Access to federal power for new public utilities

The following answers to Frequently Asked Questions come from “Access to Federal Power by New Public Utilities” a paper written in 2008 by the former CEO of the Bonneville Power Administration (BPA), Randall Hardy.

1.   What must a new PUD do to qualify to receive low-cost federal power from     BPA?

Before a new public utility district (PUD) can even apply to BPA for lower-cost preference power, it must meet six standards of service, according Hardy.

2.   What are BPA’s  six “Standards of Service?”

Before a new PUD can apply for BPA service it must:

  • Own its distribution system;
  • Demonstrate that it has taken all the required steps under federal, state and local laws to authorize its formation as a public body;
  • Have obtained authorization to serve loads in its geographic territory.
  • Resolve all legal challenges to such service;
  • Have the ability to bill customers, issues bonds and sue and be sued; and
  • Be able to purchase power in wholesale amounts.

3.   What happens after BPA determines that these six standards have been met?

Once BPA determines that all six standards have been met, it requires three year’s advance notice before a new PUD can start receiving low cost (i.e., Tier 1) power. These two processes — meeting the standards of service and advance notice for purchasing power from BPA — are sequential. Hardy says that “Given the likelihood of disputes, and potential litigation, over issues such as the purchase price for PSE’s distribution system, even reaching the point where a [new PUD] is officially eligible to take service from BPA will likely be several years.”

4.   How much low-cost power will be available to new PUDs?

BPA 250 MW that will be available to new PUDs after 2011. 40 MW is reserved for tribal utilities, leaving 21l MW available for other new PUDs through 2021.

In addition, BPA will limit new PUDs to an average of 50 MW in any 2-year rate period. So, for example, this restriction would result in a 4-year phase-in period for a PUD with an average 100-150 MW load; longer for heavier average MW loads.

And, if there are competing requests for the 50 MW in any particular rate period, either from new PUDs or from new tribal entities, BPA would require that all power beyond the initial 10 MW for each new entity be shared with all other qualifying applicants, further lengthening the time required for any particular new PUD to receive its entire load.

5.   So, how long will it take before customers of a new PUD benefit from low-cost BPA power?

After all legal challenges have been exhausted, the new PUD has completed all of the necessary steps and been certified by BPA, the new PUD will have to wait a minimum of 3 years and, depending on its size, possibly as long as 7 years during the BPA phase-in period before receiving its full electric load from BPA. During this period, it is likely that the incumbent provider (Puget Sound Energy in the case of Jefferson County) would no longer have an obligation to serve Jefferson County customers and the new PUD would, therefore, be forced to pay market prices for all of its load.

6.   Aren’t market prices for electricity more expensive than what PSE customers currently pay?

Yes, PSE’s lower cost power would likely be moved to serve its remaining customers and its higher cost power used to serve Jefferson County PUD’s new customers. As well, market prices for oil and natural gas power are increasing world wide and cap and trade legislation, if passed, will drive up natural gas prices by eliminating any new supply from coal fired plants.

If all these events occur, a new PUD risks having to meet its entire electric load with $100/MWh power for the 3+-year waiting period — a 40 to 50 percent retail rate increase, according to Hardy.

7.   What other risks are there that a new PUD’s rates will be higher?

BPA has set aside 40 MW of power for tribal utilities. This load applies primarily to the Yakama Tribe, however, other new tribal utilities could share the remaining 210 MW on an equal basis. Although only 2 or 3 tribes have expressed interest in forming utilities, there are 53 tribal entities in BPA’s service territory. These represent a “significant source of uncertainty for any [new PUD],” according to Hardy.

As well, in Jefferson County the new electric PUD will have to hire additional staff, develop internal systems for administration, billing, line maintenance, and system operations, and purchase PSE’s distribution system.

Valuation of PSE’s distribution system, in particular, is key to determining the new PUD’s future electric rates.

Randall Hardy Biography

Randy Hardy is the principal of Hardy Energy Consulting. In that capacity, he provides strategic advice to electric utility, power marketers, independent generators and numerous other organizations participating in western power markets.

Mr. Hardy has over 30 years of experience in west coast power markets, including 13 years as CEO of Seattle City Light and the Bonneville Power Administration. He is a 1966 graduate of the U.S. Naval Academy and received his Masters in Public Administration from the University of Washington in 1972. He has also held numerous other leadership positions in the U.S. electric power industry, including Chairman of the Electric Power Research Institute (EPRI) and President of the American Public Power Association (APPA).

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