Power Subscription Strategy

[Federal Register Volume 64, Number 1 (Monday, January 4, 1999)]
[Notices]
[Pages 149-157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34788]


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DEPARTMENT OF ENERGY

Bonneville Power Administration


Power Subscription Strategy

AGENCY: Bonneville Power Administration (BPA), Department of Energy 
(DOE).

ACTION: Notice of Record of Decision (ROD).

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SUMMARY: The Bonneville Power Administration (BPA) has decided to adopt 
a Power Subscription Strategy for entering into new power sales 
contracts with its Pacific Northwest customers. The Strategy equitably 
distributes the

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electric power generated by the Federal Columbia River Power System 
(FCRPS), within the framework of existing law. The Power Subscription 
Strategy addresses the availability of power; describes power products; 
lays out strategies for pricing, including risk management; and 
discusses contract elements. In proceeding with this Subscription 
Strategy, BPA is guided by and committed to the ``Fish and Wildlife 
Funding Principles for Bonneville Power Administration Rates and 
Contracts'' (Fish and Wildlife Funding Principles) that were announced 
by the Vice President of the United States in September 1998. This 
decision is a direct application of BPA's earlier decision to use a 
Market-Driven approach for participation in the increasingly 
competitive electric power market and is consistent with BPA's Business 
Plan, the Business Plan Environmental Impact Statement (BP EIS) (DOE/
EIS-0183, June 1995) and the Business Plan Record of Decision (BP ROD) 
(August 15, 1995). The complete text of the Power Subscription Strategy 
ROD is below in the Supplementary Information section of this Notice.

ADDRESSES: Additional copies of this ROD, and of the BP EIS and the BP 
ROD, may be obtained by calling BPA's toll-free document request line: 
1-800-622-4520.

FOR FURTHER INFORMATION CONTACT: Katherine Pierce--ECP-4, Bonneville 
Power Administration, P.O. Box 3621, Portland, Oregon, 97208-3621, 
phone number (503) 230-3962, fax number (503) 230-5699.

SUPPLEMENTARY INFORMATION: In response to a need for sound policy to 
guide its business direction under changing market conditions, BPA 
explored six alternative plans of action in its BP EIS. The six 
alternatives were: Status Quo (No Action), BPA Influence, Market-
Driven, Maximize Financial Returns, Minimal BPA, and Short-Term 
Marketing. In the subsequent BP ROD, the BPA Administrator selected the 
Market-Driven alternative. Although the Status Quo and the BPA 
Influence alternatives were the environmentally preferred alternatives, 
the differences in total environmental impacts among alternatives were 
relatively small. Other business aspects, including loads and rates, 
showed greater variation among the alternatives. The Market-Driven 
alternative strikes a balance between marketing and environmental 
concerns. It also helps BPA to ensure the financial strength necessary 
to maintain a high level of support for public service benefits such as 
energy conservation and fish and wildlife mitigation activities.
    The BP EIS was intended to support a number of decisions (BP EIS, 
section 1.4.2), including the:
    •  Products and services BPA will market,
    •  Rates for BPA products and services to be implemented in 
future rate cases,
    •  Strategy BPA will use to administer its fish and wildlife 
responsibilities,
    •  Policy direction for BPA's sale of power products to 
customers, and,
    •  Contract terms BPA will offer for power sales.
    The BP EIS and ROD also documented a decision strategy for 
subsequent actions. BPA's Power Subscription Strategy is one of these 
subsequent actions and the subject of this tiered ROD (BP EIS, section 
1.4.1 and BP ROD, page 1). Tiering subsequent RODs to the BP ROD helps 
delineate BPA decisions and provides a logical framework for connecting 
broad programmatic or policy level decisions to more specific actions 
(see Figure 1--not included in this Notice). BPA reviewed the BP EIS to 
ensure that power Subscription was adequately covered within its scope 
and that it was appropriate to issue a tiered ROD (BP EIS, section 
1.4.2). This tiered ROD, which summarizes and incorporates information 
from the BP ROD, clearly demonstrates this decision is within the scope 
of the BP EIS and ROD. This ROD describes specific information 
applicable to the decision on BPA's Power Subscription Strategy, and 
provides a summary of the environmental impacts associated with this 
decision with reference to the appropriate sections of the BP EIS and 
BP ROD. BPA will also issue an Administrative ROD describing the legal 
and policy rationale supporting the administrative decisions made in 
the Final Power Subscription Strategy.

Competitiveness in the Electric Utility Industry

    BPA supplies about 40 percent of the Pacific Northwest's 
electricity and about 75 percent of the region's high-voltage 
transmission. Although it is a Federal agency, BPA does not receive tax 
money. It must cover all its costs with revenues earned in the market. 
From these revenues, BPA funds public benefits, such as fish and 
wildlife, conservation, and renewable energy programs. It also uses its 
revenues to meet its repayment obligations to the United States 
Treasury (Treasury) on the Federal investment in the region's 
hydroelectric dams and the transmission lines.
    The electric utility industry is increasingly competitive and 
dynamic. Four factors have substantially affected BPA's ability to 
compete in a fully deregulated wholesale electricity market: market 
change, increased nonpower obligations, the potential deterioration of 
BPA's cost/price advantage, and lost hydro output. However, BPA must be 
able to balance its costs and revenues. The emergence of a competitive 
market for power creates supply choices for BPA customers and prevents 
BPA from meeting costs simply by raising rates. Expected firm prices 
set a power rate level, above which a rate increase would no longer 
increase BPA's revenue and cover BPA's costs. This level is defined as 
BPA's maximum sustainable revenue (MSR) (BP EIS, sections 1.1, 2.6.1, 
and 4.4.1).
    Allowing BPA's rates to exceed this level would not be consistent 
with sound business principles. It would result in a reduction in BPA's 
total revenue and BPA's ability to fund public benefits. Power 
Subscription will facilitate BPA's ability to retain customers and 
successfully compete in the market for the long term.

Customers

    BPA sells at the wholesale level to public agencies, other 
utilities, and to a few direct service industries (DSIs). Subscription 
contracts will be available to BPA's public agency preference 
customers, Federal agencies, investor-owned utilities (IOUs) and DSIs.
    •  Preference customers--Public utility districts, 
municipalities, and cooperatives to which, by law, BPA must give 
preference for Federal power. These customers include utilities without 
power generation that rely on BPA for all or nearly all of their 
wholesale power needs, and those with generation that meet some of 
their load with non-Federal resources.
    •  Federal agency customers--Those Federal agencies in the 
Pacific Northwest that buy most of their electricity directly from BPA. 
Customers include Fairchild Air Force Base and the U.S. Department of 
Energy (DOE), Richland Operations Office.
    •  IOUs--Private, investor-owned utilities. Under the 
Residential Exchange Program, as defined by the Pacific Northwest 
Electric Power Planning and Conservation Act (Northwest Power Act), 
regional IOUs have historically ``sold'' BPA an amount of power equal 
to their residential and small farm load at a price equal to their 
average system cost. In exchange, BPA has sold them an equal amount of 
power at the Priority Firm (PF) Exchange rate.

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The benefits of this financial transaction have been passed on to their 
residential and small farm customers in the form of lower retail rates. 
BPA's Subscription Strategy proposes to offer IOUs a settlement of the 
Residential Exchange Program comprised of a sale of power and the 
payment of monetary benefits.
    •  DSIs--Large industries, primarily aluminum smelters, that 
buy electric power directly from BPA at relatively high voltages.
    Under the Power Subscription Strategy, all customers serving 
regional firm load are eligible to purchase firm power within the 
constraints of existing statutes.

Public Process

    As shown in Figure 1 (not included in this Notice), public process 
is integral to BPA's decisionmaking. With the changing marketplace for 
electric power, there is considerable regional interest in defining how 
and to whom the region's Federal power should be sold. The public has 
been involved at several levels during the development of BPA's Power 
Subscription Strategy. In addition to the public meetings held 
specifically on Subscription, BPA sought input from a wide range of 
interested and affected groups and individuals. BPA collaborated with 
Northwest Tribes, interest groups, Congressional members, DOE, the 
Administration, and customers to resolve issues, understand commercial 
interests, and develop strong business relationships.
    The concept of power Subscription came from the Comprehensive 
Review of the Northwest Energy System, which was convened by the 
governors of Idaho, Montana, Oregon, and Washington to assist the 
Northwest through the transition to competitive electricity markets. 
The goal of the review was to develop recommendations for changes in 
the region's electric utility industry through an open public process 
involving a broad cross-section of regional interests. In December 
1996, after over a year of intense study, the Comprehensive Review 
Steering Committee released its Final Report.
    The Final Report recommended that BPA capture and deliver the low-
cost benefits of the Federal hydropower system to Northwest energy 
customers through a subscription-based system. Consistent with the new 
competitiveness in the electricity market, the goals for Federal power 
marketing were to: align the benefits and risks of access to Federal 
power, ensure BPA's repayment of the debt to the Treasury, deliver the 
low-cost benefits of the Federal hydropower system to Northwest energy 
customers, and retain the long-term benefits of the system for the 
region. In early 1997, the Governors' representatives formed a 
Transition Board to monitor, guide, and evaluate progress on these 
recommendations.
    Also in early 1997, BPA and the Pacific Northwest Utilities 
Conference Committee (PNUCC) invited 2800 interested parties throughout 
the Pacific Northwest to help further define Subscription. The 
collaborative effort to design a Subscription process began with a 
public kickoff meeting on March 11, 1997. At this meeting, a BPA/
customer design team presented a proposed work plan, including a 
description of the environmental coverage for Subscription. An 
important element of the work plan was the formation of a Subscription 
Work Group. The Work Group, which normally met twice a month (on the 
first and third Wednesdays) from March 1997 through September 1998, was 
open to the public. On average, 40-45 participants--representing 
customers, customer associations, Tribes, state governments, public 
interest groups, and BPA--attended. Three subgroups formed to more 
intensely pursue the resolution of issues involving business 
relationships, products and services, and implementation.
    Over the past 18 months, BPA and its customers have discussed and 
clarified many Subscription issues. During this time, BPA and the 
public confirmed goals, defined issues, developed an implementation 
process for offering Subscription, and developed proposed product and 
pricing principles.
    In addition to the March 1997 kick-off meeting, two other regional 
meetings were held specifically to ensure the public understood and had 
an opportunity to participate in the Subscription process. One meeting 
was held in December 1997 and the other in June 1998. In addition, BPA 
conducted a series of meetings around the region. These meetings, which 
were part of the public involvement process known as ``Issues '98,'' 
covered many regional subjects. Issues related to Subscription were key 
topics in the discussions at those meetings. The public comment period 
for Issues '98 closed June 26, 1998.
    Late in the summer of 1998, after considering the efforts of the 
Subscription Work Group, public comments on Subscription, and the broad 
information from Issues '98, BPA developed a Power Subscription 
Strategy Proposal. BPA released its Power Subscription Strategy 
Proposal on September 18, 1998. The Proposal, which incorporated the 
information received from customers, Tribes, fish and wildlife interest 
groups, industries and other constituents, laid out BPA's strategy for 
retaining the benefits of the FCRPS for the Pacific Northwest after 
2001. The public was invited to participate in two comment meetings: 
one in Spokane, Washington, on October 8; the other in Portland, 
Oregon, on October 14. The comment period closed October 23, 1998, 
although all comments received after that date were considered. To 
learn more about the issues addressed in BPA's Subscription Strategy 
Proposal, interested parties were also invited to BPA's Columbia River 
Power and Benefits Conference on September 29, 1998, in Portland, 
Oregon. Over 250 people attended.

Summary of Key Issues and Concerns

    BPA received over 200 separate written comments from Tribes, 
States, utilities, industries, interest groups, and citizens. Most of 
the comments presented at the two public meetings were followed with 
formal written comments. Comments on BPA's Power Subscription Strategy 
Proposal totaled almost 600 pages. In general, comments were readily 
grouped by customer class or interest group. Many customers expressed 
concern over BPA's proposed risk management strategy, especially the 
potential level of financial reserves and the use of such reserves. 
Similarly, most customer groups also voiced concern about the details 
of a Cost Recovery Adjustment Clause (CRAC), including the levels and 
disposition of cash reserves. Also, most customers encouraged BPA to 
extend the Subscription ``window'' for three to six months beyond the 
final rate decisions.
    A summary of key issues and concerns by customer class or interest 
group follows. The Administrative ROD provides a more detailed 
evaluation of comments by issue.
    •  Preference customers--In general, comments received from 
preference customers and their associations were supportive of the 
Proposal. However, these customers shared common concerns about 
preference and sales to other customer classes. Preference customers 
were adamant that BPA should avoid taking any actions that would 
impinge on their statutory right to preference and priority to Federal 
power. In urging BPA to extend the Subscription ``window,'' most of 
these customers cited the need to understand the rates before they 
could negotiate contracts and take the proposed contracts to their 
elected boards for

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discussion and final action. Most preference customers were opposed to 
tiered rates, noting they are entitled to BPA's lowest cost power.
    Most preference customers did not object to BPA selling firm power 
to the IOUs in settlement of the Residential Exchange Program as long 
as all preference customer requests were met first. In contrast, the 
preference customers were not generally supportive of BPA reserving 
power for the DSIs. Much expressed concern that BPA might offer to sell 
surplus firm power to the DSIs ahead of offering such power to them.
    In addition, there were a large number of comments on issues 
specific to individual or subgroups of public utilities. For example, 
comments from utilities with rural systems focused on BPA's low density 
discount (LDD) proposal while those dependent on general transfer 
agreements (GTAs) for their BPA service focused their comments on GTA-
related proposals.
    Also, some public utilities expressed concern that the range of 
costs for fish and wildlife was too high.
    •  IOUs--In general, the IOUs supported BPA's proposal to 
sell firm power, in combination with some monetary benefit, to settle 
the Residential Exchange Program. They also all urged BPA to make more 
power available to them and to offer as broad an array of products as 
possible to serve their residential and small farm loads. Some IOUs 
noted that residential exchange ``deemer'' balances should not affect 
proposed sales to them for residential and small farm customers.
    The IOUs asked for greater assurance of rate comparability with the 
PF rate. Several asked for lower rates than Priority Firm, citing the 
advantage to the Federal system of the proposed flat block loads. The 
IOUs were unanimous that BPA is obligated to make final decisions 
regarding sales of power to individual IOUs rather than allowing the 
state utility commissions to make the final decisions. They also all 
pushed for a longer time period for Subscription, citing their 
contracting and regulatory processes.
    Most of the IOUs supported BPA's proposal to tier rates. This 
support was based on the concept that marginal cost rates would prevent 
undue growth of the Federal power system. In fact, the IOUs were 
unanimous in recommending that BPA not ``grow the system'' by 
purchasing power to firm its nonfirm power, or otherwise increasing the 
size of the Federal Base System (FBS).
    The IOUs commented that either no transmission surcharge should be 
considered or a surcharge should only apply to Federal power being 
wheeled. Some IOUs recommended that BPA allow delivery of non-Federal 
power under applicable GTAs.
    •  DSIs--The most significant issue for the DSIs was whether 
or not BPA would have any firm power available to them after serving 
preference customers and IOUs. Several of the DSIs were concerned that 
BPA might make final power ``allocation'' decisions, which would 
eliminate the possibility of power sales to them. They urged BPA to 
delay any final Subscription decisions until BPA was actually engaged 
in Subscription sales. They suggested BPA could then better judge what 
its actual sales to publics and IOUs would be and could better decide 
what level of system augmentation purchases were necessary and 
affordable. The DSIs also disagreed with BPA over BPA's legal authority 
under the Northwest Power Act section 5(b) to sell power to the IOUs 
for their residential and small farm customers. They recommended that 
BPA rely on the Northwest Power Act's section 5(c) statutory 
Residential Exchange program as the primary mechanism to extend 
benefits to the residential and small farm customers of IOUs.
    The DSIs urged BPA not to declare that the inventory available for 
Subscription would be absolutely limited to 6300 average megawatts 
(aMW). Rather, they urged BPA to augment, or at least keep open the 
possibility of augmentation, the Federal power system and meld the 
costs into the existing FBS costs. As regional customers, they also 
asserted ``first call'' rights on any surplus Federal power before it 
could be sold outside of the region. Some DSIs expressed the view that 
BPA should give special policy consideration to the DSIs that had 
remained faithful customers during the first years of wholesale power 
deregulation.
    In addition, some of the DSIs claimed that BPA's proposal to tier 
rates was not contemplated by the Northwest Power Act. Moreover, they 
noted that if such incremental pricing were to be adopted, it should be 
adopted across all classes of customers. Also, the DSIs commented that 
the range of fish and wildlife cost alternatives being considered was 
too high.
    •  States--The four Pacific Northwest state public utility 
commissions (PUCs) submitted joint comments. The PUCs encouraged 
greater sales to the IOUs and they recommended the Slice product be 
offered to IOUs for residential and small farm customers. The PUCs 
encouraged BPA to continue a full separation of power and transmission. 
They also suggested using a transmission surcharge only in an extreme 
emergency. The states believe BPA's power should reach market rates 
before any transmission surcharge is enacted.
    The governors' offices strongly supported the positions taken by 
the PUCs. In addition, the Office of the Governor of Montana reminded 
BPA of Montana's deregulation legislation in encouraging BPA to ensure 
the residential and small farm customers of IOUs share in the power 
benefits of the Federal system.
    •  Tribes--Several Tribes conveyed their support for the 
Tribal Utility proposal, but expressed concern about the relatively 
short timeframe for planning and developing a Tribal Utility and about 
their lack of resources. Some Tribes also noted their concerns about 
the allocation of the benefits of the FCRPS.
    •  Interest groups--Public interest groups were generally 
supportive of BPA's proposal. They were largely unsympathetic to the 
DSIs plight and urged more power be sold to the IOUs' residential and 
small farm customers. Alone among commenters, they asked how BPA would 
cope with a major loss of resources. Some encouraged BPA to plan for 
the highest cost scenario for fish and wildlife funding; some asked BPA 
to drop the lowest cost scenario from consideration. The public 
interest groups were universally complimentary of a proposed 
conservation and renewable resource rate discount.
    BPA also received letters from about 50 citizens--all of whom are 
served by Puget Sound Energy in Washington State--urging BPA to make 
Federal power available to them even though they are served by an IOU. 
Several members of the Washington State Legislature also commented 
similarly.

Relationship to Other Processes

    Public input on BPA's Power Subscription Strategy Proposal revealed 
regional interest in several other key issues, notably future fish and 
wildlife funding and the 1999 Power Rate Case, facing BPA and the 
region. The tiered ROD strategy (Figure 1--not included in this Notice) 
supports the Power Subscription process being conducted simultaneously 
with other processes on these key issues. As anticipated in the BP EIS 
analysis, BPA has confirmed that prospective customers are not waiting 
until 2001 to arrange their 21st century power supply (BP EIS, section 
1.1 and BP ROD, page 2). Instead, many are looking for sellers who can 
offer them low, stable, long-term rates now. By offering competitively 
priced power in a timely fashion, BPA will be able to retain customers 
and corresponding

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revenue. Without sufficient revenue, BPA would be unable to guarantee 
full funding for its many responsibilities, including conservation, 
fish and wildlife projects, and renewable energy programs (BP EIS, 
section 2.6.1).
    BPA's multi-faceted business is complex. To help ensure its 
success, BPA decided to embark simultaneously upon independent 
processes addressing these key issues. While contract negotiators would 
benefit from absolute knowledge of all future program costs and program 
negotiators would benefit from absolute knowledge of BPA's future 
revenue, the realities of a competitive marketplace often preclude 
waiting for such comprehensive information. To carry out its public 
responsibilities within a competitive marketplace, BPA must have the 
freedom to define the scope of individual business decisions without 
having to resolve all of the region's problems at once.
    BPA understands the extensive regional interest and concerns 
regarding future fish and wildlife funding. The Fish and Wildlife 
Funding Principles were announced by Vice President Gore on September 
21, 1998. The announcement of the Principles followed a process that 
began in November 1997 and continued until early September 1998. This 
public process included over 60 meetings with concerned citizens, 
Tribes, State and Federal agencies, BPA customers, and public interest 
groups. The preamble to the Fish and Wildlife Funding Principles states 
that the purpose ``of these principles is to conclude the fish and 
wildlife funding process in which BPA has been engaged with various 
interests in the region, and provide a set of guidelines for 
structuring BPA's Subscription and power rate processes. The principles 
are intended to `keep the options open' for future fish and wildlife 
decisions that are anticipated to be made in late 1999 on 
reconfiguration of the hydrosystem and in early 2000 on the Northwest 
Power Planning Council's Fish and Wildlife Program.''
    BPA has examined issues, including fish and wildlife funding, 
related to fish and wildlife administration under different business 
conditions (BP EIS, section 2.4.5). The analysis included a 
determination of potential impacts. Therefore, BPA is well prepared to 
make separate individual business decisions such as a Power 
Subscription Strategy and the 1999 Power Rate Case that complement one 
another and are guided by the Fish and Wildlife Funding Principles.
    Proceeding with the Power Subscription Strategy is vital to 
providing BPA with the financial predictability and stability it needs 
to compete in a deregulated wholesale electric marketplace. As 
explained in detail in the BP EIS and the System Operation Review (SOR) 
EIS (DOE/EIS-0170, February 1995), BPA will serve its contractual 
obligations and market power and services with available resources 
consistent with the operating constraints that apply to the 
hydrosystem. (BP EIS, section 1.5.6 and BP ROD, page 4). Additionally, 
the BP EIS details various response strategies designed to address any 
financial imbalance due to revenue shortfall as a result of 
unanticipated expenditures (BP EIS, section 2.5 and BP ROD, pages 13-
14). In circumstances with unforeseen costs or revenue shortfalls, BPA 
could implement one or more of these response strategies to allow the 
agency to continue to compete in the electric utility market and 
fulfill its statutory responsibilities. The Risk Management Strategy 
described in the Power Subscription Strategy is consistent with the 
response strategies discussed in the BP EIS.
    During the past year, BPA has worked with interest groups, other 
agencies, and customers to understand how BPA will address the 
uncertainty of future fish and wildlife costs in future rates and 
contracts. BPA is committed to meeting the Fish and Wildlife Funding 
Principles presented in September 1998. The Subscription process and 
the power rate proposal are the major means for meeting BPA's 
commitment. BPA believes, based on analyses to date, that the Power 
Subscription Strategy carries out the Fish and Wildlife Funding 
Principles. This issue is subject to further test in the Power Rate 
Case, and adjustments may be made in BPA's implementation methods if 
necessary.
    The Power Subscription Strategy Proposal discussed some issues that 
will not be finally decided in the Power Subscription Strategy. Most of 
these issues will be finally decided in the 1999 Power Rate Case (also 
known as a section 7(i) process), although some will be decided in 
other forums, such as the Transmission Rate Case, which will be 
concluded before October 2001. For example, while the Strategy 
documents BPA's intention to implement a discount for conservation and 
renewable resources, the final design of that discount will be decided 
in the 1999 Power Rate Case. Other issues that will be decided in the 
1999 Power Rate Case include the design and application of the CRAC, 
which rates apply to which sales, and the design of the LDD.
    While BPA's Subscription Strategy does not establish any rates or 
rate designs, rate design approaches identified in the Subscription 
Strategy will be part of BPA's initial power rate proposal, which is 
expected to be published in early 1999. The comments received during 
the Subscription public process regarding the various rate-related 
issues will be addressed in the power rate case, which includes 
extensive opportunities for public involvement.
    The final Power Subscription Strategy will provide a framework for 
the 1999 Power Rate Case and Subscription contract negotiations. The 
Subscription window will remain open 120 days after the Power Rates ROD 
is signed by the BPA Administrator, providing relatively certain 
information to potential purchasers regarding rates.

Summary of BPA'S Power Subscription Strategy

    The Power Subscription Strategy is BPA's decision on equitably 
distributing to its customers the electric power generated by the 
FCRPS, within the framework of existing law. The Strategy outlines the 
overall process for implementing Federal power Subscription and 
provides a policy framework for the 1999 Power Rate Case. The Power 
Subscription Strategy, which provides a comprehensive description of 
BPA's decision, is available as a separate document. The Strategy is 
briefly summarized as follows.
    The Strategy has four principal goals:
    •  Spread the benefits of the FCRPS as broadly as possible, 
with special attention given to the residential and rural customers of 
the region;
    •  Avoid rate increases through a creative and businesslike 
response to markets and additional aggressive cost reduction;
    •  Allow BPA to fulfill its fish and wildlife obligations 
while assuring a high probability of Treasury payment; and
    •  Provide market incentives for the development of 
conservation and renewables as part of a broader BPA leadership role in 
the regional effort to capture the value of these and other emerging 
technologies.
    Subscribing to Federal Power. The Subscription window will be open 
from February 1, 1999, until 120 days after the ROD for the 1999 Power 
Rate Case is signed. BPA and its customers can bilaterally negotiate 
and execute power sales contracts at any time during this period. In 
determining customers' net requirements eligibility, BPA will apply 
criteria that define which entities qualify for service. BPA also will 
apply section 9(c) of the Northwest Power Act

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and review customer requests for service in light of the extent to 
which power, including power previously applied to loads in the region, 
has been sold for use outside the region. All contracts will be subject 
to the final rates established in the Power Rate Case.
    All customers can negotiate during the Subscription window for 
power at applicable rates.
    •  Publics--All net requirements load, including load of new 
publics and load annexed by publics during the Subscription window, not 
currently served by all 5(b)(1)(A) resources and 5(b)(1)(B) generating 
resources.
    •  Residential Loads of IOUs--For 2002-2006 BPA intends to 
offer at least 1000 aMW of power and 800 aMW of power or financial 
benefits. For customers that purchase 10-year contracts, BPA will 
provide the 1800 aMW package for the first five-year period, and 2200 
aMW for the second five years.
    •  DSIs--BPA expects to be able to serve all DSI load placed 
on the agency.
    •  Managing Financial Risk. BPA's pricing of its power 
products and services is based, in part, on the agency's risk 
management strategy. BPA faces a number of uncertainties, including 
future hydro conditions, market prices, operating costs, and fish and 
wildlife costs, which could affect how BPA operates and successfully 
meets all of its public responsibilities. To ensure BPA recovers all of 
its costs, the agency will use a variety of risk management tools. 
These tools are described in detail in BPA's Power Subscription 
Strategy.
    Products and Services. BPA will market three categories of 
products:
    •  Core Subscription products--These products are available 
to customers who request requirements service to serve load and accept 
constraints on their ability to shape their purchases from BPA for any 
reason other than following variations in consumer load. These 
undelivered products will be offered at BPA's posted rates.
    •  Customized Subscription products--Customized products are 
available to customers who request requirements services to serve load 
(Core Products) and who want additional flexibility to reshape their 
purchases from BPA in order to optimize their resource operations. 
These products will have bilaterally negotiated pricing for all 
modifications to Core Products and any additional products and services 
customers wish to purchase. BPA anticipates that the price for 
customized products that differ substantially from the core products 
will be negotiated under the Firm Power Products and Services (FPS) 
rate schedule.
    •  Non-Subscription products--This category broadly includes 
power products and services that BPA might sell to any customer in the 
marketplace. These products will have prices negotiated under BPA's FPS 
rate schedule within the cost-based cap existing for that rate 
schedule. For detailed product descriptions, refer to the BPA Power 
Products Catalog available from BPA account executives or on the Power 
Business Line Web site.
    BPA will also offer another product called Slice of the System. The 
Slice of the System is a requirements service and will be offered by a 
formula to be developed during the Power Rate Case. The final details 
of this product will be developed through an open process that will be 
concluded before the end of January 1999. Slice will allow eligible 
customers to pay a fixed percentage of BPA's costs in return for a 
fixed percentage of the capability of the FCRPS, mapped to net 
requirements.
    Pricing. BPA intends to propose power rates for the 2002-2006 rate 
period that are significantly below market and approximately equal for 
all customer groups. Final pricing decisions will be made in the power 
rate 7(i) process in 1999.
    •  Subscription sales (i.e., contracts signed during the 
Subscription window) to public agency customers will be at the PF rate. 
Subscription sales to IOUs and DSIs would be at applicable rates, which 
are expected to be approximately equivalent to the PF rate, subject to 
a section 7(i) hearing and BPA meeting its statutory rate directives.
    •  Loads of preference customers that contract for services 
too late for inclusion in rate case analysis (i.e., the Power Rate Case 
setting rates for the FY 2007-2011 period) will be served at the PF 
rate through the end of that rate period, with a targeted adjustment 
charge. This targeted adjustment charge will reflect incremental costs, 
if such costs are incurred to serve the load. Also, any loads placed on 
BPA after the close of the Subscription window will receive this rate 
treatment at least through FY 2006.
    •  Option fees have been dropped. Eligible customers who make 
long-term commitments to buy power will get a contractual guarantee of 
BPA's applicable lowest cost-based rates beyond FY 2006.
    •  BPA will continue the LDD, with minor modifications, in a 
manner similar to current practice.
    •  BPA intends to continue existing General Transfer 
Agreement (GTA) service to customers for delivery of Federal power 
through the 2002-2006 rate period. This service will not be available 
to new preference customers or to existing preference customers for 
service territory expansions. BPA will attempt to negotiate extensions 
through 2006 for GTA agreements that expire during this time. If 
unsuccessful in this attempt, BPA will arrange for open access tariff 
transmission to replace GTAs for delivery of Federal power to GTA 
points of delivery. This delivery will be covered by power rates. The 
costs for delivery of non-Federal power to GTA points of delivery will 
not be covered by power rates.
    •  BPA has an important role in fostering and promoting the 
development of energy conservation and renewable resources in the 
Northwest. BPA plans to offer a 0.5 mill per kilowatthour Conservation 
and Renewables Rate Discount to utilities that voluntarily implement 
measures to develop energy conservation and renewable resources, up to 
a total of $30 million per year. The discount will be dollar for 
dollar. BPA is also considering whether, if its actual financial 
performance turns out to be much better than the rate case plan, to 
offer an additional discount for customers who support additional 
conservation and renewables activities. The details of how BPA plans to 
proceed with the discount in the initial rate proposal will be provided 
in the Administrative ROD.
    Contract Elements. BPA intends to conduct bilateral negotiations 
with each of its customers to develop a contract that establishes the 
specific business relationship between that customer and BPA. All 
contracts will contain some provisions that are non-negotiable and 
consistent across all Subscription contracts.
    •  BPA will provide various incentives for customers to 
choose among three-year contracts, five-year contracts, and contracts 
longer than five years.
    •  BPA will be willing to negotiate non-requirements surplus 
firm power contracts with small rural full service customers that may 
be inordinately affected by rate design changes.
    •  Under Subscription contracts, customers bear the risk of 
losing load due to retail open access. BPA will offer several means to 
mitigate a customer's financial risk due to retail load loss.
    •  BPA will offer load growth coverage to public agency 
customers. Utilities whose loads grow due to retail access load gain or 
annexations and have contracts before the close of the Subscription 
window will be served with requirements power at the PF rate. However, 
new large single loads (NLSL)

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will be served at the New Resources Firm Power rate. Public agency 
requests to BPA for additional service after the Subscription window 
closes will be subject to the special price and notice provisions 
described in the Pricing section.
    •  A new public utility, which is eligible for service under 
BPA's statutes and which forms and contracts for service within the 
Subscription window will be offered power at the PF rate for its entire 
load obligation, except for NLSLs. New tribal preference utilities, 
which are eligible for service under BPA's statutes, will be treated 
the same as other new public utilities.
    •  Under current statutory provisions, customers who purchase 
for their net firm power requirements load are not able to pool their 
power purchases with other customers' purchases. If new legislation 
affecting pooling is passed, BPA will consider modifying its contracts.

Environmental Analysis

    BPA's BP EIS focused on the relationships of BPA to the market. (BP 
EIS, section 2.1). BPA's marketing actions do not have a direct effect 
on air, land, and water. Previous environmental studies (e.g., Initial 
Northwest Power Act Power Sales Contracts EIS, January 1992; and Final 
Environmental Assessment: 1993 Wholesale Power and Transmission Rate 
Adjustment, February 1993) showed that environmental impacts are 
determined by the responses to BPA's marketing actions, rather than by 
the actions themselves. These market responses, discussed in detail in 
section 4.2 of the BP EIS, are resource development (including 
conservation), resource operation, transmission development and 
operation, and consumer behavior. With this knowledge, BPA used market 
responses as the foundation for the environmental analysis in section 
4.3 of the BP EIS.
    These market responses that determine the environmental impacts 
also determine whether BPA's costs will exceed the level of maximum 
sustainable revenue. If BPA were unable to balance its revenue and 
costs, the agency would need to pursue a response strategy. These 
response strategies, which are discussed below, fall into three general 
categories: increase revenues, reduce spending, and transfer costs. The 
ability to utilize response strategies, such as the risk management 
tools described in the Power Subscription Strategy, to meet BPA's 
financial obligation allows the agency to continue to be competitive in 
the market and provide public benefits.
    A review of the BP EIS clearly shows that the potential 
environmental impacts from BPA's Power Subscription Strategy are 
adequately covered. Figure 2 below (not included in this Notice) shows 
how the decision to adopt the Power Subscription Strategy affects the 
environment.
    Potential Air, Land, and Water Effects.
    •  Resource development and operation--Customers' decisions 
on whether to buy power from BPA or from other suppliers to serve their 
firm loads have potential effects on resource development and 
operations. Moreover, resource operations and development are more 
likely to have a potential impact on the environment than other market 
responses. Even so, resource operations are not expected to change 
significantly due to BPA's decision to adopt the Power Subscription 
Strategy.
    BPA's energy resources are overwhelmingly hydropower. The SOR EIS 
evaluated various hydro operation scenarios and the requirements 
necessary to serve the multiple purposes of the Federal facilities, 
including power generation, fisheries, recreation, irrigation, 
navigation, and flood control. The resulting decisions about operating 
requirements, as documented in the Columbia River System Operation 
Review On Selecting An Operating Strategy For The FCRPS ROD (February 
21, 1997), defined the power operations and amount of resources 
available for all BPA power transactions. However, to assist in fully 
understanding the potential range of impacts as a consequence of 
fundamental Business Plan decisions, the BP EIS evaluated the possible 
effects under two SOR operating strategies covering a wide spectrum of 
possible hydro operations (BP EIS, sections 4.4.3 and 4.4.4). It is 
important to note that contractual decisions predicated upon the BP EIS 
do not influence the SOR analysis or hydro operations. In fact, the 
reverse is true: the results from the SOR ROD affect BPA's Power 
Subscription Strategy decisions by defining the amount of power 
available to BPA from its hydro resources.
    Also, whether customers choose BPA or other regional providers to 
serve their loads has a minimal effect on environmental impacts from 
resource development. The BP EIS showed that the difference between BPA 
serving the loads and the rest of the region serving the loads is 
relatively minor. Although BPA's share of regional load varied across 
alternatives, the differences in total environmental impacts among 
alternatives were small (BP EIS, Figure 4.4.5, page 4-117).
    The more important factor for determining potential environmental 
impacts from resource operations and development is whether the region 
will be in an energy resource surplus or deficit situation. Based on 
BPA's most recent Pacific Northwest Loads and Resources Study (the 
White Book), the region post-2001 is expected to be resource deficit 
under a critical water level (the lowest expected water condition based 
on historical data) for the hydroelectric system.
    Under these conditions all resources in the region will run and 
there will be an increased likelihood of needing additional resources. 
It is anticipated that much of this need for additional resources will 
be met through better water conditions (closer to an average water 
year) than critical water. In addition, BPA will promote the 
development of conservation and renewable resources in the region. The 
region may also rely on existing power resources outside the region or 
on the construction of new resources within the region. In any case, 
there is likely to be an increase in air emissions. However, any new 
resources are expected to be CTs. If these cleaner, more fuel efficient 
CTs displace existing thermal generation, the overall air quality 
impacts may be lessened (BP EIS, section 4.4.1.4). Section 4.3.1 of the 
BP EIS describes the typical environmental impacts from various 
generating resources.
    Currently BPA does not intend to rely on the long-term acquisition 
of the output of new generating resources to meet any increases in its 
loads. Instead, BPA plans to use cost-effective power purchases. If 
necessary, BPA would consider the long-term acquisition of the output 
of new combined cycle combustion turbines (CTs).
    In the less likely event that the region is in a surplus situation, 
fewer air quality impacts would be expected. New generation would not 
be needed and surplus hydro could displace existing thermal generation, 
resulting in fewer air emissions. If most existing resources in the 
region run, no substantial changes in the current environmental effects 
would be expected. The closer the region is to load/resource balance, 
however, the greater the likelihood new resources will be constructed. 
As discussed above, these new resources would impact air quality.
    •  Transmission development and operation--Little change is 
expected in transmission development and operation due to the decision 
by BPA to adopt the Power Subscription Strategy. Reliability criteria 
and regional

[[Page 156]]

planning would still set the direction for a regional transmission 
system (BP EIS, Table 4.2.1, page 4-40.) The potential environmental 
impacts of transmission development and operation were described in 
section 4.3.2 of the BP EIS. Analysis of transmission system 
development and operation across Business Plan alternatives (which 
represent a broad range of loads placed on BPA) shows overall 
transmission development in the region varying by less than six percent 
(BP EIS, section 4.4.3.6).
    •  Consumer behavior--Conservation reinvention, which is 
intrinsic to BPA's market-driven approach, included price incentives 
for conservation (BP EIS, section 2.2.3). A renewables incentives 
module was also analyzed as a variable (BP EIS, section 2.3). The 
success of any incentives, such as a rate discount, for conservation or 
renewable resources would reduce the region's reliance on or need for 
thermal resources. As a result, there would be fewer impacts to air, 
land and water. Conservation measures, in and of themselves, have few 
environmental impacts (BP EIS, section 4.3.1).
    Potential Socioeconomic Effects. Consistent with its market-driven 
approach, BPA will remain active in the competitive market, working to 
assure its success. BPA must generate enough revenue to pay all of its 
costs. If the costs exceed BPA's ability to generate revenues, BPA may 
not be able to meet its financial obligations, including repaying the 
Treasury and providing public benefits. The BP EIS showed that two 
factors dominated BPA's ability to be successful in the market: rates 
and terms of service. Under the market-driven approach, BPA focused on 
keeping rates low and on meeting customers' needs (BP EIS, section 
2.6). The success of BPA's Power Subscription Strategy will be 
determined by how well it responds to these same two factors. The 
Strategy equitably distributes the benefits of the FCRPS, provides 
customers with a variety of choices to meet their needs, and 
acknowledges BPA's financial and public benefit responsibilities. 
However, BPA faces a number of uncertainties that could affect its 
success. The Risk Management Strategy incorporates a set of risk 
management tools to manage this risk.
    •  Rates--For BPA to be successful, the Power Subscription 
Strategy must offer power products and services at prices that are 
acceptable to customers. To the extent BPA is more or less successful, 
the agency could be over-subscribed or under-subscribed.
    If BPA's cost-based rates for Subscription power are below market, 
BPA could sell all the power it has available. BPA would meet this 
over-Subscription by making cost-effective power purchases from 
existing resources. In the unlikely event that the cost of these power 
purchases or customer demands were much higher than expected, BPA could 
use a variety of measures, including adjusting the shape of deliveries 
and interruption provisions, to ensure the DSIs share in the benefits 
of federal power.
    Over-Subscription would likely decrease air quality. BPA's power 
purchases could cause regional thermal resources to run, resulting in 
increased air emissions. In addition, BPA currently sells power to 
California, offsetting the operation of some of California's thermal 
plants. These plants may be operated, leading to increases in air 
emissions in California. If, as expected, the region is deficit, BPA's 
purchases could encourage others to develop resources, including 
conservation.
    If BPA's rates for Subscription power are higher than what 
customers perceive market prices to be, BPA could end up selling less 
firm power than it is offering. Consequently, BPA might not be able to 
recover its costs for the rate period and could be unable to make its 
Treasury payments or meet recovery costs for fish and wildlife. BPA 
would likely implement one or more of the financial contingency 
measures in the Risk Management Strategy to address such under-
Subscription.
    If BPA were under-Subscribed, other regional resources would meet 
customers' loads. These thermal resources would have negative air 
quality impacts. Under the likely regional deficit for resources, 
resource development would be encouraged. Unlike BPA's existing 
resources, these new resources (primarily CTs) would have air quality 
impacts. To the extent the new CTs displaced older, less efficient 
thermal resources, the potential impacts would be less.
    •  Terms of service--BPA also found that the issues raised 
during the Power Subscription Strategy public process were focused on 
business actions that affect the marketability or desirability of BPA's 
power. The Power Subscription Strategy must also offer terms of service 
that are attractive to BPA's customers. BPA worked with customers in 
developing the Strategy, and was responsive to their concerns. The 
Strategy preserves public preference and regional preference, while 
assuring that the residential and small farm customers of the region's 
IOUs share the benefits of the FCRPS. The Power Subscription Strategy 
also recognizes the unique needs of customers and responds to those 
needs. A variety of competitively-priced power products and services 
are available. In addition, BPA intends to conduct bilateral 
negotiations with each of its customers to develop individual 
contracts.
    To the extent these terms of service are attractive, customers will 
choose to buy power from BPA. At the same time, the Strategy must 
recognize constituents' concerns. The Power Subscription Strategy 
balances the concerns and interests of customers and constituents. The 
more successful the Power Subscription Strategy, the more likely BPA 
will be able to fulfill all of its financial obligations.
    •  Public benefits--As discussed above, BPA is making a 
systematic effort through this Power Subscription Strategy to meet 
customer needs and improve business relationships. This will make the 
purchase of federal power more attractive to customers, resulting in 
reliable and predictable BPA revenues which will provide better 
financial stability over time. This success in the market will provide 
the financial strength necessary to ensure the public benefits BPA 
provides the region. The Power Subscription Strategy provides BPA the 
mechanisms to spread the benefits of the FCRPS throughout the region, 
fulfill BPA's fish and wildlife obligations, and encourage conservation 
and renewables.
    •  Response strategies (Mitigation)--BPA faces a number of 
uncertainties that could affect its success: hydro conditions, market 
prices, operating costs, and fish and wildlife costs. The Power 
Subscription Strategy includes a Risk Management Strategy BPA intends 
to use to make sure all of its costs and public responsibilities are 
met despite these uncertainties. The BP EIS, acknowledging these same 
uncertainties, detailed representative response strategies BPA could 
invoke to balance costs and revenues (BP EIS, section 2.5 and BP ROD, 
pages 13-14). These response strategies fell into three general 
categories: decrease spending, increase revenues, and transfer costs. 
The risk management tools in the Power Subscription Strategy are 
consistent with the response strategies in the BP EIS. BPA has already 
decided (in the BP ROD) to implement as many response strategies, or 
equivalents, as necessary to mitigate for cost and revenue imbalance. 
Such mitigation enhances BPA's ability to continue to adapt to changing 
market conditions and improves BPA's long-term attractiveness as a 
power supplier and business

[[Page 157]]

partner and BPA's ability to ultimately continue to provide public 
benefits to the region.

Public Availability

    This Power Subscription Strategy ROD, which satisfies BPA's 
requirements under the National Environmental Policy Act (NEPA), will 
be distributed to interested and affected persons and agencies. The ROD 
will also be posted on BPA's web-site, which is https://www.bpa.gov/
power/subscription. Copies of BPA's Power Subscription Strategy, the 
Business Plan, Business Plan EIS, and the Business Plan ROD and 
additional copies of this NEPA ROD are all available from BPA's 
Communications Office, P.O. Box 12999, Portland, Oregon 97212. Copies 
of these documents may also be obtained by using BPA's nationwide toll-
free document request line, 1-800-622-4520.

Conclusion

    After participating in an extensive public process, I have decided 
to adopt and implement BPA's Power Subscription Strategy. Consistent 
with the decision strategy laid out in BPA's BP EIS, I have examined 
that EIS and found that this decision is clearly within its scope. In 
making this decision to adopt the Power Subscription Strategy, I have 
carefully considered the potential environmental impacts. Further, in 
proceeding with the Strategy, BPA is guided by and remains fully 
committed to the Fish and Wildlife Funding Principles.
    This decision is a direct application of BPA's Market-Driven 
approach for participation in the increasingly competitive electric 
power market. BPA is offering a variety of power products and pricing 
to address customers' needs and make the purchase of federal power more 
attractive to customers. BPA will begin bilateral negotiations during 
which customers will make federal power purchase commitments and 
execute individual contracts.
    Implementing the Power Subscription Strategy will result in 
reliable and predictable BPA revenues which will provide financial 
stability over time to help provide public benefits, avoid stranded 
costs and reduce the need to invoke risk management strategies. BPA is 
responding to customers' needs while ensuring the financial strength 
necessary to produce the public benefits that are of concern to the 
people of the Pacific Northwest. Making Power Subscription contracts 
available to customers is a prudent business and public agency decision 
that reflects the values of the region.

    Issued in Portland, Oregon, on December 21, 1998.
J. A. Johansen,
Administrator and Chief Executive Officer.
[FR Doc. 98-34788 Filed 12-31-98; 8:45 am]
BILLING CODE 6450-01-P