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BPA Chief Discusses Cutting Costs with Region's Fish Managers by Barry Espenson Columbia Basin Bulletin - September 6, 2002

Bonneville Power Administration administrator Steve Wright last week challenged the Columbia Basin's federal, state and tribal fish and wildlife managers to identify potential cost reductions that could help the agency limit future power rate increases.

Wright and other BPA officials have been on the stump across the region over the past two months, explaining a dire agency financial situation and asking the public for input on potential remedies. The agency started fiscal year 2001 with $800 million in reserves but expects to have less than $200 million remaining after fiscal year 2002, which ends Sept. 30. Skyrocketing market prices last year came at a time demand was great and hydro production was at a low ebb, forcing BPA's costs way up. Then prices plummeted this year to below even hydro production costs. That and a greatly reduced power "load" hurt BPA's chances of recouping revenues.

Sept. 30 is also the deadline the BPA has set for accepting public comments on the various options it has for making ends meet over the next four years. A financial forecast produced by BPA early this past summer suggests that the agency has better than a 50 percent chance of losing $860 million over the five year period if there are not costs reductions or rate hikes. Since that forecast was made market conditions have worsened, pushing that figure well above $1 billion, Wright said.

The analysis of a broad range of power market, water condition and load demand scenarios predicts an "80 percent chance" of a deficit for the period if BPA does not cut costs or trigger adjustment clauses that allow for rate increases. The analysis shows a 20 percent chance of breaking even or better over that period.

The agency estimates rate increase of from 5 to 10 percent would likely be needed in each year from 2003 to 2005 if expenses remain the same. A combination approach including maximum cost reductions and more efficient operations would reduce rate increases. That will involve reworking unfavorable contracts, reducing infrastructure for renewable and conservation initiatives, reducing internal business operation costs and streamlining fish and wildlife programs. BPA expects to make a decision in either November or December on what sort of rate/cost cut ratio to pursue.

In what he said was his first participation in a Columbia Basin Fish and Wildlife Authority members meeting, Wright said that the financial hole BPA has fallen into over the past year is deepening. CBFWA membership includes fish and wildlife management agencies for the states of Idaho, Montana, Oregon and Washington, 13 basin Indian tribes and the National Marine Fisheries Service and U.S. Fish and Wildlife Service.

"We're going after all the costs," Wright said of the agency's attempt to bridge a widening cost-to-revenue gap. "We need for fish and wildlife to be a part of that."

Wright said that BPA's fish and wildlife costs have risen to $500 million annually. Those costs include direct costs, capital costs, reimburse costs, replacement power and lost revenues. Those direct costs include funding for the Northwest Power Planning Council's fish and wildlife program. The rate case completed last year that estimated costs and revenues for the 2002-2006 period, and set wholesale power rates, estimated an average of $186 million would be spent annually in the NPPC program, $150 million for project costs and $36 million for capital expenses. CBFWA's members propose and implement a vast majority of the NPPC program.

Reimbursed costs include those incurred by the Corps of Engineers to improve fish passage at dams in the federal Columbia River hydrosystem. Lost revenues include lost power generation opportunities water is spilled at the hydro projects to aid fish passage or when flows are "augmented" to help fish migration when that water could have otherwise been reserved for power generation.

Wright has posed as an example a goal of cutting BPA's fish and wildlife costs by 10 percent. A $50 million reduction would still leave the agency's fish and wildlife costs $50 million above the funding level before the rate case, he said.

"Our spending for fish and wildlife has increased in each year for the past six years," Wright said. BPA has funding obligations through both the Northwest Power Act and the Endangered Species Act. Demands in both areas have grown. BPA and other federal agencies has been attempting to implement measures outlined in a National Marine Fisheries Service biological opinion that was issued in December 2000. Those measures aim to improve survival of 12 ESA-listed salmon and steelhead stocks, several of which the BiOp says are jeopardized by operation of the federal hydrosystem.

Chad Colter of Idaho's Shoshone-Bannock Tribes asked Wright to address rumors that fish and wildlife programs would be cut in "blocked" areas to reduce costs and allow more money to flow to BiOp-related projects. Salmon can no longer reach parts of the basin upriver from the Hells Canyon Complex of dams on the Snake River and above Grand Coulee on the Columbia. NPPC programs in particular have focused on resident fish and wildlife work as mitigation for the impacts of construction and operation of the federal hydrosystem.

BPA's Bob Austin, deputy fish and wildlife director, said that the agency was taking a closer look at many such projects, particularly those in area's blocked by non-federal dams. The Hells Canyon Complex is owned by Idaho Power.

"We really want to do a better job of defining what that obligation is" for fish and wildlife mitigation in those areas, Austin said. BiOp spending is a priority, but BPA still intends to fill its obligations under the Northwest Power Act, he said.

Colter said that the tribes felt that mitigation spending should not be cut in deference to the BiOp.

"ESA has become an extremely high priority because of the litigation risk," Wright told the gathering of fish and wildlife managers.

"The big thing we're tying to get done in the next few years" is achievement of performance standards in the BiOp for improved survival of listed salmon, he said.

The Columbia River Inter-Tribal Fish Commission, as it has at other public meetings, urged BPA to look elsewhere before slowing the momentum of fish and wildlife recovery efforts. CRITFC's members are the lower Columbia River treaty tribes -- the Nez Perce, Umatilla, Warm Springs and Umatilla.

CRITFC's Rob Lothrop urged BPA to look harder at its own administrative cost and employ the Finance And Safety Net cost recovery adjustment clause as primary means of closing the cost-revenue gap. He said that BPA had not yet achieved the internal cost reductions that it had prescribed for itself during the rate case. And the safety net CRAC was created after lengthy discussion to address the type of situation the agency now faces.

"At minimum Bonneville should adhere to the decisions it made in the rate case," according to CRITFC written testimony. That includes fully funding fish and wildlife mitigation, he said.

The Idaho Department of Fish and Game's Virgil Moore said that BPA needs to do an analysis of the economic impact of reducing mitigation spending. Burgeoning salmon and steelhead returns during the past few years have meant millions to states and local economies.

Throughout the two-hour session Wright urged the managers to "take the challenge" and come forward with a proposal for cutting fish and wildlife costs.

"The region is divided about fish and wildlife (spending), as it has been for a long time," Wright said. Testimony at a series of public meetings has been split with some saying fish and wildlife spending should be maintained or increased and others saying vast amounts of money are being spent with little result.

Wright said the managers need to focus attention on fish and wildlife restoration successes, and show they willing to help reduce rate impacts.

"People are hurting," Wright said following a rate increase last year of 46 percent. Another rate increase will be announced this fall.

"It's just a matter of how much," Wright said.

In a CBFWA discussion that followed Wright's presentation, the Oregon Department of Fish and Wildlife's Tony Nigro said that he did not necessarily go along with the contention that CBFWA would gain status in the public eye by being the first to come forward with a cost-cutting proposal.

"That doesn't mean we shouldn't look for efficiencies" in the fish and wildlife programs that are being carried out, he said.