New PUDs need to reach standards to get contract

In the fight for locally-controlled power on Whidbey Island, a key issue has been the availability of discounted Tier 1 power from the Bonneville Power Administration.

With it, some say Whidbey residents could save millions on their electric bills in the years ahead. Without it, others say a Whidbey-based power company doesn’t pencil out.

While the group who started the effort to form a PUD, “People For yes on Whidbey PUD,” has claimed that a Whidbey PUD is a prime candidate for Tier 1 power, Puget Sound Energy has stressed that the PUD may not even qualify for the service or get enough power to serve the 34,000 customers on the island.

“Yes, there will be power,” said Scott Wilson, BPA Regional Dialogue Project manager. “The question is price.”

The Bonneville Power Administration has earmarked 250 average megawatts for service to the net requirement loads of new public customers in order to make federal power at the Tier 1 rate more widely available, while providing planning certainty for the amount of power that BPA may need to acquire to serve its load in the future.

That total is divvied up between customers at 50 megawatt per rate period among customers, Wilson said.

The island, however, has a load of 70 megawatts. The difference has to be purchased at Tier 2 rates that are higher. But if there is not enough demand for the power, Whidbey could get all of its power at Tier 1 rates.

“If less than 250 show up per contract period, PUDs can get all they need at Tier 1 rates,” Wilson said.

But the discussion doesn’t end there.

Recently, Puget Sound Energy and its consultant Bob Bellemare of UtiliPoint International attacked “People For Yes” for figuring BPA power into its study that says the PUD would significantly lower electric rates and the takeover of Puget Sound Energy assets for roughly $57 million.

They said the PUD proponent’s study missed the mark by using rates that are not an accurate reflection of power-market rates today or in the future. Bellemare said the study assumes a new PUD would get BPA’s Tier 2 power, which is market-based power.

In setting a price for Tier 2 power, the proponents assume a very low 5.16 cents per kilowatt-hour, he said. The current cost of market-rate power is closer to 8 cents per kilowatt hour, Bellemare added.

This difference alone would be another $18 million per year to the residents of Whidbey Island, Bellemare said.

“People For Yes on Whidbey PUD” said in a statement its study was formulated using approximately the same market power rate assumptions for Puget Sound Energy as for the new PUD.

“A change of assumed market- rate costs wouldn’t appreciably affect the relative rate conclusions of the study,” the group said. “In fact, should a new PUD be unable to fulfill its energy requirements entirely from BPA lowest cost power, it would purchase the rest from BPA at BPA’s market rates, relying upon the purchasing advantage BPA holds because of its large size and negotiating experience.”

Katie Pruder, a BPA spokeswoman, stressed that the Bonneville Power Administration is absolutely neutral on whether public utilities form or where they form. But there are a number of issues people should know.

To be eligible for BPA power, the PUD must be legally formed. That would be established if voters approve the PUD measure Nov. 4.

But beyond that are a number of other requirements, including ownership of a distribution system, the financial ability to pay BPA for the federal power it purchases, as well as adequate utility operations and structure.

Wilson said that means that until the PUD actually owns the distribution system, or Puget Sound Energy allows the district to use its system, the PUD commissioners can’t apply for any power from the BPA.

“The key is the standards for service,” he added. “Until they make it through discussions with Puget Sound Energy, go through the legal system, condemnation and so on, they are not eligible to apply.”

The legal process could take several years, however.

In addition, a new public utility district that qualifies for service must request service from BPA through a three-year binding notice before it may buy federal power at Tier 1 rates, according to BPA officials. The notice may be made at any point after the new PUD meets the standards of service.

Another point of contention is the timing.

During the various PUD forums, Steve Johnson, executive director of the Washington Public Utility District Association, repeatedly stressed that time is of the essence as the cheap power may not be available for much longer.

Bonneville Power Administration officials said they are wrapping up a multi-year process to define how and under what conditions it will continue to provide power in the future.

The new power sales contracts will cover fiscal years 2012 to 2028. Rates under these new contracts will be very different from current and previous rates, according to Bonneville Power Administration.

And a new publicly owned utility that forms after the new contracts are signed will be given a “Contract High Water Mark” if it signs a contract. The limits for High Water Marks of new public utilities are 250 average megawatts over the term of the contracts and 50 average megawatts in any rate period, with limited exceptions. If new publics’ requests for HWMs are higher than the rate period limit but below the overall limit, amounts will be phased in. Amounts above the overall limit must be purchased at

Tier 2 rates or supplied from non-BPA resources, according to Bonneville Power Administration.

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