News Meetings

Council Meeting Minutes

Grouse Mountain Lodge
Whitefish, Montana

May 13-15, 2002

Contents

1. Mainstem amendments
2. Federal power allocation
3. Market manipulation during West Coast energy crisis
4. Within-year allocations
5. Incentives for subbasin planning
6. Fish Passage Center oversight board
7. Draft Fuel Price Forecast
8. Draft FY 2004/03 budget
9. Funding projects on public lands
10. RTO West comments to FERC
11. Council business

Lt. Governor Karl Ohs welcomed the Council with praise for the members? willingness to meet in rural areas of the Northwest. The Council provides a viable forum to discuss and deliberate on important regional issues, he said, and the Power Plan is extremely important to ensuring the region has a reliable power supply and effective mitigation for fish and wildlife (F&W).

?Thank God the snowpack is looking good in this basin,? Ohs said of the Flathead. That is not the case in eastern Montana, where ?we are on new ground? with drought conditions, he added. 

?Water is the lifeblood of economic activity in Montana,? and the allocation of water is a controversial issue, Ohs continued. It is incumbent on you to see that water is used wisely, he said. In Montana, people say, ?whiskey is for drinking, and water is for fighting,? Ohs observed.

There are hard water-management decisions to make in normal years, but the decisions get worse when water conditions are low, he pointed out. Tradeoffs have to be made that fairly balance the use of water, Ohs stated. There are many opinions on the way to run the system, but a viable plan must have regional buy-in, broad participation, and scientific credibility behind it, he said. According to Ohs, the Council's mainstem rulemaking process is crucial to balancing water uses and costs in the region.

In Montana, two aquatic species ? bull trout and Kootenai white sturgeon ? are listed for protection under the Endangered Species Act (ESA), and westslope cutthroat and redband trout are of special concern, he indicated. We feel that if the system were operated with some small modifications, the effects of the trade-offs for these species would be lessened and in good water years, may be avoided entirely, Ohs said.

We support actions to protect salmon, but we believe it is imprudent to take actions on behalf of one listed species that undermine the viability of another, he stated. Research is needed to determine if spill and flow augmentation, operations that seriously impact Libby and Hungry Horse reservoirs, are achieving the purported benefits and results, Ohs said. We want balance, we want a successful F&W program, and we want to see that everyone in the region keeps the lights on, he added.

Ohs complimented the Council's subbasin planning effort for starting at the local level and working upward. Subbasin plans will be good for the subbasins and for the region, he said. Ohs thanked the Council for approving F&W projects in the Mountain Columbia Province, saying they will help to keep Montana as one of ?the last great places.? 

Council Chairman Larry Cassidy assured Ohs that Montana's members vigorously represent the state's interests in the region. He added that he had the opportunity to see Hungry Horse and Libby during low-water conditions last year. The impacts were striking, Cassidy said.

Decision ? To Meet in Executive Session

Danielson made a motion that the Council meet in executive session at the call of the chair to discuss matters protectible under the civil litigation and internal personnel matters exceptions. The motion passed unanimously on a roll-call vote; Hines was absent at the time of the vote.

1. Discussion of Draft on Mainstem Amendments

John Shurts, Senior Counsel; Doug Marker, Director Fish & Wildlife Division; and, Bruce Suzumoto, Manager, Special Projects

Staffer Doug Marker kicked off a presentation on mainstem program amendments, saying the staff wanted to continue discussions about the scope and content of a mainstem rule. We are planning to bring a draft of mainstem amendments to the Council in June, after another round of meetings with members and staff from each state, he said. 

Marker laid out four things the Council can accomplish in a mainstem amendment: develop operations that protect and benefit F&W affected by construction of the hydrosystem, not just ESA-listed fish; put more emphasis on habitat; bring more focus to research; and describe how the region can provide needed operations for F&W, while maintaining an adequate, efficient, economical, and reliable power supply. We are trying to conceptualize the mainstem not just as a migration corridor, but also as habitat for fish in every life stage, staffer John Shurts explained.

In drafting the mainstem amendment, staff proposes to be consistent with the 2000 F&W program and to derive as much of the language, approach, and format as possible from the program, Marker continued.  The vision, objectives, and strategies will come from the 2000 program, he said. The NMFS and U.S. Fish and Wildlife Service 2000 Biological Opinions (BiOps) would be the baseline for operations to protect ESA-listed fish, according to Marker. The staff proposes to work with the existing BiOps and not seek to make sweeping changes, he elaborated.

When we decided to start with the BiOp as the baseline, it wasn?t just for pragmatic reasons, Shurts said. These are the recommendations of the federal F&W management agencies, he said.  In reviewing the mainstem proposals, if someone wanted to re-argue the BiOp, we didn?t want to get into that, Shurts said. We took on the issue of species that are not included in the BiOp, he clarified.

What do you mean by focusing on the ?more productive? anadromous and resident fish species? Cassidy asked. The concept here is to build from strength, Marker responded, adding that the ESA focuses on weaker stocks. it's a balancing concept, he said. We may have overshot the balance in some cases, Karier suggested, pointing to proposed language in the staff?s draft of biological objectives.

The list of proposed biological objectives for mainstem habitat, migration/passage conditions, and resident F&W come from the 2000 program, Marker explained. ?You may have gone too far? with the proposal to ?provisionally adopt? a CRITFC recommendation to add 9,000 additional acres of spawning habitat for Snake River fall chinook and 40 additional miles of spawning habit for mid-Columbia fall chinook, Danielson pointed out. ?it's a starting point,? Shurts responded. Where do you get 40 miles of additional habitat in the mid-Columbia? Cassidy asked. 

I assume the staff has done a first cut about whether that number is feasible without breaching dams, Karier said. If not, why be so specific? he asked. We have not done an analysis to support the number, Marker replied. If we don?t know whether this is a feasible number, we should talk about exploring the objective, not about provisionally adopting it, Hines stated. I?m a long way from agreeing with that, he said. Shurts said he would work on new language.

Can we set increasing the amount of spawning habitat as an objective and determining the exact number as a task? Bloch asked. that's a good idea, Shurts responded.

In the beginning of this draft, we adopt the BiOps as a given, even though Al Giorgi?s analysis says there is no scientific evidence to support spring flow augmentation, Karier pointed out. Shouldn?t we make an exception of the spring flow-augmentation measure when we adopt the BiOps? he asked.

We didn?t take on the BiOp, Shurts reiterated. In the research section of our draft, we list flow augmentation as a critical question to address, he added. Karier agreed the topic needs research. But we could do NMFS a favor by signaling that we see this [flow targets] as a weak point in the BiOp, he added.

I looked at the Giorgi report, and he said the flow-augmentation strategy is not a success, but the issue needs more study, Shurts responded. Giorgi said that based on PIT-tag data, there is little relationship between flow augmentation and survival, Karier said.  ?That seems like a pretty definitive statement,? he added.

it's premature to take this posture on the Giorgi report, Bloch stated. We received comments that took issue with the report, he continued. We received ?universal support? for spring flow augmentation, Bloch added.

I saw some comment on both sides of that issue, Cassidy countered. The F&W managers universally support it, Bloch responded. Why open up the BiOp? he asked. If we?re doing that, ?lots of issues are fair game,? he added.

I see Tom?s position as not wanting to see the BiOp set in stone, Hines said. My proposal was that the Council not adopt something NMFS did that I don?t support, Karier clarified. The Northwest Power Act requires that we use the best available science, not just what the F&W managers recommend, he added. I?ve read NMFS? report, and I can?t find any compelling evidence for flow augmentation, Karier stated.

Tom?s point is important, Kempton agreed. I?d like to see latitude in the vision statement that allows for us to review areas of the BiOp that need some consideration, he said. Shurts suggested the Council could say there are measures in the BiOp that need research, and in stating the biological objectives in the mainstem amendment, the Council could say it does not accept the BiOp flow targets.

I would not support that, Bloch stated. Why can?t we have a program that doesn?t say anything about the BiOp, he suggested.  Why do we have to make a sweeping policy statement about it? Bloch asked. Either you adopt the BiOp measures or take them on yourselves, Shurts responded. The question is what to say in addition to them or about any disagreement we have with them, he explained.

It seems that one rationale for adopting the BiOp is a practical consideration in that they represent what the federal agencies are going to do, and why ?muck around? with that, Bloch said. He suggested the issues need more debate before anything goes into the Council's draft mainstem amendment. We need to be more careful about including things in this draft that have not been thoroughly investigated, Bloch said.

This draft proposes to adopt the VAR Q flood control operation, but mitigation is needed in the state of Washington if that happens, Karier pointed out. The Corps has been asked to study the mitigation issue, he said. This is an operation that offers potential benefits, but we should say in our proposal that the Corps first needs to study the impacts of a change, Karier urged.

Marker went on to describe the research element staff developed, adding that it aims to bring more structure and focus to research. It calls for organizing and reviewing ongoing work, assigning priorities, and focusing on spill and flow, he explained. 

There is not much in the draft about implementation, Karier said.  Hydro operations are directed by the Technical Management Team (TMT), without Council participation, he said. That is a serious issue, Shurts agreed. Many proposals can be implemented through project funding decisions, but not entirely, he indicated. We have not been in the TMT trenches in the last years ? it's an arena we have not been staffed up for, Marker said. Most of the operations and research issues pertain to the Corps of Engineers, not Bonneville, and implementation will require more engagement with the Corps, he added.

The staff agreed to continue its meetings with the states and report back to the Council in June on its progress on drafting mainstem amendments.

Bartlett announced that the Columbia Falls Aluminum Company (CFAC) has invited meeting participants to tour its plant. Anyone interested in the tour should meet with the CFAC representatives at 3 p.m. for a ride to the plant.

2. Presentation on Customers? Proposal on Federal Power Allocation

Dick Watson, Director Power Division; Rob Walton, Public Power Council; and, Jim Litchfield, Litchfield Consulting

Investor and publicly owned utilities have been meeting to craft a proposal for Bonneville's future role in meeting the region's power supply, staffer Dick Watson told the Council. At the outset, not everyone was optimistic these discussions would be fruitful, he acknowledged, but the utilities have agreed on a proposal that involves the long-term allocation of benefits from the federal hydropower system. A major change in Bonneville's role in the power market and in developing new resources will affect the benefits the region enjoys from the federal system, Watson pointed out.

?We aren?t here trying to sell the agreement to the Council,? according to Rob Walton of the PPC, who was joined by consultant Jim Litchfield in explaining the terms of the proposed settlement.  Bonneville is reviewing the proposal for the next four to six weeks, and Administrator Steve Wright has asked us not to go around rounding up support, he explained. Bonneville doesn?t want to be ?cornered into accepting it,? Walton added.

He went on to brief the Council on circumstances that led up to the current legal clash over the outcome of Bonneville's 2000 Subscription process. The Northwest Power Act enabled Bonneville to purchase power to meet the load of utilities that request service, Walton explained. Because of the economic impacts that result from Bonneville acquisitions, this provision has pitted customers against each other in Bonneville rate cases and created tension and warfare among customer groups, he indicated. There has been criticism that preference customers ?wanted their cake and eat it too? by purchasing from Bonneville when the price was attractive and ?jumping ship? when it was not, Walton continued. The region is reaching load/resource balance, and within a matter of years, the preference customers will need all of the output of the Federal Columbia River Power System (FCRPS) to meet their loads, he added.

Bonneville's Subscription process resulted in 10-year customer contracts, Walton said. In Subscription, Bonneville offered a ?slice of the system? product, he added. The Subscription outcome was different than what was envisioned in the 1996 Regional Review, Walton pointed out. When new contracts were offered, Bonneville prices were extremely attractive compared to the market, and there was a ?pig pile,? with everyone wanting to sign up for federal power, he said. As a result, Bonneville agreed to sell 3,000 megawatts (MW) more than it had to offer, Walton said. In the subsequent rate case, Bonneville put in place a series of cost-adjustment recovery clauses, and preference customers experienced a 46 percent rate increase, he continued. All three customer groups sued Bonneville over the Subscription outcome, Walton stated.

Customers faced a choice of whether to let Bonneville augment the system or allocate the existing federal resources, he said. That choice ?could have caused a meltdown among the publics,? Walton added, with customers on both sides of the question. In the end, the publics decided they needed both options ? give the option of full requirements to those customers who want it, and the ?Slice? option to others, he explained. 

With litigation as the backdrop, the public and private utilities sat down a year ago and came up with a proposal we are calling ?Perma-Slice,? Walton reported. It answers the question of how the region's utilities will meet load growth, allocates federal resources, and provides benefits without legislation or a change in ownership or operation of the FCRPS, he said. The proposal raises a number of public policy issues, Walton added.

The customers have yet to work out details on how to address conservation and renewable resources, and there are concerns about how the proposal would affect F&W spending, he acknowledged. We expect Bonneville will come up with its own proposal, which will need to address new contracts, a rate case, and how to satisfy National Environmental Policy Act issues, Walton said. ?This isn?t a sprint, it's a long-distance run,? he commented.

Under the proposal, Bonneville would offer publicly owned utilities their choice of a 20-year Slice or full requirements contract beginning in 2006, based on a 2002 allocation of power, Walton explained. With Slice, a customer would purchase a percent of the system output and pay a proportionate share of system costs, he said. The investor-owned utilities would collectively receive $370 million annually in the form of payments, or they could opt for Slice power for the first seven years of the contract, Walton said. PGE stepped up first to take Slice power, he stated. 

The proposal also allows for 75 MW of power to be available at the melded system rate to new preference customers in the region, Walton said. Any additional power for new customers would be sold at cost, he said, but that could be renegotiated after 20 years. The DSIs are not part of this proposal, but there are discussions going on with them, Walton concluded. 

I welcome the idea that you will be interacting with the states on this, John Hines said. We, too, want to be brought into this in a timely manner, so we?re not in the position of ?blowing up the deal,? he added. I see a ?real fragility? in the proposal in that you do not want new legislation, yet you are going up against a requirement in the Northwest Power Act for Bonneville to acquire resources to meet load, Hines said. He described the situation for Flathead Electric, which does not have its entire load covered by Bonneville, and asked whether the co-op would be eligible to get its full requirements at the melded average rate in 2006. If one utility goes to court, does it blow up the deal? he asked.

Bonneville is required in the Act to meet the load if a utility requests, and under the proposal, customers would agree not to make that request, Walton responded. ?We saw a lot of fragility in the current situation,? with Bonneville out there having to meet 3,000 MW of additional load, he added. There was also a lot of ?tension? and ?suspicion? surrounding the IOU benefit, and the utilities tried to come up here with a new approach, Walton said. He said he couldn?t give a definitive answer on the Flathead co-op question.

Every public has two options ? to be a Slice customer, with an allocation based on 2002, or a full requirements customer, Litchfield said. The pricing isn?t determined in this proposal, he added. 

Hines asked whether members of the Central Montana G&T, who have an allocation of power from the Hungry Horse project, would be eligible for the Bonneville contracts. Those details are not worked out, Litchfield replied.

Cassidy asked about incentives for resources such as hydrogen fuel cells. If utilities are responsible for meeting their own load growth, they will have an incentive to undertake conservation and renewable resource projects, Walton responded. Conservation and renewable advocates are concerned about how the proposal will cover those resources, and there is a possibility Bonneville would provide ?a backstop? for those investments, he added. Under the proposal there would still be a central function on research and development for conservation and renewables, Litchfield said.

How are you planning to roll in the DSIs and address the F&W issues? Tom Karier asked. Those discussions are ongoing, Walton said, adding that the customers had begun discussions with the Columbia River Inter-Tribal Fish Commission (CRITFC). There is clearly suspicion and we are obligated to meet with people and explain what we are proposing, he said. If Bonneville goes out to purchase power to meet the region's DSI load, it would be a serious hardship on utilities, Walton stated. The DSIs think the 1,600 MW they were allocated in Subscription is theirs and that they are entitled to it, he added.

We are having meetings every week or two on the proposal, Litchfield said. The DSI discussions are becoming productive ? we are finding that all of the companies are different, and the groups are starting to address the specific circumstances, he explained. If we come up with agreements with other groups, we?ll present them to you and to Bonneville, Walton said. In the end, this is Bonneville's decision on the power contracts, he said. 

3. Briefing on Evidence of Market Manipulation During the West Coast Energy Crisis

Dick Watson

Ricochet, Get Shorty, Fat Boy, and Death Star. According to memos between Enron and its lawyers that recently surfaced in federal investigations, these were code names for trading strategies Enron used to manipulate the market during the West Coast electricity crisis in 2000 and 2001, Watson reported. The memos, including one from Portland law firm Stoel Rives, indicate Enron took advantage of the procedures in the market administered by the California Independent System Operator (Cal-ISO) to extract more money for the power it sold, he said.  Enron found loopholes in the rules and used them to its advantage, Watson explained.

Ricochet was a transaction in which Enron would buy power at the capped price in California?s day-ahead market, sell it to a party outside the state, then buy it back and resell it to the Cal-ISO at the uncapped import price, he said. This was a way of laundering instate power to avoid the price caps, Watson explained. 

Get Shorty was equivalent to selling short in the stock market, he continued. Enron would sell ancillary services it did not have, and then buy them in the spot market at a lower rate, Watson said. A seller has to be specific about the source of the ancillary services, so to pull off the Get Shorty, they would have to lie, he explained.

Another strategy, ?incing and decing,? involved declaring a higher load in the real-time market than the company actually had, generating to meet that phantom load, then getting paid for delivering excess energy into the market when supplies were tight, Watson said. Enron may have performed that service for others, including entities in the Northwest, he added. The Death Star strategy referred to a practice of scheduling loads or power transfers in a way that the company would be paid for relieving congestion on constrained transmission paths, according to Watson. The ?phantom transactions? wouldn?t materialize, so the scheduling entity would collect a payment for clearing the congestion, he explained. 

Were the practices unethical? Watson asked. Yes, they were, and ?it sure looks like? they fit the ISO's definition of ?gaming the system,? he added. Whether they were illegal, only time will tell, and that question is sure to be on the California Attorney General?s agenda, Watson stated. Others, besides Enron, probably participated in the schemes, he said. The manipulations were a contributor to the high prices, but they didn?t create the crisis, Watson said.

The market manipulations were made possible by the situation, which was one of short supply brought on by a lack of new resource development and poor hydro conditions, he continued. The California market was set up in such a way that there was no price-induced response to curb demand, Watson said, adding that the poor market design, which forced most load to be met in the spot market, also contributed to the crisis. 

There are lessons to be drawn from the experience, he stated. We still have to worry about the fundamentals of supply and demand, and deregulation is really reregulation, Watson said. Like the stock exchange, you need sound market rules and penalties for breaking the rules, and you need regulators, who are prepared to act swiftly when they see market abuse, he concluded.

What about the 13,000 MW of generation that was off-line in California during the crisis? Karier asked. This was unprecedented, and much of the generation came back on-line when price caps were put into place, he said. Watson indicated there were legitimate explanations for why some of the generation was off-line. No ?smoking gun? has been identified in that situation, he added.

4. Council Decision Within-Year funding Reallocation Requests

Mark Fritsch, Fish Production Coordinator

Decision ? Recommend Funding

Danielson made a motion that the Council recommend that Bonneville use $190,000 of carry-forward funds for Projects 1991-072-00, Redfish Lake Sockeye Captive Broodstock Program and 1997-001-00, Captive Rearing Project for Salmon River Chinook Salmon, as requested by the Columbia River Fish and Wildlife Authority and recommended by the F&W Committee. Brogoitti seconded the motion, which passed unanimously.

Eagle Hatchery Residence
Westland Ramos Passage Improvement

Decision ? Reallocate Funds

Danielson made a motion that the Council recommend that Bonneville reallocate $208,000 for Project 25029, Westland-Ramos Fish Passage and Habitat Restoration Pilot Project, as requested by the Columbia River Fish and Wildlife Authority and recommended by the F&W Committee.  Brogoitti seconded the motion, which passed unanimously.

Collaborative Center for Applied Fish Science (CCAFS) (Hagerman) (tentative)

Decision ? Recommend Funding by Bonneville

Danielson made a motion that the Council recommend Bonneville provide $1,690,425 for building and equipping a Collaborative Center for Applied Fish Science at the University of Idaho. Brogoitti seconded the motion. According to a staff memo, the project is a collaboration between CRITFC and the University of Idaho's Aquaculture Research Institute. The university is planning to expand the Hagerman Fish Culture Experimental Station, adding labs and office space, and CRITFC proposes to build and equip additional facilities at the site, including office and laboratory space, as well as a dormitory, workshop, and storage garage. 

Karier offered an amendment that would broaden participation on the scientific advisory board that sets research priorities for the center. He proposed making the Council's approval of the funds contingent on adding additional members to the board, including a representative of the Council, a member of an upriver tribe, a representative of NMFS? Science Center, a non-tribal F&W manager, and an independent scientist. Cassidy seconded the proposed amendment.

Dr. Ernest Brannon, director of the Aquaculture Research Institute, said Karier?s suggestion was not inconsistent with the composition of other advisory groups, but he said there could be a potential conflict of interest if the Council is represented on the board. Danielson said she was troubled by the amendment and by having the Council mandate the membership of the board. Bartlett said he saw no need for the amendment. I?d go with what the university and the sponsors propose, he stated. Kempton also argued against the amendment, saying he thought consideration of changing the board membership might be more appropriate later on if specific projects are presented to the Council for funding. 

Karier said he would withdraw the motion if the Council sent a letter to the aquaculture institute recommending more members be added to the board, including a representative of NMFS. I wouldn?t support that, Bartlett stated. We are getting too specific about something that is up to the university and its partners in the project, he indicated. it's micromanagement, Brogoitti agreed. 

Bloch said he would vote against the amendment, but added that it raises an important point about the need to coordinate research efforts in the region. Hines said he also opposed the amendment, but wouldn?t mind seeing expansion of the board. The amendment failed on a seven-to-one vote, with Karier casting the only aye.

Danielson said she wanted to make clear that the reach of the facility goes well beyond CRITFC and extends to the other tribes. The motion to fund the center passed unanimously.

Impacts of Flow Regulations on Riparian Cottonwood Forests along the Yakima River

Marker pointed out that staff recommended the Council not approve a proposed project related to riparian cottonwood forests. He reported that the F&W Committee had agreed with the staff recommendation and suggested the project compete with others in the normal selection and funding process or be considered in the next Columbia Plateau provincial review. 

Decision ? Recommend Not Fund Two Project Proposals

Danielson made a motion that the Council recommend Bonneville not fund Project Proposal 25036, Impacts of Flow Regulations on Riparian Cottonwood Forests Along the Yakima River, under the Columbia Plateau Province budget in FY 2002-2004. Brogoitti seconded the motion, which passed unanimously.

Echo Meadows project ? Winter Artificial Recharge to Cool Rivers

Decision ? Recommend Defer Project

Danielson made a motion that the Council recommend Bonneville not fund Project 2002-015-00, Echo Meadow Project: Winter Artificial Recharge to Cool Rivers, under the innovative project category in FY 2002 and instead forward the project to the Independent Scientific Review Panel for review before consideration for funding. Brogoitti seconded the motion. Cassidy suggested that ?not fund? be changed to ?defer.?  The Council voted unanimously to approve the motion with Cassidy?s proposed change.

Cassidy questioned why the Council votes on negative motions. If we don?t pass a motion to approve a project, we don?t approve it, he commented. Marker said the negative votes were to give a clear message on the project status. Bloch suggested the F&W Committee report to the Council on projects it is not recommending and see if another Council member wants to make a motion to approve funding.  Marker said he would check with the Council's legal staff on whether such a change could be made.

5. Briefing on Incentives for Subbasin Planning

Doug Marker

Marker gave the Council a refresher on the incentives for subbasin planning. He emphasized three points in characterizing the role of subbasin plans: the 2000 F&W program relies on subbasin plans for future funding decisions; the plans play a role in implementing the 2000 BiOps for the FCRPS; and the plans provide a means for integrating implementation with other F&W programs and funding sources. 

In 1999, the Council set a course toward having F&W projects selected for funding based on subbasin plans, Marker pointed out.  Since then, we?ve gone to the system of rolling reviews by province, but the Council is on record in support of having subbasin plans in place, he added. The NMFS BiOp is very definite on having subbasin plans, and we?ve asked NMFS for assurance that sound plans will provide coverage for meeting ESA requirements, Marker said. He said staff is coordinating with NMFS to make sure that the subbasin plans produced through the Council process have value for the ESA as well.

As for funding, we think subbasin plans are a concrete way to show Congress how federal funds will be spent and managed, Marker continued. They would also help us expedite funding requests, he said.

Marker went on to describe ?the downside? of not getting subbasin plans in place before the next round of funding decisions are to be made. If we don?t have subbasin plans completed, we would expect the Council to be conservative about supporting new initiatives and concentrate on operations and maintenance for investments that have already been made, he said.

The first round of subbasin plans may not be at a fine scale, and it is possible that in some cases, the plans will not come up with fundable projects, Marker stated. Given the schedule, it is possible subbasin plans will not be adopted into the F&W program before the current round of project funding recommendations expire, and the Council will have to consider some procedure to bridge that period, he concluded.

Cassidy said it is important to get NMFS? position defined on the subbasins plans, and Kempton pointed out that the $15.2 million budgeted to prepare the plans may not be enough. Bloch questioned whether the funding process ought to penalize people for not delivering subbasin plans on schedule. He indicated that time is already short for some of the subbasin planners due to circumstances beyond their control. Bloch also questioned how many rounds of subbasin plans are being contemplated. I have not heard any commitment to initiate or fund further rounds of planning beyond round one, he said. We are talking about this as though there will be future plan upgrades, Bloch indicated.

We have set up subbasin planning as an iterative process, Marker responded. We contemplated that we?d get initial plans that work with the available data, he said, adding that collecting more data starts getting into implementation of the plan. Even with a plan that is based on existing data, we are running out of time, Bloch commented.  There may be a logical reason to allow an extension, Danielson pointed out. Hines suggested the Council indicate that extensions would be granted on a case-by-case basis.

6. Council Decision on Fish Passage Center Oversight Board

Bruce Suzumoto

Staffer Bruce Suzumoto said the revamped FPC oversight board has seven members representing the following entities: the Council, National Marine Fisheries Service (NMFS), upper Columbia River Basin tribes, lower Columbia River Basin tribes, non-tribal F&W managers, scientific community, and public at large. The Council solicited letters of interest for the public-at-large and science seats and asked NMFS to nominate its representative, he explained. In addition, the Council asked CBFWA to nominate the upriver and downriver tribal members and a non-tribal F&W manager, Suzumoto said.

Decision ? Approval of Fish Passage Center Oversight Board Members

Judi Danielson made a motion that the Council approve Larry Cassidy, John Ferguson, and Greg Schildwachter to fill the Council, NMFS, and science seats, respectively; create a second public-at-large seat and approve Rob Walton of PPC and Liz Hamilton of the Northwest Sportfishing Association to fill those slots; and approve CBFWA-nominees Tony Nigro of the Oregon Department of F&W for the non-tribal F&W seat and Keith Underwood of the Upper Columbia United Tribes for the upriver tribal seat. John Brogoitti seconded the motion, which passed on a unanimous vote.

Jim Kempton pointed out that the board was created in response to a measure in the Council's 2000 F&W program, which called for establishing and creating an oversight board to provide policy guidance and assure regional accountability and compatibility with the regional data-management system. The F&W Committee expects the board will gear up immediately, even though we haven?t received nominations for all of the positions, Danielson added. 

7. Council Decision to Release the Draft Fuel Price Forecast for Public Comment

Dick Watson

Watson reported that the staff has come up with a draft forecast of fuel prices for the Council's power plan. The fuel price is a fundamental building block for the plan, he said. It is an important factor in estimating future electricity prices, and it is used to determine the lowest-cost mix of supplies and the avoided cost for conservation and renewable strategies, Watson explained, adding that fuel price also influences the demand for electricity.

The staff?s draft paper on fuel prices includes a detailed forecast of commodity fuel prices and delivered prices to the region and the West generally, he said. It includes forecasts for oil and coal, but the greatest focus is on natural gas prices, since gas is the predominant fuel being contemplated for new resources, according to Watson. The paper, authored by staffer Terry Morlan, has been vetted with the Natural Gas Advisory Committee and has gone through two sets of revisions, he said.

Compared to forecasts in the fourth power plan, the natural gas prices are substantially higher, the world crude oil price is about the same, and coal prices are difficult to compare, but are probably a little lower, Watson explained. The range for the natural gas forecast is from $2.60 per million Btu (MMBtu) to $4.00 per MMBtu, he said, with the middle of the range pegged at $3.30 per MMBtu. Crude oil prices are forecast at a low of $19 per barrel to a high of $32 per barrel, with the mid-point at $24, Watson said. 

The increase in natural gas prices is related to several factors, including the expense of adding supply in significantly larger increments, he explained. In the 1990s, demand grew at 1.6 percent annually, which required adding 323 billion cubic feet of new supply each year, Watson said. The overall U.S. consumption also grew, exceeding 22 trillion cubic feet in 2000 for the first time since 1973, he reported. In addition, the ?supply overhang? in Western Canada?s sedimentary basin, the source of much of the Northwest's natural gas, came to an end, Watson said. He added that the staff?s price forecasts line up better with forecasts from other sources than did those made for the fourth power plan.

Watson suggested the draft forecast of fuel prices be sent out for 60 days of public comment. 

Decision ? Release Draft Fuel Price Forecast for Public Comment

Danielson made a motion that the Council release the draft for public comment, and Karier seconded the motion. He noted that the Power Committee had no objections to releasing the paper. Ed Bartlett asked how the forecast is factored into the cost of generation that will be used in the plan. It becomes a primary input for the computer models we use to compute the cost of generation, Watson responded.  The Council voted to release the forecast; Hines and Eric Bloch were absent during the vote.

8. Council Decision to Release Draft Fiscal Year 2004 and Revised Fiscal Year 2003 Council Budget

Jim Tanner, Administrative Officer

Staffer Jim Tanner reported that the Council's 2002 budget is $8.3 million. Over the past few months, we?ve been working with Bonneville to come up with budgets for five years, he said. At present, the budgets proposed for 2003 and 2004 are $8.5 million, and the proposal for 2005 and 2006 is $8.7 million, according to Tanner.

He pointed out that budget cuts will have to be made, but the current documents do not reflect those cuts. Staff recommends sending the 2003 and 2004 proposals out for 60 to 90 days of public comment, Tanner said. A staff memo indicated that comments might help to guide some decisions on budget cuts.

Decision ? To Release Draft FY 2003 and 2004 Budgets for Public Comment

Danielson made a motion that the Council release the draft fiscal year 2003 and 2004 budgets for public comment. Brogoitti seconded the motion, which passed unanimously.

9. Public Comment on Bonneville's Proposed Policy for Funding Projects on Federal Lands

Staffer John Ogan laid out what commenters had to say about Bonneville's proposed interim policy for funding habitat improvements on federal lands. We propose to prepare a letter to Bonneville's F&W director Sarah McNary, urging Bonneville not to adopt the proposed policy as written and suggesting an alternative, he said. Staff will bring the draft letter to the Council in June, Ogan stated.

Bonneville's proposal generated a lot of comment, and ?by and large? it was critical, he reported. Ogan said staff distilled the following themes: the proposal is too prescriptive; the policy is complex and unclear; the policy is overly focused on land ownership rather than biological merits; and it does not explain well where such policy fits into the F&W program or the Northwest Power Act. In addition, Bonneville justified the policy on the basis of things it said were agreed to in the Federal Caucus, but other caucus members commented that they didn?t concur with the policy, he stated.

With regard to the first theme, if the idea is to assure cost-sharing, the F&W Committee agreed that having others participate in funding is to be encouraged, but maybe the policy is too prescriptive, Ogan said. As for the issue of clarity, commenters found the language unclear as to whether it pertains to lands, ESA, or blocked areas, and they asked how the policy would pertain to them, he reported. The proposal would have the Council review projects on the basis of 24 criteria, which is very complex, Ogan noted. Critics also said the proposal makes biology subservient to land ownership, he continued. 

Hines asked about the F&W Committee's reaction to the cost-sharing idea. The committee strongly supports cost sharing and does not want us to lose that message in our response, Ogan replied. This is Bonneville's effort to promulgate a policy on how the agency would spend money on F&W, Bloch commented. That would seem to be the F&W program purview, he added. Do we have a difference of opinion about their rulemaking authority? he asked.

it's a fine line, Marker acknowledged. He said the idea was for Bonneville and the Council to work together, but ?if Bonneville says what it will and won?t do, we could have a problem.? 

David Johnson of the Nez Perce Tribe expressed his concern about the cost-sharing criteria. We have done projects on federal lands since 1996, he said. We know these lands, where the opportunities are, and ?what gets the most bang for the buck,? Johnson explained. We don?t see a need for adding a funding obligation now, which unfairly places a burden on our work, he added. Such a condition could unnecessarily constrain work on measures that are consistent with the Act, and I urge you not to adopt the criteria, Johnson concluded.

10. Council Decision on RTO West Comments to the Federal Energy Regulatory Commission

Wally Gibson, Manager, System Analysis and Generation.

Watson went through the Council's proposed comment letter on the RTO West Stage 2 filing. The letter, which will go to the Federal Energy Regulatory Commission (FERC), identifies problems with the region's existing transmission system, but does not conclude that a regional transmission organization is the solution, he pointed out. 

?While the transmission system is showing strain, the problems are not yet so overwhelming that there is not time to consider alternatives to an RTO,? the letter states. ?The cost benefit analysis carried out for RTO West appears to show only small quantified economic benefits, when corrected for errors, and for at least one state, Montana, the results are negative. 

Some members of the Council are concerned that the very significant institutional and policy changes necessary for the formation and operation of an RTO may carry with them costs and risks that we do not yet fully comprehend. At the same time, they believe that because of the Commission's push for the formation of RTOs, more incremental approaches to solving the problems facing the region's transmission system have not received adequate attention,? it continues. 

According to the letter, ?the Council has not yet reached consensus regarding RTO West? and any overall support ?will be dependent on the Council's being convinced that RTO West will provide net benefits to the consumers of the region.?

The letter contains four major comments on the RTO, Watson pointed out: the Commission needs to accommodate legitimate Northwest differences; it is appropriate to protect existing rights holders for an extended period of time; RTO West authorities should assure that least-cost, non-transmission alternatives are fully evaluated; and an independent market-monitoring function and a Commission that will act promptly on issues are very important, particularly in light of recent revelations of market manipulations. 

Decision ? Approve Comments on RTO

Danielson made a motion that the Council approve the comments for Cassidy?s signature, with Power Committee members to provide final editing. Karier seconded the motion, which passed unanimously. 

On a related topic, staffer Wally Gibson briefed the Power Committee earlier in the week on a working paper FERC has released on its ?standard market design? (SMD). The purpose of the SMD is to reform the Order 888 open-access tariff, under which transmission providers are currently operating, he said. The reforms would apply to RTOs and to IOUs that are not part of an RTO, Gibson said, adding that it isn?t clear how they would affect RTO West. There are things in the working paper that suggest FERC may be moving to assert jurisdiction over non-jurisdictional utilities with regard to transmission access and rates, he pointed out.

The FERC paper sets out general principles and rules for transmission service, transmission rights, energy market design, day-ahead energy market, real-time market, market-power monitoring, and generation adequacy, as well as identifying rate issues, Gibson explained. The paper takes a more ?central planning? approach to markets, he said. Gibson noted he had attached a chart comparing elements of the SMD proposal to the RTO West Stage 2 filing. 

FERC is expected to come out with a notice of proposed rulemaking on the SMD in the summer, with a final rule by the end of the year, he said. Power Committee members raised the issue of whether the Council should refer to SMD in its comments on the RTO West Stage 2 filing.

11. Council Business

Approval of Contracts for Artificial Production Review and Evaluation (APRE) Process

Suzumoto outlined work that will be done under a proposed contract with Mobrand Biometrics. The consultants will work on a 150-program database, help facilitate workshops on artificial production, and assist with a final report on the Council's artificial production review, he explained. Mobrand has the tools and database models we need for this work, and Lars Mobrand and his fellow contractors have great respect among the groups in the basin, Suzumoto said.

Decision ? Authorization of $400,000 Contract with Mobrand Biometrics

Danielson made a motion that the Council authorize a $400,000 contract with Mobrand Biometrics to assist in the initiation and completion of the artificial production review and evaluation process. Karier seconded the motion, which was approved unanimously.

Approval of Personal Services Contract with Carol Gardner of Gardner Energy Management Services

Decision ? Authorization of $40,000 to Extend Contract with Carol Gardner, P.E.

Danielson made a motion, seconded by Karier, that the Council authorize a $40,000 increase and an extension of time for a contract with Carol Gardner, P.E., for energy engineering support for the fifth power plan and to provide ongoing technical support for the Regional Technical Forum. Gardner is providing work in the area of conservation, staff reported. The Council voted unanimously to approve the motion; Hines was absent for the vote.

Approval of Minutes

Decision ? Approval of April Meeting Minutes

Danielson made a motion that the Council approve for the signature of the Vice Chair the minutes for the April Council meeting held in Boise, Idaho. Brogoitti seconded the motion, and it was unanimously approved.

Approved June 12, 2002

s/s Judi Danielson
Vice-Chair

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