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BPA Lays Out Region's Energy Future by News sources KTVZ.com, July 13, 2006

Agency proposes tiered rate, 20-year contracts

PORTLAND - The Bonneville Power Administration released a comprehensive proposal today aimed at defining its electrical power supply role in the Pacific Northwest after 2011, when its current power sales contracts expire.

Release of "The Long-Term Regional Dialogue Policy Proposal" reflects five years of discussions with the agency's wholesale power customers, constituents and other stakeholders and kicks off a public comment period that concludes on Sept. 29. In defining how BPA intends to sell its lowest cost power, the proposal sends a signal to utilities about the amount of resources they will need to develop or acquire on their own.

"This is extremely important 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. We've seen the consequences of the West Coast energy crisis, and we do not want to see it repeated," said Steve Wright, BPA (www.bpa.gov) administrator. "If we are going to have an adequate energy supply in the future, we need to be developing the infrastructure now."

Central to the proposal is implementation of an earlier decision to limit the amount of power BPA sells at its lowest rate to the amount of power provided by the federal system. The federal system is expected to supply approximately 7,100 average megawatts of firm power by October 2011, when new power sales contracts would take effect. Each of the 130 municipal utilities, cooperatives and public utility districts that are defined as preference customers under the Northwest Power Act would have access to a defined amount of this low cost power, which would be sold at a Tier 1 rate. In total, the loads of these utilities are roughly equal to the output of the federal system.

BPA will honor its statutory obligation to serve any remaining net requirements of those preference customers who choose to secure additional power from BPA in excess of their defined amount of Tier 1 power. A utility's net requirement is the amount of power it is entitled to purchase from BPA under the Northwest Power Act. However, this additional power would be sold at a higher Tier 2 rate that would be based on the marginal cost BPA incurs for acquiring or purchasing such power.

This is a distinct change from BPA's current practice of melding the marginal costs of power acquired to meet its regional firm power load into the costs of the existing low-cost federal system. This melding led to large BPA rate increases in the aftermath of the 2000-2001

West Coast energy crisis when market prices soared and utilities placed large amounts of load on BPA. In turn, BPA was forced to purchase large amounts of power in a very short timeframe and in a market where demand substantially exceeded supply.

The tiered rate is designed to preserve the value of the existing low-cost federal system for regional purchasers and, at the same time, send customers a price signal that will help them make future power supply decisions. They can either turn to BPA to supply their power for load growth at Tier 2 rates, or they can look elsewhere for power, including development of their own resources.

"This proposal clarifies that the region's utilities have accountability to make decisions about how load growth in our region will be served, although BPA will be there to help them if they desire," Wright said. "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 proposal calls for 20-year power sales contracts. "We believe 20-year contracts are integral to creating the certainty to support development of the infrastructure needed to sustain the Northwest economy and help the region avoid price volatility," Wright said.

Another key element of the proposal aims to bring certainty to the amount of rate relief provided to residential and small farm customers of investor-owned utilities through the legally-mandated residential exchange program. This program is the subject of a legal dispute among the region's utilities. BPA proposes to provide $250 million per year, with annual adjustments for changes in BPA rates and investor-owned utility system costs. "Now is the time for the region's utilities to agree on a reasonable long-term resolution of the exchange benefit program or decide to move forward without a settlement," said Wright.

Other elements of the proposal include BPA's approach to supporting conservation acquisition and renewable resource development in the region, a range of potential benefits to direct-service industries (primarily aluminum), increased stakeholder input into costs through cost control review mechanisms and initiatives to promote resource adequacy.

Consistent with sound business practices required under BPA's statutes, the President's fiscal year 2007 budget provides that BPA will use any surplus power sales (net secondary) revenues it earns in any given year above $500 million to make early payments to the U.S. Treasury to provide BPA with financial flexibility to invest back into energy infrastructure, conservation, and fish and wildlife protection programs. Given the importance of this action for the post-2011 period, BPA seeks public comment and discussion of this action in conjunction with the discussion about BPA's long-term regional policy proposal.

BPA will take public comment on the proposal through Sept. 29, with a final decision scheduled for January 2007. For more information, including a list of planned public meetings on the proposal, along with information about how to obtain and comment on the proposal is available on the BPA Regional Dialogue Web site.

"Practically every citizen of the region receives some form of benefit from the BPA system," Wright said. "There is a lot at stake here, and we intend to listen carefully to the region. We also strongly encourage further efforts to forge consensus in the region."

BPA markets just under half of the electricity consumed in the region. It markets power from the federal Columbia River power system's hydroelectric dams and the region's one operating nuclear plant. As a nonprofit federal agency, BPA sells its wholesale power at cost to public utilities, municipalities and cooperative utilities and also sells a small portion to some electricity-intensive industries, primarily aluminum. BPA also provides a Residential Exchange Program that passes benefits of its low-cost power on to the residential and small farm customers of the region's investor-owned utilities. Any surplus power available in a good water year is offered within the region first, before it is sold outside.

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