Bill payers in Benton and Franklin counties could see more instability in their utility rates, as the Northwest’s biggest power supplier says it is at risk of losing customers as utility bills climb.
The Bonneville Power Administration, which sells $3 billion of electricity in the Northwest each year, plans to focus on keeping costs down in the next five years, amid complaints from utilities that the cost increases in the power it sells are not sustainable.
The federal agency must be better positioned as it starts negotiating new contracts to provide electricity to utilities, said Elliot Mainzer, BPA administrator.
BPA has released a five-year plan through 2023, which is about the time it will start negotiations with utilities to renew long-term contracts that expire in 2028.
Any cost control the agency achieves under the existing contracts over the next decade will benefit utilities, including local utilities, in addition to positioning it for the future.
BPA, which owns 15,000 miles of Northwest transmission lines, supplies much of the electricity in Benton and Franklin counties and also relies on the Mid-Columbia for some of the electricity it distributes. It markets wholesale electric power from hydroelectric projects on the Snake and Columbia rivers and the Columbia Generating Station, Energy Northwest’s nuclear power plant near Richland.
The wholesale price of electricity has really declined quite substantially in recent years driven very heavily by the cheap cost of natural gas.
Elliot Mainzer, Bonneville Power Administration administrator
It has raised the power rates that utilities pay an average of 3.5 percent a year for the past eight years. With rate changes announced every two years, that can mean some hefty increases, like the 9 percent average increase in October 2013.
Tri-City-area utilities have responded by dipping into reserves, cutting costs and raising customer rates:
▪ Richland residents are paying a 6.5 percent increase in electric rates this year, which the city council blamed on an increase in the wholesale rate of electricity it gets from BPA.
▪ Benton PUD raised its residential rates an average of 1.9 percent in October, following a 4.9 percent increase in September 2016, with both increases largely to cover BPA price increases.
▪ Franklin PUD raised its rates 4.1 percent in May 2017, after an increase of about 2.6 percent in September 2015.
For most of its history, BPA has had the lowest-cost power available in the Northwest and faced few economic competitors.
But its cost advantage has eroded.
Why costs have gone up
“The wholesale price of electricity has really declined quite substantially in recent years driven very heavily by the cheap cost of natural gas,” Mainzer said.
At the same time, the amount of electricity being produced through renewable energy production using wind and solar has expanded, particularly in California, as the demand for electricity has remained flat.
Industrial use is down in the Northwest, with aluminum production dramatically reduced since 2000, and the pulp and paper industry is struggling.
Warmer winters in recent years and improved energy efficiency also have contributed to flat electric loads.
BPA has traditionally sold excess power that its utility customers did not need, with the profits lowering its rates. But now supply is outpacing demand.
“Low wholesale power prices entice customers to consider other power suppliers while also reducing BPA’s net secondary revenues, which BPA uses to help keep rates low,” says BPA’s strategic plan.
Our goal is to show up for the next round of negotiations in a much more competitive position.
Elliot Mainzer, Bonneville Power Administration administrator
BPA has seen it costs rise substantially in recent years because of the need to upgrade aging infrastructure at hydroelectric dams, build transmission capability for renewable resources such as wind, and spend on fish and wildlife programs.
The recent federal court order to spill more water over eight Columbia and Snake River dams beginning this spring, rather than using the water to produce electricity, will reduce revenue by $40 million a year, which has been estimated to add about 2 percent to electric bills. The court ordered the spill in the belief that it will benefit juvenile fish.
BPA now spends about $300 million a year on fish and wildlife programs, including for migrating salmon, which amounts to about 25 percent of its direct power costs.
“We have got to work within our existing resources,” Mainzer said. “If we take on new obligations, we have to reprioritize actions that don’t have as much benefit or we simple can’t afford.”
Where costs may be cut
The agency will be having some difficult conversations with constituents — including tribes, members of Congress, environmental groups and Northwest state officials — to look at how best to use resources for fish and wildlife.
BPA may be looking at reducing spending on research, monitoring and evaluation, or other fish and wildlife programs that do not appear to be as valuable or cost effective as programs that appear to best help migrating fish return to the rivers, Mainzer said.
BPA will extend its cost analysis across its entire enterprise to make sure dollars are spent wisely, whether for internal operating costs, workforce, information technology or the supply chain, he said.
BPA has started with a review of its own spending, that of the Army Corps of Engineer to operate dams, and Energy Northwest in Richland, which operates the Northwest’s only nuclear power plant.
Energy Northwest has been taking a hard look at staff positions as they become open to decide how or whether to staff them, it said.
Energy Northwest also points out that it has reduced the cost of power from the Columbia Generating Station, its nuclear power plant, by increasing generation and improving reliability since 2011.
Energy Northwest has done a good job at looking at capital and operation and maintenance costs, but the focus will need to remaining on managing costs as its nuclear plant ages, Mainzer said. It began operating in late 1984.
Critics of the Northwest’s only nuclear power plant have questioned whether it should be shut down and its output replaced with less costly electricity.
But Mainzer said that Columbia Generating Station has more value than some reports by critics argue, and that reports likely underestimate the cost of replacing its output.
The plant offers reliable and carbon-free energy, he said. Unlike renewable energy resources, it can produce consistent power whether the wind is blowing or the sun is shining.
It should only become more valuable to BPA as states like California and Oregon look for carbon-free energy, he said.
Supporters say BPA has value
BPA’s five-year plan sets a financial health goal of holding costs to at or below the rate of inflation through 2028 and also increasing its financial stability through steps such as reducing its debt-to asset ratio.
Additional strategic goals include modernizing assets, providing competitive power products and services, and meeting transmission needs efficiently.
“Our goal is to show up for the next round of negotiations in a much more competitive position,” Mainzer said.
Its power customers have noted the resurgence of competition in power markets will provide them with alternatives when their long-term wholesale power contracts with BPA expire, says the new five-year plan.
But a move away from BPA may not be in utilities’ best long-term interests.
BPA is nonprofit and can guarantee prices longterm, providing stability, said James Conca, a senior scientist and co-owner of consulting firm UFA Ventures in Richland. BPA does not have to turn a profit, and its wholesale customers don’t feel the pain when prices spike, such as during a cold snap that drives up natural gas prices.
“In the end, when you deregulate, the customer loses,” Conca said.
Utilities will still need baseload power, which produce energy at a constant rate, said Scott Corwin, executive director of the Public Power Council, which represents the Pacific Northwest’s consumer-owned utilities and works to protect the benefits of the federal Columbia River power system.
The more low-cost options that are available, the more consumers benefit, he said.