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BPA 'Financial Choices' Public Review Ends Monday by Mike O'Bryant Columbia Basin Bulletin - September 27, 2002

The public will get its last chance next week to tell the Bonneville Power Administration face to face what it thinks about the financial choices the agency will need to make to overcome up to a $1.2 billion projected deficit through 2006.

BPA has been meeting with its customers and the public since July to discuss a list of five routes it could take to cut the deficit. All but one includes a rate increase.

The last in a series of public meeting regarding those "financial choices is scheduled Monday in Portland. BPA Administrator Steve Wright will decide in November whether the agency will need to ask for more revenue and, if it does, he could begin a rate case in April 2003.

According to Chuck Michael of BPA, the agency last set rates based on some faulty assumptions. Among those assumptions are that it could provide to customers, at a relatively low cost, 1,700 average megawatts more than the federal power supply system produces and that it could fund $100 million more for fish and wildlife programs than it had in past years. However, customer demand actually increased to 3,200 aMW and prices skyrocketed, requiring BPA to buy more power than it planned for a much higher cost.

"Our firm obligation at about 11,000 aMW is 30 percent more than our resources," Michael told the Technical Management Team this week. Buying those additional resources cost the agency more than it had planned to pay last year.

In addition, while river conditions are back to normal, allowing BPA to generate excess power to sell into the electricity market, prices for that power have been extremely low, far lower than BPA had accounted for when setting rates.

That led to a $260 million loss in fiscal year 2001, he said, and, if nothing is done, BPA expects losses to continue through FY 2006, when the agency would normally reset rates (BPA's fiscal year is Oct. 1 through Sept. 30). While BPA has financial reserves right now, Michael said that after an $800 million Treasury payment in October, the reserve level would fall to about $160 million, a precarious level for BPA.

"That's very skinny and we can blow through that easily," Michael said. "For us in the financial department, we would like to see $400 million in financial reserves."

Michael said the agency had spent about $435 million a year on fish and wildlife activities from FY 1996 through FY 2001, but that it budgeted to increase that by $100 million a year in the latest rate case, which set rates from FY 2002 through FY 2006.

In addition, BPA announced this week a 3 percent rate adjustment on wholesale power prices to respond to volatility in the energy market. The increase will go into effect Oct. 1, but will largely offset an earlier rate decrease.

"The Northwest has entered a new era when electricity costs will fluctuate with supply and demand in the electricity market," said Wright. "After several adjustments up and down, the net effect of the change we are making Oct. 1 is that rates should remain at about this year's average for another six months."

Michael said BPA is putting together a four-year financial plan and has been seeking public input on five proposed approaches to deal with the deficit and most will raise rates even more:

The first is to let the existing rate mechanisms play out over the next four years. That would likely result in a 10 percent rate increase each of the years, Michael said, but financial reserves would end up at about $600 million at the end of FY 2006, a level BPA would like. The agency's three cost rate adjustment clause (CRAC) mechanisms, which were set by a settlement in the last rate case, are a financial-based CRAC, a load-based CRAC and a safety net CRAC. The settlement set prices lower than BPA wanted, but allowed the agency to adjust rates through the rate case years (FY 2002-2006) with one or more of the mechanisms to cover costs.

The second approach is to cut costs to levels that puts BPA's mission, including fish and wildlife, at risk, in addition to supplementing revenue with rate increases as needed. Michael said the combination of raising rates and cutting costs could result in 3 percent to 5 percent per year rate increases. However, some are questioning whether BPA should cut conservation and fish and wildlife costs, he said.

The third approach is to reduce the probability to 50 percent of the agency being able to make its annual Treasury payment, a step Michael likened to a 50 percent risk in making a mortgage payment. "That's too risky for us," Michael said. "We like that probability at 90 percent or higher."

Pushing the problem off to future generations is BPA's fourth approach. "The issue is to borrow from the future to pay today's expenses, but we will still have to pay and it will be more expensive in the future," Michael said.

The least realistic option is a one-time adjustment to rates. Michael said that would result in a one time 38 percent to 40 percent rate increase, but that BPA feels the region couldn't sustain the huge increase.

BPA's final public meeting in this regional discussion is from 6 to 9 p.m. Monday, Sept. 30, at BPA's headquarters building in Portland. Written comments will be taken through Oct. 18.

Written comments can be sent by e-mail, fax or the mail:
Email: comment@bpa.gov
Fax: 503-230-3285
Steve Wright, BPA Comment, PO Box 12999, Portland, OR 97208.

Related Sites:
Bonneville Power Administration: www.bpa.gov
Technical Management Team: www.nwd-wc.usace.army.mil/TMT/index.html