OPALCOGRAM 111
3/17/94

Doug Bechtel
Several months ago, I discussed the “reinvention” that the Bonneville Power Administration is undergoing. It is time for an update.

For the past several months, I have been spending three or four days a month in Portland meeting with BPA staff to press home the issues that are important to OPALCO. Many of the arguments I have made are technical and hard to explain in a few words, but I do need to summarize what is driving the reinvention.

Last spring, BPA undertook a customer survey. This survey was overwhelmingly negative. Not only did the customers, as a group, not like the way BPA treated them, the customers felt that BPA was becoming noncompetitive as a source of power. Indeed, BPA itself had projected that the cost of power would increase by more than 50% over the next seven or eight years. Industry and agriculture would be seriously impacted. BPA projected that they could lose from 15 to 20 percent of their load with a maximum risk of more than 50 percent loss. This would significantly drive up the costs to the remaining BPA customers (like OPALCO) who do not have a lot of alternatives.

In response, BPA proposed a sweeping array of changes - changes that would allow BPA to hold their rates constant for several years. Some of these savings were to be achieved by efficiencies within BPA (laying off up to 15 percent of their 5000 employees, for example). Other savings would come from costs being shifted to the customers instead of being paid for by BPA (conservation programs would no longer be funded by BPA but would be paid for by the utility). A third source would be the sale of products and services that are currently being provided for free by BPA (mostly very technical services used by a small number of customers).

The final means to keeping rates constant will be the establishment of tiered rates. Tiered rates simply means that all electricity sold by BPA would not cost the same. OPALCO has had tiered residential rates for many years. If you use less than 3000 kWh per month, each kWh costs 5.4 cents. If you use over 3000 kWh in a month, you pay 6.52 cents per kWh for all consumption over 3000 kWh per month. While BPA has not finalized their plans for tiered rates, we expect that we will receive a major portion (maybe 90%) of our current needs at one price (possibly up to 10% less than today). The remaining power would cost considerably more. Some project that the second tier of power would cost 60-80% more than the first tier power. All load growth would be charged at the second tier price. For example, Tier One power could cost 2.5-2.7 cents per kWh (down from today’s 2.9 cents per kWh). Tier Two power may cost as much as 4.5 cents per kWh. As OPALCO grows, we would be forced to purchase more and more power out of Tier Two. Even though BPA would not raise their rates, the fact that we would have to buy more and more Tier Two power would cause our costs to increase. Of course, if we could find a less costly source of Tier Two power, we would not be required to purchase it from BPA. Conservation is one sure method of reducing the amount of expensive Tier Two power that we buy. Tiered rates offer many challenges and opportunities for the future. Our job is to make the best use of the opportunities presented by tiered rates. Some ideas on what it all means in a few weeks.

Doug Bechtel