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|   Reports & papers |
|-----------------------------|
|                   | 1998 Council Briefing Book
**May 1998  |  document 98-10**

The briefing book provides information on the history of the Council      and issues the Council currently is addressing.

Related links: Current briefing book

 

**1998 SUPPLEMENT ON CURRENT COUNCIL ISSUES**Fish and Wildlife Issues      Power Issues**HISTORY OF THE REGIONAL POWER SYSTEM**
Fish and Wildlife Issues
THE COLUMBIA RIVER BASIN FISH AND WILDLIFE PROGRAMFISH AND WILDLIFE PROGRAM COSTS AND RESULTSSYSTEM PLANNING 30 RESEARCHMAINSTEM PASSAGEHABITAT AND PRODUCTIONRESIDENT FISH AND SUBSTITUTIONSPROTECTED AREAS AMENDMENTHARVESTWILDLIFE MITIGATIONGLOSSARY OF FISH-RELATED TERMS
Power Issues
THE CHANGING UTILITY WORLDCOMPREHENSIVE REVIEW OF THE NORTHWEST ENERGY SYSTEMTRANSMISSIONTRANSMISSION SYSTEM IMPACTS FROM BREACHING      JOHN DAY DAMFEDERAL POWER MARKETING: THE ROLE OF THE      BONNEVILLE POWER ADMINISTRATIONCOST REVIEW OF THE FEDERAL COLUMBIA RIVER POWER      SYSTEMFOURTH NORTHWEST CONSERVATION AND ELECTRIC POWER PLANCONSERVATION ACQUISITION STATUSGLOSSARY OF POWER-RELATED TERMS
Legal Issues
WHAT KIND OF LEGAL CREATURE IS THE COUNCIL?PROCEDURES FOR AMENDING THE COUNCIL'S POWER PLAN      AND FISH AND WILDLIFE PROGRAMCOUNCIL INTERPRETATIONS OF THE NORTHWEST      POWER ACTLITIGATION

Administrative Issues

FINANCE AND ADMINISTRATION

**Central Office Staff**

COUNCIL CENTRAL OFFICE STAFF FLOW CHART**COUNCIL CENTRAL OFFICE STAFF      DIRECTORY**
**1998 SUPPLEMENT ON CURRENT      COUNCIL ISSUES**A brief review of major tasks the Council is undertaking      May 1998

**Fish and Wildlife Issues**

**1. Future Role of Fish Hatcheries**

**The Issue:**The region lacks a coordinated policy to guide future      operation of fish hatcheries in the Columbia River Basin. At the request      of Congress, the Northwest Power Planning Council convened a panel of      scientists and an advisory committee to review all fish hatchery      production in the Columbia River Basin as a first step toward developing      such a policy.

**Timeline:** The review should be completed and delivered to      Congress by June 1999.

**Background:**Fish hatcheries have a long history in the Columbia      River Basin. For more than 100 years, hatcheries have been used to produce      fish for harvest, primarily in commercial fisheries in the lower Columbia      River. For the last 60 years, hatcheries also have been used to mitigate      the impact of federal dams on salmon and steelhead. Because most of this      fish production, and commercial fishing occurred downstream of Bonneville      Dam, many people believe the less-abundant wild salmon and steelhead that      spawn upriver were disproportionately affected. Hatcheries, regardless of      where they are located, also occasionally experience disease problems, and      these diseases can be passed to other fish if the diseased fish are      released.

On the other hand, proponents of artificial production say it may be      the only way to rebuild seriously depleted stocks of salmon and steelhead      that spawn in the wild. With care, hatcheries could provide the seed      stocks to rebuild naturally spawning runs. This practice, known as      supplementation, involves raising fish at hatcheries and then releasing      them into streams where they will return, by natural instinct, to spawn.

Last September, the Northwest Power Planning Council called for a      comprehensive review of artificial production of fish in the Columbia      River Basin. Earlier in the year, Congress called for a similar review as      a first step toward developing a coordinated policy to guide future      operation of federally funded hatcheries in the basin, and two recent      independent scientific reviews of fish and wildlife restoration in the      Columbia River Basin have done so, as well. The common concern in each      case was whether current hatchery practices and the level of production -      about 80 percent of the Basin's fish are produced in hatcheries - are      appropriate.

The Council's review, which will be conducted by five independent      scientists and monitored by a broad-based, 25-member advisory committee,      will address three major questions:

1. How does artificial production fit, or might it be altered to fit,      into the Columbia Basin ecosystem?

2. How can artificial production be used to meet the needs of society      for sustainable populations of fish that support harvest, as well as other      competing resources?

3. What institutional structures are needed to meet the needs of      society for sustainable populations of fish that support harvest?

Five scientists have been appointed by the Council to conduct the      hatchery review. Three are members of the Independent Scientific Advisory      Board, a panel of scientists who advise the Council and the National      Marine Fisheries Service. They are Jim Lichatowich, a consulting fisheries      biologist from Sequim, Washington; Rick Williams, a consulting geneticist      from Meridian, Idaho; and Brian Riddell of Nanaimo, British Columbia, a      fisheries biologist with the Department of Fisheries and Oceans, the      Canadian federal fisheries agency. The two other scientists are Ken      Currens, a biologist with the Northwest Indian Fisheries Commission in      Olympia, Washington, and Ernie Brannon, a biologist with the University of      Idaho.

**2. Review of Corps of Engineers capital construction      projects**

**The Issue:**What fish passage improvements should the Corps of      Engineers pursue in the future at dams on the lower Snake and Columbia      rivers?

**Timeline:** The review is scheduled to be completed early in 1999.

**Background:**In the Conference Report accompanying the Energy and      Water Development Appropriations Act for Fiscal Year 1998, Congress      directed the Northwest Power Planning Council to review "the major      fish mitigation capital construction activities proposed for      implementation at the federal dams in the Columbia River Basin." By      definition, then, this is a review of the U.S. Army Corps of Engineers'      Columbia River Fish Mitigation Program. Through this program, the Corps      improves fish passage at its Columbia and Snake River dams. Fish passage      devices include screens to keep juvenile salmon and steelhead from being      drawn into the turbines, bypass systems to carry juvenile fish around the      dams, collection devices to direct juvenile fish into barges or back into      the river on the downstream side of the dams, fish ladders to help adult      fish swim over the dams, and related equipment. The conference report      notes that the Corps' program appears to reflect multiple, sometimes      conflicting strategies. For example, why should the Corps spend tens of      millions of dollars to repair aging facilities at Ice Harbor Dam if there      is a possibility the dam will be breached, along with the other lower      Snake River federal dams, to improve migration conditions for endangered      Snake River salmon?

Congress did not ask the Council to resolve such conflicts, but to      point them out for further review. The Council also will identify policy      and technical questions that should be addressed. The Council will address      policy questions, and scientific or technical questions will be submitted      to the Independent Scientific Advisory Board, an 11-member panel of      independent scientists who advise both the Council and the National Marine      Fisheries Service.

The Council's review will focus primarily on fish passage improvements      proposed for implementation, rather than on those already under way or in      the research phase. However, the Council also will review three      particularly controversial projects that already are moving ahead. These      are:
- Relocating the bypass outlet pipe at Bonneville Dam.
- Installing extended-length screens in front of the turbine entrances          at John Day Dam.
- Further development and testing of the surface spill bypass system          at Lower Granite Dam.

**3. Audit of Bonneville's Fish and Wildlife      Contracting Procedures**

**The Issue:** A 1996 amendment to the Northwest Power Act requires      improved cost-effectiveness and accountability for fish and wildlife      spending in the Columbia River Basin. In response, the Council retained      Moss Adams LLP, an independent accounting firm, to conduct a management      review of contracting processes for implementing the Council's Columbia      River Basin Fish and Wildlife Program. In February 1998, after seven      months of work, Moss Adams reported that the contracting process needs      more competition, streamlined project procurement and improved      accountability.

**Timeline:** The Council, Bonneville and the region's Indian tribes      and fish and wildlife agencies will meet with Moss Adams to discuss how to      implement the recommendations.

**Background:**The audit came on the heels of a Council-sponsored      review of Bonneville's other costs. That review recommended $147 million      in annual savings at the agency.

Most of the findings and recommendations of the management review      address Bonneville's fish and wildlife project procurement and contract      administration. Specifically, the review made recommendations in four      areas: contract procurement, contract administration, program planning      and, monitoring and evaluation. Highlights of the recommendations include:

? Increase competition in solicitation and negotiation of contracts      and make the procurement process more efficient through more comprehensive      program planning.      ? Require additional reporting and documentation to ensure accountability      for contract modifications, budgets and schedules, project status and      project monitoring.      ? Planning documents should be more specific about project scoping, cost      definition and prioritization. Providing more specificity during planning      would allow project solicitations to be more focused.      ? Ensure that monitoring and evaluation play a larger role in annual      planning so procurement can be guided by project results. Give one entity      responsibility for monitoring and evaluation.

**4. Fiscal Year 1999 Fish and Wildlife Project      Selection**

**The Issue:**Determining how to spend $127 million of Bonneville      ratepayer money on fish and wildlife restoration to implement the      Council's Columbia River Basin Fish and Wildlife Program in Fiscal Year      1999.

**Background:**Each September, the Northwest Power Planning Council      recommends projects to Bonneville for funding in the coming fiscal year.      The project selection process takes most of the year and includes project      review and prioritization by the Columbia Basin Fish and Wildlife      Authority, an association of the region's state, tribal and federal fish      and wildlife agencies; review of the prioritized projects by independent      panels of scientists and economists; and review by the public and the      Council.

**Timeline:**Schedule for Fiscal Year 1999 Project Selection      Process:

**January 23, 1998:** Project proposals due to Bonneville; projects      compiled for regional review and distributed.

**April 22:**Columbia Basin Fish and Wildlife Authority reviews      ongoing and proposed projects and drafts a work plan for independent      scientific review.

**June 15 (or sooner):**Independent Scientific Review Panel begins      review of individual projects and reports on the Basin Authority's draft      work plan for Fiscal Year 1999 by June 30.

**June 16 - September 1:**Public review and comment

**September 15:** Council recommends projects to Bonneville for      funding in Fiscal Year 1999.

**October 1:**Fiscal year begins. 5. A New Scientific Foundation      for the Fish and Wildlife Program

**The Issue:**Fish and wildlife recovery efforts in the Columbia      River Basin lack an underlying, unifying scientific foundation. The      Council is taking steps to develop one.

**Timeline:**

**February 24-25, 1998:** Meeting in Boise, the Council reviewed      draft scientific principles developed by the Council's staff. The      principles will be reviewed by a five-person technical group representing      state, tribal and federal fish and wildlife managers, and by the      Independent Scientific Advisory Board, an 11-member panel that advises      both the Council and the National Marine Fisheries Service.

**March 17-18, 1998:** Meeting in Spokane, the Council reviewed the      final draft of the scientific principles.

**April 7-8, 1998:**Meeting in Portland, the Council approved the      final draft of the scientific principles, but the document was not      released for public comment pending consultation with Columbia Basin      Indian tribes.

**Background:**The Council is developing steps to change the nature      of its Columbia River Basin Fish and Wildlife Program from a set of      individual measures to an overarching framework to guide annual      implementation decisions. The framework ultimately will be a set of goals,      objectives and strategies to guide fish and wildlife recovery in the      Columbia River Basin. It is called a framework because its goals,      objectives and strategies are interconnected: goals lead to objectives,      objectives lead to strategies, and strategies are implemented in the      annual fish and wildlife project selection process.

Before the Council can set goals, objectives and strategies through      amendments to the fish and wildlife program, it first must develop a set      of draft scientific principles that explain our understanding of the      interactions among fish and wildlife and the world they inhabit.      Scientific principles, described as physical and biological laws and      assumptions, will help the Council use the program amendment process to      determine which goals are reasonable and which strategies are most likely      to achieve them. By stating the scientific principles explicitly, the      Council will help the region refine them through program amendments and,      over time, through experience.

Because the principles will help shape all the other elements of the      framework that will be developed in program amendments - the goals,      objectives and strategies - the Council is focusing on the scientific      principles first.

Examples of possible draft principles are:
- Ecosystem conditions are controlled by physical and biological          factors, some of which are influenced by human activities;
- Watersheds are the basic ecological units;
- Genetic diversity contributes to persistence and productivity of          species.

**Power Issues**

**1. Northwest Energy Review Transition Board**

**The issue:**In 1996, a 20-member committee appointed by the      governors of Idaho, Montana, Oregon and Washington reviewed the Pacific      Northwest electricity system and made a number of recommendations for how      the region could take advantage of increasing electricity industry      competition as the result of deregulation and also preserve the benefits      of the region's mostly federal hydropower system. Following the conclusion      of the Comprehensive Review of the Northwest Energy System, the governors      appointed the four-member Northwest Energy Review Transition Board to      carry forward the recommendations of the review in the form of draft      legislation - a "Northwest Chapter" for federal energy      deregulation legislation.

**Timeline:**The Transition Board appointed subcommittees to work      on certain recommendations of the Comprehensive Review, including      separating Bonneville's transmission from its generation, and federal      hydropower subscription for the next rate case period (2002-2006). The      Transition Board intends to complete work on the Northwest Chapter and      submit it to the governors by July 1, 1998.

**Background:**Among the Comprehensive Review Steering Committee's      recommendations:      ? Bonneville would sell power by subscription. Subscribers would contract      to purchase power from the system, at cost, for the periods of their      subscriptions. They would be able to buy power at cost, regardless of      whether that cost is above or below market prices.      ? All electricity customers should be able to choose an electricity      supplier by July 1, 1999.      ? An independent electricity transmission system operator should be      established to ensure reliable service and equitable access to      transmission.      ? Utilities voluntarily should support local conservation, renewable      energy and low-income energy assistance programs, and state legislatures      should mandate support if the voluntary effort fails. Regionwide, this      funding should be approximately $210 million per year. Utility access to      the energy marketplace should be linked to funding for these public      purposes.      ? Local utilities should retain control over local energy decisions.      ? The region should continue to honor its obligation to restore salmon      and steelhead runs that have been affected by the hydropower dams.

**2. Bonneville Cost Review: Cut Annual Spending By      $147 Million**

**The Issue:**Deregulation of the nation's electricity industry is      driving down the cost of power. In order to attract customers after 2001,      when 90 percent of its power sales contracts expire, the Bonneville Power      Administration needs to cut its costs in order to reduce the price of its      power. At the request of Congress, the Council and Bonneville convened a      committee that included five experts in corporate management to review      Bonneville's costs and recommend ways to reduce them. The committee      recommended cuts that should yield approximately $147 million in annual      savings during the next five-year Bonneville rate period, beginning in      2001.

**Timeline:**The committee submitted its final recommendations to      Bonneville and members of the Northwest congressional delegation on March      9, 1998. Implementation of the recommendations will be Bonneville's      responsibility.

**Background:**The Bonneville cost review grew out of the 1996      Comprehensive Review of the Northwest Energy System, a year-long effort      initiated by the governors of Idaho, Montana, Oregon and Washington. In      that review, a 20-member committee recommended ways the Northwest could      take advantage of increasing electricity industry competition and also      retain the benefits of the federal Columbia River power system. One key      recommendation was to market Bonneville's power long-term to regional      customers.

Following the Comprehensive Review, the governors asked the Power      Planning Council to work with Bonneville to appoint a cost-review      committee. The work began last June. The committee included four Council      members, two representatives from Bonneville and five experts in corporate      management and finance.

**The committee's recommendations include:      Washington Nuclear Plant 2:**Cut the cost of the plant's power from      about 2.4 cents kilowatt hour to 1.9 cents by the year 2000 (estimated      annual savings: $19 million), and shut it down if it can't compete.**Energy conservation and renewable energy:** Reduce conservation      funding and staff, and make no long-term commitments to renewable energy      projects beyond those currently planned. Estimated annual savings: $3.3      million.**Power system cost management:**Initiate a cost management strategy      involving Bonneville, the Corps of Engineers and Bureau of Reclamation,      which operate the federal dams. Estimated savings: $48 million (Corps, $40      million, Bureau, $8 million).**Shrink the marketing department:**1) Reduce Bonneville staff and      expenses associated with power marketing and related activities. Estimated      annual savings: $14.7 million.**Cut overhead costs:**1) Reduce corporate overhead costs by 50      percent in areas including business services, planning, public affairs and      legal services (estimated annual savings: $32 million); 2) Pursue law      changes to improve administrative effectiveness and efficiency (estimated      annual savings: $10 million). **Northwest Power Planning Council:**Reduce      staff to reflect a changed power planning role, change law to require one      Council member from each state instead of two. Estimated annual savings:      $1.7 million.**Transmission:**1) Change certain cost allocations between the      transmission and power marketing business lines. Estimated annual savings:      $30 million to the Power Business Line. 2) Reduce internal overhead costs.      Estimated annual savings: $2.5 million.**Fixed costs:** Further reduce nonfederal debt service through such      actions as bond refinancing. Estimated savings: $20 million.

**3. Assessing Bonneville's Possible Stranded Costs**

**The issue:**At the request of the Council's four-member Power      Committee, the staff conducted a reconnaissance-level analysis of      Bonneville's potential stranded costs, which could result if electricity      market prices are lower than the price of Bonneville's power. It is      important to estimate future market prices with confidence, as this will      help the region resolve the contentious issue of developing a      stranded-cost mechanism for Bonneville. The initial results indicate that      while breaching the four lower Snake River dams and John Day Dam on the      Columbia would have a significant impact on power capability in the      Northwest, there would be no significant impact on West Coast market      prices for electricity. It is important to emphasize that this was only a      preliminary analysis and that further work is necessary before any      conclusions can be drawn.

**Timeline:**The staff hopes to conclude its analysis and report to      the Council by mid-April 1998.

**Background:**The Council staff's analysis to date indicates that      Bonneville's potential transition costs are very dependent on market      prices. The Council's previous analyses were based on 1996 analysis done      for Bonneville by the consulting firm of Putnam, Hayes and Bartlett and      more-or-less ad hoc variations on that forecast. Market forecasts need to      be updated to reflect the latest information regarding load forecasts, gas      price forecasts, generation technologies, the possible effects of the      California restructuring and so on.

To accomplish this, the Council leased a computer program known as      Aurora, a market-fundamentals model. Aurora simulates the operation and      expansion of generating resources in the power system represented by the      Western Systems Coordinating Council (WSCC). The model incorporates the      logic and data for economic expansion and retirement of generating      capacity, as well as for retirement or reduction in capability of      generating units - as in the breaching of four lower Snake River dams or      the retirement of California nuclear plants. The model can estimate market      prices in various scenarios.

Because river conditions vary, affecting hydropower generation and      therefore Bonneville's revenues, this uncertainty needs to be reflected in      the model. It is possible for Bonneville to have no stranded costs under      average water conditions while experiencing an unacceptably large number      of periods in which it cannot recover its costs as a result of water      conditions. The model also needs to incorporate the best possible estimate      of river operations changes that might be implemented, and also their      costs and time schedules for implementation. Power system costs and      impacts from these river operations also need to be estimated and      reflected in the model.

Reflecting these and other components, the analysis produced by Aurora      should be useful in decision-making about the future of the region's power      system.

**HISTORY OF THE REGIONAL POWER      SYSTEM**

The development of the Columbia River system in the Pacific Northwest      began in the 1930s under a program of regional cooperation to meet the      needs of electric power production, land reclamation, flood control,      navigation, recreation and other river uses.

From the beginning, the federal government has played a major role in      the development of one of the largest multiple-use river systems in the      world. Thirty multi-purpose dams on the Columbia River and its tributaries      were built by the U.S. Army Corps of Engineers and the Bureau of      Reclamation. Investor-owned and publicly owned utilities also built a      major system of dams and generating facilities. Congress directed the      Bonneville Power Administration, in the Bonneville Project Act of 1937, to      build and operate transmission lines to deliver the power from dams, and      to market electricity from federal generating projects on the river at      rates set only high enough to repay the federal investment over a      reasonable period of time.

**Canadian Treaty**

As demand for power grew, the United States and Canadian governments      recognized a need for development of water storage sites in the upper      reaches of the Columbia River Basin. The governments of both nations      negotiated a treaty in the early 1960s for the cooperative use of dams      that would be built by both countries. Four treaty dams were built. Three      are on the Columbia River in Canada - Hugh Keenleyside, Duncan and Mica -      and the fourth, Libby, is on a major Columbia tributary, the Kootenai      River, in Montana. The Canadian dams were completed by 1973, and Libby was      completed in 1975. These dams provide flood control and additional power      generation at dams downstream in the United States. The power-generating      capability of downstream dams increased by the following percentages as a      result of the treaty storage: Grand Coulee, 13 percent; Chief Joseph, 14      percent; the five mid-Columbia public utility district dams, 18 percent;      and dams farther downstream on the Columbia, 11 percent collectively. In      return, Canada received a cash settlement for its share of the additional      power generation. The value of this power, known as the downstream      benefit, recently was renegotiated by the two countries.

**Intertie**

Also in the 1960s, Congress authorized the construction of three major      power lines linking the Columbia River hydro projects with power markets      in California and the rest of the Pacific Southwest. The interties benefit      the Pacific Northwest in several ways. They allow the sale of hydropower      from the Columbia when it is not needed here and would otherwise be lost      in the form of water spilled over dams without generating electricity, and      they permit this region to buy power from California when power is needed      here during shortages and periods of heavy use. In the first instance,      sales of surplus Northwest hydropower to California has saved the      equivalent of some 200 million barrels of oil. In the second case,      California utilities sold power to Pacific Northwest utilities in the      drought years of 1973, 1977, 1979, 1992, 1993 and 1994.

To protect Northwest access to power, Congress passed regional      preference provisions in 1964. Bonneville must offer any surplus power to      utilities in the Northwest before selling it to California. Sales to      California can be called back if the power is needed in the Northwest.      Sales of firm energy can be recalled with 60 days notice, sales of peaking      capacity can be recalled in five years.

**Net Billing Agreements**

With the dams developed in Canada as well as the United States, the      river system provided virtually all the electricity needed by the region      until the early 1970s. But by that time, all dam sites on the mainstem of      the Columbia that were economically feasible and environmentally      acceptable were either developed or under development, and the region was      looking for other ways to meet electric load growth. Bonneville and the      region's utilities were predicting shortages of electricity unless thermal      generating plants were brought on line in response to increasing demand.

The region's publicly owned utilities and investor-owned utilities      turned mainly to coal-fired and nuclear plants to meet growth throughout      the Pacific Northwest. Utilities believed the development of such plants      was the most economic and environmentally acceptable option available at      the time. Bonneville helped the utilities respond to these needs by      participating in a Hydro-Thermal Power Plan for the continued development      of electricity resources in the Pacific Northwest.

Under the plan, Bonneville agreed to acquire electricity by entering      into "net billing" agreements with its publicly owned utility      customers. These agreements made it possible for the publicly owned      utilities, which owned shares of power plants, to sell to Bonneville all      or part of the generating capacity of thermal projects. Bonneville      credited, and continues to credit, the wholesale power bills of these      utilities in amounts sufficient to cover the costs of their shares in      these plants. Bonneville then sells the output of these plants, melding      the higher costs of this thermal power with the lower costs of hydropower,      for the benefit of all customers. The plants were cooperative efforts of      both publicly owned and investor-owned utilities, but Bonneville purchased      only the shares of generating capacity owned by publicly owned utilities.

**Hydro-Thermal Power Program**

Under the Hydro-Thermal Power Program (Phase I), Pacific Power &      Light Company and other investor-owned utilities built the Centralia      coal-fired plant with the co-ownership of several publicly owned      utilities. Portland General Electric Company built the Trojan nuclear      power plant, with 30 percent co-ownership by Eugene Water and Electric      Board (EWEB) covered by a net-billing agreement. And the Washington Public      Power Supply System (WPPSS), under net-billing agreements, completed one      nuclear plant (WNP 2) and partially constructed two other nuclear plants (WNP      1 and 3) in Washington state. The Hanford N-reactor turbine generator,      built by WPPSS, also came on line just prior to the formal initiation of      the Hydro-Thermal Power Program, and before its closure in 1987 was      considered a part of the overall effort. Bonneville became the agent for      integrating these resources so the consumers of the region could benefit      from the greatest efficiency and lowest costs from operation of the      regional electric system. The thermal power plants, which run      continuously, would meet the base, or constant, power needs. The      hydroelectric dams would be operated to follow the fluctuation of energy      needs throughout the day.

In spite of the efforts of utilities and Bonneville to continue      developing the region's generating resources in a systematic way, the      region continued to lose ground to rapidly growing demands for      electricity. The Hydro-Thermal Program failed to meet the region's      expectations for two basic reasons. A revision of regulations by the      Internal Revenue Service denied tax exempt status to bonds sold by      publicly owned utilities to finance their plants if power from the      facilities was sold to Bonneville, a Federal body. And, Bonneville's      financial ability to participate in net-billing agreements reached its      limits far sooner than expected because of the climbing costs of new      thermal plants.

In 1973, Bonneville and the region's utilities initiated a      Hydro-Thermal Program, Phase II, in which the utilities would finance      their own plants without net-billing participation by Bonneville. Thus,      WPPSS nuclear units 4 and 5, now terminated, were not covered by      net-billing contracts. Nonetheless, Bonneville expected to provide      electric load management and power integration services and to supply      peaking power and reserves from federal facilities in order to bring about      the most efficient mix of resources possible. Bonneville's participation      in this program was enjoined by a federal court, which required that      Bonneville complete an environmental impact statement on its role in the      region.

The environmental impact statement found that fluctuation in the use of      hydroelectric dams would have to be limited to protect shore structures      along the river. In addition, delays in the construction of new plants,      costs higher than originally expected, and the realization that the      Hydro-Thermal Program would not be adequate to meet needs made it evident      that Bonneville would not be able to sell firm power to investor-owned      utilities and still provide first priority to serving "preference      customers" as directed by federal law.

**Preference**

The Bonneville Project Act of 1937 directed that the co-ops and      publicly owned utilities of the region be given first call on available      federal resources. They consequently came to be called "preference      customers." Until the 1970s, their legal preference had never been      exercised because there had been enough electricity for everyone. In 1973,      when Bonneville's firm-power contracts with investor-owned utilities      expired, Bonneville could not offer new ones if preference customers were      to continue to have first call on federal resources. So the firm power      contracts with the investor-owned utilities were not renewed.

However, Bonneville continues to sell some peaking power to the      investor-owned utilities - power they need to get through periods of heavy      use in the winter heating season. Bonneville also sold      "non-firm" power to the investor-owned utilities and utilities      outside the region when electricity surplus to the needs of the preference      customers is available.

In 1976, Bonneville's power demand and supply projections showed that      federal power supplies were running short for preference customers, and      that Bonneville would no longer be able to guarantee preference customers      that their load growth could be met beyond 1983. Bonneville issued a      notice of insufficiency to the utilities in June of 1976.

**Rate Disparities**

With the investor-owned utilities relying on their own hydro and      thermal resources to meet the demand of their customers, and with the      prices of federal hydropower much lower than that of new thermal      generation, a divisive struggle for access to limited federal resources      grew. Sixty percent of the residential and farm customers of the region      are served by investor-owned utilities. These customers were paying, on      average, twice as much for electricity as customers of publicly owned      utilities receiving wholesale power from Bonneville. The City of Portland      sued Bonneville, claiming a right to a share of hydropower resources for      its citizens. The State of Oregon passed a law authorizing formation of a      statewide public utility - the Domestic and Rural Power Authority - to      seek service as a preference customer from Bonneville so that all      residential customers of private utilities could receive the rate benefits      of Federal resources. Elected officials of other states talked of forming      their own statewide public utilities.

Stimulated by rate disparities, the public power movement also      experienced a renaissance. A strong public power move to buy out      investor-owned utility service areas by means of elections in accordance      with State law was revived in Oregon. All votes to form new PUDs failed in      the November 1980 elections, but one long inactive PUD, the Columbia      Peoples Utility District west of Portland won voter approval for issuing      bonds to buy out utility properties in Columbia County.

Meanwhile, planning for more resources to meet demand was hamstrung by      uncertainty over the allocation of low-cost federal power among competing      claimants, existing and new. For example, Bonneville's contracts with its      direct service industries, which are large industrial firms that purchase      power directly from Bonneville, were to expire in the 1980s. The power      sold to these industries would have to be sold to public utilities under      the preference clause. If they were to survive in the Northwest, these      industries needed an assured source of electricity.

**Declining salmon runs**

Finally, by the late 1970s it became clear that our regional      prosperity, which resulted in large measure from inexpensive hydropower      from the federal dams, had extracted a price on fish and wildlife in the      Columbia River Basin. Just a century earlier, for example, between 10      million and 16 million salmon returned to the Columbia each year. But by      the late 1970s, there were only about 2.5 million salmon, and most of      those returned to hatcheries. Environmental groups and other advocates for      fish and wildlife considered filing petitions to protect dwindling fish      populations under the federal Endangered Species Act.

These pressures on our regional electric power supply, which once      seemed inexhaustible, caused Pacific Northwest residents to question the      institutions governing the development, sale, and distribution of      generating resources. Should new preference agencies be formed to replace      private companies in given areas? How would the supply needs of new      preference customers be met? Should private utilities undertake new      generating projects in a hostile atmosphere of rapidly rising rates and      the threatened shift to public power? How would large industrial customers      in the region be served? How should the public, and their elected      representatives, participate in decisions that were critical to the      region's economy and environment? Who ultimately would be responsible for      planning and acquiring new resources to avoid impending electricity      shortages? How would our region protect the fish and wildlife that had      been damaged over the years by the construction and operation of      hydropower dams?

The region continued to work for a cooperative solution that preserved      local options while obtaining regional efficiencies of an integrated      electric system. Several alternatives were explored, but no agreement was      reached. To avoid a court battle over allocation issues, the region turned      to Congress for a solution.

**Toward a Congressional Solution**

Revisions to the Bonneville Project Act were considered as early as      1975. The legislation was prompted by Bonneville's Notice of Insufficiency      in June 1976, coupled with the threat posed by Oregon's Domestic and Rural      Power Authority. However, it was not until 1977 that Bonneville and its      customers, through the Pacific Northwest Utilities Conference Committee (PNUCC),      drafted legislation to solve the region's energy problems. Senator Jackson      introduced the PNUCC bill in September of 1977, but neither that bill, nor      a less complex successor drafted a year later, managed to progress very      far by the time the 95th Congress adjourned in late 1978.

When the 96th Congress convened in 1979, a coalition of Bonneville      customers was solidly behind a legislative solution to the Northwest's      power crisis. Neither Bonneville nor its customers wanted an      administrative allocation of limited power supplies, although Bonneville      did propose an allocation scheme in October of 1979. Bonneville and its      customers, however, maintained that such an allocation would be subjected      to protracted litigation. They alleged that Congress could avoid the      uncertainties accompanying administrative allocation by devising a      legislative allocation scheme and equipping Bonneville with the authority      to purchase power from non-federal sources on a long term basis. Supplying      Bonneville with purchase authority was, they claimed, the key to      implementing any legislative allocation scheme. Congress apparently      agreed. The Senate passed the regional legislation on August 3, 1979; the      House passed an amended bill on November 17, 1980, which the Senate agreed      to two days later. On December 5, 1980, President Carter signed the      Pacific Northwest Electric Power Planning and Conservation Act into law as      Public Law 96-501.

**Northwest Power Act - Major Provisions**

After four years of deliberation, Congress devised methods for      protecting the preference that existing federal law gives publicly owned      utilities, while at the same time providing the benefits of federal      hydropower to residential and small farm customers of private utilities.      It should be noted that the Act passed largely because it seemed to      benefit all the interest groups that lobbied for it.

Here are some highlights of the Act: First, rate disparities between      consumers served by private utilities and those served by public utilities      were minimized by providing investor-owned utilities access to      Bonneville's lower-cost power. Second, the costs of this increased access      were paid for by increased rates charged to industrial customers. Third,      in return for paying increased rates, existing industrial customers were      promised new long term contracts. Fourth, preference customers were      guaranteed that their rates would not increase more than they would have      without the Act.

Fifth, Bonneville was given purchase authority to expand the system in      order to meet the requirements of its customers, but only pursuant to a      number of provisions designed to guard against any abuse of that      authority. In particular, in response to state claims of a lack of      involvement in major regional energy issues, the Act created a unique      interstate planning entity, the Pacific Northwest Electric Power and      Conservation Planning Council, to govern Bonneville's acquisition of major      resources and promote conservation and renewable resources programs      through a regional energy plan. This was the key provision from the      perspective of the Northwest states - Bonneville got new authority to      acquire resources in return for a Council appointed by the governors. This      Council would develop a regional plan and oversee its implementation.

Sixth, in an effort to minimize rate increases, the Act requires that      all acquisitions be "cost-effective," including consideration of      environmental costs, and establishes a resource priority scheme favoring      conservation and renewable resources over thermal plants. Seventh,      Columbia Basin fish and wildlife damaged by the hydroelectric system are      to be preserved and restored through a basin-wide program promulgated by      the Council.

Finally, the Act guarantees public involvement in all significant      resource decisions.

The Act directs that Bonneville should continue its traditional role of      transmitting and marketing power, but also carry out additional      responsibilities. Under the Act, Bonneville must acquire all necessary      energy resources to serve utilities who choose to apply to Bonneville for      wholesale power supplies. The Act contains checks and balances to insure      that all customers of Bonneville are treated equitably.

Bonneville remains accountable to the people of the Pacific Northwest      for the actions it takes to meet the needs of residents and industry. By      creating a regional planning council consisting of two members from each      of the four Northwest states to develop a regional plan, Congress provided      a regional decision-making system. It emphasizes local control of resource      development and power planning.

Here are the major provisions of the Pacific Northwest Electric Power      Planning and Conservation Act:
- The Northwest Power Planning Council was formed with representation          from each of the states. The Act directed the Council to draw up a          plan for meeting the electrical needs of the region at the lowest          possible cost. The plan must give highest priority to cost-effective          conservation, treating it as a resource preferable to all other means          of responding to demand for electricity. Renewable sources of energy          must be given next highest priority in the region's power planning, to          the extent that they are cost-effective ranking ahead of conventional          thermal generating resources. Among thermal options, fuel-efficient          methods of producing energy, such as cogeneration, must be given          priority.
- Bonneville became responsible for meeting loads of customers and          managing the regional electrical system to achieve the purposes of the          Act relating to fish, system efficiency, and experimental projects.          The plan adopted by the Council, which is amended periodically, is the          basis for Bonneville's actions in meeting loads of its customers.          Congress exercises budget review of all proposed Bonneville          expenditures. If Bonneville decides to acquire resources not          consistent with the Council's plan, specific Congressional approval is          required prior to any commitment by Bonneville. Bonneville must give          priority to cost-effective conservation and renewable resources in          meeting the region's needs. Bonneville may also purchase the          generating capabilities of new thermal projects, but only after          determination that they are required in addition to all cost-effective          conservation and renewables that can be achieved or developed in time.          Such projects must also be found reliable and compatible with the          regional electric system. Bonneville must spread the benefits and the          costs of resources among all of its customers through its rates.
- The supply preference and resulting price advantage to co-ops and          publicly owned utilities by Federal law was protected and enhanced.          Bonneville was given the responsibility of meeting the full future          requirements of preference customers - something Bonneville was not          previously authorized to do.
- Residential and farm customers of investor-owned utilities received          rate relief. The utilities sell to Bonneville, at the average cost of          their power, an amount of electric energy equal to their residential          and farm loads. Bonneville sells to them, in return, enough energy at          Bonneville standard rates to cover these residential and farm loads.          The rate advantages cannot enhance company profits, but must be passed          on directly to the customers.
- Direct service industries received new 20-year contracts for power          from Bonneville, but at a higher price than they paid under previous          contracts. In effect, they pay the cost of rate relief to residential          and small farm customers of investor-owned utilities during the first          four years, and a substantial portion thereafter, which they agreed to          do in exchange for assurances of long-term supplies.
- Bonneville sells electricity at a rate that reflects the melded cost          of Federal hydropower and more expensive thermal resources,          conservation, and renewable sources of energy. The Act contains          incentives, as well, to encourage conservation and renewables.          Bonneville may credit utilities for their individual actions to          implement conservation and renewables.
- The Council established a program to protect and enhance the          fisheries resources of the Columbia River and to mitigate damage          already done to anadromous fish. Funding for the program is to come          from Bonneville rate revenue.
- All planning for electric resources and fish protection must involve          the public. State and local control of land use and water rights is          protected under the Act and the decision to allow construction of new          resources is left with utilities and state siting authorities.
- The Council must provide a method for balancing environmental          protection and the energy needs of the region. For each new energy          resource, the provisions of the National Environmental Policy Act must          be complied with.
- The Council is required to seek the recommendations of the region's          tribal, state and federal fish and wildlife agencies. In addition, the          Council's measures must be consistent with the legal rights of the          region's tribes.

**Challenges for the Future**

The electricity industry in the United States is in the midst of      significant restructuring. This restructuring is the product of many      factors, including national policy to promote a competitive electricity      generation market and state initiatives in California, New York, New      England, Wisconsin and elsewhere to open retail electricity markets to      competition. This transformation is moving the industry away from the      regulated monopoly structure of the past 75 years. Today we are served by      individual utilities, many of which control everything from the power      plant to the delivery of power to our homes or businesses. In the future,      we may have a choice among power suppliers that deliver their product over      transmission and distribution systems that are operated independently as      common carriers.

There is much to be gained in this transition. Electricity consumers      are already benefiting from competition in a number of significant ways.      Competition in the natural gas industry has helped lower the cost of      electricity produced by gas-fired generating plants. Competition among      manufacturers and developers of combustion turbines has contributed to the      availability of less expensive, more efficient power plants that can be      built relatively quickly. Surplus generating capacity on the West Coast,      combined with increasing competition among wholesale suppliers, has      reduced the price utilities must pay for power on the open market. Broad      competition in the electricity industry that extends to all consumers      could result in lower prices and more choices about the sources, variety      and quality of their electrical service.

But, there are risks inherent in the transition to more competitive      electricity services. Merely declaring that a market should become      competitive will not necessarily achieve the full benefits of competition      or ensure that they will be broadly shared. It is entirely possible to      have deregulation without true competition. Similarly, the reliability of      our power supply could be compromised if care is not taken to ensure that      competitive pressures do not override the incentives for reliable      operation. How competition is structured is important.

It is also important to recognize the limitations of competition.      Competitive markets respond to consumer demands, but they do not      necessarily accomplish other important public policy objectives. The      Northwest has a long tradition of energy policies that support      environmental protection, energy-efficiency, renewable resources,      affordable services to rural and low-income consumers, and fish and      wildlife restoration. These public policy objectives remain important and      relevant. Given the enormous economic and environmental implications of      energy, these public policy objectives need to be incorporated in the      rules and structures of a competitive energy market.

In some respects, the transition to a competitive electricity industry      is more complicated in the Northwest because of the presence of the      federal Bonneville Power Administration. Bonneville is a major factor in      the region's power industry, supplying, on average, 40 percent of the      power sold in the region and controlling more than half the region's      high-voltage transmission. Bonneville benefits from the fact that it      markets most of the region's low-cost hydroelectric power. It is hampered      by the fact that it has high fixed costs, including the cost of past      investments in nuclear power and the majority of the costs for salmon      recovery. As a wholesale power supplier, Bonneville is already fully      exposed to competition and is struggling to reduce its costs so that it      can compete in the market. The transition to a competitive electricity      industry raises many issues for the Bonneville Power Administration and      the region. In the near term, how can Bonneville continue to meet its      financial and environmental obligations in the face of intense competitive      pressure? In the longer term, when market prices rise and some of      Bonneville's debt obligations have been retired, how can the Northwest      retain the economic benefits of its low-cost hydroelectric power when the      rest of the country is paying market prices? And finally, what is the      appropriate role of a federal agency in a competitive market? The question      is not only whether Bonneville can compete in the near term, but also,      should it be a competitor?

The federal power system in the Pacific Northwest has conferred      significant benefits on the region for more than 50 years. The      availability of inexpensive electricity at cost has supported strong      economic growth and helped provide for other uses of the Columbia River,      such as irrigation, flood control and navigation. The renewable and      non-polluting hydropower system has helped maintain a high quality      environment in the region.

But while the power system has produced significant benefits, these      benefits came at a substantial cost to the fish and wildlife resources of      the Columbia River Basin. Salmon and steelhead populations have been      reduced to historic lows, and many runs are or are about to be listed      under the federal Endangered Species Act. Resident fish and wildlife      populations have also been affected. Native Americans and      fishery-dependent communities, businesses and recreationists have suffered      substantial losses due in significant part to construction and operation      of the power system. The region's ability to sustain its core industries,      support conservation and renewable resources, and restore salmon runs is      clearly threatened if we cannot reach a consensus regional position to      bring to the national electricity restructuring debate. Without a      sustainable and financially healthy power system, funding for fish and      wildlife restoration could be jeopardized.

In 1996, the governors of Idaho, Montana, Oregon and Washington      initiated a comprehensive review of the region's energy system. This      review is discussed in more detail later in this briefing book.

**THE COLUMBIA RIVER BASIN FISH      AND WILDLIFE PROGRAM**

The Northwest Power Act requires the Council to review its power plan      and the Columbia River Basin Fish and Wildlife Program at least every five      years. The last review led to a revision of the fish and wildlife program,      which the Council approved in December 1994.

The 1994 program revisions incorporated more rigorous protections for      salmon and steelhead, particularly those Snake River salmon runs that have      been listed under the federal Endangered Species Act (Snake River      spring/summer chinook, fall chinook and sockeye). The 1994 salmon and      steelhead amendments responded to a commitment the Council made in the      previous revision of the salmon and steelhead chapters of the program, the      1992 Strategy for Salmon. The Strategy included a number of immediate      measures to boost salmon survival, but the Council recognized that those      measures alone would not be enough to rebuild the runs. So the Council      called for investigation of additional, longer-term measures and further      consideration in 1994. Some of those longer-term measures were included in      the December 1994 amendments.

By approving the amendments, the Council also responded to a ruling by      the Ninth Circuit Court of Appeals. In September 1994, the Court remanded      the Strategy to the Council in response to lawsuits that challenged      various measures in the program. The Court held that the Council needed to      do a better job explaining how its program protected fish and, in doing      so, should give greater deference to the region's fish agencies and Indian      tribes in designing the program. Many of the amendments approved in      December were based on recommendations of the agencies and tribes.

Important goals in the Strategy were preserved in the 1994 amendments.      For example, the goal of doubling adult salmon populations in the Columbia      Basin remains, as does protection for existing biodiversity, including      both anadromous and non-anadromous fish populations. The amendments also      reaffirmed the Strategy's ambitious rebuilding targets for the listed      Snake River salmon species. These targets are: 1) 50,000 spring chinook;      2) 20,000 summer chinook; and 3) 1,000 fall chinook crossing Lower Granite      Dam in southeastern Washington. In each run, the target is for adult      naturally spawning salmon.

Here are four key directives in the Council's fish and wildlife program      regarding anadromous fish:

**Improve migration survival**

To reach these targets, the program calls for actions at every stage in      the salmon's life cycle. Because salmon are killed in large numbers as      they attempt to migrate through reservoirs and past hydropower dams, the      strategy calls for higher flows and increased river speed, systems to keep      salmon smolts from going through turbines, new ways to operate the dams so      they kill fewer salmon, controls on predators that eat salmon, and      improved barge transportation of salmon to carry them past the dams. The      Council's program embraces a philosophy known as      "spread-the-risk," which means leaving juvenile salmon and      steelhead in the rivers to migrate naturally when river conditions are      good (high flows, cool water), and transporting the juvenile fish in      barges and trucks when river conditions are poor (low flows, warm water).

**Reduce harvest**

Because so many Columbia River Basin chinook, particularly those from      the Snake River Basin, are caught in both the ocean and in the lower      Columbia river, the program calls for more effective control of those      harvests.

**Protect and improve habitat**

Because more than a third of all the salmon habitat in the region has      been blocked by dams and more has been degraded by numerous human      activities, the program emphasizes habitat repairs that will increase the      productivity of anadromous fish in the wild.

**Improve hatcheries**

Because fish hatcheries can play an important supporting role in      rebuilding salmon runs, the program calls for improvements and consistency      in hatchery management practices. Here are some key measures the Council      amended into the program in 1994:
- Continue hatchery reforms and improvements.
- As part of updating the subbasin plans, agencies and tribes will          propose supplementation projects to help rebuild naturally spawning          salmon populations.
- Initiate emergency supplementation of Snake River fall chinook;          prepare for emergency supplementation of spring and summer chinook.
- Evaluate tributary, mainstem (including reservoirs), estuary, plume,          near-shore ocean and marine salmon survival, ecology, carrying          capacity and limiting factors.
- The Bonneville Power Administration should fund the design of an          impact assessment to examine the effects of Columbia River Basin          hatcheries (individually and collectively) on wild and naturally          spawning fish.
- Fishery managers should consult with appropriate genetics          specialists and develop basinwide guidelines to minimize genetic and          ecological impacts of hatchery fish on wild and naturally spawning          stocks.

**FISH AND WILDLIFE PROGRAM COSTS AND RESULTS**

**Introduction**

Rebuilding fish and wildlife populations won't be easy, quick or      inexpensive. Fish and wildlife activities funded by Pacific Northwest      ratepayers include Council program and non-program measures. Non-program      measures are activities funded by Bonneville that were initiated prior to      the adoption of the fish and wildlife program. These include ladders and      screens that were installed at the Corps of Engineers mainstem dams and      the 22 production facilities built under the Lower Snake River      Compensation Program. Provisions in the Northwest Power Act addressing      fish and wildlife were included in large part because Congress judged the      non-program activities to be inadequate to reverse the declines of salmon      and steelhead runs that had extended into the late 1970s.

This section of the Briefing Book explains how much money is available      for the Council's fish and wildlife program, where it comes from, and how      decisions are made to spend it.

**Where the money comes from**

Most of the money to pay for fish and wildlife recovery under the      Council's program comes from Bonneville Power Administration ratepayers.      Some of the money comes from the federal government in the budgets of      federal agencies, particularly the U.S. Army Corps of Engineers, and is      repaid by Bonneville.

The Council believes that because the fish and wildlife program is a      regional effort to rebuild weak salmon stocks, it is appropriate that      state and federal entities and others participate in funding. All levels      of government must bear responsibility for adequately funding and staffing      fish and wildlife rebuilding measures, or run the almost certain risk that      the recovery effort will be delayed, with potentially disastrous results.

**1996 fish and wildlife budget memorandum of agreement**

There are three significant categories of fish and wildlife costs that      affect the Bonneville Power Administration's rates. These are project      costs, Bonneville's repayment obligations to the U.S. Treasury for      improvements at the dams, and foregone hydropower revenues.

Project costs include Bonneville funding of hatchery construction,      habitat projects, research and other fish and wildlife initiatives in the      Council's program. Under a September 1996 memorandum of agreement between      Congress, Bonneville, the Council and Columbia River Basin Indian tribes,      the budget for these projects averages $127 million per year through 2001.

Bonneville repays the U.S. Treasury for most of the costs of passage      facilities at the Columbia and Snake river federal dams. These are the      original fish ladders, the screens and bypass systems whose installation      at the dams began in the 1980s, and the juvenile salmon transportation      facilities. The annual payment for these existing facilities is set in the      1996 memorandum of agreement at $125 million per year through 2001.

When the Council adopts measures to change river operations to provide      improved flows for salmon, Bonneville may not be able to make as much      money from power sales. In many winters, Bonneville must buy power from      other suppliers to allow the reservoirs to store water for spring and      summer salmon flow releases. Spill and lowered mainstem reservoir levels      also reduce the ability of individual dams to generate electricity. In      1984, the Council adopted its first "water budget," and in 1989,      adopted a spill agreement. The 1992 Strategy for Salmon boosted the water      budget volume and added about $45 million in average annual revenue      impacts to Bonneville. The amount of foregone revenue will vary year to      year, depending on water supplies. In years when storage and runoff are      plentiful, foregone revenue will be low. In below-average water years,      forgone revenues will be high. Based on an average of 50 water years, the      memorandum of agreement estimates that foregone revenues will average $183      million per year.

Thus, the cost of the Council's fish and wildlife program in an average      water year is $435 million - $127 million in projects, $125 million in      repayments and other fixed obligations, and $183 million in foregone      revenues.

The memorandum of agreement also dealt with the issue of whether      electricity ratepayers should bear the entire cost of fish and wildlife      recovery measures. Section 4(h)(8)(B) of the Northwest Power Act says      consumers of electricity will pay the cost of measures designed to deal      with adverse impacts caused by the development and operation of electric      power facilities. Yet construction of the dams of the Federal Columbia      River Power System was authorized by Congress for multiple purposes -      including hydropower. Accordingly, Section 4(h)(10)(C) of the Act allows      the Bonneville administrator to allocate the costs of fish and wildlife      recovery among the various purposes of the dams - irrigation, navigation,      etc., in addition to hydropower. While Bonneville has financed the entire      amount of the Council's program to date, the memorandum of agreement      recognizes Section 4(h)(10)(C) and assigns a value to the impact of these      other purposes - about $350 million. This amount is available to      Bonneville as a credit against future Treasury payments, if needed.

**Annual prioritization of projects in the Council's program for      funding by Bonneville**

In order to increase public scrutiny of the allocation of fish and      wildlife resources within the constrained fish and wildlife budget, in      1995 the Council initiated an ambitious process of prioritizing projects      for funding. In this process, the fish and wildlife managers recommend      funding priorities to implement the Council's fish and wildlife program.      After reviewing and prioritizing projects, the managers submit their      recommendations to the Council. The Council analyzes the recommendations,      conducts public hearings and consultations, invites written comments as      well, and then submits final recommendations to Bonneville in three broad      areas: anadromous fish, resident (non-ocean going) fish and wildlife. The      Council approves the projects, not their cost. That is a matter for      Bonneville to negotiate with contractors.

We have been working each year since 1995 to improve the process. For      example, at the Council's direction, projects considered for funding in      Fiscal Year 1997 included much more detailed information than was      available to the fish and wildlife managers in 1996. Managers now are able      to consider anticipated project costs for the coming five years, projected      results, milestones and citations of available project reports, and      peer-reviewed scientific literature pertaining to the projects. We      improved public review, as well, incorporating an analysis of public      comments received on the managers' recommendations. The managers have the      opportunity to respond to the comments and recommend revisions before the      Council makes its final recommendations to Bonneville.

**The Independent Scientific Review Panel**

In 1996, Congress amended the Northwest Power Act with a new section,      4(h)(10)(D), which provides for independent scientific review of the      projects in the Council's fish and wildlife program that are directly      funded by Bonneville - the annual $127 million established in the      memorandum of agreement. This amendment authorized the Council to      recommend projects to Bonneville for funding. Prior to the amendment, this      role was not explicitly sanctioned in the Act.

Section 4(h)(10)(D) directs the Council to appoint an 11-member      Independent Scientific Review Panel (ISRP) "to review projects      proposed to be funded through that portion of the Bonneville Power      Administration's annual fish and wildlife budget that implements the      Council's fish and wildlife program." The Council also is directed to      appoint Scientific Peer Review Groups "to assist the Panel in making      its recommendations to the Council." The Council is to select the      peer review groups from scientists nominated by the National Academy of      Sciences, "provided that Pacific Northwest scientists with expertise      in Columbia River anadromous and non-anadromous fish and wildlife and      ocean experts shall be among those represented."

The peer review groups, "in conjunction with the Panel," are      to review projects proposed for funding through Bonneville's annual fish      and wildlife budget and make recommendations to the Council no later than      June 15th of each year. The Panel and the review groups need not review      every project, but a "sufficient number of projects to adequately      ensure that the list of prioritized projects recommended is consistent      with the Council's program." Recommendations of the panel and the      peer review groups are to be based on a "determination that projects:      are based on sound science principles; benefit fish and wildlife and have      a clearly defined objective and outcome with provisions for monitoring and      evaluation of results." The Panel and review groups are also to      review annually "the results of prior year expenditures based upon      these criteria," and to submit its findings to the Council.

The Panel's recommendations to the Council must be made available to      the public for review and comment. The Council makes final recommendations      to Bonneville "after consideration of the recommendations of the      Panel and other appropriate entities." The Council also must      "consider the impact of ocean conditions" in making its      recommendations, and "determine whether the projects employ cost      effective measures to achieve program objectives." The Council must      explain in writing if it decides not to incorporate a recommendation of      the Panel. The amendment directs Bonneville to pay the expenses of the      Panel and peer review groups, at a cost not to exceed $2 million. The      amendment's provisions expire on September 30, 2000. The Council appointed      the 11 members of the ISRP in January 1997, and members of the peer review      groups in April.

**Independent Economic Analysis Board**

Cost-effectiveness is an important consideration for projects in the      Council's fish and wildlife program, but until Congress amended the      Northwest Power Act in 1996 with Section 4(h)(10)(D), which added a      cost-effectiveness component, there was no specific direction in the Act      to employ a cost-effectiveness test. Prior to the amendment, the Act      directed the Council, at Section 4(h)(6)(C), to consider      cost-effectiveness only in the event that two proposed measures have      "... equally effective alternative means of achieving the same sound      biological objective" but different costs. In that event, the Council      is directed to "utilize ... the alternative with the minimum economic      cost." Elsewhere in the Act, the Council is directed to design the      program to deal with the river and its tributaries as a system, in      recognition of the "... unique history, problems, and opportunities      presented by the development and operation of hydroelectric facilities on      the Columbia River and its tributaries." Some have argued this means      the Council cannot include measures in the program that would upset the      operation of the power system by making it, for example, uneconomical.

To help sort through difficult economic issues, in January 1997 the      Council formed the Independent Economic Analysis Board. The Board is a      panel of eight economists, chosen from more than 70 applicants, whose      expertise will improve cost analysis of fish and wildlife recovery      measures. The panel will conduct annual reviews of measures proposed for      funding by Bonneville through the Council's fish and wildlife program. The      panel also will offer economic advice on other fish, wildlife and energy      issues, as the Council requests.

**Conclusion**

The Council has a thorough process in place to analyze fish and      wildlife expenditures annually, ensure public and scientific review and      comment on projects before they are recommended for funding, analyze      appropriate economic issues as they arise, and monitor and evaluate      results of the program expenditures. While the process is daunting and the      expense is substantial, the Council believes the cost of inaction      potentially is higher.

Without effective restoration measures, the region stands to lose wild      salmon stocks whose genetic resources may be critical to the long-term      sustainability of the Snake and Columbia river runs. Without an effective      regional program, a federally administered Endangered Species Act process      on behalf of salmon, resident fish or wildlife could impose substantially      more onerous costs on irrigators, electric utilities, navigators, fishing      communities and others who use the Columbia River and its resources. While      the Council has not sought to put a dollar value on this outcome, no one      should mistake the value of a determined, long-term regional fish and      wildlife recovery program.

**SYSTEM PLANNING**

In 1987, the Council established an interim goal to increase Columbia      River salmon and steelhead runs by 2.5 million adult fish. Achieving this      goal would double the runs over the 1977-1981 average levels. Doing so      requires careful consideration of production opportunities, mainstem      passage conditions and harvest. In short, it requires the development of a      systemwide plan addressing the complete life cycle of salmon and steelhead      with care to avoid undermining genetic resources.

System planning was initiated in September 1987, when the Council      contracted with the fisheries agencies and tribes to prepare the plans. In      June 1991, this effort resulted in an overall, basinwide plan composed of      individual salmon and steelhead production plans for 31 geographic areas      of the Columbia River Basin. These geographic areas are termed      "subbasins" for the planning process, and each is composed of a      major tributary or portion of the mainstem Columbia or Snake rivers.

System planning was pursued in an open, public process by subbasin      planners, system-level planners and senior staff from interested entities.      For each subbasin, a group of local technical experts was assembled to do      subbasin-level planning. These planners wrote the plans and gathered input      from affected entities to ensure that the plans considered needs of local      areas. Technical planners at the system or overall basin level were      organized in two groups - the Monitoring and Evaluation Group and the      System Planning Group. The System Planning Group provided overall      direction to the subbasin-level planners and wrote the system-level      reports that provided this direction. The Monitoring and Evaluation Group      was composed of experts in technical analysis of salmon and steelhead life      history. It provided the analysis that was used to determine whether      actions planned for individual subbasins were consistent among all      subbasin plans and with activities that occur outside the subbasins, such      as mainstem passage and ocean and mainstem harvest.

In the 1992 amendments to the fish and wildlife program, the Council      acknowledged that the subbasin plans, along with other resource management      plans, will be the starting point for identifying actions to help specific      salmon populations. Plans developed under the program, and otherwise, will      be used to address other fish and wildlife species.

The Council called on fishery managers and Bonneville to form      subregional teams to assist in implementation of fish and wildlife      measures in the following subregions of the Columbia River Basin:

* Below Bonneville Dam      * Bonneville Dam to Snake River      * Snake River to Chief Joseph Dam      * Above Chief Joseph Dam      * Snake River from the mouth to Hells Canyon Dam      * Above Hells Canyon Dam

The Council said these teams should use the Integrated System Plan,      subbasin plans, other fish and wildlife plans and any other available      relevant plans and information to prepare recommendations for the annual      implementation work plan and program monitoring report. Each team will be      responsible for identifying any conflicts with other resource management      plans in the relevant subregion, along with options for resolving these      conflicts. Guidelines for these recommendations are listed in Section      3.1D.1, Page 3-5, of the 1994 program (document 94-2).

Another aspect of system planning, coordination of watershed activities      in subbasins of the Snake and Columbia (model watersheds), is discussed in      Section 7.7 of the 1994 program, beginning on page 7-31 of document 94-2).

**RESEARCH**

Many uncertainties remain about the biology of Columbia River Basin      salmon and steelhead and how best to protect, mitigate and enhance them.      To address the major uncertainties and in an effort to end research      fragmentation, the program established six areas of research emphasis for      Bonneville funding: 1) solving disease problems affecting spring and      summer chinook; 2) improving the effectiveness of hatcheries; 3) improving      techniques for supplementation (introduction of artificially produced fish      into streams); 4) studying water budget effectiveness and reservoir      mortality; 5) improving bypass systems; and, 6) improving transportation      of juvenile fish past the mainstem Snake and Columbia dams. The last two      are areas of research funded by the Corps of Engineers.

These six research areas are believed to hold the most promise for      helping to achieve the doubling goal, and a sizable portion of program      expenditures supports this research. In the 1992 program amendments, the      Council called on Bonneville and the Corps to publish a summary of results      from all studies funded under the program and to conduct annual symposiums      at which contractors present the results of their studies, beginning in      March 1993. The Council also called on Bonneville to continue funding the      development of the Coordinated Information System to promote effective      exchange and dissemination of information in the standardized, electronic      format throughout the Columbia Basin. This system, now in place, is      operated by the Pacific States Marine Fisheries Commission and is known as      Streamnet.

**Disease**

Fish disease research focuses on combating three major disease problems      of cultured fish: bacterial kidney disease (BKD), a major killer of spring      and summer chinook; infectious hematopoietic necrosis (IHN), which      primarily affects steelhead; and fungal infections, which may debilitate      and kill all species. All the top-priority activities in the fish disease      work plan have been initiated. Future research will refine our ability to      fight BKD, IHN and fungal infections and to investigate additional disease      problems.

**Hatchery Effectiveness**

Hatchery effectiveness research focuses on improving the production and      survival of fish at existing hatcheries. This research is aimed at      identifying the rearing and release conditions and other elements of      hatchery production that yield highest fish survival rates.

In the 1992 program amendments, the Council concluded that regional      standards and procedures for hatchery operations should be developed that      are consistent with the goal of rebuilding weak wild naturally spawning      stocks. To help develop tools to reduce the impacts of hatchery production      on wild and naturally spawning stocks, the Council convened a group of      nationally recognized geneticists. These geneticists were asked to bring      the best current scientific knowledge to salmon and steelhead production      issues. A number of products have resulted from this effort and are being      reviewed at the technical and policy levels in the region.

The Council also called on fishery managers to create the Integrated      Hatchery Operations Team to develop regionally integrated hatchery      policies regarding fish health, genetics, ecological interactions and      hatchery performance standards. This work largely was completed, and in      1997 the Council voted to assign any uncompleted tasks to the      congressionally mandated review of artificial production in the Columbia      River Basin. This review is being undertaken by the Council with the      assistance of the Independent Scientific Advisory Board.

**Supplementation**

Supplementation research is aimed at developing improved techniques to      use hatchery production to rebuild natural runs, and at identifying      impacts of supplementation on native stocks. In 1988, the Council      stipulated that this research should take advantage of ongoing or planned      supplementation activities, such as those under the Lower Snake River      Compensation Plan. An analysis of the successes and failures of past and      ongoing supplementation was conducted by the Council's Regional Assessment      of Supplementation Project (RASP), which was created in 1990 to provide a      comprehensive framework for supplementation. The project was carried out      by technical representatives from the fishery managers, utilities,      Bonneville, the Council an others. One of its products was a recommended      planning process.

Three supplementation research projects were initiated in 1989. These      are 10- to 20-year projects. In the 1992 amendments, the Council called on      fishery managers to use existing processes, including RASP and the      Integrated System Plan to prepare evaluations, including biological risk      assessments, for proposed supplementation experiments that were submitted      by the Columbia River Inter-Tribal Fish Commission. Supplementation      research hatcheries operated by Indian tribes in the basin are discussed      elsewhere in this briefing book.

**Reservoir Mortality/Water Budget Effectiveness**

In its 1987 fish and wildlife program, the Council called for research      into reservoir mortality and water budget effectiveness. However, a      technical research work group was unable to agree on a single consensus      work plan. Therefore, research in this area has proceeded on a      year-to-year basis and has been devoted largely to studying predation of      young salmon and steelhead by predators such as squawfish and walleye.

Water budget effectiveness research remains controversial, but in the      1992 amendments the Council recognized that research on the relationship      between spring and summer flow, water velocity and fish survival has had      unsatisfactory progress to date, notwithstanding concerted efforts by      several parties.

Accordingly, the Council agreed to fund an independent, third-party      evaluation of all new and existing information and analysis on river      velocity and survival of juvenile spring, summer and fall chinook and      sockeye salmon. Based on this evaluation, which was completed in October      1993, the Council initiated a process to adopt program amendments stating      the Council's position on the relationship between flow, velocity, travel      time and survival of juvenile spring, summer and fall chinook, sockeye,      and steelhead. The evaluation was conducted by Oak Ridge National      Laboratories, Oak Ridge, Tennessee, and the flow-survival hypotheses were      amended into the program in May 1994. These hypotheses, which were amended      into the program in 1994 as Section 5.0E are considered essential starting      points for scientific experimentation.

In 1992, the Council called on Bonneville to fund additional      independent, third-party scientific evaluations to determine the      relationship of flow and water velocity to the travel time and survival of      juvenile spring, summer and fall chinook salmon. This evaluation of      survival in the Lower Granite and Little Goose reservoirs is being      conducted by the National Marine Fisheries Service. In the 1994      amendments, the Council called for an experiment to compare the survival      of transported fish with those that migrate in the river. While this      adaptive management experiment never was conducted, the Fisheries Service      research continues.

**Bypass**

A major goal of research on juvenile bypass systems is to improve the      bypass systems at Bonneville Dam, particularly at the second powerhouse.      Studies evaluated juvenile survival levels through the spillway, turbines      and bypass systems at Bonneville Dam. Researchers now have a better      understanding of why survival levels through the bypass system at the      second powerhouse are lower than expected. The Council, with the      assistance of the Independent Scientific Advisory Board, is conducting a      review of several controversial capital construction projects at Snake and      Columbia river dams. The extended outfall at the Bonneville Second      Powerhouse is one of those projects. The others are extended-length      screens at the John Day Dam and continued development and testing of the      surface-bypass system at Lower Granite Dam. Bypass research also is being      carried out at other Corps dams.

**Transportation**

Transportation research is aimed at determining the benefits of      juvenile fish transportation. Studies are underway to compare returns of      transported and non-transported fish. A major problem is determining      benefits for spring chinook, because of recent low flow years. Ongoing      studies also are evaluating effects of fish condition, particularly      incidence of bacterial kidney disease, on adult returns of transported and      non-transported fish. Studies are in progress to assess the use of PIT      (Passive Integrated Transponder) tags to evaluate transportation of wild      and hatchery fish, and to develop a PIT tag deflector system that would      allow tagged fish to return to the river at collector projects.

In the 1992 and 1994 amendments, the Council called on the Corps to      accelerate improvements in transportation. This would include evaluation      of techniques to improve transportation, such as the use of cooler water      in the barges, reduced densities of fish in the barges and broader      dispersion of the fish when they are released below Bonneville Dam. In the      longer term, depending on the results of continuing evaluation, barging      may be useful in the mix of techniques the region will employ to decrease      the mortality associated with migration through the reservoirs. The      Council also called on the Corps to evaluate further improvements,      including improved fish holding and loading facilities, alternative fish      collection sites and alternative transportation technologies.

**MAINSTEM PASSAGE**

The program employs a number of approaches to reduce downstream and      upstream salmon and steelhead mortality at and between Columbia and Snake      river hydroelectric dams. The Council's present strategy for improving      downstream fish passage includes:

* Spill for fish passage at each project on an interim basis until      bypass screens are installed and operational;      * Development, installation and improvement of permanent bypass systems at      all mainstem dams;      * Collection and transportation of smolts around mainstem hydroelectric      projects in barges and trucks;      * A water budget and phased-in reservoir drawdown strategy to augment      flows and increase river velocities during the critical spring      outmigration period.      * Control of predators such as squawfish.      * A number of measures to improve survival of returning adult fish.

In 1994, the Council amended the program with additional mainstem      survival actions in the following areas:

* An expedited program to improved fish bypass at mainstem dams through      the development and testing of surface-flow bypass systems and, until      these and other bypass improvements are in place, additional spill to      levels that do not exceed state-defined levels of nitrogen gas      supersaturation.      * Improvements in spill efficiency and installation of structural measures      to reduce high total dissolved gas at mainstem dams.      * Improved flows in the Snake River through acquisition of one million      acre-feet of additional water from willing sellers and additional water      from Brownlee Reservoir.      * Improved flows in the Columbia River through modified operation of Grand      Coulee and Albeni Falls dams and negotiations for additional water from      Canadian storage reservoirs.      * Enhanced velocity in the Snake and Columbia rivers through drawdown of      Lower Granite and Little Goose reservoirs to near spillway crest level and      operation of John Day reservoir at near minimum operating pool.      * Specific milestones to review the drawdown actions.      * An emphasis on inriver juvenile migration in all but the worst water      conditions, along with improved fish transportation and an accelerated      National Marine Fisheries Service-directed comprehensive scientific      evaluation of transportation and inriver migrant survival.      * An intensified effort to control predators and reduce competition with      depressed salmon stocks. Here is a look at specific actions to improve      mainstem survival:

**Spill**

The program calls on the region's dam operators and regulators to      develop and implement interim annual passage plans to protect juvenile      fish until permanent screening and bypass facilities can be developed and      installed at all mainstem dams. The most immediate interim solution is to      spill water laden with fish through a spillway to provide a non-turbine      passage route for juvenile fish migrating to the sea.

In the 1994 amendments, the Council called on dam operators to use      spill water so that 80-percent of the fish do not go through the turbines      at each Snake River dam from about April 15 to July 31, and at each      Columbia dam from about May 1 to August 31. Spill would be limited to      comply with the dissolved gas guidelines established by federal and state      water quality agencies.

To reduce levels of dissolved gas that results from spilling water at      the dams, the Corps installed "flip lips" at Ice Harbor and John      Day dams. The installation was completed in 1998. These spillway      deflectors should help reduce total dissolved gas levels below these      projects by as much as 10 percent.

**Screening and Bypass Facilities**

The Council's fish and wildlife program calls for improving or      installing systems to divert fish away from turbines and for continued      spill until the screens are in place.

In the absence of reservoir drawdown, the long-term solution to protect      juvenile fish involves installation of mechanical screening and bypass      facilities to divert, collect and bypass fish past each of 13 powerhouses      on the mainstem Columbia and Snake rivers.

The installation of juvenile fish bypass facilities varies from dam to      dam in both type and effectiveness. Some mainstem dams have no screening      and bypass facilities installed, while others have already been equipped      with new or improved systems. Currently, bypass facilities are installed      or undergoing improvements at Bonneville, John Day, McNary, Ice Harbor,      Lower Monumental, Little Goose and Lower Granite dams, all operated by the      Corps of Engineers, and at Wells Dam, operated by Douglas County Public      Utility District. Screens are installed at all federal dams except The      Dalles Dam.

The mid-Columbia public utility districts, in consultation with the      region's fishery agencies and tribes through a Federal Energy Regulatory      Commission settlement agreement, are in the process of developing and      testing prototype screening and bypass systems and surface bypass options      at the remaining four mid-Columbia dams (Priest Rapids, Wanapum, Rocky      Reach and Rock Island).

The Council's top federal budget priority has been to secure needed      funds to ensure that bypass systems can be installed and improved at all      federal mainstem dams. Consistently, this effort has been supported      unanimously by the Pacific Northwest Congressional delegation, the      fisheries agencies, the utility community and other sport and commercial      fishing groups.

**Transportation**

Smolt transportation involves the collection and movement of juvenile      salmon and steelhead around hydroelectric projects on the Columbia and      Snake rivers. It has been studied and implemented by the Corps of      Engineers since 1968. Smolts are collected at four projects operated by      the Corps: Lower Granite, Little Goose and Lower Monumental dams on the      Snake River and McNary Dam on the Columbia River. Transportation also has      been tested at Priest Rapids Dam on the mid-Columbia River.

Smolts are moved from the four federal collector projects in barges,      although trucks are used at the beginning and end of the migrations when      fish numbers are low or to supplement barge transportation during the peak      of the migration. Fish are released into the river below Bonneville Dam      for the remainder of their journey to the ocean. In recent years, the      number of transported fish has increased dramatically. For example, the      number of fish transported has increased from about 16 million in 1986 to      over 20 million in the low-water year of 1988.

The Council has actively assisted the Corps in efforts to secure      additional Congressional funds for the construction of improved holding      and loading facilities and new fish barges. This is to ensure that      adequate transportation facilities will be available when needed to      accommodate increased smolt production. In recent years, fish handling and      loading facilities were improved or expanded at Little Goose and McNary      dams. Two additional barges were constructed in 1990, bringing the total      number of available barges to six. Two more fish barges are presently      under construction and scheduled to be completed by spring of 1998.

Transportation appears to work well for steelhead and fall chinook      salmon. However, given the uncertain results of transporting spring      chinook, the Council determined that the agencies and tribes should      control whether and how many fish are transported. Typically, they support      transport in low water years. In recent years, the Corps has also deferred      to agency and tribal jurisdiction on the issue. A 1994 scientific peer      review of transportation concluded, in part, that available evidence is      not sufficient to identify transportation as either a primary or      supporting method of choice for salmon recovery in the Snake River Basin.

In its 1991 and 1994 amendments to the fish and wildlife program, the      Council called for accelerated improvements in transportation operations      and facilities. The Council recognized that, in the near term, especially      in low-water conditions, smolt barging is one of the few tools the region      has to improve survival. The Council called on the Corps to evaluate      techniques to improve transportation, such as the use of cooler water in      the barges, transporting fewer fish, reducing densities of fish in the      barges and broader dispersion of the fish when they are released below      Bonneville Dam. The amendments also call for research to test the survival      of fish that are transported in barges against those that migrate in the      rivers. In February 1998, the ISAB submitted a review of transportation      that concludes it is prudent to exercise caution in weighing the possible      risks against the perceived benefits of juvenile transportation because of      the "magnitude of uncertainty" of information available to      assess the strategy.

**Water Budget and Flow Augmentation**

Juvenile salmon and steelhead have adapted over thousands of years to      the Columbia River's natural runoff pattern. But the extensive development      of dams and hydropower projects in the basin has greatly altered natural      river flows. The historical peak spring runoff is now stored in reservoirs      for use during later periods of naturally low flows. Regulating the river      in this manner increases the power system's ability to generate firm      energy. However, it also reduces river flows, especially during the spring      when juvenile fish are migrating to the sea. The sluggish waters of the      reservoirs can more than double the time it takes for a smolt to reach the      ocean, thus increasing the risk of disease and predation. Higher water      temperatures in the reservoirs also contribute to higher mortalities.

To address reservoir mortality, the Council developed an annual water      budget. It is a volume of water composed of natural runoff and stored      water held in reserve at headwater dams for use during the April 15 to      June 15 spring smolt migration. The water budget was developed in response      to studies conducted during the last 20 years or so that suggested higher      salmon survival resulted from higher river flows. The Council contracted      with the Oak Ridge National Laboratories to conduct an independent      assessment of the available scientific knowledge on the relationship of      river flows to salmon survival. The review concluded that despite certain      data problems, the general relationship of increasing survival with      increasing flow in the Columbia River basin appears to be reasonable.      Studies of different stocks, using different analytical approaches, have      tended to show the same general patterns.

During the spring smolt migration, water that could be used to generate      electricity at other times of the year is released instead to augment      flows to create an artificial spring freshet to aid fish. The Council      first adopted a "water budget" in 1982 to reserve 3.45 million      acre-feet of upper Columbia water during the winter, plus 1.19 million      acre-feet of Snake River water, to be released in the spring when juvenile      salmon are migrating. In 1992, the Council added an additional 3 million      acre-feet to this storage reserve in the Columbia and identified volumes      of more than 1.4 million acre-feet for spring migrants and about 900,000      acre-feet for summer and fall migrants to be reserved in the Snake system      in the driest water years. These new volumes replaced the earlier 1.19      million acre-feet water budget in the Snake River and represent the      maximum attainable volumes for salmon flows called for in the fish and      wildlife program. In 1994, the Council added another million acre-feet for      spring flows in the Columbia River and 400,000 acre-feet for summer      migrants. The Council also asked that another 1.2 million acre-feet of      Snake River water be obtained from Dworshak and Brownlee reservoirs and      through voluntary measures from the upper Snake River Basin. These water      reserves result in constraints on winter power sales and even periodic      power purchases from outside the region to meet winter energy demands, as      well as operating constraints on storage reservoirs.

The Council's goal is to provide a minimum monthly average flow or      velocity equivalent in the Snake River of 140,000 cubic feet per second in      all water years. This would be accomplished with a combination of water      releases from upriver storage reservoirs and reservoir drawdowns in the      lower Snake. Brownlee Reservoir on the Snake River would be operated in a      manner that assists spring-migrating salmon downstream. In addition, Idaho      Power Company, which owns and operates Brownlee, will make water available      to ensure wild fall chinook redds (nests of eggs) downstream in Hells      Canyon remain wet during the winter and spring incubation period.

Meanwhile, the Council set a sliding scale of flow-equivalent      objectives for the Columbia River, measured at The Dalles Dam, for the      period between April 15 and August 31 varying from 300,000 cubic feet per      second during the main migration period (April 15 to June 15) to 160,000      cubic feet per second in August. This will mean increased water storage in      years when low runoff is forecasted. John Day Reservoir on the Columbia      would be operated at minimum irrigation pool during critical migration      periods. The reservoir would be lowered to minimum operating pool as soon      as irrigation systems are modified or relocated so they can operate at      this lower level. The program called for the Council to decide by 1998      whether to lower the John Day reservoir farther; however, John Day      drawdown is now being studied by the Corps of Engineers as part of its      1999 Snake River Feasibility Study. Flow objectives in the Snake and      Columbia should be met in most years, depending on water conditions.

Actual power system operations aim to be consistent with the terms of      the National Marine Fisheries Service's 1995 biological opinion for the      federal power system regarding Snake River salmon and the U.S. Fish and      Wildlife Service's biological opinion for Kootenai River sturgeon. The      biological opinion regarding endangered Snake River salmon does not      provide the same level of protection for resident fish in upriver storage      reservoirs as the Council's program. The Council adopted specific      "integrated rule curves" to regulate reservoir drawdowns and      protect resident fish and wildlife at Hungry Horse and Libby dams in      Montana. It also adopted water retention times and specific elevation      levels for Grand Coulee Dam. Water retention times and reservoir      elevations adopted by the Council in 1995 to protect resident fish are not      met in the biological opinion. The biological opinion for Snake River      salmon devotes more water from the upper Columbia to salmon flows and less      from the Snake River.

The measures also called for operating John Day Dam on the Columbia and      the four Lower Snake River dams at lower levels beginning in 1996. Thes---e      operations will require costly modifications to the dams and mitigation of      impacts to irrigators and other reservoir users. The program conditioned      implementation of these operations on prior completion of the mitigation.      During the spring and summer juvenile salmon and steelhead migration in      1998, the four lower Snake dams are being held at minimum operating pool      and John Day at minimum irrigation pool.

Here is a brief overview of the mainstem measures in the 1994 program      amendments:

**Improved information:*** Intensified evaluations of improved inriver salmon migration and      improved barge transportation of salmon smolts.

**Bypass improvements and turbine screens at the dams:*** Accelerate tests of surface bypass systems and schedule rapid      decisions on their installation.      * Spill water so that up to 80 percent of the juvenile fish that pass each      dam do not go through turbines. Insure that dissolved gas limits set by      Washington and Oregon are not exceeded.      * Accelerate structural changes to the dams to reduce gas supersaturation      and test slotted spillway gates to improve spill efficiency.      * Relocate problematic bypass outfalls.      * Continue juvenile fish screening and bypass improvements.      * Hold final decision to construct screens at The Dalles Dam until more is      learned about the benefits of surface bypass.

**More water to boost salmon flows:*** Obtain from willing sellers 500,000 acre-feet in the upper Snake      River Basin by the spring of 1996. Obtain up to an additional 1 million      acre-feet from willing sellers by the spring of 1999. The latter proposal      is being evaluated by the Corps of Engineers in its 1999 Snake River      Feasibility Study. Continue to evaluate new upriver water storage dams.      * In the Columbia, provide a volume of water up to 4 million acre-feet in      low water years, limited by resident fish protections (see below). *      Negotiate with Canada for additional water for flows.      * Hold Lake Pend Oreille higher during winter months to provide additional      water for salmon flows in the spring. Test the impact on kokanee spawning      in the lake.      * Use reservoir flexibility for summer migration improvements.

**River velocity improvements**The 1994 Program called for a phased drawdown strategy with Council      review at each milestone date. Mitigation of adverse impacts to      irrigation, navigation and other activities would have been provided.      While the phased drawdown strategy was not implemented because the Corps      followed the 1995-1998 Biological Opinion, here is brief overview of what      the Council proposed:

**In the Snake River:*** Beginning in 1995, draw down Lower Granite reservoir 28 feet (to      elevation 710 feet above sea level) for about two months during the spring      and early summer. At this level the adult fish ladder would still operate,      but the juvenile fish bypass system would not, and barge traffic would be      interrupted for the duration of the drawdown. Beginning in 1996, draw down      the reservoir to near spillway level for two months - an additional 17      feet - after modification of the adult ladder exit.      * Beginning in 1999, draw down Little Goose reservoir to near spillway      crest for two months in the spring - after modifications to adult and      juvenile passage facilities.      * Continue to evaluate additional drawdowns and make a decision on drawing      down Lower Monumental and Ice Harbor dams to near spillway crest - about      40 feet - prior to 2002.

**In the Columbia River:*** Operate John Day reservoir near minimum operating pool - elevation      257, an 11-foot drawdown from full pool - by the spring of 1996. Operate      at this level year-round. Barge traffic continues, but some pumps would      need to be extended prior to the drawdown. This measure was not      implemented, but the reservoir is being held at minimum irrigation pool      during the 1998 migration season (elevation 262.5), which is five and one      half feet higher than minimum operating pool (elevation 257).      * Accelerate evaluation of lowering John Day reservoir to near spillway      crest - elevation 220, a 48-foot drawdown from full pool - and make a      construction decision by December 1996, after evaluation of structural      modifications to allow continued navigation and irrigation and impacts to      flood control and power production.      * Evaluate other reservoirs for flow or velocity improvements.

**Barge transportation of juvenile fish:*** Make improvements in transportation, such as additional barges,      reduced fish density in barges, and dispersed release of fish.      * National Marine Fisheries Service, state fish agencies and Indian tribes      determine how many fish are transported.

**Upstream Passage**

Hydroelectric projects present a physical barrier to adult salmon and      steelhead migrating from the ocean to spawning areas upstream. To solve      this problem, fishways were constructed prior to the fish and wildlife      program at many of the dams in the Columbia River Basin. Flow and spill      criteria also have been adopted to provide unimpeded passage and maximum      attraction of the fish to the fishways.

However, not all these measures have been successful. For example, flow      and spill conditions in the tailraces of some mainstem dams tend to      discourage fish movement upstream or to mask the flows intended to attract      fish into the fishway. In addition, inadequacies in certain fishway      facilities and in their operation and maintenance reduce the success of      adult fish passage at both mainstem and tributary dams. These inadequacies      include failure to provide necessary attraction flows at fishway      entrances; ineffective fish ladders; mechanical failures of pumps that      supply fishway auxiliary water; and lack of fish counting facilities to      permit effective management of adult runs.

The program includes a number of measures to improve adult passage. The      program calls on the project operators to continue to implement adult fish      flow, spill and fishway operating criteria and evaluate measures to      improve fish passage at each project. The Corps of Engineers and the      mid-Columbia public utility districts implement adult fish flow, spill and      operating criteria in accordance with an annual operating plan developed      in consultation with the fishery agencies and tribes. The program also      calls on the Corps to correct problems created by unreliable pumps. In      response, the Corps has acquired spare parts to minimize pump outages,      rebuilt unreliable fish pump gearboxes, and developed annual pump      maintenance plans.

In 1994, the Council called on the Corps of Engineers to implement all      spill and operating criteria for mainstem adult fish passage facilities      and to make needed improvements. In addition, the Council called on the      Corps to leave juvenile fish screens installed for a longer period to      provide protection for adult salmon that may fall back through the      powerhouses.

Tributary projects to improve adult fish passage also have been      approved. In addition, the program also calls for research on issues such      as fish disease at adult passage facilities and the effectiveness of adult      passage facilities and flow and spill criteria. The Council also calls on      the Corps to investigate potential methods to reduce water temperature in      mainstem fish ladders, as well as to evaluate whether releasing cold water      from Dworshak Dam and Hells Canyon complex in late summer improves adult      fall chinook passage and survival.**HABITAT AND PRODUCTION**

Hydropower development and operation, as well as other causes, have      eliminated much of the natural fish production in the Columbia River      system. Reservoirs created by dams have inundated nearly all of the      mainstem Columbia spawning habitat. The only free-flowing stretch of the      Columbia River, in the Hanford Reach below Priest Rapids Dam, supports a      sizable population of naturally spawning fall chinook. Large areas of the      basin have been blocked by dams that provide no passage to spawning and      rearing habitat in the areas above Chief Joseph/Grand Coulee, the Hells      Canyon complex of dams and numerous tributaries. Regardless, opportunities      do exist for enhancing remaining spawning and rearing areas through      habitat rehabilitation, improving and increasing hatchery propagation, and      providing passage around barriers that prevent fish from reaching      production areas.

The program supports a three-part approach to producing more salmon and      steelhead through a combination of natural production, hatchery      production, and supplementation of wild and natural fish produced by      releasing hatchery fish into natural habitats. To advance this effort, the      Council has adopted measures to provide water flows and temperatures      suitable for natural and wild propagation, improve habitat and tributary      passage, increase knowledge of appropriate timing and sites for release of      hatchery fish, improve existing artificial production facilities, and      build new hatcheries, mostly as supplementation facilities.

Maintaining the delicate balance between naturally spawning and      hatchery-produced fish will require a systematic, basinwide approach to      existing and new production. But a focus solely on production will not      yield success. Accordingly, the Council's program for increasing      production acknowledges the need for a systemwide approach that      coordinates production, harvest regulation and passage improvements.

**Habitat Rehabilitation**

Under the program, numerous projects were completed to improve      tributary passage and repair habitat for salmon and steelhead in the      Clearwater, Deschutes, Grande Ronde, John Day, Salmon, Umatilla,      Wenatchee, Willamette and Yakima River subbasins. More than 2,000 miles of      streams have been improved for salmon and steelhead. Typically, these      projects involve fencing and replanting stream banks and restoring      structure in the streams to provide cover, rearing areas and other      essential elements of habitat. Another 1,000 miles of habitat have been      opened to fish production by improving passage at or removing barriers.

***Subregional approach***

The subregional approach will be the basis for the program treatment of      habitat and production issues, but it is apparent that this approach will      take time to develop and implement. In the interim, many salmon and      steelhead populations continue to decline. Some of these populations, such      as chinook produced in the Snake River Basin, cannot wait for this      approach to be implemented. They require expedited actions. Council      evaluation indicates that even with improved salmon and steelhead survival      through changes in mainstem operations, many populations will not be      maintained, let alone rebuilt, without immediate and significant increases      in survival at other stages of their lives.

Habitat improvements and changes in hatchery operations (for example,      the use of supplementation) can be implemented to increase natural      production and survival significantly. In the short term, options appear      to be fairly limited in this area.

**Yakima and Klickitat Projects**

The Yakima River Basin is located east of the Cascade range in      Washington where annual precipitation is very low. Irrigation has changed      the Yakima River valley from a near-desert environment to one of the most      productive agricultural regions in the country. Development of the Yakima      River Basin for agriculture and irrigation has meant stream flows      sufficient to support salmon and steelhead have been greatly reduced. Yet      much of the Yakima's fish habitat remains largely intact, and fisheries      experts consider this basin to be one of the areas with the best potential      for producing salmon and steelhead in the Columbia River Basin.

The Yakima and Klickitat projects are a group of artificial production      facilities to be used primarily for supplementing natural runs of salmon      and steelhead. The Klickitat subbasin was added to the project because of      its close proximity to the Yakima and opportunities for siting facilities      and fish enhancement in the basin. The stocks that will be enhanced      include spring, fall and summer chinook, coho salmon, summer steelhead and      potentially sockeye salmon. It is estimated that some 76,000-175,000 adult      salmon and steelhead could result from the project, which will be      carefully monitored and evaluated. The facilities will include a central      hatchery used to raise juvenile fish for release and satellite stations,      acclimation ponds, adult traps and transportation facilities.

Originally, the two projects were pursued together, but work fell      behind on the Klickitat project, and so emphasis in recent years has been      on the larger Yakima project. The Council believes it is important to      proceed with this project because of the importance of the added      production to be provided by the facility, the potential learning benefits      of the facility, and the long lead time required for planning, design and      construction of the facility. The production facility, located near Cle      Elum, was completed in 1997 and will produce its first fish for release in      the spring of 1999.

**Umatilla Hatchery**

The hatchery is one of several key features of a program to rebuild      salmon and steelhead runs in the Umatilla River Basin. The program is part      of a compromise to settle disputes between irrigators and tribes over use      of the Umatilla River.

The Umatilla Basin Project is being pursued in two phases. The first      phase included diverting Columbia River water through an existing canal to      the Umatilla River below Three Mile Dam, thus putting more water in a      stretch of the river that had been dewatered in summer for many years. The      second phase involved installing new pipes and canals, and building a      major pumping complex on the Columbia to deliver water to the Hermiston      and Stanfield irrigation districts.

The combination of projects, including the hatchery, flow enhancement,      and passage and habitat improvements, is expected to re-establish salmon      runs of approximately 48,000 adult fish in the Umatilla River Basin. The      hatchery is located on the south shore of the Columbia River near Irrigon,      Oregon, about 10 miles below the mouth of the Umatilla River. The hatchery      began operation in the fall of 1991 and is designed to produce up to      290,000 pounds of fish. It is a state-of-the-art project, making use of      oxygen supplementation in rearing ponds to produce Pacific salmon. This      technique could allow the hatchery to produce more fish per rearing area      than a standard type of facility. However, the hatchery water supply      proved to be less plentiful than was envisioned when the facility was      designed. Engineering studies are being conducted to assess the water      supply and to recommend methods to boost the supply and improve the      efficiency and output of the hatchery.

The $16 million facility will supplement some $42 million in federal      funds and several million in ratepayer funds to improve passage, habitat      and flows in the basin.

**Other Production Projects**

Besides the planned hatcheries in the Umatilla and Yakima river basins,      several other artificial production projects are included in the Council's      fish and wildlife program. There has been controversy regarding these      projects, and the Council is working closely with the tribes, other      proponents and contesting parties to resolve the issues. Probably the most      energetic debate is over the merits of supplementation, which some      hatchery opponents argue poses genetic risks to fish populations. Hatchery      proponents are following National Environmental Policy Act guidelines as      they work to resolve these issues. There are other concerns. For example,      certain sport fishers oppose boosting salmon production in the Yakima      Basin because salmon would compete with resident trout, and there is an      important trout fishery in the river system.

In the 1994 amendments, the Council acknowledged that artificial      propagation and the proper use of hatchery fish to supplement wild and      naturally spawning populations of salmon and steelhead as a rebuilding      measure will continue to be as intensely debated as is the relationship of      increased mainstem flows to fish survival. Regardless, the outlook for      Snake River Basin chinook, as well as some other populations, requires the      immediate implementation of dramatic measures. Without immediate action,      these populations will not survive long enough to make the results of      these debates meaningful.

These hatchery projects are in various stages of implementation:

a) Northeast Oregon projects - Plans are under way for hatchery      facilities needed to raise salmon and steelhead for enhancement in the      Umatilla, Grande Ronde and Imnaha rivers and elsewhere.

b) Nez Perce Facility - Development of a propagation facility on the      Nez Perce Reservation is proceeding.

c) Pelton Dam - The Council recently approved a project master plan for      converting a 2.8-mile long fish ladder at Pelton Dam on the Deschutes      River for salmon and steelhead propagation. The program specifies that      this project will be low-cost and small-scale.

**Tributary Passage Projects**

A major area of program actions has been to improve passage for adult      and juvenile salmon and steelhead in the tributaries of the Columbia and      Snake rivers. Impediments to passage include low flows caused by water      diversion, diversion of fish into irrigation canals, and dams without      ladders or ladders that are ineffective.

Projects to improve tributary passage for salmon and steelhead have      been proposed for most of the subbasins in the Columbia Basin. Projects      have been completed in the Clearwater, Deschutes, John Day, Salmon,      Umatilla, Wenatchee, Willamette, Tucannon, Klickitat and Yakima river      subbasins. These projects have included construction and improvement of      ladders at tributary dams and screening irrigation diversions. In the      Yakima subbasin alone, more than 20 laddering and screening projects have      been completed. Subsequent evaluations indicated these projects were      performing at zero mortality for passing fish. In the Umatilla Basin,      projects included channel modification and pumping of water from the      Columbia River to improve flows for adult and juvenile fish

**Ecosystem Approach to Maintain Biodiversity**

In the 1992 program amendments, the Council emphasized an ecosystem      approach to salmon rebuilding activities. This approach requires close      coordination of habitat and production measures. The purpose is to ensure      that habitat and production measures are driven by the needs of specific      populations, and the condition of the watersheds in which these      populations live. Because opportunities to achieve significant salmon      production increases through improving natural habitats are limited,      additional salmon increases may have to be achieved through artificial      production - creating artificial spawning and rearing environments such as      hatcheries. But, as mentioned earlier, there is a dilemma: artificial      production can have negative effects on wild and naturally spawning salmon      populations.

In developing production measures to amend into the fish and wildlife      program, the Council identified actions that are consistent with the goal      of doubling the number of salmon and steelhead in the basin while      maintaining existing levels of biodiversity.

**Specific actions in the program**

Here are some of the specific production measures in the program:

* The program encourages improved and consistent basinwide hatchery      practices and better coordinated management throughout the Columbia Basin      so hatchery fish are better able to survive in the natural environment and      do not harm wild fish.      * Hatchery practices throughout the Columbia Basin were audited and the      results are being used to improve those practices.      * The Council calls on the National Marine Fisheries Service to quickly      develop guidelines on when to use captive broodstock technology and other      emergency measures to save seriously depleted salmon runs. Captive      broodstock technology was a last-minute tool for the Snake River sockeye.      * The program calls for the collection of additional information on      naturally spawning salmon populations, such as population status, life      history and other data.      * The Council calls for evaluation of new supplementation projects. We      also call for development of a policy for experimental conversion of      existing hatcheries to undertake supplementation projects in order to      conserve and rebuild naturally reproducing fish populations, and for an      assessment of the cumulative effects of existing and new supplementation      projects. The Council hopes scientists will pursue experiments in natural      production and supplementation in order to measure the relative success of      each approach.      * The Council called for a study of the juvenile fish carrying capacity of      the Columbia River mainstem, estuary and near-ocean environment in order      to ensure that hatchery releases are not exceeding that capacity.      * The program supports the continued involvement of appropriate genetics      experts in discussions of how to sustain the diversity of salmon runs.      * The program calls for evaluation of reintroducing anadromous fish into      the upper Cowlitz River Basin above the new Cowlitz Falls Dam. We also      call for development of appropriate recommendations for protecting and      enhancing runs of sockeye, coho and chum salmon, sea-run cutthroat trout      and lamprey in the Columbia River Basin.

Here are some of the specific habitat improvement measures included by      the Council:

* The program calls for, at a minimum, maintaining the present quality      of all habitat. It calls for comprehensive, coordinated watershed      approaches in all subbasins. It identifies specific habitat standards      designed to promote good habitat for fish and wildlife.      * The program seeks to expand and accelerate the cooperative approach to      watershed-wide salmon habitat and production improvements. Designating      model and focus watersheds will help focus federal, state and local      efforts to improve conditions for fish.      * Public and private-sector resources should be used to ensure timely      construction and installation of high-priority screens and water measuring      devices at water diversions in salmon rearing areas.      * All underwater diversions in the mainstem Columbia and Snake rivers      should be inspected regularly to determine whether screens, which deflect      fish from the intakes, are installed and operating.      * The program says permanent riparian management areas should be      identified and protected. Where water quality standards are being met,      these riparian areas would be maintained. Where standards are not being      met, revegetation would be promoted.      * Property easements should be accorded high priority as a means to      protect salmon habitat.      * The program calls on the states to review and, if necessary, improve      state water standards and mining laws to promote salmon productivity.      * The Council urges federal and state land managers to pay special      attention to insect infestations that may lead to catastrophic fires and,      in turn, promote increased erosion that damages salmon and steelhead      habitat.

**RESIDENT FISH AND SUBSTITUTIONS**

**Resident Fish**

The resident fish measures in the program address the impacts of      hydropower development and operation on Columbia River resident fish      populations, such as rainbow and cutthroat trout, kokanee and sturgeon.      Though resident fish species do not generally migrate between ocean and      freshwater environments, they rely on in-stream conditions to support them      during various life stages. Consequently, where these conditions have been      affected by hydropower projects or other activities, resident fish      populations, like salmon and steelhead populations, have declined.

The Council's program directs numerous actions to improve resident      populations, particularly in areas above Chief Joseph and Hells Canyon      dams which are permanently blocked to salmon and steelhead. These actions      include fish stocking, streambank enhancement and other efforts to reduce      impacts from reservoir operations.

Actions under way through the fish and wildlife program include:

a) Montana - Studies of the relationship between water levels and      resident fish populations in Hungry Horse and Libby reservoirs, and      development of mitigation strategies for the Flathead River and Flathead      Lake system. The Council's 1994 program amendments included new operating      procedures for Hungry Horse and Libby dams to protect resident fish and      wildlife in those reservoirs. Other actions are being implemented to      protect and improve resident fish populations in the Kootenai River      system, Lower Clark Fork drainage and below Milltown and Painted Rock      dams.

b) Idaho - Providing minimum flows in the South Fork Boise River;      protecting and enhancing fisheries in lakes Pend Oreille and Coeur d'Alene      and in the Spokane, Clearwater and Pend Oreille rivers; and evaluating      resident fish impacts of Dworshak Dam operations.

c) Oregon - Exploring opportunities to enhance bull trout and crayfish      populations in Lake Billy Chinook.

**Resident Fish Substitutions**

Salmon and steelhead probably never will return to some areas of the      basin because of blockages by dams. These areas include those above Chief      Joseph Dam, the Hells Canyon complex and other smaller blocked areas.

In 1987, the Council amended the program to include resident fish      substitutions for salmon and steelhead losses in blocked areas. At that      time the Council concluded that 1) mitigation in blocked areas is      appropriate where salmon and steelhead were affected by development and      operation of the hydroelectric system; 2) to treat the Columbia River and      its tributaries as a system, some level of substitution is reasonable for      lost salmon and steelhead in areas where in-kind mitigation cannot occur;      and 3) some flexibility in approach is needed to develop a program that      complements the activities of fish and wildlife agencies and tribes and is      based on the best available scientific knowledge. For substitution      purposes, the program notes that resident fish may include landlocked      anadromous fish, such as white sturgeon, kokanee and coho, as well as      traditionally defined resident fish species.

The program contains resident fish substitution projects only for the      major blocked areas above Chief Joseph Dam and the Hells Canyon Complex.      These measures range from hatchery construction to habitat survey and      improvement.

The Colville Reservation Trout Hatchery was dedicated in September      1989, and two kokanee hatcheries that stock Lake Roosevelt behind Grand      Coulee Dam were completed later. In addition, the program calls for      construction of a trout hatchery on the Coeur d'Alene Indian Reservation,      a bass hatchery on the Kalispel Indian reservation, net-pen rearing of      trout in Lake Roosevelt and an investigation of the most feasible measures      for enhancing desirable fish populations in Washington's Moses Lake.      Resident fish substitution projects also are contemplated in the blocked      areas above Dworshak Dam in Idaho and Pelton Dam in Oregon.

For the area above Hells Canyon Dam, the program calls on Bonneville,      the Idaho Power Company and the Bureau of Reclamation to consult with the      relevant fish agencies and tribes to apportion funding responsibilities      for various projects. These include development of a comprehensive      fisheries plan for the Duck Valley Indian Reservation, as well as planting      trout in reservation lakes, habitat restoration and enhancement activities      on the Fort Hall Reservation, and propagation of resident fish species for      planting on the two reservations and in C.J. Strike, Lucky Peak, and      Cascade reservoirs.

**Bull trout**

Bull trout once were abundant in the Columbia River Basin, but      population levels have declined in some areas. The program calls for      studies and evaluations to determine on-the-ground projects that could be      implemented as soon as possible to address the needs of the species,      particularly in Montana and Oregon.

**Other resident fish populations**

The program also includes actions to protect and enhance other resident      fish populations, including rainbow trout in the Clearwater River,      spiny-rayed fish in the Pend Oreille River, burbot in the Kootenai River,      and kokanee in Banks Lake and Lake Pend Oreille.

**Sturgeon**

Sturgeon research is being cooperatively funded to determine: 1) the      impact of development and operation of the Columbia River Basin hydropower      system on sturgeon populations; 2) habitat requirements, genetics, status,      potential for artificial production, and potential for migration of      sturgeon; and 3) ways to protect and enhance sturgeon. These objectives      were pursued through three projects that were cost-shared by state and      federal agencies and ratepayers: 1) a study of sturgeon genetics and life      history; 2) a survey of the badly depleted Kootenai River sturgeon      population and analysis of the potential to artificially enhance this      population, which led to an emergency hatchery program (these fish were      listed as an endangered species under the federal Endangered Species Act      in 1994); and 3) a study of lower river population status and habitat      requirements.

These studies indicated that sturgeon harvest rates were too high to      sustain the population; management agencies responded by further      restricting harvest.

**PROTECTED AREAS AMENDMENT**

On August 10, 1988, the Council adopted a proposal to designate some      44,000 miles of Northwest streams as "protected areas" because      of their importance as critical fish and wildlife habitat.

The "protected areas" amendment was a major step in the      Council's efforts to rebuild fish and wildlife populations that have been      damaged by hydroelectric development. Low cost hydroelectric power has      provided tremendous benefits to the Northwest, but those benefits also      have imposed significant costs. The Northwest's fish and wildlife have      suffered extensive losses; salmon and steelhead runs in the Columbia River      drainage, for example, are a fraction of their former numbers. The      region's concerted efforts to restore these populations could not be fully      effective without strong protection of fish and wildlife habitat. The      Council's goal of doubling salmon and steelhead runs in the Columbia River      Basin will require hardy wild and natural fish populations, which rely on      high-quality habitat. To protect the ratepayers' investment in fish and      wildlife restoration, it is necessary to protect the best remaining      habitat.

The designation of protected areas also is intended to play a positive      role in the efficient development of environmentally benign hydropower.      New hydro development in the region's most critical fish and wildlife      habitat is likely to generate divisive, time-consuming and costly      controversy. By identifying this habitat as "protected," the      Council hopes to point developers to less sensitive areas, where the time      and cost of development will be lower. Ratepayers should benefit from both      more productive fish and wildlife investments and from reduced hydro      development costs.

While the Council does not license hydroelectric development, certain      federal agencies have a legal obligation to take the Council's action into      account in their decision-making. Those agencies include the Federal      Energy Regulatory Commission, which grants licenses to nonfederal      hydropower projects, and the Bonneville Power Administration, which      acquires and transmits electrical power from the projects.

The Council periodically amends new areas into the protected-areas rule      and removes the designation from other areas, based on analysis and public      comment. The Council last amended the protected-areas rule in June 1992.

**HARVEST**

The Council has no direct harvest management authority. But harvest      management can affect the Council's program and the substantial investment      of ratepayers to rebuild salmon and steelhead resources in the Columbia      River Basin. Because of this, the program calls on fishery managers to      regulate harvest as needed, especially in mixed-stock fisheries, in order      to support efforts to rebuild runs.

The Council monitors ocean and inriver harvest and receives biannual      reports on developments and arising issues. Significant improvements in      harvest regulation have occurred through adoption of the U.S./Canada      Pacific Salmon Treaty and through settlement of the U.S. v. Oregon inriver      harvest litigation. Negotiations under the U.S.-Canada salmon treaty are      continuing.

The commercial, recreational and tribal fisheries in the ocean and      mainstem Columbia River are mixed-stock fisheries. They harvest a mixture      of hatchery and naturally produced stocks from numerous areas of origin.      Generally, mixed-stock fisheries are unable to harvest specific stocks      selectively and, therefore, overfishing can occur for some stocks in order      to harvest the surplus of other stocks. In the Columbia River, the problem      associated with mixed-stock fisheries results in part from operations of      hatcheries constructed to mitigate the effects of hydropower development.      In addition, fish productivity is reduced by the effects of passing dams      on outward and upstream migration.

The Council also took an active role in the effort to ban the use of      driftnets in the high seas squid fishery, fearing this fishery could      intercept salmon and steelhead.

Key elements of the harvest recommendations in the fish and wildlife      program include:

* In general, harvest must be limited further in order to allow a      sufficient number of adult fish to return upstream to spawn.      * In order to protect endangered Snake River sockeye, there should be no      commercial harvest of sockeye below the confluence of the Snake and      Columbia rivers.      * Overall harvest rates on Snake River fall chinook have been reduced to      less than 50 percent of the run from levels greater than 70 percent in      recent years. Snake River fall chinook return through the most intense      mixed-stock fisheries. Reducing the harvest rate of Snake River fall      chinook required vastly greater harvest reductions in the overall fishery.      * River harvest of spring chinook in non-treaty fisheries has been limited      to about 4 percent of the upriver run, the 1987-1991 average.      * There has been no commercial fishery for summer chinook until rebuilding      allows it, continuing the ban that has been in place since the mid-1960s.      * Substantial reductions in Canadian harvest of U.S. salmon are needed to      protect depleted stocks.      * Voluntary lease-back and buy-back programs should be developed for      commercial fishing licenses to further reduce harvest until rebuilding can      occur.      * Harvest alternatives, such as live-catch, known-stock and terminal      harvest fisheries, should be demonstrated and evaluated.      * Sport fishing regulations should be reviewed and catch-and-release rules      adopted where appropriate.      * Incidental harvest of salmon in other fisheries should be accounted for;      ocean fishery managers should report to the Council on incidental harvest      of salmon in other fisheries.      * States and tribes have increased law enforcement and public education to      deter illegal fishing.      * The Pacific States Marine Fisheries Commission will prepare and      circulate a unified, annual report by June 1 each year on harvest and      escapement of various Columbia Basin salmon stocks.

**WILDLIFE MITIGATION**

The development of the hydropower system in the Columbia River Basin      has affected many species of wildlife as well as fish. Some floodplain and      riparian habitats important to wildlife were inundated when reservoirs      were filled. In some cases, fluctuating water levels caused by dam      operations have created barren vegetation zones, which expose wildlife to      increased predation. In addition to these reservoir-related effects, a      number of other activities associated with hydroelectric development have      altered land and stream areas in ways that affect wildlife. These      activities include construction of roads and facilities, draining and      filling of wetlands, stream channelization and shoreline riprapping (using      large rocks or boulders to reduce erosion along streambanks). In some      cases, the construction and maintenance of power transmission corridors      altered vegetation, increased access to and harassment of wildlife, and      increased erosion and sedimentation in the Columbia River and its      tributaries.

The habitat that was lost because of the hydropower system was not just      land, it was home to many different, interdependent species. In responding      to the system's impacts, we should respect the importance of natural      ecosystems and species diversity.

While the development of the hydropower system harmed wildlife, it also      resulted in a number of beneficial effects. For example, the creation of      reservoirs provided important resting, feeding and wintering habitat for      waterfowl. In addition, where reservoir storage is used for irrigation as      well as power generation, the irrigation water promoted extensive growth      of grass and food that provided some seasonal benefit to species that      could not otherwise exist in such a dry climate. A large body of      scientific evidence shows that some of the species have not sustained      initial population increases. Programs to protect, mitigate and enhance      wildlife affected by hydroelectric development should consider the net      effects on wildlife associated with hydropower development.

Although the Northwest Power Act refers to them as "hydropower      facilities," the dams serve multiple purposes: hydropower, flood      control, navigation, irrigation, recreation and other purposes. Congress      encouraged a comprehensive response to the fish and wildlife impacts of      dams on the Columbia River and its tributaries, and rejected the      piecemeal, fragmented approach that characterized past mitigation efforts.      The Council believes the region will benefit from a coordinated approach      to wildlife mitigation. At the same time, as Congress specified, consumers      of electric power should pay only the cost of measures to deal with the      effects of electric power. The Act gives Bonneville the responsibility to      allocate expenditures to the various project purposes, in consultation      with the Corps of Engineers and the Bureau of Reclamation and in      accordance with existing accounting procedures.

The Council's program addresses the full impacts of the      "hydropower facilities" in the broad sense that Congress      intended, including all effects traceable to any of the projects'      purposes.

The goal of the program's wildlife strategy is to achieve and sustain      levels of habitat and species productivity as a means of fully mitigating      wildlife losses caused by construction and operation of the federal and      non-federal hydroelectric system. Through the program, Bonneville has      financed the acquisition of thousands of acres of wildlife habitat in the      Columbia River Basin.

Here are some specific measures in the wildlife strategy:

* The program called on Bonneville to consult with the Corps of      Engineers, the Bureau of Reclamation, wildlife managers, state and federal      land management agencies, tribes, utilities, the Council and other      interested parties to allocate wildlife mitigation expenditures to the      various project purposes in accordance with existing accounting      procedures.      * The program defines mitigation as achieving and sustaining the levels of      habitat and species productivity for the habitat units lost as a result of      the construction and operation of the federal and non-federal hydropower      system.      * The program called on Bonneville to use the estimates of inundation      losses as the basis for identifying wildlife measures and developing      short-term and long-term wildlife mitigation agreements.      * The program called on Bonneville to fund studies to develop statements      of wildlife and/or habitat losses and gains caused by the operation of the      federal hydropower system. The studies should be designed to identify both      direct and indirect operational losses and gains to fish and wildlife      habitat and should be based on a written plan designed to promote      consistency of results between and among projects and encourage early      public and local involvement.      * Through the Council's program, Bonneville has purchased thousands of      acres of wildlife habitat, most recently a 10,300-acre parcel bordering      Joseph Creek in Northeast Oregon. The land will be managed by the Nez      Perce Tribe as wildlife habitat.

**GLOSSARY OF FISH-RELATED TERMS**

**acclimation pond**Concrete or earthen pond or a temporary structure used for rearing and      imprinting juvenile fish in the water of a particular stream before their      release into that stream.

**adaptive management**A scientific policy that seeks to improve management of biological      resources, particularly in areas of scientific uncertainty, by viewing      program actions as vehicles for learning. Projects arc designed and      implemented as experiments so that even if they fail, they provide useful      information for future actions. Monitoring and evaluation are emphasized      so that the interaction of different elements of the system are better      understood.

**adult equivalent population**The number of fish that would have returned to the mouth of the      Columbia River in the absence of any prior harvest.

**anadromous fish**Fish that hatch in freshwater, migrate to the ocean, mature there and      return to freshwater to spawn. For example, salmon or steelhead.

**biodiversity**The variety of and variability in living organisms, with respect to      genetics, life history, behavior and other fundamental characteristics.

**captive brood stock**Fish raised and spawned in captivity.

**carrying capacity**The number of individuals of one species that the resources of a      habitat can support.

**Coordinated Information System**Still under development, this system is designed to allow interested      parties to access technical information about Columbia River salmon and      steelhead.

**deflector screens/diversion screens**Wire mesh screens placed at the point where water is diverted from a      stream or river. The screens keep fish from entering the diversion channel      or pipe.

**demography**The study of characteristics of human populations, especially size,      density, growth, distribution, migration and vital statistics, and the      effect of these on social and economic conditions.

**drawdown**The release of water from a reservoir for power generation, flood      control, irrigation or other water management activity.

**economies of scale**Reductions in the average cost of a product that result from increased      production.

**ecosystem**The biological community considered together with the land and water      that make up its environment.

**embeddedness**The degree to which dirt is mixed in with spawning gravel.

**escapement**The number of salmon and steelhead that return to a specified point of      measurement after all natural mortality and harvest have occurred.      Spawning escapement consists of those fish that survive to spawn.

**evolutionary biology**The study of the processes by which living organisms have acquired      distinguishing characteristics.

**extinction**The natural or human-induced process by which a species, subspecies or      population ceases to exist.

**fish flows**Artificially increased flows in the river system called for in the      fish and wildlife program to quickly move the young fish down the river      during their spring migration period. (See "water budget.")

**fish passage efficiency**The percentage of the total number of fish that pass a dam without      passing through the turbine units.

**flows**The rate at which water passes a given point in a stream or river,      usually expressed in cubic-feet per second (cfs).

**flow augmentation**Increased flow from release of water from storage dams.

**gametes**The sexual reproductive cells, eggs and sperm.

**gas supersaturation**The overabundance of gases in turbulent water, such as at the base of      a dam spillway. Can cause a fatal condition in fish similar to the bends.

**genetic conservation refuge**Reserve area whose goal is to protect genetic diversity and natural      evolutionary processes within and among natural populations, while      allowing varying degrees of exploitation and modification.

**genetic diversity**All of the genetic variation within a species. Genetic diversity      includes both genetic differences among individuals in a breeding      population and genetic differences among different breeding populations.

**genetic integrity**The ability of a breeding population or group of breeding populations      to remain adapted to its natural environment.

**genotype**The complement of genes in an individual.

**glides**Stream areas with velocities generally less than one cubic foot per      second and with a smooth surface. Water depth generally is less than two      feet.

**harvest controls**Regulations established for commercial and sport fisheries to ensure      that the correct proportion of the different stocks escape to spawn.

**impoundment**A body of water formed behind a dam.

**imprinting**The physiological and behavioral process by which migratory fish      assimilate environmental cues to aid their return to their stream of      origin as adults.

**mainstem**The main channel of the river in a river basin, as opposed to the      streams and smaller rivers that feed into it. In the fish and wildlife      program, mainstem refers to the Columbia and Snake rivers.

**minimum operating pool**      The lowest water level of an impoundment at which navigation locks can      still operate.

**mixed-stock fishery**A harvest management technique by which different species, strains,      races or stocks are harvested together.

**morphology**A study of the form and structure of animals and plants.

**naturally spawning populations**Populations of fish that have completed their entire life cycle in the      natural environment and may be the progeny of wild, hatchery or mixed      parentage.

**naturalization**The process by which introduced fish successfully establish a      naturally spawning population.

**outfall**The mouth or outlet of a river, stream, lake, drain or sewer.

**PIT tags**PIT tags are used for identifying individual salmon for monitoring and      research purposes. This miniaturized tag consists of an integrated      microchip that is programmed to include specific fish information. The tag      is inserted into the body cavity of the fish and decoded at selected      monitoring sites.

**plume**The area of the Pacific Ocean that is influenced by discharge from the      Columbia River, up to 500 miles beyond the mouth of the river.

**population**A group of organisms belonging to the same species that occupy a      well-defined locality and exhibit reproductive continuity from generation      to generation.

**population vulnerability analysis**A systematic process for estimating species, location and      time-specific criteria for persistence of a population.

**redd**A spawning nest made in the gravel bed of a river by salmon or      steelhead.

**reproductive isolating mechanisms**Mechanisms that retain genetic diversity among populations. The      primary reproductive isolating mecha-nism for anadromous fish is accuracy      of homing, which can be reduced by improper hatchery operations. Stock      transfers also reduce reproductive isolation.

**resident fish**Fish that spend their entire life cycle in freshwater. For program      purposes, resident fish includes land-locked anadromous fish (e.g., white      sturgeon, kokanee and coho), as well as traditionally defined resident      fish species.

**riffle**A shallow extending across the bed of a stream over which water flows      swiftly so that the surface of the water is broken in waves.

**riparian habitat**Habitat along the banks of streams, lakes or rivers.

**rule curves**Graphic guides to the use of storage water. They are developed to      define certain operating rights, entitlements, obligations and limitations      for each reservoir.

**sinuosity**The amount of bending, winding and curving in a stream or river.

**smolt**A juvenile salmon or steelhead migrating to the ocean and undergoing      physiological changes (smoltification) to adapt its body from a freshwater      to a saltwater existence.

**spill**Releasing water through the spillway rather than through the turbine      units.

**spillway crest elevation**The point at which the reservoir behind a dam is level with the top of      the dam's spillway.

**stream morphology**The study of the form and structure of streams.

**supplementation**The release of hatchery fry and juvenile fish in the natural      environment to quickly increase or establish naturally spawning fish      populations.

**tailrace**The canal or channel that carries water away from the dam.

**velocity**The speed of water flowing in a watercourse, such as a river.

**velocity barrier**A physical structure, such as a barrier dam or floating weir, built in      the tailrace of a hydroelectric powerhouse, which blocks the tailrace from      further adult salmon or steelhead migration to prevent physical injury or      migration delay.

**water budget**A means of increasing survival of downstream migrating juvenile fish      by increasing Columbia and Snake river flows during the spring migration      period. The water budget was developed by the Council, which oversees its      use in conjunction with the fish and wildlife agencies and Indian tribes,      the U.S. Army Corps of Engineers, the Bonneville Power Administration and      the Bureau of Reclamation.

**watershed**The area that drains into a stream or river.

**weak stock**Listed in the Integrated System Plan's list of stocks of high or      highest concern; listed in the American Fisheries Society report as at      high or moderate risk of extinction; or stocks the National Marine      Fisheries Service has listed. "Weak stock" is an evolving      concept; the Council does not purport to establish a fixed definition. Nor      does the Council imply that any particular change in management is      required because of this definition.

**wild populations**Fish that have maintained successful natural reproduction with little      or no supplementation from hatcheries.

**THE CHANGING UTILITY WORLD**

The past several years have been marked with tremendous change in the      electric utility industry. Those changes are already having an impact on      the Council and the Northwest. The Council will need to adapt its planning      approaches to this new environment in some fairly significant ways to      remain effective. Most of the changes are the result of a trend toward      greater market orientation and less regulation in the utility industry.      This trend is the product of a number of factors and developments:

* Low price and apparently abundant supplies of natural gas, combined      with relatively low capital cost, short lead time gas turbine technology,      have made it feasible for non-utility entities to compete in the supply of      new generation;

* Policy initiatives also encourage resource development by non-utility      entities;

* New policies are opening access to transmission systems to wholesale      transactions - facilitating competition among potential suppliers;

* Retail utilities are also being opened to competition - for example,      the California Public Utility Commission has ordered retail access to      utilities' distribution systems to allow consumers to choose their power      supplier.

These trends have resulted in a world that is already a great deal      different than the one that existed when the Council was established. In      many respects, the changes are beneficial. Competitive markets will      require efficiency in the delivery of electricity services, which may      drive consumers' costs down. Competition will offer consumers choices that      allow them to tailor their electricity purchases to their needs.

Competition may, however, have other characteristics that are more      problematic. Will competition result in all cost-effective conservation      being implemented or are there market barriers that still must be      addressed? Will competition take environmental considerations adequately      into account? Will a competitive utility industry be inordinately focused      on the short term to the detriment of the long term? Will the sum of the      benefits of local competitive decisions be less than the aggregate benefit      that might be derived from more coordinated development of the regional      system? Will competition shift costs unfairly to those less able to take      advantage of competitive alternatives?

To address these concerns, the governors of Idaho, Montana, Oregon and      Washington convened in 1996 the Comprehensive Review of the Northwest      Energy System. The governors appointed a broadly representative steering      committee, which in turn created a number of work groups to address      specific issues. After approximately a year of intense meetings and      discussion, the Steering Committee proposed a set of recommendations. The      governors then appointed the Northwest Energy Review Transition Board to      oversee refinement and implementation of those recommendations.

The Transition Board members are John Etchart, Montana Power Planning      Council member; Todd Maddock, Idaho Council member; Mike Kreidler,      Washington Council member; Roy Hemmingway, representing Oregon's Governor      John Kitzhaber. The Board and its work groups have been meeting since      January 1997 to carry out the recommendations of the Steering Committee.

**COMPREHENSIVE REVIEW OF THE NORTHWEST ENERGY      SYSTEM**

In January 1996, the governors of Idaho, Montana, Oregon and Washington      established a 20-member committee, broadly representative of Northwest      power issues, to study changes sweeping the electricity industry and      recommend a constructive response tailored to the Northwest. The Steering      Committee of the Comprehensive Review of the Northwest Energy System met      29 times, conducted 10 public hearings around the region on its draft      report and reviewed more than 1,000 written comments. Former Power      Planning Council Member Chuck Collins of Seattle, was the committee's      chairman.

The Steering Committee's efforts represented the first time an entire      region worked together, in public, to craft a single, common-sense      approach that addresses electricity industry restructuring. In December      1996, the Steering Committee presented its recommendations to the      governors.

These recommendations are summarized in the following sections: federal      power marketing; governance of the Columbia River system (a related topic      to federal power marketing); conservation, renewable resources and      low-income energy services; consumer access to the competitive market;      transmission; and future power system roles for a four-state regional      body. Issues related to federal power marketing; conservation, renewable      resources and low-income services; consumer access to the competitive      market; and transmission were analyzed and discussed in work groups during      the review process. Although described as distinct parts, this is an      integrated set of recommendations, the parts of which are interdependent.

**Federal Power Marketing - the Bonneville Power Administration**

The Steering Committee's goals for federal power marketing were: 1)      align the benefits and risks of access to existing federal power; 2)      ensure repayment of the debt to the U.S. Treasury with a greater      probability than currently exists while not compromising the security or      tax-exempt status of Bonneville's third-party debt; and 3) retain the      long-term benefits of the system for the region. The recommendation is      also intended to be consistent with emerging competitive markets and      regional transmission solutions. The mechanism proposed to accomplish      these goals is a subscription system for purchasing specified amounts of      power at cost with incentives for customers to take longer-term (15 to 20      year) subscriptions. Public utility customers with small loads would be      able to subscribe under contracts that would accommodate minor load      growth. Subscriptions would be available first to regional customers in a      specified multi-part priority order, starting with preference customers,      then the direct service industrial customers of Bonneville and the      residential and small farm customers of those investor-owned utilities      currently participating in Bonneville's residential exchange, followed by      other regional customers. Non-regional customers could subscribe after      in-region customers. Within each phase of the subscription process,      longer-term contracts would have priority over shorter-term contracts if      the system is oversubscribed.

Longer-term subscribers would have the right to purchase power at cost      for the term of the contract. While the cost of the power from the federal      system is currently somewhat above market prices, the costs are generally      expected to be below market prices in the future. Short-term subscribers      also get the right to purchase power at cost. If they wish to be assured      the ability to renew their contracts at cost, they must pay an option fee      for the term of their contracts to compensate the U.S. Treasury for the      risk of shorter-term contracts. A sliding-scale option fee, ranging      between 2 mills per kilowatt-hour for a five-year contract to 0 mills for      a 15-20 year contract has been proposed.

The longer-term subscribers assume more risk than current Bonneville      customers from the effects of year-to-year variations in weather, future      power system cost increases and changes in market conditions. For example,      if we were to experience lower than expected market prices that are below      Bonneville costs for an extended period of time, the subscribers would      still be obligated to pay Bonneville's costs. At the end of their      subscription period, short-term subscribers would be able to let their      subscriptions lapse and buy at market prices. If they let their      subscriptions lapse, however, they would not be able to buy at cost in the      future, should that become desirable.

The Steering Committee recognized Bonneville's existing fish and      wildlife obligations and intended that none of its recommendations affect      existing trust obligations or treaty rights. The Steering Committee      further recognized that the region will need to provide most of the      required fish and wildlife funding, but supported assistance and cost      sharing by the federal government. The Committee recommended detailed      multiyear fish and wildlife budgets be developed in      government-to-government consultations by federal, state and tribal      authorities. These budgets would be incorporated into Bonneville rate      projections, allowing shorter-term customers certainty regarding fish and      wildlife costs. If market prices are above costs, the Treasury would share      in these benefits by getting some percentage of the difference between      market prices and the cost. The Treasury's share would be applied to      accelerate repayment of the federal debt.

Competition raises the possibility of stranded costs - previously      incurred fixed costs that cannot be recovered at market prices. If      successfully implemented, the subscription system should greatly reduce      the possibility of Bonneville experiencing any stranded cost. However, if      unmitigable stranded costs remain, a mechanism for recovery of those costs      will be required.

Subscribers may resell power in cases of loss of load and/or to the      extent allowed by existing law. Other commercial transactions by the      subscriber would not disqualify the purchase of federal power. The      benefits of purchases for residential and small farm customers of      exchanging investor-owned utilities should be passed on to end users.

The recommendations would have the effect of disposing of much if not      all of the firm power available from Bonneville on a long- or      intermediate-term basis. The fact that most of Bonneville's power would be      subscribed at cost would limit Bonneville's market role. Any remaining      firm power and other power products would be sold at Federal Energy      Regulatory Commission (FERC)-regulated prices or at competitive prices,      where FERC determines that competitive markets exist. To the extent      consistent with its obligation to repay Treasury, Bonneville should return      to its historic role of marketing power generated by the Federal Columbia      River Power System, rather than becoming an aggressive marketer of      products and services in the emerging competitive power market. Bonneville      should develop a quantitative marketing plan. The plan should be presented      to a transition board reporting to the Governors.

In addition, it is recommended that Bonneville would not acquire      resources to serve its customers' load growth except on a direct bilateral      basis where the customer takes on all the risk of the acquisition.      Similarly, it is proposed that Bonneville would not sell directly to new      retail loads, beyond the existing direct service industry loads, although      it may sell through intermediaries whose transactions would be subject to      state or local jurisdiction.

The Steering Committee recommended that the governors of Idaho,      Montana, Oregon and Washington appoint a transition board to oversee      implementation of these and other recommendations. In particular, the      board should periodically determine whether the subscription process is      making adequate progress or whether another approach is necessary.

**Columbia River System Governance**

The Steering Committee concluded that the region cannot expect to      achieve both the degree of cost stability the electricity industry      requires to maintain the benefits of the Columbia River power system for      the region and achieve sustainable fish restoration unless the region      ensures predictability, accountability and effective governance for the      fish and wildlife interests of the river. In short, an effective      conclusion of the region's effort is not possible without an improved      system of river governance that pursues fish restoration as a high      priority.

The Steering Committee was asked by the Northwest governors to focus on      the restructuring of the electricity system and to address the financial      stability of the federal power system. The Committee recommended changes      to the federal system that accomplish that goal. It recognized that there      are other important, related issues and decisions, including those      affecting fish and wildlife, that must be resolved before a truly      comprehensive package can be achieved.

The Steering Committee considered a number of matters related to the      governance of the river and the power system. The role of the Northwest      Power Planning Council in river governance was not addressed, but needs to      be. The governors should hold the Council or its successor accountable for      ensuring that the region is making the most cost-effective use of fish and      wildlife funding. River governance is a fundamental part of any effective      response to changes in the electric utility industry. Until governance      deliberations move forward through a government-to-government consultation      among federal, state and tribal authorities, the prospects for a consensus      on the regional response to utility restructuring are diminished and      controversial. The Steering Committee requested the governors to initiate      a broadly based discussion of improvements in river system governance that      would provide more effective decision-making for this complex ecosystem      and all of its competing uses.

**Conservation, Renewable Resources and Low-Income Energy Services**

The Northwest electric utility industry has a long and successful      history of developing cost-effective conservation and supporting the      development of renewable electricity sources, such as wind, geothermal and      biomass energy. In addition, the utilities have played a major role in      delivering weatherization to low-income households and helping low-income      households with their energy bills. Competitive pressures, however, are      expected to make significant changes in the ways utilities carry out these      activities in the future. The goal of the Steering Committee's      recommendations was to provide for maximum local control in the      implementation of conservation, renewables and low-income energy services,      while establishing an effective minimum standard that ensures stable      funding for these purposes.

To ensure that cost-effective conservation, renewable resource      development and low-income weatherization are sustained during the      transition to competition and beyond, the Steering Committee recommended      that by July 1, 1997, and annually thereafter for a period of 10 years, 3      percent of the revenues from the sale of electricity services in the      region ($210 million in 1995) be dedicated to those purposes. After 10      years, this commitment should be re-evaluated. Three percent of revenues      is roughly 65 percent of what was spent for these purposes by the region's      utilities and Bonneville in 1995.

The Steering Committee recommended that by July 1, 1999, each of the      Northwest states enact legislation that ensures that all electric      utilities operating within its borders are meeting the minimum standard      for investment in the development of conservation and renewable resources      and provision of weatherization and energy-efficiency services to      low-income consumers. Utilities should demonstrate compliance with the      minimum standard by July 1, 1999. Public utilities may satisfy the      standard in aggregate. If this minimum standard is not being met, the      legislation should provide for the assessment of a uniform system benefits      charge that ensures the collection and investment of funds for these      purposes. Due to the rapid emergence of competitive pressures, the      Committee strongly recommends prompt legislative action. Legislation      implementing these requirements should be implemented simultaneously with      open retail access.

The Steering Committee proposed that between two-thirds and five-sixths      of the funds be retained by local distribution utilities to carry out      locally initiated cost-effective conservation, low-income weatherization      and energy-efficiency services and renewable energy projects. Conservation      projects implemented and funded by large consumers should be credited      against the local conservation target, not including low-income      energy-efficiency services. Local utilities would also offer, or allow      other electricity service providers to offer, "green" power to      their consumers - power from renewable assistance energy sources. The      Steering Committee recommended that utilities maintain their current level      of low-income energy assistance until states adopt alternative mechanisms      for providing these services. The report recognized and affirmed the      energy system's historic role in providing energy assistance and proposes      that states now provide this assistance by establishing a "Universal      Electrical Service Fund" to provide energy bill assistance. This fund      could be supported by federal Low-Income Home Energy Assistance Program (LIHEAP)      funds, state or local government funds, other funds and/or by a retail      distribution system access fee or meters charge.

Some conservation and renewable resource activities benefit from      regional planning and coordination. Consequently, it is proposed that      between one sixth and one third of the funds be used by a regional      non-profit entity with utility, government, consumer and public interest      membership. Its functions would be to bring about changes in the markets      for targeted energy-efficiency products and services that will improve      their market share; to plan and contract for research and limited      demonstration of renewable energy technologies, and to support the      development of several megawatts annually of renewable generating      capacity. A regional technical forum would be established to track      regional progress toward the achievement of regional goals and provide      feedback and suggestions for improving the effectiveness of conservation      and renewable resource development programs. Funding for these activities      should be collected in part through Bonneville wholesale rates to the      extent regional firm loads are served by power from Bonneville.

How the funds are collected is a matter for state or local decision, as      appropriate. The Steering Committee expected that methods of collection      that are competitively neutral and affect all participants in the market      equally will be found to be preferable.

**Consumer Access to the Competitive Market**

The goals of the recommendations on retail markets and customer choice      were to encourage a more efficient power system, lower electricity costs,      increased product choice and greater product innovation for all consumers.      These goals were adopted subject to a commitment to maintain the      reliability and safety of the electrical power system. The Steering      Committee concluded that this goal could best be accomplished by putting      in place a competitive electricity market that is driven by consumer      choice. However, there is concern that the benefits of a competitive      market may flow unevenly to different classes of consumers and that some      small consumers may even suffer harm. The report recommends safeguards      intended to help mitigate these concerns.

The Steering Committee recommended that regulators and local utility      boards and commissions offer open access for all customers that desire it      no later than July 1, 1999. The Committee recognized that some of these      regulatory bodies may choose to phase in full retail access. In these      cases, a similar phase-in of the recommendations on conservation,      renewable resources and low-income energy services may be effected.

Direct access may occur prior to July 1, 1999, however, for direct      retail access to be implemented promptly, several activities must be      accomplished. These include the identification of any stranded costs and,      if any stranded costs are determined to exist, the creation of a stranded      cost collection mechanism; unbundling and cost-based pricing of delivery      services; pilot programs to explore aggregation for small commercial and      residential customers; the exploration of market index pricing options for      residential and small commercial customers; and implementation of public      purposes funding, energy assistance funding and consumer protection      mechanisms consistent with this report's recommendations.

To achieve a competitive retail electricity market requires separation      of the distribution and electricity marketing functions of current retail      utilities. This is necessary to ensure that consumers will have unimpeded      access to alternative electricity suppliers, and vice versa, over the      wires of the distribution utility. The distribution utility would continue      to be a regulated monopoly responsible for the reliable and safe delivery      of electricity from electric service companies to consumers over local      distribution wires. Electricity service companies will offer a variety of      electricity products and services (e.g., firm or interruptible power,      power from renewable resources, peak or off-peak power, fixed or      spot-market prices) to consumers on a competitive basis and may, in fact,      offer other products unrelated to electricity markets. The electricity      services portion of current integrated retail utilities could compete in      this market if the distribution utility function is sufficiently separated      from the electricity services business to ensure that control of      distribution is not used to advantage the electricity services business.

Putting such a competitive market in place will require a significant      transition and ongoing market maintenance procedures. There is a danger      that, until competitive markets have fully developed for all consumers,      some of the benefits of increased competition may be realized primarily by      large consumers at the expense of small consumers. Therefore, the Steering      Committee calls for active government oversight of the transition and      active ongoing programs to facilitate and encourage the development of      meaningful market access for all consumer classes and to prevent      unwarranted cost shifts among consumer classes. Specifically, the policy      calls for licensing of new electricity service providers, applicability of      consumer protection laws, formal complaint processes, consumer information      programs, and a "provider of last resort" to ensure continued      affordable service to all consumers. To further minimize cost shifts to      small consumers, policies should be adopted to provide utilities a fair      opportunity to recover costs of previous investments that may be stranded      by the opening of the market. This is viewed as a transitional problem      only, and incentives must be included for utilities to mitigate any      stranded costs they potentially face.

**TRANSMISSION**

Transmission is the "highway system" over which the products      of electrical generation flow. If there is to be effective competition      among generators, transmission facilities should be operated independently      of generation ownership. An independent grid operator (IGO) regulated by      the Federal Energy Regulatory Commission with broad membership, including      Bonneville and the region's other major transmission owners, was proposed      as a means of ensuring independence of transmission operation and      improving the efficiency of transmission operation. An independent grid      operator should also have clear incentives to maintain reliability and      encourage efficient use of the transmission system.

The independent operation of Bonneville's transmission facilities is      particularly important to effective competition among generators in this      region because Bonneville's facilities make up a large part of the      regional transmission system. To ensure this independence, it was      recommended that Bonneville be legally separated into two organizations -      a power marketing organization to market the power from the federal power      system and a transmission organization to carry out the transmission      functions. The separation of these functions should be structured so that      it does not jeopardize or diminish the legal obligation and ability of      Bonneville to meet fish and wildlife and other obligations. A separated      federal transmission owner (e.g., the Bonneville Transmission Corporation)      could lease its assets to an independent grid operator, or could be an      independent grid operator and operate other participants' assets if FERC      and the other participants agree.

Legislation will be required to accomplish these goals. While      legislation is under consideration, Bonneville should move quickly to      achieve as much administrative separation as possible, and to participate      in efforts to form an independent grid operator that could operate both      federal and non-federal transmission assets.

**Future Power System Role for a Four-State Regional Body**

When the Northwest Power Act was passed in 1980, the authors      contemplated an extended time of electricity shortage and the need for      increasingly costly large-scale power plants. The Northwest Power Planning      Council was established with two representatives from each of the      Northwest states (Idaho, Montana, Oregon and Washington) to provide the      states and the public a role in determining the region's future need for      electricity and how that need could best be met. The Council was also      charged with furthering the goals of: encouraging conservation and      renewable resources; helping assure an adequate, efficient, economical and      reliable power system; providing environmental quality; and protecting,      mitigating, and enhancing the fish and wildlife of the Columbia Basin.

The Power Planning Council has been credited with many improvements in      electricity planning. However, in an era in which market forces will play      the primary role in determining what plants are built and what can be      charged for their output, the Council's resource acquisition planning role      is no longer relevant. The Steering Committee believed, however. that the      remaining goals are still important to the citizens of the region. The      issue is how they are to be achieved in the context of a competitive      market.

There is much that is unknown about the competitive future we are about      to embrace. As the Northwest transitions toward a competitive electricity      industry, there are roles that the region would want carried out by a      regional body. These roles do not involve resource acquisition planning,      regulation or implementation. They do involve monitoring and analyzing the      transition to a competitive electricity market and informing policy-makers      and the public. This will help ensure that the transition to a competitive      market is accomplished efficiently and fairly throughout the region and      that the public values the Northwest has sought from its power system are      preserved and enhanced.

These roles include:*Conservation and Renewables* - working with regional interests to      devise ways of overcoming market barriers, participating in market      transformation activities, providing guidance in meeting the region's      conservation and renewable goals and working with the regional technical      forum to track regional progress;

**The Competitive Marketplace** - providing information, evaluation      and analysis of the evolving marketplace to ensure full, fair and      effective competition throughout the region; and

*Public Participation and Involvement*- informing and involving      interested members of the public on matters that affect them, their      environment and their economy.

The funding of the Northwest Power Planning Council has been through a      charge on Bonneville Power Administration rates. If federal legislation      affecting the role of the Northwest Power Planning Council or a similar      regional body is pursued, the question of the level and sources of the      funding should be addressed.

**TRANSMISSION**

Orders 888 and 889 issued by the Federal Energy Regulatory Commission (FERC)      in April 1996 indicated that the Commission's implementation of the      National Energy Policy Act of 1992 would require several things of      utilities under its jurisdiction: 1) "unbundling" of the costs      and operation of transmission from those of generation; 2) transmission      tariffs that offered transmission service to other parties on the same      terms as the utility applies to itself; and 3) providing timely      information about availability and costs of transmission. The goal of      these orders was a transmission system that would be open to all      competitors in the generation market on equal terms, and would make      possible effective competition in the wholesale market for electricity.

The Council's draft power plan described alternatives for separation of      transmission and generation, and it described the alternatives' relative      effectiveness in reducing the opportunities and temptation to use control      of transmission to benefit a utility's generation business. The      alternatives (listed in order of increasing certainty that effective open      access to transmission will be achieved) are: 1) functional separation      within the utility; 2) spinning off generation and transmission      subsidiaries within an existing corporation; 3) turning over control of      transmission assets to an independent operator; and 4) divestiture -      selling off the generation or transmission assets to new owners.      Unfortunately, the more certain alternatives are also the most complex to      implement.

**Recommendations from the Comprehensive Review**

The Steering Committee stated that its primary goal for transmission      was "a transmission system whose structure and operation help ensure      a fully competitive generation market." It recommended the formation      of an independent grid operator to operate the region's transmission      system, including Bonneville's assets. It recommended that      "Bonneville's generation and transmission functions should be fully      and legally separated (including separated funds)" and that the      separation "be achieved in such a way that it does not jeopardize or      diminish the legal obligation and ability of Bonneville to meet fish and      wildlife and other obligations." The Steering Committee also      recommended that Bonneville's transmission be subject to FERC regulation      "that is equivalent to FERC regulation of investor-owned      utilities."

**IndeGO proposal**

The formation of an independent grid operator along the lines of the      Steering Committee's recommendations (IndeGO) was begun in July 1996. In      late 1997, participants released for public review a draft IndeGO proposed      structure. Under the IndeGO model, scheduling of all transmission would be      turned over to the grid operator. Pricing of transmission services would      also be governed by IndeGO, subject to regulation by the Federal Energy      Regulatory Commission.

That proposal was dropped when at least one utility refused to      participate in it. Efforts to redesign the IndeGO proposal have been      suspended. However, separate discussions are under way to create either an      independent system operator or an independent grid scheduler. These new      entities would have limited authority.

**Bonneville transmission issues**

The governors' Transition Board formed a transmission working group to      discuss how best to accomplish the separation of Bonneville generation and      transmission. That work group has been meeting since April 1997. One of      the major issues the group is examining is how to effectively separate      generation and transmission without threatening the security of bonds      issued by the Washington Public Power Supply System (WPPSS), and without      compromising the ability of Bonneville to mitigate the effects of the      power system on the region's fish and wildlife. If the separated power      marketing organization has trouble meeting its revenue requirements,      should it be able to call on the separated transmission organization for      financial support? Holders of WPPSS bonds, fish and wildlife advocates and      the federal Treasury are likely to resist a separation that appears to      threaten their interests. On the other hand, prospective users of the      separated transmission system and competitors of the separated power      marketing organization will not be satisfied with an arrangement that      leaves Bonneville with significant incentive and ability to use the      transmission system to benefit its power marketing revenues.

Another of the Steering Committee's recommendations that the working      group is discussing is regulation of Bonneville's transmission by the      Federal Energy Regulatory Commission that is equivalent to its regulation      of investor-owned utilities. The work group has made progress toward      definition of "equivalent" regulation of Bonneville's      transmission. Next, the group intends to consider to what extent, and in      what areas, it would be appropriate for FERC regulation of Bonneville to      depart from "investor-owned equivalency."

**TRANSMISSION SYSTEM IMPACTS FROM      BREACHING JOHN DAY DAM**

As the Pacific Northwest explores lowering reservoir elevations as a      potential option to improve salmon survival, it is imperative that all      costs and impacts be assessed. Many scenarios have been discussed, ranging      from complete bypass of the four lower Snake River and John Day dams year      round to a partial drawdown implemented only during the migration season      (April to August). The potential impacts of such actions are far reaching,      affecting irrigation, navigation, industrial river users, recreation,      flood control, cultural resources, and of course, power production and the      transmission system. Many parties in the Northwest are in the process of      analyzing the biological benefits and societal costs of various drawdown      scenarios. This paper addresses one such scenario in which the John Day      Dam is bypassed or breached, permanently returning the river to a more      natural state. This option eliminates all power generation at the John Day      Dam.

What is not widely appreciated is the role that the generation at John      Day plays in maintaining the transfer capability and reliability of the      transmission system. Previous cost estimates for similar drawdown      scenarios may be understated due to the omission of costs for actions that      would have to be taken to compensate for transmission impacts due to loss      of generation. This paper focuses only on the costs associated with power      generation and, in particular, the impacts to the transmission system.

Total power system cost falls into three categories: 1) energy losses,      2) capacity losses, and 3) transmission impacts. Assessing the cost of      energy loss is perhaps the most intuitive. On average, John Day generates      about 10.5 million megawatt-hours of energy per year (about 12 percent of      Bonneville's average annual energy production). The value of that energy      depends on the price, which varies by month and by time of day. Current      estimates indicate the cost to be between $100 and $200 million per year.

The cost of capacity loss is a little more complicated to evaluate. The      ability of John Day's generators to swing with fluctuations in demand      saves the region money and contributes to the stability of the Northwest's      power system. John Day generators provide up to 2,500 megawatts of peaking      capacity (about 11 percent of Bonneville's total generating capacity). The      value of that capacity is currently estimated to be in the range of $25 to      $50 million per year.

A better estimate of capacity loss is much more difficult to assess.      Hydroelectric projects contribute greatly to system reliability through      the Automatic Generation Control (AGC) system that adjusts the generation,      second by second, to match changes in demand. The dams also fulfill part      of the Western Systems Coordinating Council (WSCC) reserve requirements      and provide backup generation in the event of an unexpected outage. In      addition, they provide extra energy during extreme cold weather periods      and help maintain transmission stability during system disturbances. The      U.S. Army Corps of Engineers and other federal agencies are examining      capacity losses and their cost in more detail in a study to be completed      in 1999.

The impact to the transmission system is even more complicated to      evaluate. Due to John Day's proximity to the California-Oregon Intertie (COI),      a loss of generation at John Day would affect both exports and imports. In      either case, energy would have to be transmitted over greater distances.      The further energy is transferred, the harder it is to maintain constant      voltage on the transmission system and the higher the losses. Even though      sufficient generation may be available in the West to make up for the loss      at John Day, actions would have to be taken to upgrade the transfer      capability of transmission paths in order to maintain the same level of      reliability to Northwest customers. While at this time no estimate is      available, it would be safe to say that the added cost to offset      transmission impacts is significant.

**FEDERAL POWER MARKETING: THE ROLE OF THE      BONNEVILLE POWER ADMINISTRATION**

The Council's draft power plan raised several key issues about the      future role of the Bonneville Power Administration in a competitive      market. These issues were divided into three main areas: 1) the      consistency of various aspects of Bonneville's status as a federal power      marketer with a competitive market, including separation of transmission      and generation, market power, and risk and reward trade-offs; 2) the      allocation of the benefits of the federal hydropower system; and 3) future      support for the various public purposes that Bonneville historically      supported.

The draft power plan discussed some key characteristics of competitive      markets and suggested that Bonneville, because it controlled large      portions of both the region's transmission and generation capability, has      the potential to exercise too much control over the power market. That      would be inconsistent with open and fair competition. Furthermore, as a      federal agency, Bonneville is limited in its ability to deal with the      risks and rewards that are essential aspects of a competitive market. The      draft power plan discussed several alternative approaches to the      separation of Bonneville's generation and transmission functions. The plan      also examined different approaches to the disposition of federal power      marketing rights that would better balance risk and reward, and be more      consistent with a competitive power market.

The draft power plan also examined the allocation of historic and      expected future regional benefits of the federal hydropower system      operated by Bonneville, including future mechanisms that would retain      those benefits for the region while being more consistent with a      competitive market and the risk and reward balancing that it implies.

Finally, the draft power plan suggested that several of the public      purposes that Bonneville had historically supported, such as funding      energy-efficiency programs and renewable resources, and special rates for      certain classes of customers, could be inconsistent with a competitive      power market and would be unlikely to be the kinds of things that      Bonneville would be able to support in the future.

**Recommendations from the Comprehensive Review**

The Comprehensive Review Steering Committee also concluded that the      issues identified in the draft plan were critical and addressed them in      its deliberations (see previous discussion of the Comprehensive Review).      The Steering Committee recommended that Bonneville's role in a competitive      market, particularly its potential market power, be limited by selling      Bonneville's power, to the extent possible, under longer-term      subscriptions. The recommendations also called for a more limited      Bonneville role in resource acquisition. These limitations would tend to      minimize the political exposure of Bonneville as a government-owned      supplier in a competitive market. The recommendations also limited the      market risk that Bonneville could take on, given that, as a federal      agency, it lacks risk-taking owners, the means by which typical      participants in competitive markets deal with risk and absorb losses.

The Review's final report summarized this issue as follows:

The recommendations would have the effect of disposing of much if not      all of the firm power available from Bonneville on a long- or      intermediate-term basis. The fact that most of Bonneville's power would be      subscribed at cost would limit Bonneville's market role. Any remaining      firm power and other power products would be sold at Federal Energy      Regulatory Commission (FERC)-regulated prices or at competitive prices,      where FERC determines that competitive markets exist. To the extent      consistent with its obligation to repay Treasury, Bonneville should return      to its historic role of marketing power generated by the Federal Columbia      River Power System, rather than becoming an aggressive marketer of      products and services in the emerging competitive power market.

In addition, it is recommended that Bonneville would not acquire      resources to serve its customers' load growth except on a direct bilateral      basis where the customer takes on all the risk of the acquisition.      Similarly, it is proposed that Bonneville would not sell directly to new      retail loads, beyond the existing direct service industry loads, although      it may sell through intermediaries whose transactions would be subject to      state or local jurisdiction.

The related questions of balancing risk and reward and of allocating      the benefits of the federal hydropower system were central to the      deliberations of the Comprehensive Review.

The Steering Committee summarized its goals for federal power      marketing:

* align the benefits and risks of access to existing federal power;      * ensure repayment of the debt to the U.S. Treasury with a greater      probability than currently exists while not compromising the security or      tax-exempt status of Bonneville's third-party debt; and      * retain the long-term benefits of the system for the region. The      recommendation is also intended to be consistent with emerging competitive      markets and regional transmission solutions.

The Steering Committee chose a solution that favored long-term      subscriptions to federal power that would be sold at cost. Cost might be      somewhat higher than market prices in the near term, but is expected to be      lower in later years. This scheme aimed at having the subscribers take on      more of the current business risk of Bonneville, in return for an assured      ability to buy electricity at below-market prices in the future. Some      customers might wish to limit their exposure to Bonneville's costs being      at above-market prices by deferring making longer term commitments until      the risk has been reduced by the passage of time and by the consequent      better knowledge. Those wishing to make short-term purchases would have to      pay a premium, in the form of an option payment, to renew the contracts at      cost at a later time.

**Actions since the Comprehensive Review**Bonneville and the Pacific Northwest Utilities Conference Committee      have formed a subscription work group open to all regional interests to      implement the federal power marketing recommendations from the      Comprehensive Review. The work group reports regularly to the Transition      Board.

The subscription work group has set out a multiyear work plan for      implementing the Steering Committee's recommendations and permitting the      signing of new Bonneville power sales contracts in advance of the      termination of current contracts. During Phase 1 of the workgroup's      effort, through mid-1998, the group is addressing business interests,      product definition, pricing principles and potential legal issues. Phase      2, mid-1998 through mid-2000, is expected to be devoted to a rate case and      final contract negotiations. Currently, the work group is well ahead of      schedule in its Phase 1 work, having explored the business interests of      potential subscribers and the definition of the products they are      interested in buying from Bonneville. Alternatives for an overall      contractual relationship with Bonneville and more detailed definition of      products are the current focus of the work group.

**COST REVIEW OF THE FEDERAL COLUMBIA RIVER      POWER SYSTEM**

In 1997, the four Northwest Governors asked the Northwest Power      Planning Council to establish a cost control forum to assist the      Bonneville Power Administration in controlling the costs it recovers      through rates in preparation for a subscription process for the post-2001      period. This Cost Review has covered planned costs of the Federal Columbia      River Power System (FCRPS), including transmission, with a focus on      projected costs for the 2002-2006 period. The objective has been to ensure      that Bonneville's near and long-term power and transmission costs are as      low as possible consistent with sound business practices, thereby enabling      full cost recovery with power rates at or below market prices.

Following are the recommendations of the Cost Review Management      Committee. They reflect the Committee's consideration of extensive public      comment on its draft recommendations. In particular, the Committee has      heeded the admonitions of many commentors to ensure that its      recommendations for conservation and renewable resource development are      consistent with the recommendations of the Comprehensive Review of the      Northwest Energy System . In addition, the recommendations regarding      Washington Public Power Supply System Plant 2 have been modified to      respond to legal and operational issues that have been identified.

* **Power system cost management:** Initiate a consolidated,      integrated asset management strategy for the Federal Columbia River Power      System involving Bonneville, the Corps of Engineers and Bureau of      Reclamation. Estimated operations and maintenance savings and enhanced      revenues: $48 million (Corps, $40 million; Bureau $8 million).      * **Power marketing:** 1) Reduce staff and expenses associated with      power marketing and related activities. Estimated annual savings: $14.7      million.      * **Energy conservation:** Contribute to regional efforts to develop a      market for energy-conserving products and services, reduce the cost of      ongoing energy conservation projects and do not modify or extend them,      with the exception of a program to weatherize low-income homes. Reduce      associated staffing. These recommendations are consistent with those of      the 1996 Comprehensive Review of the Northwest Energy System. Estimated      annual savings: $7.1 million.      * **Northwest Power Planning Council:** Reduce staff to reflect a      changed power planning role, change law to require one Council member from      each state instead of two, determine the Council's future role through a      regional process. Estimated annual savings: $1.1 million.      * **Renewable energy:** Fund three planned projects and research and      development; annual losses from projects not to exceed $15 million; no      additional projects unless Bonneville's costs are fully recovered by      project revenues. Estimated annual savings: $2.2 million.      ***Washington Nuclear Plant 2:**Combine aggressive cost management      with a flexible response to market conditions and unforeseen costs. Manage      annual operating costs to annual revenues achievable at market prices.      Sell a portion of Bonneville's power, equal to the output of WNP2, at a      price that will recover the plant's operating costs. Test the plant's      power prices against market prices every two years, and evaluate      terminating the plant if projected operating costs exceed projected      revenues. If revenues exceed costs, use a portion to build a      decommissioning fund. Estimated annual savings: $19 million.      * **Administrative and other support service costs:**1) Reduce by 50      percent, in aggregate, from 1996 levels including business services,      planning, public affairs and legal services costs, among others. Estimated      annual savings $31.7 million. 2) Pursue legislative changes in internal      personnel and management laws to improve administrative effectiveness and      efficiency. Estimated annual savings: $10 million.      ***Transmission:**1) Change certain cost allocations between the      transmission and power marketing business lines. Estimated annual savings:      $30 million to the Power Business Line. 2) Reduce internal overhead costs.      Estimated annual savings: $2.5 million.      * **Fixed costs:**Further reduce debt service through such actions as      bond refinancing. Estimated savings: $20 million.

These recommendations have been forwarded to the Bonneville      Administrator and to the region's governors, the Northwest Congressional      delegation, and the House and Senate Committees on Appropriations in      Congress. Responsibility for decision and action lies with the      Administrator. The recommendations identify $146 million in reductions to      planned power expenses for Bonneville's next rate period, Fiscal Years      2002-2006. These reductions are in addition to substantial cost cutting      already undertaken. Fully implemented, the cost reductions identified      herein, and those identified in earlier Bonneville budget planning, would      reduce annual power expenses in the Fiscal Year 2002-2006 period more than      $200 million beyond what Bonneville planned when rates were set for the      current rate period, Fiscal Years 1997-2001.

**FOURTH NORTHWEST CONSERVATION AND ELECTRIC POWER      PLAN**

The Council released its draft fourth Northwest Power Plan in the      spring of 1996 for public review and comment. Because of the concurrent      process - the Comprehensive Review of the Northwest Energy System -      comment on the draft was kept open until conclusion of the Review.

Recommendations from the Review and suggestions on how to implement the      recommendations were then incorporated into the draft in the form of an      addendum. The addendum was available for public comment until late fall      1997. It is unclear at this time when the new power plan, with its      addendum, will be adopted formally.

The addendum has two principal objectives. First, it reviews important      developments since the release of the draft power plan. These developments      include what has happened with respect to: generation and conservation      resources, gas and electricity markets, electricity loads, institutions,      and policies. While there have been significant developments in the      electricity industry since March 1996, none of them invalidates the      analysis contained in the draft power plan. The more important      developments include the creation of new institutions in response to the      increasingly competitive utility industry, and the continued evolution of      policies at the state and federal levels designed to facilitate      competitive electricity markets. These are discussed in detail in the      addendum.

The second purpose of the addendum is to examine the relationships      between the analysis contained in the draft power plan and the      recommendations from the Comprehensive Review's Steering Committee. In      several instances, the addendum suggests approaches that would help move      the Northwest from the usually general nature of the Steering Committee's      recommendations to the specifics that will have to be addressed by      legislatures and state and local regulators.

The draft power plan focused primarily on issues raised by the      transition to competitive electricity markets and highlighted, where      possible, important considerations and principles in that transition. The      Comprehensive Review dealt with many of the same issues. In general, the      recommendations from the Review are supported by the analysis of the draft      power plan or, where they are not, the recommendations reflect legitimate      policy choices on the part of the Review's Steering Committee. In many      instances, however, the recommendations from the Review are specific in      intent but, of necessity, lacking in detail. For example, one      recommendation is that provisions for recovering stranded investments be      made as part of opening retail electricity markets to competition.      However, the recommendation provides little guidance regarding how      stranded investment recovery might be structured and why. The addendum      builds on the analysis in the draft power plan to suggest important      considerations in recovering stranded investments. The same is true with      respect to several of the recommendations for competition and consumer      access, and provisions for conservation and renewable resources.

The addendum also describes potential new roles for the Northwest Power      Planning Council that are based on recommendations from the Comprehensive      Review. During the transition to a more competitive electricity market,      the Council has been asked to help the region ensure that the benefits of      competition are shared by all electricity consumers, and that public      purposes, such as energy-efficiency improvements, development of renewable      resources and services to low-income customers, continue to be provided.

**CONSERVATION ACQUISITION STATUS**

The Council's 1991 Northwest Conservation and Electric Power Plan      called for acquiring at least 1,500 megawatts of conservation resources by      the year 2000. The region's utilities and Bonneville acquired      approximately 250 megawatts by the end of 1993 through programs they      operated. In addition, by the end of 1994, both Oregon and Washington      adopted new energy codes for commercial buildings that will capture about      50 percent of the cost-effective conservation identified as available in      new commercial buildings in the Council's 1991 plan. Nationally, the US      Department of Energy has issued revised standards for several residential      appliances that incorporate most of the energy savings featured identified      as cost effective in the 1991 plan. Also, the US. Department of Housing      and Urban Development adopted revised energy standards for new      manufactured housing that has improved the efficiency of these homes by      over 35 percent.

In its Draft Fourth Northwest Power Plan, the Council identified      another 1,500 megawatts of energy savings that remain cost-effective to      acquire for the region, despite new lower alternative resource costs.      Acquiring these additional savings under the new utility scenario of      competition poses new challenges to Northwest utilities.

**Sustaining Conservation Investments in a More Competitive      Environment**

The National Energy Policy Act of 1992, which permits open competition      at the wholesale level and the reduced cost of natural gas-fired      generation technologies, have left some utilities concerned about their      ability to remain cost competitive. Some utilities have asserted that      continued investments in conservation are not sustainable in a competitive      market. They argue that because their likely competitors (AKA, independent      power producers) need not invest in conservation, the price (i.e. rates)      they can charge for power will be lower.

While energy conservation costs less than other alternatives, it can      increase utility rates slightly. Conservation programs cost money and      reduce the sales of electricity. Therefore, the cost per kilowatt-hour can      go up.

The Council, working with Bonneville and other utilities, regulators      and others, developed alternative approaches to acquiring conservation      that would reduce costs to utilities and potentially mitigate some      conservation rate impacts. These approaches are known collectively as      "market transformation ventures."

Market transformation is a strategic effort by utilities and other      entities to induce lasting structural or behavioral changes in the market      that result in increases in the adoption and penetration of energy      efficient technologies and practices. Because the market for energy using      products (e.g. motors, refrigerators) does not match the service territory      of individual utilities, it is necessary for utilities to act collectively      to leverage change. In the Northwest, Bonneville and the region's      utilities have historically cooperated on some of the nation's most      successful market transformation programs, the Super GOOD CENTS/Northwest      Energy Code programs and Manufactured Housing Acquisition Program (MAP).      Although most of the major public and private utilities in the region have      indicated a preference for pursuing market transformation programs where      they make economic sense, few have been willing to allocate staff to      develop these programs. Moreover, with increasing utility concerns about      competition, there may be less willingness to continue such collaboration      in the future.

**Bonneville's Conservation Reinvention**

Bonneville, as part of its overall effort to become more business-like,      revised the way it acquires conservation. Under the Northwest Power Act,      Bonneville is charged with acquiring "all regionally cost-effective      conservation." Historically, the agency has carried out this      obligation by providing funds to its customer utilities to operate      Bonneville-designed conservation programs. The cost of these conservation      programs is recovered in Bonneville's rates, just like other resource      acquisitions.

As of Fiscal Year 1996, however, Bonneville has been providing funds      only for conservation programs that are designed to transform regional      markets, in other words, collective actions that bring economies of scale.      (Projects with existing long-term budgets are continuing under Bonneville      funding but only until they are completed.) Investor owned utilities in      the region have joined with Bonneville to form the Northwest Energy      Efficiency Alliance to carry out these collective market transformation      activities.

**The Northwest Energy Efficiency Alliance**

Formed January 1, 1997 (after lengthy negotiations in 1996), the      Northwest Energy Efficiency Alliance brings together all the Northwest's      investor-owned utilities; Bonneville's public utility customers; utility      regulators and governors' representatives from Idaho, Montana, Oregon and      Washington; public interest groups; and the energy efficiency industry to      carry out regionwide market transformation ventures. The Council was      instrumental in forming the Alliance.

The Alliance has $65 million in funding to carry its programs through      the year 2000. In its second year of operation, the Alliance has committed      $44 million to operate 26 projects, including public information and      training efforts. The Alliance has its own Internet web site:      www.nwalliance.org and underwrites several other public information      Internet sites throughout the region. The Alliance also operates a $7      million program to introduce resource-efficient clothes washers in the      region, which has already exceeded its goals. In addition, the Alliance is      coordinating a regionwide effort to improve the energy efficiency of new      residential and commercial buildings. A joint project co-sponsored by the      Alliance and Siemen's Solar Industry in Vancouver, Washington, is designed      to improve the efficiency of photovoltaic cell development. In addition to      saving electricity, this project, if successful, could reduce the cost of      photocell technologies by approximately 10 percent. The Alliance is also      working with irrigating farmers across the region to save both water and      electricity by using more sophisticated equipment to target watering times      and amounts.

**GLOSSARY OF POWER-RELATED TERMS**

**administrative costs**Certain overhead costs related to conservation or generating      resources, such as project management and accounting costs incurred by      utility or contractor staff.

**alternating current (AC)**An electric current in which the electrons flow in alternate      directions. In North American electrical grids, this reversal of flow is      governed at 60 cycles per second (Hertz). With some exceptions (see      "direct current"), commercial electric generation, transmission      and distribution systems operate on alternating current.

**anadromous fish**Fish that hatch in freshwater, migrate to the ocean, mature there, and      return to freshwater to spawn. For example, salmon or steelhead trout.

**available technology**In the power plan, the term "available technology" refers to      equipment or facilities for generating and conservation resources,      including electrical appliances, that are currently available and are      expected to be generally available in the marketplace during the 20-year      planning period.

**average cost pricing**A concept used in pricing electricity. The average cost price is      derived by dividing the total cost of production by the total number of      units sold in the same period to obtain an average unit cost. This unit      cost is then directly applied as a price.

**average megawatt or average annual megawatt**Equivalent to the energy produced by the continuous operation of one      megawatt of capacity over a period of one year. (Equivalent to 8.76      gigawatt-hours, 8,760 megawatt-hours or 8,760,000 kilowatt-hours.)

**avoided cost**An investment guideline, describing the value of conservation and      generation resource investments in terms of the cost of more expensive      resources that would otherwise have to be acquired.

**base loaded resources**Base loaded electricity generating resources are those that generally      are operated continually except for maintenance and unscheduled outages.

**billing credit**Under the Northwest Power Act, a payment by Bonneville to a customer      (in cash or offsets against billings) for actions taken by that customer      to reduce Bonneville's obligations to acquire new resources.

**Bonneville Power Administration (Bonneville)**A federal agency that markets the power produced by Federal Base      System resources and resources acquired under the provisions of the      Northwest Power Act of 1980. Bonneville sells power to public and private      utilities, direct service industrial customers and various public      agencies. The Northwest Power Act charges Bonneville with other duties,      including pursuing conservation, acquiring sufficient resources to meet      its contract obligations, funding certain fish and wildlife recovery      efforts and implementing the Council's plan.

**Btu (British thermal unit)**The amount of heat energy necessary to raise the temperature of one      pound of water one degree Fahrenheit (3,413 Btus are equal to one      kilowatt-hour).

**Buy-back program**A conservation program that, in effect, purchases electrical energy in      the form of conservation measures installed by a consumer. The consumer is      paid a certain amount per kilowatt-hour of energy saved.

**callback**A power sale contract provision that gives the seller the right to      stop delivery of power to the buyer when it is needed to meet other      specified obligations of the seller.

**capacity**The maximum power that a machine or system can produce or carry under      specified conditions. The capacity of generating equipment is generally      expressed in kilowatts or megawatts. In terms of transmission lines,      capacity refers to the maximum load a line is capable of carrying under      specified conditions.

**climate zone**As part of its model conservation standards, the Council has      established climate zones for the region based on the number of heating      degree days, as follows: Zone 1: 4,000 to 6,000 heating degree days (the      mild maritime climate west of the Cascades and other temperate areas);      Zone 2: 6,000 to 8,000 heating degree days (the somewhat harsher eastern      parts of the region); and Zone 3: more than 8,000 heating degree days      (western Montana and higher elevations throughout the region).

**coal gasification**The process of converting coal to a synthetic gaseous fuel.

**cogeneration**      The sequential production of electricity and useful thermal energy. This      is frequently accomplished by the recovery of reject heat from an electric      generating plant for use in industrial processes, space or water heating      applications. Conversely, cogeneration can be accomplished by using reject      heat from industrial processes to power an electricity generator.

**combined-cycle power plant**The combination of a gas turbine and a steam turbine in an electric      generation plant. The waste heat from the gas turbine provides the heat      energy for the steam turbine.

**combustion turbine**A turbine engine generator, often fired by natural gas or fuel oil,      used to generate electricity. The turbine generator is turned by      combustion gases rather than heat-created steam.

**conductor**Wire or cable for transferring electric power.

**conservation**According to the Northwest Power Act, any reduction in electric power      consumption as a result of increases in the efficiency of energy use,      production or distribution.

**construction lead time**The length of time between a decision to construct a resource and when      the resource is expected to deliver power to the grid. Generally defined      for purposes of this plan as the interval between detailed engineering and      equipment order to completion of start-up testing.

**cost-effective**According to the Northwest Power Act, a cost-effective measure or      resource must be forecast to be reliable and available within the time it      is needed, and to meet or reduce electrical power demand of consumers at      an estimated incremental system cost no greater than that of the      least-costly, similarly reliable and available alternative or combination      of alternatives.

**cost of debt**The amount paid to the holders of debt (bonds and other securities)      for use of their money. Generally expressed as an annual percentage in the      power plan.

**cost of equity**Earnings expected by a shareholder on an investment in a company.      Generally expressed as an annual percentage in this plan.

**critical period**The sequence of low water conditions during which the regional      hydropower system's least amount of en-ergy can be generated (see      "critical water") while drafting storage reservoirs from full to      empty. Under the Pacific Northwest Coordination Agreement, critical period      is based on the lowest multi-month streamflow observed since 1928. Based      on analysis of streamflows at The Dalles Dam, this is also the lowest      streamflow since recordkeeping began in 1879.

**critical water**The sequence of streamflows in the critical period under which the      hydropower system will generate about 12,500 average megawatts. In an      average year, the Northwest hydropower system will produce about 16,600      average megawatts.

**curtailment**An externally imposed reduction of energy consumption due to a      shortage of resources.

**debt**Investment funds raised through the sale of securities having fixed      rates of interest.

**debt/equity ratio**The ratio of debt financing to equity financing used for capital      investment.

**demand forecast**An estimate of the level of energy that is likely to be needed at some      time in the future. The Council's demand forecast contains a range of      estimated consumption based on various assumptions about demographics and      the state of the economy.

**direct application renewable resource**Technologies that use renewable energy sources to perform a task      without converting the energy into electricity. These sources and their      functions may include wood for space heat, solar for space heat and      drying, geothermal space and water heating, and wind machines used for      mechanical drive (such as pumping).

**direct current (DC)**An electrical current in which the electrons flow continuously in one      direction. Direct current is used in specialized applications in      commercial electric generation, transmission and distribution systems.

**direct service industry**An industrial customer that buys power directly from the Bonneville      Power Administration. Most direct service industries are aluminum smelting      plants.

**discount rate**The rate used in a formula to convert future costs or benefits to      their present value.

**dispatch**Operating control of an integrated electrical system involving      operations such as control of the operation of high-voltage lines,      substations or other equipment.

**distribution**The transfer of electricity from the transmission network to the      consumer. Distribution systems generally include the equipment to transfer      power from the substation to the customer's meter.

**drawdown**Release of water from a reservoir for purposes of power generation,      flood control, irrigation or other water management activity.

**economic feasibility**The Northwest Power Act requires all conservation measures to be      "economically feasible" for consumers. The Act does not define      this concept. In this plan, the Council considers a program or measure to      be economically feasible if the measure or program results in the minimum      life-cycle costs to the consumer, taking into account financial assistance      made available pursuant to other provisions of the Act.

**end use**A term referring to the final use of energy. In the aggregate, it is      used the same as "energy demand." In a more detailed use, it      often refers to the specific energy services (for example, space heating),      or the type of energy-consuming equipment (for example, motors).

**energy**That which does, or is capable of doing, work. Energy is measured in      terms of the work it is capable of doing. Electrical energy is commonly      measured in kilowatt-hours, or in average megawatts (8,760,000      kilowatt-hours).

**energy services**The actual service energy is used to provide (for example, space heat,      refrigeration, transportation).

**equity**Investment funds raised through the sale of shares of company      ownership.

**equivalent availability**The ratio of the maximum amount of energy a generating unit can      produce in a fixed period of time, after adjustment for expected      maintenance and forced outage, to the maximum energy it could produce if      it ran continuously over the fixed time period. This represents an upper      limit for a long-run (annual or longer) capacity factor for a generating      unit. For example, a unit with an equivalent availability of 70 percent      and a capacity of 500 megawatts could be relied on to produce 350 average      megawatts of energy over the long term, if required.

**externality**Any costs or benefits of goods or services that are not accounted for      in the price of the goods or services. Specifically, the term given to the      effects of pollution and other environmental effects from power plants or      conservation measures.

**Federal Base System**The system includes the Federal Columbia River Power System      hydroelectric projects, resources acquired by the Bonneville Power      Administration under long-term contracts prior to the Northwest Power Act,      and resources acquired to replace reductions in the capability of existing      resources subsequent to the Act.

**Federal Energy Regulatory Commission (FERC)**A federal agency that regulates interstate aspects of electric power      and natural gas industries. It has jurisdiction over licensing of      hydropower projects and setting rates for electricity sold between states.      FERC was formerly the Federal Power Commission.

**firm capacity**That portion of a customer's capacity requirements for which service      is assured by the utility provider.

**firm energy**That portion of a customer's energy load for which service is assured      by the utility provider. That portion for which service is not assured is      referred to as "interruptible."

**firm energy load carrying capability (FELCC)**The amount of firm energy that can be produced from a hydropower      system based on the system's lowest recorded sequence of streamflows and      the maximum amount of reservoir storage currently available to the system.

**firm surplus**Firm energy in excess of the firm load.

**fuel cycle**The series of steps required to produce electricity from power plants.      The fuel cycle includes mining or otherwise acquiring the raw fuel source,      processing and cleaning the fuel, transporting, generating, waste      management and plant decommissioning.

**generation**The act or process of producing electricity from other forms of      energy.

**geothermal**Useful energy derived from the natural heat of the earth as manifested      by hot rocks, hot water, hot brines or steam.

**head**      The vertical height of water in a reservoir above the turbine.

**heat engines**Devices that convert thermal energy to mechanical energy. Examples      include steam turbines, gas turbines internal combustion engines and      Stirling engines.

**heat rate**The amount of input (fuel) energy required by a power plant to produce      one kilowatt-hour of electrical output. Expressed as Btu/kWh.

**heating degree days**A measure of the amount of heat needed in a building over a fixed      period of time, usually a year. Heating degree days per day are calculated      by subtracting from a fixed temperature the average temperature over the      day. Historically, the fixed temperature has been set at 65 degrees      Fahrenheit, the outdoor temperature below which heat was typically needed.      As an example, a day with an average temperature of 45 degrees Fahrenheit      would have 20 heating degree days, assuming a base of 65 degrees      Fahrenheit.

**hydroelectric power (hydropower)**The generation of electricity using falling water to turn      turbo-electric generators.

**independent power producer (IPP)**An independent power producer is a power production facility that is      not part of a regulated utility. Power production facilities that qualify      under PURPA (see "qualifying facility") are considered      independent power producers, together with other independent power      production facilities, such as independently owned coal-fired generating      plants.

**infiltration control**Conservation measures, such as caulking. better windows and      weatherstripping, which reduce the amount of cold air entering or warm air      escaping from a building.

**insolation**The rate of energy from the sun falling on the earth's surface,      typically measured in watts per-square meter.

**integrated resource planing**See "least-cost planning."

**interruptible power**Power that, by contract, can be interrupted in the event of a power      deficiency.

**intertie**A transmission line or system of lines permitting a flow of      electricity between major power systems.

**investor-owned utility**A utility that is organized under state law as a corporation to      provide electric power service and earn a profit for its stockholders.

**ISAAC**A computer model used by the Council to simulate system operation,      decisions to option and build resources, and the associated costs of      providing power across a large number of possible load forecasts. ISAAC      accounts for the effects of uncertainty on the load forecast variations in      hydropower availability for analyzing various resource strategies. The      Council uses the model to help choose the best mix of resources and to      establish the power plan Action Plan.

**kilowatt (kW)**The electrical unit of power that equals 1,000 watts.

**kilowatt-hour (kWh)**A basic unit of electrical energy that equals one kilowatt of power      applied for one hour.

**lead time**The length of time it takes to move a resource from concept to      completion.

**least-cost planning**Least-cost planning or, as it is often called, "integrated      resource planning," is a name given to the power planning strategy      and philosophy adopted by the Council. This strategy recognizes load      uncertainty, embodies an emphasis on risk management, and reviews all      available and reliable resources to meet current and future loads. The      term "least-cost" refers to all costs, including capital, labor,      fuel, maintenance, decommissioning, known environmental impacts and      difficult-to-quantify ramifications of selecting one resource over      another.

**levelized life-cycle cost**The present value of a resource's cost (including capital, financing      and operating costs) converted into a stream of equal annual payments.      This stream of payments can be converted to a unit cost of energy by      dividing them by the number of kilowatt-hours produced or saved by the      resource in associated years. By levelizing costs, resources with      different lifetimes and generating capabilities can be compared.

**life-cycle costs**See "levelized life-cycle cost."

**load**The amount of electric power required at a given point on a system.

**load forecast**An estimate of the level of energy that must be generated to meet a      need. This differs from a demand forecast in that transmission and      distribution losses from the generator to the customer are included.

**load path**One future scenario for electric load growth, as opposed to a range      that accommodates multiple forecasts of future load growth.

**lost-opportunity resources**Resources that, because of physical or institutional characteristics,      may lose their cost-effectiveness unless actions are taken to develop      these resources or to hold them for future use.

**major resource**According to the Northwest Power Act, a resource with a planned      capability greater than 50 average megawatts and, if acquired by      Bonneville, acquired for more than five years.

**manufactured home**A structure, such as a mobile home, that is transportable in one or      more sections, and that is built on a permanent chassis and designed to be      used as a dwelling, with or without a permanent foundation, when connected      to the required utilities. These homes must comply with the Manufactured      Home Construction and Safety Standards issued by the U.S. Department of      Housing and Urban Development.*This does not include other categories of homes whose components are      manufactured, such as modular, sectional, panelized and pre-cut homes.      These homes must comply with state and local building codes.*

**marginal cost**The cost of producing the last unit of energy (the long-run      incremental cost of production). In the plan, "regional marginal      cost" means the long-run cost of additional consumption to the region      due to additional resources being required. It does not include      consideration of such additional costs to any specific utility due to its      purchases from Bonneville at average cost.

**measure**In the power plan, a measure refers to either an individual      conservation measure or action or a combination of actions.

**megawatt (MW)**The electrical unit of power that equals one million watts or one      thousand kilowatts.

**mill**A tenth of a cent. The cost of electricity is often given in mills per      kilowatt-hour.

**model conservation standards**Any energy-efficiency program or standard adopted by the Council,      including, but not limited to: 1) new and existing structures; 2) utility.      customer and governmental programs; and 3) other consumer actions for      achieving conservation. The most well-known are the energy-efficient      building standards developed by the Council for new electrically heated      buildings.

**Monte Carlo simulation**The mathematical simulation of uncertain events having known      probability characteristics by random sampling from a known probability      distribution function.

**municipal solid waste (MSW)**Refuse offering the potential for energy recovery. Technically,      residential, commercial and institutional discards. Also included in the      definition of municipal solid waste for purposes of this plan are      non-hazardous processable byproducts from manufacturing activities. Not      included are combustible byproducts of the lumber, wood products, paper      and allied products industries. These are considered separately as mill      residue.

**net billed plants**Refers to the 30 percent share of the Trojan Nuclear Plant, all of      Washington Public Power Supply System's nuclear project 1 (WNP-1) and      WNP-2, and 70 percent of WNP-3.

**net billing**A financial arrangement that allowed Bonneville to underwrite the      costs of electric generating projects. Utilities that owned shares in      thermal projects, and paid a share of their costs, assigned to Bonneville      all or part of the generating capability of these resources. Bonneville,      in turn, credited and continues to credit the wholesale power bills of      these utilities to cover the costs of their shares in the thermal      resources. Bonneville then sells the output of the thermal plants,      averaging the higher costs of the thermal power with lower-cost      hydropower.

**nominal dollars**Dollars that include the effects of inflation. These are dollars that,      at the time they are spent, have no adjustments made for the amount of      inflation that has affected their value over time.

**non-firm energy**Energy produced by the hydropower system that is available with water      conditions better than critical and after reservoir refill is assured. It      is available in varying amounts depending upon season and weather      conditions.

**non-utility generator**A generic term for non-utility power plant owners and operators.      Non-utility generators include qualifying facilities, small power      producers and independent power producers.

**option**As used in the power plan, a project that has been sited, licensed and      designed, but not yet constructed. Options are held in inventory until new      resources are clearly needed.

**overnight cost**Total of all direct and indirect project construction costs, including      engineering, overhead costs, fees and contingency. Exclusive of costs      attributable to interest and escalation incurred during construction.

**Pacific Northwest (the region)**According to the Northwest Power Act, the area consisting of Oregon,      Washington, Idaho and Montana west of the Continental Divide, and those      portions of Nevada, Utah and Wyoming that are within the Columbia River      Basin. It also includes any contiguous areas not more than 75 miles from      the above areas that are part of the service area of a rural electric      cooperative served by Bonneville on the effective date of the Act and      whose distribution system serves both within and outside of the region.

**Pacific Northwest Coordination Agreement**      An agreement between federal and nonfederal owners of hydropower      generation on the Columbia River system. It governs the seasonal release      of stored water to obtain the maximum usable energy subject to other uses.

**Pacific Northwest Utilities Conference Committee (PNUCC)**Formed by Pacific Northwest utilities to coordinate policy on regional      power supply issues, PNUCC lacks contractual authority, but it does play a      major role in regional power planning through its policy, steering, fish      and wildlife, and lawyers committees, and the Technical Coordination      Group. PNUCC publishes the Northwest Regional Forecast containing      information on regional loads and resources.

**peak capacity**The maximum capacity of a system to meet loads.

**peak demand**The highest demand for power during a stated period of time.

**penetration rate**One annual share of a potential market for conservation that is      realized, as in "7 percent of the region's homes have been      weatherized this year."

**photovoltaic**Direct conversion of sunlight to electric energy through the effects      of solar radiation on semi-conductor materials.

**post-operational capital replacement costs**The cost of major equipment replacements occurring during the      operating life of a project. In practice, these costs generally are      capitalized (i.e., financed by debt or equity). For resource      cost-effectiveness analyses, these costs are frequently treated as      expenses.

**preference**Priority access to federal power by public bodies and cooperatives.

**present value**The worth of future returns or costs in terms of their current value.      To obtain a present value, an interest rate is used to discount these      future returns and costs.

**public utility commissions**State agencies that regulate, among others, investor-owned utilities      operating in the state with a protected monopoly to supply power in      assigned service territories.

**Public Utility Regulatory Policies Act of 1978 (PURPA)**Federal legislation that requires utilities to purchase electricity      from qualified independent power producers at a price that reflects what      the utilities would have to pay for the construction of new generating      resources (see "avoided cost"). The Act was designed to      encourage the development of small-scale cogeneration and renewable      resources.

**qualifying facility (QF)**Qualifying facility is a power production facility that qualifies for      special treatment under a 1978 federal law-Public Utility Regulatory      Policies Act (PURPA). PURPA requires a utility to buy the power produced      by the qualifying facility at a price equal to that which the utility      would otherwise pay if it were to build its own power plant or buy the      power from another source. A qualifying facility must generate its power      using cogeneration, biomass. waste, geothermal energy, or renewable      resources, such as solar and wind, and, depending on the energy source and      the time at which the facility is constructed, its size may be limited to      80 megawatts or smaller. PURPA prohibits utilities from owning majority      interest in qualifying facilities.

**quantifiable environmental costs and benefits**Environmental costs and benefits capable of being expressed in numeric      terms (for example, in dollars, deaths, reductions in crop yields).

**quartile**The direct service industries load is divided into four quartiles. The      top quartile is the portion of that load most susceptible to interruption.

**R-value**A measure of a material's resistance to heat flow. The higher the      R-value, the higher the insulating value.

**real dollars**Dollars that do not include the effects of inflation. They represent      constant purchasing power.

**region**See "Pacific Northwest."

**reliability**The ability of the power system to provide customers uninterrupted      electric service. Includes generation, transmission and distribution      reliability. The plan deals only with generation reliability.

**renewable resource**Under the Northwest Power Act, a resource that uses solar, wind, water      (hydro), geothermal, biomass or similar sources of energy, and that either      is used for electric power generation or for reducing the electric power      requirements of a customer.

**reserve capacity**Generating capacity available to meet unanticipated demands for power,      or to generate power in the event of outages in normal generating      capacity. This includes delays in operations of new scheduled generation.      Forced outage reserves apply to those reserves intended to replace power      lost by accident or breakdown of equipment. Load growth reserves are those      reserves intended for use as a cushion to meet unanticipated load growth.

**resource**Under the Northwest Power Act, electric power, including the actual or      planned electric capability of generating facilities, or actual or planned      load reduction resulting from direct application of a renewable resource      by a consumer, or from a conservation measure.

**retrofit**To modify an existing generating plant, structure or process. The      modifications are done to improve energy efficiency, reduce environmental      impacts or to otherwise improve the facility.

**sectors**The economy is divided into four sectors for energy planning. These      are the residential, commercial (e.g., retail stores, office and      institutional buildings), industrial and irrigation sectors.

**simple payback**The time required before savings from a particular investment offset      costs. For example, an investment costing $100 and resulting in a savings      of $25 each year would be said to have a simple payback of four years.      Simple paybacks do not account for future cost escalation, nor other      investment opportunities.

**siting agencies**State agencies with the authority for issuing permits to locate      generating plants of defined types and sizes to utilities at specific      locations.

**siting and licensing**The process of preparing a power plant and associated services, such      as transmission lines, for construction and operation. Steps include      locating a site, developing the design, conducting a feasibility study,      preliminary engineering, meeting applicable regulatory requirements, and      obtaining the necessary licenses and permits for construction of the      facilities.

**space conditioning**Controlling the conditions inside a building in order to maintain      human comfort and other desired environmental conditions through heating,      cooling. humidification, dehumidification and air quality modifications.

**sunk cost**A cost already incurred and therefore not considered in making a      current investment decision.

**supply curve**A traditional economic tool used to depict the amount of a product      available across a range of prices.

**surcharge**Under the Northwest Power Act, an additional sum added to the usual      wholesale power rate charged to a utility customer of Bonneville to      recover costs incurred by Bonneville due to the failure of that customer      (or of a state or local government served by that customer) to achieve      conservation savings comparable to those achievable under the Council's      model conservation standards. Surcharges can range from 10 to 50 percent      of a customer's bill.

**System Analysis Model (SAM)**A computer model used by the Council to determine resource      cost-effectiveness. SAM performs a detailed simulation of the Northwest      generating system to estimate the cost associated with a specific set of      loads and resources. It incorporates uncertainty associated with      hydropower, thermal availability, resource arrival and load fluctuation      due to economic cycles.

**system cost**According to the Northwest Power Act, all direct costs of a measure or      resource over its effective life. It includes, if applicable, distribution      and transmission costs, waste disposal costs, end-of-cycle costs, fuel      costs (including projected increases) and quantifiable environmental      measures. The Council is also required to take into account projected      resource operations based on appropriate historical experience with      similar measures or resources.

**thermal resource**A facility that produces electricity by using a heat engine to power      an electric generator. The heat may be supplied by burning coal, oil,      natural gas, biomass or other fuel, by nuclear fission, or by solar or      geothermal sources.

**tipping fee**The fee assessed for disposal of waste. This fee is used when      estimating the cost of producing electricity from municipal solid waste.

**transformer**A device for transferring energy from one circuit to another in an      alternating-current system. Its most frequent use in power systems is for      changing voltage levels.

**transmission**The act or process of long-distance transport of electric energy,      generally accomplished by elevating the electric current to high voltages.      In the Pacific Northwest, Bonneville operates a majority of the      high-voltage, long-distance transmission lines.

**U-value**The measure of a material's ability to conduct heat, numerically equal      to 1 divided by the R-value of the material.

**Washington Public Power Supply System (WPPSS)**Municipal corporation and joint operation agency in Washington      comprising representatives of public utility districts and municipal      utilities. Based on power purchase contracts of its members or other      utilities, WPPSS has the power to acquire, construct and operate      facilities for the generation or transmission of electric power.

**water budget**A means of increasing survival of downstream migrating juvenile fish      by increasing flows during spring and early summer migrations. The water      budget was proposed by the Council and is overseen by it in conjunction      with the U.S. Army Corps of Engineers, the fishery agencies and Indian      tribes, the Bonneville Power Administration and the Bureau of Reclamation

**watt**The electrical unit of power or rate of energy transfer. One      horsepower is equivalent to approximately 746 watts.

**WHAT KIND OF LEGAL CREATURE IS THE COUNCIL?**

The Northwest Power Act specifies that the Council is not a federal      agency. The Council is also not a state agency in the usual meaning of the      words, because it acts on behalf of more than one state. So what is it?

The Council is one of a small group of hybrid organizations known as      interstate compact agencies. These multi-state organizations are created      by an agreement among the participating states with the consent of      Congress. The Council was authorized by Congress in December 1980, and      came into being when each of the legislatures of the participating states      passed a law agreeing to participate in the Council, subject to the      conditions spelled out in the Northwest Power Act.

Interstate compact agencies are usually created to deal with issues or      to manage resources that involve more than a single state. The      Constitution gives most of the authority over matters between states to      the federal government exclusively. In the Northwest Power Act, however,      Congress gave back to the Northwest states some of this federal authority.      In other words, although the Council is not a federal agency, it exercises      certain powers granted to it by the federal government.

In particular, the Council has authority to adopt plans and programs      that guide the actions of federal agencies. The Bonneville Power      Administration is required to ensure that its actions are      "consistent" with these plans and programs. Other federal      agencies are required to take the Council's fish and wildlife program into      account "at each relevant stage of decision-making processes to the      fullest extent practicable." The Council also must make      recommendations on Bonneville's annual expenditure of fish and wildlife      funds, based on advice of an independent scientific panel. These are      unique authorities. This grant is one of only a few instances in which the      federal government has given states significant power over a federal      agency.

**Federal Laws Applicable to the Council**

State agencies are governed by state law. Federal agencies are governed      by federal law. For interstate compact agencies, there is no general body      of governing law.

When Congress created the Council, it solved this problem by making a      number of laws regulating federal agencies applicable to the Council. In      Section 4(a)(4) of the Northwest Power Act, the open meetings law      applicable to the Federal Energy Regulatory Commission, and federal laws      applicable to Bonneville relating to contracts, conflicts of interest,      financial disclosure, advisory committees, disclosure of information,      judicial review, and "related matters" are made generally      applicable to the Council.

However, Congress recognized that not all of these laws would fit the      Council exactly and therefore gave the Council yet another unique      authority, the power to adapt federal laws to fit its own circumstances.      The Northwest Power Act says that specified federal laws "shall apply      to the Council to the extent appropriate." The legislative history of      the Act explains that the Council is to determine when it is and is not      "appropriate" to follow the federal law, and explains that the      Council has discretion to depart from the requirements of federal law      where it has good reason to do so.

For the most part, the applicable federal laws have proved to be      workable, and the Council has followed them as written. However, various      administrative details have been modified to fit the Council. For example,      financial disclosure forms are filed with the Council's General Counsel,      not with the U.S. Department of Energy. When the Council has departed from      the federal laws, it has usually made written findings explaining why the      law as written was inappropriate, and how the adaptation was more      appropriate.

There are a few rules regarding the financial disclosure and ethics      laws that apply to the Council. The Council recently adopted a policy      covering these matters, a copy of which will be provided to you. First,      Council Members and staff are required to file financial disclosure forms,      some parts of which are public records and some parts of which are      confidential. Second, Council Members and staff may not participate in      particular Council matters that will have a direct and predictable effect      on their own financial interests, including, among others, those of their      spouses and dependent children. Participation will be permitted in the      case of de minimis holdings and/or if the individual is granted a waiver.      The Council has always observed a blanket prohibition on holding a      financial interest in some firms, primarily energy companies and fish and      wildlife concerns doing business in the Western United States. While this      is part of the Council's current policy, it is under review, in light of a      recent change in the law. Third, Council Members and staff generally      cannot accept anything of more than nominal financial value from people      whose interests stand to be affected by Council actions. The Council's      legal division has always advised that political activity is not      disallowed, provided you are not a candidate for partisan office and you      do not use your Council position for political purposes. The candidacy      prohibition is currently under review. In addition, the legal division      seeks guidance from other federal laws and regulations as issues arise.      The legal division is available for advice on any questions that may arise      with Council Members and staff.

**State Laws Applicable to the Council**

While federal laws govern most of what the Council does as a body, some      state laws are still applicable to individual Council members and Council      staff. In particular, Council members are officers of their respective      states, and, if paid by their states, are state employees subject to the      various state laws and regulations that apply to state officers and      employees, including requirements governing how much time must be devoted      to Council activities, state salary schedules, and the like. These state      laws apply to Council members so long as they do not conflict with the      federal laws that are made applicable under Section 4(a)(4).

Employees in the Eastern Washington office are state employees and,      like Council members, are employed subject to the laws and regulations of      their state governments. Employees of the Council's central office and the      remaining Council offices are employees of the Council, rather than of a      single state. The Council sets the salaries, benefits, employment      conditions, and the retirement plans for the central staff. In questions      of labor laws and workers compensation, the Council follows the applicable      laws of each state as applied to non-profit and governmental      organizations.

In some instances, state and federal laws applicable to Council members      may overlap or have conflicting requirements. Only rarely has such overlap      resulted in a public debate. In 1988, for example, an Oregon member who      was leaving the Council was offered employment with a public utility.      Under the federal conflict of interest law, the member was allowed to take      the job. Under Oregon conflict of interest law, the member was not allowed      to take the job. The Council took the position that the federal law      preempted state law on this point. A protective lawsuit was filed by the      utility based on threats of prosecution by the Oregon Attorney General.      However, nothing further came of the matter, and the suit was eventually      withdrawn.

**Liability and Indemnification**

As of 1988, the attorneys general of each of the Northwest states had      confirmed in writing that Council members from their state were considered      state employees for liability purposes, and that each state was obligated      to defend Council members and pay judgments rendered against them in the      same manner as with other state employees. Thus, it is unlikely that any      Council member would be subject to personal liability for an official      action taken while a Council member.

The Council has also entered into an indemnification agreement with      each of its members, promising to defend claims and pay judgments. The      indemnification appears in Chapter 19 of the Council's bylaws.

For the first several years of its existence, the Council was able to      obtain an insurance policy to cover such claims. However, as a result of      the Washington Public Power Supply System (WPPSS) nuclear power plant bond      default, the premiums for this type of insurance increased enormously, and      the available policies contained exclusions removing coverage for      decisions relating to nuclear plants and other power planning decisions.      For these reasons, the Council chose to adopt an indemnification agreement      rather than to continue to purchase this type of insurance.

The Council continues to maintain a normal commercial liability policy,      which covers such matters as personal injuries on Council premises. This      policy also covers Council members while driving rental cars on Council      business. It is therefore not necessary for Council members to purchase      the optional additional insurance offered by rental car companies when      renting cars on Council business.

**PROCEDURES FOR AMENDING THE COUNCIL'S POWER      PLAN AND FISH AND WILDLIFE PROGRAM**

In developing the Power Plan and the Fish and Wildlife Program, the      Northwest Power Act directs the Council to observe certain procedures      unique to the Power Act, the informal rulemaking procedures of the federal      Administrative Procedure Act (APA) and any other procedures the Council      may adopt. The Council must hold public hearings in each of the member      states before adopting the plan or program, or substantial, non-technical      amendments to either. The Council must review the plan at least every five      years.

***Power Plan Amendments***

For purposes of power plan amendments, the federal APA requires public      notice of proposed amendment or a description of the subjects and issues      involved, and a statement of how the public may participate in the      process. The public must be given an opportunity to submit written      material.

Once the period for public comment has closed, people outside the      Council may be foreclosed from communicating with the staff and Council      members on the subject of the rulemaking. In some rulemakings the Council      has allowed limited, additional public comment up to the time of decision,      although the Council must have enough time to analyze all comments before      taking final action.

An agency must give a concise general statement of the basis and      purpose of the rules it adopts. The Council, following an approach      approved by the courts, has satisfied this requirement by publishing a      Response to Comments, which briefly summarizes the major comments received      and explains how the Council has dealt with them.

***Fish and Wildlife Program Amendments***

The Fish and Wildlife Program is published separately from the Power      Plan, although it is legally an element of the Plan. But the Act sets out      specific procedural requirements for developing and amending the Fish and      Wildlife Program that make it quite distinct from the Power Plan.

In amending the Fish and Wildlife Program, the Act requires the Council      to request from the region's fish and wildlife agencies and appropriate      Indian tribes recommendations for measures for fish and wildlife affected      by hydropower in the Columbia and its tributaries. Section 4(h)(2) of the      Act provides that recommendations must be solicited prior to the      development or review of the power plan, or any major revision to the      plan. Others may also make such recommendations. Once the Council has      received these recommendations, along with supporting documentation, it      must make them available for comment. Typically, the Council also issues      its own draft fish and wildlife amendments, which reflect the Council's      attempt to fit the recommendations into a systemwide context, and invites      public comment. The Council must act on the recommendations within one      year. The Council may reject a recommendation only for certain reasons      spelled out in Section 4(h)(7) of the Act. If the Council rejects a      recommendation, it must give its reasons in writing.

The role of the fish and wildlife agencies and Indian tribes is      particularly important. Not only must the Council solicit their      recommendations for fish and wildlife measures, but if there are      conflicting recommendations, the Council must consult with the tribes and      agencies and give "due weight" to "their recommendations,      expertise and legal rights and responsibilities" in resolving the      inconsistency. In determining which recommendations to accept, moreover,      the Council must determine whether a proposed measure would: (1)      "complement the existing and future activities" of the agencies      and tribes, and (2) be consistent with the tribes' legal rights. In 1994,      the federal appeals court said, in dicta, that the Council must give a      "high degree of deference" to the fish and wildlife agencies and      tribes.

The 1994 court opinion also said that the program must include sound      biological objectives to structure the program and guide Council      decisions.

Because the Fish and Wildlife Program must be based on recommendations      submitted to the Council, and because the Council must make findings on      any recommendations it rejects, program amendment processes are organized      around the recommendations. Most of the comments the Council receives are      directed to recommendations, and most of the Council's responses to      comments are made in findings.

**Petitions for Rulemaking**

The APA also requires administrative agencies to give interested      persons the right to petition for the issuance, amendment or repeal of an      administrative rule, such as changes in the Power Plan or Fish and      Wildlife Program. The Council has adopted a policy for how it will treat      such petitions. A petition must set forth the substance or text of a      proposed amendment or identify the provision to be repealed; explain the      interest of the petitioner; and set forth the facts, reasons and new      information that support the petitioner's request. The Council will      conduct such study as it deems appropriate and within 120 days of receipt      of the petition, grant or deny it. If an amendment process results from      the petition process, the Council has committed to completing the process      within seven months from the decision to begin the amendment process.

**COUNCIL INTERPRETATIONS OF THE      NORTHWEST POWER ACT**

**Section 6(c)**

In November 1986, the Northwest Power Planning Council and the      Bonneville Power Administration each issued complementary policy      statements on the implementation of Section 6(c) of the Northwest Power      Act. Section 6(c) requires Bonneville to submit certain proposals related      to major resources to a public review process to determine whether they      are consistent with the Council's Northwest Power Plan. The Council then      has the right to make its own determination regarding consistency. If      either Bonneville or the Council finds a resource inconsistent with the      power plan, the resource can be acquired only after congressional action.

The Act identifies as "major" resources those over 50      megawatts with more than five years' duration.

The purpose of review under Section 6(c) is to ensure that a major      resource is needed and is cost-effective before the Northwest invests a      great deal of money in it. The process speaks directly to the balance of      power between state and federal interests. The Northwest Power Act      established Bonneville's authority to acquire resources, but it also gave      the states, through the Council, the right to review those acquisitions      before committing ratepayers to large expenditures.

In March 1993, the Council and Bonneville completed a five-year review      of their respective 6(c) policies. The region had had little experience      under Section 6(c) in the years since the adoption of the original      policies, and therefore, little was changed. The revised policies were      expanded, however, to cover all the Bonneville proposals made subject to      review under the terms of the Act. In early 1998, in light of the      restructuring occurring in the utility industry, the Council and      Bonneville decided to postpone for five years further review of their 6(c)      policies.

**Section 5(d)**

Bonneville was authorized under Section 5(d) of the Act to sign power      sales contracts on special terms with existing direct service industrial      customers (DSIs) for an amount of power that each customer was receiving      under its earlier contract. The DSIs are customers that had industrial      firm power contracts with Bonneville in 1975. The Act expressly precluded      sales to new direct service industrial customers, but did permit      Bonneville to sell additional power to existing DSIs, provided Bonneville      and the Council made certain findings.

In late 1989, Bonneville tentatively agreed to sell additional power to      an existing DSI customer without the review called for under Section 5(d),      provided the customer could arrange an assignment of unused contract      demand from another existing direct service customer. Bonneville took the      position that Section 5(d) review was not required so long as the total      amount of power it sold to the DSIs did not exceed the aggregate amount to      which all the DSIs were entitled when the Act was passed. Public comment      brought this proposed transaction to the Council's attention.

The Council has adopted an interpretation of Section 5(d) that requires      review whenever a proposed sale to an individual DSI would result in that      DSI receiving more power than it received under its initial entitlement.      The Council's interpretation does not call for review if an existing DSI      assigns its power sales contract to a successor in interest for use at the      same location for purposes similar to those established under the original      contract. Except for transfers of the sort just described, an amendment or      assignment of a contract that results in the delivery of additional power      to an existing DSI is a sale subject to Section 5(d) review.

**LITIGATION**

**Seattle Master Builders Association, et al. v. Northwest Power      Planning Council**

On April 10, 1986, the United States Court of Appeals for the Ninth      Circuit decided this challenge to the Council's model conservation      standards (MCS) brought by several construction-related organizations. The      petitioners had advanced two principal lines of argument. First, with      respect to the Council's model conservation standards, petitioners      challenged the cost effectiveness of the measures to make new residential      buildings more energy efficient, and the methodologies used by the Council      to determine cost effectiveness. Petitioners also argued that the Council      should have prepared an environmental impact statement regarding      promulgation of the standards.

Second, petitioners challenged the constitutionality of the Council,      citing the appointments clause of the U.S. Constitution, which requires      officers of the United States to be appointed by the executive branch of      government. Council members are officers of an interstate compact agency      appointed by the governors of the four Northwest states and not by the      President.

The Bonneville Power Administration intervened in the case and      ultimately argued that the Council's adoption of the MCS did not violate      the constitution. Bonneville said that the Council's model conservation      standards did not impose a legal obligation on anyone, and therefore      adoption of the standards was not the sort of exercise of significant      authority over a federal agency that might require Council members to be      appointed by the executive branch.

In earlier communications, however, regarding what posture the      Department of Justice should adopt, the Department of Energy had taken a      more aggressive position. The Secretary of Energy, Don Hodel, wrote to      Justice in early 1985 and urged that if the Council were, indeed, anything      more than advisory, and if it could, in fact, significantly limit      Bonneville's actions, it ought to be found unconstitutional and replaced      by a federal council. John Dingell, the Chairman of the House Energy and      Commerce Committee that drafted the Northwest Power Act, wrote a strong      letter in opposition to Energy's request. Mr. Dingell fully supported the      view that the Council was intended to be more than an advisory body, with      functions that are more significant than the Secretary of Energy had      contended. He also concluded that the Council was properly formed and was      operating according to the expectations of Congress.

In a two-to-one decision, the Ninth Circuit ruled for the Council on      all the issues. With respect to the model conservation standards, the      court held that the Council had adopted a proper approach to determining      the cost effectiveness of conservation measures; that the methodology the      Council used for determining conservation value was within the Council's      discretion; and that the Council was not obliged to prepare an      environmental impact statement on the standards, pursuant to the laws of      the states that are members of the interstate compact. On the      constitutional question, the court noted that the functions of the Council      and Bonneville "directly overlap," and held that the Council      "violates neither the compact nor appointments clauses of the United      States Constitution. The Act established an innovative system of      cooperative federalism under which the states, within limits provided by      the Act, can represent their shared interests in maintenance and      development of a power supply in the Pacific Northwest and in related      environmental concerns."

The Master Builders petitioned the Ninth Circuit for rehearing en banc      (before a larger panel of judges in the circuit) on the ground that the      panel overlooked material laws and facts. The United States also      petitioned for rehearing or for rehearing en banc, arguing that the court      decided constitutional questions not presented by the case. The Ninth      Circuit denied both petitions. The Master Builders' subsequent petition      for certiorari was denied by the Supreme Court of the United States.

**Northwest Conservation Act Coalition, et al. v. Northwest Power      Planning Council**

The Coalition and the Natural Resources Defense Council filed a      petition for review in the Ninth Circuit challenging the model      conservation standards amended in 1986, in an effort to make the      requirements of the amended standards more rigorous. In particular,      petitioners alleged that the Council's standards for conservation in new      commercial buildings ought to be more stringent; that a surcharge is      necessary if the standards governing the energy efficiency of buildings      that convert to electric space heat are to be effective; and that the      Council's amended standards ought to contain standards for      utility-financed incentives to conserve electricity in existing      residences. Upon petitioners' request, the Council entered rulemaking to      amend the standards in the respects summarized above. Petitioners then      dismissed their suit in the Ninth Circuit.

**Cascade Natural Gas Corp. v. Evans**

In 1983, six regional natural gas companies brought suit challenging      the Council's plan, arguing, among other things, that the Council had      unfairly ignored natural gas as a conservation resource. The case was      settled before trial and the Council agreed to modify the plan to make      clear that the model conservation standards apply only to electrically      heated homes. The Council also said that it would consider modifying the      plan if significant fuel switching from natural gas to electricity were      demonstrated. The terms of this settlement expired on April 27, 1988.

**CASE, The Utility Reform Project and Michael Rose v. Northwest Power      Planning Council**

In May of 1986, CASE (Citizens for and Adequate Supply of Energy), The      Utility Reform Project and Michael Rose filed suit in the Ninth Circuit,      challenging certain portions of the 1986 model conservation standards.      Petitioners also asked the Council to enter rulemaking to address the      matters raised in the Ninth Circuit. In response to these two actions, the      Council: Clarified that its then current MCS rulemaking addressed model      standards for new residential and commercial buildings at federal agency      facilities; committed to assess the conservation potential of existing      buildings and other electricity uses at federal agency facilities as part      of the next major plan revision; and extended the period for comment and      consultation on MCS for federal agency customers beyond the deadline for      the then current MCS rulemaking. The Council also agreed to defer action      on the CASE petition to enter rulemaking to develop model conservation      standards for the direct service industries, pending further analysis of      increased interruptibility of the direct service industries, which the      Council agreed to conduct before calling for Bonneville acquisition of new      resources or before the next major revision of the Power Plan, whichever      is first. As a result of these actions by the Council, the petitioners      agreed to settle the case.

**Northwest Resource Information Center, Inc., et al v. Northwest      Power Planning Council; Confederated Tribes and Bands of the Yakima Indian      Nation v. Northwest Power Planning Council (the "Phase Two"      cases)**

To act as quickly as possible to improve conditions for salmon and      steelhead, which were then proposed for listing under the Endangered      Species Act, beginning in August 1991 the Council began a multi-phase      rulemaking on salmon and steelhead measures. In January 1992, the Council      published its notice of final action on measures dealing with increased      flows and drawdown of the lower Snake River. Three petitions were      subsequently filed challenging the measures, one by the Northwest Resource      Information Center, Trout Unlimited, the Oregon Natural Resources Council,      Idaho Steelhead and Salmon Unlimited, and The Wilderness Society,      represented by the Sierra Club Legal Defense Fund; a second petition was      filed by the Yakama Tribe; and a third was filed by a group of aluminum      companies and other industrial customers of the Bonneville Power      Administration. After the petitions had been filed, 15 to 20 additional      parties intervened, including Oregon Trout, the United States government,      a number of utilities and the State of Idaho.

On September 9, 1994, the Court ruled that the Council had not      adequately explained its reasons for rejecting amendment recommendations      because the Council's findings on the recommendations were put in a      separate document, rather than in the fish and wildlife program itself.      The Court also held that the Council's findings in an early phase of the      amendment process were voided by findings in a later phase. While the      Court's holdings were limited to these procedural matters, the opinion      offered extensive interpretations (called "dicta" because they      are not strictly binding) of the Northwest Power Act. Some of the dicta      told the Council that it should give a "high degree of      deference" to the fish and wildlife agencies' and Indian tribes'      recommendations and expertise, and that the Council's discretion to reject      these recommendations is narrow. The Court remanded the Strategy for      Salmon for the Council to develop new findings.

**A.H. Canada v. Northwest Power Planning Council**

In 1994, Mr. Alfred H. Canada, a retired power engineer, sued the      Council in federal District Court. Mr. Canada sought to overturn the      Council's denial of a petition for rulemaking he had earlier filed. The      rulemaking would have considered replacing the plan's call for      conservation with an equivalent amount of solar photovoltaics. The      District Court dismissed, reaffirming the established rule that suits      challenging final actions of the Council are to be brought in the Ninth      Circuit Court of Appeals.

**Nez Perce and other tribes v. Northwest Power Planning Council**

In 1997, four Indian tribes challenged the Council's recommendations      pursuant to Section 4(h)(10)(D) of the Northwest Power Act regarding the      Bonneville Power Administration's fish and wildlife expenditures. The      challenges are still pending before the Ninth Circuit Court of Appeals.

**FINANCE AND ADMINISTRATION**

**Council Funding**

Expenses of the Council necessary for carrying out its functions and      responsibilities under the Northwest Power Act are paid from funds      received from the Bonneville Power Administration. Funds are advanced to      the central office from Bonneville on a request basis. Each state, in      turn, requests funds to be advanced from the central Council office to the      state to cover the operating expenses of the state Councils.

Costs associated with the operation of the Council's central office in      Portland are paid for from the central office budget. Expenses for each      state Council office are paid from each state Council budget by the state      agency which provides accounting/payroll services to each state Council      office. In some instances, state expenses are paid directly from the      central office accounting and payroll systems.

**Budgets**

The Council is required to develop annual (state and central office)      budgets for transmittal to the Bonneville Power Administration and which      are included in Bonneville's budget submittal to the Department of Energy,      Office of Management and Budget, and Congress.

The Council's budget is limited to an amount equal to 0.02 mills      multiplied by the kilowatt hours of firm power forecast to be sold by the      Bonneville Administrator during the year to be funded. In most years, this      limitation represents approximately $2 million. However, based on an      annual showing by the Council that such limitation will not permit the      Council to carry out its functions and responsibilities under the Act, the      Administrator may raise such limit to any amount not in excess of 0.10      mills. In most years, this maximum limitation represents approximately $10      million. From 1981 to 1997, the Council's budget has ranged from      approximately $5.9 million to $8.5 million annually. The average annual      percent of increase for the Council's budget since 1988 through 1996 is      3.2 percent. For the same period, annual inflation for the Portland area      has averaged 3.8 percent.

The Council is currently on a $1.7 million budget reduction trajectory      from approximately $8.0 million in Fiscal Year 1997 to $6.2 million in      Fiscal Year 2001. These reductions are being made in order to conform with      the Council budget cap that will result from the phase-out of Bonneville's      residential exchange of firm power sales in 2001.

The Council's annual budget process occurs between the months of March      and June. Each state Council office develops its budget (usually on a      biennial basis) which is approved through the state legislative process      and then integrated with the Council's central office budget.

The Council's draft budget is distributed for a 30 to 60-day public      review and comment period during which time consultations are held with      interested parties regarding the Council's proposed funding requirements.      Following final revision and adoption by the Council, the budget is      transmitted to Bonneville.

**Audits**

The U.S. General Accounting Office (GAO) is the government entity      authorized to audit the Council's fiscal and program operations. However,      the Council, through an agreement with Bonneville, engages an independent      CPA firm to conduct annual financial audits of the Council's operations. A      copy of these audits is forwarded to the Portland office of the General      Accounting Office and to other interested parties, as well as being      included in the Council's Annual Report to Congress. In addition, state      audit agencies audit each state Council office's fiscal operations in the      course of their regular state agency audit schedules. In 1996, the GAO      conducted an extensive audit of the Council's business policies and      practices. That audit resulted in a very positive finding by the GAO.

**Council organization**

The Act provides that the Council shall determine its organization and      prescribe its practices and procedures for carrying out its functions and      responsibilities under the Act.

***State offices***

Council members organize and staff their state offices based on the      level of support they determine necessary. This typically includes      technical assistants and/or policy analysts in the areas of power      planning, fish and wildlife, and public information and public      involvement. Administrative support is also provided.

Council members may also use outside contractors or the technical      services of state agencies to conduct special studies and analyses      regarding issues stemming from the power plan and the fish and wildlife      program as they impact their respective states.

State staff are usually employees of the state. State laws, rules and      regulations are applicable. There are some exceptions where state support      for Council members is administered (payroll, travel and office expenses)      by the central office.

The central office provides overall support to the Council in the areas      of power planning, fish and wildlife, public affairs, legal matters, and      finance and administration.

Staffing levels for the central office are established by the Council      in its budget. All personnel actions are authorized by the executive      director after consultation/approval by the Council chairman. Staff      compensation plans and benefit programs are established by the Council      based on recommendations by outside consultants, and are subject to      periodic reviews by the consultant with the Council.

Travel rules and expense reimbursement policies for central staff are      set by the Council.

Contracts to assist the Council in carrying out its responsibilities      are awarded on a competitive basis. Contracts over $25,000 require      approval by the full Council.

The central office also provides computing and information systems      support to the state offices augmented by occasional assistance from state      agencies and local vendors.

**Council central office staff      directory**

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