Assessing the Bonneville Power Administration’s Financial Vulnerability to Hydrologic Variability
Publication: Journal of Water Resources Planning and Management
Volume 148, Issue 10
Abstract
Hydrologic variability can cause large swings in hydropower generation, inducing significant volatility in power sales. Dry years often result in low revenues that can threaten a hydropower supplier’s ability to meet its fixed costs, leading to budget shortfalls, lower credit ratings, higher interest rates, and, ultimately, higher rates. This is particularly true for suppliers in hydropower-dominated regions, such as the Bonneville power administration (BPA). The BPA strategy for managing its hydrologic financial risk is multilayered, involving cash reserves, a line of credit, and tariff adjustments. Yet, compared to its long-term energy contracts and debt service, BPA’s risk assessment is conducted on a short-term basis, thereby neglecting medium- and long-term temporal dynamics impacting their financial risk. This paper focuses on (1) evaluating BPA’s hydrologic financial risk; and (2) testing the effectiveness of BPA’s existing risk management strategy. Results suggest that BPA’s financial risk will grow substantially over the next 20 years as its risk management tools become increasingly inadequate, providing cautionary lessons for organizations in similarly hydrodominated systems despite the current use of common risk management tools.
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Data Availability Statement
Some or all data, models, or code generated or used during the study are available in a repository or online in accordance with funder data retention policies. The data that support the findings of this study were derived from resources available in the public domain at www.bpa.gov. All code and data required to run the CAPOW model, as well as some documentation of the model, are available at https://github.com/romulus97/CAPOW_PY36 under the MIT free software license. All code and data required to run the BPA business operational model are available at https://github.com/S-Denaro/BPA_Busi_Op under the MIT free software license.
Acknowledgments
This work was supported by the National Science Foundation’s Innovations at the Nexus of Food, Energy and Water Systems (INFEWS), Award No. 1740082, and the UNC Institute for the Environment.
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Journal of Water Resources Planning and Management
Volume 148 • Issue 10 • October 2022
Copyright
© 2022 American Society of Civil Engineers.
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Received: Nov 1, 2021
Accepted: May 2, 2022
Published online: Jul 18, 2022
Published in print: Oct 1, 2022
Discussion open until: Dec 18, 2022
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