[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31951]


[Federal Register: December 28, 1994]


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DEPARTMENT OF ENERGY

Intent To Revise Wholesale Power Rates To Become Effective

October 1, 1995.
AGENCY: Bonneville Power Administration (BPA), DOE.

ACTION: Notice of Intent and Request for Comments.

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SUMMARY: BPA is developing adjusted wholesale power rates proposed to 
become effective October 1, 1995. At this time, BPA announces its 
intent to revise its rates. The formal hearings will also comprehend 
changes to BPA charges under the Pacific Northwest Coordination 
Agreement. BPA expects to publish a notice of the proposed rates in the 
Federal Register in early 1995. That notice also will announce BPA's 
proposed schedule for formal hearings as specified in section 7(i) of 
the Pacific Northwest Electric Power Planning and Conservation Act 
(Northwest Power Act). A final schedule will be established by the 
Hearing Officer who presides over BPA's rate hearings. These hearings, 
and planned general public field hearings, will give interested persons 
an opportunity to present oral and written comments on the proposal. 
BPA File No: WP-95. BPA requests that all comments and documents to 
become part of the Official Record compiled in the process of adjusting 
wholesale power rates contain the file number designation WP-95.

ADDRESSES: Written comments should be submitted to the Manager, 
Corporate Communications, Bonneville Power Administration, P.O. Box 
12999, Portland, Oregon 97212.

FOR FURTHER INFORMATION CONTACT: Mr. Michael Hansen, Public Involvement 
and Information Specialist, at the address listed above, 503-230-4328, 
or call 1-800-622-4519. Information may also be obtained from:

Mr. Steve Hickok, Group Vice President, Sales and Customer Service, 
P.O. Box 3621, Portland, Oregon 97232, 503-230-5356.
Mr. George Eskridge, Manager, SE Sales and Customer Service District, 
1101 West River, Suite 250, Boise, Idaho 83702, 208-334-9137.
Mr. Ken Hustad, Manager, NE Sales and Customer Service District, 
Crescent Court, Suite 500, 707 Main, Spokane, Washington 99201, 509-
353-2518.
Ms. Ruth Bennett, Manager, SW Sales and Customer Service District, 703 
Broadway, Vancouver, Washington 98660, 206-418-8600.
Ms. Marg Nelson, Manager, NW Sales and Customer Service District, 201 
Queen Anne Avenue North, Suite 400, Seattle, Washington 98109-1030, 
206-553-4130.

Responsible Official: Mr. Geoff Moorman, Manager, Pricing, Marginal 
Cost, and Ratemaking, is the official responsible for the development 
of BPA's rates.

SUPPLEMENTARY INFORMATION:

I. Background

    BPA is a Federal power marketing agency in the Pacific Northwest. 
BPA markets hydroelectric power from 30 dams, including projects 
operated by the U.S. Army Corps of Engineers and the U.S. Bureau of 
Reclamation on the Columbia River and its tributaries, as well as 
projects owned by the City of Idaho Falls, Lewis County Public Utility 
District, and the Washington Public Power Supply System (Supply 
System). BPA also markets thermal power it acquires from utilities in 
the region. In addition, BPA owns, operates, and maintains the nation's 
largest high-voltage transmission system grid.
    BPA currently supplies about 45 percent of the electric energy 
consumed in the Pacific Northwest and maintains about 80 percent of the 
region's high-voltage transmission capacity. Firm power is sold at 
wholesale to BPA utility customers in the region for resale to 
consumers and is sold directly to BPA's industrial and Federal agency 
customers for their own use. In addition, BPA sells power that is 
surplus to its regional firm obligations to customers within and 
outside the region. BPA's existing 151 long-term power sales contracts 
expire in 2001. BPA now is working with its customers to put new 
contracts in place in advance of that date.
    BPA began a Competitiveness Project in early 1993 in response to 
market forces and the deregulation of the electric utility industry. 
The project, a re-invention of the agency to make it more competitive 
in the new marketplace, included the development of a new business 
concept, a marketing plan, a structural reorganization, strategic 
action plans for each of BPA's major activities, and internal effort to 
promote leadership and employee empowerment, and proposals to eliminate 
unnecessary administrative and regulatory requirements.
    A major result of the Competitiveness Project, outlined in BPA's 
draft Marketing Plan and refined in subsequent process, is the set of 
products and services BPA could offer its customers. Once these 
products are offered, customers would be able to select individual 
items or choose among packages of products and services. The 
``unbundled'' or separately priced power products BPA would propose to 
offer include power services such as control area services and resource 
management services. A more traditional bundled approach to firm 
requirements service would be offered as well.
    BPA's Draft Strategic Business Plan was released in June 1994. The 
Draft Strategic Business Plan proposes the overall strategic direction 
for serving BPA's customers and meeting BPA's legislated 
responsibilities, includes new statements of BPA's mission and values, 
and enunciates strategic business objectives to guide BPA's activities. 
The Draft Strategic Business Plan also describes the conceptual 
framework for the products BPA would offer. As stated in the Draft 
Strategic Business Plan, BPA's pricing policies are designed to meet 
many objectives including: (1) providing maximum customer choice and 
encouraging optimal use of the Federal Columbia River Power System 
(FCRPS); (2) contributing to BPA's continued viability in an 
increasingly competitive energy-market environment; and (3) allowing 
BPA to take full advantage of its responsibility and authority to 
manage the FCRPS, consistent with all statutory requirements.
    The Draft Strategic Business Plan envisions BPA as operating three 
business lines: power, transmission, and energy services (includes 
conservation product lines), which will be self-supporting and serve 
customers according to their unique needs. The Draft Strategic Business 
Plan also outlines a number of initiatives to improve BPA's 
competitiveness, including strategies to close the projected gap 
between BPA's costs and revenues, a financial strategy, and proposals 
to change BPA's power rate structures. These initiatives give customers 
more choice and more accurately reflect BPA's costs associated with 
providing the discrete components of electric service selected by 
customers, and thereby should encourage investment in cost-effective 
conservation. BPA proposes to close the revenue gap by exerting strict 
cost management and restructuring its products and services to respond 
more effectively to the market.
    BPA is preparing initial studies to determine the extent to which 
projected revenue requirements for FY 1996 and 1997 will exceed 
revenues projected under current rates. BPA will then prepare studies 
to establish proposed rates for the FY 1996 and 1997 period. The 
initial proposal for the 1995 rate case is among the first steps in 
ensuring BPA is positioned to compete in the new market environment.
    BPA has prepared a draft environmental impact statement (EIS) 
addressing the alternatives and impacts of its proposed business 
direction, as expressed in its draft Strategic Business Plan. The draft 
EIS was released for public comment in June 1994, along with the draft 
Business Plan. The Business Plan EIS is designed to evaluate the 
proposed actions and the range of alternatives, including the impacts 
of the range of potential rate designs for BPA's power and transmission 
services. It also is intended to provide documentation of BPA's 1995 
rate proposal for the purposes of the National Environmental Policy 
Act. A second draft of the EIS will be available for public comment in 
late January.

II. Major Issues

    The development of BPA's rates is complex, raising numerous issues 
for resolution in the hearing process. The following is a brief 
explanation of several major issues that are expected to be addressed 
in the hearing. Some of these issues have been the subject of 
discussion in previous BPA rate cases.

A. Revenue Requirement

    The rates that BPA charges its customers must produce revenues that 
are sufficient to repay, with interest, the Federal investment in 
generation, conservation, and transmission facilities. Revenues also 
must pay BPA's operation and maintenance expenses, purchased power 
costs, and other miscellaneous expenses. BPA also sets rates to recover 
a certain amount of net revenues. These planned net revenues, combined 
with BPA's existing financial reserves, are intended to mitigate 
financial risk to help assure BPA's ability to recover its costs, 
including its timely repayment of the Federal investment.
    BPA develops a Revenue Requirement Study, that sets forth BPA's 
total costs of providing services to BPA's customers, including 
repayment of the Federal investment in the Federal Columbia River Power 
System. The revenue requirement calculation is a major input in 
determining the overall level of BPA's proposed rates for power and 
transmission.
    Program levels for FY 1996 and 1997 were developed outside of BPA's 
rate case, and as part of the BPA Draft Strategic Business Plan, with 
the benefit of a public comment process. BPA has reduced programs 
through a combination of cost cutting, program reinvention, and 
reductions in government and contractor employees. Program level 
decisions will not be an issue in the rate case. The Revenue 
Requirement Study will incorporate BPA's program level decisions and 
implement BPA's risk mitigation, capital funding, and other financial 
goals in 1996-1997 rates.

B. Revenue Forecast and Risk Analysis

    The Revenue Forecast provides a most likely estimate of BPA's sales 
and revenues for the rate period. The Revenue Forecast includes several 
new products and associated billing determinants. The Risk Analysis 
identifies and quantifies risk elements associated with this forecast. 
Risk factors influence the expected revenues, the revenue distribution, 
and the likelihood of meeting planned Treasury payments.
    Historical risk categories include streamflow conditions related to 
precipitation, affecting quantities of hydropower produced; aluminum 
prices affecting the quantity and price of power purchased by the 
aluminum smelters in the Northwest; temperature affecting a large 
Northwest space heating load; fossil fuel prices affecting both the 
size of market for and the cost of sales and purchases; and employment 
affecting power consumption by durable goods industries like forest 
products and aircraft manufacture; among others. In its initial 
proposal, BPA is proposing to examine the potential revenue variability 
that could result from changes in its rate design, including the 
proposed tiered rate structure. BPA expects to increase planned net 
revenues to cover the revenue variability, if necessary, to ensure 
sufficient revenues to meet its Treasury payments.

C. Loads and Resources Determinations

    The firm energy and capacity loads and resources forecasted by BPA 
to occur during the forthcoming rate period, along with estimated sales 
of unbundled products and services, determine BPA's forecasted power 
sales. Forecasted sales and revenue requirements determine the general 
level of rates that must be charged to generate sufficient revenue.

D. Cost Allocations and Rate Design

    Historically, BPA has sold firm requirements power on a ``bundled'' 
basis; that is, all customers within a customer class paid for a 
bundled package of products even if they did not use or need all the 
products and services in the bundled price. BPA is planning to propose 
a number of rate design changes to provide purchasers information about 
the prices associated with a fuller selection of electric power 
products and services that BPA can provide. In designing the rates to 
be proposed in the 1995 rate proceeding, BPA also adheres to statutory 
ratemaking requirements, including those for allocating resource costs 
to customer groups. In particular, section 7 of the Northwest Power Act 
guides how rates are to be established and revised.
    1. Cost Allocation: the rates BPA charges to each customer class 
reflect the classification of costs among different attributes of power 
and the allocation of costs to each customer class. BPA is planning to 
change the classification and allocation of costs in its initial 
proposal for the 1995 rate case to provide customers with better 
information on the costs associated with providing electric power and 
services. BPA also intends to develop a revised cost allocation 
construct for the 1995 rate case consistent with the separation of 
resource costs among the different business lines--power, transmission, 
and energy services--and different product lines within each business 
line. The Draft Strategic Business Plan proposes three different power 
product lines: Tier 1 products, Tier 2 products, and unbundled products 
and services.
    BPA plans to classify generation costs using the results of a 
revised Marginal Cost Analysis. Results of the Marginal Cost Analysis 
also will be used to determine hourly and seasonal periods for 
ratesetting.
    2. Marginal Cost Analysis: BPA is planning to propose to reflect 
the changing market conditions and opportunities in which BPA operates 
in its approach to measuring the incremental cost of providing 
electricity. BPA plans to measure marginal costs based on the supply 
and demand conditions BPA faces in the West Coast market instead of 
limiting the measurement to just the incremental costs associated with 
acquiring additional generating resources. BPA plans to change the 
Marginal Cost Analysis to provide a better understanding of how BPA 
incurs marginal costs and how those costs vary within the year.
    3. Tiered Rates and Unbundled Products: BPA is planning significant 
changes in the design of its rates. BPA is planning to propose to 
divide its rates for firm requirements service into two tiers: Tier 1 
and Tier 2. The other services and products that customers may select 
to complement either firm requirements service provided by BPA, or 
power acquired from other sources, will be priced separately.
    To provide customers with a price signal that encourages efficient 
resource investment decisions, including conservation resources, and 
shares the benefits of the relatively low-cost Federal power and 
transmission systems, BPA is planning to propose to tier its rates for 
requirements service and for the residential exchange. The rate for 
requirements service would be divided into two parts: a Tier 1 rate, 
and one or several alternative Tier 2 rates. BPA expects that the Tier 
1 rate will be available to serve most of the existing customers' firm 
loads. The Tier 1 rate is expected to be a lower rate than Tier 2 
because it will be based primarily on the costs associated with the 
existing Federal system. The Tier 2 rates will be available to serve 
regional firm requirements in excess of Tier 1, including future load 
growth, and will be based on the costs associated with supplying power 
to meet these loads.
    To address the increasingly competitive market for power, 
transmission, and energy services, BPA is planning to propose to offer 
a limited menu of unbundled products in the 1995 rate case. BPA expects 
that the products offered will be available both under the current 
power sales contracts and under new power sales contracts. BPA expects 
to offer additional unbundled products in future rate cases and to 
price these products to meet market conditions and its cost recovery 
obligations. In some cases, BPA expects the market will require 
flexible pricing. BPA is planning to ``unbundle'' what it offers so 
customers can choose among products and services based on what they 
need to meet their loads and support their own resources, if any.
    Following publication of the initial proposal in the Federal 
Register, formal public hearings and general public field hearings will 
be conducted by BPA. Written comments from individuals or entities, 
other than parties to BPA's formal rate case, also will be accepted 
through a date established by the Hearing Officer at the prehearing 
conference. Oral communications should be for the purpose of requesting 
either status reports or procedural information. After completion of an 
environmental process pursuant to the National Environmental Policy Act 
and following the hearings, BPA will announce its final proposed 
wholesale power rates and submit them to the Federal Energy Regulatory 
Commission for approval.

    Issued in Portland, Oregon, on December 12, 1994.
Randall W. Hardy,
Administrator and Chief Executive Officer.
[FR Doc. 94-31951 Filed 12-27-94; 8:45 am]
BILLING CODE 6450-01-M