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BPA is Considering 'Safety-Net' Rate Increase by Hal Bernton & Christopher Schwartzen, staff reporter Seattle Times, November 22, 2002

The cash-strapped Bonneville Power Administration (BPA) may ask Northwest public utilities to pay more for wholesale power, with a decision about a rate increase due next year.

BPA's plight is outlined in a seven-page letter the agency's administrator Steve Wright is scheduled to release today.

The letter will discuss the prospects of a first-time "safety-net" rate increase intended to help BPA make good on debt owed to the U.S. Treasury, said agency spokesman Ed Mosey.

The BPA is reeling from the effects of the power crisis that rocked the West Coast during the winter of 2000-01, pushing wholesale electricity prices to unprecedented levels.

It had to buy lots of power to fulfill contract obligations as the region's largest wholesale power marketer. And cash reserves dwindled from more than $800 million to less than $200 million.

The size and timing of the rate increase are uncertain and depend in large part on what happens in the next few months as BPA sells surplus power to earn additional revenue.

Several industry sources say initial estimates of the possible wholesale-price increase range from 10 percent to 12 percent.

BPA markets the public power produced from federal dams along the Columbia River and for decades has been a key source of electricity that propels the region's economy.

The agency is planning to cut more than $300 million in costs through 2006, Mosey said, and raised revenue by increasing wholesale rates to public utilities.

Within the past 14 months, those rates have climbed by more than 40 percent. The prospect of another BPA rate increase has triggered protests.

Major manufacturers fear a hit to their bottom lines in an already shaky economy. They say higher power costs may trigger more job losses, said Linc Wolverton, a consultant who represents Weyerhaeuser, Boeing and other corporations that use public power.

Public utilities also are chafing at the prospect. Snohomish County Public Utility District, which depends on Bonneville for 80 percent of its power, would be among the hardest-hit utilities in the Puget Sound area. Since 2001, the PUD has raised rates by about 50 percent.

"(Bonneville) rate increases have already been a disaster, and another rate increase just makes it worse," said Don Berkey, PUD chairman.

Seattle City Light also has raised its rates by some 50 percent within the past year and is struggling with debt. But City Light depends on the BPA for less than a third of its power — and so the effects of a new rate increase on consumers would be less than in Snohomish County.

Conservationists fear that salmon-recovery programs funded by the BPA will take a disproportionate share of the budget cuts scheduled to take effect through 2006.

"These cuts will further weaken an already failing salmon plan," said a statement released this week by Friends of the Earth and three other conservation groups.

Many of the BPA's problems result from the runaway markets of two years ago.

The agency was caught short of power, and had to buy large quantities of high-priced electricity to make good on its contractual obligations to public utilities. As part of that effort, BPA agreed to five years' worth of power buybacks from investor-owned utilities such as Puget Sound Energy and Portland-based PacifiCorps. Those buybacks are a significant source of Bonneville's cash drain, Mosey said.

Overall, BPA officials said they managed the turbulent markets better than many counterparts in the West Coast utility industry.

But public-utility officials have said Bonneville overcommitted to the investor-owned utilities and then paid for that mistake during the 2000-01 power crisis.

In the next few months, the BPA's best hopes of boosting cash reserves — and avoiding another rate increase — lie in a new round of short-term power sales. This power is surplus, generated in the winter as rains swell Columbia River reservoirs.

The current market price is about $34 per megawatt hour. If prices rise to well above $40, the BPA might be able to earn enough to pay the Treasury debt.