The new wholesale rate, proposed by Bonneville Power Administration, is about 3 percent less than current rates, and a full 10 percent less than BPA predicted just eight months ago.
In announcing the new rate - about $27 per megawatt-hour - BPA top boss Steve Wright called the process “a great example of how, when we choose to work together, good things result for the Pacific Northwest.”
BPA also operates the region's grid, some 15,000 miles of lines strung across Montana, Washington, Oregon and Idaho.
The latest rate case is the fourth in a row resulting in lower costs for wholesale electricity, and owes much to a “normal” water year - rain and runoff that created an anticipated surplus of hydroelectric power that can be sold outside the region.
In addition, BPA has cut operating costs substantially in recent years, allowing the agency to pass savings on to wholesale customers.
But the lower than expected rates could not have been possible, Wright said, without two key financial arrangements, both born of intensive collaboration.
Most recently, BPA struck a deal with customers that reduces the amount of cash reserves Bonneville must carry to hedge against slim fiscal times. In short, customers agreed to absorb short-term rate increases - for a month's power, for instance - in return for rate decreases in subsequent months.
That arrangement allows BPA to rely upon customers rather than reserves if cash flow gets tight, and lower reserves mean lower rates.
The final BPA rate - still to be nailed down and to go into effect this October - will depend in part upon how many customers participate in that program.
The second new financial arrangement is with Energy Northwest, operator of the region's only nuclear power plant.
That deal also boosts Bonneville's cash flow by reducing needed financial reserves. Specifically, it allows BPA to pay directly the principal and interest on bonds issued in the 1970s and 1980s to pay for construction of nuclear power plants.
Previously, BPA covered the debt indirectly, through credits to utilities. That meant Bonneville needed deeper reserves to cover other expenses.
Paying directly on the debt gives BPA more flexibility in managing cash and reduces reserves, Wright said, thus allowing for wholesale rate cuts of about $1.50 per megawatt-hour.
“Many individuals across the region have worked with us to make this rate decrease possible,” said Wright, adding that the anticipated rates will be adjustable, moving up or down along with water conditions, BPA's financial strength and future costs to mitigate for dam impacts on fish and wildlife.
Currently, though, the outlook is good, he said, with full-pool reservoirs and a strong market for surplus power sales.
That's good news to many who advocated for power in the $27 range, including the Northwest Coalition for Affordable Power. Covering four states, the broad-based group includes business leaders, local governments, school districts, economic development associations and utilities, among others.
For months, the coalition has pushed for in '07,” looking for a rate of about $27 per megawatt-hour over the three-year rate period beginning October 2006. The group bristled at BPA's initial suggestion of $30 power, arguing Bonneville had the tools now to hit a lower mark if the agency so chose.
“The gap between BPA's initial wholesale power rate proposal of $30 per megawatt-hour and the coalition's goal of a $27 base rate has been eliminated,” said coalition member Terry Hunt. “BPA and customers have been working hard over the past year to bring much-needed rate relief to the Northwest.”
As have any number of regional leaders, including Rep. Denny Rehberg, R-Mont. Just last week, in fact, Rehberg and a bipartisan group of 20 House and Senate members fired a letter to Wright, expressing their hope that there would be no increases in the 2007-09 rates.
“Rather than wait until the last minute, we thought it was a good idea to tell BPA they should continue providing power at the lowest, reasonable rate,” Rehberg said.
“I suggested they look at some of their internal costs and find ways to reduce those rather than passing them off to consumers in the form of a higher electric bill.”
In their letter, the lawmakers commended Wright “for your efforts to reduce rates in the coming rate period, and to encourage you again to maximize cost savings in order to ensure the lowest possible rate.”
They also noted that, “high energy costs continue to have a negative impact on the everyday lives of residents in our region and, more broadly, the regional economy. We are dedicated to finding any and all ways to reduce the burden of high energy costs.”
How far any one customer's costs can be reduced, however, remains to be seen. Some wholesale customers have been enjoying fixed-rate contracts for the past five years, and could actually see a slight increase as they begin to pay the same rates as other customers.
Additionally, local utilities will have the final say as to whether they adjust their retail rates to reflect BPA's reductions, a choice that will depend, among other things, on the specific financial health of individual utilities.
Nevertheless, both lawmakers and coalition members praised BPA's recent rate announcement, with the coalition - often critical of Bonneville - saying “BPA and public power deserve credit for making an institutional commitment to lower power rates.”
Reporter Michael Jamison can be reached at 1-800-366-7186 or at mjamison@missoulian.com.
BPA looking to limit its risks in volatile marketplace
KALISPELL - The outfit selling nearly half the electricity used in the region wants to limit its risks in a volatile and privatized marketplace, putting more of the burden back on local utilities.
“This is extremely important,” said Steve Wright, administrator at Bonneville Power Administration, “because the region's ability to grow its economy will either be facilitated or restricted by the ability of the region's utilities to provide adequate power.”
Bonneville is a nonprofit government agency, selling power from hydroelectric dams throughout the Columbia River Basin, as well as one nuclear plant. In Montana, some 400,000 people are served by BPA.
A few years back, Bonneville was selling not only the power from its federal dams, but also power it purchased for customers in the private marketplace. The sheer size and sophistication of BPA allowed the agency to buy at the best price and pass the savings along.
Many customers enjoyed fixed-rate contracts not only for BPA hydropower, but also for power Bonneville was purchasing for them from other generators.
But in 2000 and 2001, that private marketplace went wild, with rolling brownouts and blackouts, power shortages and skyrocketing prices. Bonneville, obliged to provide lots of power from the marketplace at a fixed rate, found itself wallowing amid record prices, forced to buy high and sell low.
The crisis cost BPA billions, and resulted in substantial BPA rate hikes.
Looking to shield itself from a similar future, BPA has released a plan for coming years that puts much of the risk back on its customers.
“We don't want another West Coast energy crisis,” Wright said of the plan, which he said “sends a signal to utilities about the amount of resources they will need to develop or acquire on their own.”
The idea is that BPA will limit the amount of lowest-cost power it sells to the amount of power provided by the dams. Each of Bonneville's preferred customers - guaranteed low-cost power by law - would receive a defined portion of that total at the lowest “Tier 1” rate.
For additional power needs, BPA would continue to help utilities buy from the private sector, but Bonneville would sell that juice at a higher “Tier 2” rate, which would now include BPA's cost for acquiring and purchasing that power.
By separating the two - federal hydropower BPA can predictably buy on the cheap, and power it must buy on the market - Bonneville effectively would shift the financial risk associated with rate spikes onto its customers.
That should shield Bonneville from unanticipated rate hikes such as those that followed the 2001 crisis, Wright said, preserving the value of the low-cost federal system for customers who rely upon it.
At the same time, Wright said, the two-tiered approach signals customers that they can continue to rely upon BPA for additional load, or they can look elsewhere for power - including development of their own resources.
“The region's utilities have accountability to make decisions about how load growth in our region will be served,” Wright said, “although BPA will be there to help them if they desire. Knowing BPA's plans for the future will help other regional utilities make informed choices about their power supply, and to do so early enough that adequate resources can be developed to meet growing demand.“
The plan is expected to be finalized in January 2007.
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