August 2017
The conditions seem ripe for low energy prices. The wet winter filled the reservoirs behind the hydroelectric dams. Along the ridge lines, thousands of turbines generate power from the wind. Low natural gas prices are moderating electric rates across the country.
It seems like wholesale electricity prices should be falling, but that’s not the case.
Several issues at Bonneville Power Administration (BPA), which provides Wells Rural Electric Company’s (WREC) electricity supply, are driving a rate increase that will likely occur in October.
BPA adjusts its rates every two years due to increasing operating costs and investment in infrastructure maintenance. Initial estimates were as high as 10% but more recent estimates are somewhat lower.
Part of the rate increase will build BPA’s financial reserves, lowering its financial risks, which will allow BPA to finance debt at lower interest rates. Like WREC, refinancing debt at lower interest rates is one action BPA has taken to lessen the overall rate increase.
Another factor pushing rates up is lower demand from Northwest utilities, which decreased revenue from surplus power sales. The abundance of energy on the daily market supplied by other generators is suppressing the price of BPA’s power sales to neighboring states. BPA usually uses revenue from surplus power sales to offset costs that must otherwise be recovered through rates.
Finally, putting even more upward pressure on rates, a court order will require the Bureau of Reclamation and the Army Corps of Engineers to spill more water over the dams, despite overwhelming scientific evidence showing spill programs harm migrating juvenile and adult salmon. Increased spill also reduces the amount of water that passes through the turbines to generate renewable, carbon-free electricity.
To meet consumer demand, the lost hydro generation will force BPA to purchase power on the wholesale market, most likely from more expensive fossil-fueled generation plants. The spill could cost consumer-owned utilities millions in addition to increasing carbon emissions.
As a BPA customer, WREC has endured wholesale power rate increases in recent years due to BPA’s financial challenges. Wholesale power rates have increased by about 28% over the past eight years, more than twice the rate of inflation during the same period. With the help of Northwest Requirements Utilities, Northwest Public Power Association and other utility organizations, WREC has voiced strong opposition to BPA’s rate trajectory. We have had some success in pressuring BPA to reduce its costs, but have not been able to eliminate wholesale electricity rate increases.
Because 70% of WREC’s total costs come from purchasing power, BPA’s rate increase will drive an immediate increase in the retail rates you ultimately pay. These increases are frustrating and disappointing because we work as hard as we can to keep electricity affordable.
We are reviewing our retail rates in preparation for the wholesale price increase this fall. Once BPA announces its final rate decision, we will provide detailed information on how the increase will affect groups of members with similar usage patterns.
Clay R. Fitch
Chief Executive Officer
