Court ruling sets stage for battle over utilities  

Associated Press

May 27, 2007

    PORTLAND — A federal appeals court ruling has set the stage for a battle between public and private utilities over Bonneville Power Administration hydroelectricity, officials say. 

   The Portland-based federal power marketing agency sells its electricity to six large investor-owned utilities and more than 100 public utilities, most of them serving small communities. 

   Most of Oregon and Idaho are served by the large private utilities while smaller public utilities dominate Washington state — although both Seattle and Tacoma are served by large public utilities. 

   A BPA program called the ‘‘residential exchange’’ has helped the private utilities hold down their costs to their residential and small farm customers over the years — but it has caused friction with public utilities. 

   Exchange details 

   The exchange — established by the Northwest Power Act in 1980 — allows private utilities to swap higher-cost power they generate for lower-cost hydropower generated by the BPA. In practice, the exchange usually comes in the form of a financial payment, not an actual power exchange, and customers see it as a credit on their monthly bills. 

   Last Monday, Bonneville said it was immediately suspending payment of $28 million a month in residential exchange benefits because of a ruling earlier this month by the 9th U.S. Circuit Court of Appeals in a lawsuit filed by public utilities. 

   Now, private utilities say the ruling will push up their rates by 13 percent effective in June. 

   The conflict comes at a critical juncture for the BPA and the region. 

   Bonneville has struggled for three years to negotiate new, 20-year contracts with customers. The BPA argues that those contracts are the best ways to protect the region from attempts to privatize the power system or sell its output at market rates, rather than at cost. 

   Increasing value 

   Meanwhile, the value of Bonneville hydropower is expected to soar as rising fuel prices and carbon-emission regulations drive up the costs of electricity from coal- and gas-fired plants. 

   ‘‘I don’t like the place we’re sitting right now,’’ BPA Chief Executive Steve Wright said. 

   For the past decade, the BPA has reached a series of settlements over the value of the exchange that public utilities have criticized. 

   The settlement underlying the current crisis began in 2000, when the agency agreed to give the investor owned utilities a combination of power and financial payments valued at about $140 million annually between 2002 and 2006. 

   The benefit ended up far higher than $140 million, because the Western energy crisis forced the BPA to repurchase power it had agreed to provide utilities — but at much higher prices. 

   The public utilities sued in 2001, complaining that the settlements were illegal. 

   On May 3, the 9th U.S. Circuit Court of Appeals agreed, saying the BPA had overstepped its authority in settlements from 2002 to 2006. 

   The public utilities also sued over a subsequent settlement covering 2007 to 2011, which is in effect. The settlement likely bears the same flaws, which prompted Wright to suspend exchange payments last Monday. 

   Investor-owned utilities reacted immediately, filing new tariffs with regulators on Wednesday seeking rate increases that will likely average 13 percent for residential and small-farm customers.

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