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Bonneville Power Rate Outlook Improves

by Philip S. Moore, for the Capital Press
Capital Press, May 23, 2003

Lower interest rates, higher predicted runoff, improvements in operating efficiency and legal settlements are chipping away at the anticipated 15 percent rate increase, announced in February by the Bonneville Power Administration.

The Pacific Northwest's leading energy wholesaler, which was facing a $690 million shortfall by 2006, has trimmed that forecast by as much as $230 million, reducing the expected rate increase from 15 percent to 10 percent. If another lawsuit is resolved, the increase could nearly evaporate.

In early May, BPA announced an agreement with the representatives of the creditors for the bankrupt Enron, Inc., ending a process that started in early 2002, when Bonneville stopped honoring existing agreements with the Texas energy trading company. The settlement means Enron's creditors will receive $99 million instead of the $139 million owed, saving BPA's customers $40 million.

In addition, Bonneville Power has reported $40 million in savings, due to reductions in operating costs. BPA is attempting to hold its 2003-2006 budget to the 2001 spending level through staff reductions and cuts in training, travel, research and development and outside contractor fees.

Beyond lower costs, Bonneville is anticipating a $150 million windfall, thanks to higher than expected runoff behind the hydroelectric dams, operated by the U.S. Army Corps of Engineers.

"The picture is much brighter now," said BPA spokesman Ed Mosey.

Originally created by Congress to market the power generated by the dams, the Bonneville Power Administration's financial health is still largely determined by the volume of hydroelectric power generated by the dams, Mosey said.

In normal water and market years, the dams generate surplus power, which is sold on the Western regional energy market, adding up to 25 percent of BPA's revenue, he said.

However, in low-water years, especially when the regional demand for electrical power is down, this additional revenue can dry up.

"Better water conditions means better surplus power sales revenue," Mosey said.

According to John Harrison, spokesman for the Northwest Power Planning Council, water conditions have been getting much better since Bonneville made its revenue forecast in February.

"In February, the forecast was 77.6 million acre feet, or about 72 percent of normal. Now, the Northwest River Forecast Center is estimating the January-July runoff at 90.2 million acre feet, or about 84 percent of normal, measured behind The Dalles Dam."

Harrison said Bonneville and the Corps of Engineers could increase the usable water volume if they implemented a series of flow tests, authorized by the NWPPCs amended fish and wildlife program.

"If they did, river flows from storage reservoirs at Libby and Hungry Horse dams would be evened out, providing a more steady outflow through September," he said.

Not only would this provide BPA with more capacity during the summer, he said, it would benefit resident fish species which are being harmed by the corps' current deep drawdown during the spring.

"Right now, the reservoirs are being emptied very quickly, by spreading the time out, the resident species should benefit without impacting salmon and steelhead downstream," he said.

Despite the possible benefits, Harrison said there has been no indication that the corps or Bonneville Power is interested in attempting the test, at this time.

"We made the recommendation in April, but we have not heard back from them," he said.

Also awaiting a final decision is another lawsuit. this one is between the BPA, investor-owned utilities and 45 Bonneville customers in six states. The Bonneville customers are seeking to reduce residential customer rate relief payments, agreed to by Bonneville Power under the terms of the 1980 Northwest Power Act.

Until 1980, BPA's electrical power went first to public nonprofit power agencies. In the 1980 act, Bonneville was directed to offer benefits to ratepayers served by investor-owned utilities. It negotiated a package paying $50 million a year, or the equivalent in electrical load, to residential customers, through 2006.

The public utilities challenged that package, saying it was too generous, and that lawsuit remains before the court, said John Savin, chief executive officer of the Northwest Requirements Utilities, which represents the plaintiffs in the case.

"We're very active in negotiations, with meetings scheduled on a frequent basis," Savin said. "It would be my hope that there would be a mutually acceptable settlement," he said, "but there's nothing I can say at this time."

If a settlement can be reached, it would save up to $200 million and slash the anticipated 2003-2006 shortfall to about $250 million or less, depending on water levels and the market price for power over the next three years.

"Everything is up in the air right now," Mosey said, "but we could be looking at as little as a 2 percent rate increase, if that settlement occurs."

Philip S. Moore, for the Capital Press
Bonneville Power Rate Outlook Improves
Capital Press, May 23, 2003

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