Electricity Markets

BPA unveils five-year strategic plan, identifies several key goals

The Bonneville Power Administration recently released a five-year strategic plan and has identified several strategic goals including modernizing asset and system operations and meeting transmission customer needs efficiently and responsively.

BPA, which unveiled the strategic plan on Jan. 30, noted in a news release that it plays “a uniquely valuable role in the region through a multi-faceted public service mission, bringing the benefits of reliable, affordable and clean electricity to communities large and small.” The strategic plan covers 2018 to 2023.

But it went on to say that shifting industry dynamics and other risks, such as low wholesale energy prices and changing customer needs, are working against BPA’s cost competitiveness and commercial performance.

BPA said it has identified four strategic goals that will address these risks, while also leveraging opportunities presented by evolving markets and technology developments.

The four strategic goals are: (1) strengthen financial health; (2) modernize asset and system operations; (3) provide competitive power products and services; and (4) meet transmission customer needs efficiently and responsively.

The strategic plan offers additional details about each of the four goals as follows:

Strategic goal 1 - Strengthening financial health

With respect to strengthening BPA’s financial health, the plan said that as of January 2018, BPA has sufficient liquidity and high credit ratings. “But absent any changes, the continuation of some financial policies and practices — particularly those around cost management, debt management and reserves — would put BPA’s long-term financial health at risk. BPA’s strategic plan addresses each of these areas,” the plan states.

The financial health objectives in this strategic plan, which are derived from BPA’s 2018 financial plan, BPA noted.

Within the strengthening financial health strategic goal, BPA outlines several specific objectives.

For example, BPA wants to bolster its financial resiliency. “Financial resiliency is the ability of an organization to withstand disruptive events that impact revenues or expenses while continuing to deliver on its mission. BPA seeks to build financial resiliency through objectives for debt utilization, debt capacity and liquidity,” the plan notes.

In order to mitigate the risks of being too highly leveraged, BPA intends to target a debt-to-asset ratio of 75 to 85 percent for each business line and the agency over the next 10 years and 60 to 70 percent over the longer term. BPA said it will hold a public process on its leverage policy in 2018 to discuss its debt-to-asset ratio targets and the means of achieving its debt-to-asset ratio goals.

BPA said it also wants to maintain sufficient debt capacity to fund its capital program on a rolling 10-year basis, and preserve $1.5 billion of available financing from the U.S. Treasury.

Strategic goal 2 - Modernize asset and system operations

The strategic plan notes that the Federal Columbia River Power System is the nation’s largest carbon-free, renewable energy resource. “This iconic federal hydropower system, coupled with BPA’s expansive high-voltage transmission grid and the output of the region’s only commercial nuclear plant, provides power valued at more than $3 billion annually. These power and transmission assets have played a central role in the region’s way of life, and managing them in a cost-effective and economically efficient manner is critical to BPA’s commercial success,” BPA said.

The power BPA sells to its Northwest power customers comes from 31 federally owned dams that are operated by the U.S. Army Corps of Engineers and Bureau of Reclamation. BPA also sells the output of the Columbia Generating Station, a 1,107-megawatt nuclear plant, which is owned and operated by Energy Northwest. BPA recovers the cost of these generating facilities through its power revenues.

This power is transmitted over BPA’s more than 15,000 circuit miles of transmission lines, 260 substations and an extensive network of related transmission facilities, telecommunications and IT infrastructure across six states. This energy highway not only provides low-cost, reliable power to the entire region, but also allows for the sale of surplus power across the West. These surplus sales help to offset BPA’s costs and keep rates affordable for Northwest consumers.

BPA said it is adopting a more rigorous approach to asset management that leads to the most efficient use of resources, “recognizing that our assets do not all deliver the same value. This approach will produce the highest economic benefit and derive maximum value from the system, while meeting nonpower purposes and environmental requirements.”

BPA said it must also be prepared to operate these assets in evolving markets to preserve reliability and take advantage of new opportunities for maximizing sales of surplus power. Drivers include large increases in variable energy resources such as wind and solar and the recent expansion of the Western Energy Imbalance Market, which have changed the pattern of power flows across the Western grid and transformed the way utilities interface with markets.

“A faster, more volatile resource base has created a need for increased situational awareness and coordination within and among balancing authorities,” the strategic plan said.

There are also opportunities to leverage new technologies — such as battery storage, flow control devices, data analysis and demand management tools — in support of more reliable, economical and efficient system operations, BPA noted.

BPA said that working with the U.S. Army Corps of Engineers and Bureau of Reclamation, it will strategically evaluate federal hydropower assets and identify and communicate priorities and goals, including optimization of capital investments to align system capabilities with evolving markets, technologies and regulations.

BPA will also work with Energy Northwest to develop a joint long-term asset strategy for the Columbia Generating Station nuclear plant, focusing on its cost and performance, according to the strategic plan.

“To take a true value-based approach, our asset management strategy will take into account the relative value and performance of each asset, including the Willamette River Basin hydroelectric resources. And through the Columbia River System Operations Review, BPA and its federal action agency partners will produce a recommendation on the future of the lower Snake River dams after completing a comprehensive analysis,” BPA said. 

Meanwhile, BPA also said that it has developed a comprehensive grid modernization road map for the federal power and transmission system that will enhance system operations in three major ways: automation, accuracy and visibility.

Strategic goal 3 - Provide competitive power products and services

In addition to managing costs and leveraging market opportunities, BPA will invest wisely in energy efficiency and fish and wildlife, and support the Columbia River Treaty modernization, which could support the development of more competitive BPA products and services, among other benefits.

BPA said it will position itself to negotiate and offer new long-term wholesale power contracts in the 2020s. “As we approach contract negotiations, we will work with our power customers to define the contracts BPA will offer for supplying power and services after Sept. 30, 2028, when current contracts expire,” the strategic plan said.

BPA will seek to increase revenues from its secondary sales by pursuing new capacity market opportunities and using new and improved approaches for ancillary and control area service offerings. Taking a more systematic approach, BPA said it will also develop, package and sell a portfolio of products and services to take advantage of real-time, short-term, cyclical, long-term and emerging opportunities.

BPA’s long-term objective is to re-subscribe the federal system to its preference customers through new long-term contracts in 2028. However, BPA will also target potential sales of surplus or excess federal power to entities that seek low-carbon power or other Federal Columbia River Power System attributes, such as flexibility and responsiveness. These entities may include investor-owned utilities, high-tech facilities and qualified community choice aggregators. Targeting these sales will serve as a hedge against declining secondary revenues and create longer-term sales opportunities if we experience a reduction in the amount of power that preference customers buy from BPA after 2028, BPA noted.

Strategic goal 4 - Meet transmission customer needs efficiently and responsively

Given certain cost pressures, coupled with the permitting complexities and local impacts of new construction, BPA has begun to develop a more flexible, scalable, economical and operationally efficient approach to meeting the needs of transmission customers.

BPA noted in the strategic plan that it committed to this approach in 2017 when it decided not to build the estimated $1.2 billion I-5 Corridor Reinforcement Project in southwest Washington.

“Instead, BPA will favor alternatives to managing congestion on that part of the grid. While BPA and other transmission providers will not always be able to avoid building new transmission lines, non-wires solutions will play a more important role in meeting service requests in the years ahead.”

BPA said it will meet its transmission customer needs more efficiently and responsively by standardizing and streamlining its products, services and processes. “This requires a cultural shift, and our leadership team is fully committed to driving this change,” it said.

Public Power Council comments

“The focus on responsiveness to customers and the urgent need to make progress toward future competitive products and services is timely,” said Scott Corwin, Executive Director of the Public Power Council.

“Consistent implementation is critical,” he said. “PPC will continue to work with BPA to stress the targets, tools, performance, and accountability needed to reach these goals,” he said.

The PPC represents the Pacific Northwest’s consumer-owned utilities on important issues in the region and in Washington, D.C.

Its focus is on the federal Columbia River Power System and BPA ratemaking, revenue requirements and policies. 

In addition, PPC engages with BPA and the Northwest Power and Conservation Council on issues related to power supply planning and conservation, and strives to keep its members informed about transmission issues, including rates and potential impacts to the Northwest from federal policy proposals.