The Oregonian

Powerful turnaround helps BPA build funds

A wet spring and surplus electricity sales move the agency from a dismal outlook to a healthy financial picture

11/02/03

TOM DETZEL

WASHINGTON -- The Bonneville Power Administration, which began the year with a dire financial outlook, says it now has $510 million in reserves even after sending the U.S. Treasury a check for nearly twice that amount.

The federal power marketing agency released preliminary financial results Friday for the year ended Sept. 30, saying it earned $508 million. Revenues of $3.6 billion were helped by record income from surplus power sales, the agency said.

The results represent a remarkable turnaround for Portland-based BPA, which sells wholesale power from 29 dams in the Columbia River basin and a nuclear plant near Hanford, Wash., and is the source of nearly half the Northwest's electricity.

In February, administrator Steve Wright told customers in the region that his agency faced a massive, five-year budget deficit, warned that BPA might miss a Treasury payment and called for an emergency rate increase of 15 percent.

But things soon changed. A wet spring provided enough water to generate more hydropower than the agency was contracted to provided. That allow it to make profitable surplus sales. And, despite increased supplies, prices held up.

Also, pressured by utilities, the agency cut costs. And a debt-management program had a huge impact, cutting expenses $463 million. BPA spokesman Ed Mosey said that without the debt-management steps, BPA would have reported net revenues of $45 million instead of $508 million.

Most of the cost savings came from a program in which BPA is refinancing privately held debt for the nuclear plant, the Columbia Generating Station, and other nuclear projects that were abandoned in the 1980s. Under the program, current debt is retired with lower-interest notes that will be repaid in the future.

That reduces BPA's immediate debt payments and aids the agency's bottom line. Under an agreement with Energy Northwest, which operates the plant, savings are used to retire other debt BPA owes to the U.S. Treasury.

As a result of all these positive developments, BPA was able to reduce its rate increase to 2 percent. The increase, which took effect Oct. 1, isn't reflected in the results reported Friday.

Publicly owned utilities that buy most of BPA's electricity have sued the agency, claiming there was no need for Wright to trigger a rate increase this year. But the strong year-end results were expected and didn't prompt much reaction.

"There's nothing incredibly surprising here," said Jerry Leone, manager of the Public Power Council representing 114 co-ops, municipals and utility districts that depend on Bonneville for all or most of their electricity needs.

However, Leone said it was "not a thrilling thing" for BPA to continue pushing debt into the future as part of its refinancing program. "They continue to borrow money and extend out the time they've got to pay the piper," she said.

BPA claims the program will actually save ratepayers money in the long run because of the favorable interest spread between the new and retired debt.

A spokesman for Northwest tribes said there was "no doubt that at least some of this financial improvement" came at the expense of salmon-recovery efforts in the basin, which BPA is obligated to finance under federal law.

"The right thing to do is that as Bonneville gets healthier, it should restore full funding to the fish and wildlife program," said Charles Hudson of the Columbia River Intertribal Fish Commission.

In its zeal to cut costs, Hudson said BPA is funding salmon programs at $139 million a year, or about half the authorized level. A dozen stocks of salmon and steelhead in the basin are protected under the Endangered Species Act.

BPA continues to pay the U.S. Treasury back for past federal appropriations and loans used over time to build and maintain the Columbia River hydro system and the agency's transmission grid.

Mosey said BPA made a payment of $1.06 billion in September, including $315 million to retire some higher-cost debt early. Money for the prepayment came from the Energy Northwest debt refinancing program, he said.

Last year, BPA reported a loss of about $29 million and ending reserves of $188 million as it struggled to recover from a the effects of a drought and market volatility during the Western power crisis of 2000 and 2001.

The agency is pushing to settle outstanding lawsuits with Northwest utilities over a series of contracts signed during the power crisis, saying a settlement could lead to a 10 percent rate decrease next year.

Tom Detzel: 503-294-7604; tom.detzel@newhouse.com