147 

 PREPARED STATEMENT 



We offer that for discussion. We offer it in recognition of the fact, 

 Mr. Chairman, that all of us have a stake in a more productive and 

 competitive Bonneville, and we hope to be able to bring those solu- 

 tions forward with you in the months immediately ahead. 



Senator Hatfield. Thank you, Mr. Cavanagh. 



[The statement follows:] 



Prepared Statement of Ralph Cavanagh 



This statement presents the views of the Natural Resources Defense Council 

 (NRDC). NRDC is a national, nonprofit environmental organization with more than 

 6,500 members from the four Northwest states. Since 1979, I have directed NRDC's 

 Northwest projects, and I have spent much of that time working with the Bonneville 

 Power Administration (BPA) and many of its utility and industrial customers. My 

 colleagues and I have focused particularly on the energy-efficiency, renewable en- 

 ergy and fish and wildlife provisions of the Pacific Northwest Electric Power Plan- 

 ning and Conservation Act ("the Regional Act"). 



I believe strongly in the Regional Act's mandates and will be glad to respond to 

 questions about them, but my focus today is on a different set of statutory provi- 

 sions. NRDC has concluded that outmoded federal restrictions are frustrating BPA's 

 ability to compete in regional power markets, to the detriment of all within reach 

 of the agency's generation system. Those restrictions mean escalating costs for cur- 

 rent and prospective BPA customers and the millions of people whom they serve. 



Let me begin by summarizing briefly the restrictions to which I refer, most of 

 which can be found at 16 U.S.C. §837b. Assume that a BPA customer leaves the 

 agency to sign a long-term contract with another supplier, as some apparently in- 

 tend. BPA's capacity to find another buyer for the abandoned power is hobbled in 

 at least three significant respects: (1) if the purchaser is located outside the North- 

 west, BPA must constrain the sale's term to five years for capacity and sixty days 

 for energy; (2) if the purchaser is a Northwest customer, that customer's rights to 

 make parallel sales outside the region are automatically restricted; ^ and (3) BPA 

 must make complex and time-consuming demonstrations that the power sold is "sur- 

 plus" and cannot be "conserved" for future use by Northwest buyers. In an increas- 

 ingly fluid and open wholesale market, these are anachronistic and burdensome 

 shackles. None of the numerous utilities and independent suppliers that compete 

 with BPA face comparable restrictions. 



What difference does this disparity make to BPA and the region? Consider the 

 following market data: BPA's competitors are offering long-term contracts in the 3- 

 3.5 cents per kilowatt-hour (kWh) range; the price of short-term "nonfirm" power re- 

 cently has been at or below 1.8 cents/kWh; ^ BPA's average rates for its own long- 

 term sales to industries and publicly owned utilities are now about 2.7 cents/kWh. 



BPA now thinks it is at risk of losing about 1000 average megawatts (aMW) of 

 load to other suppliers over the next two years; if so. then for every V2 cent per kilo- 

 watt-hour that BPA's resale prices are depressed by statutory restrictions, BPA and 

 its remaining customers will lose about $44 million per year.^ As the market figures 

 show, the difference between short-term and long-term markets today is at least one 

 cent per kilowatt-hour; yet whenever a BPA customer leaves, the agency is forced 

 to seek replacement revenues solely from the least lucrative portion of the market- 

 place. 



Almost everyone loses under this system. Customers outside the region are de- 

 prived of valuable products and services. Customers inside the region who stay on 

 the BPA system pay higher rates, because BPA cannot fully replace lost income. 

 BPA management, fearing a "death spiral," cuts back on all long-term investments, 

 including many that are essential to meeting Regional Act goals and delivering re- 

 gionwide benefits. At the top of that list are energy efficiency improvements, renew- 

 able energy resources, and fish and wildlife restoration. 



' The statute restrains BPA sales to Northwest customers that could be said to be using the 

 BPA power as "replacement, directly or indirectly, within the Pacific Northwest for 

 hydroelectricity delivered for use outside that region by a non-Federal utility." 16 U.S.C. §83b. 



2 For the week of February 27 to March 3, Clearing Up reports peak non-firm prices in the 

 range of 1.35-1.8 cents per kilowatt-hour. Off-peak prices were in some instances below one cent 

 per kilowatt-hour. Clearing Up, March 6, 1995, p. 2. 



3 Each average megawatt represents 8,766,000 kilowatt-hours. 



