[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24376-24382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11407]


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DEPARTMENT OF ENERGY

Bonneville Power Administration


Opportunity for Public Comment, Regarding Bonneville Power 
Administration's Subscription, Power Sales to Customers and Customers' 
Sales of Firm Resources

AGENCY: Bonneville Power Administration (BPA), DOE.

ACTION: Notice of draft policy proposal.

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SUMMARY: BPA is publishing a draft policy proposal for addressing 
certain issues under sections 5(b) and 9(c) of the Northwest Electric 
Power Planning and Conservation Act, (the Northwest Power Act), Pub. L. 
96-501, and section 3(d) of the Act of August 31, 1964 (the Northwest 
Preference Act), Pub. L. 88-552, regarding the amount of Federal power 
a customer may purchase under BPA subscription power sales contracts.
    BPA is initiating development of a policy that will provide policy 
guidance on implementation of the Power Subscription Strategy under 
applicable statutes and describe how certain factual determinations 
needed for BPA subscription power sales contracts will be made.

DATES: Public meeting dates: May 27, 1999, and June 2, 1999. Close of 
comment date: June 11, 1999.

ADDRESSES: If you are interested in commenting on the policy proposal 
regarding the amount of Federal power a customer may purchase under BPA 
subscription power sales contracts, you have several options.
    1. You can send written comments to Bonneville Power 
Administration, P.O. Box 12999, Portland, OR 97212, or you can fax 
comments to (503) 230-4019. If you wish to send your comments 
electronically, email comments to: [email protected]. Comments must be 
received by close of business Friday, June 11, 1999.
    2. You also can attend one or both of the two public comment 
meetings. One meeting will be held on Thursday, May 27, 1999, in 
Spokane, Washington, at Cavanaugh's Inn at the Park, 303 W. North River 
Drive. Another meeting will be held in Portland, Oregon, on Wednesday, 
June 2, 1999, at the Sheraton Portland Airport Hotel, at 8235 NE 
Airport Way. Both meetings will begin at 10:00 a.m. Comments also will 
be collected on BPA's Standards for Service proposal. If any additional 
meetings are scheduled, the information will be posted on the web site 
listed below.

http://www.bpa.gov/Power/subscription

FOR FURTHER INFORMATION CONTACT: Mr. Michael Hansen, Public Involvement 
and Information Specialist, Bonneville Power Administration, P.O. Box 
3621, Portland, Oregon 97208-3621, telephone (503) 230-4328 or 1-800-
622-4519. Information can also be obtained from your BPA Account 
Executive or from:

Ms. Ruth Bennett, Acting Vice President, Power Marketing, 905 NE 11th, 
P.O. Box 3621, Portland, OR 97208, telephone (503) 230-7640
Mr. Rick Itami, Manager, Eastern Power Business Area, 707 W. Main 
Street, Suite 500, Spokane, WA 99201, telephone (509) 358-7409
Mr. John Elizalde, Acting Manager, Western Power Business Area, 700 NE 
Multnomah, Suite 400, Portland, OR 97232, telephone (503) 230-7597

SUPPLEMENTARY INFORMATION: On December 21, 1998, BPA published its 
Power Subscription Strategy and Record of Decision for selling Federal 
power under new contracts with its public utility, investor-owned 
utility and direct service industrial customers. The Power Subscription 
Strategy stated overall policies for determining the amount of power 
that would be offered to Pacific Northwest public utilities and 
investor-owned utilities under section 5(b)(1) of the Northwest Power 
Act.
    This Federal Register Notice presents BPA's draft proposal for 
implementing the Power Subscription Strategy under its post-2001 power 
sales contracts. The proposal recommends contract mechanisms for 
determining the amount of electric power BPA will offer to public and 
investor-owned utilities. It also proposes contract mechanisms for 
determining the amount of electric power BPA will offer investor-owned 
utilities, based on a firm power requirement load, in settlement of 
their rights to service under the residential exchange program created 
under section 5(c) of the Northwest Power Act. Based on section 3(d) of 
the Northwest Preference Act and 9(c) of the Northwest Power Act, the 
proposal recommends principles for determining the effect a customer's 
sale of its non-Federal firm resources may have on the amount of 
Federal power that BPA will offer to the customer under its BPA power 
sales contract.
    The Northwest Power Act provisions are:

    5(b)(1) Whenever requested, the Administrator shall offer to 
sell to each requesting public body and cooperative entitled to 
preference and priority under the Bonneville Project Act of 1937 [16 
U.S.C. 832 et seq.] and to each requesting investor-owned utility 
electric power to meet the firm power load of such public body, 
cooperative or investor-owned utility in the region to the extent 
that such firm power load exceeds--
    (A). the capability of such entity's firm peaking and energy 
resources used in the year prior to December 5, 1980, to serve its 
firm load in the region, and
    (B). Such other resources as such entity determines, pursuant to 
contracts under this chapter, will be used to serve its firm load in 
the region.
    5(b)(1) In determining the resources which are used to serve a 
firm load, for purposes of subparagraphs (A) and (B), any resources 
used to serve a firm load under such subparagraphs shall be treated 
as continuing to be so used, unless such use is discontinued with 
the consent of the Administrator, or unless such use is discontinued 
because of obsolescence, retirement, loss of resource, or loss of 
contract rights. 16 U.S.C. 839c(b)(1)
    9(c) Any contract of the Administrator for the sale or exchange 
of electric power for use outside the Pacific Northwest shall be 
subject to limitations and conditions corresponding to those 
provided in sections 2 and 3 of the Act of August 23, 1964 (16 U.S.C 
837a and 837b) for any contract for the sale, delivery, or exchange 
of hydroelectric energy or peaking capacity generated within the 
Pacific Northwest for use outside the Pacific Northwest. In applying 
such sections for the purposes of this subsection, the term 
``surplus energy'' shall mean electric energy for which there is no 
market in the Pacific Northwest at any rate established for the

[[Page 24377]]

disposition of such energy, and the term ``surplus peaking 
capacity'' shall mean electric peaking capacity for which there is 
no demand in the Pacific Northwest at the rate established for the 
disposition of such capacity. The authority granted, and duties 
imposed upon, the Secretary by sections 5 and 7 of such Act (16 
U.S.C. 837d and 837f) [16 U.S.C. 837d and 837f] shall also apply to 
the Administrator in connection with resources acquired by the 
Administrator pursuant to this chapter. The Administrator shall, in 
making any determination, under any contract executed pursuant to 
section 839c of this title, of the electric power requirements of 
any Pacific Northwest customer, which is a non-Federal entity having 
its own generation, exclude, in addition to hydroelectric generated 
energy excluded from such requirements pursuant to section 3(d) of 
such Act (16 U.S.C. 837b(d)), any amount of energy included in the 
resources of such customer for service to firm loads in the region 
if (1) such amount was disposed of by such customer outside the 
region, and (2) as a result of such disposition, the firm energy 
requirements of such customer other customers of the Administrator 
are increased. Such amount of energy shall not be excluded, if the 
Administrator determines that through reasonable measures such 
amount of energy could not be conserved or otherwise retained for 
service to regional loads. The Administrator may sell as replacement 
for any amount of energy so excluded only energy that would 
otherwise be surplus. 16 U.S.C. 389f(c) (emphasis supplied).

    The Northwest Preference Act provision is:

    3(d) The Secretary, in making any determination of the energy 
requirements of any Pacific Northwest customer which is a non-
Federal utility having hydroelectric generating facilities, shall 
exclude any amounts of hydroelectric energy generated in the Pacific 
Northwest and disposed of outside the Pacific Northwest by the 
utility which, through reasonable measures, could have been 
conserved or otherwise kept available for the utility's own needs in 
the Pacific Northwest. The Secretary may sell the utility as a 
replacement therefor only what would otherwise be surplus energy. 16 
U.S.C. 837b(d).

Net Requirements

    The term ``net requirement'' means the amount of Federal power that 
a public utility, cooperative or investor-owned utility is entitled to 
purchase from BPA to serve its regional consumers' loads. The 
definition is based on section 5(b)(1) of the Northwest Power Act of 
1980 under which BPA offers to sell firm power in excess of a 
customer's own firm resources. In calculating net requirements 
obligation to any customer, Congress directed BPA to consider exports 
of the customer's non-Federal resources outside the Pacific Northwest. 
These considerations are based on section 9(c) of the Northwest Power 
Act as well as section 3(d) of the Northwest Preference Act.
    The method of calculating net requirements is an important issue 
because it determines the amount of Federal power an eligible customer 
can receive for its firm consumer loads in the region. Section 5(b)(1) 
of the Northwest Power Act says that a BPA customer is entitled to 
purchase an amount of cost-based Federal power needed to meet its net 
requirement. A customer's net requirement is equal to the difference 
between its regional consumer firm loads and the amount of its non-
Federal generation and firm power purchase contracts that the customer 
uses to serve those loads.
    BPA first implemented the net requirements mandate of the Northwest 
Power Act through mechanisms in its 1981 contracts including the Firm 
Resource Exhibit (FRE), the Assured Capability Exhibit and other 
contract provisions. A FRE is a list of firm resources to be used by 
the customer in serving its regional load. A firm resource is one that 
can contribute a specific amount of electricity for operational and 
power planning purposes to serve a customer's loads. All of the current 
power sales contracts negotiated in 1981 will terminate by October 1, 
2001 and must be replaced. The wholesale electricity market has 
undergone major changes since 1981. As a result, this is only the 
second time, since the Northwest Power Act became law that BPA has 
addressed the issue of how net requirements should be determined for 
its utility customers.

The Context: Net Requirements in a Changing Market

    In 1992 Congress passed the National Energy Policy Act deregulating 
the wholesale power side of the electric industry. BPA sells Federal 
power at wholesale under contracts with eligible customers. 
Deregulation has changed the playing field of the wholesale electricity 
marketplace causing BPA and other utilities to change the way they do 
business. These changes have forced BPA to re-assess how it implements 
sections 5(b) and 9(c) of the Northwest Power Act and 3(d) of the 
Northwest Preference Act. The following provides a general overview of 
the context of these changes and how they may affect BPA's 
determinations of a customer's net requirements.

The Market as a Firm Resource

    In 1981 relatively few BPA customers owned generating resources 
that were used to serve a portion of their load. The operation of most 
of these resources was managed by the region through the Pacific 
Northwest Coordination Agreement as if all of the region's Federal and 
non-Federal generating resources were operated by a single utility. The 
region's utilities knew who owned what resources and what loads they 
served. Increasingly, BPA's utility customers are relying less on 
generation and more on market power purchases to serve their firm 
consumer loads. Others have developed new generation resources which 
they have chosen not to apply to their consumer load and do not specify 
in their Firm Resource Exhibit in their current BPA power sales 
contract. Most investor-owned utilities have not taken their consumer 
load service from BPA and have not made power purchases under the 1981 
contracts. In 1996, BPA offered a number of contract amendments to its 
public utility customers allowing them to reduce their purchases from 
BPA and serve a portion of their load from the wholesale marketplace. 
These examples mean that BPA, working with customers and other regional 
constituents, needs to re-assess how a customer's use of the 
marketplace should be factored into BPA's calculation of net 
requirements.

Separation of Utilities' Transmission and Power Sales Business Lines

    The purpose of passage of the Energy Policy Act of 1992 was 
deregulation of the wholesale electricity market. Federal Energy 
Regulatory Commission orders 888 and 889 accelerated this process. 
Among the requirements of FERC order 889 is that utilities functionally 
separate their transmission and power marketing business lines so that 
a utility's power marketing business has access to no more information 
about its transmission system than any other participant in the market. 
The intent of functional separation is to encourage full competition in 
the wholesale electricity market by providing all marketers equal 
access to the means of delivery. BPA has chosen to voluntarily comply 
with the FERC orders. One of the ways BPA identified a customer's 
export of its non-Federal resources when determining a customer's power 
requirements under its 1981 contracts was by examining transmission 
schedules of non-Federal utilities to other utilities outside the 
Northwest. Under FERC order 889, BPA's Power Business Line no longer 
has access to this information.

Retail Load Loss for BPA Customers

    Changes are occurring in the retail electricity industry as well as 
in the wholesale market. In most states each utility has a service area 
in which it is the exclusive supplier of electric service

[[Page 24378]]

to retail consumers. BPA sells its power to these utilities on a 
wholesale basis and they resell the electricity to their retail 
consumers. Under retail electric market deregulation, a utility may 
continue to operate its distribution system but other marketers may 
compete to supply electricity to residential, commercial and industrial 
consumers. The substitution of electric power suppliers raises a risk 
of retail load loss for some BPA customers. As more states deregulate 
their retail electricity markets, the effect of retail load loss on a 
customer's net requirements in the region becomes increasingly 
important. One concern is how the loss of industrial and commercial 
load by a BPA customer will change BPA's obligation to provide net 
requirement load service. The Northwest Power Act does not distinguish 
between the various types of consumer loads when calculating BPA's net 
requirements. Loss of load service by the utility to another provider 
may affect the total amount of power a customer could continue to buy 
from BPA.

Effects of Sales of Generating Resources and Other Assets on Net 
Requirements

    As a result of deregulation, some utilities have sold or are likely 
to sell generating resources on the market which have historically been 
dedicated and used to serve Northwest retail consumer load. The buyers 
of these resources will likely sell their output for the highest price 
they can receive, either inside or outside of the region.
    By law, BPA is required to make factual determinations regarding 
the sale of certain resources and its effect on BPA's service 
obligations to all customers and BPA's cost-based rates. Section 9(c) 
of the Northwest Power Act and section 3(d) of the Regional Preference 
Act require that BPA reduce the amount of power a utility receives 
under its BPA contracts based on findings regarding its exports out of 
the region. Complying with this legal mandate in a competitive market 
is much more complex now than when the wholesale market was regulated 
and there were comparatively few customers with non-Federal generating 
resources.
    Other utilities have decided to sell portions of their electricity 
supply and distribution businesses in certain parts of the region. In 
certain instances, new public power entities are forming and proposing 
to take over the business formerly provided by investor-owned 
utilities. Section 5(b)(1) directs BPA to sell power to meet the firm 
power loads of a utility customer in the Pacific Northwest. BPA must 
address how changes will be made to the amounts of power BPA sells a 
customer when that customer no longer serves a particular regional load 
or serves new loads.

Proposed Principles

    BPA is offering the following draft proposal as an approach to 
determining firm power net requirements obligations. It is intended to 
answer the following general questions:
    1. In negotiating a new post-2001 power sales subscription 
contract, how should BPA determine a customer's net requirement based 
on the customer's use of firm resources and its consumer loads?
    2. How will changes in a customer's net requirement be made during 
the term of its subscription contract?
    3. How will BPA determine, as required by section 9(c) of the 
Northwest Power Act and section 3(d) of the Regional Preference Act, 
the effect of a customer's export of its resources on BPA's net 
requirements obligation to supply power to the customer?
    4. How should BPA implement its policy on the factual 
determinations for treatment of customer's firm resources under its 
statutes?

I. Initial Determination of Net Requirements

    In the remainder of this notice, proposed principles are in regular 
type with explanatory material in italic.
    This section describes how BPA will contractually limit and define 
its obligation to provide power to a customer under the Power 
Subscription Strategy. It is based on language in the Northwest Power 
Act that requires BPA to offer power to serve a customer's regional 
consumer load. Some products meet a utility's full load minute by 
minute, while other products provide power services based on the 
difference between a customer's own resources used for load and their 
BPA purchases. Two products offer service on a planned or forecasted 
load, a fixed block product and a SLICE product. For these products, 
the amount of Federal power offered must be based on reasonable and 
verifiable estimate of the customer's regional consumer load. BPA's 
Power Products Catalog of the Power Subscription Strategy proposed a 
principle in which the fixed block products and the SLICE products are 
based on the customer's existing regional consumer load without 
consideration of changes for load growth. These products use an annual 
estimate of consumer loads, which is done once, at the start of the 
contract. They assume the customer and not BPA will serve any load 
growth. Thus, there would be no increase in the amount of the purchase 
over the term of the agreement. Under these products, the customer 
agrees to provide non-Federal resources to serve its load growth.
    (A) BPA's initial offer will be based on the utility's actual loads 
or a reasonable and verifiable estimate of the utility's retail load in 
the region identified in its projected business plan at the time of the 
offer.
    This principle is based on section 5(b)(1) of the Northwest Power 
Act. BPA is to offer power to serve a customer's firm consumer load in 
the region. In a deregulated market, the longer the term of the 
contract, the greater the likelihood that changes will occur in a 
customer's regional consumer load. This principle seeks to address this 
concern by limiting the application of the forecast used to initially 
determine a customer's net requirements to one year. Principle II.A. 
below requires a mechanism for a BPA annual review of a customer's net 
requirements load.
    (B) Except as provided in I.D. below, BPA will require that the 
utility continue to apply all current generation and long-term power 
purchase contracts to serve that customer's regional consumer load 
under a subscription contract. These resources are included in the Firm 
Resource Exhibit of a BPA customer's current 1981 or 1996 power sales 
contracts for the 1998-1999 operating year. BPA also will require all 
current long-term surplus power purchase contracts or excess Federal 
Power purchase contracts that extend beyond 2001 to be applied to serve 
a customer's regional consumer load under a subscription contract.
    (C) BPA will consider any purchase contract that terminates after 
September 30, 2001, to be a long-term power purchase contract that 
extends beyond 2001.
    (D) BPA will offer the customer power products and services at the 
Priority Firm (PF) rate and without a PF surcharge for consumer loads 
that are no longer served by generation resources and long term power 
purchase contracts due to resource retirement, obsolescence, or other 
loss of resource, or loss of contract right. Purchases of Federal 
surplus power and Excess Federal power that extend beyond 2001 are 
treated as long term power purchase contracts. Post-2001 PF power sales 
for resource replacement shall commence on the dates such resources are 
lost, provided that BPA has been notified in writing of the resource 
loss in time to permit the agency to include the additional load in the 
BPA rate process and that the generating resource or

[[Page 24379]]

contract meets the standards described in II.E below.
    Principles I. B., C. and D. are based on sections 5(b)(1)(A) and 
5(b)(1)(B) of the Northwest Power Act. The Subscription Strategy stated 
that a customer must continue to serve its loads currently served by a 
customer's generating resources or long-term power purchase contracts 
that continue beyond 2001. Principle I.B. clarifies that the resources 
a customer is required to apply to load is limited to those resources 
included in the customer's current Firm Resource Exhibit for the 1998-
1999 operating year. These principles state that all power purchase 
contracts with termination dates beyond 2001 are included in the 
customer's firm resources. Under the subscription contract, the 
customer must use these resources to serve its regional consumer loads. 
These long-term power purchase contracts that continue beyond 2001 
include presubscription contracts and other long-term contracts to 
purchase Federal power from BPA. The principles also acknowledge that 
there are a number of these power purchase contracts which customers 
know will expire prior to the end of the BPA rate period.
    The proposed principle allows the customer to purchase net 
requirements load service from BPA at the PF rate and without the PF 
surcharge as long as BPA is informed of the expiration dates of the 
contracts and the cost of such service has been identified and included 
in BPA's rate case. The customer must consult with BPA and obtain BPA's 
agreement in writing to receive requirements load service from BPA for 
a generating resource the customer believes should be permanently 
discontinued due to obsolescence or retirement. Resources or contracts 
that are lost after BPA submits its final rate case to the Federal 
Energy Regulatory Commission will incur a PF surcharge to cover any 
additional power costs BPA faces to serve the additional load.
    BPA considered whether the customer's use of the market as a 
resource should also be considered. Many customers who use the market 
as a resource would likely face a loss of contract right for their 
short-term contract purchases. Additionally, some customers have been 
serving their consumer load in the region with generation resources not 
included in their Firm Resource Exhibits of their current power sales 
contract. Instead of the market, they are using their own non-Federal 
generation to serve their load. The proposed principles address a 
customer's use of those resources in serving its regional load based on 
section 9(c) of the Northwest Power Act. 16 U.S.C. 839(f)c.
    (E) In determining a customer's net requirements load, BPA will 
follow the Declaration Parameters included in the Power Products 
Catalog under Actual Partial Service in establishing the capabilities 
of the customer's firm resources under the Subscription contract.
    Principle I.E. follows the approach established in BPA's Power 
Products Catalog for Actual Partial Products for determining the 
capabilities of the customer's resources to be applied to its loads. 
BPA considered whether there might be a simpler method for determining 
customer resource capability. However, there are enough unique customer 
perspectives on estimating resource capability that this approach 
appears to best meet the needs of resource determination in a 
deregulated market.
    (F) BPA will determine what, if any, amount of thermal and/or 
hydroelectric peaking capacity and electric energy a customer has 
exported from the region that could be conserved or otherwise retained 
for service to regional loads. The customer's net requirements must be 
reduced to the extent that BPA determines the exported energy increased 
BPA's obligation to any customer to provide power to meet regional 
loads.
    Principle I.F. is based on section 9(c) of the Northwest Power Act. 
This principle states that BPA will implement section 9(c) by 
determining whether a customer has exported power from a thermal 
resource, whether BPA's net load requirements have increased as a 
result and whether the power could be conserved or otherwise retained 
for service to any regional loads by reasonable means. The proposed 
principle states that BPA will implement section 3(d) of the Regional 
Preference Act by determining whether a customer has exported power 
from a hydroelectric resource and whether the hydro resource could be 
conserved or kept available. In its 1994 9(c) policy, BPA adopted a 
policy stating that a customer's hydroelectric resources could always 
be applied to load in the region. This principle also continues BPA's 
past determinations for specific resources that resulted in reductions 
in net requirements of customers.

Il. Changes in Net Requirements During Term of the Contract

    This section addresses reductions in BPA's net firm load 
requirements obligation due to changes on or sale of a customer's 
system which will change the amount of regional firm consumer load 
served by that customer or that reduce its net requirements. The 
principles are based on sections 5(b)(1) and 9(c) of the Northwest 
Power Act and 3(d) of the Regional Preference Act. The following 
principles propose a contract mechanism for making additional sales of 
power to utilities and the circumstances under which BPA would apply 
the PF Surcharge, Targeted Adjustment Surcharge to such purchases by 
public agency customers, or the NR rate for purchases by investor-owned 
utilities (IOUs). The actual rates that apply to any increased amounts 
of power sold for net requirements loads will be established in the BPA 
rate case.
    These principles focus on the transition from the 1981 contract 
model to the Power Subscription Strategy model. Under the 1981 
contract, BPA obligated itself to serve the entire regional load of a 
utility based upon notice periods and availability of power for 
acquisitions. A BPA goal under the Power Subscription Strategy is only 
to acquire new resources to serve a customer's net requirements load 
increase beyond its initial subscription amount based on a bilateral 
agreement in which the requesting customer takes all the financial 
risk. (Note: The initial subscription amount includes load growth for a 
customer purchasing that right.) BPA will still have to meet all of its 
total regional load obligations to all customers. Accounting for 
reductions in loads is part of meeting BPA's total regional firm load 
obligations.
    (A) BPA will require, at least annually, that a customer report 
specified events causing a reduction in its consumer load. For fixed 
block and SLICE purchasers, if the reductions cause a customer's net 
requirements to fall below the amount of power being purchased from 
BPA, the agency will implement the mitigation measure for retail load 
loss specified in the customer's contract. For investor-owned 
utilities, BPA will provide the remarketing product option.
    Principle II.A. is based on section 5(b)(1) of the Northwest Power 
Act which limits BPA's net requirement obligation to a utility's firm 
consumer load in the region. This principle addresses the issue of the 
loss of retail consumer load by a utility and the use of the 
remarketing product mitigation measure specified in section IV.H.2. of 
the Subscription Strategy. This remarketing provision provides a 
financial benefit to residential loads for IOUs that no longer can 
purchase requirements power due to the utility's retail load losses. 
BPA considered other alternatives such as a conditioned consent to the 
removal of customer

[[Page 24380]]

resources dedicated to serving regional load under their subscription 
contract. Under such an alternative, BPA would allow a customer to 
reduce the amount of resources serving its load equal to the reduction 
in requirements service caused by the retail load loss. BPA is 
interested in comments on this alternative and other alternatives to 
address this issue.
    (B) BPA will reduce a customer's net requirements by the amount of 
any exports of hydroelectric or thermal resources if BPA determines 
such resources could have been conserved or otherwise retained to meet 
regional firm power requirements of any BPA customer. On an annual 
basis, BPA will determine whether a customer's export of thermal or 
hydroelectric resources could have been conserved or otherwise retained 
to serve any regional loads.
    Principle II.B. is based on existing BPA policy for export sales of 
hydroelectric resources and thermal resources applied to regional load. 
See 1994 Non-Federal Participation Capacity Ownership, and Section 9(c) 
Policy. Reductions in BPA power requirements obligations due to a 
customer's export of power from its resources can come at any time. For 
example, a customer could end a contractual sale to another customer, 
where such other customer had dedicated the power purchase to serve its 
firm loads. By giving six months' notice, the customer losing the power 
purchase could request additional service from BPA at the PF Surcharge 
rate. If the customer owning the resource has sold power from its 
resource on the market after it was withdrawn, then it would face a 
section 9(c) determination and would potentially be subject to a 
reduction in its net requirements. In this example, the withdrawal of 
the power could cause BPA's obligation to the second customer to 
increase. BPA's policy on hydroelectric resources under section 3(d) of 
the Regional Preference Act is hydroelectric resources can always be 
operated or applied against regional load by reasonable means. BPA's 
policy on thermal resources applied by a customer to its regional 
consumer load is that such resources can be conserved or retained for 
service to regional load. BPA is proposing changes in its policy on 
export of thermal resources under this Federal Register Notice.
    (C) Within the following limits, BPA will reduce a customer's take-
or-pay obligation by an amount equal to the customer's dedication for a 
specified contract period of new renewable resources developed by that 
customer. Alternatively, a customer may develop new non-hydro renewable 
resources and export these outside the region without reducing its net 
requirement. This right to reduce BPA purchases shall apply only to the 
first 200 average megawatts of all new renewable resources developed by 
all BPA customers within the region. The new renewable resources must 
meet the standards for BPA's conservation and renewable resources 
discount, and be dedicated to serving the customer's load.
    Principle II.C. is based on the regional interest to encourage the 
development of renewable resources and follows statutory language in 
section 5 (b)(1)(B) of the Northwest Power Act that allows the 
Administrator to consent to resources changes under a requirements 
contract. This principle would allow customers to dedicate a new 
renewable resource to serve their retail consumer load. BPA has 
consistently interpreted section 5(b)(1) as allowing the Administrator 
to specify by contract the customer's dedication of additional 
resources to serve its load. BPA's Subscription Strategy requires 
customers to take the risks on their non-Federal resource placement 
commensurate with BPA's risks in covering future costs of Federal 
resources.
    BPA requires customers to specify the amount of firm resources they 
dedicate to serve their retail consumer loads for the term of their 
contract. BPA is willing to sign a Subscription contract for terms 
ranging from 1 to 20 years. This renewable resource principle provides 
an exception to the policy that a customer's firm resources must be 
known and dedicated at the start of the BPA contract and for the entire 
term of a contract. The exception provides for the Administrator's 
consent to the addition of new renewable resources during the term of 
the contract and allowing removal of such renewable resources at a 
point prior to the end of the contract. BPA has placed two conditions 
on this exception: (1) qualified renewable resource dedications are 
limited to the first 200 average megawatts of renewable resources that 
customers request to dedicate during any year; and (2) only resources 
that would qualify for BPA's conservation and renewable resources 
discount are eligible.
    (D) BPA will provide net firm requirements service under the PF 
Surcharge rate or the New Resource Firm Power (NR) rate for a 
customer's regional loads not included in the rate case and which are 
served by the customer's dedicated generation resources and its long 
term power purchase contracts that extend beyond 2001, if such 
dedicated resources are lost for specified reasons described in 
principle II.E. during the rate period.
    (E) Generation resources and long term power purchase contracts 
extending beyond 2001 are considered lost if they are permanently 
discontinued during the rate period due to retirement, obsolescence, 
loss of the resource, or loss of a contract right. Loss of a resource 
must result from factors beyond the reasonable control of the customer 
and which the best efforts of the customer are unable to remedy. BPA 
will consider such resources lost due to permanent discontinuance 
because of obsolescence or retirement only if the customer has 
consulted with BPA and BPA has agreed in writing to such 
discontinuance.
    Principles II. D. and E. continue BPA's existing contract standards 
regarding a customer's loss of firm resources. These principles have 
worked for 20 years and allow BPA to consider all the facts in 
determining when BPA must replace a customer's lost resource with 
Federal resources.
    BPA will provide replacement firm power service for the regional 
consumer load served by the resource as net requirements power only if 
the customer has lost a resource or lost a contract for the reasons 
specified above. For example, expiration of a customer's non-Federal 
power purchase contract is considered a loss of a contract beyond the 
reasonable control of a customer, and which the best efforts of the 
customer are unable to remedy. If a customer requests additional power 
purchases from BPA for its regional firm load served by its resources 
for any other reasons, BPA would make such purchases of replacement 
power from the market under separate contracts and its section 7(f) 
surplus power rates.
    (F) BPA will assume the market will provide resources to the 
customer to serve any increased consumer loads. BPA load service for 
new annexed loads resulting from open access or actual annexations or 
mergers will be provided under the Targeted Adjustment Charge or the NR 
rate. Additional service for lost generation resources and lost long 
term power purchase contracts extending beyond 2001 will be provided at 
the PF Surcharge or NR Rate, upon the customer's request for service 
and notification to BPA that such an event has occurred. Service to 
replace the above qualified renewable resources at the end of their 
dedicated contract period will be provided at the PF rate. BPA will 
provide firm power service for annexed loads, lost resources, and 
replacements of qualified renewable resources six months following

[[Page 24381]]

determination that such event has occurred or as mutually agreed.
    Principle II.F. states that BPA will provide firm power 
requirements service to annexed loads or for lost resources for all 
customers. However, the rate arranged for such service may include an 
adjustment for costs BPA incurs to provide the additional service. BPA 
considered making changes to its net requirements service only at its 
annual review of load or customer resource changes when determining any 
reductions in the customer's net requirements purchase. However, BPA 
decided that a rolling notice period for annexation or loss of resource 
would better serve the sporadic nature of these events. BPA has assumed 
that six months would be the minimum time needed to determine the facts 
surrounding the annexed load or loss of resource and allow BPA to 
prepare to provide service. It would also give BPA time to purchase any 
additional resources necessary to serve the load. Principle II.F. would 
give BPA the discretion to provide service on shorter notice if it is 
able to do so.

lll. How BPA Will Determine if a Customer Has Exported a Resource 
From the Region Requiring a Reduction in the Customer's Net 
Requirements

    Section 9(c) of the Northwest Power Act requires BPA to make 
several factual determinations when customers sell or dispose of power 
from their resources on the market for export outside the region. 
Section 3(d) of the Northwest Preference Act requires BPA to reduce its 
sale of requirements power to any customer that sells or disposes of 
hydroelectric power outside the region which cannot be conserved or 
kept available for use. These determinations are particularly difficult 
in a deregulated market where sales are often made to marketers at the 
generator busbar, and where schedules of transmission are not available 
to BPA's Power Business Line. Adding to the difficulty is the fact that 
merchant activity by all customers is confidential so that commercial 
information is not readily available for factual determinations.
    (A) Subject to certain showings, the output of any customer's 
thermal generating resource existing on the date the subscription 
strategy was published and that has been used to serve regional firm 
load at some time during its life will be treated as exported from the 
region in a manner that increases the firm energy requirements of the 
Administrator. The customer's net requirement will be reduced unless 
the customer can demonstrate one or more of the following:
    1. The resource fits within the definition of a ``market resource'' 
as described in section III. D. 2. of Appendix B of BPA's NFP Section 
9(c) Policy;
    2. The resource is under a current post-2001 contract committed to 
serving a BPA customer's regional load; or
    3. The resource is subject to a prior BPA written section 9(c) 
determination that the resource could not be conserved or otherwise 
retained to serve regional load.
    4. The Administrator determines a thermal resource could not be 
conserved or otherwise retained to serve regional load by reasonable 
means under principle III.B.
    (B) The policy BPA proposes for determining when a thermal resource 
could not be conserved or otherwise retained to serve regional load is 
met when:
    (i) There were no purchasers after the resource was offered for 
sale in the region to BPA and all of its regional customers for a 
period of at least one year through a public process at cost plus a 
reasonable rate of return. In the case of a resource offered for a 
fixed term, the output of such thermal resource shall not be deducted 
from the owner's or purchaser's maximum firm requirements for the term 
of the offer or the term of the export, whichever is less.
    (ii) The resource is permanently auctioned through a public process 
and was not purchased by a regional purchaser. In the case of a 
resource permanently auctioned, the output of such thermal resource 
shall not be deducted from the owner's net requirements.
    (iii) The Administrator determines that the market price for power 
makes it unreasonable to retain that resource to serve regional load.
    Principle III.A. addresses the difficulty in a deregulated 
wholesale market of determining whether power from a customer's 
resource has been exported in a manner that increases the 
Administrator's firm energy requirements. The proposed principle states 
a rebuttable presumption that all power from a customer resource which 
has been used to serve regional loads and which is sold on the market 
shall be treated as power exported by the seller. Such a sale shall be 
deemed to increase the Administrator's firm power requirements under 
the customer's or another customer's BPA power sales contracts. Power 
sold from the resource will not be treated as an export if the customer 
can demonstrate the resource was: Not used for load and developed 
solely for sale in the market, or that the power from the resource is 
being used by a Direct Service Industry (DSI) or another BPA utility 
customer to serve retail load in the region;, or that a prior BPA 
determination under Section 9(c) allowed the resources to be exported.
    If a customer demonstrates that the resource has been sold to a DSI 
or another utility in the region, the purchasing utility must 
demonstrate that power from the resource is dedicated by contract with 
BPA and is being used to serve its retail load in the region.
    To implement this principle, the customer must provide that 
commercial information it wishes to share with BPA on its power sales, 
so BPA can make the required factual determinations. BPA considered 
whether it should continue the practice stated in the 1994 Non-Federal 
Participation Section 9(c) Policy of examining a customer's 
transmission schedules to points outside the Pacific Northwest. This 
alternative was rejected due to limitations on the flow of information 
from transmission functions to power sales functions arising from 
functional separation under FERC orders 888 and 889.
    Principle III.B.4 addresses a customer's sale of resources, which 
are determined to increase the Administrator's power requirements 
obligations to serve load in the region. Such a sale must meet one of 
three tests in order for BPA to determine that the resource could not 
be conserved or otherwise retained to serve regional load. Unless at 
least one test is met, the amount of power, capacity and energy sold 
and deemed exported would be treated as a resource that could be used 
or retained to serve firm load in the region and whose sale will result 
in BPA's obligations increasing. Thus, BPA would reduce its section 5 
electric power requirements contract obligations to that customer by 
the amount of the power sold from the resource.
    The first test provides that a customer may offer power from a 
resource for sale in the region to BPA and its eligible customers for a 
period of at least one-year at cost and a reasonable rate of return. If 
BPA or a BPA customer in the region does not offer to purchase the 
resource, then the Administrator would determine that the output of the 
resource could not be conserved or otherwise retained to serve regional 
load for a period equal to the duration of the offer of the resource or 
the term of the export whichever is less.
    The second test provides an alternate mechanism in which a customer 
may auction the resource to the highest bidder as long as BPA and all 
BPA

[[Page 24382]]

regional customers are reasonably notified of the auction and have a 
reasonable opportunity to bid on the sale. If the resource is auctioned 
and the customer can demonstrate that BPA and its regional customers 
had a reasonable opportunity to participate, the Administrator would 
determine that the resource could not be conserved or otherwise 
retained to serve regional load.
    BPA considered a possible alternative to the second test that would 
limit the use of auctions based on an economic standard of paying the 
stranded costs of a utility. Under that test, BPA would reduce its net 
requirements obligation to the utility if the proceeds of the auction 
and export of a resource resulted in net positive benefits above the 
cost and reasonable rate of return for the resource, and if such 
benefits were not paid to the consumers of a utility. The purpose of 
such a limitation is to preserve the benefits of low cost resources for 
regional loads.
    The third test allows the Administrator to determine that a 
resource could not be conserved or retained to serve regional load 
based on current market conditions and prices in the region for a 
specified period. If the Administrator makes that determination, then a 
customer would be allowed to sell a resource during the period without 
a reduction in BPA's obligation to provide power under its Subscription 
contract.
    (C) All new thermal generating resources developed by BPA customer 
utilities after the December 21, 1998, publication date of the Federal 
Power Subscription Strategy will be treated as meeting the ``market 
resource test,'' unless power from the resource is dedicated by a BPA 
customer under its BPA contracts to serve consumer load. In such event, 
the thermal generating resource will be treated in the same manner as 
existing non-Federal resources dedicated by customers to regional load 
under Subscription contracts.
    Principle III.C. proposes to change the definition of ``market 
resources'' under the Section 9(c) Policy to create a presumption that 
new resources are developed for sale in the deregulated market and not 
for service to a customer's retail load. The exception would be where a 
customer specifically chooses to dedicate part or all of the output of 
the resource to serve its own load or regional load of another customer 
as stated below. Otherwise, all such resources sold on the market would 
not increase the Administrator's power requirements obligation to any 
customer under its BPA section 5 contracts.
    (D) Any customer's sale on the market or export of the output of 
thermal resources that is included in any other BPA customer's Firm 
Resource Exhibit for the 1998-1999 Operating Year (under a 1981 
contract or a resource exhibit under a 1996 contract) shall be 
considered to meet the section 9(c) tests of increasing the 
Administrator's electric power load requirements under the Subscription 
contracts. The output of such resources shall be deducted from the 
selling customer's net requirements unless BPA determines the resource 
could not be conserved for service to load in the region under III.B. 
above.
    (E) Any customer's sale on the market or export of the output of 
thermal resources that are currently being used to serve that 
customer's or another customer's regional load but are not included in 
either customer's Firm Resource Exhibit for the 1998-1999 Operating 
Year (under a 1981 contract or a resource exhibit under a 1996 
contract) shall be considered to meet the section 9(c) test of 
increasing the Administrator's electric power load requirements under 
the Subscription contracts. The power output of such resources shall be 
deducted from the customer's net requirements unless BPA determines the 
resource could not be conserved for service to load in the region under 
III.B. above.
    Proposed principles III.D. and III.E. divide all customer firm 
resources currently used to serve load into two classes: (1) those 
resources that are currently in any BPA customer's Firm Resource 
Exhibits; and (2) those resources that are not included in Firm 
Resource Exhibits. BPA has proposed that it will require only resources 
currently specified in any of its customer's Firm Resource Exhibits to 
be dedicated by the customer to serve its regional load under its BPA 
contracts. Customer's resources that are currently used to serve 
regional load but which are not included in Firm Resource Exhibits, if 
sold on the market, will result in increases in BPA's firm power 
requirements obligations under section 5 contracts. The customer 
selling the output of the resource will be required to demonstrate that 
the resource has either been sold to a regional utility to serve that 
utility's consumer load in the region, or demonstrate how the resource 
could not have been conserved or otherwise retained to serve any BPA 
customer's regional loads.
    Principle III.D. also recognizes that BPA would face an increase in 
its power requirements obligations if the owner of a resource 
terminated a contract purchase used by another utility to serve its 
regional retail load. The owner of the resource would be required to 
demonstrate that the resource has either been sold to another regional 
utility to serve its consumer load in the region or could not have been 
conserved or otherwise retained to serve any BPA customer's regional 
loads.
    (F) Any regional hydroelectric resources exported by a customer 
shall reduce the customer's BPA power requirements under its BPA 
contracts, unless the resource is contractually committed to serving 
another customer's regional load or such resource was previously 
determined to be serving that customer's load and the customer replaces 
the resource by a market purchase or new generation.
    Principle III.F. requires the reduction of a customer's BPA power 
requirements obligation under its BPA contracts, if the customer 
exports any hydroelectric power from the region. If a customer 
demonstrates that the resource has been sold to a DSI or another BPA 
customer utility in the region, then the purchaser must demonstrate 
that its purchase is dedicated to and is being used to serve retail 
load in the region. If in calculating the customer's net requirements, 
BPA determines the resource was already dedicated to serving the 
customer's firm load, BPA will treat the hydro resource as remaining 
dedicated and will not further reduce its net requirements obligation 
to the customer, nor will BPA replace the resource.
    Responsible Official: Mr. Steve Oliver, Manager, Bulk Power 
Marketing, is the official responsible for the development of the draft 
policy proposal for addressing issues under sections 5(b) and 9(c) of 
the Northwest Power Act regarding the amount of Federal power a 
customer may purchase under BPA subscription power sales contracts.

    Issued in Portland, Oregon, on April 26, 1999.
Judith A. Johansen,
Administrator and Chief Executive Officer.
[FR Doc. 99-11407 Filed 5-5-99; 8:45 am]
BILLING CODE 6450-01-P