According to Brian Skeahan, general manager of the Klickitat Public Utility District, the PUD's hopes of avoiding or significantly minimizing a rate increase this fall were jeopardized because of two recent federal decisions.
Cited were: A Federal Energy Regulatory Commission (FERC) decision on capping power prices, and an announced rate increase of 46 percent from the Bonneville Power Administration.
FERC's ruling: On June 18, FERC decided to impose limits on the price at which energy can be sold in 11 Western states. FERC did not establish a hard cap or set a specific number in its ruling. Rather, the decision limits the wholesale price of power to the cost of the most expensive natural gas fired combustion turbine located in California, which needs to operate in order to meet California loads. thus, the actual price may vary depending upon the price of gas in California, and which plants actually need to run in order to meet load.
Currently, the price limit would be approximately $110 per megawatt hour. While this is much higher than the $25 to $35 market prices of a year or so ago, it is much lower than the $250 to $350 seen in recent months.
The ruling is in force until Sept. 30, 2002.
Explained Skeahan: "While the idea of price caps might sound like good news for consumers, it is likely to hurt Klickitat County residents more than it helps. Over the past six months, KPUD -- in conjunction with the developers of power generation projects such as Northwest Regional Power of Goldendale and SDS Lumber Co. in Bingen -- was selling power into the high-price markets. KPUD planned to use its portion of those revenues to offset the anticipated BPA rate increase. The FERC-imposed price caps are generally less than the cost of running diesel generation. While KPUD's landfill gas project and the SDS steam plant can still operate profitably under the FERC order, it is going to be tougher for the diesel projects. Some potential projects have already been canceled, and others are getting a second look. This is exactly where we did not want to be: at a price too low to see all of these projects profitably operate, but at a price still high enough to cause a big increase in BPA rates. It is still possible that some of the projects could operate, since the price limits can vary."
BPA rate announcement: On June 29, BPA said it would increase its rates 46 percent, effective Oct. 1, 2001, through March 31, 2002. This announcement will still increase KPUD's BPA power costs by about $2.6 million for the six-month period. The increase was less than originally expected, due to BPA's ability to work with its customers in reducing the amount of load placed on BPA. This lessened the amount of power BPA had to buy in the high-price market. Market prices have been coming down, which also is reducing BPA's need for a rate increase.
In February, BPA will reassess its financial position and determine what the rates will be for the six-month period beginning April 1, 2002.
Skeahan said it is still too early to determine what levels of price increases will be passed on.
"At this point, it is still premature to determine exactly what level of retail increase KPUD customers can expect to see in October. Historically, a 46 percent wholesale increase would be a 21 percent (one-half of BPA's percentage increase) retail increase. However, KPUD's McNary project can reduce the amount of an increase, as can sales revenue from KPUD and customer resources sold in the market this summer. Holding the line on rate increase obviously has become much more difficult following the FERC announcement. However, based on prudent use of our resources, KPUD continues to aim for less of an increase than most other utilities."