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BPA Stops 'Residential Exchange' Payments by Jordan Kline The Daily World, May 26, 2007

The Bonneville Power Administration suspended monthly payments to private utilities this week after the U.S. 9th Circuit Court of Appeals ruled the payments went beyond their legal authority.

The move is its first following the groundbreaking ruling, and private utilities have already applied for rate hikes with the utility's regulators to make up for the payments, which amounted to $28 million a month since 2000. (bluefish notes: this is roughly equivalent to the annualized gross power sales from four Lower Snake River dams and reservoirs.)

Meantime, public power officials say the federal power marketer is still collecting the money from public utilities despite the court's decision.

The cash payments were funneled to privately owned utilities as part of an agreement under the Northwest Power Act of 1980. Known as the residential exchange program, the payoffs were part of a series of compromises intended to mitigate the then-growing disparity between residential rates for investor-owned utilities and public utilities, which received preference for the cheap power flowing from the Bonneville Power Administration's Columbia River dams.

Bonneville included the Section 7(b)(2) rate test formula in the act to streamline the payments. The formula involved a comparison of the average cost of generating power at investor-owned utilities and the average rate paid by publicly owned utilities for federal power. Customers of public power and industries that had direct contracts with Bonneville paid the difference.

But in 2000, Bonneville decided to abandon the 7(b)(2) rate test in favor of "settlement agreements" that gave the private utilities block cash payments negotiated in the face of litigation and a regional power crisis. The new agreements ignored the cost of generation for the investor-owned utilities, and paved the way for cash payments to private utilities whose cost of generation was actually lower than Bonneville's in some cases.

In Grays Harbor, 13 percent of a customer's monthly bill went directly to these payments.

But on May 3, the court said Bonneville needed to rethink the payments. "Bonneville acted contrary to law when it allocated to its preference customers part of the cost of the settlement Bonneville reached with its investor-owned utility customers," read the opinion.

The ruling stunned the power community. On Wednesday, private utilities notified utilities regulators of their interest in a 13 percent rate hike. They've also called on Congress to reopen the Northwest Power Act, and plan to meet with regulators next week to discuss the possible increase.

Private utilities say they're entitled to the payments because their customers - 65 percent of the Northwest - should reap the benefits of the federal hydroelectric system as well. But public power says their customers are paying back the costs of the dams with their rates, and that no money from private utilities is used to pay back the loans for the dams.

Grays Harbor PUD General Manager Rick Lovely said a corresponding rate decrease for public power customers would have made sense, but Bonneville only suspended the payments.

"They're still collecting the money and putting it in reserves," he said. "Our understanding is they plan to appeal to the full, nine-member 9th Circuit Court as well."

The conflict couldn't come at a worse time for the Northwest power community. Bonneville is in the midst of negotiating new, 20-year contracts starting in 2011 with their customers, and these negotiations hinge on a resolution of the residential exchange program. If public power isn't satisfied with the fallout from the court's ruling, it's likely to make those negotiations more difficult.

"This is jut going to bog down," Lovely said. "In the meantime, we're going to be trying to initiate some real discussions about what could be a fair settlement."

Related Sites:
Bonneville Power Administration: bpa.gov
Grays Harbor PUD: ghpud.org

Related Pages:
Casey Wants Payments to Have a Purpose by Jordan Kline, Daily World, 2/27/7