This week’s Portland Update:
request’s your feedback on an NRU staff proposal to submit to Bonneville two possible means of mitigating the proposed Utility Delivery Charge rate increase in the BP-22 rate proceeding, and
provides a summary of the Quarterly Business Review that Bonneville presented this week.
Feedback Requested: Potential Rate Case Positions Regarding the Utility Delivery Charge (UDC)
As discussed at the February Board meeting, BPA is proposing to increase the Utility Delivery Charge (UDC) by 29% in the BP-22 rate case. The UDC is charged to facilities in the Utility Delivery segment. NRU members account for 13 of the O35 BPA customers that pay the UDC. This means that these utilities pay for both the NT rate and the UDC rate for service over the PODs in the Utility Delivery segment, meaning these customers face a double whammy from the proposed 17.26% NT rate increase plus the proposed 29% UDC rate increase.
The history of the Utility Delivery segment is long and controversial, stemming back to 1996 when BPA unbundled its power and transmission rates. Since then, BPA has encouraged customers to buy the Utility Delivery facilities, and most of them have been purchased. The remaining substations pose financial or operational issues that impede utilities from acquiring them.
In the BP-16 rate case, the UDC was proposed to increase over 25%. Citing rate shock, BPA developed a rate design that fully recovered the costs of the segment but at a much lower rate increase. At the time, NRU expressed concern about the “death spiral” of the segment, given that the number of facilities is diminishing or staying the same while the costs are increasing. BPA believed this modified rate design would provide a long-term, sustainable solution.
The BP-22 Initial Proposal shows that is not the case. In NRU’s direct case, we argued that the rate shock needs to be mitigated but did not offer specific solutions.
This week, BPA staff sent us a data request asking if NRU is recommending any particular action or measure to mitigate the proposed 29% increase to the UDC. This data request provides us with a unique opportunity to provide additional thoughts to BPA prior to rebuttal testimony due mid-March.
Subject to your feedback, we plan to provide two options to BPA as possible ways to mitigate the proposed UDC rate increase.
First, as we discussed during the February Board meeting, BPA could limit the UDC rate increase to the average Network rate increase, with the unrecovered costs collected via the Network (which includes both PTP and NT rates). This would result in the NT rate increasing very slightly: less than an additional 0.1% increase to the NT rate.
Second, BPA could remove the Utility Delivery segment entirely and roll those costs into the Network. It seems unlikely that many, if any, further facilities in the Utility Delivery segment will be able to be purchased – they are too old and in disrepair, and in some cases, the customer has no legal avenue to purchase the facility because they are on land owned by another federal agency. BPA has sold more than 150 substations since 1996, leaving less than 60 in the rate segment. The outlook for the UDC rate is not favorable: flat or declining usage and rising costs will only lead to more and more rate increases in the future. Rolling the entire Utility Delivery segment into the Network segment would result in an additional increase to the NT rate of about 0.43%.
If you have any concerns with NRU proposing to roll in the Utility Delivery segment to the Network and/or limiting the UDC rate increase to the Network rate increase, with the unrecovered costs being reallocated to the Network, please let us know by COB Wednesday, February 17th.
Bonneville’s Quarterly Business Review
On Tuesday, Bonneville provided its latest Quarterly Business Review (“QBR”). The QBR provides a regular update on the agency’s general financial status and main drivers behind that status. This QBR showed that overall, Bonneville’s current financial status is good and that the agency’s revenues and spending do not present any significant concerns or surprises:
Bonneville has met or exceeded nearly all of its agency-wide key performance indicators;
Current net revenues are higher than projected: $149m actual v. $38m projected;
Current Integrated Program Review cost expenditures are slightly lower than projected: $3.54B actual v. $3.58B projected;
Cash on hand sits at 91 days; the agency considers 60 days to be “good;”
Debt to asset ratios and Treasury borrowing availability are both acceptable.
Bonneville’s QBR meeting materials are available here.