[Federal Register: February 14, 2005 (Volume 70, Number 29)]
[Notices]
[Page 7489-7495]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14fe05-49]
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DEPARTMENT OF ENERGY
Bonneville Power Administration
Bonneville Power Administration's Policy for Power Supply Role
for Fiscal Years 2007-2011
AGENCY: Bonneville Power Administration (BPA), Department of Energy.
ACTION: Notice of final policy.
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SUMMARY: This notice announces BPA's final policy regarding how the
agency intends to market power and distribute the costs and benefits of
the Federal Columbia River Power System (FCRPS) in the Pacific
Northwest for fiscal years (FY) 2007-2011. This policy clarifies BPA's
obligation to supply power to its regional power customers and guides
BPA in developing and establishing its firm power rates in the future.
ADDRESSES: This policy and the Administrator's record of decision (ROD)
are available on BPA's Web site at http://www.bpa.gov/power/regionaldialogue.
Copies are also available by contacting BPA's Public
Information Center at (800) 622-4520.
[[Page 7490]]
FOR FURTHER INFORMATION CONTACT: Helen Goodwin, Regional Dialogue
project manager, at (503) 230-3129.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Scope of Regional Dialogue
II. Link to FY 2007-2011 Strategic Direction
A. Report to the Region
B. Strategic Direction
III. An Integrated Strategy for FY 2007-2011
A. FY 2007-2011 Rights to Lowest-Cost Priority Firm (PF) Rate
B. Tiered Rates
C. Term of the Next Rate Period
D. Service to Public Agency Customers With Expiring Five-Year
Purchase Commitments That Do Not Contain Lowest PF Rate Guarantee
through FY 2011
E. Service to New Public Agency Utilities and Annexed Investor-
Owned Utility (IOU) Loads
F. Product Availability
G. Service to Direct Service Industries (DSIs)
H. Service to New Large Single Loads (NLSL)
I. Service to Residential and Small-Farm Consumers of Investor-
Owned Utilities (IOUs)
J. Conservation Resources
K. Renewable Resources
L. Controlling Costs and Consulting With BPA's Stakeholders
IV. Long-Term Issues
A. Long-Term Policy: Limiting BPA's Long-Term Load Service
Obligation at Lowest Cost Rates for Pacific Northwest Firm
Requirements Loads
B. Schedule for Long-Term Issue Resolution
V. Environmental Analysis
I. Scope of Regional Dialogue
The Regional Dialogue process began in April 2002 when a group of
BPA's Pacific Northwest electric utility customers submitted a ``joint
customer proposal'' to BPA that addressed both near- and long-term
contract and rate issues. The proposal focused on how BPA would market
Federal power and distribute the costs and benefits of the FCRPS under
20-year power sales contracts as a means to settle litigation on the
Residential Exchange Program Settlement Agreement signed in 2000. It
was believed that both near- and long-term issues could be resolved
before BPA's next rate period in October 2006. Since then, BPA, the
Northwest Power and Conservation Council (Council), customers, and
other interested parties have continued to work on both near- and long-
term issues. Considering the depth and complexity of these issues, BPA
concluded it was not practical to resolve all issues before the start
of the next rate period.
BPA's current firm power rates expire at the end of FY 2006. Nearly
all of BPA's regional power sales contracts continue through FY 2011.
BPA believes its first priority is to resolve policy issues that likely
will influence the last 5 years of those contracts, the next rate case,
and decisions to be made by customers concerning BPA power service
during that period.
By February 2004, BPA decided to address the issues in two phases.
The first phase of the Regional Dialogue addresses issues that must be
resolved in order to replace power rates that will expire in September
2006. These decisions will create certainty for the FY 2007-2011 period
and set the stage for the long-term phase of the Regional Dialogue that
follows. The second phase will address issues that are critical to
determine how BPA in the longer term will market Federal power and
distribute the costs and benefits of the FCRPS for 20 years, with the
objective of implementing new 20-year contracts well before current
power contracts expire in FY 2011. The process and schedule for
resolving these issues is included in section IV.B.
The Council has played an active role in helping to plan and guide
BPA's development of the near-term Regional Dialogue policy direction,
as well as in setting the stage for developing the long-term policy
direction. BPA and the Council agree on the overall goals of the
Regional Dialogue process to determine BPA's long-term role in
providing power to regional customers at the lowest cost-based rates
and capturing that role in long-term contracts and rates as soon as
possible to create a durable solution. Underlying the Regional
Dialogue's focus on addressing BPA's long-term power supply role is the
need to assess and understand the impact the 2000-2001 West Coast
electricity crisis has had on BPA and its customers.
II. Link to FY 2007-2011 Strategic Direction
The financial impacts of the West Coast electricity crisis of 2000-
2001 led many utilities to examine their policies and approaches to
their power supply. BPA is no exception. Over the past year, BPA has
invested significant time and effort in strategic planning directly
related to its power supply.
This re-examination of BPA's mission and core values has, along
with comments and advice from the Council, customers, constituents,
tribes, and other regional stakeholders, helped inform the agency's
approach to the Regional Dialogue.
A. Report to the Region
In early 2003, BPA initiated a detailed examination of the events
that began in 2000 that led to the significant rate increases and
deterioration of BPA's financial condition. On April 18, 2003, BPA
released a Report to the Region that included lessons the agency
learned, with the intention of translating those lessons into future
actions.
Among a number of other lessons, the report noted that the level of
BPA's costs and risks are driven heavily by the load obligations BPA
assumes under contracts with customers. Meeting those load obligations
was a large driver of BPA's cost and rate levels. The report pointed
out that the amount of risk (market volatility and uncertainty) to be
managed in the whole region's power system has grown substantially and
the fraction of that risk that BPA can absorb has gotten smaller. The
report also noted that BPA must avoid the need to acquire large amounts
of power on short notice to meet customer load demand.
This policy has been developed specifically with those lessons in
mind, particularly to resolve the agency's customer load service
uncertainty as soon as possible and provide customers with the power
supply clarity they need.
B. Strategic Direction
The Report to the Region highlighted the need for BPA to have a
clear and steady strategy and manage to clear objectives. In response,
the agency devoted a significant amount of time to clarifying its
strategic direction.
BPA's strategic direction establishes the agency's most important
objectives and the actions that will help it manage to these
objectives. The strategic direction calls on BPA to advance the Pacific
Northwest's future leadership in four core values--high reliability,
low rates consistent with sound business principles, responsible
environmental stewardship, and clear accountability to the region.
It should come as no surprise that the subjects covered in the
Regional Dialogue are well represented in the agency's strategic
direction, particularly with regard to BPA's role as a low-cost
provider and the need for clear regional accountability. The strategic
direction guiding this policy includes:
1. Regional Infrastructure Development: BPA policies encourage
regional actions that ensure adequate, efficient, and reliable
transmission and power service.
2. Conservation and Renewables: Development of all cost-effective
energy efficiency in the loads BPA serves, facilitation of regional
renewable resources, and adoption of cost-effective nonconstruction
alternatives to transmission expansion.
[[Page 7491]]
3. Benefits to Residential and Small-Farm Consumers of Investor-
Owned Utilities (IOUs): The post-2011 benefit that BPA provides to IOUs
for their residential and small-farm consumers is equitable based on
the Northwest Power Act.
4. Rates: BPA's lowest firm power rates to public preference
customers reflect the cost of the undiluted Federal Base System (FBS),
are below market for comparable products, and are kept low through
achievement of BPA's objectives at the lowest practical cost.
5. Service to Direct-Service Industrial Customers (DSIs): Explore a
post-2006 DSI service option with a known and capped value.
6. Regional Stakeholder Satisfaction: Customer, constituent, and
tribal satisfaction, trust, and confidence meet targeted levels.
7. Management: Collaborative customer/constituent/tribal
relationships are supported by managing to clear long-term objectives
with reliable results.
8. Cost Recovery: Consistent cost recovery over time.
9. Ratepayer and Taxpayer Interests: FCRPS assets are managed to
protect ratepayer and taxpayer interests for the long term.
10. Best Practices: Best practices (with emphasis on cost
performance and simplicity) are obtained in key systems and processes.
11. Risk: Risks are managed within acceptable bounds.
Additional principles guiding the Regional Dialogue are:
12. Legal Criteria: Approaches or policy options should not require
legislative change and should minimize legal risk.
13. Treasury Payment: BPA will plan to achieve and maintain a
Treasury payment probability (TPP) that is the equivalent of a 95
percent probability for a 2-year period and an 88 percent probability
for a 5-year period. Options for achieving this goal include, but are
not limited to, cost recovery adjustment clauses (CRACs) and planned
net revenue for risk.
III. An Integrated Strategy for FY 2007-2011
BPA's policy decisions on each of the issues raised in its July
proposal are given below. The reasoning behind each decision, including
how BPA addressed public comment in making the decision, is contained
in the record of decision (ROD). Where decisions are required to be
made in a rate case, the policies articulated here will guide BPA's
initial rate case proposal.
A. FY 2007-2011 Rights to Lowest-Cost Priority Firm (PF) Rate
BPA will apply the lowest-cost PF rates to its public agency
customers whose contracts contain the lowest-cost PF rate guarantee
throughout the remaining term of the Subscription power sales
contracts.
B. Tiered Rates
BPA will exclude a tiered PF rate proposal applicable to firm power
load requirements sales to public agency customers from its FY 2007
initial rate case proposal. Tiered rates will be considered as part of
an integrated long-term contract and rate solution that will implement
the long-term Regional Dialogue policy of limiting BPA sales of firm
power to its Pacific Northwest customers' firm requirements loads at
its lowest-cost rates to approximately the firm capability of the
existing Federal system.
C. Term of the Next Rate Period
BPA will limit the duration of the next rate period to three years,
from FY 2007 through FY 2009. This will allow BPA to set rates lower
than would be needed for a five-year rate period, all else being equal.
In addition, a shorter rate period reduces the need for rate adjustment
mechanisms such as the current CRACs. BPA plans to conduct a separate
rate case to ensure new rates are in place when new contracts take
affect. Depending on decisions yet-to-be made, this could result in BPA
offering two sets of rates through FY 2011 (one for Subscription
contract holders and one for Regional Dialogue contract holders). An
additional rate period of 2 years will run from FY 2010 through FY
2011.
D. Service to Public Agency Customers With Expiring Five-Year Purchase
Commitments That Do Not Contain Lowest PF Rate Guarantee through FY
2011
BPA will offer all of its public agency customers whose contracts
expire on September 30, 2006, and do not contain a guarantee of the
lowest cost-based PF rates beyond FY 2006 either an amendment to extend
the term of their existing contracts through September 30, 2011, or a
new contract reflecting a product listed in Section III.F., below, that
will expire on September 30, 2011. The customers' net requirements will
be calculated consistent with their existing contract or prior to
execution of a new contract consistent with section 5(b)(1) of the
Northwest Power Act and BPA's Section 5(b)/9(c) Policy. As part of a
contract amendment or new contract offer, BPA also will offer language
that guarantees the lowest cost-based PF rates (except for New Large
Single Loads (NLSL)) through FY 2011.
BPA will offer all of its public agency customers whose contracts
expire on September 30, 2011, and contain either a 5-year PF off-ramp
or on-ramp option that expires on September 30, 2006, an amendment to
cancel their respective PF off-ramp options early or exercise on-ramp
options early. The offer also will include language that guarantees the
lowest cost-based PF rates (except NLSL) through FY 2011. The
customers' net requirements will be calculated consistent with their
existing contracts.
Public agency customers with either the expiring 5-year contracts
or the expiring 5-year ramp options will have a 60-to-90-day period,
specified by BPA, in which to accept BPA's offer. The offer will expire
no later than June 30, 2005.
Public agency customers that do not accept BPA's offer during the
prescribed time frame will not be eligible to receive the lowest cost-
based PF rates guarantee and will be subject to a Targeted Adjustment
Charge (TAC) or its successor, as appropriate, beginning in FY 2007.
BPA had proposed to recalculate the net requirements of customers
with expiring 5-year contracts or ramp options and limit sales at the
lowest-cost rate to their recalculated net requirements. All but one of
such customers have full or partial requirements contracts which
automatically limit their lowest-cost service to their actual net
requirements. The remaining customer has a contract which, upon review,
does not allow BPA to recalculate its net requirements and limit its
lowest-cost rate deliveries to the recalculated amount. BPA's strong
view is that limiting customers to the amount of lowest-cost power they
actually need to meet their net requirements is most consistent with
BPA's broader decision to limit its total sales at its lowest-cost
rates. However, BPA has decided not to limit this customer to its
recalculated net requirements because this is not consistent with the
existing contract with that customer.
E. Service to New Public Agency Utilities and Annexed Investor-Owned
Utility (IOU) Loads
New Public Agency Utilities: To be eligible to purchase firm power
at the lowest-cost PF rates during the FY 2007-2009 period, an entity
that forms a new public agency utility must request service under
section 5(b)(1) of the Northwest Power Act, meet BPA's Standards for
Service, and execute a power sales contract with BPA prior to
[[Page 7492]]
June 30, 2005, to take power deliveries on or before October 1, 2006.
An exception to meeting the June 30, 2005, date is made for new small
public agency utilities with an individual load of 10 average megawatts
(aMW) or less, and all of these customers are not to exceed 30 aMW of
load service in total. Such new small public utilities have until
January 1, 2006, to request service under section 5(b)(1) of the
Northwest Power Act, meet BPA's Standards for Service, and execute a
power sales contract with BPA to begin taking power service on or
before October 1, 2006.
New public agency utilities that meet BPA's Standards for Service
and request firm power service from BPA after June 30, 2005, or January
1, 2006, in the case of small new public utilities, will be served at
the lowest-cost PF rate plus a charge or rate that covers any
incremental costs incurred by BPA to serve the new public agency's
load. The charge will be similar to the current TAC or successor rate
and will be applicable for the rate period that begins in FY 2007.
Annexed IOU Loads: Consistent with existing contract terms and
conditions, in the FY 2007-2009 period, if a public agency customer
requests firm power service for load that is annexed from an IOU's
service area, and that contains residential or small-farm load that was
receiving residential exchange benefits from the IOU under Subscription
Settlement Agreements, the public agency customer will receive a
prorated share of such benefits. These benefits are provided in the
form of an aMW amount of load that is exempt from any incremental-cost
charge or rate applicable to the public agency customer's load service.
Such treatment will apply regardless of whether the annexing public
agency customer is a new or existing customer.
BPA will propose in its initial rate case proposal that power
service for annexed IOU load that a public agency customer requests
after June 30, 2005, will be subject to a TAC or its successor, as
appropriate, beginning in FY 2007.
The above policy on annexed load of IOUs does not apply to public
agency customers' mergers or to one public agency annexing another
public agency's load. BPA will propose in its initial rate case
proposal that it will continue to serve load annexed (excluding NLSL)
from a public utility customer by another public utility customer at
the lowest-cost PF rate for the FY 2007-2011 period if such load was
previously receiving such service.
F. Product Availability
Products for Customers Whose Contracts Expire in FY 2006 or Are New
Public Agency Customers: Any new public agency customer or customer
whose contract expires in FY 2006 that executes a new contract for
service through September 30, 2011, may select from any of the
following core requirement products: Full Requirements Service, Simple
Partial Requirements Service, Partial Requirements Service with
Dedicated Resources, or Block Service (with the optional feature of
Shaping Capacity). The terms of the contract will be consistent with
the terms described in sections III.D. and III.E. above. BPA is not
offering Complex Partial (Factoring), Block with Factoring, or the
Slice product to these customers.
Product Switching or Changing the Allocation of Products Currently
Purchased by Customers with Contracts that Expire in FY 2011: BPA will
not offer contract amendments that would allow changes in the power
products and services purchased by 10-year Subscription contract
holders, including, but not limited to, changes that would increase the
total Slice megawatts currently sold by BPA.
Acquisition of Non-Federal Resources to Reduce Net Requirements by
Public Agency Customers with Contracts that Expire in Either FY 2006 or
FY 2011: BPA will consider, on a case-by-case basis, requests from a
customer that purchases a load-following product to add non-Federal
resources to their existing Subscription contract declarations but only
if those additions reduce BPA's FY 2007-2011 load-serving obligation
without increasing costs or risks for other customers. BPA will make
such a determination at the time a customer makes its request. In doing
so, BPA will also consider reclassifying the customer's load-following
contract (e.g., full service to simple partial), if necessary.
G. Service to Direct-Service Industries (DSIs)
BPA has determined that it will provide eligible Pacific Northwest
DSIs some level of Federal power service benefits, at a known quantity
and capped cost, in the FY 2007-2011 period. While no final decision
regarding the actual level of service benefits to be provided is being
made at this time, it is anticipated that service will be at a
substantially reduced level compared to the level contracted for in the
current FY 2002-2006 rate period. BPA wishes to further discuss the
level of the DSI service benefit, and criteria for eligibility, with
PNW regional interests before making final policies or decisions on
those issues. In addition, BPA is not making a final decision at this
time regarding the mechanism or mechanisms BPA will use to provide
these service benefits.
BPA will establish a regional process to take further comment from
interested parties regarding the level of service benefits to be
provided and the eligibility criteria that should be used to determine
whether a DSI will qualify for these service benefits. This regional
process will provide opportunities for written comments and will
include one or more noticed meetings. As part of this process, BPA will
issue a letter shortly establishing this regional process and
describing a BPA proposal with respect to the level of benefits and
eligibility criteria.
Following the conclusion of the DSI comment period, BPA intends to
issue a supplement to the Regional Dialogue ROD for this policy in
which BPA will issue policies and decisions regarding the level of DSI
service benefits to be offered and eligibility criteria.
Subsequently, BPA will work during the summer of 2005 to develop
the contractual mechanism or mechanisms that should be used to provide
the DSI service benefits. These mechanisms, and BPA's proposal on the
DSIs that it believes meet the eligibility criteria and should be
offered service, will be shared with the region for review and comment.
BPA will attempt to make final decisions regarding the contract
mechanisms and qualifying DSIs in the fall of 2005, subject to any
decision that must be made in a rate case.
H. Service to New Large Single Loads (NLSL)
Transfer of DSI Load to Local Utility Service in 9.9 aMW
Increments: Any DSI production facility load (Contract Demand) formerly
served at the IP rate that transfers to local utility service will be
an NLSL and will be subject to the New Resources (NR) rate if served
with Federal power as firm requirements load under the utility's
Northwest Power Act section 5(b)(1) contract unless the load:
(1) Qualifies for the renewables and on-site cogeneration option
described below; or
(2) Was a new production load that (i) was separable from the DSIs
1981 contract demand; (ii) new plant added after November 16, 1992; and
(iii) could have qualified for BPA PF service from a local public
utility at the time under BPA's November 16, 1992, New Large Single
Load Treatment of Utility Service to Direct Service Industry Expansions
(Atochem) Record of Decision. BPA is
[[Page 7493]]
aware of a single plant at the Port Townsend Paper Company, an
approximately 3 aMW Old Corrugated Cardboard recycle facility, that was
eligible for utility service in 1996 when it was completed but was not
served by the local utility under BPA's Atochem policy.
This policy does not preclude BPA from selling surplus firm power
consistent with section 5(f) of the Northwest Power Act to utility
customers at a section 7(f) rate to serve former DSI load.
Renewables and On-site Cogeneration Option Under the NLSL Policy:
In order to further promote the development and use of renewable
resources and on-site cogeneration in the region, BPA will provide an
option to a consumer with a single large load whose load would
otherwise be an NLSL eligible for service with Federal power purchased
at BPA's NR rate but for the application of renewable and on-site
cogeneration resources to reduce the load to less than 10 aMW. This
option will be available to consumers with single large loads at
facilities that are otherwise NLSLs, including existing NLSLs, former
DSI loads, new consumer loads, increases in existing loads that exceed
10 aMW in a 12-month period, and consumer loads changing service from
one utility supplier to another utility.
For existing NLSLs served with dedicated NLSL resources, this
option does not give BPA's consent for removal of any resource
dedicated to the NLSL. BPA's section 5(b)/9(c) Policy of May 2000
requires resources that are dedicated to serving regional load,
including NLSLs, to continue to remain dedicated to such service.
Consistent with the 5(b)/9(c) policy, this policy does not require BPA
to give consent to remove a resource or agree to amend its power sales
contracts for a resource dedicated to serving an NLSL.
If a consumer directly provides on-site cogeneration or acquires a
regional renewable resource with an associated transmission path to its
load to serve all or a portion of a load associated with a facility
that is otherwise an NLSL and if the consumer's remaining new load or
load increase placed on the local utility is reduced to 9.9 aMW or
less, then that 9.9 aMW load served by the utility is served at the PF
rate. A consumer's purchase of a renewable resource for purposes of
this renewable resource and on-site cogeneration option must be in
compliance with applicable state law.
The on-site cogeneration or renewable resource must be continuously
applied to the consumer's load. If the end-use consumer or the serving
utility on behalf of the end-use consumer at any time sells,
discontinues, displaces, or removes a cogeneration resource or the
renewable resource or portion thereof from service to the end-use
consumer's load at the facility, then all the load or the increase in
load at the facility is an NLSL served at the NR rate or another 7(f)
rate designed to recover BPA's cost for covering such load, whichever
is greater.
If the facility's load ever exceeds the sum of the renewable
resource, any added renewable resource(s), any on-site cogeneration
resource amount, and the 9.9 aMW, then such amount of load served by
BPA is an NLSL and is eligible for service at the NR rate.
I. Service to Residential and Small-Farm Consumers of Investor-Owned
Utilities (IOUs)
BPA's Subscription contracts with the region's six IOUs require the
agency to provide 2,200 aMW of power or financial benefits to the
residential and small-farm consumers of these customers during FY 2007-
2011. BPA recently signed agreements with all six regional IOUs that
provide certainty in the amount and manner that benefits will be
provided to their residential and small-farm consumers under their
Subscription contracts. These agreements provide certainty by defining
benefits as financial payments, not power deliveries, defining a mark-
to-market methodology that uses an independent market price forecast in
calculating the financial benefits and establishing a floor of $100
million and a cap of $300 million per year for these financial
benefits.
BPA expects this approach will successfully implement the
Subscription contracts. However, these agreements are under legal
challenge. Since a fundamental goal of this Regional Dialogue policy is
clarification of BPA and customer load obligations for the FY 2007-2011
period, BPA is clarifying how it will proceed if the new agreements are
set aside.
In the event a court sets aside the new agreements and amendments
but leaves the underlying Subscription contracts in place, BPA is
providing the IOUs a contingent notice that BPA will provide financial
benefits, not power benefits, during FY 2007-2011 under those
contracts. In such an event, the financial benefits will continue to be
based, in part, on a forecast of the market price of power developed in
a BPA power rate case. If the Subscription contracts are successfully
challenged in court, the agency will act consistent with the court's
ruling in negotiating new contracts to provide power or financial
benefits to the residential and small-farm consumers of IOUs under the
Northwest Power Act.
J. Conservation Resources
While there has been much discussion of how conservation
development might be regionally structured for the post-2006 time
frame, BPA has not yet determined what the specific terms and
conditions will be.
BPA has adopted five principles to guide the full development of
BPA's conservation acquisition programs in the post-2006 period. These
general principles are:
BPA will use the Council's plan to identify the regional
cost-effective conservation targets upon which the agency's share
(approximately 40 percent) of cost-effective conservation is based.
The bulk of the conservation to be achieved is best
pursued and achieved at the local level. There are some initiatives
that are best served by regional approaches (for example, market
transformation through the Northwest Energy Efficiency Alliance).
However, the knowledge local utilities have of their consumers and
their needs reinforce many of the successful energy efficiency programs
being delivered today.
BPA will seek to meet its conservation goals at the lowest
possible cost to BPA. While it is a given that only cost-effective
measures and programs should be pursued, the region can also benefit by
working together to jointly drive down the cost of acquiring those
resources.
BPA will continue to provide an appropriate level of
funding for local administrative support to plan and implement
conservation programs.
BPA will continue to provide an appropriate level of
funding for education, outreach, and low-income weatherization such
that these important initiatives complement a complete and effective
conservation portfolio.
These principles are consistent with the Council's recommendations.
However, there is a need for significant detail to be developed before
these principles can be transformed into a specific program structure
that best serves the region. There is currently an ongoing
collaborative planning process to develop a fully defined proposal for
conservation. BPA will, accordingly, make public its final policy with
respect to conservation at a later date, following the conclusion of
the collaborative process.
Finally, as BPA pursues opportunities to reduce long-term costs to
ratepayers, conservation and other demand-side
[[Page 7494]]
management options will be carefully considered as part of the solution
to transmission constraints. Conservation can be part of a non-wires
solution that not only will provide low-cost power resources but also
will reduce or defer the need for transmission construction.
K. Renewable Resources
BPA will shift from a program focused on direct acquisition to an
active and creative facilitation role with respect to renewable
resource development. Although BPA will still consider acquisition as a
viable facilitation option under the appropriate circumstances, the
agency's primary focus will be to reduce the barriers and costs
interested customers face in developing and acquiring renewables. As an
added benefit, BPA believes its facilitation role will also help non-
BPA customers develop renewable resources in the region.
BPA will use a combination of tools and will engage with its
customers and other stakeholders to determine which facilitation
options will most effectively leverage the agency's available funds to
maximize regional development of renewable resources. The facilitation
tools BPA sees as being available include, but are not limited to:
Integration Services: BPA recently began offering two wind
integration services in the spirit of regional facilitation. These
services, and other sound and prudent uses of the flexibility of the
Federal hydro system, have the potential to serve as a key component of
the agency's renewables facilitation effort.
Transmission System Improvements: Another facilitation option is
participation in regional efforts to construct strategic transmission
lines to foster the development of the region's excellent wind
resources. BPA is also exploring ways to make more efficient use of
existing transmission infrastructure.
Rate Discount: Approximately 30 customers have devoted a portion of
their Conservation and Renewables Discount (C&RD) funds to renewables
in this rate period. Continuing such a rate discount mechanism is
another facilitation option.
Direct Acquisition: If BPA determines there is a need to acquire
power to meet its regional firm power load obligations, BPA may
consider innovative opportunities to purchase from renewable resources,
including the participation in such resources by interested BPA
customers. The agency will consider other acquisition activities as
well if they are the most cost-effective among competing facilitation
options and can be accomplished consistent with the agency's financial
objectives and governing statutes.
Other Options: BPA is actively consulting with customers and other
stakeholders to identify other options that will help facilitate
regional renewables development. All of BPA's renewable resources
facilitation activities will be subject to a risk review to ensure that
they are consistent with the agency's financial and risk management
objectives.
Program Funding: BPA will spend up to a net of $21 million per year
to support its facilitation activities. The $21 million net expense is
a measurement of the expected, added costs of our renewable program
measured against avoided alternative long-run marginal power costs. The
$21 million comprises the existing $15 million renewables fund and $6
million of annual renewables spending that is currently being
accomplished through the C&RD program, which expires at the end of the
current rate period. BPA will continue consulting with customers and
other constituents as to whether a Renewables Rate Discount Program
should be established in the next rate period, or alternatively,
whether BPA should use the funds for other facilitation mechanisms. The
costs of the renewables program will be recovered in BPA's firm power
rates.
L. Controlling Costs and Consulting With BPA's Stakeholders
For the term of existing contracts (through FY 2011), or until new
contracts go into effect if that is earlier, BPA will continue to focus
on non-contractual means that promote transparency under BPA's
financial information disclosure policy, allow for public input on
agency costs, and demonstrate management of those costs. BPA recognizes
the wide range in concerns and, hence, solutions to the issue of long-
term cost control. BPA will continue discussions on long-term cost
control in preparation for the July 2005 Regional Dialogue policy
proposal on long-term issues. BPA's short-term enhancement activities
will include the following:
Collaborative Forums: BPA will engage customers and non-customers
in collaborative forums structured similarly to the Power Net Revenue
Improvement Sounding Board and current Customer Collaborative to
improve the effectiveness and efficiency of BPA's communication
processes.
Financial Reporting with Customer and Constituent Input: BPA will
continue to improve its external financial reporting in order to
increase the clarity and usefulness of BPA's reports to both experts
and laypersons. Such information will also continue to be posted on
BPA's Web site before it is released to any single customer or
constituent group.
Business Process Improvement: In July 2004, a consulting firm hired
by BPA conducted a high-level overview of the agency's business
processes and recommended functions that warrant more in-depth analysis
for strategically and effectively promoting process improvements. The
consultant made 23 recommendations in all. In FY 2005, BPA will conduct
7 in-depth process reviews selected from the original 23
recommendations to identify opportunities for improvements in
efficiencies and effectiveness. How and when the remaining
recommendations will be pursued will be determined by the results of
the first phase. This is a multi-phased, multi-year effort that will
require a sustained commitment. BPA will provide periodic status
reports as significant milestones are achieved.
Power Function Review: In 2005, BPA will conduct an in-depth
regional discussion regarding power function cost levels that will be
used to set power rates for the FY 2007-2009 rate period. This process
will be designed to provide full disclosure of BPA's planned cost
levels and ample opportunity for customer, constituent, and tribal
input on those proposed levels prior to initiation of the power rate
case.
IV. Long-Term Issues
A. Long-Term Policy: Limiting BPA's Long-Term Load Service Obligation
at Lowest Cost Rates for Pacific Northwest Firm Requirements Loads
BPA is establishing a long-term policy regarding its PNW customer
load obligations. BPA's policy is to limit its sales of firm power to
its PNW preference customers' firm requirements loads at its lowest-
cost rates in an amount approximately equal to the firm capability of
the existing Federal system. BPA expects that firm power load service
in excess of the Federal system capability will be provided at a
higher, tiered rate, that reflects the incremental cost of power
purchased or acquired to meet those additional loads. BPA intends this
long-term policy to be implemented through new long-term contracts and
rates on the schedule presented in the next section. As stated in
Section III.B., Tiered Rates, BPA does not propose to adopt or
implement PF tiered rates applicable to public agency customers in its
FY 2007 initial rate case proposal.
[[Page 7495]]
By itself, this long-term policy is not enough. It is only one
step. Creating certainty will require subsequent development of new
power contracts and rates. The schedule for these additional steps is
described next.
B. Schedule for Long-Term Issue Resolution
BPA and the region have a strategic interest in resolving a number
of key long-term issues. BPA is strongly inclined toward 20-year
contracts, assuming parties can reach agreement on reasonable terms.
This interest centers on providing BPA customers certainty over load
service obligations and enabling customers and the market to respond
with the necessary electric industry infrastructure investments. Other
key strategic interests include general market stability, BPA risk
management, and long-term assurance of funding to repay the United
States Treasury. BPA's interest in resolving these long-term issues is
shared by most BPA customers and by the Council.
To become effective, almost all the decisions must be captured in
new long-term contracts and rates. There is a range of opinions within
the region on the commitments and decisions can be made in contracts
versus those that can be made in rates. BPA's view is that customers,
BPA, and other stakeholders must work together to develop a logically
linked set of new contracts and rates and that neither by itself will
be sufficient to accomplish the long-term goals. This split between
contracts and rates must be discussed and decided.
BPA intends seriously to explore the proposal and establishment of
a long-term tiered rates methodology to accompany new 20-year contracts
during the next phase of the Regional Dialogue. BPA also believes there
is a need to develop regional resource adequacy metrics/standards to
provide clarity regarding what constitutes generation sufficiency to
meet the load serving obligation defined by the long-term Regional
Dialogue contracts. These resource adequacy metrics/standards will also
provide assurance that needed electrical infrastructure will be
developed by Northwest load serving entities to allow the Northwest
Power Act mandate of an adequate, economical, and reliable Northwest
power system to be met even with BPA in a reduced power acquisition
role.
Schedule: The following schedule is ambitious, but BPA agrees with
the perspective of the Council and many customers that the region has a
core interest in the earliest practical completion of this process.
Schedule for Achieving Long-Term Contracts and Rates
------------------------------------------------------------------------
Milestone Date
------------------------------------------------------------------------
BPA Administrator Issues Long-Term July 2005.
Regional Dialogue Proposal for Public
Review and Comment.
BPA Administrator Signs Long-Term Regional Jan. 2006.
Dialogue Policy and Record of Decision.
New Contracts Offered..................... Dec. 2006.
Contract Signature Deadline............... April 2007.
Complete Establishment of Long-Term Rate Oct. 2008.
Methodology to Accompany New Contracts.
Earliest Contract Effective Date.......... Oct. 2008.
------------------------------------------------------------------------
Challenges to Achieving Our Goal: Achieving this schedule will be
challenging. Challenges that both customers and the agency will have to
manage include:
1. Ability of BPA, customers, and other interests to find a
solution to provide long-term benefits to residential and small-farm
consumers of IOUs.
2. Ability to structure long-term contracts to protect taxpayer and
ratepayer interests.
3. Finding mutually acceptable solutions to very contentious issues
will be difficult, especially while other decision processes are
running in parallel.
4. Developing regional resource adequacy metrics/standards to
provide clarity and mechanisms to assure the development of needed
electrical infrastructure.
5. Ability of customers and other interested parties to invest the
necessary time, especially in view of the concurrent activity on BPA's
FY 2007 power rate case and a variety of other issues.
6. Ensuring BPA and customers can administer new 20-year contracts
for several years concurrent with contracts of customers who choose to
retain their existing Subscription contracts through FY 2011. This
could also result in two sets of rates through FY 2011 (one for
Subscription contract holders and one from Regional Dialogue contract
holders).
7. Willingness of customers to sign new 20-year contracts before
the supporting rate case concludes.
V. Environmental Analysis
BPA has reviewed the final policy for environmental considerations
under the National Environmental Policy Act (NEPA) in a NEPA ROD
prepared separately from the Administrator's ROD. BPA has reviewed each
of the individual policy issues, as well as the potential implications
of these issues taken together. For some issues, there are no
environmental effects resulting from implementation of the policy for
that issue, and NEPA, thus, is not implicated. For other issues, the
policy is merely a continuation of the status quo, and NEPA, thus, is
not triggered.
For the remaining issues, any environmental effects resulting from
the policy have already been addressed in the Business Plan Final
Environmental Impact Statement, DOE/EIS-0183, June 1995 (Business Plan
EIS), and the policy would not result in significantly different
environmental effects from those described in this EIS. Furthermore,
the policy is adequately covered within the scope of the Market-Driven
Alternative identified and evaluated in the Business Plan EIS and
adopted by BPA in the August 15, 1995, Business Plan ROD.
Evaluating all of the individual policy issues together, the final
policy still does not represent a significant departure from BPA's
adopted Market-Driven Alternative and would not result in significantly
different environmental effects from those described in the Business
Plan EIS.
BPA therefore has appropriately decided to tier the NEPA ROD for
the final policy to the Business Plan ROD, as provided for in the
Business Plan EIS and Business Plan ROD. Copies of the NEPA ROD for the
final policy are available on BPA's Web site at http://www.bpa.gov/power/regionaldialogue
or by contacting BPA's Public Information Center
at (800) 622-4520.
Issued in Portland, Oregon on February 4, 2005.
Stephen J. Wright,
Administrator and Chief Executive Officer, Bonneville Power
Administration.
[FR Doc. 05-2780 Filed 2-11-05; 8:45 am]
BILLING CODE 6450-01-P