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Electricity Accord Uncertain by Chris Mulick, Herald staff writer Tri-City Herald, October 9, 2003

A deal that would settle a federal lawsuit and reduce Northwest electric rates is on shaky ground.

The Bonneville Power Administration increased its wholesale rates by 2 percent this month. If the settlement is approved the federal power marketer says it can lower its rates by about 7 percent over the next year, beginning in February, and rebate the extra money it will have collected.

If passed directly on to retail consumers it likely would result in rate decreases of less than 5 percent.

But dozens of public utilities need to sign the agreement, and some aren't sure it's a good enough deal.

"Whether we sign or not, there's not going to be a settlement, I don't think," Franklin PUD Manager Ken Sugden predicted.

About 70 public utilities sued the Bonneville Power Administration in 2001, arguing the federal power marketer -- at their expense -- illegally gave too many benefits to investor-owned utilities during its last rate-setting process.

The Northwest Power Act of 1980 made customers of public utilities -- such as the ones serving the Tri-Cities -- the primary beneficiary of the cheap hydropower generated at federal dams on the Snake and Columbia rivers.

That law also provided similar benefits for the residential and small-farm customers of private utilities, such as PacifiCorp, so long as public utilities didn't have to pay for them. Under existing contracts, those benefits consist of a combination of energy and cash.

The proposed settlement, reached by public and private-power negotiators after a series of talks, would eliminate that fee and defer other payments totaling another $225 million due to the investor-owned utilities during the remainder of the current rate period. That money would have to be repaid in the next rate period, which stretches from October 2006 to October 2011.

The near-term savings would allow Bonneville to lower its wholesale rates, which are now more than 50 percent higher on average than they were two years ago.

But it's no slam dunk.

"Why would you object to a settlement that gives you rate relief?" asked Ed Hansen, manager of Snohomish PUD, one of the state's largest and most influential public utilities. "There are some very good reasons."

Everett is trying to lure Boeing into building its next jetliner there. Projected power costs are expected to be a factor and Snohomish PUD commissioners are leery of deferring private utility payments until 2006 and after, "which is the time we'd like to offer lower rates to Boeing," Hansen said.

There's no consensus among Tri-City utilities either. The city of Richland and Benton PUD generally support the settlement proposal. Benton PUD Manager Jim Sanders helped negotiate it and said Bonneville's rates are expected to be trending downward in the next rate period, making the deferred payments to the private utilities easier to absorb.

Another plus is the settlement would require the private utilities and a series of small utilities, including the Columbia REA, to help pay for a larger share of the deferred benefits, something their current contracts don't require.

But the Franklin PUD and the Benton REA are on the fence with serious reservations about the proposed settlement. The REA, for example, is worried about language that would limit their ability to sue over potential power allocation disputes when Bonneville begins negotiating contracts for the next five-year rate period.

"At this point, I'm neutral," said Benton REA Manager Chuck Dawsey. "If I were comfortable, I'd make a strong recommendation to our board to sign. I'm not at all comfortable."

It's not clear whether all the public utilities who participated in the lawsuit have to sign the settlement in order for it to take effect. A small utility like the Benton REA would be unlikely to have the financial means to continue pursuing the federal lawsuit on its own. But a large utility like the Snohomish PUD would.

"Obviously, if a large utility or group of utilities doesn't sign, it's dead," said John Saven, a lead public power negotiator.

Though vocal in criticizing the plan, Snohomish PUD and a host of others haven't decided whether they'll reject it. Utilities are being pressured by the congressional delegation and each other to join despite their concerns.

"I think if one or two utilities opted not to sign, it would have a cascading effect," Dawsey said. "Nobody wants to be first."

If the settlement falls apart, Bonneville and its utility customers would remain on the hook for the $200 million litigation fee due to the private utilities. Those utilities have deferred payments on that money so far, hoping to settle the dispute.

Without a settlement, the $200 million would have to be paid by the time the BPA's current rate period ends in October 2006. No money set aside to pay for it and rates would have to be increased.

"It would be a huge hit," Sanders said. "It's not clear to me what happens if it all falls apart."