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Suit's Outcome Governs BPA Rate Changes in Fall by Tom Detzel, The Oregonian staff The Oregonian, July 2, 2003

WASHINGTON -- The Bonneville Power Administration said Tuesday that it probably will raise wholesale power rates in the Northwest an average 5 percent this fall unless the region's utilities can settle a legal fight over BPA benefits.

Should that happen, the agency said it might be able to cut rates by as much as 6 percent. A settlement of the legal issues could occur as late as Sept. 15 and still be factored into new rates that would take effect Oct. 1.

The announcement by BPA Administrator Stephen Wright finalizes a process that started in March with the power marketing agency saying it needed a 15 percent rate boost to erase a $920 million budget deficit through 2006.

Since then, cost-cutting, favorable weather for hydropower production and improved prices for the surplus electricity that the BPA sells outside the Northwest have combined to bring down the proposed increase.

Some among the region's utilities breathed easier Tuesday, saying the rate boost could have been a bigger obstacle to the struggling economy. But others angrily criticized the BPA for not doing more to prevent an increase.

"It's still a big hit; there's no question about it," said Ken Canon, executive director for Industrial Customers of Northwest Utilities, which represents Weyerhaeuser, Boeing, Hewlett-Packard and other major employers.

Bonneville has been trying to encourage public- and investor-owned utilities to settle a 2-year-old court case over how power and financial benefits of low-cost federal hydropower in the region are shared between the two camps.

The impact of a 5 percent increase on consumers will vary widely across the region. Although the BPA provides about half of the Northwest's electricity, some utilities purchase all of their power from the agency while others buy only a share.

The 657,000 residential customers of Oregon's biggest investor-owned utility, Portland General Electric, are likely to see bills go up by $1 or so a month because the increase will reduce a monthly credit they receive from the BPA.

A spokesman for PacifiCorp, with 550,000 residential customers in Oregon, said there would be "little or no immediate impact" from the increase.

Ratepayers at consumer-owned utilities -- municipals, co-ops and people's utility districts that are more dependent on the BPA -- will bear the brunt of the increase. But some said they might not have to automatically raise their rates in response.

"We believe we can absorb that," said Mick Shutt, spokesman for Clark Public Utilities in Vancouver, which buys about half its power from the BPA. "It's not good news, but it's certainly better than what they talked about earlier."

The BPA, a federal agency, sells power from 29 dams in the Columbia River basin and one nuclear plant near Hanford, Wash. It sells electricity to more than 130 utilities in the region and markets surplus power outside the Northwest.

Bonneville triggered the rate case early this year saying financial troubles partly grounded in drought and the Western power crisis of 2000 and 2001 put the agency at risk of missing its $788 million debt payment to the U.S. Treasury.

The agency now says it will be able to comfortably meet its Treasury payment in September. The new rates will shore up the BPA's finances during the three years remaining in the rate period that ends September 2006.

Paul Norman, senior vice president for power, said the BPA cut costs by $80 million, saved $100 million by buying out a costly power purchase contract with Enron and now expects to earn $150 million more on surplus power sales.

The new rates would bring in an additional $450 million over the next three years, Norman said. The BPA decided to absorb the remaining $140 million of the budget gap in response to customer complaints about the rate boost, he said.

"The economy was a huge consideration for us, and we agree that the Northwest can ill afford another rate increase right now," Norman said.

A settlement could cut the BPA's costs by an additional $400 million to $500 million in the rate period, enough to cut rates up to 6 percent from current levels. Settlement talks broke down last month, however, and the outlook is uncertain.

"I'd like to hope that is likely to happen, but I'm a little disappointed right now," said Lee Beyer, a member of the Oregon Public Utility Commission, one of four state commissions that would have to agree to any settlement.

The rate structure finalized by Wright now goes to the Federal Energy Regulatory Commission for approval. It allows the BPA to set final rates in August or as late as September if there is a settlement or other last-minute changes.

The 5 percent increase is an estimate assuming no legal settlement and no more improvement in the BPA's financial picture. The increase is above current rates, which are already about 50 percent higher than before the power crisis.

"If it stays in place at that level, it'll hit our utilities and their customers pretty hard," said Scott Corwin, a vice president with PNGC Power, a consortium of 15 rural cooperatives in Oregon, Washington and Idaho.

Canon, of the industrial customers' group, said it was "extraordinarily disappointing" that the BPA couldn't hold the increase to zero. A number of customers had argued the increase is greater than the BPA claims because the agency's rates had been scheduled to drop from current levels beginning Oct. 1.

Northwest pulp and paper plants and industries that face tough global competition will be especially hurt by the higher rates, he said.

"We've calculated that this is going to suck half a billion dollars out of the Northwest economy over the next three years," Canon said. "That's not really helpful."