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Bonneville, the Northwest's Biggest Clean-Power Supplier, Faces Promise and Perils in Changing Energy Markets by Hal Bernton Seattle Times, July 21, 2019

So far, none of the Columbia Basin salmon runs has rebounded enough
to be removed from the protection of the federal Endangered Species Act.

GRAND COULEE DAM -- When workers started pulling apart the three largest hydroelectric units in North America -- capable of supplying more than enough power for all of Seattle -- they found the damage far worse than expected.

They encountered large cracks, worn-out bearings and a defect in a critical weld that, if left in place, could fail, unleashing catastrophic flooding inside the powerhouse that risked killing workers and destroying the 7 million-pound generator-turbine units.

That last discovery halted work for 10 months to give engineers time to come up with a fix that would ensure a crucial covering would hold fast.

"How do we deal with the unexpected? It definitely keeps you up at night," said Brian Clark, the U.S. Bureau of Reclamation manager for the project, which got underway in 2013 when work began on the first turbine.

This Grand Coulee overhaul is part of a broader maintenance marathon to sustain the regional hydroelectric network born of a 1930s, Depression-era quest to produce public power at cost for Northwest utilities, a concept some denounced as socialism. But the Bonneville Power Administration (BPA), the federal agency set up to market the dams' output, helped turn cheap electricity into a cornerstone of the regional economy, gaining the fierce loyalty of the region's congressional Democrats and Republicans.

More than eight decades later, the BPA is poised to play a key role in helping the region move to a clean-energy economy as climate change forces a shift away from electricity produced by coal and natural gas. Bonneville also finances the gargantuan effort to revive Columbia Basin salmon runs in an era when a warming planet will make that more difficult.

The challenges come at a perilous time for the BPA, which is struggling to maintain financial stability and remain competitive in changing western energy markets.

Years of surging expenses led the agency to raise rates it charges the region's utilities, which passed higher costs onto ratepayers.

Some Northwest utility executives are considering -- when Bonneville contracts expire in 2028 -- buying more of their power elsewhere. How Bonneville navigates the next decade will have big implications for the price we pay for power, the fate of Columbia Basin salmon that must make their way through the federal dam system and the regional effort to cut carbon emissions.

"I take this very seriously. It's not about panicking, but it's about demonstrating that sense of urgency ... and ultimately it's about delivering results,' said Elliot Mainzer, Bonneville's administrator.

Daunting missions

Most of Bonneville's increased spending results from the twin burdens of maintaining the reliability of power production and bankrolling the regional effort to recover wild salmon.

Annual capital spending on the federal hydroelectric system, which encompasses 31 dams along the Columbia River and its tributaries, have climbed from nearly $60 million in 2002 to $185.6 million in 2018.

Yet, a third of the main-stem Columbia equipment has exceeded its design life, and unscheduled shutdowns have pushed the system's reliability below the hydroelectric industry average, according to a 2016 BPA report. To help turn things around, Bonneville plans to further boost annual hydro capital spending to $300 million by 2023.

During the past 40 years, the cost of helping salmon and other wildlife harmed by the dams has exceeded $17 billion. That includes more than $9 billion spent on hatcheries, land preservation, improving streams and hundreds of other projects. Part of the bill, $3.4 billion, reflects river water, rather than being run through turbines, spilled over dams to help fish make their way down the river.

This ranks as the nation's most expensive wildlife-restoration effort. So far, none of the Columbia Basin runs has rebounded enough to be removed from the protection of the federal Endangered Species Act.

Most of the money for all this work comes from 20-year contracts that public utilities, including Seattle City Light, have signed to take power produced from the federal dams and the Energy Northwest nuclear plant near Richland. Separately, public and private utilities pay fees to Bonneville to send electricity through thousands of miles of federal transmission lines, which require extensive maintenance and may also need to be expanded in the years ahead.

Other parts of BPA's annual revenue, which totaled $3.7 billion in 2018, come from selling power in California and other states. That cash stream has shrunk, dropping from $521.8 million in 2011 to $282 million in 2018 as new wind, solar and natural plants pushed down prices in western markets.

To meet financial obligations, Bonneville over the past nine years has increased -- by 30% -- rates charged to Northwest utilities. But there's a backlash: Some regional public-utility executives are considering lower-priced producers as they prepare for negotiations with Bonneville over new contracts that would take effect after 2028.

"We are increasing those conversations just to see what is available," said John Haarlow, chief executive officer of the Snohomish County Public Utility District, Bonneville's largest power customer. "We are leaving our options open, and doing our due diligence."

Any major defections by regional utilities would create problems for Bonneville, reducing the regional customer base that bears the financial burden of maintenance and salmon restoration. To cover expenses, Bonneville would need to push contract rates even higher. That could prompt more utilities to find other suppliers, further undermining its ability to fund operations.

Some question whether Bonneville is at risk of such a dire scenario.

But several years ago, at a closed-door meeting of regional utility officials, one speaker asked how many of those in attendance were contemplating alternative sources of power once the current contracts with Bonneville expire.

Most raised their hands, delivering what some described as a wake-up call to Mainzer, Bonneville's administrator, who was standing at the front of the conference room where the impromptu survey was taken.

In a later interview, Mainzer said he got the message, and that it was "certainly a contributing factor" to Bonneville's undertaking a campaign to cap expenses and keep contract-rate increases (calculated every two years) at or below the rate of inflation. He backed that up with a proposed rate increase of no more than 1.5% for the next two years.

Mainzer, 53, who has led Bonneville for six years, hikes, plays the saxophone and has an activist bent that as a young man brought him to Lesotho, Africa, to do research about dams for an environmental group.

At Bonneville, Mainzer took the helm of an agency that had been shaken by scandals that alleged discriminatory hiring and other serious violations of federal policies. He is credited with boosting morale and pushing staff to adapt to changing energy markets.

"I believe he is really looking for solutions that are creative ... I think he has done really good work," said Debra Smith, CEO of Seattle City Light.

In the future, Bonneville's bottom line is likely to receive a boost from the regional shift away from fossil-fuel electricity. Legislation passed in Olympia this year calls for all of the state's utilities to be off coal and natural gas by 2045. California and New Mexico have passed similar laws.

The BPA also proposes to improve operations and increase revenue by tens of millions of dollars by joining a rapidly expanding power-trading market.

The move would offer more and cheaper options for keeping in balance the demand for electricity with the supplies flowing through the federal transmission grid. This is a critical task for preventing power outages amid the dramatic short-term swings in power production of solar and wind farms.

Still, there does not appear to be a quick fix to Bonneville's financial problems. As pressures have mounted, the agency has drawn from cash reserves and borrowed from private lenders and the U.S. Treasury.

Debt has reached $15 billion, and Moody's Investors Service forecasts the financial crunch may worsen, possibly resulting in a downgrade of the credit rating in 2021 if the amount Bonneville has left to borrow from the U.S. Treasury falls below $1.5 billion.

BPA officials say they are taking steps to keep that borrowing authority at -- or above -- that $1.5 billion threshold.

Meanwhile, some are calling for deeper changes, including a rewrite of landmark 1980 federal legislation that lays out Bonneville's financial responsibilities for helping recover fish and wildlife.

"Is it time for a Northwest Power Act 2.0.? How do we create certainty for the costs?" said Rep. Mike Simpson, R-Idaho, in an April 23 address at a conference in Boise.

In his remarks, Simpson noted his frustration with the failure of billions of dollars of BPA spending to bring back healthy wild salmon runs to his home state. He appeared open to an alternative approach that would involve breaching four Lower Snake River federal dams that the fish must pass to migrate to and from Idaho spawning grounds.

Simpson said he and his staff have been asking a lot of "what if" questions to assess the range of impacts to shippers, farmers and the BPA that dam removal would bring.

"Some people are nervous that we are asking questions. They are questions that have to be asked," Simpson said.

A game-changer

Bonneville was founded in the aftermath of an epic collapse of American capitalism that galvanized a new and controversial effort by the federal government to jump-start economic development.

Grand Coulee Dam stands as one of the most ambitious public-works projects of President Franklin Roosevelt's New Deal. The aim was to provide vast amounts of electricity and enable irrigation of the central Columbia Basin.

Critics attacked it as wasteful government overreach that would create unfair competition for private power companies and for already established farmers struggling to sell crops in glutted U.S. markets.

Proponents championed Grand Coulee as a boon to the region -- and the nation -- that would offer resettlement opportunities for Dust Bowl refugees from Oklahoma and Texas and harness the immense energy potential of the Columbia River.

"We are going to see, I believe, with our own eyes, electricity and power made so cheap that they will become a standard article of use, not merely for agriculture and manufacturing but for every home within the reach of an electric transmission line," Roosevelt declared in a brief speech during a 1934 Grand Coulee visit.

Dam construction stretched on for almost another decade in the bleak economy of the Great Depression, and the western boom town of Grand Coulee became notorious for brothels and gambling. Among the 12,000 who found work there, more than 70 died. Two men perished when an 11-ton bucket of concrete fell onto their catwalk, catapulting them into the air, according to "Harness a Dream," a Grand Coulee history by Paul Pitzer.

By 1943, the completed dam would rise 550 feet, containing enough concrete to build a highway from Seattle to Miami. Folk balladeer Woody Guthrie, briefly employed by Bonneville to write songs, would famously proclaim Grand Coulee, "The biggest thing that man has ever done."

It was an impressive achievement, and Grand Coulee soon contributed power for the aluminum that went into World War II fighter planes and plutonium reactors at the secretive Hanford site in Central Washington.

In the decades that followed, Grand Coulee Dam added generating power and now provides, in a typical year, nearly a third of all BPA hydropower.

The dam's value to Bonneville is increased by the flexibility of the six largest units installed in a third powerhouse erected in the late 1970s. These nimble giants can help balance out the boom-and-bust flows of wind and solar energy by jumping on line in just 30 seconds.

But some have suffered lengthy service outages, requiring frequent repairs. And their overhaul begun six years ago is a priority for Bonneville. Rather than just refurbish parts as originally planned, the agency had to design and build some new pieces in a time-consuming process that has run roughly twice as long as forecast while costs have escalated from $100 million to more than $140 million.

As of this year, two units have been put back together, and a third should be ready to go by 2021.

Even then, the work will be far from over. A new contract will go out to bid to rebuild the next three units in the powerhouse -- a job expected to continue deep into the next decade.

The value of fish

Engineers and fish biologists considered Grand Coulee too big a barrier for chinook, sockeye and steelhead trout. So, as the dam went up, they did not include ladders or passages.

When completed, Grand Coulee blocked fish from spawning grounds that stretched north into British Columbia.

"There was a feeling that the vast economic gains to be derived from this project should not be endangered by consideration of the fish," wrote B.M. Brennan, director of Washington's Department of Fisheries, in a 1938 report. "It was felt in some quarters that the fish were not worth the money it would take to preserve them."

Today, the river reaches upstream from Grand Coulee remain barren of seagoing salmon. But Bonneville, since 1980, has been required by the Northwest Power Act and tribal treaties to finance efforts to restore salmon runs in the Columbia Basin.

The program, in the 12 months that ended in September 2018, cost $481 million and includes debt service and spending not only on salmon but also other fish and wildlife. The amount equaled 17% of that year's BPA power revenues.

Through the years, hatcheries have been a major part of the spending.

Some are intended to boost the numbers of salmon available for harvest. Others try to also produce some fish capable of spawning in the wild, hopefully helping to rebuild wild runs.

"Way back in '97, one of our senior researchers told me that if our project was successful, eventually we'd be out of job," said Charlie Strom, manager of the Yakama Nation Fisheries hatchery in Cle Elum.

More than 20 years later, Strom has plenty of job security. Some of the chinook reared at the hatchery do return to spawn in upstream reaches of the Yakima River, but even in a good year they still represent a fraction of the wild runs of centuries past.

As the regional debate intensifies over whether to remove the four Lower Snake River dams, it should be noted that much of BPA spending is focused on rebuilding runs in the Yakima and other Columbia River tributaries that would not be impacted by their breaching.

Regardless of what happens to the dams, the restoration effort faces daunting obstacles -- including climate change, which is projected to shrink the regional snowpack that helps keep waters cool enough for salmon.

During the drought year of 2015, the region got a grim preview. Temperatures climbed in the slack water pools behind the Columbia River to the point where an estimated 250,000 sockeye salmon died before they could reach their spawning grounds.

Pacific Ocean temperatures that year also warmed -- a phenomenon known as "the blob" -- that drastically reduced survival rates for young salmon as they migrated from fresh to salt water. This year, Yakima spring chinook returns from the 2015 class are dismal, expected to be only about 20% of the 10-year average.

"It's kind of scary," Strom said.

Climate change

Climate change has added urgency to the struggle to restore Columbia Basin salmon.

But Bonneville Power also faces more pressure -- from those who pay the bills -- to control and step up watchdogging of spending.

"If BPA is to remain competitive as a power supplier, continued increases in these (fish and wildlife) costs are unsustainable and unwarranted," wrote Scott Corwin, in a 2017 letter when he served as executive director of the Public Power Council, which advocates for Northwest utilities.

Tribes receive the largest share of the Bonneville fish and wildlife dollars, and have lobbied to maintain long-term funding for the restoration effort.

"If we're truly partners, we're partners in good times and bad," said Jaime Pinkham, executive director of the Columbia River Inter-Tribal Fish Commission. "A tribal treaty right is a larger commitment than a sales agreement between Bonneville and a utility."

So far, Bonneville approved for the current year a modest cut of some $30 million in the wildlife and fish restoration budget.

After years of federal court battles over how to operate the federal hydroelectric system, BPA's Mainzer last year reached out to the Nez Perce Tribe and state governments to negotiate what is hoped to be a better approach to spilling water over dams to help the downstream passage of young salmon.

In the early morning and evenings, when demand for power is strong and prices are high, more river flows pass through the turbines to generate electricity. In the middle of day, when solar in California cranks out so much energy that prices often dip below Bonneville's costs, more water will be sent over the dams to help young fish pass downstream. That was evident during an April visit to the Ice Harbor dam along the Snake when the river -- during the late morning hours -- cascaded over the spillway.

Mainzer said early assessments indicate this agreement is working pretty well.

Bonneville also has been required by a federal court ruling to conduct an environmental study of Columbia Basin hydroelectric operations. One of the four alternatives that must be considered is breaching the four Lower Snake River dams.

Critics of the Lower Snake dams note these hydroelectric units produce much of their electricity in the spring, when there already is a glut of power on the markets. Rather than investing hundreds of millions of dollars in maintaining them and helping to restore Snake River salmon runs, they say it makes more sense to remove them and replace them with other sources of renewable power.

Proponents say zero-carbon power will become increasingly important in the 21st century, and it would be a mistake to reduce the region's ability to produce this electricity.

In April remarks in Idaho, Mainzer said Bonneville will do "the hard work" to look at the consequences of dam removal for salmon and power production.

"The world has changed. We know that," Mainzer said.