and the System Operation Review (SOR)
EIS (DOE/EIS-0170, February 1995), BPA will serve its contractual
obligations and market power and services with available resources
consistent with the operating constraints that apply to the
hydrosystem. (BP EIS, section 1.5.6 and BP ROD, page 4). Additionally,
the BP EIS details various response strategies designed to address any
financial imbalance due to revenue shortfall as a result of
unanticipated expenditures (BP EIS, section 2.5 and BP ROD, pages 13-
14). In circumstances with unforeseen costs or revenue shortfalls, BPA
could implement one or more of these response strategies to allow the
agency to continue to compete in the electric utility market and
fulfill its statutory responsibilities. The Risk Management Strategy
described in the Power Subscription Strategy is consistent with the
response strategies discussed in the BP EIS.
During the past year, BPA has worked with interest groups, other
agencies, and customers to understand how BPA will address the
uncertainty of future fish and wildlife costs in future rates and
contracts. BPA is committed to meeting the Fish and Wildlife Funding
Principles presented in September 1998. The Subscription process and
the power rate proposal are the major means for meeting BPA's
commitment. BPA believes, based on analyses to date, that the Power
Subscription Strategy carries out the Fish and Wildlife Funding
Principles. This issue is subject to further test in the Power Rate
Case, and adjustments may be made in BPA's implementation methods if
necessary.
The Power Subscription Strategy Proposal discussed some issues that
will not be finally decided in the Power Subscription Strategy. Most of
these issues will be finally decided in the 1999 Power Rate Case (also
known as a section 7(i) process), although some will be decided in
other forums, such as the Transmission Rate Case, which will be
concluded before October 2001. For example, while the Strategy
documents BPA's intention to implement a discount for conservation and
renewable resources, the final design of that discount will be decided
in the 1999 Power Rate Case. Other issues that will be decided in the
1999 Power Rate Case include the design and application of the CRAC,
which rates apply to which sales, and the design of the LDD.
While BPA's Subscription Strategy does not establish any rates or
rate designs, rate design approaches identified in the Subscription
Strategy will be part of BPA's initial power rate proposal, which is
expected to be published in early 1999. The comments received during
the Subscription public process regarding the various rate-related
issues will be addressed in the power rate case, which includes
extensive opportunities for public involvement.
The final Power Subscription Strategy will provide a framework for
the 1999 Power Rate Case and Subscription contract negotiations. The
Subscription window will remain open 120 days after the Power Rates ROD
is signed by the BPA Administrator, providing relatively certain
information to potential purchasers regarding rates.
Summary of BPA'S Power Subscription Strategy
The Power Subscription Strategy is BPA's decision on equitably
distributing to its customers the electric power generated by the
FCRPS, within the framework of existing law. The Strategy outlines the
overall process for implementing Federal power Subscription and
provides a policy framework for the 1999 Power Rate Case. The Power
Subscription Strategy, which provides a comprehensive description of
BPA's decision, is available as a separate document. The Strategy is
briefly summarized as follows.
The Strategy has four principal goals:
Spread the benefits of the FCRPS as broadly as possible,
with special attention given to the residential and rural customers of
the region;
Avoid rate increases through a creative and businesslike
response to markets and additional aggressive cost reduction;
Allow BPA to fulfill its fish and wildlife obligations
while assuring a high probability of Treasury payment; and
Provide market incentives for the development of
conservation and renewables as part of a broader BPA leadership role in
the regional effort to capture the value of these and other emerging
technologies.
Subscribing to Federal Power. The Subscription window will be open
from February 1, 1999, until 120 days after the ROD for the 1999 Power
Rate Case is signed. BPA and its customers can bilaterally negotiate
and execute power sales contracts at any time during this period. In
determining customers' net requirements eligibility, BPA will apply
criteria that define which entities qualify for service. BPA also will
apply section 9(c) of the Northwest Power Act
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and review customer requests for service in light of the extent to
which power, including power previously applied to loads in the region,
has been sold for use outside the region. All contracts will be subject
to the final rates established in the Power Rate Case.
All customers can negotiate during the Subscription window for
power at applicable rates.
Publics--All net requirements load, including load of new
publics and load annexed by publics during the Subscription window, not
currently served by all 5(b)(1)(A) resources and 5(b)(1)(B) generating
resources.
Residential Loads of IOUs--For 2002-2006 BPA intends to
offer at least 1000 aMW of power and 800 aMW of power or financial
benefits. For customers that purchase 10-year contracts, BPA will
provide the 1800 aMW package for the first five-year period, and 2200
aMW for the second five years.
DSIs--BPA expects to be able to serve all DSI load placed
on the agency.
Managing Financial Risk. BPA's pricing of its power
products and services is based, in part, on the agency's risk
management strategy. BPA faces a number of uncertainties, including
future hydro conditions, market prices, operating costs, and fish and
wildlife costs, which could affect how BPA operates and successfully
meets all of its public responsibilities. To ensure BPA recovers all of
its costs, the agency will use a variety of risk management tools.
These tools are described in detail in BPA's Power Subscription
Strategy.
Products and Services. BPA will market three categories of
products:
Core Subscription products--These products are available
to customers who request requirements service to serve load and accept
constraints on their ability to shape their purchases from BPA for any
reason other than following variations in consumer load. These
undelivered products will be offered at BPA's posted rates.
Customized Subscription products--Customized products are
available to customers who request requirements services to serve load
(Core Products) and who want additional flexibility to reshape their
purchases from BPA in order to optimize their resource operations.
These products will have bilaterally negotiated pricing for all
modifications to Core Products and any additional products and services
customers wish to purchase. BPA anticipates that the price for
customized products that differ substantially from the core products
will be negotiated under the Firm Power Products and Services (FPS)
rate schedule.
Non-Subscription products--This category broadly includes
power products and services that BPA might sell to any customer in the
marketplace. These products will have prices negotiated under BPA's FPS
rate schedule within the cost-based cap existing for that rate
schedule. For detailed product descriptions, refer to the BPA Power
Products Catalog available from BPA account executives or on the Power
Business Line Web site.
BPA will also offer another product called Slice of the System. The
Slice of the System is a requirements service and will be offered by a
formula to be developed during the Power Rate Case. The final details
of this product will be developed through an open process that will be
concluded before the end of January 1999. Slice will allow eligible
customers to pay a fixed percentage of BPA's costs in return for a
fixed percentage of the capability of the FCRPS, mapped to net
requirements.
Pricing. BPA intends to propose power rates for the 2002-2006 rate
period that are significantly below market and approximately equal for
all customer groups. Final pricing decisions will be made in the power
rate 7(i) process in 1999.
Subscription sales (i.e., contracts signed during the
Subscription window) to public agency customers will be at the PF rate.
Subscription sales to IOUs and DSIs would be at applicable rates, which
are expected to be approximately equivalent to the PF rate, subject to
a section 7(i) hearing and BPA meeting its statutory rate directives.
Loads of preference customers that contract for services
too late for inclusion in rate case analysis (i.e., the Power Rate Case
setting rates for the FY 2007-2011 period) will be served at the PF
rate through the end of that rate period, with a targeted adjustment
charge. This targeted adjustment charge will reflect incremental costs,
if such costs are incurred to serve the load. Also, any loads placed on
BPA after the close of the Subscription window will receive this rate
treatment at least through FY 2006.
Option fees have been dropped. Eligible customers who make
long-term commitments to buy power will get a contractual guarantee of
BPA's applicable lowest cost-based rates beyond FY 2006.
BPA will continue the LDD, with minor modifications, in a
manner similar to current practice.
BPA intends to continue existing General Transfer
Agreement (GTA) service to customers for delivery of Federal power
through the 2002-2006 rate period. This service will not be available
to new preference customers or to existing preference customers for
service territory expansions. BPA will attempt to negotiate extensions
through 2006 for GTA agreements that expire during this time. If
unsuccessful in this attempt, BPA will arrange for open access tariff
transmission to replace GTAs for delivery of Federal power to GTA
points of delivery. This delivery will be covered by power rates. The
costs for delivery of non-Federal power to GTA points of delivery will
not be covered by power rates.
BPA has an important role in fostering and promoting the
development of energy conservation and renewable resources in the
Northwest. BPA plans to offer a 0.5 mill per kilowatthour Conservation
and Renewables Rate Discount to utilities that voluntarily implement
measures to develop energy conservation and renewable resources, up to
a total of $30 million per year. The discount will be dollar for
dollar. BPA is also considering whether, if its actual financial
performance turns out to be much better than the rate case plan, to
offer an additional discount for customers who support additional
conservation and renewables activities. The details of how BPA plans to
proceed with the discount in the initial rate proposal will be provided
in the Administrative ROD.
Contract Elements. BPA intends to conduct bilateral negotiations
with each of its customers to develop a contract that establishes the
specific business relationship between that customer and BPA. All
contracts will contain some provisions that are non-negotiable and
consistent across all Subscription contracts.
BPA will provide various incentives for customers to
choose among three-year contracts, five-year contracts, and contracts
longer than five years.
BPA will be willing to negotiate non-requirements surplus
firm power contracts with small rural full service customers that may
be inordinately affected by rate design changes.
Under Subscription contracts, customers bear the risk of
losing load due to retail open access. BPA will offer several means to
mitigate a customer's financial risk due to retail load loss.
BPA will offer load growth coverage to public agency
customers. Utilities whose loads grow due to retail access load gain or
annexations and have contracts before the close of the Subscription
window will be served with requirements power at the PF rate. However,
new large single loads (NLSL)
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will be served at the New Resources Firm Power rate. Public agency
requests to BPA for additional service after the Subscription window
closes will be subject to the special price and notice provisions
described in the Pricing section.
A new public utility, which is eligible for service under
BPA's statutes and which forms and contracts for service within the
Subscription window will be offered power at the PF rate for its entire
load obligation, except for NLSLs. New tribal preference utilities,
which are eligible for service under BPA's statutes, will be treated
the same as other new public utilities.
Under current statutory provisions, customers who purchase
for their net firm power requirements load are not able to pool their
power purchases with other customers' purchases. If new legislation
affecting pooling is passed, BPA will consider modifying its contracts.
Environmental Analysis
BPA's BP EIS focused on the relationships of BPA to the market. (BP
EIS, section 2.1). BPA's marketing actions do not have a direct effect
on air, land, and water. Previous environmental studies (e.g., Initial
Northwest Power Act Power Sales Contracts EIS, January 1992; and Final
Environmental Assessment: 1993 Wholesale Power and Transmission Rate
Adjustment, February 1993) showed that environmental impacts are
determined by the responses to BPA's marketing actions, rather than by
the actions themselves. These market responses, discussed in detail in
section 4.2 of the BP EIS, are resource development (including
conservation), resource operation, transmission development and
operation, and consumer behavior. With this knowledge, BPA used market
responses as the foundation for the environmental analysis in section
4.3 of the BP EIS.
These market responses that determine the environmental impacts
also determine whether BPA's costs will exceed the level of maximum
sustainable revenue. If BPA were unable to balance its revenue and
costs, the agency would need to pursue a response strategy. These
response strategies, which are discussed below, fall into three general
categories: increase revenues, reduce spending, and transfer costs. The
ability to utilize response strategies, such as the risk management
tools described in the Power Subscription Strategy, to meet BPA's
financial obligation allows the agency to continue to be competitive in
the market and provide public benefits.
A review of the BP EIS clearly shows that the potential
environmental impacts from BPA's Power Subscription Strategy are
adequately covered. Figure 2 below (not included in this Notice) shows
how the decision to adopt the Power Subscription Strategy affects the
environment.
Potential Air, Land, and Water Effects.
Resource development and operation--Customers' decisions
on whether to buy power from BPA or from other suppliers to serve their
firm loads have potential effects on resource development and
operations. Moreover, resource operations and development are more
likely to have a potential impact on the environment than other market
responses. Even so, resource operations are not expected to change
significantly due to BPA's decision to adopt the Power Subscription
Strategy.
BPA's energy resources are overwhelmingly hydropower. The SOR EIS
evaluated various hydro operation scenarios and the requirements
necessary to serve the multiple purposes of the Federal facilities,
including power generation, fisheries, recreation, irrigation,
navigation, and flood control. The resulting decisions about operating
requirements, as documented in the Columbia River System Operation
Review On Selecting An Operating Strategy For The FCRPS ROD (February
21, 1997), defined the power operations and amount of resources
available for all BPA power transactions. However, to assist in fully
understanding the potential range of impacts as a consequence of
fundamental Business Plan decisions, the BP EIS evaluated the possible
effects under two SOR operating strategies covering a wide spectrum of
possible hydro operations (BP EIS, sections 4.4.3 and 4.4.4). It is
important to note that contractual decisions predicated upon the BP EIS
do not influence the SOR analysis or hydro operations. In fact, the
reverse is true: the results from the SOR ROD affect BPA's Power
Subscription Strategy decisions by defining the amount of power
available to BPA from its hydro resources.
Also, whether customers choose BPA or other regional providers to
serve their loads has a minimal effect on environmental impacts from
resource development. The BP EIS showed that the difference between BPA
serving the loads and the rest of the region serving the loads is
relatively minor. Although BPA's share of regional load varied across
alternatives, the differences in total environmental impacts among
alternatives were small (BP EIS, Figure 4.4.5, page 4-117).
The more important factor for determining potential environmental
impacts from resource operations and development is whether the region
will be in an energy resource surplus or deficit situation. Based on
BPA's most recent Pacific Northwest Loads and Resources Study (the
White Book), the region post-2001 is expected to be resource deficit
under a critical water level (the lowest expected water condition based
on historical data) for the hydroelectric system.
Under these conditions all resources in the region will run and
there will be an increased likelihood of needing additional resources.
It is anticipated that much of this need for additional resources will
be met through better water conditions (closer to an average water
year) than critical water. In addition, BPA will promote the
development of conservation and renewable resources in the region. The
region may also rely on existing power resources outside the region or
on the construction of new resources within the region. In any case,
there is likely to be an increase in air emissions. However, any new
resources are expected to be CTs. If these cleaner, more fuel efficient
CTs displace existing thermal generation, the overall air quality
impacts may be lessened (BP EIS, section 4.4.1.4). Section 4.3.1 of the
BP EIS describes the typical environmental impacts from various
generating resources.
Currently BPA does not intend to rely on the long-term acquisition
of the output of new generating resources to meet any increases in its
loads. Instead, BPA plans to use cost-effective power purchases. If
necessary, BPA would consider the long-term acquisition of the output
of new combined cycle combustion turbines (CTs).
In the less likely event that the region is in a surplus situation,
fewer air quality impacts would be expected. New generation would not
be needed and surplus hydro could displace existing thermal generation,
resulting in fewer air emissions. If most existing resources in the
region run, no substantial changes in the current environmental effects
would be expected. The closer the region is to load/resource balance,
however, the greater the likelihood new resources will be constructed.
As discussed above, these new resources would impact air quality.
Transmission development and operation--Little change is
expected in transmission development and operation due to the decision
by BPA to adopt the Power Subscription Strategy. Reliability criteria
and regional
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planning would still set the direction for a regional transmission
system (BP EIS, Table 4.2.1, page 4-40.) The potential environmental
impacts of transmission development and operation were described in
section 4.3.2 of the BP EIS. Analysis of transmission system
development and operation across Business Plan alternatives (which
represent a broad range of loads placed on BPA) shows overall
transmission development in the region varying by less than six percent
(BP EIS, section 4.4.3.6).
Consumer behavior--Conservation reinvention, which is
intrinsic to BPA's market-driven approach, included price incentives
for conservation (BP EIS, section 2.2.3). A renewables incentives
module was also analyzed as a variable (BP EIS, section 2.3). The
success of any incentives, such as a rate discount, for conservation or
renewable resources would reduce the region's reliance on or need for
thermal resources. As a result, there would be fewer impacts to air,
land and water. Conservation measures, in and of themselves, have few
environmental impacts (BP EIS, section 4.3.1).
Potential Socioeconomic Effects. Consistent with its market-driven
approach, BPA will remain active in the competitive market, working to
assure its success. BPA must generate enough revenue to pay all of its
costs. If the costs exceed BPA's ability to generate revenues, BPA may
not be able to meet its financial obligations, including repaying the
Treasury and providing public benefits. The BP EIS showed that two
factors dominated BPA's ability to be successful in the market: rates
and terms of service. Under the market-driven approach, BPA focused on
keeping rates low and on meeting customers' needs (BP EIS, section
2.6). The success of BPA's Power Subscription Strategy will be
determined by how well it responds to these same two factors. The
Strategy equitably distributes the benefits of the FCRPS, provides
customers with a variety of choices to meet their needs, and
acknowledges BPA's financial and public benefit responsibilities.
However, BPA faces a number of uncertainties that could affect its
success. The Risk Management Strategy incorporates a set of risk
management tools to manage this risk.
Rates--For BPA to be successful, the Power Subscription
Strategy must offer power products and services at prices that are
acceptable to customers. To the extent BPA is more or less successful,
the agency could be over-subscribed or under-subscribed.
If BPA's cost-based rates for Subscription power are below market,
BPA could sell all the power it has available. BPA would meet this
over-Subscription by making cost-effective power purchases from
existing resources. In the unlikely event that the cost of these power
purchases or customer demands were much higher than expected, BPA could
use a variety of measures, including adjusting the shape of deliveries
and interruption provisions, to ensure the DSIs share in the benefits
of federal power.
Over-Subscription would likely decrease air quality. BPA's power
purchases could cause regional thermal resources to run, resulting in
increased air emissions. In addition, BPA currently sells power to
California, offsetting the operation of some of California's thermal
plants. These plants may be operated, leading to increases in air
emissions in California. If, as expected, the region is deficit, BPA's
purchases could encourage others to develop resources, including
conservation.
If BPA's rates for Subscription power are higher than what
customers perceive market prices to be, BPA could end up selling less
firm power than it is offering. Consequently, BPA might not be able to
recover its costs for the rate period and could be unable to make its
Treasury payments or meet recovery costs for fish and wildlife. BPA
would likely implement one or more of the financial contingency
measures in the Risk Management Strategy to address such under-
Subscription.
If BPA were under-Subscribed, other regional resources would meet
customers' loads. These thermal resources would have negative air
quality impacts. Under the likely regional deficit for resources,
resource development would be encouraged. Unlike BPA's existing
resources, these new resources (primarily CTs) would have air quality
impacts. To the extent the new CTs displaced older, less efficient
thermal resources, the potential impacts would be less.
Terms of service--BPA also found that the issues raised
during the Power Subscription Strategy public process were focused on
business actions that affect the marketability or desirability of BPA's
power. The Power Subscription Strategy must also offer terms of service
that are attractive to BPA's customers. BPA worked with customers in
developing the Strategy, and was responsive to their concerns. The
Strategy preserves public preference and regional preference, while
assuring that the residential and small farm customers of the region's
IOUs share the benefits of the FCRPS. The Power Subscription Strategy
also recognizes the unique needs of customers and responds to those
needs. A variety of competitively-priced power products and services
are available. In addition, BPA intends to conduct bilateral
negotiations with each of its customers to develop individual
contracts.
To the extent these terms of service are attractive, customers will
choose to buy power from BPA. At the same time, the Strategy must
recognize constituents' concerns. The Power Subscription Strategy
balances the concerns and interests of customers and constituents. The
more successful the Power Subscription Strategy, the more likely BPA
will be able to fulfill all of its financial obligations.
Public benefits--As discussed above, BPA is making a
systematic effort through this Power Subscription Strategy to meet
customer needs and improve business relationships. This will make the
purchase of federal power more attractive to customers, resulting in
reliable and predictable BPA revenues which will provide better
financial stability over time. This success in the market will provide
the financial strength necessary to ensure the public benefits BPA
provides the region. The Power Subscription Strategy provides BPA the
mechanisms to spread the benefits of the FCRPS throughout the region,
fulfill BPA's fish and wildlife obligations, and encourage conservation
and renewables.
Response strategies (Mitigation)--BPA faces a number of
uncertainties that could affect its success: hydro conditions, market
prices, operating costs, and fish and wildlife costs. The Power
Subscription Strategy includes a Risk Management Strategy BPA intends
to use to make sure all of its costs and public responsibilities are
met despite these uncertainties. The BP EIS, acknowledging these same
uncertainties, detailed representative response strategies BPA could
invoke to balance costs and revenues (BP EIS, section 2.5 and BP ROD,
pages 13-14). These response strategies fell into three general
categories: decrease spending, increase revenues, and transfer costs.
The risk management tools in the Power Subscription Strategy are
consistent with the response strategies in the BP EIS. BPA has already
decided (in the BP ROD) to implement as many response strategies, or
equivalents, as necessary to mitigate for cost and revenue imbalance.
Such mitigation enhances BPA's ability to continue to adapt to changing
market conditions and improves BPA's long-term attractiveness as a
power supplier and business
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partner and BPA's ability to ultimately continue to provide public
benefits to the region.
Public Availability
This Power Subscription Strategy ROD, which satisfies BPA's
requirements under the National Environmental Policy Act (NEPA), will
be distributed to interested and affected persons and agencies. The ROD
will also be posted on BPA's web-site, which is http://www.bpa.gov/
power/subscription. Copies of BPA's Power Subscription Strategy, the
Business Plan, Business Plan EIS, and the Business Plan ROD and
additional copies of this NEPA ROD are all available from BPA's
Communications Office, P.O. Box 12999, Portland, Oregon 97212. Copies
of these documents may also be obtained by using BPA's nationwide toll-
free document request line, 1-800-622-4520.
Conclusion
After participating in an extensive public process, I have decided
to adopt and implement BPA's Power Subscription Strategy. Consistent
with the decision strategy laid out in BPA's BP EIS, I have examined
that EIS and found that this decision is clearly within its scope. In
making this decision to adopt the Power Subscription Strategy, I have
carefully considered the potential environmental impacts. Further, in
proceeding with the Strategy, BPA is guided by and remains fully
committed to the Fish and Wildlife Funding Principles.
This decision is a direct application of BPA's Market-Driven
approach for participation in the increasingly competitive electric
power market. BPA is offering a variety of power products and pricing
to address customers' needs and make the purchase of federal power more
attractive to customers. BPA will begin bilateral negotiations during
which customers will make federal power purchase commitments and
execute individual contracts.
Implementing the Power Subscription Strategy will result in
reliable and predictable BPA revenues which will provide financial
stability over time to help provide public benefits, avoid stranded
costs and reduce the need to invoke risk management strategies. BPA is
responding to customers' needs while ensuring the financial strength
necessary to produce the public benefits that are of concern to the
people of the Pacific Northwest. Making Power Subscription contracts
available to customers is a prudent business and public agency decision
that reflects the values of the region.
Issued in Portland, Oregon, on December 21, 1998.
J. A. Johansen,
Administrator and Chief Executive Officer.
[FR Doc. 98-34788 Filed 12-31-98; 8:45 am]
BILLING CODE 6450-01-P
