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Bonneville Outlines Power Process by Kathy Gray The Dalles Chronicle, August 2, 2007

Residential exchange parties tell of impasse's human effects

PORTLAND - They came from across Oregon and Washington on Wednesday with stories to tell of poor inner-city people who won't be able to pay their heating bills this winter, of livelihoods imperiled in small mill towns, of farmers who can't afford to irrigate their crops because of high electrical costs. They told Bonneville Power Administration that the impasse over how the Pacific Northwest's federal hydropower benefits are shared harms human beings - not organizations - in every corner of the region. And they spoke before an audience of about 200 jammed into a crowded hallway at the Airport Sheraton because the numbers were twice what Bonneville had anticipated.

Their message: Find an answer to the residential exchange issue and do it fast.

"I think the one thing we heard clearly was the desire for swift action," said Steve Wright, administrator of Bonneville Power Administration, after three hours of comment from representatives of public nonprofit utilities, private for-profit utilities, citizen advocacy boards, cities large and small, major manufacturers and small irrigation districts and even a nun.

The desire for a solution was common - and with good reason. Residential exchange payments, which have helped reduce power rates to residential and small farm customers of several large for-profit investor-owned utilities (IOUs), were halted after a May 3 Ninth Circuit Court decision in a case known as the PGE case.

The court said Bonneville Power Administration hadn't figured the level of payments in accordance with the federal law established by the 1980 Northwest Power Act. At the heart of the complainants' arguments was the contention that this "illegal" settlement resulted in overpayments to investor-owned utilities over the last five years.

As a consequence, rates for those residential and small-farm customers jumped by an average 13 percent over the last two months, affecting about 75 percent of such electricity users in Oregon and 60 percent in the Pacific Northwest.

However, Bonneville continues to collect the funds for those payments from its so-called "preferred" customers, consumer-owned, nonprofit utilities, representing about 40 percent of the region's power users.

So while rates have gone up for many northwest residents in the wake of the court's decision, they haven't gone down for the rest, generating agreement on the need for a fast solution.

How to get there and even where "there" is, encompass the crux of the conflict, which was why Bonneville called last night's meeting. The Northwest power marketing agency outlined a process intended to result in a solution over the course of the next year.

The process starts with public meetings over the next two months on key issues:

• how to address any overpayments from 2002 to 2007.
• how to determine the average system costs on which payments are based.
• how the 7(b)2 rate test, designed to protect Bonneville's preference customers from excessive charges, factors into the equation.
• ways to adjust fiscal year 2009 preferred rate to reflect changes to residential exchange benefits.

"There's been a lot of dispute within the region over who gets what share in the region," Wright said. "We're all friends and neighbors on both sides of this issue. We want a fair and equitable solution, consistent with the law."

Wright's urging also came with a warning.

"I will make this decision, because I have to," he said. ÔBut what we really want is a decision that boils up from the region."

A presentation outlining the history of residential exchange and the steps proposed to reach a solution stressed why a regional agreement is important:

• Benefits to customers of investor-owned utilities can start sooner.
• Financial relief for public utilities can start sooner.
• Greater certainty will be available regarding future levels of benefits for IOUs and rates for public utilities.

Terry Mundorf of Western Public Agencies Group said the reason for the impasse is that the process doesn't have a clear objective. He focused on what he saw as a disparity between the goal Bonneville is proposing and the law set forth by the power act.

"First, I don't believe the statute entitles the investor-owned utilities' small-farm and residential customers to a fair share of the benefits," Monroe said. "Second, I don't think Bonneville is authorized by the law to provide such benefits."

Instead, Monroe said the law specifies the right of those customers to wholesale rate parity, subject to protections for public utilities established within the law.

He and other public utilities representatives urged Bonneville to begin immediately to take steps to comply with the power act and to begin to make relief available to public utilities for past overpayments based on Bonneville's "illegal settlement."

"Robust and fair" were the goals expressed for residential exchange by supporters of investor-owned utilities and their customers.

"We believed, and continue to believe Bonneville determined an equitable level of benefits," said Jim Lobdell, PGE's vice president of power operations. "We're convinced the court ruling was wrong and we and others have challenged that decision."

In terms of "equity," the goal described in Bonneville's outline, when asked, Wright defined that as a "politically sustainable solution."

Bob Jenks, executive director of the Oregon Citizens Utility Board, said all the residents of the region have sacrificed the wild river of the past in exchange for the benefits of the Columbia River hydropower system.

"Unfortunately, today not all in the region are sharing the benefits of the river system," Jenks said, later adding that the Ninth Circuit Court did not say residential exchange rates had to be set at less than the original Bonneville settlement.

Representatives of public utilities and people served by them were a larger share of the 20 speakers who followed the official presentation.

"Our customers clearly were harmed, and the court agreed," said Tom O'Connor, executive director of the Oregon Municipal Electric Utility Association.

Steve Eldridge of the Umatilla Electric Cooperative, the largest electric cooperative in Oregon, spoke of the higher rates imposed on rural residents with averages wages 25 percent lower than those in Portland, which is served by investor-owned utilities.

"For our 9,000 members, we've sent $14 million [for residential exchange since 2002]," Eldridge said. "We continue to send $300,000 per month to support those efforts."

Eldridge said for-profit utilities have the option of restoring lower residential and small-farm rates by lowering their profit margins, an option nonprofits don't have.

Bonneville Power Administration set its next meeting for Tuesday, Aug. 21. The meeting's agenda plans for discussion of average system cost methodology, as well as fundamentals of the 7(b)2 rate test and associated issues.