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BPA May Alter Its Focus by Shelly Strom, Business Journal staff writer Portland Business Journal, March 19, 2004

The way electricity has been purchased and sold in the West for almost 70 years is being scrutinized and likely is about to change.

Portland-based Bonneville Power Administration, the public agency created in the 1930s to provide power in the West, expects to reach a conclusion this year on whether to continue meeting 100 percent of its customers' demand. That means BPA's customers -- mostly utilities -- could be forced to buy their power elsewhere, which could lead to the building of additional power-generating facilities to meet demand.

Would-be builders of power-generating facilities want a more definitive market before deciding whether to invest or to continue to rely on Bonneville.

"We have a plan to acquire a diversified set of resources, from markets and long-term projects that we might build," said Dave Kvamme, a spokesman for Portland-based utility PacifiCorp.

"But certainly, having the question of whether BPA is going to be a provider of new resources in the region is something that would give a lot more clarity, and it is critical that that question be answered in a way that all parties in the region can count on," Kvamme said.

Long-running discussions between BPA and its customers, mostly Pacific Northwest utilities and a handful of industrial power users, have provided direction for a plan scheduled to be released in June.

"We're going to be looking at our infrastructure, transmission systems, how we maintain and expand that system, our fish and wildlife conservation programs, and how we serve our customers," said BPA spokesman Ed Mosey.

The agency will release an opinion March 22 on how it wants to proceed and will spend the following months incorporating feedback from its customers in preparation for the June deadline.

Portland-based BPA has annual revenue of $3.3 billion and supplies approximately 45 percent of the Pacific Northwest's electricity to 139 customers -- making it the single most influential regional power player. Set up in 1937 by Congress and the administration of President Franklin Roosevelt, BPA markets and delivers power generated by a federal system of 31 hydroelectric dams and a nuclear plant.

The relatively low-cost power provided by the federal generating system for decades was considered to be a significant regional economic driver. But expectations are changing.

"The shift is that the region is moving away from thinking it has an entitlement to that," and customers are realizing they need to take more responsibility for fulfilling their own needs, said Pamela Lesh, vice president of regulatory and federal affairs for Portland General Electric.

PGE, which serves primarily residential customers, "is on board with [a general consensus that favors] BPA moving away from a marketing, and certainly away from a resource acquisition role to focus more operationally on moving water down the river and helping customers become responsible for their own needs," she said.

The discussion stems from conditions that began percolating in the mid-1990s, and ultimately forced Bonneville to purchase a significant amount of electricity on the open market at record-high prices.

When BPA negotiated long-term contracts with its customers in 1996, power traded on open markets at near-historic low prices. Utilities and other BPA customers decided to purchase less power from the agency and more from the marketplace.

As the country's economy boomed, however, so did demand and costs for power. The situation drove utilities back to BPA in 2000, with requests for power to fill the gap between the levels to which BPA had agreed to provide in 1996 and the level to which demand had grown during intervening years.

As a result of purchasing high-priced market electricity, BPA had to boost its rates 50 percent.

"That had a significant impact on the region's economy. We need to stabilize that situation and clarify who is going to fulfill the power acquisition role for the long term," said Scott Corwin, vice president of marketing and public affairs for PNGC Power, a Portland-based electricity cooperative serving agricultural customers in six states.

"At the end of the day, the question is, 'who is going to plan for and build resources in the region?'" Lesh said.