BPA’s average wholesale power rate will remain flat and transmission rates will increase 3.6 percent over the two-year rate period starting Oct. 1, the agency said July 25 in the final BP-20 record of decision.
However, Bonneville faces the “increasing likelihood” of triggering a Financial Reserves Policy surcharge in November that could increase the effective power rate as much as 1.5 percent over the rate period, or $30 million per year in revenue, Administrator Elliot Mainzer said in a statement.
BPA noted that this amount is below the rate of inflation and less than the 2.9 percent increase proposed in December.
“We want to signal this to our customers because it is consistent with our commitment to transparency and financial discipline,” Mainzer said of the surcharge.
The surcharge is triggered when a business unit’s reserves-for-risk levels are below the equivalent of 60 days of cash on hand. It was established in October to help strengthen BPA’s financial health per the agency’s strategic and financial plans (CU No. 1871 ), and fleshed out in the BP-20 initial rate case released in December (CU No. 1880 ).
If triggered, the surcharge would result in up to $30 million per year being recovered for Power Services’ reserves through a rate adjustment over the 10-month period of December through September.
This development is not unexpected. In its April Quarterly Business Review, BPA warned the surcharge was likely, saying that based on provisional year-end reserves forecasts, there was a 61 percent chance of it triggering, breaking down as a 28 percent chance it would be between $5 million and $29 million, and a 33 percent chance it would be $30 million (CU No. 1901 ).
The final ROD is essentially unchanged from the draft version released for comment in June (CU No. 1906 ), Daniel Fisher, power rates manager, confirmed to Clearing Up.
In the preface to the final ROD, Mainzer said the rates “reflect the extensive and disciplined efforts BPA has taken” to achieve “clean, efficient and reliable power and transmission services within the Pacific Northwest at rates that are competitive and that include smart investments in the region’s future.”
In particular, keeping the base power rate flat at the average wholesale cost of $35.62/MWh resulted from “steadfast efforts to further reduce capital-related costs and our targeted actions on the trading floor to bring in additional revenues from forward market sales of surplus power,” he said.
These efforts included lowering program costs by $66 million per year compared to the current rate period, mostly due to cost reductions in Power Services, Mainzer said.
Just as significantly, under settlements finalized earlier this year, the initially proposed transmission rate increase of 9.6 percent was reduced to 3.6 percent.
The rates do not reflect results from the review that concluded in June of business unit cash-split errors dating back to 2002. However, the outcome of the review, due out July 30 with BPA’s recommended solution, has a bearing on the magnitude of the Financial Reserves Policy surcharge.
A recent summary of the errors indicated a net internal transfer of cash from Transmission to Power may be warranted that amounts to almost $172 million in principal and about $31 million or $39 million in interest, depending on which interest rate is adopted (CU No. 1911 ).
If this is borne out, it would increase Power’s reserves for risk. While it isn’t likely to be enough to avoid the FRP surcharge, it could affect the surcharge size.
“I understand the uncertainty this process introduces, but the existence of any errors does not change the fundamental importance of the Financial Reserves Policy and the foundational anchor it provides for BPA’s financial resiliency,” Mainzer said in the ROD preface. “By the end of the fiscal year, the process and actions necessary to resolve any attribution errors will be complete, which will allow BPA to implement the Financial Reserves Policy as planned.”
In addition, rates won’t be subject to a spill surcharge, as they were in the previous rate period due to the timing of a spill order from the court and the lack of information available about the amount of spill required when BP-18 rates were set, BPA spokeswoman Maryam Habibi told Clearing Up.
BPA eliminated the spill surcharge for the BP-20 rate period because it had enough information to forecast spill in its generation modeling.
Differences between the financial impacts of actual spill and forecast spill will be handled through the risk mitigation tools such as within-rate period cost management, financial reserves and the cost recovery adjustment clause, Habibi said, adding, “BP-20 returns to the typical ratemaking method of including a forecast assumption about the amount of spill when setting rates and managing cost uncertainty with BPA’s risk mitigation tools.”