That's the conclusion reached by a report released last week by the Northwest Power and Conservation Council, a multi-state agency charged by Congress with balancing the needs of fish and wildlife against the region's need for reliable and affordable hydropower.
The White House proposal, floated in a draft federal budget document, would fundamentally change the way Bonneville Power Administration conducts business. BPA is a government agency, marketing power produced at 31 federal dams on the Columbia River system. Those include Hungry Horse and Libby dams in Montana.
The Bush proposal would require BPA to sell power at private market-based rates, driving up the price for consumers by some 40 percent. Bipartisan opposition to the idea has been swift and sure, with Western members of Congress unified across party lines.
But a second, less-publicized part of the proposal has caught the attention of a concerned Power and Conservation Council.
If adopted, the proposal would substantially limit the amount BPA could borrow, resulting in either cost-shaving that could cut out progressive programs or rate increases to supplement the lost borrowing capacity.
"The administration's proposal would hit hard, forcing an unnecessary, unwanted competition for funding among important investments that Bonneville needs to make," said council chairwoman Melinda Eden. "The losers would be the region's ratepayers, who face the possibility of a less reliable power supply, rate increases and slower progress in protecting fish and wildlife."
BPA, as a government agency, cannot issue stock, as can its private counterparts. That makes raising money tough in the capital-intensive utility business. Instead, BPA must depend on debt.
Currently, Bonneville can borrow up to $4.45 billion from the U.S. Treasury, issuing debt to the government for, among other things, fish and wildlife projects such as hatcheries. The borrowed money also is used to make investments in the regionwide power system, including energy conservation, transmission lines and power-plant construction.
Essentially, the government sells Treasury bonds and BPA pays back the loan with revenue from power generation.
In addition to the cash it can borrow from Treasury, BPA can issue "third-party debt," in which private investors essentially act in the same way as the government. BPA backs the debt private companies incur by building infrastructure. The agency pays over time for system improvements made by investors, using money generated by leases it holds on those power or transmission investments.
There is no government-mandated cap on BPA's third-party debt, just as there is no risk to government from third-party debt.
The Bush administration, however, would pull the third-party debt under the umbrella of Treasury debt, effectively capping BPA's total borrowing power at $4.45 billion.
"This change seems subtle," said the council's John Harrison, "but it would dramatically affect BPA's ability to do what it needs to do."
What BPA needs to do is directed in large part by Congress. The power marketer must sell hydropower, must maintain the transmission grid, must invest in fish and wildlife programs to offset the impacts of big federal dams, must encourage energy conservation to limit future rate increases, and must explore alternative and renewable energy sources.
To do all that, he said, BPA has historically relied on long-term debt to make investments without incurring rate increases. Limit the ability to borrow, he said, and BPA is faced with either reducing funds for some programs or raising rates to make up the difference.
First to go, Harrison said, will be the fish and wildlife mitigation programs. Then will go the energy conservation programs. Then the investment in renewable energies. Because in the end, BPA must - before all else - continue to sell and distribute regional hydropower at an affordable rate.
And, he said, "If BPA's ability to invest in energy conservation or fish and wildlife programs is limited, then we think that both the ratepayers and the environment lose."
Harrison says he understands the push to force BPA into selling at market rates. It is, he said, an attempt to reduce the federal deficit on the backs of Northwest ratepayers.
But he's perplexed as to why the government would cap BPA's borrowing, as it would have absolutely no effect on taxpayers or government budgets.
Perhaps, he speculated, there's concern that BPA could one day overextend itself with third-party debt, putting ratepayers at risk. But that is "impossible," Harrison said. "Practically speaking, that's not going to happen."
The reality, he said, is BPA is just one outfit among many selling power into the grid. If increased debt forced higher rates, customers would simply go elsewhere, a fact not lost on BPA's management.
In addition to potentially pushing up rates, he said, the White House proposal could actually place the regional power supply at risk.
It is widely known that much of the transmission grid in the Northwest could use substantial improvements. But transmission lines are expensive and can only be paid for with long-term debt.
Limit the debt ceiling and you jeopardize the ability to invest in the system, at least without rate increases to make up the difference.
"With third-party debt," Harrison said, "you could build the infrastructure and spread the cost out over time, avoiding rate increases."
In fact, he said, history shows that third-party debt is often a better deal than Treasury debt, because it comes with better interest rates and the work is generally done faster and cheaper by private investment than by government contract.
The ability to borrow unlimited amounts from the private sector, he added, also encourages private investment in the grid that might otherwise be impossible. "Certainly, you'd think a bank might be more willing to work with a company if they knew the loan was backed by BPA's power and transmission revenues."
If debt is capped under the Treasury threshold, he said, BPA likely would have to look for savings and increased income in order to retire existing debt and make room under the $4.45 billion ceiling.
The council report shows BPA has used all but
$1.55 billion of its federal borrowing authority. The emaciated power marketer has made severe cutbacks in recent years, attempting to speed up retirement of high-cost debt and clear more headroom under the cap. It has done so, in large part, with $6.5 billion in third-party borrowing.
But even if that plan succeeds, the council report shows BPA will still hit the ceiling in just eight years, at which time investments will have to be cut or rates will have to be increased if third-party borrowing is included in the cap.
It is no wonder, then, that bipartisan opposition has been so vocal, Harrison said.
"You don't have to be a Republican or a Democrat to lose with this proposal," he said. "You just have to be a ratepayer."
Word from Washington is that legislation to enact the White House proposal could be introduced by month's end, Harrison said, "which is why it was important to finish the analysis now."
See for yourself
To view the Northwest Power and Conservation Council report on the need for third-party borrowing, visit www.nwcouncil.org.
|
 |
 |
Add your comment now! Write your comment in the form below.
(Email address is for verification only. If you'd like to email a story, look for the link above)