BONNEVILLE AND NORTHWFST ENERGY 

OVERSIGHT HEARING 

BEFORE THE 

SUBCOMMITTEE ON WATER 

AND POWER RESOURCES 

OF THE 

COMMITTEE ON RESOURCES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

SECOND SESSION 

ON 

BONNEVILLE POWER ADMINISTRATION OPERATIONS 

AND THE STATUS OF THE COMPREHENSIVE REVIEW 

OF THE NORTHWEST ENERGY SYSTEM 

25-679cc 

MAY 21, 1996-WASHINGTON, DC 

Serial No. 104-73 

Printed for the use of the Committee on Resources 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1996 

For sale by the U.S. Government Printing Office 

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 

ISBN 0-16-052959-X 
COMMITTEE ON RESOURCES 

DON YOUNG, Alaska, Chairman 

W.J. (BILLY) TAUZIN, Louisiana 

JAMES V. HANSEN, Utah 

JIM SAXTON, New Jersey 

ELTON GALLEGLY, California 

JOHN J. DUNCAN, JR., Tennessee 

JOEL HEFLEY, Colorado 

JOHN T. DOOLITTLE, California 

WAYNE ALLARD, Colorado 

WAYNE T. GILCHREST, Maryland 

KEN CALVERT, California 

RICHARD W. POMBO, California 

PETER G. TORKILDSEN, Massachusetts 

J .D. HAYWORTH, Arizona 

FRANK A. CREMEANS, Ohio 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, California 

WALTER B. JONES, JR., North Carolina 

WILLIAM M. (MAC) THORNBERRY, Teua 

RICHARD (DOC) HASTINGS, Washineton 

JACK METCALF, Washington 

JAMES B. LONGLEY, JR., Maine 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

GEORGE MILLER, California 

EDWARD J. MARKEY, Massachusetts 

NICK J . RAHALL II, West Virginia 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

SAM GEJDENSON, Connecticut 

BILL RICHARDSON, New Mexico 

PETER A. DEFAZIO, Oregon 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

TIM JOHNSON, South Dakota 

NEIL ABERCROMBIE, Hawaii 

GERRY E. STUDDS, Massachusetts 

SOLOMON P. ORTIZ, Texas 

OWEN B. PICKETT, Virginia 

FRANK PALLONE, JR., New Jersey 

CALVIN M. DOOLEY, Califomi~ 

CARLOS A. ROMERO-BARCELO, Puerto 

Rico 

MAURICE D. HINCHEY, New York 

ROBERT A. UNDERWOOD, Guam 

SAM FARR, California 

PATRICK J . KENNEDY, Rhode Island 

DANIEL VAL KlsH, Chief of Staff 

DAVID DYE, Chief Counsel 

CHRISTINE KENNEDY, Chief Ckrlr./ Administrator JOHN LAWRENCE, Democratic Staff Director 

SUBCOMMITI'EE ON WATER AND POWER RESOURCES 

JOHN T. DOOLITTLE, California, Chairman 

JAMES V. HANSEN, Utah PETER A. DEFAZIO, Oregon 

WAYNE ALLARD, Colorado GEORGE MILLER, California 

RICHARD W. POMBO, California BRUCE F. VENTO, Minnesota 

FRANK A. CREMEANS, Ohio SAM GEJDENSON, Connecticut 

WES COOLEY, Oregon OWEN B. PICKETT, Virginia 

HELEN CHENOWETH, Idaho CALVIN M. DOOLEY, California 

GEORGE P. RADANOVICH, California MAURICE D. HINCHEY, New York 

WILLIAM M. (MAC) THORNBERRY, Texas SAM FARR, California 

RICHARD (DOC) HASTINGS, Washington 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

ROBERT FABER, Staff DiN!ctor/Counsel 

VALERIE WEST, Professional Staff 

S. ELIZABETH BIRNBAUM, Dem.ccratic Counsel 

(II) 
CONTENTS 

Page 

Hearing held May 21, 1996 ............................................................................ ......... 1 

Statement of Members: 

DeFazio, Hon. Peter A., a U.S. Representative from Oregon ....................... 6 

Doolittle, Hon. John T., a U.S. Representative from California, and Chairman, Subcommittee on Water and Power Resources ................................. 1 

Statement of Witnesses: Alexanderson, Alvin, Senior Vice President/General Counsel, Portland 

General Electric . .. . . .. . ... .. . . ... ...... .. . ... . .. .. . . .. . . . . ... .... .. . . .. . .. .. . ... .. .. . . . . . .. . ... .... .. . .. .. . 7 

Prepared statement ................................................................................... 47 

Brown, Richard J ., General Manager, Ravalli County Electric Cooperative, Inc. ......................................................................................................... '!1 

Prepared statement . . ....... .. .. .... ... . . .. . . .. . . .. . . .. . .. . . .. . . .. . . .. . ... . . . . . . . . .. . . . . . . .. . . .. .. . . . . 56 

Carr, John, Executive Director, Direct Services Industries, Inc. ................. 11 

Prepared statement .............................. ..................................................... 65 

Golden, KC., Energy Policy Consultant.............................................. ........... 9 

Prepared statement .. . .. . ... ...... .. .. .. . .. . . .... ... . .. . .. . . .. .. .. . . .. . .. . . .. . . .. . . .. . .. . . .. .... .. . . . . 52 Ro~~on, ~ack, Deputy Chief Executive Officer, Bonneville Power Admnustration .. . .. .. .. ... . . .. . . .. .. .. . .. . . ... . .. . .. .. .. .. .. . . .. . . . . . .. . . .. .. .. . . . .. .. . . .. .. .. . . . . . .. . . .. .. . . .. . . 3 

Prepared statement ................................................................................... 34 

Additional material supplied: 

Bonneville Power Administration: 

Cost of Transmission Facilities . .. . ..... ... . ... ... .. . . .. . . .. . . .. . .. . . . . .. . . .. ... . . .. ... . .. .. . . . 32 

Transmission Rates Increase .................................................................... 31 

Portland General Electric Co.: Answers to questions from Members .......... 72 

Ravalli County Electric Co-Op: Answers to questions from Members . . . . . . . . . 69 

(Ill) 

BONNEVILLE POWER ADMINISTRATION OPERATIONS AND THE NORTHWEST ENERGY 

SYSTEM 

TUESDAY, MAY 21, 1996 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON WATER 

AND POWER RESOURCES, COMMITTEE ON RESOURCES, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:09 a.m. in room 

1334, Longworth House Office Building, Hon. John Doolittle 

(Chairman of the Subcommittee) presiding. 

STATEMENT OF HON. JOHN T. DOOLITTLE, A U.S. REPRESENTATIVE FROM CALIFORNIA; AND CHAIRMAN, SUBCOMMITTEE 

ON WATER AND POWER RESOURCES 

Mr. DoOLITTLE. The Subcommittee on Water and Power Resources will come to order. The Subcommittee is meeting today to 

hold an oversight hearing on the Bonneville Power Administration 

operations and the status of the comprehensive review of the 

Northwest energy system. 

The Bonneville Power Administration, an agency of the Department of Energy, has played a dominant role in Northwest power 

markets for 50 years. BPA sells and exchanges power under contracts with over 100 utilities in the Pacific Northwest and the Pacific Southwest and with seven large industrial customers. BPA estimates that its service area of nearly 300,000 square miles has a 

population of approximately 9 million people. An independent review committee, convened by the Governors of 

Oregon, Washington, Idaho and Montana, is currently reviewing 

the Northwest electric utility industry. The pressure brought to 

bear on BPA by deregulation and national competition in the 

wholesale power industry has provided the impetus for this regional self-examination. The review is seen among other things as 

a major regional decision mechanism to determine what should 

happen to BP A. 

The range of options under consideration includes shrinking the 

role of BPA, divesting the Federal Government of its responsibility 

for BPA, and splitting the generation and transmission assets. 

The review began on January 4, 1996, and is expected to conclude on December 5 of this year with the release of the committee's final report. Since this Subcommittee has a major oversight 

role for BPA, we are taking this opportunity to hear from some of 

the participants in the review process and to look more closely at 

the issues which are being raised. 

(1) 
2 

Since the early 1980's, BPA's costs have risen dramatically while 

the cost of alternative power supplies has dropped. Where BPA 

once had a significant price advantage competition has begun to affect its market share. With these developments and the increased 

pressure on the Federal budget, it is appropriate to reevaluate the 

policies and proper role of this Federal activity. 

There is a concern that BPA may be pursuing policy decisions 

during the regional review process which broaden BPA's responsibilities at a time when the Federal Government is trying to 

downsize and which are inconsistent with the BPA's stated intent 

to maintain the status quo until the review is complete. A record of decision, issued in October 1995, states that BPA has 

decided to offer new products and services beyond those which BPA 

is obligated to provide by statute. Quote, "In order to increase business and enhance BPA's revenue 

potential, BPA may provide products and services other than 

power, transmission, and delivery products," end of quote. Examples of these products or services include: design and construction 

of power or transmission facilities for other utilities; fish, wildlife, 

and environmental consulting; brokering of power and other services. 

While each of these items may or may not have merit, there is 

a question if now is the right time for BPA to implement an expansion of its responsibilities. The record of decision does not place objective restrictions on the breadth of these endeavors. It is my understanding that BP A is now involved in designing overseas transmission lines. 

Another issue which is raised by the review process is the effect 

of any decision on BPA's credit rating. Moody's Investors Service 

has issued a report stating that this outcome of the Comprehensive 

Review of the Northwest Energy System could affect BPA's credit. 

The Department of Energy has recently proposed a policy change 

which would reduce the responsibilities the Federal power marketing administrations have for environmental compliance when engaging in certain activities. Included is a proposal to exempt them 

from environmental studies for transition lines less than 10 miles 

long. The proposed amendments appear to substantially expand the 

universe of PMA actions that will be presumed to not require an 

environmental impact statement or perhaps even an environmental 

assessment. 

On May 10, I sent a letter to Secretary of Energy O'Leary raising 

questions about the proposed policy. And on May 20, the Department of Energy announced a reopening of the comment period to 

address those concerns. 

In the fiscal year 1996 Appropriations Conference, the BPA was 

authorized to begin selling power outside the region when the 

power became available from existing customers leaving the BPA 

system. The issue did not get raised by BP A in this or any other 

authorizing committee. This is the type of issue that should be 

raised early and brought to this Subcommittee for consideration, 

rather than to address it through the appropriations process. 

The future of BPA is a complex issue involving both regional and 

national interests. I look forward to the testimony of each of our 

witnesses. 
3 

It is my understanding that we will reserve for the Ranking 

Member some time for him to make an opening statement when he 

arrives. I understand his train was delayed, but he will be here in 

a few minutes. 

With that, we will invite our witnesses to come forward and 

please remain standing while I administer the oath. We have Jack 

Robertson, Deputy Chief Executive Officer, Bonneville Power Administration; Alvin Alexanderson, Senior Vice President/General 

Counsel, Portland General Electric; K.C. Golden, Energy Policy 

Consultant; Richard J. Brown, General Manager of Ravalli County 

Electric Cooperative, Inc., and John Carr, Executive Director, Direct Services Industries, Inc. 

If you will raise your right hand. 

[Witnesses sworn.] 

Mr. DOOLITTLE. Let the record reflect that each answered in the 

affirmative. 

Under our committee rules, we have 5 minutes for the witnesses 

each to make his presentation. And those lights will be guides. The 

green light will be on when you begin, and the yellow light begins 

at the fourth minute, and then at the fifth minute when that has 

expired the red light goes on. Please try and wrap up when you see 

the yellow light. 

I'd like to recognize Mr. Robertson to begin testimony. 

STATEMENT OF JACK ROBERTSON, DEPUTY CHIEF 

EXECUTIVE OFFICER, BONNEVILLE POWER ADMINISTRATION 

Mr. ROBERTSON. Thank you, Mr. Chairman, members of the Subcommittee. I am Jack Robertson and I'm Deputy CEO of the Bonneville Power Administration. We appreciate the opportunity to appear today. I congratulate the committee for seeking early hearings 

on the public and economic impacts of a new more competitive electric power industry. 

This is an important topic. Electric energy is both the underlying 

fuel for the information-based economy of the 21st century, andessential to the health and safety of the general public. My comments 

today will focus on the comprehensive review of the Northwest energy system and the goals we believe to be paramount. 

We will also present actions we have taken to successfully, we 

believe, stabilize Bonneville's financial conditions, even given the 

intense competitive pressures that you mentioned, Mr. Chairman. 

First of all, let me say that Bonneville welcomes the Regional 

Comprehensive Review. We are active and enthusiastic participants in it. The Governors are approaching the halfway point in 

recommending changes for the Northwest electric utility industry. 

Historically, Bonneville has distributed the benefits produced by 

the Columbia River Basin's hydropower system throughout the region to provide a balance in economic and environmental benefits 

consistent with the values of the people of the Northwest. However, 

as competition has led to lower prices for alternative power suppliers, it also has raised issues about the role Bonneville and what 

role we should play in the new competitive marketplace. 

Bonneville is open and prepared to change to serve the citizens 

of the Northwest. The Department of Energy believes that the fol-
4 

lowing strong Federal interests should be considered in the Regional Review: 

Regardless of the ultimate structure that is adopted for the Federal power system, it is essential that this system continue to serve 

the important public purposes such as providing reliable and affordable power to the Northwest homes and businesses, funding 

fish and wildlife recovery efforts, and supporting energy efficiency 

and renewable technologies. DOE is pleased that the guidance document outlining the goals, scope and procedures for the review embraces these public purposes. 

The second goal is it is critical that the costs and liabilities associated with the Bonneville system, including the Washington Public 

Power Supply System and the Federal Treasury debt, continue to 

be borne by the beneficiaries of the Bonneville system. Federal taxpayers have a $9 billion investment in the Northwest hydroelectric 

system, which was made with the expectation that it would be repaid with interest. 

We expect to pay $5 billion to the Federal taxpayers in the next 

six years alone. If the Bonneville structure is to be altered, the region must ensure that it would not prevent taxpayers from receiving the expected return of their investment. As Congress and the 

administration struggle toward a balanced budget, it will not be realistic or fair to ask Federal taxpayers to bear additional burdens. 

Let me go briefly through some of the actions that we have taken 

to stabilize our situation. Three years ago, there were many clouds 

of uncertainty on Bonneville's horizon, Treasury payment reform, 

fish costs, new power sales contracts to be negotiated, the list was 

long. Rapidly declining prices for alternative power supplies led to 

a crisis as our customers actively considered leaving the Bonneville 

system. I am pleased to say that today with the help of Congress 

and the Department of Energy, we have resolved virtually all of 

the challenges and have entered a period of basic stability. 

Rigorous cost cutting allowed us to offer a 15 percent overall rate 

reduction in our recent draft record of decision on the rate case 

which was less than a couple of weeks ago. This rate reduction is 

the largest in BPA's 58-year history and comes with a 5-year guarantee. 

We are meeting a highly competitive wholesale market created 

by the National Energy Policy Act by Congress in 1992. How did 

we do this? We reduced costs and staffing. We cut over $600 million per year in our costs, levels below the fiscal year 1995 congressional budget in three separate cost cutting decisions over the last 

year and a half. 

In terms of our overheads and employees, we set a goal of reducing Federal and contractor staff by 500 FTE's-a total of 1,000-

each and we are well on our way of meeting or exceeding the thousand staff target overall. We're setting new lower staff targets and 

overheads in the coming months. Next, we tackled our power sales contracts. We recently announced a key agreement with wholesale customers that will lead 

to a power and transmission system that is more efficient more stable, and more competitive; good news for Northwest consumers. 

Bonneville's average priority firm rate would be reduced 14 percent for preference customers. Those are public utilities principally. 
5 

And our industrial power rate would be reduced by 16 percent. 

These figures are preliminary and the impact will differ by utility, 

and final decision is due in June. 

Last year, we secured loads and revenues from nine direct service industries, most of which had started looking elsewhere for 

power supplies. At a value of $360 million per year, we retained 

84 percent of the DSI firm load for the next five years. Bonneville 

currently is negotiating amendments to our existing sales contracts 

and new 5-year contracts with public customers. To date, we have 

successfully signed up 65 customers, roughly half of our overall 

customer base, and we expect to make more announcements soon 

about successful completion of other contracts. 

In 1995, we reached an historic agreement with the Clinton administration and the Northwest congressional leadership on Bonneville's fish and wildlife budget. We spend an average of $252 million per year, plus river operations, to help fish migrations costing 

another $90 to $280 million per year for roughly an average of over 

$400 million per year for fish and wildlife. This is the most money 

being spent by any region on fish and wildlife enhancement, we believe, in the world. 

Bonneville is moving as quickly as possible to implement Congress' support of competition in the wholesale electric industry. We 

are currently taking actions to assure that our transmission access 

and pricing policies are consistent with new FERC policies. 

As this committee is well aware, Congress passed and the President signed legislation to refinance Bonneville's outstanding appropriations owed to the Treasury. According to the CBO, the plan will 

increase near-term cash-flow to the government and reduce the 

Federal deficit by $89 million over the next seven years. We again 

express our great appreciation to the committee and its members 

for supporting this important piece of legislation. 

Finally, the fiscal year 1996 Energy and Water Development Ap- propriations Act includes language allowing Bonneville to sell excess Federal power outside the region for up to 7 years, as you had 

mentioned earlier, Mr. Chairman. We believe this authority can 

lead to increased revenue thereby further increasing our probability of making Federal Treasury payments. As a result of all of 

these actions and more, there is an 80 percent probability that we 

will make our Treasury payment in full and on time during each 

of the 5 years of the rate period. 

That's up substantially from our expectations even a year and a 

half ago and is roughly equivalent to a 90 percent Treasury probability that was related to a 2-year rate case previous years. So the 

horizon is clearing and Bonneville's financial future is brightening. 

The actions we have taken will help ensure that the Northwest 

gets maximum economic and environmental benefits from the Columbia River and that taxpayers are guaranteed a return on their 

investment. 

We are trying to manage our activities in a way that will not 

foreclose options for the regional review. It is important to understand the activities Bonneville has taken and is taking at this time 

are not designed to create an expansive mega utility. Instead, we 

are seeking to assure the best possible use of our existing asset 

base in order to provide low rates for consumers, strong environ-
6 

mental benefits, and repayment of a Federal taxpayers' investment 

in this system, a $5 billion issue in the next 5 years alone. 

Changes to the electric energy business brought about by deregulation will affect everyone-Bonneville, public and investor-owned 

utilities, the Northwest environment, consumers throughout Washington, Oregon, Idaho and Montana. Our region has a remarkable 

history of rising to the challenge of change. It is in our hands to 

make the kind of lasting contribution that will preserve the Northwest's unique and enviable way of life into the 21st Century. 

And with that, Mr. Chairman, I would ask that my formal remarks be included for the record, and I would be happy to answer 

any questions. 

[The statement of Mr. Robertson may be found at end of hearing.] 

Mr. DOOLITTLE. The Chair is going to recognize our Ranking Minority Member, Mr. DeFazio, for his statement. 

STATEMENT OF HON. PETER DEFAZIO, A U.S. 

REPRESENTATIVE FROM OREGON 

Mr. DEFAZIO. I thank the Chairman for his indulgence. Sometimes the friendly skies are not so friendly and I had an adventure 

getting here. 

Today, we're going to hear from some of the participants in the 

Comprehensive Review of the Northwest Energy System, which 

was convened by the region's four governors in January. 

At the completion of my work as Chair of the Congressional Task 

Force on BPA in the 103rd Congress, it was clear that circumstances in form of rapid changes in energy markets combined 

with BPA's highly leveraged financial position were leading us toward a thorough rethinking of the Northwest Power Act and the 

political and economic arrangements that were enshrined in the 

act. 

By the middle of last year I began calling on the region's Governors to convene a regional forum to attempt to come to some regional consensus on the major issues facing BPA. Today, the region 

is engaged in a constructive conversation about our energy future 

with participation from all of the relevant interests. 

The basic question I hope to have answered by the review is this: 

How can we continue to further the purposes of the Northwest 

Power Act in a world of increasingly deregulated and competitive 

energy markets? 

The purposes of the act are as relevant and important to the region's quality of life as they were when they were incorporated into 

law in 1980. Adequate and economical power supply, to encourage 

conservation and efficient energy use, develop reviewable energy 

resources provide public participation in power planning projects, 

mitigate and enhance the Columbia River Basin's fish and wildlife 

populations. 

Restructuring the Nation's utility industry and its energy markets will prove to be a tragic mistake if our only goal is the cheapest short-term kilowatt of electricity. Our challenge is to manage 

the industry's restructuring in a manner that promotes the best 

long-term stewardship of our environment while equitably sharing 

the economic benefits of restructuring with all of our citizens. 
7 

I share one or two concerns with the Chairman of the Subcommittee. During the period that the regional review is being conducted, Bonneville should not be taking actions that foreclose options the region may wish to consider. The long-term transmission 

access agreements and stranded cost protections BPA recently gave 

to the region's direct service industries is a case in point, and I 

would hope that that sort of action is not repeated during this interim period. Secondly, we have to ask ourselves whether it is appropriate for 

a public agency to be a major unregulated market force competing 

head to head with private enterprise. That's not to say that I give 

great credence to the view that BPA or the Federal hydroelectric 

projects in the Columbia River Basin should be privatized. It is difficult to see how a private entity or entities could or would further 

the public purposes that govern Bonneville or the Bureau of Reclamation purposes that include flood control, irrigation, recreation, 

salmon recovery. 

Furthermore, the management of the Columbia River Basin's assets is already too Balkanized. We don't need to further fragment 

authority for river operations and risk creating even greater conflicts between the basin's environmental and economic resource. 

I look forward to the testimony. I hope to hear today that we 

have a process unfolding that will lead the region to some substantial degree of consensus in making a final proposal, because I do 

believe that Congress is going to revisit the Northwest Power Act 

in the next Congress, and having the region somewhat unified behind a proposal as opposed to competing interests attempting to 

end running for their own specific gain will be very problematic for 

those of us who live in the Pacific Northwest. I look forward to the 

testimony, and thank the Chair for his indulgence. 

Mr. DOOLITTLE. Thank you. Mr. Alexanderson, you are recognized. 

STATEMENT OF ALVIN ALEXANDERSON, SENIOR VICE PRESIDENT/GENERAL COUNSEL, PORTLAND GENERAL ELECTRIC 

Mr. ALEXANDERSON. Thank you, Mr. Chairman. I appreciate the 

opportunity to testify this morning for Portland General Electric 

Company and as part of the Northwest investor-owned utilities. I 

am a member of the Steering Committee of the Comprehensive Review and one of two investor-owned utilities that are represented 

on that review. 

I am a lawyer having spent 24 years in the industry, not all on 

the legal side. For a while I was president of a subsidiary called 

PGX from 1988 to 1990, which was the first power marketing affiliate of a U.S. electric utility. 

Although that venture was short-lived, it was at the forefront of 

what is now becoming a highly competitive and robust electric marketing industry. 

I have submitted for the record, as part of my testimony this 

morning, a presentation that I gave late last year before the Regional Review got under way at the Western Electric Power Institute. It's my version of the key policy questions and some of the 

answers that I hold, given my private utility perspective. 
8 

I won't elaborate on that presentation now, but I'll be glad to answer any questions that you or others may have on such issues as 

transmission access, industry restructuring, and the competitive 

environment. 

For the moment I'd like to speak about process, and if you have 

my remarks in front of you, I'm going to skip right to the bottom 

line which starts over on page 4 and asks for three things from 

Congress at this point. 

What I've said in the missing pages is that the review is under 

way, the right people are there, and the right issues are being addressed, and I think we're going to get the right answers. Although 

I don't know what those answers are exactly right now. 

But in the interim we need three things. First, we need to assure 

that Bonneville's transmission system is operated as a separate 

business unit from its power business and is managed in a way 

that benefits not just BPA, but all electric customers in the region. 

For the economic benefits of falling electric prices to flow all the 

way to electric consumers we need an open, nondiscriminatory and 

unencumbered transmission system now. We can't afford a Federal 

highway where only the Federal trucks get through. 

Second, we need Confess to assure that during the Regional Review process, BPA wil. not engage in new business activities or 

sign any long-term sales contracts beyond the year 2001. If BPA is 

allowed to engage in risky new business ventures, all of which take 

investment or losses up front to be paid by profits in later years, 

without specific authorization or prior approval of the Congress, it 

will be establishing new facts on the ground. The Regional Review 

has enough facts to deal with right now. 

And it will tend to preempt options which Congress may consider 

next year for reforming or restructuring BPA's activities. There is 

no agreement that Bonneville should grow. 

Third, once the Regional Review process has submitted its recommendations we will need Congress to act quickly and keep up 

the momentum. Nowhere else in the country except in the Pacific 

Northwest does the Federal Government own 40 percent of the 

-power market and 80 percent of the transmission. 

Some kind of legislation is going to be required to assure that all 

electric providers are playing by the same rules and that customers 

who choose one provider over another do so because they have a 

lower cost, higher quality product, not because they were given special/rivileges. I' like to respond to one comment that Mr. Robertson made this 

morning about the good news coming out of the rate case. 

It is true that the DSis have good news out of the rate case. We 

expect that they have something on the order of $100 million a 

year savings due to the combination of lower rates and market access being provided by Bonneville. And it is true that the customers of publicly owned utilities have some good news coming out 

of the rate case. They will see on the order of $100 million a year 

annual benefits. 

Unfortunately, the residential and small farm customers of the 

exchanging investor-owned utilities will see over $100 million a 

year increase. Over a million customers in the Northwest will see 

a 21 percent increase in the rates Bonneville charges to them. 
9 

There has been a huge shift of cost responsibility among customer 

groups to those customers. 

Thank you again for the opportunity to testify. I'll welcome any 

comments or questions you may have. 

[The statement of Mr. Alexanderson may be found at end of 

hearing.] 

Mr. DOOLITTLE. Thank you. 

Mr. Golden is recognized. 

STATEMENT OF K.C. GOLDEN, ENERGY POLICY CONSULTANT 

Mr. GOLDEN. Thank you, Mr. Chairman. 

My name is K.C. Golden. I'm an energy consultant and a member of the steering committee of the regional review. 

You have my written statement, and I would ask that it be entered into the record. I will not reiterate it here, but I would like 

to say a few words about the substance and process of the regional 

review and Bonneville's future. 

In 1980, as Congressman DeFazio alluded to, Congress passed 

the Northwest Power Act that gave the region very strong guidance 

on how to conduct its energy business and how to chart the course 

to its energy future, guidance that in fact became the template for 

energy policy and planning nationwide and was very successful in 

the region. 

Our job, as I see it, in the comprehensive review is not to repudiate that guidance. The goals are right. The goals remain as contemporary and important today as when they were written. But the 

mechanisms clearly have to be modernized to keep pace with an increasingly competitive power industry. Particularly we need to 

rethink Bonneville's role in a more competitive power industry as 

a Federal institution. 

Now, different members of the animal kingdom adopt different 

sorts of survival strategies. Some animals survive by seeking camouflage and becoming indistinguishable from their surroundings. 

Some survive by being bold and distinctive, offering something that 

clearly is not available among their competitors or in their surroundings. Bonneville's early response to an increasingly competitive environment was the camouflage response. They sought to become 

more like the competition. They sought to make themselves indistinguishable from the competition in order to compete. And I think 

that what Bonneville found out is that, as Mr. Alexanderson said, 

when you have nearly half of the region's generation and better 

than three-quarters of its transmission, it's a little hard to inconspicuously blend in among your competitors and act as though no 

one will notice you. 

I think Bonneville has begun to discover that the more it becomes indistinguishable from its competitors, the more people 

begin to ask why the Federal Government needs to play that kind 

of role. And I think it is clear now that Bonneville's survival depends not on being just another competitor but on clearly articulating a public mission, a contemporary public mission that works in 

today's power markets for today's needs and that distinguishes it 

as a uniquely valuable public institution than its competitors-that 
10 

provides service to the region well beyond what its competitors can 

provide. 

There is room for discussion about the dimensions of that mission, but I would offer a few for your consideration. One is to secure the taxpayers' investment in the Federal system and to maximize the productivity of that investment for future generations of 

taxpayers and Northwest consumers. That is clearly a function that 

none of Bonneville's competitors are prepared to undertake. 

The second is to wisely manage and fairly distribute the bounty 

of the Columbia River, which although Bonneville has faced some 

tough times and increasing competition, is still very substantial 

and still forms the backbone of the Northwest power system and 

its economy. 

And finally, in thinking about Bonneville's future role, I think it 

is very important that we not respond to controversial Bonneville 

undertakings by neutering Bonneville but by more appropriately 

and clearly focusing it on the public functions that no other institution can provide and then making sure that it has all the tools and 

the resources to succeed at those public functions. 

Finally, on process and on the regional review, I am very proud 

of what the Northwest has accomplished in the years since the 

WPPSS crisis almost took down our power system some 15 or 20 

years ago. We have developed a proud tradition of regional cooperation, of public involvement, of genuine public discourse and control 

about the shape and direction of our energy future, and I think we 

have a better energy system to show for it. And I think few would 

contend otherwise. 

I know folks in the Tennessee Valley, where there is far less accountability on the part of the Federal institution to regional interests and regional dialog, think that the Northwest is an enviable 

model of how to make a Federal power institution more accountable to regional interests. 

And I think that proud tradition in the Northwest, along with 

the extraordinary good faith of the steering committee members 

and the incredible amount of elbow grease that is being applied to 

the comprehensive review, justifies my optimism, and I hope your 

optimism, that this process will deliver solid results, and I think 

it justifies support from Congress. No region and no collection of individuals, I think, could be better qualified to succeed at what is admittedly a very ambitious undertaking. But our prospects for success will be enhanced immeasurably by a clear signal from the ultimate decisionmakers that, for 

now, the comprehensive review is where the action is, that this is 

the place where you expect competing interests in the region to 

reach mutual accommodation, and to come back to Washington, 

D.C., with some semblance of regional consensus. 

That kind of signal from you all, I think, will make our job much, 

much easier and much more likely to deliver a product that you 

can be proud of and that you can act on expeditiously. Thanks very much. I welcome any questions you may have. [The statement of Mr. Golden may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you. Mr. Brown is recognized. 
11 

STATEMENT OF RICHARD J. BROWN, GENERAL MANAGER, 

RAVALLI COUNTY ELECTRIC COOPERATIVE, INC. 

Mr. BROWN. Thank you, Mr. Chairman. I am Rick Brown, and I appreciate the opportunity to testify before this distinguished committee on regional review. 

The rationale behind the regional review in the Northwest energy system I think boils down to the implementation of the 1992 

Energy Policy Act and the requirements of it, FERC mega-NOPR 

on open access on transmission, and the falling gas prices in the 

Northwest. 

The problems we are trying to resolve with the review are both 

national and regional: How do we meet the mandates that Bonneville and the region currently fall under and still fulfill the current 

obligations that we have as public utilities? 

BPA has a unique position in the Northwest energy picture. They 

have been, and I think will continue to be, the measure of the marketplace in compared rates. They have over the last 50 years had 

50 percent of the power supply in the region. They also own and 

operate 80 percent of the transmission. 

To develop a strategy to deal with the changing world, the four 

governors appointed a blue ribbon steering committee of approximately 20 members. This working group has reviewed other deregulated industries and, while they are not identical, they do have 

some similarities. This working group has also reviewed the deregulation of electric industries in other countries. 

The steering committee has also appointed four working groups 

to look over specific items. One is transmission; one is Federal 

power marketing; one is conservation, renewable resources and 

public purposes; and the last is competition and customer choice. 

These groups are trying to decipher where we are currently at and 

what may be the preferred alternatives as we move into this changing electric energy. 

The status of the regional review: We've had very good participation, from my understanding. Over 800 members, customers, to 

date have participated in the process. That's similar to coming to 

consensus with our Congress. Regional cooperation from all the 

sides has been good. Even though they don't agree on every issue, 

they are working together to develop consensus positions which 

they can report back to the governors sometime later this fall. 

It's my understanding that the first draft report to the public will 

be put out sometime after July, and at that time we will have more 

public input and changes or comments to the regional plan, and 

then a final draft will be submitted to the governors probably in 

December. That concludes my remarks, and I appreciate the opportunity. 

[The statement of Mr. Brown may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you. 

Mr. Carr is recognized. 

STATEMENT OF JOHN CARR, EXECUTIVE DIRECTOR, DIRECT 

SERVICES INDUSTRIES, INC. 

Mr. CARR. Good morning, Mr. Chairman, committee members. 

I'm John Carr, executive director of the Direct Service Industries. 
12 

The DSis are eight companies, aluminum and chemical, that purchase electricity in the Pacific Northwest. The companies produce 

approximately 40 percent of the U.S. production of aluminum and 

contribute approximately $2 billion a year to the Northwest economy. 

Traditionally, the companies bought the bulk of their power from 

the Bonneville Power Administration and contributed between a 

quarter and a third of BPA's revenues, but traditionally also had 

access to the open power market to acquire power when BPA was 

unable to serve them. 

With the listings of various Endangered Species Act salmon in 

the Pacific Northwest, the ability to use the Columbia River has 

been changed and flexibility has been taken away from BPA, which 

meant that they could not rely on some of their traditional means 

of serving the DSis. 

Because of that and changes in market circumstances, the DSis 

negotiated new contracts with BPA last year and, as an outcome 

of those contracts, now have long-term access to the bulk power 

market and are probably the first industries in the United States 

to have that ability. That has caused the DSI rate to decrease and 

caused the preference rate to decrease-that is the rate to public 

utilities and has set a precedent for other industries. Let me spend a couple of moments on the comprehensive review. We are participating in the review. We have a member on the 

steering committee and are participating in each of the work 

groups. We are committed to making the process work. 

I give the review good marks so far. People are working together. 

I think it's early enough where everyone has kept an open mind 

and realize that the issues are probably more complex than what 

a lot of us realized going into it. We have taken some principles into that process, and there are 

five of them: One, whatever comes out of the process must lead to 

open access on the transmission systems. And that's broader than 

just the Federal transmission system; that means all high-voltage 

transmission systems. 

Ultimately, consumers must have choice and must have the ability to choose their supplier. Customer choice is the hallmark of 

competition. Subsidies must be eliminated. We cannot continue to rely upon 

large industries to subsidize other customers. And I think as we 

dig into it, we will find that there are many cross subsidies in utility rates. 

We must be able to develop an accountable salmon program, one 

that has clearly defined objectives, accountable results and is done 

in a cost-effective manner. 

Finally, we must preserve the Northwest values and public policy 

objectives that are important to all residents of the Pacific Northwest, but we must find ways, to the maximum extent possible, to 

achieve those results through the competitive market. 

In conclusion, I think the region needs an opportunity to continue working on the regional process. I believe we are ahead of the 

curve on the deregulation, or opening up of competition, in the electric industry, but we need to assure that the Northwest is doing 

it in a smart way. 
13 

For now, I would ask the committee to give us an opportunity to 

come up with our own solutions, to not prejudge alternatives, and 

wait for the result of the process. I think we will achieve a good 

result in the region. We have a long history of being able to work 

together, and I'm hopeful that we will again achieve a good result. 

Thank you, and I would be happy to take any questions. 

[The statement of Mr. Carr may be found at end of hearing.] 

Mr. DOOLITTLE. Thank you. 

Mr. Alexanderson, you indicated, I think, that while the ratesthe priority firm rate and the industrial power rate were being reduced-! think the figure was $100 million-that roughly we were 

going to see that amount of increase or more on the residential customers. Was that a correct characterization of what you were saying? 

Mr. ALEXANDERSON. Yes. 

Mr. DOOLITTLE. So, we are reducing the rates for one group but 

increasing them for another. So in that case, we're not really taking advantage of lowered costs. It seems like it's more cost shifting. 

Is that your view? 

Mr. ALEXANDERSON. Exactly. Mr. Chairman, that's what happens 

when you allow market access at a time that the region is vastly 

surplused, an estimated 30 to 40 thousand megawatts. The market 

will not recover the fixed costs of generating resources in a situation where there is overcapacity, at least not for a while. 

Contrast that with a situation where market access is allowed 

when there's a shortage of energy and there's no provider. At that 

point, market access costs the person that has market access; he 

loses his opportunity to buy from the old resources and has to buy 

from someone who will build a new resource. 

At a time of surplus, the market clearing price is generally something near the marginal running cost of the resources on the West 

Coast, and so market prices are very low right now. That means 

if everyone has market access, no one will recover the fixed cost of 

the embedded access that creates that wonderful market. 

So that's exactly rigbt. Market access can create-and if you 

allow market access and you say oh, my goodness, my rates have 

to be lowered in order to compete with the market access, that can 

create a situation where the fixed costs of the existing resources 

are shifted among customer classes, and that is one of the key equity considerations that needs to be looked at in a shift to a competitive market. 

Mr. DOOLITTLE. Mr. Robertson, do you care to comment on that 

situation? 

Mr. ROBERTSON. Yes, thank you, Mr. Chairman, I do. 

Just to go back through the numbers, because of the actions I described earlier, we are proposing in our draft record of hearing to 

lower rates to public utilities that buy power directly from Bonneville by about 14 percent, and industries will get about a 16 percent rate discount. 

The program Mr. Alexanderson is talking about is the Energy 

Exchange Program that was created by the Northwest Power Act 

in 1980. The simple purpose of the program was to try to pass 

through the benefits of the Columbia River system to higher-cost 

utilities in the region. So that Bonneville in a paper transaction ex-
14 

changed our power for their higher-cost power. The result of that 

was a net benefit that was passed through to the ratepayers of 

higher-cost utilities in the region. We have provided about $2.4 billion in benefits to those ratepayers from about 1980 through 1995. 

The requirement of the act, though, said that when Bonneville's 

rates begin to be affected by the market conditions such that public 

preference rates would be affected negatively by those conditions, 

a provision called 7(b)(2) would kick in. That provision tries to protect public utilities first from those market conditions. 

The protections of 7(b)(2) kicked in because of the market that 

Mr. Alexanderson just described. The total effect of that was that 

the pass-through benefits of $2.4 billiQn that had been provided 

historically were reduced in Bonneville's initial proposal last July. 

We have recently come up with an agreement with Congress 

which freezes those benefits at $145 million for next year, so there 

will be no rate impact next year for ratepayers of higher-cost utilities. In the draft decision we made 2 weeks ago, the net cost of the 

exchange the benefits for these ratepayers for the remaining 4 

years of the 5-year period goes up from about 65 to 75 million dollars per year. This totals about a half a billion dollars of continuing 

benefits to those ratepayers for that 5-year period, including the 

$145 million. 

So there is a rate impact. It does end up having an effect on the 

ratepayers of Mr. Alexanderson's company, for example, but a large 

continuing benefit continues to go forward, and we believe we did 

what was required by the law in 1980. 

Mr. DoOLITTLE. Do you think Bonneville is going to be able to 

avoid incurring new obligations that would have a long-term impact until we can get the results of this study that is ongoing? 

Mr. ROBERTSON. Yes, Mr. Chairman. 

I appreciate the intent of your questions and Mr. DeFazio's as 

well and others that we have talked to. The point, I think, is that 

the region wants to go through an effective review, and it wants 

to make, as the region has done historically, the decisions about 

what happens with the Columbia River system. 

We are putting, as I indicated, contracts together for the 5 years 

between now and the year 2001 because we believe that is essential to creating a sound financial footing upon which the future decisions can then be made. 

So we are trying to finalize those important contracts that will 

stabilize Bonneville's situation finally, and then if there are 

changes as a result of the regional review, we believe those changes 

can be incorporated in new contracts. 

Mr. DOOLITTLE. Thank you. 

Mr. DeFazio is recognized. 

Mr. DEFAZIO. Thank you. 

Mr. Robertson, I guess one of the areas of concern, not the most 

dramatic, but is an area of concern regarding potential for foreclosed option, is the ESCO proposal by BP A. I was surprised when 

it first surfaced, and I guess it is still gathering steam. What do 

you have budgeted for the next 5 years for the ESCO? 

Mr. RoBERTSON. For the energy services business that we described, we have about $20 million in capital budgeted and about 

$5 million in expense. 
15 

Mr. DEFAZIO. Is there a shortage of these services out there? Is 

that why BPA has to jump into the breach? 

Mr. RoBERTSON. K.C. Golden indicated earlier, Mr. DeFazio, we 

have a huge tradition of energy conservation in the region that 

began with the 1980 Act in the region, and it has gone for 15 years, 

and Bonneville invested about a billion and a half dollars in a direct, centrally-acquired conservation programs for years while Bonneville's rates were well below the alternative rates of consumption. 

As we described earlier, there is a tremendously competitive 

marketplace right now. Bonneville had to figure out ways to 

achieve the objectives of the Northwest Power Act for conservation 

in new and reinvented ways. One of the keys to that, we think, is 

for Bonneville to be-to play an important niche role in creating 

and expanding the energy conservation service business in the 

Northwest. There is a business there now. There are definitely energy services companies, and the reason for that is because the 

Northwest has become one of the most energy-efficient regions in 

the country. 

What we're trying to do in the energy services business is provide capital and provide market transformation services which 

typically individual companies cannot provide. We think generally 

our business, as I said, will be about $20 million of what we think 

is about a $200 million ESCO and related business in the Northwest. 

We are not seeking to be a dominant market player or to become 

the only energy services company in the region by any stretch; we 

are simply trying to assure that conservation goes forward in the 

most cost-effective way. 

Mr. DEFAZIO. So, you intend to target market segments that 

other competing, existing private or public ESCOs, nonprofits, 

might not target? Is that the idea? 

Mr. ROBERTSON. That's our intent. Mr. DEFAZIO. And might those, if no one else is seeking them 

out, turn out to be not profitable? 

Mr. ROBERTSON. It's possible. A good example is, we hope to go into rural areas, and typically 

ESCO services have not rushed into rural areas because of the lack 

of density of customers. But Bonneville has a long tradition in 

rural areas, and we're looking forward to trying to help and fill 

that void, which we think is important. 

I want to say one thing that is exceptionally important based on, 

I think, your concerns and others'. We have put forward a draft 

plan to the regional review for Bonneville's involvement in this 

business. We have basically asked the region to take a look at this, 

make sure that we're filling the kind of void we think is important 

to fill. If we're not, we will get advice back on it. But we have not 

made up our mind to go forward on this, pending the regional discussion. 

Mr. DEFAZIO. I guess that begs the question of what alternatives 

others on the panel-how would various members of the panel propose that BPA pay for, or the region otherwise promote, the public 

purposes enshrined in the act? Or do members of the panel think 

that we should abandon those public purposes, particularly con-
16 

servation, renewables, certainly salmon, salmon recovery, fish and 

wildlife generally? And I guess, you know, I'll start with anyone 

who wants to volunteer in the brave new world. Go ahead. 

Mr. BROWN. I'm not sure that the region wants to abandon the 

principles for conservation. 

Mr. DEFAZIO. There may be panel members who do, but go 

ahead. I'm only asking the questions. 

Mr. BROWN. Under conservation, I think that they would like to 

see that cost-effective, and it needs to take its place alongside other 

renewable resources, and if it's cost-effective we would probably 

support that. 

The salmon issues: Public power has always supported the best 

science available for the salmon. Currently we spend a lot of money 

and we are getting very little return for it, and it is very hard to 

justify that back to the members, the end users, in their rates. 

We have testified to that with our members at the annual meetings, and they support a scientifically-based salmon program that 

can show some results; and, quite frankly, we have been hard 

pressed to show them that we have made results for the money 

that we have spent. 

Thank you. 

Mr. CARR. I want to make it clear from the DSI perspective that 

we support the continuation of the public policy values of the Pacific Northwest. It was one of the five principles I earlier put on 

the table. That includes salmon. It includes efficiency. We have a 

great renewable system, but need to keep pushing the envelope. 

Regarding rural systems, we need to take a look at maintaining 

cost-effective service to them. 

The suggestion we've tried to make is, let's identify each public 

policy area and ask ourselves the following question. What should 

we continue to do in a competitive market?-and search hard to see 

if there are ways to use the competitive market to achieve those 

goals. And if we can't, then we need to look at other alternatives, 

and we've said that we are open to doing that. - Mr. DEFAZIO. Mr. Chairman, my time has expired, but if members could reorient their responses, I'll come back to this, which is, 

if you're in agreement with these public purposes, although you 

want efficiencies, my question is, do you see options of pay for 

them? 

Mr. Carr has raised two ideas. One: Is there a way in the competitive market to promote them, or, if not, are there other alternatives? And I would like people to address the feasibility and/or 

the alternatives and whether or not they themselves and who they 

represent are willing to share in those alternatives. That is the 

question. 

Thank you. 

Mr. COOLEY. [Presiding.] Mr. Hastings. Five minutes. 

Mr. HAsTINGS. Thank you, Mr. Chairman. 

I guess I'm really looking forward to what comes back when this 

process is all over with. I've heard from virtually all of you, at 

least, alluding to the fact that you would kind of like us to stay out 

of this until you get done so you can bring back a product. 
17 

I understand, Mr. Golden and Mr. Alexanderson, you are two 

that are on this committee, the only two? None of the other ones? 

You said, Mr. Alexanderson, pretty specifically, that you were 

very confident of a decision that everybody could live with when 

this process is all done. It just seems to me, from the perspective 

of having lived in that part of the country virtually all of my life, 

there are so many divergent views there, yet you seem so confident. 

Without trying to get you to be very specific, I know it is not a 

very fair question, what leads you to believe with this confidence 

that you expressed today? 

Mr. ALEXANDERSON. Well, I am an optimist is part of the answer, 

I guess. But I think that the review has achieved a pretty rich dialog, and that is an important first step. 

I think the right issues are being raised, and we have the right 

set of resources focused on looking at the eligible answers. I am not certain there is going to be agreement-! think there 

will be agreement on a few things, and I think there will probably 

be some areas, a lot of details where there is not agreement. But 

I think there will be a product, and whether we can go beyond 

principles that are agreed all the way to implementation details, 

institutions and legal structures that need to be changed, I don't 

know yet, but I'm not ready to rule it out. 

Mr. HAsTINGS. Mr. Golden, do you share that? 

Mr. GOLDEN. I do. Al is a realist, not an optimist, and I think 

there are a lot of reasons to be optimistic. Frankly, there are a lot 

of shoals that this thing could go aground on, too. 

I do think that my optimism depends in part on the optimism of 

this body. I think the more that the ultimate decisionmakers are 

pointing to this process and investing their confidence in it, the 

more likely it is that the people around the table will see it as their 

best hope to reach an appropriate accommodation. It is a mutual 

undertaking, I think. 

And frankly, part of my confidence is based on the fact that I 

think from the perspective of the consumers and citizens of the region, the alternatives to delivering some semblance of a working regional consensus are pretty dismal. I think that what we will see 

is a continuing piece by piece erosion of the benefits and the mission that Bonneville has brought to the region for 50 years. And 

I think those benefits and the Columbia River, a well-managed Columbia River system, are the backbone of what makes the Northwest the Northwest. 

And my hope and my belief is that despite our varying interests 

in detail, that we all share a powerful enough interest in maintaining a healthy Columbia River system for the benefit of the region 

and to repay taxpayers for their investment that that interest will 

prevail. 

Mr. HASTINGS. Are other energy sources being considered in this 

whole review; natural gas, for example? Is that part of what your 

discussion, your review, looking at alternative energy resources? 

Mr. GoLDEN. It has been raised. Natural gas in direct application, I assume you mean, as opposed to an electric generating resource? 

Mr. HAsTINGS. Right. Right. 
18 

Mr. GoLDEN. The issue has been raised. The natural gas industry has largely been restructured, and it itself has already gone 

through the throes of some of the process that the electric industry 

is going through now. But inevitably dramatic changes in regulation and policy for electric services will affect natural gas. 

One of the areas where I think it is most actively in play is to 

the extent that we are making system-wide investments in increasing the efficiency with which energy is used, do we want to make 

sure that we are doing that even-handedly with respect to natural 

gas and electricity. 

That's one place where I know the issue has come up. But we 

are not really trying to undertake the restructuring of the natural 

gas industry. 

Mr. HASTINGS. One final question. Mr. Robertson, you made a 

statement in your testimony, or maybe I didn't catch it in your testimony, but you said that with the restructuring and the legislation 

that has passed in the past, BPA now has an 80 percent probability 

to meet the payments in the next 5 years. Give me a scenario for 

the horrible 20 percent. 

Mr. ROBERTSON. Well, I hate to do that, just by the implications 

of it. But just to put it in context, Mr. Hastings, 80 percent probability in each year of the 5-year period is equal above a 90 percent 

probability in what used to be a 2-year rate period. It is as high 

as we have enjoyed it, I would say, in the past, if our numbers hold 

true. 

The 10 percent or 20 percent probability events are a combination of extraordinarily bad circumstances in virtually every area. 

You would have record droughts, and we can lose up to $400 million a year just on water conditions alone. You would probably 

have more than one year of record drought. You would have a combination of low aluminum prices and industrial shutdowns. You 

would have to go to the edge of what would be a depression-type 

scenario combined with bad water to get to the 10 percent we are 

talking about. It is possible, particularly with the dynamics in the marketplace. 

But a lot of the contracts we are signing through the 5 years are 

take-or-pay contracts where a lot of the value is assured in terms 

of Bonneville's revenues. If they don't take our power, they have to 

pay for it anyway. We are trying the best we can to mitigate those 

uncertainties. 

Mr. HASTINGS. Is it fair to say that it is more economic conditions that drive that than policy conditions? 

Mr. ROBERTSON. It is mostly natural conditions that drive that. 

The river, as we saw this year in the flood, is still only 40 percent 

controlled by the dam system. It is an enormously complex system 

that can go dry, as it can go wet, and that's the big contingency 

we worry about. 

Mr. HASTINGS. Thank you. Thank you, Mr. Chairman. Mr. COOLEY. Thank you, Mr. Hastings. 

Mr. Robertson, you are right now in negotiating with the Pacific 

Northwest generating cooperatives and other public utilities groups 

concerning diversification of the power mix. How is that coming 

along? 
19 

Mr. ROBERTSON. As I indicated in my testimony, we were delighted to sign up 65 utilities, which is about half of the public 

power utilities in the region, recently for 100 percent load commitment to Bonneville. The other half is in a set of negotiations either 

as a group, which is the case with PNGC, or directly with other individual utilities. And the negotiations in each of those circumstances is a day-to-day issue. We are hopeful that within a 

month we will be able to wrap up effective negotiations with all the 

utilities. 

There are still issues remaining. We have gone a long way in resolving issues with PNGC. We have a significant issue left that we 

are working on that relates to the possibility of retail access and 

who would bear costs in that event. I am optimistic we can finalize 

that and move on. 

Mr. COOLEY. So you think that the retail access part of the negotiations is the one you are having a difficulty with? 

Mr. ROBERTSON. Well, we are allowing access. I think it's highly 

unusual. We are allowing up to 15 percent access to the marketplace as part of these contract negotiations, which I think we are 

at least setting a standard that is important for the rest of the industry. 

The retail question is a States question. The access to retail markets is controlled by States, the four Northwest States. And the 

real issue there is are the States going to allow access to the retail 

markets during that 5-year period. If they do, and that causes a 

loss of load or something else, who and under what circumstances 

would we share those costs? That's really the issue at stake now. Mr. COOLEY. Well, right now wouldn't we have to do something 

to the Regional Power Act in order to have the access to retail customers? 

Mr. ROBERTSON. Right now Bonneville is 100 percent in the 

wholesale market, which is why we had to be so competitive so 

quickly. We do not have controlled retail franchises, as many utilities do in the region. We have contracts with our existing customers, and Bonneville is not allowed to deal directly with retail 

access of loads. 

That, again, is a States question. If the States open up retail 

loads to the wholesale market, Bonneville will be, along with many 

other players, competing in that wholesale market for the business. 

Mr. COOLEY. So the Regional Power Act has some mechanism 

where you could go retail if the States allowed it? 

Mr. ROBERTSON. The Northwest Power Act allows Bonneville to 

operate at the wholesale market. The triggering point for getting 

retail to the wholesale market is States' laws. When States act, one 

way to put it is the Northwest Power Act doesn't prohibit us from 

competing for that retail market as well. 

Mr. COOLEY. OK. Well when you make statements about achieving a level playing field are you talking about this retail market? 

Is that correct? 

Mr. ROBERTSON. The level playing field issue has been described 

differently. Everybody is concerned about their version of the level 

playing field. Our version of it is that we are anxious to be able 

to respond to retail change when the States decide to do that, and 
20 

not before that time. We are not trying to prejudge State decisionmaking in that area. 

Our version of why we need to stay competitive, and to have a 

level playing field, is because we are providing a huge amount of 

public benefits. We are providing a $400 million and counting Fish 

and Wildlife program. We are providing public exchange benefits 

that I described earlier, half a billion for the next 5 years. And no 

other utility that I know of has those kinds of responsibilities. 

We are not trying to get anything special. But what we are trying to do is fulfill the responsibilities with our existing resource 

base the way Congress wanted us to--to keep rates low, keep our 

environmental benefits high and our Treasury payment high so 

that we don't end up affecting taxpayers. 

Mr. COOLEY. In your testimony you talk about a new division operating the power transmission from the power generating part of 

it, and then you talk about loans and all kinds of different mechanisms involved in that process. 

Could you better explain to me what the proposal is on that? 

Mr. ROBERTSON. You bet. There are three basic businesses that 

Bonneville hopes to be in. The first two, which are traditionally the 

largest and most important, are the business of generating power, 

and then the business of transmitting that power to end use consumers through the retail utility system of the Northwest. 

I want to say, first of all, that FERC's latest mega-NOPR is clear 

in its direction. It wants transmitting and generating utilities, integrated power companies, to separate power, isolate it, to assureas Mr. Alexanderson said-that the highway system on which electronic commerce flows is managed by an independent entity that 

will allow free flow of commerce. 

And Bonneville is moving rapidly to separate and isolate its 

transmission business from its power business, and to meet and 

hopefully even exceed the expectations that FERC has laid on the 

electric utility industry, even though the mega-NOPR doesn't apply 

directly to Bonneville. 

The energy services business is the third business, and that's the 

one I think you're asking about. What we are proposing to the Regional Review is that we pick up the energy conservation mandate 

of the act in a new and reinvented way. We want to deal directly 

in a decentralized way with utilities around the region to try to create market transformation in that business, to encourage efficient 

appliances and so on. And to help pay for that we have proposed 

to create an energy services business that would go out and try to 

further energy services and conservation in the marketplace, working in partnership with ESCOs and other companies, to further the 

conservation mandates of the act at far less cost. And that does include-we propose that includes the ability to make not loans per 

se, but financial transactions which will add value, further the Acts 

objectives and fill a market niche that we think is lacking. 

Mr. COOLEY. So you have personnel available to go out and help 

these private utilities achieve these certain goals that you're suggesting that they need to accomplish? 

Mr. ROBERTSON. Both private and public utilities and Federal 

agencies, potentially. And the personnel Bonneville has is an excellent and highly-regarded conservation staff they have helped put 
21 

together this massive energy conservation program in the region in 

the last 15 years which we've spent about a billion and a half dollars on. It's that personnel with an established, national reputation, we are trying to fully utilize and redirect in the form of an 

energy services business. 

Mr. COOLEY. And the private sector can't do this? 

Mr. RoBERTSON. Private sector can and is doing that. There is 

about a $200 million energy services business, we think, in the 

Northwest. We are proposing that this fill only about a $20 million 

chunk of that, if we are successful. 

But there are certain things that private business and ESCOs 

have not done. They haven't created market transformation. They 

are not capable of moving codes with respect to energy-efficient appliances or manufactured housing programs, for example. 

That's has been historically a Federal role, just like the high efficiency building codes we have now was a key objective of Bonneville's and the States in the last 15 years. The ESCOs then, the 

companies, the private sector companies, are doing very well filling 

in, actually applying and installing those services, and they'll continue, I think, to do welL Our objective is to create a larger energy 

conservation market by this business so that private sector firms 

can prosper. 

Mr. COOLEY. My time is up, thank you. 

Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

Mr. Robertson, just on part of that answer to the last question, 

BPA moving rapidly to separate and isolate, I've heard sort of contradictory things on how separate and how isolated you might be 

moving on transmission. Could you address that a little bit? Because I hear awfully contradictory things. Mr. RoBERTSON. It seems clear to me that one of the consensus 

areas that seems to be coming out of the Regional Review, and it's 

consistent with where FERC has now directed that the electric utility system private sector go in this area, is that integrated utility 

companies, integrating generation and transmission, need to assure 

folks in the marketplace that the transmitting part of what they 

do is independent of the generating part of what they do. If Bonneville, is in charge of 75 percent of the high voltage transmission 

system of the Northwest, that's the energy highway. Think of it as 

a highway system. In this case the Federal Government owns and 

operates and maintains that highway. Bonneville in its generating 

function supplies just under half of the region's electric energy. 

The big concern of non-Bonneville generators in the region is 

that Bonneville will use the transmission system to give an unfair 

advantage to its generating commerce on that highway. The trucks, 

to use Mr. Alexanderson's terms--

Mr. DEFAZIO. Jack, I think I understand. I think my question is 

how committed is BPA actually actively considering something that 

would be independent? I've heard that it would have to be part of 

BPA, but sort of independently governed by one of the vice presidents in charge or something. Or others envision it being more separate, and they don't feel that would be separate enough. 
22 

Mr. ROBERTSON. Sorry to be so roundabout. The direct answer in 

the existing law and framework, Bonneville has one administrator, 

and we need to keep generation and transmission under one roof. 

Mr. DEFAZIO. Absent legislation, you couldn't have an independent- ' 

Mr. ROBERTSON. Absent legislation, we are doing everything we 

can within our authority to make the transmission entity independent from the power entity. 

Mr. DEFAZIO. OK That is helpful. Mr. Alexanderson, if you 

could, what have you considered for your customers and customers 

of other private utilities that have previously received exchange 

benefits; what options would you offer? What has been offered during the Regional Review process to continue those benefits, access 

to the hydro base? 

Mr. ALEXANDERSON. One of the options is-that's been proposed, 

which doesn't seem to work very well on the math to me, is to 

allow those customers to buy directly from Bonneville at a preference rate. 

Other options-and these are options, I should say-I think I'd 

like to answer, if I could, by referring back to the second to the last 

page of the presentation that is included as part of my testimony 

called funding nonmarket activities. 

There are a number of things about Bonneville that we all love 

that will not be supported by a purely commercial power market 

without some additional funding source or some additional structures in place to make sure they can be continued. The exchange 

is one of those, but it is not the only one. And it seems to me that 

the funding options for all of those so-called public purposes, which 

include rate equity, mitigation of environmental effects, funding for 

renewable resources and the like, there's a relatively small set of 

options. 

One source of funding is some kind of consumption tax. Another 

that's been considered is a transmission adder of some type. And 

the key here is where's the money collected, and where does it go? 

All of these possibilities have the capability of being developed in 

a way that shift costs around among customer groups dramatically, 

or they have the possibility of being enacted in a way that doesn't 

cause those great shifts. 

A third possibility is a direct Federal subsidy for some of these 

things; not a very popular one, I suspect. And a fourth possibility 

that we've talked about is new efficiencies and cost savings, and 

clearly there are some of those that are available. 

The one that seems to get the most debate is the idea that we 

can fund the nonmarket activities by new market adventures. And 

I somewhat facetiously referred to a government baseball team 

there as a funding mechanism only to bring up the point that you 

could imagine new government activities that would be profitable, and all the business plans I've ever seen look really good. They're 

profitable in the out years as a way of funding these nonmarket activities, but the role of the Federal Government in the competitive 

market is a significant part of the regional debate with a lot of people being concerned that we are not sure that the government will 

be successful, and only if it is successful can it fund the nonmarket 

activities. 
23 

And we don't really have a very good picture of what a failure 

looked like. The question was asked earlier what happens if there 

is a failure? And the answer is the taxpayers have taken the risk, 

and the taxpayers will get the failure. 

Mr. DEFAZIO. Or the ratepayers. 

Mr. ALEXANDERSON. Or the ratepayers. Mr. DEFAZIO. I guess we would look at task as a not particularly 

successful market activity. 

My time has expired, but I guess of the list you gave, the cost 

savings, transmission, consumption tax, direct Federal subsidy, and 

Federal nonmarket, I mean I would urge everyone to sort of stretch 

their imaginations and see if there are other options. I know there has been a lot of discussions lately of this consumption tax or end user charge, and I have attempted to caution anybody and everybody that comes by my office that, you know, that's 

not particularly likely in Federal legislation, and that we are going 

to have the first ever energy sales tax at the local meter, you know. 

There have been two examples of attempts at sales taxes on energy. One was at Multnomah County-which had everybody threatened with recall even before it got to the ballot, so it never got to 

the ballot-to pay for the most popular service, which was the library; and one was in Eugene, a liberal bastion, to pay for low-income housing, and it failed dramatically and miserably, and when 

they did a poll afterwards, the surprising results of the poll were 

people don't like sales taxes. 

I come from a non-sales-tax State, so you won't find me supporting a sales tax on energy. I don't know if other people will rush 

into the breach. Perhaps those Members from sales tax States will 

rescue you, but I suggest other options. Mr. COOLEY. Thank you, Mr. DeFazio. 

We are joined by Mrs. Chenoweth, and we will let you have the 

next 5 minutes. 

Mrs. CHENOWETH. Thank you, Mr. Chairman. 

Mr. Robertson, good to see you again. Mr. ROBERTSON. Good seeing you, Mrs. Chenoweth. 

Mrs. CHENOWETH. You stated that BPA has recently announced 

that its priority firm rate and its industrial power rate would be 

reduced. Would you tell us what has happened to the transmission rates 

over the last two years? Have they gone up or down? 

Mr. RoBERTSON. Transmission rates have gone up, but I want to 

say that we have entered into, I think, a fairly significant agreement among all transmitting utilities, as a result of this rate case. The agreement will stabilize those transmission rates for the 5-

year period, and it will put tariffs and conditions on the Northwest 

which we think will be highly advantageous in the long run to stabilizing rates and helping consumers. 

Mrs. CHENOWETH. Hopefully at the end of 5 years, we can see 

another stabilizing contract with rates lower than they are now? 

Mr. ROBERTSON. A lot will depend on how effective the transmission system is, but I hope that is true. 

Mrs. CHENOWETH. I hope so. 

Mr. Robertson, on October 17, 1995, BPA issued a Record of Decision on firm nonrequirements products and service contracts. In 
24 

that document Bonneville states it has decided to offer long-term 

firm nonrequirements, FNR products and services contracts that 

can be customized for interested utility and direct-service industry 

customers needing products and services beyond those which BPA 

is obligated to provide by statute. That's very interesting. The document also states potential customers for BPA include utilities and 

DSis within the region, and other power purchasers inside and outside the PNW. 

Finally, this same document states that BPA must develop new 

strategies to retain existing customers and attract new ones. 

Is Bonneville proceeding as the October 17th Record of Decision 

describes? 

Mr. ROBERTSON. I indicated earlier, Mrs. Chenoweth, that what 

Bonneville is doing is proceeding to finalize its contracts with both 

in-region utilities, the big chunk of public power which is left. In 

addition, we're proposing to enter into contracts with some utilities 

in California and elsewhere as a result of the new legislation we 

received last year to sell the excess power of the Northwest. Excess 

power fish-related energy that is generated, or power that is abandoned, by Northwest customers, can be sold into California, to get 

a higher value return for that energy benefit, in turn will come 

back to the Northwest and help keep our rates low and stable. 

Along with that, we are providing a mix of energy services. The 

description in the business is we are "unbundling'' services, and 

those include services that might be described as the traditional 

"bread and butter" kind of services provided by integrated electric 

utilities; generation, capacity, energy and so on. They also include 

energy-services-related businesses, conservation services, and a 

full-blown menu of alternative services which modern customers 

typically want. We want to make sure that we are able to provide 

that range of services to sell with our total product. 

Mrs. CHENOWETH. Mr. Robertson, what percent of our energy in 

the Northwest is coming from Canadian hydro, and what is the 

base rate when that comes into America? 

Mr. ROBERTSON. That's a very good question, and I don't have 

the answer, honestly, off the top of my head. It is a small percentage in the Northwest, it's a relatively low price, and it is a competitor with Bonneville's. We do a lot of energy exchanges with Canada 

and, day to day, hour to hour, week to week, work to try to manage 

the Columbia River system, which you know is shared between the 

two countries. 

Mrs. CHENOWETH. At one time, when it first really started coming in extensively, or even though it still is a small percent, I think 

they were bringing power in about 10 mils; does that sound right? 

Mr. RoBERTSON. That sounds pretty low, but under certain conditions that can happen, particularly when hydro systems have large 

runoff years. On average that would be substantially below the 

market right now, even at the market we are talking about, for an 

extended period of time. 

Mrs. CHENOWETH. It sounds more like a spring rate. 

Mr. ROBERTSON. It is a significant issue. We see B.C. hydro as 

a partner and a very important additional element to bringing lowcost supply to Northwest consumers. The key question is, I think, 

reciprocity. If we allow energy sales in the Northwest, we would ex-
25 

pect under FERC's ruling for Canada to allow us to potentially sell, 

as well as others in the Northwest, into the Providence of British 

Columbia or Alberta. And it's that reciprocity that I think is the 

keystone to the future relationship. 

Mrs. CHENOWETH. I see my time is nearly up, but I can't help 

but ask, have we made much progress on direct PURPA hookups 

with the BPA system? 

Mr. RoBERTSON. We are making-! am sorry; direct hookups 

with PURPA-related facilities? 

Mrs. CHENOWETH. Yes. 

Mr. ROBERTSON. We have not added directly PURPA projects to 

the facilities beyond that which other utilities have requested of us, 

and there are generating assets that are being built now, for example in Hermiston, Oregon. We are wheeling that power under arrangements of those companies, again in the part of the business 

where we provide transmission. The building of PURPA facilities 

has slowed considerably, given the resource surplus that is on the 

market right now and the prices of that surplus, which are historically low. 

Mrs. CHENOWETH. Thank you, Mr. Chairman. 

Mr. COOLEY. Doc Hastings? 

Mr. HASTINGS. Mr. Brown, you're here, I think it's fair to say, 

representing the public utilities on this. I know you are representing a public utility. I'm not going to suggest that you speak for 

them. But do public utilities support the concept of separating 

BPA's generation and transmission? 

Mr. BROWN. I think they generally support it. There is some 

question on who would manage the system, and how the benefits 

would accrue back to some of the rural areas, and the reliability 

of the system. But in general they do support some separation in 

Bonneville's generation and transmission. 

Mr. HASTINGS. Is that a change in policy from the past with 

publics? 

Mr. BROWN. I've not been involved with it that long, but I believe 

there are some changes, and public power is looking at changes in 

the industry and trying to move ahead and become more modernized as well. So I believe that's the case. 

Mr. HASTINGS. OK. I'd like to ask this question of everybody, 

rather than get into the details of all the things that you are sorting out. But in general there certainly seems to be a mood in this 

country of not centralizing power in a wide variety of areas, in 

Washington, D.C., where it devolves back to the States and so 

forth. We have heard that a great deal. 

In this Regional Review, maybe you are looking at this, I certainly hope you are, but do you think it's in our best interests in 

the Northwest, speaking as a Northwesterner, to have full control 

of our power resources, water resources, so that we can make the 

decisions here without having to trot back to the Congress to get 

an Act of Congress on whatever it may be, whether it is fish or you 

name it? Would each of you answer in general? Do you think it is 

in the best interest of us in the Northwest to have control of our 

resources? Let me put it that way in a very general way. Start with 

Mr. Carr, and we will work down the line. 
26 

Mr. CARR. Simply put, the answer is we do want regional control. 

I think we are better off having the region making the choices on 

how the river is used and in making the tradeoffs between fish and 

the other purposes. We strongly support the region taking that 

role. 

Mr. BROWN. I would say it's in the region's best interest to keep 

control of our natural resources. I think it forces the diversified 

groups to work together and come up with common solutions so we 

can see progress in a number of areas. Fish and Wildlife would be 

one. The management of the Columbia River system is for the benefit of everybody. So, I would support that, and I think public 

power does in general support keeping the control in the region. 

Mr. GoLDEN. I would generally support it with a few cautionary 

notes. One is there are genuine and compelling interests at stake 

on the part of the sovereign tribes of the Northwest, and they are 

clearly a government entity that need a say in decisionmaking. 

And I think there are also important Federal interests at stake. 

The Columbia River system is a national and international asset. 

It was built largely by taxpayer investment, and the efficiency of 

its operation and its productivity over time depends on very tight 

coordination with another sovereign nation, Canada, and that's a 

function that I think the Federal Government has a compelling interest in. So a qualified yes. 

Mr. ALEXANDERSON. I firmly believe there are huge net benefits 

from regional administration of the system. But the key to beingto not losing, though, is going to be an equitable sharing of those 

benefits. And that's going to be a challenge for the Regional Review. 

Mr. HAsTINGS. That's what the Regional Review is looking at. It 

seems to me that one ought to focus on those kind of things. They 

are? 

Mr. ALEXANDERSON. Yes. 

Mr. ROBERTSON. Historically there is a whole set of complicated 

laws that govern operation of the Columbia River, many of which 

directly relate to Bonneville as the entity that has substantial responsibility for the Columbia system. But one thing is clear from 

all of those laws. The region has designed the laws to essentially 

assure the benefits from the Columbia River remain principally in 

the Northwest. Everything from the Regional Preference Act to the 

way Bonneville manages its programs is designed to keep the benefit in the Northwest. 

People in the Northwest understandably want to maintain, I 

think, on average, and over the course of time the resources of the 

Columbia River there. 

Mr. HASTINGS. Thank you, Mr. Chairman. 

Mr. COOLEY. Thank you Mr. Hastings. 

Mr. Robertson, the Federal Energy Regulatory Commission recently released a rule which required open access for transmission 

facilities. As a matter of policy and practice, does Bonneville plan 

to follow this rule? 

Mr. ROBERTSON. Yes. 

Mr. COOLEY. Does BPA now contemplate entering into contracts 

committing Federal power beyond the year 2001? 
27 

Mr. ROBERTSON. We are, as I indicated, finalizing our contracts 

up to the year 2001 for public utilities, and we are also doing the 

same in California. We have preliminarily announced an arrangement with the Bay Area Rapid Transit Authority and also we are 

talking with other entities to enter into contracts through the century with them as well, 5-year contracts. 

Mr. CooLEY. Under the current rate case, Bonneville proposed to 

adopt an entirely new kind of rate, the Firm Power Service Rate, 

FSP 96. This is a 10-year rate. 

Mr. RoBERTSON. This is a rate for use in the region. We have not 

offered any product under that rate that exceeds the 5-year period, 

to my knowledge, and so we are trying to manage that rate within 

the context of the Regional Review. 

But I might also say, Mr. Chairman, that contracts that we sign 

between now and the end of 2001 in order to secure our transitional stability for the region are typically designed so they could 

be passed on to some successor in interest if Bonneville were not 

the contractee and because of a decision by the region to change 

control. So whatever contracts exist typically are allowed to be 

passed on under successor in interest rules. 

Mr. COOLEY. Well, the thing is our information shows that this 

Firm Power Service Rate 96 is a 10-year rate. 

Mr. ROBERTSON. It is up to 10 years, but we have made a policy 

judgment to limit that so far in terms of our offerings. 

Mr. CooLEY. But the case right now is only pending 5. I mean, 

if you have got a case before the Public Utilities Commission for 

a 5-year rate, and you are writing 10-year contracts, I don't understand that. I don't understand that process. So you will have to explain it to me. 

Mr. RoBERTSON. The rate, which hasn't been finalized, I might 

add, because we are moving through the rate case, and we have 

only made preliminary decisions and will not make final ones 

until--

Mr. COOLEY. But you are offering those; is that true? 

Mr. RoBERTSON. There is a 10-year FRS rate proposed. So prospectively it could go to 10 years, presuming after the Regional Review it is clear that that would be acceptable to the region based 

on the region's judgment. 

Mr. COOLEY. We keep referring to this Regional Review process 

we are going through. When this review is done, will it be a review 

of the region, or will it be a review of Bonneville itself? I'm just curious. Bonneville Power Administration. I don't understand. We 

keep talking about Regional Review. What does this Regional Review really entail? 

Mr. ROBERTSON. Let me just __ give my version of it since I'm not 

a member, and those that are can give a much moreMr. COOLEY. Do any of the gentlemen on the panel want to answer that? I don't really understand. When I read over all of the 

information we are provided here, it kind of eludes me what we are 

trying to accomplish in this Regional Review process. So if anybody 

would like to help me out here, I would appreciate it. 

Mr. RoBERTSON. I would just say quickly, Mr. Chairman, that 

the Regional Review is looking at the entire electric energy business all the way to the end use consumer, that is to say homes, 
28 

and all the way back to the wholesale production systems that generate electric power. I think the review has appropriately spent a lot of time on Bonneville because Bonneville is the dominant player in the wholesale 

power market. We do not play in the retail market, and therefore 

there are questions related to that market that are on the table as 

well. The region is undertaking a soup to nuts kind of review of 

the entire electric power business across wholesale and retail, 

along with the public benefits that have been provided in the past 

and what should happen with those benefits in the future. Mr. COOLEY. Well, will Congress get a submission and will this 

committee get a copy of that review when it is finished? Who is in 

charge of the review process here? Anybody? 

Mr. ALEXA.N"DERSON. Well, let me speak to that. The four governors are in charge of the review process, and at a minimum I believe it will create a report to the governors. 

But the initial charter to the review was not as specific as your 

question asked for a response. We spent quite a bit of time in the 

review debating really the scope of the charter. The review is broken into four groups now, and I'm a co-Chair of one of the groups, 

for example, which is looking at competition and customer choice. 

And there is not universal agreement that the review, for example, should make recommendations about the pace and nature of 

legislative change to accommodate retail wheeling. I believe it's the 

function of the review, however, to identify the questions, look at 

the possible answers, and see how far we can go in getting consensus on those kinds of issues. And so it may go so far as to make those kinds of recommendations, but it may not. I think that's yet to be seen. Mr. COOLEY. Thank you very much. 

Mr. DeFazio. 

Mr. DEFAZIO. Thank you, Mr. Chairman. 

Given my previous rounds of questions, does anybody have any 

reflections or comments about how we are going to pay for public 

purposes? 

K.C., you want to address that? 

Mr. GOLDEN. Sure. I appreciate the question. I appreciate my fellow panel members' commitment to those purposes, but I particularly appreciate the way the question focuses that commitment. 

Jack said a few times that they have invested $1.5 billion in efficiency. The more interesting number is the cost that they avoided 

through that investment, which, depending on how you calculate it, 

is roughly half the cost of other resources that were available at 

the time to acquire enough power to serve the city of Seattle. So 

the more interesting statistic is how much he didn't spend. 

But I think the $1.5 billion figure does point out the fact that energy efficiency is not free. It's just cheaper than the alternatives. 

So developing an appropriate way to pay for it in a competitive 

market is among our principal challenges in the comprehensive review. I think broadly there are three sources that make some sense, 

and they are the three principal value-generating sources in the industry: the distribution system, the transmission system, and the 

generation system. 
29 

None of those should be ruled out. Currently for at least the public power community, the integrated power revenues, transmission 

and generation revenues, are used to pay for public purposes. How 

we do it in the future, I think we do not serve ourselves well by 

lumping them all together and saying how do we pay for this stuff. 

Salmon recovery, for instance, I think by its very nature needs 

to stay in large measure a responsibility of the generation system 

where the problem in large measure is created. For energy efficiency and renewable energy resources, it is not at all clear that 

it should stay with the generation system, but we are looking at 

all those options carefully. I think the principle for sorting through 

them is obviously first and foremost equity, but second what can 

be done on a competitively neutral basis? 

How can we make long-term investments that we agree are costsaving investments for all consumers, without putting those supplier who make those investments at a competitive disadvantage? 

And that's the reason for a lot of examination of both the transmission and the distribution systems, which energy suppliers and 

energy users use independent of their choice of power supply increasingly. 

So those are the kind of places we are looking. 

Mr. DEFAZIO. Anybody else? 

Mr. ALEXANDERSON. I would just add that without recommending 

it at that point, that the leading contender appears to be a form 

of system benefits charge or access charge levied on the distribution and/or transmission system. That seems to be the solution 

that's being adopted or acknowledged by FERC and left to the 

States in Order 888. 

It is clear that if the commodity portion of the electric business 

is going to be competitive, and speaking only to those nonmarket 

costs which are not directly associated with the generation entities 

themselves, certainly the air quality and those things directly associated with generation could be captured through the commodity 

portion of the business. 

We have to as a society collect for the other things somewhere 

else down the line, and there are not very many options. If taxes 

are not a viable option, then it's going to have to end up in the access or distribution charges somehow. 

Mr. DEFAZIO. "Distribution" meaning distribution at what point? 

I mean, there is a theory here there are those who want to tack 

it onto individual meters and tell the individuals, here is your tax, 

you pay. And of course we are not calling it a tax. It's an assistance 

benefit charge to the individual customer. 

There are others who are saying, perhaps we should put this on 

the transmission level so that the DSis who have skated on all 

their other obligations might share in a part of this. Or others say 

we should put it on a wholesale level because the efficiency in the 

marketplace will come into effect, because if we put that on you, 

you can choose to pass it through to your customers, who you are 

now competing with Fly-by-night Power to give them their retail 

service in the brave new world. Or you can eat it, you know, lowering the value of your returns to your stockholders or whatever, and 

not pass it through individually to the customers. 
30 

So, it seems to me there are at least those three options out 

there. I don't know what you might prefer. I believe everybody 

should carry part of the burden. So I think if we are going to spin 

off transmission, that transmission should carry some part of these 

costs and benefits, because there are those in the region otherwise 

who are not going to pay a single red cent toward this even though 

they may have been principally involved in causing us to have the 

WPPSS disaster. That is just my impression. 

Mr. BROWN. Public power is reviewing this issue, and currently 

they do not have a position to take on it, but they are looking at 

a wires charge on transmission, and I believe they are also looking 

at one on the distribution side and on the generation side. So they 

could take into account the independent power producers as well 

that may want to come into the market like you mentioned. 

They are working on it. But it has not been finalized at this time. 

Mr. DEFAZIO. OK. I'll look forward to your future wisdom. 

Mr. COOLEY. Since we are on this power transmission thing, I 

thought Mr. Alexanderson might help me here. Do you use the 

Bonneville transmission system? 

Mr. ALEXANDERSON. Yes, we are a heavy user. 

Mr. COOLEY. Could you tell me what has happened over the last 

few years with your costs, if that is what we're looking at is some 

sort of equitable system to share the burden of this. What has happened to your costs over the last several years using that transmission system? 

Mr. ALEXANDERSON. Transmission system costs have dramatically increased over the last several years. I should say transmission system rates that we pay to Bonneville have dramatically 

increased. 

Mr. COOLEY. What does "substantial" mean? Does that mean 5 

percent? 10 percent? 

Mr. ALEXANDERSON. In excess of 20 percent at one point, and 

we've had what, three increases in the last five years. Rather than 

wing it, I can provide you a specific answer for the record that is 

unique to our company. 

Mr. COOLEY. I don't want to put you on the spot, because I know 

you are under oath, but can you say generally that in the last couple of years the rates have gone up 30 or 40 percent, in that range? 

Mr. ALEXANDERSON. Yes, yes. The last couple of rate cases it 

might be more like 3 years. 

Mr. COOLEY. OK. In 3 years. 

Mr. Robertson, have your transmission rates increased to all customers about that same amount over the last 3 years? 

Mr. ROBERTSON. I would like to provide it for the record, but we 

have had increases in our rates, and as I indicated earlier, I think, 

to Mrs. Chenoweth, we have tried to stabilize those rates for the 

5-year period as a result of the agreement we just struck. 

[The following was submitted:) 
31 

TRANSMISSION RATES INCREASES To ALL C USTOMERS OVER THE LAST THREE YEARS 

Bonneville develops rates for transmission service over the integrated network for 

bulk power deliveries within the Pacific Northwest and over the interties which con- nect the Pacific Northwest to California, Canada and the eastern Rocky Mountain 

area. The following table provides the transmission rate increases for fiscal year 1992-fiscal year 1996 for firm and nonfirm wheeling for Network and Southern 

Intertie transmission service which represent most of Bonnevilles transmission business: 

Fiscal year 1992-1993 ..... 

Fiscal year 1996 .. 

Percent increase (%) .......... ..................................... . 

Network service 

Firm Nonfirm ($/IIW-mo) ($/IIW-mo) 

0.623 1.81 

0.882 2.10 

42% 15% 

Southern intertie service 

Firm Noofirm (~1\W mo) ($/IIW-mo) 

0.903 2.10 

0.734 3.23 

-19% 54% 

Therefore, the percentage increase in transmission rates depends upon the facili- ties used and the type of service provided. 

Mr. COOLEY. But this is for all the people you service? 

Mr. ROBERTSON. Yes. Remember relative to the transmission 

rates of other regions and similar systems--

Mr. COOLEY. I understand that. I'm just trying to get in my head 

some kind of value of what we are doing here. 

For that increase in rate on the transmission, are we using those 

funds for any specific thing other than just a broad-base revenue 

source? 

Mr. ROBERTSON. We're using those funds directly to expand the 

system and to operate and maintain the system to assure high reliability. Mr. COOLEY. So, the generating part apparently is not sufficient 

to cover those other costs, so we have taken and reloaded the costs 

onto the transmission system? 

Mr. ROBERTSON. Thinking of it as two different businesses for a 

second, the transmission business has an entirely separate set of 

investments from Bonneville, and it is repaid separately from the 

generation business that repays principally the costs of the dams 

and WPPSS costs. 

So in looking at the transmission costs, what Bonneville does as 

there is demand on the system-and demand has increased very, 

very fast in the last 10 years because of the growth of the Northwest to keep the lights on and integrate and transmit power from 

new generating resources. 

For example, from east of the Cascades Mountains, we are trying 

to expand the transmission system to meet growth and maintain 

one of the highest reliabilities in the country. This reliability 

assures that even under difficult circumstances, the winter lights 

stay on for folks. That does cost money. There has been an increase 

in our rates. But relatively speaking our rates are, we think, very 

competitive relative to other systems. 

Mr. COOLEY. Has the cost of the transmission facilities over the 

last 3 to 5 years increased by 40 percent? 

Mr. ROBERTSON. It has increased. I don't know the cumulative 

number off the top of my head, but I can get that for the record. 

[The following was submitted:] 
32 

HAS THE COST 0!<' THE TRANSMISSION FACILITIES OVER THE LAST 3 TO 5 YEARS 

INCREASED BY 40 PERCENT? 

No. The Federal Columbia River Transmission System (FCRTS) has an investment base of over $3 billion and annual costs of over $1/2 billion per year. FCRTS 

costs increased from fiscal year 1991 to fiscal year 1995, the most recent period that 

actual cost data was available, as follows: 

TransmiSsiOn costs per year ($000) Increase 

fisca l year 1991 fiscal year 1995 ($000) Percent 

O&M 199.668 200.501 833 

Interest 150.188 192.205 42,017 

Amortization . 70.930 125.789 54,859 

Total . . . . . .. . . .. .. .. .. ... . . .. . . ......•.. . 420.786 518.495 97.709 23 

Mr. COOLEY. Thank you very much. I appreciate that. Mr. Brown, I sort of get from your testimony that you have a lot 

of background information here. Do you really support the separation of BPA transmission and power marketing f:mctions? 

Mr. BROWN. I'd have to speak with the gentleman behind me to 

get some background on that, if it's all right. 

Mr. COOLEY. OK. 

Mr. BRO\VN. We do support the operation that is currently undergoing, and we are looking at further separation. Public power is 

discussing that, separating that transmission and their marketing. 

Mr. CooLEY. There is a lot of talk about independent system operators. 

Mr. BROWN. Uh-huh. Mr. COOLEY. Do you think this is an appropriate tool for the 

Northwest, considering Bonneville in the picture? / 

Mr. BROWN. Depends on how many of the investor-owners that 

would come into the system operations under one entity. And I'm 

not sure if they're all willing to do that. And we have some concerns that they may transfer in high-cost facilities that need a lot 

of maintenance to bring them up to speed. So we have some questions on it, but it is definitely an issue that we are looking at. 

Mr. COOLEY. Being someone who is not in the business you're in, 

what is a high-cost facility? What are you referring to there? Could 

you give me a definition of what that means? I would assume today 

with the new technology we have, that every system going in today 

to the private investment community is looking at only high-efficiency, low-cost systems. So, would you help me out a little bit 

when you say that? 

Mr. BROWN. There's a lot of transmission out there that is well 

over 50 years old. Looking at some where I live, it has been in 

place for possibly over 50 years. They are changing out every other 

pole, so there are static wires going up and down. Every time you 

get a wind, it breaks and trips out the system. 

Conversations within the State, one of the investor-owners has 

stated they are going to let their system go and go on the co-op's 

transmission lines because they don't want to upgrade theirs, and 

if they have an opportunity, they are going to move their tranl':-
33 

mission over to the co-op. So we have some concern about that and 

how that would be placed under an ISO. 

Mr. COOLEY. My time has run out. Thank you very much. 

I think that concludes this hearing, gentlemen. The record will 

be open for 10 days. I have some questions I'm going to submit individually because we just can't get through all the things that we 

have to talk about, and I think other members of the committee 

have questions as well. 

I appreciate all of you being here. I think your testimony was 

very informative. I've learned some things, and being new at this 

system, it was very helpful. I do appreciate it. Thank you very 

much. The committee is adjourned. 

[Whereupon, at 11:55 a.m., the Subcommittee was adjourned; 

and the following was submitted for the record:] 
34 

STATEMENT OF JACK ROBERTSON, DEPUTY ADMINISTRATOR 

BONNEVILLE POWER ADMINISTRATION 

UNITED STATES DEPARTMENT OF ENERGY 

BEFORE THE 

SUBCOMMITTEE ON WATER AND POWER RESOURCES 

OF THE HOUSE COMMITTEE ON RESOURCES 

MAY21, 1996 
35 

Introduction 

Chainnan Doolittle and Members of the Subcommittee, I am pleased to appear before 

you to discuss the Comprehensive Review of the Northwest Energy System (Regional 

Review). I am Jack Robertson, Deputy Administrator of the Bonneville Power 

Administration (Bonneville). 

Today, I will briefly discuss the purpose of the Regional Review. I will then present at 

greater length the actions Bonneville has taken over the past year to create a more stable. 

financial picture, while als~ focusing on Bonneville's historic public responsibilities. 

Throughout 1995 and 1996, the West Coast has been undergoing a critically important 

restructuring process that likely will have profound implications for our region's 

economy and environment. Currently, the governors of the four Northwest states are 

reviewing important changes in the electric energy business brought about by this 

testructuring. These changes may affect everyone--Bonneville, public and investorowned utilities, the Northwest environment and consumers throughout Oregon, 

Washington, Idaho, and Montana. Bonneville welcomes the review. Its purpqse is vital--

to aSsure that any change that occurs will create benefits for consumers and the 

environment of the Northwest. 

Purpose of the Regional Review 

The Regional Review will help to foster consensus on the best regional approach for 

addressing the transition from regulation to competition. The Governors' goal is to 

develop, through a public process, recommendations for changes in the institutional 

structure of the region's electric utility industry including the Federal power marketing 

function provided by Bonneville. The Department of Energy (DOE) believes that any 

changes should be designed to continue to serve important public purposes and assure 

that the costs and liabilities associated with the Bonneville system continue to be borne 
36 

by the beneficiaries of the Bonneville system. DOE agrees with the Regional Review 

Governors' December 14, 1995 letter, outlining the framework for the Regional Review, 

that " .. . by respecting our individual differences and building· on olir long tradition of 

regional cooperation, we can seize the opportunity change is providing and create a better 

energy future for the Northwest." 

~onneville ~an "ex officio" representative on the Steering Committee of the Regional 

Review, Walt Pollock, Group Vice President, Marketing, Conservation and Production. 

Mr. Kyle Simpson, the Department of Energy's Associate Deputy Secretary for Energy 

Programs, is the Federal Liaison to the Regional Review, and is responsible for ensuring 

that there is a two-way exchange of views and information between the Administration 

and the Regional Review participants. This arrangement should enable the Regional 

Review to gain both the benefit of Bonneville's factual expertise and insight and the 

policy perspective of the Administration. 

The task before us is a tall and complex order, and Regional Review participants have 

great latitude in developing their recommended changes. 

Bonneville Actions to Achieve Financial Stability 

Rapidly declining prices for alternative power supplies last year led to a crisis as 

Bonneville customers actively considered leaving the Bonneville system. Over the past 

year, Bonneville has taken a number of actions to reduce cost and create financial 

stability. Bonnevills:'s financial stability will give the region the opportunity for making 

well thought out choices about its energy future. 

• Reduction in Rates 

Bonneville has announced the first in a series of key agreements with its wholesale 

customers that are expected. to lead to a Northwest electric power and transmission 

2 
37 

system that is more efficient, more stable, and more competitive--all good news for 

consumers. Based on Bonneville's draft Record of Decision, associated with the fiveyear rate period (fiscal years 1997-2001 ), released last week, the average Priority Firm 

rate paid by preference customers, would be reduced from the current 2.8 cents a 

kilowatt-hour to 2.4 cents a kilowatt-hour--a reduction of 14 percent for public utility 

customers. Bonneville's average Industrial Power rate would be reduced from the current 

2.7 cents per kilowatt-hour to slightly under 2.3 cents per kilowatt-hour--a reduction of 

16 percent. These figures are preliminary and Bonneville has not completed its final 

studies. The process to consider Bonneville's five-year rate proposal was initiated in July 

of 1995. We will make a final decision in June of this year. 

According to Bonneville's preliminary risk analysis, there is an 80 percent probability of 

Bonneville making its United States Treasury (Treasury) payments in full and on time 

during the five-year rate period (fiscal years 1997 to 2001). A final decision on the 

probability will be made in June of this year. 

• Internal Management 

Bonneville just completed its third roiJ!ld of major cost-cutting in as many years. The 

first two rounds reduced Bonneville's projected operating expense levels for fiscal years 

1996-2000 by about $500 million per year from the $2.8 billion average funding levels 

used for the fiscal year 1995 Congressional Budget. The last of these three major budget 

reductions, completed in March, reduced Bonneville's projected expense levels by 

roughly an additional $100 million per year for fiscal years 1997-200 I. In addition, 

expenses for fiscal year 1996 are being reduced by $80 million, and fiscal year 1996 

capital spending also is expected to be reduced. 

Bonneville set a goal of reducing its FYI997 Feder!ll Full Time Equivalent (FTE) staff 

levels by 500 from March 1994 planning levels of3,755 FTE's. It already has reduced 

staffmg levels by more than that planning target. This has been done by offering 

3 
38 

voluntary separation incentives and through attrition. The Department of Energy (DOE) 

instituted a hiring freeze some time ago, meaning that virtually no external hires have 

occurred. In addition, Bonneville's fiscal year 1997 planning target includes a reduction 

in spending on contractor FTE by roughly 25 percent from end-of-fiscal year 1994 levels. 

We are well on the way to reaching that goal as well. 

• Direct Service Industry (DSI) Contracts· 

In 1995, Bonneville secured loads and revenues from nine DSis, most of which had 

looked elsewhere for alternative electric power supplies and could have taken their 

electric loads off Bonneville entirely after providing Bonneville with six months' to a 

year's notice. Bonneville retained 84 percent of the DSI firm load for the next five years, 

contingent on the results of Bonneville's current rate case. The contract is take-or-pay, 

which means that Bonneville will receive full revenues from these sales for five years 

regardless of industry fluctuations. The DSis typically provide about one fourth of 

Bonneville's revenues. 

• Bonneville Funding of Endangered Species Act (ESA) Related Activities 

In 1995, two historic agreements were reached between the Clinton Administration and 

the Northwest Congressional leadership on Bonneville's fish and wildlife budget. The 

first agreement provided an estimated $60 million annually to cover Bonneville 

expenditures for fish and wildlife on behalf of other project purposes. The second 

agreement provides for Bonneville spending on fish and wildlife averaging $252 million 

per year, plus river operations to support fish migrations costing $90 million to $280 

million per year. (It has frequently been referred to as $435 million which represents the 

average annual projected cost.) This funding level was supported as adequate for ESA 

requirements and Northwest Power Planning Council (NWPPC) Fish and Wildlife 

Program measures by both the National Marine Fisheries Service and the chair of the 

N\VPPC. 

4 
39 

• DOE Transmission Policy 

Bonneville transmission and access policies have historically been driven by its organic 

statutes. These statutes require that transmission system costs be equitably allocated 

between transmission users and Bonneville power transactions, that Bonneville operate 

its system to assure full cost recovery to protect the $9 billion Federal taxpayer 

investment in the integrated Northwest electric power and transmission system, and that 

Bonneville provide access to others over available transmission capacity consistent with . 

Bonneville's power marketing program. 

The 1992 Energy Policy Act created a new regulatory scheme for transmission access and 

pricing. The transmission provisions of 1992 EQergy Policy Act amended the Federal 

Power Act by granting new authority to the Federal Energy Regulatory Commission 

(FERC) to order transmitting utilities, including Bonneville and other Federal power 

marketing agencies, to provide wheeling services. 

Bonneville is unique under the Energy Policy Act in that it is required to meet all of its 

existing statutory requirements as well as the requirements applicable to transmitting 

utilities. To the extent there are conflicts in these statutory requirements, the Energy 

Policy Act establishes an appeal mechanism to FERC. 

Bonneville is moving as quickly as possible to implement Congress' support of 

competition in the wholesale electric industry. Bonneville initiated the early Pacific 

Northwest discussions on a regional transmission association and is a founding rnember 

of both the Western Regional Transmission Association and the Northwest Regional 

Transmission Association. 

Prior to release ofFERC's Notice of Proposed Rulemaking, Bonneville negotiated 

transmission comparability principles with its customers. Bonneville is currently taking 

action to assure that its transmission access and pricing policies are consistent with FERC 

5 
40 

policies. Bonneville has initiated a formal regional hearing on its proposed transmission 

tariffs based on FERC's pro forma tariffs. At the request of Bonneville's customers, 

Bonneville has adopted provisions which go beyond FERC's tariff and which give up 

priority rights Bonneville could have asserted, such as Bonneville priority for hydro spill 

energy and priority for native load. The independent hearing officer has just ruled that 

Bonneville's tariffs not only comply with FERC policies, but exceed them in many 

respects. Consistent with our commitment to seek to comply with FERC policies, 

Bonneville and a majority of its customers, as well as the British Columbia Power 

Exchange Corporation, jointly proposed a five-year settlement of the transmission rates, 

terms and conditions that Bonneville would apply to the use of its transmission lines. If 

approved by the Bonneville Administrator, the agreements would go into effect 

October 1, 1996. The agreement also includes a proposal for implementing the current 

open access transmission requirements of the FERC under the National Energy Policy 

Act of 1992. The settlement is subject to approval, and, ultimately, by the FERC in 

October 1996. 

Bonneville supports the October 4, 1995, DOE "Power Marketing Administration Open 

Access Policy." That policy commits the Power Marketing Administrations (PMAs) to 

facilitating market competition by publishing open access wholesale transmission tariffs 

and taking transmission service for themselves under those tariffs. Even though the 

FERC open access rulemaking does not directly apply to the PMAs, the policy statement 

commits them to develop transmission rates, terms and conditions which are comparable 

to those which will be required of FERC jurisdictional utilities, unless prohibited by Jaw. 

Though the policy statement does reserve the right to assert a transmission priority for 

hydroelectric spill energy (which would be primarily Bonneville energy), Bonneville has 

elimin!lted any such priority from its proposed tariffs. 

Bonneville is also complying with FERC's Standards of Conduct by separating rates, 

contracts, sales, and scheduling staff. We are accounting by business line. We have 

matched the industry in developing an Open Access Same Time Information System 

6 
41 

(OASIS) information network for the posting of available transmission capacity and 

tariffs. These steps will be complete in October 1996. 

• Enhanced Ability to Downsize 

The fiscal year I 996 Energy and Water Development Appropriations Act includes 

language which allows Bonneville to offer voluntary separation incentives up to $25,000. 

Bonneville has already completed reduction of 500 full time employees since 1994. 

Bonneville has also committed to additional staff reductions which this legislation will 

support. 

• Enhanced Ability to Market Excess Power 

The fiscal year 1996 Energy and Water Development Appropriations Act also includes 

language which allows Bonneville to sell excess Federal power outside the region for up 

to seven years. Bonneville has initiated a rulemaking to define the implementation of this 

provision which we expect to complete next month. Bonneville believes this authority 

can lead to increased revenues which would improve Bonneville's probability of making 

its planned Treasury payment. 

• Load Commitment 

Bonneville is currently negotiating five-year amendments to existing power sales 

contracts, and new five-year power sales contracts with its public utility customers. The 

goal of these contract provisions is to create a win-win situation that benefits customers 

and Bonneville while reflecting the evolving electric industry. Customers will receive 

five-year rate certainty and five-year stranded investment protection while also gaining 

certainty about their ability to take a portion of their load off Bonneville. In return, 

Bonneville will receive enhanced certainty with respect to the revenues public utility 

customers provide. Bonneville is responding to customer ideas by offering an increased 

variety of options. 

7 
42 

Bonneville and its customers recently agreed to a proposed partial settlement of the 

Bonneville rate case which was adopted in Bonneville's draft Record of Decision, 

thereby establishing the average price level customers would pay for power under the 

load commitment contracts being negotiated. 

• Debt Buyout 

As this Committee is well aware, in April 1996, Congress pas~ed and President Clinton 

signed into law legislation to refinance Bonneville's outstanding" appropriations owed to 

the Treasury. This Appropriations Refinancing Act is included as Section 3201 of The 

Omnibus Consolidated Rescissions and Appropriations Act of 1996, Public Law 

104-134. This Act puts an end to recurring repayment reform proposals that would have 

raised electric rates and created economic uncertainty in the region. The plan takes effect 

with the 1997 fiscal year which begins October 1, 1996. The plan will also increase nearterm cash flow to the government and, according to the Congressional Budget Office, 

rt:duce the Federal deficit by about $89 million over the next seven years. Bonneville 

appreciates the support this Committee provided for this important legislation. 

Booneville believes the combined effects of these actions will be to stabilize revenues 

and allow Bonneville to make the near-term transition from regulated to competitive 

wholesale power supply markets. Achieving financial stability reduces the risk that 

significant long-term decisions will need to be made in a period of financial crisis. 

Objectives for the Regional Review 

Historically, Bonneville has distributed the benefits produced by the Columbia River 

Basin's hydropower system throughout the region to provide a balance in economic and 

environmental benefits consistent with the values of the people of the Northwest. 

However, as competition. has led to lower prices for alternative power suppliers, it also 

8 
43 

has raised questions about the role Bonneville should play in the new competitive 

marketplace. 

Bonneville is open to and prepared to change to serve the citizens of the Northwest. DOE 

believes the following strong Federal interests should be considered by the Regional 

Review: 

• Serve important public benefits putposes: First, regardless of the ultimate structure 

that is adopted for the federal power system, it is essential that this system continue to 

serve important public purposes such as providing reliable and affordable power to 

Northwest homes and businesses, funding fish and wildlife recovery efforts, and 

supporting energy efficiency and renewable technologies. DOE is pleased that the 

"guidance qocument" outlining the goals, scope and procedures for the review 

embraces these public purposes. 

• Costs and liabi1ities borne by the beneficiaries· Second, it is critical that the costs and 

liabilities associated with the Bonneville system, including the Washington Public 

-Power Supply System and Federal Treasury debt, continue to be borne by the 

beneficiaries of the Bonneville system. Federal taxpayers )lave a $9 billion 

investment in the Northwest hydroelectric system which was made with the 

expectation that it would be repaid with interest. If the Bonneville structure is to be 

altered, the region must ensure that it does not prevent taxpayers from receiving the 

expected return of their investment. As Congress and the Administration struggle 

toward a balanced budget, it will not be realistic or fair to ask Federal taxpayers to 

bear additional burdens. 

9 
44 

Bonneville Actions During the Regional Review 

Bonneville can manage its current activities in a fashion that does not foreclose options 

for the Regional Review, but also does not bring activities to a halt, creating financial 

instability. Bonneville is committed to seeking to conclude its rate case, load 

commitment contracts with public utility customers and accomplishing an administrative 

functional unbundling of transmission and generation. In addition, Bonneville is seeking 

the revenues and cost cuts necessary to deliver on the assumptions embedded in the rate 

case which allowed rates to be decreased for public utility and DSI customers, while 

maintaining a high probability of assuring Treasury repayment. 

The Regional Review process is the primary focus for policy development regarding 

long-term, Federal Power Marketing activities in the Northwest, including alternatives for 

different future structures of the industry. During the course of the Regional Review, 

Bonneville is focusing on establishing the customer relationships and achieving the 

business results necessary for system financial viability between now and 2001. The load 

commitment efforts currently underway are the centerpiece of this approach. 

While these are the_primary focus, Bonneville's activities will continue to include 

commercial activities, potentially extending beyond 2001 in a number of areas. None of 

these activities will foreclose policy positions under discussion in the Regional Review. 

Examples of these types of ongoing, commercial activities include: 

• Sales to utilities serving New Large Single LoadS locating in the Northwest where 

offers extending beyond 2001 are necessary to secure the near-term business. 

• Sales of excess Federal power outside the region, for up to seven years, under the 

provisions of the fiscal year 1996 Energy and Water Development Appropriations 

Act, following the completion of the rulemaking process. 

10 
45 

• Long-term system coordination agreements such as the renegotiations of the Pacific 

Northwest Coordination Agreement. 

• Transactions associated with the return of the Canadian Entitlement which begins in 

1998. 

• Actions in response to Hungry Horse Dam Act 43 U.S.C. § 593, as amended, 

regarding reservation of power for certain long-term needs within the State of 

Montana. 

Conclusion 

The changes in the electric energy business brought about by deregulation will impact 

everyone--Bonneville, public and investor-owned utilities, the Northwest environment, 

and conswners throughout Oregon, Washington, Idaho, and Montana. Bonneville 

welcomes these changes and is an active participant. Its purpose is vital--to assure that 

change will create even greater benefits for consumers and the environment of the 

Northwest. 

Even without the Regional Review, change is inevitable. The new deregulated and 

highly competitive market puts clear limits on the benefits Bonneville can provide and 

could constrain how it meets its responsibilities. Now that Bonneville customers can 

move to other energy suppliers, Bonneville no longer can raise rates to accommodate the 

costs of increased benefits. To the extent the region values certain benefits, it will have to 

ensure that whatever structure it chooses for its electricity system, it can provide the 

benefits the people of the Northwest say are important to them. 

11 
46 

Fortunately, the region has a remarkable history of rising to the challenge of change. The 

region fa~es that challenge again. It now has the opportunity to make the kind oflasting 

contribution that will preserve a unique and enviable way oflife for future generations. 

Mr. Chairman, this concludc:s my statement. I would be pleased to address any 

questions from the Committee. 

12 
47 

Testimony of 

AI Alexanderson, Senior Vice President and General Counsel 

Portland General Electric Company 

before the 

Subcommittee on Water and Power Resources 

of the House Resources Committee 

May 21, 1996 

Mr. Chainnan, Members of the Committee, I appreciate the opportunity to 

testify this morning for Portland General Electric Company; and as part of the 

Northwest lOU's. I am a member of the Steering Committee of the 

Comprehensive Review of the Northwest Energy System. I am a lawyer b~ 

. 

training but have spent the past 24 years in the electric utility industry in a ' 

variety of capacities, currently serving as Senior Vice President and General 

Counsel. From 1988 to 1990 I was President of a subsidiary called PGX 

which was the first power marketing affiliate of a U.S. electric utility. 

Although that venture was short-lived it was at the forefront of what now has 

become a highly competitive and robust electric marketing industry. 

Mr. Chainnan, I have submitted for the record a presentation which I gave 

earlier this year to the Western Electric Power Institute. It is my version of the 

key policy questions and answers given my private utility perspective. I will 

not elaborate on that presentation now. But I will certainly answer any 

questions you and others may have on issues such as transmission access, 
48 

industry restructuring, and the competitive environment overall. For the 

moment, however, I would like to set aside the technical issues and speak 

about process: 

o First, although a lot of work remains, the Regional Review process 

has already achieved a "critical mass" of open and honest dialogue among the 

parties in the region. I know you're aware of how difficult yet imoortant 

this initial step is in a multilateral negotiation process. 

o Second, I believe the Regional Review process has gained sufficient 

"momentum" to carry through with the difficult charter it was given. It will 

take time and may not meet every deadline, but the momentum is there and 

we hope that Congress sustains that momentum when we forward our 

recommendations. 

o Finally, the Regional Review process has "history" on its side. The 

electric utility industry is an extremely complex fabric of economics, 

engineering, social policy and politics. Contrary to popular belief. however, 

change in the industry is not new. 

Since the turn of the century the electric utility industry has adapted frequently 

to meet changing social needs. From transmitting electricity long distances 

from remote dams to city businesses in 1889 --developing and marketing 

2 
49 

toasters and washing machines in the 1920's - rural electrification in the 

1940's and development of renewable and clean burning energy sources in the 

1970's and 80's - the electric utility industry has been VERY closely aligned 

with our economic growth and evolving social needs. That is not going to 

end. Rather a new adaption is in the making. 

The Regional Review Process is part of that century of change but in this 

instance Congress and the regional Governors did not have the confidence 

that Bonneville could steer this change in the best interests of everyone in the 

region. That is because the question is not "what should Bonneville be 

allowed to do?"; it is "what does our society want and expect from the power 

industry and what is the best set of rules and institutions to meet those 

needs?" Let me illustrate with some examples: 

o Electric customers want to diversify their electric loads to alternate 

energy providers and almost universally are calling for BP A to be prohibited 

from building or acquiring new energy resources. Even rural electric 

customers now have choices that weren't available to them five years ago. 

o Transmission customers in the region want those services segregated 

entirely from BPA's energy product lines and want assurances that their 

transmission rates are not cross subsidizing fish and wildlife programs that 

should be paid for by generation customers. 
50 

o Fish and wildlife advocates have become disenchanted with BPA's 

programmatic track record and are looking for ways to stabilize the revenue 

stream that go into fish and wildlife programs. 

o Conservation and renewable advocates who applauded BPA's 

commitment to alternative resources a decade ago are now seeing that 

commitment wither under the pressures of competition. 

o As a U.S. Taxpayer helping to carry the nearly $15 billion debt on 

Bonneville, I'm worried each time BPA ventures out into new areas- such as 

the WPPSS nuclear plants, or Tenaska gas-fired turbines- they do so without 

the discipline of market economies governing the experiment. 

Mr. Chairman, I know the Congress is looking to the Regional Review for 

timely guidance. Citizens in the Northwest are looking to Congress for three 

things: 

First, in the short-term we need Congress to assure that BPA's 

transmission system is operated as a separate business unit from its power 

business and is managed in a way that benefits not just BPA but all electric 

customers in the region who rely on that system. For the economic benefits of 

falling electric prices to flow all the way to electric customers we need an 

open, non-discriminatory and unencumbered transmission system, NOW. 

4 
51 

We cannot afford a Federal Highway where only the Federal trucks get 

through. 

Second, we need Congress to assure that during the Regional Review 

process BPA will not engage in any new business activity or sign any longterm sales or service contracts beyond the year 200 1, which is the planning 

horizon ofBPA's own pending rate case. IfBPA is allowed to engage in risky 

new business ventures, and long term sales, without specific authorization or 

prior approval of the Congress, it will undermine the integrity of the review 

process and potentially preempt options which Congress may consider next 

year for reform or restructuring BPA's activities. 

Third, once the Regional Review process has submitted its 

recommendations, we need Congress to act quickly. Nowhere in the country -

except in the Pacific Northwest -- does the federal government own 40% of 

the power market and 80% of the transmission system. I am not predicting 

what will come out of the region and expect to support whatever collective 

decisions are made. But what I can tell you is that legislation of some kind is 

needed to assure that all electric providers are playing by the same rules and 

that customers who chose one provider over another do so because they have a 

lower cost, higher quality product. NOT because they were given special 

privileges. 

Again, thank you for the opportunity to testify. I welcome any comments or 

questions you might have. 
52 

Testimony of IC:.C. Colden 

before the 

Water and Power Resources Subcommittee of the 

Committee on Resources of the 

United States House of Representatives 

May 21, 1996 

Mr. Chairman, members of the Subcommittee, my name is K.C. Golden. 

serve on the Steering Committee for the Comprehensive Review of the 

Northwest Energy System. Prior to becoming an energy consultant, J served 

as Executive Director and Policy Din:ctor of the Northwest Conservation Act 

Coalition, a regional alliance of public interest groups and utilities dedicated 

to the successful implementation of the 1980 Regional Power Act. 

Thank you for your interest in the region's-deliberations on the future of the 

Bonneville Power Administration, and for soliciting my views on those 

deliberations. I'd like to begin by calling your attention to some noteworthy 

differences between our regional dialogue on electric power industry 

restructuring and the dialogue under way in other parts of the country. 

Unlike many other electric industry restructuring proceedings, the 

Comprehensive Review was preceded by a number of actions on the part of 

the Bonneville Power Administration and its customers that presumed 

certain outcomes to the restructuring debate before the debate had formally 

begun. Some of the most important questions before us may have been 

answered before they were properly posed. 

Nevertheless, the Comprehensive Review is in many ways a more 

thoughtful and far-sighted approach to industry restructuring than we are 

seeing elsewhere in the nation. California's restructuring process began with 

that State's regulators issuing a wide-ranging but poorly conceived proposal 

that touched off nearly two years of bitter controversy before yielding any 

results. Even today, those results are at best mixed and uncertain in terms of 

their effectiveness in promoting competition, reducing costs, and serving the 

public interest. In contrast, the Northwest has begun a thoughtful dialogue 

with the express intent of delivering a working regional consensus IUiW:: to 

the initiation of major legal and regulatory changes. 
53 

The Com!'rehensive Review of the Regional Energy System is as ambitious as 

1ts name m~ph~. The 1ssues are complex and contentious; the stakes are 

high; and time 15 short. But fortunately, our regional deliberations begin 

from a strong sense of first principles. The region's Governors and the 

De~artment of Energy initiated _the process with an unambiguous charge to 

dehver on many of the same pnncaples that Congress articulated in the 

Northwest Power Act of 1980, including: 

• Meeting the energy service requirements of a growing Northwest 

economy at the lowest economic and environmental cost; 

• Capturing cost-effective energy efriciency and renewable resources; 

• Fair distribution of the costs and benefits of the regional power 

system; 

• Informed public involvement in energy resource decisions; 

• Investment in the long-term biological and economic productivity of 

the Columbia River System. 

Changes in the structure of the electric power industry will require new 

methods to attain these goals, but the region's commitment to their 

achievement remains solid. 

In addition to these first principles, the Comprehensive Review begins with 

the advantage of a proud tradition of regional cooperation, mutual respect for 

the variety of interests at stake, and a healthy appreciation for the magnitude 

of the task. 

The challenge is formidable, but our determination to deliver a working 

regional consensus on the future of the Northwest energy system is strong. 

The region's commitment of time and energy to the process has been 

extraordinary. The good faith of the Steering Committee memMrs is 

absolutely genuine. And our motivation to succeed could hardly be greater. 

The economic and environmental productivity of the Columbia River 

System is the lifeblood of the region. If we are to continue to enjoy this 

productivity, we must move decisively to guarantee full, timely repayment of 

the Federal taxpayers' investment in the system as the power industry 

restructures. We must ad quickly to ensure fair distribution of the system's 

costs. We must establish an equitable and efficient way to make investments 

that protect and enhance the system's long-term productivity, as we have so 

successfully in the past. 

2 
54 

~ile our commitment to the regional process is genuine, each of the parties 

ts acut.ely aware that we are not the ultimate decision-makers. Our 

commttment can _only be as strong as the commitment of thou, notably 

Congr~ss, who wtll act upon our product. There is always a temptation to 

sh.ort-ctrcutt the arduous process of building a regional consensus. I hope you 

wtll help us .resist that temptation. Your support for the region's effort to 

develop a fatr consensus will improve its prospects for success immeasurably. 

I. will not delve into the specifics of the Comprehensive review, but I would 

hke to touch very briefly on a few of the key substantive issues that we must 

resolve. 

Ultimately, our success in restructuring the Northwest energy system will be 

measured by how clearly and firmly we draw the distinction between ~ 

reductjon and cost-sbjftin& · The benefits of competition lie in its ability to 

lower costs by inducing real efficiencies in the system. But competition can 

only achieve that goal if it is structured to guard against unfair and 

opportunistic shifting of costs. If we can uW.d. incurring higher costs by 

choosing a more efficient, lower-cost power supplier, then we will achieve 

genuine cost reduction. But if we merely trlmkt costs that have already been 

incurred, we will have achieved nothing of value. Notwithstanding this 

Congress' strong commitment to market forces, I suspect that you will take a 

dim view of "competition" if it becomes an· excuse for shifting the region's 

nuclear debt from regional consumers to federal taxpayers. As consumers, we 

all want choice. But we cannot usher in an era of choice by failing to pay for 

the choices we already made. 

Just as we must ensure a fair way to pay for past investments in the system, 

we must also develop an effective way to allocate the costs of future 

investments that lower the cost of energy service ovl!r the long run. Indeed, 

the foundation of the region's enrrgy system and its economy was built by 

investments that could not have been had they been constrained by the short 

time horizons imposed upon individual sellers and buyers in a competitive 

market. Some long-term investments tum out well and some do not. But 

the ~ for long-term investment and the planning functions that help 

us use that capacity wisely must not be casualties of the restructuring process. 

Another key measure of our success will be the extent to which energy system 

restructuring is accompanied by an efficient, comprehensive, science-based 

approach to salmon recovery in the Columbia Basin. Too much money has 

been wasted and too many salmon stocks are on the brink of extinction. We 

need not and cannot accept the dismal choice between affordable power and 

healthy salmon stocks. The power system and the fish need the same thing: 

a single, clear, well-managed salmon recovery plan that gets the job done at a 

reasonable cost. The moment when wr restructure the energy system in the 

Northwest is precisely the moment to l!nsure that we put such a plan in place. 

3 
55 

Finally. I want to say a brief wn.rl ~bout the role of the Bonneville Power 

Administration in the restructured indu~try of the luture. Public institutions 

arc now facing a vigorous and healthy chaiiPnge to both their mis~ions 3nd 

their efficiency in acc.;.mplishing those missions. We~ question 

whether BPA as o public entity is involved in enterprises which are hPIIPr lo>lt 

to private entities in the marketplace. But, having better defined 8PA ·~ 

~enterprise, I hope we will affirm 13PA's ability to move forward in an 

.. nterprising fuhion. Like successful bu3ine3ses, public institutions should 

be rl'•("'n$ive, innovative, and entrepreneuri;d. I believe that the region's 

and the tax pay.,,.· """t inle1'6ts will be ffit served not by neutering BrA, but 

by redirecting its enPr&i" toward an appropriate, contemporary public 

mission. If BPA's in the wmng husim~ss. then let's get it out. But, having 

doel.,rnlim:d the right business for BPA - thP business that best servK the 

~ intereot - then let's be sure It has the tools and the mandate to succeed. 

Thank ynu one" again for your interc3t in lh" Comprehensive Review. I 

hope you will support our effort to restructure an energy )ystem that works 

for future generations of Northwest citiz~ns and U.S. taxpayers. 

4 
56 

Testimony 

of 

Richard J. Brown, General Manager 

of the 

Ravalli County Electric Cooperative 

before the 

House Resources Water and Power Subcommittee 

Washington, D.C. 

May 21,1996 

Mr. Chairman, I am pleased to testify today on the progress of the Comprehensive 

Regional Review of the Northwest Energy System. The Regional Review was convened 

in January, 1996, by the governors of the four Northwest states to address the changes 

occurring in the electric power industry and to recommend appropriate policy directions 

for our region. The review is scheduled to deliver its report to the governors by the end 

ofthe year. The review is being managed by a steering committee of approximately 20 

members, representing a broad cross section of interests in the region. Presently, four 

work groups are meeting to discuss various aspects of the utility industry in the Northwest 

to determine if consensus recommendations can be crafted. These work groups are: 

transmission; federal power marketing; conservation, renewable resources and public 

purposes; and, competition and customer choice. 

Back~:round 

Across the nation we are observing dramatic changes in the electric utility 

industry. These changes are similar to those that occurred in other deregulated industries, 

including airlines, telephones and natural gas. The changes are similar but not identical. 

For example, how will transmission services be priced? Which retail customers will have 

direct access to wholesale markets and when? How will traditional "public purposes" of 

the electric power system be handled in the competitive future? Will stranded 

investments be created and how might the region or the four Northwest states deal with 

any stranded investments? In the Northwest, just as the rest of the country, these issues 

are also very important. In addition, the Northwest has a number of issues that are 

particular to this region. What should be the role ofBPA in a competitive market? How 

does the region assure the repayment ofthe BPA debt as wholesale markets become 

increasingly competitive? Where should conservation and renewable resource 

responsibility reside in the new utility environment? These questions are unique resulting 

from SPA's traditional role in the region. 
57 

Fifty percent of the power in the Pacific Northwest has historically been supplied 

by the Bonneville Power Administration. BPA markets the hydro power produced at 

hydroelectric dams by the U.S. Army Corps of Engineers and the Bureau of Reclamation 

and the output of the nuclear plant produced by Washington Public Power Supply 

System. BP A also owns 80 percent ofthe high voltage transmission facilities within the 

region. Due to BPA 's access to low cost hydroelectric power the region has had the 

lowest price power in the nation and BP A has been among the lowest price suppliers in 

the region. Today that is changing. BPA is faced with many of the same pressures 

affecting utilities in the rest of the country. Due to open access, low natural gas prices 

and large amounts of surplus electric generation capacity in the West, BPA's utility 

customers and their industries are being offered power at lower prices than BPA can 

provide. BP A has been working for several years to cut its costs and reduce is rates to be 

more competitive. However, today many power suppliers' prices are even lower than 

BPA's proposed rates. 

Many things contribute to BPA's difficulties. Nuclear costs, federal debt and 

other commitments entered into many years ago must be paid. Programs that imposed 

costs but did not produce revenues such as conservation and the residential exchange, also 

contributed to BPA's difficulties. Fish and wildlife costs of the Northwest hydro system 

also were a contributing factor. Many believe that the competitive power market can no 

longer support full funding for all of these types of programs. The question thus 

becomes, if the market cannot support these programs, should these social objectives be 

pursued and who will fund them? Public power supports a vibrantly competitive bulk 

power market in the Northwest. We also believe BPA is an essential player in the 

Northwest, and believe the two, BPA and competitive markets, are mutually dependent. 

The Comprehensive Reeional Review 

Last year, at the urging of the Department of Energy, Congress and many 

individuals and groups within the Northwest, the governors decided to convene a 

comprehensive review of the Northwest energy system. The primary goal of the review 

is to see if we could maintain an affordable, reliable power system, agree on the set of 

issues which were the most critical for the energy future of the region and recommend the 

best ways to resolve them within the region. The review is being managed by a steering 

committee, appointed by the four Northwest governors and is chaired by Chuck Collins, a 

former member of the Northwest Power Planning Council from Washington State. 

Since January the regional review steering committee has examined the experience 

of other deregulated industries and attempted to learn the way that electric deregulation 

2 
58 

has been handled in other locations. These discussions have helped steering committee 

members to develop a common understanding and lexicon for analyzing the issues. In 

late March, the steering committee defined four working groups to begin in-depth 

analysis of the issues. Members of the steering committee serve as co-chairs of each 

work group and the work group meetings are open to all who are interested in 

participating. 

Transmjssjon 

The transmission work group is looking at a number of technical issues relevant to 

the possible restructuring of the Northwest transmission system. In conjunction with the 

Northwest Regional Transmission Association (NRT A), the review has been examining 

various ways of pricing a region-wide transmission tariff. Various proposals for 

separating BPA's generation and transmission functions are being analyzed along with 

the appropriateness and possible scope of an independent system operator to coordinate 

transmission operations in the Northwest. Additionally, the review has been looking at 

the effects of establishing a single pool for all electrical transactions in the Northwest, and 

the effects of adding certain non-transmission costs to transmission charges. 

While the technical work on these issues is still underway, it is safe to say that 

public power supports some degree of separation between BPA's generation and 

transmission functions. Work will also be done on developing an independent system 

operator or other organization that relies more on coordination than on centralization, 

because considerable skepticism has been expressed within public power on the 

desirability of an independent system operator with highly centralized responsibilities. 

There also seem to be problems with collecting non-transmission costs on the wires. If 

these cost adders are imposed, there is a real risk that additional generation will be 

installed close to load centers in order to avoid paying these charges. This means that the 

more charges that are placed on transmission, the less the system will be used, with 

consequent decreases in transmission revenues and increased costs. 

Federal Power Marketine 

This work group is examining the issues as they relate to BP A and its role in the 

region. The power marketing work group has focused on preferred futures for the power 

marketing functions of the Federal Columbia Power System. The group developed a set 

of consensus objectives for the federal power system. This list of objectives is included 

as Attachment I. The federal power marketing work group is now developing alternative 

structures for the federal power marketing function. Work group participants were 

3 
59 

invited to submit proposals. Nine different proposals were put forward. The Public 

Power Council staff, for example, developed an option that retains many aspects of the 

current system. Our option preserves federal ownership and public preference rights with 

changes that reflect the new realities of the competitive power market. These changes 

include: 

• Disaggregation ofBPA's power and transmission functions 

• Elimination ofBPA's obligation to serve load growth 

• Shared governance structures among BP A and its customers 

• Freedom of entry and exit by customers and new power suppliers 

• Freedom to pool and resell federal power 

Other individuals and groups have suggested alternatives that include customer 

ownership of the power system under various allocation and auction models. Each 

alternative will be evaluated using common criteria. At this juncture, it is too early to 

endorse or disqualify any option. 

The work group is also analyzing the effects of these different proposals on SPA's 

existing Treasury debt and its net billing obligations to the Washington Public power 

Supply System. The power marketing work group is working toward a consensus 

proposal that will be forwarded to the steering committee in July. 

Conservation. Renewable Resources. and Pub!jc Purposes 

This work group has drawn over 160 participants representing a wide range of 

interests. Discussions to this point have focussed on developing a consensus set of goals 

for conservation and renewable resources. The draft goals are included as Attachment 2. 

In addition to goal-setting, the group has heard several proposals for 

accomplishing conservation objectives in a competitive utility future. Some of the 

mechanisms address funding for conservation, others address focusing the responsibility 

for conservation on the consumers who benefit from the conservation directly. The 

proposals range from a strictly market-based approach to conservation charges levied at 

the transmission or distribution level. For renewable resource development, a portfolio 

approach is being discussed. Public power is working to define a method of addressing 

4 
60 

conservation and renewable resource development in the future and will be presenting it 

to the work group this week. 

The group was also tasked to quantify the costs and benefits of other broad-based 

public purposes such as irrigation, navigation, flood control, and recreation. This task is 

very difficult to pin down but a small sub group is working on developing estimates. 

Competition and Customer Choice 

The competition work group is tasked with making recommendations about how 

customers might have direct access to competing power suppliers. There is a lot of 

concern about the issues raised by this group and a fair amount of controversy. There are, 

however, some areas of agreement among the participants. These include: 

I. Transmission should be open to all wholesale transactions; 

2. Transmission should be separated from generation and from distribution; 

3. Ifthere is retail access for one customer group, there should be timely retail 

access for all customer groups; 

4. There are a number of issues about the timing of direct access that will need 

to be worked out, but, in general, customers from one market segment 

should not be forced to wait too long while others are permitted market 

access; and 

5. Some mechanism for protecting the smallest customers may be needed and 

the distribution utility may need to be the supplier oflast resort. 

The work group believes that its efforts are beneficial in developing a common 

understanding of the issues involved in retail competition. The work group is also hoping 

to be able to add to the understanding of competition issues in the region and nationally. 

The group is preparing to submit consensus recommendations to the steering committee 

in July. 

Status of the Revjew 

At this point, public power is pleased with the process of the regional review. 

Approximately 800 people have participated in the review either by attending the public 
61 

meetings and expressing their concerns, participating in the various work groups or 

keeping up through the Internet. A background public information piece is available for 

groups to mail to their members and a communications plan is in place. BPA, utilities, 

industries, interest groups and others are participating. The process is moving according 

to an ambitious time frame which has the work groups preparing their consensus reports 

and forwarding them to the steering committee by early July. The steering committee 

will then develop its report. Once the report is drafted, public hearings will be held to 

solicit comments and, after revisions, the report will be finalized and submitted to the 

Governors. We expect that the report will recommend changes in both state and federal 

statutes. 

We are pleased with the interest of the committee and we look forward to working 

with you in the future as the region attempts to implement the recommendations from the 

regional review. 

Thank you for the opportunity to testify before this subcommittee. 

6 
62 

Federal Power Marketing Work Group 

Proposed Objectives for Evaluating Alternative Models 

NOTE: The order is not important. 

1. There is a fully competitive bulk power market available to all customers in the region, facilitated 

by open-access transmission. 

2. Promotes freedom of action by customers. 

3. Future risks and benefits of federal power marketing rights are commensurate and they accrue to 

those customers who elect to assume those risks and benefits. 

4. No increased risk to the taxpayers, with equivalent probability of Treasury payment, and security 

of outstanding bonds. 

5. Continued benefits of coordinated river operations, for both power and other purposes. 

6. The proposed model has the potential to gain acceptance by most constituent groups and will be 

relatively easy to implement (i.e., if legislation is necessary, modest legislative changes are 

preferred over substantial changes). 

7. During the transition to the competitive market, there are no major involuntary cost shifts among 

user groups. 

8. Compatible with regional solution for transmission. 

9. Existing contractual rights and obligations are preserved, assigned, or changed only by mutual 

agreement. 

I 0. Compatable with regional solution for public purposes. 

II. Flexibility and robustness of solution to respond to future conditions. 

12. Responsive to public policy concerns. 

13. The system's reliability wiU not be harmed by the transition to a competitive bulk power market. 

14. The region will have first priority for the benefits of the existing power system. 

ATTACHMENT I 

Testimony be fore the House Resources Water & 

Power Subeomminee - May 21, 1996 

Richard J. Br<>wn, Ravalli County Electric Coopera<ive 

(Page I of I) 
63 

PUBUC PuRPoSE GoAL: To ASSURE 111AT TBK PoWl!RSVPPLV S'YS'I'I!M OF 

TBKPACIFICNORTBWESTRmlu!CTS THE VAWJ!S AND MEETs THE NEEDS 

OF ITS Cl'rlzEte 

Tbls system should pro'flde eaercy ~ tllat are: . 

• Adequllr. Dlvase m1 Rdiallle, 

• Ecoaamic:al m1 E!ftk:ic:al, 

• PminlamealaJiy ltapolsible m1 SUSIIiDable; lad. 

• CoDsisteat m1 Coqalible wilh a Competitive Matlca. 

These services should be proWled In a manner wldc:b: 

• ProWb fir public paltidpa1ioil m1 coasullalioo in e-ay ISOIII'Ce decWca, 

• &haDc:a the viability aad compelitiveiiiSS oldie Norlllvmlt~. 

• MiDimizes lbe IDIIllifo.cycle OOSIS of C11C18Y services, illcludiDg CllviroDmcural mJ OChl:r 

social COliS; IIIII, 

• MuimiztS aDIIIller choice. 

CONSERVATION GoAlS AND 0BJEC11VE'l 

I. MiDimize the IDIIl caS!, iDCiudia& risk m1 ad-=c impads. d energy services ID 

individuak. . 

2. Rely, wbcre possible; on market fottes 10 accomplish OJSt-efl'cclive ~ 

3. Facilitalelbe actioo of madcr:t fon:es. Amoog the aicam of doiD& so are: 

• gelling the price sigDa1 riabt. inckacling rctlcctlD& ex1allllities: 

• maiDiainiD& a viable CIICI8Y efliciellcy ilxbtly; 

• providlDs CCliiSWIIei'S with edu<:aticD aod inbmatiooi on efliclcDcy.lllll, . 

4. Idelllify lll'W wbere marla:t OUII:OIIlCS devialt from socially dl:siitd OUII:IlJDes. 

S. Marlr:ct IDtervCIJ!ion, wbeze appropriate. sbould be doae in a IIWIDCr wbicb: 

• is as oompelilively neutral as possible; 

• is larpted, rimpJo, IDd elliCieat; 

• bu lbe ftclu"bili!y 10 adapt 10 dJau&iug c:ircums1aDccs; 

• maiJains lbe beoefits of local decisiol>-matio& aod oaioD, while~ .Cg;oaa1 ~aod. . . . ·. . • 1iDks C051S and beoefits (a damages) as diRcdy os possible. 

ATIACHMENT2 

Testimony before the House Resources Water & 

Power Subcommittee · May 21, 1996 

Richard J. Brown, Ravalli County Electric Cooperative 

(Page I of2) 
64 

'RENEWABLERl!SoUJlCEGo.U~ANDOBJBC11VJ!S 

1. MiDimize 111e IDIII cost, i.DcludiD& mt lllllldvalc implds, m CIICIJY scrvica m 

iDdividuals. 

2 l'lesene reDeWable taOUR:eS u aloag.tam q>Cioa and eoc:ounao their clewJopmeaL 

3. MaiDraiD audeabance die capability 1D clm:lq>~ by: 

• develoPDI• chan~dl:ritatioa oflbe Jqioa's I"CIICWIIJk RSCUr~:C base; 

• IISSIIIiD& dlat reaewable zesource pjlll:uliaJ is coasickrcd iD all JaDd.we cb:isioas: 

• iD~ngiDtbe~of~rmewate~aad, • baaariDgtbe 1q1011 sCCllllrllcCIIal andquasK:oollaaual•• .. u•!!lme!!IS U>r=ewablc 

prt!jccls Clllucd iDio piiSIIIIIIIO die Coomcil's "Reucwablc Reswrce Coafirmalion 

Agenda." 

4. Rely, wbcrc pt5Siblc. on marht fcn:cs 10 accomplish rost~fm:Uvc !"C"Cwable resource 

devclqmcD. 

5. Facilitatelbeadionofmarkct forces. Among the mcam of doing so arc: 

• geltiDg the price signal right, including tdlection of Cl<lmlll CIOSis; 

• assuring DOIHiisaimiDaUlly a= for rencwables 10 traDSmission and fcdetal 

bydrmysWD firming capability; 

e providing marilct participants with "green power" optiODS. 

6. ldeulify areas where market oulalln<s deWUe from socially desired OlilCOmes. 

7. Marketinlr:rvCIIIion, whtre apprqniati;shoold ' be done in a lll3llllerwbich: 

• is as compclitivcly neutral as possible; 

• is WJcted, simple, and efliciem: 

• bas lbe nexibility 10 adapt to chulging circwnstan=; 

• maiDiains lbe bene61S of local decisloo-making and action, while eocouraging tegiooal 

coopcmtion; and, 

• links costs and benefits (rr damages) as directly as possible. 

A TI ACHMENT 2 

Testimony before the House Resources Water & 

Power Subconunittee • May 21, !996 

Richard J. Brown, Ravalli County Electric Cooperative 

(Page 2 of2) 
lntrocluction. 

65 

Testimony by 

John D. Carr, Executive Director, 

Direct Service Industries, Inc. 

before the 

Subcommittee on Water and Power Resources 

Washington, D.C. 

May 21, 1996 

Good Morning Chairman Doolittle and members of the Subcommittee. My name 

is John D. Carr and I am the executive director of Direct Service Industries, Inc. I 

appreciate the opportunity to address the Subcommittee on the evolving role of the 

Bonneville Power Administration in the Pacific Northwest and the Comprehensive Review 

of the Northwest Energy System. 

Direct Service Industries, Inc. represents eight major companies in Washington, 

Oregon and Montana. These companies produce aluminum and chemicals. Together, they 

account for about 40 percent of the nation's aluminum production. They employ roughly 

10,000 people and contribute over $2 billion every year to the Northwest economy through 

wages, taxes and purchases. 

Historically, the direct service industries have purchased the bulk of their electric 

power from Bonneville and have represented one-fourth to one-third of Bonneville's sales 

and revenue. However, as the regional energy market rapidly evolves toward a more 

competitive market, alternative suppliers -- including . investor-owned utilities and 

independent power marketers -- are becoming very competitive. In response to changes in 

the market, some DSis have shifted portions of their load to other suppliers -- as have other 

Bonneville customers. This change in our historical relationship with Bonneville is just one 

of the many changes the region will experience as we move to a deregulated, fullycompetitive wholesale energy market. 

Bonneville Power Administration. 

The Bonneville Power Administration was established during the depression to 

market the electrical power produced at multi-purpose hydro facilities developed by federal 

government in the Columbia River Basin. Over the years, the federal government expanded 

the federal hydro power and transmission systems until, by the mid-1970s, Bonneville 

operated a large,. world class, low cost power supply system that has contributed greatly to 

the economic development of the Pacific Northwest. 

Since then, several federal policy choices have significantly raised the costs borne by 

the federal power system. These costly policy choices include: the financial backing of 

nuclear projects that the federal government did not own, operate or manage; a S 1 billion 
66 

program of incentive payments for energy conservation; the cost of power purchases that 

were entered into and then cancelled; and the commitment of large investments and 

changes to the operations of the hydro projects to maintain a commercial fishery while 

trying to protect certain Endangered Species Act-listed salmon stocks. These federal policy 

choices have increased the costs borne by hydro operations while simultaneously decreasing 

the quantity and quality of power generated at the projects. 

While Bonneville's costs have escalated, federal policies to promote a competitive 

electric market and technological innovations have driven down the price of electricity. 

Power prices have decreased throughout the West due to improving generating technology, 

low gas prices, increased transmission capacity between regions, better utilization of existing 

generating capacity, the development of truly competitive markets for power, and, to some 

degree, a slow down in the California economy. As a result of these cost and price trends, 

the market value of Bonneville's power has now dropped below the costs that Bonneville 

has been asked to bear. 

Bonneville has lost the tremendous price advantage that it enjoyed for years just as 

competitive forces were in the process of transforming energy markets. Moreover, 

Bonneville's customers have choices in this competitive market and they are electing to 

diversify their purchases. As a result, Bonneville is in danger of failing to meet its financial 

commitments unless it can control its costs or Bonneville's obligations become limited to 

its revenue generating capability. Unfortunately, many of Bonneville 's financial 

commitments continue to be driven by non-market political considerations. 

Of course, Bonneville is only part of the larger energy infrastructure in the Pacific 

Northwest. Although some of the challenges faced by Bonneville are unique, the force of 

competition is affecting all energy market participants. Bonneville is simply feeling the 

effects earlier because it operates only in the wholesale power markets that are being 

transformed by competition first. 

The Regional Review. 

In the Pacific Northwest, we are now engaged in a broad-based "Comprehensive 

Review of the Northwest Energy System" to develop a region-wide response to these 

developments. This Review was initiated by the governors of the States of Idaho, Montana, 

Oregon and Washington. States, utilities, the DSis, consumers, regulators and various 

interest groups are participating actively and intensively in this process. During the Review 

process, several preliminary proposals have been advanced by various participants, often 

without clearly identifying the problem the proposed solution is designed to address. 

We believe that a key part of the problem and thus a necessary element of any 

solution is for Bonneville to gain control of its costs so that the costs can be recovered by 

the sale of electricity in a competitive market. Another element of the problem is how the 

ove-f'all energy system in the Northwest might be restructured to accommodate and promote 

a competitive market. Others may define the problem as how to achieve fair competition 

in a market in which a federal agency currently plays a major role. Still others might define 

the problem as how to continue to fund programs that cannot survive unaided in a 

competitive market. All of these issues are being explored in depth, but the Regional 

Review is just beginning. 

2 
67 

Only a couple of things are reasonably clear at this stage of the Regional Review. 

First, nobody yet has a proposal that addresses all of the relevant questions. Nobody really 

knows how their favorite solution to what they see as the most compelling problem will 

affect all of the other legitimate interests in the Region. Second, the attention of the 

Region has become focused on the myriad of issues that affect our rapidly changing energy 

markets. Many people are beginning to realize that the issues are more complex than they 

initially appeared. 

Conclusion. 

Given the dedicated effort of the many involved people in the Northwest and a 

reasonable but short amount of time, we can expect proposals that are far more robust than 

the trial balloons floated to stimulate thinking by various parties to date. The process is 

working. Congress should do nothing now to prejudge or foreclose alternatives. Instead, 

we ask that you wait for guidance from the deliberations of the Regional Review. We 

appreciate the opportunity you have provided to address these importaii.t issues. 

c :\cOOIIIOn\jclslSZl.wp 

3 
68 

DIRECT SERVICE INDUSTRIES. INC. MEMBERS 

Alumax Inc. (Ferndale, WA) 

Aluminum Company of America (Wenatchee, WA & Addy, WA) 

Columbia Aluminum Corporation (Goldendale, WA) · 

Columbia Falls Aluminum Company (Columbia Falls, MT) 

Georgia-Pacific Corporation (Bellingham, WA) 

Kaiser Aluminum & Chemical Corporation (Spokane, WA; Tacoma, WA; & 

Mead, WA) 

Northwest Aluminum Company (The Dalles, OR) 

Reynolds Metals Company (Longview, WA & Troutdale, OR) 

Vanalco, Inc. (Vancouver, WA) 
69 

Ravalli County Electric Co-op 

June 12, 1996 

Honorable John T. Doolittle 

U.S. House of Representatives 

Committee on ReSOUICes 

Washington, DC 20515 

E lll51 E»tside Highway 

ro. Box 190 

Corvallis, \-IT 59828-0190 

Richard 1. Brown, General Manager 

Re: Response to Questions for Congressman Cooley regarding May 21,1996 Subcommittee 

Hearing 

Water and Power Subcommittee Questions 

Do you support the separation of BPA 's traJISIIliasioo and power marketing functions? 

Yes, BP A should be required to separate its power and marketing functions along the lines 

mandated foe investor-owned utilities in FERC's recent Order 888. 

If so, bow should this be accomplished? 

There has been considerable discussion in the region about whether the necessary separation 

should be done administratively or whether it is more appropriate to use legislation to establish 

two separate federal agencies, one to handle generation and one to handle transmission. The 

regional review is still studying this issue. However, it is important to note that establishing two 

separate agencies (both of which would probably still be pan of the Department of Energy) does 

not eliminate the possibility of the federal transmission business advantaging the federal 

generation business, and safeguards will still be required to make sure that that does not happen. 

Should BPA continue to be l'ellponsible to meet its customen load growth? 

BPA should no longer have an overall responsibility to meet its customer's load growth. 

However, there may be situations where customerS, individually, or as a group, wish to contract 

with BPA to meet their load growth. This option should be available. Under these circumstances 

that customer, or group of customers, would bear the costs and risks of that service. The costs of 

meeting load growth should not be borne by those customers which do not contract for this 

service. 

"Owned by the People We Serve" 

Phone (406) 961-3001 • Fax (406) 961-3230 
Honorable John T. Doolittle 

Page 2 

70 

Richard J. Brown, General Manager 

I understand that BPA and its customers are negotiating "load commitments", and agreed 

upon levels of power that customers will acquire from BPA. How are these discussions 

going? 

BPA has 128 publicly-owned customers. Of those, 53 have signed agreements to take power 

over the I m though 2001 period at the rate stated in the 1996 final rate proposal. In addition, 

10 cooperatives, working through the Pacific Nonhwest Generating Cooperative, have agreed in 

principle to a power sales agreement for this period. Progress is also being made with regard to 

BPA's larger public power customers. Key issues that separate BPA and its customers in these 

discussions include (l) customers' desire to take load off of the agency given that, at least in the 

short term, the market price of power is lower than BPA's, and BPA's desire to keep as much load 

as possible on the agency while at the same time affording some flexibility to take load off of the 

agency. and (2) BPA's concern that customers may voluntarily allow their own customers to allow 

retail wheeling in their own service territories with a consequent loss of load for the agency. 

There is a lot of talk about Independent System Operators (ISOs). Do you believe that is 

an appropriate tool for the Northwest? 

It may well be appropriate to establish an ISO in the Nonhwest. However, it is still unclear what 

responsibilities should be given to an ISO. There is considerable concern that the Nonhwest 

should not establish an ISO that would be a new poorly-controlled organization that will operate 

to protect its own interests, rather than work to benefit the region as a whole. 

BPA bas proposed tbe formation of an "energy services" business line. Do you believe tbis 

is appropriate? 

Public power has supported BPA's development of an energy services business line with important 

caveats. 'The most important is that those who usc the energy services should pay for them and 

BPA's existing customers should be protected from incurring any additional costs due to a 

"failure" of this energy services business line. It is also important that BPA's energy service 

business not offer products and services which compete with services already available from the 

market. However, BPA has developed a lot of expertise during the last 15 years in the energy 

services area and it makes sense for this expertise to be available to willing buyers. We have 

heard a lot of conceptual ideas about the energy service business. It will be easier to decide the 

specifics of our support or opposition to the energy services business when we understand it 

better. 

I understand that BPA and its customers are negotiating "load commitments," and agreed 

upon level of power that customers will acquire from BP A. How are these discussions 

going? 

I believe that BPA is making an attempt to work with its customers on some level of flexibility as 

to load requirement without jeopardizing their current financial situation. As one might expect, 

there are some customers satisfied with the progress and others that are frustrated with the 
Honorable John T. Doolittle 

Page 3 

71 

Richard I. Brown. General Manager 

process. From my perspective, BPA is one of the very few power suppliers that is reducing its 

Base Load Generation Costs for its members. I don't believe that is happening in the IOU camp. 

The cWTent surplus is marginal power with unallocated costs associated with it. The point is that 

it is not an apples to apples comparison. 

There is considerable talk about "stranded investment" and how to recover it. What is 

your recommendation for BPA? 

BPA should focus on getting its costs down and becoming competitive in the market. BPA's own 

study says that BPA has no stranded investment if BPA can conaol its costs. If BPA is allowed 

to recover any "stranded investment", that merely reduces the market pressure on BPA and 

increases the time required for BPA to make the necessary adjustments required to meet the 

market. 

This concludes my response to Congressman Cooley's request. 

Sincen:l-7 

~/4 Richard I. Brown 

General Manager 
72 

PoRT I. A:\'1> GF.xt: K.\ 1. Etf.C TRI C CoMPA~Y 

O NE WORLD TRADE C ENTER 

ALVIN ALEXANOERSON 

SENIOR VICE PAESIOENT 121 S W SAL M O N ST REET 

GENERAL COUNSEL AND SECRETARY PORTLAND . OR EGO N 97204 

(503) 464 · 7 40 1 

The Honorable John T. Doolittle 

Chainnan, Subcommittee on Water and 

Power Resources 

Committee on Resources 

1337 Longworth House Office Building 

Washington, D.C. 20515 

June 3, 1996 

RE: Question for the Record-- BPA Transmission Rates 

Dear Chainnan Doolittle: 

I want to thank you again for convening the April 21, 1996 hearing on the Regional 

Review of the Bonneville Power Administration. I very much appreciated the opportunity to 

participate in those hearings. 

During that session Congressman Cooley asked what the transmission rate increases were 

that BPA was passing on to regional customers. For a variety of reasons I wanted to submit a 

response for the record which I am enclosing. 

BPA has proposed to redesign its so-called IR (Integration of Resources) transmission 

rate structure from a demand and energy basis to a demand only basis. When converted to a 

demand only basis, theIR rate from BPA's last contested rate proceeding, which was in effect 

during the fiscal1994-95 period, was $.848 per kW per month. TheIR rate for fiscall996 was 

based on a 4 percent "surcharge settlement, • and was $.8819 per kW per month converted to a 

demand only basis. A settlement of the transmission portion ofBPA's current rate proceeding 

includes a rate of approximately $1.001 per kW per month. This rate is to apply to the fiscal 

1997-2001 period, and represents an increase of 18.04 percent over the rate determined in BPA's 

last contested rate proceeding ($.848 converted to a demand only basis). Congressman Cooley is 

correct that these transmission rate increases are in addition to the Exchange benefit decreases 

which will adversely affect the residential and small fann customers of exchanging utilities. 

I hope this answers the Subcommittee's specific question about transmission rate 

increases. As I indicated at the hearing, because these are significant rate increases it is imperative 

that BP A uses these revenues to support operation and maintenance of the existing transmission 

system and not to cross subsidize power customers. More importantly, there is no agreement of 

the region with regard to "growth" at Bonneville which would include using these rate increases 

to expand its existing transmission system. 
The Honorable John T. Doolittle 

Page2 

73 

Again, your time, attention and leadership on these issues are appreciated. 

Sincerely, 

~~ 

cc: The Honorable Wes Cooley 

1609 Longworth House Office Building 

Wuhington, D.C. 20SIS-3702 

0 


ISBN 0-16-052959-X 

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