Bonneville Facing Stiff Competition Salmon Recovery Costs Help Push Bpa’s Rates To Within Striking Distance Of Other Power Suppliers

Bonneville Power Administration officials and customers are warning that the agency may be as endangered as the salmon it is trying to protect.

Mounting costs to protect the fish are pushing Bonneville’s annual costs toward the $500 million mark - about 20 percent of its total budget.

The cost of a kilowatt-hour purchased from Bonneville is 2.8 cents. With a single-digit rate increase predicted by agency Administrator Randy Hardy last week, the cost by this time next year may well exceed 3 cents.

The agency’s own projections indicate that anything beyond that level could push customers off the system. As customers leave, revenues decline, threatening Bonneville and the underpinning its inexpensive energy has provided the region for half a century.

Some Bonneville customers - public utility districts, cooperatives, aluminum smelters - expect a rate hike of as much as 15 percent when specifics are unveiled this summer.

Many are already in a sweat. At least three Inland Northwest utilities, and dozens of other BPA customers, have started looking for other power sources.

Such defections are possible because Bonneville, which delivers 65 percent of the electricity used in Washington, is no longer the only game in town.

Independent power producers unleashed by changes in federal legislation enacted since 1980 are prowling the region.

Hardy said competition was no problem in the years preceding the Washington Public Power Supply System default in 1982, when Bonneville sold a kilowatt-hour of electricity for less than a penny.

With natural gas prices at sky-high levels, he said, most everything else was 10 times as expensive.

But WPPSS doubled Bonneville’s debt just as gas prices started a long decline.

Today, natural gas-fired turbines can generate a kilowatt-hour of electricity for about 3 cents - same as Bonneville.

More importantly, turbine owners and other alternative suppliers, who have no responsibility for fish-recovery costs, can offer customers long-term contracts that lock in rates for a decade or more.

There is no certainty on fish costs, lamented Hardy.

“We’ve got open-ended cost exposure,” he said. “This is far and away the most challenging set of energy circumstances this region has faced in the 17 years I’ve been around.”

Hardy suggested the region must find ways to spread the cost of saving salmon in order to alleviate Bonneville’s burden.

Inland Northwest utilities are among those most active in the new marketplace.

“I need to sort of hedge my bets,” said Bob Crump, general manager of Kootenai Electric Cooperative Inc. in Coeur d’Alene.

Kootenai two weeks ago signed an agreement with Enova Energy Management Inc. that authorizes the San Diego-based company to find alternative sources of electricity.

Crump said Enova will get the go-ahead to arrange contracts if terms Bonneville announces are not acceptable.

“I’m not encouraged,” he said.

In Sandpoint, Northern Lights Inc. recently bought a dam in northwestern Montana that can generate about 10 percent of the electricity consumed by the cooperative’s 12,000 members.

“We’re concerned about the direction of Bonneville,” said acting manager John Shelby. “There’s a major concern in the Northwest over wholesale power costs.”

He said Northern Lights is also meeting with other potential suppliers, and noted that the cooperative has also agreed to work with Kootenai Electric on ways they can cut costs by sharing services.

Other efforts to become more efficient have been offset by past Bonneville rate increases, Shelby noted.

Although Inland Power & Light Co. has not yet made any deals, officials with the Spokane-based cooperative say its directors could approve a contract with Washington Water Power Co. for up to half its requirements this month.

Assistant Manager Dave Clinton told a joint meeting of the Washington House and Senate energy committees last week that loyalty to a dependable, long-term supplier like Bonneville may no longer keep Inland on line.

“Even we are thinking about switching,” he said.

Clinton, who is also chairman of the Columbia River Alliance, said members believe fish costs are out of control, and based on questionable science.

The alliance includes irrigators, barge operators and others affected by Snake River drawdowns and other measures that so far have been the main means adopted for reversing alarming declines in salmon runs.

Drawdowns spill water that otherwise would pass through dam turbines and generate electricity.

While the spills bleed Bonneville of precious revenues, companies like Enova and WWP benefit.

Besides the potential deal with Inland, WWP two weeks ago signed a contract with one of Bonneville’s largest public utility customers, Clark County, to supply 100 megawatts of electricity.

The transaction could earn WWP $60 million over three years, according to senior power resource engineer Dana Zentz.

The power is cheaper than Bonneville’s, he said, but more than what WWP would get in the spot market.

The district is building a gas turbine that will replace the WWP power when completed.

Zentz noted WWP is in the running for another large contract with the Snohomish Public Utility District.

“We have not done a lot of long-term business with publics prior to this,” he said.

Hardy said the Clark and Snohomish deals are indicative of the competition confronting Bonneville.

“Customers vote with their feet,” he said.

If anything, observed Washington Rural Electric Cooperative Association Manager Aaron Jones, Hardy understates Bonneville’s problem.

“I think he has more competition than he thinks,” Jones told legislators last week.

He estimated that half Bonneville’s 124 public customers are considering alternative suppliers.

Roy Eiguren, attorney for the Idaho Cooperative Utilities Association Inc., echoed Jones.

All 13 association members are talking with independent power providers, he said, as are most of the municipal utilities he represents.

As recently as a year ago, none would have considered buying from anyone other than Bonneville, Eiguren said.

He said Hardy deputy Jack Robertson told association members meeting in Boise last week they should check out the competition.

In the end, they were told, Bonneville would be the best long-term resource.

“There is a fairly high degree of suspicion,” Eiguren observed, adding, “We all try to give the benefit of the doubt to Bonneville.”

Enova Vice President Martin Ochotorena is sympathetic, but his company expects to add to its list of Northwest clients.

“Bonneville has served them well in the past, but the market is changing,” he said.

Although some of Bonneville’s customers have told Enova representatives they plan to stick with the agency, most are willing to consider options, he said.

Ochotorena said Enova’s challenge will be making money in the Northwest’s low-cost energy market.

The company gets a split of the money it can save a utility when it purchases power to replace that from Bonneville.

Even if Bonneville rates go up, there will be less to split than there is in California and the Southwest, where Enova does most of its business.

How far Bonneville customers will be able to go in their hunt for new resources is unclear. Their contracts require advance notice if they expect to take power from another supplier.

When Bonneville is short of electricity, as it is now, only nine months notice is required. If there is a surplus, as there could be if enough customers defect, the notice period is seven years.

Without change, only utilities such as Clark that have already told Bonneville they have other plans will have much of an opportunity to give adequate notice.

But new contracts expected to accompany introduction of the new rate structure this year will likely give customers more flexibility, said Terry Esvelt, Bonneville’s vice president for marketing.

In return for a notice period of perhaps two years, he said, customers would have to forgo any claim to Bonneville resources for seven years.

The power would be sold to utilities elsewhere in the West. “We’ve got the resources to sell and we’re going to sell them,” Esvelt said.

Sen. Patty Murray cautioned against a rush for Bonneville’s exits.

A staunch supporter of fish recovery efforts, she said the Northwest’s Congressional delegation is working on ways to balance competing fish and economic interests while alleviating some of Bonneville’s burden.

“This is being worked on in a more comprehensive way than I have seen in years,” Murray said.

She said cries that extinction threatens Bonneville only create more uncertainty just as a solution may be at hand.

“I don’t think it’s necessary for Bonneville to sound the death knell,” Murray said.