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Transforming Powers by Rocky Barker and Paul Larmer High Country News, June 18, 2001

Drought, salmon and the deregulated electricity market
could end the Northwest's love affair with public power

For more than three decades, Ed Chaney battered away like a bare-knuckled prizefighter at the institutions he believed stood in the way of salmon recovery on the Columbia and Snake rivers.

He tongue-lashed the mighty Bonneville Power Administration for running every drop of water through hydropower turbines in 29 federal dams, instead of using some of it to push migrating salmon to the Pacific Ocean; he sued the Northwest Power Planning Council for abandoning its mission of balancing salmon with power production; and he challenged the federal government's barging and trucking of salmon downriver to avoid dams and turbines.

"I always tried to find the places where I could do the most damage," says the 59-year-old Chaney, who lives in Eagle, Idaho, outside Boise.

Chaney's activism burned brightly into the early 1990s, but finally it guttered out, even as Idaho's once-prolific salmon runs dwindled. Chaney turned back to his natural resource consulting business, and he let a new generation of activists try to budge the massive federal hydropower system.

But the reports of Chaney's retirement were greatly exaggerated. Like a maturing salmon, he was laying low, gathering energy for one last run up the river. Now, he says, the time has come.

"I'm excited. I've shut down my consulting business so I can work on this again," says Chaney. "We may never have a better chance to kick down the rotten doors of the establishment."

Chaney has been rejuvenated by a crisis in the Pacific Northwest's federal hydrosystem. At the center sits the Bonneville Power Administration, the quasi-federal agency that markets 40 percent of the Northwest's electricity and has funded salmon recovery efforts for the past decade. This year, a confluence of factors - record-breaking drought, increasing demand for power and soaring wholesale power rates - has left the venerable BPA vulnerable.

The agency that once had more power than it knew what to do with and sold it very cheaply for six decades, is scrambling to avoid California-style blackouts and financial disaster. In the last several months, it has jettisoned plans to provide migrating salmon with more water, told its residential customers to reduce their power consumption, and asked its largest industrial customer - the aluminum smelters - to cease operation altogether for a couple of years. All this so it can avoid buying power on the soaring open market. Things are so tight that BPA officials refused this month to pay the Yakama Indian Nation's bill for performing ritual rain ceremonies aimed at ending the Northwest's drought.

BPA is contemplating hefty rate hikes this fall that could cause trouble for aluminum companies, as well as farmers and food processing plants that use lots of electricity.

"I see it as the deindustrialization of the Northwest," says Brett Wilcox, CEO of Golden Northwest Aluminum, which owns two aluminum smelters in Washington and Oregon.

But where some see this year as the end of an era, others see it as a potential beginning. The crisis is breaking apart old alliances and forging new ones. And it is revealing, as never before, the complex political and economic relationships that for so long have held together the public power system at the expense of salmon. Reform is in the air.

It's enough to make an old warrior like Chaney almost gleeful: "I feel like Boris Yeltsin. I want to experience the euphoria of seeing the old system swept away."

Triage for salmon

To the casual observer, this would seem to be the worst of times for salmon advocates. As recently as December, federal officials were assuring Northwest residents they could save the region's 12 endangered salmon runs without removing dams. The outgoing administration approved a sweeping plan for habitat restoration, hatchery reform and alterations to the operations of the dams to aid salmon migration (HCN, 6/21/99: As salmon decline, feds draw the line).

Then California came up short of electricity and wholesale power prices skyrocketed. As it became evident that snowpack would stay at record low levels in the Columbia River Basin, BPA was forced to go to the wholesale market to meet the needs of its customers, adding millions to its costs.

In April, BPA declared a "power emergency" across Idaho, Washington, Oregon and western Montana. This exempted it from the new salmon plan, which would have required the Army Corps of Engineers to spill millions of gallons of water over eight federal dams on the Snake and Columbia rivers. These spills push migrating juvenile salmon more quickly through the series of slack-water reservoirs on their journey to the Pacific Ocean.

Instead, BPA acting administrator Steve Wright said the water would be sent through the dams' turbines. The agency stood to gain an additional 1,000 megawatts, roughly the amount of electricity needed to power Seattle. That power would cost the agency more than $1.4 billion if purchased on the open market, according to BPA officials.

"This was a difficult decision, but the drought has so depleted water supplies that the reliability of the region's electricity system is in peril," said Wright.

Salmon advocates, who are headed to court over the decision, say BPA has ensured that this year's instream conditions will be devastating for migrating salmon, even though BPA has provided some limited spills in recent weeks. To keep juvenile Snake River salmon from perishing in bathtub-warm reservoirs filled with predator fish, the Army Corps of Engineers will barge and truck 90 percent of them around the dams.

"I think it's accurate to say that 95 to 98 percent of the juvenile out-migrants are doomed," predicts Pat Ford, a Chaney protege and executive director of Save our Wild Salmon, a coalition of environmentalists, fishing interests and businesses.

Fish advocates say that BPA should be aggressively purchasing and leasing agricultural water for salmon this year, as was required by the federal government in December's Biological Opinion. They point out that more water in the river means more power production as well. BPA has found some additional water in central Washington, but it has not sought water in Idaho, where the governor and Legislature oppose giving up stored water to help salmon.

Ford says, "It's easier to stick it to the salmon than to take on Idaho farmers and Idaho Power."

But though Ford, like Chaney, chafes at BPA's lack of commitment to salmon this year, he knows that the 64-year-old agency is feeling the heat. Though BPA maintains it has no choice but to sacrifice fish to meet power demands, a growing number of people, including some in the Pacific Northwest's media, recognize that the decision has more to do with BPA's financial health than with potential rolling blackouts.

"BPA has decided to generate every kilowatt of power from the dams that it can, to avoid having to buy power on the market," says Ford. "They say they are unable to provide flows for fish; we say they are unwilling. They say God created the crisis; we say it is man-made."

"This year's situation is a big opportunity for the nation and the region to see the weird arrangement by which the Northwest has cobbled together a power system," Ford adds. "People in the Northwest want both salmon and a reliable, affordable energy system. Right now, they are getting neither."

Power to burn

When BPA was created in 1937, salmon weren't even on the radar screen, and Bonneville and Grand Coulee dams alone produced more electricity than the region could use.

Then came World War II. The aluminum industry arrived in the Northwest and, with BPA's cheap electricity, turned ore into metal and metal into bombers. Farmers were given cheap rates to pump deep groundwater. Desert irrigation expanded to more than a million acres from the 1950s to the 1980s, as BPA and even private power companies sought to increase demand. One of those farmers was Del Ray Holm of Roberts, Idaho, who pumps water with electric motors from as deep as 900 feet below the eastern Idaho desert to grow potatoes and wheat.

"The power company begged us to drill these wells," Holm said.

As late as the 1970s, Kaiser Aluminum Corporation's Bruce McPhaeden argued that construction at the dams was made possible by his industry's vast consumption of power. "We built them," he claimed at the time. "We paid for them."

But the system began to falter as the number of people wanting access to cheap federal power grew. In 1976, BPA administrator Don Hodel wrote customers, warning them that the agency could not guarantee a firm supply of electricity after 1983. In response, public and private utilities invested in the Washington Public Power Supply System's grand plan to meet the growing demand with five nuclear power plants. Delays and reduced demand due to conservation led the companies to scrap all but one of the nuclear plants, and the bonds on the project went into default in 1982. To keep the system from falling apart, BPA decided to pick up most of the debt.

Even before the WPPSS fiasco, the region's utilities recognized the need to make BPA work better for both public and private electricity customers. They went to Congress for help. Ed Chaney and a handful of other salmon advocates saw an opportunity to give salmon a voice during the legislative debate over the Northwest Power Act of 1980. Already, federal scientists were considering listing Snake River salmon under the Endangered Species Act. But instead of pushing for listing then, advocates urged Idaho Sen. Frank Church and Rep. John Dingell of Michigan to insert language in the Act that gives salmon "equitable" status with power production on the Columbia River system.

"I spent 10 years of my life working on the Northwest Power Planning Act," says Chaney. "I believed in it. It says: 'This is an emergency; supply water for salmon; give salmon equitable treatment with power production.' How much plainer can you get?"

But the difference between "equal" and "equitable" was large enough to allow BPA and the aluminum industries to continue business as usual. An electricity surplus and high water in the 1980s let them paper over the conflict.

But despite hatcheries, fish ladders and barges, funded in the aftermath of the Power Act, salmon numbers kept declining. When fish advocates started calling for stronger measures, the BPA balked. In 1991, activists turned back to the Endangered Species Act and got the Snake River runs listed.

The ESA has forced federal agencies to take additional steps on behalf of fish, including sending larger spills over the dams. It has even led to bureaucratic consideration of removing four Snake River dams (HCN, 12/20/99: Unleashing the Snake). But it was another law that turned this year's drought into a crisis for BPA.

Deregulation sets the stage

In 1992, Congress deregulated wholesale electricity, allowing utilities to sell their power on the open market. The West as a whole had lots of cheap power, thanks to large snowpacks and excess capacity in coal-fired generating plants. The power surplus sent wholesale prices below BPA's cost-based rate.

In 1995, as BPA negotiated new five-year contracts, aluminum companies saw greener pastures on the open market. But the agency was desperate to retain them; revenues from aluminum companies allow BPA to pay its regular debt to the U.S. Treasury for the dams and transmission system - $700 million a year - as well as the WPPSS debt. The money also pays for most of the salmon restoration work. So Bonneville cut its price to the aluminum industry by 40 percent. It also allowed the companies to resell the power they buy at cost on the wholesale market. Most of the companies took the deal.

Ford and other environmentalists warned that selling lots of cheap power to the aluminum companies would make power more expensive for small farmers and residential customers and hurt salmon recovery. But the message fell on deaf ears. At the same time, BPA abandoned energy conservation, wind power and other alternative energy approaches.

No one predicted how sweet the aluminum deals would turn out for the industry. When California's energy crunch drove wholesale prices up to $800 a megawatt-hour late last year, some aluminum companies shut down and sold their $22 per megawatt-hour BPA power on the open market. Financial analysts say the companies have reaped profits of more than $1 billion.

Now, as it prepares new five-year contracts for all of its customers, a red-faced BPA has made it clear that there will be no "remarketing" provisions. Adding to the stress of a drought year is the abrupt return of the aluminum companies and utilities that had left BPA for lower prices. The annual amount of energy BPA must provide has risen to 11,000 megawatts, says BPA spokesman Mike Hansen. But the dams can only produce 8,000 megawatts in a dry year, he says, which means BPA will need to buy 3,000 megawatts on the wholesale market.

"We can't afford it," says Hansen. "We'll have to raise rates for our customers by 250 to 300 percent."

To keep the rate lower - a raise of 100 percent or below - BPA has gone on the offensive. Not only has it taken water from fish, but it has asked public and private utilities to reduce their BPA load by 10 percent. More contentiously, it has asked aluminum companies to shut down for at least two years; the agency has proposed paying the companies enough to pay their 7,000 workers if they don't use public power. BPA has also told the companies they will be cut off entirely from public power after 2006.

Several of the 10 companies - including Alcoa and Columbia Falls - have agreed to shut down for two years. But the industry isn't happy. Without cheap electricity, it can't compete on the global aluminum market. The industry believes the Northwest Power Act of 1980 requires BPA to sell it power. The Northwest's public and private utilities disagree; they don't want to charge their customers higher rates to subsidize aluminum.

As the rate-case proceedings draw to a close in June, the split between the aluminum companies and the utilities has widened into a public relations and lobbying war that goes from the banks of the Columbia all the way to the White House. The aluminum companies say that BPA should cut them another special deal because small mill communities have come to depend on them. The Public Power Council, which represents 150 customer-owned utilities around the Northwest, says a special deal for aluminum could cost nearly 60,000 jobs in the urban sections of the region.

"When the aluminum industry got cheap deals in the past, it didn't pull down the whole Northwest," Jerry Leone, manager of the Public Power Council, told the Seattle Times. Now, he says, it could.

The fight makes it clear that the Northwest's economy has shifted. Today, high technology companies like Microsoft, Intel Corp. and Micron Technology have more clout than the timber, agriculture and metal industries on which the region was built. The new economy doesn't need cheap power to compete on the world market. It needs reliability.

"You are seeing the waning days of the electricity industries and the dawning of the electronic industry," said Jan Packwood, president and CEO of Idacorp, the holding company of Idaho Power Co. "The customer has fundamentally changed."

It's not just aluminum that is vulnerable. Drying up one acre of irrigated land would save $422 in electricity in the Snake River area, at 10 cents a kilowatt-hour, according to University of Idaho economist Joel Hamilton. In other words, water is more valuable generating electricity than it is growing crops.

But if farmers quit pumping water out of the rivers, the hardware stores, machine shops and implement dealers they support will suffer. Fewer crops and increased electrical costs could force the region's food-processing industries to go where transportation costs are lower. Permanently drying up thousands of acres could have a profound effect on the economies of rural Idaho, Oregon and Washington, which are already hurting due to low crop prices.

The path to reform

The possible demise of traditional power-dependent industries doesn't sadden salmon advocates. The 1,500 megawatts that BPA currently provides the aluminum industry alone represents a lot of water that could be helping salmon, says Ford.

"To restore salmon in the Columbia and Snake we need to take the pressure off that federal hydrosystem. We must be willing to generate less kilowatts," says Ford. "As long as aluminum companies are on the system at below-market rates, they will eat up the margins that in most years will help fish."

But Ford says the departure of the aluminum industry and even of some power-dependent farmers won't be enough to recover salmon. His coalition and the tribes in the river basin have their eyes on the bigger prize: the four federal Snake River dams.

Dismantling dams that can produce enough power to light a major city might seem like a far-fetched idea at this time. Some certainly think so:

"In just a few short months the 'paltry' 5 percent of Northwest power generated by the Snake River dams - the same energy that dam-breachers loudly marginalized in the past - is suddenly more valuable than liquid gold, and harder to come by," says Frank Carroll, spokesman for the Potlatch Corporation in Lewiston, Idaho. "Until we solve this energy situation, everything else is a moot point."

But, as BPA's history suggests, change can happen rapidly once market forces are set in motion. Already, the crisis has prompted the agency to become more aggressive about energy conservation, an area in which it led the nation until the early 1990s. It also is encouraging alternative energy development, such as fuel cells, and renewable energy, such as wind power.

In April, the agency was overwhelmed by proposals for wind generation. It had hoped for 1,000 megawatts; it received 25 proposals adding up to 2,600 megawatts - more than twice the electricity generated at the four lower Snake dams.

"The response blew us away," said George Darr, BPA's renewable power resource program manager.

Dozens of natural gas turbines are also in the works across the West (see sidebar). These and other decentralized sources of electricity more closely meet the reliability needs of the new high-technology businesses. BPA officials say they expect the current crunch to last for two years or so, after which prices on the wholesale market should fall, especially if snowpack returns to normal.

Salmon advocates say the increased power capacity will aid their cause. "Every megawatt we bring on line diminishes the importance of those Snake River dams," says Ed Chaney.

The activists have an ally in Oregon Gov. John Kitzhaber, who supports dam breaching. Kitzhaber harshly criticized BPA for sacrificing fish spills this year, and broke with generations of Northwest politicians when he suggested BPA miss its federal debt payment this year. The money, he said, could better be used to help offset the effects of the drought on salmon.

But BPA does not want to nationalize the issue by throwing a financial burden onto the U.S. Treasury. "There are interests outside the region that want to see the benefits of this system directed toward other purposes," administrator Wright says. "They could take great political advantages of the opportunity that would be presented if BPA did not cover its costs."

BPA fears that the Pacific Northwest will lose its exclusive access to public hydropower. That drumbeat has already been heard on Capitol Hill this year. In early May, the Northeast-Midwest Institute, which provides information on energy issues for congressional representatives from the Northeast and Midwest, released a report that questions whether the federal government should even be involved in the electricity business in the 21st century. Richard Munson, the institute's director and the author of Rethinking Bonneville: Why BPA Must be Reformed, points out that if the Bush administration is serious about putting the energy marketplace to work, it should start by forcing BPA to charge market rates for its power. The extra money it makes could go toward salmon restoration and the development of alternative energy sources, Munson says.

Munson also points out the ironic position of the Pacific Northwest's Republican politicians. They are highly protective of BPA and its subsidized power, but oppose price caps on California's electricity rates as meddling in the marketplace.

A long shot

But getting Congress or the Bush administration to take up BPA reform is a long shot, according to most observers. So far, BPA seems to have weathered the storm. In early June, it announced that its efforts to save power have started to pay off: On June 5, 16 days before the agency had to file its rates with the Federal Energy Regulatory Commission, Steve Wright said BPA was halfway toward its goal of keeping the fall rate increase below 100 percent.

In the long run, the extent to which the public power system shifts depends on the length and severity of the current crisis, and on the ability of activists to spread their message to a national coalition.

The rest hinges on the salmon. This year's migrating juvenile salmon will likely return in very low numbers as adults, according to fish biologists. That news will break three years from now, when the region's power situation could be much different: Ample snowpacks, a flood of new power supplies, and energy conservation measures could leave the Northwest awash in cheap energy. Instead of aluminum, with its endless hunger for the cheapest and most plentiful energy, BPA will be dominated by the metropolitan areas, with their appetite for dependable energy, and their greater sympathy for the salmon.

At that point, Chaney and Ford and their cohorts believe the four Snake River dams will look dispensable.

"The stars might be aligning," says Ford.

Ed Chaney hopes to move some of those stars into place himself. He has started stumping for the total revamping of the region's power system, this time taking his message to the Northwest's business community and the congressional delegations outside the region who possess the power to rock BPA's world.

"We must not make the mistake of trying to reform these institutions. The institutional rot and inertia is too deep," he said in a recent speech to the Northwest Energy Coalition. "We must seize this opportunity to once and for all sweep away the institutional and structural impediments to achieving the unrequited promise of the Northwest Power Act - restored salmon and steelhead runs and a reliable, sustainable Northwest power supply."

A long shot, no doubt, but then again, Ed Chaney and the wild salmon runs that survive in the Columbia Basin have always fought the odds.

YOU CAN CONTACT ...

Save Our Wild Salmon, 206/286-4455, www.removedams.org
Bonneville Power Administration, Ed Mosey or Mike Hansen, 503/230-5131, www.bpa.gov
Ed Chaney, 208/939-0714;
Northeast Midwest Institute, 202/544-5200.
To view the institute's report, Rethinking Bonneville: Why BPA must be reformed , go to its Web site, www.nemw.org/rethinkingbonneville.pdf