April 9, 2004
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To improve the long-term economic stability of the Bonneville Power
Administration and its customers, the Council recommends (see recommendations)
that the federal power-marketing agency fundamentally alter the way it
sells electricity by allocating the output of the Federal Columbia River
Power System among its customers and lengthening the terms of
power-sales contracts. The Council intends its recommendations to assist
a public process Bonneville will conduct this summer that could lead to
changes in the agency's role in regional power supply.
The federal power system includes 31 dams and one non-federal nuclear
power plant. Bonneville is required by law to sell power first to
publicly owned utilities and to meet all of the demand placed on it by
those customers. Because the existing federal power system cannot meet
all of the demand of Bonneville's customers, the agency can acquire the
output of generating resources and buy power on the wholesale market,
where prices can be volatile, to make up the difference. Bonneville's
customers currently pay a melded rate that reflects the cost of the
purchased power and the cost of power from the existing federal system.
The Council's recommendations would have Bonneville market the output
of the existing federal system to eligible customers at rates reflecting
the embedded costs of the system. Service beyond the capability of the
existing federal system would be provided in such a way that customers
requesting that additional service bear the costs and risks of providing
it. This should be implemented through long term (20-year) contracts
guided by a clear and durable statement of policy, the Council
recommends. Bonneville also should continue to pursue cost-effective
energy conservation and renewable resources, the Council believes.
The Council also recommends that Bonneville provide a limited amount
of power for a limited period for its direct-service customers,
primarily Northwest aluminum smelters. This could involve Bonneville
purchases of market power. To minimize the cost to other customers,
Bonneville should sell surplus power to the industries through contracts
that allow the power to be interrupted in emergencies.
These changes should be accomplished through an administrative
rulemaking, according to the Council, as opposed to a decision by
Bonneville Administrator Steve Wright or changes in federal legislation.
The Council made similar recommendations in 2002, the last time
Bonneville took up the issue of its future role in power supply. That
process slowed, however, as the agency dealt with a financial crisis.
The financial crisis resulted, coincidentally, from Bonneville's
extraordinary power purchase costs during the energy crisis the previous
year.
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