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Bonneville Issues Warning of Electricity Rate Increase by Bert Caldwell The Spokesman Review - November 9, 2000

Announcement is more bad news to region's aluminum industry

Spokane -- The Bonneville Power Administration said Wednesday that rates under power contracts taking effect next Oct. 1 will be increased 15 percent.

Like other electricity suppliers in the Northwest, the federal power-marketing agency blamed the increase on market costs for wholesale power that are far above historic levels.

Ironically, the increases are caused in part by surging demand for electricity from Bonneville, which with its vast sources of low-cost federal hydroelectricity remains one of the region's low-cost suppliers.

More than 130 utilities and industrial customers signed contracts last week for up to 11,000 megawatts of power.

Federal dams and the nuclear-powered Columbia Generating Station can produce an average 8,000 megawatts. The rest must be purchased on the wholesale market.

Costs there range upward of four cents per kilowatt-hour.

"Recent steep increases and an apparent upward trend in market prices have prompted utilities formerly purchasing power in the market to bring their business back to BPA," said Senior Vice President Paul Norman.

Base rate under the new contracts will be 2.2 cents per kilowatt hour.

Almost every Spokane-area utility buys some or all of its electricity from Bonneville. Norman said the amount of increased cost each passes on to customers will vary.

The hike will be further bad news for some of BPA's biggest customers -- the region's aluminum smelters.

Several, including Kaiser Aluminum, have already closed smelters or cut production. Officials warned last week, before the additional 15 percent charge was announced, that BPA's prices were pushing them closer to extinction.

Aluminum smelting consumes vast amounts of electricity. Kaiser's Mead smelter, for example, uses more than 400 megawatts at full production. (bluefish notes: Four Lower Snake Dams produce a bit under 1200 megawatts on average.)

A Kaiser spokeswoman declined comment Wednesday, saying the company had not had time to digest the latest development.

Bonneville spokesman Ed Mosey said the agency and smelter operators are discussing ways they can benefit from the resale of electricity if they choose to shut down more production in response to the cost increase.

But, he added, they could also be forced to pay the difference between Bonneville's costs and market if electricity prices go down.

The power-cost adjustment announced Wednesday is one of three mechanisms in the new contracts that permit Bonneville to change rates in response to markets, or if revenues do not provide the reserves officials think are necessary to assure repayment of the agency's debt to the U.S. Treasury.

Bonneville tapped the Treasury for funds to build the federal dam system in the region and the transmission network.