157 



CHANGE IS HAPPENING TO ALL OF US 



Mr. Chairman, there are two observations I would like to share with the Commit- 

 tee as we move forward with a discussion about Bonneville and the Northwest's en- 

 ergy future. 



Two years ago, PGE made a tough decision to permanently close our largest gen- 

 erating resource — the Trojan nuclear power plant — because future operating costs 

 were projected to exceed the cost of replacement power. Today we serve 40 percent 

 more customers than we did a decade ago with 25 percent fewer employees. Other 

 utilities have had to make equally difficult decisions — cutting back hundreds of em- 

 ployees, merging with competitors, selling off subsidiaries, and reducing dividends 

 to shareholders, which in political terms is our equivalent of Bonneville's stiffing the 

 Treasury. So why am I telling you this? 



Mr. Chairman, my first observation is that like the rest of us, BPA will continue 

 to struggle, and ultimately may falter, if they cannot regain control of their costs. 

 This is not a question of whether salmon recovery should be funded. What I am say- 

 ing is that fish costs are Bonneville's fastest growing expense, and this cost must 

 be addressed in some fashion. 



My second observation, Mr. Chairman, is that what has catalyzed this need to 

 control costs in the utility industry is the emergence of new, rapidly constructed, 

 low cost, and highly efficient electric generation. This new generation is being cou- 

 pled with energy marketers who wheel that power long distances to end-use mar- 

 kets. 



By way of illustration, in the 1980's we projected marginal energy costs (that is 

 the next new unit of electricity) to fall between 60 and 70 mills by 1995. Increased 

 competition and declining natural gas prices have instead dropped marginal costs 

 to between 30 and 35 mills — nearly a 50-percent reduction. Mr. Chairman, as I 

 mentioned earlier when discussing our decision to close the Trojan plant, the situa- 

 tion now facing Bonneville and all of us in the region, is the confluence of two 

 forces — rising operating costs due to the cost of salmon restoration measures — jux- 

 taposed against the declining costs of new generating resources available to Bonne- 

 ville and its competitors. 



FISH COSTS AND BONNEVILLE 



What then are we to do with Bonneville's escalating fish costs? Who should pay? 

 How does Congress deal with Bonneville's competitiveness when everyone is under 

 the same pressures? I don't have the answers, but I would offer you two rec- 

 ommendations that I'd like to discuss briefly. 



First, imposing a fish tax on BPA's transmission system is unacceptable. It penal- 

 izes electric customers who must use BPA's transmission lines even if they aren't 

 buying power from Bonneville. It reduces the economic efficiency of the transmission 

 system which is being used to benefit fish through power exchanges with California. 

 It ignores our history under the BPA Transmission Act whereby non-federal parties 

 have been encouraged to allow BPA to construct key transmission lines linking gen- 

 erating projects with non-federal load centers. 



Mr. Chairman, BPA markets about 45 percent of the electrical generation in the 

 Northwest, and it owns a near monopoly of 80 percent of the bulk transmission sys- 

 tem. Many non-federal projects, including coal plants, natural gas plants, and hy- 

 droelectric plants, are located far from the areas being protected for salmon, but 

 they use Bonneville transmission lines to move the power to the consumer. If the 

 contention is that the federal hydro projects have contributed to the salmon prob- 

 lem, wouldn't we want to encourage the use of the other generating facilities that 

 are not part of the ESA debate? Is this tax being proposed simply because there 

 is no other transmission provider? 



The Columbia Basin's hydroelectric system is now providing huge surpluses of en- 

 ergy during spring and summer months. Pushing fish costs on to the BPA trans- 

 mission system reduces the attractiveness of using power exchanges with California 

 as a mitigating tool to defray the costs of these seasonal shifts in hydroelectric gen- 

 eration. 



Finally, a fish tax on transmission contradicts the Northwest Power Act and Na- 

 tional Energy Act's stated goal of promoting fair and open access to transmission 

 systems. Instead of encouraging willing utility buyers and sellers of wholesale power 

 to maximize the use of the existing generating resources, I am afraid it would en- 

 courage building new electric generation for no other reason than to avoid the use 

 of the transmission system altogether. 



Mr. Chairman, my second recommendation is that, any legislation proposing a cap 

 on fish costs should recognize that a cap for BPA raises complicated issues of equity 



26-104 - 96 - 6 



