Last BPA Rate Case Workshop Held Surprises
BPA surprised us with two big items at this week’s workshop. Instead of this last workshop neatly wrapping things up prior to the rate case, some major financial issues were brought up for the first time. Additionally, BPA announced that it is delaying the start of the rate case by a couple of weeks to early December.
Recall that in 2018 BPA adopted a Leverage Policy that established targets for each business line’s debt-to-asset ratio (also called “leverage ratio”). The goals are 75-85% by 2028 and 60-70% “long term.” Power Services is currently a net debt repayer, meaning it is repaying more debt than it is issuing. In contrast, Transmission Services is a net borrower, meaning that it is issuing more debt than it is repaying, both historically and into the future.
Transmission’s debt outstanding has grown by ~$2B over the last decade and is forecasted to borrow a net of ~$2.1B over the next decade. Transmission debt finances nearly all of its capital expenditures.
There are several issues this is causing:
Transmission’s leverage ratio is not on track to decline per the Leverage Policy.
BPA is, again, running out of debt capacity.
If “access to capital” is ringing a few bells, that’s for good reason. We spent most of the summer of 2018 digging into BPA’s access to capital issues, ultimately winding up with Regional Cooperation Debt (RCD) 2.0. This was supposed to maintain sufficient Borrowing Authority until 2028.
Well, things have changed. BPA is once again expecting to run out of Borrowing Authority as soon as 2024. Remember, Borrowing Authority is used by both business lines. So, even though it is Transmission that is driving net consumption of capital, once the agency runs out of Borrowing Authority, both business lines are impacted. And yes, this is even with RCD 2.0 in place.
As you would expect, there are many things at play here but the bottom line is that this is an issue critical to the long-term health of the agency and both business lines. Some solutions include increasing revenue financing of capital projects, which would immediately hit Transmission rates in BP-22. BPA is also talking about Power Services using surplus revenues to revenue finance or retire debt early.
This issue is far too complex to wade through in a Portland Update, but we will devote a significant chunk of time to it at the November Board meeting. We will reorient ourselves to BPA’s access to capital challenges and long-term financial health goals, and then ask for high-level guidance on how to consider these issues.
Once the rate case begins in December, we will have a more holistic and supported proposal by BPA to share with you and then respond to in our Direct Case. The Direct Case will be due the very day of our February Board meeting, so we will have at least one webinar between the November and February Board meetings to receive your guidance.
NRU Submits Letter to BPA on Boardman to Hemingway (B2H)
We previously reported that NRU met with BPA staff to discuss the status of the B2H build and an emerging proposal that would have BPA relinquishing there ownership stake in the line and would instead have BPA commit to use the new transmission line via NT transmission service with Idaho Power to serve its transfer customers in Southeast Idaho. As a follow-up to that meeting, NRU submitted a letter to BPA commending them for thinking more broadly on how to identify the best and most cost effective way to meet the Southeast Idaho customers’ needs but went on in the letter to clearly note that much more work needs to be done before a determination can be made as to whether the proposal on the table truly represents the best and most cost effective means of service. The letter also noted numerous policy ramifications that must be sorted through with transparent engagement of public power before NRU could form a more supportive position on the proposal. The letter we submitted is attached to this update.
BPA Begins Rolling Out Network Operating Agreements
BPA’s Transmission Account Executives are currently rolling out updated Network Operating Agreements (“NOA”) to all NT customers. The NOA codifies an array of various operational responsibilities between BPA and its NT customers (e.g., metering arrangements, outage planning). The NOA is nothing new and each NT customer has had this agreement in place with BPA since the Open Access Transmission Tariff was adopted in the late 1990s. As part of the TC-20 process, BPA recognized the need to update the NOA after several decades, and NRU participated over the last year in BPA’s public process to update the standard template.
The body of the new NOA contract is pretty standard boilerplate language, and there shouldn’t be much in the way of surprises. The NOA exhibits on the other hand, are tailored to each NT customers unique circumstances and are open for review and change requests, if necessary. Please let us know if you have any questions or concerns as you receive and review your updated NOAs from BPA.
Columbia River Treaty Power Group
News from the Power Group meeting last week is sparse and generally not very good. No new dates have been set for the next round of negotiations with Canada and Department of State (State) has not yet issued an update on the tenth round of negotiations held on June 29 and 30. The general consensus is that nothing will happen until after the election due to the uncertainty around the administration driven by the election and the preoccupation of Congress with other pressing issues such as responding to the COVID crisis and the nomination and confirmation of a new Supreme Court Justice.
On a significantly brighter note, the Power Group was able to get an op-ed authored by members of the group published in the Seattle Times. The op-ed is geared towards readers who don’t know about or understand this topic. The piece is a nice overview of the history of the issue, how the energy landscape has changed over the years and current inequities embedded in the treaty for the United States. Getting this piece published in a west side newspaper is an exceptional feat. A copy of the op-ed is attached for your reference.
BPA Administrator Selection Update
DOE has officially posted the BPA Administrator position on the USAJobs website. The posting can be viewed here. Conversation around this topic has been muted as many other topics are stealing the headlines in Washington DC. The date on the posting would indicate that a permanent Administrator will not be selected before the general election. Thus far, the only candidates for the position who have been identified are internal candidates.