Fourth Power Plan
Chapter 8: The Future Role of the Northwest Power Planning Council
The Council was established to respond to a very different world than
the region faces today. Some of the Council's past roles are less
important, or even unnecessary, in this new world. Other roles seem to
have continuing relevance during the transition to a new industry
structure and, possibly, beyond.
In developing this draft power plan, the Council faced challenges that
are far more significant than any it has faced in the past. Technological
and regulatory changes are sweeping the energy industry and are certain to
affect the industry's basic structure. To the extent that effective
electricity markets can be facilitated, the Northwest stands to gain
greater economic efficiency in its power system more quickly than could be
accomplished by regional planning. Regulation and planning are, at best,
approximations of what can be achieved by a well-functioning market. Thus,
the focus of this plan is on understanding the coming changes, explaining
them to the public, and opening a discussion of ways that the region might
facilitate an orderly transition to an effective competitive market.
At the same time, new approaches need to be identified to achieve some
of the goals of the Northwest Power Act that may not be achievable in a
competitive marketplace. Energy efficiency, renewable resource development
and environmental protection are all goals of the Act that are unlikely to
be strongly supported by a competitive industry.
8-A. Goals of the Northwest Power Act
As the Pacific Northwest Electric Power Planning and Conservation Act
(the Act) was being debated, it was thought that the region was facing
impending power deficits. The resources that utilities planned and began
to build to meet those deficits were large, expensive, environmentally
controversial and took many years to site and construct. Those on which
construction was begun had the consequence of raising power rates from the
federal system by more than 500 percent, even though most were never
completed.
The Power Act put in place an ambitious experiment in regional
planning. It was a balancing of interests that integrated power
generation, system reliability, environmental concerns, energy efficiency,
and the costs of new and existing resources. It sought to involve the
public in making decisions about the composition of electricity resources
that would meet the region's future electricity needs.
The specific purposes of the Act are, among others:
- To encourage conservation and efficiency in the use of electric
power;
- To encourage the development of renewable resources;
- To assure the region of an adequate, efficient, economical, and
reliable power supply;
- To provide for the participation and consultation of the states,
local governments, consumers, customers, users of the Columbia River
system and the public at large in:
? the development of regional plans and programs related to energy
conservation, renewable resources, other resources, and protecting,
mitigating and enhancing fish and wildlife resources;
? facilitating the orderly planning of the region's power system;
? providing environmental quality; and
? the protection, mitigation and enhancement of the fish and
wildlife, and their habitat, of the Columbia River Basin.
To carry out the power-related purposes of the Northwest Power Act,
Congress gave the Council explicit responsibilities. The Council is to
develop and periodically revise a regional, long-term conservation and
electric power plan. That plan is to incorporate:
- Priority for cost-effective resources with first priority given to
conservation, second to renewable resources, third to resources using
waste heat or that have high conversion efficiency, and fourth to all
other resources;
- An energy conservation program including model conservation
standards;
- Recommendations for research and development;
- A methodology for determining quantifiable environmental costs and
benefits;
- A demand forecast of at least 20 years and a forecast of the
resources required to meet Bonneville's obligations;
- An analysis of reserves and reliability requirements; and
- The Columbia River Basin Fish and Wildlife
Program. [ 16 USC ?839 b(e)-(f).]
In developing this plan and in regional power policy generally, the
Council is to ensure "widespread public involvement." [ 16 USC
?839 b (g).]
The acquisition of conservation and other resources by the Bonneville
Power Administration is to be consistent with the Council's plan.
The Council can choose to subject proposals for major resources (over 50
megawatts for five years or more) to a test of consistency with its plan.
If the Council finds a resource inconsistent with its plan, and Bonneville
still wishes to acquire it, the administrator must get specific
congressional authorization. [ 16 USC ?839 d(c).] This is the Council's
most important authority over Bonneville's resource acquisition, and
even this authority is indirect.
When the Act was passed, it was anticipated that Bonneville would back
the acquisition of resources for the whole region ? for investor-owned
utilities as well as for publicly owned utilities. As a consequence,
although the authority of the Council's planning is limited to
Bonneville, it was anticipated that it would influence the resource
acquisitions of investor-owned utilities. As it turned out, investor-owned
utilities did not place significant loads on Bonneville. Nonetheless, the
adoption of integrated resource planning rules by the region's state
utility regulators and the involvement of the Council in the development
of utility integrated resource plans meant that the Council has had
significant influence beyond the limits of its direct authority.
8-B. The Council's Power Planning Innovations
The region's first electricity plan was completed by the Council in
April 1983, just a year and a half after the Council was formed. That
first plan was probably best known for its planning innovations. The 1983
plan set the standard for utility least-cost integrated resource planning.
In it, the Council developed a number of planning methods that continue to
be prominent in utility integrated resource planning today.
- The Northwest's power plans are developed from the perspective of
the entire regional society. The costs that the plans sought to
minimize were all costs of power, whether paid by utilities,
their customers, or environmental costs that are not actually paid in
dollar terms.
- The planning process relies heavily on the participation of both
direct stakeholders and the general public. Advisory committees
provide a means for interest groups to provide input to and review the
work of the Council and its staff. Extensive public hearings provide
the opportunity for the public to review and influence the directions
of the Council's plans.
- At the heart of integrated resource planning is the consistent
evaluation of both generating resources and improved efficiency of
energy use. The Council fully integrates efficiency resources into the
planning process. Conservation supply estimates are developed to be
consistent with energy demand forecasts. Conservation resources
compete directly with generating resources in developing a least-cost
mix of choices. The costs of resources, both supply-side and
demand-side, affect the forecasted price of, and demand for,
electricity.
- The Council's plans focus on the inherent uncertainty of the
future. In the Council's first plan, there was no medium or
best-guess forecast of future electricity use, but rather a range of
four forecasts with an assumed probability distribution. This focus on
uncertainty shifts planning objectives from meeting a best-guess
forecast of electricity requirements to developing a risk-averse
strategy for meeting an uncertain future requirement.
- The concept of resource "options" was introduced as an
important opportunity to reduce the lead time of electricity resources
and, thus, help respond to uncertain future resource needs without
making huge investments in new power plant construction. The most
familiar form of an option would be a pre-designed and pre-sited power
plant, that is not completed until the time the plant is needed. This
concept was ground-breaking in an era when the lead time for new
generation was as long as 10 years.
- An "action plan" was included to chart an explicit course
for the plan's implementers to follow for the first couple of years
following the plan's adoption. The action plan is critical to
achieving the goals of the plan, and it provides a means of tracking
progress and identifying problems.
8-C. The Future Role of the Council
The Council's direct authority over the operation of the region's
power system has always been limited, and is likely to be applied even
more rarely in the future. For example, if Bonneville is not acquiring new
resources, the Council's review authority under the Act will never be
exercised. Bonneville currently has a surplus of electricity. As a
consequence, it may not be acquiring resources in the near term. Any
guidance the plan provides for Bonneville's resource acquisition is thus
essentially moot for the time being.
In the past, the Council's plans have not relied on regulatory
authority for their impact. With respect to the region's investor-owned
utilities, the role of the Council's plan has always been indirect and,
at best, limited. Wholesale competition and the potential for retail
competition appear to be weakening what have been the primary vehicles for
Council influence ? the state utility commissions? requirements for
integrated resource planning and conservation. As the utility industry
evolves in the direction of greater competition, it is quite possible
those requirements will not be retained.
Similarly, the plan's influence over the public utilities also has
been indirect. In large part it has been exercised through Bonneville,
although in several instances the Council has worked with the utilities
themselves. Many publicly owned utilities actively embraced integrated
resource planning and conservation and worked with the Council in their
own planning processes. Some did not. In the future, integrated resource
planning and conservation may be problematic for the publicly owned
utilities for most of the same reasons that affect the investor-owned
utilities.
More fundamentally, in a competitive market, is there still a need for
the kind of long-term, regionwide planning and broad public involvement
that have typified the Council's work? In the future, the development of
new resources will likely be the function of an unregulated, competitive
wholesale market in which integrated resource planning, as we have known
it, will not play a major role. Planning will most certainly take place,
but it will be the kind of planning carried out by competitors seeking a
market niche in which they can be successful.
The authority of the Council's plan and the relevance of traditional
planning will probably be much more limited than has been the case in the
past. Some of the mechanisms that enabled the Council and its plan to
influence the actions of regional power actors may be less effective.
However, there may still be activities the Council can carry out that will
be of value to the region. The questions for the Council and the region
are:
- Are there power-related functions that the Council already performs
or could perform under its current mandates that will be useful to the
region in a more competitive electricity industry? In particular, are
there functions the Council can fulfill that can provide appropriate
public policy guidance for the transition to a more competitive
electricity industry?
- Are there new functions that the Council should be authorized to
carry out?
Council Functions under the Northwest Power Act
There are a number of activities the Council carries out or could carry
out with no changes in the Northwest Power Act that may be of value in a
competitive electricity industry. In most instances, these are activities
the Council and its staff already perform in the course of developing and,
subsequently, trying to facilitate implementation of the regional power
plan. They include:
- Providing up-to-date information on future electricity demands, new
generating and efficiency technologies, system operations and market
forecasts;
- Serving as a broker for information exchange among utilities and
others;
- Working at federal and state levels to resolve legal and
institutional barriers to accomplishing regional goals;
- Providing impartial analysis of issues with a long-term regional
perspective;
- Serving as a focus for analysis of the interactions between power
and fish;
- Representing the interests of states and the public in power issues;
and
- Being a regional convener of forums to resolve issues.
Providing Energy Information
The information the Council develops in the course of its planning ?
forecasts of electricity demand, analysis of new resource costs and
availability, and so forth ? has been useful to the utility industry and
others for their own planning and decision-making. This information could
continue to be useful in the future. Some in the industry will be deciding
whether to purchase electricity from the market. Others may be developing
resources for the power market and facing considerable risk in the
process. Everyone will need to know the rules they face and which
resources would be the best choices. Futures markets and other financial
instruments can distribute financial risk, they cannot eliminate it. The
efficient functioning of markets depends on quality information and
accurate interpretation of that information.
The Council could focus its information activities to facilitate the
transition to and operation of the market. To be of value in a fast moving
competitive market, information will have to be produced and revised more
frequently than has been the case in the past.
There will, of course, be other providers of such information.
Consultants, for example, will produce resource assessments and forecasts,
but business imperatives will lead them to restrict access to their
information, if they can. Is there value in having an independent entity,
such as the Council, develop this sort of information and disseminate it
broadly?
Brokering Information
The Council has frequently functioned as an information broker ?
facilitating the exchange of information among utilities and others about
problems and solutions of mutual concern and bringing together potential
participants in transactions. Some of this brokering the Council has
carried out through its publications, meetings and conferences, or through
financial support of similar functions carried out by others. The
Council's brokering has frequently been most effective in bringing
together those who might not otherwise talk to one another on a regular
basis ? utilities and local governments, for example. This kind of
information exchange may remain valuable, but may also become more
difficult, if competition between utilities and other participants in the
market for electricity becomes prevalent.
Again, others can and do perform this function. The Public Power
Council, the Northwest Public Power Association and the Pacific Northwest
Utilities Conference Committee, for example, have also performed this role
for their members and will probably continue to do so to some degree. As
the market becomes more competitive, market intermediaries will likely
emerge who will perform some broader information brokering functions.
Nonetheless, there may be a continuing role for the Council, with its
regionwide reach, to bridge the inevitable communication gaps.
Facilitating Regional Goals at Federal and State Levels
The Council has frequently worked at federal and state levels to
resolve legal and institutional barriers to the accomplishment of regional
goals. The Council's status as representative of the governors of the
four Northwest states gives its recommendations unique weight, both within
the region and at the federal level, where the region's congressional
delegation has been generally supportive.
The Council was the catalyst for the adoption, implementation and
enforcement of energy-efficient building codes in several Northwest states
and local communities. The Council facilitated conservation activities,
such as the Manufactured Housing Acquisition Program, which helped
establish more efficient federal standards for manufactured housing. The
Council also supported action on national appliance efficiency standards.
These kinds of activities, which helped transform industries and
markets to become more efficient, are likely to continue to be important
in the future.
Impartial, Long-term Analysis of Issues
One of the Council's primary strengths has been its ability to focus
relatively impartial analytical attention on power issues the region
faces. The Council takes a long-term perspective on the region's energy
system, a focus that is more likely to be neglected by competitors
preoccupied with near-term concerns. The Council also takes the
perspective of the region as a whole, which can identify issues and
solutions that might be missed by parties whose private interests are more
narrowly focused. The need for the Council to continue to provide a
long-term, regional perspective was voiced repeatedly by a wide range of
interested parties during consultations the Council held in the course of
developing this draft plan.
As the region makes the transition to a more competitive electricity
industry, there will be many issues about that transition on which an
independent analytical perspective will be valuable to the region. One
might question the continued usefulness of the Council's analysis once
the competitive electricity market has matured; commodity markets, such as
those for shoes or corn flakes, raise few issues of public policy that
require independent analysis.
However, the electricity industry will not be completely deregulated.
The areas that are regulated will continue to be public concerns.
Moreover, the importance of electricity to the economy and environment of
the Northwest, and the fact that so much of the region's electricity is
generated by a public resource ? the Columbia River system ? make it
likely that there will be continued value in an independent source of
analysis of the region's energy system.
Analyzing the Interaction Between Fish and Power
The significance of the operation of the Columbia River hydropower
system to the Northwest's overall power system, as well as to the region's
fish and wildlife resources, would argue for an ongoing role for an
organization like the Council, which is required to balance these
resources. Given the contentiousness of the issues, the high stakes
involved and the technical sophistication of the analysis required, the
Council's ability to analyze the effects of different hydropower system
operational regimes should continue to be of value for the foreseeable
future. There has also been the suggestion that the Council should
undertake an even broader analysis of the multiple uses of the Columbia
and its watershed.
Representing the Interests of the States and the Public
The Council was established in part to give the Northwest states and
the public a greater voice in decisions about the region's power system.
This was largely because electricity is so important to the economy and
environment of the Northwest. In addition, the fact that much of the
Northwest's power industry is federally owned and has monopoly status
has given the public a particular interest in decisions that affect the
industry. This public interest is likely to continue while the industry
makes the transition to competition. There will be many issues in that
transition about which the states and the public will want to have a
voice. In such cases, the Council's regional perspective can make a
significant contribution.
In the longer run, the Council's role in representing the states and
public will depend on the nature of the market that evolves. A fully
competitive market should enable consumers to influence industry decisions
through customer choices. As noted above, however, a continued public
policy content seems likely. In addition, a continued significant federal
presence in some form in the regional power system seems likely, although
not certain. This in itself would argue for some vehicle like the Council
to represent the interests of the four states and the public.
Convening Forums to Resolve Regional Issues
The Council, representing the governors of the Northwest states, has
the ability to convene regional forums to work for the resolution of
regionally important issues. This ability will be particularly important
in the transition to a competitive electricity industry. How the structure
and regulation of the electricity industry evolve will, determine in large
part, the degree to which the benefits of competition are achieved and how
they are distributed. And while the Northwest is clearly part of a wider
electricity market, a vital element of that market will be supplied by the
resources of this region. There will be many issues of importance to the
region that will have to be resolved on the way to more widespread
competition. The Council is well situated to convene the stakeholders for
the resolution of such issues. In the longer run, the ultimate nature of
the market for electricity and the degree of public policy content of
issues will dictate the need for this kind of activity. It seems likely
there will be some continuing need for such a function.
New Roles for the Council?
New roles for the Council will depend, in large part, on how the region
and the electricity industry adapt to the emergence of competition. For
example, will the region find that new mechanisms to fund and implement
conservation and renewables are necessary? If so, some entity may be
needed to plan and possibly administer those mechanisms. Whether the
Council is the appropriate entity is another question, but its expertise
and regional purview have significant advantages.
There will inevitably be new needs that arise as the industry's
transition proceeds. When these needs align with the Council's strengths
? strong analytical capability, regional purview, multipurpose scope,
the influence of the governors of the Northwest states ? the Council
should be a candidate for accomplishing them. Many of the new
power-related roles for the Council would require legislation at the
federal level and/or in the states. For that reason, the validity of
potential roles will appropriately be subjected to intensive public
scrutiny.
No Role for the Council?
It would be disingenuous to suggest that the power system of the
Northwest could not function without the Northwest Power Planning Council.
No other region has an equivalent institution. The power systems in those
regions appear to function reasonably well, although in few others is
there a public resource equivalent to the Columbia River's power
system.
Inevitably, the move to a competitive electricity industry will lessen
the influence of regional planning in favor of entrepreneurial strategy.
The transition is also likely to lessen consideration of public values in
decision-making and possibly even diminish the sense of the Northwest as a
region. The policy question the Northwest must resolve is whether there
needs to be a continuing means for reflecting the region's values in
power decisions and, if so, whether the Council is the appropriate
institution to facilitate that process.
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