Board Members present: Susie Smith, Mike Dyer, Sandra Bishop, and Dorothy Anderson. Commissioner Bartel was excused.
Others present: Randy Berggren, Tom Buckhouse, Marty Douglass, Burt Dunn, Eric Hiaasen, Garry Kunkel, Jim Maloney, Roseanna McArthur, Mat Northway, Jim Origliosso, Scott Spettel, Debra Wright, and Krista Hince of the EWEB staff; and Daniel Lindstrom, Minutes Recorder.
President Smith called the Work Session of the Eugene Water & Electric Board (EWEB) to order at 5:35 P.M.
Resource Planning Analyst Jim Maloney reminded Commissioners that two fundamental questions regarding the "Composite Strategy" to meet EWEB power supply needs for the next 25 years had been discussed at the April 6 Work Session, as follows:
Mr. Maloney said Commissioners had asked for "sensitivity analyses" of elements of acquiring power generating resources and referred to a memorandum dated May 27 distributed with the agenda of the Work Session. He discussed how EWEB's ability to add renewable energy sources to its power mix would be affected by the potential loss of Carmen Smith generating output because of possible imposition of fish-related flow constraints. He explained why $50 per megawatt hour was a viable price assumption for new renewable energy. He reviewed variations between one percent and two percent acquisition rates of renewable energy sources. He said high power market rates would likely increase the amount of new renewable energy acquisitions.
Commissioner Anderson asked if it was possible to predict the effects of low summer power requirements on the ability to acquire renewable energy sources. Mr. Maloney replied that the analysis done so far had only considered annual average values and relationships. More detailed monthly and perhaps daily analyses would need to be carried out to estimate the effects of summer power needs and/or impacts on Carmen Smith flows.
Commissioner Dyer asked for an explanation of "System" comparisons in graphs of the analysis in the memorandum. Mr. Maloney replied that such comparisons were the price of power market energy used to replace power generated by EWEB.
Commissioner Dyer asked what rate of escalation had been used to predict power market cost increases. Mr. Maloney replied that currently available price quotations were used for the first five years of the analysis and that predicted rate changes for natural gas were used for the following years. Resource Planning Analyst Eric Hiaasen added that changes in the short-term market value averaged four to four and one-half percent annually.
Commissioner Dyer asked what rate of escalation had been used to predict renewable energy cost increases. Mr. Maloney replied that Northwest Power Planning Council and the Federal Energy Information Administration assumptions of a one percent annual increase had been used. He said that with the low rate was based on anticipated reductions in the price of technology. He said current high cost of renewable energy acquisition was the reason the estimated price differential between renewable and market power purchases was not larger.
Commissioner Dyer suggested that a lower cost for renewable energy sources would also eventually reduce the price of "System" power market energy. Mr. Maloney said that it would be some time before new renewable energy sources would make up any significant portion of system resources. When new renewable energy resources are cost competitive with conventional resources the development market would shift toward renewables. He said further that EWEB acquisition of renewable energy sources was controllable and could be postponed or modified at any time it proved economically unfeasible.
Commissioner Dyer observed that the escalator and acquisition rates used in the analysis were the key to the strategy's success. But the "success" was sensitive to the assumptions.
Mr. Maloney stated that additional Integrated Electric Resource Plan (IERP) "action plan" elements would be presented to the Board at an August Work Session. He said Commissioners would be asked to consider the process to be used for adoption of the plan. He suggested that the plan was significantly different from those of the past and that a variety of options should be considered.
President Smith stated that she believed it would be important to incorporate the work of the IERP Citizen Involvement Committee in the plan adoption process.
POWER PURCHASE PORTFOLIO STRUCTURE
Power Management and Planning Manager Scott Spettel said he would seek Board input on how EWEB should structure its power purchase portfolio. He referred to a time line graphically portraying current EWEB power generation, power purchase contracts currently in place, and predicted power replacement needs. He explained that previous assumptions that Bonneville Power Administration (BPA) power purchase contracts would be phased out were being reconsidered. He said consideration was now being given to whether EWEB should have the ability to purchase all BPA power to which it was entitled.
Mr. Spettel reviewed impacts of the expiration and renewal of BPA Surplus Power (SP), Firm Resource Exhibit (FRE) power, and Priority Firm (PF) power purchase contracts identified in the time line. He pointed out how the BPA subscription process, BPA rate case, and expiration of the EWEB contract for supply to Hyundai would influence decisions to be made. He explained how contract renewals needed to be decided during the first months of 2000 and that Board feedback was needed by January.
Commissioner Anderson asked if it was possible that Hyundai would seek to establish independent market or BPA power purchase contracts. Mr. Spettel replied that Hyundai has previously been interested in a fixed price contract. The current contract that EWEB has in place to purchase power for Hyundai is tied to a power market index that has a price cap. A similar arrangement is anticipated for the future.
President Smith asked if there were "down sides" to developing flexible resources by purchasing "less than one year" contracts in preference to renewing longer term power contracts. Mr. Spettel replied that budget management of price volatility was the most significant downside. He said EWEB's Risk Management Committee met regularly to consider purchasing strategies for various scenarios in order to manage the consequences of market price volatility.
Mr. Hiaasen listed options to fill voids created by the expiring Bonneville Power Administration's SP contracts, as follows:
(a) Establish custom made contracts to exactly replace those expiring. Such a strategy would leave no price risk, but would likely be comparatively expensive.
(b) Acquire a package of short-term contracts which would meet all of the needs. Such a strategy would produce fluctuating cost, but enable short-term, risk-free control.
(c) Fill only part of the void with short-term contracts.
(d) Establish BPA PF contracts shaped to fill heavy load hours and short-term contracts to fill light load hours.
Commissioner Anderson asked if maximizing EWEB's power entitlement with BPA would provide any protection from rate increases caused by fish-related costs. Mr. Hiaasen replied that no such protection would be available.
Commissioner Anderson asked when it would be possible for EWEB to reduce a maximum BPA entitlement commitment. Mr. Hiaasen replied that alteration of the commitment was possible mid-way through the BPA rate case. He also said that if it was determined that SP contracts would not be converted to PF contracts, a strategy for replacing the power would need to be determined by January 2000.
President Smith asked how was it was determined that a package of possible contracts could not be created which would be competitive with a reliance on short-term markets. She also asked if it was possible to issue a Request for Proposals (RFP) to determine if competitive proposals from market providers were available. Mr. Spettel replied that experience with short-term power purchases had led to the conclusion that the lowest prices are generally available in shorter-term markets, but that such proposals would not be difficult to generate.
President Smith said she believed that "shopping" for a market proposal would be prudent. Power Market Analyst Bert Dunn said he believed that it would be "challenging" for any power market trader to predict prices in short-term markets with which to compare RFP results. Mr. Spettel added that it was generally agreed that BPA prices would be slightly lower than the market, but that fish-related add-on costs created uncertainty.
Commissioner Bishop joined the meeting at 6:35 p.m.
POST 2001 PURCHASE PORTFOLIO ISSUES
Mr. Spettel stated that much information needed to establish principles for power market portfolios beyond 2001 was unavailable. He said completion of the BPA rate case would likely resolve many issues and that new renewable resources annually entering EWEB's portfolio would add to its predictability.
Mr. Spettel said that a previously adopted strategy to acquire new power resources for resale on wholesale markets could be clarified by additional Board discussion. He asked Commissioners to discuss the possibility of "developing future options," selling power produced into the market in the interim.
Commissioner Dyer said he believed such development was a good idea and that he had supported doing so since such opportunities were considered in earlier resource plans. He said acquiring resources and selling power to pay for the resources eventually provided EWEB a nearly free resource. He said it would also provide a flexibility and allow prudent investments to the benefit of rate payers.
President Smith said she believed the "cleanness" of power produced was a key to determining if a new power resource should be developed. She said she would support such an option if a project was one EWEB wanted to bring onto the grid and if it was intended to preserve the option of using the power for EWEB customers. She said she would hesitate to support a project which was intended to only produce a profit.
President Smith said that the size of a project was a concern and that any new resource should fit into the realistic long-term needs of EWEB's portfolio.
General Manager Randy Berggren discussed EWEB participation in Phase Two of a Klamath Falls generation project.
Mr. Maloney said he would set up a meeting with Commissioners Bartel and Bishop to ensure that they were fully informed of IERP presentations made to the Board at this work session.
Mr. Maloney reported that a BPA proposal for a conservation/renewable discount included in its rate case currently only applied to new Demand Side Management or renewable development not previously planned by a utility. He said such a discount would potentially not include any EWEB effort s because they were already initiated. He reported that a conversation with a representative of BPA had led to the proposal being changed to allow the discount to be available to utilities doing more than three percent conservation, since they would be "deemed" to be meeting the criteria. He said the issue would continue to need monitoring.
Mr. Maloney determined there was consensus to not begin discussion of IERP action plan adoption until August. President Smith said she believed Board action on the EWEB five-year financial plan needed to be incorporated into the discussion.
The Work Session adjourned at 6:55 P.M.
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Assistant Secretary President