| Background: |
BPA started the process of subscription of the NW Hydro System in 1998.
As a part of this process, BPA proposed a different method to provide residential
exchange benefits to the region's Investor Owned Utilities (IOU's). All six
IOU's agreed to benefits which equals 2,200 average megawatts (aMW) of power
at a rate approximately equivalent to BPA Preference Power Rate. These benefits
could be provided to the IOU's by BPA as either monetary payments or power
delivery, which then must be passed on to their residential and small farm
customers.
When the IOU's loads, BPA customer loads, and Direct Service Industry loads
were aggregated these obligations exceeded the capability of the Federal
Columbia River Power System. Subsequently, available hydropower was severally
curtailed as the NW encountered one of the driest winters on record and in
addition, power prices on the West Coast skyrocket to unprecedented levels.
To lessen the impact on these high market prices on BPA's ability to meet
firm load obligations, BPA's Administrator asked BPA's customers to enter
into load reduction agreements. Puget Power and PacifiCorp executed agreements
with BPA that removed BPA's obligation to deliver firm power for the first
5 years of the contract period (FY2002-2006). BPA used this freed up power
to meet their power obligations to their other customers.
While all of this was occurring, there were a number of Public Utilities
that objected to the entire subscription process that BPA used to allocate
power to the region's utilities. As a part of the load reduction agreements,
the IOU's negotiated a clause that would require BPA to pay a $200 million
litigation penalty if BPA couldn't convince those public utilities to drop
their legal challenges to the subscription process. This settlement had to
occur by December 1, 2001 or the payment would be payable by BPA.
When no settlement was reached, there was an agreement to defer the $200
million payment to allow additional discussion to occur with the hope of
settling this litigation. Both Pacific and Puget have deferred these payments
and while they are gathering interest, they have not been paid by BPA. In
early 2004 their was another regional effort to once again settle the lawsuits
but this again, while favored by the majority of the region's utilities,
failed to get the necessary unanimous approval needed to be implemented.
These steps lead to this proposal that BPA is currently seeking comments
about.
This proposal would have Puget and Pacific forgiving $100 million outright
and deferring $100 million to the next rate period (FY2007-2011). They would
receive payments of this $100 million plus a portion of the original amount
of interest in 60 equal payments beginning on October 1, 2006. Also, during
the period 2007-2011, this agreement would provide only financial benefits
not power to all six of the regional IOU's. It would set annual floor of
$100 million and a cap of 300 million for total financial benefits to all
six of the IOU's. The actual amounts would be determined by a methodology,
which would use market prices of power to determine the actual amount of
the benefits available to the IOU's.
Payment of the $200 million penalty to Pacific and Puget would have occurred
in the 2 year period between October 1, 2004 and September 30, 2006. It would
have been funded by increasing the Load Based Cost Recovery Adjustment Clause
(LBCRAC) by about 6%. These new agreements would result in that projected
increase in the LBCRAC not occurring. In Ashland's case, this would result
in a net saving of nearly $599,000 over this two-year period.
Staff feels that these agreements are a reasonable compromise that would
accrue immediate benefit to Ashland in the form of lower wholesale power
bills. As such it seems in our best interest to support BPA in this endeavor.
The attached draft letter, for signature by the Mayor would express Ashland's
support for BPA moving ahead with the agreements with the regional IOU's. |
