Many BPA customers are concerned with the agency’s proposed use of revenue financing to fund projects, saying power rates can be 4.5 percent lower if that approach is not used, according to testimony filed in Bonneville’s BP-22 proceedings.

In addition to concerns over revenue financing, customer groups also worried about the details of BPA's proposed entry into the Western EIM, such as allocation of grid modernization costs; transmission losses; and the proposed rate increases.

But the proposed use of revenue financing sparked the most concern.

In testimony filed on the proceeding's Feb. 3 deadline for intervenors' direct cases, PNGC Power urged Bonneville to set aside revenue financing "until such a time that BPA has created a formal Revenue Financing Policy . . . as a result of a legitimate stakeholder process, outside of the rate case, with opportunity for productive discussion between BPA and its customers."

Revenue financing—funding projects through rates rather than through borrowing—for up to $190 million over the 2022-2023 rate period does not align with the agency's duty to set rates "as low as possible, which, absent this proposal, 'could decline by as much as 4.5 percent over the BP-20 power rates,'" the electric generation and transmission co-op said, citing BPA's own testimony in the case.

BPA says revenue financing will help preserve its U.S. Treasury borrowing authority and mitigate debt service. Without significant changes in capital funding such as this, it expects to "drop below a healthy amount of remaining borrowing authority by 2024 and would completely exhaust its federal U.S. Treasury borrowing authority by 2032," the agency said when it issued its proposed rates (CU No. 1982 [17]).

But Bonneville has not shown this is consistent with "sound business principles," PNGC says, and "has not performed any cost-benefit analysis to determine an optimal level of revenue financing, and therefore has little quantitative business justification for their proposed $95 million per year" in revenue financing.

This concern was amplified in a Feb. 12 statement from Roger Gray, PNGC president and CEO.

"Our point is simple: in our judgment, BPA has upended the bargain it has with power customers and continues to walk away from the 'essence of our deal,'" Gray said.

"BPA argues these actions improve BPA's perceived financial stability, but they are seriously harming BPA's competitive stance and increasing customer relationship risks," Gray continued. "We think BPA's real long-term financial stability will be driven by BPA competitiveness and customer relationships. PNGC encourages the Administrator to weigh the long-term success of BPA ahead of opportunistic short-term money grabs that ultimately are both fleeting and more harmful to BPA's long-term mission."

The Western Public Agencies Group echoed these concerns in its testimony, agreeing with other parties "regarding the procedural and process defects of BPA's revenue financing proposal for power rates, the proposal for which came in the eleventh-hour . . . of a pre-rate case workshop process that lasted more than a year."

WPAG also noted that a "key lesson learned by BPA and its customers . . . is that BPA achieves more equitable and accepted (albeit sometimes grudgingly accepted) outcomes when it first holds a process to develop and finalize financial policies before taking any action to realize the financial objectives it wants to achieve through rates. This is the standard framework that BPA's customers have come to expect, and the one that BPA's 'shoot first, aim second' power revenue financing proposal fails to meet."

Twelve of the 15 parties filing testimony in BP-22 expressed similar concerns with revenue financing, most urging Bonneville to defer its use until a customer process is undertaken.

In one case, Public Power Council suggests that "on the basis of access to capital and leverage, there is a much better rationale for revenue financing in BP-22 for Transmission than for Power."

Seven parties had concerns about BPA's potential entry into the Western EIM, mostly over issues of cost and benefit allocations, and allocation of costs for the grid modernization it has undertaken in order to participate in the market.

In particular, Renewable Northwest and the Northwest and Intermountain Power Producers Coalition, filing jointly, raised issues about allocating 65 percent of EIM costs to Transmission "despite the benefits" power customers will enjoy with BPA's participation. They recommend having Power share more of the costs.

The joint filing also asserts that under changes to market power mitigation rules proposed by market operator California ISO, a new default energy bid option could allow hydro resources to overcollect capacity and opportunity costs. These costs reflect the value of forgone sales of power bid into the EIM, which could be recovered more than once under the new rules, the filing says.

Combined with overstating the amount of balancing reserve capacity needed, this could result in BPA recovering more than its actual total system costs, the filing asserts.

As a remedy, NIPPC and RNW recommend giving generation-inputs customers a credit when BPA earns revenues in the EIM, which they say would reimburse Transmission customers who pay for capacity used in bids that yield surplus revenues.

Parties filing direct-case testimony in the BP-22 proceedings include Alliance of Western Energy Consumers, Calpine, M-S-R Public Power Agency, Northwest Requirements Utilities, PNGC, Powerex, PPC, Snohomish County PUD and WPAG.

Parties filing joint testimony are NIPPC and RNW (as Joint Party 1); Eugene Water and Electric Board and SnoPUD (as Joint Party 2); and Avangrid Renewables, Avista, PacifiCorp and Puget Sound Energy (as Joint Party 3).

Upcoming milestones in the proceedings in February include a round of follow-up motions associated with the filed testimony. The close of participant comments is scheduled for March 1, followed by filings of rebuttal cases by March 16.

Cross-examination will be conducted April 8-9, followed by filing of initial briefs by April 27, and oral arguments starting May 4.

A draft record of decision is slated to be issued by June 11; briefs on exceptions to the draft ROD will be due by June 25, and the final ROD and final studies are slated for release on July 28.

Some concerns laid out in the filed testimony may be discussed in BPA's second Integrated Program Review, which starts with a workshop on March 2 and will be followed by a public comment period. A final closeout report is slated to be issued at the end of April.

Bonneville is limiting the scope of the IPR 2 process to capital spending for transmission and facilities asset categories; and impacts of the Columbia River System Operation EIS and associated Endangered Species Act consultations.

News Editor - Clearing Up

Rick Adair has been with NewsData since 2003, and is news editor for Clearing Up and editor for Water Power West. Previously, he covered environmental and energy issues in the Lake Tahoe area. He has a doctorate in earth sciences.