Local electricity rates will likely rise this fall as Cowlitz PUD copes with a projected $10 million spike in power costs from the Bonneville Power Administration.
Bonneville has warned of rate hikes for months, and now it will likely increase its wholesale rates by 5.5 percent on average this October. The federal agency will make a final decision on the rate hike by the end of July.
As the region’s major power wholesaler, Bonneville’s rates directly impact Cowlitz PUD customers because it supplies 90 percent of the utility’s power.
According to the Cowlitz PUD, the rate hike could mean the average customer will pay an extra $4 to $8 monthly, or about $48 to $96 annually. The average customer now pays $125 a month for 1,500 kilowatts.
This fiscal year, the Cowlitz PUD adopted measures that saved $2.5 million, allowing the utility to avoid raising rates for customers. However, the utility isn’t sure it can absorb the proposed Bonneville price hike without increasing its own rates this fall to both residential and industrial/commercial customers.
Power purchases account for about 90 percent of the PUD’s annual $280 million budget, so there’s not a lot of slack to absorb rate increases, utility officials say.
Other than cutting costs, the utility has tried to boost revenue by more aggressively selling its surplus power on the spot market.
“So whether (we are) reducing our costs or trying to maximize the value of our existing resources … collectively that’s created several million dollars a year ... that we may not have had before,” said Steve Kern, Cowlitz PUD general manager. That won’t totally make up for BPA’s $10 million increase in power costs, but “it’s going to help,” Kern said.
Increased costs, falling revenue and depleted cash reserves are driving Bonneville’s rate hike.
Bonneville expects its cash reserves to dip to $21 million by the end of year. This fall’s rate hike will help the agency begin to incrementally rebuild its reserves to $300 million to cover 60 days of operations in the event of an emergency.
Bonneville’s cash reserves are closely linked to how much money the federal agency makes by selling excess power on the spot market. So far this year, BPA has earned far less from those power sales because of an oversupply in hydropower, low natural gas prices and competing California solar power.
On top of lower-than-expected sales returns, some of Bonneville’s customers are also decreasing their demand for electricity, further downgrading the agency’s forecasted revenue outlook.
The proposed rate hike could have been even higher had Bonneville not taken steps to reduce costs, such as paying off significant debt and shaving $35 million in annual power expenses through internal efficiency measures, according to Bonneville.
Beyond this year’s expected rate hike, a federal court ruling will force Bonneville to increase its spill during the spring salmon run next year. To cover the missed revenue, Bonneville likely will tack on another rate hike, but it doesn’t know yet how much the added hike will be.
Kern said Cowlitz PUD continues to work with Bonneville to try prevent high rate hikes.
“We are trying to put pressure on Bonneville any way we can, but also help Bonneville any way we can to look for ways to be creative and finding a better way to sell their power and increase their revenue,” Kern said.
Although there is still a lot of uncertainty about how much rates will climb, Kern said, “No matter how we paint this, it’s going to be tough.”