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BPA to Use More Credits Than Cash this Year by Kevin Galvin, Washington Bureau Seattle Times, February 23, 2001

WASHINGTON - Faced with soaring electricity expenses, the Bonneville Power Administration plans for the first time to use more credits than cash to meet its annual debt obligation to the U.S. Treasury.

Applying an unprecedented amount of credits earned for fish and wildlife protection will allow the federal agency to reduce its cash outlay by some $400 million this year.

The BPA and congressional officials who confirmed the plan yesterday said the move wouldn't be directly felt by ratepayers, but it would help guard the agency's diminishing cash reserves.

Still, the plan could face scrutiny from the federal Office of Management and Budget (OMB) and criticism from opponents of federally underwritten hydropower in the Northwest.

Any move that can be seen as an effort to shore up the BPA is fodder for critics who argue that the ratepayers benefiting from traditionally cheap energy ought to be asked to keep up with the costs. Oregon Gov. John Kitzhaber created a furor earlier this month when he suggested that the BPA withhold its $730 million Treasury payment this year. That wasn't a politically workable option, but the agency has a statutory right to use the credits under the 1980 Northwest Power Act.

The BPA's $730 million a year covers such costs as its debt on construction of the regional power grid and operation and maintenance of 29 federal dams that generate the power the agency sells.

Under the 1980 power act, the BPA can apply costs associated with protecting salmon and wildlife against its annual Treasury payment. For instance, if spilling water over the dams to aid salmon runs forces the agency to buy additional power on the open market to meet demand, that cost can be used to offset the payment.

The agency has applied such credits under the power act every year since 1995, involving $15 million to $60 million annually. This year, when power rates are high and water levels low, the BPA hopes to use $242 million in credits, according to BPA spokesman Ed Mosey.

Mosey said the figure had skyrocketed because of the "astronomical" costs of electricity on the open market. In December, the BPA was paying $500 per megawatt hour to meet demand. The typical winter market rate is $30 a megawatt hour.

The BPA also wants to apply to its debt payment $157 million from a Fish Cost Contingency Fund. It would be the first time to do so since the $325 million fund was set up in 1996 in recognition of the fact that BPA ratepayers had been overcharged for some fish-protection costs. "We have two ways to make our Treasury payment," Mosey said. "One is out of revenue; the other is out of credits. The difference this year is ... the higher power costs associated with replacing that water which is used for fish."

The state congressional delegation generally approve of the plan, according to staffers. U.S. Rep. Norm Dicks, D-Bremerton, was originally involved in the push to establish the credit plans, and supports the increased use of the credits to pay down the Treasury debt this year, according to his chief of staff, George Behan.

"He believes that it was appropriate initially to use this provision of the power act to achieve fish protection," Behan said. "That same level of fish protection is simply more costly in 2001 power prices."

Critics had questioned why the BPA needed $800 million in reserves on hand last year, Mosey said, but the ongoing power crunch has shown that when the water supply is low, "you can go through $800 million in three or four months."

Some BPA and congressional officials are concerned that the agency's plan could face resistance from the Bush administration, where officials are striving to keep costs down in order to pay for the president's $1.6 trillion tax-cut proposal.

While the BPA has authority to seek these credits, it comes under the purview of the U.S. Energy Department, and the BPA's budget is subject to oversight by the OMB.

Because of the region's hydropower, the Pacific Northwest has enjoyed the lowest electricity rates in the nation, and critics from other parts of the country routinely question why power generated with federal assets should be set aside for one particular region.

"Most businesses, when they've got higher expenses than they've got revenue, would go out and try to raise revenue," said Dick Munson, director of the Northeast/Midwest Coalition, a group that has actively lobbied for review of what he calls the BPA's federal subsidy.

Mosey underscored the fact that applying the credit "has nothing to do with Treasury deferment."

"These are payments that the ratepayers have already made, to which they are entitled under the law to have a credit," he said.