BPA increase — bad timing

By Werner Buehler March 12, 2009 05:11 pm

There is little doubt that the current economic climate in Eastern Oregon and the nation has resulted in significant stress on individuals and businesses alike. Recent news from the Bonneville Power Administration is likely to only add to that stress.

On Feb. 10, BPA announced an initial wholesale rate increase on the power it sells to members like Oregon Trail Electric Consumers Cooperative. That proposed increase of 9.4 percent will have a significant impact on OTECC if it is passed, but the problem for OTECC and OTECC’s members is that the proposed rate increase may be justified from a business perspective, but the timing is horrendous.

BPA identified four specific reasons for the initial rate increase proposal. These reasons include:

• Additional expenses at the Columbia Generating Station nuclear plant for safety, reliability and performance upgrades,

• the cost of fish (salmon) mitigation,

• the economic downturn and

• increased costs of operations and maintenance of the hydropower system.

If the initial rate increase is not stunning enough, perhaps the fact that on March 5 BPA drafted a letter to its consumers suggesting the initial 9.4 percent proposal will not be sufficient.

It turns out that BPA finalized its rate proposal justification in December 2008, but since then certain key factors have changed rather quickly. First, the Columbia River Basin is experiencing a very dry year, meaning there is less water to use for generation and fish mitigation. BPA generally derives a portion of its revenue (called secondary revenue) from selling its excess power in the Western wholesale power market. With poor water conditions, there will be less power to sell on the wholesale market.

Generally, less supply means higher prices. But, with the economic climate being what it is, the demand for power simply is not there now and future projections do not look positive. This means the secondary revenue will be diminished significantly. For example, the FY 2009 projections are nearly $300 million less for BPA than initially expected. BPA must make up its revenue somewhere so it can continue to operate. That’s where the rate increase comes in.

So, the initial rate increase proposed cited four specific reasons the 9.4 percent increase is needed, but the March 5 letter suggests the rate increase needs to be even higher. Now how much higher is yet to be determined, and the reality of the situation is that the region can only handle so much, but it certainly may be higher than originally proposed.

The real question for you and other OTECC members is, “What does it mean for you?” While the Board and staff of OTECC will work to make certain whatever the final BPA increase is it will be fair to all concerned, it is unlikely OTECC can prevent an increase from occurring. Additionally, OTECC will continue to implement new efficiencies and cost-saving measures, while maintaining the same high level of reliable service you have come to expect and deserve.

Regarding a specific amount that OTECC might need to pass on to its different rate classes remains to be determined as well. Many factors are involved in determining rates though, so any discussion on how OTECC might react is purely speculative at this juncture.

You can let your voice be heard though early in the process by commenting directly to BPA on its rate increase proposal. You may provide written comments on BPA’s power and transmission rate proposals until April 24, 2009. These comments can be made on-line at BPA’s web site: www.bpa.gov/comment, or through the mail at: BPA Public Engagement Office - DKE-7, Bonneville Power Administration, P.O. Box 14428, Portland 97293. Please include the project name “2010 BPA Rate Case” with your comments.

There’s little doubt that BPA will raise rates in the coming year and in the years to come as they integrate new, more expensive power into their portfolio. This will have significant impacts on OTECC and its members. This is an important issue all OTECC members should be aware of because it is about more than just rates — it is about the future of economic development and job creation in an already economically-challenged area.

Unfortunately, it is not the only BPA-related issue facing OTECC that may impact rates. The issue of future power supply and new BPA pricing models is currently being dealt with as well, and these decisions will impact rates beginning in 2012, but that is a topic for another day.

We are fortunate, however, to be part of a non-profit electric cooperative where all decisions are made locally, but even locally, tough decisions will need to be made in the coming months. Times are definitely changing.

For additional information visit OTECC’s web site at www.otecc.com.

Werner Buehler is general manager of OTECC.