Residential and small-farm customers of Spokane-based Avista Corp. could see a reduction in their utility bills beginning this spring if a proposed settlement of a longstanding dispute between Avista and the Bonneville Power Administration is approved.

Avista representatives say the company has reached the proposed settlement with BPA over a balancing-account issue related to Avista's 1981 residential exchange program contract with the federal power-marketing agency that expired 20 years later.

Though the issue is complex, Avista spokesman Hugh Imhof says, "The bottom line is we will get an annual benefit of about $10 million for 2009," as opposed to a previously announced $2.3 million, with similar amounts anticipated each year over the foreseeable future. What it will mean for customers, he says, is a reduction on their bills of probably around 3.6 percent reduction.

That's assuming the BPA approves the settlement. The agency was accepting public comment on the tentative agreement through today, Feb. 26, and—barring objections that might delay the process—is expected to issue a record of decision on the matter around the end of March. If that timetable holds up, Avista customers likely would see the agreement reflected in their bills in May, company representatives say.

"We wanted to get a better deal for our customers, but feel like it was a reasonable settlement of the issue," says Larry La Bolle, Avista's director of regional and federal affairs.

The narrowly focused dispute, involving what the BPA calls a "deemer account" balance, is separate from a broader dispute Avista and other Northwest investor-owned utilities are pursuing in federal court over a BPA decision issued last fall. That decision dramatically cuts the financial benefits those utilities' ratepayers receive through access to cheap Columbia River hydropower the agency markets.

Also, the possible reduction in electrical rates is separate from a $37.3 million general electric and natural gas rate increase that Avista was granted, effective Jan. 1, by the Washington state Utilities and Transportation Commission, and which the public counsel section of the Washington state attorney general's office is appealing. That hike amounted to an average 9.4 percent increase for electricity and an average 1.7 percent increase for gas for Washington customers.

Avista's broader dispute with the BPA revolves around other aspects of the BPA-managed residential exchange program, under which public and investor-owned power providers share access to Columbia River hydropower, equating to hundreds of millions of dollars worth of electricity a year.

Federal law requires that the power be made available preferentially to public utilities, many of which have little or no generating capacity of their own. The investor-owned utilities, though, also benefit from it—in the form of payments from public utilities, disbursed by the BPA—and pass those benefits on to their residential and small-farm customers as a credit on monthly bills.

The central issue, and which has stirred nearly continuous legal battles in federal court over the last several decades, has been how best to divvy up those benefits.

Avista said BPA had projected last year following its latest ruling that the Spokane utility would receive a residential exchange program benefit of $23 million this year, and it was forced to raise its rates after the benefit came in at $2.3 million. The current envisioned increase in that benefit, to about $10 million, would partially reverse that rate increase.

Part of the reason Avista's benefit came in far lower than originally projected was because BPA subtracted from it a partial repayment for an outstanding $85.6 million "deemer" account balance that Avista still has pending from the 1981 contract.

Deemer accounts are based on the realization that while the goal of the residential exchange project is to provide rate relief to residential and small-farm customers served by high-cost utilities, there are times when a utility's cost of energy resources can be less than the BPA's costs. In that case, rather than reversing the money flow and paying benefits to BPA, utilities are allowed contractually to "deem" their costs equal to BPA's costs. The sums of money they otherwise would have to pay the BPA then are recorded in a deemer account, with the understanding that if the utilities' energy costs eventually once again become higher than BPA's costs, those negative account balances have to be extinguished—or "zeroed out"—before financial benefits once again can flow from BPA to the utilities.

The problem under the old contract was that utilities couldn't opt out of the arrangement, so Avista was forced into accumulating deemer balances that far exceeded the benefit it received. Avista's benefit was $7 million, received in 1982 and 1983, yet its deemer account balance soared to a peak of $101 million, La Bolle says.

The proposed settlement with BPA would reduce Avista's current outstanding deemer account balance from the previously mentioned $85.6 million, the bulk of which is charged prime-rate interest that has accumulated on a $39.3 million balance over the last 22 years, to $55 million.