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PUD Sees BPA Settlement as a Sell-Out

by Jordan Kline
Daily World, November 9, 2007

How much would 22 million compact fluorescent bulbs cost?

The Grays Harbor PUD is one of the few - maybe the only - public utility in the region vocally protesting a tentative deal that would see public utility ratepayers continue to pay rate subsidies to the customers of private utilities.

The proposed settlement - billed as a compromise - would reinstate the "residential exchange" payments made to private utilities.

The residential exchange is intended to mitigate the disparity between power costs for residential and small farm customers of private utilities and costs to public utilities, which have exclusive access to power from Bonneville's 31 dams and one nuclear station. These payments were calculated by a statutory formula for two decades.

Grays Harbor PUD customers have seen the subsidies on their bills since 2001. Grays Harbor ratepayers are paying 13 percent of their energy charges directly to private power customers.

In May, a court ruling caused the Bonneville Power Administration to suspend the payments to the private utilities, but the money was still collected from individual ratepayers as ad ministrators waited to see how it all shook out.

The tentative deal announced this week calls for new payments to be capped and locked-in between $200 million to $225 million every yea r until 2027. That's about 65 percent of the previous amount.

The net result to homeowners could be a slight rate decrease but Grays Harbor PUD officials say the rate relief is based on a level that the customers shouldn't have been paying in the first place. The PUD commissioners want much smaller payments - but their negotiator was the lone dissenting voice at the table.

"This isn't a done deal. ... I hope commissioners and ratepayers from other utilities stand up and scream," Grays Harbor PUD Commissioner Jim Eddy said, asking for the public power community as a whole to reject the agreement.

The disagreement started in 2001 when Bonneville abandoned the long-used and congressionally mandated formula in the face of skyrocketing power costs, opting for block payments which added up to as much as $400 million per year.

The new payments were shot down when the Ninth Circuit Court of Appeals ruled in favor of a lawsuit filed by public utilities, including Grays Harbor, and public and private power negotiators have been at the table ever since.

Bonneville will now insert the tentative agreement into its long-term power contract approval process and allow all stakeholders a chance to comment, according to a statement released by the federal power marketer on Wednesday.

"We believe the conceptual agreement signals great promise that regional interests may be able to resolve for the next 20 years what has historically been, and would surely otherwise in the future be, an extremely divisive and contentious issue," read the statement.

Near-term rate relief and long-term stability are the most appealing aspect of the agreement, according to Scott Corwin, executive director of the Public Power Council.

"There's been a lot of volatility around this program and to have some certainty and stability over time is certainly a positive," he said. The Public Power Council's executive board approved the agreement on Thursday, and commissioners around the region will have a chance to approve or oppose it as well.

But Eddy said Bonneville should go back to using the statutory formula for calculating the payments, as this agreement continues to allow Bonneville to subvert the law.

"It totally negotiates away our court victory," Eddy said of the proposed agreement. "We won. The court agreed with us. What's worse is this deal doesn't take into consideration anything about the $1.5 billion they took from us illegally in the last six years."

Under the deal, public power customers would still subsidize private utilities at a level seven times higher than what the Northwest Power Act allows, Eddy said.

"$29 million is what the payment would have been for 2008," Eddy said, "and Bonneville is the one that calculated that number" for its 2007 to 2009 rate case. The proposed cap would put the subsidy at between $200 million and $225 million.

Since the payments would be locked-in, public power ratepayers could end up paying the residential exchange even if private utilities' costs become less than their public counterparts.

"Public power would be locked into providing a fixed subsidy to (private) utilities for 20 years," Eddy said.

But not every public utility is rushing to denounce the agreement, opting instead to focus on its benefits. PUD General Manager Rick Lovely was one of a dozen public power negotiators at the table, and he was the lone dissenting voice - a familiar place for the utility, Lovely said.

Indeed, others at the table say Grays Harbor PUD's take on the agreement leaves them with little support in the region.

"I think it's a reasonable deal for both parties," said Jim Sanders, General Manager of Benton County PUD. Sanders was also part of the public power negotiating team. He believes that public power is up against stronger political forces and may be better off in taking the deal now.

"The economics of this agreement are solid. It may be higher than what the numbers have shown in the past, but I think that going forward, without this agreement, those numbers would be significantly higher."

The agreement "would create a more predictable and stable level of benefits for all customers in the region," said Neil Neroutsos, a spokesman for Snohomish PUD - Bonneville's largest customer. "In order for utilities to do effective planning and investment, we need to have that sense of stability."

Settling this dispute "allows utilities to focus their efforts on a number of other challenges, like renewable energy, climate change and, of course, the long-term contract negotiations with Bonneville," Neroutsos said.

Grays Harbor commissioners have been very outspoken and aggressive in their stance on the residential exchange since 2001. Other public utilities have been slow to reciprocate, despite political momentum created by the watershed federal court ruling in their favor. Lovely fears they're taking a "bad deal" just to put the issue in the rear view mirror.

"It's appealing to some public utilities because they will get a little bit of a rate relief, but they're getting it for the wrong reasons," Lovely said.

The promise of stability is also appealing to other utilities, Lovely said, but he's weary of that promise. "How many times have we had to challenge Bonneville and how many times have (the private utilities) tried to modify and tweak this deal," he said. "What certainty is there, looking out 10 to 12 years, that it won't be manipulated and played with no matter if it is locked-in?"

With the residential exchange matter tentatively settled, Bonneville can move forward with the process of setting their long-term rates for after 2011. They hope to have that process complete in late 2008.

Jordan Kline, a Daily World writer
PUD Sees BPA Settlement as a Sell-Out
Daily World, November 9, 2007

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