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BPA Plans 46 Percent Rate Jump by Gail Kinsey Hill The Oregonian, June 30, 2001

After earlier forecasts of a 250 percent increase for October,
the announcement is met with a sigh of relief

The Bonneville Power Administration on Friday announced an electric power rate increase of 46 percent beginning Oct. 1, a sweeping decision that will affect many Northwest ratepayers.

The increase is the largest in 20 years for the federal agency, which markets almost half the electricity consumed in the Northwest. But it is far lower than the 250 percent increase the BPA anticipated just a few months ago when officials described a future of insufficient supplies of hydroelectricity and sky-high wholesale electricity prices.

"Normally, a 46 percent wholesale rate increase is not something to cheer about," said Steve Wright, acting administrator for the Portland-based BPA. "But in this case, it is an outstanding accomplishment."

The wholesale rate increase will mean an approximate 23 percent increase for residential and business customers served by publicly owned utilities that buy power from the BPA. The BPA's territory includes Oregon, Washington, Idaho and Montana. The precise effect of the BPA's decision will vary from utility to utility and among different types of customers, such as residential and business electricity users.

For most Oregonians, who are served by Portland General Electric and PacifiCorp, the BPA's action may cause no rate consequence at all. Investor-owned utilities rely less on federal power than publicly owned utilities such as Seattle City Light and the Eugene Water and Electric Board.

In any other time, such a hefty increase would have stunned a region used to low-cost power and stable prices. But electricity shortages, near-drought conditions and runaway wholesale electricity prices have dramatically altered the landscape and made double-digit rate increases, actual or proposed, almost commonplace.

"It's a very pleasant surprise in a world full of unhappy surprises," said Jerry Leone, manager of the Public Power Council, a trade association representing 130 publicly owned utilities that purchase power from the BPA.

A little more than a year ago, when the BPA signed contracts to provide customers with roughly 11,000 megawatts of power, on average annually, it predicted their rates would remain unchanged at between $22.50 a megawatt hour and $24 a megawatt hour. The new contracts take effect Oct. 1, 2001, and last through September 2006.

No sooner did the BPA utter the estimate than wholesale market prices shot up, from about $30 a megawatt hour to more than $300 a megawatt hour.

The BPA markets electricity from 29 dams and a nuclear plant in the Columbia-Snake River Basin. The power, about 8,000 average megawatts, comes cheap, but it isn't enough to meet the BPA's total commitments. The additional 3,000 average megawatts was to be purchased on wholesale markets. The BPA would have had to pass the increased costs on to its customers.

"The incredible rise in prices late last year blew our original conclusion of no rate increase completely out of the water," Wright said.

In April, the BPA unveiled a plan to buffer rate increases by convincing customers to use less power and, in turn, reduce the agency's dependence on wholesale markets.

The BPA wanted 2,400 average megawatts back. It got 2,227 average megawatts, more than 90 percent of its goal. It paid, in most cases, about $20 a megawatt hour to buy back the power.

More than half of the freed-up power comes from aluminum companies, which agreed to keep energy-intensive smelters shut down for six months or longer. The shutdowns idle about 2,500 aluminum workers in Oregon, Washington and Montana, although the workers continue to receive paychecks.

The 46 percent rate increase applies to the first six months of the five-year contracts. Every six months, the BPA will adjust the rates up or down, depending on wholesale market prices and customer demand.

The BPA spent about $250 million to buy back power for the first six months of the contract period, Wright said. He claimed the deals and the modified 46 percent increase would save Northwest ratepayers $4 billion "next year alone."

Wright acknowledged that high energy prices have taken their toll on the economy, forcing layoffs of thousands of workers and crushing longtime industries such as aluminum and chemical-makers.

All told, he said, "I believe it was the right decision."

Utility officials throughout the region were generally relieved by the size of the increase.

Publicly owned utilities often rely heavily on the BPA for power. Even so, responses will depend on a variety of conditions, including debt, cash reserves and whether rate increases already have been approved.

Seattle City Light, Washington's largest utility and city-owned, estimates a 15 percent increase in response to the BPA's action. Including a rate increase to go into effect Sunday, Seattle City Light customers already have seen rates rise by 45 percent in the past year.

In Tacoma, where rates are 50 percent higher than a year ago, rates may go down by 10 percent or more, said Mark Crisson, director of utilities for Tacoma Power, a municipal utility.

"Compared to what we expected, this is good news," Crisson said.

Clark Public Utilities, with customers in the Vancouver, Wash., area, may raise rates by 20 percent, said Wayne Nelson, the utility's manager. That's on top of a January increase of 20 percent.

Eugene Water and Electric, Oregon's largest publicly owned utility, figures the BPA's rate increase will mean "at least a 23 percent increase" for Eugene customers, said John Mitchell, a utility spokesman.

Forest Grove, which operates its own municipal electric utility, might be able to absorb the rate increase without increasing rates to its customers, said City Manager Vergie Ries.

If the city passed its increased costs directly to customers, it would require a 12 percent rate increase. But the city has been building a fund reserve at a rate of $700,000 a year, which has reached about $4.8 million. Combined with the possibility that the BPA might lower rates in six months, the city might try to avoid any rate increase.

PGE and PacifiCorp, which serve 70 percent of Oregon's electricity consumers, said the BPA's rate increase will have little effect on their customers. Neither utility has raised rates significantly in the past year, but both are requesting double-digit increases effective this fall.

PGE and PacifiCorp say the increases are needed to account for the rising costs of wholesale power.