Opportunity for Public Comment Regarding Bonneville Power Administration's Subscription Power Sales and Standards for Service

DEPARTMENT OF ENERGY

Bonneville Power Administration

Opportunity for Public Comment Regarding Bonneville Power

Administration's Subscription Power Sales and Standards for Service

AGENCY: Bonneville Power Administration (BPA), DOE.

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ACTION: Notice of draft policy proposal.

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SUMMARY: This notices announces a draft policy proposal to modify BPA's

standards for service to permit the purchase of Federal power.

One of the BPA's current eligibility standards for potential public

agency utility customers and privately owned companies selling to the

general public requires the utility or company to own its own

distribution facilities. BPA is proposing that it modify this standard

to permit in the future that a customer either (1) own a distribution

system, or (2) have an ownership-type lease arrangement for a

distribution system. The reason for this proposal is driven by the

Federal Power Subscription Strategy, ongoing changes to the electric

power industry and increased interest by some regional parties in

becoming eligible to buy Federal power at the PF rate.

This Notice on Eligibility and Standards of Service for Purchasing

Federal Power will afford a 30-day public review and comment period on

the proposal to permit ownership-type lease arrangements to be used by

potential customers to meet one of the qualifications to purchase

Federal power from BPA. BPA's proposal and background information on

BPA's current eligibility requirements and standards for service

regarding potential public agency and other customers follows below.

BPA is also putting forward other concepts for consideration and

invites comments on these as well.

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 Eligibility and

Standards for Service Policy Proposal, 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 N.E.

Airport Way. Both meetings will begin at 10:00 a.m. Comments also will

be collected on the Determining Net Requirements 5(b) and 9(c) Policy

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 N.E.

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

N.E. Multnomah, Suite 400, Portland, OR 97232, telephone (503) 230-7597

Mr. Steve Oliver, Manager, Bulk Power Marketing, 905 N.E. 11th, P.O.

Box 3621, Portland, OR 97208, telephone (503) 230-3295

SUPPLEMENTARY INFORMATION: In its Federal Power Subscription Strategy,

dated December 21, 1998, the Bonneville Power Administration stated

that new public agencies that form and qualify for service within the

period of the subscription contract window would be offered power at

the priority firm (PF) rate for the post 2001 rate period for their

entire general requirements load obligation, except for any new large

single loads. The strategy further states that new preference tribal

utilities that form and qualify for service will be treated the same as

other new public agency utilities with respect to the availability of

power at the PF rate.

Public Body and Cooperative Customer Eligibility Under Bonneville

Project Act

To be eligible to purchase power from BPA on a preference and

priority basis, an applicant must meet two fundamental statutory

requirements found in the Act of August 20, 1937, (the Bonneville

Project Act) Pub. L. 75-329. First, the applicant must meet the

statutory definition of one or the other of the terms ``public body''

or ``cooperative.'' Section 3 of the Bonneville Project Act defines the

term ``public body'' or ``public bodies'' to mean ``States, public

power districts, counties, and municipalities, including agencies or

subdivisions of any thereof.'' Section 3 also defines the term

``cooperative'' or ``cooperatives'' to mean ``any form of nonprofit-

making organization or organization of citizens supplying, or which may

be created to supply, members with any kind of goods, commodities, or

services, as nearly as possible at cost.''

BPA has indicated that a Federally recognized tribe that forms a

cooperative utility pursuant to its tribal constitution and laws would

be eligible for preference status. Further, a tribe with the legal

right could serve non-tribal members within its reservation boundaries,

but would otherwise need to comply with state law for service outside

the tribe's jurisdiction.

For potential public customers who will resell Federal power to

retail consumers, the second requirement is that a public body or

cooperative applicant be in the public business of selling and

distributing the Federal power to be purchased from BPA.1 If

not presently in business, section 4(c) of the Bonneville Project Act

directs BPA to afford the prospective customer a reasonable time, as

determined by the Administrator, to allow it to get into the public

business of selling and distributing power. BPA may not deny the

request of a preference applicant that has not yet obtained necessary

financing to get itself into the business of selling and distributing

electric energy until after the reasonable time has passed.

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\1\ Section 5(a) of the Bonneville Project Act authorizes the

Administrator to sell Federal power at wholesale to public bodies

for direct consumption of the Federal power. In order to receive

Federal power for its own use a potential public body end use

customer needs to meet BPA's standards for service specific to

direct consumption. BPA is not proposing any changes in its current

standards for this class of potential customers.

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Finally, section 4(d) declares several policies regarding the

preferential status of public bodies and cooperatives. They reinforce

the directives found in section 4(c).2 First, preference to

public bodies

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and cooperatives is to be preserved. Second, people are to be given

reasonable opportunity and time to hold any elections or to take any

other necessary action to create a public body or cooperative. Third,

once created the public body or cooperative is to be afforded a

reasonable time and opportunity to authorize and issue bonds or to

arrange other financing necessary to construct or acquire necessary and

desirable electric distribution facilities, and to become in all other

respects qualified purchasers and distributors of Federal power. To

date, BPA has interpreted section 4(c) and 4(d), particularly the

language ``to construct or acquire necessary and desirable distribution

facilities,'' to require that the applicant own its distribution

system.

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\2\ Section 4(c) provides in pertinent part: ``An application by

any public body or cooperative for an allocation of electric energy

shall not be denied, or another application competing or in conflict

therewith be granted * * * on the ground that any proposed bond or

other security issue of any such public body or cooperative, the

sale of which is necessary to enable such prospective purchaser to

enter into the public business of selling and distributing the

electric energy proposed to be purchased, * * *''

Section 4(d) provides in pertinent part: ``It is declared to be

the policy of the Congress, as expressed in this chapter, to

preserve the said preferential status of the public bodies and

cooperatives herein referred to, and to give to the people of the

States within economic transmission distance of the Bonneville

project reasonable opportunity and time to hold any election or

elections or take any action necessary to create such public bodies

and cooperatives as the laws of such states authorize and permit,

and to afford such public bodies or cooperatives reasonable time and

opportunity to take any action necessary to authorize the issuance

of bonds or to arrange other financing necessary to construct or

acquire necessary and desirable electric distribution facilities,

and in all other respects legally to become qualified purchasers and

distributors of electric energy available under this chapter.''

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Regarding nonpreference applicants for Federal power which will be

resold to the general public, BPA has required that such entities be

properly formed under state law, including compliance with any

approvals, filing or regulatory orders to which such businesses are

subject under the laws of the states. BPA has required that such

private utilities also own their own distribution system for making

retail resale of Federal power. This requirement is based on section

5(a) of the Bonneville Project Act which distinguishes between a

privately owned public utility buying Federal power for resale to the

general public from other sales to private persons. 3 It is

not based on sections 3 and 4 discussed above.

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\3\ Section 5a of the Bonneville Project Act provides in

pertinent part: ``Subject to the provisions of this chapter and to

such rate schedules as the Secretary of Energy may approve, as

provided in this chapter, the administrator shall negotiate and

enter into contracts for the sale at wholesale of electric energy,

either for resale or direct consumption, to public bodies and

cooperatives and to private agencies and persons and for the

disposition of electric energy to Federal agencies. Contracts for

the sale of electric energy to any private person or agency other

than a privately owned public utility engaged in selling electric

energy to the general public, shall contain a provision forbidding

such private purchaser to resell any of such electric energy so

purchased to any private utility or agency engaged in the sale of

electric energy to the general public, and requiring the immediate

canceling of such contract of sale in the event of violation of such

provision.''

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Standards for Service

The Northwest Electric Power Planning and Conservation Act on 1980,

Pub. L. 96-501, section 5(b)(4) directs the Administrator to require

all potential customers requesting a contract for firm power under

section 5(b) of the Act to comply with the Administrator's standards

for service in effect on December 5, 1980, or as subsequently revised.

4 BPA has traditionally made its determination regarding

eligibility for preference and meeting BPA standards for service on a

case-by-case basis and communicated its standards and assessment of a

party's qualifications in correspondence to parties seeking to purchase

Federal power under section 5(b). The following describes the standards

for service, including the eligibility requirements under sections 4(c)

and (d) of the Bonneville Project Act, applicable to potential public

agency customers.

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\4\ Section 5(b)(4) of the Northwest Power Act provides,

``Sales under this subsection shall be made only if the public body,

cooperative, Federal agency or investor-owned utility complies with

the Administrator's standards of service in effect on December 5,

1980 or as subsequently revised.''

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As a practical and legal matter, BPA's determination of a

customer's eligibility to purchase preference power is included in an

overall review to determine if the customer is in compliance with the

Administrator's standards for service. To comply with the existing

standards for service an applicant must:

1. Be legally formed in accordance with local, state and Federal

laws;

2. Own a distribution system and be ready, willing and able to take

power from BPA within a reasonable period of time;

3. Have a general utility responsibility within the service area;

4. Have the financial ability to pay BPA for the Federal power it

purchases;

5. Have adequate utility operations and structure; and

6. Be able to purchase power in wholesale, commercial amounts.

Following is a more detailed explanation of the existing criteria.

Legal Formation

BPA will request an applicant to demonstrate that all required

steps under applicable law have been taken to authorize its formation

as a public body or cooperative. It also ensures that the applicant is

in the public business of buying and distributing, at retail, power to

be purchased from BPA, or is in the process of going into such a

business. The applicant must provide copies of filings of certificates

and approvals from designated officials, such as by-laws and articles

of incorporation, regulatory approvals as required, and information on

whether public elections were required and held. This standard is

applicable to potential new preference customers and to new private

utilities selling to the general public.

Distribution Function

This criterion assures that BPA sells power consistent with the

legal requirement that it be sold to public bodies and cooperatives

engaged in the public business of buying and distributing power through

distribution facilities owned by the customer. The performance of the

distribution function by the party applying for preference status has

been viewed as an assurance that the purposes of selling Federal power

on a preference basis are realized. The same considerations are

applicable to BPA sales to privately owned utilities selling Federal

power to the general public. That is, they have a distribution system

and are able to provide the power to retail consumers. Parties that do

not own, operate and maintain, or control the costs of the distribution

may face the issue of how to demonstrate that they are able to provide

the benefits of cost based Federal power to retail consumers. This

standard is applicable to potential new preference customers and to new

private utilities selling to the general public.

BPA must give the applicant a reasonable opportunity to achieve

ownership including time needed to finance the acquisition or

construction of the necessary distribution. In general, State law

grants public bodies the power of eminent domain allowing them to

acquire the distribution facilities of another utility through

condemnation. In general, cooperatives have been able to construct or

purchase their own systems through low-cost financing obtained from

loans made by the Federal Rural Electric Administration (predecessor to

the Rural Utility Service).

General Utility Obligation To Serve

This criterion assures that Federal power will be sold by the

applicant in a non-discriminatory manner for the benefit of the general

public and particularly of domestic and rural consumers. BPA has always

required that a customer serving retail consumer load have a ``utility

responsibility'' to serve. This means that any retail consumers may

request and obtain service from the potential customer, limited only by

service area or franchise allocation restrictions. An applicant must

have obtained authorization to serve certain loads or areas prior to

receiving power from BPA for service to such loads or areas. Any legal

action that challenges such service must be resolved by final order

before BPA begins service. This standard is

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applicable to potential new preference customers and to new private

utilities selling to the general public.

Financial Health and Ability To Pay

This criterion assures BPA that the applicant is able to pay for

the power it receives. BPA examines the applicant's authority to

collect money for the services it renders to its retail consumers--the

ability to bill--and the applicant's authority to sue and be sued. BPA

reviews the applicant's organizational structure to see if there is a

financial officer and staff that performs a billing and collection

function. BPA will also examine, particularly in the case of a

municipal or tribal applicant, whether the applicant has the authority

to segregate utility funds from a general fund, if one exists. This

standard is applicable to potential new preference customers and to new

private utilities selling to the general public.

Operations and Structure

This criterion is used to provide BPA reasonable assurance that the

applicant has the ability to fulfill responsibilities and duties under

a power sales contract. BPA examines the applicant's ability to perform

utility functions such as metering, billing, or operation and

maintenance on utility facilities, or contract for such functions and

control the costs of such functions. This standard is applicable to

potential new preference customers and to new private utilities selling

to the general public.

Commercial Quantities

Because BPA is directed to sell power at ``wholesale,'' BPA has

generally required that customers purchase power in wholesale,

commercial amounts of one megawatt or more. This standard is applicable

to potential new preference customers and to new private utilities

selling to the general public.

Connection to BPA Transmission System

The BPA standards for service have also addressed matters related

to the configurations and operations of electrical facilities.

Requirements for interconnection to the BPA transmission system are

governed by the Open Access Transmission Tariff. The Transmission

Business Line is currently revising its Interconnection Standards.

These aspects of standards for service are not addressed in this

Notice.

BPA Proposal To Change Its Standards for Service

The advent of retail electricity deregulation in the wholesale

market and in some western states at retail, as well as the interest of

some tribes and other parties in forming and operating an electric

utility, has prompted BPA to assess whether or not a change in its

existing standards for service may be warranted. Some parties have

questioned whether BPA should continue to require that preference

customers who serve retail consumers own and operate a distribution

system. A similar issue arises as to BPA's sales of Federal power to

new private entities, as to the legal distinction between a utility

selling to the general public and other sales.

In response, BPA is inviting comments from interested parties on

this proposal to allow ownership-type lease arrangements which, in

addition to direct ownership of a distribution system, qualify a

potential public agency customer to be able to purchase PF power. All

other eligibility criteria would continue to apply. BPA proposes that a

potential new customer who would sell power to retail consumers may use

an ownership-type lease arrangement in order to provide for

distribution to retail consumers. A customer could lease a distribution

system for delivery of Federal power to retail consumers. In this

concept, in order to qualify as an ownership-type lease, the agreement

would (1) be a long term arrangement for the life of the facilities or

for a duration equal to the term of the BPA power supply obligation,

and (2) give to the preference customer the right to operate, maintain

and have repairs performed on the system, as well as have complete

decision authority over costs of the distribution system. In addition,

the customer would perform, or be responsible for, all other utility

functions such as meter reading, billing, retail rate setting, and

other services and functions provided by a serving utility. The

proposal is to have the potential customer and the distribution owner

enter into an arms length commercial transaction. The potential

customer should have the ability under such transactions to have a

third party provide for the system maintenance functions in an open

competitive process.

This proposal to use an ownership-type lease arrangement is

consistent with Department of Energy policy which allows the use of a

lease by a potential public agency customer to obtain a distribution

system. See DOE General Counsel, ``Request of City of Needles for

Reinstatement of Sales of Federal Power for Benefit of Its Citizens''

(Nov. 21, 1978). This policy was affirmed in Salt Lake City et al. v.

Western Area Power Administration, et al. 926 F.2d 974 (10th Cir.

1991).

For Discussion: Concepts Regarding Standards for Service

In addition to the ownership-type lease arrangement, some parties

have suggested other concepts which may meet the standards for service

requirement. The concepts presented below are for discussion purposes.

BPA is not making a proposal regarding these concepts.

Contractual Capacity Rights

A customer could obtain long-term contracts for use of capacity on

distribution facilities or for access to distribution according to

state law which assure delivery of Federal power to retail consumers.

The distribution owner would operate and maintain the distribution

system. The preference customer would contract for use of distribution

and would perform, or be responsible for, meter reading, billing,

retail rate setting and all other services normally provided by a

serving utility.

The Utility's Obligation To Serve

Retail access legislation may raise issues regarding the standard

for service requirement that a customer have a general utility

responsibility or obligation to serve. An obligation to serve standard

is linked with the distribution function. Decisions made regarding

distribution should guide the issues on a customer's obligation to

serve standard. Following are variations on the obligation to serve

depending on how the utility accomplishes the distribution function:

If a utility contracts for long-term capacity rights on

the distribution system or has access to a distribution system

according to state law, the distribution owner would operate, maintain,

and have complete decision authority over costs. In this case the

leasing utility should have the obligation to serve, if it has the

distribution capacity or can obtain the necessary capacity to serve the

load. If the leasing utility does not have and can not obtain the

necessary capacity, then the distribution owner would potentially have

the obligation to serve.

Another concept would be to rely on governing law,

including retail access law, to determine who will have the obligation

to serve in specific circumstances.

Responsible Official: Mr. Fred Rettenmund, Customer Account

Executive, Power Business Line, is the official responsible for the

development of the draft policy proposal for modifying BPA's standards

for service

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to permit the purchase of Federal power.

Issued in Portland, Oregon, on April 26, 1999.

Judith A. Johansen,

Administrator and Chief Executive Officer.

[FR Doc. 99-11408 Filed 5-5-99; 8:45 am]

BILLING CODE 6450-01-P