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18th Annual Report of the Pacific Northwest Electric Power

and Conservation Planning Council

September 22, 1998 | document 98­29

SUBMITTED TO THE

COMMITTEE ON ENERGY AND NATURAL RESOURCES

UNITED STATES SENATE

COMMITTEE ON COMMERCE

UNITED STATES HOUSE OF REPRESENTATIVES

AND

COMMITTEE ON RESOURCES

UNITED STATES HOUSE OF REPRESENTATIVES

October 1, 1997, through September 30, 1998

Contents

MAJOR COUNCIL ACTIVITIES IN FISCAL YEAR 1998

Review of Fish Hatcheries

Review of Corps of Engineers Capital Construction Projects

Management Review of Bonneville's Fish and Wildlife Contracting Procedures

Fiscal Year 1999 Fish and Wildlife Project Selection

A New Scientific Foundation for the Fish and Wildlife Program

Northwest Energy Review Transition Board

The Fourth Northwest Conservation and Electric Power Plan

Bonneville Cost Review: Cut Annual Spending By $147 Million

Assessing Bonneville's Potential Financial Situation

Public Involvement

Fiscal Years 1999 and 2000 Budget overviews

Rulemakings in fiscal year 1998

More Information

Council offices

September 22, 1998

Dear Citizens of the Pacific Northwest:
The Northwest Power Act of 1980 gave the governors of the four Northwest states

valuable tools for addressing regional energy, fish and wildlife issues. Through the

Northwest Power Planning Council, which the states created under authority of the Act,

Northwest citizens have an important voice in decisions about the region's unique

hydropower system. Through the Council, the region also has significant influence over

the investment of electricity ratepayer money in energy, fish and wildlife initiatives, an

open forum for public debate of these issues, and a means of conducting independent

analyses of complex resource issues.

The complex issues our region faces today arise in a much different world than in 1980.

The introduction of competition in the energy industry has changed the role of regional

energy planning, one of the Northwest Power Act's central features. Endangered Species

Act listings have, in some instances, dominated the regional voice in federal hydropower

operations that the Northwest Power Act gave the region through the governors. The

role of the Bonneville Power Administration, principal financier of energy conservation

and fish and wildlife measures under the Act, is changing dramatically.

Through all of these changes, the Council will continue to provide high­quality, objective

analysis, oversee annual implementation of our Columbia River Basin Fish and Wildlife

Program, and ensure that fish and wildlife funds are well spent. We also will continue to

provide for public involvement in regional energy and fish and wildlife issues, and

communicate with the public and disseminate public information.

In this 18th annual report, we briefly discuss our major activities during the past year.

Again this year, the report is brief because the details of our efforts are documented

extensively elsewhere ­ in our draft Fourth Northwest Power Plan, in issue papers, in

analysis Council staff carried out for the Northwest Energy Review Transition Board,

and in our proposed budget for Fiscal Years 1999 and 2000. These documents are

available at our Internet site (www.nwcouncil.org) or from our automated information

system (call 1­800­452­5161 and ask for extension 700). The electronic version of this

report includes links to all these documents.

John Etchart

Chairman

MAJOR COUNCIL ACTIVITIES IN FISCAL YEAR 1998

Following is a brief review of major tasks the Council has undertaken in Fiscal Year 1998

Review of Fish Hatcheries
The Issue: The region lacks a coordinated policy to guide future operation and funding

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, some people believe the less­abundant wild salmon and steelhead that

spawn upriver were disproportionately affected. Hatcheries, regardless of where they

are located, can also experience disease problems, and these diseases can be passed to

other fish when the diseased fish are released. In addition, knowledge gained in recent

years indicates that hatchery operations can affect the genetics of fish. This can make

hatchery fish less successful at surviving in the wild and also affect other fish if hatchery

fish breed naturally.

On the other hand, others believe artificial production 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, as part of its annual program funding recommendations, 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 independent scientists and monitored

by a broad­based, 25­member 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.

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.

Concurrently with studying the impacts of drawing down or breaching dams, the Corps'

program recommends significant amounts of funds to improve structural facilities at

those same projects.

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 referred to the Independent Scientific Advisory Board, an 11­member

panel of independent scientists who advise both the Council and the National Marine
Fisheries Service.

The Council's review will be completed in three separate phases. The first, which was

completed in June, addressed questions surrounding the Bonneville outfall and John

Day Dam extended­length screens. The second, which will deal with surface bypass

systems and gas abatement measures, will be completed this fall. The third phase will

provide a technical review of adult fish passage improvements at mainstem dams and an

evaluation of major strategies and technologies for assisting downstream passage of

salmonids. It will be completed in early 1999.

Management Review of Bonneville's Fish and Wildlife Contracting

Procedures

The Issue: A 1996 amendment to the Northwest Power Act requires improved costeffectiveness 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: Bonneville is undertaking an internal review and will consult with the

Council.

Background: The review came on the heels of a Council­sponsored review of

Bonneville's other costs. That review recommended $147 million in annual savings at

the agency. The review also included a number of recommendations regarding the

regional planning and prioritization process.

Most of the findings and recommendations of the contracting 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.

Develop a unified regional plan and enhance planning efforts prior to soliciting for

proposals.

Fiscal Year 1999 Fish and Wildlife Project Selection

The Issue: Recommending the allocation of $131 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: Consistent with an amendment to the Northwest Power Act in the

Energy and Water Appropriations Act of 1997, 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 proposed

projects by independent panels of scientists and economists; and review by the public

and the Council. Responding to a request from the region's fish and wildlife managers,

the Council boosted spending by about $5 million over 1998 levels with money from a

contingency reserve and previously unspent funds.

Timeline: Schedule for Annual Project Selection Process:

January

Project proposals due to Bonneville; projects compiled for regional review and

distributed.

February

Independent Scientific Review Panel begins review of project proposals.

April

Columbia Basin Fish and Wildlife Authority reviews project proposals and completes a

draft work plan for independent scientific review.

June 15

Independent Scientific Review Panel reports on the proposed projects and the Basin

Authority's draft work plan.

June ­ August

Public review and comment on ISRP recommendations and draft work plan; Council

completes cost­effectiveness review and report on ocean impacts.

September

Council recommends projects to Bonneville for funding.

October 1

Fiscal year begins.
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 framework. In coordination with federal and tribal

governments, and interested parties, the Council is taking steps to develop one.

Timeline: The first round of policy option development, economic and scientific review

should be completed by the end of 1998. The second and third phases of the project,

which include additional analysis and refinement of the options will be completed in the

fall of 1999.

Background: Two panels of independent scientists, one appointed by Congress and

the other by the Northwest Power Planning Council, said the region's recovery efforts

could be improved substantially if they went beyond individual problems of individual

species and instead were based on a view of the ecological needs of many species. The

scientists' advice may provide a way to address the region's frustration with competing

salmon recovery plans by creating a recovery framework based on scientific principles.

That framework would evaluate everyone's strategy by the same criteria developed and

examined by teams of independent scientists, economists, policy­makers and interested

members of the public.

There are three main steps involved in the framework development project. The first is

scientific. The Power Council and others have summarized the two scientific panels'

work in a set of scientific principles to guide the framework project's analysis.

Developing policy options is the second step. A broad spectrum of interests will be given

an opportunity to develop a set of options for the future of the Columbia Basin,

including goals for the river and the strategies necessary to meet those goals. Using

workshops and public meetings, the framework project will narrow the various options

proposed by the region down to a handful of major alternatives. The alternatives' costs

and economic, social and cultural effects will then be analyzed by independent experts.

The third step involves a scientific review, using the principles mentioned earlier, of

each of the proposed options to determine whether they are likely to achieve their stated

goals and objectives. With the benefit of the scientific and economic, social and cultural

analyses, policy makers and the public will have further opportunities to rethink and

improve the alternatives. After the refinements, each option will be thoroughly reviewed

and critiqued by the same independent experts in law, science, economics and social

and cultural analysis.

The framework project is being collaboratively managed by an array of governments

with public participation. The project is a serious attempt by the relevant governments

and decision­makers to bring a sense of order, fairness and transparency to the debate

about the future of the Columbia River. If the project is successful, the region finally will
have a specific set of clear options for the future of the river, options that can be debated

more effectively, honestly and thoroughly than any created to date.

The project will help ensure that each of the governments and agencies involved in

managing the river will be working from the same information and choosing from the

same range of possible options. And, the information and options will be developed in

an open, public fashion that ensures all voices are heard.

Northwest Energy Review Transition Board

The issue: In 1996, a 20­member 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 should respond to

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 four­member 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 key

recommendations of the Comprehensive Review. The Transition Board intends to

complete work on the Northwest Chapter and submit it to the governors in the fall of

1998.

Background: The Transition Board has focused its efforts on the Comprehensive

Review's recommendations for meeting the obligations and preserving the benefits of

the Bonneville Power Administration. Those include:

Development of a subscription system by which customers will contract for the

purchase of Bonneville power in the future.

Development of a contingent cost recovery mechanism to ensure that Bonneville is

able to meet its financial obligations in the face of uncertain future costs and

market conditions

Effective separation of Bonneville's power marketing and transmission functions,

and regulation of Bonneville's transmission equivalent to the regulation of the

transmission of investor owned utilities in order to assure open, non­discretionary

access to regional transmission.

The Board established work groups on these issues that have been meeting on a biweekly basis for the last 18 months. However, the contentious nature of these issues is

such that although great progress has been made, there is not consensus. The Transition

Board is developing recommendations for the Governors on the latter two issues that it

hopes will have broad support if not consensus. The Board may also find it necessary to

take a position on subscription issues.
The Fourth Northwest Conservation and Electric Power Plan

The issue: The Fourth Northwest Power Plan describes the changing electricity

industry, analyzes some of the consequences of the more competitive power market that

is emerging, and suggests some alternative strategies the Northwest may adopt in

response to industry changes.

Timeline: The Council last updated the power plan in 1991. The Council released the

draft Fourth Northwest Power Plan for public comment in March 1996. Comment on

the draft was held open through 1996 while the Comprehensive Review of the Northwest

Power System was conducted. In 1997, following the Comprehensive Review, the

Council updated the draft with an addendum. After a public comment period, the

Council approved the power plan in 1998.

Background: The Fourth Northwest Power Plan explores key issues this region must

address as the electricity industry becomes more competitive. Many of these issues were

addressed by the Northwest Energy Review Transition Board (See item 6 of this report).

In the power plan, the Council addresses the recommendations of the Comprehensive

Review, which in many cases were quite broad. The Council's plan is intended to refine

the Review's recommendations for state and local policy­makers. Here are some of the

Council's key recommendations:

Competition and consumer choice:

Separation of Distribution and Energy Marketing:

The Comprehensive Review noted that effective separation of utilities' distribution and

energy marketing functions is necessary if a truly competitive retail market is to be

established. The Council recommends that if effective separation is to be achieved,

policy­makers will have to provide for either increased regulatory oversight to guard

against abuses or require actual separation.

Pricing:

The Comprehensive Review recommended that the unbundling of electricity prices and

recovery of transition costs (e.g., stranded investment recovery and public purpose

funding) be carried out in a competitively neutral fashion. The Council notes that

efficient competitive markets require marginal cost pricing ­ products and services

priced at the cost of producing the marginal or last unit. "Unbundling" of prices

requires, at a minimum, separating the costs of distribution from the cost of the energy

commodity. This is essential if consumers are to be able to accurately compare one

competitor's product with another's.

Market information:

The Comprehensive Review noted that information about the market is critical if the

market is to be both fair and efficient. The Steering Committee made specific

recommendations regarding information to be provided on customer bills. The Council's
plan notes that in addition to unbundled prices and billing information, consumers need

to be provided information that allows them to compare the characteristics of the

products and services being offered by competitors before they are expected to choose

suppliers.

Accountability and administration:

The Comprehensive Review's recommendations include a number of new public

responsibilities ­ provision of consumer information services, monitoring and enforcing

competitive conditions, development and evaluation of pilot programs, ensuring

reasonably consistent market conditions and consumer protection laws and their

enforcement, registration and licensing of energy service providers, development of a

consumer complaint and arbitration process, and creating and administering a universal

service fund. According to the Council, if these functions are to be carried out,

responsibility needs to be assigned and the activities supported. Provision should be

made for many of these services to be funded through a competitively neutral

distribution system charge, as has been proposed for other public purposes.

Stranded investment and "windfall profits:"

Utilities with higher­cost resources could experience stranded investment during the

transition to competition ­ fixed costs that cannot be recovered at market prices.

Conversely, utilities with low­cost supplies could experience "windfall profits" from

being able to charge market prices. The Comprehensive Review noted that an

opportunity for recovery of stranded investments from the historical customer base is an

appropriate transition mechanism. According to the Council's plan, just as stranded

investment recovery is appropriate, so is the sharing of windfall profits with the

historical customer base. This is the other side of stranded investment recovery.

Stranded investment or windfall profits should be determined on the basis of the

utility's entire generating system, not individual resources, and recovery or distribution

should follow principles of competitive neutrality.

Conservation and renewable resources:

Aligning responsibility for conservation with business interests:

The Comprehensive Review recommended that local utilities be responsible for

collecting and using most of the public purpose funding for conservation and lowincome weatherization. According to the Council's plan, in assigning responsibility for

conservation in a restructured, competitive retail electricity market, policy­makers

should consider how that responsibility will align with the business interests of the

different utility functions and try to minimize conflicts. How unbundled rates are

structured will affect the incentives for a utility to carry out conservation efforts. If a

distribution utility's fixed costs are predominantly collected in a per kilowatt­hour

charge, the utility will face a disincentive to pursue energy conservation. If the

conservation significantly reduces peak demands, and the utility's fixed costs are

recovered in a demand­based charge, the utility will face a disincentive to pursue
conservation.

Aligning responsibility for renewable resource development with business

interests:

The Comprehensive Review Steering Committee recommended that public purpose

funding for renewable resource development be administered by a regional non­profit

entity, but gave local utilities the right to choose to use those funds for their own

renewable resource development. According to the Council, local utilities undertaking

renewable resource development should consider mechanisms such as power purchase

contract provisions, production incentives and financing incentives that limit their risk

exposure and promote competition. Renewable resource development and marketing

should not be a responsibility of the distribution function, except where such

development is used to reduce distribution system costs. Mixing the distribution and

energy marketing function regarding renewable resource development would defeat the

intent of separation of those functions.

Consistency with the competitive market:

The Comprehensive Review Steering Committee expressed a preference for relying on

market forces wherever possible to achieve the region's goals for developing

conservation and renewable resources. This implies that, to the greatest extent possible,

the restructuring of the electricity industry should be done in ways that complement or

encourage the development of competitive markets for energy­efficiency services and

renewable resources. In the power plan, the Council recommends that energy service

providers should have access to information regarding consumer electricity use, as in

the case of energy marketers. This information is necessary to effectively target energyefficiency services. To deny energy­efficiency service providers this information puts

them at a competitive disadvantage. Consumers also need adequate information about

suppliers.

Establishing implementation objectives:

The recommendations of the Comprehensive Review focused on ensuring that funds are

collected to sustain development of conservation and renewables. They did not provide

much guidance on how the money should be directed, other than in very broad

categories. According to the Council's plan, implementing rules to guide the use of

public purpose funding should be established. Policy criteria that should be considered

include: ­ Using public purpose funding to encourage development of cost­effective

conservation that is the least likely to be developed by the market alone; ­ Establishing

cost­effectiveness criteria that reflect the public rather than utility nature of the funding.

Such criteria should take into account environmental benefits and other non­electrical

and non­energy benefits of a conservation investment; and ­ Giving priority to low cost

and "lost­opportunity" resources to maximize the effectiveness of public investment.

Bonneville Cost Review: Cut Annual Spending By $147 Million

The Issue:
Deregulation of the nation's electricity industry has driven down the wholesale 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 reduce the costs it

recovers through rates as much as possible, consistent with the Comprehensive Review

and sound business practices. At the request of Congress and the Governors, the Council

and Bonneville convened a committee that included five experts in corporate

management to review the costs Bonneville recovers (Bonneville, Corps, Bureau, Supply

System). The committee recommended cuts that should yield approximately $147

million in annual savings during the next five­year 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. One key recommendation was to market Bonneville's power

long­term to regional customers.

Following the Comprehensive Review, the governors asked the Power Planning Council

to work with Bonneville to appoint a cost­review committee. The work began in June

1997 and was completed in March 1998. The committee included four Council members,

two representatives from Bonneville and five experts in corporate management and

finance. The Committee's goal was to ensure that Bonneville's near and long­term 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. This is

necessary, they believe, if Bonneville is to successfully subscribe its products to in­region

customers.

The committee's recommendations are summarized in the following table:

Recommendations

Average

FYs

$ in

Annual

Reductions

2002­06

millions

Total

Power

Business

Line

1. Further reduce staffing and support costs of power marketing

and other PBL functions not directly related to operation of the

14.7 14.7
Federal power system, through efficiency initiatives and

reoriented long­term marketing efforts.

2. Fund regional conservation market transformation at a level

proportional to the percent of regional firm load served by

Bonneville, as called for in the Comprehensive Review.

Recommended reduction brings the Cost Baseline into line

with estimates of the firm power load served by Bonneville.

Review the appropriateness of continued Bonneville support no

later than 2004.

4.6 4.6

3. Reduce projected legacy conservation contract expenses to

reflect historical under­spending. Do not modify or extend

existing contracts, except that the State's low­income

weatherization contract should be extended consistent with the

end of the legacy commitment to utilities. Reduce associated

staffing.

2.5 2.5

4. Further reduce funding for the NW Power Planning Council

to reflect changes in Bonneville's regional role (i.e., curtail new

resource acquisitions), carry out the Council role in power

recommended by Comprehensive Review and the continued

importance of fish and wildlife issues. Seek additional funding

from other sources for Council activities that are of regional

scope. Reductions assume one Council representative per state.

A process should be carried out to determine both the functions

the region wishes the Council to perform and how the functions

should be funded.

1.1 1.1

5. Provide funding for costs of the three renewable resource

projects that Bonneville currently is planning, and currently

planned levels of renewable resource data collection and R&D.

Annual net cost above project revenues should not exceed $15

million per year, including the data collection and R&D costs.

No additional renewable resource projects unless Bonneville's

costs are recovered fully by project revenue.

2.2 2.2

6. Develop and implement a consolidated, integrated

capital/asset management strategy for federal hydro directed at

maximizing value, including both financial returns and public

benefits. The strategy should encompass the operation and

maintenance of the physical assets, a coordinated investment

plan, potential consolidation of duplicative administrative

support services among FCRPS agencies, and the creation of

integrated performance measures. Performance should be

measured explicitly and reported publicly, accountabilities

established, and incentives created and applied FCRPS­wide.

Estimates at right include a combination of reduced O&M

expenses from the Cost Baseline and increased revenues from

higher production.

Corps:

40.0

Bureau:

8.0

Corps

: 40.0

Bureau:

8.0

7. Implement a strategy for WNP­2 that combines aggressive

cost management with a flexible response to market conditions

19.0 19.0
and unforeseen costs. Manage annual operating costs to annual

revenues achievable at market prices. In BPA's subscription

process and upcoming rate case, determine how to allocate the

plant's costs in Bonneville rates and market a portion of the

Federal Base System (FBS) equivalent to the planned output of

WNP­2 priced in a manner that ensures recovery of the plant's

operating costs while allowing a lower price for the rest of the

FBS, unless legal or other issues prevent doing so. To the extent

revenues exceed operating costs, use a portion of the resulting

net operating revenues to build up the decommissioning fund.

Biennially subject the plant to a market test. Evaluate

termination in the event operating costs are projected to exceed

revenues significantly if uneconomical at market prices.

Estimated reduction includes a combination of reduced O&M

expense from the Cost Baseline and potential increased

revenues.

8. Further reduce the cost of Bonneville administrative and

other internal support service costs including financial, human

resources, information management, procurement, strategic

planning, public affairs, legal services and other internal

service costs, by an aggregate 50 percent from 1996 actual

levels. Achieve through benchmarking, adopting "best

practices," enterprise software, and outsourcing of non­core

functions where economic.

31.7 14.5

9. Obtain legislative changes in the areas of personnel

management and procurement to improve administrative

flexibility and ability to manage internal costs.

10.0 7.0

10. Further reduce transmission internal O&M expenses

through improved efficiencies.

2.5 1.5

11. Conform to Federal Power Act requirements, adjusting and

correcting functionalization (allocation) of costs between

Power and Transmission BLs.

0.0 30.0

12. Further reduce federal and non­federal debt service

expenses through refinancings, greater reliance on variable rate

debt, and other debt reduction actions

20.0 20.0

13. Targeted, but unspecified reductions already included in

Power Cost Baseline.

(19.4) (19.4)

TOTAL 136.9 145.7

In addition, the TBL should meet the cost management objectives in its baseline, in

particular:

Obtain operational efficiencies, tighter control on timing and prioritization of

capital investments to achieve superior performance compared to the WSCC

transmission providers (top one­third);

Reduce fully allocated hourly costs of transmission maintenance service by 20 to
30 percent by 2001; and

Increase flexibility of cost structure.

Assessing Bonneville's Potential Financial Situation

The issue:

At the request of the Council's four­member Power Committee, the staff conducted an

analysis of the Bonneville Power Administration's potential financial condition, which

could result under different future electricity market conditions and Bonneville costs,

particularly fish and wildlife costs. It is important to estimate future market prices with

confidence, as this will help the region resolve the contentious issue of developing a

stranded­cost mechanism for Bonneville.

The analysis suggests that in most combinations of future market prices for electricity

and salmon mitigation measures, Bonneville's electricity remains competitively priced.

That is, Bonneville should be able to meet its financial and legal obligations in the

future, including salmon recovery, and still return substantial benefits to its customers

except in the event that the most adverse market conditions combine with the

significantly increased costs for salmon mitigation.

Timeline:

The staff presented its conclusions in May 1998, and then sought public comments on

the report.

Background:

Bonneville faces a number of uncertainties in the future, primarily from the impacts of

the increasingly competitive marketplace for electricity and uncertain future fish and

wildlife costs. After 2001, when most of Bonneville's current power sales contracts

expire, Bonneville's customers will have to choose between Bonneville and other power

suppliers. As well, Bonneville will continue to pay the majority of the region's fish and

wildlife restoration costs, regardless of whether Snake and Columbia river dams are

breached or left in place.

The Council's Power Division analyzed Bonneville's future value using a sophisticated

computer model that simulates the West Coast electricity system. To ensure an

impartial analysis, the Council invited representatives from Indian tribes, the aluminum

industry, environmental groups and electric utilities, as well as experts in policy

regarding fish and wildlife and energy, to oversee the analysis. These experts generally

praised the Council's work and supported the conclusions in the analysis.

The analysis estimates the costs Bonneville may have to recover through its power rates

given a range of possible prices for electricity and salmon mitigation obligations.

Bonneville pays for most of the region's salmon mitigation efforts through the Council's
Columbia River Basin Fish and Wildlife Program.

In addition to three ranges for future electricity market prices, the analysis included

eight future salmon mitigation scenarios. These ranged from few changes at the dams or

in river conditions, such as boosting flows or spilling water during the spring and

summer when juvenile fish are migrating to the ocean, to breaching the four lower

Snake River dams and John Day Dam on the Columbia River. Each scenario, or a

variation, is being studied by the U.S. Army Corps of Engineers as the dam­operating

agency prepares a feasibility study on the future of the four lower Snake River dams. A

draft of the Corps' study is due in April 1999.

The analysis was not intended to support any of the salmon recovery measures. The

Council's intent only was to estimate Bonneville's future income based on various

combinations of salmon recovery measures and electricity prices.

While collateral or third­party costs were not considered in the analysis, it should be

useful for decisionmakers including Bonneville; Bonneville's customer electric utilities;

the National Marine Fisheries Service, which is working to protect endangered Snake

River salmon under the Endangered Species Act; the U.S. Army of Corps of Engineers,

which operates dams on the lower Snake and Columbia rivers; Congress and the Clinton

administration.

According to the Council's analysis: High market: With high future market prices for

electricity ­ over 6 cents per kilowatt hour by the year 2020 (about 3.5 cents in today's

dollars) ­ Bonneville has positive net revenues under all of the salmon recovery and

power price scenarios considered. The market price currently is around 2 cents per

kilowatt hour. Medium market: With medium escalation of future market prices for

electricity ­ to about 4 cents per kilowatt hour by 2020 (about 2.5 cents per kilowatt

hour in current dollars) ­ Bonneville has positive net revenues in all but the most

expensive combination of salmon recovery costs and electricity prices. Low market:

With low market prices ­ about 2 cents per kilowatt hour by 2020 (about 1.5 cents in

today's dollars) ­ Bonneville's costs exceed revenues in all but the least expensive

options, but it's close. Even a 10­percent increase in market prices could make the

difference between positive and negative revenues in some instances.

Public Involvement

One of the Council's primary tasks is to fulfill the directive of the Northwest Power Act

to inform and involve Northwest citizens about the Council's activities. Section 2(3)

states a purpose of the Act is "to provide for the participation and consultation of the

Pacific Northwest states, local governments, consumers, customers, users of the

Columbia River System (including federal and state fish and wildlife agencies and

appropriate Indian tribes) and the public at large within the region" in the Northwest's
planning for electrical power and protection of fish and wildlife resources. Section 4(g)

(1) of the Act requires the Council to develop "comprehensive programs" to ensure

public involvement and to "inform the Pacific Northwest public of major regional power

issues."

The Council uses several regular publications, as well as special informational materials,

media briefings, news releases, its regularly updated Internet web site

(www.nwcouncil.org) and other approaches to inform interested citizens about fish,

wildlife and energy issues. The Council also holds all its regular meetings, committee

meetings and working sessions in public. In addition, on many issues the Council holds

public hearings and consultations.

Fiscal Years 1999 and 2000 Budget overviews

Rulemakings in fiscal year 1998

More Information

Council offices

Fiscal Years 1999 and 2000 Budget overviews

Since Fiscal Year 1992, the Council has made significant efforts to limit its budget.

Through an agreement reached last year with Bonneville, the Council has set a goal of

reducing the budget by $2,000,000 ­ about 21 percent ­ over the next four years. To

accomplish this, the Council will:

1. Reduce its personal services budget, primarily in power planning, due to changing

conditions in the electricity industry.

2. Further reduce the level of fish and wildlife and energy systems analysis contract

services by reallocating staff workloads and deferring projects to other entities

where possible and re­prioritizing resources for only the most essential studies

and analyses.

3. Further reduce the level of travel costs by restricting both regional and out­ofregion travel for staff.

4. Constrain the cost of services and supplies by refocusing and retargeting

circulation of Council publications and by curtailing other administrative

operating expenses.

5. Increase efficiencies in operations and administration, in general, to absorb 2

percent to 3 percent projected inflation for Fiscal Year 1998 and for Fiscal Year

1999.

6. Reallocate staffing where possible.

The Fiscal Year 1998 budget is $7,496,000. The revised Fiscal Year 1999 budget is

$7,155,000, a decrease of $341,000, or about 5 percent, from the current budget. The

proposed Fiscal Year 2000 budget is $6,724,000. By way of comparison, the Fiscal Year

1992 budget was $8,484,000. This represents a seven­year reduction of 21 percent.
During the same period, the Council absorbed cumulative inflation projected at 26.4

percent.

Rulemakings in fiscal year 1998

There were no rulemakings in Fiscal Year 1998.

More Information

For additional details about the Northwest Power Planning Council's activities, budgets,

meetings, comment deadlines, policies or bylaws, call 1­800­452­5161 or visit our

Internet web site at http://www.nwcouncil.org.

Copies of our publications are available at the web site or by calling the 800 number

above and asking for extension 700, the Council's automated information service. All

Council publications are free.

COUNCIL OFFICES

IDAHO

Mike Field

Northwest Power Planning Council

450 W. State (UPS and DHL only)

Box 83720 Boise, Idaho 83720­0062

Telephone: 208­334­2956

Fax: 208­334­2112

Todd Maddock, vice chair

601 22nd Avenue

Lewiston, Idaho 83501

Telephone: 208­798­8956

Fax: 208­799­5123

MONTANA

John Etchart, chair

Stan Grace

Northwest Power Planning Council

Capitol Station

Helena, Montana 59620­0805

Telephone: 406­444­3952

Fax: 406­444­4339

OREGON

Eric Bloch

Northwest Power Planning Council

851 S.W. Sixth Avenue

John Brogoitti

Northwest Power Planning Council

11 S.W. Byers Avenue
Suite 1020

Portland, Oregon 97204

Telephone: 503­229­5171

Fax: 503­229­5173

Pendleton, Oregon 97801

Telephone: 541­276­0657

Fax: 541­276­0995

WASHINGTON

Frank L. Cassidy, Jr.

"Larry"

Northwest Power Planning Council

1110 Capitol Way South, Suite 404

Olympia, Washington 98501

Telephone: 360­664­4030

Fax: 360­664­4032

Vancouver address:

P.O. Box 2187

Vancouver, WA 98668

Vancouver telephone: 360­693­6951

Vancouver fax: 360­699­4093

KenKen

Tom Karier

Northwest Power Planning Council

W. 705 First Avenue ­ MS1

Spokane, WA 99201­3909

509­623­4386

Fax: 509­623­4380

CENTRAL OFFICE

Northwest Power Planning Council

851 S.W. Sixth Avenue, Suite 1100

Portland, Oregon 97204

Telephone: 503­222­5161

Fax: 503­795­3370

Toll Free: 1­800­452­5161

Executive Director: Steve Crow

Director of Power Division: Dick Watson

Director of Fish and Wildlife Division: Jack Wong

Director of Public Affairs: Mark Walker

General Counsel: John Volkman

Administrative Officer: Jim Tanner

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