CUB Signs the BPA “REP Settlement Agreement”

CUB’s Executive Director, Bob Jenks, recently signed a settlement agreement (the “REP Settlement Agreement”) on behalf of CUB. If agreed to by a sufficient number of parties, this agreement will settle among the parties disputes over the Bonneville Power Administration’s Residential Exchange Program (REP) that have had northwest investor owned utilities (IOUs), public utility commissions (PUCs) and consumer owned public utilities (COUs) tied up in the Federal Courts for decades.

The REP is a section of the NW Power Act, which governs BPA and the Federal Hydroelectric system. It requires (BPA) to allocate a share of its hydro-generated power benefits to residential and small farm customers of IOUs in the northwest. Since the Act passed in 1980, COUs, IOUs and the states of Oregon, Washington and Idaho have fought and litigated over its interpretation and how much federal hydro power should be shared. CUB has been involved in negotiating this REP Settlement Agreement (Agreement) for over a year. CUB is involved because it is in the interest of Oregon’s residential customers to have known benefits available to them every year and for there to be less, if not no, litigation.

Agreement current status.

The Agreement requires that Parties, except for BPA, execute the Agreement on or before April 15, 2011. On March 14, 2011 CUB’s Board of Directors voted to authorize the signing by CUB of the Bonneville Power Administration (BPA) Agreement. On April 4, 2011, Bob Jenks duly executed the Agreement on behalf of CUB. On April 5, 2011 the PUC considered the Agreement and voted to approve the Agreement and to approve PGE and PacifiCorp’s signing of the Agreement. The commission’s order for PGE and the commission’s order for Pacificorp are available to the public. The Agreement has now been signed by all IOUs in the region, by CUB and by the PUCs in Oregon and Idaho. This press release lists all of the IOUs that signed in addition to the commissions and CUB.

CUB believes that the settlement provides for a fair allocation of federal hydro benefits through the year 2028. After 30 years of near continuous litigation over the allocation of hydro benefits, which caused the benefits to rise and fall based on who was winning the litigation, the region will benefit tremendously by a stable settlement that provides long-term stability. The region faces three difficult issues related to its hydro power system: endangered fish, integrating hydro and wind generation and adapting to changes in snowpack and precipitation due to climate change. Settling the exchange program for an extended period of time will allow the region to address these important issues.

Because there are dozens of COUs in the region, some of whom are extremely small, the Agreement does not require all COUs to join in the settlement - it requires that it be signed by COUs which make up at least 91% of the COU load that is placed on the BPA system. The Agreement is, however, supported by the majority of the COUs in the region including Eugene Water and Electric Board (EWEB), the City of McMinneville, Springfield Utility Board (SUB), and Salem Electric. But one local publicly owned utility, Clark Public Utilities, recently voted not to approve the agreement. CUB sincerely hopes that Clark Public Utilities will change its mind both for its own good and the good of the region. At the time of publishing this blog, it is not clear whether a sufficient number of COUs will sign by the April 15, 2011 signature gathering deadline.

The convoluted and tortured history of the REP.

The big problem with the REP - which was meant to spread the benefits of the federal hydro power system to residential and small farm customers of IOUs in addition to customers of COUs - has always been one of how to implement what is set forth in the statute. The NW Power Act allows IOUs to “exchange” higher cost power that will be used to serve residential and small farm customers with BPA lower cost federally generated hydropower. The Act contains a rate test, that essentially is designed to ensure that the cost of the REP and other factors, when considered together, do not raise the COUs’ rates beyond what they would have paid absent the Northwest Power Act. However, this rate test is convoluted and open to a great deal of interpretation by BPA which has led to a great deal of litigation.

The most recent round of litigation concerning this Act began when BPA entered into settlement agreements in 2000 and 2001 with its IOU customers over the REP. Those agreements were challenged and in May 2007, the Ninth Circuit Court of Appeals held that BPA exceeded its authority in some aspects of the agreement. As a result of the remand from the Ninth Circuit Court of Appeals, BPA decided to require IOUs (and their residential and small farm customers) to repay BPA for some of the benefits that had already been passed through to customers. This repayment request created a new round of litigation since the IOUs were passing through benefits to their customers in accordance with a contract.

One year plus of mediation.

As part of the lawsuits in the 9th Circuit Court of Appeals, parties to the suits, including CUB agreed to attempt to mediate the case. One year plus of mediation and negotiation has ensued since the parties decided to talk. CUB’s goals throughout have been to ensure that residential and small-farm customers are allocated a reasonable share of the economic benefits associated with the federal hydroelectric system on a long-term basis without imposing unfair costs onto customers of consumer-owned utilities. Entering into the mediation, CUB was skeptical that the parties could reach agreement. 30 years of history suggested that a broadly supported deal was unlikely. However, much to our surprise, the parties were able to reach an agreement that truly represents a reasonable compromise of all parties’ positions.

Benefits for residential and small farm customers; less litigation; and better relationships with COUs.

The REP Settlement Agreement achieves the following primary benefits for the Companies and their customers:

1. A fixed stream of residential exchange program (“REP”) benefits to IOUs for allocation from October 1, 2011 through September 30, 2028 (“REP Settlement Benefits”) that grow over time so customers in 2025 will still get a reasonable share of benefits; Settlement of pending litigation among the Parties;
2. The potential for fewer disputes and reduced resource demands needed to administer the REP; and
3. Fostering of positive relationships with BPA, settling customer-owned utilities (“Settling COUS”), and other stakeholders and interested parties which will make it easier for the region to address the challenges we face

The risks that will remain even after the Agreement is implemented.

Although the Agreement is a significant achievement for the region, its utilities and their customers, it is not without risk. The primary risks of the Agreement are as follows:

1. Litigation with a small number of parties who refuse to settle may proceed and could alter REP benefits received under the Agreement;
2. Given the long-term nature of the Agreements, REP Settlement Benefits could be less than the REP benefits Oregon residential customers of PGE and Pacific Power would have received absent the Agreement. This is clearly the biggest risk among all sides to this settlement. Because BPA has such broad authority to determine the allocation of benefits, it is difficult to say whether this settlement has greater or lower benefits than would be received absent a settlement. But given nearly a 30 year history of benefits, this deal provides a reasonable share of benefits to residential customers who live in Oregon.

While the Agreement has some degree of risk and uncertainty, the long-term benefits of the Agreement outweigh those risks.

What would the implementation of the Agreement mean to Customers in the short term?

PGE: It is currently expected that for PGE customers near term customer impacts will result in a limited increase in REP benefits for 2012, as compared to 2011, from approximately $49 million to approximately $58 million. The Agreements result in long-term benefits for PGE’s customers by resolving pending litigation claims among the Parties (including repayment of past benefits) and establishing a fixed, long-term stream of REP benefits to PGE’s customers.

PACIFICORP: Near-term customer impacts are projected to result in an $ 8 million reduction in REP benefits for 2012, as compared to 2011, for PacifiCorp’s residential and small farm customers. However, the Agreement results in long-term benefits for PacifiCorp’s customers by resolving pending litigation claims among the Parties and establishing a fixed, long-term stream of REP benefits to PacifiCorp’s customers.

What if the Agreement fails to become effective?

Unless COUs equal to or greater than 91% of COU load on the federal system execute and deliver the signed Agreement to BPA by April 15, 2011, the agreement is void. If, however, 91% of the COUs sign then it will be up to BPA whether or not the Agreement becomes effective - for the Agreement to become effective BPA must also sign. BPA is expected to issue a final Record of Decision in which it will decide whether or not to sign the Agreement by July 5, 2011.

Ratification

The Agreement provides that the parties will work together to urge the U.S. Congress to pass legislation to affirm the Agreement and direct BPA to perform the Agreement according to its terms. This will allow the region to implement the agreement and move further away from the litigation path.

Thank you for the work to get us here.

At CUB we are often required to criticize the local investor owned utilities for their lack of foresight or some other misstep. Today, we need to do something different. Today, we need to thank the employees of PGE and PacifiCorp, who have worked jointly with CUB, Commission Staff, Avista and Idaho Power Company (who did not need OPUC approval to sign) to bring the REP Settlement Agreement to potential fruition for the benefit of Oregon IOU ratepayers. Our thanks go out especially to Jim Lobdell and Stefan Brown at PGE, to Pat Egan and Phil Obenchain at PacifiCorp, Ric Gale and Celeste Schwendiman at Idaho Power, Tom DeBoer at Puget Sound Energy and to Larry Labolle at Avista. And last, but not least, to Marc Hellman (OPUC Staff).

We would also like to take a moment to thank the folks who negotiated on behalf of the consumer owned utilities. Particular thanks go to Scott Corwin - PPC; John Prescott - PNGC; John Saven - NRU; and of course to countless others.

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