>La Grande Observer | Union and Wallowa Counties' News Leader

It's possible OTEC customers could see a 10 percent cut in rates. (File photos).

JAYSON JACOBY

Wescom News Service

Oregon Trail Electric Cooperative customers almost certainly won't pay more for power next year.

They'll probably pay less.

A 10 percent cut would not surprise Cliff Stewart, general manager for OTEC, the Baker City-based cooperative that supplies electricity to about 28,000 customers in Baker, Union, Grant and Harney counties.

A 10 percent cut would be the largest rate decrease in OTEC's 17-year history.

The cooperative's seven-member board of directors, not Stewart, will decide whether, and how much, to trim power prices in 2006.

And Peggi Timm of Baker City, the board's president and one of OTEC's founders, declined to predict how far power rates might plunge.

"We haven't decided anything yet," she said.

But like Stewart, Timm expects OTEC will reduce rates next year for all of its customers.

Timm said she anticipates the board will decide late this year how much to cut rates.

A rate increase, on the other hand, "is out of the question," Stewart said.

The reason, he said, is simple: OTEC stands to save about $9 million in 2006 — about 28 percent of its annual electricity bill.

Here's how:

On Jan. 1, 2006, OTEC breaks free from a financial shackle that has bound the cooperative, and its customers, since OTEC was born in 1988.

That shackle is a 20-year contract that OTEC inherited from CP National, the privately owned company whose assets OTEC bought.

The contract with Prairie Wood Products, a lumber mill in Prairie City, requires OTEC to buy electricity generated in a plant adjacent to the mill.

That plant burns waste wood to produce power. The contract, signed in May 1984, also sets the price OTEC pays for that power.

And therein lies the problem, as Stewart sees it, with the contract.

Although the Prairie City plant supplies just 10 percent of OTEC's power load, it's an expensive 10 percent, he said.

In the contract's first full year, 1986, OTEC paid 6.243 cents per kilowatt-hour — a rate that Stewart calls "outrageous" even for 19 years ago.

OTEC filed a lawsuit to try to renegotiate the contract, Stewart said, but the Oregon Supreme Court ruled in the mill's favor.

The contract remained, and OTEC's price continued to climb each year. In 2005, the contract's last year, the rate OTEC pays for the mill's power topped out at 16.567 cents per kilowatt-hour.

By contrast, OTEC pays about 2.9 cents per kilowatt-hour for electricity from the Bonneville Power Administration, the federal agency that provides almost 90 percent of OTEC's power, Stewart said.

(OTEC, under a contract that expires at the end of 2007, buys less than 1 percent of its power from a hydroelectric plant the city of Cove operates.

The price for that power is slightly lower than the Prairie City mill's price.)

To put it another way, the Prairie City plant, though it supplies just 10 percent of OTEC's supply, accounts for $11.75 million of the cooperative's $32 million annual electricity bill — almost 37 percent.

But that all changes when the contract expires Dec. 31, Stewart said.

He said he's confident that OTEC, starting Jan. 1, 2006, instead of paying the higher Prairie City rate for that 10 percent, will pay the BPA rate, which is about 82 percent less.

And that, Stewart said, would slash OTEC's power bill by about $9 million for 2006.

That's a 28 percent cut.

It's unlikely that OTEC customers will see the same level of savings, Stewart said, although he reiterated his belief that a 10 percent cut is financially feasible.

One thing that's not clear, although it's becoming less murky as 2005 wanes, is where OTEC will get that 10 percent slice of its power pie.

Stewart said a 1978 federal law, which was designed to promote electric plants that burn renewable fuels such as waste wood, requires OTEC to continue to buy electricity from the mill after Dec. 31 if D.R. Johnson Lumber, which owns the mill, offers the power to OTEC.

But that law, called the Public Utility Regulatory Policies Act, does not mandate that OTEC pay a particular price for the mill's power, Stewart said.

Rather, he said, the law requires that OTEC pay only as much for the mill's power as it pays BPA — about 2.9 cents per kilowatt-hour now, although that rate might rise by a few percentage points starting Oct. 1.

As a result, Stewart said he doubts Prairie Wood Products will even offer to sell the mill-produced power to OTEC.

Both Stewart and Timm said D.R. Johnson Lumber officials have not asked OTEC to start negotiating a new deal for the cooperative to buy the mill's power.

D.R. Johnson officials did not return phone calls seeking a comment.

Stewart said D.R. Johnson Lumber probably could get a better price for the mill's power by selling the energy to Idaho Power Company.

Company spokesman Dennis Lopez said officials from D.R. Johnson Lumber have "advised" Idaho Power that the mill's contract with OTEC expires at the end of 2005. But Idaho Power officials "have had no discussions or negotiations" with D.R. Johnson Lumber, Lopez said.

OTEC's projected $9 million savings could afford the board of directors a chance to do more than just cut power rates in 2006, Stewart said.

The board's array of options could include:

Bigger refunds

In each of the past nine years, OTEC has given refunds to its customers, totaling about $9.4 million.

Most residential customers received rebates of less than $40 per year.

Stewart said OTEC's board probably could refund more money due to the savings from the Prairie City plant.

Timm, however, said she thinks it's more likely that the board would pass on OTEC's savings to customers in the form of lower rates, not cash.

Constant rates

Stewart said the board could set aside some of the $9 million to offset future increases in BPA rates.

Now, OTEC passes on to its customers a portion of most BPA rate hikes.

In April 2003, for example, BPA raised its rates by 6.6 percent, and OTEC responded with a 1.8-percent increase.

But if OTEC maintains a cash reserve, then the cooperative probably could keep rates steady for a longer period, Stewart said.

Invest in alternative power

Stewart said the board could choose to spend some of the $9 million on, for example, wind power, which costs more than BPA power, most of which is generated at dams on the Columbia and Snake rivers.

He said some OTEC customers have asked the cooperative to consider buying power from "alternative" sources such as wind or solar.

Because that power costs more than BPA electricity, to accommodate those customers now, OTEC probably would have to raise rates for everyone, Stewart said.

But the board possibly could avoid such an across-the-board rate increase by spending some of the $9 million to offset the higher cost of so-called "green" power, he said.

Establish reserve fund

Now, OTEC maintains enough cash to run the cooperative for about two months, Stewart said.

The board could use some of the $9 million to bolster that reserve, he said.

Economic Development

Timm said some government officials in OTEC's territory — most notably the Baker City Council — have suggested the cooperative spend more money to bolster local economies.

Jeff Petry, a Baker City councilor, said last fall that he thinks OTEC should dole out at least $1 million each year on a per capita basis for community projects, much as do charitable foundations such as the Leo Adler Community Fund.

Timm, however, said she thinks that cutting power rates is one of the most effective steps OTEC can take to strengthen the region's economy.

The bottom line, she said, is that OTEC's board will be busy during the next few months.

And with $9 million to kick around, Timm said the task doesn't seem at all onerous.

"We're looking forward to it," she said.