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Power Crisis may Push BPA Rates 60% Higher by Jonathan Brinckman and Gail Kinsey Hill The Oregonian, January 26, 2001

The federal agency's customers could feel the increase Oct. 1, and it could last a year

The Bonneville Power Administration announced Thursday that it may be forced by the West Coast power crisis to increase electricity rates by more than 60 percent this fall.

The announcement shocked Bonneville customers, who said they expected a power rate increase but had no idea it would be this large. The specific rate hikes on consumers will depend on how much electricity their providers purchase from Bonneville, which sells power wholesale to industries and utilities.

Officials of the federal agency Thursday said the high cost of buying electricity in runaway power markets may force it to nearly double its rates after Oct. 1. They said rates could stay that high for a year before gradually dropping by 2004 to about 35 percent over current prices and remaining at that level until the end of the five-year contracts.

The agency said it expects its rates over the five years toaverage 63 percent over current rates. Contracts due to expire at the end of September carry fixed rates of $22.50 a megawatt hour; a 60 percent increase would raise that to $36.

Bonneville, now engaged in a rate case before an administrative law judge, has not formally proposed the increase. Agency officials said they expect to make a formal proposal within three weeks.

"This is the path that we are on," said Mike Hansen, a Bonneville spokesman.

Bonneville customers reeled at the news.

"I don't think anybody has contemplated this kind of hike," said Kurt Zetzsche, president of Cascade Steel Rolling Mills, Inc., a McMinnville company that employs 550 people and spends $800,000 a month on electricity -- all of it from Bonneville. "This is going to have a tremendous effect on the cost of producing steel."

Even with the increase, Oregon power rates still will remain below the national average. Because of that, and because many industries in the state are becoming more efficient in their uses of electricity, state economist Tom Potiowsky said he does not expect widespread economic harm.

"Certain industries will be disproportionately hit, but I don't see this as a nail in the coffin of the Oregon economy," Potiowsky said.

Bonneville officials said they are seeking the rate increase because they don't generate enough power to meet demands, therefore must buy additional power on the open market.

Market prices have skyrocketed in recent months, rising from less than $50 a megawatt hour last April to more than $750 a megawatt hour this month.

Bonneville markets power from 29 federal dams and one nuclear power plant in the Northwest. It has access to about 8,000 megawatts of electricity but is contractually bound to sell about 11,000 megawatts.

The agency's Thursday announcement dramatically increases rate hikes that BPA anticipated over the last several weeks. In mid-December the agency said it expected to raise rates 15 percent; on January 15, it said it expected to raise rates 30 percent.

"The fundamental problem is unprecedented high market prices," Steve Wright, the agency's acting administrator, said Thursday. "Unless the region finds ways to bring costs down, steep rate increases are unavoidable."

Bonneville's customers Thursday were unforgiving. They said the agency had gotten itself into trouble by committing to sell more power than Northwest dams produce.

"It's a hell of a rate increase," said Jerry Leone, manager of the Public Power Council, a trade association representing public utilities that purchase power from BPA. "It's ugly."

A rate increase of the size BPA is proposing would have widespread, harsh effects on consumers and businesses, said Joe Nadal, vice president of Pacific Northwest Generating Cooperative. His organization manages wholesale electric supply for rural electric co-ops in Oregon, Washington and Idaho.

"This will be catastrophic," Nadal said, arguing that BPA backed itself into a corner when it signed contracts to provide more power than the federal system could generate. The over-commitment forced BPA into the high-priced wholesale market and its predicament, Nadal said.

There are about 130 public utilities in the Northwest. Some own most of their own generation sources, such as dams, and buy only small amounts of power from BPA. Others depend on BPA for all their electricity needs. Still others split purchases between BPA and other power providers.

Many public utilities rely heavily on BPA and have come to regard the agency as a dependable source of low-cost power.

"Signing contracts with BPA tends to make you feel warm and fuzzy," Nadal said. "But at some point you need to pay the piper."

Utilities that rely on the short-term wholesale market for some of their electricity already have increased rates dramatically. In Washington, Tacoma Power, Snohomish County Public Utility District and Clark County Public Utility District recently received approval to increase rates by 43 percent, 35 percent and 20 percent respectively. In Oregon, Eugene Water & Electric Board is seeking a 15 percent increase.