[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24376-24382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11407]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Bonneville Power Administration
Opportunity for Public Comment, Regarding Bonneville Power
Administration's Subscription, Power Sales to Customers and Customers'
Sales of Firm Resources
AGENCY: Bonneville Power Administration (BPA), DOE.
ACTION: Notice of draft policy proposal.
-----------------------------------------------------------------------
SUMMARY: BPA is publishing a draft policy proposal for addressing
certain issues under sections 5(b) and 9(c) of the Northwest Electric
Power Planning and Conservation Act, (the Northwest Power Act), Pub. L.
96-501, and section 3(d) of the Act of August 31, 1964 (the Northwest
Preference Act), Pub. L. 88-552, regarding the amount of Federal power
a customer may purchase under BPA subscription power sales contracts.
BPA is initiating development of a policy that will provide policy
guidance on implementation of the Power Subscription Strategy under
applicable statutes and describe how certain factual determinations
needed for BPA subscription power sales contracts will be made.
DATES: Public meeting dates: May 27, 1999, and June 2, 1999. Close of
comment date: June 11, 1999.
ADDRESSES: If you are interested in commenting on the policy proposal
regarding the amount of Federal power a customer may purchase under BPA
subscription power sales contracts, you have several options.
1. You can send written comments to Bonneville Power
Administration, P.O. Box 12999, Portland, OR 97212, or you can fax
comments to (503) 230-4019. If you wish to send your comments
electronically, email comments to: comment@bpa.gov. Comments must be
received by close of business Friday, June 11, 1999.
2. You also can attend one or both of the two public comment
meetings. One meeting will be held on Thursday, May 27, 1999, in
Spokane, Washington, at Cavanaugh's Inn at the Park, 303 W. North River
Drive. Another meeting will be held in Portland, Oregon, on Wednesday,
June 2, 1999, at the Sheraton Portland Airport Hotel, at 8235 NE
Airport Way. Both meetings will begin at 10:00 a.m. Comments also will
be collected on BPA's Standards for Service proposal. If any additional
meetings are scheduled, the information will be posted on the web site
listed below.
http://www.bpa.gov/Power/subscription
FOR FURTHER INFORMATION CONTACT: Mr. Michael Hansen, Public Involvement
and Information Specialist, Bonneville Power Administration, P.O. Box
3621, Portland, Oregon 97208-3621, telephone (503) 230-4328 or 1-800-
622-4519. Information can also be obtained from your BPA Account
Executive or from:
Ms. Ruth Bennett, Acting Vice President, Power Marketing, 905 NE 11th,
P.O. Box 3621, Portland, OR 97208, telephone (503) 230-7640
Mr. Rick Itami, Manager, Eastern Power Business Area, 707 W. Main
Street, Suite 500, Spokane, WA 99201, telephone (509) 358-7409
Mr. John Elizalde, Acting Manager, Western Power Business Area, 700 NE
Multnomah, Suite 400, Portland, OR 97232, telephone (503) 230-7597
SUPPLEMENTARY INFORMATION: On December 21, 1998, BPA published its
Power Subscription Strategy and Record of Decision for selling Federal
power under new contracts with its public utility, investor-owned
utility and direct service industrial customers. The Power Subscription
Strategy stated overall policies for determining the amount of power
that would be offered to Pacific Northwest public utilities and
investor-owned utilities under section 5(b)(1) of the Northwest Power
Act.
This Federal Register Notice presents BPA's draft proposal for
implementing the Power Subscription Strategy under its post-2001 power
sales contracts. The proposal recommends contract mechanisms for
determining the amount of electric power BPA will offer to public and
investor-owned utilities. It also proposes contract mechanisms for
determining the amount of electric power BPA will offer investor-owned
utilities, based on a firm power requirement load, in settlement of
their rights to service under the residential exchange program created
under section 5(c) of the Northwest Power Act. Based on section 3(d) of
the Northwest Preference Act and 9(c) of the Northwest Power Act, the
proposal recommends principles for determining the effect a customer's
sale of its non-Federal firm resources may have on the amount of
Federal power that BPA will offer to the customer under its BPA power
sales contract.
The Northwest Power Act provisions are:
5(b)(1) Whenever requested, the Administrator shall offer to
sell to each requesting public body and cooperative entitled to
preference and priority under the Bonneville Project Act of 1937 [16
U.S.C. 832 et seq.] and to each requesting investor-owned utility
electric power to meet the firm power load of such public body,
cooperative or investor-owned utility in the region to the extent
that such firm power load exceeds--
(A). the capability of such entity's firm peaking and energy
resources used in the year prior to December 5, 1980, to serve its
firm load in the region, and
(B). Such other resources as such entity determines, pursuant to
contracts under this chapter, will be used to serve its firm load in
the region.
5(b)(1) In determining the resources which are used to serve a
firm load, for purposes of subparagraphs (A) and (B), any resources
used to serve a firm load under such subparagraphs shall be treated
as continuing to be so used, unless such use is discontinued with
the consent of the Administrator, or unless such use is discontinued
because of obsolescence, retirement, loss of resource, or loss of
contract rights. 16 U.S.C. 839c(b)(1)
9(c) Any contract of the Administrator for the sale or exchange
of electric power for use outside the Pacific Northwest shall be
subject to limitations and conditions corresponding to those
provided in sections 2 and 3 of the Act of August 23, 1964 (16 U.S.C
837a and 837b) for any contract for the sale, delivery, or exchange
of hydroelectric energy or peaking capacity generated within the
Pacific Northwest for use outside the Pacific Northwest. In applying
such sections for the purposes of this subsection, the term
``surplus energy'' shall mean electric energy for which there is no
market in the Pacific Northwest at any rate established for the
[[Page 24377]]
disposition of such energy, and the term ``surplus peaking
capacity'' shall mean electric peaking capacity for which there is
no demand in the Pacific Northwest at the rate established for the
disposition of such capacity. The authority granted, and duties
imposed upon, the Secretary by sections 5 and 7 of such Act (16
U.S.C. 837d and 837f) [16 U.S.C. 837d and 837f] shall also apply to
the Administrator in connection with resources acquired by the
Administrator pursuant to this chapter. The Administrator shall, in
making any determination, under any contract executed pursuant to
section 839c of this title, of the electric power requirements of
any Pacific Northwest customer, which is a non-Federal entity having
its own generation, exclude, in addition to hydroelectric generated
energy excluded from such requirements pursuant to section 3(d) of
such Act (16 U.S.C. 837b(d)), any amount of energy included in the
resources of such customer for service to firm loads in the region
if (1) such amount was disposed of by such customer outside the
region, and (2) as a result of such disposition, the firm energy
requirements of such customer other customers of the Administrator
are increased. Such amount of energy shall not be excluded, if the
Administrator determines that through reasonable measures such
amount of energy could not be conserved or otherwise retained for
service to regional loads. The Administrator may sell as replacement
for any amount of energy so excluded only energy that would
otherwise be surplus. 16 U.S.C. 389f(c) (emphasis supplied).
The Northwest Preference Act provision is:
3(d) The Secretary, in making any determination of the energy
requirements of any Pacific Northwest customer which is a non-
Federal utility having hydroelectric generating facilities, shall
exclude any amounts of hydroelectric energy generated in the Pacific
Northwest and disposed of outside the Pacific Northwest by the
utility which, through reasonable measures, could have been
conserved or otherwise kept available for the utility's own needs in
the Pacific Northwest. The Secretary may sell the utility as a
replacement therefor only what would otherwise be surplus energy. 16
U.S.C. 837b(d).
Net Requirements
The term ``net requirement'' means the amount of Federal power that
a public utility, cooperative or investor-owned utility is entitled to
purchase from BPA to serve its regional consumers' loads. The
definition is based on section 5(b)(1) of the Northwest Power Act of
1980 under which BPA offers to sell firm power in excess of a
customer's own firm resources. In calculating net requirements
obligation to any customer, Congress directed BPA to consider exports
of the customer's non-Federal resources outside the Pacific Northwest.
These considerations are based on section 9(c) of the Northwest Power
Act as well as section 3(d) of the Northwest Preference Act.
The method of calculating net requirements is an important issue
because it determines the amount of Federal power an eligible customer
can receive for its firm consumer loads in the region. Section 5(b)(1)
of the Northwest Power Act says that a BPA customer is entitled to
purchase an amount of cost-based Federal power needed to meet its net
requirement. A customer's net requirement is equal to the difference
between its regional consumer firm loads and the amount of its non-
Federal generation and firm power purchase contracts that the customer
uses to serve those loads.
BPA first implemented the net requirements mandate of the Northwest
Power Act through mechanisms in its 1981 contracts including the Firm
Resource Exhibit (FRE), the Assured Capability Exhibit and other
contract provisions. A FRE is a list of firm resources to be used by
the customer in serving its regional load. A firm resource is one that
can contribute a specific amount of electricity for operational and
power planning purposes to serve a customer's loads. All of the current
power sales contracts negotiated in 1981 will terminate by October 1,
2001 and must be replaced. The wholesale electricity market has
undergone major changes since 1981. As a result, this is only the
second time, since the Northwest Power Act became law that BPA has
addressed the issue of how net requirements should be determined for
its utility customers.
The Context: Net Requirements in a Changing Market
In 1992 Congress passed the National Energy Policy Act deregulating
the wholesale power side of the electric industry. BPA sells Federal
power at wholesale under contracts with eligible customers.
Deregulation has changed the playing field of the wholesale electricity
marketplace causing BPA and other utilities to change the way they do
business. These changes have forced BPA to re-assess how it implements
sections 5(b) and 9(c) of the Northwest Power Act and 3(d) of the
Northwest Preference Act. The following provides a general overview of
the context of these changes and how they may affect BPA's
determinations of a customer's net requirements.
The Market as a Firm Resource
In 1981 relatively few BPA customers owned generating resources
that were used to serve a portion of their load. The operation of most
of these resources was managed by the region through the Pacific
Northwest Coordination Agreement as if all of the region's Federal and
non-Federal generating resources were operated by a single utility. The
region's utilities knew who owned what resources and what loads they
served. Increasingly, BPA's utility customers are relying less on
generation and more on market power purchases to serve their firm
consumer loads. Others have developed new generation resources which
they have chosen not to apply to their consumer load and do not specify
in their Firm Resource Exhibit in their current BPA power sales
contract. Most investor-owned utilities have not taken their consumer
load service from BPA and have not made power purchases under the 1981
contracts. In 1996, BPA offered a number of contract amendments to its
public utility customers allowing them to reduce their purchases from
BPA and serve a portion of their load from the wholesale marketplace.
These examples mean that BPA, working with customers and other regional
constituents, needs to re-assess how a customer's use of the
marketplace should be factored into BPA's calculation of net
requirements.
Separation of Utilities' Transmission and Power Sales Business Lines
The purpose of passage of the Energy Policy Act of 1992 was
deregulation of the wholesale electricity market. Federal Energy
Regulatory Commission orders 888 and 889 accelerated this process.
Among the requirements of FERC order 889 is that utilities functionally
separate their transmission and power marketing business lines so that
a utility's power marketing business has access to no more information
about its transmission system than any other participant in the market.
The intent of functional separation is to encourage full competition in
the wholesale electricity market by providing all marketers equal
access to the means of delivery. BPA has chosen to voluntarily comply
with the FERC orders. One of the ways BPA identified a customer's
export of its non-Federal resources when determining a customer's power
requirements under its 1981 contracts was by examining transmission
schedules of non-Federal utilities to other utilities outside the
Northwest. Under FERC order 889, BPA's Power Business Line no longer
has access to this information.
Retail Load Loss for BPA Customers
Changes are occurring in the retail electricity industry as well as
in the wholesale market. In most states each utility has a service area
in which it is the exclusive supplier of electric service
[[Page 24378]]
to retail consumers. BPA sells its power to these utilities on a
wholesale basis and they resell the electricity to their retail
consumers. Under retail electric market deregulation, a utility may
continue to operate its distribution system but other marketers may
compete to supply electricity to residential, commercial and industrial
consumers. The substitution of electric power suppliers raises a risk
of retail load loss for some BPA customers. As more states deregulate
their retail electricity markets, the effect of retail load loss on a
customer's net requirements in the region becomes increasingly
important. One concern is how the loss of industrial and commercial
load by a BPA customer will change BPA's obligation to provide net
requirement load service. The Northwest Power Act does not distinguish
between the various types of consumer loads when calculating BPA's net
requirements. Loss of load service by the utility to another provider
may affect the total amount of power a customer could continue to buy
from BPA.
Effects of Sales of Generating Resources and Other Assets on Net
Requirements
As a result of deregulation, some utilities have sold or are likely
to sell generating resources on the market which have historically been
dedicated and used to serve Northwest retail consumer load. The buyers
of these resources will likely sell their output for the highest price
they can receive, either inside or outside of the region.
By law, BPA is required to make factual determinations regarding
the sale of certain resources and its effect on BPA's service
obligations to all customers and BPA's cost-based rates. Section 9(c)
of the Northwest Power Act and section 3(d) of the Regional Preference
Act require that BPA reduce the amount of power a utility receives
under its BPA contracts based on findings regarding its exports out of
the region. Complying with this legal mandate in a competitive market
is much more complex now than when the wholesale market was regulated
and there were comparatively few customers with non-Federal generating
resources.
Other utilities have decided to sell portions of their electricity
supply and distribution businesses in certain parts of the region. In
certain instances, new public power entities are forming and proposing
to take over the business formerly provided by investor-owned
utilities. Section 5(b)(1) directs BPA to sell power to meet the firm
power loads of a utility customer in the Pacific Northwest. BPA must
address how changes will be made to the amounts of power BPA sells a
customer when that customer no longer serves a particular regional load
or serves new loads.
Proposed Principles
BPA is offering the following draft proposal as an approach to
determining firm power net requirements obligations. It is intended to
answer the following general questions:
1. In negotiating a new post-2001 power sales subscription
contract, how should BPA determine a customer's net requirement based
on the customer's use of firm resources and its consumer loads?
2. How will changes in a customer's net requirement be made during
the term of its subscription contract?
3. How will BPA determine, as required by section 9(c) of the
Northwest Power Act and section 3(d) of the Regional Preference Act,
the effect of a customer's export of its resources on BPA's net
requirements obligation to supply power to the customer?
4. How should BPA implement its policy on the factual
determinations for treatment of customer's firm resources under its
statutes?
I. Initial Determination of Net Requirements
In the remainder of this notice, proposed principles are in regular
type with explanatory material in italic.
This section describes how BPA will contractually limit and define
its obligation to provide power to a customer under the Power
Subscription Strategy. It is based on language in the Northwest Power
Act that requires BPA to offer power to serve a customer's regional
consumer load. Some products meet a utility's full load minute by
minute, while other products provide power services based on the
difference between a customer's own resources used for load and their
BPA purchases. Two products offer service on a planned or forecasted
load, a fixed block product and a SLICE product. For these products,
the amount of Federal power offered must be based on reasonable and
verifiable estimate of the customer's regional consumer load. BPA's
Power Products Catalog of the Power Subscription Strategy proposed a
principle in which the fixed block products and the SLICE products are
based on the customer's existing regional consumer load without
consideration of changes for load growth. These products use an annual
estimate of consumer loads, which is done once, at the start of the
contract. They assume the customer and not BPA will serve any load
growth. Thus, there would be no increase in the amount of the purchase
over the term of the agreement. Under these products, the customer
agrees to provide non-Federal resources to serve its load growth.
(A) BPA's initial offer will be based on the utility's actual loads
or a reasonable and verifiable estimate of the utility's retail load in
the region identified in its projected business plan at the time of the
offer.
This principle is based on section 5(b)(1) of the Northwest Power
Act. BPA is to offer power to serve a customer's firm consumer load in
the region. In a deregulated market, the longer the term of the
contract, the greater the likelihood that changes will occur in a
customer's regional consumer load. This principle seeks to address this
concern by limiting the application of the forecast used to initially
determine a customer's net requirements to one year. Principle II.A.
below requires a mechanism for a BPA annual review of a customer's net
requirements load.
(B) Except as provided in I.D. below, BPA will require that the
utility continue to apply all current generation and long-term power
purchase contracts to serve that customer's regional consumer load
under a subscription contract. These resources are included in the Firm
Resource Exhibit of a BPA customer's current 1981 or 1996 power sales
contracts for the 1998-1999 operating year. BPA also will require all
current long-term surplus power purchase contracts or excess Federal
Power purchase contracts that extend beyond 2001 to be applied to serve
a customer's regional consumer load under a subscription contract.
(C) BPA will consider any purchase contract that terminates after
September 30, 2001, to be a long-term power purchase contract that
extends beyond 2001.
(D) BPA will offer the customer power products and services at the
Priority Firm (PF) rate and without a PF surcharge for consumer loads
that are no longer served by generation resources and long term power
purchase contracts due to resource retirement, obsolescence, or other
loss of resource, or loss of contract right. Purchases of Federal
surplus power and Excess Federal power that extend beyond 2001 are
treated as long term power purchase contracts. Post-2001 PF power sales
for resource replacement shall commence on the dates such resources are
lost, provided that BPA has been notified in writing of the resource
loss in time to permit the agency to include the additional load in the
BPA rate process and that the generating resource or
[[Page 24379]]
contract meets the standards described in II.E below.
Principles I. B., C. and D. are based on sections 5(b)(1)(A) and
5(b)(1)(B) of the Northwest Power Act. The Subscription Strategy stated
that a customer must continue to serve its loads currently served by a
customer's generating resources or long-term power purchase contracts
that continue beyond 2001. Principle I.B. clarifies that the resources
a customer is required to apply to load is limited to those resources
included in the customer's current Firm Resource Exhibit for the 1998-
1999 operating year. These principles state that all power purchase
contracts with termination dates beyond 2001 are included in the
customer's firm resources. Under the subscription contract, the
customer must use these resources to serve its regional consumer loads.
These long-term power purchase contracts that continue beyond 2001
include presubscription contracts and other long-term contracts to
purchase Federal power from BPA. The principles also acknowledge that
there are a number of these power purchase contracts which customers
know will expire prior to the end of the BPA rate period.
The proposed principle allows the customer to purchase net
requirements load service from BPA at the PF rate and without the PF
surcharge as long as BPA is informed of the expiration dates of the
contracts and the cost of such service has been identified and included
in BPA's rate case. The customer must consult with BPA and obtain BPA's
agreement in writing to receive requirements load service from BPA for
a generating resource the customer believes should be permanently
discontinued due to obsolescence or retirement. Resources or contracts
that are lost after BPA submits its final rate case to the Federal
Energy Regulatory Commission will incur a PF surcharge to cover any
additional power costs BPA faces to serve the additional load.
BPA considered whether the customer's use of the market as a
resource should also be considered. Many customers who use the market
as a resource would likely face a loss of contract right for their
short-term contract purchases. Additionally, some customers have been
serving their consumer load in the region with generation resources not
included in their Firm Resource Exhibits of their current power sales
contract. Instead of the market, they are using their own non-Federal
generation to serve their load. The proposed principles address a
customer's use of those resources in serving its regional load based on
section 9(c) of the Northwest Power Act. 16 U.S.C. 839(f)c.
(E) In determining a customer's net requirements load, BPA will
follow the Declaration Parameters included in the Power Products
Catalog under Actual Partial Service in establishing the capabilities
of the customer's firm resources under the Subscription contract.
Principle I.E. follows the approach established in BPA's Power
Products Catalog for Actual Partial Products for determining the
capabilities of the customer's resources to be applied to its loads.
BPA considered whether there might be a simpler method for determining
customer resource capability. However, there are enough unique customer
perspectives on estimating resource capability that this approach
appears to best meet the needs of resource determination in a
deregulated market.
(F) BPA will determine what, if any, amount of thermal and/or
hydroelectric peaking capacity and electric energy a customer has
exported from the region that could be conserved or otherwise retained
for service to regional loads. The customer's net requirements must be
reduced to the extent that BPA determines the exported energy increased
BPA's obligation to any customer to provide power to meet regional
loads.
Principle I.F. is based on section 9(c) of the Northwest Power Act.
This principle states that BPA will implement section 9(c) by
determining whether a customer has exported power from a thermal
resource, whether BPA's net load requirements have increased as a
result and whether the power could be conserved or otherwise retained
for service to any regional loads by reasonable means. The proposed
principle states that BPA will implement section 3(d) of the Regional
Preference Act by determining whether a customer has exported power
from a hydroelectric resource and whether the hydro resource could be
conserved or kept available. In its 1994 9(c) policy, BPA adopted a
policy stating that a customer's hydroelectric resources could always
be applied to load in the region. This principle also continues BPA's
past determinations for specific resources that resulted in reductions
in net requirements of customers.
Il. Changes in Net Requirements During Term of the Contract
This section addresses reductions in BPA's net firm load
requirements obligation due to changes on or sale of a customer's
system which will change the amount of regional firm consumer load
served by that customer or that reduce its net requirements. The
principles are based on sections 5(b)(1) and 9(c) of the Northwest
Power Act and 3(d) of the Regional Preference Act. The following
principles propose a contract mechanism for making additional sales of
power to utilities and the circumstances under which BPA would apply
the PF Surcharge, Targeted Adjustment Surcharge to such purchases by
public agency customers, or the NR rate for purchases by investor-owned
utilities (IOUs). The actual rates that apply to any increased amounts
of power sold for net requirements loads will be established in the BPA
rate case.
These principles focus on the transition from the 1981 contract
model to the Power Subscription Strategy model. Under the 1981
contract, BPA obligated itself to serve the entire regional load of a
utility based upon notice periods and availability of power for
acquisitions. A BPA goal under the Power Subscription Strategy is only
to acquire new resources to serve a customer's net requirements load
increase beyond its initial subscription amount based on a bilateral
agreement in which the requesting customer takes all the financial
risk. (Note: The initial subscription amount includes load growth for a
customer purchasing that right.) BPA will still have to meet all of its
total regional load obligations to all customers. Accounting for
reductions in loads is part of meeting BPA's total regional firm load
obligations.
(A) BPA will require, at least annually, that a customer report
specified events causing a reduction in its consumer load. For fixed
block and SLICE purchasers, if the reductions cause a customer's net
requirements to fall below the amount of power being purchased from
BPA, the agency will implement the mitigation measure for retail load
loss specified in the customer's contract. For investor-owned
utilities, BPA will provide the remarketing product option.
Principle II.A. is based on section 5(b)(1) of the Northwest Power
Act which limits BPA's net requirement obligation to a utility's firm
consumer load in the region. This principle addresses the issue of the
loss of retail consumer load by a utility and the use of the
remarketing product mitigation measure specified in section IV.H.2. of
the Subscription Strategy. This remarketing provision provides a
financial benefit to residential loads for IOUs that no longer can
purchase requirements power due to the utility's retail load losses.
BPA considered other alternatives such as a conditioned consent to the
removal of customer
[[Page 24380]]
resources dedicated to serving regional load under their subscription
contract. Under such an alternative, BPA would allow a customer to
reduce the amount of resources serving its load equal to the reduction
in requirements service caused by the retail load loss. BPA is
interested in comments on this alternative and other alternatives to
address this issue.
(B) BPA will reduce a customer's net requirements by the amount of
any exports of hydroelectric or thermal resources if BPA determines
such resources could have been conserved or otherwise retained to meet
regional firm power requirements of any BPA customer. On an annual
basis, BPA will determine whether a customer's export of thermal or
hydroelectric resources could have been conserved or otherwise retained
to serve any regional loads.
Principle II.B. is based on existing BPA policy for export sales of
hydroelectric resources and thermal resources applied to regional load.
See 1994 Non-Federal Participation Capacity Ownership, and Section 9(c)
Policy. Reductions in BPA power requirements obligations due to a
customer's export of power from its resources can come at any time. For
example, a customer could end a contractual sale to another customer,
where such other customer had dedicated the power purchase to serve its
firm loads. By giving six months' notice, the customer losing the power
purchase could request additional service from BPA at the PF Surcharge
rate. If the customer owning the resource has sold power from its
resource on the market after it was withdrawn, then it would face a
section 9(c) determination and would potentially be subject to a
reduction in its net requirements. In this example, the withdrawal of
the power could cause BPA's obligation to the second customer to
increase. BPA's policy on hydroelectric resources under section 3(d) of
the Regional Preference Act is hydroelectric resources can always be
operated or applied against regional load by reasonable means. BPA's
policy on thermal resources applied by a customer to its regional
consumer load is that such resources can be conserved or retained for
service to regional load. BPA is proposing changes in its policy on
export of thermal resources under this Federal Register Notice.
(C) Within the following limits, BPA will reduce a customer's take-
or-pay obligation by an amount equal to the customer's dedication for a
specified contract period of new renewable resources developed by that
customer. Alternatively, a customer may develop new non-hydro renewable
resources and export these outside the region without reducing its net
requirement. This right to reduce BPA purchases shall apply only to the
first 200 average megawatts of all new renewable resources developed by
all BPA customers within the region. The new renewable resources must
meet the standards for BPA's conservation and renewable resources
discount, and be dedicated to serving the customer's load.
Principle II.C. is based on the regional interest to encourage the
development of renewable resources and follows statutory language in
section 5 (b)(1)(B) of the Northwest Power Act that allows the
Administrator to consent to resources changes under a requirements
contract. This principle would allow customers to dedicate a new
renewable resource to serve their retail consumer load. BPA has
consistently interpreted section 5(b)(1) as allowing the Administrator
to specify by contract the customer's dedication of additional
resources to serve its load. BPA's Subscription Strategy requires
customers to take the risks on their non-Federal resource placement
commensurate with BPA's risks in covering future costs of Federal
resources.
BPA requires customers to specify the amount of firm resources they
dedicate to serve their retail consumer loads for the term of their
contract. BPA is willing to sign a Subscription contract for terms
ranging from 1 to 20 years. This renewable resource principle provides
an exception to the policy that a customer's firm resources must be
known and dedicated at the start of the BPA contract and for the entire
term of a contract. The exception provides for the Administrator's
consent to the addition of new renewable resources during the term of
the contract and allowing removal of such renewable resources at a
point prior to the end of the contract. BPA has placed two conditions
on this exception: (1) qualified renewable resource dedications are
limited to the first 200 average megawatts of renewable resources that
customers request to dedicate during any year; and (2) only resources
that would qualify for BPA's conservation and renewable resources
discount are eligible.
(D) BPA will provide net firm requirements service under the PF
Surcharge rate or the New Resource Firm Power (NR) rate for a
customer's regional loads not included in the rate case and which are
served by the customer's dedicated generation resources and its long
term power purchase contracts that extend beyond 2001, if such
dedicated resources are lost for specified reasons described in
principle II.E. during the rate period.
(E) Generation resources and long term power purchase contracts
extending beyond 2001 are considered lost if they are permanently
discontinued during the rate period due to retirement, obsolescence,
loss of the resource, or loss of a contract right. Loss of a resource
must result from factors beyond the reasonable control of the customer
and which the best efforts of the customer are unable to remedy. BPA
will consider such resources lost due to permanent discontinuance
because of obsolescence or retirement only if the customer has
consulted with BPA and BPA has agreed in writing to such
discontinuance.
Principles II. D. and E. continue BPA's existing contract standards
regarding a customer's loss of firm resources. These principles have
worked for 20 years and allow BPA to consider all the facts in
determining when BPA must replace a customer's lost resource with
Federal resources.
BPA will provide replacement firm power service for the regional
consumer load served by the resource as net requirements power only if
the customer has lost a resource or lost a contract for the reasons
specified above. For example, expiration of a customer's non-Federal
power purchase contract is considered a loss of a contract beyond the
reasonable control of a customer, and which the best efforts of the
customer are unable to remedy. If a customer requests additional power
purchases from BPA for its regional firm load served by its resources
for any other reasons, BPA would make such purchases of replacement
power from the market under separate contracts and its section 7(f)
surplus power rates.
(F) BPA will assume the market will provide resources to the
customer to serve any increased consumer loads. BPA load service for
new annexed loads resulting from open access or actual annexations or
mergers will be provided under the Targeted Adjustment Charge or the NR
rate. Additional service for lost generation resources and lost long
term power purchase contracts extending beyond 2001 will be provided at
the PF Surcharge or NR Rate, upon the customer's request for service
and notification to BPA that such an event has occurred. Service to
replace the above qualified renewable resources at the end of their
dedicated contract period will be provided at the PF rate. BPA will
provide firm power service for annexed loads, lost resources, and
replacements of qualified renewable resources six months following
[[Page 24381]]
determination that such event has occurred or as mutually agreed.
Principle II.F. states that BPA will provide firm power
requirements service to annexed loads or for lost resources for all
customers. However, the rate arranged for such service may include an
adjustment for costs BPA incurs to provide the additional service. BPA
considered making changes to its net requirements service only at its
annual review of load or customer resource changes when determining any
reductions in the customer's net requirements purchase. However, BPA
decided that a rolling notice period for annexation or loss of resource
would better serve the sporadic nature of these events. BPA has assumed
that six months would be the minimum time needed to determine the facts
surrounding the annexed load or loss of resource and allow BPA to
prepare to provide service. It would also give BPA time to purchase any
additional resources necessary to serve the load. Principle II.F. would
give BPA the discretion to provide service on shorter notice if it is
able to do so.
lll. How BPA Will Determine if a Customer Has Exported a Resource
From the Region Requiring a Reduction in the Customer's Net
Requirements
Section 9(c) of the Northwest Power Act requires BPA to make
several factual determinations when customers sell or dispose of power
from their resources on the market for export outside the region.
Section 3(d) of the Northwest Preference Act requires BPA to reduce its
sale of requirements power to any customer that sells or disposes of
hydroelectric power outside the region which cannot be conserved or
kept available for use. These determinations are particularly difficult
in a deregulated market where sales are often made to marketers at the
generator busbar, and where schedules of transmission are not available
to BPA's Power Business Line. Adding to the difficulty is the fact that
merchant activity by all customers is confidential so that commercial
information is not readily available for factual determinations.
(A) Subject to certain showings, the output of any customer's
thermal generating resource existing on the date the subscription
strategy was published and that has been used to serve regional firm
load at some time during its life will be treated as exported from the
region in a manner that increases the firm energy requirements of the
Administrator. The customer's net requirement will be reduced unless
the customer can demonstrate one or more of the following:
1. The resource fits within the definition of a ``market resource''
as described in section III. D. 2. of Appendix B of BPA's NFP Section
9(c) Policy;
2. The resource is under a current post-2001 contract committed to
serving a BPA customer's regional load; or
3. The resource is subject to a prior BPA written section 9(c)
determination that the resource could not be conserved or otherwise
retained to serve regional load.
4. The Administrator determines a thermal resource could not be
conserved or otherwise retained to serve regional load by reasonable
means under principle III.B.
(B) The policy BPA proposes for determining when a thermal resource
could not be conserved or otherwise retained to serve regional load is
met when:
(i) There were no purchasers after the resource was offered for
sale in the region to BPA and all of its regional customers for a
period of at least one year through a public process at cost plus a
reasonable rate of return. In the case of a resource offered for a
fixed term, the output of such thermal resource shall not be deducted
from the owner's or purchaser's maximum firm requirements for the term
of the offer or the term of the export, whichever is less.
(ii) The resource is permanently auctioned through a public process
and was not purchased by a regional purchaser. In the case of a
resource permanently auctioned, the output of such thermal resource
shall not be deducted from the owner's net requirements.
(iii) The Administrator determines that the market price for power
makes it unreasonable to retain that resource to serve regional load.
Principle III.A. addresses the difficulty in a deregulated
wholesale market of determining whether power from a customer's
resource has been exported in a manner that increases the
Administrator's firm energy requirements. The proposed principle states
a rebuttable presumption that all power from a customer resource which
has been used to serve regional loads and which is sold on the market
shall be treated as power exported by the seller. Such a sale shall be
deemed to increase the Administrator's firm power requirements under
the customer's or another customer's BPA power sales contracts. Power
sold from the resource will not be treated as an export if the customer
can demonstrate the resource was: Not used for load and developed
solely for sale in the market, or that the power from the resource is
being used by a Direct Service Industry (DSI) or another BPA utility
customer to serve retail load in the region;, or that a prior BPA
determination under Section 9(c) allowed the resources to be exported.
If a customer demonstrates that the resource has been sold to a DSI
or another utility in the region, the purchasing utility must
demonstrate that power from the resource is dedicated by contract with
BPA and is being used to serve its retail load in the region.
To implement this principle, the customer must provide that
commercial information it wishes to share with BPA on its power sales,
so BPA can make the required factual determinations. BPA considered
whether it should continue the practice stated in the 1994 Non-Federal
Participation Section 9(c) Policy of examining a customer's
transmission schedules to points outside the Pacific Northwest. This
alternative was rejected due to limitations on the flow of information
from transmission functions to power sales functions arising from
functional separation under FERC orders 888 and 889.
Principle III.B.4 addresses a customer's sale of resources, which
are determined to increase the Administrator's power requirements
obligations to serve load in the region. Such a sale must meet one of
three tests in order for BPA to determine that the resource could not
be conserved or otherwise retained to serve regional load. Unless at
least one test is met, the amount of power, capacity and energy sold
and deemed exported would be treated as a resource that could be used
or retained to serve firm load in the region and whose sale will result
in BPA's obligations increasing. Thus, BPA would reduce its section 5
electric power requirements contract obligations to that customer by
the amount of the power sold from the resource.
The first test provides that a customer may offer power from a
resource for sale in the region to BPA and its eligible customers for a
period of at least one-year at cost and a reasonable rate of return. If
BPA or a BPA customer in the region does not offer to purchase the
resource, then the Administrator would determine that the output of the
resource could not be conserved or otherwise retained to serve regional
load for a period equal to the duration of the offer of the resource or
the term of the export whichever is less.
The second test provides an alternate mechanism in which a customer
may auction the resource to the highest bidder as long as BPA and all
BPA
[[Page 24382]]
regional customers are reasonably notified of the auction and have a
reasonable opportunity to bid on the sale. If the resource is auctioned
and the customer can demonstrate that BPA and its regional customers
had a reasonable opportunity to participate, the Administrator would
determine that the resource could not be conserved or otherwise
retained to serve regional load.
BPA considered a possible alternative to the second test that would
limit the use of auctions based on an economic standard of paying the
stranded costs of a utility. Under that test, BPA would reduce its net
requirements obligation to the utility if the proceeds of the auction
and export of a resource resulted in net positive benefits above the
cost and reasonable rate of return for the resource, and if such
benefits were not paid to the consumers of a utility. The purpose of
such a limitation is to preserve the benefits of low cost resources for
regional loads.
The third test allows the Administrator to determine that a
resource could not be conserved or retained to serve regional load
based on current market conditions and prices in the region for a
specified period. If the Administrator makes that determination, then a
customer would be allowed to sell a resource during the period without
a reduction in BPA's obligation to provide power under its Subscription
contract.
(C) All new thermal generating resources developed by BPA customer
utilities after the December 21, 1998, publication date of the Federal
Power Subscription Strategy will be treated as meeting the ``market
resource test,'' unless power from the resource is dedicated by a BPA
customer under its BPA contracts to serve consumer load. In such event,
the thermal generating resource will be treated in the same manner as
existing non-Federal resources dedicated by customers to regional load
under Subscription contracts.
Principle III.C. proposes to change the definition of ``market
resources'' under the Section 9(c) Policy to create a presumption that
new resources are developed for sale in the deregulated market and not
for service to a customer's retail load. The exception would be where a
customer specifically chooses to dedicate part or all of the output of
the resource to serve its own load or regional load of another customer
as stated below. Otherwise, all such resources sold on the market would
not increase the Administrator's power requirements obligation to any
customer under its BPA section 5 contracts.
(D) Any customer's sale on the market or export of the output of
thermal resources that is included in any other BPA customer's Firm
Resource Exhibit for the 1998-1999 Operating Year (under a 1981
contract or a resource exhibit under a 1996 contract) shall be
considered to meet the section 9(c) tests of increasing the
Administrator's electric power load requirements under the Subscription
contracts. The output of such resources shall be deducted from the
selling customer's net requirements unless BPA determines the resource
could not be conserved for service to load in the region under III.B.
above.
(E) Any customer's sale on the market or export of the output of
thermal resources that are currently being used to serve that
customer's or another customer's regional load but are not included in
either customer's Firm Resource Exhibit for the 1998-1999 Operating
Year (under a 1981 contract or a resource exhibit under a 1996
contract) shall be considered to meet the section 9(c) test of
increasing the Administrator's electric power load requirements under
the Subscription contracts. The power output of such resources shall be
deducted from the customer's net requirements unless BPA determines the
resource could not be conserved for service to load in the region under
III.B. above.
Proposed principles III.D. and III.E. divide all customer firm
resources currently used to serve load into two classes: (1) those
resources that are currently in any BPA customer's Firm Resource
Exhibits; and (2) those resources that are not included in Firm
Resource Exhibits. BPA has proposed that it will require only resources
currently specified in any of its customer's Firm Resource Exhibits to
be dedicated by the customer to serve its regional load under its BPA
contracts. Customer's resources that are currently used to serve
regional load but which are not included in Firm Resource Exhibits, if
sold on the market, will result in increases in BPA's firm power
requirements obligations under section 5 contracts. The customer
selling the output of the resource will be required to demonstrate that
the resource has either been sold to a regional utility to serve that
utility's consumer load in the region, or demonstrate how the resource
could not have been conserved or otherwise retained to serve any BPA
customer's regional loads.
Principle III.D. also recognizes that BPA would face an increase in
its power requirements obligations if the owner of a resource
terminated a contract purchase used by another utility to serve its
regional retail load. The owner of the resource would be required to
demonstrate that the resource has either been sold to another regional
utility to serve its consumer load in the region or could not have been
conserved or otherwise retained to serve any BPA customer's regional
loads.
(F) Any regional hydroelectric resources exported by a customer
shall reduce the customer's BPA power requirements under its BPA
contracts, unless the resource is contractually committed to serving
another customer's regional load or such resource was previously
determined to be serving that customer's load and the customer replaces
the resource by a market purchase or new generation.
Principle III.F. requires the reduction of a customer's BPA power
requirements obligation under its BPA contracts, if the customer
exports any hydroelectric power from the region. If a customer
demonstrates that the resource has been sold to a DSI or another BPA
customer utility in the region, then the purchaser must demonstrate
that its purchase is dedicated to and is being used to serve retail
load in the region. If in calculating the customer's net requirements,
BPA determines the resource was already dedicated to serving the
customer's firm load, BPA will treat the hydro resource as remaining
dedicated and will not further reduce its net requirements obligation
to the customer, nor will BPA replace the resource.
Responsible Official: Mr. Steve Oliver, Manager, Bulk Power
Marketing, is the official responsible for the development of the draft
policy proposal for addressing issues under sections 5(b) and 9(c) of
the Northwest Power Act regarding the amount of Federal power a
customer may purchase under BPA subscription power sales contracts.
Issued in Portland, Oregon, on April 26, 1999.
Judith A. Johansen,
Administrator and Chief Executive Officer.
[FR Doc. 99-11407 Filed 5-5-99; 8:45 am]
BILLING CODE 6450-01-P
