**Industry Restructuring Update**

**Sept. 30, 2004**

**BPA calls for bylaws changes for regional accountability, cost
management**

After reviewing public comments on proposed bylaws, BPA believes Grid
West development should go forward if the bylaws can be strengthened to
better assure regional accountability and cost control.

"If you're perceiving from this that BPA wants to modify the regional
proposal in a few areas, you're right," said Allen Burns, BPA senior
vice president for Industry Restructuring. "We think we need some
adjustments to create more regional accountability and assure cost
control."

More than 50 parties commented to BPA on the proposed Grid West bylaws
as part of BPA's own due diligence in considering whether to adopt the
bylaws. Comments fell into four general categories.

1.  Go forward with the bylaws with minor adjustments.

2.  Go forward if you can strengthen regional accountability and cost
    management.

3.  Go forward if you can do the above and greatly strengthen the role
    of members in restricting the board's independence.

4.  Slow or stop the process.

Positions on this spectrum did not fall along customer class lines.

BPA considered all the comments individually, as well as recommendations
from the National Academy of Public Administration (NAPA), in developing
its own response. Comments are posted at
<http://www.bpa.gov/corporate/business/restructuring/>

**DeFazio, Nethercutt express Grid West concerns**

"BPA is accountable to the region via federal laws and regulations,
oversight from the congressional delegation, and public and legal
pressure from stakeholders. Given this existing multi-layered
accountability, any proposal in which BPA turns over the operation and
effective control of its transmission system to a private entity must
put regional accountability above all else." That was the crux of
comments from Rep. Peter DeFazio, D-Ore., and Rep. George Nethercutt,
R-Wash., on proposed bylaws for Grid West. That Grid West would be
subject to Federal Energy Regulatory Commission jurisdiction "may be a
fatal flaw," the two suggested, and they called for changes "to shift
accountability to the region rather than FERC." See:
<http://www.bpa.gov/corporate/business/restructuring/Docs/2004/ByLaws/Grid_West_Bylaws_Comments_046-048.pdf>

**NAPA review, take 2**

Five fellows of the National Academy of Public Administration (NAPA)
have added their reflections on Grid West proposed bylaws in the second
of three rounds of NAPA review. The issues NAPA raised are among those
considered by the Regional Representatives Group at its Sept. 23-24
meeting and assigned for further deliberation in October.

NAPA said there is a greater need for control over costs than the bylaws
thus far have provided. It recommended:

-   Establish a permanent standing budget committee of board members and
    stakeholders "who have a demonstrated knowledge of budget matters."

-   Budget committee would recommend a budget to the board each year,
    including minority reports, if any. The board would not be bound to
    the recommended budget.

-   In adopting the annual budget, the board would be required to
    explain any differences between the adopted budget and the
    committee's recommendation.

To assure workability of the organization, the panel recommended
reducing the number of votes to elect board members from 24 to 20 and
providing that board members serve until their successors are selected.
It recommended that the initial board members serve three-year terms to
give the initial board members more time to educate themselves about
regional transmission issues and that staggered terms be phased in
thereafter. NAPA also recommends creating a Governance committee to
focus on improving Grid West governance by adopting best governance
practices. The panel also recommended adopting more stringent "revolving
door" limitations on subsequent employment for those whose board service
is complete similar to those applicable to federal employees.

With respect to whether the Grid West proposal balances regional
accountability with an independent board free of conflicts of interests,
NAPA found: "The operational bylaws have established accountability to
regional interests as a whole while tending to maintain independence of
the governance structure from particular special interests and from
overly intrusive involvement of FERC."

NAPA will present the results of its report at an RRG meeting on October
12. It will issue its final report a few weeks later.

**Snohomish study is premature**

A study summary on Grid West costs and benefits announced Sept. 23 by
Snohomish County PUD is premature and hence not very informative,
according to Janelle Schmidt, BPA's representative on the Risk Reward
Subgroup of the Regional Representatives Group.

"We can't meaningfully assess Grid West costs and benefits until we have
identified the basic market design and have captured a cost-management
philosophy in the governance structure," Schmidt explained. The Risk
Reward Subgroup is focused on producing this meaningful analysis; a
draft is due in spring 2005, well before any parties commit to
participate in Grid West operation.

"We have good reason to believe we can run Grid West at costs equal to
or less than the least expensive RTO now in existence, due to the way
we're designing Grid West markets and the lessons we can learn from
other RTOs' mistakes," Schmidt said.

Henwood Energy Services produced the study for Snohomish PUD. It found
\$78 million a year in Grid West benefits from eliminating pancaked
rates and more efficient provision of ancillary services. Henwood
estimated Grid West costs of \$221 million a year based on an average of
other RTOs\' costs per megawatt-hour. Grid West will not have the
financial rights markets, locational pricing, retail access or similar
features that have caused cost increases at other RTOs, Schmidt noted.
The Henwood study did not address Grid West benefits related to
reliability, planning, efficiencies in generation and transmission
development, more efficient use of the existing grid and delayed
transmission construction.

**TSLG offers workshop on how Grid West would work**

On Oct. 14, back-to-back with a Regional Representatives Group meeting,
the RRG Transmission Services Liaison Group is offering a workshop on
how the Beginning State of Grid West would work. TSLG members and
consultants will provide an overview of the work completed to date on
the market and operational design for Grid West\'s Beginning State. 

The seminar will cover transmission rights administration, transmission
reconfiguration services, scheduling processes and responsibilities, and
reserve and real-time energy markets that can be used by Grid West to
meet the ancillary service requirements of a consolidated control
area. For details, check the Grid West Web site at
<http://www.rtowest.com/RRG_Main.htm> or contact Steve Walton of the
Grid West coordinating team at <swalton@ieee.org>

**WECC seeks common resource adequacy criteria**

The Western Electricity Coordinating Council is working toward adopting
standard criteria and a common metric to measure members' resource
adequacy. The WECC Reliability Subcommittee Resource Adequacy Workgroup
plans to submit its recommendations on resource adequacy criteria by
early 2005. BPA's Mary Johannis chairs the workgroup. Watch the issues
and track the group's progress at
<http://www.wecc.biz/committees/PCC/RS/Meetings/index.html> WECC members
now evaluate the reliability of their respective resource supplies
according to their own individual criteria. There is no required
standard method.

**Possible TIG/Grid West collaboration**

In addition to actively working on Grid West, BPA is also pursuing
conversations with a small group of representatives from both the
Transmission Issues Group and Grid West on actions to improve regional
grid coordination that could be pursued now, prior to a decision on Grid
West. "While Grid West would be FERC jurisdictional and would not become
operational for at least two years, this approach is exploring steps
that could be taken now, short of FERC jurisdiction, to resolve some of
our regional transmission issues," explained Allen Burns, BPA senior
vice president for Industry Restructuring.

The group is exploring transmission grid planning and expansion, market
monitoring, reliability and a common OASIS plus a common ATC (available
transmission capability) approach. The approach is to see what can be
done now and then see whether it's enough to address regional problems
or whether additional steps are needed, Burns explained. If it is
determined that Grid West is needed, it could facilitate moving to the
Grid West initial operation.

"It's possible we may see some joint Grid West/TIG teams forming soon,"
Burns said.

**Industry Restructuring on BPA's (external) Web site.**

BPA materials on industry restructuring issues are now on the BPA
(external) Web site on their own "industry restructuring" page:
<http://www.bpa.gov/corporate/business/restructuring/> It's physically
located both at the bottom of BPA's home page and under "Doing Business
with BPA" on the right top corner of the page.