April 15, 2005

BOISE ? A Bush Administration proposal to count new third-party debt backed by the Bonneville Power Administration within Bonneville's U.S. Treasury borrowing limit could force the power marketing agency to reduce its future investments in energy conservation, renewable energy, and fish production and habitat in order to finance investments in its regionwide high-voltage transmission system, according to an analysis by the Northwest Power and Conservation Council.

?The administration's proposal would hit hard, forcing an unnecessary, unwanted competition for funding among important investments that Bonneville needs to make,? said Chair Melinda Eden, an Oregon member of the Council. ?The losers would be the region's ratepayers, who face the possibility of a less reliable power supply, rate increases, and slower progress in protecting fish and wildlife.?

An analysis of the potential impacts of the administration's proposal is available here. The Council sent the analysis to the Northwest congressional delegation and governors.

Third-party debt, an important part of Bonneville's overall financial portfolio, is issued by private businesses or other non-federal entities and guaranteed by Bonneville's power and transmission sales revenues. It is used to pay for construction projects such as new high-voltage transmission lines, power plants and energy conservation.

In February, the Bush Administration proposed to limit the amount of third-party debt Bonneville could back and also to raise the price of the electricity Bonneville sells to a level close to the price of electricity in wholesale power markets. While the market-rates proposal attracted the most news media attention, both proposals met with strong bipartisan opposition from Northwest members of Congress and also from Bonneville's customers. Bonneville sells the output of 31 federal dams and one non-federal nuclear plant. The power is sold for the cost of its generation. Selling that power at close to market rates would mean a rate increase of about 40 percent.

Limiting new third-party debt also could cause rate increases. That is because Bonneville could be forced to generate more income in order to accelerate the retirement of existing debt to make room for new investments under the Treasury debt cap, according to the Council's analysis.

Bonneville issues debt to the U.S. Treasury to fund fish and wildlife projects such as fish hatcheries and also to pay for investments in its regionwide power system, including energy conservation and renewable energy plants. While Bonneville's Treasury borrowing authority is capped at $4.45 billion by law, there is no statutory limit on Bonneville's third-party debt. The Bush Administration's proposal effectively would cap new third-party debt by forcing it under the Treasury borrowing cap.

Bonneville has used all but $1.55 billion of its Treasury borrowing authority. Forcing new third-party debt under the Treasury cap would have the effect of increasing competition among potential future investments in fish and wildlife projects, transmission system upgrades, renewables, and energy conservation.

According to the Council's analysis, Bonneville has few options for dealing with its limited borrowing authority. These include accelerating the retirement of high-cost debt, using other sources of borrowing, recovering more of the investment costs in current electricity or transmission rates, delaying needed capital investments, or obtaining increased borrowing authority from Congress. Bonneville has focused on accelerating the retirement of its high-cost debt, but even if that is successful, the limit could be reached within eight years, according to the Council.

The Council is an agency of the states of Idaho, Montana, Oregon and Washington and is directed by the Northwest Power Act of 1980 to prepare a program to protect, mitigate and enhance fish and wildlife of the Columbia River Basin affected by hydropower dams while also assuring the region an adequate, efficient, economical and reliable power supply.