The Bonneville Power Administration unveiled a five-year strategic plan this week outlining ways the federal power marketing agency plans to cope with a growing set of threats to its business and financial viability during the next decade.
Bonneville sells power from 31 hydroelectric dams in the Columbia River basin and operates three-quarters of the region’s high-voltage transmission system. It’s a lynchpin of the Northwest’s energy industry and economy, and usually the low-cost provider of electricity. But it has been struggling to maintain competitiveness amid fast-changing markets and technology.
Low natural gas prices and a tsunami of renewable power coming online — including a growing surplus of solar power in California — have cut a hole in its sales of surplus hydroelectricity, a critical source of secondary revenues that help cover costs and keep rates low for its public utility customers. Meanwhile, the agency faces major capital costs to maintain and modernize aging dams and transmission assets, which it needs to operate with more flexibility to capture the potential value of the hydro system amid changing markets.
Those forces are playing out amid flat demand, increasing costs to meet fish and wildlife obligations, and the need to maintain required payments to investor-owned utilities in the region. The agency is already stretched financially, with low cash reserves in its power business and high levels of overall debt. Projections in its most recent rate filing show that its $7 billion borrowing authority with the U.S. Treasury could be exhausted by 2023.
The bottom line is that the BPA’s rates have been increasing faster than those of other utilities or prices in wholesale power markets. The agency raised power rates by 5.4 percent in July and transmission rates by 0.7 percent.
“Our public power customers have made it clear that BPA’s pattern of rate increases since 2008 is unsustainable,” the agency wrote in its strategic plan. “They are also facing competitive pressures and are prepared to look for alternative suppliers when it comes time to renegotiate long-term power contracts in just a few years.”
The BPA’s current contracts with its customers don’t expire for another decade, but that renegotiation begins years in advance and the agency is feeling acute pressure to put its financial and operational house in order in the run-up.
“This plan will serve as the reference point for everything we at BPA do over the next five years,” said BPA Administrator Elliot Mainzer. “It all comes down to our commercial success. With that, we can deliver on all of our public responsibilities — from low rates to environmental stewardship — which are so vital to the people of the Northwest.”
The agency’s strategic plan has four planks:
Maintain financial health: Hold program cost increases at or below the rate of inflation for the next decade, reduce debt levels relative to assets, and increase cash on hand to maintain borrowing capacity with U.S. Treasury.
Modernize power and transmission assets and supporting information technology: Better prioritize and focus maintenance and capital investments so it can operate reliably, avoid unnecessary transmission investments and put itself in a position to seize new revenue opportunities.
Provide competitive power products and services: Develop products that capture the value of the hydro system’s low-carbon output and flexibility, including real-time needs of other utilities, and long-term goals such as the region’s decarbonization goals and California’s need for flexible capacity to absorb large swings in wind and solar energy.
Develop a more efficient approach to transmission planning to efficiently meet customers’ needs, operate in a more dynamic market and address congestion without unnecessary expansions.
Scott Corwin, executive director of the Public Power Council, which represents BPA customers, said the agency faces a host of issues that it needs to deal with before renegotiating contracts. “They only have a few years, and there’s a lot of work to do to make sure they’re in the best position, he said.
“The focus on responsiveness to customers and the urgent need to make progress toward future competitive products and services is timely,” he said. “Consistent implementation is critical.”