Subject: Western Issues 7/23/01
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Mon, 23 Jul 2001 12:09:24 -0700 (PDT)

Below is the weekly western issues update sent to Tim earlier.  If you have any questions, please feel free to Kristin Walsh (x39510).

EXECUTIVE SUMMARY
FERC Multi-Party Refund Negotiations
BPA Financials & Smelter Agreements
BC Hydro Rate Freeze

Power Refunds
The big event that happened last week in Washington DC, in regards to California and the rest of the Western energy markets, was that multi-party negotiations that flopped - apparently the difference between $8.9 billion and $703.6 million between parties could not be settled.  Below is a rough breakdown corporate offerings:

Williams, Duke, Reliant, Dynegy, & Mirant: 	 	 $510 million combined
PowerEx (BC Hydro):			        	 $125 million
15 Power Marketers including Enron:		 $49.6 million
7 California Municipal Utilities:			 $6.5 million
Load-serving entities outside CA:			 $12.5 million

Northwest utilities submitted their calculations of overcharges, however, Judge Curtis Wagner has virtually ignored Northwest claims of $611 million in overcharges, stating "There was little time to address the issues raised by the Pacific Northwest parties.  They did not have data on what they are owed, nor an amount of refunds due them."  Contrary to the judge's claim, a number of Northwest utilities did submit claim amounts at the settlement conference, although the problem is each utility has its own methodology for calculating these amounts.  Wagner was probably frustrated that there was no standard methodology for these calculations and appears to be leaning against giving NW utilities the same fast-track status as California.  FERC had originally not even wanted to consider NW claims in this conference until a group of NW senators got together and applied some pressure - the result was there was not much time to get the overcharge data together.  Below is another rough breakdown of the claims:
PacificCorp:		$6.7 million
Snohomish PUD:		$229 million
Tacoma Power:		$71.9 million
Seattle City Light:		$222 million
Port of Seattle:		$11.1 million
BPA:			$70 million*

BPA
BPA Borrowing:  Sen. Patty Murray (D-WA) has been leading the fight for BPA's request of $2B in additional borrowing authority and was pleased the Senate voted to increase access to additional funds, however,  Sen. Murray has promised to fight the re-authorization caveat. Murray's spokesman said the Committee may have been concerned about 'bumping up against spending caps' when it added the mandate for annual re-authorization.  Bonneville has warned it could exhaust its borrowing authority by the end of 2003 unless the amount was boosted from the current limit of $3.75 billion -- the increase got through the Senate Energy & Water Development Subcommittee, but had the caveat added when it reached the full Appropriations Committee.  Increased borrowing authority would be used to update transmission infrastructure, retrofit Columbia River hydropower projects to boost efficiency and continue conservation programs.  We can expect to see more action coming out of Sen. Murray's office.
Refunds:  Recent media reports have hinted to the possibility of Northwest utilities (including BPA) seeking refunds for the overpriced power California is currently fighting. This information seems supported by fears that earlier settlements reached between Northwest utilities and California State may be challenged by bankruptcy proceedings.  If a bankruptcy court were to issue a ruling that significantly altered agreements between BPA and PG&E (& potentially bankrupt SoCal. Ed.), it is possible that BPA could press a refund request in the range of $70M to $100M.  However, while BPA's refund request may be an option to stabilize their finances, they are also careful about voicing their opinion because of the $167 million in gross sales they made from California
BPA Administration:  The Bush Administration reportedly has no current plans to replace the BPA's administrator.  The entire Northwest delegation (Democrats and Republicans from the BPA region) has asked that he be made the full-time administrator.  However, since many of the decision-makers at DOE are conservative Republicans, they're not comfortable with him because he is a Democrat.  At this time, DOE people are unsure of how to handle this matter and appear to be in a state of limbo.
DSI/Aluminum Smelter - Load Reduction Agreements:  BPA is in the hot seat right now, realizing that falling electricity prices is making it possible for smelters under load reduction agreements to begin shopping around for other sources.  Few believe that these current market prices will be sustainable, considering the fact that the West will see a significant supply increase within the next year.  Consequently, DSI's will be very concerned about signing long term price contracts given the current downward pressure on prices (which are still historically very high, but dropping).  Currently, there are two Northwest smelters seeking to restart plant operations.   Alcoa is in preliminary talks with BC Hydro to secure additional power to restart its Intalco smelter, and Kaiser, free from the money and the constraints of a load-reduction agreement, is also attempting to restart plants.  We will continuing monitoring of this situation and will update as the story develops.
 
BC HYDRO
Rate Freeze:  The current rate freeze was imposed by the former NDP government, and it ends 30 September 2001.  It is up to the government to direct the BCUC to lift the rate freeze, and before it can do that, it has to schedule a rate hearing and decide to put the utility back under the BCUC's purview.  It has been a number of years since there was a rate hearing, and people are not looking forward to it because it begs all sorts of questions about overall energy policy.  A rate hearing will be delayed until the new government has completed its administrative "core review" and decided on a broader energy policy, including its goals for BC Hydro.  Lifting the rate freeze partly depends on how much regulators believe should be held in the rate stabilization account - this money has been redirected elsewhere over the past few years, leaving the utility unprepared for the sort of low-water conditions that have surfaced this year.  BC Hydro wants the freeze lifted, and the new government will have an ideological bias against continuing the rate freeze given that it was put in place by the NDP and flouts free enterprise principles.  This suggests the rate freeze is on the way out, but it may persist beyond the original 30 September deadline for the reasons outlined above. How long it persists depends on how long it takes the new government to complete the core review.