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A Shift in BPA's Power Strategy Policy could Benefit Local Utility District by Associated Press and Herald staff The Daily Herald, September 26, 2006

The Bonneville Power Administration is proposing a sweeping policy change for the Pacific Northwest, potentially affecting electricity rates for Snohomish County PUD customers for generations to come.

Northwest hydropower is one of the cheapest energy resources in the nation - about half the current market rate for electricity. Bonneville announced this summer it wants to change the way it charges the Snohomish County PUD and other utilities for its wholesale power, to keep rates low.

Bonneville proposes to make hydropower a separate resource while charging utilities a different rate for any additional power they want from the federal agency. Currently, utilities pay a blended rate that adds in the cost of developing resources or buying additional power to meet load growth.

In exchange for the low hydropower rate, utilities would take full responsibility for building the power plants or generating the extra electricity needed to meet growing demand past 2011 - instead of the federal government.

Utilities could still rely on the BPA to get them extra power, but they would have to pay higher "tiered" rates - which Bonneville hopes will provide utilities with more incentive to either find ways to conserve electricity or generate it themselves.

"The thing I find exciting about this is a chance for the Northwest to control its own destiny," said Bonneville chief Steve Wright.

The Snohomish County PUD could be among the utilities that benefit most from the policy change because it buys 80 percent of its electricity from Bonneville and is its largest customer, said Neil Neroutsos, a spokesman for the utility district.

"The board has been briefed on the issue and has taken the position of support for tiered rates," he said.

Neroutsos declined to speculate on whether the move would lower rates for the PUD, but he did say it could lower the utility's risk.

But the Citizens' Utility Board of Oregon warns the proposal could raise rates for many residential customers and farmers, especially in Oregon, a state dominated by large investor-owned utilities.

"Bonneville is playing this as a rate decrease," said Jason Eisdorfer, an attorney for the utility board. "But in general, the trend of this regional dialogue is unmistakably to increase the rates of residential customers of investor-owned utilities."

Eisdorfer calls the proposal a "significant departure" from the policy laid out by Congress in the Northwest Power Act of 1980.

That law calls for Bonneville to acquire resources for the public, Eisdorfer said. Under the BPA proposal, finding new power sources will be up to the utilities.

Many say that is a step in the right direction.

The BPA markets hydroelectricity from a system of 31 federal dams on the Columbia and Snake rivers, and one nuclear plant in Washington. It amounts to about 40 percent of all the power supplied in the region, along with seasonal exchanges with California.

But that percentage will keep shrinking as demand for power grows because no one expects any more huge dams will ever be built. That will force the region to explore alternatives such as wind turbines, solar power, coal gasification and geothermal energy, while facing steep price increases for the other main alternative, natural-gas-fired generators.

"It does signal a fairly substantial shift," said Pat Reiten of PNGC Power, a consortium of 15 rural electric cooperatives that serve seven Western states - making it the fourth-largest customer of Bonneville. "But overall, I think the agency is doing the right thing - both for itself and for its customers - and for the region as a whole."

What Wright and Bonneville want to avoid is the kind of trap that ensnared the federal power marketing agency during the 2001 West Coast energy crisis.

Bonneville prices skyrocketed when customers who had pressured the agency to allow them to buy lower cost electricity on the open market in the late 1990s suddenly returned to the BPA for cheap power when wholesale prices spiked over 400 percent. It drove up prices for everybody by forcing Bonneville to buy extra power on the volatile spot market.

"We don't want another West Coast energy crisis," Wright said.

To ensure stability, Bonneville also wants to return to long-term contracts spread over 20 years after the current crop of shorter contracts left over from the energy crisis expire in 2011.

The Bonneville proposal, open to public comment through October, has gotten generally favorable reviews. It will be up to Wright to decide whether to put it into effect, a decision he hopes to reach by January.