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Economic and dam related articles

Electricity Rates on the Rise as Temps Fall

by Cate Gable
Chinook Observer, October 25, 2011

BPA bump leads to 9% increase for locals

LONG BEACH -- In a move that was anticipated for several months, Bonneville Power Administration (BPA) raised basic wholesale power rates by 7.8 percent, resulting in utility fees increasing by between 8.6 and 9 percent for local residents.

According to Diana Thompson, PUD commissioner, "We've known this was coming for awhile -- we knew BPA rates were going to go up and it was a just a matter of waiting until we knew what the increase would be."

"The increase for residential customers will be 8.54 percent," Thompson continued. "This includes the increase in the basic charge. For commercial, industrial and irrigation, the increase ranged between 8 to 9.01 percent including the basic charge. The resolution that revised the rates for Pacific County PUD is #1311."

The basic PUD metering charge that is applied regardless of the amount of electricity usage went up from $10 to $13 per month for single-phase residences; and from $14 to $18 per month for three-phase service -- an increase of nearly 30 percent. According to PUD Manager Doug Miller, "Using the average consumption for a residential class of customer over the last few years, this increase adds $6.38 per month to the electric bill. We looked at a four- to five-year window and this increase to retail rates is computed to cover that period of time."

Equipment upgrades

Michael Hansen, with media relations at BPA, said, "This is a new rate that went into effect at the beginning of our fiscal year Oct. 1 and will be in effect through 2013. Our wholesale power rate increase for the whole of the Northwest was approximately 7.8 percent."

"How each of the PUDs passes on that rate varies depending upon the individual PUD. We sell power to approximately 130 public-owned utilities but rates could impact them differently. Wholesale costs make up half of their cost traditionally."

"What they choose or need to pass on to the retail consumers is based on their cost structure, and other costs associated with employees and maintaining their distribution systems."

Hansen indicated that the BPA rate increase was based on "our costs of doing business which includes the operation and maintenance of the Pacific Northwest hydro system and the money that we have to pay for our energy efficiency, conservation programs and our fish and wildlife program.

"I can tell you that the drivers behind the latest increase are the maintenance of the hydro system and the upgrading of that system and the Columbia generation station, the one nuclear plant," said Hansen. "Those two things were the probably the biggest drivers of the recent rate increase."

BPA expenses increase

Hansen indicated that some dams and hydro equipment is between 40 to 70 years old and required extensive upgrading. "We have an aging infrastructure," he said. "Rehabilitation of the hydroelectric system includes large components such as turbines and cranes that are beyond their planned design life. BPA's rates now account for average increases of $44 million a year for 2012 and 2013. A good portion of the funds during the 2012-13 rate period, $39 million, will be used to begin overhauling the third power house at Grand Coulee Dam.

"Additionally, expenses include fuel purchases and repairs at Columbia Generating Station, the region's only nuclear plant. BPA is spending approximately $35 million more per year during 2012 and 2013 than the previous budget for fiscal years 2010 and 2011 primarily for higher fuel costs. "Lastly, the fish and wildlife program will increase approximately $33 million in 2012-13 over the 2010-11 rate period. These increases are primarily a result of implementing Fish Accords with several states and tribes."

When asked if this increase and the required maintenance could produce new jobs, Hansen answered in the affirmative. "That is very true. I was just up at Grand Coulee yesterday and there's a variety of work going on up there with maintenance and upgrading of the facility. Yeah, it's keeping a lot of people working."

According to a press release forwarded by Hansen, "The new wholesale power rate supports needed improvements to ensure the region's 31 federal dams and one nuclear plant can continue to reliably deliver carbon-free, affordable power to Northwest homes and businesses."

Cost structure, cost of service

Hansen went on to explain that the BPA cost structure is a process of "adding all those things up to determine our cost -- then we take that cost and we determine what we need to do to recover enough revenue to pay for those programs.

"Even though we're a federal entity, we're what's called a 'not-for-profit self-funded operation' -- in other words we pay all of our bills based on the revenues we take in. There is no benefit to shareholders and no profit margin," he added.

Although BPA announced that this new rate would be in effect for two years, Thompson said, "Basically, BPA can change things at will. It all depends on the water and the amount of energy that is generated. We've just signed a new contract with them that will be in effect for 17 or 18 years but if something happens, they can choose to change it.

"We were what is called a 'full requirements customer,'" said Thompson, "meaning that we purchased all our power from BPA and they managed a lot of things for us. Now we're what's called a 'slice customer' -- we purchase a particular amount of energy and we manage it ourselves."

As part of the rate increase announcement, BPA administrator Steve Wright said, "This rate period marks a new era in BPA's relationship with its customers.

We are pleased that the transition to a new business paradigm is proceeding smoothly with very little controversy in this rate proceeding." Wright also announced that "due to this year's above average water conditions, there will not be an additional within-year rate increase for fiscal year 2012. The initial rate proposal included a one-in-three chance that such a surcharge would be necessary, based on BPA's financial performance in 2011."

In order for the local PUD to determine how the BPA rate increase would affect local rates, PUD commissioners purchased a cost of service study, done by Gary Saleba of EES Consulting in Kirkland. (EES Consulting is a firm that provides economic and engineering services to clients in electric power, natural gas, or telecommunications businesses.) This study reviewed the current costs for operations and maintenance and compared them with those of other PUDs. As stated in the cost study, "Our goal is that every customer pays a fair share and that the cost allocations are driven by usage, density and delivery voltage."

PUD commissioners and staff looked at the results of the study and other mitigating factors to determine the new rates. Serving Tokeland

One factor that went into the rate decision, according to Thompson, is the ongoing effort to bring the citizens of Tokeland into the Pacific County PUD. For reasons that may have related to convenience and accessibility, Tokeland, though in Pacific County, receives its power from the Grays Harbor PUD.

As Thompson explains it, "I think the issue was that when the service first came to Tokeland there was no easy way to get there from the Peninsula except by boat. There are other places on the edges of counties that are served by another county for some reason. It's not unusual. But we've been looking at how to get service out there."

"We would like to bring Tokeland into our service district because right now they vote for commissioners that don't have any authority to serve them. Basically, they don't have any representation to their utility provider."

Bringing power to Tokeland requires the building of a new substation and, as Thompson indicated, the permitting process can be time-consuming and expensive.

As part of the current rate increase, an earlier loan taken out by the PUD and related to the Tokeland project was paid off and a second loan was taken on. "We made the choice to pay off the money that we had borrowed before and borrow again at a lower rate," said Thompson. "The rates on borrowing are very low

right now so we asked ourselves, 'Do we go for a 15- or 10-year bond?' A 15-year loan would have made the rate increase slightly less but the amount of interest we were paying would have been bigger.

"Part of the problem with Tokeland is getting permitting and some of the power lines got partway there but not all the way," Thompson continued.

"Our PUD got some stimulus funds to run a fiber line from South Bend to Naselle and another from Raymond to Tokeland and some of the permitting will allow those to get tied together so that we can build the substation.

"This starts getting really complicated," she added.

Energy prices in lower third

As indicated by the cost of service study it appears that the county still enjoys rates that put the PUD in the lower third tranche in the state.

Thompson explained, "We looked at what our costs are and where our rates are. You're not going to be dead on for anything but we're in a reasonable range.

"I think with what we've done [for the recent rate increase] we're still going to be in the bottom third for PUDs in the state, at least for those who are not generators of power."

Commenting on the rate increase, Miller adds, "The commissioners and staff feel bad about having to increase retail electric rates at any time and especially during the current economic downturn. The district will continue to look at ways to keep expenses in line and hence retail rates as low as possible. Our rates are in the bottom third when compared with other non-generating public utility districts."

Cate Gable
Electricity Rates on the Rise as Temps Fall
Chinook Observer, October 25, 2011

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