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BPA, Customers Agree to Change Rates Every Six Months by Bill Virgin Seattle Post-Intelligencer, February 22, 2001

The Bonneville Power Administration said yesterday it has reached an agreement with its customer utilities to reset wholesale electricity rates every six months, scrapping the current system of establishing one rate for five years.

The change would mean an end to rate stability for customers, and will mean more volatility for the utilities that buy electricity from the power marketing agency.

But Bonneville, which markets power from federal dams on the Columbia and Snake river systems, says variable rates are preferable to trying to set a fixed rate now, only to have to go back to customers later for more money or a refund.

"This situation calls for something more flexible," BPA spokesman Ed Mosey said.

It's also preferable, Bonneville says, to its most recent proposal of setting a five-year schedule in which rates would go up as much as 90 percent starting in October, then be whittled in later years to a 60 percent average over five years.

Having Bonneville's rates change every six months "certainly makes it more difficult to manage in terms of adjusting the bill structure and educating the public" about what's going on, said Tacoma Power Superintendent Steve Klein.

But Klein said he is "still more concerned about the size than how often it changes."

Bonneville is currently in negotiations with its customers, including public and investor-owned utilities, for new five-year rates, which would start Oct. 1. The electricity rates could be reset every six months within that five-year contract. It hopes to set the rates by June 20 and submit them to the Federal Energy Regulatory Commission by July 1.

The BPA is in those negotiations at a time of skyrocketing wholesale power rates. The average monthly price in the Mid-Columbia market a year ago was $17 a megawatt hour; this month the price has bounced between $180 and $450 a megawatt hour.

Those market prices are a concern because the BPA has commitments for 11,000 average megawatts of power, but the hydro system has a production capacity of about 8,000 average megawatts.

That means the BPA has to sign contracts for power to make up the difference, and because market prices are so high, its rates are going to go up sharply. Bonneville believes rates will go down as more generating capacity is added on the West Coast.

The suggestion for flexible rates came from customers, Mosey said. "They've accepted this market is a fact of life, and that this isn't something Bonneville can change," he said.

The BPA doesn't know yet how much the first six-month rate will be. That will be determined by what prices the BPA has to pay for the additional 3,000 megawatts; Mosey said the agency currently has contracts in place to cover 1,000 megawatts of the difference.

Preliminary estimates the BPA compiled show that if Bonneville winds up buying just 500 additional megawatts at $30 a megawatt-hour (because water conditions allow it to generate more electricity), rates would go up less than 4 percent at the six-month adjustment.

At the other extreme, if it had to buy all 3,000 megawatts at $325 a megawatt hour, rates could jump by 453 percent.

The only alternatives, Mosey added, are to reduce load, which it is doing through conservation and agreements with its biggest customers (mainly aluminum smelters) or increase river flows to generate more power in the hydroelectric system. It can do that in years of heavy rainfall and a deep snowpack, but the approach is highly controversial, especially in a low-water year like this, because of the potential impact on salmon.

The impact on consumers and businesses will depend on how much power their utilities buy from the BPA.

Mosey said all of the BPA's utility customers concur with the preliminary agreement on variable rates; big industrial customers that buy power directly from the BPA haven't.