(PORTLAND, OR) -- To keep
pace with needed investments in the Federal Columbia River Power System, which
provides carbon-free hydropower at cost to Northwest public utilities, the
Bonneville Power Administration today proposed a 6.7 percent average wholesale
power rate increase for the fiscal year 2016-2017 rate period. BPA is also proposing
a 5.6 percent increase in its transmission rates to sustain and expand the
federal transmission system to meet regional needs, including renewable
resource integration.
“During my time at BPA, I have become acutely aware
of the economic impact our rates have on Northwest public utilities and the
communities they serve,” said Elliot Mainzer, BPA administrator and chief
executive officer. “However, these rate increases are necessary to sustain the
tremendous value of the federal power and transmission system and to meet the
electricity needs of the Northwest in a reliable and environmentally
sustainable way.”
In January, BPA began a discussion with the region
about its proposed program levels, future costs and potential rates for fiscal
years 2016 and 2017. At the outset of those discussions, BPA forecast
double-digit increases for both its power and transmission rates. Over the next
nine months, BPA conducted extensive public review of its programs and budgets
in a regional process called the Integrated Program Review.
The IPR process allows interested parties to see
all relevant FCRPS spending level estimates in the same forum. The IPR occurs
every two years, just before each rate case, providing participants with an
opportunity to review and comment on BPA’s program level estimates before
spending levels are set for inclusion in the rate case. Program levels for
fiscal years 2016 and 2017 were included in the Final IPR Close-out Report released in October
of this year.
“Working closely with our customers and other
regional stakeholders over the past nine months, we managed to significantly
cut the forecasted rate increases,” added Mainzer.
The rate proposals will be considered during a
public rate-setting process beginning in early December and culminating in July
2015 decisions on final rates to take effect Oct. 1, 2015.
BPA is a nonprofit federal wholesale utility that
receives no Congressional appropriations and must recover its costs through its
rates. The new rates will affect local retail utilities differently depending
on the amount of power and type of services they purchase from BPA. Local
utilities ultimately determine the retail impact of BPA rates on individual businesses
and residents.
Power rates
Even though power-related program level increases
were kept below the rate of inflation, factors besides inflation make the
wholesale power rate increase necessary. About 5 percentage points of the
proposed 6.7 percent increase is due to costs associated with past capital
spending – an increase of about $94 million a year.
Also contributing to the rate increase are
increases in operating and maintenance costs for the federal hydroelectric
program ($34 million), an automatic cost escalation under the long-term 2012
Residential Exchange Program settlement ($18 million per year), the need to
acquire transmission service to meet obligations to deliver power to customers
who are not directly connected to BPA’s transmission system ($12 million per
year) and rising fish and wildlife costs.
To offset a portion of these increases, BPA has
been able to take advantage of unique opportunities, including: the repeal of
the spent-fuel disposal fee that the U.S. Department of Energy charged Energy
Northwest’s Columbia Generating Station, saving an average of $7.4 million a
year; a reduction in BPA’s forecast for the joint-funded Northwest Energy
Efficiency Alliance budget, saving about $2.5 million a year; refinancing
of Energy Northwest regional cooperation debt for 2014-17, saving about $29
million a year; a decrease in operating costs at the Columbia Generating
Station, saving approximately $26 million a year; and a $20 million
undistributed reduction in the power revenue requirement.
Transmission rates
Additional reviews of transmission programs
presented in the IPR confirmed that BPA has reduced programs levels as much as
possible while still being certain it can meet the needs of the region. Factors
contributing to the rate increase include the need to sustain and expand an
aging Federal Columbia River Transmission System to maintain reliability and
continue the integration of renewable resources, such as wind; increased
mandatory compliance and additional cyber and physical security requirements
and other operational and maintenance expenses; and the purchase of property
insurance for BPA transmission facilities other than transmission lines and
towers.
Earlier this fall, the Federal Energy Regulatory
Commission approved BPA’s Oversupply Management Protocol, a tool to
manage the occasional seasonal oversupply of electricity generation, as well as
an associated rate through fiscal year 2015. BPA is proposing to continue the
oversupply rate for two more years using the same cost-allocation methodology
and rate design.
Partial Ancillary and Control Area Services
settlement
In September 2014, parties to the BP-16 rate case
reached a settlement on the cost of generation inputs and transmission rates
for ancillary and control area services, which include balancing for variable
generators. The settlement agreement included in today’s
Initial Proposal is posted on the BPA website. Most of the settled rates were
kept at the same level as current rates, with a slight increase for Operating
Reserves. The settlement will go through the rate case process. BPA staff will
propose that the BPA administrator adopt the settlement in his record of
decision in July 2015.
The settlement includes use of innovative tools BPA
and its customers have created to integrate new resources into BPA’s system.
The agreement is made possible due to advances in BPA’s ability to obtain
third-party balancing resources. Given this progress and work being done
in market design, the settlement gives BPA time to allow these efforts to
mature and become long-term, sustainable solutions for the integration of new
resources into BPA’s transmission system. The settlement did not address two
ancillary services, Scheduling System Control and Dispatch Service and Reactive
Supply and Voltage Control from Generation Sources Services.
In October, BPA also began offering its
transmission customers the opportunity to schedule energy in 15-minute
increments. By offering 15-minute scheduling, BPA has removed
barriers to integrating variable energy resources, as provided for in Federal
Energy Regulatory Commission Order 764. In the upcoming rate period,
Variable Energy Resource Balancing Service customers (principally wind) can
enjoy a saving of up to 50 percent from their current rate if they commit to
schedule every 15 minutes. In addition, BPA believes that 15-minute scheduling
could significantly reduce its balancing reserve capacity requirements.
