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PUD Unhappy with Bonneville's Interim Payment Offer by Leif Nesheim The Daily World, March 3, 2008

Imagine a thief breaks into a house, takes the television, DVD player, jewelry, stereo and VCR, then offers to give the radio back to call things even. That's kind of what the Bonneville Power Administration did when it offered late last week to make interim payments totaling $336 million to Northwest public and private utilities, said Rick Lovely, Grays Harbor Public Utility District general manager.

"All it means is they're going to steal less from us," Lovely said.

Bonneville officials said the interim payment was offered to get money into the Northwest economy as soon as possible.

"Given the current economic uncertainty, we want to create an option to get this money into the Northwest economy sooner rather than later," said Steve Wright, Bonneville administrator. "We appreciate constructive participation of utilities and other stakeholders from across the region in the public process, and we have made significant changes to the interim payment contracts based on that input. We are hopeful that we can build on this momentum as work continues toward the long-term Residential Exchange Program solution."

Last May, the 9th U.S. Circuit Court of Appeals ruled that Bonneville overstepped its authority when it abandoned the statutory method for setting subsidies paid to private utility companies.

The residential exchange program is designed to subsidize the residential and small farm ratepayers of private utilities that don't have access to cheap federal hydropower from Bonneville's Columbia River dams. The benefits are collected from public power customers, and appear in the form of a credit on the monthly bills of customers of private utilities. The benefits had been derived from a statutory formula until Bonneville decided in 2000 to abandon the methodology and increase the payments more than tenfold.

Since then, public and private utilities have been arguing over the level of those payments. In Grays Harbor, roughly 13 percent of customers' monthly energy charge went to the residential exchange payments.

Bonneville was ordered to determine a new rate structure and repay public utility companies -- including Grays Harbor PUD -- for money collected. Lovely estimates the total repayment should be about $2 billion, including interest.

"We have a rate case coming up to determine a long-term fix," said Katie Pruder, Bonneville spokesperson. "The interim payments don't establish a long-term precedent."

The actual amount public utility companies receive will be determined after the hearings process in the fall, she said. At that time, utilities would either receive any additional money owed by Bonneville or send money back to the agency if the interim payment was too large, Pruder said.

But accepting the money means a public utility would have to agree not to sue Bonneville, so if the agency flaunts the law those utility districts wouldn't be able to seek the full amount they're owed, Lovely said.

As a result of the court's decisions, Bonneville suspended approximately $28 million a month in program benefits to the private utility companies. The agency can only change rates in a formal hearings process. That means Bonneville is continuing to collect the $28 million a month from its publicly owned utility customers. This has left the agency with larger financial reserves than it needs to manage its business; money the agency said would be better off back in the hands of public utility customers.

"This interim agreement is just another sham," Lovely said. "They are dangling some little carrots out there for people to bite on."

Grays Harbor PUD pays about $4.5 million a year to Bonneville for the residential exchange program. Lovely said according to the statutory formula, the PUD should be paying about $400,000 a year. That means Bonneville would owe the PUD upwards of $28 million but are offering just about $5 million, Lovely said.

"We think that's peanuts," he said.

The agency is proposing to charge Grays Harbor PUD about $3 million per year for the residential exchange program instead of the current $4.5 million, but that's still significantly more than the $400,000 allowed by law, Lovely said.

Earlier this month, the agency initiated a formal public rate case process to ultimately determine the long-term residential exchange program power rates for 2009, and the amount of overpayment of residential exchange program costs to investor-owned utilities from 2002 to 2008.

Part of Bonneville's rate case proposal is to provide $505 million to utilities that Bonneville has been collecting in rates but not paying out. The $505 million is a proposal, subject to the rate proceeding. The $336 million the agency is now offering will be subtracted from final decisions made regarding the $505 million payment. The rate process will conclude in October 2008.

Part of the funds will be returned to public utilities and part of them will be provided to Northwest private utilities for distribution to their residential and small farm customers.

Bonneville is a not-for-profit federal electric utility that markets more than a third of the electricity consumed in the Pacific Northwest. The power is produced at 31 federal dams and one nuclear plant in the Northwest and is sold to more than 140 Northwest utilities.

bluefish notes: 22 million compact fluorescent bulbs distributed to the region would offset the power output of 4 Lower Snake River dams