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BPA Expects Wholesale Power Rate Cut by News Sources KTVZ, July 17, 2006

Would be fourth straight year

PORTLAND - For the fourth year in a row, the Bonneville Power Administration announced Monday it expects to cut wholesale power rates. BPA Administrator Steve Wright cited extraordinary collaboration among BPA's utility customers and others as a key factor in the rate decrease.

"This has been a highly collaborative rate case with substantial constructive engagement and creativity exhibited by a variety of regional interests," Wright said. "This rate case has been a great example of how, when we choose to work together, good things result for the Pacific Northwest."

The new rate for power sold to BPA's preference utility customers is expected to be down about 3 percent from existing rates. This is about 10 percent lower than the draft rates proposed for 2007 eight months ago in BPA's initial rate proposal. Final rates will be announced in September and go into effect Oct. 1, 2006.

In addition to two innovative financial arrangements that arose out of a collaborative effort, other factors that contributed to the rate reduction include stringent cost management and better than expected surplus power sales due largely to the normal water year. Several rate case design issues also were settled by the rate case parties earlier in the spring.

The most recent financial arrangement BPA has made with its customers addresses BPA's cash flow risk. It is called The Flexible PF Rate Program. If customers participate in this program, it reduces the amount that BPA needs in cash reserves in the event of unlikely adverse financial developments. This program enables BPA, on short notice, to increase the amount paid by participating customers for a month's power service and to decrease the amount paid for service in subsequent months. BPA customers who elect to participate in the program would also be paid interest on the early payment. This program allows BPA to reduce its cash reserves and set lower base wholesale power rates than would be the case without the program. The final rate impact of this program will be determined by how many customers confirm their participation by Aug. 25.

The other financial arrangement is with Energy Northwest, which operates the region's only nuclear power plant in Richland, Wash. The arrangement eliminates an annual BPA cash-flow problem that required BPA to maintain higher financial reserves. Like the Flexible PF Rate Program, this arrangement allows BPA to maintain lower financial reserves and reduces BPA's wholesale power rates by about $1.50 per megawatt-hour. For more information about this arrangement, please see the related press release from March 20, 2006.

Over the past 18 months, BPA also conducted an extensive consultation process with stakeholders on its cost structure for the 2007 through 2009 power rate period. This process, known as the Power Function Review, captured a total estimated rate period savings of $122 million per year.

The new rates are also adjustable. They can go up or down annually to reflect such things as water conditions, BPA's financial performance, and fish and wildlife costs.

Any adjustments for the final 2007 rates, which will be announced in September after BPA's third quarter review results are known, are expected to be minimal barring an unexpected event. In May, BPA forecast strong financial performance for 2006 due to good water conditions and strong markets for surplus power sales. No significant events have occurred to substantially alter that forecast. Wholesale power rates for 2008 and 2009 will depend on conditions during the rate period.

"Many individuals across the region have worked with us to make this rate decrease possible," said Wright. "We are committed to building on these partnerships as we take on new challenges to ensure an adequate power supply for the Pacific Northwest in the long term."

The wholesale power rate decrease does not apply equally to all of BPA's public utility customers. In particular, about 10 percent of BPA sales go to customers who had fixed-price contracts for the past five years, also known as "pre-subscription contracts." These customers will see a rate increase as those contracts expire and they begin to pay the same rates as BPA's other customers. Whether local utilities adjust their retail rates to reflect the changes depends on many other utility-specific factors. For information on retail rates, contact local utilities.

BPA is a not-for-profit federal agency that markets about 40 percent of the electricity consumed in the Pacific Northwest. The power is produced at 31 federal dams in the Northwest and one nuclear plant and is sold to over 140 Northwest utilities. It operates a high-voltage transmission grid comprising more than 15,000 miles of lines and associated substations in Washington, Oregon, Idaho and Montana.