Long-term contracts now BPA's albatross
By Hal Bernton
Seattle Times staff reporter
In the 1990s, the Bonneville Power Administration signed long-term contracts to sell 1,223 megawatts of hydropower - enough to light the city of Seattle - to utilities outside the Pacific Northwest and to private power marketers.
These contracts have aggravated regional power problems in a new era of shortages and soaring prices. The BPA doesn't have enough cheap hydropower to serve all the Northwest regional needs and fulfill those contracts.
During the past year, it's been forced to buy high-priced power on spot markets, where the cost of a megawatt has soared tenfold, and at times more than 20-fold, the prices of the late '90s.
"All of those sales looked good at the time, and I don't think anyone could have anticipated the changes in the market," said Ed Mosey, a BPA spokesman.
Overall, the BPA can produce roughly 8,300 megawatts of power from a network of 29 federal dams and one nuclear plant, but its overall power commitments total roughly 11,300 megawatts.
To pay for additional power and other expenses, the BPA is proposing large rate increases to regional utilities that buy its electricity, including Seattle City Light and Tacoma Power. BPA officials hope to keep the rate increases below 100 percent, but they could go higher.
Critics say the agency went too far out on the limb by committing the regional hydropower in contracts that would extend through 2006 and beyond.
"BPA overcommitted," said Paula Green, bulk-power marketing director for Seattle City Light. "Their marketing office was totally out of control. That's the crux of the problem."
The out-of-region and power-marketer contracts were signed amid a mid-'90s power glut that launched BPA officials on an intensive search to find new customers to keep it financially solvent and to bankroll salmon-rescue efforts. Those holding contracts include marketers Enron and Avista Energy. They also include the Bay Area Rapid Transit Authority and other California utilities.
The BPA is trying to reduce commitments to the out-of-region utilities and power marketers. The status of these deals was outlined in BPA documents supplied to The Seattle Times.
• So far, the BPA has managed to buy out 297 megawatts from power marketers and out-of-state utilities, and convert more than 230 megawatts to exchange agreements. One of these exchange agreements, however, may be difficult to carry out. It involves a 134-megawatt exchange with financially ailing Southern California Edison. Citing confidentiality restrictions, BPA would not disclose the costs of buyouts.
• Another 725 megawatts of power remains committed for the next five years or more to the out-of-state utilities and power marketers. Many of those contracts were sold in 1996 or 1997 and will run through 2004 or beyond.
Mosey said the out-of-region and power marketer contracts do not allow any sudden cancellations. So the BPA is trying to negotiate additional buyouts with those contract holders to free up more of that power for the region.
The BPA was formed in 1937 to market power from Bonneville Dam. Since then, it has grown to an organization of more than 3,000 people that markets 46 percent of the Northwest power supply, with first dibs given to Pacific Northwest public utilities.
Most of the out-of-state and power-marketer contracts were negotiated at a time when federal hydropower didn't look so cheap. In 1995, the BPA was being undersold in the region by other electricity wholesalers.
Many regional customers bailed out of BPA power, and the agency's finances looked shaky.
"We felt that if we missed our Treasury payments, we would lose control of our destiny," said Randy Hardy, BPA administrator from 1991 to 1997.
"And we needed to prevent that from occurring."
So the agency marketed surplus power outside the region and to power marketers. The longer term the contracts, the better the price, Hardy said. The less risks of cancellations, the better the price.
BPA official Steve Oliver said the agency in recent years realized it needed to secure more power to fulfill contracts. During the past three years, it has signed multi-year contracts to receive 1,103 megawatts of power at prices well below spot-market rates.
"If we had known what would happen, we probably wouldn't have done as much of what we did," Hardy said. "But hindsight is 20-20."