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BPA Financial Woes may Hit Fish and Wildlife Programs by Mike O'Bryant Columbia Basin Bulletin - August 16, 2002

Public utility customers of the Bonneville Power Administration demanded this week deep cuts to the agency's budgets and questioned the value of continued spill at federal dams to aid salmon recovery.

BPA is laying out this month at a series of public meetings financial choices it has identified to correct a projected revenue deficit that could exceed $860 million to $1 billion through fiscal year 2006 and asking the public to comment on those choices.

BPA has a serious financial problem caused by reduced demand, low wholesale prices and power purchase contracts with Enron at high prices, among other causes, according to Paul Norman, BPA vice president and head of the agency's Power Business Line. By the end of FY2000, the agency had in reserves about $800 million, but by the end of this fiscal year, it expects to have only about $100 million in reserves with a highly volatile power market that is continuing to decline.

"This financial problem translates into a larger problem," Norman said. "Potential rate increases put economic pressure on the region and it puts financial pressure on our programs."

One program that is likely to see cuts is the power marketing agency's fish and wildlife obligations, but Norman said those cuts would come from efficiencies, while BPA still would plan to meet the performance standards outlined in the National Marine Fisheries Service's 2000 biological opinion.

"BPA's actions continue to promote the myth that this region must choose between salmon recovery and affordable energy," said Andrew Englander, policy analyst with Save Our Wild Salmon.

On the other hand, BPA wholesale customers questioned the value of continuing to spill at dams in order to provide safe passage.

"There is a growing body of evidence that fish recovery measures, like spill, is not effective," said Steve Eldridge, manager of the Umatilla Electric Cooperative in Hermiston, Ore. "In the last rate case, you included all salmon recovery measures and breaching of dams: that was ridiculous. When you made those promises, you also promised public power that you wouldn't raise their rates. That's the promise I want you to keep."

Referring to "Save the Salmon" stickers worn by about 20 percent of people at the meeting and provided by the conservation group Save Our Wild Salmon, Eldridge said, "My sticker would have said 'We Need Jobs.'"

Nicole Cordan of Save Our Wild Salmon questioned how BPA could meet its fish and wildlife obligations when, as she said, 50 percent of the cuts proposed by Bonneville come out of that program.

Recognizing that BPA's financial problems are a challenge to the entire region, Englander suggested that the agency exercise the tools it was provided in the last rate case. Those include three different "Cost Recovery Adjustment Clauses" that would allow BPA to raise its prices if deficits occur.

According to Norman, an average rate increase of about 7 percent per year would erase the deficit through FY2006 and increase the average retail bill in Northwest homes by $1 to $3 per month. Englander said his organization is also not opposed to cuts to programs, but BPA has yet to detail the cuts it is proposing in fish and wildlife and that those details are crucial before discussing options.

"Nevertheless, BPA should pursue cuts that do not directly jeopardize its investments in salmon recovery or clean energy," Englander said. "There are likely other options BPA has at its disposal that could help in the near-term without sacrificing regional values." Those actions, he said, could further soften rate increases.

"Both federal taxpayers and Northwest ratepayers have already made a significant investment in salmon recovery," Englander continued. "Failure to provide a decent return on that investment could eventually cost the region more in the long run and could place regional control of the Federal Columbia River Power System in jeopardy."

Norman said BPA has yet to make a decision, but he outlined five alternatives he wants the public to consider, none of which would be used in whole and some which the agency would resist.

• Let the rate mechanisms play out over the remaining years of the agency's rate period (through FY2006), including cutting costs.
• Cut costs to the bone, including costs that would put programs at risk and let the CRACs make up any difference. Norman said BPA already has cut $100 million from programs out of planned spending and expects to find another $200 million over the next four years. He said that expenses include U.S. Army Corps of Engineers and Bureau of Reclamation expenses, expenses associated with Energy Northwest's nuclear generating facility, expenses incurred directly by the PBL and expenses charged to the PBL by the rest of BPA. The PBL is already down 10 percent, he said. However, he admitted that the cuts made were from a budget higher than that decided in the agency's rate case.
• Increase the risk the agency would not make its annual U.S. Treasury payment.
• Borrow to push the problem into the future.
• Make a one-time CRAC adjustment that would amount to about a 38 percent rate increase.

During its last rate case, two and one-half years ago, BPA assumed it could meet load and increase its commitment to its fish and wildlife program by $100 million through higher than normal surplus power sales. However, the power market has not cooperated. Instead, the region had a drought that cut the output of the federal hydro system by 4,000 megawatts and Western power markets became volatile, with prices 10 times or more higher than normal. To avoid immediate financial disaster, BPA declared a power emergency that resulted in reduced spill levels and flows for fish. It also had to purchase power to meet its firm load obligations, appeal for conservation and pay aluminum companies to further reduce load.

Now, with a normal water year, BPA has wholesale power to sell, but Northwest wholesale power prices are the lowest in the United States and Northwest customers are still exercising conservation. The resulting losses have depleted BPA's reserves, said Kim Leathley, manager of Business Strategy, Finance and Risk at the Power Business Line.

"We have tools -- the CRAC, cost cuts -- but the question we are posing to you is what is the right balance between our short-term economic condition and our long-term sustainability?" Leathley asked.

"I hope this will help Bonneville refocus on the long-term, given the natural variability of the river system," said Fred Huett, representing the Sierra Club. "Let's focus on fish recovery activities, conservation programs and locally-developed renewable resources."

Huett worried that BPA has already made huge staff cuts that may hurt its existing programs, which cut the ability of the agency to manage the system over the long run. He suggested a "second mortgage policy."

Others, particularly those in areas where aluminum smelter have been shut down, complained about high unemployment and the need for low cost power.

Tom Atkins from Washington said he didn't mind paying higher rates. "Salmon are unique to our area, aluminum can be produced anywhere," he said.

Fergus Pylon of the Columbia County Public Utility District suggested that BPA first get its costs back to rate case levels before it exercises any of the three CRACs. He also said that 330 average megawatts are available by limiting spill at dams for salmon recovery, "without harm to endangered species."

"This should not be seen as a crisis, we took a gamble," said Steve Weiss of the Northwest Energy Coalition. He said the situation was set up in the last rate case when BPA set low rates based on optimistic forecasts. He said cuts to conservation and renewable programs could end up costing the region more. "These are the solutions, not the cause of our problems," he said.

Finally, Liz Frankl of Oregon said she worried most about BPA's the long-term health.

"I want to keep Bonneville viable, partly for the public purposes it provides," she said. Those include conservation, fish and wildlife programs, renewable resources and low-income energy assistance programs. "How you treat public purposes will long be remembered by the public."

BPA is also holding workshops in Seattle (Aug. 20) and Spokane, Washington (Aug. 21), as well as Burley, Idaho (Aug. 28). Comment period for BPAs Financial Choices discussion ends Sept. 30. It expects to address rate issues beginning in November or December.

Related Sites:
Bonneville Power Administration