How BPA Sets Power and Transmission Rates

Before launching a rate proceeding, BPA convenes informal workshops with prospective rate case parties to review in detail the financial conditions, market conditions, load forecasts, and other information relevant to setting rates. This provides an informal opportunity for the prospective rate case parties to obtain preliminary information, and provide input, about BPA’s contemplated initial proposal.

Public Review of BPA's costs

Before beginning a rate case, BPA publicly reviews its expected costs. This cost review is currently conducted under the Integrated Business Review (IBR). The IBR structure is made up of two processes. The first part of the IBR is the Integrated Program Review (IPR), which will address proposed program costs prior to their inclusion in a rate case, and replaced the Power Function Review (PFR), Transmission Programs in Review (PIR), and the Capital Program Review (CPR). The second part of the IBR is the Quarterly Business Review (QBR). This part of the process focuses on cost trends and implications for expense and capital programs.

Rate case follows legal procedure

Once BPA has a forecast of the factors used in determining rates, it commences a specific legal procedure as defined in Section 7(i) of the Pacific Northwest Electric Power Planning and Conservation Act of 1980 (Northwest Power Act). At its essence, this process adds up BPA's expected power- or transmission-related costs for the rate period and divides these costs by the expected sales. In addition, there are specific rate directives in the Northwest Power Act that BPA must implement in its rate determination. The actual process is long, complex, and addresses many issues - from market risks to the legal rights of specific customer groups.

A rate proceeding may take up to ten months to complete. This does not include the preliminary work that takes place prior to the commencement of the formal rate case. The length of time can be shortened when there are fewer major issues are at stake or where rate case parties generally agree on the issues under review.

BPA ratepayers include Pacific Northwest consumer-owned utilities, direct-service industries (DSIs), investor-owned utilities (IOUs) and federal agencies, as well as extra-regional customers.

BPA's costs are ultimately passed on to residents and businesses of the PNW through the electric power bills from their local utilities.

Ratepayers in California and other states may also pay portions of BPA's costs, particularly in wet years, because BPA sells power that is surplus to Northwest needs to utilities outside the region.

In order to meet BPA's customers' power needs during dry years, BPA may have to buy power from utilities outside the Northwest. This can increase costs and raise rates to Northwest consumers.

What do BPA's costs include?

BPA does not own any generation facilities (i.e., dams, nuclear, gas, or coal plants). However, BPA is responsible to help pay for the operations, maintenance and repayment of the federal investment of the federal generating facilities. Power rates recover costs associated with generating electricity, including:

• Power-related costs of Northwest federal dams;
• Certain non-federal nuclear projects where BPA has purchased the output;
• Power purchases to meet BPA's customers' needs; and
• BPA's work in:
  • fish and wildlife protection;
  • energy conservation; and
  • renewable resource development.
• Funds to reduce rates to Northwest residents and small farms that receive their electricity from investor-owned utilities (the Residential Exchange Program).

BPA's transmission rates recover all costs to build, operate and maintain BPA's transmission grid.

Public review of BPA's costs

Before beginning a rate proceeding, BPA publicly reviews its expected costs. This cost review is currently conducted under the Integrated Business Review (IBR). The IBR structure is made up of two processes. The first part of the IBR is the Integrated Program Review (IPR), which will address proposed program costs prior to their inclusion in a rate case, and replaced the Power Function Review (PFR), Transmission Programs in Review (PIR), and the Capital Program Review (CPR). The second part of the IBR is the Quarterly Business Review (QBR). This part of the process focuses on cost trends and implications for expense and capital programs.

Once rates have been decided, BPA submits them to the Federal Energy Regulatory Commission for confirmation and approval. Because this can take time, FERC frequently grants interim approval, and rates go into effect pending FERC's final approval. FERC's approval is based on whether the proposed rates are sufficient to recover BPA's total costs.

BPA's rate cases are decided "on the record." That is, in making a decision on final rates, the BPA Administrator considers only information that is contained in the Official Record of the rate case, subject to limited exceptions. Therefore, during a rate case, BPA and all parties are under ex parte restrictions and any discussions BPA has with non-Department of Energy employees about the substantive issues of the rate case must be fully noticed in advance. This is required so that all parties to the rate case may participate, if desired, and such communications are fully documented. Outside of formal rate case meetings, BPA may answer procedural questions about the rate case but cannot discuss or negotiate the specific terms of the rates.

Ex parte restrictions are in effect from the time BPA publishes a notice in the Federal Register, which announces BPA's intent to revise rates, until the Administrator signs the Final Record of Decision concluding the rate case.

Participants make public comments

Anyone may participate in a BPA rate case by commenting or asking questions by letter, e-mail, or in person at a BPA field hearing. If submitted within the appropriate time frame, these expressions become part of the official record considered by the BPA Administrator.

Parties attend formal hearings

BPA customers and other groups with a direct interest in BPA's rates may participate as parties to the formal rate hearing process. Parties file testimony, cross-examine other parties, and are subject to cross-examination by other parties.

Prior to the start of the formal ratemaking process (which begins with the publication of a notice in the Federal Register, BPA hires an independent Hearing Officer, usually an administrative law judge, to preside over the formal rate proceeding. The Hearing Officer does not judge the merits of BPA's rate proposal or issues raised by parties. He or she ensures that a complete official record of the rate proceeding is compiled and submitted to the BPA Administrator. All testimony, exhibits, and comments become part of this official record. The BPA Administrator uses this Official Record to make decisions to be reflected in the final rates as documented in the Administrator’s record of decision.

1.BPA publishes a summary of its Initial Proposal in the Federal Register. This is referred to as the Federal Register Notice or FRN. This publication begins the period prohibiting ex parte communications regarding rate case issues, as well as the formal (legal rate proceeding) conducted pursuant to section 7(i) of the Northwest Power Act. The FRN invites entities able to demonstrate a specific interest in BPA's rates to file petitions with the Hearing Officer to become an official party to the rate proceeding.

2.Approximately two weeks after the FRN is published, BPA holds a prehearing conference at which time the Initial Proposal is formally released. The Initial Proposal contains BPA staff's direct case and includes testimony, studies, and documentation supporting the factors BPA staff considered to insure the proposed rates recover expected costs. These documents may include:

• Revenue requirements study;
• Market price forecasts;
• Load and resource projections;
• Cost of service and rate design study; and
• Risk analysis.

At the prehearing conference, the Hearing Officer issues orders establishing the schedule, procedures, party status and other details of the ratemaking process.

The filing of all documents in the rate case and service of those documents to the parties are conducted electronically via a secure rate case web site provided by BPA.

3. Next, the parties file their direct cases with the Hearing Officer in the form of written testimony and supporting documentation. The parties' direct cases respond to BPA staff's Initial Proposal on areas of concern to them.

4. The litigants review the parties' direct cases and then file rebuttal testimony.

5. BPA staff and all parties are subject to cross-examination on all testimony and evidence that they have submitted.

6. Parties then submit their Initial Briefs, which summarize the technical and legal basis for their positions that are contrary to BPA staff. Parties are also offered the opportunity to present oral argument to the Administrator.

7. The BPA Administrator prepares a Draft Record of Decision (Draft ROD) and distributes it to the rate case parties. The Draft ROD lays out all of the rate case issues with an evaluation of the positions held by the various parties. The parties can respond to the Draft ROD by filing Briefs on Exceptions.

8. The Hearing Officer submits the entire Official Record of all the above materials to the BPA Administrator, who then prepares the final Record of Decision. The Final ROD contains a summary of the rate case process and the Administrator's reasons supporting the final decision on each of the issues. The Final ROD is published with BPA's final rates, which incorporates all of the final decisions, along with the Rate Schedules and General Rate Schedule Provisions (GRSPs). These documents are incorporated into the Official Record of the rate proceeding.

9. BPA submits the final Official Record to the Federal Energy Regulatory Commission (FERC) at least 60 days before the new rates are to be effective, usually October 1, the start of the new fiscal year.

10. FERC gives interim approval shortly before October 1 to allow BPA to begin charging the new rates by the date they become effective. Final approval follows FERC's review of BPA's filing, which may take from one or more years.

This concludes the formal rate proceeding.