Bonneville Power to Raise Rates
In the Fall by 46% at Wholesale
By Robert Gavin
Staff Reporter of The Wall Street Journal
In Northwest energy markets, good news has come to this: a 46% rate increase.
That's how much the Bonneville Power Administration, the federal agency that markets about half the power in the Northwest, will raise its wholesale rates beginning Oct. 1 -- an announcement that is being widely hailed as a significantly improved scenario for retail customers in the region. The rate increase announced Friday will boost the cost of power to Northwest utilities to about $32 per megawatt hour from $21, but nonetheless represents a far more modest increase than the about tripling of prices BPA projected just a few months ago. For retail customers of the municipal-type utilities that rely heavily on BPA power, the boost in wholesale prices should, on average, mean rate increases of about 20%, said officials at BPA of Portland, Ore.
A spokesman for Seattle City Light, the region's biggest municipal utility, said the BPA announcement was a relief. The utility already had raised rates by about 50% since the Western wholesale markets went haywire last year. Under early BPA projections, Seattle City Light faced the possibility of having to boost rates by another 100%. The spokesman said the new BPA rates mean an increase of about 15% for its 345,000 customers. The average residential customer will see rates rise to about 7.7 cents per kilowatt hour from 6.7.
Even with the increases, Northwest customers still enjoy some of the lowest rates in the nation. The state of California is paying average wholesale prices of $69 per megawatt hour under long-term power contracts, while many residential customers in the Golden State are paying rates significantly higher than their Seattle counterparts.
BPA's initial projections were based on the possibility that the agency, which markets the power produced by hydroelectric dams on the Snake and Columbia rivers, would have to buy power on volatile Western spot markets to bridge a shortfall of 3,000 average megawatts needed to meet contractual obligations. The hydroelectric dams and a nuclear-power plant provide BPA with about 8,000 average megawatts; its customers had contracted for about 11,000 beginning Oct. 1.
BPA set out to trim the rate increase by reducing the amount it would have buy on the spot market. It asked all of its wholesale customers to sell back at least some of the power for which they had contracted: All told, it reached agreements with customers to cut demand by 1,900 megawatts.
The agency has come under criticism for oversubscribing the system, particularly from the aluminum smelters that are bearing the brunt of the load-reduction strategy. All but one of the smelters -- Houston-based Kaiser Aluminum Corp. -- agreed to shut down operations until at least April, freeing up just over 1,100 average megawatts. BPA is paying about $20 per megawatt hour to buy back the power, with the smelters agreeing to use some of the revenues to keep their 2,000 to 3,000 workers on full pay and benefits until the plants can restart.
BPA officials say no one could have foreseen the Western energy crisis when they were signing up customers three years ago. They had planned to meet the shortfall by buying power on the wholesale market, where prices then averaged between $20 and $30 per megawatt hour. Spot market prices during the past year have often been 10 times as large, or more.
Aluminum smelters, which are buying power from BPA at about $22 per megawatt hour, shut down most of their operations about six months ago, when it became more profitable to resell power than make aluminum. The companies, however, have no resale rights under the contracts that go into effect Oct. 1 and were facing the possibility of having to buy power at rates at which they couldn't operate profitably. It is generally accepted that smelters can't operate profitably if prices go much above about $30 per megawatt hour. They would pay about $34 under the new BPA rates.