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BPA Concerned About Finances, Reserves

by Barry Espenson
Columbia Basin Bulletin - May 31, 2002

The head of the Bonneville Power Administration warned last week that the West Coast energy crisis in 2001 and continued economic recession are threatening the agency's financial soundness.

BPA Administrator Steve Wright said that despite a 46 percent wholesale rate increase, the non-profit agency expects to lose money this year for the second year in a row and anticipates that its once-healthy reserve funds will be decimated.

Reserves are forecast to fall to $100 million by Sept. 30, leaving Bonneville with "not much of a cushion" to be able to withstand another drought and still make its annual Treasury payment, Wright said in a session on May 22 with Northwest newspaper reporters in Washington, D.C. "It's a fundamental concern I have," he said.

Last year, because of near-record drought and Westwide electricity shortages and high prices, Bonneville declared an emergency, bought down customer load and took a one-time Treasury credit of over $500 million for past fish and wildlife mitigation costs. This spring, stream flows have returned to average and BPA has surplus electricity to sell but the economic downturn has reduced prices and demand, Wright said.

Wright indicated he will not seek a higher rate increase this fall to build up reserve funds, which once topped $700 million. But he said the agency will need to address the problem during the coming two years. First, BPA plans to develop possible solutions then seek public and stakeholder comment and proposals before deciding. "It needs to be a regional decision-making process," he said.

Jeff Stier, BPA vice president for federal relations, said the agency has also been cutting costs and has saved $100 million this year. No employees have been laid off but money has been saved through unfilled vacancies, travel and training limitations and lower fuel costs at power plants.

Wright said this fall's rate proposal is still expected to be in the same range as last year's, 42 percent to 46 percent above baseline.

Stier said BPA's quest for a $2.1 billion increase in its federal borrowing authority will not affect its rates or finances. Those funds would be used to expand and improve the transmission system, and would be repaid through transmission fees.

Wright was making one of his periodic visits to Washington to meet with administration officials and Northwest members of Congress. He also responded to an inquiry to the Federal Energy Regulatory Commission about whether BPA engaged in any of the questionable electricity trading practices used by Enron Corp. in the West Coast market.

"These are not practices we engaged in," Wright said. He said BPA officials were suspicious because electricity prices surged and energy was moving out of California, but they did not have any knowledge of Enron's schemes. Those included overscheduling transmission in California to increase congestion and selling power out of state to avoid a price cap and then reselling to California at higher rates.

Although BPA's own energy traders were under great pressure last year to make money, Wright said he was "happy to say that nothing turned up" during an investigation over the last couple of weeks in response to FERC's inquiry.

In a matter related to both Enron's and BPA's finances, Wright said agency attorneys were still trying to determine whether it could break a high priced long-term purchase contract with the energy company. "I'm not ready to call that one yet," he said. "We're looking at all options, particularly in light of recent revelations."

Cancellation of the $700 million four-year contract would save Bonneville a total of about $250 million at current electricity prices, Wright said. The savings of roughly $60 million per year would be the equivalent of a 4 percent rate reduction.

The Enron deal was signed last year when West Coast electricity prices were inflated by drought, shortages and problems in California's deregulated utility system. Most of BPA's other long-term contracts are low-priced. Shortages were alleviated last year mostly by buying down its demand load from aluminum companies and other major customers, Wright said.

Wright met privately with Sens. Maria Cantwell, D-Wash., and Ron Wyden, D-Ore., both of whom have urged FERC to void contracts between Enron and Northwest utilities and to order energy suppliers to make refunds based on the disclosures of market manipulation. The BPA boss said he would not comment on details of his discussions with the senators but that "in general, everybody would like us to look at all our options."

He acknowledged that one consideration will be BPA's past legal position that FERC does not have any authority over its contracts. "It's an open question for me" as to whether FERC has jurisdiction, Wright said.

Wright said he does not have an opinion on various options, including unilateral action by BPA, petitioning FERC or going to court. He said he hoped to get a sense from attorneys soon of what options are realistic. BPA previously has discussed the contract issue with Enron officials but is not currently engaged in discussions with the company, he said.

Barry Espenson
BPA Concerned About Finances, Reserves
Columbia Basin Bulletin, May 31, 2002

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