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

The name is supposed to reflect a consensus on regional power issues that BPA has facilitated over the years.

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

BPA’s Regional Dialogue contracts begin on October 1, 2011, and end on September 30, 2028.

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No matter where you live in the Pacific Northwest, BPA’s new Regional Dialogue contracts will affect your pocketbook.

If you buy your power from a public agency or rural electric cooperative (a “public power” utility), then you have a stake in this process. BPA supplies 135 public power utilities.

In addition, BPA has 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 7.5 million people in the region.

Finally, BPA has historically sold power to a group of industrial customers known as the “Direct Service Industries” (“DSIs”). In recent years, many DSIs have gone out of business. It is not clear how many companies will buy power from BPA in the future. But BPA has said it wants to supply at least one customer, Alcoa, for its aluminum smelter at Ferndale, Washington State. BPA signed a seven-year contract with Alcoa in December 2009.

There is hardly a city or town anywhere in Washington, Oregon, Idaho and western Montana that will not feel the impact of BPA’s decisions in the Regional Dialogue process.

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Mostly, yes. All of BPA’s 135 public agency and cooperative customers signed new Regional Dialogue contracts by December 1, 2008. This class of customers by law receive “preference and priority” to power generated by the federal power system.

Only four months earlier, BPA’s contracts with public power utilities were not in good shape – the contracts were vague and in some places, poorly drafted. Click here to read a BPA Watch newsletter written in July 2008. But to BPA’s credit – and with a lot of hard work from customer groups, too – BPA revised the agreements and made significant changes at the last minute. The final version was much improved over earlier drafts.

BPA put considerable pressure on these utilities to sign by the deadline and refused to offer them an alternative agreement. As a result, some utilities signed the Regional Dialogue contracts reluctantly. Other utilities, however, were more enthusiastic about the agreements.

BPA also sought to sign new Residential Exchange Program agreement with six private power companies. On this front, BPA was less successful. Three companies signed. Three did not.

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BPA’s Regional Dialogue contracts change the way it deals with public power (public agency and rural electric cooperative) customers.

In the past, BPA has acquired power from new sources and “melded” (mixed) 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 electricity from 31 federal dams in the region. Most of the large dams are on the main stem of the Columbia River.

Tier 2 is whatever BPA has to buy on the market to meet the additional power needs of its utility customers. Market-priced power is now between two and four times as expensive as power from the existing federal system of dams.

Under the Regional Dialogue contracts, public power utilities will have a choice: they can buy Tier 2 from BPA or from someone else. BPA, in theory, will make it easier for those utilities to “shop around” and invest in their own resource options (e.g., new power plants and/or enhanced energy efficiency). “Tiering” also has the effect of sending price signals to utilities. They will see the price tag for newer and more expensive power plants, including those that use natural gas as a fuel, or that rely on wind power. BPA intends to implement tiered rates for the first time on October 1, 2011.

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Because utilities need to start making decisions now about where they will buy power beginning on October 1, 2011.

The lag time, from now until then, is important. It takes time for utilities to build new power plants or invest in energy efficiency. The three-year period between the signing of Regional Dialogue contracts is a transition period that gives both BPA and its customers time to make intelligent decisions.

On November 1, 2009, public power utilities informed BPA how much Tier 2 power, if any, they will buy from BPA at the start of the Regional Dialogue contracts.

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It’s hard to say. Many utilities believe they can make good decisions about investing in new generation.

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

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 they did not need them after several months.

The alternative for public power utilities is to let BPA acquire power for them. They could 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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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. Read more about this transaction in the BPA Watch newsletter. Click here.

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The public in the Pacific Northwest. BPA does not receive appropriations from Congress. BPA is a “self-financing” federal agency: 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 throughout the Pacific Northwest. There is no free lunch in this business.

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BPA will need to set rates for the post-2011 period. It will host a number of public forums to get prepared for the new world of tiered rates.

But the most important next steps will likely occur at the local level, where public power utilities will decide how much Tier 2 power, if any, they will buy from BPA. The Regional Dialogue contracts have empowered them: they have a meaningful choice. How they exercise this discretion is not yet known.

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