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BPA Takes Responsible Risk with Rate Proposal

by Editorial Board
Tri-City Herald, November 16, 2010

When the Bonneville Power Administration starts talking about electric rates, everyone ought get a little nervous.

About 70 percent of the electricity sold by utilities in Washington comes from the BPA, which guarantees consumers will take a hit whenever the federal agency raises prices.

But we'll take a little nervousness over the panic that a meddling Congress could unleash.

Periodically, the cheap energy produced by the federal system of hydroelectric dams in the Northwest proves to be a tempting source of potential new revenue for lawmakers.

An innovative rate plan being proposed by BPA has a chance of holding Congress at bay while limiting the increase in rates that utilities -- and ultimately consumers -- pay for power.

The issue is a bit complicated but important. The outcome will determine how much of the family budget goes to pay the electrical bill.

Not long ago, BPA was predicting a 20 percent jump in rates for the two-year agreements with electric utilities that take effect in October 2011.

Under a revised proposal, the increase is expected to come in at 6 percent to 10 percent. It's not great news, but better by half than what it might have been.

Here's the catch -- it's a gamble.

By the agency's own calculation, there's a 40 percent chance it will have to raise rates again before the two years are up.

BPA -- and by extension, every ratepayer in the Northwest -- has an obligation to pay off debt on our electrical system.

The bill to the U.S. Treasury runs around $800 million a year, and making the payment on time is crucial to keeping a cash-strapped Congress -- or the administration, for that matter -- from targeting BPA.

There will always be lawmakers who would like to turn the Northwest's hydroelectric system into a cash cow, but they will have a hard time gaining traction as long as BPA remains self-sufficient.

That delicate balance could topple in a hurry if the American taxpayer is ever asked to subsidize the Northwest's low-cost power.

BPA has always set rates high enough to provide a cushion even if conditions change for the worse -- a lack of snow to feed the hydroelectric system, for example.

If everything goes well, the agency builds a healthy reserve and even issues rebates on occasion. Under that system, BPA never missed a payment on its federal debt.

But there's not much of a cushion built into the next rate increase, and the odds that revenues will be too low to meet BPA's obligations are greater than ever.

That's possible because BPA figured out a way to make up any shortfall through short-term loans, if necessary.

It would mean another rate increase to pay off the new debt, but the burden would stay in the Northwest and all obligations would be met.

It's a reasonable gamble.

Without those short-term options, BPA estimates it would have to collect about $330 million more per year through rates to provide the same degree of certainty that it could make its annual payment to the Treasury.

That would require an additional rate increase of about 15 percent, on top of the 6 percent to 10 percent increase that is planned.

That's quite a jump in electric rates to build a fund that may never be needed.

In this economy, when most families have seen disposable income shrink or disappear, anything that reduces expenses is welcome.

Editorial Board
BPA Takes Responsible Risk with Rate Proposal
Tri-City Herald, November 16, 2010

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