BPA's Big Con
If you live in Washington, Oregon, or Idaho and get your power from a public utility district (PUD), Municipality, or electrical Cooperative, (collectively “Utilities”) you likely get most of your power from the Bonneville Power Administration (BPA). BPA should be tagged with a Fraud Alert notification, like the kind you may have received from a credit card company to alert you that unscrupulous characters are trying to steal your money, and you need to take steps to stop the con. As we speak, BPA is attempting to con you. You need to take steps to stop the con.
BPA's costs are passed on to residents and businesses of the Pacific Northwest through the electric power bills they pay their local Utilities. The bad deal that BPA wants its Utility customers to buy into is a 20-year, no exit contract, to purchase energy, for whatever future prices BPA decides to charge, even though BPA is at a point where its power is more expensive than its competition’s and going higher, and competitive power offerings are undercutting BPA rates and going lower.
Utility Responsibility to Rate-Payer Consumers
According to Marcus Harris at BPA, for the last five years, surplus power sales sold at an average of $19/MWh, compared to BPA’s current Tier 1 rate of $36/MWh. The absolutely last thing any Utility decision maker with an ounce of fiduciary responsibility should do is be first in line to sign a 20 year contract to buy power from BPA. BPA’s contracts lack both an exit clause and a long-term maximum power price schedule. These are two indispensable provisions any long term power contract with BPA must have.
Yet signing a long term contract without those provisions is exactly what BPA is asking Utility customers to do, but in the current energy market it is a ridiculous ask. It is a con job and BPA should be ashamed to make such a proposal.
Seven years prior to BPA’s next contracting date for power supply to northwest (NW) Utilities, the federal power agency has started a full-court press to lock in future energy buyers. BPA wants Utilities to commit, by 2026, to sign contracts that will take effect in 2028 and lock them into buying BPA power until 2048.
The primary reason for the rush is that BPA is in trouble. What type? Useless excess capacity trouble; maintenance and repair trouble; environmental compliance trouble; modernization trouble; and power-subscriber trouble. These all lead to dire financial trouble.
BPA is determined to get itself out of trouble by transferring its problems onto the backs of NW residents and businesses. When a monopoly utility is in trouble like this it generally means one thing: Higher Rates. That means northwest residents and businesses are in trouble.
Useless Excess Capacity. The development of solar panels with battery backup is a game changer. It produces power cheaper than coal, cheaper than gas, and, horror upon horrors, cheaper than most hydro. That is what people, companies, and states in the Southwest (SW) began installing in the early 2000s. By 2009, SW solar reached critical mass and began displacing coal, gas, and BPA hydropower with batteries beginning to fill in the gaps.
Solar power is what caused wholesale prices to collapse on the western grid in 2009. For BPA, the Corps and the Bureau, it is only going to get worse as solar gets even cheaper and more and more solar power is added to the western grid.
For ratepayers locked into 20-year contracts, every dollar BPA loses on wholesale market sales is a dollar BPA ratepayers are required by law to make up by higher rates.
Maintenance, Repair and Modernization. In an effort to keep power rates as low as possible, BPA historically paid as little as possible to retire the debt from its dams and did as little as possible in the form of ongoing maintenance on the dams. The result is that BPA is near the limit of its borrowing ability at a time when it needs to be spending to maintain its dams and modernize its operation.
Power from BPA’s dams will become less reliable and even more expensive the longer maintenance is deferred and modernization is put off.
Environmental Compliance. BPA is responsible for one of the largest environmental disasters on record. It has driven a variety of aquatic species to the brink of extinction from the Canadian border to the north, the Montana border to the east, and the Puget Sound to the west. The primary cause of this disaster are the LSRD’s. Mitigating the disaster has cost over $16 billion on fish and wildlife programs across the basin and another billion on worthless fixes on the dams themselves. Knowing full well that these expenditures will not recover Snake River Salmon, BPA is willing to drive the fish to extinction.
Lower Snake River dam power is surplus power sold on the wholesale market for about $19/MWh, a loss of about $26 for each megawatt hour the dams produce. BPA’s losses must be made up by BPA’s contract customers through higher rates.
Power Subscriber – Prelude to a Death Spiral. The power industry has changed more in the last 10 years than it did in the previous 80 due to the revolution in renewable energy. That is a good thing, but it can backfire for Utilities that are limited, for whatever reason, to buying power from BPA.
BPA is legally bound to charge its contract customers the full cost of power production. For BPA to minimize rates, it must maximize subscriptions for power services. If some Utilities look to other providers, or develop their own alternative power sources, and cut back on the power they purchase from BPA, rates for Utilities that remain with BPA will increase. If the increasingly higher rates force even more Utilities to cut back purchases of BPA power, rates will be raised even higher, motivating additional cutbacks on BPA power purchases. And, repeat. And, repeat again. The economic term is Death Spiral.
BPA’s comment at a recent rate case that it is terrified of a “rush to the exits” on the part of its contract customers indicates that it is well aware of the potential for a death spiral to occur. Yet BPA has not taken meaningful strides towards paying down its debt or modernizing its operations.
April 26, 2021
Rocky Mountain Econometrics