Posted on 01/31/2003 8:00:15 AM PST by snopercod
The Bonneville Power Administration's utility customers, still smarting from rate surcharges that will reach 50 percent this spring, soon face the prospect of even higher rates. Many customer groups are expecting a double-digit addition to the current surcharge.
TIME LINE
April 2000: The Bonneville Power Administration, a federal power-marketing agency, invites the region's public and private utilities and aluminum companies to "subscribe" to new power contracts effective in October 2001.
May: The BPA sets rates for 2002-06 under the contracts. Most utilities would pay $22 a megawatt hour, and the agency projects it will build $1.2 billion in reserves by 2006.
August: The California power crisis pushes wholesale costs up 200 percent or more. Customers flock to the BPA for cheap power, but the agency quickly says it will have to increase its new rates.
October: Contract subscription period ends with the BPA obligated to sell customers 3,000 megawatts more power than its system of 29 dams and one nuclear plant can produce.
November-December: The BPA eyes a 15 percent surcharge to cover ballooning costs of buying extra power on the open market. Aluminum plants start closing to earn millions reselling BPA electricity.
January 2001: The BPA spends $50 million in a single week to buy power. Drought worsens the problem, limiting hydro production. BPA chief Steve Wright says a rate increase could be 30 percent.
February-April: The BPA scrambles to secure power to fulfill its long-term contracts. Wright warns of a 250 percent rate increase unless aluminum companies shut down and utilities slash demand.
May: The BPA agrees to pay PacifiCorp $494 million over five years to buy out the utility's contract. Though high by historic measures, the cost is well below inflated market rates at the time.
June: Federal regulators extend price controls across the west. The BPA agrees to buy out Puget Sound Energy's power purchase contract for $727 million over five years.
October: As energy prices fall under federal price controls, the BPA raises rates 46 percent. Wright calls the increase a victory, given earlier estimates.
January 2002: The BPA posts a $337 million loss in 2001, even after spending $600 million in special financial credits to cover power-related costs of protecting Columbia River salmon runs.
February-June: Falling power prices and weak demand hamper the agency's ability to recover financially by selling surplus hydropower in California.
July: The BPA again warns of rate increases, saying it faces an $860 million deficit though 2006.
August-October: New forecasts push the potential four-year deficit to $1.2 billion as the BPA meets with customer groups to identify cost cuts.
November: Wright says a rate increase is all but certain but delays a decision to see if winter snows bode well for surplus power sales in 2003.
December: Wright says the agency lost $300 million in 2002 but was able to recover and essentially break even by refinancing debt. Still, the BPA drained $432 million from its cash reserves.
January 2003: BPA officials say the dry winter means 25 percent less surplus power for sale this year, adding another $250 million to the agency's deficit.
Having gotten that off my chest, what the article doesn't talke about are the many, many adustment clauses burried in that 2.2 cents/kWh value you quote. Right now they have a Load Based ajustment clause, a finacial based adjustment clause and we are about to find out if the "safety Net" adjustment clause triggers. There is talk that all of these will average about 50 to 60 percent for the life of the contract. Right now the combined adjustments are over 40%
Nobody in the rest of the world would invest "naked" as the BPA seems to have done. But then in government agencies, there is no penalty for failure, either.
Too bad that the MBAs at Enron overruled the professionals.
Yeah, with all the adjustment clauses, BPA throught that it had transferred risk to its customers. Then it's management decisions turned out wrong, and so since the risk was on the PNW customers of BPA they just kept on going since somebody else was paying. At some point, a hedge strategy should have been implemented. That is partially why I think that BofA is now getting into that business line.
About 5 years ago, BPA did get a hedge, from one of the large financial institutions, for a small group of its customers who signed up early on contracts. Those utilities have been very quite with their very stable and very low electric rates.
BPA's problem is that it thinks of itself as knowing it all and being the expert on everything. Unfortunately, they have taught the rest of the PNW that they are a questionable business partner and that it takes one heck of a lot of people and money to sell power that others provide to them (Corp of Eng, Bureau of Rec, Energy NW).
Many of us in the PNW wonder if BPA should be disolved, if and when and ISO is formed in the PNW, since BPA's real claim to fame is building, operating and running most of the transmission grid.
In the old days, when BPA was a help to utilities and really understood the river system, I would have never said that. In fact, if BPA looked like it might change, I would oppose doing away with BPA. Now, I am unsure what the best course of action is.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.