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V J BPA COMPETITIVENESS Y4.31/3:103-20/PT.4 BPft Conpetitiveness, Serial No. 103...xff Bearing BEFORE THE TASK FORCE ON BONNEVILLE POWER ADMINISTRATION OFTHE COMMITTEE ON NATURAL RESOURCES HOUSE OP REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION ON COMPETITIVENESS OF THE BONNEVILLE POWER ADMINISTRATION HEARING HELD IN EUGENE, OR SEPTEMBER 25, 1993 Serial No. 103-20 PART IV Printed for the use ofthe Committee on Natural Resources BPA COMPETITIVENESS OVERSIGHT HEARING BEFORE THE TASK FORCE ON BONNEVILLE POWER ADMINISTRATION OF THE COMMITTEE ON NATURAL RESOURCES HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS FIRST SESSION ON COMPETITIVENESS OF THE BONNEVILLE POWER ADMINISTRATION HEARING HELD IN EUGENE, OR SEPTEMBER 25, 1993 Serial No. 103-20 PART IV Printed for the use of the Committee on Natural Resources U.S. GOVERNMENT PRINTING OFFICE 76-069 WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-043638-9 COMMITTEE ON NATURAL RESOURCES GEORGE MILLER, California, Chairman PHILIP R. SHARP, Indiana DON YOUNG, Alaska, EDWARD J. MARKEY, Massachusetts RankingRepublican Member AUSTIN J. MURPHY, Pennsylvania JAMES V. HANSEN, Utah NICKJOE RAHALL II, West Virginia BARBARA F. VUCANOVICH, Nevada BRUCE F. VENTO, Minnesota ELTON GALLEGLY, CaUfomia PAT WILLIAMS, Montana ROBERT F. SMITH, Oregon RON DE LUGO, Virgin Islands CRAIG THOMAS, Wyoming SAM GEJDENSON, Connecticut JOHN J. DUNCAN, Jr., Tennessee RICHARD H. LEHMAN, California JOEL HEFLEY, Colorado BILL RICHARDSON, New Mexico JOHN T. DOOLITTLE, California PETER A DeFAZIO, Oregon WAYNE ALLARD, Colorado ENI F.H. FALEOMAVAEGA, American RICHARD H. BAKER, Louisiana Samoa KEN CALVERT, California TIM JOHNSON, South Dakota SCOTT McINNIS, Colorado LARRY LaROCCO, Idaho RICHARD W. POMBO, Cahfomia NEIL ABERCROMBIE, Hawaii JAY DICKEY, Arkansa-3 CALVIN M. DOOLEY, California CARLOS ROMERO-BARCELO, Puerto Rico KARAN ENGLISH, Arizona KAREN SHEPHERD, Utah NATHAN DEAL, Georgia MAURICE D. HINCHEY, NewYork ROBERT A UNDERWOOD, Guam SAM FARR, California LANE EVANS, lUinois PATSY T. MINK, Hawaii THOMAS BARLOW J. III, Kentucky THOMAS M. BARRETT, Wisconsin John Lawrence, StaffDirector Richard Meltzer, General Counsel DanielVal Kish, Republican StaffDirector Task Force on Bonneville Power Administration PETERA DeFAZIO, Oregon, Chairman PHILIP R. SHARP, Indiana ROBERT F. SMITH, Oregon, PAT WILLIAMS, Montana RankingRepublican Member RICHARD H. LEHMAN, Cahfomia BARBARA F. VUCANOVICH, Nevada LARRY LaROCCO, Idaho CRAIG THOMAS, Wyoming GEORGE MILLER, CaUfomia JOHN T. DOOLITTLE, Cahfomia (Ex Officio) DON YOUNG, Alaska (Ex Officio) Daniel M. Adamson, Professional StaffMember Jeffrey K. Stier, StaffAssistant Linda Gordon Stevens, Clerk Ted Case,Republican Consultant on Oversight & Investigations (II) CONTENTS Page Hearingheld: September25, 1993 1 Memberstatements: Hon. PeterA. DeFazio 1 Hon. LarryLaRocco 2 Witness statements: Hon. James Weaver, former Representative in Congress from the State ofOregon 3 Panel consistingof: TRaonmdaTlrluWlo.veH,arWdays,hAidnmgitnoinstrcaoutnocri,lBmonenmebveirll.eNPoorwtehrweAsdtminPioswterratPiloann-. 5 ning Council, accompanied byAngus Duncan, Oregon council member 47 Judith Merchant, Director, Washington State Energy Office 62 Panel consistingof: Paul Lorenzini, President, Pacific Power, a divisionofPacifiCorp 94 William K. Drummond, Manager, PublicPowerCouncil 105 Robert V. Myers, Senior Vice President, Operations, Puget Sound Power& LightCo 119 Richard G. Reiten, President, Portland General Electric 137 Mark Crisson, DirectorofUtilities, Tacoma Public Utilities, onbehalf ofPublic GeneratingPool 151 Fergus A. Pilon, General Manager, Columbia River People's Utility District, onbehalfofNon-GeneratingPublic Utilities Group 164 KC. Golden, Executive Director, Northwest Conservation Act Coalition 184 Panel consistingof: JohnD. Carr, Executive Director, DirectService Industries, Inc 217 JeffShields, General Manager, Emerald People'sUtilityDistrict 224 David E. Piper, Executive Vice President and General Manager, Pa- cific NorthwestGeneratingCooperative [PNGC] 245 KermitW. Scarborough, Chairman, CanbyUtilityBoard 253 Donald R. Clayhold, Manager, Benton County PubUc Utility District, Washington, onbehalfofNorthwestIrrigation Utilities [NIU] 330 William P. Kittredge, Director, SpringfieldUtilityBoard 350 Supplemental material submittedfortherecord fi*om: KermitW. Scarborough, CanbyUtilityBoard: 1. Supplemental testimony 279 2. "Wholesale Power Rate Design Study," Appendix A ^Value of Reserves Analysis, prepared by the BonneviUe Power Administra- tion, U.S. DepartmentofEnergy, May 1985 299 3. Participant comments, Bonneville Wholesale Power Rate Proceed- ing, DocketWP-93 andTR-93, andexcerptofwitness testimony ... 315 4.Views onDSI contracts 321 APPENDIX September 25, 1993 Additionsil material submitted forthehearingrecordfi-om: Pacific Power: Letter to Hon. Larry LaRocco fi-om Paul Lorenzini dated October 22, 1993, in response to a request for information about BPA's fundingofregional fish andwildlifeprograms 381 Pacific Northwest Utilities Conference Committee: Letter to Northwest Power Planning Council dated August 13, 1993, commenting on the proposedPhase IV ResidentFish andWildlife amendments 383 (HI) IV — Additionalmaterialsubmittedforthehearingrecordfrom Continued Page NorthwestIrrigationUtilities: LettertoChairman DeFazio dated October 28, 1993, in regardto summerenergyvalues 397 Columbia Basin Institute: 1. Prepared statement, "BPA's Irrigated Agriculture Policy: Water Conservation andEnergy Pricing,"November 1993 399 2. "Issues in BPA's 1993 and 1995 Rate Cases: The Irrigation Dis- count, Conservation and Hydropower Opportunity Costs," October 1992 411 COMPETITIVENESS OF THE BONNEVILLE POWER ADMINISTRATION SATURDAY, SEPTEMBER 25, 1993 House of Representatives, Task Force on Bonneville Power Administration, Committee on Natural Resources, Washington, DC. The task force met, pursuEint to call, at 9:30 a.m. in the Council Chambers, City Hall, Eugene, Oregon, Hon. Peter DeFazio (chairman ofthe task force) presiding. STATEMENT OF HON. PETERA. DeFAZIO Mr. DeFazio. Let us get started. We have got 17 witnesses and a lot of ground to cover. We hope to get out here while the sun is still shining so some people can enjoy this fabulous fall day. I have a briefopening statement, then Mr. LaRocco may want to say some opening words and then we will move on to the witnesses. First a little bit about procedure. Those who were in Boise yesterday or who have testified before know you have allocated time. I usually start these hearings by sajdng that I have read every piece of testimony. In this case because of the press of business, I have not read all of the testimony, but I have read most of it. It is most helpful if you summarize your statement. Yesterday, we had some very good dialogue where subsequent witnesses com- mented on, rebutted or expanded upon points made by prior witnesses. That is always very helpful to the committee. So it is your time to use as you wish. If you want to just plod through a prepared statement, that is fine. Ifyou can be more spontaneous, that is great. When the yellow light goes on you have got one minute. When the red light goes on you are done. We will strictly enforce the time lines, and you will get to finish your sentence essentially. This is the fourth hearing of the task force. Yesterday, in Idaho, we did a hearing entirely devoted to the issue of salmon and the related factors that affect the system in the Northwest, particularly river flows and drawdowns and a number of other issues, and de- bated a lot of biology. Today, issues are more nuts and bolts, and perhaps go a little bit more to the heart of the future of the provi- sion ofpower supply in the Pacific Northwest. I have had some people in the industry say to me, well, why all this talk about competitiveness and why the changes that are being proposed? Why can things not be the way they are? We have even had some testimony in a couple of hearings to that extent, or why can they not be the way they were? Well, the world is changing (1) very quickly around us, and those who followed the Energy Act last year know that I was one of the few conferees to vote against it. There is some good in that and some bad in it and there are some real imponderables. One of the great imponderables for us in the western United States is what it is going to do in terms of transmission in this movement toward open access of transmission and what that means for power providers and purchasers in the West. In fact, I just heard about a move by a very large multinational firm that is looking at setting up a power futures market in the western United States, dependent upon wheeling. We might even go beyond that. You know, there was a day in Springfield, where I live, where we had retailers competing street by street, house by house. There is a question of whether or not we have created that with the Energy Act that passed last year, which I am afraid that many ofmy colleagues did not fully understand. So the times are changing, and BPA and the rest ofus are going to have to change with them. So, it is very timely to discuss t—he competitiveness of BPA. Vice President Gore has proposed to I nheastse irte,vbiuetwhgeoicnagl.lsWiet raerienvbeengtinBnPiAn.gBtoPAquehsatsioitnstohwenwcaoympweteithiavvee- done things and how we are going to do them in the future. But one thing needs to underlie all of this, and the first witness, I think, will underscore it. That is, in my very strong opinion, any- body who thinks that we are going to have competitiveness, unbundling of services, or reinvention of BPA as a way to get out from the mandates of the Northwest Power Act is dead wrong. At least, I will do my best in the United States Congress to see that does not happen. I think the Act was right on target, and that was one ofthe reasons I voted against the Energy Bill last year. It was not enough on target in moving this country toward a long-term conservation, renewable, affordable energy power path, including good consideration ofenvironmental impacts. The Northwest Power Act did that. That is not to say there will not be dramatic changes, but it will shape those changes. So those few recalcitrants out there who hold out the hope that this is the way to escape from those mandates, that is not going to happen. So adjust your thinking a little bit and work creatively with us as we grow into the next cen- tury. With that, I first will see if my colleague Mr. LaRocco has any opening remarks. STATEMENT OF HON. LARRYLaROCCO Mr. LaRocco. Mr. Chairman, you had brief remarks and I have even briefer. I just want to thank you for being in Boise, Idaho, yesterday to discuss the salmon issue. I am pleased to be in your district, and to the people of your district, I just want to say as a colleague and member of the Natural Resources Committee, there is not another member in the whole House of Representatives who is more familiar with these issues than you. I look forward to the testimony today. This is an issue of great interest to me. I do not have the grasp of it that you do, so I will be listening intently. I am very pleased to sit on the task force with you. I tlunk you are doing a greatjob and I look forward to it. Mr. DeFazio. I thank you for being here, Larry. With that, I am going to move to the witness list. I would just like to give a brief introduction. I do not usually do introductions of witnesses, and this is one that really does not require one, but Ijust feel that it would be appropriate. Jim Weaver is familiar to most of you. He is my former boss. In part, my early interest in and knowledge of power issues came from working with Jim, particularly during the struggle over t—he Northwest Power Act. And I would say that if acts—have fathers and I do not know whether we really can say that Jim would be the father of the Act and the principal architect in the House of Representatives. I am really pleased to have him here today to lead offthe witnesses in what will perhaps be the next round ofhistoric changes in the way we look at our power system in the Northwest. With that, the Honorable Jim Weaver. STATEMENT OF HON. JAMES WEAVER, FORMER REPRESENTA- TIVE IN CONGRESS FROM THE STATE OF OREGON Mr. Weaver. Thank you, Mr. Chairman. I want to compliment Chairman DeFazio and his distinguished colleague. Congressman LaRocco, for setting up and establishing this watchdog committee. I think that is a marvelous thing that you have done, Mr. Chair- man. The BPA needs watching. It acts like a private utility, not a public agency. Indeed, it is closer to the utilities than the public it sup- posedly represents. You know, Chairman DeFazio has a long history ofkeeping the BPA in line, all the way back to his suit on net billing, which is long forgotten now, but was an accounWtPinPg ruse he saw rightly as an underhanded way to finance the nuclear plants with tax dollars and electric bill dollars without voter approval. That is why the BPA needs watching, because they can do so many things without the public being represented. Indeed, when I filibustered the Northwe—st Power Bill in the House in 1980, one of my key amendments that is how you filibuster in the House, as you know. I had 115 amendments, each al- lowing me five minutes. One ofmy key amendments was to require voter approval of any BPA-backed bond issues. Oh, did they fight back. This public agency and their utility allies did not want and do not want the public to have any say in their empire building, but the public had to pay for it. Our electric bills are at least twice as high today because they spent our money like water on WPPSS without voter approval. Chairman DeFazio and I studied the history ofthe BPA. We read the Congressional debate in 1937 when the BPA Act was up for consideration in the House. Leading the debate was that grand old man of Oregon politics, former Governor Walter Pierce, a fighting populist who went on to serve four or five terms in the House. Do you know what Co—ngressman Pierce said in that debate—? He said quote, "The BPA" it was being established by the Act "will be the people's agency to provide everyone with low-cost electricity." Now that was nice. But in that same debate. Pierce, wise in the ways of government and power added the oppression clause. "But I know," he said in the floor of the House, "that in a matter of years, the BPA will be captured by the utilities and corporate inter- ests and taken away from the people." And, of course, that hap- pened. Even the small public utilities were captured. Once at a convent—ion, I actually heard a former BPA adminis- trator, Charlie —Luce it was here in Eugene in a speech to hun- dreds of people Luce said, quote, *The people are our enemies." He was applauded. This was in 1980. What he meant was that they wanted to build a more, bigger and costlier empire, and public groups were trying to stop them. Has the BPA changed today? Not much. It is obvious it still regards itself as an arm of the utility industry. Its halfhearted attempts at conservation amount to little more than lip service. Utilities want to sell more electricity. Cer- tainly, that is their job. I understand that. But BPA is not a private utility. Mr. Chairman, I would like to make a proposal for legislation af- fecting the BPA. This legislation barkens back to another amendment I offered during the filibuster of the Northwest Power Bill, and th—is amendment almost passed. The vote in the Interior —Com- mittee ^which you now call the Natural Re—sources Committee the vote in the Interior Committee was 21-21 I had to go over to the floor of the House and get Austin Murphy, who promised to vote with me, back to make it 21-21. And that was under intensive lob- bying against it by the utility industry and its allies. Indeed the Oregonian newspaper was adamantly opposed to it. But I saw re- cently that the Oregonian had editorialized for the approach I am about to mention, and it is called two-tier rates. I first introduced the idea oftwo-tier rates over 20 years ago. By the way, both for gasoline as well as electricity. It is something I think that would go a great way toward resolving most of the conservation issues that we face. Let me explain briefly how two-tier rates work. They mean simply that the first amount of electricity you purchase is at a low rate. If you are prudent with use of electricity and use conservation methods, you may have only to pay that low rate. Those that use more electricity would pay a much higher rate. They would be penalized for extravagance. The utility itself would adjust these rates to receive on average the same amount ofdollars they would under any other rate structure. When I first introduced this 20 years ago, the utilities screamed that poor people with leaky houses would bear the brunt ofthis approach. It was, of course, the first time utility executives ever con- cerned themselves with poor people except to cut off their electricity when they did not pay their bills. The answer to this, of course, is to insulate those \eaky homes, providing, by the way, lots ofjobs in local communities. There are, ofcourse, Mr. Chairman, many complications involved in two-tier rates, but there are just as many complications in present rate structures. BPA under legislation could strongly moti- vate local utilities to implement two-tier rates while leaving precise details to the local communities. I encourage the Chairman, if he has not already done so, to introduce a bill requiring BPA to implement two-tier rates. In closing, I have always hoped that my local utility, EWEP, would do this. It is another public agency that also acts like a private utility.