BPA Warns Of 250%+ Wholesale Rate Hikes

Faced with severe drought conditions and skyrocketing wholesale electricity market prices, the Bonneville Power Administration (BPA) last week warned that it may be forced to increase wholesale rates by 250% or more after Oct. 1, unless the region's retail utilities and large industrial customers step up to the plate and agree to slash energy use within the next 60 days.

BPA said it wants the aluminum plants --- sited in the Pacific Northwest because of the access to formerly cheap hydroelectric power --- to shut down for the next one to two years to save energy.

BPA's most recent rate hike warning stands in stark contrast to what it was saying as recently as January of this year. At that time, BPA said wholesale rates could rise 60% on average for the next five years starting on Oct. 1 of this year, and possibly 95% in the first year.

But more recent developments in the electricity markets have resulted in BPA's concluding that it will have to implement a first-year wholesale rate increase of 250% or more, unless energy demand in the region can be dramatically reduced.

Among other things, BPA noted that a drought is leaving the region short of electricity this summer and winter, which in turn could pose reliability problems. The agency also pointed out that wholesale market prices for power purchases next year have spiked dramatically since the start of the year.

BPA said that it is about 2,500 MW short of meeting all the demand of its customers once Oct. 1 rolls around, when new power contracts take effect. So BPA must purchase power on the market, where the agency said prices have ballooned from $25 per megawatt-hour to $300 in just over one year.

But BPA also said that lower rate increases and more stable rates can become more of a possibility if its customers agree to load reductions. The power authority said it is going to ask publicly-owned utility customers to reduce their power purchases from the agency by 5-10%. This could be achieved through retail rate incentives as well as focused conservation and load buyback programs. BPA said that investor-owned utilities should make a parallel commitment.

BPA also said that it is "highly likely" that most aluminum plants will find it uneconomical to resume operation for one to two years, until market prices for electricity stabilize. BPA wants those companies to agree to stay offline for up to two years, so that it does not have to purchase power to cover the possibility that they could resume operations in October.

The agency has also joined with Northwest governors and other regional utilities in an ongoing request for citizens to conserve energy.

BPA noted that commitments to take action to reduce the size of the rate increase are needed within the next 60 days. This will allow time for BPA to file its new rates at the Federal Energy Regulatory Commission for approval and to buy power necessary to serve load starting Oct. 1.

BPA's proposed rates include an adjustment clause that will vary every six months, depending on the amount of power the agency has to buy and the market price.

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