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BPA Expects to Reduce its Wholesale Rate

by Ted Sickinger
The Oregonian, July 18, 2006

Electricity - The estimate is close to a figure sought by customers groups

The Bonneville Power Administration said Monday that it should be able to cut wholesale electricity rates to utilities by about 3 percent starting in October.

Final rates will be announced in September and still depend on water conditions, BPA's financial performance and the costs the agency incurs for fish and wildlife programs.

If the decrease comes through as planned, it would bring rates to about $27.33 a megawatt hour -- 10 percent lower than the federal agency's forecast eight months ago and within spitting distance of the $27 rate that customers groups have been pushing.

The BPA, which provides about 40 percent of the electricity in the Pacific Northwest through its network of hydroelectric dams and a nuclear plant, cited good water flows, a good market for surplus power sales and cost-cutting efforts as important factors in the rate cuts. But the most significant development were two agreements that allow the BPA to reduce its cash reserve requirements.

The first is an agreement with customers that will allow the BPA, if needed, to temporarily increase the amount paid by customers for its monthly service, then decrease their bills in subsequent periods. The program will allow the BPA to keep lower cash reserves but still be assured that it can meet payments on its debt.

The second agreement resulted from a ruling earlier this year by the Internal Revenue Service, which allows the agency to make direct payments on $6.5 billion in BPA-backed bonds, rather than deducting the bond payments from its customers' bills late in the year. The change gives BPA better cash liquidity, letting it operate with less reserves and charge its customers less.

Marilyn Showalter, executive director of the Public Power Council, which represents consumer-owned utilities, described the agreements as innovative techniques requiring cooperation from all parties. "It got there through very hard work," Showalter said.

But she also noted that the rate decrease was "a good outcome that could have been better" if the BPA had not agreed to provide $59 million a year to subsidize four aluminum companies' purchases of electricity for a year on the open market. The controversial payments were approved last month over a chorus of objections from utility and ratepayer advocates in Oregon and Washington.

Ted Sickinger
BPA Expects to Reduce its Wholesale Rate
The Oregonian, July 18, 2006

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