Western Issues Update 9-07-2001 For questions or comments regarding this report please contact G. Britt Whitman at ex:5-4014 or Kristin Walsh at ex:3-9510.

EXECUTIVE SUMMARY
ï¿½	  British Columbian Government Exploring Energy Issues
ï¿½	BC Hydro Readies Itself for Transmission Line Sale
ï¿½	BPA Aborts Additional Rate Increase, Refutes California's Overcharge Claims



BC Government
The BC Liberals have announced that they are putting together a new Policy Task Force on Energy to deal with energy issues going forward.  They will be looking at the province's energy resources and will be making recommendations in less than six months on the best way to move forward.  The Task Force includes:

Jack Ebbels, Deputy Minister of the Ministry of Energy and Mines, Chair
Peter Meekison, energy policy consultant
John Bechtold, oil and gas expert
Erik Westergaard, hydroelectricity expert
Brenda Eaton, Deputy Minister to the Premier

Our information is that the Policy Task Force will look seriously at the offshore drilling and exploration issue and begin to determine timetables to start this process.

Additionally, the Canadians are becoming increasingly rancorous over the 19.4% US tariff on softwood timber exports coming to the States.  A BC Cabinet Minister has made veiled threats to tie Canadian energy exports to the United States to eliminating the softwood timber tariff.  Jean Chretien himself has backed away from trade war talks, but intimated that reduction or elimination of the tariff will be critical to moving the oil and natural gas pipeline projects in Northern BC along.  

BC Hydro
BC Hydro Chair Larry Bell is soft-peddling the BC Liberals' message of deregulation.  Coming under intense scrutiny, Bell has already gone public to defend BC Hydro's rate freeze and has stated that residential distribution and PowerEx operations will not be deregulated.  We noticed, however, that he did not say whether or not information technology and transmission assets would be sold off - which appears is indeed going forth.  We believe that BC Hydro is in the process of preparing to accept bids for its assets and that a round of open negotiations will begin in the short-to-medium term.

Two big players to watch on the transmission privatization front are:  Trans-Elect Corporation, which has indicated it is watching the British Columbia market very carefully and already owns the adjacent transmission lines in Calgary; and TransConnect, which has been working with the RTO-West group, which could eventually plug BC Hydro's transmission systems into the RTO West grid.  

Bell has been talking about instituting a tiered-rate plan for BC's own energy-intensive industries, allowing energy-efficient plants to maintain their preferred rate, increasing rates for others.  He is considering allowing private sector generators to sell directly to industry in BC.  However, Bell has not been as hot on "clean coal" generation as Neufeld, having suggested that he has not yet seen an application of the technology, which has been economically and environmentally sound.

Strategically, Hydro's export plans will likely look to include new partners across the border.  From what we are seeing of the new Chairman's position, it appears that BC Hydro will attempt to sever the "feeling of entitlement" that BC's own energy-intensive industries have relied on.  That is, Hydro is snooping around the States for greener pastures after having had a taste of the California windfall last year.  Why commit to providing cheap power to local markets when you could be selling the same power for larger profits elsewhere?

BPA

Financial Conditions
To everyone's relief, BPA last week announced there would be no additional rate increase. In early August the agency had warned that its pre-third quarter review showed a possibility it would have to trigger the financial-based cost recovery adjustment clause (FB CRAC), one of three CRACs BPA and its customers adopted in the supplemental rate case to cope with erratic power prices. The load-based (LB) CRAC has already driven a 46 percent rate increase, and the FB CRAC could have added another 4.5 mills. But the agency said fresh data put its revenues above the trigger, so there will be no additional rate hike.

Additionally, we have also heard that BPA is still committed to spending roughly $186 million next year on fish and wildlife issues.


FERC Refunds
Although BPA has not issued an official statement, as a net supplier to California it is likely that BPA would be opposed to California's attempt to recoup over $1.5 billion in perceived overcharges from the Pacific Northwest.  Earlier this year, BPA responded to allegations of overcharging by issuing a rebuttal letter entitled "BPA response to California ISO study" on 13 April 2001which maintained that its operations were above reproach.  BPA will look to pursue an insurance policy to insulate itself from Cal-ISO's allegations.

Pacific Northwest utilities and other energy-using entities, such as the City of Tacoma and the Port of Seattle, also have joined in the fray to pursue $2 billion in perceived overcharges.  The name of the game on the West Coast is to say that you were a net importer, not a net exporter during the period of time that is under investigation by FERC and the federal judge.  Everyone is beefing up their argument with load data to show they were actually buyers, not sellers.

Spill Issues
The Power Planning Council has recommended spending more than $7 million for projects designed to mitigate for emergency power operations during this drought year. Most of the funding would go to buy up spawning habitat along a tributary of the John Day River in Oregon, with $1.6 million to pay for irrigation screens in the Yakima River.  The $7 million is in addition to $24 million the council has already recommended to pay for projects designed to offset the emergency hydro operations that nearly stopped the spill program at main-stem dams. BPA had agreed to fund $9.3 million worth of the Council's list. 

Other projects recommended include funding the monitoring and evaluation of a salmon production project in the South Fork of Idaho's Clearwater River, spending $300,000 to improve fish passage in a tributary of Oregon's Umatilla River, and installing stream flow gauges in the Entiat, Okanogan and Wenatchee rivers. 



