May 13, 2004
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To improve the long-term economic stability of the Bonneville Power
Administration and its customers, Northwest Power and Conservation
Council recommends that the federal power-marketing agency fundamentally
alter the way it sells electricity.
Bonneville sells the output of the Federal Columbia River Power
System, which includes 31 federal dams and one non-federal nuclear power
plant. Bonneville is required by law to sell power first to publicly
owned utilities and to meet all of the demand placed on it by those
customers. Because the existing federal power system cannot meet all of
the demand of Bonneville's customers, the agency buys power for its
customers from other sources including the competitive wholesale market,
where prices can be volatile. Bonneville's customers currently pay an
average rate that reflects the cost of the purchased power and the cost
of power from the existing federal system.
The Council's recommendations would have Bonneville market the
output of the existing federal Columbia River Power System to eligible
customers at rates reflecting the embedded costs of the system. Service
beyond the capability of the existing federal system would be provided
in such a way that customers requesting that additional service would
pay for it, and the cost would not be melded into the rates paid by
other customers. The Council believes these changes should be
implemented through long-term (20-year) contracts guided by a clear and
durable statement of energy policy. Meanwhile, Bonneville should
continue to pursue cost-effective energy conservation and renewable
resources.
The Council believes these policy changes would not affect Bonneville's
fish and wildlife mitigation obligations. Costs of that mitigation
should be allocated to the existing power system, the Council
recommends.
The Council also recommends that Bonneville provide a limited amount
of power for a limited period for its direct-service customers,
primarily Northwest aluminum smelters. This could involve Bonneville
purchases of market power. To minimize the cost to other customers,
Bonneville should sell power to the industries through contracts that
allow the power to be interrupted in emergencies, the Council
recommends.
The recommendations approved today are similar to those the Council
made in 2002, the last time Bonneville took up the issue of its future
role in power supply. That process slowed, however, as the agency dealt
with a financial crisis. The financial crisis resulted, coincidentally,
from Bonneville's extraordinary power-purchase costs during the energy
crisis the previous year.
The Council will forward its recommendations to Bonneville, which
plans its own public process this summer to assess its future role in
regional power supply.
The Council is an agency of the states of Idaho, Montana, Oregon and
Washington and is directed by the Northwest Power Act of 1980 to prepare
a program to protect, mitigate and enhance fish and wildlife of the
Columbia River Basin affected by hydropower dams while also assuring the
region an adequate, efficient, economical and reliable power supply.
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