Early Consensus On Power Transition Vital For Region

The advent of competition in the electricity industry poses serious questions about the future of the region’s economic jewel, the federal Columbia River Power System. How should our vast federal hydropower resources be marketed? Who should control them? And what role, if any, should the Bonneville Power Administration play in the new market?

The answers to these questions will affect the lives of every resident of the Northwest for decades to come.

Several times in the history of the federal power system, Congress passed laws allocating or adjusting the supply of low-cost electricity. The Northwest Power Act of 1980 gave rate relief to residential customers of investor-owned utilities. Earlier acts gave public agencies preference in the sale of federal power, and assured that other states couldn’t usurp electricity generated on the Columbia.

Today, BPA, a federal agency which markets nearly half of the region’s wholesale power and owns three-quarters of its long-distance transmission lines, faces the most revolutionary changes in half a century.

The four Northwest governors sponsored a regional forum in Seattle recently to discuss the results of many months of work by hundreds of participants in a Comprehensive Review of the region’s energy system.

The gathering’s focus was on the future of BPA and the Federal Columbia River Power System. As the steward of energy assets of enormous value, BPA plays a pivotal role in deregulation.

Meanwhile, the four Northwest states regulate investor-owned utilities, which also must shed their monopoly status.

How will federal and state jurisdictions orchestrate the transition to competition?

This question looms behind much of the discussion in the Comprehensive Review. The biggest enemy of consensus may be the very nature of a competitive enterprise. Now that the electricity industry is transforming itself from regulated monopoly to an open market, old and new rivalries are emerging. Public and private utilities, large industries, environmental groups and the average consumer - all have a stake in the outcome.

Too big to hide and sitting squarely in the path of competition at the wholesale level, BPA decided to act early. As BPA Administrator Randy Hardy said, getting out in front of the problem and stabilizing the economic health of the agency were critically important to the process of restructuring. With debts of $8 billion to the U.S. Treasury and about $1 billion for nuclear plants, BPA couldn’t afford to lose its customers.

BPA launched a program of cost reductions to occur over the next few years. It is executing new five-year power sales agreements with its wholesale purchasers the publicly-owned utilities of the region. It executed similar agreements with its large industrial customers.

These steps have created breathing room for the region to methodically work out a restructuring that preserves the environmental benefits of the federal system, ensures that BPA’s debts are paid, and at the same time does not impede the development of a fully competitive market. That’s a tall order, and the challenge to the region now is to make it happen.

A steering committee appointed by the governors of Washington, Oregon, Idaho and Montana is now considering a major reorganization of BPA that would split the agency in half. One entity would operate the regional transmission grid. Another would market power from the dams in the Columbia River system.

Sounds simple enough, but getting it done will require changes in federal laws governing BPA. Clearing legal impediments and pushing legislation through Congress is a long and perilous process.

That was the message of Deputy Secretary of Energy Charles Curtis when he addressed the governors’ forum in Seattle. He urged the region to come to agreement, disparate interests notwithstanding. And, he said, there would be considerably less than five years to restructure the system. I agree. Competitive forces already at work simply will not rest until the region at least lays the ground rules for trade.

As a U.S. Senator, I worked on legislation deregulating the telecommunications and natural gas industries. We haven’t seen the end of those processes yet, even though both began several years ago.

We can be fairly certain Congress will pass laws that support competition and amend those that impede it.

Along the way, competitors will see opportunities to improve their positions. Some of those competitors may be from other regions, sensing an unprecedented chance to gain access to federal hydropower benefits.

Therein lies a significant threat to the benefits the region has long enjoyed. The regional review demonstrated that consensus on complex issues involving many competing interests is hard to come by. If the Northwest flounders over BPA’s future, the agency’s fate could be dictated from Washington, D.C. With the retirement of many senior members of our Northwest congressional delegation, Columbia River assets may appear ripe for the picking.

Many issues must be resolved in the effort leading to legislation: Should BPA compete for business with the private sector? What responsibility should BPA have for environmental and conservation costs? Can competition protect the interests of small and rural consumers? Can the high level of reliability of the system be maintained? Should regional control of the agency be strengthened through a new governing body?

The answers will become clearer over the next year or two, as the various beneficiaries of the power system grapple over the issues. The regional review is a good beginning. Now the hard work of reshaping the federal power system and the entire electric energy market begins.

MEMO: James A. McClure spent 24 years as a U.S. Senator and Congressman from Idaho. Now he practices law in Boise and heads the Competitive Market Coalition, a group of Northwest utilities and industries.