BPA’s John Hairston Shares Optimism Over Financial Prospects

Energized by a robust economic year, Bonneville Power Administration CEO and Administrator John Hairston expressed confidence in the agency’s energy market position, financial stability, budget allocations, rate negotiations, and meeting fish and wildlife obligations.

Hairston, who has led BPA since January 2021, appeared at the September Council meeting and covered an extensive list of developments, starting with the agency’s leap into organized markets.

“Joining the Western Energy Imbalance Market (EIM) was a big step for us,” he said. “We’re working hard on developing the next phases of the CAISO Extended Day-Ahead Market product and Southwest Power Pool’s Markets+ product. Because of our existing relationship with California EIM, it’s an easy transition for us. I want BPA to take a leadership role in what we’re doing around markets.”

Hairston said Bonneville’s involvement in EIM shows positive results. He said he’d expressed concerns over CAISO’s governance structure, which is sufficient now for EIM participation. But with investments in the extended day-ahead market, they want a governance and market structure more conducive to BPA’s operation.

He is also encouraged by Bonneville’s participation in the Western Resource Adequacy Program, where utilities are taking a transparent approach to assessing resource needs and supply. He commended the group for submitting a tariff to FERC for review.

Weather provided a financial boost

Hairston reported that the BPA is enjoying a beneficial financial year in terms of water and markets. He said it has been a good water year with a lot of snow melting at the right time, particularly in British Columbia. “We’ve worked well with the Canadians in terms of timely releases to make sure we’ve had the inventory available to meet our needs, particularly over the past couple of weeks when things got pretty tight due to the heat events,” Hairston said. He added that the conflict in Eastern Europe has impacted gas prices, and BPA has had good market opportunities.

Hairston credited BPA’s trading floor and operators for putting the plan into place to benefit from these opportunities.

BPA receives additional borrowing authority

Bonneville received an additional $10 billion in borrowing authority under the $1 trillion infrastructure bill passed and signed into law last year. The plan states that the agency’s primary source of debt financing is its U.S. Treasury borrowing authority, which works like a revolving line of credit. BPA’s borrowing authority limit is now $17.7 billion. BPA’s just-released financial plan addresses the requirements of using those funds appropriately.

Setting budgets and addressing debt

Hairston said they continue to have tough conversations internally and with external partners around setting budgets and achieving mitigation and asset management goals.

“I believe the course we’re on is setting the stage for a long-term prospectus to be strong in terms of what we can offer in prices, products and services, mitigating impacts on species, and meeting customer demand,” he said.

BPA released a Record of Decision on its sustainable capital financing, which provides long-term guidance on how it will address debt. BPA has used debt to finance nearly 100% of its capital investments

“Now we have two tools: Revenue financing and financing through debt,” Hairston explained. “Long term, we need to address debt appropriately and get some headroom to invest in infrastructure. We have more than $10 billion available, but we don’t want to create a bigger problem. We want to pay down that debt at a rate where we’re a net payer instead of a net borrower. That’s our goal, particularly on the transmission side of the business.”

He added that with the release of sustainable capital financing and Record of Decision, they have honed in on setting the debt-to-asset ratio no greater than 60% by 2040. “It gives us enough breathing room, while not significantly impacting transmission rates and paying down debt.”

Transmission debt and renewables

Transmission debt outstanding has been growing at an unsustainable pace, Hairston told Council Members. Over the past 10 years, transmission debt has grown by $2 billion, which is expected to climb to $8 billion by 2028, and $10 billion by 2040. “Most of the debt goes to our sustain program, keeping existing assets healthy, but it’s not giving us room to grow the system.”

Transmission investments are needed to integrate new renewables. “For me, a big component is how to invest in new transmission to help create that integration opportunity,” Hairston said. “That debt is a major pressure on transmission, but even on the power side, it represents a significant portion of our overall cost.”

Integrated Program Review to be released

Hairston said their goal in the Integrated Program Review (IPR) public process is establishing a two-year budget that balances funding the business and maintaining cost discipline. We’re trying to see how many needs we can meet and still be cost-prudent,” he said. The IPR will be released in October.

Help from the reserves distribution clause

BPA had planned to allocate at least $615 million for power and $68 million for transmission, but that was before it did well in the market. Now, Bonneville will be looking at higher distributions. “As an administrator, I have discretion on how to utilize those dollars,” Hairston said. He referenced the challenging financial impacts among BPA’s customer groups and expressed a desire to provide rate relief when possible. “But I have to balance budgetary challenges to fund programs that are part of our statutory obligations,” he said. “There are a lot of competing interests, but I will consider all aspects of the business and relationships in using those resources.”

Settling rate cases

Hairston said that because of their good fortune in the market, they are working to settle rate cases for FY 2024/2025. They are exploring offering a 2.5% rate decrease on the power side on average and keeping rates flat in the next rate case. “If we can settle our rate and tariff cases, it will be a significant outcome for us and allow us to focus on other aspects of the business,” he said.

Fish and Wildlife Program to receive a funding bump

Hairston lauded BPA’s successful implementation of all of the CRSO EIS and BiOp commitments in a manner consistent with the Council’s Fish and Wildlife Program. He said Bonneville’s relationships with federal partners are growing stronger as they look for ways to mitigate impacts on fish and wildlife. Plus, we’re going to have a little more flexibility financially to pursue the things we want to pursue, he said.

Hairston projected an 8.7% increase in Fish and Wildlife Program funding for 2024/2025 compared to 2022-2023, the largest percentage increase since the BP-10 rate case. “Some might say it’s just covering inflation, but it’s a good, solid first step,” he said.

BPA also reached an agreement to stay the litigation with Oregon, Nez Perce, and National Wildlife Federation through August 2023. Hairston said it provides time to find some long-term, durable solutions. “Prior administrators have come into this issue optimistic and leaving pretty battered,” he observed. “The relationships we are building are important, and I don’t think we’re that far apart in terms of results we want to see: fewer impacts and more fish in the river.”

Columbia Basin Fish Accords up for renewal

Parties are working to extend the current Columbia Basin Fish Accords, which end this month. “If we can get this extension in place, it’s easier to have a conversation around a longer-term agreement,” Hairston said. “It brings value to our customers by providing cost stability, and there’s enormous value in getting us out of the courtroom. If we can agree on important terms, it will help stabilize operations going forward and meet fish requirements.”

Hairston praises E3 Replacement Power Study

The BPA Lower Snake River Dams Replacement Power Study, released in July, says that the cost of replacing the output would range from $415 million to $860 million per year through 2045. Hairston told the Council it’s essential for the region to understand the costs of replacing these resources. We need to focus on infrastructure and the development of transmission for renewable resources, he said.

Council requests more energy-efficiency

Hairston applauded the Council for setting the energy efficiency target as a range in its 2021 Northwest Power Plan. He appreciates the inclusion of market, transformation, and momentum savings within the energy-efficiency framework.

Council Member Ginny Burdick asked Hairston if resources from BPA’s good economic year would be devoted to building up energy efficiency. “We were disappointed to see that Bonneville fell short (of goals) in the Seventh Plan, and we would like to see a robust contribution to this plan.”

He said they would look at areas where additional funding will help achieve goals. Once they get into FY 2024/2025, adjustments will likely be made to the budget, and Bonneville will have flexibility.