Background:
The City of Ashland has a 10-year Power Sales contract with the Bonneville Power Administration (BPA). This contract runs from October 1, 2001 through September 30, 2011. The first 5 years of the contract included a 5-year rate period of which the final year commences on October 1, 2005.
The current 5-year rate period allows BPA to use 3 different Cost Recovery Adjustment Clauses (CRAC's) to adjust its wholesale power rates for each 6-month period. The total CRAC amounts have varied from a high of 49% in April-September 2003, to a low of 32.8% in October-April 2005. The rate for the current period is 36.93%.
In December 2004, BPA predicted that the CRAC for the final year of the rate period would average 39.25%. However, after reviewing the 2nd quarter results of the current Federal Fiscal Year, BPA has indicated that the rates will be higher than predicted last December. This is primarily a result of a low water year that will impact stream flows in the Columbia River Basin. We have included the December, BPA 2004 Actual and Projected PF-02 Adjusted Rate Table with this Communication for your information.
Included in the budget, we used a 3.3% increase on wholesale power costs for FY05-06. The increase of capital expenses, higher personnel and benefit costs, and a 12% increase in Transmission will support an electric rate increase. Staff is recommending a 5% increase in electric rates and a reduction of the BPA surcharge from 18.45% to 16.6%.
It has been the City's goal to move away from the BPA surcharge concept because in October 2006, the City will be entering a new 3-year rate period that will run through September, 2009. While this rate case won't begin until Fall, 2005 and will probably take at least 6-9 months to complete, the belief now is that CRAC's will not be utilized by BPA in the next 3-year rate period. Therefore, the City will not need the BPA surcharge mechanism to adjust for changing rates, because the rate should be fixed for the entire 3-year period. Our plan would be to eliminate the BPA surcharge in July, 2006, and set our rates based on BPA costs established as a part of the rate getting process.
The projected increase in costs is contained in our FY 05-06 approved Budget as follows:
|
FY 2005 |
FY 2006 |
Difference |
| Conservation |
411,410 |
441,621 |
30,211 |
| BPA Power |
5,899,475 |
6,095,000 |
195,525 |
| Supply |
261,240 |
321,741 |
60,501 |
| Distribution |
4,470,973 |
4,743,209 |
272,236 |
| Transmission |
935,443 |
1,048,600 |
113,157 |
| TOTAL |
$11,978,541 |
$12,650.171 |
$671,630 |
In addition, a $200,000 subsidy to AFN in this budget year and an additional $500,000 projected for FY-05-06 will result in a projected fund balance, including unspent contingency, of $1,791,297 in June 30, 2006. This is $246,297 more than $1,545,000 under the City's fund balance policy.
On account of the drought and the uncertainty about fish costs because of the recent court rejection of the Biological Opinion, the CRAC's for 2005 -06 could be much higher than BPA has indicated. Since our fund balance is nearly a quarter of a million dollars above our target, we hope to be able to absorb possible higher costs without having to increase the BPA surcharge. If however, this increase exceeds this fund balance cushion, we may have to request an increase in the surcharge in October. The CRAC numbers for FY 2006 will be finalized in late August and staff will update the Council in September about this issue.
The impact of this proposed increase on a residential customer that uses 1,000Kwh's of Electricity would be a monthly increase of $2.90 including the electric users tax.
The Future
As mentioned earlier, BPA will begin a rate case in the Fall of 2005 for the 3-year period of October 1, 2006 through September 30, 2009. The average cost that BPA projected for the price of wholesale power in December for the period October 2005-Septmeber 2006 was $31.09/mWh. They have now stated that because of the drought it will no doubt be higher then this earlier projection. Preliminary discussions between Public Power representatives and BPA about possible rates in October 2006, indicates that BPA feel rates will be lower than they currently are. Public Power is reviewing all of BPA costs and hopes to get rates in the $27/mWh range but has not committed to any number at this point other than their stated desire to reduce rates below current levels. The other unknown factors are weather conditions, stream flow and fish and wildlife costs which can have a large impact on BPA costs and their wholesale power rates. Depending on the results of the process and resultant reduction in rates, the City may be able to eliminate the BPA surcharge and leave rates stable or possibly reduce them in July 2006. |
