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BPA: Good News, Times Three by Ted Sickinger The Oregonian, April 22, 2006

Water for generating, a favorable tax ruling and a better credit rating may allow rate cuts

Thanks to strong surplus power sales, a favorable tax status ruling and an improved credit rating, the Bonneville Power Administration is projecting that it may be able to cut electricity rates by 5 percent or more from what it would otherwise charge utility customers next year.

It's unclear, however, whether the number would translate to lower electricity bills. The BPA is in the midst of a rate-setting process that could raise wholesale prices from the levels of recent years. Moreover, many utilities are still paying higher rates to non-BPA suppliers, and their retail rates do not always pass along savings in BPA wholesale prices.

Some rate savings appear likely, but . a 5 percent rate cut would do little to satisfy BPA critics who believe the agency should be able to cut its rates by 10 percent, regardless of whether it has strong water flow for hydropower production.

A rate cut would mark a stark change in direction for the federal agency, which has been locked in a series of bad water years compounded by the aftermath of the Western energy crisis.

In the next week to 10 days, BPA is scheduled to report its financial picture for the half of the federal fiscal year ending Sept. 30. The report will include a forecast of all revenues and expenses, including surplus power sales.

In an interview Friday, BPA Administrator Stephen Wright stressed the forecast is just that -- and spring and summer weather could change the picture.

"I'm at a point of feeling optimistic, but it's not in the bag," Wright said. "This is my sixth winter, and it feels better than any other, but I've also watched things go bad pretty quickly in the past."

Tax ruling
What's already in the bag, and will lower BPA expenses by 5 percent, is a recent ruling by the Internal Revenue Service, which allows the agency to make direct payments on $6.5 billion in BPA-backed bonds, rather than deducting the bond payments from its customers' bills late in the year. The change gives BPA better cash liquidity, letting it operate with lower reserves and charge its customers less.

The IRS decision also factored into winning the agency a better credit rating, which should reduce interest costs when it refinances old debt or issues new debt.

Not everything is going BPA customers' way. U.S. District Judge James Redden's decision to force more water spills to help fish passage will cost an estimated $60 million in hydropower supplies in 2006, according to the Northwest Power and Conservation Council.

Talk of a BPA rate cut also comes at a time the Bush administration is trying to siphon off money from surplus power sales in excess of $500 million a year to pay down the agency's long-term debt early.

A proposal in the president's 2007 budget, to capture the revenue from those sales, outraged ratepayer advocates in the Northwest and galvanized the region's congressional delegation. Language inserted in the Senate's appropriations bill would delay implementation for a year.

Critics say such a move could still happen, potentially leading to rate increases in the Northwest as money from the surplus power sales no longer would be available to reduce rates.

Oct. 1 adjustment
BPA is proposing its own adjustments for rates to take effect Oct. 1. Last fall, it proposed a new average wholesale rate of $30 a megawatt hour, a price that municipal utilities around the region immediately decried. Critics launched a campaign called "$27 in '07," seeking to push down permanent rates through a series of efficiencies.

"Our position is that we believe BPA should get to a $27 rate, regardless of the snowpack," said Maggie Brown, a staffer for the Northwest Coalition for Affordable Power. "Between program cost savings and the IRS ruling, that's well within reach. The surplus sales should take them well below that number."

Wright said the agency is exploring the appropriate spending level. If the assumptions in the initial rate proposal are adopted, and surplus sales remain strong, the agency could drive rates lower than the $28.50 level that is expected as a result of the IRS ruling alone.

"We're headed in a positive direction," Wright said.