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OMB Comments on BPA Sparks NW Delegation Concern

by CBB Staff
Columbia Basin Bulletin - February 7, 2003

Criticism of the Bonneville Power Administration by the White House's budget office this week raised fears in the Northwest congressional delegation about possible moves to sell off the federal electricity wholesaler.

"Bonneville competes with the private sector, particularly in its surplus (electricity) sales to California," the Office of Management and Budget said in a one-page performance assessment. "Its power allocations, by law made on a preference basis to a special class of customers, are not optimally designed."

Bonneville was just one of many programs and agencies that received critical reviews from OMB in a document accompanying President George W. Bush $2.2 trillion budget for fiscal year 2004, which was released on Monday. It is the first time the administration's multi-volume budget has included a book of performance assessments.

The budget itself did not propose any legislation to change Bonneville's requirements to sell wholesale federal power at cost-based rates to publicly owned utilities and certain other preference customers. But the performance assessment raised concerns in the Northwest congressional delegation that the administration might be laying the groundwork for privatization.

The budget "threatens the existence of the Bonneville Power Administration and affordable energy in the Northwest," Rep. Peter DeFazio, D-Ore., charged.

At a Senate Budget Committee hearing on Wednesday, OMB Director Mitchell Daniels responded to questioning about his position on privatization by saying there is "no such interest on our part."

Sen. Ron Wyden, D-Ore., told Daniels the budget document "seems to indicate that OMB is looking at trying to privatize major functions" of BPA and "that has my part of the country up in arms." Wyden said the Northwest delegation, Democrats and Republicans, "think that'd be poison for our area ... given how hard we have been hit economically - (in) agriculture, high technology, across the board. ... There's an enormous concern."

Although ruling out privatization, Daniels called for unspecified improvements in BPA's operations and raised the issue of whether the region is being unfairly subsidized by the federal government. "Questions have been raised for a long time - in this administration, the last administration and presidencies before that - about the operations there, about the fairness of it, really, to taxpayers nationwide," he said. "Improvements are in order but not what you call privatization."

Past administrations and Northeast and Midwest members of Congress have proposed selling Bonneville or requiring it to charge market rates, rather than cost-based rates. Congress would have to pass such legislation, which would result in higher electricity rates for consumers and businesses in the region but would return billions of dollars to the U.S. Treasury.

Sen. Maria Cantwell, D-Wash., DeFazio and other Northwest members are discussing how the delegation should respond to Bush's budget and the OMB performance assessment. "We're still determining what it means," Cantwell press secretary Jennifer Crider said. Although OMB seems to want to shift BPA to market based rates, which are considerably higher during most years, the budget also included a $700 million increase in Bonneville's federal borrowing authority to finance transmission system and other capital improvements.

The delegation in past years, dating back to the Reagan administration, has successfully fought off such proposals, Crider noted. Bonneville is a government agency that "operates on a business model but they don't have profit or shareholders," she said.

Although the administration did not make any legislative proposals, the budget office's endorsement of BPA critics' arguments set off alarm bells in the Northwest and its congressional delegation. BPA's annual operations and debt repayments are financed entirely by ratepayers, but members from New York, Massachusetts, Ohio and other Northeast and Midwest states claim the Northwest is unfairly subsidized because of its federal debt and its preferential access to hydropower generated by federal dams on the Columbia and Snake rivers.

BPA and Northwest members have pointed out that Bonneville ratepayers are repaying the federal government for the cost of the dams, transmission and other facilities with interest without gaining ownership of the dams. BPA's annual payments to the Treasury are over $700 million in recent years.

Recently, BPA has been forced to dramatically increase its rates to offset higher long-term contract power costs and declining annual power sales and prices. The contracts were incurred during the West Coast energy crisis of 2000-2001, and prolonged dry weather has cut generation at federal dams on the Columbia River. In addition, the economic recession in the region has reduced energy demand and prices.

As a result of Bonneville rate increases, Northwest public utility customers now pay rates that are about the same as or higher than those of private utilities in the region, a BPA spokesman said. Bonneville announced today it will seek an additional 15 percent increase in wholesale rates (See Story No. 1 above).

One reason for the latest rate hike was to increase the probability that BPA will make its full Treasury payment next year, public affairs officer Ed Mosey said. Forecasts of continued dry weather this year for the third year in a row are making the problem worse. "We are proposing a very onerous rate increase on this region, which has been particularly hard hit by the recession. It shows how serious we are about making the payment."

Because of the rate hikes, BPA customers are already in effect being charged market rates, Mosey said. "Our ratepayers are not getting any breaks; that's for sure. Right now we are above market, so I don't know how competitive (with private utilities) we are."

The residential rates of Northwest public utilities served by Bonneville average about 6 cents per kilowatt hour, which is close to national average, Mosey said. In 2001, BPA's average wholesale rate was $22 per megawatt hour, compared to $32 per MWH today. The 15 percent increase will raise that to about $37.

BPA officials hope to reduce rates and "become competitive again" in a few years, however, Mosey added. That's assuming improved weather conditions, economic recovery and the expiration of high priced power purchase contracts in 2006.

But Bonneville's other public obligations raise questions besides those surrounding the sale of electricity, he said. "We have the biggest environmental program in the world - the salmon recovery program - and it's funded largely by ratepayers," Mosey said. "So it's not just an economic question, it's an environmental and a social question."

CBB Staff
OMB Comments on BPA Sparks NW Delegation Concern
Columbia Basin Bulletin, February 7, 2003

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