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NW Fishletter #372 August 7, 2017

[3] BPA Adopts Spill Surcharge to Customer Power Rates in FY 2018, 2019

BPA adopted a spill surcharge for use in FYs 2018 and 2019 to recover costs associated with a recent court order requiring increased spill, according to the final record of decision released July 26 in the BP-18 rate case.

The ruling by the U.S. District Court for the District of Oregon directed more spill for the 2018 spring fish passage season at eight Federal Columbia River Power System (FCRPS) dams on the lower Columbia and Snake rivers.

The spill surcharge, first detailed in a supplemental draft record of decision (ROD) filing a week after the draft ROD release, is in addition to new power rates, but won't be triggered until there is sufficient information about the planned annual spill levels.

BPA will implement the surcharge in both fiscal years 2018 and 2019, and apply it to customer rates whenever "lost revenues" from additional court-ordered spill reach at least $5 million.

The surcharge applies only to non-Slice customers--Slicers will deal with the extra spill during their true-up process. The charge can be reduced if savings are made in programs used to set the BP-18 rates.

(A Slice purchaser pays a fixed percent of BPA's power costs in exchange for a fixed percent of the FCRPS generation and capabilities.)

The extra spill--to be set by a joint stakeholder process in coming months--was ordered March 27 in the long-lived litigation over federal dam operations, well after BPA had released the initial proposal of the BP-18 rate case last November.

Bonneville said the court's order had "created exigent circumstances, requiring BPA to revise the BP-18 procedural schedule to accommodate the parties' review."

The surcharge was developed because of concerns raised last year during the spill litigation. In testimony submitted in the court case, Kieran Connolly, BPA VP of generation and asset management, said the generation reduction due to the extra spill would have two primary effects. First, Connolly said, it would reduce sales of Bonneville surplus energy on the wholesale market, which would require additional revenues from statutory preference customers to cover costs.

In addition, he said, the reduced generation could also lead to occasions where low streamflows and high power demand coincide and require Bonneville to purchase additional power from the open market, "at potentially high prices," to fulfill its preference-customer obligations.

Although future additional spill levels have not yet been established, Connolly, in his court testimony, said the lost revenue was estimated to total $80 million over FY 2018 and FY 2019, corresponding to 815 MW worth of lost sales during the April-June period of each year.

BPA staff first raised the possibility of a spill surcharge in supplemental testimony filed in April in the spill court case. The court order for more spill, said in the testimony, "created a new cost risk" that the surcharge would mitigate by allowing the agency to recover its total costs through rates.

The approved surcharge includes a discretionary "cost reduction component" that allows the BPA administrator to reduce the surcharge if program costs decrease, or are forecast to decrease, relative to spending levels used to set rates.

A further adjustment ensures it is applicable only to non-Slice customers, since the direct impact of the extra spill on Slice customers will be addressed by the existing annual cost and revenue true-up process.

The surcharge will be based on BP-18 forecast market prices, and on the average water-year impact of increased spill using 80 water years of data, Bonneville said.

During the BP-18 ROD process, Bonneville concluded it did not have to conduct a separate Section 7(i) hearing for the spill surcharge, as asserted by the Western Public Agency Group.

Such hearings are called for by the Northwest Power Act in developing wholesale power and transmission rates. However, BPA said, the surcharge was "like the implementation of other formula rates and adjustment clauses," which don't require hearings, as established by long precedent.

Even the "expedited" process also proposed by WPAG is not needed, Bonneville said, because it would be "impractical, unnecessary, costly, and inefficient."

BPA also declined to raise the spill-related lost revenue threshold for imposing the surcharge, from $5 million to $10 million, also requested by WPAG, as an inducement to find additional cost cuts to offset the surcharge.

Bonneville noted that extensive cuts had already been identified during the first and second Integrated Program Review processes and said, "it would be unwise to establish a non-discretionary minimum level of cost reductions" for the spill surcharge.

Bonneville also declined to implement two proposals by Idaho Rivers United that rely to some extent on actual flow and spill numbers after the spill-season end to determine lost revenues, rather than BPA's approach to use forecasted spill and flows relative to baseline water-year averages, which it says is based on "standard" ratemaking practices.

BPA characterized the IRU proposals as overly complex and burdensome.

"Staff provided an extensive list of unresolved complications associated with IRU's proposal," the agency noted earlier in a supplementary filing. "These remain unresolved and would by themselves be more than enough to reach the conclusion that IRU's proposal stretches well beyond inconvenience and is, as Staff describes, an unviable option."

In addition, BPA said, none of the IRU proposals resolve "rate volatility inherent" in the group's original proposal. -Rick Adair

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