NRU Requests BPA Suspends Collection of Financial Reserves Surcharge
In response to feedback from the membership regarding options for financial relief tools proposed by BPA and detailed in the 5/15 Portland update, NRU has submitted a letter to the BPA Administrator requesting that collection of the Financial Reserves Policy surcharge be suspended. Specifically, the letter requests the suspension of the surcharge be applied retroactively to March, when the national emergency was declared, through the end of the current rate period. The letter is attached to this update.
To demonstrate broad alignment in public power for implementation of this relief measure, NRU and PPC coordinated to simultaneously submit letters with the same request. NRU has received acknowledgement of the request from the Administrator and we will forward BPA’s response to our request as soon as possible.
Proposed NRU Comments to BPA to Discuss Potential Impacts from Participation in NWPP Resource Adequacy (RA) Initiative
The Northwest Power Pool (NWPP) is a longstanding organization composed of entities throughout the Pacific Northwest that works to coordinate resources to maximize efficient electricity production. Recently, the NWPP has turned its focus on developing a Resource Adequacy (RA) program in response to potential capacity shortages in the Northwest. This program would be voluntary to join but once an entity joins, it will be contractually committed to the requirements of the RA program.
The RA program plans to look out 1-4 years to ensure adequate resource capability is available to meet customer demand. The RA program would allow utilities to forecast and manage RA in a coordinated manner.
The RA program development began in October 2019 and intends to move from the preliminary design phase in early 2020 to the detailed design phase in late 2020. Work to implement the program is expected to begin in 2021.
There are 18 NWPP members involved in and funding this program, including BPA, large COUs, and IOUs, with a wide footprint starting in British Columbia down to California.
The current leaning among these RA program participants is for the RA program point of compliance to be at the Load Serving Entity level. This immediately raises a host of questions regarding how BPA’s preference customers might be impacted. NRU has asked BPA how it expects the RA program requirements to impact BPA and its customers, especially Load Following customers. For example, will BPA assume the compliance responsibility on behalf of its Load Following customers? What about for Load Following customers that are served by transfer? What costs might BPA and its customers incur, either directly or indirectly? How might those costs (or benefits) be allocated?
To date, BPA has been unable to answer these questions or even describe the public process it will hold to engage its customers in these questions. Given the timeline of the RA program development, NRU staff believes it is necessary for BPA to begin outreach and engagement with its preference customers to begin tackling these issues, certainly before BPA makes a final decision whether to join the RA program.
Thus, NRU staff proposes to submit a letter to BPA asking for a customer engagement process to discuss how BPA’s participation in the NWPP RA program might impact its customers, what the risks, costs and benefits might be and how they will be allocated to customers, and the public process for BPA making the ultimate decision on whether to join the RA program. Additionally, even if BPA itself doesn’t join, there is the potential that other balancing areas join, which would affect transfer customers located there. NRU’s comments will focus on impacts specific to Load Following customers, as well as the broader customer base as there is always the risk for cost shifts.
BPA’s Quarterly Business Review (QBR) – Q2
BPA shared the following updates during its Quarterly Business Review webinar this week:
BPA’s response to COVID-19
BPA quickly transitioned the majority of its employees to telework status in March, before the states’ stay-at-home orders were issued. Mission essential employees have continued to work with measures taken to maintain safety.
Most work has been able to continue, except for non-urgent transmission projects. BPA reviewed active construction projects and delayed all but the most urgent projects. Sixty-six projects were delayed and 15 continued. BPA plans to bring back a small subset of crews in Idaho and Montana in late May/early June, due to the downward trajectory of COVID in those areas. BPA continues work on wildfire mitigation planning.
In addition to BPA’s typical end-of-fiscal-year financial projections, it developed a “COVID impact” scenario that estimates a “bad case,” though not “worst case” scenario.
The COVID scenario assumes that the current pandemic response level continues through the end of the FY, meaning most staff continues teleworking and a continued slowdown of the capital program for both Power and Transmission.
The COVID scenario assumes an average load loss of 3%, based on what was experienced in 2008.
Power’s financial performance
EOY forecasts expect both IPR and non-IPR expenses to come in lower than rate case forecast, due primarily to delays in fish and wildlife project work, lower transfer service wheeling costs, and lower depreciation costs due to new accounting treatment for Energy Northwest. This is partially offset by higher-than-expected power purchases due to dry weather conditions and lower streamflow.
Current EOY forecast of Power’s net revenue is $125M, which is $77M better than rate case.
Under the COVID scenario, Power’s forecasted net revenue drops by $14M, driven by preference customer load loss, which is partially offset by lower execution rates by the Corps and Bureau.
Power’s EOY financial reserves are forecasted to come in at 57 days cash on hand, or 54 days cash on hand under the COVID scenario. This is still below the lower threshold of 60 days cash on hand that triggers the Financial Reserves Policy Surcharge.