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Bonneville Power Admin. Looking at Possible Rate Hike This Fall

by Cookson Beecher
Capital Press - May 31, 2002

Caught in a Catch-22 predicament, Bonneville Power Administration may have to raise rates this fall because energy prices are so low.

The dilemma stems from earlier expectations of what BPA could charge for its surplus energy on the open market.

Back in October when it renewed five-year contracts with utilities, power prices were still high due to a variety of reasons -- among them possible manipulation of the market by Enron and other energy traders.

Nevertheless, BPA managed to hold its rate hike to 46 percent -- in contrast to earlier warnings that it might have to raise rates by 95 percent over the next five years. At one time, there was even talk of a 250 percent rate hike.

"Forty-six percent was bad enough," said BPA spokesman Bill Murlin. "but it definitely could have been worse."

Huge energy savings in the Pacific Northwest accounted for part of that lower rate hike. for example, BPA paid irrigators in Eastern Washington not to irrigate and aluminum companies to stay off line. In addition, utilities cut back on power use.

"All of that saved 3,000 megawatt hours," said Murlin, explaining that that's three times the energy it takes to power Seattle.

By this April, things were going so well that Bonneville cut the rate increase by 5 percent - to 41 percent above the base rate.

"But that's temporary, too," Murlin said, explaining that according to the "rate case" covering the five-year contracts, BPA is allowed to adjust upward or downward according to market conditions.

"There is the potential for raising the rates back up again in October," he said. "There's a lot of speculation about this."

When the contracts were developed in October, BPA thought it could sell surplus energy at $40 to $50 per megawatt hour. That estimate was an important part of BPA's strategy for keeping the rate hikes to 46 percent.

"But we're not getting that," said Murlin. "Prices are in the basement. They've been as low as $18 per megawatt hour and are at $30 per megawatt hour now."

That's far lower than last summer when prices were, at times, hitting $250 per megawatt hour.

"Prices now are much lower than we thought," Murlin said. "As a consequence, our finances are hurting. We don't have the income we thought we would have."

Nevertheless, no one knows what the coming year will bring. Prices could rise again if California has an excessively hot summer, for example.

But what BPA is hoping for is that the economy will rebound. That would put aluminum companies back into business and boost other power-hungry enterprises such as aircraft manufacturing. In addition, a healthier economy has the potential to breathe life into the struggling industry, which, when times are good, is a huge energy consumer.

In the meantime, BPA is hopeful that energy contracts entered into with Enron and other power traders can be voided.

"If contracts were canceled today, it would mean less of a rate increase," Murlin said.

In a Senate hearing in May, Sen. Marie Cantwell, D-Wash., said BPA was forced to agree to long-term contracts with Enron worth $700 million, which if negotiated today on the open market would cost only $350 million.

But Murlin said that when BPA enters into contracts, it has to do so for the long term.

"We wouldn't be able to contract for large amounts of energy on the spot market," he said. "When you enter into long-term contracts, you're talking about higher prices."

Under the five-year contracts with Enron, Murlin said that if all of the energy in those contracts is delivered and paid for, the $700 million BPA agreed to pay comes to $52 to $54 per megawatt hour.

"That's about twice the rate on the open market," he said. "But we don't know what those rates will be next winter or summer. We don't know that $50 won't look like a good deal in the future."

Nevertheless, he said it if the Federal Energy Regulatory Commission rules that the contracts can be canceled, BPA would consider doing that if it would benefit the ratepayers.

Cookson Beecher, Staff Writer
Bonneville Power Admin. Looking at Possible Rate Hike This Fall
Capital Press - May 31, 2002

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