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NW Energy Caucus Chooses New Leaders

Location: Washington, DC

February 10, 2005
NW Energy Caucus Chooses New Leaders

Caucus Calls on OMB to Withdraw Devastating Energy Provisions in Bush Budget

WASHINGTON, DC - The Northwest Energy Caucus today announced that U.S. Reps. Doc Hastings (R-Wash.) and Greg Walden (R-Ore.) joined Rep. Peter DeFazio (D-Ore.) as co-chairmen of the bipartisan organization. The first action of the new leadership was organizing a letter to the Office of Management and Budget, challenging two devastating energy provisions in the president's recently released fiscal year 2006 budget.

The letter, signed by all 17 members of the bipartisan caucus, calls on OMB to withdraw two proposals-1. Requiring federal power marketing administrations, including Bonneville Power Administration (BPA), to sell power at market-based rates; and 2. changing the accounting treatment of a number of BPA's financial transactions by counting them against Bonneville's borrowing authority. The letter is attached below.

The Northwest Energy Caucus is a bipartisan coalition of lawmakers from Oregon, Washington, Montana, and Idaho dedicated to retaining the benefits of the Columbia River's hydroelectric system within the region.

Walden is also a member of the House Committee on Energy and Commerce, the House body that maintains jurisdiction over energy issues. Hastings is also a senior member of the Rules Committee which controls the flow of all legislation to the House floor and determines which amendments will be put to a vote. Walden and Hastings join DeFazio who has co-chaired the Caucus since it's inception in 1997.

The following is the letter to Mr. Bolten from the NW Energy Caucus dated today:

Mr. Joshua Bolten
Office of Management and Budget
Eisenhower Executive Office Building
Washington, D.C. 20503

Dear Director Bolten:

We are writing to express our unified and emphatic opposition to two provisions in the recently released fiscal year 2006 budget that would lead to massive electricity rate increases in the Pacific Northwest, reduce reliability of the electrical grid, and potentially threaten the continued viability of the Bonneville Power Administration. One of the provisions would require federal power marketing administrations, including Bonneville, to sell power at market-based rates. The other would change the accounting treatment of a number of Bonneville's financial transactions by counting these transactions against Bonneville's borrowing authority from the U.S. Treasury.

The Pacific Northwest has consistently been one of the region's hardest hit by our nation's economic woes of the last several years. One of the causes of the economic trouble in our region is the nearly 50 percent rise in the cost of power from 2001-2002. That experience gave Northwest consumers a taste of market-rates and the havoc those rates could wreak on the Northwest economy. The rate increases persist today and we do not want our constituents exposed to that kind of devastation again.

And, yet, this proposal to require Bonneville to sell power at market-based rates, rather than at-cost, would essentially lead to another 50 percent rate increase over the next three years. That would mean power rates in the Northwest would have increased 100 percent in seven years. Rate increases of that magnitude will strangle any economy.
To put a dollar figure to it, this proposal would cost the Northwest $480 million next year and $2.5 billion over three years. It is totally unacceptable to artificially jack up power costs in the Northwest in an effort to reduce the trillion dollar-plus federal deficits by $12 billion. Power costs in the Northwest did not cause the deficit and should not be used to bail the federal government out. Besides, arguably, the economic damage done to the region by a 50 percent rate increase and the resulting decline in tax revenue would more than offset any money raised by the electricity tax you'd be imposing on Northwest consumers and businesses.

The administration argues that it wants to accelerate Bonneville's debt repayment to the U.S. Treasury. But, Bonneville has already done so even while selling power at-cost and even during very difficult times in the economy. Bonneville has paid $1.1 billion over the last couple of years to retire some of its federal debt early. Further raising rates and smothering the economy is not necessary to get Bonneville to pre-pay some of its federal debt.

Just as disturbingly, the rationale used to justify the rate increase does not reflect reality. According to budget documents, increasing electricity rates in the Northwest would help end federal taxpayer "subsidies" to our region. The argument that Northwest consumers and businesses are "subsidized" is false. Bonneville and the region's ratepayers pay all of the costs required by Congress and, in at least one case, for endangered species recovery, pay for costs normally attributable to taxpayers-at-large. Bonneville pays above market interest rates to the U.S. Treasury. When Bonneville refinanced its Treasury obligations in the mid 1990s, its interest payments were increased and $100 million was added to its debt to the Treasury. Further, the Federal Energy Regulatory Commission certifies every year that Bonneville's rates cover its costs. Those who charge Bonneville with receiving subsidies generally do so based on outdated data or a misunderstanding of Bonneville's business and finances.

The fact that Bonneville's rates are lower than rates in other parts of the country is not proof that they are "artificially low" as claimed in the budget proposal. Why is gasoline cheaper in other parts of the country than in the Northwest? Because other regions are closer to refineries. Similarly, power rates in the Northwest are generally cheaper because our region is blessed with low-cost hydropower. Even investor-owned utilities in the Northwest generally have lower rates than their national counterparts because of the reliance on hydropower, and they already sell at market prices. Decisions made by policymakers in high-cost regions, such as relying on high-cost nuclear power, also pay a part in the disparity, but it is inappropriate to punish the Northwest for the decisions made by others.

We were also very concerned to see that OMB revived a proposal from last year's budget to reclassify certain Bonneville financial transactions as counting against its borrowing authority. We wrote to OMB twice last year in opposition to this proposal and are not pleased to see that OMB did not address our substantive critique of the proposal. We once again urge, in the strongest possible terms that OMB abandon the proposed changes and not submit legislation to Congress on this issue.

As we mentioned last year, the OMB proposal to count third-party financing against Bonneville's borrowing authority would drastically limit Bonneville's ability to make necessary infrastructure improvements to the already stressed electricity grid in our region. Also of concern, the proposal would almost certainly lead to rate increases on top of those proposed in the market-based rates provision.

Bonneville owns and operates 80 percent of the high-voltage transmission in the region. There are significant near-term reliability concerns, some of which are embedded in Bonneville 's system. While there are ongoing discussions in the region on whether and how to establish an independent grid operator that would have backstop authority to compel infrastructure improvements and allocate costs, such an entity is several years from becoming operational, if it ever becomes a reality.

In the interim, Bonneville is the only entity in the region that has a plan for the large-scale infrastructure improvements necessary to maintain the reliable operation of the grid. Indeed, unlike private entities, Bonneville has a statutory responsibility to make these improvements.

Besides the negative impact on reliability, the OMB proposal will likely force Bonneville to raise its rates. Currently, Bonneville is able to finance infrastructure improvements by using its federal borrowing authority. If this avenue were shut-off, which, for all practical purposes, would happen if the OMB proposal is adopted, then Bonneville's only option to finance grid improvements is by raising revenue (i.e. rates). As stated earlier in the letter, our region simply cannot afford additional rate increases.

OMB continues to operate under the false premise that claims on future Bonneville revenues that result from third-party financing arrangements could ultimately become claims on U.S. taxpayers. Non-federal bonds backed by Bonneville are secured by the ratepayers of the Pacific Northwest, not the United States Treasury. In fact, these bonds specifically state, "[these] obligations...are not general obligations of the United States of America and are not secured by the full faith and credit of the United States of America." We stress again, this debt is the obligation of Northwest ratepayers, not U.S. taxpayers.

We are also concerned that, read more broadly, the legislation envisioned in the Administration's budget might impact a broad range of Bonneville's routine business practices that "make a claim on future agency resources" and would, by counting such transactions against Bonneville's borrowing authority, threaten the viability of the Agency. For example, Bonneville regularly enters into transactions for the purchase of long-term power supplies necessary to meet Northwest loads that make a claim on future agency resources. Further, Bonneville has refinanced a portion of its existing non-federal debt, which, while it helped lower the interest payments borne by residents of our region, makes a claim on future agency resources.

The Administration has made improving the transmission grid a priority. Unfortunately, this proposal is inconsistent with that priority. We strongly urge OMB to withdraw the proposal. Doing so would ensure Bonneville has the necessary flexibility to upgrade the Northwest grid as planned.

Finally, we would remind you that the President's budget last year noted, "This legislative proposal will be fully vetted with Bonneville stakeholders" (page 126). OMB has not fulfilled that pledge. We have not been consulted about the proposal, or, to our knowledge, have any stakeholders in the region.

We would appreciate your personal and careful attention being paid to the serious concerns raised in this letter. Thank you for your interest in this critical issue.

Peter DeFazio Doc Hastings Greg Walden

Brian Baird Earl Blumenauer Norm Dicks

Darlene Hooley Jay Inslee Rick Larson

Jim McDermott Cathy McMorris Butch Otter

Dennis Rehberg David Reichert Mike Simpson

Adam Smith David Wu

cc: Secretary of Energy Samuel W. Bodman

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