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April 9, 2009 Interim Update on BPA’s FY 2010-2011 Program Levels and

April 9, 2009 Interim Update on BPA’s FY 2010-2011 Program Levels and Potential Risk Mitigation Tools for Power Rates. Agenda. Background Scenario Analysis Results - Resulting Levels of PF Rate and Cost Recovery Adjustment Clause (CRAC) with various assumptions

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April 9, 2009 Interim Update on BPA’s FY 2010-2011 Program Levels and

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  1. April 9, 2009 Interim Update on BPA’s FY 2010-2011 Program Levels and Potential Risk Mitigation Tools for Power Rates

  2. Agenda • Background • Scenario Analysis Results - Resulting Levels of PF Rate and Cost Recovery Adjustment Clause (CRAC) with various assumptions • Liquidity Tools Available for Power Rates – Update and Discussion • Update on Efforts to Reduce Costs • Next Steps

  3. Background Purpose of this meeting • Follow up on March 18, 2009 discussion of tools available for minimizing the increase: • Cost reductions – the focus of IPR2 • Risk mitigation tools – part of the rate case

  4. Power Rates Scenario Analysis Results • Scenario Analysis Results - Resulting Levels of PF Rate and Cost Recovery Adjustment Clause (CRAC) with various assumptions • Initial Proposal included: • Negative $91 million Power MNR for FY 2009 • Approximately $7.25 natural gas price forecast for FY 2010-2011 • Planned Net Revenues for Risk of $48 million • 60 percent likelihood of CRAC triggering in FY 2010 • 9.4 percent PF rate increase over current rates (before accounting for any CRAC or DDC) • The following scenario analysis assumes: • Load loss of 230 aMW resulting in lower augmentation costs but lower PF revenues • $5.25 natural gas price • $0 PNRR • Two different assumptions for FY 2009 Power MNR • Negative $250 million • Negative $350 million • Two different assumptions for costs • Initial Proposal program cost levels • $50 million reduction from Initial Proposal program levels • Two additional scenarios were done, one assuming $4 gas price in FY 2010-2011 and one assuming $7.25 gas price.

  5. Analysis

  6. Liquidity Tools Available for Power Rates – Update and Discussion • Expansion of Treasury Liquidity Facility • Flexible PF Rate Program 6

  7. Expansion of Treasury Liquidity Facility/Flexible PF Program • Treasury and BPA staff are working to expand the existing Treasury liquidity facility from $300 million to $750 million. • We are optimistic that this MOU amendment will be signed by the end of this month. • If we get this additional liquidity, the Flexible PF Rate Program may not provide much additional rate relief (depending on forecast gas prices). • We expect the Flexible PF Program will be more expensive to maintain in the next rate period than in the current period. • Given the likelihood of success with Treasury, we suggest suspending discussions on the Flexible PF until early May. • We could resume implementing the Flexible PF Rate Program for FYs 2010 and 2011 if the Treasury facility is not extended. • We believe we could have renewals in place by the end of June, if we start in early May. • If we need to implement the Flexible PF Rate Program, the final power rate proposal could proceed similar to 2006 with a range of CRAC thresholds based on potential outcomes of Flexible PF participation.

  8. Update on Efforts to Reduce Costs

  9. Update on Efforts to Reduce Costs • Comments at the March 18 meeting suggested the following areas be reviewed for potential additional cost cuts. Status updates will be provided for each. • BPA Internal Costs • Fish and Wildlife • Conservation • Energy Northwest • Corps of Engineers (including clarification of impact of Stimulus funds on costs) • Bureau of Reclamation • We will also note changes expected in Interest/Depreciation/Non-Federal Debt Service.

  10. BPA Internal Costs • See the Appendix of this package for a memo with details on FY 2009 cuts. • Highlights: • The Chief Operating Officer requested that all work units in the agency prepare new proposed budgets for the second half of the 2009 fiscal year, considering a 2 percent reduction in costs for the entire year, which potentially would mean a 4 percent reduction in expenses for the remaining six months. • The proposed budgets were evaluated for their impacts on the agency’s ability to accomplish its business goals. Most proposed budget reductions were accepted at the 2 percent level. Some budgets were reduced more than 2 percent; some were reduced less. The total reduction to BPA FY 2009 operating costs is 2.3 percent • Power Services costs are being reduced by $880 thousand, Agency Services by $7.2 million and Transmission Services by $3 million. • In addition, all employee and executive monetary performance awards have been eliminated for FY 2009. This reduction will mean an additional expense reduction for the Agency of approximately $6.8 million above the 2 percent reductions. • Together, the 2 percent and award reductions reduce FY 2009 costs by about $18 million. $6.3 million of these cuts impact the Power revenue requirement. The remaining $11.7 impact Transmission expense and capital costs.

  11. BPA Internal Costs • FY 2010-2011 Highlights: • The Chief Operating Officer requested that the agency review proposed operating budgets for FY 2010 and 2011. The primary emphasis was on reducing pressure on power rates through reducing costs directly in power services and making reductions in Agency Services costs that impact power rates through cost allocations. • Most organizations were asked to look for roughly a 7 percent reduction. • Organization have proposed cutting planned spending in a variety of areas such as: • Cutting Planned FTE • Cutting spending on activities such as Continuity of Operations Planning (COOP) and strategic planning • Reduced planned staffing for Regional Dialogue implementation through schedule process efficiencies and expectations of reduced BPA and customer resource acquisition • Reduced contract support for Residential Exchange Program • Cutting travel • The forecast of annual cost-of-living increases for FY 2010-2011 has also been reduced, consistent with the direction Federal guidelines appear to be going • Note that decreases to Agency Services costs are passed on to Power and Transmission rates through allocations, based on the nature of the agency services activities. In many areas the larger proportion goes to Transmission. • At this point, proposed reductions in both agency services and power are expected to reduce the power revenue requirement by roughly $10 million for FY 2010 and FY 2011, approximately a 7 percent reduction.

  12. Updates on Other Programs • Fish and Wildlife: As noted at the March 18 meeting, the Accord parties and BPA are working on an updated forecast for Accord spending for FY09 and FY10, and the update will be available at the close-out meeting. • Conservation: We are conducting a public process to determine what the Post-FY 2011 programs will look like. Because the structure has not been put in place, we do not know enough about the future program to determine if it is appropriate to reduce costs for FY 2010-2011. Regarding the question of whether some conservation can be paid for with stimulus funds, at this time, it is very unclear how stimulus funds will be used to achieve Energy Efficiency in the region. It appears that funds will flow through the states. Our understanding is that the stimulus funding is to be incremental and not used to offset existing program spending. If it replaces existing spending, it will not create additional jobs, etc. In addition, if and how utilities access those funds to augment their existing EE programs have not been defined.

  13. Updates on Other Programs (continued) • EN: Discussion at meeting • Corps of Engineers (including clarification of impact of Stimulus funds on costs): Discussion at meeting • Bureau of Reclamation: Discussion at meeting

  14. Interest, Depreciation and Non-Federal Debt Service • Interest, Depreciation and Non-Federal Debt Service are results of many factors, including capital investment levels, interest rate environment, and debt management decisions. They are determined in rate cases rather than IPR. • Preliminary forecasts were provided in the initial IPR2 materials. • The following elements are expected to change for the final rate proposal: • Interest credit (earnings on the Bonneville Fund) will be updated based on 2nd Quarter Review ending 2009 forecast • A new, lower interest rate forecast will be incorporated • An Energy Northwest refinancing that was completed at the end of March will be reflected • Any changes in capital forecasts for the rest of FY 2009 and for FY 2010-2011 will be incorporated

  15. Where Cost Forecasts Currently Are Compared to Initial Proposal

  16. Next Steps • The final IPR2 meeting is scheduled in the Rates Hearing Room on Monday, April 27, from 1:30 to 4:00 p.m. to follow up on topics discussed at this meeting. • The comment period for the IPR2 opened Wednesday, March 18, 2009. The Close of Comment period has been extended to April 29, 2008. • You have several options to provide comments to BPA: • Attend one or more of the scheduled workshops and give BPA your comments. • Discuss your input with your Customer Account Executive, Constituent Account Executive, or Tribal Liaison. • Submit written comments to Bonneville Power Administration, P.O. Box 14428, Portland, OR 97293-4428. • Submit comments via e-mail to: comment@bpa.gov or submit on line at: http://www.bpa.gov/comment. • Comments can also be sent via fax to (503) 230-3285.

  17. BPA’s Financial Disclosure Information • All FY 2009-2013 information is being provided in April 2009 and cannot be found in BPA-approved Agency Financial Information but is provided for discussion or exploratory purposes only as projections of program activity levels, etc. • FY 2009 Rate Case data has been developed for publication in rates proceeding documents and is being provided by BPA on April 9, 2009.

  18. APPENDIX

  19. Agency expense reductions for FY 2009 • Early in the second quarter, BPA executives began to anticipate the potential impact of the forecast runoff and energy market prices. At that time, Administrator Steve Wright sent a letter to all employees initiating actions to reduce agency costs. Those actions included a hiring slowdown, reduction in out-of-region travel and reductions in discretionary spending. As the economic climate continued to decline, Chief Operating Officer Anita Decker requested that all work units in the agency prepare new budgets for the second half of the 2009 fiscal year. Those budgets were to consider a 2 percent reduction in costs for the entire year, which would potentially mean a 4 percent reduction in expenses for the remaining six months. • The new proposed budgets were submitted to the COO so she could evaluate each one for its impact on the agency’s ability to accomplish its business goals. She accepted most proposed budgets reductions at the 2 percent level. A number of the organizations found potential reductions in excess of the requested amount. After review of the budgets she decided to reduce some more than 2 percent; some she reduced less. The final reductions exceeded the 2 percent goal, coming in at 2.3 percent. • Additionally, the COO, the Administrator and the Deputy Administrator agreed that all employee and executive monetary performance awards would be eliminated for FY 2009. Short of the agency achieving its start-of-year financial target, this will mean an additional expense reduction of approximately $6.8 million above the 2 percent reductions. • Summary tables on the next page show the areas in which the FY 2009 cuts were made and the amount of those cuts.

  20. SUMMARY OF THE 2 PERCENT REDUCTION EFFORT

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