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PUD Lauds Court's Slap Against BPA

by Jordan Kline
The Daily World, May 4, 2007

The Bonneville Power Administration stepped outside its legal authority when it required public utility districts to make block cash payments to private utilities to account for differences in the cost of generating power, according to a ruling laid down yesterday by the Ninth Circuit Court of Appeals.

The ruling took the power community by surprise, and could radically change the debate inside this year's regional dialogue process to set Bonneville's new power contracts starting in 2011.

The petitioners in the case -- public power groups throughout the region including Grays Harbor PUD -- celebrated the court's unexpected "slap in the face" of the federal power marketer and the chance for a rate decrease for their customers.

"This was our argument all along," said Grays Harbor PUD General Manager Rick Lovely. "It's expressly laid out by Congress in the Northwest Power Act what their statutory authority is ... we won on principal and we won on the law."

Meantime, Bonneville officials said they were "disappointed" with the ruling, and privately-owned utilities are now faced with millions of dollars in lost revenue and a potential rate increase for their customers.

The cash payments, which added up to as much as $400 million per year, were funneled to privately-owned utilities as part of an agreement under the Northwest Power Act of 1980. Known as the residential exchange program, the payoffs were part of a series of compromises intended to mitigate for the then-growing disparity between residential rates for investor-owned utilities and public utilities, which received preference for the cheap power flowing from the Bonneville Power Administration's Columbia River dams.

Following the formula

Bonneville included the Section 7(b)(2) rate test formula in the act to streamline the payments. The formula involved a comparison of the average cost of generating power at investor-owned utilities and the average rate paid by publicly-owned utilities for federal power. Customers of public power and industries that had direct contracts with Bonneville paid the difference.

But in 2000, Bonneville decided to abandon the 7(b)(2) rate test in favor of "settlement agreements" that gave the private utilities block cash payments negotiated in the face of litigation and a regional power crisis. The new agreements ignored the cost of generation for the investor-owned utilities, and paved the way for cash payments to private utilities whose cost of generation was actually lower than Bonneville's in some cases.

Thirteen percent of Grays Harbor PUD customers' monthly bills went directly to private utilities under the settlements.

"We hold that Bonneville acted contrary to law when it allocated to its preference customers part of the cost of the settlement Bonneville reached with its investor-owned utility customers," read the court's opinion.

The court also defined Bonneville's settlement authority as something less than the broad discretion they enjoyed before.

PUD Commissioner Tom Casey said the decision seemed to come right from the PUD's own press releases.

"What this amounted to was taking everybody's responsibilities under the Northwest Power Act and waiving them, deciding on an arbitrary number that no longer recognized the spirit of the statute," he said.

Although private utilities aren't a party in the lawsuit, they argue they're entitled to the payments because their customer base -- 60 percent of residential customers in the Northwest -- is excluded from the benefits of the federal power system.

The fallout

It's unclear if Bonneville will appeal the decision, revert back to the pre-2000 formula, or negotiate a new settlement agreement. They say they need more time to look into the court's ruling.

Mike Hansen, a spokesman for Bonneville, said "we're concerned the ruling will have an impact on our ability to provide long term certainty to the region, and that this will make settlements more difficult to achieve."

PUD assistant General Manager Doug Smith said "Of course they're concerned about settlements. These payments have been their linchpin in the whole region dialogue process, and they actually had some leverage to get public utilities to agree to the new contracts.

"I don't think they have that leverage now," he said.

Smith also said there's a good chance PUD customers could see lower rates, and PUD attorneys told him Bonneville may have to redo their both their current rate case and their proposed rates after 2011.

Lovely said private utilities now face a significant loss of revenue. "If they have to use the rate test now, the investor-owned utilities will get something so small it's almost insignificant."

Lovely also speculated that the ruling could require the private utilities to refund the billions of dollars they've received in total over the last six years.

A new fight

Casey said he expects Bonneville to fight the ruling by appealing to the Supreme Court and the court of public opinion.

"I haven't found out yet what this is going to require Bonneville to do. My guarded position is that this decision will now have to be politically defended. It isn't going to be good enough that the court says they should do what the law says. We're now going to have to fight private power interests, which includes politicians who sympathize with them."

Casey expects Bonneville to come up with a new justification for similar payments. "Bonneville's administrator told us a few years ago that even if we won the lawsuit, he could still calculate benefits to the private utilities that were just as expensive yet within the law," he said.

Decision has impact on Casey's 'big idea'

Thursday's Ninth Circuit opinion also impacts Commissioner Tom Casey's "big idea" to transfer the residential exchange payments to a fund that would fight global warming by financing research and conservation measures.

Casey said his idea actually anticipated the court's ruling, and he expects Bonneville to come to the table with a new justification for the payments.

He says his idea would be a natural counteroffer. "I think we have to be there with our own proposal," Casey said "They've created an argument that's not in the statute, and they've had a lot of success with that up until now."

Now, he suspects public power might not go along with his idea. "The thing that's going to get harder is public power isn't going to have to pay this money now, which means they actually get to have the money back."

He said public power will now need more convincing, but the ruling gives Bonneville and private utilities more incentive to go along with his idea.

Related Pages:
Casey Wants Payments to Have a Purpose by Jordan Kline, Daily World, 2/27/7

Jordan Kline, Daily World writer
PUD Lauds Court's Slap Against BPA
The Daily World, May 4, 2007

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