BPA's Fish Debts Belong to Us, Not to Delawareby Solveig Torvik, Editorial Board Member
Seattle Post-Intelligencer, March 9, 2001
If one single institution defines the Northwest, it has to be the Bonneville Power Administration. After all, it's the source of our economic well-being; it provides 40 percent of the region's electricity, and at bargain prices.
Many Northwesterners may be only dimly aware that the BPA is the reason their electricity rates are 36 percent below the national average. The same cannot be said for those outside the Northwest who either covet its cheap power or object to what they see as taxpayer subsidies that unfairly give economic advantages to Northwest businesses and residents.
Critics have busied themselves for decades with various nefarious schemes against BPA. This time, with a full-blown drought and deregulation-driven energy crisis spreading from California, they may have found their opening.
The news that Kaiser Aluminum is expected to reap a $500 million windfall by reselling -- at high spot wholesale market prices -- power that BPA had sold Kaiser at much lower cost is just the kind of ammunition out-of-region critics are looking for to make the case that BPA is out of control and needs "restructuring."
That's the code word for spreading BPA's energy wealth beyond our borders. It means critics gain, we lose; not to put too parochial a point on it. If they succeed, our light bills will go up. It's that simple.
But there's even more political ammunition waiting to fall into the hands of those who are not fans of BPA. Just wait for the fireworks when they get wind of the rest of it.
First, though, for those of you who came in late, here's the scoop on BPA:
It was created in 1937 to market power produced by the dams operated by the U.S. Army Corps of Engineers on the Columbia. BPA does not make electricity; it sells it. It also operates the huge multi-state transmission grid that sends the electricity across the West.
The rub comes in how BPA sells that power -- as in to whom and at what price.
There's usually a long line of customers for BPA's power. That's never been more true than now that California has botched its deregulation and sent wholesale market prices sky-high. Some former BPA customers who deserted it for spot market suppliers when wholesale market deregulation went into effect got burned by high prices and now are asking to come back to the safe haven of lower, long-term fixed contracts at BPA.
Another factor in BPA's renewed popularity is the region's failure to build generating capacity to keep up with demands of population and technology growth. But that's a story for another day.
The seeds of Kaiser Aluminum's debacle were sown at an unusual moment when BPA had more power than customers. BPA must charge customers what it costs to produce the power it markets, and BPA's costs briefly were higher than some other suppliers who were selling power in a newly deregulated wholesale market. That's when some BPA customers, including the aluminum companies that originally were invited onto the Northwest grid to help keep overall rates low, began to look elsewhere for cheaper electricity.
The Kaiser contract that allowed the company to resell BPA's power at market rates grew from a desperate attempt by BPA to sweeten the pot enough to keep its departing aluminum customers -- who consume massive amounts of energy -- on line so it could meet its debt payment to the Treasury without huge rate increases for other customers. It was a gamble that backfired.
Some customers are privileged to always be at the front of the line for BPA's power. From the outset, the BPA was ordered by law to first sell its power at cost to public entities such as public utility districts and rural electric cooperatives in the Northwest. That was deemed to be in the public interest because it would not only help settle the region but prevent private companies from locking up and controlling distribution of a vital public commodity, electricity.
When the PUD demand is satisfied, the BPA may sell power at market rates to privately owned investor utilities in the Northwest. And when their needs are met, and only then, BPA can offer any surplus power for sale at market rates outside the region -- usually California and the Southwest.
We've lived with this comfortable arrangement so long that we take it as a God-given entitlement.
But not everyone sees it that way. Not the power-hungry people of California, to be sure. Not the envious members of the Northeast-Midwest Congressional Coalition. Both have the BPA in their sights.
Californians want to get into the lineup for equal access to BPA's low, at-cost power. For its part, the coalition has a bill of particulars against the presence of Uncle Sam in the energy business.
It's like having the U.S. Air Force in the commercial airline business, complains Dick Munson, executive director of the Northeast-Midwest Institute, which works in concert with the congressional delegations from those states.
In the 1930s there was a justifiable role for the BPA, says Munson. But today, "it's hard to argue that there's a market imperfection" that requires federal power marketing agencies such as BPA to exist. So why do we need BPA? "Nobody wants to touch that question," he says.
Even if Congress agrees that BPA should continue to exist, he adds, the next question is: "At what rate do you price this federal property, the electricity?"
When the federal government sells timber from national forests in the Northwest, it's at auction to the highest bidder, he notes. "Why should we not do that for electricity?"
And finally, even if you grant that BPA should exist and that it should provide power at below market rates, "Who gets the benefit?" he asks.
Now it's apportioned on pure "happenstance," as he sees it. It's determined by whether you live in the region where it's generated or within the boundaries of a particular utility or whether you happen to be a preferred aluminum company customer, he says.
Why instead shouldn't federal at-cost power go to poor people or hospitals or other worthy public entities, he asks.
He would prefer to see BPA sell its power at market rates to all comers and do away with the so-called "preference clause" that gives the Northwest first call on low-cost power. So, of course, would energy-starved Californians.
Oregon's Gov. John Kitzhaber recently told the Post-Intelligencer's Editorial Board that he's convinced the only way for the Northwest to hang on to BPA is to somehow share more of its low-rate power with California, which has the congressional votes to roll us if we resist.
Oregon itself gets only 30 percent of BPA's preference power, as opposed to Washington's lion's share of 60 percent. That's because Washington has a bigger population and more public utilities. So it's a safe bet there's no constituency in Washington for dealing California or anyone else in.
For its part, the coalition's beef with BPA is that taxpayer funds go to a region that then uses that subsidy to "lure business and jobs away from other parts of the country."
Munson rejects one notion much touted by Northwest electric ratepayers. It's that because they're paying down the federal debt on the dams at the tune of some $758 million a year, they will own the hydro system once that original debt on the hydro system is paid off in 2025 and when the BPA's share of the failed the Washington Public Power Supply System, which costs BPA another $600 million a year, is cleared off the books in 2018.
Just because you pay your phone bill every month doesn't mean you can claim ownership in the phone company once its buildings are paid off, he says. "The phone company's not yours" at that point, he argues, and the same goes for ratepayers paying down the BPA's debt.
"It's a loan, not a mortgage," he says of the BPA's federal debt.
Kitzhaber has asked the Bush administration that BPA not be required to pay its Treasury debt this year because of the drought, pegged so far by BPA as the second worst on record, and the energy crisis that's costing BPA large sums for electricity it must buy on the open market to meet its contractual obligations to customers.
Delaying the debt repayment for dam construction is a risky political tactic in any year. If BPA fails to make its debt payment, it's an open invitation to Congress to proceed with "restructuring" that's likely to relieve Northwesterners of first call on the hydro system's benefits. So paying the debt on time rightly has been of utmost urgency for BPA.
But this year, it's an even worse time to suggest debt payment be suspended. That's because, strictly speaking, BPA may not owe a dime of it. So nothing's to be gained financially.
Turns out BPA has spent so much money on salmon recovery this year that it likely will negate most of BPA's $758 million debt payment owed to Uncle Sam.
Here's how that works: A clause in the 1980 Northwest Power Act specifies that the nation's taxpayers, not regional ratepayers, suck up the costs of spilling water for salmon recovery. When water is spilled over dams to aid fish, it cannot be used to generate electricity. Thus BPA must purchase the lost electricity from other suppliers for its customers. This year, of course, the cost of replacing that lost electricity was astronomical.
The BPA gets a credit of 27 cents for every dollar it spends on the hydro system to comply with the National Marine Fisheries Service biological opinion mandates for salmon recovery, said Jeff Stier, BPA lobbyist in D.C. The 27 cents is paid by national taxpayers, not the regional ratepayers on whose behalf the fish runs were destroyed.
"This year one component of fish cost was the power we purchased to make up for water lost to spill" for fish passage, said Stier. Thanks to the energy crisis that's driven up prices, "that (fish) component has grown to huge proportions," Stier added. "The cost would have virtually wiped out the Treasury payment."
So far, no one in Congress seems to have figured out that BPA won't be obliged to make a payment on the debt this year because so much has had to be spent on salmon recovery, Stier said.
"That issue is going to be a political problem for us," in Congress, he conceded.
No kidding. And you thought the Kaiser Aluminum deal put the Northwest's hold on BPA at risk.
And there's plenty to be risked politically by having BPA take advantage of this windfall.
Given that we as a region have contrived to push BPA's salmon recovery costs off on national taxpayers rather than paying them ourselves, a good -- as in politically prudent -- case can be made that we need to pay our own blessed fish recovery costs.
After all, it is we who killed -- or profited from the killing of -- the salmon runs, not the residents of Delaware, for pity's sake.
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