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BPA May Yet Feel Power Market Sting

by Chris Mulick, Herald staff writer
Tri-City Herald, August 4, 2000

Bloated rates in West Coast wholesale power markets may yet affect Tri-City consumers, the Bonneville Power Administration revealed this week.

The agency, which sells more than 40 percent of all electricity consumed in the Northwest, has decided to suspend the signing of new power sales contracts while it decides how to pay for market-rate purchases needed to meet increasing demand.

BPA consequently has decided it needs to develop new options for rate increases anticipated by 2003.

"Increases in natural gas prices and West Coast supply deficits are driving up BPA's long-term cost of power," agency Administrator Judi Johansen wrote in a letter sent to utilities and other customers this week. "This increase could have a significant impact on BPA's ability to fulfill its financial obligations."

Bonneville only two years ago was trumpeting a "Two cents in 2000" mantra, referring to the rates it charges public utilities, such as the ones serving the Tri-Cities, for a kilowatt hour of electricity. With increasing costs to preserve fish runs mounting, the agency never got there and instead promised rates would hold steady at 2.2 cents per kilowatt hour. When that is combined with distribution and administrative costs, Tri-Citians pay a little more than 5 cents a kilowatt hour.

Now, soaring prices on wholesale energy markets are driving back utilities that opted to leave Bonneville for part of their needs in the mid-1990s. The agency now says it has underestimated demand from its preferred customers, public utilities and rural electric cooperatives, by 1,400 megawatts, more than enough to serve a city the size of Seattle.

Having already agreed to dish out 1,900 megawatts to private utilities and another 1,440 to its industrial customers, mostly large aluminum plants, the BPA says it doesn't have any power left to offer. The extra would have to be bought on the market, which since May has offered rates at unprecedented levels, thanks in part to dwindling supplies.

The agency plans to dig into its reserve fund, which it hopes will be near $1 billion by the time new contracts take effect next year. But by the third year, that could be low enough to threaten Bonneville's ability to make its full payment to the U.S. Treasury for debt owed on the Northwest's federal dams.

"Our financial situation is presently very sound, though the potential for problems has clearly grown," Johansen wrote.

Rate increases, if passed on to consumers, could total 2.5 percent to 5 percent. That could be significant for big industrial customers. Some already exposed to market forces have laid off workers rather than pay huge power bills.

"Our intent was to have no rate increase if possible," said Ray Sieler, Richland Energy Services director. "We may need to re-look at that."

Mid-Columbia electric utilities say it's too soon to know what the impacts will be for sure. They first want to know where the additional demand came from, as 1,400 megawatts represents a 27 percent increase over what the agency expected.

"That's a fairly significant percentage of error," Chuck Dawsey, manager of the Benton Rural Electric Association, said of the BPA number. "My hunch is they're going to have to make a big explanation."

Bonneville said the demand has come in part because utilities are flocking back to the agency hoping to avoid spiking market prices, BPA spokesman Ed Mosey said.

New river management rules to help fish also have reduced the amount of power some utilities generate at their own hydroelectric dams, boosting dependence on Bonneville. And some have seen unexpected demand from new industrial customers, too.

"It wasn't good news," Franklin PUD Manager Ken Sugden said of Johansen's letter. "It was, 'Oh no. Now what.' "

Sugden is confident prices will drop as wholesale markets mature. In theory, wholesale electricity deregulation was supposed to stimulate the development of new power plants. But that hasn't happened, and supplies have dwindled as demand has surged.

Benton PUD Manager Jim Sanders said the utility probably would be able to absorb new costs for a while and would be able to anticipate whether they will be large enough to justify a rate increase.

"We'll see this coming," he said.

Related Web Page:
Bonneville Power Administration Letter to Customers 8/1/00

Chris Mulick
BPA May Yet Feel Power Market Sting
Tri-City Herald, August 4, 2000

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