-7 regional consumers lies in marginal cost based ratemaking. In this arena, the Council and the Boards have one tool that we and our consumers never had: The financial ability to alleviate the cost of getting off of electricity when the price goes up. Under these circumstances, there really is no excuse for delaying proper pricing design. (6) The same type of pricing should apply to export sales from the region to California. If the region is confident enough in itself to shift to the high range of resource and demand by committing sizeable chunks of long term energy to California, the Californians should be expected to pay close to LRIC for it. A more detailed discussion of our points is in Attachment 4. If the Council feels that the region would benefit from a tentative meeting of regulatory bodies on this subject, our Commission would gladly participate. If from an initial discussion, fruitful, constructive cooperation seems possible, we will gladly continue. A functional approach rather than a formal compact seems much more realistic. to actively participate, our Commission would need to have at least travel expenses covered, unless all involved would rather come to Montana. Also, Before closing, I would finally comment on an area in which none of us has had any experience: wind. It seems to have gotten a "catch 22" treatment. On p. 3-81, it was screened from further consideration because "analysis shows that these resources are not presently cost effective." Implied in the paragraph is the criteria of use as a firm resource. Wind in cold weather months used compatible in time -8 The decision to with the region's excess hydro is the resource that should be evaluated for firmness. The draft states earlier (p.1-3) that "economics point toward getting maximum use out of the hydro system while planning new resources that complement the hydrosystem." emphasize Combustion Turbines with their high running costs, instead of something like wind with low running costs, smacks of institutional inertia. The fixed cost argument that may still apply to cold weather wind farms along the Rocky Mountain front in Montana, certainly applies to bi-fuel boilers. Furthermore, "the cost of wind will decrease as new turbines are built" (p.384). It would seem that an interruptible power marketing program will be much more successful if the type of assistance sketched for bi-fuel boilers were applied instead to wind facilities owned by new large industrial loads. The time compatible wind/water combination poses much less risk of future energy increases, due to fuel cost, than either the bi-fuel boilers or the combustion turbines. The CTS would, of course, be needed in smaller number to support the wind/water combination. Thank you for your time. John B. Driscoll, EDITOR'S NOTE: The attachments to this testimony are available from the Montana Public Service Commission and CALIFORNIA ENERGY SALES BPA has reviewed and released the responses to its Request for Recommendations on the marketing of surplus power. The recommendations received by BPA generally fell into five categories: 1) The investor owned utilities suggested that the surplus should be treated cautiously and without major changes in existing laws and policies. They suggested that any marketable surplus be sold through them to avoid running afoul of the set of legal restrictions which prevent BPA from entering into long-range firm contracts with California (the public preference clause and a 60-day recall requirement). 2) The publicly-owned utilities were generally more optimistic about the surplus and more encourageing of BPA's aggressively marketing the power. The primary recommendation of the publics was the creation of a non-profit corporation to market surplus energy. Public utilities also generally endorsed modifications in federal law to allow BPA to market surplus energy. 3) The Northwest's Public Utility Commissions united behind a policy paper prepared by John Lobdell, the Oregon Public Utility Commissioner. Lobdell recommended setting a floor for non-Northwest sales of 40 mills/KWH, and utilizing any energy not sold under that restriction within the Northwest. Lobdell recommended including in the "new resource rate pool" a portion of the surplus firm power (should that pool ever exist other than in section 7 of the Act) to ensure that the in-region market would utilize as much of such power as possible. Other options recommended by Lobdell include the use of firm surplus to ensure fish passage, the continued pricing of secondary energy to displace the operation of all Northwest coal plants, the exploration of additional transmission lines to Colorado/Utah and Arizona/New Mexico, and the provision of access to BPA lines to all utilities. 4) A diverse set of respondents suggested ways of utilizing the surplus energy in the Northwest. Fish and wildlife interests recommended increased spill. Boeing offered to purchase up to 100 Megawatts of electric boilers which could be run economically on surplus energy. The irrigators have been pressing for a share of the surplus for their benefit. 5) Finally some parties, including the Natural Resources Defense Council and the California Energy Commission, recommended that BPA construct a long-term plan to market firm power to California and to use the revenues to develop conservation resources in the Northwest. These conservation acquisitions would ensure that the contracts are fulfilled. These parties contend that such an arrangement would promote the long-term interests of the Northwest in developing conservation at the lowest possible cost, and of California in acquiring whatever firm power it could at a reasonable cost. A paper submitted by Daniel Meek of the California Energy Commission analyzed the basic problem in the power sales relationship between California and the Northwest. According to Meek, both sides suffer by failing to agree on an institutional arrangement for marketing firm surplus. Meek argues that the key problem for the Northwest is that the transmission lines too Page 4 FEBRUARY 18, 1983 often operate at capacity, or close to it. Northwest utilities with surplus then underbid each other to secure access to transmit energy. California pays an extraordinarily low price for this surplus. However, while California benefits from this low surplus price, in the long run California needs to displace resources which generate firm power. Surplus power can only go so far -- even when it can be used to replace oil and gas generation at off-peak, for example, the units must be kept at partial power in order to meet the coming peak. As recent contracts with private utilities show, California is willing to pay a reasonable price for firm power. It would pay California to remove the transmission bottleneck only if California could get firm power at reasonable rates and thus defer new generation. Improving transmission capabilities lessens the ability of California to bargain for low rates by bidding Northwest utilities against each other for line shares. If California expands the transmission lines without firm power contracts, it would only raise Northwest revenues without profiting California. The price increases on the currently available surplus would more than balance the price advantages of securing additional surplus. - For the Northwest, yielding a firm contract in return for expanded transmission capability would raise sales revenues dramatically and would be at a price for which vast conservation resources could be developed. The price would, however, be totally insufficient to pay for any power from a revived WPPSS 4 and 5. Meek suggests several mechanisms through which firm contracts could be signed in return for transmission capability expansion. In addition to changing the current law or marketing through the private utilities, he also suggests that BPA could adopt some form of curtailment insurance for the California utilities, either lowering the price to reflect the 60-day curtailment contingency, or being prepared to absorb the risk internally. Such a plan would be quicker and easier to implement than either of the other two mechanisms. A mutually beneficial arrangement between California and the Northwest is possible, but only if both sides are willing to make concessions. California must be prepared to pay a higher price and upgrade its transmission facilities in return for deferring new generation. BPA must be prepared to guarantee firm power in return for a higher price. The 40 mill/KWH figure would benefit both parties under these circumstances and would support massive conservation programs, creating a resource which the Northwest could continue to draw on if the surplus ended. The logic is inescapable: but that is, of course, no guarantee that BPA will pursue it. FEBRUARY 18, 1983 Page 5 Northwest VOLUME 2, NUMBER 10 REPORT THE NEWSLETTER ON THE IMPLEMENTATION OF THE PACIFIC NORTHWEST MAY 13, 1983 SURPLUS SALES TO CALIFORNIA DISCUSSIONS START TO TAKE CONCRETE FORM The Report has learned details of the latest secret discussions between members of the many of the region's generating utilities, the Bonneville Power Administration, representatives of California utilities and the California Energy Commission, direct service industry representatives, and others regarding firm surplus power sales to California. BPA Assistant Administrator for Power Management Ed Sienkiewicz was able to confirm for the Report much of the discussion, including: timelines for various stages of contract negotiations; expected sales quantities and length of anticipated contracts; and some aspects of transmission interties, BPA's and the Northwest Power Planning Council's role in the contracts, and who may negotiate the contracts. The meetings are taking place under a shroud of secrecy. Despite BPA's previously issuing a Request for Comment regarding "Sales of Firm Federal Surplus Power," the agency has apparently made no attempt to involve the public or any other non-cognoscenti in these crucial discussions. BPA would seem to be violating the federal "Advisory Committee Act" by convening on a regular basis a stable group of individuals who are advising policy staff on matters of importance which are subject to rulemakings. Discussions currently center on power sales of a "flat" 1500 megawatts for 15 years. It is expected by those involved that the Northwest-Southwest intertie capacity will be significantly upgraded. (Capacity will be increased to approximately 4500 megawatts under improvements currently planned or underway.) A new intertie is seen as necessary to allow continued transmission of nonfirm surplus, and to provide access to California utilities which do not have rights to the existing intertie system. There is also speculation that there may even be a new transmission line from Idaho or Montana directly to California via Utah. Evidently, some consensus is emerging in the PNUCC/BPA workgroup on how an inter-regional long-term sale might be structured. May 13, 1983 Page 1 |