Bonneville Dam and Surround

Bonneville Dam and surround.

BPA's Power Services unit has an 81 percent chance of triggering a Financial Reserves Policy surcharge in fiscal year 2021, according to first quarter results presented Feb. 4 during the Quarterly Business Review presentation.

The QBR was co-hosted by Administrator Elliot Mainzer and CFO Michelle Manary.

The trigger threshold is having less than 60 days' cash in reserves for risk on hand at the end of the fiscal year; Power is forecast to have 59 days' worth, or $265 million.

"Power is just $35 million" away from not triggering the clause, and is "flirting with no-action territory," Manary said.

Power's FRP clause was triggered for the current fiscal year because FY 2019 ended with 43 days' cash on hand. This resulted in a 1.5 percent, $30 million surcharge applied to power rates that started in December and will last through September (CU No. 1929 [15]). The surcharge is reassessed at the close of each fiscal year.

Transmission Service's $259 million, 146 days' cash on hand is in Reserves Distribution Clause (RDC) territory, where the administrator has discretion over whether the additional funds should be disbursed and how they should be used, such as for rate relief or early debt repayment.

However, the RDC has a two-part test that requires agency reserves for risk also exceed its threshold (CU No. 1811 [14]); at $515 million, it falls short of that, although there is a 12 percent chance that a $3 million RDC could be triggered, Manary said.

Although it's early days in the fiscal year, BPA is forecasting end-of-year net revenues for the agency of $101 million, substantially more than the $12 million estimate of the 2020 rate case.

"We still have a lot of variability in the forecast because it is early in year," Manary said. "However, we're looking positive."

Among the factors for the higher number, she said, are higher than expected operating revenues ($24 million); lower "other" expenses ($13 million), mostly spending less than forecast on third-party transmission buys for power transfers; lower net interest expense ($3 million); and "cost discipline throughout the agency," Manary said, in managing the capital and spending levels established in the BP-2020 integrated program review.

An additional $47 million was due to not fully implementing a new accounting standard before fiscal year 2020 started to account for Columbia Generating Station's depreciation, and forecasting its impact in the rate case.

"We missed a small piece [in the forecast], so . . . you will see this consistently over the next two years" in the QBR presentations, Manary said. "But it does not impact reserve levels or rate adjustment mechanisms. It's just a byproduct of having a new standard and trying to forecast in the rate case how it was going to be implemented."

The end-of-year forecast for agencywide capital expenditures is $659 million, compared to the $847 million rate-case estimate. This was dominated by transmission projects being $149 million lower than estimated, due largely to internal shifts in the programmatic approach taken.

"We're coming out of a large-build era, and are now going into sustaining the system, with lots of smaller projects," Manary said. "Both the agency and Transmission are shifting around people and initiatives."

Elliot Mainzer added, "This is a topic of significant discussion in the agency, and a topic of high interest among customers."

The other large difference between the rate-case estimate and the Q1 forecast is $33 million driven by Bonneville's asset investment excellence initiative, which reprioritizes projects, and delays or cancels others, Manary said.

For the first quarter, Power recorded net revenues of $119 million, which was $71 million more than forecast in the rate case. Transmission Services had net revenues of -$15 million, but was forecast to have -$37 million, "so we're better off, but it's only Q1," Manary said.

In other news, Manary noted that the integrated program review update process for the 2022 rate period will kick off June 15, and be followed by technical workshops June 16-19. A 30-day comment period will run from June 15-July 15, and the IPR close-out report will be released in October.

In a summary of recent legislative updates affecting BPA, Mainzer said Congress had directed Bonneville, the Bureau of Reclamation and the U.S. Army Corps of Engineers to develop an outline for conducting new cost allocation studies for some of the FCRPS hydro projects.

The studies, which were first established decades ago, determine each agency's share of cost that is based on the benefit each project provides.

New updated studies could support potential reductions in Bonneville's share of the costs associated with operating and maintaining the FCRPS, Mainzer said, by looking at an "appropriate" balance between power and nonpower uses of the system.

Mainzer also noted that in December, Congress authorized BPA to purchase carbon allowances for the purpose of participating in state cap-and-trade programs, such as in California.

This wasn't previously possible because the allowances are deemed a state tax, which a federal agency isn't allowed to pay due to sovereign immunity, unless Congress grants an exception.

Up to now, BPA has relied on third-party arrangements to sell power into the California energy market, Mainzer said.

"The new law removes the need for those arrangements and provides cost savings and efficiency that could be pretty substantial, especially in surplus sales," he said. "It also removes another potential barrier to joining the [Western EIM]."

In its letter to the region laying out the case for joining the EIM, Bonneville said the authorization to buy the allowances would add value to its sales into California because of the extremely low carbon content of its fuel mix. With the tax running around 30 cents/MWh, it would be considerably lower than other typical transactions that facilitate sales into the state, the letter noted (CU No. 1907 [11]).

Mainzer said BPA had long sought Congressional approval for the provision, and that it was good the finally see this source of "transactional friction" cleared.

The same bill that authorized paying carbon allowances, H.R. 1865, also authorized spending $25 million for the Steigerwald floodplain restoration project, "the largest estuary project Bonneville has ever been involved with," Mainzer said. "It's an important part of our Fish and Wildlife Project with many regional partners."

The current system of Columbia River levees established by the Port of Camas-Washougal obstructs salmon and lamprey access to 960 acres of floodplain habitat.

The collaborative project will reconfigure the levees to reduce flood risk, reconnect the floodplain, and increase recreation opportunities at the Steigerwald Lake National Wildlife Refuge.

Groundbreaking is scheduled for spring 2020, and the project is expected to be completed in 2022, Mainzer said. BPA has been involved since 2013.

A fourth Congressional action approved the Spokane Reservation Equitable Compensation Act, which resolves a long-standing issue of compensation for tribal lands used to build the Grand Coulee Dam. The Colville Tribe has been compensated since 1994 for a similar situation.

Starting in 2021, BPA will pay the Spokanes annual payments of around $6 million from 2022 through 2029, increasing to around $8 million in 2030 (CU No. 1933 [9]).

"It's really good to have this behind us," Mainzer said. "We're already working on how to mitigate rate impacts from this."

Pivoting to other agency business, Mainzer noted that BPA's new energy trading and risk management system went live Jan. 31.

"This is a big deal," he said. "It streamlines what had been a multi-organization process, eliminates some manual components, and offers flexible reporting options that actually complies with the [California ISO] requirements Bonneville has to follow today just to trade into the market, not to mention any future upgrades for EIM."

It also allows for real-time, within-hour power trades captured at five-minute intervals, which helps ready BPA for joining the EIM if the decision is made to do so in spring of 2022, he added.

The grid modernization project enhances BPA's ability to conduct real-time monitoring of its credit risk exposures while "seamlessly providing data to downstream users," a news release on the system said. It will support the bulk marketing, transacting, credit risk, contract administration, settlements and technical accounting groups.

Another "Grid Mod" area where "great progress" has been made is available transfer capability, which aims to automate and increase the accuracy of determining how much electricity is actually moving through Bonneville's transmission corridors, Mainzer said.

"This determination helps us get a better handle on how much transmission can be sold from today up to 13 months in the future," he said. "These changes will allow planners and operators to operate the FCRTS less conservatively and ultimately increase system utilization, lower costs and increase revenue."

The 2020 Cluster Study—which will identify transmission needs and help form the basis for any proposed construction—is already underway and expected to be completed in early May, Mainzer said.

The current study includes approximately 4,000 MW of long-term, firm point-to-point requests, he said. Over 80 percent of these are for new generation developments east of the Cascades, generally seeking to deliver to westside loads or to Bonneville interties.

Finally, in terms of meeting customer transmission needs, the schedule to establish NorthernGrid—a new regional planning organization that will replace ColumbiaGrid and the Northern Tier Transmission Group—slipped after FERC on Dec. 27 rejected "without prejudice" the tariff filings submitted earlier in 2019 for joining NorthernGrid.

FERC found several procedural defects in the filings, such as a benefit-to-cost ratio analysis that was "not just and reasonable" because could potentially exclude some feasible projects.

The jurisdictional members—Puget Sound Energy, NorthWestern, PacifiCorp, Avista, Idaho Power, Portland General Electric and MATL—have already filed corrected tariffs. Mainzer said he expected NorthernGrid to go live "later in the year." It had been slated to do so sometime in January.

Mainzer noted that the Northwest Power Pool, in addition to taking on responsibility for regional resource adequacy, will also be the administrator for NorthernGrid.

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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.