414 



in the form of rate subsidies, wasted hydropower capacity and 

 resource degradation. Before BPA rewards the industry with a 

 contract to perpetuate these costs upon us, these issues require 

 review. 



1.0 BPA's Irrigator Discount is Unexamined Social Policy 



1.1 The discount is not supported by an econoaic 

 justification. 



NIU was formed in 1978 expressly to lobby BPA for the 

 discount, something they did not succeed in accomplishing until the 

 1985 rate case. Both in the 1985 record of decision and in 

 subscjuent decisions to maintain the discount in 1987 and 1989, 

 BPA's decision to extend the discount was justified in terms of the 

 industry's distress. It is therefore a matter of record that the 

 discount is intended by the agency to serve an economic purpose. 

 It is interesting to note that the conditions — a high dollar and 

 high interest rates — originally offered as the temporary causes 

 of the industry's need for discounted rates no longer obtain. The 

 1987 Record of Decision merely cites "the uncertain long-run 

 economic health of irrigated agriculture," hardly an economic 

 situation unique to that industry. During BPA's period of surplus 

 in the mid-1980s, an additional justification was offered for the 

 discount as a means of increasing BPA revenues, based on the 

 assumption of demand elasticities which have been shown to be 

 nonexistent. 4) In assuming demand elasticities in irrigated 

 agriculture sufficient to justify the discount, BPA ignored the 

 findings of a 1984 study produced under agency contract by 

 Northwest Economic Associates. 5) 



1.2 BPA confuses irrigator profits with the econoaic health 

 of agricultural coBBunities. 



Records of Decision indicate that BPA intends some benign 

 socioeconomic purpose in continuing the discount as a "distressed 

 industry" provision in the rate design. And of course the 

 difficulty with it from a public policy perspective is that its 

 purposes are so unarticulated , and the discount so general — all 

 irrigated agriculture is included — that there is no means of 

 verifying whether it is a cost-effective means of accomplishing 

 that purpose or not. Studies done for BPA on the impact of the 

 discount focus on maintenance of net returns to irrigators, wherein 

 there is no evidence of distress. 6) Moreover, all studies done 

 for BPA on the issue of irrigator responses to pumping rate 

 increases show little or no retirement of land or changes in 

 cropping patterns in the face of very considerable hypothetical 

 rate increases. 7) There has been no significant retirement of 

 land or change in cropping patterns as a result of the considerable 

 pumping rate increases of the past seven years. There is no 

 evidence of distress in irrigated agriculture in terms of returns 



