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Exchange Still Inflates PUD Customer Bills

by Kathy Gray
The Dalles Chronicle, June 25, 2007

BPA continues to collect for exchange cost

Residential exchange payements to private utilities may have ended, but public utility customers are still feeling the higher bills that made those payments possible - with no relief expected any time soon.

Bonneville Power Administration suspended the residential exchange payments after a U.S. Ninth Circuit Court of Appeals ruling May 3 saying Bonneville's payment formula was not consistent with law established by the Northwest Power Act of 1980.

Negotiations for a new solution are proceeding. Another meeting is scheduled Tuesday, June 26.

In the meantime, Bonneville continues to collect about $28 million a month from its preference customers to fund those payments. Those preference customers include Northern Wasco County PUD.

In fact, the PUD was one of 118 Public Power Commission (PPC) members who were party to the Ninth Circuit lawsuit.

"They chose not to go by the law," said Bill Ward of The Dalles, who sits on the PPC executive board and the PUD board of directors. "They violated the law and took other methods."

Since 2002 public utility customers have paid higher rates yielding almost $1.8 billion in residential exchange funds.

"Our ratepayers have the liability of paying for that," said Dwight Langer, PUD general manager.

It's too much, say Langer, Ward and the other utility officials who joined the lawsuit.

Residential exchange payments in four of the five years since 2002 have exceeded $350 million, while payments over the previous 10 years ranged from under $60 million to just above $250 million, according to a Bonneville chart of benefits (see related exhibit).

"The Ninth U.S. Circuit Court of Appeals decision vindicates public utilities' claim that Bonneville has been overcharging the citizens of our communities and using that money to subsidize the electric rates of private utility customers," Ward said.

Bonneville officials say the settlement was necessary to offset the benefits preference customers received during the West Coast energy crisis of 2001. Bonneville bought power from preference customers at lower prices than the market, thereby avoiding massive rate increases, according to Scott Simms, BPA spokesman.

"BPA believes that the court misunderstood that its settlement was a reasonable and prudent exercise of the agency's discretion to manage risk it faced from potential litigation over the exchange benefits calculation," Simms said.

Discussions on residential exchange continue outside the formal negotiations to clarify issues and develop ideas about what a residential exchange might look like.

"These discussions will continue in the weeks ahead, and there will be a public discussion to share with folks what the participants in these discussions are thinking about," Simms said. "But first we must formulate some concepts that are at least within the realm of possibility, and that's what we're doing now." Bonneville's goal is to be able to offer a solution to the residential exchange issue at the same time the agency offers long-term power contracts to public customers, sometime toward the end of 2008.

"If there is a broad consensus on the issues, BPA believes it is possible for the region to complete a BPA 7(i) rates proceeding and a revision of BPA's Average System Cost Methodology in three to six months," Simms said.

Delay of those contracts remains a big concern for the PUD and other preference customers. Bonneville was expected to release the rate case leading up to those contracts early this year. The Ninth Circuit decision put that timeline in limbo.

The rate case, resulting from the Regional Dialogue process, will outline how Bonneville will allocate the energy from the Columbia River federal hydropower system. That's a question a PUD leaders want quickly answered as they look toward development of power resources needed to meet future load growth when it eventually exceeds their federal allocation, Langer said.

Private utilities also agree that quick action is vital, according to a letter to Bonneville signed by six utility chiefs: "We all - BPA, public utilities and IOUs [investor-owned utilities] alike - have invested years in developing and refining the Regional Dialogue Proposal for equitably allocating the Northwest's federal power benefits. The recent court decisions have undermined those collective efforts to determine the future role of BPA federal power benefits in the region." Residential exchange is a key component of those collaborative efforts, the letter said.

However, Bonneville is also considering other remedies, maintaining that the court erred not only in its evaluation of Bonneville's rights to negotiate, but also in its characterization of the agency's rate-setting requirements.

Most parties agree that the solution must come from the within the region. The Northwest congressional delegation has instructed Bonneville not to seek a political solution outside the region that could endanger the region's supply of affordable power.

"We note that continued regional unity is essential as we work to defeat ill-advised attempts by outside entities that have long sought the benefits of this system for themselves," said a letter signed by Northwest members of the House of Representatives.

However, Bonneville could pursue a legal review of the Ninth Circuit's decision.

"We believe it is important to defend our contracts, whether those contracts are with public or investor-owned utility customers," Simms said.

The question of whether Bonneville pursues legal measures against the Ninth Circuit ruling rests with the U.S. Department of Justice. The court's deadline for filing of a rehearing request is July 18.

In the meantime, negotiations continue toward establishing a new "gyration" of residential exchange payments designed to be in compliance with the Northwest Power Act, as Langer describes it. At minimum, Langer and Ward say Bonneville should reduce its residential exchange payments to a more reasonable level, thereby lowering the power cost for PUD customers.

"This is an important and costly provision of the law and it is important that we get it right," Langer said.

Related Pages:
PUDs: Too Much, Too Fast by Kathy Gray, The Dalles Chronicle, 4/1/7

Kathy Gray
Exchange Still Inflates PUD Customer Bills
The Dalles Chronicle, June 25, 2007

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