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PREPARED STATEMENT OF K.C. GOLDEN, POLICY DIRECTOR, 

 THE NORTHWEST CONSERVATION ACT COALITION 



April 28, 1995 ^ 



Senator Mark O. Hatfield, Chairman 

 c/o Mark Walker, Staff Director 

 Committee on Appropriations 

 Senate Dirksen 131 

 United States Senate 

 Washington D.C. 20510 



Dear Senator Hatfield: 



NCAC is pleased to provide the following responses to your questions following the 

 March 15 hearing of the Subcommittee on Energy and Water Development. Your 

 continuing leadership on these issues gives us confidence that we can navigate this 

 crossroads successfully and emerge with a healthy BPA that delivers lasting economic and 

 environmental benefits to the people of the region. 



1 . What is your view of Bonneville's competitive position? Declining costs of wholesale 

 power and growing competition have clearly narrowed the gap between BPA's rates and 

 the market. This narrowing has n^i been caused by increased BPA costs. Drought, 

 aluminum markets, and fish recovery notwithstanding, BPA's rates have stayed flat in real 

 terms since 1984. The market, however, has clearly moved quite dramatically. 

 Nonetheless, largely because of its virtual immunity to fuel price risk, BPA is well- 

 positioned to be the lowest cost wholesale supplier in the long-term. Current offers below 

 BPA rates are not an indication of the price of new resources on the market, as they largely 

 represent temporary surpluses that are newly available on the western grid. When the 

 Northwest and Southwest systems recently formed a westwide transmission group, a 

 substantial quantity of reserve power was freed up due to synergies between the region's 

 opposing seasonal peaks. This power is now being offered as "system sales" at firesale 

 prices. 



The price of a new, gas-fired resource, combined with the services that are presently 

 bundled in the BPA preference rate, is still significantly higher and more volatile than 

 BPA's rates. Attachment A, "Comparison of BPA and Independent Power Options," 

 shows that the "equivalent delivered" cost of power from a public-utility financed combined 

 cycle gas-fired power plant including all of the associated services that BPA provides is 

 substantially higher than the BPA rate. 



Although the market price for wholesale power has dropped, BPA's competitive challenges 

 are political, not economic. BPA's raw, unfettered revenue-producing capability, 

 constrained only by the laws of physics and economics, vastly exceeds its revenue 

 requirements. However, we have made choices which both constrain BPA's revenue- 

 producing ability and obligate those revenues toward certain purposes. These choices 

 include both public and regional preference, other project uses which limit power 

 production, postage stamp rates, below cost power for direct service industries, virtually 

 free power for the Bureau of Reclamation, repayment of unproductive nuclear debt, above- 

 market operating costs at WNP-2, the costs of protecting wild salmon, investments in 

 efficiency and renewable resources, and a variety of others. 



Without passing judgment upon any of these choices, we reiterate that it is these choices , 

 not market or technological forces beyond our control, that dictate BPA's competitive 

 position. If BPA is to remain competitive, we should re-examine these choices - not one 

 at a lime, but systematically, so that we end up with a BPA that uses its financial 

 wherewithal toward the combination of purposes that best serves the people of the region. 



As we suggested in our original testimony, we believe that BPA can fulfill its most 

 important statutory purposes and remain the most attractive wholesale power supplier in the 

 region. In particular, it can: produce abundant, affordable power, operate the river so as to 

 allow for successful salmon migration; make investments that preserve the Northwest's 



