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BPA: Ready for a New Act? by Daniel Jack Chasan Crosscut, February 20, 2009

Internecine squabbles over hydroelectric power in the Northwest might lead to a new Power Act,
possibly opening up the Columbia River system so that other states benefit, such as California.

In 2007, the 9th Circuit Court slammed the Bonneville Power Administration (BPA) for violating the 1937 Bonneville Power Act. The BPA had not given public utilities and cooperatives preferential access to the cheapest electric power, as the law required. Last year, the BPA imposed new rates that were lower for Public Utility Districts (PUDs), and higher for investor-owned utilities (IOUs). The IOU rates would enable Bonneville to start paying the PUDs back for six years of overcharges.

Is everybody happy? Of course not. Aggrieved utilities and manufacturers have filed petitions to the 9th Circuit challening the rates that Bonneville has imposed in light of the 2007 decision. Petitioners include Puget Sound Energy; PacifiCorp; Avista; Idaho Power; Weyerhaeuser; Georgia-Pacific; Grays Harbor Paper; Simplot; Longview Fibre; the Cowlitz County PUD; and the Oregon Public Utility Commission.

Tom Deboer, Puget Sound Energy's director of Federal and State Regulatory Affairs, explains that although there are serious disagreements, that's not the only point: If you want a seat at the table when negotiations start, you have to already be in court, so even if you're not that unhappy with Bonneville's decision - even if you figure the court has given Bonneville little choice - you'll probably sue early and often.

On Feb 11, Bonneville proposed new, higher rates to take effect later this year. Undoubtedly, most if not all of the usual suspects will sue over that too.

None of this comes as any great surprise. Last September, BPA Administrator Stephen J. Wright wrote that soon after the 9th Circuit shot down the settlement, "it was clear there would be a contentious discussion regarding the [Residential Exchange Program], which involves literally billions of dollars...this has been a very difficult undertaking," Wright said.

BPA rate arguments have always has a geographic component. Most people in Oregon get electricity from investor-owned utilities (IOUs). Most people in Washington do not. As a result, The Oregonian reported, Oregon "ratepayer advocates and the Oregon Public Utility Commission (PUC) are calling BPA's plans a massive transfer of wealth from Oregon to Washington." Also reported, Commission Chairman Lee Beyer said of BPA's move, "Our congressional delegation needs to revise the outdated Northwest Power Act so benefits can be distributed fairly throughout the region, not just a select number of utilities."

Do we really want to take a chance on revising the Power Act?

Oregon PUC spokesman Bob Valdez says yes. Valdez concedes that reopening the Power Act is potentially a can of worms, but insists: "We need to do that. The threat of a risk should not paralyze us into doing nothing." Valdez argues that the "premise [of the original Bonneville Power Act] doesn't really hold water" anymore. Back in 1937, PUDs and cooperatives got preference because developing the rural areas they served was a national policy goal. The BPA would bring the rural Northwest into the 20th century much as the TVA would jump-start the rural South. But that has already happened. Virtually no one milks by hand or reads by kerosene lamp anymore.

Valdez argues that it's time for a change. Nevertheless, "getting traction to do anything is getting increasingly difficult," he says. Every time politicians from other regions start looking covetously at cheap Columbia River hydro, the whole Northwest delegation puts its wagons in a circle to face the outside threat, and internal differences take a back seat.

Time has in fact marched on. Not only has rural development become a non-issue, but the implicit glue that held the 1980 legislative deal together has dissolved. As the Council's John Harrison - who is an historian of the Columbia River - explains, the legislation "fit a different set of circumstances." When the original concepts were taking shape "in Henry Jackson's kitchen, with his staff doodling on napkins," the idea - unspoken in the legislation but widely understood - was that the aluminum industry and the other "direct service industries," which bought large amounts of power from Bonneville, would pay for it.

For decades, they did. But in 2001, when 10 Northwestern aluminum smelters still used more than 3,000 megawatts a year to produce more than one-third of the nation's aluminum, the BPA decided not to renew their long-term contracts. By that time, BPA rates had risen so steeply that some aluminum companies had opted to buy power on the open market anyway, and the world economy had turned decisively against them. When the USSR collapsed, some old Soviet republics dumped huge stockpiles of aluminum onto the world market, driving down prices. And other nations, including China and Brazil, set up plants that produced aluminum for less money.

Foreign competition has increased dramatically since the start of the new century. Canada and Russia have both increased capacity by about one-third. China's capacity has quintupled. The Northwestern plants - many of them built in the 1940s - couldn't and can't compete. Now, the industry has at most a few potlines running in the Northwest. It doesn't generate enough money to pay for the residential exchange.

So yes, the original bargain embodied in the Act could use some rethinking. But once Northwestern representatives opened the legislation up to amendment, they might have no control over the results. Congress might force BPA to sell all that power on the open market at prevailing rates. BPA might stop financing regional programs of energy conservation. Or worse: The Northwest's regional nightmare has long been that other parts of the country would gain access to some of that hydropower, too.

And why not? It's all generated by a federally financed, built, and managed system of dams. Take away the legislation that channels benefits to the Northwest, and everyone else has as much right to it as we do. As Harrison points out, there are no transmission lines that could carry much power to population centers in the East or Midwest, but California is a different story. Down there, you have millions of people paying an average residential rate of 14.33 cents (the 2006 figure), while people in Oregon pay only 7.48, and those in Washington only 6.87. Idaho has the lowest residential rate in the country, at 6.21.

So yes, Washington is getting a better deal than Oregon, but both pay so much less than Californians that it might be wiser to let sleeping dogs lie.

The idea of revising the Power Act isn't new. "We've heard, over the years, that it's time to reopen the Power Act for ... fill in the blank," Harrison says. But revision "opens the door to all kinds of things." Once upon a time, the Pacific Northwest had so much Senatorial clout that it could be pretty confident about holding on to all its goodies, but "we don't have Henry Jackson, Warren Magnuson, Mark Hatfield any more." All in all, Harrison thinks, revising the Act is potentially a dangerous thing to do.