"Regional Dialogue" is the name the Bonneville Power Administration ("BPA") has given to its effort to develop new long-term power sales contracts and other agreements with its customers.

BPA, a federal power marketing agency in Portland, Oregon, sells and delivers electricity at cost to utilities in the Pacific Northwest.

BPA wants to sign its long-term power sales contracts and other agreements by December 2008. The contract term would begin on October 1, 2011, and end on September 30, 2027.

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If you live in the Pacific Northwest, the outcome of BPA’s "Regional Dialogue" will affect your pocketbook for several decades. The reason is that BPA supplies 40% of all the electricity consumed in the region.

In addition, BPA has historically provided cash payments under the "Residential Exchange Program" to six private power companies for their residential and small-farm consumers. The BPA cash payments show up as a credit on the bills of 7 million people in the region.

Finally, BPA has historically sold power to a group of industrial customers known as the Direct Service Industries ("DSIs").

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BPA wants to do several things:

First, BPA proposes to allocate the electricity from the federal power system, which includes 31 federal dams, one nuclear power plant and other resources. As a result, utilities will have to decide soon now to meet their future needs above BPA’s power allocation.

Second, BPA is proposing to design new cash payments to the private power companies for their residential and small-farm customers.

Third, BPA is deciding whether or not to sell power to the DSIs. As a result, there is hardly a city or town anywhere in the region that won’t feel the impact of BPA’s decisions in "Regional Dialogue."

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BPA has held dozens of meetings and received comments from several hundred interested parties, including utility representatives, environmental groups, Tribes, industry trade associations and others about "Regional Dialogue."

But there was little to go on until July 19, 2007, when BPA released a general "Regional Dialogue" policy document and a "Regional Dialogue" Record of Decision. Click here to read the Regional Dialogue Announcements.

Unfortunately, those long-awaited documents only address principles for new contracts for 124 public power utilities, which are entitled by law to preference and priority from the federal power system. They are BPA’s core customers.

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BPA said little – it "punted" on developing principles for "Regional Dialogue" contracts with two other groups of customers: the private power companies and the DSIs.

In the past, BPA supplied private power companies with cash payments for their residential and small-farm consumers. But a federal court held on May 3, 2007 that BPA’s formula for making payments to the companies between 2002-2006 was contrary to law. As a result, BPA halted the payments. BPA has yet to calculate how much to pay the companies after 2011.

Nor has BPA decided on contract terms for the DSIs after 2011. BPA believes it does not have to supply the DSIs with power, though BPA believes it can do so, if it wishes.

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BPA wants to proceed quickly in the next year: it hopes to finish drafting contracts by December 2008.

To meet its goal, BPA wants the major stakeholders in the region to agree on the level of service to the DSIs and private power companies. BPA wants some sort of consensus to emerge that will end the litigation and squabbling over "who gets what" from the federal power system.

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Congress may have to intervene if "Regional Dialogue" is to go forward or if the perceived "losers" resort once again to litigation. BPA, however, is going forward anyway and hopes that the utilities and other stakeholders can somehow put aside differences dating back several decades.

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No one knows. Some utility representatives believe BPA can meet its goal. Others think BPA’s schedule is unrealistic and predict that the "wheels will soon come off" the Regional Dialogue process. Clearly, the schedule is very aggressive, and BPA has acknowledged this fact. If BPA rushes ahead, however, it may disadvantage public power utilities that need time to evaluate the contract terms and conditions.

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BPA is proposing major changes in the way it deals with its public power customers. In the past, BPA has acquired power from new sources to meet the needs of its customers and "melded" (averaged) the cost of the new resources in with the cost of power from existing federal dams. BPA now proposes to "tier" its power rates and give utility customers more choice about where they can buy power.

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BPA proposes to separate costs into two baskets (tiers). Tier 1 is the existing federal power system, plus a modest amount of purchased power to augment the dams. Tier 2 is whatever BPA has to buy on the market to meet the additional power needs of its utility customers. Utility customers would have a choice: they could buy Tier 2 from BPA or from someone else. BPA, in theory, would make it easier for those utilities to "shop around" and invest in their own generating plants. "Tiering" also has the effect that it sends price signals to utilities. They will see the price tag for newer and more expensive power plants, such as coal or wind.

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It’s hard to say. Many public power utilities believe they can make good decisions about when and where to invest in new generation or to implement ambitious energy efficiency programs.

Some utility experts, however, have expressed concern about the level of sophistication at small public power utilities and wonder whether these utilities can do better than BPA.

If history is a guide, the answer is "probably not." In the 1970s, public power utilities invested in five nuclear power plants being built by the Washington Public Power Supply System ("WPPSS"). Only one plant was ever finished.

WPPSS happened a long time ago, but even in recent years, some utilities have made business investment decisions that hurt their retail customers. Some utilities, for instance, were short of power during the 2000-2001 energy crisis and signed last-minute contracts with power marketers for expensive electricity. Other utilities bought diesel generators only to find out that they did not need them after several months because prices for power on the market dropped.

The alternative for public power utilities is to let BPA acquire power for them. They would buy Tier 2 power from BPA to serve their needs – BPA would go in the market and buy power for them.

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Not very good, either. Over the last few decades, BPA has underwritten several expensive failures. In the 1970s, BPA agreed to pay for part or all of the cost of three nuclear power plants under construction by WPPSS. BPA was bound to pick up the tab no matter what and if the plants never worked. BPA ended up paying several billion dollars for two unfinished plants.

Then in the 1990s, BPA contracted to buy power from a gas-fired plant called Tenaska, near Tacoma, Washington. In 1994, BPA cancelled the contract and then had to pay the bank and the developer $315 million, once again without ever receiving a single kilowatt hour of power for its money.

In 2000, BPA made another expensive mistake. BPA signed a contract to sell power to an aging aluminum smelter in Longview, Washington. When the energy crisis hit in winter and spring 2001, BPA found itself short of power. BPA sought to "buy back" its legal obligation to provide power to the Longview smelter. BPA wanted "out" of the contract it had signed only months earlier. BPA spent $226 million in this arrangement, claiming that when the energy crisis was over the company would start up smelter operations and provide jobs to 900 workers. The opposite happened. The company closed permanently, the workers lost their jobs. Click here to read more about this transaction (PDF).

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The public in the Pacific Northwest. BPA does not receive appropriations from Congress. It is a "self-financing" federal agency, meaning that it sets wholesale power rates to pay for its cost of doing business. If BPA enters into transactions that do not generate electricity (as it did in WPPSS and Tenaska), then BPA has no choice but to raise power rates. BPA’s utility customers therefore pay more. And they pass BPA’s costs on to millions of retail consumers in the Pacific Northwest. There is no free lunch in this business.

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BPA’s track record suggests that public power utilities should carefully examine exactly what it is that they are buying before they sign new 20-year contracts with BPA (or anyone else, for that matter).

For many utilities, this is a tough choice. On one hand, BPA has the legal responsibility to sell power from the network of federal dams in the Pacific Northwest, one of the cleanest and cheapest sources of power in the nation. On the other hand, BPA’s efforts to supplement the existing federal system, with WPPSS and Tenaska, for instance, raise unsettling questions. What is to prevent BPA from making similar mistakes in the future? Who holds BPA accountable?

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BPA continues to try and reach some agreement between the public power utilities, who by law are BPA’s preferred customers, and the private power companies. BPA has to decide about the level of service, if any, that it will offer the DSIs. BPA also plans to design tiered rates, draft new contracts and develop the details that will allocate the federal power system. This is an immensely-complicated task.

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