To Privatize (Or Not) Washington’s Electrical Grid

To Privatize (Or Not) Washington’s Electrical Grid
The Bonneville Power Administration controls 15,000 miles of high-voltage lines in the Pacific Northwest. President Trump has proposed selling them off as part of the federal budget. Though the idea has drawn strong rebuke from regional lawmakers, others say the concept of energy deregulation is worth considering. Photo: Nixdorf

President Trump has proposed selling off the electrical infrastructure in Washington state currently owned and operated by the Bonneville Power Administration (BPA) as part of the federal budget. It’s a move that has drawn strong criticism from Washington-based federal lawmakers who say it will result in higher costs for ratepayers, though some energy policy experts say the idea is a positive step toward deregulating the state’s energy industry.

A federal non-profit agency under the U.S. Department of Energy, BPA controls 15,000 miles of high-voltage lines, roughly 75 percent of the Pacific Northwest’s electrical grid. It also manages 31 federal hydroelectric dams.

Under Trump’s proposed federal budget, those transmission assets would be sold off to private companies. His budget claims that this would provide an estimated $5.5 billion in savings and “encourage a more efficient allocation of economic resources and mitigate risk to taxpayers.”

“The vast majority of the Nation’s electricity infrastructure is owned and operated by for-profit investor owned utilities,” the budget proposal states. “Ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives.”

Trump isn’t the first president to propose this; Ronald Reagan and Bill Clinton previously called for privatizing BPA.

However, opposed to it are 10 U.S. lawmakers from Washington. In a bipartisan June 7 joint letter, they wrote: “We believe divesting BPA’s transmission assets will harm individuals and businesses, divert capital needed for further infrastructure investment in the Northwest, and undermine regional utility coordination.”

“Importantly, BPA is self-funding, and is of no cost to the taxpayer. The entire BPA transmission system — both the capital investment and operation and maintenance — is fully paid by the users of the system,” the letter states further. “Divesting these assets to the highest bidder could transfer the benefit and equity of these investments from the Northwest consumers, who have financed the system, to distant investors.”

Also opposed is U.S. Senator Maria Cantwell (D-Washington). In a statement, she wrote that “any scheme to auction off the transmission assets of federal utilities, such as the Bonneville Power Administration, is a bad deal for consumers and for jobs in the Northwest.”

A recent study by McCullough Research seems to support this claim, concluding that transmission rates could go up by as much as 44 percent.

However, utility providers such as Puget Sound Energy aren’t convinced either way yet. A spokesperson told Lens they’re waiting for more specifics on the proposal. So too is Avista, a Spokane-based electrical and natural gas company.

In an email to Lens, Senior Communications Manager Debbie Simock wrote: “While there is no detailed information available at this time, any issues or opportunities associated with a proposal to sell BPA transmission assets will need to be evaluated by Avista in light of their impacts upon our customers.”

Also, the current energy policy can add additional costs to ratepayers. In 2012, BPA paid wind farms $2.7 million to not generate energy to make room on the grid for surplus electricity from BPA-managed dams. These compensation costs were passed on to ratepayers in the form of higher electrical bills. Prior to this, BPA was accused of discriminating against wind energy producers and prioritizing its own electricity when the grid became full. Federal regulators ruled against BPA in 2011 and ordered them to end that practice.

Though the odds may not be good for Trump’s plan for a variety of reasons, Washington Policy Center Director of the Center for the Environment Todd Myers says it’s time to look at deregulating the state’s energy sector, something that has already occurred throughout the country.

He told Lens that “there’s lots of nuances to (the concept), but I think just writing it off is not a good idea when states as diverse as California and Texas are looking for ways to provide more flexibility and less taxpayer risk in energy generation. Washington state is in many ways behind the rest of the country in energy reform. When you are less flexible and more bureaucratic than California, it’s probably worth considering something different.”

It’s an argument also made by Professor Andrew N. Kleit, who teaches energy and economics at Pennsylvania State University. In a 2016 article for the Wall Street Journal, he wrote: “In a regulated system, government agencies make basic production and grid-access decisions, and set electricity rates in a way that guarantees utilities a certain rate of return on capital investments and other approved costs

“Because utilities’ profits are a function of how much they spend, there is little incentive to cut costs and increase efficiency. The other option is to rely as much as possible on market forces. While no one has figured out how to completely deregulate the electricity market, ‘restructuring’ clears the way for competition in certain segments, such as generation, that aren’t natural monopolies.”

However, Simock cautioned that “further movement toward deregulation in any area should follow a careful analysis of potential unforeseen impacts and unintended consequences.”

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