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BPA Refinancing and Prepaying Higher Interest Debt by Mike O'Bryant Columbia Basin Bulletin - April 11, 2003

The Bonneville Power Administration is refinancing as much of its high interest U.S. Treasury debt as possible now, when market interest rates are low, and prepaying its higher cost federal debt.

Such moves, the agency said, will lower its debt payments and enhance its ability to borrow money in the future.

Jim Curtis, BPA's chief financial officer, told the Northwest Power and Conservation Council this week that the debt restructuring will lower the fixed debt which the federal power marketing and transmission agency must pay each year. Calling the practice "debt optimization," he said the agency is refinancing as much of the high interest debt as possible.

"Bonneville is a capital constrained agency because it is a government agency and has limited resources for borrowing," Curtis said. "This is important to BPA."

The debt restructuring, along with other measures, including cost cutting at the agency and what Curtis called the "miracle of March (higher than average precipitation and higher market prices for the hydrosystem's surplus power)," has improved BPA's financial situation -- closing the gap when the agency projected late last year a $1.2 billion shortfall through its rate case cycle which ends Sept. 30, 2006, to about $690 million today.

Bonneville began its fiscal year 2003, after making its Treasury payment Sept. 30, 2002, with only $182 million in its reserve accounts, a level that makes the agency nervous. It began FY 2002 with $576 million in reserve.

To close that gap, BPA this year began rate increase proceedings, known as a safety net cost recovery adjustment (SNCRAC), which was triggered by a 2000 agreement with its customers. BPA is still reeling under the effects caused by low water and high market prices in 2000 and 2001.

Congress also extended BPA's borrowing authority by $700 million, which will allow it to make important infrastructure improvements in the future. Most of those improvements will be made in the agency's transmission business. Without the debt optimization and the additional borrowing authority, Curtis said the agency would have run out of borrowing authority by 2006. That has now been extended to at least FY 2010.

"The ability to run this business in the long term is based on our access to long-term capital," Curtis said.

Mostly at issue is the debt from a $2.25 billion bond default in 1983 by the Washington Public Power Supply System, now known as Energy Northwest. WPPSS had begun building five nuclear power plants in the1970s counting on a wrongly predicted future load growth to use the energy. After huge cost over runs, WPPSS shut down four of the five nuclear plants and defaulted on its debt. Only Energy Northwest's Columbia Generating Station is in service today. BPA, which assumed the debt, still has a portion of the debt from that default on its books.

Related Sites:
Northwest Power and Conservation Council: www.nwppc.org
Bonneville Power Administration: www.bpa.gov