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Tentative BPA/Utilities Settlement Expected to Reduce Rates

by Mike O'Bryant
Columbia Basin Bulletin - October 3, 2003

After increasing its prices by 2.2 percent this week, a settlement among its customers that is likely to be set in motion next week could allow the Bonneville Power Administration to drop its electricity prices by nearly 10 percent by early next year.

The price decrease would be applied retroactively to Oct. 1, 2003, the beginning of the power marketing agency's 2004 fiscal year.

The tentative settlement would require the Northwest's public utility customers to drop lawsuits focused on the level of power benefits included in BPA subscription contracts with the area's investor owned utilities -- contracts which the publics believe are too lucrative.

In exchange, at least two of the IOUs -- PacifiCorp and Puget Sound Energy -- would waive the right to receive power premiums awarded by BPA in 2001 until after FY 2006. Those premiums are worth about $200 million. In addition, the IOUs would defer receiving a portion of the residential and small farm exchange benefits for their customers, again until the next rate period, which is FY 2007-2011.

BPA would also have to cut costs and/or increase revenues in 2005 and 2006 by as much as $100 million in order to hold rates steady through FY 2006.

The tentative settlement attracted the attention this week of Northwest legislators anxious to set aside the legal wrangling among customers who are fighting for what are becoming scarce BPA resources. The delegations from Oregon and Washington sent a letter to BPA Administrator Steve Wright outlining their expectations of the administrator and of Northwest utilities in completing the settlement.

"We continue to be concerned about the effect of high electricity costs on the regional economy and the region's consumers," the letter says. "Bonneville Power Administration's power rates have already increased in the last two years by 46 percent to historic high levels, and a further BPA rate surcharge in these difficult economic times must be avoided. We support the decision of BPA, as part of an overall settlement, to reduce the Safety Net Cost Recovery Adjustment Clause."

In addition to reducing rates in 2004, the delegation calls on BPA to take steps to make sure rates won't go up in 2005 and 2006; provide a transparent and public review of its processes and books so there will be no surprises; and provide a progress report on how it is improving its internal business practices.

"Bringing down energy rates for ratepayers means more money in checkbooks and more jobs in the community. This is too important to wait and see. We need to work to bring energy rates down this year," said Sen. Maria Cantwell, D-Wash., who authored the letter along with other legislators.

BPA's Mike Hansen said contracts should be ready for signature this week, but that the contracts will first be signed by BPA, one IOU and one public utility, a practice that sets off a 90 day review and decision period for the other utilities. If at the end of that period the majority of public utilities have signed the contract and the IOUs assess the risk of further lawsuits as low, the deal would be solidified at the end of 120 days. At that point, BPA would drop rates to a point where they would be about 7.5 percent lower than in 2003, all retroactive to Oct. 1, 2003.

If all goes as planned, BPA prices for public customers would drop from $33.50/megawatt-hour to about $30/MWh.

"For our customers, that's a huge difference," Hansen said. "In a depressed economy, lowering these energy costs would be very beneficial to the Northwest." He said the parties are optimistic the deal will be approved. "These (the settlement) have been hammered out under a tremendous review," Hansen said, an effort that hasn't gone unnoticed by the congressional delegation.

"We commend both BPA and regional utilities for continuing to return to the negotiating table and for working diligently to reduce rates for the benefit of the region, and we urge all parties to quickly complete the work necessary to conclude the settlement," the letter to Wright says.

What's less certain is BPA's ability to keep rate increases to zero in 2005 and 2006. The agency, which already has cut about $300 million, needs to find another $100 million in cost savings or revenue enhancements. Hansen said the cuts are "getting harder and harder to find." But it can look for better market prices in the coming years, citing 2003 sales when the water supply stood at 80 percent of normal, but market prices were good. "If we can get an average water year and good market sales, we will get a part of that $100 million," he said.

The congressional delegation in recognizing the difficulties for BPA in keeping rate increases to zero in coming years, says "Reaching settlement of the public/IOU litigation and addressing the challenges that you and your staff have identified are surely daunting tasks. However, we sincerely appreciate your efforts thus far to alleviate the impact further rate increases would have on our already-staggering regional economy. We commend you for reaching an agreement that will result in a rate reduction this year, and for taking concerted steps that -- if cost reductions and revenue enhancements are achieved and other factors remain as forecasted -- will result in further rate relief in FY 2005. We are committed to working with you to address the challenges confronting the agency in a manner that will ensure BPA is able to keep rates as low as possible, consistent with its legal obligations, social responsibilities and sound business principles for decades to come."

The members of the Northwest congressional delegation that sent the letter to Wright include Washington senators Cantwell and Patty Murray, Oregon senators Gordon Smith and Ron Wyden, U.S. representatives Jay Inslee, Rick Larsen, Doc Hastings, George Nethercutt, Norm Dicks, Jim McDermott, Jennifer Dunn and Adam Smith from Washington, and Oregon representatives Peter DeFazio and Darlene Hooley.

Related Sites:
Bonneville Power Administration:

Mike O'Bryant
Tentative BPA/Utilities Settlement Expected to Reduce Rates
Columbia Basin Bulletin, October 3, 2003

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