Restructuring the Northwest power system.

• Author: Hemmingway, Roy
• Position: The Second Annual 'Who Runs the River?' Colloquium

I want to address the Bonneville Power Administration (BPA) and the institutions that run the Columbia River, because those institutions will have more to say about what happens to the future of Columbia Basin salmon than anything else. This subject involves regional power markets and the enormous changes that have put us in a situation today in which we must think radically about the future of the federal power assets in the Pacific Northwest.

BPA has been in existence for nearly sixty years. It has gone through a series of changes over the years, but it has basically continued to serve a set of utility customers as well as direct service industries, mostly aluminum companies. BPA also sees surplus power primarily on a short-term basis to either the investor-owned utilities in the Pacific Northwest or utilities in California and the Pacific Southwest.

Now BPA's costs are such that it no longer has a great advantage in the marketplace over other suppliers, particularly on a short-term basis. Why has this happened? It is a long story. From a legal standpoint, it began with the Public Utility Regulatory Policy Act of 1978,(1) which allowed non-utility competitors to compete in the market place. It continued through the Energy Policy Act of 1992,(2) which allowed larger entities to enter the marketplace as independent power producers and obtain access to the transmission grid. And now it is manifested through the efforts of the Federal Energy Regulatory Commission to allow more competition and more openness on the transmission grid as a common carrier,(3) similar to what has happened in the natural gas system.

As a result of industry deregulation in the 1970s and 1980s and some other technology factors, we find that the price of natural gas has continued to drop. When I was a regulator with the Oregon Public Utility Commissioner's office in the late 1970s, natural gas was considered so extremely valuable that a federal law was passed that prohibited its use to generate electricity.(4) But it now is the preferred fuel of choice for generating electricity, because it is so plentiful and inexpensive. Today the variable cost of electricity from gas put through a turbine is about one cent a kilowatt hour. If you are looking for bargains in the power market, the ultimate bottom of the market is this ten mils, or one cent a kilowatt hour. If somebody has a generator and access to a transmission grid, and he is merely trying to recover the costs of generation - that one penny gas and its transmission, which may be about three mils - if they can sell that power for fifteen mils, they can do so at a profit. We now have a market floor of thirteen to fifteen mils - an unbelievable change from what we were facing only a few years ago, when we thought that the floor was somewhere in the range of twenty-five to thirty mils.

BPA, which has a set of fixed costs that it largely cannot control, finds itself in competition with these gas generators. Now, BPA should be in the driver's seat because it has the cheapest power in the western world. It has all of those advantages that Al Alexanderson laid out.(5) It has free dam sites; it...