BPA Rate increase|
BPA proposes rate increase to sustain hydro system value.
The Bonneville Power Administration today proposed an 8.5 percent average wholesale power rate
increase primarily to support much-needed maintenance and refurbishment of Northwest hydroelectric and nuclear
generating facilities to ensure continued delivery of affordable power to the region.
The proposed rate would affect Northwest consumer-owned utilities such as public utility districts,
tribal utilities, cooperatives, municipalities and federal entities. These are known as preference customers because,
by law, BPA must serve their resource needs. BPA also sells power to investor-owned utilities and direct-service industries,
but under different rate structures.
BPA is holding down the proposed rate increase by not rebuilding its financial reserves, which have been diminished
by two years of low runoff and reduced energy prices that resulted in losses exceeding $300 million. The strategy
keeps rates lower for now amid a difficult economy, but exposes ratepayers to greater rate volatility.
If Columbia River streamflow and the economy do not improve over the coming year, BPA would rely on short-term
borrowing instead of reserves to meet financial obligations. The agency would then have to quickly raise rates
further to repay the borrowed funds.
The hardest issues in any rate case involve balancing near-term and long-term rate consequences,”
said BPA Administrator Steve Wright. “We are trying to keep rates as low as possible now without
compromising the tremendous value of these low cost electricity generating resources, which will
help us keep rates reasonable in the long term.”
The main costs behind the proposed rate increase include:
Upgrades and major maintenance to the aging federal hydroelectric system, which includes many large components
such as turbines and cranes that are beyond their planned design life.
Fuel purchases and repairs at Columbia Generating Station, the region’s only nuclear plant. BPA funds the
plant and markets its power output.
Improvements at dams and habitat restoration to protect Northwest salmon and steelhead as outlined in the federal Biological
Opinion on federal hydropower system operation and Columbia Basin Fish Accords agreements with three Northwest states and
seven Native American Tribes.
BPA’s customer utilities helped reduce cost pressures that initially might have pushed rates up by 12 to 20 percent during
the coming rate period. In particular, customers supported the restructuring of debt obligations to Energy Northwest for
past nuclear plant construction, which reduced overall cost pressures by about 5 percent. BPA also reduced internal
costs and capitalized millions of dollars worth of energy efficiency projects to spread their costs more evenly over the long term.
The rate proposal will be considered during a public rate-setting process in the coming months, culminating in a July
decision on final rates that would take effect Oct. 1, 2011. BPA is a non-profit federal wholesale utility that must
recover its costs through power rates. The new rates will affect retail utilities differently depending on the amount
of power and type of services they purchase from BPA. Local utilities ultimately determine the retail impact of BPA
rates on individual businesses and residents.
BPA sells power that is surplus to its Northwest customers’ needs on the competitive wholesale power market, and
these revenues help reduce rates for BPA’s Northwest customers. Surplus power revenues have been lower than expected
in recent years due to low Columbia River streamflows and low market prices during the economic downturn.
The erosion of surplus power revenues caused BPA to draw on financial reserves in fiscal years 2009 and 2010.
A slightly lower rate increase might be possible if regional utilities settle a longstanding dispute over how
benefits of the federal hydropower system are divided between public and investor-owned utilities.
Such a settlement could modestly reduce costs for consumer-owned utilities and provide more predictable costs
over the long term. Settlement discussions have continued since last spring.
BPA will recover the costs of integrating rising amounts of wind power into the transmission grid through a
separate wind integration charge paid by wind developers and purchasers. That rate will be determined through
the same process of setting power rates.
Source: Bonneville Power Administration Press Release