Bonneville Power Administration, history

The Bonneville Power Administration, or at least the idea for it, dates to the trust-busting public sentiment of the 1920s and President Franklin Roosevelt’s New Deal of the 1930s, an era when electricity production and distribution were controlled by private utilities. It was not uncommon at the time for urban areas to be fully electrified but adjacent rural areas to be without power. That was because utilities found it prohibitively expensive to run their poles and wires to the rural areas, where there were fewer customers per mile to pay for the service. Roosevelt and others who promoted rural electrification envisioned power flowing to the rural areas, particularly farms, where it would be provided at the same cost as in urban areas. That is, everyone would pay a slight premium so that all could enjoy a single rate — a “postage stamp” rate. The concept is borrowed from one-price postage stamps, which will deliver a letter across the street or across the nation.

Roosevelt promoted hydropower developments in New York when he was governor in the 1920s. As a presidential candidate in 1932, and later as president, he promoted the concept of large, federally financed hydroelectric developments in several of the nation’s river basins.

Following the creation of the National Resources Planning Board in 1933, regional planning commissions were formed in 1934 to investigate comprehensive river basin planning. Among these was the Pacific Northwest Regional Planning Commission with one representative each from Idaho, Montana, Oregon, and Washington — the chairmen of the also newly created state planning boards. The commission’s report, dated Dec. 28, 1935, suggested an independent federal agency be created to market the power from Bonneville and Grand Coulee dams. The agency would be modeled after the Panama Canal Company. It would both operate the generators and build and operate the regional transmission lines. The commission recommended that power be sold for its cost of generation, not at a market rate, and that preference be given to public utilities for the federal power.

Roosevelt was particularly interested in the Columbia River. He had a large role in ensuring that Congress funded the construction of Bonneville Dam (map). When Congress balked at Grand Coulee Dam over whether it was needed and its cost, Roosevelt used his authority under the National Recovery Act to provide the initial appropriation. Thus started, construction continued under subsequent Congressional appropriations (construction began at both dams in 1933; Bonneville was completed in 1938, Grand Coulee in 1941).

Congress approved the Bonneville Project Act, which included the Commission’s key recommendations, and Roosevelt signed it into law on August 20, 1937. The Act stipulated that the new power agency would market and transmit power from federal dams and “... give preference and priority in the use of electric energy to public bodies and cooperatives.” It was intended to be temporary until a regional power authority could be created. The Tennessee Valley Authority was a much-cited model, but despite multiple efforts, a Columbia Valley Authority never was created. The Bonneville Power Project was renamed the Bonneville Power Administration in 1940.

Bonneville, Oregon, the site of the dam, was a popular picnic area and railroad stop on the southern shore of the Columbia River in eastern Multnomah County, Oregon. The railroad station had been named for Captain Benjamin L.E. Bonneville, western explorer of the 1830s and hero of Washington Irving’s The Adventures of Captain Bonneville.

Roosevelt named James Delmage Ross as Bonneville’s first superintendent in October 1937. Ross, who also had been a Roosevelt appointee to the Securities and Exchange Commission, was a strong advocate of public power. He had been the superintendent of Seattle City Light, the region’s largest municipal utility, and he long had opposed private power companies’ monopolies of electricity service. Under Ross, Bonneville’s rates were set low and nearly uniform across the region in order to encourage greater use of electricity throughout the Bonneville service territory. Electricity from Bonneville Dam would help the region grow and its people prosper in the wake of the Depression, Ross believed. In a pamphlet issued by Bonneville in 1938 not long after he was appointed administrator, Ross commented: “Thomas Jefferson’s dream of a ‘a great, free and independent empire on the banks of the Columbia’ can come true. Our broad acres can be a haven of happiness for the millions of Americans whose eyes are turned westward to the Pacific.” Paul Raver, who succeeded Ross in 1939, told a radio interviewer in Portland that Bonneville Dam, and the Bonneville Power Project, were just the start of a regional development strategy. “In my judgment,” Raver said, “the future of the entire Pacific Northwest is tied up with the development of that river.”

Rural electrification is Bonneville’s most important legacy. Administrator Ross obtained $10.75 million in 1938 from the Rural Electrification Administration to build transmission lines linking Bonneville Dam to Vancouver, The Dalles, Eugene and Aberdeen, and eventually to Grand Coulee Dam. Under Raver, Bonneville and the REA helped citizens form electric cooperatives and public utility districts. It was a successful effort. Within three years, more than 30 public utilities had been formed in Washington, Oregon, and Idaho serving more than 40,000 customers in rural communities and on farms.

Over time, the agency zealously pursued its mission in the Bonneville Project Act to broadly distribute the benefits of the federal hydropower system in the Northwest. Bonneville was so successful that by the 1960s its power supply was strained. In response, in 1966 Bonneville and 109 of its customers formed the Joint Power Planning Council, which in 1968 recommended a $15 billion, 20-year Hydro-Thermal Power Program to build new thermal power plants (primarily nuclear), new dams, and new transmission lines. By 1969, the estimated cost of this effort had risen to $17.9 billion ($6.1 billion of the total would come from the federal government, and the remainder would come from participating utilities.).

Some of the plants envisioned in the Joint Council’s plan were built, including coal-fired plants in Wyoming and at Centralia, Washington, and the Trojan Nuclear Plant on the Columbia River north of Portland. Bonneville shared in the output of these plants. Other plants, however, never got off paper or were started but not completed. Bonneville continues to pay debt service on bonds that were sold to build three nuclear plants, all in Washington state. Only one was completed. In 2003, the debt totaled $6.2 billion.

Bonneville’s advocacy of nuclear power in the 1970s increased public awareness of the agency. Historian Richard White says that for most of its existence Bonneville could be described in a word: boring. In a sense, that is a compliment in that Bonneville went about its business of providing reliable electric service from the federal hydropower system at the cost of its production, which is to say cheap. Reliable, low-cost electricity does not generate a lot of attention or controversy.

The boring era faded in the nuclear era when  Bonneville’s policies and expenditures came under increasing scrutiny. Toward the end of the 20th century and into the first years of the 21st, the expenditure issue that attracted the most attention was fish and wildlife recovery, even though it accounts for only 4 percent or less of Bonneville’s annual spending. The salience of the fish issue cannot be understated. In the Pacific Northwest, where environmental quality is prized, the same dams that provide clean, renewable energy also affect the fish and wildlife that comprise one of the cultural icons of the region. In green Ecotopia, or so the Northwest is perceived by many outside the region, the not-so secret truth is that when we turn on the lights something awful happens: in the words of Nisqually Indian leader Billy Frank, Jr., salmon come flying out.

In 1980 Congress made this Bonneville’s problem in the Pacific Northwest Electric Power Planning and Conservation Act. Under the Northwest Power Act, Bonneville’s administrator is required to repair the damage done to fish and wildlife of the Columbia River Basin by hydropower dams. Bonneville does this by implementing the Columbia River Basin Fish and Wildlife Program developed by the Northwest Power and Conservation Council. Between 1981, when the Council adopted its first fish and wildlife program, and 2005 Bonneville spent more than $8 billion to implement the fish and wildlife program. More than half of the total is the value of lost hydropower generation and power purchases that resulted when Bonneville ran water through dams to aid fish passage and was not able to use the water to generate power. Bonneville calculates the value of the lost hydropower, and the value of subsequent power purchases, and charges these against its fish and wildlife program as expenses.

The program has yielded benefits in protected and restored habitat for both anadromous and resident (non-oceangoing) fish, innovative hatchery programs for anadromous and resident fish, innovative harvest programs to protect the weakest salmon and steelhead runs, and improved passage at dams for juvenile and adult fish. Despite impressive run sizes in the first few years of the 21st century, the salmon and steelhead runs remain far below the 10-16 million fish that are estimated to have returned to the Columbia annually prior to about 1850 (the Council reports annually to the Northwest governors on Bonneville’s expenditures to implement the Council’s fish and wildlife program; these reports, which also include information on annual returns of salmon and steelhead to the Columbia River Basin, are posted on the Council’s website).

The Power Act also directed Bonneville to meet its future demand for electricity through a combination of renewable and non-renewable energy sources. Of these, the Power Act gave special importance to energy conservation. Prior to 1980, Bonneville already had begun to pursue energy conservation, but the Act gave the work added importance.

Bonneville entered the 21st century accompanied by an odd sense of deja-vu as events conspired to convince many of Bonneville’s closest observers that the best future role for the agency might be to finally abandon its expansionist mission and return to its roots, selling the output of the federal system and letting its customers worry about growth in demand for power. Through the middle and late 1990s, a robust competitive wholesale electricity market developed. Bonneville, as a federal agency with many demands on its financial resources, ranging from those who wanted Bonneville to increase its spending on renewable resources to those who wanted more spending on fish and wildlife recovery, found it difficult to compete.

To address the future role of the federal agency in a competitive electricity marketplace, in 1996 the governors of the four Northwest states appointed a committee of more than 20 individuals representing utilities, government entities and environmental organizations. After a year of study, public hearings and sometimes heated discussions, the committee recommended that Bonneville avoid the volatility of the marketplace by selling its power through long-term subscriptions and reduce its exposure to the wholesale energy market. Bonneville, however, faced with uncertainty from a rapidly changing energy industry and endangered salmon listings, did not fully implement the recommendations. As market prices dropped, some customers left Bonneville. Bonneville sought internal cost reductions to make its power prices more competitive. The same year, 1996, Bonneville also signed a memorandum of agreement with other federal agencies and the administration of President Bill Clinton to provide stable funding for fish and wildlife recovery for a period of six years, through 2001. When the next five-year rate period began in 2001, some customers signed contracts for as short as three years and others for as long as 10.

Then, ironically, many of the customers who left Bonneville came back during the energy crisis of 2000 and 2001,when market prices shot up to 10 and 20 times normal. Bonneville, now oversubscribed by 3,000 megawatts, spent its cash reserves quickly on market power — in 2001 alone, Bonneville spent nearly $3 billion to buy power on behalf of its customers. By 2003, Bonneville had raised its rates three times to recover its financial health. Thus within seven years, 1996-2003, Bonneville went from being overpriced compared to the market and concerned about keeping customers, to being underpriced and worrying about having to serve too many customers, to a financial crisis caused by its exposure to the wholesale market and, finally, to imposing rate increases to recover. After those experiences, Bonneville and its customers agreed that changes were needed. Agreement was not so forthcoming, of course, on what to do.

In 2002 a majority of Bonneville’s customers agreed on a set of principles for the future of the agency. The customers proposed that rather than meet all of the demand for power placed on it by its customers, Bonneville should sell shares of the federal system output. Each customer would own a “slice of the system,” as the concept came to be known. This would shift the risk of shortages and the benefit of surpluses to the customers, reduce Bonneville’s market exposure and, as a result, reduce the agency’s financial risk from high market prices. Bonneville’s legal obligations, such as acquiring energy conservation and mitigating the impacts of hydropower on fish and wildlife, would remain unchanged. Bonneville did not immediately endorse the proposals, but did not reject them either. Bonneville and the Northwest Power and Conservation Council conducted a series of public meetings around the region to listen to comments on the proposals, and these generally were positive. Bonneville signed slice contracts with several of its customers, and that type of contract remained an option for the future.

Bonneville and its customers continued to explore ways to reduce the agency’s costs. In 2005, Bonneville initiated the Power Function Review to publicly discuss options for its rate structure in the 2007-2009 rate period and beyond. The two phases of the Power Function Review identified an estimated $122 million per year in savings for the rate period. In a separate effort that came to be known as the Regional Dialogue, Bonneville and the Council explored ways to reduce Bonneville’s exposure to the wholesale market while meeting the agency’s statutory requirement to sell its power first to public utilities. The result, which will be put into practice in power sales contracts after 2011, is that Bonneville will sell the output of the federal system to its customers but will not buy additional power for them unless specifically requested to do so. If customers don’t ask Bonneville to buy market power for them, the customers will be responsible for securing the generation or conservation resources necessary to meet their future load growth. In a sense, this will return Bonneville to its New Deal roots, selling the output of the federal power system at cost to public utilities.

Born during the Depression and directed by law to broadly distribute not-for-profit electricity, Bonneville was the agent of enormous change in the Northwest. Power for industries, power for farms, power for aluminum that helped win World War II, power that made people’s lives and livelihoods better. Bonneville’s forecasts of future energy demand in the 1970s proved to be inflated, and events conspired to tarnish the ambitious, if controversial, promise of the Hydro-Thermal Power Program and leave a legacy of debt for uncompleted nuclear power plants. Energy deregulation in the 1990s forced Bonneville into the unusual and awkward position for a federal agency of having to compete against others, including some of its own customers, to purchase electricity to meet its demand. Bonneville’s nightmare experience in the 2000/2001 energy crisis alerted the agency and its customers that it was time to think about fundamental changes, changes that would return Bonneville to its historic roots and shift a large share of the financial risks of power supply to its customers. It is impossible today to return to the comparatively simple tasks of the 1940s, given that the modern Bonneville has responsibilities that range from providing electricity to protecting fish and wildlife, including endangered species.

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