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 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.
The Council is interested in public comment on the following: