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BPA Rate Increase Proposal Comes in at Net 5 Percent by Ben Tansey NW Fishletter, June 30, 2003

BPA wholesale rates could increase an average of 5 percent over current rates come Oct. 1, the agency said last week in a draft record of decision (ROD). But the actual amount of the safety net cost recovery adjustment clause, or SN CRAC, is still not absolutely final, and could change after a "second look" in August that will account for water and market conditions, and the status of litigation over federal power benefits received by the region's investor-owned utilities.

BPA stressed that the 5 percent hike--which the agency calculated would be the average net increase above current rates over the next three years as rates go up and down every six months--is "significantly less" than the net 15 percent it was projecting last February. Back then, market fundamentals looked grim; but that was before what at BPA has come to be known as "miracle March," when water and market conditions improved markedly, and before the agency had committed to additional cost cuts.

"The good news is it's not 15 percent," said Jerry Leone, manager of the Public Power Council. "The bad news is it isn't zero."

John Saven, executive director of Northwest Requirements Utilities, said he was disappointed with BPA's decision to "flatten things out over three years" and not direct the benefits from improved hydro conditions into fiscal year 2004. Because of current economic conditions, "We don't want an SN CRAC if it's not needed in 2004," Saven said. He also said BPA set its Treasury repayment bars too high and ought to stick to a much lower ending reserve balance of no more than $200 million.

BPA said the SN CRAC plan would allow it to move Treasury repayment probability to 80 percent from 50 percent.

BPA noted that the "single largest outstanding item" that could bring the increase down even further would be a settlement of litigation filed by public power against BPA over the federal benefits IOUs receive under their current residential exchange contracts. That's in part because BPA promised to pay two IOUs a total of $200 million if there were no settlement. The agency has said a settlement could reduce the rate increase by at least another 6 percentage points, so the implied message is clear: if the customers would settle, there could actually be a net rate decrease.

PPC's Leone said the publics will try to settle, but "We ain't the ones who put Bonneville into this position. Bonneville is the one who got itself into this position, so now we have to pull them out."