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BPA proposes debt reduction measures to augment cost containment
12/4/2020 12:00 AM
BPA has released its proposal for FY 2022-2023 rates and tariff changes. The proposal is consistent with BPA’s commitment to cost discipline and future financial strength.
The Bonneville Power Administration is maintaining its commitment to keeping its wholesale rates as low as possible consistent with sound business principles, striking a balance between cost containment, long-term financial health and spending to meet the needs of its customers.
BPA’s proposed rates are expected to lay the foundation for a decrease in debt-service costs over time, which in turn will help to keep power and transmission rates low in the future.
“Fiscal discipline and customer satisfaction are the foundation for a prosperous future for BPA and the entities we serve,” said BPA Acting Administrator John Hairston. “Sticking to the principles laid out in our agency strategy has allowed us to bolster our financial health. Today’s proposal should make us even stronger.”
The proposal officially kicks off BPA’s BP-22 Rate Case and TC-22 Tariff Proceeding. The rate process culminates in July 2021 with a final proposal that, if approved by the Federal Energy Regulatory Commission, becomes effective Oct. 1, 2021, for rates through Sept. 30, 2023.
For the BP-22 rate period, BPA is proposing to keep its power rates flat. For several years, BPA has cut expenses to ward off market and operational factors that created upward rate pressure. The commitment to cost-containment has paid off.
BPA’s proposed flat wholesale power rate is a blended average. Individual rate impacts may vary based on specific customer-utility factors as will the corresponding retail rates set by BPA’s utility customers.
Even with no power rate increase, BPA is able to take measurable steps toward meeting its long-term strategic objectives. BPA is proposing to pay in rates a portion of its capital program rather than borrow for these projects. This practice, referred to as revenue financing, will dampen the impact rising debt would have on future power rates and preserve BPA’s valuable U.S. Treasury borrowing authority.
Under current projections, BPA is able to propose up to $190 million of revenue financing in the BP-22 power rates without incurring any additional rate pressure.
“Our commitment to being a provider of choice for our customers beyond 2028 starts with us having a competitive product,” said Hairston. “The more debt we can avoid now pays off with lower costs in the future. Using some of the money we anticipate making instead of borrowing relieves that potential future pressure. It also preserves low-cost federal funds available to us into the future, which is essential to BPA’s operations.”
The proposal to revenue finance contains safeguards to preserve BPA’s proposal to hold power rates flat, including rate provisions that effectively redeploy the additional funding to preserve rate stability if BPA’s financial position changes.
For BP-22, BPA is proposing a weighted average increase of approximately 11.6% relative to current rates. This reflects an increase at or below the rate of inflation for personnel and IT costs. It also includes the expiration of the use of financial reserves for the rates in the BP-20 settlement, and revenue financing for part of the Transmission capital program.
In the BP-20 proceeding, BPA and customers agreed to a settlement of transmission rates for the FY 2020-2021 rate period, and current transmission rate levels reflect the use of financial reserves. The proposed rate levels for BP-22 reflect the expiration of the use of financial reserves at the end of FY 2021.
In addition, the BP-22 proposal also begins to revenue finance a small part of the Transmission capital program. Historical Transmission rates have reflected a 100% financing approach for transmission capital needs as well as paying back less than borrowed on an annual basis. This has resulted in a growing percentage of the revenues devoted to debt service over time as well as significantly depleting the agency’s access to borrowing authority.
Without significant changes in capital spending and capital funding, like the revenue financing proposed, BPA expects it will drop below a healthy amount of remaining borrowing authority by 2024 and would completely exhaust its federal U.S. Treasury borrowing authority by 2032. The measures included in today’s proposal help to start addressing the access to capital challenge and allows us time to have conversations with our customers to develop a long-term strategy.
Even with the proposed increases, BPA’s transmission rates would still be on par with or lower than other Northwest transmission owners.
BPA tariff proceeding
BPA’s tariff sets the terms and conditions for using BPA transmission. This initial proposal reflects the extensive discussions BPA has conducted with the region since October 2019. The tariff changes BPA is proposing would clarify and reflect customer obligations, improve customer service through study and planning processes and prepare BPA for possible participation in other markets. In addition, some of the tariff proposals move us closer in alignment with the Federal Energy Regulatory Commission’s pro forma tariff or industry standards, consistent with the agency’s strategic direction.
BPA will also offer proposed tariff language for participation in the Western Energy Imbalance Market. While there is no pro forma EIM tariff language, FERC has approved EIM tariff language for several Northwest entities. BPA has modeled its language after that used by Portland General Electric, which is the most recent Northwest company to get its EIM tariff language approved.
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