- Email: [email protected]
Competition pressing BPA?
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which found that the absolute lowest-cost generating unit would be single-cycle combustion turbines with no cogeneration. According to Palmer, PSC Chairwoman Cheryl Parrino said during the discussion “that LS Power ‘was so close to the generic units that the difference was lost in rounding.“’ “Either we misread the intentions of the commission,” said Palmer, “or the commission has changed its mind about what it wants.” In any case, he said, “we will negotiate openly and fairly with LS Power. If we can get a good, reliable power contract for our customers, we’ll sign it. If not, we won’t.” - Kennedy I? Maize
NEWS
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they work on a new vision of what BPA - and their very jobs may become. The corporate culture of BPA is about to change profoundly In just a few weeks, says Hickok, assistant administrators Sue Hickey and Walt Pollack will be taking a paper around the region that explains, at least in a preliminary way, the workings of a new marketing plan for the agency. Hickok says the plan will
Competition Pressing BPA?
Bonneville Power Has a Plan to Reinvent Itself t’s a man-bites-dog story when I that paragon of low-cost power providers, the Bonneville Power Administration, feels the hot breath of competition pressing down upon it. Yet that’s exactly what’s behind an intense exercise in “reinvention” that has totally engaged BPAand many of its customers. Steve Hickok, BPA deputy administrator, calls it the “competitiveness project.” Whatever it’s called, it has everyone at this agency, the flagship of the Department of Energy’s power marketing agencies, fully involved as
October 2993
describe how BPA will compete in an evolving marketplace in which, for the first time, its kilowatt-hours may not always be the cheapest. The plan will drive everything else the agency does, he adds. In this brave new world, expect to see the word “unbundling” a good deal. Expect both BPA’s prices and services to become unbundled, and look for multitiered pricing - in which load growth of utilities lacking solid conservation programs is charged a premium rate. And look for
BPA to try to discern which services its customers want and which they don’t. n fact, BPA - or Bonneville, I as its customers like to call it - is moving more or less in tandem with its more than 100 utility and direct service industrial customers toward not one but three important reorganization thrusts: refinancing BPA’s debt; converting the agency into a government corporation; and developing a more flexible, customer-sensitive approach to marketing. The moves - to be tied to Clinton administration initiatives to “reinvent government” - am in addition to an already announced downsizing in BPA staff and other cost-cutting measures projected to total $100 million per year by 1997. The changes are prompted by BPA administrator Randy Hardy’s determination to redesign the agency to meet competitive threats and not to become a victim of future shock like Seam, Roebuck or IBM. Brett Wilcox, president of Northwest Aluminum Co., and a member of a BPA advisory task force, says the biggest problem with BPA’s competitiveness is that the price of natural gas generation has been coming down while BPA’s costs are going up, fueled by a top-heavy management structure and a tendency by many interests to treat the agency as a regional welfare program for a host of purposes. Wilcox says conservation and fish and wildlife interests now see their programs’ funds as “entitlements.” BIN’s 9
THE fish and wildlife budget alone, at about $300 million per year, is about 12% of the agency’s $2.4 billion annual budget, he says. While BPA has duties under law in those areas, Wilcox and others believe they could be carried out more efficiently. Wilcox has also been one of the prime movers of BPAs marketing plan initiatives. e competitive threats facing Th the agency are more than hypothetical. Clark Co. (Wash.) Public Utility District, across the Columbia River from BPA’s Portland headquarters, has been looking for four years at freeing itself from its near-total dependency on BPA for power supply It announced recently that it will enter into negotiations with three suppliers to furnish it 150 MW of new gas-fired supply to meet a portion of its 42S-MW load at a competitive rate. “BPArates went up sharply this year,” said Clark’s Mick Shutt, “and we think they’re going to continue to go up. We don’t see any real commitment to cost cutting. The 800 jobs [cuts BPA administrator Hardy announced] looked pretty good until we realized that they were coming out of the 1200 contract people as well as the 3600 or so full-time employees.” BPA’s firm power rate, once made up of vintage hydro, today is freighted with the costs of one operating and two mothballed nuclear plants - Washington Public Power Supply System units 2, 1 and 3, respectively. Even with these very substantial cost burdens, along with fish and wildlife
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remediation expenditures, BRA’s firm power rate to rural electric and public power customers, as well as residential customers of investor-owned utilities, is under three cents per kWh. If cost-cutting and marketing initiatives were not enough to keep BPA busy, it is also considering a buyout of its existing federal debt. Jim Curtis, BPA’schief financial officer, told The Electricity Journal that refinancing BPA’s debt - in effect defeasing it, so that the federal government debt would be
repaid with new debt held by nonfederal lenders - could proceed under three conditions: (1) The refinancing would have to be rateneutral; (2) It must yield the maximum budget deficit reduction, while being rate neutral; and (3) It must end arguments that BPA rates are subsidized. Curtis said the refinancing would be rate neutral if it takes account of normal financial considerations. BPA expects to propose that its $6.9 billion debt be paid off at about $4.2 billion, or about 61 cents on the dollar - an
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amount he says is appropriate given the average cost of BPA debt and the cost of borrowing today “If you held a 3 ?$% mortgage, you woul~t expect to sell it for full face value,” he says. Bill Drummond, manager of the Public Power Council, an association of BPA public power and rural electric customers, says the debt buyout can only happen if it is rate neutral and permanent. “We won’t do it if we could still have some later administration come in and open this up. But I’m encouraged that we might be able to do this now, because what we’re hearing from [the Office of Management and Budget] is not so ideological as it was under Reagan and Bush. It looks like these people are focused on reducing the deficit and not ideology. On the other hand, we don’t needto do this, so if they start hanging amendments on the proposal, we won’t support it.” BPAis also expected soon to propose to become a government corporation that would be freed of personnel management and other restrictions. A National Academy of Public Administration report soon to be released will likely recommend converting BPA from a Department of Energy marketing agency - with all the bureaucratic baggage that goes with it - to a government corporation having far greater autonomy and freedom to act in personnel and travel matters, to name just two areas where BPA expects to see savings.
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7% EZtdcity Journal
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Stay tuned on this one. Other federal power marketing agencies, as well as their customers and competitors, are likely to be interested in the BPA initiatives. While everyone in the Northwest wiIl quickly tell you- with more than a measure of truth - that “the power business here is different from other parts of the country” the really wise owl will watch to see what develops. -Robert 0. Marritz
An III Name Blows No Good
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construction since 1986 by the Comision Federal de Electricidad, the Mexican government’s electric utility units 1 and 2 are basically complete, while units 3 and 4 are more than 40% complete. Next door is Carbon I, a 4unit, 1200-MW coal-fired plant that has been operating since the mid-1980s. It is owned and operated by CFE. Carbon II was to be the last major privatization of the Salinas administration. Mission Energy would have owned 49% of the Carbon II project, while
Carbon II Plant May Not Be Quite the Bad Neighbor It’s Been Cracked up to Be
A
victim of sloppy reporting and writing, a coal-fired power plant in Mexico has become a lightning rod in the debate over the environmental impacts of the North American Free Trade Agreement. Until negotiations between Mission Energy and the Mexican government broke down in early October over issues related to allocating financial risk, the plant was turning into a major public relations headache for SCEcarp’s independent power subsidiary. The center of the dispute is the Carbon II project near the city of Piedras Negras in the state of Coahuila in northeastern Mexico, some 20 miles south of the Texas border. The project consists of four 350-MW generating units, fired with low-sulfur, high-ash coal located on the site. Under
October2993
Grupo Acerero de1 Norte, or GAN, would own 51%. GAN is a large steel, mining and chemical company controlled by the Autrey and Ancira families. GAN will take about 11% of the electrical output for its steel operations, according to Mission Energy. Because the deal fell through Columbus Day weekend, CFE will now own and operate the plant. The project has been under assault by reporters for The Washington Post and The Wall Street ]ourml, who have produced stories sprinkled with misinformation, er-
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rors and unsourced innuendo. The Post struck first with a piece by Tad Robberson of the Post’s foreign service, which ran on the front page on June 22. Robberson’s piece is the worst offender, filled with the kinds of inaccuracies, outright errors and over-simplification that give so much of journalism a bad name. “A smoky gray cloud has formed on the horizon of this Rio Grande border communit$’ Robberson’s article began, “and depending on which way the wind blows, it could cast a shadow over U.S.Mexican relations at a crucial point in negotiations linked to the proposed North American Free Trade Agreement.” This is the kind of hyperbolic writing necessary to get the attention of the editors at the Post and a highly sought spot on the front page. t is, of course, nonsense. I “There is no smoky gray cloud,” said a Mission Energy briefing book, complete with color pictures of both Carbon I and Carbon II. Even unscrubbed plants with far higher amounts of sulfur emissions than the two Carbons - such as the 111 plants on the EPA’s list for cleanup under Phase I of the acid rain programdon’t produce smoky gray clouds. It is worth pointing out that the Carbon II sulfur dioxide emissions are projected at 1.92 pounds per million Btu. All of the Phase I units in the U.S., by comparison, are above 2.5 pounds per million Btu and many of those plants are above 5 pounds per rnillion Btu. If the plants were lo
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which found that the absolute lowest-cost generating unit would be single-cycle combustion turbines with no cogeneration. According to Palmer, PSC Chairwoman Cheryl Parrino said during the discussion “that LS Power ‘was so close to the generic units that the difference was lost in rounding.“’ “Either we misread the intentions of the commission,” said Palmer, “or the commission has changed its mind about what it wants.” In any case, he said, “we will negotiate openly and fairly with LS Power. If we can get a good, reliable power contract for our customers, we’ll sign it. If not, we won’t.” - Kennedy I? Maize
NEWS
IN
FOCUS
they work on a new vision of what BPA - and their very jobs may become. The corporate culture of BPA is about to change profoundly In just a few weeks, says Hickok, assistant administrators Sue Hickey and Walt Pollack will be taking a paper around the region that explains, at least in a preliminary way, the workings of a new marketing plan for the agency. Hickok says the plan will
Competition Pressing BPA?
Bonneville Power Has a Plan to Reinvent Itself t’s a man-bites-dog story when I that paragon of low-cost power providers, the Bonneville Power Administration, feels the hot breath of competition pressing down upon it. Yet that’s exactly what’s behind an intense exercise in “reinvention” that has totally engaged BPAand many of its customers. Steve Hickok, BPA deputy administrator, calls it the “competitiveness project.” Whatever it’s called, it has everyone at this agency, the flagship of the Department of Energy’s power marketing agencies, fully involved as
October 2993
describe how BPA will compete in an evolving marketplace in which, for the first time, its kilowatt-hours may not always be the cheapest. The plan will drive everything else the agency does, he adds. In this brave new world, expect to see the word “unbundling” a good deal. Expect both BPA’s prices and services to become unbundled, and look for multitiered pricing - in which load growth of utilities lacking solid conservation programs is charged a premium rate. And look for
BPA to try to discern which services its customers want and which they don’t. n fact, BPA - or Bonneville, I as its customers like to call it - is moving more or less in tandem with its more than 100 utility and direct service industrial customers toward not one but three important reorganization thrusts: refinancing BPA’s debt; converting the agency into a government corporation; and developing a more flexible, customer-sensitive approach to marketing. The moves - to be tied to Clinton administration initiatives to “reinvent government” - am in addition to an already announced downsizing in BPA staff and other cost-cutting measures projected to total $100 million per year by 1997. The changes are prompted by BPA administrator Randy Hardy’s determination to redesign the agency to meet competitive threats and not to become a victim of future shock like Seam, Roebuck or IBM. Brett Wilcox, president of Northwest Aluminum Co., and a member of a BPA advisory task force, says the biggest problem with BPA’s competitiveness is that the price of natural gas generation has been coming down while BPA’s costs are going up, fueled by a top-heavy management structure and a tendency by many interests to treat the agency as a regional welfare program for a host of purposes. Wilcox says conservation and fish and wildlife interests now see their programs’ funds as “entitlements.” BIN’s 9
THE fish and wildlife budget alone, at about $300 million per year, is about 12% of the agency’s $2.4 billion annual budget, he says. While BPA has duties under law in those areas, Wilcox and others believe they could be carried out more efficiently. Wilcox has also been one of the prime movers of BPAs marketing plan initiatives. e competitive threats facing Th the agency are more than hypothetical. Clark Co. (Wash.) Public Utility District, across the Columbia River from BPA’s Portland headquarters, has been looking for four years at freeing itself from its near-total dependency on BPA for power supply It announced recently that it will enter into negotiations with three suppliers to furnish it 150 MW of new gas-fired supply to meet a portion of its 42S-MW load at a competitive rate. “BPArates went up sharply this year,” said Clark’s Mick Shutt, “and we think they’re going to continue to go up. We don’t see any real commitment to cost cutting. The 800 jobs [cuts BPA administrator Hardy announced] looked pretty good until we realized that they were coming out of the 1200 contract people as well as the 3600 or so full-time employees.” BPA’s firm power rate, once made up of vintage hydro, today is freighted with the costs of one operating and two mothballed nuclear plants - Washington Public Power Supply System units 2, 1 and 3, respectively. Even with these very substantial cost burdens, along with fish and wildlife
20
NEWS
IN
F
remediation expenditures, BRA’s firm power rate to rural electric and public power customers, as well as residential customers of investor-owned utilities, is under three cents per kWh. If cost-cutting and marketing initiatives were not enough to keep BPA busy, it is also considering a buyout of its existing federal debt. Jim Curtis, BPA’schief financial officer, told The Electricity Journal that refinancing BPA’s debt - in effect defeasing it, so that the federal government debt would be
repaid with new debt held by nonfederal lenders - could proceed under three conditions: (1) The refinancing would have to be rateneutral; (2) It must yield the maximum budget deficit reduction, while being rate neutral; and (3) It must end arguments that BPA rates are subsidized. Curtis said the refinancing would be rate neutral if it takes account of normal financial considerations. BPA expects to propose that its $6.9 billion debt be paid off at about $4.2 billion, or about 61 cents on the dollar - an
0
c
u
s
amount he says is appropriate given the average cost of BPA debt and the cost of borrowing today “If you held a 3 ?$% mortgage, you woul~t expect to sell it for full face value,” he says. Bill Drummond, manager of the Public Power Council, an association of BPA public power and rural electric customers, says the debt buyout can only happen if it is rate neutral and permanent. “We won’t do it if we could still have some later administration come in and open this up. But I’m encouraged that we might be able to do this now, because what we’re hearing from [the Office of Management and Budget] is not so ideological as it was under Reagan and Bush. It looks like these people are focused on reducing the deficit and not ideology. On the other hand, we don’t needto do this, so if they start hanging amendments on the proposal, we won’t support it.” BPAis also expected soon to propose to become a government corporation that would be freed of personnel management and other restrictions. A National Academy of Public Administration report soon to be released will likely recommend converting BPA from a Department of Energy marketing agency - with all the bureaucratic baggage that goes with it - to a government corporation having far greater autonomy and freedom to act in personnel and travel matters, to name just two areas where BPA expects to see savings.
F
hally
7% EZtdcity Journal
r
T
H
E
Stay tuned on this one. Other federal power marketing agencies, as well as their customers and competitors, are likely to be interested in the BPA initiatives. While everyone in the Northwest wiIl quickly tell you- with more than a measure of truth - that “the power business here is different from other parts of the country” the really wise owl will watch to see what develops. -Robert 0. Marritz
An III Name Blows No Good
NEWS
IN
F
construction since 1986 by the Comision Federal de Electricidad, the Mexican government’s electric utility units 1 and 2 are basically complete, while units 3 and 4 are more than 40% complete. Next door is Carbon I, a 4unit, 1200-MW coal-fired plant that has been operating since the mid-1980s. It is owned and operated by CFE. Carbon II was to be the last major privatization of the Salinas administration. Mission Energy would have owned 49% of the Carbon II project, while
Carbon II Plant May Not Be Quite the Bad Neighbor It’s Been Cracked up to Be
A
victim of sloppy reporting and writing, a coal-fired power plant in Mexico has become a lightning rod in the debate over the environmental impacts of the North American Free Trade Agreement. Until negotiations between Mission Energy and the Mexican government broke down in early October over issues related to allocating financial risk, the plant was turning into a major public relations headache for SCEcarp’s independent power subsidiary. The center of the dispute is the Carbon II project near the city of Piedras Negras in the state of Coahuila in northeastern Mexico, some 20 miles south of the Texas border. The project consists of four 350-MW generating units, fired with low-sulfur, high-ash coal located on the site. Under
October2993
Grupo Acerero de1 Norte, or GAN, would own 51%. GAN is a large steel, mining and chemical company controlled by the Autrey and Ancira families. GAN will take about 11% of the electrical output for its steel operations, according to Mission Energy. Because the deal fell through Columbus Day weekend, CFE will now own and operate the plant. The project has been under assault by reporters for The Washington Post and The Wall Street ]ourml, who have produced stories sprinkled with misinformation, er-
0
C
U
S
rors and unsourced innuendo. The Post struck first with a piece by Tad Robberson of the Post’s foreign service, which ran on the front page on June 22. Robberson’s piece is the worst offender, filled with the kinds of inaccuracies, outright errors and over-simplification that give so much of journalism a bad name. “A smoky gray cloud has formed on the horizon of this Rio Grande border communit$’ Robberson’s article began, “and depending on which way the wind blows, it could cast a shadow over U.S.Mexican relations at a crucial point in negotiations linked to the proposed North American Free Trade Agreement.” This is the kind of hyperbolic writing necessary to get the attention of the editors at the Post and a highly sought spot on the front page. t is, of course, nonsense. I “There is no smoky gray cloud,” said a Mission Energy briefing book, complete with color pictures of both Carbon I and Carbon II. Even unscrubbed plants with far higher amounts of sulfur emissions than the two Carbons - such as the 111 plants on the EPA’s list for cleanup under Phase I of the acid rain programdon’t produce smoky gray clouds. It is worth pointing out that the Carbon II sulfur dioxide emissions are projected at 1.92 pounds per million Btu. All of the Phase I units in the U.S., by comparison, are above 2.5 pounds per million Btu and many of those plants are above 5 pounds per rnillion Btu. If the plants were lo