Lane Electric - A Touchstone Energy Cooperative

A Look At BPA Rate Pressures…

Dear Lane Electric Community:

Following up on my commitment to keep you informed on the rate pressures we see coming, we expect the Bonneville Power Administration (BPA) to increase its wholesale power rates by an average 5.5% over the next two years. We expect BPA’s transmission costs to remain about the same. Recall that Lane Electric’s power and transmission costs are roughly 40% of our operating costs—by far our largest cost center. Once we receive BPA’s final decision, we’ll plug those new rates into our estimated electricity sales for the rest of 2017 as well as 2018 to see what impact BPA’s rate increases will have on our financial health.

Why are BPA’s rates going up? Well, there’s the Good and Not-So-Good.

The Good: BPA did a good job cutting over $252 million out of their wholesale power costs and over $126 million in transmission costs over the next two years. I applaud BPA for their efforts. Relative to the uncontrollable cost pressures I describe below, you’ll see that the size of these reductions are very significant. Lane Electric advocated for these cost reductions in collaboration with PNGC Power, our generation & transmission co-op, and the Public Power Council, a regional trade association of BPA customers from across the Northwest. Our basic message was that BPA’s rate increases outpace inflation and are unsustainable. BPA heard that message and did what they could to bend that rate trajectory down, some.

The Not-So-Good: There are three significant costs drivers that BPA has no control over. First, BPA is selling less power to its public power customers, so BPA has less money to operate with. More efficient homes—specifically, more energy efficient appliances, heating/cooling, water-heating—along with evolving business processes needing less power, have permanently altered the Pacific Northwest’s power appetite. Second, BPA is making less money selling excess power in the western power market because cheap solar and natural gas power are keeping wholesale prices lower. Over the next two years, BPA expects its surplus sales revenue to drop by $100 million. That’s money that BPA would have used to offset its wholesale cost of power to Lane Electric. The third uncontrollable cost increase is escalating 2012 Residential Exchange Program Settlement payments to investor-owned utilities, like Pacific Power, totaling over $34 million more over the next two years. The REP Settlement is a long story so here’s the BPA website for all the details: www.bpa.gov/finance/ResidentialExchangeProgram.

There are also cost drivers that BPA does have control over. BPA insisted on collecting an additional $40 million over the next two years to start phasing-in a cash reserve over the next several years. BPA is concerned that the credit rating agencies may downgrade them sometime in the future because BPA may not be able to pay its bills. This is despite BPA having guaranteed contracts with public power customers—like Lane Electric—for power sales until 2028, a line of credit with the federal government, and the ability to raise wholesale rates to cover costs. To top it all off, even if BPA’s credit rating were downgraded, the additional cost they would likely pay to borrow money would still be less than what they want to collect! BPA should have a financial reserves policy, but not the Cadillac version.

Finally, Governor Kate Brown’s decision to short-circuit scientific consensus by suing the federal agencies implementing the Columbia River Biological Opinion (BiOp) may add up to another $40 million over the next two years. I talked about this on back pages of the March and June Ruralite.

In summary, we will again see rate pressure from BPA due to several complex factors. Staff will analyze the financial impacts for the Co-op’s Board of Directors and seek policy guidance on any retail rate action they believe necessary to keep your co-op on the right track for reliable power and affordable rates.

Matt ONLY