BPA proposes variable rate plan for customers

By the OGJ Online Staff

HOU.S.TON, Feb. 22, 2001—Bonneville Power Administration proposed a settlement to many of its rate cases by agreeing to a variable rate scheme that adjusts according to demand for power and the price of wholesale power.

The new variable rates will change every 6 months instead of being fixed for a 5-year period.

Customers that can reduce load through conservation will benefit with lower rates and if the wholesale market ever settles down that will also decrease rates. The not-for-profit BPA generates as much as 11,000 MW of hydroelectric power and owns and operates the largest transmission system in the northwest. Generation and transmission is sold to area utilities and other large end users.

BPA had previously tried to work out a fixed 5-year rate that would have meant rate increases averaging 60% or more over the rate period for most customers.

"But given the volatility of the market, that strategy just wasn't going to work. This [variable rate] proposal effectively addresses the turbulent market we are operating in," said Paul Norman, BPA senior vice president.

The new rate plan means rates adjust depending on BPA's actual customer demand for power and the actual amount and price of power purchased on the wholesale market.

BPA agreed with customers that this new rate structure would allow adequate collection of revenue to cover costs but provide no more revenue than actually needed.

Two fundamental changes in BPA's market contributed to the upward pressure on rates. First, customers were demanding more power from BPA than previously. And second, wholesale power prices increased to an unprecedented level. On top of this, BPA had to buy power in a very volatile market.

Rates under the new plan could mean a miniscule 2.4% increase for an additional 500 MW in a $30/MW-hr market or a 453% rate increase to acquire 3,000 MW in a $325/MW-hr market. Actual rates would likely lie between those extremes depending on market conditions, customer actions, and consumer energy conservation.

BPA must set rates so that all of its costs are covered including obligations to creditors. The annual payment to the U.S. Treasury includes principal and interest on investments made by the federal government in the hydroelectric power and transmission systems.

If BPA overcollects beyond its costs and debt obligations, the excess funds will be returned to ratepayers in the form of a dividend distribution.

Norman also said that rates include the funds needed for BPA's fish and wildlife obligations and that funding would come before any dividend would be returned to ratepayers.

BPA is also working on ways to reduce the amount of power it will have to buy on the wholesale market.

Today, the federally owned power administration announced it was soliciting proposals for 1,000 MW of wind power. The proposals spell out projects with a minimum of 15 average megawatts or 40 to 60 MW of nameplate capacity. BPA is favoring larger projects with potential for expansion.

The settlement agreement on the rates is not final yet, Norman adds. All parties will consider the final proposal this week and BPA expects to complete the rate case and issue final rates by June 20 to be effective Oct. 1. The new rates require approval by the Federal Energy Regulatory Commission.

Contact Annd@OGJOnline.com.

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