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Power Rates Could Get More Unstable by Chris Mulick, Herald staff writer Tri-City Herald, February 28, 2001

Newly structured power contracts could subject consumers more directly to the volatility of West Coast electricity markets, especially when the new deals first take effect Oct. 1.

In the meantime, power managers are trying to reduce the expensive market purchases the Bonneville Power Administration will have to make to meet its commitments.

BPA, which sells the energy generated at 29 federal dams on the Columbia and Snake rivers and the nuclear power plant north of Richland, has about 8,000 megawatts to sell. But it already has committed to sell 11,000 megawatts to utilities and large industrial companies it serves directly.

The prospect of buying the extra 3,000 megawatts on the market is driving anticipated rates up markedly. The agency announced in January that it would need to increase wholesale rates by more than 60 percent over the next five years. That would equate to a near 30 percent retail increase for most consumers of public utilities and rural electric cooperatives, like the ones serving the Tri-Cities.

But such estimates have been moving targets for months, worsening with each update. No increase estimate has remained current for long.

"The actual rates are no more clear today than they were a month ago," said Benton REA Manager Chuck Dawsey.

So rather than sign five- or 10-year contracts at fixed rates, BPA now plans to allow for rate revisions every six months, a freedom not provided for in existing contracts set to expire Sept. 30.

"In a perfect world, you get a five-year rate," said Franklin PUD Manager Ken Sugden. "But it's not a perfect world. Now, you've got markets that are jumping all over the place."

Utilities, which want to offer predictable rates to consumers, would have to decide whether to change their rates every six months to reflect the revisions or build reserves that could be used to flatten the peaks and valleys.

Even if they choose the latter, utilities may be unable to level the initial spikes. Rates are expected to be highest when the contracts take effect this fall, and Mid-Columbia utilities may not have the financial wherewithal to swallow a doubling of rates if they needed to.

"Our preference would be to provide some certainty to our customers," said Benton PUD Manager Jim Sanders. "In the first couple of years, that would be problematic."

The only way to lower those spikes is to reduce the 3,000 megawatts BPA has to buy off the spot market. Already, the agency has made some purchases on the cheaper forward markets, though prices there haven't been cheap, either.

"The forward prices are a little higher than people were hoping they would be," said BPA spokesman Mike Hansen.

BPA also has begun negotiating power buyback deals with energy-guzzling aluminum companies, though most expire before the new contracts take effect. BPA has committed to providing 1,000 megawatts to those companies in the next five years, already cutting back from what those companies get now.

But some argue BPA shouldn't sell to the aluminum companies, which don't have a legal entitlement to the federal power, pushing costs of market purchases onto public utilities that do. That's why it's imperative BPA effectively buy the so-called "direct service industries" off the system, Sanders said.

"If Bonneville can't buy off the (aluminum companies) ... there's going to be significant economic dislocation," he said.

BPA is doing a bit of a balancing act. If it simply chooses not to serve the companies, market power prices could force them to close, permanently putting as many as 10,000 workers on the streets. On the other hand, it has no goal of buying back all 1,000 megawatts from the direct service industries at a mark-up, bumping them off the system.

"That is not a stated policy," Hansen said. "That may end up happening, but it's not a policy."

Though most buyback deals are temporary, two have been arranged with companies that could permanently reduce some of their BPA take.

An agreement with Columbia Falls Aluminum of Montana calls for the company to relinquish 165 megawatts beginning in October. Another deal with Golden Northwest, which operates smelters in The Dalles, Ore., and Goldendale forces the company to acknowledge it has no legal right to any BPA power after new contracts expire in 2006.

Pickings only get slimmer after that. The agency also has proposed buyback plans for irrigators, but there's not nearly as much electricity to be gained. The agency might not get any nibbles anyway, considering its offer has proved to be less than popular with growers.

BPA also has proposed new incentives for consumer conservation.

On the generation side, it is hoping to add to its resource base by soliciting requests for proposals for new wind farms.

"Those are all different legs of the stool," Hansen said.