I want to take this opportunity to recognize and sincerely thank those of you who have served our country. Your sacrifices, and those of your families, allow us the liberties and freedoms we enjoy on a daily basis. Without your selfless actions and commitment, our lives would be measurably less comfortable and safe. THANK YOU!!
BP-22 Rate Forecasts
Yesterday, BPA shared breaking – and surprising – news about the proposed Power and Transmission rates for BP-22. As we discussed at the November NRU meeting, BPA is (again) facing challenges to its financial health objectives, including maintaining sufficient access to capital. The slides from that presentation are reattached, but here’s a quick refresher:
BPA Financial Issues - BPA’s 2018 Financial Plan includes the objective of “financial resiliency” which includes liquidity (addressed via the Financial Reserves Policy), debt utilization (addressed via the Leverage Policy), and debt capacity (measured by remaining Borrowing Authority).
Over the last 10 years and looking ahead to the next 10 years, Transmission Services is a net borrower and Power is a net re-payer.
If no action is taken, BPA as an agency will run out of Borrowing Authority around 2024. This includes the Regional Cooperation Debt (RCD) 2.0 implemented two years ago. Even though Transmission is driving the use of Borrowing Authority, once it’s out, it’s out, meaning Power will have no access to it. Without access to Borrowing Authority, the alternatives are revenue financing, slashing capital programs, and/or finding alternative sources of capital (which is what we did with RCD 2.0).
A primary driver of BPA running out of Borrowing Authority (again) is that BPA expected the Leverage Policy to force revenue financing in Transmission rates of about $1 billion, but that has not been the case. Without specific actions to include revenue financing in transmission rates, Transmission’s debt will continue to increase eating up Borrowing Authority for the entire agency.
One obvious solution is to include some amount of revenue financing in Transmission rates.
Even if Bonneville does include revenue financing in Transmission rates, the agency must answer other hard questions, including: Are BPA’s asset management plans and execution of those plans appropriate, justified and on-track? Can BPA secure an increase to its Borrowing Authority? What other tools are there, such as lease-financing?
At the BPA workshop yesterday, BPA staff shared that the Initial Proposal will include revenue financing for both Power and Transmission. The amounts were, frankly, staggering: $95M/year of revenue financing for Power, and $45M/year of revenue financing for Transmission. Here are the details on the proposed rates; remember, individual utility results will vary.
Power - BPA is seeing a tremendous improvement in net secondary revenues due to increasing market prices, which is consistent with what we have seen in our General Resource Investigation (GRI) this year. BPA is proposing to use the bulk of this increase in revenues to fund revenue financing, instead of applying it as a credit to lower the Tier 1 rate.
In the Initial Proposal, the “effective Tier 1 rate” increase will be 0% (flat), while including $95M/year of revenue financing.
This means that without revenue financing, the “effective Tier 1 rate” would decrease by 4.5%.
Remember, the “effective Tier 1 rate” is a weighted average of Slice, Block and Load Following customers. If you look at just the non-Slice rate, this is looking closer to –1%, even with the proposed revenue financing.
Transmission - In the Initial Proposal, Transmission rates will increase by about 11.5%. (It is unclear how this will translate to NT vs PTP rates.)
About 4.5% of the increase is due to Transmission’s inclusion of $45M/year of revenue financing.
About 5% of the rate increase is to bridge the gap from use of transmission reserves, to keep the BP-20 rates lower as part of the TC-20 settlement, to not using reserves in BP-22.
There is about a 2% increase due to increases in IPR costs.
Here are NRU staff’s initial observations:
BPA needs to develop a holistic plan to meet its financial plan objectives and then follow that plan. BPA plans to begin a process to do so but doesn’t plan to start the process until late summer 2021, or after BP-22 rates are set.
This means actions may be taken in BP-22 without the context of an agreed upon overall strategy. This is concerning to NRU staff because we want to make sure all customers (Power and Transmission) are supporting the agency’s financial health in both the short and long term.
A holistic strategy needs to consider other debt opportunities, such as lease-financing or third-party financing, and improving BPA’s asset management planning and execution, and ensure both Power and Transmission customers are equitably supporting the financial health of the agency.
Power customers have already done much to improve the agency’s financial health, such as:
Converting from capitalizing to expensing energy efficiency (beginning in ~2016).
Extending the RCD program to provide $3.5B additional debt capacity for the agency (beginning in 2018).
Following the Financial Reserves Policy to increase financial reserves to the lower threshold of 60 days cash on hand via cash infusion ($20M/year in BP-18 and $30M/year in BP-20, until it was paused due to the pandemic).
It is essential that Transmission customers likewise take actions to support the agency’s financial health.
BPA wants to be the Provider of Choice as we enter into post-2028 contract negotiations. From BPA’s perspective, this means improving the agency’s financial health metrics. NRU staff agrees that the agency’s financial health is important but needs to be supported by all customers. We are not convinced Transmission has stepped up and made the hard decisions Power has. We also think an affordable Power rate is key, both in our current economic conditions and as we consider post-2028 power supply combinations.
Power customers have borne the brunt of falling market prices over the last decade – now that the market is recovering, secondary revenues should largely be used to mitigate those historic rate increases.
Next steps: The Initial Proposal is scheduled to be released on December 7th. We will closely analyze BPA’s proposals and begin developing potential responses to include in our direct case (due February 3rd). Please provide your preliminary comments and reactions to us about the information we shared above. We will use your feedback to guide our rate case positions, which will be brought to the Board for direction prior to submitting our direct case.
NRU and PPC Submit Comments to the NWPCC Re: 2021 Power Plan and Energy Efficiency Goal Setting
Consistent with our previously submitted comments and presentation to the Power Committee of the Northwest Power and Conservation Council (NWPCC), NRU and PPC submitted another round of comments to the Power Committee regarding development of the energy efficiency (EE) goals for inclusion in the 2021 Power Plan (aka 8th Power Plan) – see attached. We urged that “the 2021 Power Plan should set forth a collaborative environment where the Council provides insight to, rather than oversight of, public power’s EE acquisitions.”
Clean and Green Hydropower!
Below are updated charts (2019 data) showing how clean BPA’s power supply is. If your utility receives 100% of its power from BPA, you can email firstname.lastname@example.org and ask for a customized graphic that replaces “BPA” with your utility name.
Bonneville – Idaho Power Dispute at the Federal Energy Regulatory Commission
This week, NRU filed a motion to intervene in a new dispute at the Federal Energy Regulatory Commission (FERC) between Bonneville and Idaho Power. The dispute involves Idaho Power’s attempt to unilaterally modify two Conditional Firm contracts with Bonneville that Bonneville uses to provide transfer service to NRU members and to other Bonneville customers in the PACE balancing authority. NRU intervened because we are concerned about the potential impacts to the quality of NRU member load service, Bonneville’s exposure to price volatility, and the potential for increased costs for preference customers.
Since NRU filed its motion, Bonneville and Idaho Power have made significant progress on settling the dispute and ending the proceedings at FERC. A preliminary settlement agreement would have Idaho Power revert to prior terms of providing Conditional Firm Service to Bonneville and would include other provisions favorable to Bonneville. NRU has expressed preliminary assent to the principle of the settlement, with the understanding that the settlement will maintain or improve the current terms of transfer service and would be a step towards maintaining a healthy business relationship between Bonneville and Idaho Power. We will continue to work with Bonneville and others on the settlement procedure.
Transmission Losses Settlement Update
Today, consistent with direction from the NRU Board, we notified Bonneville that NRU will not contest the proposed settlement of transmission losses issues in the BP-22 and TC-22 rate cases. In doing so, NRU expressly reserved its rights to fully contest all transmission losses issues if any other party does not agree to the settlement. We continue to believe that a settlement of these issues is in the best interest of NRU members, primarily because settlement allows us to efficiently focus on the higher dollar financial issues that Bonneville faces.
Unfortunately, as of today, it appears that other parties will oppose the settlement. If other parties do oppose, then the settlement may not move forward, leaving us to fully litigate transmission losses issues in the rate cases. If there is not a settlement, NRU has a strong case to present on transmission losses in BP-22 and TC-22, and Bonneville will be very supportive of positions that benefit NRU members.