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BPA Looks at Rate Hike Next Year by Jim Mann Daily Inter Lake, November 10, 2010

The head of the Bonneville Power Administration was in Kalispell on Monday to explain an expected electricity rate increase next year and provide insight into the risks and challenges ahead.

BPA Administrator Steven Wright gave a presentation to the leadership of Flathead Electric Cooperative and visited with the Daily Inter Lake editorial board.

BPA in the next couple of weeks will begin a rate review process that will continue through next July, with an expected rate increase to take effect in October 2011. Once the process begins, Wright and other BPA officials will not be allowed to discuss the rate case.

For now, Wright said he anticipates the increase will be 6 to 10 percent. BPA is an agency that wholesales energy generated largely by federal hydroelectric projects throughout the Northwest to about 130 customers, including Flathead Electric Cooperative. Wright talked extensively about the potential for rate increases beyond next year, and despite many uncertainties, BPA has calculated that there is more than a 60 percent chance there will be no need to pursue an additional rate increase.

That accounts for expected revenues and costs and other factors such as available reserves and debt financing strategies.

But it doesn't account for unknowns that could substantially increase costs or reduce revenue.

For starters, water supply throughout the Columbia River Basin is crucial on the revenue side. Low water years have a powerful impact on generation capacity for the region's federal dams.

"Water is everything to us," Wright said. "Even with bad water, we managed to be in the black a couple of years."

That was in 2007 and 2008, enabling BPA to enact rate reductions up until this year. Continuing low-water supplies in 2009 and 2010 have factored into BPA operating in the red the last couple years.

Another critical uncertainty for BPA is ongoing litigation over salmon conservation in the lower Columbia River Basin. Conservation measures are intricately tied to federal hydro operations.

Plaintiffs in the case contend that a federal plan, called a biological opinion, does not do enough to protect salmon from the impacts of dams.

A 2008 biological opinion backed by the Bush administration also is supported by the Obama Administration, with amendments that will be reviewed in a case before U.S. District Judge James Redden of Portland in the first months of next year.

"The problem with the salmon litigation is that we really don't know what will happen," Wright said, adding that the court's decision will be "crucial" to BPA's future operations.

If the court rules in favor of the plaintiffs, Wright said, BPA will "most likely see substantial increases" in the costs of operating its hydroelectric system.

Another challenge is contending with the ever-increasing, expensive demands of an aging power-producing infrastructure. Hungry Horse Dam and other hydroelectric projects were designed as 50-year dams, and many are now past that age, requiring continual, costly maintenance.

The loss of anything such as a dam turbine, for example, can be massively expensive on more than one level -- first, the cost of replacing the turbine, and second, an ongoing loss of revenue while the turbine is out of production.

Regarding Columbia Falls Aluminum Co., Wright said there are no pending negotiations for a new power contract that might allow CFAC to become operational again.

CFAC shut down in November 2009 after being unable to reach an agreement with BPA on electricity after months of negotiations.