BPA at risk of default, federal watchdog says

LES BLUMENTHAL; The Tacoma News Tribune

7/17/03

WASHINGTON - Congressional investigators say the risk of the Bonneville Power Administration defaulting on its debt to the U.S. Treasury has increased over the past several years as the federal power marketing agency's finances have deteriorated.

The General Accounting Office said Bonneville has paid too much for the outside electricity it needed to cover its customer demands. In addition, its operating costs have mounted - especially for protecting endangered salmon runs - and the utilities it serves are starting to look elsewhere for power.

"The likelihood of greater risk to the Treasury seems to be coming to pass," the GAO report said.

The report could provide the impetus for Congress to order a study of Bonneville's future even as the Bush administration has raised the possibility the agency that supplies 45 percent of the electricity in the Northwest should be sold or privatized.

Since 2001, BPA has raised its wholesale power rates by 40 percent and is considering another 5 percent increase. The agency has long been credited with providing the cheap power that has made Northwest electricity rates the lowest in the United States.

Defaulting on its debt could lead to a rate increase, but more importantly, it could mean a renewed effort to increase BPA's wholesale rates to market-rate levels.

The House today is expected to approve an energy and water spending bill that directs the Department of Energy to conduct an independent review of Bonneville's "mission, management and financial condition."

Bonneville, which markets the low-cost electricity generated at federal dams on the Columbia and Snake rivers, is part of the Energy Department.

Taking note of the GAO report, the bill says "the net result is that Bonneville continues to operate at significant financial risk, which impacts both ratepayers in the region and taxpayers in the rest of the country."

If the Senate agrees, the Energy Department would be required to submit its report on Bonneville to Congress by the end of 2004, after the next election.

Ed Mosey, a spokesman for the Portland-based Bonneville, said every time the federal deficit grows, there is talk of selling off the agency.

"The evidence will show it would be a mistake," Mosey said. "The federal system (BPA) is the driving engine of the Northwest's economy and privatization would add costs and increase rates."

Mosey said the GAO, which has long been critical of Bonneville, had made some mistakes in its analysis and misinterpreted other factors that have created financial problems for Bonneville.

While the GAO report noted that Bonneville had warned earlier this year that there was a 74 percent chance it could miss a Treasury payment, Mosey said that was based on concerns the region was headed for a drought that could affect power production at the federal dams.

The fear of low water conditions has eased and there is now 100 percent certainty Bonneville will make its Treasury payment this fall, Mosey said. The payments are usually between $700 million and $800 million.

Bonneville owes the Treasury $7.4 billion, money used to finance construction of the hydroelectric dams and the region's extensive transmission grid.

The agency has not missed a Treasury payment in more than 20 years.

Even so, the GAO said Bonneville's long-term risk of default is greater than it was five years ago because of its "higher costs and because of uncertainty surrounding both its role as electricity provider and its obligations to protect fish and wildlife."

"While BPA has taken steps to improve its financial condition and deal with its long-term challenges, in the past such efforts have not entirely succeeded."

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RELATED ARTICLE

Guest Opinion: A road map to get BPA to true zero

By Ed Hansen, Scott Helker and Ken Canon
Special to The Seattle Times

7/17/03

The Bonneville Power Administration has increased rates by 46 percent since 2001, at a time when the region's economy has been devastated.

In the past three years, more than 30,000 jobs have been lost in the region — while BPA has added 500 positions.

Historically, our state has had a competitive advantage due to low-cost federal hydropower sold by BPA, but that advantage is gone. We now have higher rates than many other states.

Kimberly-Clark has operated a paper products plant in Everett for 74 years. But in two short years, the local plant's electricity rates have moved from one of the company's lowest in the country to the third-highest among its 30 facilities around the United States.

As a result, the Everett plant is becoming uncompetitive.

The Times noted that BPA's initial proposal for a 15 percent rate increase this fall was "alarming" and that BPA should push its current 5 percent proposed electric power rate increase to zero. ("Getting BPA to zero" editorial, June 20.)

But what BPA is calling a 5 percent rate increase is a "net" number. It's actually a 15 percent rate increase combined with a previously planned 10-percent rate reduction. The fact is that BPA still proposes to raise rates 15 percent above where they would have been on Oct. 1. This means that the utilities BPA sells power to must raise rates to their customers to cover a real 15-percent BPA rate increase over the rates planned and budgeted for starting on Oct. 1. This increase is both alarming and harmful to the region.

What BPA really needs to do is to get to "true zero" — and lower. In other words, the BPA administration must eliminate or completely zero out the 15-percent increase planned for October.

The good news is that BPA has plenty of tools to get to "true zero." The Snohomish County Public Utility District, regional businesses and other utilities provided several road maps that would get BPA to true zero.

The suggestions include:

• Using the revenues from surplus energy sales in 2003 to satisfy the current BPA revenue requirements rather than banking the money for future years;

• Recognizing cost reductions and revenue increases when they occur, instead of spreading them over multiple years;

• Deferring BPA's payments to Enron as allowed under a settlement agreement, instead of including the costs in BPA's current rates;

• Adopting recommendations by the Northwest Power Planning Council to reduce spilling water in July and August, which would save up to $110 million without harming any listed salmon stocks.

• Using a variety of other cash-management tools, which spread costs over multiple years; and

• Using the agreed-on formula for Treasury payment probability.

BPA should act now on these and other cost-control recommendations. Major electricity customers in the Northwest have worked diligently over many months to help arrive at these solutions. The road map is there.

Other federal agencies, such as the Federal Reserve, have been concerned enough about our nation's economy to take strong measures to assist with its recovery. The Bonneville Power administrator must now do the same: take the necessary actions to get to true zero — and preferably lower — for the benefit of the region.

Ed Hansen is general manager of the Snohomish County Public Utility District. Scott Helker is mill manager at Kimberly-Clark. Ken Canon is executive director of Industrial Customers of Northwest Utilities.