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Comment on document 2003-18

6 pages
MARSH MUNDORF PRATT SULLIVAN & McKENZIE ATTORNEYS AT LAW • A PROFESSIONAL SERVICE CORPORATION DOUGLAS B. MARSH CREEKSIDE PROFESSIONAL CENTER thTERENCE L. MUNDORF 16504 9 AVENUE S.E., SUITE 203 JEFFREY E. PRATT MILL CREEK, WA 98012 WILLIAM R. SULLIVAN (425) 742-4545 PATRICK K. McKENZIE FAX: (425) 745-6060 DAVID N. JOLLY e-mail: terrym@millcreeklaw.com KARL F. HAUSMANN December 12, 2003 Mark Walker Director of Public Affairs Northwest Power & Conservation Council th851 SW 6 Avenue, Suite 1100 Portland, OR 97204-1348 Re: Request for Comments of the Future Role of the Bonneville Power Administration in Power Supply Dear Mr. Walker, Attached you will please find the comments of the Western Public Agencies Group (“WPAG”) submitted in response to the Northwest Power & Conservation Council’s request for comments. The WPAG utilities appreciate the opportunity to offer their thoughts on this important topic. Yours truly, Terence L. Mundorf Attorney for the Western Public Agencies Group COMMENTS OF THE WESTERN PUBLIC AGENCIES GROUPS ON THE FUTURE ROLE OF BPA IN POWER SUPPLY 1. Introduction The Western Public Agencies Group (“WPAG”) submits these comments in response to ththe October 17 , 2003 letter of the Northwest Power & Conservation Council (“NWPCC”) soliciting ...
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MARSH MUNDORF PRATT SULLIVAN & McKENZIE ATTORNEYS AT LAW  A PROFESSIONAL SERVICE CORPORATION DOUGLAS B. MARSH CREEKSIDEPROFESSIONALCENTERth TERENCE L. MUNDORF 165049 AVENUES.E., SUITE203 JEFFREY E. PRATT MILLCREEK, WA 98012 WILLIAM R. SULLIVAN (425)7424545 PATRICK K. McKENZIE FAX: (425) 7456060 DAVID N. JOLLYterrym@millcreeklaw.com email: KARL F. HAUSMANN December 12, 2003 Mark Walker Director of Public Affairs Northwest Power & Conservation Council th 851 SW 6Avenue, Suite 1100 Portland, OR 972041348 Re: Requestfor Comments of the Future Role of the Bonneville Power Administration  inPower Supply Dear Mr. Walker, Attached you will please find the comments of the Western Public Agencies Group (“WPAG”) submitted in response to the Northwest Power & Conservation Council’s request for comments. The WPAG utilities appreciate the opportunity to offer their thoughts on this important topic.  Yourstruly,  TerenceL. Mundorf  Attorneyfor the Western Public  AgenciesGroup
COMMENTS OF THE WESTERN PUBLIC AGENCIES GROUPS ON THE FUTURE ROLE OF BPA IN POWER SUPPLY 1. Introduction The Western Public Agencies Group (“WPAG”) submits these comments in response to th the October 17, 2003 letter of the Northwest Power & Conservation Council (“NWPCC”) soliciting comments on the future role of the Bonneville Power Administration (“BPA”) as a power supplier. 1 The WPAG utilitieshave been active participants in the ongoing regional efforts to explore ways to better define the role of BPA as a power supplier.This has included participation in the discussions that lead to the development of the Joint Customer proposal, the regional dialogue process conducted jointly by BPA and the NWPCC, and the discussions that produced the Joint Customers’ Proposed Principles for the Future Role of Bonneville in Power Supply (Customers’ Principles) that were presented to the th NWPCC on November 19, 2003.The WPAG utilities believe that these principles provide a reasonably sound starting point for the detailed discussions that must take place before any change to the statutory role of BPA as a power supplier can be implemented. The following comments address questions 1 and 3 contained in Attachment A to the th October 17, 2003 letter of the NWPCC.They are offered to provide more specificity on certain threshold issues that must be considered in any discussionof BPA’s statutory obligation to provide a power supply to qualified utilities that request it. 1 The WPAG utilities include:Benton Rural Electric Association; City of Port Angeles, Washington; City of Ellensburg, Washington; City of Milton, Washington; Town of Eatonville, Washington; Town of Steilacoom, Washington; Alder Mutual Light Company; Elmhurst Mutual Power and Light Company; Lakeview Light and Power Company; Ohop Mutual Light Company; Parkland Light and Water Company; Peninsula Light Company; Public Utility District No. 1 of Clallam County, Washington; Public Utility District No. 1 of Clark County, Washington; Public Utility District No. 1 of Kittitas County, Washington; Public Utility District No. 1 of Lewis County, Washington; Public Utility District No. 1 of Mason County, Washington; Public Utility District No. 3 of Mason County, Washington; Public Utility District No. 2 of Pacific County, Washington; Public Utility District No. 1 of Snohomish County, Washington
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NWPCC Question 1 – Do you think the analysis of the problems and issues presented in the paper is accurate? There are three areas where the Proposed Principles fail to take into account the current state of affairs, and their impact on any proposal to change the role of BPA as a power supplier. Eachwill be discussed in turn. A. NWPCCPrinciple that Bonneville’s role should be limited contractually. The WPAG utilities supported in both the Joint Customer Proposal and the Regional Dialogue proposals to reduce BPA’s reliance on and role in the wholesale power market in order to reduce both the level and the volatility of BPA’s power rates.This was to be accomplished by offering to BPA customers power products that would allow them to take direct responsibility for their future power supply, while retaining power products that permit other customers to continue to rely on BPA for their future power supply. The key element in these approaches was contractual mechanisms that provided differing power supply roles for BPA in the area of resource acquisition, and whichensured that resource costs incurred by BPA were allocated to those customers for whom BPA continues to provides load growth service, and were not allocated to customers who take direct responsibility for their own future power supply. The workability of this contractual approach depended onthe ability of the customers to enforce these contract provisions through binding arbitrationbefore an objective third party. Withoutaccess by the customers to binding arbitration, the use of contracts as an effective means of establishing differing power supply roles and power supply cost responsibility in the BPA power contracts is untenable.Recent events have raised serious questions regarding the availability to customers of binding arbitration to enforce provisions in BPA power contracts. th In October, 2002, the 9Circuit Court of Appeals issued a decision in the case ofPuget Sound Energy v. Bonneville Power Administration,310 F.3d 613 (2002), in which it held that matters that involved the implementation of rates were not subject to binding arbitration, even when the contract specified that binding arbitration was to be used to resolve such disputes.Positions taken by BPA in contract disputes that have arisen subsequent to thePugetdecision make it uncertain whether any contract dispute that involves money can be resolved through binding arbitrations, but instead must be th litigated in the 9Circuit Court of Appeals. At this juncture, a number of things are clear that bear on whether BPA power contracts can be used to allocate BPA resource costs or establish BPA’s role as a power supplier. th First, the current 9Circuit Court of Appeals caselaw makes a binding arbitration provision contained in a BPA power contract a dubious method of enforcingany contractually established power supply role for BPA, or the allocation of BPA resource th acquisition costs. And second, recourse to the 9Circuit is not a satisfactory substitute for an effective binding arbitration process to enforce such contract provisions.
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In short, for BPA power contracts to serve as a mechanism to establish BPA’s role as a power supplier for individual customers, and to allocate BPA’s resource acquisition costs in accordance with that role, the customers must have access to speedy, binding dispute resolution before an objective third party to enforce contract provisions that is not subject to being circumscribed or abrogated by subsequent judicial decisions during the term of the BPA power supply contract.Currently, this is not the case.A serious discussion of contractually establishing the power supply role of BPA and the allocation of BPA’s resource acquisition costs cannot take place without first resolving the issue of how such contract provisions will be enforced. B. NWPPCPrinciple that customer agreement to longterm contracts will require BPA openness regarding costs, implementation of cost reduction improvements, and rebuilding of customer trust. While the sentiments expressed in this principle regarding openness and cost reduction processes are wellintended, they do not go nearly far enough to provide the customers with a reason to sign twenty year contracts with BPA.As recent events have conclusively demonstrated, BPA can resist a call for cost reductions that is supported by virtually every BPA customer.The notion that the customers will be convinced to trust BPA to subordinate its institutional interests to those of its customers or the region when it comes to cost control flies in the face of recent experience. Customers will only sign longterm contracts when they are assured that the power they will purchase will be cost based, and that the costs will be kept as low as reasonably possible. Atthe present time, BPA’s customers have not such assurance.In fact, it has become clear that BPA has institutional and political interests that differ from those of its customers, and that these interests result in BPA incurring costs that could be reduced or avoided. Meaningful cost control will require more than BPA explaining to its customers why it is spending money, and customers trusting that BPA will do the right thing.Rather, a necessary prerequisite to customers signing twenty year contracts with BPA is either: (i) institutional change that reduces BPA’s ability to unilaterally make spending decisions that impact power rates; or (ii) providing the customers with a contractual means to limit their exposure BPA spending decisions. Absent such fundamental change in the area of cost incurrence, the risk is too great and the reward too uncertain for customers to sign 20 year contracts with BPA. C. TheNWPCC Principle that the question of DSI service must be addressed. This principle speaks in terms of capturing the benefits of interrupibility and reserves that can be provided by the direct service industrial customers (“DSI”), and encouraging them to find alternate power suppliers in the longrun.This principle fails to reach the heart of the issue regarding DSI service.
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At the present time, and surely by 2006, the power supply available to BPA from the Federal base system (“FBS”) will be sufficient only to serve the expected loads of the region’s preference customers.There will be no power from the FBS to serve either the DSI or the loads of investor owned utilities.As a consequence, any service to the DSI will require BPA to acquire the power needed to provide such service. The DSIs were granted one twentyyear power supply contract under the Pacific Northwest Electric Power Planning and Conservation Act, and that contract has expired in 2001.BPA has no statutory or other duty to provide a power supply to the DSIs.At this juncture, both BPA and the region have more than fulfilled their obligation to the DSIs. Thelongterm is now here, and the DSIs should be told to find their power supply from an alternate source as BPA has no power to sell to them from the FBS. In the alternative, should the DSIs wish BPA to act as their agent to procure power for them from other sources, BPA should be free to do so as long as the DSIs pay the full cost of the power supply so procured.Similarly, BPA should be free to procure from the DSIs (and others who offer) in a separate transaction both interruptibility and reserves on a pay as used basis when it is cost effective for BPA to do so. As with the issue of cost control, customers will be reluctant to sign twentyyear contracts with BPA if they are uncertain about the additional costs they will be asked to shoulder during such a contract in order to provide below market priced power to the DSIs. NWPCC Question 3 – Do you think the question of Bonneville’s future role in power supply need to be addressed in the near future? The role of BPA as a future power supplier is an important issue to the region, and it should be addressed as soon as possible.Or put another way, the region should move thoughtfully and deliberately to determine what changes, if any, should be made to the statutory role of power supplier that BPA is currently obligated to fulfill.This issue is of such importance that the region should take whatever time is required to make a considered and thoughtful decision on this matter. The more difficult question is when should any changes to BPA’s role be implemented? The short answer is that the timing for implementing the changes depends on the nature of the changes to be made.For example, if the changes require legislative action at the federal level, the timing of the implementation is not entirely under the control of the region, but will be driven by the legislative process.As a consequence, to set an artificial deadline at this juncture, when the nature of the changes is still unresolved, is premature. Finally, the issue of what role BPA should play in the future as a power supplier is too important to address in a haphazard or piecemeal manner.Customers are unlikely to surrender their current contracts, most ofwhich extend to 2011, ifthe alternative is not complete and enforceable, and offers a better business relationship with BPA than the
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current contract.It is better to take the time necessary to make all the needed changes than attempt to rush to a solution that is either incomplete or legally suspect. 2. Conclusion The WPAG utilities appreciate the opportunity to comment on these issues, and look forward to working with all interested parties to reach a consensus approach to the important question of what role BPA should play in the future as a power supplier.
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