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Response to comments: Fourth Northwest Electric Power and Conservation Plan and AddendumJuly 1, 1998 | document 98-24 The amendment process for the Northwest Conservation and Electric Power Plan took place in two phases. In 1996, the Council issued a Draft Fourth Power Plan and took public comment through March 14, 1997. Recognizing that many of the issues considered in a power plan would be taken up in the course of the Comprehensive Review of the Northwest's Energy System, a process called for by the four Northwest Governors in December 1995, the Council deferred adoption of a final plan until after the review was completed. In light of the recommendations of the Comprehensive Review, the Council issued an Addendum to the Draft Fourth Plan and took public comment from August 22, 1997 through October 31, 1997. Taken together, the Draft Fourth Plan, now adopted as final, and the Addendum constitute the Council's Power Plan. The Addendum complements and extends the Draft Fourth Plan. However, in those instances in which the Addendum updates data and information found in the Draft Fourth Plan, the Addendum supercedes those portions of the Draft Fourth Plan. This Response to Comments summarizes public comment received on the Draft Fourth Plan and on the Addendum AMENDMENT PROCESS Comment: It was appropriate for the Council to hold the draft plan open for comment while the region began to engage the issues raised by deregulation and dramatically changed institutional roles. (BPA) The plan will be useful as a "reference tool" in this time of evolving structures in the industry. (Eigabroadt) Response: The Council recognizes that as the utility industry is restructured, its role is likely to undergo significant change and the function of the power plan will also change. The Comprehensive Review began after the Council had already begun the plan amendment process. The draft plan was designed to provide information in support of the Comprehensive Review as well as fulfill the responsibility of the Council to review its plan on a periodic basis. Because the review was addressing many of the same issues the Council deals with in the plan, it seemed practical to postpone adoption of the plan until the review had completed its work. Comment: Treating the Draft Fourth Plan and the Addendum, taken together, as the plan is confusing. The former differs from Comprehensive Review recommendations and the latter references the former. Revise the Addendum and call it the plan. Be clear about whether the Council endorses the Comprehensive Review recommendations. (RNP) Response: The Council decided to conduct this amendment process in two stages. The Draft Fourth Plan was issued pursuant to the five-year time requirement of the Northwest Power Act. When the four Northwest governors initiated the Comprehensive Review, the Council decided to wait until the review was complete to conclude the amendment process. The Final Report of the Comprehensive Review is not the Council's plan. In many respects, the Comprehensive Review built on the analysis and identification of issues provided in the Draft Plan. The Review also raised a number of issues that are addressed in the Addendum, with the intent of assisting successful implementation of those recommendations. But the Fourth Power Plan and its Addendum, as revised on the basis of public comment, constitute the Council's plan. The Council acknowledges that there is some disagreement between the Draft Plan and the conclusions of the Comprehensive Review. For example, the Draft Plan did not find economic value in the early development of renewables, but the Comprehensive Review concluded that the region should maintain development at some level. In response, the Addendum outlined some important principles that should be followed if the region is going to pursue renewables now. Comment: The plan should recognize that the tribes are legitimate participants in regional power planning: along with federal agencies and the states, the tribes co-manage natural resources in the Columbia River Basin. The Comprehensive Review was weighted too heavily toward the electric industry to serve as a proper basis for amending the plan. The tribes, in particular, were excluded. The results of the Comprehensive Review do not enjoy region-wide support. Defer adoption of the plan. The Three Sovereigns governance process may result in a unified approach to making decisions on a broad array of issues related to the operation of the Columbia River system. (Spokane) Response: The Council has taken seriously the comments of all interested parties in its planning process. In particular, it has given serious consideration to the comments of tribal interests. The Comprehensive Review is not the basis for the Council's amendment of the plan. The Draft Plan and Addendum and public comment on both those documents form the basis for the Council's final plan. They take into account the Comprehensive Review and the recommendations of that process. There have been several other regional processes in play during the plan amendment process, including the Three Sovereigns governance process. While the Council has given its support to the ongoing Three Sovereigns process, that process would not satisfy the statutory requirements the Council observes in amending the plan. ENERGY EFFICIENCY Comment: Conservation is an important part of preserving, enhancing and allocating the electric power assets of the Columbia Basin for the region. Market forces should be used whenever possible to achieve the region's goals for developing conservation, as the Comprehensive Review said. The private sector can be expected to develop more and more conservation. Bonneville is supporting this move through its Energy Efficiency group. (BPA) Response: The Council agrees with the importance of conservation for the region. It also supports the use of market forces to acquire this resource whenever possible. For example, the Council has supported the creation and operation of the Energy Efficiency Alliance to promote market transformation. The thrust of much of the plan is to suggest ways in which conservation can be developed consistent with a market environment. Comment: The Council's model overstates likely savings to be expected from conservation. Even if regional intervention occurs, the bulk of the benefit lies between 25 and 50 years out, increasing significantly the risk of ever achieving the savings. Regional policy makers should keep these characteristics of the modeling in mind. (BPA) Conservation savings are subject to "take back." A more efficient lightbulb may be left burning longer than its less efficient predecessor. Consumers may spend more time under a "miser" showerhead. (Eigabroadt) Response: The plan is clear regarding the short- and long-term characteristics of conservation savings and costs and the attendant uncertainties. The estimates are the best available and take into account relevant experience with the implementation and performance of conservation technologies. Comment: The Draft Fourth Plan and Addendum fail to recommend funding for clean energy resources, conservation and renewables. NCAC's Blueprint is a better plan for the region's future. (Kline, Owchar, Dollfe, Hennum and others) Response: The Council believes it has fulfilled it statutory mandate in planning for cost-effective conservation and renewables, clean energy resources, in an environment in which centralized planning for resource acquisition will be increasingly displaced by market forces. The Council has identified that cost-effective conservation that should be acquired, when and if Bonneville is called upon to increase its resource base. It has also suggested ways for successful utility involvement in conservation acquisition. It has also outlined those activities it believes are most appropriate if the region chooses to pursue the limited development of renewable resources outlined in the Comprehensive Review. Comment: The region should evaluate all the expenditures Bonneville has made, based on the Council's power plan, in conservation. An independent audit of the costs and results of these programs should precede any recommendation to use a systems benefit charge to fund cost-effective, but not necessarily market-driven, conservation. (Steinborn) Response: The Council believes it has, in fact, monitored and evaluated expenditures for conservation in the region. The Council has used these evaluations in refining its estimates of cost-effective conservation and in designing new programs. See, for example, "Conservation Performance: Reviewing the Past and Refining the Future," Briefing Paper 94-31, August 1994. When programs have been found not to be cost-effective, they have been revised or eliminated. PUBLIC PURPOSES FUNDING Comment: The playing field must be leveled if public purposes funding is to succeed. BPA has, in the past, urged commitments through a voluntary system. State-level mandatory collection has not met with great success, although Montana did adopt a wires charge for public purpose funding. (BPA) The federal government should fund conservation, renewables and low income, as well as salmon restoration. (Brunsdon) Response: The plan addresses ways in which funding for public purposes can be pursued on a "level playing field." The recommendations of the Comprehensive Review represent a comprehensive approach to funding public purposes. The Addendum suggests ways in which implementation of those recommendations can be most effective. Comment: Focus on mechanisms to achieve energy efficiency, renewable energy and low-income services. The Comprehensive Review opted for an investment-based standard. While a certain minimum investment is no doubt necessary, outlay in and of itself is not the point. Achieving the goals is. (CTED) Seek a federal back-up for public purpose investment, to the extent the Comprehensive Review's public purpose recommendations are not otherwise being implemented. (CTED) Response: The Council agrees that achieving energy efficiency is the proper measure of success for conservation expenditures. For this reason, the Council has focused on measurement of savings in designing conservation programs. As noted in the Addendum, the Council believes there is an on-going need for measurement and evaluation to ensure accountability and a level playing field. The Council will continue to monitor the region's success in meeting the public purposes served by the federal system. If the Comprehensive Review's recommendations are not carried out, the Council will work with the region to seek appropriate remedies. MARKET TRANSFORMATION Comment: BPA has committed to funding market transformation through the Energy Efficiency Alliance for the five-year rate period. The companion IOU funding is only secure through 1999. Encourage state legislation to establish public purpose funding. (BPA) Response: As the opportunity presents itself, the Council will assist in securing funding for the public purposes supported by the Comprehensive Review. The Council itself has contributed significantly to the initiation of the Energy Efficiency Alliance and will continue to do so for at least the five-year rate period. STRANDED COSTS AND BENEFITS Comment: The Addendum makes an important contribution in noting that stranded costs and windfall profits are two sides of a single coin. For the Northwest, ensuring that consumers retain the benefits of below-market resources for which they have paid is a considerable challenge. The final plan should explore further what actions states can take to improve the prospects for securing the benefits of the federal system for all Northwest consumers. (CTED) Response: There are numerous legislative initiatives currently under consideration and the Council is actively engaged in regional discussions of those various proposals. Outlining political steps for securing the benefits of the federal system is not, however, an appropriate subject for the power plan. RENEWABLE RESOURCES Comment: The recommendation for a regional non-profit entity to direct renewable RD&D may be hard to implement, given the distinction between what the market may accomplish and what public funding might support. The states will have to make this decision. (BPA) Response: The Addendum notes that such an entity is called for by the Comprehensive Review. It is also clear that state action will be needed to support such an activity. Comment: Funding for renewables should be cut. We have little to show for 30 years' effort and a considerable amount of money spent. There is plenty of gas and oil. (Brunsdon) Response: The Council follows the availability of gas and oil closely and has recognized that over time more low-cost gas has proven to be available than expected. Nevertheless, some expenditure for data collection regarding renewables is justified as an insurance policy for the region, in case political events or the imposition of more stringent environmental controls should alter the cost of using fossil fuels. The Comprehenisve Review went a step further to recommend limited development to begin to transform the market for renewables. Comment: The nation is committed to reducing greenhouse gas emissions and has established targets for the year 2010. Renewables are one part of the equation that will help the country reach those targets. Actively support renewables to help the nation reach its targets. The Council should do an in-depth analysis of the combined effects of uncertainties associated with global climate change. (RNP) Renewables help protect against future uncertain dramatic events, including long-term global climate change and or a rapid increase in the costs of fossil fuel and their associated costs. Do not wait until the science surrounding this issue is more certain, as many urge. Do not fail to endorse local actions on the ground that only a global agreement can make a difference. (RNP) There is growing public pressure being placed on polluting resources. The costs of reducing pollution cannot be ignored. (Eigabroadt) Solar and wind are unreliable and far from cost-effective resources. Nuclear, while politically unpalatable in this country, is the resource that would best improve air quality and reduce greenhouse gas emissions. (Eigabroadt) Do four things: (1) say explicitly that future risks justify investment today in renewables; (2) educate the region about these risks; (3) develop an approach to track development related to climate change; and (4) work with others to develop a method for measuring and verifying CO2 emission reductions. (RNP) Response: As noted, the Council recognizes the value of renewable resources. Nevertheless, in selecting resources for acquisition, the Power Act establishes cost-effectiveness and availability tests that make many renewables currently more expensive than alternatives. The Comprehensive Review was not limited by these tests and believed continued limited development to be of value. This is a legitimate decision for the Review to make. In light of that decision, the Addendum suggests certain guidelines for research, development and demonstration in the area of renewables. The Draft Plan did undertake an uncertainty analysis regarding the risks of global climate change and the value of renewable development under such risks. The Council will continue to monitor developments in this area and revise its analyses as appropriate. Comment: Strategic solar photovoltaic generation would be more cost-effective than the conservation called for in the Council's draft. (Canada) Response: The Draft Plan identified 1,535 megawatts of conservation as potentially cost-effective. The levelized cost of this conservation resource was estimated to range from less than 0.4 to 3.0 cents per kilowatt-hour. In contrast, the cost of electricity from central-station photovoltaics was estimated to be about 16 cents per kilowatt-hour for plants entering service between 2000 and 2005. Furthermore, the solar product would likely be of lesser value than the conservation energy savings because of the diurnal and intermittent nature of the solar resource and because the solar output would not correlate with regional winter peak loads. For these reasons, electricity from central station solar photovoltaic sources in the region is not considered to be cost-effective at present. The Council continues to monitor photovoltaic technology developments and has observed that the cost of photovoltaic installations has declined somewhat more rapidly than projected in the Draft Plan. The observed rate of decline is about 11 percent annually, as compared to the forecasted 8 percent. But even at this accelerated rate of cost reduction, it is unlikely that electricity from photovoltaic sources will be competitive with the identified cost-effective conservation within the near-future Comment: Geothermal should not be classed as a renewable, if the experience at The Geysers in California is any indicator. (Eigabroadt) Response: Geothermal is defined as a renewable resource in Section 3.(16) of the Regional Power Act. Some geothermal structures may be thermally isolated from sustaining sources of heat, and therefore non-renewable in the long-term. However, with proper development, it is likely that some level of energy production can be sustained indefinitely at geothermal structures where there is sustained abnormally high transfer of energy from the earth's mantle. The capacity of The Geysers has declined because of over-development and inadequate water recharge. Capacity has been retired and efforts are underway to replenish The Geysers reservoir with water piped in from elsewhere. The long-term success of that effort and the resulting sustainable level of development are not known at this time. RENEWABLE RESOURCE DATA COLLECTION Comment: Some of the annual funding collected for renewables should support stable funding for regional solar and wind data collection. Identify a mechanism for implementing programs to collect such data. (BPA) Adopt a plan for tracking developments related to global climate disruption; new information could make us rethink our renewables development strategy. (RNP) Response: The plan supports data collection. In addition, the Council actively follows developments in global climate change. REGIONAL TECHNICAL FORUM Comment: States and local utilities should support the creation and operation of a regional technical forum to track progress on both conservation and renewables, to ensure accountability and to provide feedback that may serve to improve the effectiveness of both these efforts. (BPA) Congress called for the formation of such a body two years ago. Get this show on the road. Objective verification of achievements in efficiency, renewables, and low-income services is essential to consumers and utilities alike, so that all know that their investments are well-managed and producing results. If a cooperative approach doesn't work, explore other ways to administer public purpose funds that provide greater accountability. (CTED) Response: The formation of a Regional Technical Forum is addressed in the Addendum and the Council has begun work which could lead to the formation of such an entity. ECONOMIC THEORY Comment: The plan's use of economic models of competition is in error. This is most obvious in the discussion of marginal cost pricing. "Price equal to marginal cost" is not unique to competitive markets. While it does result in an efficient allocation of resources, it could result as well from a monopolistic market in which sellers exercise perfect price discrimination. Nor is it a suitable basis for determining prices in real-world markets. Applying the results of the competitive model to the electric market emerging in the region is an added problem; it fails to recognize actual conditions. Greater competition is unlikely to be the end-state of restructuring. A few large firms with market power are likely to dominate. The balance of the industry will be crowded with inefficient firms charging captive customers high prices. The real world for which we must plan must account for the fact that our region has market imperfections such as significant market power concentrated in the hands of a few, mutual interdependence, pervasive uncertainty, and a lack of information. (Spokane) Response: It was not the plan's intent to champion unfettered competition. What the plan noted was that competition can yield benefits, but only if a number of important considerations are dealt with in the process of moving from a regulated structure to competition. Deregulation in and of itself does not necessarily result in a competitive marketplace. The plan lays out the conditions necessary for fair and effective competition. It also notes that certain societal goods that have historically been provided by the power system, things like public purpose funding, low income services and so on, will have to be supplied in different ways in a competitive market. The recommendations of the Comprehensive Review and the supporting analysis in the Addendum are aimed at addressing those issues. ROLE OF THE COUNCIL Comment: Deregulation has changed the role of the Council. BPA supports the Council's staffing the Transition Board in implementing the recommendations of the Comprehensive Review. The plan should not include recommendations regarding the federal transmission system. If the Council is to continue to monitor and assess BPA's market role after the work of the Transition Board is completed, a mandate should come from the region and Congress. (BPA) Response: The plan didn't make recommendations regarding federal transmission, but did discuss several of the alternatives, from separation of Bonneville's marketing and transmission functions to participation in its participation in an IGO. It was the Comprehensive Review that made recommendations regarding Bonneville's transmission. Comment: Trying to guide the evolution of market structure in the region is beyond the Council's statutory mandate. The Council should give priority to its existing statutory mandates. (Spokane) Comment: The Council plays an important role in providing consumers with information regarding the attributes of their electricity suppliers and their products. (CTED) If the industry does not move to full competition, but instead relies on regulated utilities to provide power, the Council's traditional cost-effectiveness analysis will remain relevant for resource acquisition. Even though BPA is no longer acquiring resources for the region, many utilities will. The Council's objective resource analysis will continue to serve as a critical reference point for Washington's utilities, public interest groups, and policy-makers. This objective analysis will be a useful reference point even in a full retail choice model. (CTED) Response: The Council has been given a special mandate by the Northwest Governors through the Transition Board to undertake the analysis and public processes that will support the implementation of the Comprehensive Review's recommendations. This transitional role of the Council in offering independent information and analysis is important regardless of how far the industry does down the road to restructuring. Comment: Regardless of the future structure of the industry, the Council's evaluation of conservation and renewables serves as a valuable benchmark for legislators, state agencies, customers, and industry associations in evaluating public purpose expenditures and accomplishments. (CTED) Comment: Public trust in restructuring depends on knowing that all are sharing the costs and benefits of the system and that the system is meeting its public policy goals. Tracking data during the transition to a restructured market can contribute to developing that trust. Important data include the average costs of energy services paid by different classes of consumers and aggregate information on trends in energy consumption. (CTED) The Council's abilities in producing "reference tools" for the region will be of service even in a deregulated environment. (Eigabroadt) Response: The Council has certain analytical abilities that have benefited the region in a variety of ways. These abilities may help the region in the transition from a regulated energy industry to a more market-driven model. The plan, however, is not the appropriate place, the Council believes, to take a position on its future role. As noted above, there are a number of legislative initiatives currently under consideration. It is most likely that the Council's future role will be debated and determined as new legislation is considered. The Council will offer input, based on its usual practice of public review of the issues. APPENDIX A Comment: Add geothermal to the list of promising resources: it costs less than solar thermal or photovoltaics, although more than wind. (BPA) Response: Current cost was not the sole basis for choosing resources as "promising" in Appendix A. Other factors included prospective availability to the Northwest, applicability to Northwest conditions, prospective cost reduction, and environmental and general public acceptability. The Council believes that some geothermal resources are available for development within the geographic boundaries of the Northwest, and a significant geothermal resource may be present at Glass Mountain. However, because of resource quality and environmental objections, there has been a lack of success in confirming or developing prospective Northwest geothermal resources to date. Furthermore, several researchers argue convincingly that Cascade geothermal resources are likely to be much less extensive than thought at one time. Finally, geothermal costs are high, and do not appear to have the cost reduction potential of other renewable resources. For these reasons, geothermal does not appear to be among the most promising renewable resources for large-scale, low-cost development in the longer-term. Confirmation of a large-scale (hundreds of megawatts) resource at Glass Mountain could alter this perception. LIST OF COMMENTORS BPA Bonneville Power Administration |
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