| |
| |
 |
|
Comment on this paper
[Comment period ended Dec 12, 2003. View
all comments.]
Send comments by December 12, 2003 to:
Mark Walker
Director of Public Affairs
Northwest Power & Conservation Council
851 SW 6th Avenue, Suite 1100
Portland, Oregon 97204-1348
fax 503-820-2370
or email
Public comments also will be accepted at the Council?s Nov 19
meeting in Coeur d?Alene, Idaho, and the Dec 10 meeting in
Portland, Oregon.
|
|
|
|
|
The Future Role of the Bonneville Power Administration in Power Supply
October 28, 2003 |
Council document 2003-18
read full paper > (70k
PDF)
Introduction and Summary
The crown jewel of the Northwest Power System is the federal Columbia
River Power System (FCRPS). The FCRPS consists of 31 dams on the
Columbia River and its tributaries. On average, it supplies
approximately 45 percent of the region?s power. This federal
hydropower is priced at cost and is sold by the Bonneville Power
Administration primarily to publicly owned electric utilities. While
construction of the FCRPS was financed by the federal government, the debt
is repaid by Northwest electricity users. Interest rates on
the federal debt are now equal to market rates.
Despite the fact that Bonneville has not deferred any payments to the
U.S. Treasury since the early 1980s, it is continually attacked by
organizations like the Northeast-Midwest Institute[1]
and its congressional allies as being subsidized by the federal
government. Critics advocate privatizing Bonneville or requiring
Bonneville to sell its power at market prices to benefit U.S. taxpayers as
opposed to selling at cost to Northwest consumers who paid for the system
and are paying to restore fish and wildlife affected by the dams.
While these proposals have not yet gained sufficient political support to
move ahead, fighting them has been a continuing battle for the
region?s utilities, governors, the Council and the congressional
delegation. Moreover, each time Bonneville finds itself in financial
difficulties with Treasury repayment at risk, the pressure for ?reform,?
such as privatization, intensifies.
Over the last decade, the disparity between the cost of Bonneville?s
power and the market rates for wholesale power frequently has not been
large and, in fact, at some times has been disadvantageous to Bonneville?s
customers. Nonetheless, the base of federal hydropower is likely to
be a low-cost resource for many years to come. Preserving this
benefit for the Northwest consumers who pay for it should be a high
priority for the region. However, preserving the benefit in the face
of recurring financial crises at Bonneville will be difficult.
Thus it is time to re-examine Bonneville?s role in regional power supply
and whether that role can continue as it has in the past without
jeopardizing the region?s legacy of reasonably priced power.
This paper outlines the problems Bonneville and the region have faced
in recent years. It appears these problems are likely to continue
unless Bonneville?s role in regional power supply changes. The
paper reviews the potential solutions developed through several public
processes carried out over the last decade, including the Comprehensive
Review of the Northwest Energy System, carried out in 1996, the follow-on
Bonneville Cost Review and finally the Joint Customer Proposal and
Regional Dialogue of 2002. One common element of these processes was
the recommendation that Bonneville sell the federal power through
long-term contracts (20 years) to reduce uncertainty and help protect the
region from external efforts to appropriate the benefits of the FCRPS.
Another common recommendation was to limit Bonneville?s and the region?s
exposure to risks of the wholesale power market by limiting Bonneville?s
role in serving loads beyond the capability of the FCRPS. This could
be accomplished through bilateral contracts, in which customers bear the
cost and risk of resources Bonneville has to acquire in order to augment
the federal system and serve load. For various reasons, efforts to
implement these and other recommendations developed in the public
processes have stalled.
The Council believes the region should address the question of
Bonneville?s future role in the regional power supply now, before
another crisis develops. The Governors of the four Northwest states
have recognized that perpetuating uncertainty regarding Bonneville?s
role risks the adequacy and economy of the region?s power supply.
The Governors asked the Council and Bonneville to reinitiate the Regional
Dialogue, which was suspended in 2002 while Bonneville addressed its most
recent financial crisis. As a result, a number of discussions with
representatives of customers, regulators, industry, and environmental
interests were held. The major conclusion drawn from these
discussions is that while some things may have changed and need to be
reexamined, many of the basic elements of the 2002 Joint Customer
Proposal still have regional support and could form the foundation
for moving forward.
The Council proposes the following principles or characteristics to
guide the region in addressing the question of Bonneville?s future
role. These principles reflect 1) the Council?s understanding of
circumstances that may have changed in the last year; 2) the perspectives
expressed during the recent discussions; and 3) the Council?s review of
the original Joint Customer Proposal and its subsequent December 2002
recommendations on the future role of Bonneville.[2]
Proposed Principles for the Future Role of Bonneville
- The goal should be long-term contracts (20 years) both to protect
the system from interventions from outside the region and to reduce
uncertainty for both the customers and Bonneville.
- Bonneville?s primary role, in addition to transmission, should be
managing the operation and marketing the output of the Federal
Columbia River Power System. The FCRPS is a multipurpose public
resource and Bonneville has a record of real expertise in its
operation and marketing.
- Bonneville?s role in providing power beyond the capability of the
federal base system should be limited to bilateral contracts or rate
mechanisms that align the benefits and costs. This would limit
Bonneville?s exposure to market risks and reduce the uncertainty
regarding who will be acquiring additional resources thereby reducing
an impediment to resource development.
- Bonneville?s role should be limited contractually. Although
most customers? contracts run through 2011, these changes need to be
enacted as soon as possible so as to protect the regional resource
from outside interference and clarify the outlook for resource
development
- Customer agreement to long-term contracts will require at minimum
that Bonneville: 1) provide customers and others greater openness
regarding their costs, the factors driving those costs and the
decisions affecting them BEFORE decisions are made; 2) implement
cost-reducing process improvements; and 3) rebuild trust with the
customers and others that Bonneville is a good business partner.
- Revising Bonneville?s role in acquiring and pricing the output of
additional resources will require an allocation of the federal base
system resources and benefits. Any allocation method for the FBS
should be equitable and consistent with federal law while creating a
broad constituency for Bonneville.
- A significant amount of the system should be offered as a ?Slice?
product . The slice product effectively distributes hydro risk
and, by virtue of more diverse decision-making, should reduce the
impact of hydro variability on the market.
- Benefits should be provided for the residential and small farm
customers of the region?s investor-owned utilities in a way which is
judged to be equitable by the parties and that is clear and
transparent and not subject to manipulation by any of the parties.
- The question of service to the DSI?s must be addressed. If
power is made available to DSIs, the amount and term should be limited
and contracts should be structured to allow Bonneville to capture
benefits of DSI load interruptibility and provision of reserves.
The smelters should be encouraged to reduce dependence on Bonneville
power in the long-term.
- Any solution must contain a mechanism for ensuring continued
regional development of cost-effective conservation, as determined
through the Council?s plans. While limiting Bonneville?s
role to develop new power supplies to bilateral arrangements with
customers is a major step in the right direction, it is not sufficient
to ensure the development of cost-effective conservation given the
disincentives to utility investment in conservation. Reliance on
local implementation is appropriate so long as there is a focus on
cost-effectiveness and accountability and a backup mechanism is
included to ensure that conservation is implemented. A direct
Bonneville role in implementation is appropriate where there are
economies of scale or other benefits from Bonneville?s direct
involvement.
- Similarly, a mechanism is required for ensuring that cost-effective
renewable and high efficiency resources are developed and that the
ability of the hydropower system to support the development of
intermittent renewable resources, through the flexibility of
the hydropower system, should not be unduly impaired.
- Bonneville?s ability to implement its fish and wildlife
obligations must not be impaired.
Questions for Public Comment
The Council is interested in public comment on the following:
- Do you think the analysis of the problems and issues presented in
the paper is accurate? If not, how is it inaccurate?
- Do you agree that a more limited role for Bonneville in power supply
as described in principles is appropriate? If not, why?
- Do you think the question of Bonneville?s future role in power
supply needs to be addressed in the near future? If not, why?
- Do you think the principles or characteristics proposed by the
Council are appropriate guidance for consideration of Bonneville?s
future role? If not, why?
[1] E.g. see Rethinking
Bonneville ? Why BPA Must Be Reformed, Richard Munson,
Northeast-Midwest Institute, 2001, http://www.nemw.org/rethinkingbonneville.pdf
[2] Final Recommendations on
the Future Role of Bonneville, Council Document 2002-19, December 17,
2002. http://www.nwcouncil.org/library/2002/2002-19.htm
read full paper > (70k
PDF)
 |
Use Adobe Reader to
view PDF documents |
|
|
home