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BPA Proposes Substantial Rate Hike by Cookson Beecher Capital Press, March 21, 2003

PORTLAND -- Bonneville Power Administration's wholesale power rates are expected to go up.

Facing a 50 percent or greater chance of missing a payment to the U.S. Treasury or another creditor during this fiscal year, BPA has proposed an emergency "safety-net" rate hike. The increase would average 16 percent over 2003 rates.

The proposal is for a three-year rate, adjustable annually with a cap on each year's revenue.

This is the first time in its history that BPA has used the safety-net clause to raise rates.

BPA's notice of the proposed rate hike was published in the Federal Register March 13.

Because the wholesale cost of power for a utility generally runs from 65 to 75 percent of its wholesale cost of doing business, the rate hike is expected to trickle down to utility customers, said Bill Murlin, spokesman for BPA. However, utilities vary in the amount of power they purchase from BPA.

BPA is in choppy financial waters. Murlin said that when it enacted new rates in 2001, it had $800 million in reserves. But for the third year in a row, BPA has been $300 million in the hole.

"We're projecting that between now and fiscal year 2006, without making some changes, we could be $1.5 billion short," said Murlin. "We're cost cutting like crazy. We've reduced that projection by nearly a third, but there are some costs we can't directly control."

Droughts have punched a big hole in BPA's budget. The drought in 2001 was the second worst year on record for the Northwest.

While 2002 had average runoff, 2003 appears to be another drought year. "There's not enough snow in the mountains and not enough water in reserve," Murlin said. "If you don't have enough water for power or fish or irrigation, e3veryone suffers. Our system depends on water."

About 20 percent of BPA's budget depends on electricity sold outside of the Northwest. In that arena, Murlin describes this year as "a killer," with prices down into the teens and single digit at some points.

Those low prices contrast with higher prices being garnered when BPA made projections about how much it could bring in through sales outside of the region.

For BPA officials, the dark cloud looming over these bleak financial figures is the fear of defaulting on its federal loan payments for the federal dam system. If that were to happen, said Murlin, people in other parts of the nation would have more ammunition for their argument that the Northwest is being subsidized through this system and that BPA needs to be controlled in a different way.

"We want to maintain benefits for the people in the Northwest," said Murlin. "One of the ways we can do that is through the safety-net adjustment clause."

Darryll Olson, who represents the Columbia-Snake River Irrigators Association board of directors, said irrigators have "extensive concerns" about BPA's proposal.

"You're going to see 16 percent or a portion of that increase passed on to your utility," he said.

Several irrigation groups have formed rate groups to work directly with utilities to see what can be done about the situation.

"Hopefully, they can prevent the rate hike," Olson said. "We think there are ample opportunities to avoid it."

As for fears that outsiders will swoop in and gain control of the dam system, Olson said people in the irrigation community think that's an argument that's been overplayed.

"the people playing it the hardest are BPA officials," he said.

He pointed out that it's been 20 years since BPA missed a payment to the federal treasury.

"We're not concerned about the external threat," he said. "But we are concerned that BPA is not doing enough to keep costs down."

He said the number one issue for irrigators is that river operations - flow augmentation and spill rates - are being guided by fish recovery.

"BPA's fish and wildlife budget and the National Marine Fisheries Service are out of synch with science and the economics of the day," he said.

Meanwhile, irrigation groups are working collaboratively to get the message to congressional delegation to force a change.

"We want to get Stephen Wright (CEO and administrator of BPA) to back off from this," said Olson. "there are ways to avoid this rate increase."

Steve Johnson of the state's Public Utility District Association had similar concerns.

"This rate increase has to be avoided at all costs, and it can be," he said. "If it goes forward at anywhere near the levels proposed, it will have an absolutely devastating effect on industry in the Northwest, agriculture in particular.

Johnson said that in the face of the already 47 percent wholesale rate increase that BPA has implemented, this additional increase "would be a double whammy that can't take place."

"Stephen Wright is on the spot," he said. "This is going to require real leadership by the head of BPA."

The documents in the final initial proposal for this proposed rate hike will be available for public viewing at March 31. they will be available at www.bpa.gov/power/psp/rules/RateCases/sn03/.

The public comment period closes on May 1, 2003.

Written comments should be submitted to: Bonneville Power Administration, P.O. Box 12999, Portland, Ore. 97212.

Comments can also be sent electronically to comments@bpa.gov.

For more information about a public hearing, contact Cynthia Jones at (503)230-5459 or Cain Bloomer at (503)230-7443.