JOHN ETCHART

CHAIRMAN

Montana

Stan Grace

Montana

NORTHWEST POWER PLANNING COUNCIL

851 S.W. SIXTH AVENUE, SUITE 1100

PORTLAND, OREGON 97204-1348

JOHN BROGOITTI

VICE CHAIRMAN

Oregon

Joyce Cohen

Oregon

Mike Field

Idaho

Todd Maddock

Idaho

Fax:

503-795-3370

Phone:

503-222-5161

1-800-222-3355

Internet:

www.nwppc.org

Ken Casavant

Washington

Mike Kreidler

Washington

Draft Staff Paper

Methods of Economic Analysis

 for Salmon Recovery Programs

July 30, 1997
INTRODUCTION 1

IMPLEMENTATION AND FUNDING OF THE COUNCIL PROGRAM 2

ECONOMIC EFFECTS OF THE COLUMBIA RIVER SYSTEM 6

ECONOMIC ANALYSIS FOR RESOURCE PROGRAMS 8

Levels of Economic Assessment 8

Cost Analysis 8

Cost-Effectiveness Analysis 9

Cost-Benefit Analysis 10

Review of Existing Studies 11

MEASURING COSTS 17

Direct Project Costs 17

Other Direct Costs 17

Indirect Costs and Regional Impact Analysis 19

THE ROLE OF ECONOMIC ANALYSIS IN FISH AND WILDLIFE PROGRAMS 21

Individual Project Evaluation 21

Economic Comparisons among Projects 23

Providing Improved Cost Information 24

Single Measure of Effects 25

Multi-Attribute Analysis 25

RECOMMENDATIONS 26

For This Year’s Determination 26

Strategy 1: Ensure Biological Effectiveness 26

Strategy 2: Increased Use of Cost Analysis 26

Strategy 3: Evaluate Project Histories 27

Strategy 4: Audit and Implement Improvements to Contract Management Procedures 27

For Future Determinations 28

APPENDIX 1
Methods of Economic Analysis

 for Salmon Recovery Programs

Introduction

This paper recommends methods of economic analysis for evaluating and comparing fish and 

wildlife recovery programs. Developed by the staff of the Northwest Power Planning Council, the paper is 

intended in part to help the Council evaluate the economic dimensions of fish and wildlife recovery actions. 

The Council draws guidance on the role of economics in its fish and wildlife decisions from the 

Northwest Power Act. Under the Northwest Power Act, the Council develops a Columbia River Basin 

Fish and Wildlife Program to “protect, mitigate and enhance fish and wildlife affected by the development, 

operation, and management of the [the basin’s hydroelectric] facilities while assuring the Pacific Northwest 

an adequate, efficient, economical, and reliable power supply.” The Act contains procedures and standards 

to further guide the Council’s development of the program, most of them biological (e.g., use the “best 

available scientific knowledge”) or legal (e.g., consistency with legal rights of tribes). Economics and cost 

effectiveness enter directly into the Council’s program amendment decisions in only two ways: First, as 

evident from the primary standard quoted above, the Council must be able to assure that the program 

assures the region an “economical” power supply.1 Second, if “equally effective alternative means of 

achieving the same sound biological objective exist,” the Council is to include in the program “the alternative 

with the minimum economic cost.” 2

In 1994, the Direct Service Industries, Inc. argued in a court challenge to the Council’s adoption of 

program amendments that the Power Act required the Council to subject proposed program amendments 

to a cost-benefit analysis. The U.S. Court of the Appeals for the Ninth Circuit rejected this claim, noting 

that the Power Act does not require cost-benefit analysis, explicitly or implicitly.3

A 1996 amendment to the Northwest Power Act provides that when making project funding 

recommendations to the Bonneville Power Administration to implement the Council’s Columbia River Basin 

Fish and Wildlife Program, the Council “shall determine whether the projects employ cost effective 

measures to achieve program objectives.” This paper attempts to describe an approach or methodology 

that the Council will apply in making the cost-effectiveness determination called for in the legislation. The 

scope of this cost-effectiveness determination is limited to what is called the “direct program” portion of the 

Bonneville fish and wildlife budget. The direct program budget totals approximately $100 million out of an 

average annual budget for Bonneville fish and wildlife activities of $252 million. This direct program portion 

of the budget funds, among other things, a number of habitat, production, coordination and research 

projects that correspond to measures in the Council’s program. It is these projects for which the Council 

 

1

 Northwest Power Act, § 4(h)(5); see the Council’s Columbia River Basin Fish and Wildlife Program, Section 1.8 and 

Appendix C, “Assuring an Adequate, Efficient, Economical and Reliable Power Supply.”

2

 Northwest Power Act, § 4(h)(6)(C).

3 Northwest Resource Information Center, Inc. v. Northwest Power Planning Council, 35 F.3d 1371, [add page cite] (9th Cir. 

1994).
2

must make the cost-effectiveness determination. The cost effectiveness determination required by the 

amendment to the Northwest Power Act excludes the remainder of the $252 million Bonneville budget and 

foregone power revenues as a result of changes in the operation of the river system. It is also important 

to remember that there are fish and wildlife activities in the basin not funded by Bonneville. These include 

Mitchell Act funding for hatcheries and diversion screens, land management activities to improve fish and 

wildlife conditions funded by the Forest Service, the Bureau of Land Management and others, and state 

investments in watersheds and harvest management, and more. One of the needs in the basin is to better 

understand and coordinate fish and wildlife activities of federal, state, and tribal entities.

The Council needs to develop a systematic approach to economic analysis of fish and wildlife 

measures to meet its obligations under the Northwest Power Act. Moreover, in order to make systematic 

judgments, the Council must consider a broad range of economic information. At a minimum, this broader 

economic perspective provides a context within which the more narrow cost-effectiveness determination 

called for in the Power Act amendment takes place. The broader context would include all areas of 

recovery actions and their implications including direct program funding, changes in operation of the 

Columbia River system, funding of production facilities outside the direct program, and capital investment 

appropriations for mainstem hydrosystem modifications undertaken consistent with the National Marine 

Fisheries Service’s Biological Opinion on hydrosystem operations and the Council’s Program. Thus, this 

paper has been developed in part to allow the Council’s cost-effectiveness review to range broader than the 

direct program, even if these observations have less of a specific legal meaning for year-to-year funding 

decisions.

A broader economic perspective will help prepare the Council and other entities to understand and 

make the comprehensive programmatic decisions that will be called for in the next few years. Under 

consideration in a number of forums and processes, are proposals for major reconfigurations of the 

Columbia River hydroelectric facilities for the benefit of salmon and other fish and wildlife, including the 

possibility of removing or breaching a number of dams in the lower Columbia and Snake rivers or making 

other substantial and expensive, if less dramatic, modifications to the dams. Decisionmakers need to know 

how to develop the appropriate information on the economic implications of these proposals. This paper is 

intended as a guide to methods of economic analysis for this purpose.

Implementation and Funding of the Council Program

The Council does not implement or fund the implementation of its program. Instead, Section 

4(h)(10)(A) of the Act requires the Bonneville Power Administration to use its fund -- its power revenues --

and other authorities to protect, mitigate, enhance fish and wildlife “in a manner consistent with” the 

Council’s Program. Bonneville funds fish and wildlife projects and activities proposed by others -- primarily 

the state and federal fish and wildlife agencies, tribes, and federal operating agencies -- to implement the 

Council’s Program as well as other fish and wildlife programs that are a funding obligation on Bonneville. 

With few exceptions, Bonneville does not implement the program itself. Bonneville directly funds many of 

these projects, especially certain production, habitat and research projects. Other projects, including capital 

investments for modification to Corps of Engineers and Bureau of Reclamation dams and other Corps 
3

projects, are funded first by Congressional appropriations, and then Bonneville reimburses the share 

attributable to the hydropower purpose of the hydroelectric facilities.

In 1995, Bonneville, the National Marine Fisheries Service and the chairman of the Northwest 

Power Planning Council negotiated, and the Clinton Administration agreed to, a six-year (1996-2001) 

budget for Bonneville’s fish and wildlife funding. Toward the end of 1996, Bonneville, the Corps of 

Engineers, the Bureau of Reclamation, the National Marine Fisheries Service, and the U.S. Fish and Wildlife 

Service developed, in consultation with the region’s Indian tribes and the Council, a Memorandum of 

Agreement (MOA) for the Bonneville Fish and Wildlife Budget to implement the budget agreement.

Under the MOA, Bonneville’s financial commitment is in two parts. First, Bonneville agreed to 

absorb the financial consequences of the current set of system operations, whatever the cost (with a few 

exceptions). These operations include implementing the Biological Opinions for Snake River salmon 

(NMFS) and Kootenai sturgeon (USFWS), as well as a few other system elements, such as the Lake Pend 

Oreille reservoir levels in the Council’s program. The financial costs of these operational changes vary 

dramatically depending on year to year water conditions. Second, Bonneville agreed to provide an average 

of $252 million per year through fiscal year 2001 for expenditures in three categories:

(1) Direct program expenditures. This category is to average $100 million per year and consists of 

direct expenditures by Bonneville for projects related to the Council’s program and the two Biological 

Opinions, primarily habitat, production, research and coordination projects. These expenditures are 

primarily for operation and maintenance of recovery projects.

(2) Capital investment repayments. This category is to average $112 million per year, to cover the 

repayment stream for both past and expected future direct capital investments by Bonneville (mostly related 

to the Council program) and for past and expected capital investments made by Congressional 

appropriations (primarily for modifications to mainstem dams by the Corps of Engineers plus hatchery 

capital investments) that Bonneville is obligated to repay to the Treasury. The budget agreement assumes 

that the expected expenditures in this category reflect, in part, a further investment of Bonneville direct 

capital during the life of the budget agreement of $27 million per year and that Congress will also make 

available $565 million in new capital investments over the life of the agreement. The associated repayment 

obligations for the new capital investments are included in the $112 million.

(3) Reimbursable operations and maintenance expenditures. This category averages $40 million 

per year and consists of Bonneville reimbursements to the Treasury of Congressional appropriations for the 

operation and maintenance of artificial production facilities (and a few other matters) directly authorized by 

Congress, primarily through the Lower Snake River Compensation Program.

Figure 1 illustrates the distribution of Bonneville’s $252 million of fish and wildlife expenditures 

under the MOA.
4

Figure 1: Bonneville’s MOA Expenditures

Direct 

Program 

Expenditure

40%

Capital 

Repayment

44%

Reimbursable 

O&M

16%

$100 Million

$112 Million

$40 Million

The MOA assumes that the amounts allocated to the three categories will remain in those categories 

unless there is agreement by the federal agencies in consultation with the tribes and the Council to a reallocation. The MOA also assumes that the regional sovereigns have developed and will continue to 

develop processes to prioritize and allocate the money assigned to each category. There is potential 

inconsistency, however, between Bonneville’s interpretation of its legal funding obligations, which may be 

imposed by Congress or the Council’s program, and the prioritization results.

It is in the prioritization processes that the region expects to find the necessary budget discipline to 

make the budget allocations work. The eventual aim is to include all Columbia River fish and wildlife 

mitigation activities in the prioritization process. At present the prioritization process has meant the 

development of prioritization groups that are prioritizing projects within one budget category or subcategory. Thus one group (the System Configuration Team) is developing prioritization criteria and ranking 

projects for the Corps of Engineers’ capital investments. Within the direct program category, separate 

teams of fish and wildlife managers develop prioritization criteria and rank projects for resident fish activities, 

wildlife activities, and anadromous fish activities, including mainstem research measures, production and 

habitat activities.

With regard to the “direct program” portion of the Bonneville budget and including the amount of 

direct capital available, beginning in 1995, Bonneville, the Council and the agencies and tribes developed a 

more coordinated and annual process for recommending projects to Bonneville for direct funding. The fish 

and wildlife agencies and tribes review and prioritize projects proposed for funding. In a public review 

process, the Council then reviews the agencies and tribes’ funding recommendations for consistency with 
5

the program and forwards its own recommendations to Bonneville for funding. Bonneville has by and large 

deferred to the recommendations of the Council, agencies and tribes.4

Congress amended Section 4(h)(10) in late 1996 to add additional procedural and substantive 

requirements to this direct program funding process.5 Congress sought to insulate the funding process from a 

perceived conflict of interest -- the agencies and tribes review and prioritize the projects for funding and are 

also the primary funding recipients. The new legislation creates an independent scientific review process to 

review funding recommendations. The amendment directed the Council to appoint an eleven-member 

Independent Scientific Review Panel “to review projects proposed to be funded through that portion of the 

Bonneville Power Administration’s annual fish and wildlife budget that implements the Council’s fish and 

wildlife program.” The Council is also directed to appoint scientific peer review groups that are to “assist 

the Panel in making its recommendations to the Council.” The Panel and any peer review groups are 

subject to the conflict of interest standards that apply to scientists “performing comparable work” for the 

National Academy of Sciences. The Panel and peer review groups are to review projects proposed for 

funding and make recommendations to the Council “no later than June 15 of each year.” The Panel and 

review groups need not review each and every project, but a “sufficient number of projects to adequately 

ensure that the list of prioritized projects recommended is consistent with the Council’s program.” 

Recommendations of the Panel and the peer review groups are to be based on a “determination that 

projects: are based on sound science principles; benefit fish and wildlife, and have a clearly defined 

objective and outcome with provisions for monitoring and evaluation of results.” The Panel and peer review 

groups are also to review annually “the results of prior year expenditures based upon these criteria,” and to 

submit their findings to the Council.

The Panel’s recommendations to the Council must be made available to the public for review and 

comment. The Council will make final funding recommendations to Bonneville “after consideration of the 

recommendations of the Panel and other appropriate entities.” The Council must explain in writing if it 

decides not to incorporate a recommendation of the Panel. In making its funding recommendations, the 

Council also has two additional responsibilities. First, the Council must “consider the impact of ocean 

conditions on fish and populations. And second, and what is important here, the Council “shall determine 

whether the projects employ cost-effective measures to achieve program objectives.” The legislation 

provided no further guidance as to the nature of the cost-effectiveness determination or the procedure for 

making the determination.

To implement the new Power Act amendment during this first year, the Council anticipates using the

following process. The agencies and tribes are once again reviewing projects proposed for funding. The 

Council received a prioritized list from the agencies and tribes on June 5. Earlier this year, recognizing that 

many of the projects on the priority list are likely to be ongoing projects funded in prior years, the 

Independent Scientific Review Panel began reviewing information regarding those projects, and the 

prioritization process generally. The Panel received the prioritized list from the agencies and tribes and 

provided their own recommendation to the Council on July 15. After a public review process of the 

agency, tribal and Panel recommendations, the Council will make its recommendations to Bonneville, 

including a determination regarding their cost effectiveness. 

 

4

See Council’s Fish and Wildlife Program, Section 3.1B.

5

 Northwest Power Act, new § 4(h)(10)(D).
6

This paper is intended to explain the cost-effectiveness analysis the Council will use. The Council 

has appointed an Independent Economic Analysis Board for the purpose, in part, of providing guidance to 

the Council in making this determination. The IEAB reviewed and commented on earlier drafts of this 

paper.

Economic Effects of the Columbia River System

The Columbia River and its tributaries are linked to the regional economy in a number of direct and 

indirect ways. Many of those linkages were created or enhanced by the development of the system of dams 

that have changed the character of the rivers over the past 100 years. The dams have allowed development 

of an extensive hydroelectric system, permitted commercial water navigation as far inland as Lewiston, 

Idaho, supported irrigation of large areas of arid land, provided flood control, and created recreational 

opportunities in the many reservoirs created by the system of dams. All of these are generally considered 

positive economic effects in the Pacific Northwest.

Accompanying the positive economic effects of Columbia River development, were negative cultural 

and environmental effects. There were also some negative economic effects on the commercial and 

recreational salmon and steelhead fishing industry due to the declining populations of those species. The 

purpose of this section is not to advocate any balance of the various effects of the Columbia River 

development. It is simply to establish the nature of the economic linkages that must be accounted for in any 

cost-effectiveness analysis of fish and wildlife recovery actions. 

Hydroelectricity provides about two thirds of the region’s electricity supply even in the driest years, 

and has traditionally been much less expensive than alternative forms of electricity. Additional amounts of 

hydroelectricity can be generated when water conditions are above drought levels. Much of this so-called 

nonfirm electricity is used to displace thermal generation and thus reduces air pollution and the cost of 

electricity for consumers in California and the Pacific Northwest. As a result of the hydroelectric system, 

the Northwest enjoys electricity prices that are a little more than half of the average electricity prices in the 

nation. In spite of its negative effects on salmon, hydroelectricity is a renewable resource that does not 

pollute the air or water and thus has provided environmental benefits to the Northwest as well as low 

electricity prices. 

Irrigation of agricultural land has created an important economic base for many arid areas of the 

region. There are about 7.3 million acres of irrigated land in the Columbia River Basin. The largest 

concentration of irrigated agriculture is in Idaho with about an equal amount in eastern Washington and 

Oregon. Nearly all of the region’s production of potatoes, sugar beets, hops, fruit, vegetables and mint is 

from irrigated lands. A significant share of the production of hay and grain are also from irrigated land 

where yields are much higher than for dry land. In addition to irrigation, water is withdrawn from reservoirs 

to provide water supply for some municipal areas and industrial plants.

The system of dams and locks on the Columbia and Snake Rivers has made shallow draft barge 

transportation feasible from Portland to the Tri-Cities in Eastern Washington and to Lewiston, Idaho on the 
7

Snake River. The river provides a competitive means to ship grain, as well as lesser amounts of wood 

products, containers and other agricultural products from inland areas to the port at Portland. About 36 

percent of the wheat and barley arriving in Portland for export comes via barge down the Columbia/Snake 

river system. Barges are also used to ship petroleum products upriver from Portland to inland areas.

Salmon reared in the Columbia River system help to support a commercial salmon fishery as well as 

Indian subsistence and religious fisheries. The average annual gross value of commercial salmon fisheries 

from 1986 to 1990, for example, has been estimated at about $17 million (expressed in 1996 dollars).6 

Recreational fisheries were estimated to have a value of $14 million. Declining salmon populations have had 

an economic impact on fishing communities and Indian tribes as well as a cultural impact in the case of 

Indians. Recovery of salmon would likely have a positive financial impact for fisheries.

Recreation and tourism are important economic activities although they are not always thought of in 

those terms. Recreational fishing is an important aspect of this. It not only applies to salmon and steelhead, 

but to other types of resident fish and wildlife as well. Recreational activities support local businesses such 

as motels, restaurants, tackle shops, and guide services.

In the past, resource based, or extractive industries were the dominant economic force in the Pacific 

Northwest. Industries such as lumber and wood products, paper, agricultural products and, fisheries were 

the focal point of economic policy and concern. In 1970, these industries accounted for half of the region’s 

manufacturing employment. They are still important activities, especially in small communities where they 

may be the main source of employment and a way of life. However, the largest manufacturing sectors in the 

region are now electronics and transportation equipment, the latter being dominated by the Boeing 

Company. In addition, the non-manufacturing or service sector accounts for the bulk of employment in the 

region. A high quality environment and recreational opportunities are seen as important qualities that make 

the region an attractive location for high technology, service, and recreational industries.7 The economic 

interest of the region is shifting toward preservation of these amenities. During this transition, both extraction 

and preservation are important economic concerns and that creates substantial conflict within the region on 

appropriate resource policies.

Past efforts to mitigate the damage to anadromous fish including, passage facilities at dams, hatchery 

programs, and barging of juvenile salmon have failed to reverse the decline of most species. The General 

Accounting Office estimated that prior to 1981 the region had spent nearly $500 million on salmon 

recovery.8 Following the Northwest Power Planning Council’s first recovery program, the recovery efforts 

intensified. The General Accounting Office found that between 1981 and 1991 $1.3 billion (in 1991 

dollars) were spent on salmon recovery. The expenditures further intensified following the listing of Snake 

river salmon under the Endangered Species Act. These recovery efforts have been largely funded by the 

Bonneville Power Administration and, thus, by consumers of electricity in the region. The region is still 

searching for policies that will be successful in restoring anadromous fish runs and repairing wildlife damages 

 

6

 Olsen, Darryll, Jack Richards and Richard Turner. The Economic Costs of Fisheries Management Actions for the 

Columbia River. Northwest Irrigation Utilities. January 1992.

7

 See Economic Well-being and Environmental Protection in the Pacfic Northwest: A Consensus Report by Pacific 

Northwest Economists, Economics Department, University of Montana, 1995.

8

 U.S. General Accounting Office. Endangered Species: Past Actions Taken to Assist Columb ia River Salmon. 

GAO/RCED-92-173BR. July 1992.
8

from the dams. Each action taken to help salmon will have effects on the other users of the river. Economic 

effects will ripple through all of the industries mentioned above and possibly others.

The restructuring of the electricity industry is having a dramatic effect on the Bonneville Power 

Administration’s finances. Changes in federal regulation of the wholesale power markets have exposed 

Bonneville to a highly competitive market for wholesale power. In essence, this means that Bonneville can 

no longer simply add costs into its power rates and be assured of recovering those costs. Bonneville’s 

customers are able to find less expensive power in the open market and cannot be expected to pay above 

market costs for very long. These factors affect Bonneville funded programs, including fish and wildlife 

mitigation.

This growing competitive pressure on Bonneville’s costs has elevated the issue of cost effectiveness 

of fish and wildlife programs, as evidenced by the new requirements for the Council in making decisions on 

funding of fish and wildlife projects, discussed above. The following section discusses the Council’s legal 

requirements and the decision process for determining fish and wildlife project priorities and funding.

Economic Analysis for Resource Programs

Levels of Economic Assessment

Economic assessment of projects can occur on many levels. There is general agreement among 

economists about what constitutes various types of economic analysis. Some of those types of analysis will 

be described and compared in this section. It is useful to distinguish three levels of economic analysis that 

could be applied to project evaluation. These are (1) cost analysis, (2) cost-effectiveness analysis, and (3) 

cost-benefit analysis. Each of these involves an analysis of costs, but they combine the cost analysis with 

various degrees of benefit or effectiveness assessment.

Cost Analysis

Cost analysis simply addresses the question, What are the costs of doing this? The benefits or 

desired effects of the project are left unmeasured although they may be described in detail in qualitative 

terms or are understood or assumed implicitly. This analysis may be appropriate where the benefits cannot 

be quantified or even measured by any objective indicator.

Costs should be calculated according to the economic principles described in the following section 

on measuring costs. The costs can be displayed in various ways to facilitate decision maker’s use of the 

information in making a policy judgment about the desirability of the proposed actions.

Cost analysis can contribute to improved decision making. However, at this level, decisions would 

be based on qualitative assessment of the effects or benefits of the project. This may be the only feasible 

analysis for some types of projects, but the approach does not facilitate review of the decision process, 

measurement of the effects for purposes of adaptive management, or accountability of the project 

implementors for achieved results. On the other hand, trying to quantify and value benefits in an attempt to 
9

avoid these problems may lead to a false sense of certainty about the outcome, or an over- or 

undervaluation of the benefits.

Cost-Effectiveness Analysis

Cost-effectiveness analysis addresses the question, Which is the best way to do this? Costeffectiveness adds to cost analysis a quantification of the effects of the project. The quantification of effects 

is in terms of some physical measure, not in terms of dollar value of the effects or benefits. To date, the 

most common effectiveness measures applied in the analysis of salmon recovery program actions have been 

returning adult fish, water particle travel time, or the smolt to returning adult ratio. Cost-effectiveness 

analysis results may then be expressed in terms of the ratio of the effectiveness measure to the cost of the 

project.

Cost-effectiveness analyses take different forms. The simplest case is where two or more proposed 

projects have exactly the same effects. They are just alternative ways of achieving the same thing. This is 

the application of cost-effectiveness that is authorized for the Council in the Northwest Power Act; 

“...utilize, where equally effective alternative means of achieving the same sound biological objective exist, 

the alternative with the minimum economic cost.” In practice, this type of cost-effectiveness reduces to a 

simple cost analysis since it is not necessary to quantify the effects at all. Since the effects are the same, it is 

simply a matter of comparing costs.

A next level of cost-effectiveness analysis involves alternative projects all of which have different 

impacts on the same measure of effectiveness. Here projects can be compared based on the ratio of the 

effect to the cost, for example, increase in returning adult fish per dollar spent. The project with the highest 

fish to dollar ratio would be the most cost-effective. However, this is not likely to be an adequate analytical 

result for most fish recovery decisions. It is likely that the most cost-effective of the projects alone would 

not provide adequate fish recovery and that additional projects would be needed as well. In addition, there 

may be other objectives that are important to decision makers, such as life history diversity of salmon (not 

just gross numbers) or desired habitat characteristics. Also, there is likely to be an overall budget constraint 

to stay within. These situations complicate the cost-effectiveness analysis further.

Consider first the case where there is only one objective being considered, but there is a minimum 

level of effect to be achieved and a maximum budget available to spend. If the effect of each project is 

independent of whether any other project has been implemented, then you would simply implement the 

projects in the order of cost-effectiveness until the overall goal is met or the budget is exhausted. 

The nature of the analysis changes, however, if the effects of the projects are not independent, a 

case that is more likely for fish and wildlife programs. The interactions between projects are likely to be 

numerous and complex and groups of projects are likely to fit together into strategies. For example, many 

projects that would be appropriate to a transportation strategy would not apply if permanent drawdown 

were the basic strategy. In cases such as this, alternative strategies, or related groups of projects, would 

need to be compared for their cost effectiveness.

Finally, there are cases where there are multiple objectives to be met. This is most likely to be the 

situation for fish and wildlife programs. At a minimum there are different stocks of fish in different stream 

reaches. Some of these are healthy and some are endangered. Some objectives may relate to harvestable 
10

adults returns and some to long-term habitat quality and genetic strength of the species. Cost-effectiveness 

analysis cannot help select among projects that affect different objectives unless those objectives can 

somehow be reduced to a common measure or at least converted to some kind of common index.

Multiattribute analysis is one means of addressing this class of decisions. Multiattribute analysis 

applies evaluation techniques to facilitate comparison of actions based on their effects on several indicators 

of merit. The indicators can be quantitative, such as costs or modeled effects on smolt to returning adult 

ratios, or they can be qualitative, such as a notation of the species of fish affected, or the river reach 

affected, or even a positive or negative cultural effect on particular groups. At least two such studies have 

been attempted for salmon recovery actions in the region. The first was done by Linda May for the 

Northwest Power Planning Council9, and the second was done by Resources For The Future for 

Bonneville10.

The Resources For The Future study used a variety of measures of benefit. Biological measures 

were separate for spring, summer and fall chinook and consisted of increased survival relative to the base 

case and recovery criteria. Other measures of effectiveness included the lead time to biological effects, the 

degree to which a strategy is restorative of natural conditions, the geographic distribution of adverse 

impacts, and the degree of institutional change required. These various characteristics were arrayed against 

costs in various graphic and tabular forms. The results cannot all be summarized here, but no one alternative 

or combination of alternatives scored high on all attributes. The Linda May study used a wide array of 

indicators to evaluate the multiple attributes of various actions. Included in the attributes were state, 

subbasin, stocks affected with classifications of their status, costs and their time distribution, and genetic 

ratings. By sorting alternative projects according to different indicators of merit, comparisons among 

alternatives can evaluate many characteristic together. Such studies do not yield one determinate solution 

for the best alternative unless all attribute indicators are quantitative and can be aggregated into a single 

index. To do this, explicit weights would have to be accepted for each of the attributes and the results 

would tend to be very sensitive to such weights.

The other solution to this class of problems is to reduce all of the benefits to their dollar values. This 

is the approach used in cost-benefit analysis.

Cost-Benefit Analysis

Cost-benefit analysis addresses the question, Is this worth doing? In cost-benefit analysis the 

effects of a project are evaluated in dollar terms. The dollar value of the benefits are then compared to the 

cost of implementing the project. Typically if the value of the benefits is less than the cost, or the ratio of 

benefits to costs is less than one, the project should not be undertaken.

When dealing with environmental issues and especially with endangered species the question of 

whether the benefits should be pursued has already been answered by law. Society has decided through 

the legislative process to achieve certain goals and the question, “is this worth doing?” has already been 

 

9

 May, Linda. A Multattribute Model: To Assist in Ranking Strategies For Salmon and Steelhead. Washington State 

Energy Office. 1991.

10 Paulson, Charles M., Kris Wernstedt, and Jeffrey B. Hyman. Recovery Planning For Endangered Salmon: A Multiple 

Attribute Analysis. Resources For The Future. Washington D.C. December 9, 1993.
11

decided. The law has made it difficult to use economic costs as a reason for not pursuing the objective of 

preventing extinction of species. The Endangered Species Act made no provisions for doing cost-benefit 

analysis for recovery actions. In fact, the Northwest Power Act also contains no requirement to do costbenefit analysis on the Council’s fish and wildlife recovery programs. The fact that cost-benefit analysis is 

not required by law does not preclude its application, but the task of quantifying the value of preserving 

endangered species in dollar terms may be hopelessly difficult.

Review of Existing Studies

A large literature of methods and applications of economic analysis for public policy decisions has 

been developed over the years. Many studies have been done relating to fish and wildlife recovery issues in 

the Pacific Northwest and other areas. The Appendix contains a partial bibliography of these studies. Most 

studies deal with specific aspects of economic analysis or with specific issues. However, there have also 

been a number of relatively comprehensive studies of the economic effects of salmon recovery programs in 

the Pacific Northwest. The Council’s Independent Economic Analysis Board reviewed a number of these 

studies and the discussion below draws partially on that analysis.11

The most comprehensive analysis of the economics of fish recovery alternatives was done by 

Bonneville Power Administration, the U.S. Army Corps of Engineers, and the Bureau of Reclamation. It is 

entitled “The Columbia River System Operation Review”.12 This study was aimed at balancing the various 

competing uses of the Columbia River System and involved many interested parties through its extensive 

work groups. The economic analysis in the Columbia River System Operation Review generally followed 

guidelines for analysis of federal water projects that were specified by the U.S. Water Resources Council. 

These guidelines are embodied in a document published by the U.S. Water Resources Council in March 

1983 entitled Economic and Environmental Principles and Guidelines for Water and Related Land 

Resources Implementation Studies.

13 The President of the United States approved this set of economic and 

environmental principles for federal agencies to follow in makings water policy and project 

recommendations. The document prescribes step by step analysis procedures for federal agencies to 

follow. These will be referred to as the WRC guidelines. Because the WRC guidelines play such an 

important role in federal agency decision making, it is worth understanding something about how they work.

The WRC guidelines focus on the economic effects of any water project from a national economic 

perspective. That is, the evaluations prescribed calculate benefits and costs from an aggregate point of view 

as effects on national economic development. Costs and benefits are to be presented as annualized 

constant dollar values, similar to the levelized costs that the Council uses in its power planning analyses. 

There is no need to describe the WRC guidelines here, but it is interesting to list the areas that are to be 

considered in the analysis of water resource projects. These include:

 

11 Independent Economic Analysis Board. Lessons from Existing Studies of the Economics of Fish and Wildlife Recovery 

Measures in the Northwest. Presented to the Northwest Power Planning Council, July 15, 1997.

12 Bonneville Power Administration, U.S. Army Corps of Engineers, and U.S. Bureau of Reclamation, Columbia River 

System Operation Review: Final Environmental Impact Statement, DOE/EIS-0170, November 1995. (The document includes 

a summary and Appendices A through T.)

13 Water Resources Council. Economic and Environmental Principles and Guidelines for Water and Related Land 

Resources Implementation Studies. U.S. Government Printing office. March 10, 1983.
12

• Municipal and Industrial Water Supply

• Agriculture

• Urban Flood Damage

• Power Production

• Inland Navigation

• Deep-Draft Navigation

• Recreation

• Commercial Fishing

• Other Direct Effects

For each of these areas of effect, the WRC guidelines provide detailed analysis procedures that should be 

followed by federal agencies.

Although the national economic development perspective represents a traditional economic 

evaluation of the effects of water resource actions, the WRC guidelines recognize that there are other 

relevant considerations in evaluating projects. There are three other types of analysis recommended; 

regional economic effects, environmental effects, and other social effects. These may be addressed as 

additional considerations for an overall project evaluation, but they are not directly part of the economic 

evaluation or cost/benefit calculation.

Regional economic effects evaluate the regional or local incidence of any national economic effects. 

Many actions can have the effect of shifting economic activity from one area to another. Decision makers 

often want to take these regional or local effects into account when designing policies intended for regional 

application or implementation. From a national perspective, there may be no effect on income or 

employment but there may be a relocation of economic activity. Such shifts in economic activity occur all 

the time in response to changing economic conditions, and the ability of people and communities to adapt to 

such changes is crucial to maintaining a vital and competitive economy.

Environmental and other social effects are those which cannot be evaluated easily in dollar terms. 

These may include effects on ecology, cultural resources, aesthetic qualities, income distribution, fiscal 

condition of local government, life, health, and safety. These are clearly important policy considerations, but 

are not typically a direct component of economic analysis. Although methods have been proposed and 

developed to quantify such values, they remain highly uncertain.

For various reasons the full application of WRC guidelines is often not feasible or desirable. One 

reason is that such analysis is very expensive and time consuming as indicated by the cost of the Columbia 

River System Operation Review study. Although no one has specifically estimated the cost of the economic 

analysis done for the Columbia River System Operation Review, it is probably in the range of $1 to $2 

million dollars. It is common practice to perform abbreviated studies in the early stages of project 

evaluation and to move on to more detailed analysis as a project comes closer to realization.

Key components of data and information are often missing or unquantifiable as discussed above. In 

such cases, techniques of risk and uncertainty analysis can help explore these areas and develop policies 

that are more flexible to changes in information that may develop during the implementation of policies. 
13

Nevertheless, the inability to reliably quantify the economic value of some human values should be accepted 

as a limitation of economic analysis as applied to natural resource decisions, and probably for other areas of 

analysis as well. Economic analysis is only one of several considerations for policy makers, but it is an 

important one. Ignoring the economic implications of policy decisions is likely to result in ineffective policies 

and failure to meet objectives.

It may be useful to point out another perspective on economic analysis that does not match any of 

the WRC concepts. That is a perspective of budgetary analysis; the allocation of a fixed budget to 

alternative uses. Clearly, there are aspects of this type of problem in the Council’s mandate from the 

Gorton Amendment, given the Bonneville spending agreement and the limited scope of activities to be 

included in the Council’s cost-effectiveness determination. In this perspective, the scope of the costs to be 

considered would be limited to Bonneville’s budgetary expenditures and whether those funds are being used 

to obtain the maximum progress on a measure or measures of effectiveness. Such a limited analysis might 

have the potential of biasing the actions toward those that are funded through sources other than Bonneville 

or toward actions whose costs fall outside the budget agreement, such as decreased power revenues due to 

changes in system operation. It is important to recognize that there may be some differences in expectations 

regarding the scope of cost-effectiveness analysis.

With that background we now return the Columbia River System Operation Review. This large 

study took six years to complete and cost in the neighborhood of $20 to $30 million. In the final report, 13 

alternative strategies were evaluated, but these were selected through an initial screening of 90 alternative 

strategies. Appendix O of the study contains the economic and social impact analysis. The economic 

analysis identified both the direct costs of alternatives and the indirect economic impacts. Most subsequent 

studies have relied to some degree on the economic cost estimates done for this study. The effectiveness of 

the alternatives were measured in changes in fish harvest, both commercial and recreational. Changes in fish 

harvest were also expressed in dollar value so that a benefit-cost analysis could be done. At the time the 

study was started Snake River salmon stocks had not been listed under the endangered species act.

The Columbia River System Operation Review utilized several complex models to evaluate effects 

and costs in various sectors. Some interesting results emerged from the analysis. First, the study 

established the concept that, for most alternative measures designed to aid salmon recovery, the costs tend 

to be dominated by the hydroelectric system costs. The second most significant cost was usually lost 

recreation opportunities, although those estimates are controversial. Figure 2 below shows an example of 

costs in various areas for the preferred alternative case. It represents the effect of moving from the base 

case (Corps 1993 Supplemental EIS) to the 1995 biological opinion. Another result of the analysis is that, 

given the models and assumptions used in the study, very few of the alternatives actually benefit fish 

compared to the base case. In the few alternatives that do offer improved fish runs, the value of the 

increased harvest is small compared to the costs required to achieve the increase.
14

Figure 2: Major Costs Changes for 1995 Biological Opinion

Implementation

Power

Irrigation

M&I Water

Recreation

An earlier study was done for the Bonneville Power Administration by Resources for the Future.14 

This study included a very ambitious modeling exercise intended to demonstrate that cost-effectiveness 

analysis that can contribute to a more justifiable and accountable decision-making process for fish and 

wildlife planning. The study focused on alternative ways of meeting harvest and escapement goals for 26 

subbasins in the Columbia and Snake River system above Bonneville dam. The study linked four models 

that captured (1) water storage, flow and hydropower, (2) downstream migration mortality, (3) the number 

of adult fish to compare to harvest and escapement goals, and (4) minimization of cost of meeting subbasin 

goals. The study did not address opportunity costs beyond hydropower. Although the study was intended 

to be a demonstration of feasibility, and serious problems with identifying the biological effects of various 

actions were noted, the authors, nevertheless, asserted some suggested conclusions. They found that many 

of the subbasin goals were over-optimistic and could not be achieved with the recovery actions considered 

in the study. They also concluded that flow augmentation and drawdowns did not appear to be cost 

effective.

Daniel Huppert and David Fluharty from the School of Marine Affairs at the University of 

Washington did a study for the National Marine Fisheries Service.15 The authors worked with an advisory 

committee called the Economics Technical Committee to bring a variety of expertise to bear on the project. 

The study addressed the seven elements of the March 1995 National Marine Fisheries Service proposed 

recovery plan for Snake River salmon stocks. The authors found that there was insufficient information 

about the effects of the proposed measures to do a cost-effectiveness analysis and settled for an accounting 

 

14 Paulson, Charles M, Jeffrey B. Hyman, and Kris Wernstat. Above Bonneville Passage & Propagation Cost 

Effectiveness Analysis. Submitted to Bonneville Power Administration by Resources for the Future. Washington D.C. 

January 1993.

15 Huppert, Daniel D and David L. Fluharty. Economics of Snake River Salmon Recovery: A Report to the National Marine 

Fisheries Service. October 1996.
15

of the costs. Roughly two thirds of the total annual costs of between $253 million and $389 million (1993 

dollars) were due to hydroelectricity. The remaining costs were primarily related to habitat improvement 

and harvest management. The range of cost is largely due to uncertainty about whether flow augmentation 

or drawdown strategies are pursued. The study found that a flow augmentation and minimum operating 

pool strategy, which cost between $192 to $249 million a year depending on the cost of supplemental 

water, had higher economic cost than a strategy that relied on drawdown of the 4 lower Snake reservoirs to 

near spillway crest for four and a half months ($168 million a year). Although the study did not attempt a 

cost-effectiveness or cost-benefit determination, it did discuss possible benefits. Two types of benefits are 

noted, increased direct use of salmon for commercial and recreational harvest, and increased indirect use, or 

existence value. A plausible range of direct benefits was estimated from a negative $68 thousand dollars to 

positive $19.7 million dollars. The authors noted a range of existence value estimates for Pacific Northwest 

salmon from $86.7 to $204 million, but no studies have been done for Snake River salmon alone.

The biological opinion issued in March 1995 by the National Marine Fisheries Service required 

additional study of alternatives to improve survival of Snake River endangered salmon stocks. The U.S. 

Army Corps of Engineers (COE) is required to make a recommendation by 1999 for a preferred 

alternative. The study leading to this recommendation is called the “Lower Snake River Juvenile Salmon 

Migration Feasibility Study”. Two reports have been produced by this effort so far, and additional analysis 

continues.16 The economic evaluation portion of the continuing analysis is being undertaken by a Drawdown 

Regional Economics Workgroup involving many regional organizations. This work is essentially an updating 

of the Columbia River System Operation Review analysis, but with a more restricted scope of analysis. 

Each of the interim studies has a section that addresses economic considerations.

The first product was a study by Harza Northwest, Inc. for the Corps of Engineers entitled “Salmon 

Decision Analysis: Lower Snake River Feasibility Study”. This study developed a decision analysis 

framework that was based on biological objectives first and then economic considerations and risk. Fifteen 

specific measures or tools were considered for their effects on Spring and Summer Chinook in the Lower 

Snake. The measures were grouped into major paths or strategies which included transportation, in-river, 

and combinations of both. In the end, the study concluded that the biological effects information was too 

uncertain to rely on the decision analysis framework to select among alternatives. Nevertheless, interesting 

results were obtained regarding costs and estimated recovery measures. The recovery measure used was 

percent increase in survival and costs were based on cost estimates from the Columbia River System 

Operation Review. The alternative measures have a wide variety of costs relative to the base of the 1995 

biological opinion and also a wide range of effects. The study showed that permanent drawdowns had both 

large benefits and large costs. However, the cost-effectiveness (costs per 1% survival improvement) of 

drawdowns were poorer than most other alternative measures. However, most of those alternatives also 

had relatively small benefits for salmon. Table 1 is taken from the Harza study and illustrates the variation in 

costs from a 1995 biological opinion base case.

 

16 US Army Corps of Engineers. Lower Snake River Juvenile Salmon Migration Feasibility Study: Interim Status Report. 

December 1996.

Harza Northwest, Inc. Salmon Decision Analysis, Lower Snake River Feasibility Study: Final Report. Submitted to U.S. 

Army Corps of Engineers, October 4, 1996. 
16

Table 1: Annual Equivalent Cost of Tools

Transportation - $200 Million

Baffled Spillways (4) - $ 10 Million

Sluices (4) - $ 6 Million

Sound Repulsion $ 1 Million

Fish Guidance Curtain $ 1 Million

Juvenile Bypass Fix $ 1 Million

Extended Screens (2) $ 4 Million

Surface Collectors (4) $ 9 Million

Minimum Operating Pools $ 20 Million

Permanent Drawdown (4) $ 153 Million

The 1995 biological opinion required an interim status report from the Corps of Engineers by 1996 

to contain a preliminary decision regarding drawdown alternatives for the lower Snake River. The Corps of 

Engineers issued their interim status report in December 1996.17 This study evaluated 3 alternative 

drawdown approaches; seasonal spillway crest, seasonal natural river, and permanent natural river. 

Evaluating the alternatives against five evaluation criteria consisting of (1) technical feasibility, (2) biological 

effectiveness, (3) environmental effects, (4) cost effectiveness and (5) regional acceptability, the Corps 

eliminated the seasonal drawdown alternatives from further consideration. Cost effectiveness played a role 

in the decision, but the primary factors seemed to be biological effectiveness and other environmental 

effects, including adverse impacts of seasonal drawdowns on adult upriver migration. The economic 

analysis did not include power system costs and was based on results from the Columbia River System 

Operation Review. The base case for the interim status report was the 1995 biological opinion or the 

preferred alternative from the Columbia River System Operation Review. The permanent natural river 

drawdown had higher recreation and navigation costs, and possibly power costs, although they weren’t 

estimated, but it had lower construction costs, a shorter implementation time, biological benefits for fish, and 

less severe environmental effects compared to the seasonal drawdown alternatives.

In 1995 ECO Northwest did a study for the Confederated Tribes of the Umatilla Indian 

Reservation.18 This paper contains a critique of the Columbia River System Operation Review’s economic 

analysis and a defense of a specific recovery proposal advanced by the Confederated Tribes of the Umatilla 

Indian Reservation. As such this paper is not so much an economic study as a critique of economic studies. 

It raises many methodological issues which are well known issues for economic analysis. These included the 

short-term and static nature of impact analyses, the limitations of economics for assessing intrinsic or 

existence values, potential quantification bias, a tendency to focus on quantity rather than quality, and the 

issue of subsidies to affected industries and activities. It also raises issues about defining the base case and 

the importance of property rights and legal obligations. It also stresses the dynamic and changing nature of 

the Pacific Northwest economy. As an alternative perspective on economic analysis the paper presents 

 

17 US Army Corps of Engineers. System Configuration Study - Phase II, Lower Snake River Juvenile Salmon Migration 

Feasibility Study: Interim Status Report. December 1996.

18 Neimi, Ernie, Ed MacMullan, and Ed Whitelaw. Economic Consequences of Management Strategies for the Columbia 

and Snake Rivers. Submitted to The Confederated Tribes of the Umatilla Reservation by ECO Northwest. July 1995.
17

some important issues, but it also raises issues that, while not essentially economic in nature, are nevertheless 

part of the overall fish recovery policy debate.

In 1995 the Environmental Defense Fund did a report for the Northwest Power Planning Council.19 

This study evaluated 26 alternative approaches to recovery of endangered Snake River salmon. The 

measure of effectiveness used was water particle travel time from Lower Granite dam to below Bonneville 

dam. The study found dry-year water leasing and basin wide fallowing to be cost-effective ways to speed 

water particle travel time under a variety of assumptions. Like some other studies, the diversity of costs for 

attaining a single objective were large, ranging from a cost per hour of reduced water particle travel time in 

the base case of $523 thousand to an increase of $30.2 million dollars. The base case was similar to 1992 

operations and the same as the Columbia River System Operations Review base case.

Measuring Costs

Costs are the common element of all of the economic analyses discussed in the previous section. 

The relevant types of cost that should be considered in an economic analysis are more inclusive than 

common usage. There are two categories of cost to be considered in economic analysis from a societal 

perspective, and a third category that relates to local or regional impact studies.

Direct Project Costs

Direct costs of a project are the actual costs incurred by the project sponsor. They are sometimes 

called implementation costs or budgetary costs. Direct costs include the capital, operating, and maintenance 

costs directly associated with the project. These direct costs are pretty straightforward and match the usual 

non-economists conception of financial costs.

For example, the direct costs of a surface collector at a lower Snake River dam would include the 

cost of purchasing and installing the equipment plus any ongoing annual cost required to operate and 

maintain it, and to periodically replace its components. The capital costs should include any costs incurred 

for interest during construction as well as for interest required to repay the debt incurred for the project. 

Direct project costs are currently reported for proposed fish and wildlife projects and are, therefore, readily 

available.

Other Direct Costs

Many projects undertaken for one purpose will have direct effects on other activities. In an 

integrated system like the Columbia River, there are several activities that rely on the river and its water. 

 

19 Willey, Zach and Adam Diamant. Water for Salmon: An Economic Analysis of Salmon Recovery Alternatives in the 

Lower Snake and Columbia Rivers. Report by the Environmental Defense Fund to the Northwest Power Planning Council, 

1995.
18

These were described in the background section and included such categories as power production, 

navigation, irrigation, industrial and municipal water supply, and recreation. Some of the activities that could 

be directly affected by salmon recovery projects may not be considered to be water using activities, but 

rather may affect the river habitat or the quality of water. Examples of these would be logging and cattle 

grazing.

Any given project may affect a number of these other areas of activity. The effects can be positive 

or negative. It is the net cost, negative and positive, that is the appropriate measure of other direct costs. 

An example will illustrate this concept and also serve to discuss some principles of how these cost should be 

calculated. The example of reservoir drawdown is used here because it has a rich array of effects to 

illustrate. However, the discussion below is not at all comprehensive. It simply describes a couple of 

illustrative economic effects.

Reservoir drawdowns have been proposed on the lower Snake River to help speed the trip of 

salmon smolts to the ocean. Depending on the depth and duration of drawdown, there will be some direct 

project costs associated with modifying the dams and their associated fish passage facilities to operate at 

lower reservoir elevations, or to eliminate these facilities in the permanent natural river drawdown case. In 

addition, there may be direct effects on other fish programs. For example, if the drawdown is deep enough, 

the downstream barging of smolts would have to be discontinued. The direct operating cost of the fish 

barging programs would be reduced and this would be considered a cost saving associated with the 

drawdown. Similarly, planned future costs, such as surface collectors and turbine upgrades, that won’t be 

necessary with a permanent drawdown will offset the direct project costs of the drawdown.

The other direct costs of drawdowns can be quite extensive. There are likely to be effects in most 

of the areas listed above. For example, power generation would be affected by the loss of hydroelectric 

head behind the dams. This means that less electricity can be generated by the turbines at the dam. If 

drawdown is to the natural river there would be no power generated. The net cost of this loss should be 

calculated as the increase in cost that results from replacing the electricity generation in the most economic 

manner available. This may be purchasing on the spot market in the short term, and the eventual 

construction and operating costs of electricity generating plants or new conservation measures. If the price 

of electricity were to increase as a result of drawdown, the demand for electricity may be reduced and, 

therefore, reduce the need for replacement electricity.

Another activity affected would be irrigation. The intake for irrigation pumping may be left high and 

dry by a drawdown. This would leave the farmer with some alternatives to consider. He could extend the 

irrigation intake to the new river level, incurring capital costs for the modifications and in addition paying 

more electricity cost for pumping a greater vertical distance. He could also convert to dryland farming by 

changing crops. His decisions should be based on the discounted future value of his expected net income 

under the different decisions. If the expected net earnings are greater for dryland farming than the expected 

net income for irrigated farming including the costs of extended intakes and increased pumping costs, then 

the economically more efficient of those two choices would be dryland farming. The net cost to the 

economy in this case would be the difference between the expected net earnings of the farm before 

drawdown minus the expected net earnings from dryland farming. There may also be alternative uses for 

the land that would generate a greater expected net income than farming. If that were the case the farmer 
19

would presumably be able to sell the land for an amount that exceeded his expected net income if he 

continued to farm it.

There are some other factors that should enter into the irrigation example as well. They are 

mentioned here just to give an indication of the potential scope of an economic analysis. The expected net 

income of a farm will depend on the costs incurred to move products to market. If the farmer was using 

river barges to transport his product, and the drawdown eliminated that option for all, or portions of, the 

year, then the farmer’s transportation costs may be increased by shifting to alternate forms of transportation. 

All of the effects listed so far are directly felt by the irrigator. There may also be some indirect costs 

or benefits to society. For example, there have been policies in this country that subsidize farming and 

irrigation in various ways. To the extent there are such subsidies to irrigated agriculture, and the drawdown 

policy results in a decrease in irrigated agriculture, there would be some offsetting savings in reduced 

subsidy costs. If the costs of agricultural commodities increased as a result of the drawdown, this would 

create some valid costs to consider. However, for most crops, small changes in production in one area will 

be readily offset by substitution of production in some other place with no effect on the commodity price.

To the extent that shifts occur in the location, but not the overall level or cost of economic activity, it 

is not a concern for traditional economic analysis. It is simply a redistribution of economic activity among 

regions or sectors of the economy. However, for the affected communities this can be a big issue. This 

leads to the third type of cost information and to another form of economic analysis.

Indirect Costs and Regional Impact Analysis

Indirect costs refer to the likelihood that direct economic changes will ripple through to affect related 

economic activities. To continue using the farming example, changes in farm operation will have an effect on 

businesses that supply farm equipment and supplies, and businesses that provide product transportation or 

other marketing services. Eventually such changes will affect most aspects of a local economy including 

stores, restaurants, insurance agencies, and other types of services that derive their business from serving the 

local population.

The traditional tools for accomplishing regional economic impact analyses include regional economic 

base studies, input-output studies, and computable general equilibrium models. Each of these approaches 

evaluates relationships among the various sectors of economic activity in a region. For example, Inputoutput matrices lay out the relationship among all economic sectors and the final demand of consumers for 

products. It contains the amount of purchases one sector would make from each of the other economic 

sectors in order to produce a given amount of product. Thus, if the production of one sector is affected by 

some fish recovery project, input-output analysis can trace the effect into each of the other economic

sectors that provides products and services to the affected industry. Further, because the model contains 

relationships among all industries, the additional indirect effects on all other industries in the local economy 

can be estimated.
20

Local economic impact studies have been used for a long time to justify regional development 

projects on the basis of their direct and indirect benefits to the locality of the project. Local impact analysis 

has also been used extensively to fight changes that might have a negative impact on particular industries or 

communities. A couple examples are provided below the clarify the nature of regional impact analyses and 

to illustrate how they differ from economic analysis from a societal perspective.

Consider a policy action that has the effect of increasing the irrigation costs for a community to the 

point that some local farmers cannot continue to operate profitably and go out of business. The immediate 

effect is to create a direct loss of farm income and employment to the community. In addition, there would 

be some indirect effects on local businesses that provide products and services to the agricultural sector and 

eventually the effects will ripple through the whole community. It is safe to say that the agricultural setback 

in this one community will not affect the price of agricultural commodities and therefore will not affect the 

overall national demand for agricultural products. The same amount of products will be provided to meet 

demand, but they will be produced in another region or community. In these other communities, there 

would be similar direct and indirect effects on the local economy but in a positive direction. From a national 

economic perspective, these effects would largely offset one another. Further, the local impacts will not be 

permanent. The economy is dynamic and continually adjusting and changing and creating opportunities. 

People find new jobs in the same community or other communities so that most of the effect is transitional.20

Another example could be a case where a policy change eliminates the barging of products on a 

section of river. This may result in the loss of several up-river ports and the need for shippers to find 

alternative modes to ship their products. The losses of barging business and port jobs and income in the 

affected area will be partly offset by increased business for the trucking and rail industry and may result in 

increased business for some down-river ports. To the extent that total costs of delivering products to 

markets increases as a result of this change there could be an adverse national economic impact which 

reflects the net effects, positive and negative, on various communities. The magnitude of that impact will 

depend on the farm responses to the increased cost. Such adjustments are similar to those discussed in the 

preceding paragraphs for a change in irrigation costs.

The analysis of regional economic impacts can be biased by the fact that it is much easier to identify 

and thus quantify the effects on the regions or communities directly affected by the action than it is to identify 

the many and dispersed offsetting effects in other areas. Large economic effects, as contrasted to large 

local effects, are most likely to be generated by actions that create or destroy a uniquely efficient or low cost 

way of providing some product or service. Local impact analysis is most relevant for helping communities 

understand the adjustments they will need to make if certain policies are followed. The directly affected 

communities are where the changes will be most concentrated, while the offsetting effects and economic 

adjustments are likely to be widely spread and have far less noticeable impacts on other regions or 

communities. From an national or societal economic perspective it is the net effect of all of these 

adjustments that is relevant.

 

20 See, for example, Hamilton, J.R., N.K. Whittlesey, M.H. Robison, and J. Ellis. “Economic Impacts, Value Added, and 

Benefits in Regional Project Analysis”. American Journal of Agricultural Economics. May 1991.
21

The Role of Economic Analysis in Fish and Wildlife Programs

As discussed earlier, national policy as embodied in the Endangered Species Act and the Northwest 

Power Act actually provides for quite limited roles for cost-effectiveness considerations in determining fish 

and wildlife programs. The Council has always considered economic and other impacts on the power 

system, as the Northwest Power Act provides. However, the role of economic analysis of fish and wildlife 

programs in now growing. This is partly a reflection of growing competition in the wholesale power market, 

and partly a result of the growing economic implications of alternative fish and wildlife measures. These 

pressures are evidenced by the negotiation of the 1996 federal memorandum of agreement on Bonneville 

fish and wildlife funding, and by the passage of the Gorton amendment requiring a prioritization process and 

a cost-effectiveness determination for projects to be funded under the Council’s Fish and Wildlife Program.

The next section discusses several types of economic analysis that might be considered in 

implementing these requirements and the availability of data and information to carry out such analyses.

Individual Project Evaluation

Both the Northwest Power Act and the Gorton amendment seem to require a cost-effectiveness 

analysis at the individual project level. The Northwest Power Act says that the “Council shall include in the 

program measures which ... utilize, where equally effective alternative means of achieving the same biological 

objective exist, the alternative with the minimum economic cost.” 21 The Gorton amendment specifies that, 

in making its funding recommendation to Bonneville, the Council “shall determine whether the projects 

employ cost-effective measures to achieve program objectives.” 22 Both of these statements direct a type of 

analysis that focuses on individual projects and seems most applicable to project design and implementation 

review.

If the Council received two project proposals that had exactly the same effects, satisfaction of the 

requirements of the Northwest Power Act would be straightforward. The costs of the two proposals could 

be compared and the least costly one picked. In practice, however, project proposers currently provide 

direct project cost estimates, but do not provide other direct cost information. The Council has relied on its 

rulemaking process to generate information on other direct costs but with limited success.

This does not mean, however, that individual project cost effectiveness cannot be addressed. There 

is a more efficient approach to help ensure that project proposals will be more cost effective. That 

approach involves putting in place prioritization and project evaluation processes that more naturally lead to 

the most cost-effective approaches being proposed. Such approaches borrow from the concepts of the 

private market place to establish comparable incentives in the public sector, and are in keeping with the 

efficiency in government initiatives of vice-president Gore. Such incentives should be effective at the project 

proposal stage as well as throughout the project’s implementation.

 

21 Public Law 96-501, Section 4.(h)(6)(C).

22 16 USC Section 839 b (h)(10)(D), as ammended in 1996.
22

There are several dimensions to be considered in instilling efficiency incentives and accountability 

into the fish and wildlife recovery process. These include the project proposal stage, the project evaluation 

and prioritization stage, and project implementation, evaluation and accountability. Three principles should 

be followed to the extent possible:
23

1. Inject competition into the process where it is feasible.

2. Remove or neutralize any conflicts of interest from the selection and prioritization process.

3. Strive to ensure that project sponsors and implementers are held accountable for performance 

throughout project implementation.

There is currently no one organization that takes full responsibility to ensure that fish and wildlife 

recovery funds are spent cost-effectively. This has resulted in a fish and wildlife program that lacks a 

comprehensive system of management controls. Because of this existing process, introduction of 

competition into the project funding process, for example through competitive bidding, may be difficult to 

implement. However, as the funding and contracting agency for implementation, Bonneville is in a position 

to implement many of these management systems, and can also advise the Council and agencies and tribes 

of problems that need to be addressed earlier in the selection and prioritization process.

In the meantime, consideration of alternative ways to achieve specific effects will need to be 

introduced on an ad hoc basis. When alternative approaches to achieving the same effects are identified 

during the project review process funding can be delayed until the alternative approaches can be evaluated 

for both their cost and ability to achieve the intended effect. Sponsor’s should be encouraged to explore 

innovative approaches to their projects that utilize more cost-effective means to the same end.

At the project implementation stage, accountability for performance and review of achievements 

could be introduced. Management audits are a typical way of achieving this accountability. There are two 

different objectives to be accomplished in this area. The first is to track the dollar flows for the project. 

This is more of a financial audit and is standard practice in many government and private agencies. The 

questions addressed are: Are billings and payments properly documented and approved? Is the money 

being spent as intended? Is the work accomplished consistent with the billings? Is the project staying within 

time schedule and budget and achieving the stated objectives in the proposal? A second type of audit

would be to evaluate the contract management process itself to determine whether there are ways that the 

process for management and oversight of project implementation could be modified to improve incentives 

and accountability. Issues are: Are the statement of work, performance work schedule, and budget 

consistent with the project proposal? Are changes in scope, objective, or methods supported by proper 

justification and approvals? Are competitive bids utilized whenever feasible?

It should be understood that such improvements in the process are not intended to point fingers at 

the responsible parties or find fault with the current process, but rather to instill into the whole process a 

structure that leads inherently to more efficient and cost effective use of public funds. It is impossible to 

imagine a situation where fish and wildlife activities will not be subject to budget pressure for the foreseeable 

future. In that environment, more effective use of funds means that more can be accomplished for the 

resources. In addition, the electricity rate payers and tax payers will be more supportive of recovery 

programs if they are convinced that funds are being used responsibly and effectively.

Economic Comparisons among Projects
24

Economic judgments involved in implementing the fish and wildlife program with a limited budget are 

different from the economic judgments involved in the program’s development. Program implementation 

requires project prioritization and cost-effectiveness analysis under the new section 4 (h)(10) (D) adopted in 

1996. These judgments require economic comparisons among projects. 

Comparison among projects adds a new dimension to the cost-effectiveness analysis: the 

measurement of effects. Here the Council encounters real difficulty because there is limited ability to 

measure the effects of many fish and wildlife projects. Further, there is no agreement on a set of objectives 

that projects should be oriented toward. As will become clearer in the discussion below, the identification 

of a framework for the fish and wildlife program that formalizes the objectives, strategies, and priorities is 

indispensable to making significant improvements to the role of economics in fish and wildlife decisions.

There are a number of approaches to increased consideration of economic factors when many 

different projects are being compared and prioritized. Only one of these would be considered traditional 

cost-effectiveness analysis. The first applies to a situation in which the effects and their relative importance 

to achieving overall goals are not understood or agreed to. In this case, there is little that can be done to 

formalize the consideration of the effects of various projects. The second approach applies to the situation 

where all effects can be reduced to a single quantitative measure. When this is possible, then a traditional 

cost-effectiveness analysis can be attempted. The final approach applies to a case where the goals and 

objectives are clear and they can be ranked in some type of prioritization scheme that shows their relative 

importance. Each of these approaches is described in the following sections.

Providing Improved Cost Information

In situations where the objectives of the fish and wildlife program are not formalized, not agreed to, 

or the effects of projects are not well understood, there is no hope of accomplishing any form of costeffectiveness analysis among projects. This problem applies to the current situation in the fish and wildlife 

program. Although important progress has been made in the last few years to improve project information 

and to organize it into data base form, the program objectives are not systematically described or ranked in 

importance. The Council’s effort to develop a program framework holds the hope of remedying this 

situation, but the process will not yield useful results during this year.

Is there any way that economic information can contribute to better decision making in this 

condition? The answer is, yes. The improved data base that Bonneville has developed can be utilized to 

provide more and better organized information to the project selection and prioritization process. In 

particular, the project direct cost information could be arrayed against various measures of project effects 

provided in the project proposal information. It would also be possible to supplement the direct project 

cost information in the data base with information about the other direct costs that might be expected from 

various projects. This information would probably be fairly general and based on studies that have already 

been performed on similar proposed actions in the region.

Creative displays of such information can help decision makers evaluate the economic effects of 

projects, lead to improved decision making, and increase consideration of the relative costs of alternative 

projects. For example, the allocation of dollars to various program areas, fish stocks, or geographic areas 

would help evaluate program balance. Some displays of cost information have been included in both the 

“Draft FY 1998 Annual Implementation Work Plan” and the evaluation of that plan by the Council’s 
25

Independent Scientific Review Panel.2324 However, much more detailed cost analyses of various 

components of the programs is possible from available information. The progress that has been made to put 

project information into a computer data base facilitates this type of analysis.

The more formal consideration of costs should improve fish and wildlife decisions over the current

process. However, the decisions will still reflect an implicit balancing of effects against an informal 

conception of the goals and objectives of the overall program. Such a process may lead to improved 

decisions, but they still will be decisions that are difficult to document and describe.

Single Measure of Effects

If there is a single measure of effect that is agreed to be the dominant program consideration, and if 

all proposed projects’ contributions to this measure can be quantified, then a traditional cost-effectiveness 

analysis could be attempted. In fact, some of the studies discussed earlier in this paper have evaluated 

mainstem passage alternatives in terms of single effectiveness measures including, water particle travel time, 

returning adult salmon, value of commercial and sport harvest, and percent increase in survival. It is clearly 

not the case at this time that the region agrees on any single dominant measure of effect that adequately 

describes the goals of the fish and wildlife program. However, some parties in the region are willing to 

make such a designation and have advocated that the Council perform cost-effectiveness analysis based on 

single measures of effectiveness.

It is unlikely that the region would agree on a single measure of effectiveness that could be used to 

select and prioritize all projects. And even if it did, it would turn out to be impossible to measure the effects 

of all projects on the single effectiveness measure. However, there may very well be groups of alternative 

projects that affect essentially the same quantifiable objective. In these cases cost-effectiveness studies may 

provide useful information for selecting among and prioritizing such projects.

Multi-Attribute Analysis

In cases where there are multiple objectives to be considered, and those objectives can be 

prioritized, more formal types of decision making may be possible. This type of analysis is generally called 

multi-attribute analysis. Where alternative projects or actions have effects on several objectives, or 

attributes, multi-attribute analysis makes use of expressed rankings of those objectives to display numerical 

or non-numerical ranking of proposed projects based on their effects on the various objectives. Two such 

studies were referenced earlier in the paper.

This method is usually applied during the preliminary planning stage when benefits and costs are not 

available. It, therefore, requires considerable judgment. As a result, the outcomes are very sensitive to 

judgmental weights assigned to performance measures, and to the specific objectives included in the 

evaluation. It is often used to reduce alternatives to a manageable number which are then given a more 

thorough evaluation.

 

23 Columbia Basin Fish and Wildlife Authority. Draft FY 1998 Annual Implementation Work Plan. Submitted to the 

Northwest Power Planning Council, June 4, 1997.

24 Independent Scientific Review Panel. Review of the Columbia River Basin Fish and Wildlife Program: As Directed by 

the 1996 Amendment to the Power Act. Report to the Northwest Power Planning Council, July 15, 1997.
26

The multiattribute approach is similar to the first approach discussed above where information on 

costs and effects are displayed to help decision makers. However, multi-attribute analysis is a more formal 

and quantitative approach. This, in turn, requires a more formal system of goals, objectives, and priorities. 

The Council’s framework development may eventually lead to such information and improve the feasibility 

of doing this type of analysis. Ranking objectives and placing relative importance of them may prove a very 

difficult task for the region. However, the gain would be a more objective and reviewable decision making 

process.

Recommendations

For This Year’s Determination

As discussed above, the most immediate task is the cost-effectiveness determination required by the 

Gorton amendment. We propose several strategies for reaching a cost-effectiveness determination for 

fiscal year 1998 funding recommendations, which recognize limitations in current information and programs.

Strategy 1: Ensure Biological Effectiveness

The best assessment of the effectiveness of fish and wildlife recovery measures proposed for fiscal 

year 1998 will come from the prioritization and the Independent Scientific Review Panel (ISRP) process. 

The ISRP will evaluate projects to ensure that they have significant benefits for fish and wildlife and address 

the objectives and policies embodied in the Council’s fish and wildlife program. The ISRP’s 

recommendations should address the risks associated with actually realizing the benefits of projects and the 

logical order and timing of projects. An example in which there may be a presumed risk to realizing the 

benefits of a project is when the research necessary to establish the effects of actions proposed in the 

project has not been completed. Another case would be a project which is complementary to another 

strategy which has not yet been selected. An example would be investments whose benefits are associated 

with either a drawdown strategy or a transportation strategy. Until the region chooses one strategy or the 

other, investments in related projects face a high likelihood of providing little benefit while incurring a debt 

that will limit budgetary flexibility in the future.

In the process of reviewing projects, alternative approaches to achieving the objectives of a project 

may be identified. In cases where such alternatives may hold promise for a less costly way of achieving the 

same objectives, the ISRP or the Council may recommend delaying implementation until the alternative is 

analyzed.

Strategy 2: Increased Use of Cost Analysis

A second strategy brings cost information into the decision process. For reasons explained earlier 

in the paper, it is not currently feasible to do a formal cost-effectiveness analysis for fish and wildlife 

projects. However, existing project information can be used to display direct project costs along with other 

project characteristics in a manner that will help inform funding and cost-effectiveness decisions. 

Tabulations can make clear how funds are allocated among program areas, sub-basins, fish stocks, 

recovery strategies, and other dimensions that may help decision makers. Such tabulations can provide 

perspective about whether funding levels are consistent with the policies and priorities expressed in the 

Council’s fish and wildlife program.
27

Special cost analyses in specific areas of program activity can help compare the various projects 

that target common program subobjectives. In specific areas, such as artificial production or habitat 

enhancement, it may be feasible to identify a relatively limited set of objectives to compare against costs. 

Such analysis can identify projects that seem to be higher in cost than other similar projects. Explanations 

for such differences may justify the project, but a lack of explanation can verify the need for changes in the 

project plan or a reduced priority.

This approach to introducing cost considerations into the decision process is less rigorous than may 

be ultimately attainable, but it does provide a positive step forward in increasing the role of costeffectiveness considerations in the prioritization and funding process. More formal applications of costeffectiveness analysis will become possible as the program framework develops and provides more 

common structure to the overall program goals, objectives and strategies.

Strategy 3: Evaluate Project Histories

A third strategy is to evaluate the record of existing projects over the past. Projects that have been 

ongoing for some time should have yielded some measurable effects or have contributed some concrete 

addition to the region’s knowledge about fish and wildlife problems. A sampling of projects should be 

evaluated to determine what benefits they have yielded for the money expended. This exercise will 

introduce some accountability into the process, but more importantly can provide a better understanding of 

how to specify measurable effects in future project proposals. An improved ability to hold project sponsors 

and implementors accountable for results requires progress in this area. Further, such measurements are 

essential for an adaptive management approach to program design and implementation. As the project 

manager for the implementation of the fish and wildlife program, the primary responsibility for this activity 

should be Bonneville’s.

Strategy 4: Audit and Implement Improvements to Contract Management Procedures

A fourth strategy is to introduce selective audits on projects. These audits would be oriented 

toward determining whether the contracting process contains the procedures necessary to manage the 

project’s cost and effectiveness. This audit would be characterized as a General Accounting Office style of 

audit, rather than the financial audits that generally characterize contracting procedures. It should ensure that 

a project is holding to its schedule and cost estimates and that it is providing results consistent with the 

project proposal. Such procedures are intended to establish accountability for project implementors and 

clear responsibilities for contract managers.

Specifically, the contract management review process would include procedures for examining the 

project proposal documentation and reviewing the initial contract documentation, including the statement of 

work, budget and schedule. It would also include a review of contract expenditures to determine if they 

were consistent with the project budget and statement of work as well as dispersed only for payment of 

work which was completed. The procedure would include a review of contract amendments to determine if 

there was proper documentation providing justification for changes in statement of work, budget or time 

schedule. It would also examine whether contract amendments tended to change or broaden the original 

objectives and methodologies from those contained in the project proposal. A review of contract 

monitoring and evaluation requirements would be necessary in order to ensure that there was a method for 

periodic reporting on the overall progress or status of the project.
28

While the contract management review would not address an evaluation of the contractor’s 

performance nor the degree to which project objectives were being achieved, it would serve the purpose of 

highlighting the extent to which a project does or does not clearly define objectives, remain consistent in 

those objectives, develop procedures to monitor and evaluate whether objectives are being achieved, and 

report to Bonneville and others the results of that monitoring and evaluation.

For Future Determinations

Finally, with the help of the Independent Economic Analysis Board the Council will identify gaps in 

the information base that have precluded a more rigorous cost-effectiveness method. A plan will be 

developed to remedy that information gap if it is feasible. This establishes an evolutionary cost-effectiveness 

method that will improve over time to enhance the Council’s decision process and the documentation of its 

choices.
A-1

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A-2

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