Coping with change: energy, fish, and the Bonneville Power Administration.

• Author: Johnson, Timothy A.

1. Introduction

   Hydropower and fish are strange bedfellows. For the Bonneville Power Administration (BPA), the Pacific Northwest's federal marketer of Columbia River hydroelectric power, they rest side by side. Once the cheapest power in the nation, Columbia River federal hydropower is no longer the bargain it once was.(1) By passing the Energy Policy Act of 1992,(2) Congress dramatically changed the electric utility industry with several deregulatory measures, including expanded access to BPA's transmission lines.(3) Small facilities, independent power producers, and other power suppliers now can market. power to BPA's traditional customer base, thereby exposing BPA to its first significant competition in over 50 years. While BPA power still costs less than most alternatives, the difference is narrowing.(4)

   At the same time, litigation involving endangered Columbia and Snake River salmon(5) threatens to force BPA rates higher.(6) Several different interests(7) challenged two separate federal fish recovery plans aimed at changing current hydrosystem operations. The first recovery plan(8) is a "regional" plan developed pursuant to the Pacific Northwest Electric Power Planning and Conservation Act of 1980 (Northwest Power Act).(9) This Act requires BPA to balance two conflicting goals: It must operate in a manner that protects, mitigates, and enhances fish and wildlife(10) while "assur[ing] the Pacific Northwest of an adequate, efficient, economical, and reliable power supply."(11) The second recovery plan(12) stemmed from federal action taken pursuant to the Endangered Species Act.(13) Implementation of either plan will increase BPA's costs through foregone hydroelectric revenue and the need for replacement capacity and energy resources. Under BPA's statutory rate scheme, these costs must be passed through to customers.(14) Thus, BPA finds itself in a Sisyphean struggle to remain competitive in the deregulated electric utility industry and yet remain faithful to both the fish and wildlife and energy mandates of the Northwest Power Act.(15)

   Today's market competitiveness has led many large corporations to downsize, and BPA is following this trend.(16) However, BPA must continue to meet its statutory responsibilities, which cost billions of dollars. BPA's customers and their consumers must pay all costs necessary to produce, transmit, and conserve resources, including amortization of the federal investment in the Federal Columbia River Power System,(17) the bonds issued to pay for the construction of three nuclear power plants,(18) and the rising cost of fish preservation.(19) Reinventing itself as a competitive utility presents a serious challenge to BPA. Some observers doubt that BPA can continue to pay the rising costs of fish protection measures,(20) and uncertainties over BPA's future costs are leading some BPA customers to conclude that BPA may soon lose its position as a competitive power provider.(21)

   As the region looks to BPA for continued funding of fish recovery programs, BPA must become financially strong, with its long-term costs predictable and under control. In developing this theme, Part II summarizes BPA's changing role in the utility marketplace from BPA's formation in 1937 to the present challenges posed by deregulation. With this foundation in mind, Part III discusses two cases, Idaho Department of Fish & Game v. National Marine Fisheries Service(22) and Northwest Resource Information Center, Inc. v. Northwest Power Planning Council,(23) which involved challenges to controversial fish recovery plans that impact federal hydroelectric system operations. Part IV analyzes the cases' impact on BPA's competitiveness, explaining BPA's response, and discussing several measures being considered in Congress and by the Administration.

2. BPA's Evolving Role in the Power Market

   1. Formation

      BPA is a product of the Great Depression and President Franklin D. Roosevelt's "New Deal."(24) A foremost New Deal policy objective was the delivery of low-cost power to a wide range of consumers, with federal water development projects serving as a "government yardstick" by which to measure private utility rates.(25) In the Pacific Northwest, President Roosevelt's power policies took shape in 1933 when construction began on both the Bonneville and Grand Coulee dams.(26) It was not until 1937, with the Bonneville Dam nearing completion, that Congress and President Roosevelt compromised on such issues as facility management, transmission, power marketing, rate policies, and other important matters.(27) This compromise was embodied in the Bonneville Project Act,(28) which assigned operational responsibilities for the dam to the Army Corps of Engineers and created BPA to market all power generated by the Bonneville Dam, construct and operate transmission facilities, negotiate power contracts, and propose rate schedules.(29) The Bonneville Project Act incorporated several New Deal policy objectives, including: 1) encouraging the widest possible use of energy generated and marketed by federal projects;(30) 2) preventing monopolization of electric transmission lines and facilities by private power distributors;(31) 3) ensuring benefits to the general public, particularly when and domestic consumers;(32) 4) granting preference and priority to public and cooperative systems;(33) 5) establishing an equitable distribution of electric energy by maintaining reasonable rate schedules;(34) and 6) preserving the preferential rights of public utilities by reserving the right to cancel a private purchaser's contract.(35)

   2. The War Years to the Transmission Act

      BPA's role in the Pacific Northwest grew significantly during World War II. With much of the nation suffering from a power shortage, the Pacific Northwest, particularly when Grand Coulee Dam began operating, enjoyed a power surplus.(36) In 1940, President Roosevelt, by Executive Order, granted BPA authority to market Ground Coulee's power.(37) This set the stage for BPA's later role as the power marketer for all federal hydroelectric projects in the region.(38) The war years also saw BPA's transmission grid grow from only 142.3 circuit miles on July 1, 1940, to 2,736.8 mile on June 30, 1945.(39)

      Following the war, BPA faced a significantly reduced load demand caused largely by a slowdown in industrial production.(40) BPA managed to offset half of its million kilowatt surplus in 1946 by selling a block of power directly to the revived Pacific Northwest aluminum industry.(41) By 1948 there was a power shortage, and BPA required all future contracts with aluminum and other direct service industrial (DSI) customers to include a portion of interruptible power.(42) In time, all sales to DSIs were to be of interruptible power.(43)

      In the 1950s, the Eisenhower Administration refused to approve any new federal power projects.(44) However, projects previously authorized were completed and BPA's transmission system expanded to 8,028 circuit miles.(45) Meanwhile, private utilities continued to expand their generating capacity. Faced with having to construct their own transmission lines, private utilities sought access to BPA's surplus transmission capacity. BPA was receptive, in part, because power transmission for another party, a concept known as "wheeling," promised to generate new revenues.(46) Although there was no direct congressional authority for BPA to wheel power, legal opinions by the Regional Solicitor in 1956 and 1957, along with implicit congressional consent found in a 1957 appropriations bill, encouraged BPA to proceed with wheeling contracts.(47)

      By the late 1950s, imminent power shortfalls, due primarily to increased industrial sales, sparked an interest in expanding system capacity by regulating streamflows. However, effective streamflow regulation was not feasible without Canadian cooperation. After years of negotiations, the United States and Canada finally signed the Columbia River Treaty on January 17, 1961,(48) which doubled the Columbia River Basin's storage capacity and increased downstream productive capacity by about 1,900 megawatts.(49) The Treaty entitled British Columbia to power generated by the Treaty projects, but the Province did not need the power.(50) Instead, British Columbia sold its entitlements to the Columbia Storage Power Exchange, which, in turn, sold the entitlements to public and private utilities.(51) These utilities then transferred the entitlements to BPA in exchange for firm power.(52) In effect, therefore, BPA ended up marketing the additional power resulting from the Treaty.

      Concerned with potential future power surpluses, BPA sought to service both California and Arizona through a regional agreement known as the Pacific Northwest-Pacific Southwest Intertie.(53) However, BPA could not proceed without direct congressional authorization, which was not forthcoming until the Northwest Regional Preference Act of 1964.(54) Although this Act authorized BPA power sales to the Southwest, it gave preference rights to Pacific Northwest customers, effectively allowing BPA to sell only surplus power to the Southwest.(55)

      By the late 1960s, however, power shortfalls seemed imminent. BPA and regional utilities responded with the Hydro-Thermal Power Program, which sought to expand regional power generation by installing additional hydroelectric generators and encouraging construction of seven thermal plants, including the Trojan Nuclear Plant and Washington Nuclear Plants (WNPs) 1, 2, and 3.(56) Because BPA did not have congressional authority to construct the plants itself, BPA originally relied on a financing scheme known as "net billing".(57) Under net billing arrangements, public utilities constructed the plants and BPA contracted to purchase a specified percentage of power production at a rate tied to the utilities' financial obligations in the plants.(58) Since these utilities were BPA customers, BPA paid for the power by crediting the...