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BPA Asks Northwesterners How to Avert Financial Disaster by Natalie M. Henry Greenwire, September 9, 2002

Last year's Western energy crisis is lingering in the Northwest, where the Bonneville Power Administration faces a $1 billion budget shortfall. In response, BPA has temporarily raised rates more than 40 percent and is considering permanent rate hikes, budget cuts and loan defaults in order to bridge the deficit. Figuring out how to deal with the problem has major implications for salmon management programs and the pocketbooks of the Northwest public, so BPA is asking anyone and everyone how they think BPA should fill the gap.

BPA is offering a total of five choices to Pacific Northwest ratepayers:

• One, stick with the status quo. For now, this means keeping the current rate hike of more than 40 percent above base rates. But BPA is allowed to change that percentage increase every six months -- and has in the last 18 months, up and down between 41 and 46 percent -- meaning this option comes part and parcel with price instability.

• Two, change base rates. BPA is asking Pacific Northwesterners if they could tolerate an increase in current base rates. Right now, customers are paying 41 percent more than the base rate. Beginning Oct. 1, the start of the fiscal year, customers will pay about 44 percent more than the base rate. Last year, customers were paying 46 percent more than the base rate. By raising the base rate itself, BPA could build in more price stability.

• Three, cut programs like fish and wildlife and renewable energy development. According to BPA spokesman Bill Murlin, this includes programs mandated by administrative action and federal law, such as Pacific Northwest Electric Power Planning and Conservation Act (Northwest Power Act), which requires BPA to weight power generation equally with fish and wildlife interests.

• Four, miss one of its payments to the U.S. Treasury, or at least significantly reduce the likelihood of making the payment. BPA borrowed lots of money from the government to build the Columbia and Snake River hydropower system and is slowly paying it back. BPA is loath to choose this option. And five, borrow money to pay current expenses, essentially pushing the problem into the future. BPA does not particularly favor this option either.

BPA is a non-appropriated, not-for-profit federal agency that markets the electricity generated by 29 federal dams in the Columbia River Basin. Many utilities buy BPA's power at cost and then sell it to customers, and a number of direct-service industries buy power at-cost directly from BPA, such as aluminum companies.

Electricity in the Pacific Northwest is some of the cheapest in the country. In May 2000, BPA set the current base rate. Decisionmakers were operating under a number of assumptions then, including average precipitation and the ability to meet additional load requirements on the market at about $28 per megawatt hour. But 2001 was a year of record drought, with half the precipitation the Northwest usually has. And the Western power market saw prices jump above $300 per MWh. Moreover, Murlin said BPA expected to be able to sell power at certain times for $50 per MWh, but prices right now wander between $20 and $30. These and other factors have led BPA to a projected $1 billion deficit over the next four years, which is the duration of the existing base rate.

"This is a tough time. This is the hangover, if you will, from the 2000-2001 Western electricity crisis, which resulted in significant rate increases for most utilities here in the Northwest. This is only going to make that somewhat worse. The unenviable choice Bonneville has got to make is the balance between responding to near-term rate pressures, which are real and a signficant concern for the economy, and at the same time doing the right thing for the long-term," said Dick Watson, power division director at the Northwest Power Planning Council.

Utility districts are fighting the rate increase, as are some aluminum industry workers. In public hearings last month, members of the United Steelworkers of America said the industry cannot afford more rate hikes. Utility districts say customers are becoming angry and sometimes threatening due to the rate hikes.

A number of fish, wildlife and renewable energy advocacy groups in the Northwest would prefer BPA use a mix of approaches. If BPA's debt is estimated at $1 billion over four years, then next year that debt would be around $250 million. The Northwest Energy Coalition is recommending that BPA take it one year at a time, and meet that $250 million shortfall by borrowing some money in the short term, cutting operational costs where possible and raising rates 3 to 4 percent above the rate customers are paying right now (i.e., about 44 to 45 percent above base rates, which is what customers will pay anyway beginning Oct. 1). Mark Glyde of NEC said such a rate increase would total 50 cents to $1.50 extra on an average residential bill. He did not know what kinds of increases commercial customers would experience.

NEC advocates no programmatic cuts to fish and wildlife, efficiency or renewable energy development, such as wind and solar power. Glyde said if anything, BPA should strengthen, or at least maintain, its commitment to wind and solar development due to the conclusions revealed in a recent report by RAND showing that replacing some of the region's hydropower with efficiency measures and renewable energy would not hurt the regional economy and could even bolster it, while also stabilizing prices by diversifying the energy mix (Greenwire, Sept. 4). Glyde further said that if BPA cuts its fish and wildlife budget, conservationists will have ever more reason to push for removal of the four Lower Snake River dams to bolster dwindling salmon populations when the decision on removal is reviewed next year.

The Northwest Power Planning Council has not taken a position on what to do about BPA's financial woes. Created by the Northwest Power Act, the council's job is to balance energy production with the environment and give citizens a stronger voice. The council will meet tomorrow and Wednesday to discuss BPA's finances.

Watson said BPA is likely to do a little of everything. "None of the choices are good. ... Ultimately, Bonneville will be forced into a combination of everything, cutting costs and raising rates and trying to refinance and reduce their interest exposure."

Watson said the council has not taken a position on the RAND report yet. However, efficiency is a very viable option for meeting increasing energy needs, he said. "We can, in fact, meet a significant portion of our load growth with conservation." BPA has already held a number of public hearings in the region and is accepting comments through Sept. 30. BPA chief Steve Wright has said he hopes to make a decision in December.