Financial Analysis -- FR/EIS Appendix I (February 2002)
12.3 Financial Impacts
The following section addresses BPA’s authorization and ability to pay for the dam breaching costs, as well as the potential impact of rate increases on BPA ratepayers.
12.3.1 BPA Funding
BPA is authorized to pay for fish and wildlife mitigation projects under the following legislation:Under provisions of the Northwest Power Planning and Conservation Act [PL 96-501, Section 4(h)(2)(A)], BPA is required "to use its funding authorities to protect, mitigate, and enhance fish and wildlife to the extent such resources are affected by the hydroelectric projects of the Columbia River and its tributaries".However, there are limitations on how much of the additional fish and wildlife mitigation costs BPA can accommodate. Five Federal agencies involved in salmon and other fish and wildlife restoration activities in the Columbia River Basin established a Memorandum of Agreement (MOA) concerning BPA fish and wildlife costs for Fiscal Years 1996 through 2001. The MOA followed an agreement made between NMFS, members of the Pacific Northwest congressional delegation, and the Clinton Administration, to establish an upper limit on BPA costs for Columbia Basin fish and wildlife, at an average of $435 million per year through the 6-year period. This MOA was undertaken due to concern over BPA’s financial position and its ability to fund future fish and wildlife programs in a deregulated power market. However, there is uncertainty about what will happen after the agreement runs out. This problem has been exacerbated by the current high rates of BPA electricity as compared to other available sources (see quotes below).
“...BPA expenditures shall be in addition to, not in lieu of, other expenditures authorized to be made by other entities under other agreements or provisions of the law. Other fisheries efforts outside this Act, for example, are expected to continue and to be funded separately.”
Under provisions of the Northwest Power Planning and Conservation Act (PL 96-501), “the Bonneville Power Administration is self-financed. Pursuant to the Federal Columbia River Transmission Act, BPA must meet all its costs, including the cost of the Federal investment in the Columbia River system, from its power sale revenues. General tax revenues are not used to support BPA programs.”
The Technical Report on Hydropower Costs and Benefits further describes the limits of BPA’s abilities to raise rates in the presence of increasing costs:In a restructured, competitive, wholesale power market, BPA can no longer automatically recover higher costs by raising its rates. This is because the utilities that buy power from BPA have alternative supplies of electricity available at prices set by the wholesale electricity market. If BPA’s prices are below the market price, it may be able to recover increased costs until its prices reach the market price. However, consumers of BPA power are no longer required to bear the financial impacts of increased hydroelectric costs if less expensive electricity is available in the market. In this case, the financial impacts will be more difficult to determine. Initially, the cost would appear as BPA losses, but those losses would have to be covered by someone such as taxpayers or users of the still-regulated transmission system. (DREW Hydropower Impact Team, 1999; Section 7.1, page 104)The Northwest Power Planning Council evaluated BPA’s potential financial conditions under a wide range of future electricity market conditions and possible fish and wildlife mitigation scenarios, including all of the alternatives being considered in this study. The analysis concluded:Under a wide range of conditions, Bonneville (BPA) demonstrates significant value to customers even if called upon to bear relatively large additional fish and wildlife mitigation costs. Only under combinations of persistent low market conditions and increased fish and wildlife costs and/or operational impacts does Bonneville experience significant negative net revenues for extended periods. Those results are extremely sensitive to small changes in Bonneville's costs or market prices. This underscores the importance of Bonneville's cost management efforts. Financial risk management mechanisms like reserves can mitigate the negative net revenues in some conditions. In other conditions, however, the mitigating effect of the assumed reserves and/or further cost reductions is insufficient. In these cases, Bonneville would need larger reserves; some sort of contingent cost recovery mechanism or may have to look to other [sources] of funding. It is also possible that the schedules for implementation of the various fish and wildlife mitigation scenarios used in this analysis will not be met. The biological and economic effects of changes in the schedule for implementation of fish and wildlife measures should be evaluated. (Source: Analysis of the Bonneville Power Administration’s Potential Future Costs and Revenues, June 5, 1998, Executive Summary, Page 9.)
Many people are familiar with the Seventh Generation philosophy commonly credited to the Iroquois Confederacy but practiced by many Native nations. The Seventh Generation philosophy mandated that tribal decision makers consider the effects of their actions and decisions for descendents seven generations into the future. There was a clear understanding that everything we do has consequences for something and someone else, reminding us that we are all ultimately connected to creation.