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BPA Kicks Off Power Rate Case by Staff BPA Journal, November 2005

Field hearings begin this month for public input into BPA's new wholesale power rate proceeding. In early November, BPA published an initial rate proposal in the Federal Register, kicking off the beginning of a formal proceeding to replace existing power rate schedules, all of which expire on Sept. 30, 2006. The new three-year rate period will run from Fiscal Year 2007 through Fiscal Year 2009.

Six field hearings will be conducted throughout the region in November and December. (See schedule in the public involvement section of this publication.) Public comment runs through Feb. 13, 2006.

The formal rate case will continue until the final record of decision is released in July 2006. The decision will be sent to the Federal Energy Regulatory Commission by Aug. 1, with interim approval expected in late September. Rates will go into effect on Oct. 1, 2006.

"We want to emphasize the word Ôinitial' in the initial rate proposal," said Paul Norman, senior vice president.

"Circumstances will change, and we don't know what the final rates will be at this time. The input from this process will inform a final decision. What we do know now is that our goal and our effort will be focused on keeping rates as low as possible for the benefit of our regional economy while still delivering on our mission."

The initial proposal focuses on an adjustable approach to rates that reflects increased unpredictability and volatility in areas that affect power costs and revenues. In addition to traditional uncertainty over hydro supply, today's wholesale power market is extremely volatile. Where once prices fluctuated in thousands of dollars, they now can fluctuate in tens of thousands. This makes it difficult to predict how much BPA will earn in revenues from surplus power.

Another major new uncertainty is ongoing litigation over operations related to fish listed as threatened or endangered. Court-ordered changes to hydro operations in 2006 and beyond could prove to be extremely costly and could drive power rates up.

To deal with major uncertainties, BPA is proposing rate-adjustment mechanisms that allow the agency to set base rates lower. These adjustments would be triggered if necessary to cover contingencies that cannot be predicted with great accuracy Ð such as costs or lost revenues due to extreme water conditions, unfavorable market prices, generation going off-line and litigation. The adjustments also include a mechanism to return money to customers if BPA's net revenues exceed a certain level. While the downside of this system is that there is little guarantee of rate stability, BPA customers have said they prefer adjustable rates to higher stable rates.

The final rate will be influenced by several factors, and some are within the region's control. BPA is especially interested in working with customers on liquidity tools.

"Customers and others can be helpful in keeping rates down by helping us secure tools and agreements that increase BPA's access to cash," said Norman. "This may be the single largest opportunity to bring rates down for the next rate period."

Liquidity tools would help BPA's cash flow during the first months of the fiscal year after the agency has made its Treasury payment, which is also the time that net billing obligations for Energy Northwest (nuclear plants) must be met, thus delaying BPA's opportunity to restock reserves.

BPA also will be conducting a separate process, outside of the rate proceeding, to find more cost savings that could be included in the final rate calculations. Previously, BPA held a Power Function Review to engage the region in setting power-related program costs. As a result of the review, BPA reduced projected costs by about $96 million a year from the start of the review and committed to continue to look for ways to further reduce costs.

Information on key issues in the rate case and the process is posted at: www.bpa.gov/corporate/pubs.