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BPA Looking to Limit its Risks in Volatile Marketplace by Michael Jamison The Missoulian, July 19, 2006

KALISPELL - The outfit selling nearly half the electricity used in the region wants to limit its risks in a volatile and privatized marketplace, putting more of the burden back on local utilities.

"This is extremely important," said Steve Wright, administrator at Bonneville Power Administration, "because the region's ability to grow its economy will either be facilitated or restricted by the ability of the region's utilities to provide adequate power."

Bonneville is a nonprofit government agency, selling power from hydroelectric dams throughout the Columbia River Basin, as well as one nuclear plant. In Montana, some 400,000 people are served by BPA.

A few years back, Bonneville was selling not only the power from its federal dams, but also power it purchased for customers in the private marketplace. The sheer size and sophistication of BPA allowed the agency to buy at the best price and pass the savings along.

Many customers enjoyed fixed-rate contracts not only for BPA hydropower, but also for power Bonneville was purchasing for them from other generators.

But in 2000 and 2001, that private marketplace went wild, with rolling brownouts and blackouts, power shortages and skyrocketing prices. Bonneville, obliged to provide lots of power from the marketplace at a fixed rate, found itself wallowing amid record prices, forced to buy high and sell low.

The crisis cost BPA billions, and resulted in substantial BPA rate hikes.

Looking to shield itself from a similar future, BPA has released a plan for coming years that puts much of the risk back on its customers.

"We don't want another West Coast energy crisis," Wright said of the plan, which he said "sends a signal to utilities about the amount of resources they will need to develop or acquire on their own."

The idea is that BPA will limit the amount of lowest-cost power it sells to the amount of power provided by the dams. Each of Bonneville's preferred customers - guaranteed low-cost power by law - would receive a defined portion of that total at the lowest "Tier 1" rate.

For additional power needs, BPA would continue to help utilities buy from the private sector, but Bonneville would sell that juice at a higher "Tier 2" rate, which would now include BPA's cost for acquiring and purchasing that power.

By separating the two - federal hydropower BPA can predictably buy on the cheap, and power it must buy on the market - Bonneville effectively would shift the financial risk associated with rate spikes onto its customers.

That should shield Bonneville from unanticipated rate hikes such as those that followed the 2001 crisis, Wright said, preserving the value of the low-cost federal system for customers who rely upon it.

At the same time, Wright said, the two-tiered approach signals customers that they can continue to rely upon BPA for additional load, or they can look elsewhere for power - including development of their own resources.

"The region's utilities have accountability to make decisions about how load growth in our region will be served," Wright said, "although BPA will be there to help them if they desire. Knowing BPA's plans for the future will help other regional utilities make informed choices about their power supply, and to do so early enough that adequate resources can be developed to meet growing demand."