Changing times force agency to swim upstream

  Three lobbyists in suits strode down the marbled halls of the Senate office building one day last fall.


Their mission: to convince the Northwest's congressional delegation to fight a bill requested by the Bonneville Power Administration. The bill would exempt three runs of imperiled Snake River salmon from federal protection.


The men turned into a senator's office and extended their hands to the staffers: "Hello, Tim Stearns, Save Our Salmon Coalition; Hi, Gary Barber, representing Portland General Electric; Hello, Steve Weiss, Salem Electric Co-operative."


"We would walk in and their jaws would just drop," recalls Weiss with a chuckle.


It is indeed an alliance to make jaws drop. It may also be good news for salmon. For years, salmon advocates have waged a lonely battle against the federal dams BPA controls on the Snake and Columbia rivers, and the economic and political clout it wields as a result of the cheap power the dams generate. The entire region has prospered on the agency's cheap electricity. But the salmon have been driven to the point of extinction.


So why would traditional BPA allies - utilities - join the environmentalists? The short answer is that BPA is struggling for its life, and to survive, it is trying to cut programs that benefit both salmon and utilities.


The BPA's woes began back in the 1970s, when it began to build nuclear power plants. Escalating costs and a drop in power demand led BPA to abort the project, leaving it with a $7 billion debt and rate increases during the 1980s that mounted to 400 percent.


Then, in the early 1990s, the bill for the dams' destruction of salmon started coming due, and was handed to BPA. The obligation grew each year, topping $400 million in 1994.


Accumulated debt and imperiled fish weakened BPA. But it took price competition to send it into a financial panic. Cheap natural gas and new technology have allowed gas-fired plants to produce energy as cheaply as the big federal dams. And thanks to the 1992 Energy Policy Act, BPA and all other utilities must let anyone use their transmission lines to sell power to companies within their territory.


Suddenly, independent power producers, investor-owned utilities and deal makers are competing for BPA's customers, just as Sprint and MCI compete for AT&T; customers.


In response, BPA last year started to downsize, letting middle managers go and slimming programs. Then early this year it asked Congress to cap its fish-saving costs and grant it immunity from costly environmental lawsuits.


BPA also cut payments to public utilities for energy conservation and suggested axing a program aimed at investor-owned utilities that reduced residential bills an average of $8.33 a month per household. Investor-owned utilities said the loss would force them to raise their rates 14 to 30 percent.


BPA's once-tranquil kingdom was suddenly in disarray. "BPA used to make so much money that it made political peace in the region," says Weiss, who also serves as a policy analyst for the Northwest Conservation Act Coalition, a consortium of 70 utilities and environmental groups. Now, the once-flush agency had to choose between a long list of competing interests.





Courting the big contracts


Nothing better illustrates BPA's struggle than the agency's battle this fall to hang on to a group of aluminum company customers known as the Direct Services Industries.


BPA knew that other power producers and marketers were courting the aluminum smelters, so in early spring it offered them five-year contracts with a 12.7 percent rate cut. But the DSIs didn't bite. In fact, three of the 16 signed contracts with competitors.


A stunned BPA regrouped. At the top of its proposals was a provision that would free the Direct Service Industries from any responsibility for the nuclear debt should they leave BPA in the future.


In late September, the agency held a public hearing in Seattle to explore the possibility. Lorri Bodi, who was there as co-director of American Rivers' Northwest office, said the aluminum companies played hardball. "They said, "If you don't give us reduced rates and grant us immunity from your debt, we won't sign and we will leave you with a huge financial problem," "''''Bodi recalls.


Shortly after, BPA offered the DSIs five-year contracts with both reduced rates and debt-exemption.


In response, environmentalists and investor-owned utilities whipped out almost identical press releases.


"BPA wants to let its biggest customers off the hook while leaving farmers, small utilities, residents and fish holding the bag," said Charles Ray of Idaho Rivers United.


"It appears that BPA is attempting to shift its (nuclear) debt costs to residential customers," said Gary Swofford, a vice president of Puget Sound Power & Light, an investor-owned utility serving the area outside Seattle. "That is unfair and unjustified."


The alliance caught BPA by surprise. "That was a first," admits BPA spokesman Perry Gruber. It also surprised Northwestern lawmakers, including Oregon Republican Sen. Mark Hatfield. As chairman of the Senate Appropriations Committee, he was trying to pass a bill capping spending on salmon. The new coalition urged Hatfield and the Clinton administration to make BPA obey environmental laws protecting the salmon and to reject the five-year contracts with the aluminum manufacturers. The administration listened.


In late September, the DOE officials summoned BPA administrator Randy Hardy to Washington, D.C., and scolded him for offering the aluminum companies debt immunity, says Pat Ford, a Save Our Salmon coalition activist. A press release drafted by the DOE and BPA announced Sept. 30 that BPA was withdrawing the contracts.


The next day, Republican Sens. Mark Hatfield, Slade Gorton of Washington, Larry Craig of Idaho and Conrad Burns of Montana, called a meeting with DOE Secretary Hazel O'Leary. "They read her the riot act," says Ford. And BPA's friends had clout: Hatfield chairs the Senate Appropriations Committee and controls DOE's purse strings.


That night the Energy Department and BPA announced the latest deal the senators had won. BPA would sign contracts with companies that would use BPA power for at least 80 percent of their energy needs. The nuclear debt immunity clause would remain. To date, nine of the DSIs have signed the contracts, which begin in October 1996; Gruber says the agency hopes to nab the remaining four soon.


Though the coalition of environmentalists and utilities struck out on the industrial contracts, they got a few hits elsewhere. Hatfield and the administration agreed in October to limit BPA's annual costs for fish to $435 million, about what the agency spent in 1994. But the agency's request for an exemption from environmental laws was removed under a veto threat, and the administration agreed to kick in another $325 million if more money is needed to restore the salmon.


The deal also provides $145 million in 1996 so that customers of private utilities continue to see low rates.





An uncertain future


All this leaves BPA on solid financial ground for the next five years. But its political base has been fractured, and its future is uncertain.


Energy experts say that if natural gas prices remain low, all hell could break loose in the year 2001. The industrial contracts come up then, as well as BPA's contracts with dozens of public utilities and co-operatives. Many could decide to leave BPA.


But there are other scenarios. David Marcus, an energy consultant in the San Francisco Bay area, says if oil prices go up again, so will gas prices, forcing BPA's competitors to raise their rates. Industries that have left could come running back to BPA's cheap, reliable hydropower.


Zach Willey, an economist with the Environmental Defense Fund, says the legislation capping BPA's fish costs frees BPA to sell power outside of the Northwest. If more utilities and industries leave BPA in the future, "I say good riddance," says Willey, since BPA can then sell that power for more money to California, the Southwest and the Intermountain West.


The salmon will benefit, Willey says, because Northwest utilities now need most of their energy in the winter to produce heat. That sends water downstream in the winter, when salmon aren't migrating. But utilities farther south need the juice for air conditioning, Willey points out, and summer flows would help the fish migration.


Because BPA has wide-ranging impacts on residents, industries and salmon, the governors of Oregon, Washington, Idaho and Montana have called for a regional forum next year. The goal is federal legislation that would restructure BPA to meet the challenges of a competitive marketplace while preserving the public purposes for which it was created. That will be not be easy.


For more information about the upcoming forum, contact the Northwest Power and Planning Council at 503/222-5161.


* Paul Larmer, HCN associate editor