Thank you, Mr. Chairman. Mr. WEAVER. Thank you, Mr. Johnson. Mr. CLAGETT. Thank you, Mr. Chairman. I appreciate this opportunity to be here to discuss potential marketing of surpluses from the Pacific Northwest. As Deputy Administrator of the Western Area Power Administration, I will give, perhaps, a little summary for some of the people who are here. As an organization Western was established in December 1977. We were created, when the U.S. Department of Energy was created, as a power marketing administration that took over the marketing and transmission responsibility formerly carried out by the Bureau of Reclamation. In a sense, we do not have load growth responsibilities. But because of various reasons that came up over the years, we have a history of purchasing power; sometimes in large quantities. In California, for example, the hydrosystem we have there is deficient 3 and 4 billion kilowatt-hours per year on a regular basis. That means the 400 megawatts [MW] of intertie capacity which we now have represents an opportunity to come to the Northwest to purchase energy to meet some of those deficiencies. We have contracts with the Pacific Gas & Electric Co., which give us certain rights to purchase energy from bank accounts of energy which we maintain with them to help meet some of those deficiencies. We try wherever we can, however, to keep our costs down by looking for the least-cost alternative, which I know is a phrase Peter Johnson used. So we continue to look at interties. We continue to look at uprates of the existing facilities, and we continue to look for other opportunities to keep these costs down and purchase power at the lowest cost possible. That completes my summary, Mr. Chairman. Mr. WEAVER. Thank you very much. Mr. Saxvik. Mr. SAXVIK. Mr. Chairman, we, as members of the Northwest Power Planning Council, welcome this opportunity. There are several points we would like to stress in terms of the context of your request. The council plans to support the sale of surplus power that would benefit both the Northwest and the Southwest. The Northwest Power Planning Council has also called for the creation of additional nonfirm markets within the Northwest in order to make better use of nonfirm energy that currently has low value when sold down the intertie. The council believes that both of these actions are consistent with each other and both will provide significant economic and environmental benefits to Northwest ratepayers. The question of expanding the intertie capacity between the Northwest and the Southwest is affected by, and affects, both the sale of surplus firm energy and the existing nonfirm energy market. The council has two primary concerns that it would like to express in regard to the proposed sale of firm surplus resources from the Northwest to the Southwest. One concern is whether such a sale increases or decreases the risk faced by Northwest ratepayers. This is why the adequacy of callback provisions under such a sale is of crucial importance. The second issue has to do with resource mix. Resource mix questions revolve around consistency of proposed sale resources with the council's plan, the cost-effectiveness of those resources, and the issue of whether the Northwest will be incurring additional environmental costs when it is exporting energy. Risks, both of overbuilding and of underbuilding resources, was a major focus of the council's plan. The council has developed the concept of options, in which a resource is brought through the developmental and licensing stages, to the point of construction, and then, in essence, put on the shelf until it is clearly needed. The remaining construction time is the period in which the largest portion of the money is spent on the resource. The procedure is designed to minimize the risk of overbuilding by bringing the major point of decision as close as possible to the point when the power is needed. One of the variations of the options concept is a so-called sales option in which a resource is completed ahead of regional need and sold outside the region while recovering its full incremental costs. Clearly, the crucial element in this process is the callback provision embodied in the resource sale contract. I think the key element in our discussion is, while the council's plan we alluded to in your last hearing assumed the completion of WPPSS 1, 2, and 3 on schedule, events are continuing to cast some doubts on that outcome. The risks associated with the completion of these plants need to be taken into account in any proposed sale. The second issue of importance to the council concerns the resources that are used for the sale. Resources for a proposed sale should be both cost-effective and otherwise consistent with the council's plan. In addition, the council is concerned that any use of a sales option not be to the detriment of the Northwest environment. The primary resource that the council would view as appropriate for inclusion in a firm surplus sale, if any resource is needed beyond those currently under construction, would be conservation. Aggressive development of Northwest conservation by weatherizing and otherwise improving the efficiency of Northwest homes and businesses would provide double benefits to the Northwest while minimizing environmental costs to the Northwest. The first benefit comes from weatherizing Northwest homes and businesses faster than currently scheduled. That would mean lower electric bills, hopefully in the near future, for Northwest ratepayers. The second comes from relief from the revenue burden of having to pay for existing resources that are not needed. From the Northwest perspective, expansion of the current intertie capacity would likely provide significant benefits. Those benefits include removing some of the institutional constraints in the Northwest revolving around competition between firm resources and nonfirm sales for intertie space, and, even in the absence of a firm surplus sale, allowing greater use and higher revenues from the existing nonfirm energy available as water conditions permit. Thank you very much for this opportunity on behalf of the council. Mr. WEAVER. Thank you, Mr. Saxvik, very much. I think the GAO put it in a nutshell in their third paragraph here. Investigators are concerned about, one, not knowing how much surplus power will be available from the Northwest on a long-term basis, and an uncertainty as to its price; two, not having secure power deliveries because of Federal legislation that provides for a callback provision on all BPA sales outside the region; three, private utilities not having assurance in power allocations because of Federal legislation on preference; and, four, the public utilities not having access to intertie capacity. That just shows what a conflicting set of forces we have in this issue, and somehow or other we are going to have to bring those together, all these tangents into focus and into position where they work for us and not against us. Mr. Johnson, you are now negotiating long-term contracts with California utilities. Who are they, and what problems are you running into in the negotiations? Mr. JOHNSON. Mr. Chairman, let me respond to that generally, and then I will ask Mr. Sienkiewicz, who has been actually conducting many of those discussions and been an active participant, to respond. At the present time we are engaged in discussions with three utilities in particular with respect to long-term firm sales. They inIclude the Western Area Power Administration, the Southern California Edison Co., and the Los Angeles Department of Water and Power. We are the most advanced with respect to the possible contract with the Western Area Power Administration. It is our expectation we will consummate a transaction with them before the close of this year. I will ask Mr. Sienkiewicz to give you a little more detail as to the impediments we have encountered. Mr. SIENKIEWICZ. Mr. Chairman, I wouldn't characterize all of the contracts as being long-term sales arrangements. The arrangement with the Western Area Power Administration is, in fact, a 20year contract. It provides transmission to them as well as a power sale both from Bonneville and from other Northwest utilities. The power sale from Bonneville is for the amount of 250 megawatts until about 1985-1986, when the Basin Electric resource becomes available to Western and the amount from Bonneville is reduced to 100 megawatts. Our discussions with Los Angeles and Southern California Edison are in the context of existing capacity/energy contracts which expire in 1986, I believe, and the thrust there is a circumstance in which we currently have firm surpluses, and we are delivering to them capacity in exchange for return of firm energy, which adds to our firm energy surpluses. The question is whether or not in light of the change of circumstance there would be more economic arrangements for us today. So we are negotiating with the city of Los Angeles for a revisionbasic revision-in this contract that would provide for a sale of firm surplus to them rather than capacity/energy exchange, and I would say the fundamental concern-the fundamental impediment-is the question of price. They have alternatives in terms of meeting their obligation to the Bonneville Power Administration for returning energy for the capacity area in terms of where else they might make those acquisitions, who else they might buy from, and at what price. Those are in contrast to what we might sell to them and are clearly an impediment. Mr. WEAVER. What price are you asking? Mr. SIENKIEWICZ. We are asking a price of 30 mills per kilowatthour escalating over the next 3 to 5 years. Mr. WEAVER. Isn't there a difference in the amount of time you are willing to make firm energy available and what they want? Mr. SIENKIEWICZ. I think we are looking essentially at a change in manner in which they meet an obligation to us. Currently, they have an obligation to return energy to us. They can do that by generating energy in their system, by purchasing it from someone else, or by purchasing in the Northwest. Their assessment of what that generation will cost them, in contrast to what it is we are asking for the sale, is, in fact, the alternative in the assessment they have to make to decide whether or not this is an economic transaction. Mr. WEAVER. You said the WAPA negotiations involve transmission. Do you mean building new transmission? Mr. SIENKIEWICZ. No, just an agreement to provide for transmission for movement of the resources which they purchase from the Northwest. Mr. WEAVER. From where to where? Mr. SIENKIEWICZ. From the Northwest system to the Western delivery point. Mr. WEAVER. Where is that? Mr. SIENKIEWICZ. At Malin. I think the Western delivery point is Malin delivery. Mr. WEAVER. Bill, do you have capacity from Malin down south? Mr. CLAGETT. Yes, sir. Part of the original intertie was a guarantee to us of 400 megawatts of the intertie from Malin south. Mr. WEAVER. Would you like more? Mr. CLAGETT. Yes, sir. Mr. WEAVER. How much more, and why can't you get it? Mr. CLAGETT. I think you are talking about a big system problem. It is not just us and PG&E, Bonneville, and so forth. There is a bigger question that has to be faced. We feel we have some successful negotiations going on with PG&E for additional capacity in addition to the 400 megawatts, but there is a bigger question of just how much the intertie can be uprated, and when it can be uprated. Mr. WEAVER. Who puts up the money to do it, you mean? Mr. CLAGETT. Well, without building additional lines, the system is vulnerable to outages on those lines, and California is a net importer, and when they get so they are importing about 6,000 megawatts, more or less, then if a major line or group of lines such as the intertie goes out, it puts the rest of the system in some jeopardy. That, I think, is a bigger issue that has to be faced. It goes beyond whether or not PG&E and WAPA- 25-181 0-83-2 Mr. WEAVER. Are you talking about a problem that exists at any time, or are you talking about the data I have seen on costs of upgrading? In other words, if you put in the additional moneys to upgrade these lines, would that solve the problem you are talking about, or are you just simply talking about the vulnerability of any line at any time? Mr. CLAGETT. I am talking about the vulnerability of the overall system if we try to put too much capacity over any line or any path. Mr. WEAVER. That is nothing unique to this particular transmission? Mr. CLAGETT. No, sir. That is typical of operating a large integrated system. Mr. WEAVER. What about the problem, Mr. Johnson, that I have heard concerning Bonneville's unwillingness to give 3- to 5-day firm guarantees on nonfirm power? Mr. JOHNSON. Mr. Chairman, once again I am going to yield to Mr. Sienkiewicz, who has more specific knowledge on that particular type of a question. Mr. SIENKIEWICZ. The question of the guarantee for nonfirm energy is one raised in Bonneville's last rate case and has been raised again in this rate case. There are a number of different options which have been put forward that we will be reviewing before final determination of this issue this coming September. Mr. WEAVER. What have you got against the 5-day guarantee? Mr. SIENKIEWICZ. One of the problems we have with 5-day or any particular guarantee, if, in fact, it is required to deliver that energy with the guarantees, we think it will reduce the amount of nonfirm that will be available for sale. By virtue of having to make nonfirm available on a guarantee basis, the operators will have to look at the next 3 to 5 days-whatever that period is-and make an assessment that they, in fact, can make that delivery. It is the expectation they would be more conservative in those assessments, and they would be more likely to reduce the amount of nonfirm available. Mr. WEAVER. Mr. Johnson, would you sum up the major difficulties you find in vastly expanding the tielines to California from the Northwest? I mean, let's say, somebody walks into your office and says, "Hey, I got a good idea. Let's increase the capacity of the tielines. down to California." What would you say? What are the problems you face? Mr. JOHNSON. In my opening statement we went into a number of the circumstances I think impact the situation, but the uses of the intertie are many. For the nonfirm, which has been its historical use, for its capacity/energy exchange, improving the reliability of emergency backup, et cetera. In that context, we have been working together with other Northwest utilities, as well as those in the Southwest, in assessing different ways by which we can increase the capacity of the a.c. lines and also the d.c. lines. |