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Council Looks at Future BPA Role, Power Allocations

by Barry Espenson
Columbia Basin Bulletin - November 22, 2002

The Northwest Power Planning Council is expected this week to offer its recommendations on how, in the post-2006 era, the Bonneville Power Administration should distribute power generated in the federal hydrosystem.

The draft recommendations to be released for public comment today or Monday aim to provide more surety for BPA, its power customers and for other programs, such as fish and wildlife mitigation, conservation and renewable energy projects, that rely on federal hydrosystem funding.

The Council draft recommendations will be posted on its web site. Comments will be accepted during the next few weeks. Washington's Tom Karier, chairman of the NWPPC Power Committee, said he expected the Council to finalize its recommendations during its Dec. 10-12 meeting in Portland.

BPA and the Council earlier this year launched a general discussion of the "Future Role of Bonneville" in the marketing of power and distribution of the costs and benefits of the Federal Columbia Power System. BPA is charged by the Northwest Power Act with distributing that power at cost to the Pacific Northwest region. But who gets what is a long-carried debate.

Key issues include long-term access to cost-based federal power by public and investor-owned utilities (IOUs) and direct-service industries such as the region's aluminum producers, and BPA's future role in resource development. Regional power customers have asked for clarity about their BPA power supply after 2006 so they can plan more effectively for the future, according to information posted on the NWPPC's web page.

BPA and the Council collected dozens of comments and/or proposals through Oct. 18 regarding the relevant issues and held a series of public meetings around the region. That input was weighed, along with the Council's own analysis of Bonneville's situation, in producing the draft recommendations. The Council's recommendations will be submitted to BPA for consideration as it produces a draft proposal.

BPA anticipates a more formal public process this winter to discuss a draft proposal, which will be followed with a decision most likely in 2003.

A plan offered by a group of utilities has been at the focus of many of the discussions. The plan backed by a majority of the region's public and investor-owned utilities suggest significant changes to Bonneville's role.

"In the general construct of the proposal, the Council is supportive," Karier said this week. The Council recommendations in some respects fine-tune and/or shore up the utilities' proposal.

The utilities plan asks for longer wholesale power contracts -- 20 years. And it asks that more federal power be offered as "slice" products -- meaning the utilities if they desire could contract for a guaranteed percentage of the federal system's output, and pay that same share of the power production's costs. Slice products are offered now, but that portion of the federal generation is capped at 1,600 megawatts.

The longer term contracts, according to the Council draft, "provide contractual protection from external efforts to appropriate the benefits of the federal system, demonstrate regional commitment to the federal system and buffer Bonneville and thereby the Treasury from the risks of losing or gaining loads with shorter contracts." Bonneville has an annual payment to the federal Treasury to reimburse taxpayer funds spent for construction of the hydrosystem, as well as for other capital expenses.

The expanded use of the "slice" product "meets the needs of some customers; it results in greater diversity, lessening BPA's impact on the market, its exposure to market and hydro risk and improving the liquidity of the market, and it provides clarity with respect to responsibility for meeting load growth and clean economic signals regarding the cost of serving loads growth," according to the Council draft.

The responsibility for meeting its Treasury payments and other costs such as finding resources to meet contracted power load now rests in large part with Bonneville. The expanded slice product would shift more of the cost risk to those customers. Now, most customers pay their contracted amount for power regardless what it cost to produce -- more or less -- though BPA does have options for raising rates. The slice customers are pledged to pay the cost of the power, and find their own resources if their need goes beyond their percentage or slice of the federal power.

The Council emphasis, Karier said, is to assure credit worthiness of those slice customers so that the Treasury payment and other obligations can be met.

"It's very important in this agreement that there be assurances of payment," he said.

"The Council is concerned about the ability of some individual slice customers to handle the risk associated with the slice product and encourages Bonneville and the customers to make sure the provisions surcharging all slice customers when one or more are unable to make timely payment to BPA are robust enough to not jeopardize BPA's ability to make its Treasury payments," the Council draft says.

Both the utilities' plan, and the Council draft, assert that BPA's revised role would not affect implementation of its fish and wildlife obligations. All of the legal demands on such funds, including Indian trust and treaty responsibilities, remain in place. And the cost of those programs will still be paid by Bonneville's customers.

The utilities proposal could actually provide direct advantages for fish and wildlife projects "by reducing Bonneville's obligation to serve loads in excess of the output of the federal base system in low water years, according to the Council draft.

During the 2001 drought, Bonneville was forced to buy power on a super-inflated wholesale market in order to meet its load obligations. The agency declared a power emergency that enabled the curtailment of operations, such as spill, so that more power could be generated to reduce the need for market purchases. The fish operations are called for in federal biological opinions to improve passage and survival of Endangered Species Act-listed stocks.

". it appears that for every slice contract there would be a diminution of pressure on Bonneville to alter system operations to meet load. If so, this would be beneficial to fish and wildlife," according to the Council draft.

The Council draft also suggests a more clearly defined process for determining fish and wildlife spending levels.

"For example, the re-establishment of a process to develop formal memoranda of agreement that would specify funding levels for rate periods, or some other period of time, would be welcomed in assuring the region's fish and wildlife interests that Bonneville's obligations will be met," the Council draft says. Such an MOA did exist for the 1996-2001 rate period but no replacement has been negotiated for the 2002-2006 rate period.

Karier said such an agreement would benefit both power customers -- through the knowledge of what those costs would be, and the region's fish and wildlife managers, with the knowledge of what they would have to spend.

Related Links:

Barry Espenson
Council Looks at Future BPA Role, Power Allocations
Columbia Basin Bulletin, November 22, 2002

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