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News Analysis

Fortnightly Magazine - November 1 1999

trial for almost two years.

The Rate Proposal:

Case by Case Negotiation

BPA's rate proposal was published in the Aug. 13 Federal Register (Vol. 64, No. 156 at 44318). In the proposal, BPA explained that the wholesale electric market has changed since 1996 when it last set rates. In 1996, it appeared that BPA's rates would exceed market prices and BPA was not sure it could sell all its power at rates that would recover costs. By 2002, however, BPA expects its rates to be lower than market prices through cost-cutting measures, careful management and anticipated market price increases. The result is a greater demand than BPA can supply from the Federal Columbia River Power System (FCRPS).

BPA is required by law to sell power at prices that recover all costs. The main cost determinants are the cost of generating power, protecting, mitigating and enhancing fish and wildlife, investing in public purposes and repaying the U.S. Treasury for capital investment in the hydro system.

BPA explained that it must balance competing demands for its low-cost power. Public power agency customers, known as preference customers, have first priority. For that group, BPA proposes to sell power below market rates, with no increase in the average priority firm power rate from BPA's 1996 rates.

BPA also proposes to implement a previously approved Subscription Strategy plan, to offer a combination of power and financial benefits to its regional investor-owned utility wholesale customers for resale to residential and small farm customers.

The Subscription Strategy was approved in December 1998 and provides a marketing policy framework for the electric rate case. It reflects BPA decisions on equitable distribution of the electric power generated by the FCRPS to BPA's customers within the existing law framework. It does not set rates, but does suggest general rate design approaches to consider within the formal rate-making process. The Subscription Strategy provides a method for bilateral negotiations with each customer that reflect the specific business relationship between BPA and that customer. Those contracts are negotiated outside of the rate case. The actual level of service under such contracts is contingent on the availability of power after the close of the subscription window.

BPA stressed that the Subscription Strategy recognizes that the FCRPS is a regional resource, limited in size and valued by the citizens of the Northwest.

BPA plans to offer an average of approximately 1,800 megawatts of power to the residential and small farm customers of IOUs, while meeting all public power agency net firm load requirements. BPA also expects to serve 1,440 MW of DSI load. That amount has been controversial, because those industrial customers all would like to have more power. BPA said it is responding to viability concerns of BPA's direct service industrial customers - who claim they will be driven out of business without BPA power - by offering power below market prices. In fact, during the last 60 years, BPA lured many industries to the area with promises of low-cost power.

On Sept. 17, regulators in the four Northwestern states agreed to a proposal dividing 1,900