[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]



 
     PACIFIC NORTHWEST DROUGHT MANAGEMENT AND ENERGY AVAILABILITY

=======================================================================

                        OVERSIGHT FIELD HEARING

                               before the

                    SUBCOMMITTEE ON WATER AND POWER

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION
                               __________

                   May 19, 2001 in Tacoma, Washington
                               __________

                           Serial No. 107-29
                               __________

           Printed for the use of the Committee on Resources









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                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                   George Miller, California
  Vice Chairman                       Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana     Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Peter A. DeFazio, Oregon
Elton Gallegly, California           Eni F.H. Faleomavaega, American 
John J. Duncan, Jr., Tennessee           Samoa
Joel Hefley, Colorado                Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado              Calvin M. Dooley, California
Richard W. Pombo, California         Robert A. Underwood, Guam
Barbara Cubin, Wyoming               Adam Smith, Washington
George Radanovich, California        Donna M. Christensen, Virgin 
Walter B. Jones, Jr., North              Islands
    Carolina                         Ron Kind, Wisconsin
Mac Thornberry, Texas                Jay Inslee, Washington
Chris Cannon, Utah                   Grace F. Napolitano, California
John E. Peterson, Pennsylvania       Tom Udall, New Mexico
Bob Schaffer, Colorado               Mark Udall, Colorado
Jim Gibbons, Nevada                  Rush D. Holt, New Jersey
Mark E. Souder, Indiana              James P. McGovern, Massachusetts
Greg Walden, Oregon                  Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho            Hilda L. Solis, California
Thomas G. Tancredo, Colorado         Brad Carson, Oklahoma
J.D. Hayworth, Arizona               Betty McCollum, Minnesota
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                   Allen D. Freemyer, Chief of Staff
                      Lisa Pittman, Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
                  Jeff Petrich, Democrat Chief Counsel
                                 ------                                

                    SUBCOMMITTEE ON WATER AND POWER

                   KEN CALVERT, California, Chairman
            ADAM SMITH, Washington, Ranking Democrat Member

 Richard W. Pombo, California        George Miller, California
George Radanovich, California        Peter A. DeFazio, Oregon
Greg Walden, Oregon,                 Calvin M. Dooley, California
  Vice Chairman                      Grace F. Napolitano, California
Michael K. Simpson, Idaho            James P. McGovern, Massachusetts
J.D. Hayworth, Arizona               Hilda L. Solis, California
C.L. ``Butch'' Otter, Idaho          Brad Carson, Oklahoma
Tom Osborne, Nebraska
Jeff Flake, Arizona
                                 ------                                











                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 19, 2001.....................................     1

Statement of Members:
    Calvert, Hon. Ken, a Representative in Congress from the 
      State of California........................................     1
    DeFazio, Hon. Peter, a Representative in Congress from the 
      State of Oregon............................................     3
    Larsen, Hon. Rick, a Representative in Congress from the 
      State of Washington........................................     4
    Smith, Hon. Adam, a Representative in Congress from the State 
      of Washington..............................................     2

Statement of Witnesses:
    Anderson, Dr. James, Associate Professor, Fisheries Sciences, 
      University of Washington...................................    81
        Prepared statement of....................................    82
    Karier, Dr. Thomas, Power Committee Chairman, Northwest Power 
      Planning Council...........................................    38
        Prepared statement of....................................    40
    Klein, Stephen J., Superintendent, Tacoma Power..............    23
        Prepared statement of....................................    25
    Lepp, Ray, Vice President and General Manager, Western 
      Region, Birmingham Steel Corporation.......................    78
        Prepared statement of....................................    79
    Patton, Sara, Executive Director, NW Energy Coalition........    55
        Prepared statement of....................................    58
    Settler, Randy, Secretary, Columbia River Inter-Tribal Fish 
      Commission.................................................    30
        Prepared statement of....................................    32
    Walton, Robert G., Assistant Manager, Public Power Council...    90
        Prepared statement of....................................    91
    Wilcox, Brett, President and CEO, Golden Northwest Aluminum, 
      Inc........................................................    26
        Prepared statement of....................................    28
    Wright, Stephen J., Acting Administrator and Chief Executive 
      Officer, Bonneville Power Administration...................     5
        Prepared statement of....................................     7










  OVERSIGHT FIELD HEARING ON PACIFIC NORTHWEST DROUGHT MANAGEMENT AND 
                          ENERGY AVAILABILITY

                              ----------                              


                         Saturday, May 19, 2001

                     U.S. House of Representatives

                    Subcommittee on Water and Power

                         Committee on Resources

                           Tacoma, Washington

                              ----------                              

    The Subcommittee met, pursuant to call, at 9 a.m., at the 
City Council Chambers, 1st Floor of the Tacoma Municipal 
Building, 747 Market Street, Tacoma, Washington, Hon. Ken 
Calvert presiding.

  STATEMENT OF HON. KEN CALVERT, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Calvert. Good morning. Thank you for attending this 
Subcommittee hearing this morning.
    First I'd like to thank all of you for having me here in 
this beautiful area of Tacoma, Washington. I love the Pacific 
Northwest. It's a delightful place to visit. And certainly, my 
good friend, Adam Smith, has a wonderful place to represent. 
This region is a very special place.
    Our Subcommittee is in a unique position in this Congress 
to take action on two issues that have dominated media 
headlines this year and, I suspect, will continue to dominate 
headlines throughout the country. That's energy and water. 
Keeping the lights on this summer and in the future is 
imperative as is water for business, homes, crops, and fish. We 
must carefully plan to maximize the use of our limited 
resources. We cannot continue to talk about managing water 
resources and power resources as two separate areas.
    The Northwest is suffering from the second-worst drought in 
its history. This drought affects all users of water, including 
businesses, residents, farmers, fish, power users who depend on 
water for electricity.
    We are here today to accomplish two objectives. First, to 
evaluate the impacts of drought in the Pacific Northwest. The 
second, to explore possible solutions for the current crisis on 
Northwest utilities and their customers.
    As many of you are aware, our jurisdiction includes the 
Bureau of Reclamation and the power market administrations, 
including the Bonneville Power Administration.
    This hearing will focus on issues pertaining to our 
jurisdiction. Supposedly, we're not going to focus on matters 
outside of our jurisdiction such as price caps, although I 
think that will probably be brought up.
    I hope our witnesses and members will respect our 
jurisdiction and comment on matters that will be forwarded to 
us later this year.
    I look forward to hearing from the witnesses on why the 
region faces the problems before us today. In addition, I would 
like to have the witnesses share with us what policies over the 
next 10 years--over the last 10 years, I should say--have led 
to the problems that the region is facing today.
    Responsible planning for the future means assuring 
adequate, reliable supplies of both water and power, even in 
drought years.
    We're here to search out reasonable solutions to the 
current situation. And I certainly look forward to hearing from 
the witnesses.
    With that, I would like to recognize Mr. Smith, the ranking 
democratic member, for any statement he may have.

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF WASHINGTON

    Mr. Smith. Thank you, Mr. Chairman.
    First of all, I really want to thank Chairman Calvert for 
holding this hearing out--well, not technically in my 
district--close enough to my district--and certainly in the 
Pacific Northwest.
    And I think one of the biggest goals I have from this 
hearing is to draw attention to the nature of the problem in 
the Pacific Northwest.
    One of my frustrations--and I'm sure it's a frustration for 
my colleagues from the region--nationwide, people don't really 
seem to be aware of the full extent of the problem we're having 
with our electricity and energy crisis in the Pacific 
Northwest.
    To the extent they are aware of it at all, they are aware 
that it's a problem in California. That's about it. Most of us 
here know it's a huge problem in the Pacific Northwest.
    In essence, the pricing of our energy has gone up ten- and 
twentyfold over the last 18 months, just an incredible increase 
in expense. And that is combined with the drought situation to 
really put us in a situation that could--has already cost us 
jobs and could have a major negative impact on our economy.
    There are things that we can do to deal with this. And I 
hope that out of this hearing, we will get some information on 
how to step forward and help to improve the situation.
    Just for one example, transmission has become a major 
issue. We're not able to get the power that we have where we 
need it. What can we do to improve that situation?
    We really need to have a full-scale, 100 percent focus on 
the energy crisis that is facing the Pacific Northwest as well 
as the West Coast in general.
    I'm hopeful that out of this hearing, we will learn more 
about the situation and draw more attention to it and, 
hopefully, get policy makers at FERC and in Congress to step up 
to the problem and start coming up with solutions. We cannot 
afford to have power at the price it is currently at for too 
much longer. The impact on the economy would be devastating.
    So I'm hoping we will learn a great deal at this hearing 
and also get some of the attention we need to push policy 
makers to make the decisions that need to be made to help us 
deal with this crisis. It is the No. 1 issue.
    I--in my career, I have not seen an issue go from being 
something people weren't even concerned about to being the top 
issue as quickly as this one has. Literally 2 years ago, nobody 
was talking about it; right now, it's the No. 1 issue in the 
region. It affects jobs; it affects consumers. It dramatically 
affects the overall economy. So I hope we will focus--give it 
the focus and attention that it deserves, which our 
constituents out here desperately need us to do.
    With that, I will thank Mr. Calvert.
    Mr. Calvert. Thank you.
    Gentlemen, any brief open statements before we recognize 
the panel?
    Mr. DeFazio?

    STATEMENT OF HON. PETER A. DeFAZIO, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. DeFazio. Thank you, Mr. Chairman.
    Mr. Chairman, I'd say there are two things that bring us 
here. One is an act of God, which is the drought--although it 
may be human related due to global warming. We don't really 
know--but secondly, an act of Congress.
    In the 1992 Energy Act--I was a conferee on that act. I was 
one of two conferees to oppose the legislation and one of a 
very few members of the House to oppose the legislation which 
provided the authorization for deregulation of wholesale 
generation and transmission and deregulation of state retail 
electricity. It was a mistake at the time, and I told people it 
was a mistake; it would never work; it is nonsensical.
    The most reliable, most affordable energy in the entire 
capitalist, industrial world, and now we have a system in the 
West that more resembles that of India or some other, 
impoverished, struggling, developing nation, all because of the 
'92 act.
    The '92 Act caused BPA to abandon conservation and 
renewables. The then administrator said he couldn't afford them 
because of coming deregulation. The deregulation is what led to 
the lack of investment in generation because of the 
uncertainties created in the market. And the deregulation has 
led to a power crisis that nobody can afford.
    So, I'm hopeful that the Committee will exert, 
substantially, its jurisdiction in these areas to review 
deregulation and review the looming deregulation of 
transmission because, quite frankly, the way that the Federal 
Energy Regulatory Commission is heading with their mandate for 
a West-wide RTO or a Northwest RTO will create a California 
every day on the transmission system for five to 7 years until 
we clean up the 40 congestion points already identified. We 
don't need a market to tell us where the choke points are in 
the transmission system. An engineer can tell us where they 
are. We know where they are. And if we deregulate that 
transmission with a market-based mechanism, which is being 
advocated by FERC, with a substantial end of the jurisdiction 
with this Committee for the Federal components without first 
upgrading it, we will be causing worse devastation in the power 
market than has already been caused.
    And I don't like what I see now, because we've set 
Northwesterners one against another because we're all trying to 
get in a lifeboat here, and we don't need to be getting into a 
lifeboat.
    Yes, the drought is a problem, but if wholesale power were 
affordable, we could get through it without anywhere near the 
pain we're seeing.
    I hope, Mr. Chairman, that we do exert our authority. This 
is just a kick-off hearing for further investigation of these 
matters.
    Thank you.
    Mr. Calvert. Thank you.
    Mr. Larsen?

  STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WASHINGTON

    Mr. Larsen. Mr. Chairman, thank you very much for being 
willing to hold this field hearing here in the Northwest to 
talk about an issue that's very important to us.
    I want to thank the ranking member, Adam Smith, as well for 
his efforts, and welcome Mr. DeFazio, as well, to Washington 
state.
    I represent Washington state's second district, which is in 
the Northwest corner of the state. And in many ways, the 
district is a microcosm of the--the lifeboat that Mr. DeFazio 
mentioned.
    I have an aluminum company, a DSI; I have the largest 
public utility in the state, in my district; a large private 
utility; and a rural electrical co-op, all struggling under the 
crisis that we face here in the Northwest.
    It's been said that this crisis is sort of our ``perfect 
storm'' of energy, seemingly impossible events happening 
seemingly impossibly at the same time: the drought, increased 
demand, and deregulation efforts in California, all 
contributing to what we're facing here in the Northwest.
    And 7 percent of the country's electricity is generated by 
hydropower; 75 percent or so of Washington state's electricity 
is generated by hydropower, so we are very dependent on what 
happens in our skies in terms of rain.
    Energy is the basis of our economic engine. So what we face 
here now is uncertainty and uncertainty even for our utilities.
    This morning in the local paper, there is an article about 
Snohomish County PUD, which is the largest public utility in 
the state. The headline questions cloud--PUD's planning; the 
evolving energy crisis makes it hard for Snohomish County's 
utilities to look ahead. That uncertainty only adds uncertainty 
to the rate payers and homeowners in the Northwest. And we 
certainly need to take a hard look at what kinds of actions 
that we can take in Congress to ensure that we bring certainty 
back to a very uncertain market.
    Thank you very much, Chairman Calvert, for holding this 
field hearing here in the Northwest. I appreciate the attention 
that you're providing this issue.
    Mr. Calvert. Thank you, gentlemen.
    Our first panel member this morning is Mr. Stephen Wright, 
the Acting Administrator for the Bonneville Power 
Administration. He's accompanied by Mr. Kenneth Pedde, the 
Acting Pacific Northwest Regional Director, Bureau of 
Reclamation; and General Carl A. Strock, U.S. Army Commander 
Division Engineer, U.S. Corps of Engineers.
    Welcome, gentlemen.
    Mr. Wright, you can begin.
    We have a series of lights. We attempt to keep our 
testimony down to 5 minutes, so we often have plenty of time 
for questions.
    With that, you may begin your testimony.

 STATEMENT OF STEPHEN WRIGHT, ACTING ADMINISTRATOR, BONNEVILLE 
  POWER ADMINISTRATION, ACCOMPANIED BY KENNETH PEDDE, ACTING 
PACIFIC NORTHWEST REGIONAL DIRECTOR, BUREAU OF RECLAMATION; AND 
CARL A. STROCK, GENERAL, U.S. ARMY COMMANDER DIVISION ENGINEER, 
                    U.S. CORPS OF ENGINEERS

    Mr. Wright. Thank you. I will talk very quickly, to make 
sure that I use all of my 5 minutes wisely.
    Thank you for the opportunity to appear today, Mr. 
Chairman. I appreciate the fact you have taken the time to come 
out here.
    While the nation's attention has been focused on 
California, the Northwest is also facing a severe energy crisis 
that threatens both our economy and our environment.
    We as a region are heavily dependent on low-cost 
electricity. Sixty percent of the electricity in this region is 
produced by hydropower. The national average is only 15 
percent.
    So, we depend a great deal on hydropower, and consequently, 
the problems that we confront are as a result of that 
dependence.
    We have a lack of supply, due to increasing demand. We have 
a near-record drought, the second worst water year in 70 years 
of record. And also we have, the troubled transition to 
deregulation in California, causing problems for us as well. 
All of these factors put together have created a calamity for 
the Pacific Northwest.
    If I could, I would like to describe three time-frames for 
you: near term, mid term, and long term.
    In the near term, the situation is dominated by issues 
associated with the drought. High wholesale prices, along with 
the second-worst water year on record have created incredible 
electricity prices and difficulty in meeting our loads.
    Normally, we count on imports from California in a 
situation like this. Because of the troubled transition to 
deregulation in California, we have not had those supplies 
available to us, or when they are available, they're available 
at incredibly high prices.
    In order to deal with this, we have initiated a set of 
extraordinary measures to make sure that we can keep the lights 
on in the Northwest and reduce our costs. We have bought down 
industrial and agricultural loads. As a result we have reduced 
loads by more than 2,000 megawatts. In addition, the entire 
aluminum industry in this region will not operate this summer.
    We have also bought out more than 100,000 acres of 
irrigated land in the central part of Washington.
    In addition we have authority in the biological opinion, to 
declare a power emergency and run the hydrosystem harder. I 
have done that, four times, in January, February, and again 
starting on April 3rd.
    And we continue to operate in a power system emergency 
today. The authority under the biological opinion allows us to 
increase energy supply, but it does hurt our efforts to recover 
salmon.
    We have, in addition, accelerated conservation programs in 
the region. Our belief is that these measures have kept the 
lights on in the region. Absent those activities, we don't 
believe we could have met the loads.
    We have also created financial stability for the agency so 
that we can cover our costs and repay the investments that the 
U.S. taxpayers have in the Northwest hydro system.
    In the mid term, we are confronted with a significant 
problem: the size of our rate increase next year. Our current 
rates end on September 30th. New rates that go into effect on 
October 1.
    We have new power sales contracts that go into effect on 
that day as well, so we cannot just roll over the rates because 
the new contracts have new products and services.
    The contracts that we signed last year, taking effect on 
October 1, reflect 11,000 megawatts of load. We have only 8,000 
megawatts of resources.
    Under the Northwest Power Act, we have an obligation to 
serve. Those who want to place their load on Bonneville have a 
right to do so, and we are required to purchase the power to 
serve that load.
    In today's market, purchasing that power would cost more 
than $4 billion. We are a $2.2-billion-dollar-a-year operation. 
Consequently, what we are looking at is the potential for a 250 
percent rate increase.
    We have sought to learn from the problems in California to 
address our problems. Number one, we're trying to get out of 
the wholesale power market so that we do not have to purchase 
the $4 billion worth of energy.
    If, however, we are unsuccessful with that, our view is 
that we must raise the rates. And the reason for that is, 
because what we saw in California was when the rates were 
outrageous, it created a credit problem. And when you start 
with a fundamental supply-and-demand problem and then you throw 
a credit problem on top of that, what you tend to do is take 
supply out of the market, which drives the prices even higher.
    So, our view is we are going to do everything we can to get 
out of the wholesale market. But if we are unsuccessful, we 
will then raise the rates.
    We have embarked on a program focused on the following 
principles. We've asked our utility customers to reduce their 
loads by 10 percent. We've asked our direct service industrial 
customers who could not operate profitably with a 250 percent 
rate increase to shut down for up to 2 years. We would pay the 
companies to pay their workers, helping to assure that those 
folks would not be working would not be harmed by this. 
Moreover, we sought to lessen the impact on local communities. 
If workers are paid, they have money in their pockets to buy 
gas and groceries. And the secondary impact to communities 
should be lessened.
    We're having excellent discussions with all of our customer 
groups. We expect this to be difficult, but we expect it to be 
successful. In that regard, we announced this week our first 
major agreement with ALCOA. They have agreed to shut down for 
up to 2 years at a price where their workers will be paid for 
the entire time that they are shut down. In addition, they 
agreed to continue to pay their state and local taxes, which 
should lessen the impact on the community.
    For the long term, again, the fundamental problem is supply 
and demand. However, we have a good signal concerning what's 
going on in this region. Bonneville, as the major transmission 
provider in the region, is now seeing 28,000 megawatts of 
potential resources developed in this region. We will probably 
need 3,000 to 5,000 megawatts. Not all of that 28,000 megawatts 
is real, but we are going in the right direction.
    In addition, we have more than 2,000 megawatts on-line next 
winter that was not on-line this year. And if our load 
reduction effort succeeds in taking an additional 2,000 
megawatts of demand away, we have potentially brought supply 
and demand into greater balance by 4,000 megawatts.
    We have seen some softening in long-term wholesale price 
markets just in the last couple of weeks. That's a good signal. 
We think it's a result of what's going on in the generation and 
demand markets.
    We need infrastructure. We need generation. We need 
transmission. We need conservation. We need gas pipeline 
capacity and storage.
    In conclusion, we are faced with enormous problems that 
will impact both people and fish in this region. We think that 
by working together we can reduce the size of those impacts.
    I've been impressed by the willingness of the people in the 
Northwest to work together in this time of crisis. We've had a 
tremendous amount of support for the efforts that we have 
undertaken. I see light at the end of the tunnel, but 
unfortunately, it is going to take some time.
    Mr. Chairman, thank you. I also want to make certain it's 
understood that we operate the Federal power system in 
conjunction with our partners, the Bureau of Reclamation, and 
the Corps of Engineers. We're happy to answer any questions 
that the panel may have.
    Mr. Calvert. Thank you.
    [The prepared statement of Mr. Wright follows:]

    Statement of Stephen J. Wright, Acting Administrator and Chief 
Executive Officer, Bonneville Power Administration, U.S. Department of 
                                 Energy

    Mr. Chairman, distinguished members of the Subcommittee, my name is 
Stephen J. Wright. I am the Acting Administrator and Chief Executive 
Officer, Bonneville Power Administration (Bonneville). We appreciate 
this opportunity to appear today and we thank the Subcommittee for its 
attention to the challenges facing the West Coast electricity market.
    Mr. Chairman, the Pacific Northwest is weathering an energy crisis 
of significant magnitude. The combination of near-record low 
streamflows in the Columbia River Basin, extraordinarily high and 
volatile wholesale electricity prices and an extremely tight West Coast 
power supply has severely challenged Bonneville's ability to meet its 
public responsibilities. Bonneville expects to meet demand this summer, 
but the persistent drought could affect our ability in the longer term.
    More broadly, Bonneville is very concerned about the impact of the 
West Coast energy crisis on the Pacific Northwest economy, power system 
reliability, recovery of endangered fish and on our own financial 
health. Virtually all of our focus now is in managing through this 
crisis with a set of near-term and longer-term actions designed to 
mitigate the impact of the West Coast energy crisis on Northwest 
citizens and businesses and fish. There are no easy answers here, and 
tradeoffs must be made in the near term.
    My testimony today will focus on the challenges we are facing and, 
in particular, what we are doing to address them. Our belief is that we 
will be successful in dealing with these challenges to the extent that 
we anticipate them, address them creatively and address them head-on, 
and work closely with other regional stakeholders to put solutions into 
place. Bonneville is in the process of a formal, on-the-record hearing 
to establish rates, so any comments I may make today concerning 
Bonneville's rates must be very limited and based on the hearing's 
evidentiary record.
     LIn the near term, through the summer and into this coming 
winter, our biggest challenge is preserving power system reliability 
and Bonneville's financial health, while meeting our fish enhancement 
responsibilities.
     LAt the same time, we are seeking to reduce the amount of 
power we must purchase in this expensive wholesale market for the next 
two years. Bonneville is facing a significant increase in our load 
serving obligations beginning October 1, 2001, and purchasing power in 
this market could lead to a significant Bonneville rate increase.
     LLonger term over the next two to four years we support 
developing new energy infrastructure, including expanding the 
transmission system, bringing on new generation from both conventional 
and renewable sources, and more conservation. The fundamental driver in 
the West Coast energy crisis is the gap between demand and supply. Once 
the Pacific Northwest has new sources of supply, increased 
conservation, and much-needed transmission enhancements, Bonneville 
believes we can expect relief from these sky-high electricity prices.
 near term: getting through the drought and preserving reliability and 
                          financial stability
    As members of this Subcommittee, you are familiar with the 
convergence of conditions that led to the West Coast energy crisis 
increasing demand, inadequate resource development and transmission 
infrastructure investment, and California's restructuring. In addition, 
the Northwest is experiencing one of the worst droughts on record, 
which has severely limited the amount of water available for 
hydroelectric generation. Hydro resources provide about 60 percent of 
the power in the Northwest.
    For decades, Bonneville has imported power from California during 
the winter months when Northwest electricity demand tends to be 
highest. But this year, far from being able to help the Northwest, 
California came looking for additional power from us to help it cope 
with its frequent power emergencies. With a lack of available supply, 
Bonneville was forced to declare brief power system emergencies on 
three occasions this winter and an extended emergency again this 
spring.
    In one way we were fortunate; the winter was mild, with none of the 
prolonged cold snaps that have historically threatened Northwest power 
system reliability. But Bonneville still had to take a series of 
extraordinary actions in order to keep the lights on.
    Reducing Demand and Buying Power: In order to reduce electric load 
and conserve water, since December Bonneville has purchased or 
curtailed over 3,600 megawatt-months of energy at a cost of over $500 
million. In addition, we netted about 500 megawatt-months of imports 
from California with two-for-one energy exchanges. These exchanges were 
a classic win-win solution because for every megawatt we sent south 
during California's peak-demand hours, they returned two megawatts (MW) 
off-peak. Our reservoir levels are actually higher than they would have 
been without the exchange. At the same time, California received the 
energy when it needed it most'during peak demand hours and was able to 
return it during ``light load hours'' when it actually had excess 
power.
    We instituted several major new conservation and renewable energy 
programs, and we accelerated the start date for others. Collectively, 
we expect these initiatives to yield 215 average megawatts (aMW) of 
energy savings by 2006.
    We are also operating a Demand Exchange program, which makes over 
525 aMW of voluntary load curtailment available to us from our large 
end-use consumers and large retail loads of our utility customers 
during times of high-market power prices and peak-load demand. Finally 
working with irrigation districts and the Bureau of Reclamation 
(Reclamation), we have arranged irrigation water buybacks that are 
leaving over 400,000 acre-feet of precious water back in the river this 
year, and are saving or producing over 600 megawatt-months of energy 
this year.
    Emergency Hydropower Operations: Despite poor water conditions, we 
must manage hydropower operations through the rest of the year to 
assure we can pay our bills and maintain system reliability. The 
National Marine Fisheries Service (NMFS) 2000 Biological Opinion (BiOp) 
acknowledges that there may not always be enough water to meet the 
normal operation for optimal fish support and still have enough power 
generation at the right times. When this occurs, Bonneville is expected 
to purchase power in the wholesale market to supplement regional 
supply. However, the BiOp also anticipated that there could be 
circumstances when the power grid would require extraordinary support 
and acknowledged that at such times there would be curtailments in flow 
and spill operations designed to improve fish survival.
    Because this year is turning out to have extended periods of such 
circumstances, Bonneville has taken the initiative, along with the 
other Federal action agencies of the Federal Columbia River Power 
System (FCRPS) and with input from the Northwest states and tribes, to 
craft a set of emergency operating principles and an operating plan. We 
have agreed with NMFS and the other Federal agencies on reliability and 
financial criteria for declaring a power emergency.
    The financial criteria are important because the Federal hydropower 
system provides a multitude of long-term benefits to the region. It is 
one of the economic engines of the region as well as the greatest 
source of financing for salmon recovery over the long run. These 
benefits would be put at risk if we are unable to cover our costs.
    Our goal is to end this fiscal year with cash reserves sufficient 
to handle an anticipated sharp draw for power purchases in the first 
quarter of the next fiscal year (October - December 2001), before the 
winter rains can replenish stream flows after a summer drought. The 
California situation reinforces the importance of staying current with 
costs to assure creditworthiness and, ultimately, electric system 
reliability.
    It is important to reaffirm here that Bonneville supports the BiOp. 
The variations in this year's hydro operations are short term. The 
Federal action agencies are proceeding with development of long-term 
implementation plans, as the BiOp contemplates. Bonneville has also 
committed to providing funds to help offset the impacts of this year's 
emergency operations. We have issued a solicitation for projects that 
will 1) result in more water in the system; 2) remove more power load 
from the system; or 3) directly increase returning adult fish or 
increase juvenile survival.
    A California Strategy: Our struggle to meet power and fish needs 
this summer will be complicated if California has problems meeting 
load, as seems more than likely. Any help we are able to provide 
California must be carefully managed so as to not compromise the 
Northwest situation.
    We are working toward getting an agreement with California, before 
serious problems start, to provide California assistance without 
impairing Bonneville and Northwest reliability, fish enhancement, or 
finances. Since the FCRPS is critically short on water, Bonneville must 
continue to rely on energy exchanges with California as we have this 
past winter.
    Regional Emergency Response Team: Last fall, Northwest utilities, 
agencies, and states independently formed an Emergency Response Team 
(ERT). The ERT is working effectively to anticipate potential power 
shortages, develop consistent public messages and alerts, and plan 
concerted efforts to mitigate and manage shortages that might occur.
    California's system of calling for voluntary actions by consumers 
when falling reserve levels trigger a power system emergency has 
routinely produced a response of less than a two percent load 
reduction. In light of this, the ERT has proposed an organized, 
informed and pledged curtailment system that might produce a 10-20 
percent voluntary reduction in demand over a few peak hours in a day 
that would otherwise see rotating blackouts. The proposal is under 
active consideration.
           reduce market purchases to minimize rate increase
    Bonneville is also facing significantly increased load serving 
obligations in the next rate period (fiscal years 2002 though 2006) 
beginning October 1, 2001. The price differential between the market 
and Bonneville power rates led our customers to increase their 
purchases from us in the next rate period. When we finalized our power 
sales contracts, Bonneville's contractual obligations added up to 
approximately 11,000 aMW about 3,000 aMW more than our existing firm 
resources. Unless these obligations are reduced, we must purchase as 
much as 3,000 aMW in the wholesale market.
    Bonneville has already made some favorably-priced power purchases 
to meet this need for the next rate period. We will also benefit from 
some of the conservation efforts I have mentioned that are now going 
into place or will be in place within the next couple of years.
    The cost of the remaining market purchases, though, could drive 
Bonneville's rates up in the first year of the next rate period by 250 
percent or more. An increase of this magnitude would have widespread 
negative economic consequences. Already we are seeing some businesses 
curtail operations or even close as a result of high energy prices. 
With such an increase, we would surely see more businesses close and 
more jobs lost. The effect could be devastating for a regional economy 
that is already in a slow-down. People with lower incomes would suffer 
disproportionately. And, a weak economy frequently translates into less 
public support for environmental protection.
    The most immediate and direct way to decrease the size of 
Bonneville's rate increase is quite simply to decrease the amount of 
power Bonneville has to buy in the market. And, since we must file our 
new rates with the Federal Energy Regulatory Commission (FERC) by the 
end of June 2001 to have them in effect by October 1, 2001, we have 
very little time to implement a strategy to accomplish this.
    I have asked customers to significantly reduce their demand for 
power in the upcoming rate period. We are negotiating with our direct 
service industry (DSI) customers to stay off-line for up to two years. 
Almost all of the region's aluminum smelters are already shut down in 
the current drought. Bonneville is offering to pay for the continued 
curtailment so the companies can cover full wages and benefits for 
their employees who would work if the smelters restarted in October 
with Bonneville power. This is a lot of money, but it is only a tenth 
of what it would cost the region's ratepayers to buy power for these 
smelters. We are also asking both our public and investor-owned utility 
(IOU) customers to reduce demand by up to 10 percent.
    It is absolutely critical that the region be successful in this 
load reduction effort. Failure would mean the loss of jobs, significant 
unnecessary rate increases, and a greater risk of power blackouts this 
winter.
    long term: developing resources and transmission infrastructure
    Bonneville is working to do its part to help meet long-term 
electric power challenges. We are working with developers to buy the 
output of planned new facilities in the region in order to meet our 
firm obligations in the next rate period. Bonneville has also signed 
agreements with two of its DSI customers in recent months that 
encourage their development of combustion turbines to help serve their 
aluminum plants.
    Bonneville expects to make significant investments in energy-
efficiency related activities over the next five years from 2002 to 
2006. Our goal is to achieve at least 215 aMW of additional savings 
from this investment. We have included a discount in our rate proposal 
for customer utilities that would accomplish conservation through their 
own investment. This funding commitment includes $15 million for low-
income weatherization to be administered through the well-established 
four-state/Community Action Program infrastructure. We believe this is 
an important component because citizens on fixed or low incomes are hit 
the hardest by high-energy prices.
    We are working with the U.S. Army Corps of Engineers (Corps) and 
the Bureau of Reclamation on substantial investments in the efficiency 
and reliability of the Federal hydro system to yield more MW and more 
reliable power from the same amount of water.
    Renewables are very much on our front burner. Since May 1999, we 
have purchased 35 MW of wind energy and 49 MW of geothermal. We have 
560 MW of wind under development. We have also just received 25 
proposals for wind projects totaling 2,600 MW in response to our 
request for proposals for 1,000 MW of wind power. We are also 
collaborating on several solar projects.
    Building new generation will not solve the region's power shortage 
unless the power can be transmitted from where it is generated to where 
it is needed. The region is operating at or near its full transmission 
capacity. In many places, transmission paths are constrained and the 
transmission lines cannot carry additional power from generation sites 
to load centers. The complexity of wholesale power transactions since 
open access places more demands on the system. At the same time, the 
market has prompted a flurry of generating resource development. 
Bonneville has received requests for generation integration studies for 
about 27,000 MW of new generation in the Pacific Northwest.
    Bonneville's transmission system represents 75 percent of all high-
voltage transmission in the Pacific Northwest. Most of this system is 
over 30 years old. For years, we have boosted transmission capacity on 
the existing system through adding shunt capacitors and new controls. 
But forecasts are for Northwest winter peak loads to grow by 12 percent 
by 2008, and thousands of megawatts of new generation are planned. 
Increased electric loads, the complexities of wholesale power 
transactions and new generation make it clear that there must be 
significant investments in the Northwest system to ensure continued 
reliability and to address the electric supply/demand imbalance in the 
region.
                               conclusion
    Since the West Coast power crisis began to emerge, Bonneville and 
the other stakeholders in the Northwest power system have done a heroic 
job of responding to the challenges. There is an enormous amount of 
work left to do, though, and the light at the end of the tunnel still 
seems too far away.
    The next one or two years will be difficult, but we believe that 
with the actions we have outlined, continued effort and regional 
cooperation can bring us through this period with the lights on, the 
economy intact, and on track with the long-term fish recovery plan.
    Mr. Chairman, members of the Subcommittee, thank you for your 
attention. I am available to answer any questions you have now about 
the Northwest drought and Bonneville's rate mitigation strategy.
                                 ______
                                 
    Mr. Calvert. Mr. Pedde?
    Mr. Pedde. We're just here.
    Mr. Calvert. You're just here? You don't have any 
additional testimony?
    Okay. I am kind of curious. You mentioned the additional 
power that's coming on-line. You mentioned 28,000 megawatts as 
being investigated in this region and you're about 3- to 5,000 
megawatts short.
    What kind of generation is that?
    Mr. Wright. It's almost all natural gas fired and 
combustion turbine. We have a little bit of wind resource being 
developed. There was some discussion about coal resources over 
in the eastern side of the region in Montana and a few other 
things. But this is basically it.
    Mr. Calvert. Is this--are you having the same difficulties 
here in the Pacific Northwest as other regions in the country 
on gas distribution coming into your state?
    Mr. Wright. Yes. We are really concerned about that. We've 
been working with the gas industry on the need for gas pipeline 
capacity, in particular.
    What the gas industry has told us is that they think that 
they can support, with their current pipeline capacity in this 
region, up to perhaps 2,000 megawatts of new generation, 
although that would compete against other uses of gas as well. 
We probably need more than that.
    There is some expansion that the gas industry has now 
committed to just in the last month. Our suspicion is that we 
may need more than that.
    Mr. Calvert. Is most of your natural gas brought in from 
the British Columbia area? Where do you get most of it?
    Mr. Wright. Yes, and Alberta.
    Mr. Calvert. Now, one of the key decisions that created the 
potential for the Bonneville rates to increase as much as 300 
percent after 2001--I guess to that degree--to what extent were 
the decisions made by Bonneville, and to what extent were they 
made by the former Secretary of Energy?
    Mr. Wright. We had at least one issue that was extremely 
difficult for us, and that was how much service can we provide 
to the aluminum industry in this region.
    We had made a proposal that we would provide them with 
about 900 megawatts. And, it's important to understand we have 
a statutory obligation to serve the public utilities and a 
statutory obligation to serve the investor owned utilities.
    There was a statutory obligation to serve the aluminum 
industry, which expires at the end of 2001--the end of this 
contract period. And the question was, how much should we 
provide them? We offered them 900 megawatts. We had a great 
deal of involvement from several folks including the Secretary, 
who ultimately decided to offer them a greater amount of power. 
So, there was some involvement there.
    Mr. Calvert. Well, should Bonneville agree to sell 1,500 
megawatts to the direct service industry?
    Mr. Wright. We agreed to a discussion in the region about 
that. At that point in time, we believed that we could do so 
without causing a rate increase to other customers. And, it was 
based on the market prices at that time.
    In hindsight, I would have to say that one could question 
that decision, knowing where the market is today, although I 
don't think anyone at that point knew where the market was 
going.
    Mr. Calvert. But you were not legally compelled to do so?
    Mr. Wright. We were not legally compelled to do so. That's 
correct.
    Mr. Calvert. Bonneville has also agreed to sell 1,000 
megawatts to investor utilities for the region.
    Does Bonneville have a legal obligation to sell power to 
investor owned utilities?
    Mr. Wright. The law is very clear that we have to give 
priority access to our present customers.
    There is an obligation to serve any load which the investor 
owned utilities choose to place on us. And there is also a 
program called the Residential Exchange Program, which provides 
some benefits to residential customers and small-farm customers 
of the investor owned utility. And our view is that there is an 
obligation to serve there for the residential and small-farm 
customers.
    Mr. Calvert. Mr. Smith?
    Mr. Smith. As we look at the solutions--let's start with 
the long-term side--that what we need to do--as part of this 
hearing and how we got into this mess--you heard, I think, Mr. 
DeFazio's comments about the 1992 Deregulation Act and the 
effect it did have on the industry and the price of power.
    First, I'd like for you to comment on the '92 Act and 
whether or not that sort of got us off the beam and got us to 
the point where there was not sufficient supply developed and 
prices were--you know, out of control and if we should revisit 
that.
    Mr. Wright. Well, I think we're in the midst of a 
transition. Before the '92 Act, it was fairly clear that there 
was an obligation to serve on the part of the utilities and, 
therefore, an obligation to develop resources.
    It's sort of a combination of the '92 Energy Policy Act and 
deregulation that has been occurring in individual states. It 
has begun to separate that obligation to serve to make it less 
clear to the utilities whether they have that responsibility 
and, if they don't have that responsibility, whether they're 
going to be able to recover their costs when acquiring 
resources.
    As we traveled through the late '90's, I would say that 
there was a tremendous reliance on the market to provide 
resources. Look, for example, at the Bonneville Power 
Administration. Up until that time, I think there was a sense 
that Bonneville had an obligation to develop resources as well. 
The Comprehensive Review by the region's governors and 
political--.
    Mr. Smith. I'm sorry to interrupt.
    Why do you think the market was so pathetically slow to 
respond, as it turns out, to get us into this situation we're 
in right now?
    Mr. Wright. My sense is that we have had a supply-and-
demand problem that has been masked by the fact that we've had 
good water in this region for the last 5 years. So prices have 
been relatively low. When marketers looked at this region, and 
they saw the prices they didn't see an economic payback. What 
they didn't see were the underlying fundamentals, which were 
that there were real concerns with the loads and not having the 
resources.
    Mr. Smith. I guess what strikes me--and I'm no economic 
genius, despite my name--but from eight--it seems like in an 
incredibly short period of time, we went from the best of all 
possible worlds with incredibly cheap power--in fact, as I 
said, when I first came to Congress in '97, the supposed 
problem Bonneville had was the market was so low, we were 
concerned about not using (inaudible).
    What Bonneville was concerned about was how they were going 
to get people to re-up their contracts. PUD's were publicly 
talking about not wanting to do contracts with PDA'S; the power 
was cheaper elsewhere. And then bam. Eighteen months later, 
it's off the charts in the other direction.
    I guess as regulators--and that's what we're supposed to be 
in Congress and what part of the BPA is supposed to be--what 
can we do better to make sure we don't have this sort of 
incredibly quick turnaround? How can we regulate the market to 
make sure that it's more responsive?
    Mr. Wright. Well, one of the key characteristics of the 
commodity market is volatility. And what we're moving from is a 
regulated market, which provides stability, to a commodity 
market, which would be volatile.
    The way to deal with volatility is by having hedging 
instruments and other instruments to try and protect against 
volatility and price swings.
    And if, in fact, we as a country are going to continue on 
the path toward deregulated markets, we are going to have to 
ensure that customers have the access to mechanisms that will 
hedge against that price volatility.
    Mr. Smith. But should we continue down that path, I guess, 
is the ultimate question, given that situation and given how 
important electricity is, first of all?
    Second of all, how difficult is it to build a power plant? 
I mean, it's not like building widgets, if you will. Okay. We 
need to know who will crank them out. I mean, it takes a long 
time, not just for the power plants, but to build the 
transmission grids as well.
    I guess what I'm asking is, based on your expertise in the 
area, is the electricity market one that is going to benefit 
from the typical free-market competition given those 
limitations that we talked about? That's ultimately--should we 
continue down that path, or should we go back?
    Mr. Wright. There clearly are some benefits that can be 
derived from a competitive, full, subpower supply market. We 
saw it in 1995 and '96. When there was excess supply, prices 
dropped below Bonneville's rate. It was an incredible period. 
In fact, people were sharpening their pencils, and there was 
some benefit from that.
    We have now seen the opposite side of that equation, which 
is when there's not enough supply, then prices go so high, that 
more than offsets the benefits that were derived from the '95-
'96 period.
    The challenge here, I believe, and has always been, we have 
to make sure that supplies are at least close to, and in some 
cases, oversupplying the market. And we have to assure that as 
we develop these markets, that we can at least get the 15 
percent reserve market that we became accustomed to in the 
overregulated market, because after that, you have less of a 
reliability and you have much higher costs.
    But can we craft policies that lead to a 15 percent or 
better reserve market? That's how you get to higher reliability 
and lower prices for consumers.
    Mr. Smith. We're almost out of time. I want to ask you one 
question on the short-term side of the equation.
    You are right, from a statutory standpoint, an obligation 
to serve the DSIS expires this year. But does have a rather--an 
impact, particularly on the aluminum industry--there are a 
couple of exceptions--in terms of their ability to stay in 
business. And there are a lot of concerns that--you know, just 
paying them for 2 years to sort of keep that it may not work 
for all the companies. I know we just signed an agreement with 
ALCOA, I believe it is.
    I guess the question is, in the short term, what you're 
trying to do is reduce the amount of--of power that's consumed 
so that you're not as vulnerable in the wholesale market. 
That's absolutely what you have to do. But the consequences of 
that can be pretty severe, you will see. You're negotiating new 
contracts, and maybe we can come out of it okay.
    But short of simply trying to cut off the amount of power 
that is used, in the short term, isn't the only option that we 
really have, to try to go to some cost-based pricing scheme to 
get that wholesale market that you have been more exposed to 
than you would like, given the lack of rain, under control? How 
else can you do it, and would there be that big of a negative 
circumstance?
    I mean, you can look at the market right now for wholesale 
power. It is not a fair market today. It's not like price caps 
are going to come in here and mess up a perfect market. I mean, 
it has been out of whack for quite a while. There is not the 
sort of free choice and free competition that the open market 
contemplated.
    Isn't that something that we have to consider rather than 
having you go around trying to cut off as many people as 
possible to keep from being exposed to that market?
    Mr. Wright. Well, our view is that first of all, the 
fundamental problem here is supply and demand. And, by taking 
these actions, what we're doing is reducing demand. I think 
your key questions are what does it mean for industry and the 
region, and are we headed toward shutting down the aluminum 
industry long term? We are trying to be very careful and 
cautious about the way we do that so that it does not get us to 
that position.
    Our view is that--the way we are structuring our rates, 
they will track the market, and as the market prices come down, 
we will be able to take advantage of that. Therefore, we think 
we would be able to within a couple of years--offer rates that 
would allow the aluminum companies to operate profitably within 
this region.
    In the interim, by paying the workers, we think it allows 
them to retain a semblance of a work force so that they will be 
able to come back up. There'll be a work force, a hugely 
trained work force, that remains available to them.
    In trying to think that through, the actions we need to 
take to assure that this is not--as someone once said, ``This 
is not the execution of the aluminum industry; this is a 
hibernation period''--that it leads to lower costs for all 
consumers and more jobs in the Northwest.
    Mr. Calvert. Before I ask Mr. DeFazio--let me ask a quick 
question.
    The fact--what we were discussing earlier--obviously, this 
summer, we have a problem. We have a ser---we have problem. 
Obviously, in my hometown, when the lights went off yesterday, 
we had a problem throughout--throughout--(inaudible)--and--talk 
about the market. And I'm going back to the 28,000 megawatts 
you mentioned that the people talk about building right now.
    And I know talk is one thing and actual execution is 
another. But if a third of those megawatts came on-line over 
the next couple of years--and you can't predict rain--nobody in 
this room can--but if you get back to normal rainfall in a 
relatively short period of time, a year to 2 years, you could 
have a situation where you have much more than the excess of 
the 15 percent reserve capacity you're talking about; isn't 
that correct?
    Mr. Wright. I think that is possible. I think there is a 
good shot of that happening. Part of the question here, Mr. 
Chairman, to be honest, is, what's going to happen in 
California? This has been the great unknown for us. We could 
get those kinds of reserve margins for the Northwest, but it 
could all end up going to California.
    And I think one of the great frustrations--to be candid 
about it--is the amount of resources that's off-line in 
California. This is a confounding factor in trying to figure 
out what we need to do in the Northwest.
    Mr. Calvert. And I understand that like--I don't know if I 
do understand the problem.
    Mr. DeFazio?
    Mr. DeFazio. Thank you, Mr. Chairman.
    The way the conversation has been going, I think I have to 
go to transmission first because of the point that Mr. Wright 
has raised about the possibility of the ability to build 
resources in this part of the country serving California. I 
guess it raises two questions.
    One is, we might build more than the reserve, but in a 
market where you have severed the duty to serve--and the duty 
is only to the stockholder or, to maximize profit--it doesn't 
mean that that 20 percent margin is--if it was built--is even 
available on a day when we need it, or it might be wanting to 
sell outside the region when we need it; isn't that correct?
    Mr. Wright. That's correct.
    Mr. DeFazio. So basically, we're headed toward 
unpredictable reliability and/or price volatility no matter 
what. The volatility may be on the down side. There may be a 
whole bunch of people out there building a plant today thinking 
they're going to get rich. Looking at the market, they're going 
to find out suddenly it's tanked; right? I mean, it can go 
either way?
    Mr. Wright. Again, I think price volatility is integral to 
the commodity market, and there are ways to protect against 
price volatility.
    Mr. DeFazio. Well, there's catches, I'm sure, and all those 
wonderful things. But then beyond that, the issue also becomes 
reliability. No matter how much margin we have or excess 
capacity we build, if they don't have to run those plants--
which, in a deregulated market, they don't--it's my plant. I 
don't want to run it. Isn't that correct?
    I mean, that--we could have 100 percent access, and we 
could still have the lights go out because on that day, only 9 
percent of the supply was available because the other 110 
percent just didn't want to generate. They didn't think the 
price was high. Isn't that correct?
    Mr. Wright. Merchant plant operators have the ability to 
control the operation of their plants.
    Mr. DeFazio. Right. So this is the future. This is great.
    Then on the issue of your purchases, you said, ``$4 billion 
to purchase.'' what are you assuming per megawatt hour? I mean, 
if you come up with $4 billion.
    Mr. Wright. It's in the range of 225.
    Mr. DeFazio. 225?
    Mr. Wright. 225.
    Mr. DeFazio. And what was--two years ago, what was the--the 
price for those sorts of purchases?
    Mr. Wright. It would probably be in the range of about 28.
    Mr. DeFazio. Okay. So basically, eight times the price in 
the wholesale market today to replace the power?
    Mr. Wright. Yes.
    Mr. DeFazio. So we could safely say if we were in a 
drought, in the markets of 2 years ago, we could afford enough 
energy to meet all of the BPA's contractual commitments, 
including the aluminum companies, with a modest rate increase?
    Mr. Wright. Yes. Actually in May of last year we thought we 
could do it with no rate increase.
    Mr. DeFazio. No rate increase? But that was assuming that 
you can buy replacement power cheaper than even 2 years ago?
    Mr. Wright. Actually, yes. We thought we could serve all of 
the loads that we had at that time. Part of the problem here is 
that the price has gone up incredibly. We have a lower amount 
of load so that there is an interaction between the amount of 
load placed on us and price.
    Mr. DeFazio. And in fact, in the next 5 years, you might 
see a bunch more people coming to BPA?
    Mr. Wright. If prices stay as high as they are, I'd expect 
it.
    Mr. DeFazio. I had a conversation with a gentleman last 
night who told me that the Port of Seattle has formed some sort 
of public utility district and will be placing load on the BPA 
in 5 years?
    Mr. Wright. It is my understanding it will.
    Mr. DeFazio. And so it will end up paying the state of 
Oregon for a municipal--overtook PGE, which is for sale--then 
you would have some other additional load.
    Mr. Wright. Some Members of Congress, I've heard, have 
suggested--yes. Actually, I think that--that is--I mean, if 
they are a public utility, they have preference. And so by 
statute, we are required to serve them.
    Mr. DeFazio. So given that and given the volatility of the 
markets and the safe haven the BPA represents, are either the 
publics themselves or BPA looking at that 5-year to 10-year 
rate period in terms of basically building any generation or 
increasing capacity somehow, or are you just going to depend 
upon and hope that the market gets better?
    Mr. Wright. Is Bonneville planning to?
    Mr. DeFazio. Well, right. Is Bonneville and/or your public 
customers. And are there statutory restrictions? Are there 
things that you review to determine whether or not, BPA and/or 
the publics could construct generation that would be more 
reliable and that would run when we wanted it to run and that 
we could shut it down when we wanted to shut it down and that 
we weren't dependent upon the vicissitudes of the market?
    Mr. Wright. Well, the authorities are there for Bonneville 
to acquire resources if it's the will of the region to do so. 
And as you know, Mr. DeFazio, we've had a lot of debate about 
whether Bonneville ought to be doing those kinds of things.
    In fact, I think we agreed in '95 and '96 that Bonneville 
should not be acquiring resources. There are some good 
experiences and some bad experiences with respect to that. So 
that would be a question, I think, for the region, is this the 
right thing to take on?
    With respect to our public utilities, they have concerns 
with respect to the Section 5(b) 9(c) policy.
    5(b) 9(c) is a policy that Bonneville has articulated. 
There are provisions of law that say Bonneville should not 
allow people to sell their resources outside the region and 
then place the load on Bonneville.
    It does--in some cases, discourage the re-sale by public 
utilities. The way the policy is implemented, we are spending a 
tremendous amount of time with our public utilities right now 
trying to figure out how we can meet both of our goals.
    We want to encourage resource development in the region, 
but we also want to make sure that we are not encouraging 
existing resources to flee the region and therefore place a 
greater cost on the region.
    Mr. DeFazio. But what if, say, those public entities would 
enter into an agreement with you to sell outside the region but 
devote all of the profits to constructing a plant which would 
be dedicated to serving in-region loads exclusively and at the 
time after which they have constructed the plant they would 
perhaps reach outside the region?
    I mean, this is--I note that my own (inaudible) board is 
making millions of dollars in the speculative energy market at 
the expense of our California friends, unfortunately, but 
they're helping keep the lights on.
    This is an awfully lucrative market to tell public 
utilities to ignore, and I'm wondering if you enter into 
agreements with the aluminum industry to curtail load but pay 
them and have them devote some of that resource toward building 
future generation, why wouldn't we do something similar with 
public utilities if we do it with some of the aluminum plants?
    Mr. Wright. Well, in fact, it's sort of how the 5(b) 9(c) 
discussion is going right now, because 5(b) 9(c) would 
encourage utilities if they develop a resource to offer the 
power within the region first before selling it outside the 
region.
    The difficulty for a public customer, candidly, is that 
they feel like they're exposed to the market and when they make 
purchases, they're making them at market prices and if they're 
required to sell them at cost, then they feel like they're 
playing on an unlevel playing field.
    So, the problem that you're identifying, one that we are 
struggling with right now is, how do you create something that 
serves to lower costs for Northwest consumers but doesn't put 
an individual utility willing to take risks to develop 
resources at a competitive disadvantage?
    Mr. DeFazio. Uh-huh. I mean, what I see potentially 
happening here--I just am very pessimistic and--most 
industries, most people will not tolerate an unreliable 
electricity supply. We don't live in India. So, I think that's 
going to become a higher and higher fact.
    I saw someone here in Tacoma, or someone had offered a 
server farm in this area 100 percent or 99.99999 percent 
reliability for a mere four times their normal going rate.
    I don't think homeowners are going to be willing to pay 
four times as much for their bill with a guarantee that their 
lights won't go off--or businesses.
    So I'm just thinking there is going to be a big rush among 
those who are eligible, and perhaps among some who will become 
newly eligible, to BPA in the contract period 5 years out.
    I'm just saying we should be looking and trying to assess 
that 5 years out and determining whether or not you're going to 
be in the resource construction business, because you can be in 
the one place where people know if you've got it, you will run 
it, and the lights will stay on, and they can afford it; and 
everywhere else, it will be, ``Well, maybe the market will be 
good today, and I can afford to keep my lights on; maybe it 
won't be good; or maybe they won't sell into the market because 
it's so low and my lights will go out.'' That's where we're 
headed here.
    Thank you.
    Mr. Calvert. Mr. Larsen?
    Mr. Larsen. Steve, thank you for coming this morning.
    You mentioned that in the next couple of years--I don't 
want to put a time line on it--but you're expecting a softening 
of the prices, which--I hear you saying a lowering of the rates 
out there.
    Have you come to the conclusion about what that rate might 
soften to?
    Mr. Wright. Well, Mr. Larsen, I have to say that our 
ability to forecast these markets, our track record on that is 
not that great. I have to say that anything I say here, you 
have to take with a large grain of salt.
    But having said that, our hope is that we can get to a rate 
that will be attractive to the industry and the Northwest, and 
that we can get there within a couple of years.
    What we are shooting for is a 100 percent rate increase for 
this fall. We see this fall as being the worst period.
    Mr. Larsen. It's related to my next question, because we 
are able to negotiate a--Woods, Woods, and Talco, the ALCOA 
copper plant in Ferndale--I think one element of that package 
was every 6 months, you'll be reviewing with ALCOA what the 
rate is out there and whether or not that rate is going to be 
economically feasible for ALCOA to get the plant actually 
running again.
    In other words, half the job is done. There are wages and 
benefits for the workers. The other half is now getting people 
back to work.
    And the question I have is, are you--are you specifically 
looking at what it would take to address getting the--the 
aluminum plant or--and the other plants up and running, or is 
that just part of the mix that you're looking at? You sort of 
addressed it, I think, in response to--to Adam Smith's 
question, but I just want to get a more specific answer.
    Are you specifically looking at that, or again, it's just 
part of the--the general environment you're looking at?
    Mr. Wright. Well, it turns out that it's not an ``or.'' 
it's an ``and.'' Our goal is to get the rates as low as we can. 
It's our sense that, from our forecast of the market, that the 
rates can come down to a point at which the company would be 
profitable to operate within a couple of years.
    So, the way I look at it is we should do everything that we 
can to try to get the rates as low as we can. And we think that 
that can lead to at the aluminum plants in this region 
operating profitably.
    Mr. Larsen. A question that's somewhat related but I hear a 
lot of, in talking with folks, has to do with the--the must-
sell orders that were issued late last year by the Secretary of 
Energy and then continued again this administration and then 
ended up in February.
    The concern we--that I hear is, ``Are we going to be 
sending our power''--quote, ``our power''--``to California this 
summer?" and usually that's the way it worked.
    Mr. Wright. Uh-huh.
    Mr. Larsen. --excess power to California in the summer, 
excess power to Washington in the winter. It's gone off that 
track last winter.
    Under what circumstances in these criteria would the 
Secretary of Energy make a decision to issue must-sell orders 
this summer and send power generated to the Northwest south to 
California, or anywhere else, for that matter?
    Mr. Wright. Well, it's my understanding that the Secretary 
had submitted an order. And our view is that we enter into a 
mutually beneficial transaction with California, when it makes 
sense from our system's perspective, and also when it makes 
sense from their perspective.
    We have had extensive discussions with the Californians 
about what types of transactions we would enter into this 
summer and tried to describe to them, in fact, that we don't 
have a lot of supply.
    But there are things that we can do for them. The exchange 
agreements that we entered into last year, were highly 
beneficial for the Northwest. In fact, they were so beneficial 
that California is going to renegotiate them.
    Mr. Larsen. The two for one?
    Mr. Wright. Yes. The two for one, actually, was based on 
historical differences in price between off peak and on peak. 
That price differential dissolved this winter. So the two for 
one turned out to be hugely beneficial for the Northwest. The 
Californians had wanted to renegotiate. So we've agreed to how 
we will set up an exchange agreement for the summer.
    We also began to talk about what would happen if the lights 
go out in California, and we're still in a situation in the 
Northwest. The biological opinion would call for us to 
interrupt the spill in order to preserve reliability. And 
that's not limited to the Northwest region.
    So, we've begun to have discussions if that were to occur, 
concerning what sort of compensation would the Californians 
provide. And what we have argued, and Californians have been 
accepting of, is that there should be some environmental 
premium that California would pay us a premium in terms of the 
return.
    Mr. Larsen. This is just a comment. And it's heartening to 
hear that the secretary of (inaudible)--I'm still hearing you 
say there will be some exchange this summer, and I would 
encourage you to keep the delegation in the Northwest--and 
California delegations--fully apprised of how it's playing out, 
because we are very likely to hear from--from constituents 
about any exchange that takes place between the Northwest and 
any other region of the country.
    Mr. Wright. I appreciate that. If I could, just comment on 
the exchange. I want to make sure that everyone does know that 
in the exchanges we have entered into with California--
California has fully repaid the amounts we have sent down with 
the two for one.
    Mr. DeFazio. Just on that exchange, if you're going to 
exact an environmental premium on those, if you were in a spill 
situation and liability became a problem, you stopped spilling 
and generated and transmitted to California, would that money 
go into some sort of segregated account?
    Mr. Wright. Well, actually, it's not money. It's kilowatt 
hours, and--.
    Mr. DeFazio. So it's kilowatt hours. Could you expand on 
that just for a second?
    Mr. Wright. Right. It's an exchange. What we would get is a 
premium return, a kilowatt hours return. Our intent is to try 
to dedicate that premium back to fish.
    Mr. DeFazio. You would then use less water at some off-peak 
time to generate, therefore conserving some water in the 
system, therefore having more water to provide for flows or 
spill or something later for the fish; is that right?
    Mr. Wright. Right. And how we're going to do the accounting 
on that, we haven't figured out. Things are moving fast.
    Mr. DeFazio. Thank you.
    Mr. Calvert. Mr. Pedde, I guess, based upon this 
conversation--obviously, we're trying to maximize power this 
summer as much as possible for this region. How is that--how is 
that affecting the contract orders?
    Mr. Pedde. In terms of contract water orders, not directly. 
Our contract regulations switch priorities to meet those 
contracts. We sell surplus power to Bonneville, provide surplus 
power on to Bonneville. We don't sell to them. So in terms of 
meeting our contract needs, we're not affected at all at this 
time.
    Mr. Calvert. Mr. Smith?
    Mr. Smith. I have to ask this fairly basic question. I know 
some--certainly constituents in California (inaudible) up here 
would ask as well--it seems that we have sufficient supply 
capacity to serve the needs on the western grid. If it were to 
all be operated, even with the drought situation--I guess 
that's the first question, is whether or not we do.
    You mentioned that there was a steady number of supplies 
off-line in California and serving those areas and--you know, I 
understand within terms of setting the price, how high the 
price is.
    But if you have a situation where people are, as we are in 
California right now, in a blackout situation, a situation 
potentially that could come to the Northwest this winter, is 
there anything that we could do as public policymakers to make 
sure that that available supply is used to prevent this, and if 
so--I mean, why isn't that happening in California? Why do you 
have generators not operating and the lights are going out? 
That seems to be a pretty substantial failure of public policy.
    Mr. Wright. Mr. Smith, that is the right question, and I 
wish I had a good answer for you. Two things, I'd say.
    First of all, there is a supply shortfall. If you look at 
the peak loads that are likely to occur on the West Coast this 
summer relative to the amount of supply, and if everything is 
running, we do have a shortfall. So there are periods in which, 
even with everything running, we come up short.
    But the shortfalls that we're seeing this month, when we're 
not at peak loads, are a little difficult to understand. We 
have sought to try to understand that there are plants down, 
some of them for plant maintenance. That certainly makes sense. 
The Columbine Generating Station is going down today for plant 
maintenance.
    But there are other plants down with forced maintenance, 
and it seems like a lot of that is out. And some people say 
it's because they ran the resources so hard last summer and 
fall, that now we're paying the piper. I'm trying to figure out 
how we get past that problem. I think it is a critical part of 
trying to resolve this problem.
    Mr. Smith. Overall--I mean, just--the big difference--since 
demand has gone up, supply has gone down, how much, truly, in 
the western grid has demand gone up over the course of the last 
two or 3 years? I'm trying to figure out, you know, where--did 
demand go up 10 percent and supply dropped off? What happened? 
Has supply not gone up at all? Has it dropped off? My 
understanding is demand has gone up, but--2, 3, 4 percent, but 
not--not obnoxiously high. Can you just give us your input.
    Mr. Wright. I don't have those numbers, as they're 
different, on the tip of my tongue. But I'd like to provide 
those for the record, if I could, certainly on the demand side.
    On the supply side, I know there has been an increase--and 
it has been a substantial amount--in the Northwest, in 
particular. But I think a bigger problem is that we, on a net 
basis, have lost resources in this region, when we shut down 
the nuclear plants. And we operate the system more now for 
fish, and for good reason. We've added only a couple of small 
combustion turbines in the last 10 years.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Calvert. Thank you.
    I will say that the demand in California went up 
significantly in the last 3 years, the average in the double 
digits, as we didn't have additional power generation coming 
on-line. And one of the problems in California is some of the 
contracts with some of the--some of the plants were less than 
the cost of production. So that's where the problem is in the 
market right now, is attempting to get--renegotiate those 
contracts to get those plants back on-line.
    Mr. DeFazio. Mr. Chairman, may I have just a moment?
    Mr. Calvert. Certainly.
    Mr. DeFazio. I've quite closely followed the statistics of 
the California ISO's, and your peak demand this year is less 
than 2 years ago; and your consumption over the time period was 
up about 4 percent until this year, where it's dropping rather 
precipitously; and your peak demand is below. I'd just like to 
set the record straight on that. Your demand is not up in the 
double digits.
    Mr. Calvert. Well, according to the statistics we have, our 
demand has increased significantly--a number of years, 
overall--.
    Mr. Smith. (Inaudible) State of California--.
    Mr. Calvert. We'll move on to--if there are no additional 
questions for this panel, we'll move on to the next panel.
    The second panel is Mr. Steven Klein, Superintendent of 
Tacoma Public Utility; Mr. Brett Wilcox, President and CEO of 
Golden Northwest Aluminum; Mr. Randy Settler, Secretary of 
Columbia River Inter-Tribal Fish Commission; and Mr. Tom 
Karier, Power Committee Chairman, Northwest Power Planning 
Council.
    Gentlemen, thank you for attending today. We do have a--a 
time light right there. When it gets to yellow, you have 1 
minute remaining. You have 5 minutes for your testimony. Please 
try to stay within that 5 minutes, and we'll have time to ask 
any questions.
    With that, Mr. Klein, you may begin.

   STATEMENT OF STEVEN J. KLEIN, SUPERINTENDENT, TACOMA POWER

    Mr. Klein. Thank you.
    Mr. Chairman and members of the Committee, the current 
crisis--as we've talked about already this morning, the 
situation in the Northwest is a result of a drought of epic 
proportions coupled with the failed industry restriction effort 
in California that destroyed the opportunity to rely upon the 
traditional diversity between the winter peak in the Northwest 
and the summer peak in Southwest and led to a market failure 
that drove the price of wholesale energy into the stratosphere.
    Tacoma Power is a municipally-owned electric utility in 
Washington state, serving approximately 155,000 customers 
within a service territory of 180 square miles.
    Tacoma Power has a long legacy of conservation and power 
generation development over its 106-year history. We also have 
depended upon other contractual resources with various 
Northwest entities, including the Bonneville Power 
Administration.
    At the end of the year 2000, we had cash reserves of $120 
million and had not had a retail rate increase for 6 years. 
Prior to that, from 1989 to 1995, the few rate increases that 
we did have were at or below the rate of inflation. We are 
neither a proponent nor opponent of electricity industry 
deregulation. We did not fear competition and choice, because 
as a consumer-owned utility, we represent the ultimate 
demonstration of choice. We also follow a strategy that puts 
our customers first. And we have a legacy of innovation and 
exceptional cost management. This continues to deliver high 
value to a loyal customer base.
    But our world began to change last fall. As late as 
November of 2000, the National Weather Service organizations 
were still forecasting wet or wetter than normal weather 
patterns for our area.
    By December, the Northwest did not yet see normal 
precipitation. A cold weather front was forecast and announced 
publicly to hit the Northwest beginning Sunday, December 10, 
2000, with the coldest expected to fall upon the following 
Tuesday.
    That Friday before, on December 8, we witnessed an 
unprecedented surge in the price of wholesale power. Tacoma 
Power purchased power that day at nearly $3,000 a megawatt 
hour.
    Anticipating the impending cold front and associated high 
electricity demand, we attempted to buy forward for Sunday 
through Wednesday but could not find a willing seller at any 
price.
    Facing the inability to meet the forecasted low, we called 
upon our large industrial customers to shut down Sunday and 
remain down until further notice.
    The cold snap turned out to be milder than predicted. We 
did find power available on Monday; however, from that weekend 
until today, the power market remains highly volatile, and 
prices are typically eight to ten times what they were 1 year 
ago and certainly beyond that in--in spot circumstances.
    Tacoma Power has spent over $140 million beyond our normal 
level of expenditures to purchase market power. We have 
depleted our once robust cash reserves and must now depend on a 
bank letter of credit to preserve our financial position. This 
is on top of the fact that Tacoma Power was the first utility 
to respond to this first stage of this crisis by raising our 
retail rates an average of 50 percent, effective clear back in 
December of last year.
    This system average rate increase sent a strong price 
signal as the rate increases range from 43 percent for 
residential class to up to 75 percent for commercial/
industrial.
    Tacoma Power and the community we serve set an aggressive 
goal of 20 percent conservation since January of the beginning 
of this year. The cumulative conservation attained across our 
customer base is 13 percent and growing, with April alone at 17 
percent.
    Tacoma Power has also pursued other strategies to mitigate 
the crisis, including temporary diesel generation. We continue 
to advise our state and Federal representatives and appreciate 
the opportunity to testify here today.
    Tacoma Power's customers have felt the sting of the real 
market price since December of last year, where some customers 
in California are only reading about what someday may be coming 
for them.
    As if a 50 percent system average rate increase were not 
enough, the additional hit from a BPA rate increase projected 
to be as much as 100 to 250 percent this coming October--why 
does the Washington, D.C., establishment continue to view the 
energy crisis as only impacting California? Our citizens can 
understand the variability of weather but have a hard time 
grasping the other aspects of this crisis.
    The California restructuring originally guaranteed rate 
decreases and certainty to California consumers. The California 
electric utilities were able to sell off generation assets for 
multiples of book value. Independent power producers were 
allowed to enter the wholesale market with no regulation or 
rules. Northwest rate payers also questioned the actions of an 
administration that forced the BPA to commit power it didn't 
have to provide even greater benefits to the Northwest direct 
service industries.
    The Energy Policy Act of 1992, supposedly well 
intentioned--and represented a response to an expanded global 
economy and the demand for competition and choice that 
previously led other industries to deregulation.
    However, unique complexities and essential needs that 
electricity serves has been greatly misunderstood and 
underestimated by market idealists and reformists.
    The California experiment sought to establish a ``textbook 
market'' and failed miserably. As a result, the citizens of 
California and the Northwest will be paying higher rates for 
years rather than enjoying the supposed benefits of 
deregulation. In many ways, the system in the Northwest, whose 
economy has been built upon reasonably priced power, will 
suffer the most and face a future of uncertainty.
    Thank you.
    Mr. Calvert. Thank you, Mr. Klein.
    [The prepared statement of Mr. Klein follows:]

       Statement of Steven J. Klein, Superintendent, Tacoma Power

    The current crisis situation in the Northwest is the result of a 
drought of epic proportions coupled with a failed industry 
restructuring effort in California that destroyed the opportunity to 
rely upon the tradition diversity between the winter peaking Northwest 
and the summer peaking Southwest and also led to a market failure that 
drove the price of wholesale energy into the stratosphere.
    Tacoma Power is a municipally owned electric utility in Washington 
State serving approximately 155,000 customers within a service 
territory of 180 square miles. Tacoma Power has a long legacy of power 
generation development over its 106-year history and we also have 
depended upon other contractual sources with various Northwest entities 
including the Bonneville Power Administration (BPA).
    At the end of the year 2000 we had cash reserves of $120 million 
and had not had a retail rate increase for six years. From 1989 to 
1995, the few rate increases we did have were at or below the rate of 
inflation. We were neither a proponent nor opponent of electric 
industry deregulation. We did not fear competition and choice because 
as a consumer-owned utility we represent the ultimate demonstration of 
choice. We also follow a strategy that puts our customers first and we 
have a legacy of innovation and exceptional cost-management that has 
continued to deliver high value to a loyal customer base.
    Our world began to change last fall. As late as November 2000, the 
national weather service organizations were still forecasting ``wet or 
wetter than normal weather patterns'' for our area. By December the 
Northwest had not yet seen normal precipitation. A cold weather front 
was forecast and announced publicly to hit the Northwest beginning 
Sunday, December 10, 2000, with the coldest point expected to fall on 
the following Tuesday. On Friday, December 8, 2000, we witnessed an 
unprecedented surge in the price of wholesale power. Tacoma Power 
purchased power that day at nearly $3,000 per mWH. Anticipating the 
impending cold front and associated high electric demand we attempted 
to buy forward for Sunday through Wednesday and could not find a 
willing seller at any price. Facing the inability to meet forecasted 
load we called upon our large industrial customers to shut down Sunday 
and remain down until further notice. The cold snap turned out to be 
milder than predicted and we found power available on Monday, however, 
from that weekend till today the market remains highly volatile and 
prices are typically 8 to 10 times what they were just one year ago.
    Tacoma Power has spent over $140 million beyond our normal level of 
expenditures to purchase market power and we have depleted our once 
robust cash reserves and must now depend upon a bank letter of credit 
to preserve our financial position. This is on top of the fact that 
Tacoma Power was one of the first utilities to respond to the first 
stages of the crisis by raising our retail rates an average of 50 
percent effective December 20, 2000. This system average rate increase 
sent a strong price signal as the rate increases ranged from 43 percent 
for the residential class to 75 percent for commercial/industrial. 
Tacoma Power and the community we serve set an aggressive goal of 20 
percent conservation and since January 2001, the cumulative 
conservation attained across our customer base is 13 percent and 
growing. Tacoma Power also has pursued other strategies to mitigate the 
crisis including temporary diesel generation and we have advised our 
State and Federal representatives and provided testimony at various 
hearing on the crisis.
    Tacoma Power's customers have felt the sting of the real market 
price signal since December of last year, where some customers in 
California are only reading about what may someday be coming for them. 
As if a 50 percent system average rate increase were not enough we, the 
addition hit from a BPA rate increase projected to be as much as 100 to 
250 percent this coming October. Why does the Washington D.C. 
establishment continue to view the energy crisis as only impacting 
California?
    Our citizens can understand the variability of weather but have a 
hard time grasping the other aspects of this crisis. The California 
restructuring originally guaranteed rate decreases and certainty to 
California consumers, the California electric utilities were able to 
sell off generation assets for multiples of book value, the independent 
power producers were allowed to enter the wholesale market with no 
regulation or rules. Northwest ratepayers also question the actions of 
the administration that forced BPA to commit power it didn't have to 
provide even greater benefits to the northwest direct service 
industries.
    The Energy Policy Act of 1992 was well intentioned and represented 
a response to an expanded global economy and the demand for competition 
and choice that had previously led other industries through 
deregulation. However, the unique complexities and the essential needs 
that electricity serves have been greatly misunderstood and 
underestimated by market idealists and reformers. The California 
experiment sought to establish a ``text book'' market and failed 
miserably. As a result, the citizens of California and the Northwest 
will be paying higher rates for years to come rather than enjoying the 
supposed benefits of deregulation. In many ways the citizens of the 
northwest, whose economy has been built upon reasonably priced power 
will suffer the most and face a future of uncertainty.
                                 ______
                                 
    Mr. Calvert. Mr. Wilcox?

STATEMENT OF BRETT WILCOX, PRESIDENT AND CEO, GOLDEN NORTHWEST 
                         ALUMINUM, INC.

    Mr. Wilcox. Thank you, Mr. Chairman.
    My name is Brett Wilcox. I'm President of Golden Northwest 
Aluminum Company. Golden Northwest owns and operates aluminum 
smelters at Goldendale, Washington, and the Dalles, Oregon. 
Normally, we employ 1,225 people and are one of the largest 
employers in Eastern Washington and Eastern Oregon. We are 
committed to saving these family wage jobs and continuing to 
anchor the economy of our distressed rural communities.
    Our production and employment currently are curtailed. The 
Bonneville Power Administration is remarketing the power we had 
under our contract. Each DSI's contract rights and marketing 
agreements are different.
    Under our company's particular agreement, our employees 
receive full wages and benefits. Bonneville received over 100--
we've received $100 million in cash to invest with other 
customers. In a pact with Bonneville United Steel Workers 
Union, we've committed our remaining marketing proceeds to help 
save our smelter operations by developing new Northwest power 
projects, including a very significant amount of wind power 
generation.
    Mr. Chairman, your invitation asks that I testify about 
tiered rates. This is a rate form I proposed to Bonneville to 
reduce demand during the current power supply crisis. Tiered 
rates reflect the reality of the market. The buying of the next 
increment of additional power costs a lot, and reducing 
consumption of the margin saves a lot. If power consumers 
receive this ``price signal'' in their rates, then less power 
will be used; less will be needed; less will be purchased at 
higher prices.
    Consumers do not have to reduce their consumption--
consumers do not have to reduce their consumption by the full 
amount of the higher-priced tier to receive the benefits of 
tiered rates.
    Experience in Great Britain indicates when the power 
reserves are critical, the reduction and consumption by only at 
one and a half percent can reduce market prices by up to 25 
percent.
    Tiered rates are one of the best ways to lower high power 
prices. All consumers benefit, whether or not they can reduce 
their own demand.
    I still believe that, objectively speaking, tiered rates 
are the single-most appropriate ``demand-side'' policy to 
encourage conservation and efficiency and help reduce power 
prices.
    Realistically, however, I recognize that politics and 
confusion and fears have made it virtually impossible, as a 
practical matter, for Bonneville to adopt tiered rates for its 
DSI customers.
    I won't waste the Subcommittee's time by beating a dead 
horse. Please note, however, that leaving aside the DSI's, 
tiered rates still make sense for Bonneville's other customers.
    If the utilities pay tiered rates, their customers will 
soon pay some variant at the retail level. Conservation and 
efficiency will improve, and consumption and power prices will 
be lower.
    Without DSI's as an issue, I hope Bonneville, its utility 
customers, the region, and Congress will recognize that 
appropriate price signals for changes in demand are critical to 
managing the demand side of the supply-demand equation.
    Rather than reduce the demand with price signals, 
Bonneville's trying to reduce demand among its aluminum--and 
some nonaluminum--companies by asking them to extend their 
curtailments for up to 2 years beyond the curtailments now 
scheduled to end in September.
    While our loads have not grown and have not contributed to 
the current energy shortage, our company would like to be part 
of the solution to the power crisis.
    We are willing to agree to some extent of curtailment but 
only under terms that are fair to our workers and our company 
that give us a reasonable assurance we will be able to resume 
operations when the current crisis ends.
    Different aluminum companies are so differently situated 
that fairness cannot result if Bonneville pursues a ``one size 
fits all'' approach to extended curtailments. For example, our 
company shared its power marketing proceeds with its employees 
and Bonneville and is using the remaining funds for new power 
plants to save its smelters and their jobs. No other aluminum 
company agreed to do that.
    Second, each company's cost of ``hibernating'' for an 
extended period is different. In addition to continued employee 
costs, we have other continuing fixed costs from not operating. 
These costs vary widely from company to company.
    We have, and will share, our cost information with 
Bonneville and allow Bonneville to verify our actual 
``hibernation'' costs. We do object, however, to Bonneville 
paying us less than anything but the full amount of our 
company's actual costs. We are willing to help in this crisis, 
but we can't do so in a way that doesn't cover our costs and 
therefore threatens our survival.
    My company's smelters were built with Federal encouragement 
at the sites of two dams, neither of which would have been 
built without these smelter loads to use the power. In a few 
years, the ever-growing loads of Northwest utilities will push 
us off the Federal system entirely.
    The bell does not toll only for aluminum smelters. Over 
half of all electric power in the Northwest is used by industry 
and agriculture. Low power prices have traditionally been the 
significant competitive advantage of the Northwest industry.
    Without abundant and reasonably priced electric power, the 
lights of factories and of farms will go out all over the 
Northwest. We face a crisis of paying taxes, not just utility 
bills. There is a very real threat that the current power 
crisis will deindustrialize the Pacific Northwest.
    If Bonneville, the traditional economic provider of the 
region, is now going to confine its power supply to relatively 
few customers, then Federal power will no longer keep the 
region's economy healthy.
    The ample, reasonably priced power will have to come from 
new, nonFederal projects. Bonneville has the tools to support 
those nonFederal projects. We encourage them to use them.
    Thank you very much.
    Mr. Calvert. Thank you.
    [The prepared statement of Mr. Wilcox follows:]

Statement of Brett Wilcox on Behalf of Golden Northwest Aluminum, Inc. 
                 and Northwest Energy Development, LLC

A. Introduction
    My name is Brett Wilcox. I am President and CEO of Golden Northwest 
Aluminum, Inc. (``Golden Northwest''). Golden Northwest owns and 
operates primary aluminum smelters at Goldendale, Washington, and The 
Dalles, Oregon. Normally, we employ 1,225 people. We are the largest 
employer in Klickitat and Wasco Counties, and among the largest 
employers in Eastern Washington and Eastern Oregon. We are committed to 
saving these family wage jobs and continuing to anchor the economy of 
our distressed rural communities.
    Our production and employment are currently curtailed for lack of 
affordable power. The Bonneville Power Administration is remarketing 
the power we had under contract. Each direct service industry's 
(``DSI'') contract rights and remarketing agreement is different. Under 
my company's particular agreements, our employees receive full wages 
and benefits, Bonneville receives one hundred million dollars in cash 
that benefit its other customers, and--in pact with Bonneville and the 
United Steelworkers of America--we've committed our remaining 
remarketing proceeds to help save our smelter operations by developing 
new Northwest power projects, including a very significant amount of 
wind power.
    As a result, I am testifying today not only for Golden Northwest 
and our employees, but also for our new power project development 
company, Northwest Energy Development, LLC (``Northwest Energy''), 
which is developing three proposed power projects, including our wind 
projects. Our motto is ``Northwest power for Northwest jobs.'' It's a 
motto we hope will become that of Bonneville and the entire Pacific 
Northwest, working and cooperating together as a region.
B. Tiered Rates
    The Chairman asked that I testify about ``tiered rates.'' This is a 
rate form I proposed to Bonneville to reduce demand during the current 
power supply crisis. Tiered rates reflect the reality of the market: 
that buying the next increment of additional power costs a lot; and 
reducing consumption at the margin saves a lot. If power consumers 
receive this ``price signal'' in their rates, then less power will be 
used, less will be needed, less will be purchased at high prices, and 
average power costs will be lower.
    Consumers do not have to reduce their consumption by the full 
amount of the higher priced tier of power to benefit from tiered rates. 
Experience in Great Britain indicates that, when power reserves are 
critical, a reduction in consumption by 1\1/2\% can reduce market 
prices by up to 25%. A recent study for the Electric Power Research 
Institute suggests that the top 10% of demand is responsible for 50% of 
price peaks. Tiered rates are the best way to lower high power prices. 
All consumers benefit, whether or not they can reduce their own demand.
    I still believe that, objectively speaking, tiered rates are the 
single most appropriate ``demand-side'' policy to encourage 
conservation and efficiency, and help reduce power prices and rates 
during the current crisis. Realistically, however, I recognize that 
politics, confusion and fears (perhaps the politics of confusion and 
fears) have now made it virtually impossible, as a practical matter, 
for Bonneville to adopt tiered rates for its DSI customers. I won't 
waste the Subcommittee's time beating a dead horse. Something different 
must be done regarding the DSIs and Golden Northwest.
    Please note, however, that leaving aside the DSIs, tiered rates 
still make sense for Bonneville's utility customers. If utilities pay 
tiered rates, their customers will soon pay some variant at the retail 
level. Conservation and efficiency will improve, and consumption and 
power prices will be lower as a result. Without DSIs as an issue, I 
hope Bonneville, its utility customers, the region, and Congress will 
recognize that appropriate price signals for changes in demand are 
critical to managing the demand side of the supply-demand equation.
C. Extended Curtailments of Aluminum Smelters
    Rather than reduce demand with price signals, Bonneville is trying 
to ``pick off'' specific aluminum and non-aluminum loads and keep them 
shut down for a two-year extension beyond the curtailments now 
scheduled to end in September.
    While our loads have not grown and have not contributed to the 
current energy shortage, our company would like to be part of the 
solution to the power crisis. We are willing to agree to some extended 
curtailment, but only under terms and conditions that are fair to our 
workers and our company, and that give us a reasonable assurance of 
being able to resume operations when the current crisis ends.
    Different aluminum producers are so differently situated that 
fairness cannot result if Bonneville pursues a ``one size fits all'' 
approach to extended curtailments. For example, Golden Northwest shared 
its power remarketing proceeds with its employees and Bonneville, and 
is using the remaining funds for new power plants to save its smelters 
and their jobs. No other aluminum producer agreed to this or does it. 
Second, each company's costs of ``hibernating'' for an extended period 
are different. In addition to continued employee costs, we have other 
continuing fixed costs from not operating. These costs vary widely from 
company to company.
    We have and will share our cost information with Bonneville and 
allow BPA to verify our actual ``hibernation'' costs. We do object, 
strenuously, to Bonneville paying us anything less than the full amount 
of our company's ``hibernation'' costs. We're willing to help in the 
current crisis, but we can't do so in a way that doesn't cover our 
costs, and therefore threatens our survival.
    It must be remembered, here as in the tiered rates discussion, that 
each kilowatthour our smelters don't use, and that Bonneville doesn't 
have to buy, is currently very expensive. After September, my company 
could and would operate, and our employees would be at work, but for 
our willingness to extend our curtailment at BPA's request. That 
extension will save Bonneville and its other ratepayers a huge amount 
of money.
    It would be fair to share the savings of extending our curtailment 
after October, as we shared the benefits with BPA for remarketing 
before October. But we do not ask for even that. We do insist, however, 
on receiving at least enough of those savings to cover our costs of 
producing the savings for others. That is only fair. And it's essential 
for us to remain viable during the extended curtailment.
    Finally, a two-year extension of the current curtailments beyond 
September is simply too long. There is no clear need for it: the 
forward price curve for electric power is not a high plateau, but a 
line that plunges beginning next spring. In addition, a total of three 
years is simply too long for a smelter to be shut down. Our employees 
will move on, our communities will wither, our company will die. We 
should treat the current power crisis for what it is: a severe 
emergency of uncertain duration, but not a permanent one.
D. Bonneville Assistance to Non-Federal Resources that Aid Northwest 
        Jobs
    My company's smelters were built with Federal encouragement at the 
sites of two Federal dams, neither of which would have been economical 
to build without these smelter loads. Yet in a few years, the ever-
growing loads of Northwest utilities will have pushed us off the 
Federal system entirely.
    The bell does not toll only for the aluminum smelters. Over half of 
all electric power in the Northwest is used by industry and 
agriculture. Low power costs have traditionally been the only 
significant competitive advantage Northwest industry and agriculture 
enjoy. Wage rates are high here. Transportation costs are high. Taxes 
are high. Without abundant and reasonably priced electric power, the 
lights of factories and of farms will go out all over the Northwest, 
perhaps never to be lit again. We face a crisis of paychecks, not just 
utility bills. This is a very real threat that the current power crisis 
will ``de-industrialize'' the Pacific Northwest.
    If Bonneville, the traditional economic driver of the region, is 
now going to confine its power supplies to a relatively few favored 
customers, then Federal power will no longer keep the regional economy 
healthy. The ample, reasonably priced power will have to come from new, 
non-Federal power projects. Bonneville has the tools to help support 
these new, non-Federal projects. We ask that Congress and the 
Administration urge Bonneville to use them.
    In particular, we urge emphasis on Northwest power for Northwest 
jobs. Every new power plant uses up some portion of the available 
infrastructure: transmission capacity, pipeline capacity, water, air. 
It makes a huge difference to the Northwest whether the power, or at 
least the financial benefits of the power, from the new project are, or 
are not, dedicated to saving regional employers and employment. You 
can't tell, just by looking at a new plant, whether its power and 
financial benefits flow to Northwest jobs. But you can tell by looking 
at its books and sales arrangements.
    Bonneville's statutory mandate under the Northwest Power Act is to 
``assure the Pacific Northwest an adequate, economical, efficient, and 
reliable power supply.'' The Act gives Bonneville many specific as well 
as broad powers to assist, stimulate, support, provide transmission and 
other services to, and help finance non-Federal power plants. 
Bonneville should do so. In particular, BPA can and should help 
customers develop new resource by providing credit support through 
agreements like the Cowlitz Falls payment backup or a ``financial 
sleeve'' under which BPA buys power from a new project for up to five 
years and agrees to resell it to the same customer at the same cost.
    BPA should support resource development particularly by traditional 
customers, such as Golden Northwest, whose Bonneville power is being 
taken away so that it can be sold instead to utility customers whose 
loads are growing and who are not building their own new resources to 
meet that growth. And it should do so with an unequivocal and 
unapologetic priority for those who, like Northwest Energy Development, 
are willing to sign on the dotted line and commit to use the power or 
financial benefits from the new non-Federal projects to save Northwest 
employers and Northwest jobs. By actively supporting such resource 
development, BPA can help turn the current power crisis into a win-win 
opportunity for the future of the entire Pacific Northwest.
    Thank you.
                                 ______
                                 
    Mr. Calvert. Mr. Settler, go ahead.

  STATEMENT OF RANDY SETTLER, SECRETARY, COLUMBIA RIVER INTER-
                     TRIBAL FISH COMMISSION

    Mr. Settler. Good morning, Mr. Chairman, esteemed members 
of the Committee. My name is Randy Settler. I'm Secretary of 
the Columbia River Inter-Tribal Fish Commission. I'm a member 
of the Tribal Council of the Confederated Tribes and Bands of 
the Yakama Nation and the Chairman of the Yakama Nation's Fish 
and Wildlife Committee.
    I want to thank you both for the opportunity to testify 
before you today and for your desire to look into this critical 
situation.
    It is not the current water conditions standing alone that 
are affecting tribal resources in the Columbia River Basin. The 
real problem is the management decisions made and actions taken 
by the Federal and state agencies in reaction to the drought. 
It is these unilateral decisions and actions that are putting 
the long-term viability of the salmon resource in jeopardy.
    The true crisis with long-term implications has been 
declared in the Columbia River, as well as here in the Puget 
Sound, where numerous salmon populations are in danger of being 
lost to this and future generations.
    As a region, as sovereigns, we must distinguish between 
managing for short-term inconveniences and preventing long-term 
losses. Due to state and Federal reactions to current water 
conditions, a heightened state of emergency has been created 
for our shared salmon resources.
    Under treaties negotiated with the United States in 1855, 
the tribes reserved to themselves several rights as sovereigns, 
among these the right to take fish at all usual and accustomed 
fishing places. Our people have exercised this right since time 
immemorial. Our peoples fished during times of drought and 
during times of floods, during times of great runs of salmon 
and during times of low runs of salmon.
    As they do now, our chiefs and elders watched over the 
harvest to ensure that the people cherished and protected the 
gift of salmon from the Creator. It is our expectation now that 
the United States will honor the treaties and take the steps 
necessary to protect our trusted resources.
    The extremely low water year does not lower the standard by 
which the United States must strive to meet to honor those 
obligations held within the treaties. To honor its commitment, 
the United States must ensure that there is water in sufficient 
quantity and quality in the Columbia River and to ensure the 
safe passage of out-migrating juveniles, as well as for adult 
salmon returning upriver to spawn.
    Under treaties with the Columbia River treaty tribes and 
with Canada and under its domestic laws and agreements, the 
United States is obligated to give primacy to the salmon 
emergency. In order to deal with this ongoing emergency, the 
tribes believe that--I'd like to point these out. These are, 
for the record, documents that--we have interacted with the 
various Federal agencies--that we'd like recognized.
    Mr. Calvert. Those will be submitted for the record, 
without objection.
    [The information referred to is retained in the Committee's 
files]
    Mr. Settler. Right. And the Federal agencies, at a minimum, 
must provide the flow and spill levels for out-migrating 
juveniles and the returning adults as identified in the tribe's 
2001 River Operations Plan, initially presented to the Federal 
Government in February 2001, with updates in March, April, and 
May of 2001.
    Mr. Wright has promised us a written response for these. We 
have not received any written response back yet.
    Because of the 2001 low-flow conditions, in combination 
with the Columbia River dams, and the absence of fish 
protection measures in 2001--these factors will result in very 
high levels of salmon mortality, whose effects will last for 
several generations, ten or more years. The Federal Government 
must develop a mitigation program that addresses the 
overwhelming impacts the hydropower system will impose in 2001.
    To the extent irrigation withdrawals must be limited to 
meet the flow and spill standards, the Federal Government 
should mitigate for that impact and explore the potential for 
reducing irrigation withdrawals in the long term, using a 
willing buyer and willing seller standard.
    The Federal Government must honor its commitments under the 
1996 MOA. Unexpended fish restoration monies held in Bonneville 
Power Administration's financial reserves must be released to 
the tribes and to the region's fish and wildlife agencies.
    The Federal Government must commit to providing the 
financial resources to implement the 2000 BiOp and ``All-H'' 
paper.
    The states must maintain their minimum in-stream flow 
standards and ensure that water quality standards continue to 
be met.
    And in order to reduce the burden of river uses on the 
backs of salmon, we ask that you support and facilitate the 
sustainable development of energy resources by the tribes.
    I will focus on the flow and spill issues this morning. 
Flow and spill proposals: Tribal representatives met with 
Federal agency representatives on several occasions in January 
and through December 2000, but a meaningful dialogue was never 
developed on a government-to-government basis.
    A list of meeting dates in the BiOp is the only indication 
that the Federal Government attempted to consult with the 
tribes. None of our substantial concerns were addressed in the 
BiOp.
    The tribes continue to believe that the four dams in the 
lower Snake River must be breached to ensure the restoration of 
salmon in that basin. It is clear from the scientific data 
collected over years of study that breaching is the only sure 
course to salmon restoration. If we don't breach the dams, then 
a very aggressive program of increased flows through the 
reservoirs and spills at the dams must be pursued by the 
Federal agencies to increase the survival of juvenile out-
migration.
    Based on the overwhelming amount of information available 
from research conducted over the last 30 years, transporting 
fish only harms; it does not provide any long-term benefits.
    I have two more pages. Would you like me to--.
    Mr. Calvert. If you would summarize that, we would 
certainly appreciate that.
    Mr. Settler. This year, by declaring an emergency, the 
Federal agencies are banning the flow and spill proposals they 
outlined in the BiOp. For the spring, still, the Federal 
agencies identified 3,600 megawatt months' worth of water as 
needed to prevent jeopardy to these fish.
    Now they have decided to spill less than 10 percent of that 
level. There's a hitch. They will spill this meager amount of 
water they promise for fish if they are given the option of 
taking away spill from the mid Columbia salmon stocks.
    In an effort to compromise, the tribes and others have 
forwarded a proposal of 800 megawatts of spill. The 800-
megawatt months of spill in the tribal proposal will provide a 
more biologically sound ``spread the risk'' approach.
    Mr. Chairman, I have a couple more pages I'd--.
    Mr. Calvert. We'd be happy to accept those for the record. 
And if you have any closing remark, we would appreciate that so 
we can move on to the next person.
    Mr. Settler. I'll reserve my remarks. I hope I get some 
questions.
    Mr. Calvert. Mr. Settler, we'll get back to you with some 
questions.
    [The prepared statement of Mr. Settler follows:]

Statement of Randy Settler, Secretary, Columbia River Inter-Tribal Fish 
                               Commision

    Good morning Mr. Chairman, esteemed members of the committee. My 
name is Randy Settler; I am the Secretary of the Columbia River Inter-
Tribal Fish Commission. I am also a member of the Tribal Council of the 
Confederated Tribes and Bands of the Yakama Nation and the Chairman of 
the Yakama Nation's Fish and Wildlife Committee. I want to thank you 
both for the opportunity to testify before you today and for your 
desire to look into this critical situation.
    The Commission was formed by resolution of the Nez Perce Tribe, the 
Confederated Tribes of the Umatilla Indian Reservation, the 
Confederated Tribes of the Warm Springs Reservation of Oregon and the 
Confederated Tribes and Bands of the Yakama Nation for the purpose of 
coordinating fishery management policy and providing technical 
expertise essential for the protection of the tribes' treaty-protected 
fish resources. Since 1979, the CRITFC has contracted with the BIA 
under the Indian Self-Determination Act (P.L. 93-638) to provide this 
technical support. The Commission's primary mission is to provide 
coordination and technical assistance to the member tribes to ensure 
that outstanding treaty fishing rights issues are resolved in a way 
that guarantees the continuation and restoration of our tribal 
fisheries into perpetuity. My testimony today is provided on behalf of 
the tribes.
Treaties of 1855
    Under treaties negotiated with the United States in 1855', the 
tribes reserved to themselves several rights as sovereigns, among these 
the right to take fish at all usual and accustomed fishing places. Our 
peoples have exercised this right since time immemorial. Our peoples 
fished during times of drought and during times of floods, during times 
of great runs of salmon and during times of low runs of salmon. As they 
do now, our chiefs and elders watched over the harvest to ensure that 
the people cherished and protected the gift of salmon from the Creator. 
It was the expectation of our treaty negotiators then that the tribes 
would always have access to abundant runs of salmon; it is our 
expectation now that the United States will honor that commitment and 
take the steps necessary to protect our trust resource. This reserved 
right has not been diminished by time and its full exercise has been 
upheld and affirmed in several U.S. Supreme Court decisions. Yet, our 
ability to fully exercise this right has been compromised by a 
combination of state and Federal decisions and management actions 
focused on the short term.
    The fact that we now find ourselves in an extremely low water year 
does not lower the standard by which the U.S. must strive to meet to 
honor those obligations; in fact, the drought increases the burden of 
the U.S. and its agencies to ensure that the salmon resource is 
protected from further injury and loss. To honor its commitment now 
means that the United States must ensure that there is water in 
sufficient quantity and quality in the Columbia River to ensure the 
safe passage of outmigrating juveniles as well as for adult salmon 
returning upriver to spawn.
    We do not propose this standard in a vacuum, it is a standard we 
have lived by and under which we manage our fisheries, to ensure this 
resource will be here for our greatgrandchildren's children. In times 
of scarcity our peoples have sacrificed to ensure the survival of the 
salmon: for example, we have not fished commercially for summer Chinook 
since 1964 and our harvest of those stocks for ceremonial and 
subsistence purposes has been negligible.
    I want to take this opportunity to note that the tribes, working 
through the Commission, have developed a framework restoration plan, 
Wy-Kan-Ush-Mi Wa-Kish-Wit or Spirit of the Salmon. This plan documents 
the threats to our fisheries, identifies hypotheses based upon adaptive 
management principles for addressing these threats, and provides 
specific recommendations and practices that must be adopted by natural 
resource managers to guarantee their trust responsibilities and meet 
their treaty obligations. In this plan, the tribes have identified the 
need to insure that the burden of conserving these salmon stocks is 
allocated fairly across those land and water uses responsible for, 
their decline. Consistent with this need, we have identified changes 
that hatchery programs, forestry, hydroelectric development, 
irrigation, mining and other development activities must make in their 
operations to ensure the recovery of salmon stocks and fisheries. The 
tribes' ultimate goal is to restore a sustainable resource for the 
benefit of all peoples in the Pacific Northwest. Consistent with 
meeting this goal, each and every beneficiary of the river must make 
sacrifices in times of shortage, much as the tribes have voluntarily 
sacrificed fully exercising their right to fish over the last several 
decades. The tribes now call upon those who would generate electricity 
and those who would withdraw water from the rivers to now make that 
sacrifice, or to provide equivalent mitigation when it is demonstrated 
that such sacrifice is impossible.
    At the outset, let me clearly state that it is not the current 
water conditions standing alone that are affecting tribal resources in 
the Columbia River basin. The real problem is the management decisions 
made and actions taken by the Federal and state agencies in reaction to 
the drought. It is these unilateral decisions and actions that are 
putting the long-term viability of the salmon resource in jeopardy. In 
the tribes' view, too much is being made of there being an ``energy 
crisis'' or a ``water crisis'' in the basin; these are real problems 
but they are short-term in nature. The true crisis, with long-term 
implications, has already been declared in the Columbia River, as well 
as here in the Puget Sound, where numerous salmon populations are in 
danger of being lost to this and future generations. As a region - as 
sovereigns - we must distinguish between managing for these short-term 
inconveniences and preventing the realization of the true potential for 
long-term losses. Due to state and Federal reactions to current water 
conditions, a heightened state of emergency has been created for our 
shared salmon resource.
    Under treaties with the tribes, with Canada, and under its domestic 
laws and agreements, the United States is obligated to give primacy to 
the salmon emergency. In order to deal with this on-going emergency, 
the tribes' believe that:
     Lthe Federal agencies, at a minimum, must provide the flow 
and spill levels for out migrating juveniles and returning adults as 
identified in the tribes' 2001 river operations plan, initially 
presented to the Federal Government in February 2001, with updates in 
March, April, and May of 2001;
     Lbecause the 2001 low flow conditions in combination with 
the Columbia River dams and the absence of fish protection measures in 
2001 will result in very high levels of salmon mortality whose effects 
will last for several generations (ten or more years), the Federal 
Government must develop a mitigation program that addresses the 
overwhelming impacts the hydropower system will impose in 2001; 2
     Lto the extent irrigation withdrawals must be limited to 
meet the flow and spill standards, the Federal Government should 
mitigate for that impact and explore the potential for reducing 
irrigation withdrawals in the long-term, using a willing buyer and 
willing seller standard;
     Lthe Federal Government must honor its commitments under 
the 1996 MOA, unexpended fish restoration monies held in Bonneville 
Power Administrations financial reserves must be released to the tribes 
and the region's fish and wildlife agencies;
     Lthe Federal Government must commit to providing the 
financial resources to implement the 2000 BiOp and ``All-H'' paper;
     Lthe states must maintain their minimum instream flow 
standards and ensure that water quality standards continue to be met; 
and,
     Lin order to reduce the burden of river uses on the backs 
of salmon, we ask that you support and facilitate the sustainable 
development of energy resources by the tribes.
    I will address each of these issues in turn.
Flow and Spill Proposals
    During the development of the BiOp, the tribes attempted to engage 
the Federal agencies in government-to-government consultations in order 
to ensure that our treaty reserved rights were protected. And while 
tribal representatives did meet with Federal agency representatives on 
several occasions from January, through December 2000, expending 
considerable time and resources, a meaningful dialogue was never 
developed on a government-to-government basis. In reviewing the BiOp, a 
list of meeting dates is the only indication that the Federal 
Government attempted to consult with the tribes. We believe that none 
of our substantive concerns were addressed in the BiOp.
    With regard to the hydroelectric power system, the tribes continue 
to believe that the four dams in the lower Snake River must be breached 
to ensure the restoration of salmon in that basin. It is clear from the 
scientific data collected over years of study that breaching is the 
only sure course to salmon restoration. In lieu of dam breaching, a 
very aggressive program of increased flows through the reservoirs and 
spills at the dams must be pursued by the Federal agencies to increase 
the survival of juvenile out migrants. Based on the overwhelming amount 
of information available from research conducted over the last 30 
years, the tribes do not believe that transporting fish provides 
benefits anywhere near the equivalent of adequate flows and spill.
    We advocate flow and spill not because we believe they are the 
answer to salmon recovery, but because they are the only two management 
actions at our disposal. They will lessen what promise to be unusually 
lethal impacts of the hydropower system at a time when salmon stocks in 
the Snake and upper Columbia River are at dangerously low levels. This 
cannot be considered enhancement but, at best, damage control.
    We have been told that, instead of dam breaching, we will use the 
next eight years for adaptive management. Yet there is a growing 
reluctance to use the information and knowledge we have already 
gathered about the survival of salmon,. let alone utilizing additional 
information we may learn by conducting additional studies to improve 
their survival.
Previous Drought Years
    This year, the amount of available water for instream flows in the 
Columbia River basin is expected to be lower than that of 1977, 
recognized as the worst water year on record. This year, by declaring 
an energy emergency, the Federal agencies intend to circumvent the flow 
and spill proposals they outlined in the Biological Opinion (BiOp) on 
the Federal Columbia River Power System (FCRPS). This spring, the 
Federal agencies have proposed to limit spill to less than 10% of that 
identified in the BiOp as necessary to avoid jeopardizing listed salmon 
populations. And even this limited action will only be taken if they 
are granted the option of stealing spill that was to be provided for 
other salmon populations during the summer. In 1977, even with some 
flow and spill provided, the National Marine Fisheries Service 
estimated in river survival of only 2-3% for out migrating Snake River 
juveniles.
    To ``alleviate'' what everyone recognizes as a disastrous situation 
for out-migrating juvenile salmon, the Federal agencies propose 
``transporting'' these fish by barge or truck for release below the 
dams.
    Virtually no transported fish returned as adults from the 1977 out 
migration. In fact, even though fish transportation, as a technical 
solution, has been in use since 1968, several salmon populations have 
either disappeared or been listed for protection under the ESA. The 
tribes believe that the research is in, transportation does not work; 
the best way to ensure the survival of these populations is by either 
breaching dams or providing sufficient spill and flow levels.
    In 2001; we know how poorly Snake River spring Chinook survived in 
1977. We know that during years with favorable river conditions (high 
flow and spill rates), smolt-to adult returns (SARs) for upriver stocks 
that must navigate the several dams on the river compare most favorably 
with SARs for downriver control stocks, those that have no dams 
blocking their path to the ocean. We know that flow augmentation 
lessens the impacts of reservoirs and that spill lessens the impacts of 
dams.
    We now know that we would need many millions of acre-feet to 
approach flow levels even close to the historic hydrograph. Yet, 
getting back to the historic hydrograph isn't enough. Because the 
reservoirs behind the Dams Act to slow water velocity several fold, for 
flow, we would need to increase average precipitation several fold to 
compensate for the presence of reservoirs. Even in normal years, this 
would be impossible.
    Clearly the flow augmentation targets proposed by the Federal 
agencies in the BiOp are inadequate. Yet, this year the Federal 
agencies refuse to provide even those levels, as a result, flows are 
now half of the BiOp targets. And the safest avenue for fish, providing 
for spill over the dams, is now subjected to drastic curtailment or 
complete elimination in order to provide water for power generation.
Spring Spill
    While we should at the very least be able to count upon the Federal 
agencies to meet the goals and objectives they set for river management 
in the BiOp, it appears as though neither the tribes nor the salmon can 
count on them making any effort to restore salmon. The legally mandated 
spill at Federal dams in the Columbia and Snake rivers as described in 
the BiOp have been abandoned, plunging already weakened salmon runs 
through the most lethal routes in the river system. Without spill, the 
salmon resource is left to turbine passage, mechanical bypass and 
transportation with all of their uncertainties.
    For the spring out migration, the BiOp called for 3600-megawatt 
(mw) months worth of spill as a reasonable and prudent alternative 
(RPA) that would help to preclude jeopardy to the listed salmon 
populations. Declaring an emergency, the Federal agencies initially 
claimed that the best they can now offer at this critical time for the 
salmon is 300 mw months of spill, or less than 10% of the RPA. Even 
this drastically reduced level of spill is contingent upon compromising 
spill regimes later in year, with the potential for putting other 
salmon stocks at risk.
    In an effort to compromise, the tribes and others have forwarded a 
proposal for 800 mw months of spill. The 800 megawatt months of spill 
in the tribal proposal provides a more biologically sound, ``spread the 
risk'' approach for migrants reaching the lower Columbia. The tribal 
proposal calls for a fraction of the spill - approximately 8 days 
versus 62 days- required in the 2000 Federal Biological Opinion. The 
tribal ``spread the risk'' strategy would provide salmon several 
passage routes in the face of the uncertainties surrounding this year's 
river conditions.
    The tribes continue to reject the Federal proposal to swap summer 
spill at mid-Columbia dams for spring spill in the lower river - an 
inappropriate and irresponsible trading of risk from one stock to 
another. The Federal proposal would force parties to walk away from a 
historical spill settlement agreement that took a decade to negotiate 
and finalize.
State Management Actions and Obligations
    Water is an extremely limited resource and the rivers throughout 
the region are already over-allocated due to poor management by the 
states. While these waters serve other important uses and users, they 
are fundamental habitat for salmon. Salmon need these waters for 
instream flows. Our treaties, and the Federal and State trust 
responsibility to the tribes under our treaties, as well as the 
Endangered Species Act and the Clean Water Act, are there to protect 
these resources.
    A sufficient level of water is simply not available for all the 
uses being proposed by the various user groups, especially during these 
times. States should consider providing, and the Federal Government 
should consider supporting, funding incentives for setting or amending 
instream flows to levels higher than the current flows where necessary 
to ensure that these flows are adequate to meet the needs of fish.
    The States should provide more funding to allow responsible 
agencies to follow through on the states' legal responsibility to 
establish instream flows. Sufficient funding should also be provided to 
ensure that the agency could enforce these flows each and every year, 
especially in drought years. Current state funding levels fall woefully 
short of the amount needed to fulfill these responsibilities in a 
legitimate, scientific manner.
    While these issues are shared by each state, in light of the 
location for this hearing, I will highlight as an example an issue in 
the State of Washington.
    In 1980, the State of Washington had the foresight to reserve 
instream water rights to protect fish habitat and public health. But, 
under the same law, the State is allowed to reduce these flows in cases 
of ``overriding public interest.'' On April 5, 2001 the Washington 
Department of Ecology (WDOE) exercised this discretion and authorized a 
critical flow adjustment, reducing designated instream water flow 
levels by 23% in the Columbia River. This action was apparently taken 
in order to avoid cutting off the access of junior appropriators, 
permitting even irrigators with rights secured after 1980 to withdraw 
water in this drought year. The tribes do not believe that decision was 
taken in full consideration of the public interest. By law, water 
conservation is a public interest, and the burden of further 
conservation should be ``shared by the various users to the greatest 
extent practicable.'' By reducing instream flows, however, Washington 
is not allocating the burden between users. Rather, the State of 
Washington is benefiting private economic interests over public 
interests.
    The tribes are concerned that, by taking this action that favors 
irrigation needs exclusively over the needs of fish, the State of 
Washington is not honoring its obligations to rebuild naturally 
spawning stocks of anadromous fish as required under US v. Oregon, the 
Chinook rebuilding program of the U.S.-Canada Pacific Salmon Treaty, 
and the Northwest Power Act. Obviously, the State's action in reducing 
instream flow levels will not benefit salmon. Every cubic second foot 
of water available for instream purposes is more valuable in a drought 
year than in a year of normal runoff.
    In this specific instance, under the terms of their permits, the 
junior water right holders were aware that their rights could be 
curtailed at least once in every 20 years for instream flow purposes. 
These rights were conditioned upon volume runoff forecasts, subsequent 
water development occurred based upon that condition. This year was the 
first time that junior rights holders faced that potential since 
Washington established instream rights in 1980. The junior permits were 
specifically made conditional upon volume runoff forecasts and 
subsequent water development occurred based on that condition. This 
would be an appropriate year to restrict these diversions to protect 
instream uses. Yet the State chose to let them withdraw water this year 
anyway.
    In addition, this decision has a cumulative impact: further 
reducing instream flows reduces the volume of water available for 
hydroelectric production and for spill for salmon and will adversely 
affect the region's interest in both these instream uses.
    The State of Washington must take affirmative actions to rebuild 
salmon runs, even during low flow years, to protect the treaty fishing 
rights of the tribes. The State has not demonstrated that it has a plan 
to restore salmon to meet the tribes' fishing needs or that it can 
mitigate for reducing instream flows this year.
    Again, my intent is not to single out the State of Washington: in 
the State of Idaho, the Nez Perce Tribe is involved in the lengthy 
water allocation negotiations in the Snake River Basin Adjudication. 
The State of Oregon faces some of the same problems as Washington in 
ensuring adequate instream flows for fish, as well as ensuring that 
water quality standards are met each year. The tribes are willing to 
work with each one of these States to find ways to assist the junior 
appropriators, so long as any mitigation will not reduce instream 
flows. The tribes also believe that the States can mitigate for some of 
these impacts by working with the tribes to reform artificial 
propagation policies. We continue to believe that such reforms will 
help to assure rebuilding Columbia River salmon runs to sustainable, 
harvestable levels for tribal and non-tribal fishers.
Tribal Management Proposals
    The tribes have long recognized that co-management in harvest 
arenas alone will not address one of the most significant problems 
facing Pacific salmon: the loss and degradation of their ecosystems. To 
address this major problem, the tribes have developed Wy-Kan-Ush-Mi Wa-
Kish- Wit, or The Spirit of the Salmon, a salmon restoration program 
focused not on a single salmon stock or species, but instead on the 
integrated habitat characteristics that make up a healthy watershed. 
The tribes believe that implementation of their plan will result in 
healthy, sustainable salmon fisheries from Southeast Alaska to the 
headwaters of the Snake River Basin. To protect and recover tributary 
habitat, the plan proposes that land and water managers meet a series 
of habitat conditions associated with survival rates. The use of this 
``Coarse Screening Process,'' where applicable will define allowable 
levels of watershed impacts consistent with salmon restoration.
    The tribes' salmon plan calls for baseline surveys of watershed and 
in-channel conditions as well as trend monitoring to document watershed 
recovery, test assumptions and validate models used in land management. 
Monitoring needs include egg-to-smolt survival, total smolt production, 
and production per spawning pair in salmon-bearing watersheds. Physical 
monitoring needs in all salmon-bearing watersheds include measuring 
substrate sediment loads, large woody debris, pool frequency, and 
volume, bank stability, and water temperature.
    Adaptive management is a hallmark of the tribes' salmon plan, which 
takes a gravel-to-gravel approach to achieve improvements in survival 
throughout the salmon life-cycle. The tribes' science-based approach to 
land management is supported by independent scientific peer review. To 
halt salmon declines and rebuild healthy runs, the USFS and BLM must 
likewise implement science-based adaptive approaches that integrate 
biological and physical monitoring with land management actions that 
protect and restore salmon habitat.
    The tribes' plan calls for an expedited program of watershed 
restoration actions for the Columbia Basin. The tribes are working in 
partnership with state, Federal, and local governments as well as 
private landowners to establish a comprehensive program for 
implementing actions that will restore functioning ecosystems in our 
watersheds. We have developed watershed restoration action plans for 
the 23 salmon bearing watersheds above Bonneville Dam in the Columbia 
Basin. Many of these actions will be carried out on private lands.
    State and Federal hatchery management programs contribute to the 
extirpation of naturally spawning salmon stocks in the basin. The 
tribal goal to put fish back in the river means literally putting the 
fish back. Young salmon, if released at the proper time, will return as 
adults to spawn in the same area they were released as juveniles. 
Consistent with this concept, the tribes, working with the state and 
Federal fishery agencies, developed a supplementation protocol so as to 
reform hatcheries to rebuild naturally spawning salmon populations in 
the basin. Utilizing this protocol, the tribes developed integrated 
production plans that can be implemented as research projects to 
restore naturally spawning populations using carefully monitored 
supplementation practices. Under tribal management, hatcheries would be 
used for the restoration of naturally spawning Chinook stocks 
throughout the Basin.
    The tribes and the Commission, working with the state and Federal 
fishery agencies, developed a flow program at the dams that would help 
restore salmon by providing sufficient river flows for migration. This 
flow program enhances and ensures the benefits from protecting and 
restoring watershed systems and reforming hatchery programs. In this 
way can we rebuild salmon populations to harvestable production levels 
rather than continue the status quo and preside over their demise.
    The tribes' plan covers all the areas that must be addressed in 
order to protect salmon stocks and insure their restoration to levels 
consistent with the international obligations of the United States and 
with its trust obligation to the tribes; but that will be the easy 
part: the most difficult obstacle facing the restoration of the salmon 
runs is the lack of political will to tackle the issues head on. We 
will do everything necessary to insure that these runs will be rebuilt.
Conclusion
    The salmon resource, and with it, tribal rights reserved under 
treaties with the United States must not be the last priority of the 
list of considerations reviewed by the state and Federal Governments 
when river management decisions are being made. To alleviate this 
burden, the tribes ask that you ensure that other river users are 
bearing their fair share of the conservation burden. We would also ask 
for your support of a National Tribal Energy Bill, which will foster 
expedited energy resource development on tribal lands and provide the 
Northwest tribes the opportunity to help alleviate the burden of energy 
reliance on the Columbia and Snake rivers by the rapid development of 
new cost effective power supplies to serve Northwest loads.
    1 Treaty with the Yakama Tribe, June 9, 1855, 12 Stat. 951; Treaty 
with the Tribes of Middle Oregon, June 25, 1855, 12 Stat. 963; Treaty 
with the Umatilla Tribe, June 9, 1855, 12 Stat. 945; Treaty with the 
Nez Perce Tribe, June 11, 1855, 12 Stat. 957.
    2 The Bonneville Power Administrations 2001 Action Plan project 
solicitation is limited to actions that have already received necessary 
state and Federal permitting and can be implemented ``on the ground'' 
by September 30, 2001. While we do not object to this solicitation, we 
recognize and BPA recognizes that the terms of this solicitation so 
limit the projects BPA can consider, that these projects cannot 
possibly offset the impacts of the 2001 hydro operations on Columbia 
Salmon runs. Looking at this issue from a different perspective, BPA 
will avoid nearly $2 billion in costs by foregoing salmon operations in 
2001, whereas the 2001 Action Plan solicitation is likely to result in 
$10 to $20 million in mitigation project funding. To further place this 
solicitation in perspective, to implement the FCRPS Bilogical Opinion 
and NPPC Fish and Wildlife Program, we estimated that over $200 million 
in new BPA funding would be needed in 2001.
                                 ______
                                 
    Mr. Calvert. Dr. Karier, you may begin your testimony.

  STATEMENT OF DR. THOMAS KARIER, CHAIRMAN, POWER COMMITTEE, 
                NORTHWEST POWER PLANNING COUNCIL

    Mr. Karier. Thank you, Mr. Chairman, and members of the 
Subcommittee.
    My name is Tom Karier, and I'm one of two members of the 
Washington delegation of the Northwest Power Planning Council, 
and I also serve as chairman of the council's power Committee.
    Thank you for the opportunity to speak here on behalf of 
the council. We are an agency of the states of Idaho, Montana, 
Oregon, and Washington. Under the Northwest Power Act of 1980, 
the council conducts long-range electric energy planning and 
analysis and also prepares a program to protect, mitigate, and 
enhance fish and wildlife for the Columbia River basin that 
have been affected by the hydropower dams.
    The council has been conducting an ongoing analysis of the 
West Coast electricity crisis, and from our analysis, it 
appears the crisis has five key causes, causes that have been 
characterized as comprising that perfect storm.
    First, the competitive wholesale power market has been 
characterized by excess capacity and an abundant hydroelectric 
power for most of the--of the mid to late 1990's. And it did 
not provide a price signal sufficient to encourage new 
investments in new generating and conservation resources.
    Peak summer loads grew by almost 12,000 megawatts in the 
West between 1995 and 1999, while generation capacity increased 
by only 4,500 megawatts.
    Second, below-average rainfall and snowpack in 2000 and 
2001 have dramatically reduced our recent hydropower supply by 
almost 5,000 megawatts. That's equivalent to the power needed 
for four cities the size of Seattle. We are facing the second-
worst drought on record.
    Third, the price of natural gas, the primary fuel for 
thermal power plants in the Northwest, has more than doubled in 
the last year, largely as a result of supply and demand, 
including increased competition with the Midwest for existing 
natural gas supplies.
    Fourth, planned and unplanned maintenance of thermal power 
plants in the Northwest, but especially in California, have 
reduced the power supply.
    And fifth, production from the hydroelectric system has 
been affected by efforts to recover salmon and steelhead listed 
under the Endangered Species Act, although emergency operations 
this year are returning much of that power.
    Obviously, a lack of rainfall is having the largest and 
most immediate impact. Based on our analysis, we offer the 
following observations and recommendations: Bonneville should 
continue the emergency hydropower operations it began in 
February. This means drafting reservoirs below biological 
opinion target levels for this time of year in order to 
generate more power.
    New power facilities are coming on-line in the near future, 
and these will help ease the crisis. More than 700 new 
megawatts are scheduled to come on-line in July alone.
    We are also encouraged that renewable resources--
particularly wind power--are being developed aggressively in 
the region. The regional utilities and industries also are 
installing temporary generation to help them through the summer 
and fall, when we expect prices will continue to be high.
    At the same time, we see encouraging developments in energy 
conservation, demand exchanges between utilities and the 
customers, and economic incentives. But we still anticipate 
high current prices that will continue for us for another year, 
at least, perhaps longer.
    But when prices moderate and supply increases, we must not 
lose sight of the need for a longer-term policy that helps us 
deal with future crises.
    For example, state utility regulators should explore power 
pricing changes to reflect market prices and risks. If 
consumers saw realtime prices, they would have much more 
incentive to reduce conservation and invest in energy 
efficiency measures.
    Consistent with our responsibilities to the Northwest Power 
Act, the council is concerned about the impact of the drought 
on fish and wildlife in the Columbia Basin, as well as the 
impact on the nation's power supplies.
    The critical issue this spring is whether to spill water 
over dams to help juvenile salmon and steelhead migrate to the 
ocean. Spill is required, by the biological opinion, on 
hydropower operations issued by the National Marine Fishery 
Service, but water that is spilled cannot be used to generate 
power.
    The council has advocated for hydropower operations that 
ensure energy reliability in the Northwest and to use any 
additional water storage to provide the best benefit for 
Columbia Basin fish.
    In April, we addressed the spill issue with our own 
recommendations for dam operations this spring and summer. In 
short, we recommended that the spill be eliminated at the four 
dams where fish can be collected and put in barges. We 
recommended that limited spill be provided at Bonneville, the 
Dalles, and John Day Dams to help fish migrate once energy 
adequacy is assured.
    We believe these operations would provide the best balance 
of power generation and fish protection in this difficult 
drought year.
    Mr. Chairman, we have an opportunity to fix the current 
problem while also investing in the future.
    Thank you, again, for the invitation to address the 
Committee today. Thank you.
    Mr. Calvert. Thank you, Tom.
    [The prepared statement of Dr. Karier follows:]

  Statement of Dr. Thomas Karier, Washington Member, Northwest Power 
                            Planning Council

    Good morning Mr. Chairman, and members of the Subcommittee. Thank 
you for the opportunity to testify today on behalf of the Northwest 
Power Planning Council. My name is Tom Karier, and I am one of Governor 
Gary Locke's two appointees to the Council. I also chair the Council's 
Power Committee, which includes one member from each of the four 
Northwest states that are represented on the Council.
    The Council is an agency of the states of Idaho, Montana, Oregon 
and Washington. Under the Northwest Power Act of 1980, the Council 
conducts long-range electric energy planning and analysis, and also 
prepares a program to protect, mitigate and enhance fish and wildlife 
of the Columbia River Basin that have been affected by hydropower dams.
    For nearly two years, we have been conducting periodic reviews of 
the West Coast power crisis and the high wholesale market prices, an 
effort we began in 1999 as the signs of an impending power problem 
began to make themselves evident. Today I will share with you the 
conclusions of our latest analysis and our recommendations for 
alleviating the crisis.
    To begin with some background, we believe five key events are 
contributing to the current crisis.
    First, as the result of the nationwide wholesale electricity 
deregulation authorized by the National Energy Policy Act of 1992, the 
risk associated with the development of new generation resources was 
placed on independent developers. These independent developers must 
believe they can recover their costs and earn a reasonable return 
before they will invest. The excess capacity and abundant hydroelectric 
power that characterized Western power markets through most of the mid 
to late '90s did not provide price signals sufficient to encourage 
investments in new generating and conservation resources--at least not 
until prices jumped up last year. As a result, construction of new 
power plants and new conservation and renewable resources during the 
last decade did not keep pace with growing demand for electricity. 
Throughout the entire Western Systems Coordinating Council area peak 
summer loads grew by almost 12,000 megawatts between 1995 and 1999 
while generation capacity increased by only 4,500 megawatts.
    California's experiences with its own deregulation law have 
exacerbated the supply and demand problems and helped to drive up 
wholesale power prices throughout the West to levels never seen before.
    Second, below-average rainfall and snowpack in 2000 and 2001 have 
dramatically reduced our region's hydropower supply. So far, 2001 is 
the second-driest year on record in the Northwest, and with normal 
operations our region's hydropower generating capacity is reduced by 
about 5,000 megawatts--enough power for more than four cities the size 
of Seattle. Runoff in the Columbia River Basin is predicted to be 56.5 
million acre-feet, just 53 percent of normal. There also is bad news 
from north of the border, where the Canadian Columbia River Basin is 
experiencing rain and snowfall far below normal. This reduces the 
amount of power that can be generated both in British Columbia and 
downstream at dams in the United States.
    Third, the price of natural gas, the fuel of choice for thermal 
power plants in the Northwest, has more than doubled in the last year, 
largely as the result of supply and demand issues, and also competition 
with the Midwest.
    Fourth, planned and unplanned maintenance of thermal power plants, 
both in the Northwest and in California, reduced the power supply, as 
did plant shutdowns to comply with air quality requirements.
    Fifth, the loss of flexibility in the operation of the 
hydroelectric system due to Endangered Species Act requirements has 
derated the system by more than 1,000 megawatts.
    We are most concerned about the present condition of the Federal 
Columbia River Power System, which provides about 40 percent of the 
electricity in the Northwest. It is a system that runs on water, of 
course. And right now the water supply in the Columbia River Basin is 
low. I want to make it clear that for us in the Northwest, the crisis 
is not just about a failure to build new power plants. It is a crisis 
of fuel supply, and for us, fuel means water.
    The Northwest is a hydropower-dependent region. In an average year, 
approximately 75 percent of the electricity generated in the region 
comes from hydroelectric dams. Frequently in the fall and winter we 
import power from California to help meet our load. These power imports 
during the low-flow winter months help us store water in reservoirs for 
spring fish flows. Storing water also helps us meet our demand for 
power in the spring and summer and make surplus power available to 
California.
    Good hydropower conditions during the last several years masked the 
growing imbalance between supply and demand. Last winter and this 
spring, poor hydropower conditions in the region combined with 
California's ongoing supply crisis are exacerbating the imbalance 
between supply and demand and making our dependence on hydropower all 
the more clear. Not only are we concerned about having enough 
electricity if the remainder of the spring and summer are warmer and 
drier than usual, but we also are concerned about the impact of low 
flows and reduced water spills at dams on juvenile salmon and steelhead 
migrating to the ocean.
    The power crisis is affecting Northwest electric utilities and 
ratepayers, as well as those in California, and particularly businesses 
and industries. Utilities are raising their rates, dramatically in some 
cases. The Bonneville Power Administration may have to buy power on the 
spot market next fall if expected new contractual obligations increase 
its load by as much as 3,000 megawatts. Earlier this year, Bonneville 
proposed rate increases to cover the additional cost averaging 60 
percent and, for some customer classes, exceeding 90 percent. With the 
situation further deteriorating, Bonneville is working to keep the rate 
increases in double figures, a goal that would have sounded absurd a 
year ago.
    Businesses and industries are shutting down or cutting back. In 
many instances, the cost of power exceeds the value of the product 
produced. The aluminum industry and some irrigated agriculture are 
prime examples. In these instances, the power has been purchased back 
from the consumer or, in some cases, the consumer has been able to 
remarket the power.
    What can be done?
    Based on our ongoing analysis of the power supply and market 
prices, we developed the following observations and recommendations:
    First, Bonneville should continue the emergency hydropower 
operations it began in February. This means drafting reservoirs below 
Biological Opinion target levels for this time of year in order to 
generate more power. The emergency hydropower could be augmented with 
imports, if possible, and also by reducing spill. This would keep 
reservoir elevations a little higher, and that is an important 
consideration for our power supply later this year.
    Second, new power plants are under construction in the Northwest, 
and these will help ease the crisis. More than 1,100 megawatts of new 
generating facilities will begin producing electricity by July, and 
about 700 megawatts more will be operating by the end of this year. In 
2002, some 1,700 additional megawatts of new generation is expected to 
begin operating. Meanwhile, natural gas usage in the Northwest, both 
for homes and businesses and as a fuel for power plants, continues to 
increase. But supply has not kept pace with demand and, like wholesale 
electricity, prices for natural gas have continued to increase--
although recently prices fell back to $5-$6 per million Btu. That is 
still about three times as expensive as a year ago. The Council 
estimates that demand for natural gas will continue to grow at about 
2.3 percent per year. Gas companies are working to increase the supply, 
and pipeline companies and their customers are working to increase 
capacity.
    Third, we are encouraged that renewable resources, particularly 
wind power, are being developed aggressively in the region. Two new 
wind power developments will yield 325 megawatts of capacity in the 
next year or so, and planned hydropower upgrades in the Northwest will 
yield an additional 80 megawatts of capacity. Of the anticipated 1,800 
megawatts of new power expected this year, 200 is wind power from a 
site in southeastern Washington.
    Fourth, temporary new thermal generation is being installed by 
utilities and industries that use large amounts of power to help get 
through the anticipated high prices this year and next. About 500 
megawatts of temporary, peaking thermal plants will come online this 
year. We recommend that permits be issued for these plants if they 1) 
meet minimum environmental-protection criteria, and 2) are authorized 
only for limited time, after which the plants could continue only if 
approved through normal siting process.
    Fifth, efforts to improve energy-use efficiency must accelerate. 
The Council always has defined conservation as improved energy-use 
efficiency--not as an exercise in personal sacrifice such as living in 
a colder house or taking luke-warm showers. To the Council, 
conservation means using energy more efficiently to do the same amount 
of work. Our staff has identified a number of promising efficiency 
efforts, including the following: 1) replace incandescent bulbs with 
compact fluorescents; 2) upgrade commercial lighting; 3) ``tune up'' 
heating/air conditioning systems in commercial buildings; 4) replace 
inefficient industrial electric motors; 5) retire second refrigerators 
in homes (20 percent of Northwest homes have two; old ones use twice as 
much electricity as ``Energy Star'' models); and 6) accelerate 
replacement of existing clothes washers (``Energy Star'' models use 35 
percent less electricity and 35-45 percent less water).
    Sixth, pursue industrial/commercial demand reduction. This is a 
separate area of efforts to improve energy-use efficiency, and it has 
huge potential. Our staff has identified the following methods: 1) 
utilities should negotiate interruptible power-supply contracts with 
their largest customers, where this is possible; 2) utilities should 
investigate new contractual mechanisms like demand-exchange programs; 
and 3) utilities should investigate buying back power from these 
customers for short periods of time. There is good progress to report 
in this area. Northwest industries have agreed to reduce their demand 
for power by about 1,000 megawatts. This will be accomplished through 
short-term contractual arrangements that include power buybacks by 
utilities, industrial shutdowns and remarketing of power supplies by 
industries. Utilities also have arranged an additional 800-900 
megawatts of demand reduction agreements, primarily with industries, in 
which the power customers agree to reduce their power usage in return 
for a payment or credit.
    Seventh, and for the longer term, state utility regulators should 
explore power pricing changes to reflect market prices and risk. Most 
consumers don't see real-time (marginal cost) prices. If they did, they 
would have more incentive to reduce consumption and invest in energy 
efficiency measures. Most consumers do not want to be exposed to the 
volatility and risk of real-time prices. However, creative rate design 
and new metering technologies can promote greater price response 
without punishing the consumer.
    Eighth, new energy policies also should be explored. But these can 
be controversial. For example, price caps on wholesale power have been 
proposed. The Council has not taken a position on price caps because 
the governors of the Northwest states do not agree on the issue. Two 
governors believe that temporary price caps are needed to address the 
severe economic impacts of high power prices. The other two governors 
believe that price caps will create uncertainty in the market and serve 
as a disincentive to the development of new generation and 
conservation.
    Ninth and finally, we all must continue to inform the public about 
the problem. The public needs to understand the problem is real and 
that efforts at home will help ease the crisis.
    Now Mr. Chairman and members of the committee, I would like to 
discuss the impact of the energy crisis on fish and wildlife of the 
Columbia River Basin. While the Council has a statutory responsibility 
to assure the Pacific Northwest an adequate, efficient, economical and 
reliable power supply, our planning also must protect, mitigate and 
enhance fish and wildlife affected by hydropower dams in the Columbia 
River Basin. The near-record low snowpack runoff this year has the 
potential to have adverse effects on fish as well as power, and 
particularly juvenile salmon and steelhead that migrate to the ocean 
during the spring and summer.
    The Council's planning responsibility under the Northwest Power 
Act, and also the responsibility of the Federal agencies that operate 
dams in the Columbia River Basin and sell the power, is to provide 
equitable treatment to fish and wildlife with other purposes of the 
dams. Those other purposes include navigation, irrigation, recreation 
and flood control.
    In April, the Council recommended operating strategies for Columbia 
and Snake river dams that would eliminate water spills at most dams 
this spring and summer in order to make more water--and, therefore, 
more power--available later in the year. This policy would be adjusted 
as water conditions or the power situation evolve.
    This is controversial, to say the least.
    The 2000 Biological Opinion on the operation of Columbia and Snake 
river hydropower dams, issued by the National Marine Fisheries Service 
on behalf of threatened and endangered species of salmon and steelhead, 
calls for spilling water over the dams this spring and summer to help 
juvenile fish migrate to the ocean. Spill is an effective method of 
moving juvenile fish past dams, but water that is spilled cannot be run 
through turbines to make electricity.
    The Council's technical analysis of the impact of drought on the 
power supply in 2001 suggests that reducing spring spill at some dams 
and eliminating it at others would 1) help reservoirs refill by the end 
of summer to levels specified in the Biological Opinion; 2) potentially 
reduce summer power prices if surplus power can be generated; 3) reduce 
the risk of power supply problems next winter; and 4) help ensure 
adequate water storage to aid juvenile fish migration next spring.
    Based on the analysis, the Council made the following 
recommendations:
     LBarge juvenile salmon and steelhead this spring and 
summer.
     LDo not spill water at the four dams where fish can be 
collected and put in barges. These dams are Lower Granite, Little Goose 
and Lower Monumental on the Snake and McNary on the Columbia.
     LSpill a limited amount of water at John Day, The Dalles, 
and Bonneville dams, where fish cannot be collected for barging.
     LIf spill is reduced or eliminated, Bonneville should set 
aside a portion of the income from the sale of additional power to pay 
for projects that mitigate the impact of this year's drought on fish.
     LPlace a high priority on refilling storage reservoirs to 
Biological Opinion target levels by August 31 in order to protect the 
winter power supply and ensure enough water for the fish migration in 
2002.
     LPurchase power and water from irrigators who are willing 
to sell, in order to leave more water in the rivers for fish.
    In conclusion, Mr. Chairman and members of the subcommittee, where 
do we go from here?
    First, this crisis will end, but not right away. During the next 
two years, new generating plants, new conservation and new renewable 
energy will be coming online in the Northwest. Creative demand-
reduction agreements are being implemented by utilities and their 
largest customers. Utilities are installing temporary generating plants 
to help them through the summer, at least, and maybe through next 
winter as well. The Council does not oppose these plants, but believes 
they should be temporary. These will produce power at a lower cost than 
power on the volatile wholesale market.
    Conservation efforts including replacing incandescent light bulbs 
with compact fluorescent bulbs, replacing inefficient industrial 
motors, and the other things I mentioned could save the region more 
than 240 megawatts, according to our analysis.
    The Council's recommendations amount to a call for the West to fix 
the current problems while investing in the future. We must ensure that 
utilities and consumers remain financially solvent until new sources of 
generation and demand reduction moderate prices.
    Perhaps the only good thing that can be said for the current crisis 
is that it offers the West an opportunity to think carefully about our 
future power supplies and take steps to ensure adequate investments in 
new thermal generation, and also in new conservation and renewable 
energy. These developments would be aided by a coordinated effort to 
streamline siting processes throughout the West so that we retain the 
essential environmental and community safeguards while avoiding 
unnecessary delays.
    Mr. Chairman, that completes my testimony, and I would be pleased 
to answer any questions.
                                 ______
                                 
    Mr. Calvert. Mr. Klein, do you believe that Bonneville 
should have overprescribed when they were making their power 
project?
    Mr. Klein. I understand the circumstances they were in, 
but--.
    Mr. Calvert. Then why did they do it, in your opinion?
    Mr. Klein. Well, I think lobbying and political pressure.
    Mr. Calvert. Lobbying by whom?
    Mr. Klein. A number of different entities that felt that 
they were entitled, based on the benefits to those industries, 
to help the economy.
    I think I agree with Steve Wright that probably, at the 
time, the belief was that expanding of the pie can be done 
without damage. Specifically, looking back, if we gave away far 
more of the pie, then--.
    Mr. Calvert. Obviously, that had an impact on your 
customers?
    Mr. Klein. Certainly, and will continue to have.
    Mr. Calvert. And obviously--Mr. Wilcox, I sympathize. I've 
been in business most of my life. I can understand that--
probably that it's not--even though someone is paying your--
your employees, it's difficult to shut a business down for a 
couple of years. I imagine you're very concerned about your 
customers, where they're buying product at the present time, 
how you rebuild that customer relationship again, what kind 
of--what do you do in this interim period of time while you're 
basically down?
    Mr. Wilcox. Yeah. Our particular company's problem is that 
we have a contractual obligation to operate, a supply of 
customers. We have a holding arrangement for our raw materials, 
alumina. We're supposed to take some of the alumina, smelt it 
into aluminum, and provide a factory aluminum.
    So I'm contractually obligated to operate for this 9-month 
period. I was able basically to buy my way out of that 
obligation.
    And our concern is that we can't do that if the curtailment 
gets extended further. And that's one of the costs we have.
    Mr. Calvert. Yeah. Part of that is you could not do that 
beyond 2 years.
    Mr. Wilcox. Right now we did an agreement to buy ourselves 
out of that supply obligation (inaudible) for 9 months to 
extend our curtailment beyond October, after we negotiated 
that. We haven't been able to do that yet.
    Mr. Calvert. What's happening, like, for instance, with 
your raw resources, on that end of it?
    Mr. Wilcox. We basically have to buy it and resell it at a 
depressed market price.
    Mr. Calvert. Mr. Settler, talking about, obviously, 
breaching dams in the Snake River, what type of solution would 
you have to make up for the lost hydroelectric power that we 
lose in a situation such as that? Do you have any solution for 
that?
    Mr. Settler. Well, I think you have people here better able 
to answer that question. They have the responsibility to answer 
that question. My obligation--I uphold the treaty of 1855 to 
protect those resources. Certainly, we had these conditions 
that have existed in the past, and it shows, and it reflects, 
the record of the people that are responsible, that they did 
perform the duties that they were supposed to perform.
    Mr. Calvert. Now--.
    Mr. Settler. And so my responsibility is to protect these 
resources and rebuild them to meet our treaty obligations. And 
so if we don't breach these dams, then we have to provide the 
needed flows from the added spill to ensure their survival. 
It's not happening.
    Mr. Calvert. Now, you don't believe that the technology and 
the methodology that's been used in barging smolt salmon is a 
proper solution? Of the reports that I've read--that--that a 
significant amount of juvenile salmon are, in effect, being 
able to be put up, and factually, they do not damage a larger 
population, especially in a year like this.
    Doesn't the biological opinion allow for that to occur and 
to stop the spilling in the--in some (inaudible) in order--for 
emergencies such as this in this region, where the power can be 
turned on, and allow this region to--to continue to operate?
    Mr. Settler. Sir, most of the collection facilities are at 
the Snake River, and they barged a lot of those smolts. In 
1977, when they started this program, it was a similar drought 
condition.
    Mr. Calvert. Hasn't the technology improved significantly 
since 1977?
    Mr. Settler. Well, I think there's been some improvements, 
but there is still no indication that it's brought back an 
increased number of fish. There's no scientific evidence that 
supports that, sure, they can collect more smolts.
    When the dams--when the smolts go out, they're trapped in 
the facility. They don't experience natural conditions. Right 
now we're looking at smolts trapped behind these dams. We just 
met with the Columbia Basin Fish and Wildlife Authority, and 
people were saying, ``We're going to barge every smolt we can 
on the Snake River.''.
     The Idaho state manager got up and said, ``Great. How are 
you going to get them to the collection facility, because there 
is no water going through the system? They can't even make it 
to the collection facility.''.
    So yeah. You can say--you can barge every smolt that you 
get to the collection facility, but they can't make it. It's 
the same way with the upper Columbia River stocks right now. 
They're not making it through the system. We've got estimates 
of 30 percent through the system. 50 percent of the smolts 
should have went out by now.
    The smolts that we're talking about are from last year's--
about 200,000 run of spring chinook. That was a very good run. 
Millions and millions and millions of dollars have been spent 
on trying to rebuild these runs.
    The Yakama Nation--we've got 30---30,000 wild chinook 
coming back from the Yakima River, where we manage. That's--.
    Mr. Calvert. My time has expired.
    We have an extraordinary year, here. We're trying to find a 
reasonable solution to this. I know Mr. Karier probably will 
have a comment on how we may be able to work out a solution. 
And I will come back to that.
    In the meantime, Mr. Smith--.
    Mr. Smith. Thank you, Mr. Chairman.
    Actually, (inaudible) example of the problem that we have. 
Because the wholesale power market is so expensive right now, 
we'd like to be able to generate as much hydropower as humanly 
possible so that both of you can stay in business, frankly.
    The problem with generating that amount of hydropower is 
that, A, we don't have the water; and B, we have salmon 
concerns, as Mr. Settler pointed out: The more of that water 
you spill over the dams, the barging, at best, has had a mixed 
record. No matter how you look at it, it's not as good as the 
natural way of the salmon going up and down the flows; and we 
have legal and--obligations involved--legal obligations.
    So I guess what--in the long term, in the next year or two, 
it makes a lot of sense to build as much more generation as we 
can get. I don't think that all has to be natural gas power 
plants. There are other ways to go. Short-term gas is 
(inaudible).
    I want to ask Mr. Wilcox--my understanding is your plan is 
to make the aluminum company sort of energy independent in the 
next two or 3 years.
    Can you tell us a little bit about the--by ``energy 
independent,'' I mean not dependent on Bonneville anymore.
    Can you tell us a little bit about that?
    Mr. Wilcox. Yes. When we entered into our new marketing 
agreement last December, where we sold our power for the 9 
months, until October, we agreed that we'd invest the proceeds 
back into building new power projects to suit our needs.
    We also agreed that we would co-op the Bonneville system 
altogether in 2006. So basically, we have a window of 
opportunity between now and 2006 to build power projects to 
(inaudible) we won't directly get any power from Bonneville.
    So we are independently pursuing three resources. We're 
putting in a project, a gas fire project, at the Golden Dalles 
smelter site that would be in operation February 2002, very 
fast track.
    We are very actively developing a large amount of wind 
generation in the eastern end of the Columbia Gorge. I've 
become a believer in wind generation. And given the high price 
of natural gas, you have to have a diversified portfolio to 
have reasonable power costs.
    And third, we're just at the very early stage of a siting 
on another large natural gas spot (inaudible) Oregon. And if we 
could get those three projects done, we will have an economical 
supply of power long term. Given our natural gas crisis, it 
won't solve all our problems, but it will--should make the 
future a lot better than having no Bonneville power after 2006.
    Mr. Smith.  And it's just a matter of getting you there, 
basically. That's a big--.
    Mr. Wilcox. Yeah. You know, what we plan to do basically is 
use this 5-year period between 2001 and 2006 as a bridge where 
you could buy--and have half of your power needs met by 
Bonneville while you built the power projects, so come 2006, 
you don't have--the problem we face now is if we curtail for 2 
years, we have to use our marketing proceeds to cover our 
losses during the curtailment. We wouldn't have any resources 
for any power projects, which would kill us in the long term. 
So we have to still have--as a bridge--so we can build our 
power projects to get off the--the Bonneville system so that 
the power is available for--.
    Mr. Smith. How much of your power do you get from 
Bonneville, and how much of it do you have to get from the open 
market right now?
    Mr. Klein. Currently, under the existing contract, we get 
12 percent of our needs met by Bonneville Power Administration.
    Mr. Smith. Yeah. That's a--fairly--quite a lower number 
than I would have expected. I thought, as a public utility, you 
had priority. Why such a low number?
    Mr. Klein. Back in the mid 1990's, Tacoma Power 
voluntarily--one of the first utilities in the nation to 
voluntarily allow our large industrial customers open access to 
go to the market. And part of that was making an arrangement 
with Bonneville to allow them to go. So they went. The 
marketing, as you know, did quite well the first 2 years and 
then has been hammered very hard for the last year.
    Mr. Smith. So you have large exposure to the wholesale 
market? I guess that what all this is, two, 3 years from now, 
when they get there--and I think there are certainly some 
broader energy questions--I think we need to be careful about 
totally relying on our natural gas generating plants and that 
there are some broader issues that are in the jurisdiction of 
the Committee.
    But the real question is, for all of us, how do we get 
through the next year or 2 years? And it seems to me that all 
of this argues rather strongly that FERC,the regulatory agency 
that has the authority to step in and try to help out, needs to 
do something or, you know, you run the risk of either, you 
know, charging customers an incredible amount or to have 
significant increases and going bankrupt.
    Northwest--I mean, your company stares in the face of the 
possibility of not being able to be around anymore if we can't 
get ahold of the power for the next couple of years. And the 
damage to the fish is overwhelming. And it all comes back, to a 
certain extent, to the exposure to the wholesale market and 
also to the fact that we are not maximizing our current supply.
    Now, I don't know what FERC's authority is to come in and 
tell people to generate power, but they certainly have 
authority to control the prices if they see fit. If they don't 
do it--.
    I think you three gentlemen now sort of described a lot of 
the very negative consequences that are going to happen. I 
guess for any future panelists or anybody in the audience and 
anybody up here, if they have a different solution, if they 
have some way, other than getting costs under control and 
maximizing short-term supply or some sort of regulatory effort, 
something that's going to get us through the next 2 years, I am 
very anxious to hear it.
    But I think that is the stark realities that we're facing. 
And thank all of you for explaining--my time is up, so...
    Mr. Calvert. Thank you, gentlemen.
    Even though I'll remind the panel that FERC is not under 
our jurisdiction, I'll ask the question, that--maybe to Dr. 
Karier.
    What percentage of power does FERC have authority over the 
administrative--.
    Mr. Karier. I don't--.
    Mr. Calvert. An estimate of power, approximately.
    Mr. Karier. Well, that's something I probably have to 
research and give you the exact answer. But certainly FERC has 
jurisdiction over the investor owned utilities, and in the 
Northwest, we rely primarily on Bonneville as one large public 
entity, for about 40 percent of our power. BPA doesn't have the 
same oversight by FERC as the--.
    Mr. Calvert. I'm sorry to interrupt. But Bonneville is not 
charging 2- 3-, $400, $3,000 a megawatt hour? I mean, we don't 
need to regulate.
    Mr. Karier. Right. In many cases, Bonneville has said that 
they would follow any sort of direction from FERC--and so 
there's always a voluntary participation.
    Mr. Calvert. I just wondered, for the record, is it 
approximately about 50 percent of the market amount regulated--
approximately?
    Mr. Karier. It's in that range.
    Mr. Calvert. Thank you.
    Mr. DeFazio?
    Mr. DeFazio. Thank you, Mr. Chairman.
    Mr. Chairman, I've observed that the--the Pacific 
Northwest--as a result of the California deregulation and 
market manipulation by a number of large energy companies and 
the failure of FERC to act--is paying higher average prices in 
the wholesale market than are California utilities.
    Our problem is not in the Northwest. We don't need FERC to 
regulate the prices up here. We're not gouging anybody. We have 
a problem with the power we traditionally buy from California 
being at extortionate rates. And we are paying--and this is a 
fact which I can substantiate. We are paying higher average 
prices in the wholesale market than are California utilities 
when we purchase.
    Mr. Klein, if you--if you would, the Chairman seemed 
critical of Bonneville's decision in investigating the role of 
the last administration in signing contracts with the aluminum 
companies. Mr. Wright said that at the time when he signed 
those contracts, that he believed--and under the market 
conditions at that time--that he could have provided the power 
to the aluminum companies without raising everybody else's 
rates.
    Do you think that was an accurate assessment?
    Well, he didn't sign the contracts, and he was an 
administrator. But he was at BPA at that time in entering into 
those contracts.
    Mr. Klein. I have no reason to disbelieve his understanding 
of the circumstance.
    Mr. DeFazio. So if wholesale rates today were the same as 
wholesale rates 2 years ago, we wouldn't be sitting here trying 
to figure out how to curtail the aluminum industry and looking 
at rate increases of 100, 200 percent for your customers?
    Mr. Klein. I believe that's correct.
    Mr. DeFazio. Thank you.
    But on the other hand, I also--Mr. Wilcox, in the past, has 
been a great advocate of deregulation. In fact, I remember when 
he was going to take his company into the private market and do 
better than BPA. And he's advocating that--a pure rate, which 
he said is a dead horse. I'm glad to hear him admit it's a dead 
horse, because of the extraordinary negative effect that it 
would have on every other rate payer who isn't able to curtail 
25 percent.
    Could you comment a little bit on what the impact on your 
other customers, all your other businesses, small businesses, 
and residential rate payers would be of a tiered rate that was 
proposed.
    Mr. Klein. Public power has great concern for that and hope 
that folks that look at this issue really look through to it, 
because, as we talked about, the DSI's lobby would receive 
substantially more than their statutory entitlement. They're a 
manufacturing operation that can, in fact, wrap up the 
production, depending upon the market conditions, and can, in 
fact--they've given 75 percent of their need at extremely 
below-market rate--however, can certainly continue to make 
profits as good or better than they've made in the past.
    As you referenced, public utilities' customers of 
Bonneville, particularly those that have aggressively 
participated in conservation--what happens is the more you 
conserve, the more your load is down, the less you're entitled 
from Bonneville.
    So if suddenly 75 percent of your customer base is provided 
adequately by Bonneville but you have this 25 percent exposure 
that never goes away, you can never get there from here. The 
more you conserve to try to make up that 25, then the 75 
percent price--that portion of your entitlement continues to 
shrink.
    So the way this is proposed, a public utility would always 
have 75 percent of its customer base, whatever it is, served at 
one level and have the other 25--and unlike a business, you 
can't make 25 percent go away.
    So basically it's a cost shift mechanism that shifts 
substantial costs to the citizens and consumers of the 
Northwest.
    Mr. DeFazio. And how about as a conservation mechanism? He 
said it gets a 25 percent reduction in Great Britain. Well, of 
course, according toMr. Wright's figures, a 25 percent 
reduction in the current wholesale market rates being charged 
due to the market manipulations in California would lower us to 
a 210 percent rate increase if we provided it to everybody who 
has a contract. I assume that still wouldn't be an acceptable 
level of rate increase.
    Mr. Klein. Right.
    Mr. DeFazio. Just to further pursue this--because I'm 
bitterly opposed to tiered rates--in fact, I'm probably in 
Congress because of tiered rates, because my local utility put 
in place tiered rates during the WPPSS and was driving people 
out of their homes; and, I became a leader of a rate payer 
movement.
    Just to examine it a little bit more, you're talking about 
for the utility. What about for an individual customer? What if 
you have an all-electric home and you've been given this 25 
percent tiered rate; you've invested in insulation; you've got 
a heat pump; you've installed some fluorescent bulbs? Where do 
you get that 25 percent? What's the message the market is 
sending you here? What are you going to do?
    Mr. Klein. That's a good question. And as--as I talked 
about, as those individuals--as the utility struggles to send 
the right signal to those consumers, the goal should be, is 
everybody conserves to the best degree they can. But 
ultimately, it doesn't help the utility in this kind of tiered 
rate arrangement. So you continue to mix and match price 
signals and confuse the consumer along with putting the utility 
in a position--.
    So I guess in general, I agree with everything you've said.
    Mr. DeFazio. Just one last question: Did we have any 
trouble getting conservation investments before Bonneville 
abandoned them in the mid '90's because of deregulation? The 
former administrator, who now works for Enron as a consultant, 
was, at the time, totally panicked, and he said he wasn't going 
to be able to sell his power at 2.3 cents a kilowatt hour, and 
he abandoned all conservation and renewable measures in the 
early, mid '90's.
    But weren't we out there? Wasn't there an incredible amount 
available that we didn't buy?
    Mr. Klein. Yeah. It's my understanding that the Northwest 
has been the most successful in the nation and has had the most 
aggressive conservation programs, which is amazing, because 
people say we have the lowest rates in the country and couldn't 
possibly have a conservation ethic. And we've put our 
conservation ethic up to any other area of the country.
    Mr. DeFazio. So we don't need to screw people with higher 
rates in order to get them to conserve?
    Mr. Klein. Right.
    Mr. DeFazio. Thank you.
    Mr. Calvert. Mr. Larsen?
    Mr. Larsen. Thank you, Mr. Chairman.
    Mr. Wilcox, the approach that--that Golden Northwest--I 
want to give a title to it--has distributed generation, and 
it's the idea that there are two chickens in every pot and two 
cars in every garage and two turbines in every backyard and 
basically building your own power supply. We're seeing that up 
in Bellingham and Georgia Pacific Paper Mill.
    To address the issue that they're trying to address--that 
is, to keep the paper mill alive--they had to shut down the 
pulp mill. To keep the paper mill alive, they're looking at 
building two 10-megawatt generators on site.
    Can you list--if there are obstacles--any regulatory or 
legislative obstacles that you're coming across or lessons that 
you're learning in going through this that--that we can 
possibly address?
    Mr. Wilcox. I--actually, in terms of siding, I would say 
that the regulators of both Washington and Oregon have been 
very responsive. They understand that there's an energy crisis 
and are trying to move things expeditiously. So I have no 
complaints at all there.
    I would say right now the one technical bottleneck is at 
the Bonneville transmission level, because Bonneville has a 
queue of who applies for transmission and kind of goes through 
them in order. And some of those may be small things that may 
never get done.
    And I think one thing Bonneville could do is give out a 
different kind of sense of urgency to projects that are real 
and large and essential for a particular industry to stay in 
business--as an example, just kind of taking the one-megawatt 
emergency generator in the order in which it was filed.
    Mr. Larsen. The Boeing company--which we still like to 
remind folks still has 78,000 jobs here in the Northwest--
related to Boeing--it's just the headquarters that's leaving--
the Boeing company saw its electricity bill jump $1.6 million. 
And I know there's some discussion between Boeing and Snohomish 
County PUD's about doing something along the lines of what 
we're looking at.
    So I want to just ask Dr. Karier, has the planning council 
looked at the policy implications, distributed generation, 
equity issues, access to power issues? Have you taken a look at 
that at all?
    Mr. Karier. What we are doing is trying to track all the 
new generation as closely as possible, including projects like 
Brett Wilcox's. There are a number of projects that have broken 
ground and are under construction, and we anticipate there will 
be about 1,800 new megawatts available by the end of this year 
in the Northwest. 200 of that is wind power. And there's 
another wave--probably equal to that amount--that will come on 
within the next year after that.
    So the council originally identified that we needed about 
3,000 new megawatts in the Northwest to reestablish a 
reasonable reserve level. And at least over the next two or 3 
years, the projects that are under construction look like they 
will hit that target. That is assuming that all the projects 
are completed that are under construction or planned.
    Mr. Larsen. Are those all for the entire system or some of 
those projects for specific companies like Golden Northwest?
    Mr. Karier. These are projects in the Northwest, and it is 
all-inclusive. And if a project is designed for a specific 
industry, that may displace power from another utility.
    So what we're looking at is the total supply-and-demand 
picture to make sure that we have enough reserves in the 
Northwest.
    Mr. Larsen. Mr. Chairman, I appreciate the opportunity to 
be up here today.
    As you know, I'm not on the Resources Committee. I am on 
the Transportation and Infrastructure Committee. So there is an 
issue about high-financing the structure. If you don't mind, I 
would like to ask because in my district, there was a--in 
Bellingham, Washington--there was an explosion, a rupture, a 
pipeline explosion, that killed three young men. And the issue 
of pipeline safety is very important to the people I represent, 
but also recognizing that, that we do have to--there have to be 
some investments in the pipeline infrastructure to move natural 
gas to the areas where we need it to run the power plants.
    Has--has the Northwest Power Planning Council looked at 
what percentage of this 38,000-or-so miles that the present 
energy report says we're going to need in terms of a new 
pipeline--has it looked at what kind of pipeline infrastructure 
we're going to need in the Northwest region to meet our needs?
    Mr. Karier. We are starting to look very closely at natural 
gas because so much of the new generation is going to be 
natural gas fired. And because prices have been volatile in 
natural gas, there is a lot of uncertainty there of how much--
how much that power will cost.
    Prices did rise significantly. They are about twice as high 
as they were two or 3 years ago. They've been very volatile. 
Our analysis of the gas industry is that there's a lot of 
effort being put into new supplies and to expansion of the 
pipeline. All of this seems to be on track to keep pace with--
with the new demands, but it's an extraordinary new demand 
coming on with these plants.
    So I think it's an area we need to keep monitoring and to 
look for potential bottlenecks. And there may be price spikes 
in the gas industry.
    Mr. Larsen. Are we going to do another round?
    Mr. Calvert. We're going to look at this chart rather than 
(inaudible) the last panel here pretty soon. But I have a 
couple questions I'd be happy to entertain (inaudible).
    Dr. Karier, on the issue that Mr. Larsen just brought up on 
natural gas, would your primary source of natural gas be from 
Canada?
    Mr. Karier. That's right. For the Northwest, the primary 
sources are from Canada, from Alberta, and British Columbia.
    Mr. Calvert. Do you know the percentage of how much natural 
gas--in the Washington area, for instance, or the Pacific 
Northwest--comes from Canada rather than some other location?
    Mr. Karier. The other location is, I think, from the Rocky 
Mountain area from Colorado, and I don't know the exact 
percentage. I can find out. I think the majority of it is 
coming from Canada, though.
    Mr. Calvert. Is there any price differential at the present 
time between the gas that you're getting from Canada versus 
the--the Rocky region?
    Mr. Karier. I don't believe so, but again, I would have to 
check that.
    Mr. Calvert. The--the other issue on the amount of power 
that's coming on-line--you mentioned that you believe that--how 
many megawatts are coming on-line within the next year?
    Mr. Karier. 1,800 megawatts in the next year.
    Mr. Calvert. In the next 2 years?
    Mr. Karier. I believe it is an additional 1,700 megawatts 
in the second and third years.
    Mr. Calvert. And you believe that you'll be exceeding the 
15 percent reserve capacity within two to 3 years? Do you 
believe that once you get to that, that--that there still will 
be market manipulation that can potentially have that type of 
activity going on, or do you believe that prices will start 
going down andstabilizing?
    Mr. Karier. In--well, in terms of the reliability that will 
provide, all these projects must be finished. The way that the 
council calculates it is we want a 5 percent or less chance of 
an outage due to inadequacy. Right now it's running at about a 
20 percent possibility of inadequacy this coming winter, which 
is far too high.
    So if all those projects are finished, we believe we'll be 
down in that range of a reasonable probability of an outage.
    Certainly, I think the best pressure, to keep prices down 
in the long run, is to have an adequate supply available. And 
in this market, we can hope that all these projects will be 
finished, that adequate supply will be there, and prices will 
come down, and that will go a long way to producing stability 
for the market.
    Mr. Calvert. Thank you. Any additional questions?
    Mr. DeFazio. Thank you, Mr. Chairman. Just to follow up on 
that line of questioning...
    So in a deregulated market where utilities and generators 
no longer have a duty to run their system--let me just give you 
a statement that was made by the--I was in a debate with a 
fellow named Phil Romero, who is apparently a former staff 
member for Pete Wilson at the (inaudible) talking about his 
authorship of the California (inaudible) and a chair of the 
(inaudible) Electric Board last Monday night in Eugene.
    And in response to a question--similar to what you just 
asked--about how much generation and supply is available in the 
Northwest now and how much of a shortage we have, Mr. Bergman, 
who is quite sophisticated in this matter, said, ``I can't 
answer that question. No one can answer that question, because 
in the current market, nobody is telling anybody what they've 
got under contract and what they can generate because they're 
too vulnerable to the market and market manipulation.''.
    Was that a fair statement?
    Mr. Karier. Well, we found that it's difficult to get all 
the information that we require from the utilities. And 
certainly, I think that's a problem that needs to be looked 
into.
    We--we do have a pretty good idea of the capacity that's 
existing out there in the Northwest and also--.
    Mr. DeFazio. Right. But, if I could, in a deregulated 
market, nobody has to operate to their capacity; is that 
correct?
    Mr. Karier. That's true.
    Mr. DeFazio. So if you're calculating that to get to this 5 
percent margin, you just need a certain amount of installed 
capacity; and you are then assuming that those people will run 
those plants, the prices will be affordable, and the energy 
will be sold in the Northwest. Are those the assumptions you're 
making?
    Mr. Karier. I think the assumption is that there will also 
be an adequate number of producers that will be competing with 
each other. And if there is some sort of violation of--of 
competitive standards and rules, then certainly that could 
happen.
    Mr. DeFazio. Well, what's happened in California is a few 
large energy companies dominate the market, and they can make 
more money sometimes by not running part of their supply and 
running the other part at extortionate prices.
    What's to prevent that from happening here? What's going to 
overcome the market manipulation forces? There is this idea 
that, ``Gee, maybe if we build enough, we'll get there.''.
    But if people can still merge and they can be dominated and 
people can exert market power, what is ever going to solve that 
problem and get us back to the reliability we had when it was a 
regulated, cost-based, affordable system?
    Mr. Karier. I certainly agree with some of the sentiments 
that you're expressing. In terms of the way the market has 
evolved, it's much more of a boom-bust type of market than I 
think anyone anticipated. And the fact that it took so long to 
get this new generation under construction, I think, is a 
significant problem.
    Under a well-functioning market, you would hope that the 
producers would have anticipated that there was an impending 
shortage and they would have started this construction two or 3 
years ago. That didn't happen. They started after the prices 
spiked. And so we have to wait two or 3 years until enough 
capacity comes on-line.
    Mr. DeFazio. 28,000 megawatts is applied to BPA for 
transmission rights is what Mr. Wright says, at least 
preliminarily. If all that 28,000 got built, we would have a 
surplus of power potentially here in the Pacific Northwest.
    So the other side of the market that we might see--which 
might be just this huge, quick downturn, to a point where it 
dropped to the prices of 2 years ago. Wouldn't that be below 
the imbedded cost of these new plants, let alone their marginal 
costs? Would they even operate the damn thing?
    Mr. Karier. Our experience so far has been underproduction. 
And we're experiencing a price spike associated with that.
    Mr. DeFazio. Well, we had overproduction and now 
underproduction. I mean--you know, what we're talking about is 
extraordinary volatility here. Is volatility in price and in 
reliability a desirable characteristic for electricity? Is 
there a substitute that I'm not aware of?
    Mr. Karier. Well, prior to this, we had a regulated market, 
which basically forecasted energy needs and then regulated 
construction. And it was--it was obviously more stable--the 
prices were not volatile. We did not have these kinds of 
shortages that we're experiencing now.
    Mr. DeFazio. What's stopping us from going back to 
regulation?
    Mr. Karier. You may know the answer.
    Mr. DeFazio. You just appointed us, Congress. Thank you.
    Mr. Calvert. Mr. Larsen--.
    Mr. Larsen. Mr. Chairman, thank you.
    I have a few questions, one for Dr. Karier.
    You talked about natural gas and the--the resources that 
need to be developed. The question I was trying to get at--that 
was, have you done--has the council done calculation on how 
many miles of pipelines we need to build in the Northwest, or 
is that someone else's job? Should I go to someone else to look 
at that?
    Mr. Karier. That's something that's tangential to what 
we're doing. We're simply monitoring what the gas industry is 
doing to see if there are potential bottlenecks that may arise. 
The industry at this point is trying to expand capacity within 
existing physical structures--and they seem to have some 
ability to do that before they start building expanded physical 
structures.
    Mr. Larsen. Thanks.
    Mr. Klein, this is related to this issue of volatility. And 
in the market, we have--deregulation seemed to have been based 
on at least one premise that electricity was a commodity and 
had the characteristics of a commodity.
    But can you, from your perspective, explain or provide some 
criteria about what you think a commodity is and how 
electricity is different from that and the impact that it's had 
on volatility in the market.
    Mr. Klein.  The first way, I'll answer that in a more 
humorous vein, and that is, it's an invisible commodity. So 
that makes it much different than some of the others.
    But I--it's possible, I guess, that you could, if you spend 
enough time on it, maybe accomplish a restructuring that would 
allow it to be a commodity.
    But I think the difficulty comes--is in order to--with 
electricity being such a necessity--I mean, you don't have to--
like coffee beans or something like that, I suppose--but since 
it's such a necessity of life--.
    Mr. Larsen. In the Northwest, you're talking about?
    Mr. Klein. That's true.
    -- you really have to ensure there is a robust and vibrant 
market. You can't follow other typical commodity environments 
where you just believe the market will take care of itself and 
entities can enter and sell their apples today, or decide not 
to sell their apples today, on the market. People will just not 
buy apples if they're too costly.
    In this case, where these are lighting and heating our 
schools and providing energy for needed surgeries and 
operations, this is an essential commodity. So if someone wants 
to turn it into a deregulated environment, you're going to have 
to do something unusual, and that puts some goalposts, puts 
some regulation around that market. And I guess no one's ever 
done that before, created a--a--a free market that--that is so 
constrained so you can assure it remains robust. Then you're 
back to starting again. Then why are we doing this?
    That's not to say that there aren't some things that we can 
do as a nation to promote so that we don't--we don't fall into 
that complacency and we don't look at new technologies in the 
energy industry, distributed generation, or things like this.
    There are other ways, I think, that our legislative 
leadership can look to enhancing or providing incentives so 
that the electric industry doesn't see itself as a protected 
monopoly and doesn't look at new innovations. So I think 
there's a balance there.
    Mr. DeFazio. If I could interrupt for just a second on the 
commodities aspect--I think it's useful to note that it is the 
only commodity that is traded on the Commodities Futures 
Exchange Commission--Trading Commission, which is not regulated 
by that commission. It is unique. It was exempted in the early 
'90's.
    In fact, actually, one of the key votes was from the wife 
of a senator from Texas who serves on the board of Enron. It is 
now the only unregulated, deregulated commodity in the world, 
in the United States, that's traded.
    Mr. Larsen. Thank you, Mr. Chairman.
    Mr. Calvert. I thank this panel for your testimony and 
answering our questions.
    And we will invite our third and final panel.
    Ms. Sara Patton, the Coalition Director for the Northwest 
Energy Coalition; Mr. Ray--I believe it's Lepp--Vice President/
General Manager, Birmingham Steel; Dr. James Anderson, 
Associate Professor of Fisheries Sciences at the University of 
Washington; and Mr. Rob Walton, the Assistant Manager, Public 
Power Council.
    I thank the witnesses for attending today's hearing. We 
have some lights there. We attempt to try to keep the testimony 
to 5 minutes, where we'll have time for questions.
    With that, Ms. Patton, you may begin your testimony.

STATEMENT OF SARA PATTON, COALITION DIRECTOR, NORTHWEST ENERGY 
                           COALITION

    Ms. Patton. Thank you.
    Mr. Chairman, members of the Committee, my name is Sara 
Patton. I'm the Executive Director of the Northwest Energy 
Coalition.
    The Coalition is in alliance with almost 100 organizations 
that advocate policies to provide clean and affordable energy 
for the residents of Washington, Oregon, Idaho, Montana, and 
British Columbia.
    Our member organization includes consumer and environmental 
groups, community action agencies, progressive utilities, 
businesses, and others. A full list of our members is appended 
to my testimony.
    Before I came to the Coalition, I worked for 15 years at 
Seattle City Light, designing and implementing the utility's 
award-winning conservation programs.
    You've asked me to address the role conservation renewables 
can play in the current water and energy situation affecting 
the Pacific Northwest.
    I will start with an assessment of the potential for cost-
effective, clean, new renewable energy resources in the region 
and then move to the demand side of the equation--on the 
contribution that energy efficiency and load management can 
make in the current situation.
    On Clean, Renewable Energy: The excellent news about cost-
effective, clean, renewable energy for the Northwest is perhaps 
best demonstrated in the excellent response to the Bonneville 
Power Administration's request for proposal for wind power. BPA 
asked for a thousand megawatts of wind power, at a competitive 
price, capable of commercial operation by late 2003.
    In fact, BPA received a proposal for 2,532 megawatts of 
quick, clean, cost-effective wind projects in the region. BPA's 
press release on the subject, which begins with the 
exclamation, ``The response blew us away,'' is appended to this 
testimony, along with a chart of the locations and sizes of 
projects.
    And the good news about wind power's role in the current 
energy situation is not limited to potential for quick, new 
projects. There are over 90 megawatts of wind plants operating 
now in the region and over 400 megawatts of wind and geothermal 
energy under development to serve the region right now. A map 
and chart of these projects is also appended to my testimony.
    Wind is estimated to cost between 3 and a half and 6 cents 
a kilowatt hour. The full potential of wind power in the region 
is enormous, at 133,000 average megawatts. And as BPA's 
experience bears out, the construction lead time is quite low, 
usually between one and 3 years.
    The region also has a geothermal and solar potential--that 
I have detailed in my written testimony, but I won't talk about 
them right now, because I want to move to the Efficiency and 
Load Management. I want to make three points, one on the 
decline of energy efficiency investments that we've seen in the 
last 10 years; today's conservation opportunities; and, third, 
the load management opportunities. And I'll expand on each of 
these points in turn, but first I want to get a couple of 
important definitions.
    The first definition is of ``energy conservation.'' during 
this drought and financial crisis, we've asked people to turn 
down their thermostats, to turn off their lights, and to cut 
their hours of operation.
    That's not energy conservation. That's curtailment or, more 
familiarly, shivering in the dark. The current situation 
demands this kind of sacrifice, and we thank the residences and 
businesses of our region for their very generous response.
    The reduction in consumption is good for all of our 
pocketbooks but especially for low-income households and small 
businesses. And any water we can leave in the rivers is a 
blessing for the salmon struggling through this drought.
    The energy conservation I will be talking about today, 
however, is not curtailment. It is not doing without but, 
rather, doing more with less. It's more efficient lighting, 
well-insulated homes, and high-efficiency motors in the 
industry.
    This increased efficiency gives us comfortable homes, a 
competitive business, with the very least harm to our air, 
water, and climate.
    The second definition--``load manage''--the term is used to 
cover a range of efforts to reduce consumption during peak 
periods. The efforts include installing devices on residential 
water hatcheries to allow a utility to turn them off remotely 
when peak demand threatens blackouts or forces the utility to 
purchase outrageously priced power.
    Similar opportunities are available in businesses and in 
industry. Typically the utility pays the customer for the 
willingness to reduce the consumption and agrees to a specified 
limit on the number and duration of those reductions.
    These load amendment programs serve as a very cost-
effective way to avoid the purchase of expensive power and/or 
blackouts in the short term without painful reduction in the 
quality of service.
    Back to my three points after my definitions.
    First, the Decline in Energy Efficiency Investments: In my 
written testimony, the Pacific Northwest largely abandoned the 
most successful and cost-effective energy conservation for the 
nation starting in 1994. We've achieved 1,500 megawatts--
average megawatts, at a savings, at a cost 2 to 2 and a half 
cents a kilowatt hour, with a retail value of between 2- and 
$2.5 billion.
    In Washington, investment has declined by 75 percent from 
1993 to 1998. The BPA's investment dropped 80 percent between 
1993 and 1999. There's lots of room for improvement. And the 
good news is that we have great opportunity today.
    In its 1998 Conservation and Power Plan--that the Power 
Council projected over 1,500 average megawatts of cost-
effective conservation at an average cost of 1.7 cents a 
kilowatt hour.
    Given a much higher forecast of the cost of new generating 
between now--the council's staff confidently predicts that 
there are 2,400 average megawatts of energy conservation which 
are cheaper than new power.
    The third point is we must take advantage of load 
management opportunities. In the very near term, utilities and 
the BPA can provide significant emergency insurance against 
blackouts and financially deduct the power purchases for load 
management.
    Most high-rise, commercial buildings in this region already 
have energy measurements--computer sensors capable right now of 
shedding inessential (inaudible) loads on a moment's notice.
    Less sophisticated devices are relatively easy to install 
and allow utilities to turn off water heaters, for example, 
instantaneously. Now is the time to get these options in the 
field. An entire year's class of salmon smolt are facing a 
massacre with the migration to the sea.
    And we're risking human life with a high possibility of 
blackouts or condemning children with asthma and people with 
emphysema to the emergency rooms from all the new diesel 
generation we're firing up right now.
    It's time to deliver clean and efficient--clean energy from 
efficiency and renewables and to take full advantage of load 
management opportunities.
    My written testimony ends with a list of things Congress 
can do to help the region meet this precious, clean, and 
affordable energy.
    Thanks, once again, for the opportunity.
    Mr. Calvert. Thank you.
    [The prepared statement of Ms. Patton follows:]

   Statement of Sara Patton, Executive Director, NW Energy Coalition

Introduction
    Mr. Chairman, Members of the Committee, my name is Sara Patton. I 
am the Executive Director of the NW Energy Coalition. The Coalition is 
an alliance of almost 100 organizations advocating policies to provide 
clean and affordable energy for the residents of Washington, Oregon, 
Idaho, Montana and British Columbia. Our member organizations include 
consumer and environmental groups, community action agencies, 
progressive utilities, businesses and others. A full list of our 
members is appended to my testimony (Attachment A). Prior to coming to 
the Coalition, I worked for fifteen years at Seattle City Light, 
designing and implementing the utility's award-winning conservation 
programs.
    We appreciate the opportunity to testify at this very timely 
hearing. Energy policy is on the public agenda today in a way that it 
has not been in many a year.
    This hearing is focused particularly on the electric energy 
situation in the Pacific Northwest. While our region has its own 
particular situation, much of today's discussion can help inform our 
understanding of these issues at a national level as well.
    The Committee is well aware of the Pacific Northwest region's 
supply situation and the implications for our region of recent 
developments in California energy markets. This situation makes it 
clear that inaction is not an option. You have asked me to address the 
role conservation and renewables can play in the current water and 
energy situation affecting the Pacific Northwest. The Northwest has a 
proud record of development of renewable energy and energy efficiency 
resources and the opportunity to build on that foundation is clear and 
compelling.
    I will start with an assessment of the potential for cost-
effective, clean, new renewable energy resources in the region and then 
move to the demand side of the equation - on the contribution that 
energy efficiency and load management can make in the current 
situation.
CLEAN RENEWABLE ENERGY
    The excellent news about cost-effective clean renewable energy for 
the Northwest is perhaps best demonstrated in the excellent response to 
the Bonneville Power Administration's (BPA) Request for Proposals for 
wind power. BPA asked for 1000 megawatts (MW) of wind power at a 
competitive price and capable of commercial operation by late 2003. In 
fact, BPA received proposals for 2,532 MW of quick. clean. cost-
effective wind projects in the region. BPA's press release on the 
subject, which begins with the exclamation, ``The response blew us away 
. . .'' is appended to this testimony along with a chart of the 
locations and sizes of the projects (Attachments B & C).
    And the good news about wind power's role in the current energy 
situation is not limited to potential for quick new projects. There are 
over 90 MW of wind plants operating in the region and over 400 MW of 
wind and geothermal energy under development to serve the region right 
now. A map and chart of these projects are appended to this testimony 
(Attachment D). Wind is estimated to cost from 3.5 to 6 cents per 
kilowatt-hour (kWh). The full potential for wind power in the region is 
enormous at 133,000 average MW. I have been quoting MW rather than 
average MW above. Since wind is an intermittent resource, its average 
megawatts of production are usually about a third of its megawatts of 
capacity depending on the site. So 133,000 aMW is a very sizable 
potential. And as BPA's experience bears out, the construction lead-
time is quite low, usually between 1-3 years.
    The region also has significant geothermal power potential: between 
7,000 and 11.000 MW at a cost of between 4.5 and 7 cents per kWh. The 
region has 45 aMW of geothermal under development and another 45 aMW in 
process.
    Finally, we have sunshine in the region, if not on the I-5 
corridor. There are more than 200,000 aMW of solar potential in the 
region from a combination of direct thermal and photovoltaic 
production. The costs for direct thermal vary from 2 to 13 cents per 
kWh and for photovoltaics from 17 to 21 cents per kWh. Even though 
photovoltaic power is still expensive to produce, it is frequently a 
cost-effective option for remote locations. which would require 
expensive line extensions in order to buy power from central station 
plants on the grid.
    Fact sheets on wind, geothermal and solar power from the Renewable 
Northwest Project are appended to my testimony (Attachment E) and also 
available on RNP's web site at www.mp.org. The Renewable Northwest 
Project is an alliance of environmental and consumer groups with 
renewable energy developers, which promotes clean, renewable energy for 
the region.
ENERGY EFFICIENCY AND LOAD MANAGEMENT
    I want to make three key points:
     LWhile the Northwest has a record of innovation and 
leadership on energy efficiency, recent years have seen a distressing 
lapse of attention to conservation by BPA and too many Pacific 
Northwest utilities.
     LThere remain large opportunities to save energy, money 
and the environment through investments in energy efficiency in our 
region.
     LWhile past conservation efforts have focused largely on 
reducing overall usage, today's situation also requires a focus on 
reducing peak demand.
    I will expand on each of those points in turn but first a couple of 
important definitions. The use of the term ``conservation'' during the 
current crisis has caused my colleagues and me a great deal of 
distress. We have been used to using the terms ``energy conservation'' 
and ``energy efficiency'' synonymously. During this drought and 
financial crisis, many spokespeople and the media have called for homes 
and businesses to reduce their consumption by turning off lights, 
turning down (or up) thermostats and cutting hours of operation. They 
have called that behavior ``conservation.'' We would call it 
curtailment or more familiarly, ``shivering in the dark.''
    The current situation demands exactly this kind of sacrifice, and 
we support our elected officials and other leaders in calling for it. 
We thank the residents and businesses of the region for their generous 
response. The reduction in consumption is good for all of our 
pocketbooks, but especially for low-income households and small 
businesses, and any water we can leave in the rivers is a blessing for 
the salmon and other fish and wildlife struggling through this drought.
    The energy conservation I will be talking about today, however, is 
NOT curtailment. It is not doing without, but rather doing more with 
less. It is more efficient lighting, wellinsulated homes, and high 
efficiency motors. This increaesd efficiency gives us.,. comfortable 
homes and competitive business and industry with the very least harm to 
our air, water and climate.
    Second ``load management'' is a term used by utilities to cover a 
range of efforts to reduce consumption during peak demand. Usually the 
peaks have been measured for generation capacity, but the region is now 
also considering peak demand on transmission and even distribution 
capacity as well. The efforts include installing devices on residential 
water heaters to allow the utility to turn them off remotely when peak 
demand threatens a blackout or forces the utility. to purchase 
outrageously priced power. Similar opportunities are available in 
businesses and industry to reduce or curtail non-essential electrical 
consumption temporarily in response to system peaks. Typically the 
utility pays the customer for the willingness to reduce consumption and 
agrees to specified limits on number and duration of the reductions.
    These load management programs do not necessarily result in less 
energy consumption overall and they are not strictly speaking 
improvements in efficiency. They can. however, serve as very cost-
effective ways to avoid purchase of expensive peaking resources in the 
long term and purchase of expensive power and/or blackouts in the short 
term without a painful reduction in quality of service.
The Decline in Energy Efficiency Investments
    According to the Northwest Power Planning Council, Pacific 
Northwest utilities acquired about 1327 average megawatts of cumulative 
conservation savings from 1978 to 2000. Federal, state and local 
efficiency codes and standards have saved more than 200 megawatts. For 
perspective, the grand total of 1,500 average megawatts is more than 
enough to serve the entire load of Seattle City Light. Utility funded 
conservation savings in those years were acquired at a cost between 2 
and 2.5 cents per kilowatt-hour and had a retail value to consumers of 
$2.5 billion.
    But starting in 1994, the region saw a steep decline in utility 
investments in energy efficiency. The most detailed study of this trend 
came in Washington State. The State's Department of Community Trade and 
Economic Development published a detailed survey of conservation 
investment trends in 1998 based on information from utilities serving 
86% of the state's electric consumers.
    That study found that total utility investments in conservation 
peaked in 1993 at $ 169 million (constant 1997 dollars) and then 
declined in each year thereafter. By 1998 utility conservation 
investments were down to only $42.5 million, a 75% reduction. No other 
state made a comparably detailed assessment, but there is little reason 
to doubt that the Washington experience was representative of the 
region as a whole. This is particularly likely given that the 
Bonneville Power Administration's financial support for public utility 
conservation programs was, between 1993 and 1999, cut by more than 80%.
    Why did this happen? There are two major causes. First, estimates 
of the cost of new generation declined, driven by the advent of highly 
efficient combined-cycle combustion turbines and projections of low 
future gas prices. In order to be cost-effective, of course. 
conservation investments must save energy at a cost lower than the 
price of new supply. When that ``avoided cost'' dropped, so did the 
supply of cost-effective efficiency investments, though the avoided 
costs used by almost all utilities included no accounting for 
environmental costs of various resources.
    Some reduction in conservation effort was, thus, economically, if 
not environmentally. justified. But the scale of the conservation 
cutbacks far exceeded any reasonable estimate of the reduction in the 
pool of cost-effective savings. We need to search further for a 
complete explanation of these developments.
    A second explanation for a reduction in utility conservation 
spending was the possibility of deregulation. The prospect of 
competition at the retail level created great uncertainties for 
utilities. Who would their customers be in the future? What would be 
the size of the load they would have to serve? Could the costs of 
conservation investments in the facilities of customers who defected to 
another supplier be recovered? In the absence of clear answers to these 
questions, utilities were reluctant to make new investments in either 
supply-side or demand-side resources.
    Whatever the relative weight of these causes, the end result is 
clear. The Northwest experienced a drastic decline in investments in 
conservation, even in highly cost-effective conservation.
Today's Conservation Opportunities
    With combined-cycle combustion turbines today's new generation 
resource-of-choice. recent dramatic increases in gas prices have 
significantly raised the avoided cost against which conservation 
investments must compete. The pool of cost-effective conservation 
opportunities has substantially expanded.
    In its 1998 ``Northwest Conservation and Electric Power Plan,'' the 
Northwest Power Planning Council evaluated the twenty-year supply of 
cost-effective conservation across a range of scenarios for future 
electricity demand, alternative resource costs, and water conditions. 
The Council concluded that, ``The average amount of regionally 
costeffective conservation that the Council has identified is 
approximately 1,535 average megawatts.'' This number did not include 
any savings in the aluminum industry, although the Council believed 
that ``there is undoubtedly some additional potential in that sector, 
as well.'' The average levelized cost of these 1,535 average megawatts 
of savings was approximately 1.7 cents per kilowatt-hour. Yes, this is 
an additional 1500 aMW on top of the 1500 aMW the region has already 
saved.
    The 1998 Plan's mid-range forecast assumed that average real gas 
prices would escalate by about 1% per year. Obviously events have 
overtaken this forecast and, in so doing. have increased the amount of 
conservation that is cost-effective compared to new generation 
alternatives. The Council's new plan is not expected to be completed 
until late 2002, but Council staff has confidently predicted that the 
new long term gas, price forecasts will result in at least 2400 aMW of 
cost-effective energy efficiency potential in the region.
    A study completed in June of this year by Council and Seattle City 
Light staff reinforces the message that there's a lot of highly cost-
effective conservation out there. The study attempted to estimate the 
twenty-year conservation potential in Seattle's service territory.
    With a 50 mill avoided cost threshold, the study found that 211 to 
257 aMW of cost-effective conservation could be acquired over twenty 
years. The average cost of this conservation resource was estimated to 
be between 1.8 and 2.1 cents per kilowatt-hour. With this information, 
Seattle has decided to ramp up towards a doubling of its annual 
conservation targets. Over the next decade the utility plans to meet 
half of all load growth with conservation. And remember that this 
potential exists in a city that has. over twenty years, already 
implemented the most aggressive conservation effort in the region.
    Cost-effective conservation remains a plentiful and highly 
affordable resource for the Northwest.
Load Management Opportunities
    Historically Northwest conservation programs have focused on 
reducing the total number of kilowatt hours used, without much regard 
to when, in the year or the day, those savings occurred. In our hydro-
dominated system this made sense. We were, in the jargon of the 
industry, ``energyconstrained,'' not ``peak-constrained.'' That is, the 
hydroelectric system has enormous peak capacity - Grand Coulee alone 
has a capacity of almost 10,000 megawatts - but the amount of water in 
the system limits the total number of kilowatt hours that can actually 
be generated over a year.
    It is important to recognize that this situation has changed. Even 
our hydroelectric system is no longer big enough to buffer us against 
the high marginal costs of peak energy usage. The unacceptably large 
probabilities of being unable to meet demand that the Northwest Power 
Planning Council has warned of are concentrated in the winter months 
(December-February) and on a limited number of peak hours in those 
months.
    As the entire West Coast has seen this year, the costs of serving 
peak loads can be enormous. The cost of transmission capacity that is 
very rarely used can, all by itself, be larger than the ordinary cost 
of delivered power. If transmission capacity is priced at $24 per 
kilowatt year, then capacity that is used for only 400 hours per year 
costs 6 cents per kilowatt-hour actually delivered. The same economics 
apply to distribution capacity that is very rarely actually used. 
Finally, of course, system peaks - often driven by extreme cold-weather 
events in the Northwest -commonly strike many utilities at once. This 
coincident demand for energy can, and does, drive the cost of energy 
itself to remarkable heights. Add it all up and the value of reducing 
Pacific Northwest peak loads can be very substantial.
WHAT CONGRESS CAN DO
    Let me close with a list of things Congress can do to assure that 
these renewable energy. conservation and load management opportunities 
do not escape our grasp and that the exciting potential of renewable 
resources does not remain mainly potential.
     LSupport tax credits for energy efficient new construction 
of buildings and homes.
     LSupport a ten year extension of the production tax credit 
for wind generating resources.
     LSupport stronger appliance efficiency standards and tax 
credits for early adopters.
     LProvide matching funds for utility-run conservation 
programs, e.g., rebates for energy efficient appliances, weatherization 
and high efficiency industrial motors.
     LIncrease funding for low-income weatherization and energy 
assistance programs.
     LProvide tax credits and other incentives for pollution 
control equipment to retrofit older generating plants.
     LEstablish a temporary federal price cap, i.e., Federal 
Energy Regulatory Commission implemented cost-plus pricing. Exempt new 
generation to get plants on line quickly.
     LProvide financial support for BPA to invest in energy 
conservation and purchase more power, so it doesn't have to rely on 
harming salmon to ensure this October's Treasury payment.
     LSupport the use of energy efficiency and distributed 
renewable resources to relieve transmission congestion.
    Thank you for the opportunity to present this testimony. The region 
does not have to overbuild fossil fuel power plants to meet the present 
crisis. We have plentiful, quick and cost-effective solutions from 
energy efficiency, wind and load management.
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    Mr. Calvert. Mr. Lepp, do you--

  STATEMENT OF RAY LEPP, VICE PRESIDENT AND GENERAL MANAGER, 
          WESTERN REGION, BIRMINGHAM STEEL CORPORATION

    Mr. Lepp. Thank you, Mr. Chairman.
    My name is Ray Lepp. I'm Vice President/General Manager of 
the Seattle division of Birmingham Steel. The steel plant is 
located in West Seattle, just minutes outside of downtown.
    The plant has been in its current location on Elliot Bay 
since 1905. It is a permanent fixture in the city's landscape. 
In fact, virtually every school, hospital, skyscraper, stadium, 
bridge, airport in the Puget Sound area is made in part by the 
steel manufacturing plant, and thus it helps to create 
Seattle's landscape. We've also provided the steel for the 
Bonneville power dams in the past.
    Before I address the two energy-related questions, I'd like 
to share a few things about our plant. Birmingham is a big 
recycler. All of our feed scrap is recycled material. More than 
16,000 junk cars are recycled each month at the plant. Firearms 
from over 50 Puget Sound law enforcement agencies are melted 
down. We make new steel from cans, discarded appliances, and 
other scrap metal; thus we reduce solid waste destined for 
landfills and save energy for natural resources.
    Birmingham employs up to 300 skilled workers at the plant, 
several of whom are third-generation employees who provide 
great living-wage jobs to people who may not fit the high tech 
mold of today's economy. Our employee turnover is less than 1 
percent. We're an old industry but one that many people depend 
on.
    Birmingham has invested over $145 million in the plant to 
acquire this facility in 1991. We've invested in pollution 
control equipment to reduce emissions, invested in noise 
reduction abatement, and improved the landscaping.
    The plan is one of the most efficient fuel manufacturing 
plants in North America. Our environmental, community service, 
and employee safety programs have all been recognized with 
awards in the last year.
    Electricity is an integral part of our process. As such, 
Birmingham requires a significant amount of electric energy to 
melt scrap metal to produce rebar, angle bar, and other 
merchant bar products that are used in construction.
    Electricity is our number two cost at the plant; scrap 
metal is our number one. So why do I share this information? 
It's because I feel you need to know that this plant is at risk 
of shutting down. I need you to know that the steel industry is 
highly competitive.
    With electricity being our second highest cost at the 
plant, these costs can make or break us. Many of our 
competitors around the country continue to have an advantage 
over us in this area. They get their electricity at a lower 
cost, whether it be imports from Utah or imports from China or 
Japan. The West Coast energy crisis is threatening our economic 
competitiveness.
    So the questions you've raised are indeed timely, 
especially in light of Bonneville's projected rate increases.
    Birmingham's electric facility, Seattle City Light, 
receives power from Bonneville. And those costs are passed on 
to us from other rate payers. Seattle City Light has already 
increased our rates by 53 percent with an additional 47 percent 
projected increase coming this July.
    The lower rainfall, the low snowpack, and ESA restrictions 
have hurt the region. But that's one of the risks that one 
assumes, being somewhat dependent on hydropower.
    Bonneville is a great benefit to this region and one I'd 
fight to preserve. I know that the latest rate filing is 
controversial, given that it requires the aluminum companies to 
shut down for 2 years. That doesn't really seem right to me, 
but neither does the two-tiered rate proposal of the aluminum 
companies.
    In fact, Seattle City Light estimated that the two-tiered 
rate would result in a cost increase to Birmingham Steel of 
roughly 6- to $10 million a year. Such a shift, when added to 
the 53 percent rate increases we've already had and the 47 
percent July 1st, would place Birmingham in a hopeless 
situation.
    I'm not sure what the answer is, but as plant manager of 
the facility, it's my responsibility and my duty to fight for 
and protect my 300-plus employees and 300 indirect employees.
    What happens to your business if rates increase 
significantly? Simply stated, Birmingham will close its doors, 
and 300-plus employees will lose their jobs. A facility that 
employs several second-, third- and fourth-generation employees 
simply will go away.
    No operator could sustain the type of increases with the 
rate incurred and operate this plant competitively among 
competitors who aren't faced with the same cost increases.
    The only way we've survived this long is that several years 
ago, before the current energy crisis, Birmingham faced its own 
crisis. Our utility's electric rates were threatening our 
competitiveness and our viability.
    We initiated discussions with our utilities to identify 
conservation strategies to reduce our load. Since that time, 
we've conserved more than 10 percent by replacing equipment, 
reducing lighting, and implementing other conservation 
strategies.
    We believe we may be able to conserve an additional couple 
percent, but beyond that, we can't reduce demand without 
threatening our process.
    We compete with imports and facilities that aren't 
affected, and we remain competitive on the strength of our 
award-winning energy conservation and 35 percent water 
conservation over the past 18 months.
    To conclude, I'm here to tell you, the members of the U.S. 
Subcommittee on Water and Power, that this energy crisis is 
real, and our clients cannot sustain these increases and stay 
in business.
    Thank you for your time.
    Mr. Calvert. Thank you.
    [The prepared statement of Mr. Lepp follows:]

  Statement of Ray Lepp, Vice President and General Manager, Western 
                  Region, Birmingham Steel Corporation

    Good morning members of the U.S. Committee on Resources, 
Subcommittee on Water and Power. My name is Ray Lepp, Vice President 
and General Manager of the Seattle division of Birmingham Steel. The 
steel plant is located in West Seattle, just minutes outside of 
downtown. The plant has been in its current location since 1905 and is 
a permanent fixture in the city's landscape. In fact, virtually every 
school, hospital, skyscraper, stadium, bridge and airport in the Puget 
Sound area is made in part by the steel we manufacture at the plant, 
and thus, we've helped create Seattle's landscape.
    Before I address the two energy-related questions you asked of me, 
I'd like to share just a few things about the steel plant:
     LBirmingham is a big recycler. All of our feed scrap is 
recycled material--more than 16,000 junk cars are recycled each month 
at the plant, firearms from over 50 Puget Sound law enforcement 
agencies are melted down at the plant--we make new steel from cans, 
discarded appliances and other scrap metal. Thus, we reduce solid waste 
destined for landfills, and save energy and natural resources.
     LBirmingham employs over 300 skilled workers at the plant, 
several of whom are third-generation employees, and we provide great 
living-wage jobs to people who may not ``fit'' into the high-tech mold 
of today's economy. Our employee turnover is less than 1%. We're an old 
industry, but one that many people depend on.
     LBirmingham has invested over $145 million in the plant 
since acquiring the facility in 1991--we've invested in pollution 
control equipment to reduce emissions, invested in noise reduction 
abatements and improved landscaping--the plant is one of the most 
efficient steel manufacturing plants in North America. Our 
environmental, community service and employee safety programs have all 
been recognized with awards in the last year.
     LElectricity is an integral part of the steel 
manufacturing process. As such, Birmingham requires a significant 
amount of electric energy to melt scrap metal to produce rebar, angle 
bar and other merchant bar products that are used in the construction 
of roads and buildings. Electricity is our number two cost at the 
plant--scrap metal is our number one cost.
    So why do I share this information with you? I share this 
information with you because I need you to know that this plant is at 
risk of shutting down. I need you to know that the steel industry is a 
highly competitive industry, and with electricity being our second 
highest cost at the plant, electricity costs can make or break us. Many 
of our competitors around the country continue to have an advantage 
over us in this arena--they get their electricity at a lower cost. 
Whether it be Nucor in Plymouth Utah or imports from China . . . the 
West Coast energy crisis is threatening our economic competitiveness.
    So, the questions you've raised are indeed timely, especially in 
light of BPA's projected rate increases. Birmingham's electric utility, 
Seattle City Light, receives power from BPA, so those costs are passed 
on to us and other ratepayers. Seattle City Light has already increased 
our rates by 53% with an additional 47% increase coming this July. The 
lower rainfall, low snowpack and ESA restrictions have hurt this 
region, but that is one of the risks one assumes being somewhat 
dependent on hydropower. BPA is a great benefit to this region and one 
that I'd fight to preserve. I know that the latest rate filing is 
controversial given that it requires the aluminum companies to shut 
down for two years. That doesn't really seem right to me, but neither 
does the ``two-tiered rate'' proposed by the aluminum companies. In 
fact, Seattle City Light estimates that the ``two-tiered rate'' would 
result in a cost increase to Birmingham of roughly $6-10 million a 
year. Such a shift, when added to the 53% rate increases we've already 
incurred and 47% rate increases proposed for July 1st, would place 
Birmingham in a hopeless situation. I'm not sure what the answer is, 
but as plant manager of this facility, it is my responsibility and my 
duty to fight for and protect my 300 plus employees and 300 indirect 
contract employees.
    What happens to your business if rates increase significantly? 
Simply stated, Birmingham will close its doors and the 300 plus 
employees will lose their jobs; a facility that employs several second, 
third and fourth generation employees will simply go away. No operator 
could sustain the type of increases we've already incurred--a 53% rate 
increase already imposed and an additional 47% rate increase proposed 
for July 1st--and operate this plant competitively when its competitors 
aren't facing the same cost increases. Add the latest increases to the 
estimated $6-10 million ``two-tiered rate'' shift and there is no 
question that we would go out of business.
    The only way we've survived this long is that several years ago, 
before the current energy crisis, Birmingham faced a crisis of its 
own--our utility's electricity rates were threatening our 
competitiveness and economic viability. We initiated discussions with 
our utility, Seattle City Light, to identify conservation strategies to 
reduce our load. Since that time, we've conserved more than 10% by 
replacing equipment, reducing lighting and implementing other 
conservation strategies. We believe we may be able to conserve an 
additional 2-3%, but beyond that, we cannot reduce demand without 
threatening our manufacturing process. We compete with imports and 
facilities that are not impacted by the West Coast energy crisis. We 
have remained competitive on the strength of our award-winning energy 
conservation and 35% water conservation efforts over the past 18 
months.
    How does it affect your employee's production and your 
competitiveness? I believe that I've already answered this--simply 
stated, production will decrease because we can't compete with 
competitors who aren't experiencing the same cost increases.
    To conclude, I'm here today to tell the members of the U.S. 
Subcommittee on Water and Power, that this energy crisis is real and 
that this plant cannot sustain these increases and stay in business.
    Thank you for your time. I'm available to answer questions.
                                 ______
                                 
    Mr. Calvert. Dr. Anderson?

STATEMENT OF JAMES J. ANDERSON, ASSOCIATE PROFESSOR, SCHOOL OF 
     AQUATIC AND FISHERY SCIENCES, UNIVERSITY OF WASHINGTON

    Dr. Anderson. Thank you, Mr. Chairman.
    I'm Associate Professor in the School of Aquatic and 
Fishery Sciences at the University of Washington.
    I've been working on Columbia River salmon and power issues 
for two decades. They went by quickly.
    I--the first time I presented before this Committee was in 
1995. At that time, the fish runs going up the Columbia were 
the lowest on record. There were 10,000 fish that came back in 
the spring of that year.
    This year, we have 350---370,000 fish that returned to the 
river, plus the drought. That was a tremendous number of fish. 
In fact, it's a record since the time we've been keeping 
records, going back to the '30's. We have more fish that have 
gone up the river this year than ever before.
    In my testimony, I show a couple of graphs that give you a 
visual impact of what this is. This is completely unexpected, 
particularly since in 1995, we were talking about taking out 
the dams. We thought fish were going to be extinct in a very 
short period of time.
    Why are these runs coming back right now? Well, what I was 
saying back then--as many scientists who were believing and 
finding through their data--there were great variations in the 
ocean which are driving--is a major driving factor for the 
productivity of these stocks.
    So what I want to do is give you a little characterization 
of what that variability is and then how the different actions 
we are taking in the hydrosystem affect the survival of these 
stocks relative to that variability in the ocean.
    I present in my testimony a number of figures which show 
the--the daily return of runs over 40 years of the major stocks 
into the major regions of the--of the--of the basin. If you 
look at those, what you find is there is a variability, a scale 
change. In the '60's and '80's, the stocks were fairly high. In 
the '70's, in the '90's, they were--they were low. And it 
appears again that the stocks are increasing. Certainly this 
year and the last year, we've had some better runs into the 
system, in general. And this year, we have a spectacular run.
    So we have a little reprieve from extinction, at the very--
at the very least. And what we need to do is, in short, to 
begin to use the information that we have on the system so we 
can take a little load off demand off the hydrosystem and still 
be able to--to recover the fish, still be able to generate 
electricity.
    What this means is we have to use the information we have 
available, and we have to use it in a rational manner. I don't 
believe that we are doing--clearly, we are not doing as well as 
we could with that.
    Six years ago, we thought what we needed to do was take out 
the dams. Now we realize that there is a multitude of factors.
    What I want to do now is discuss the basic things that we 
do in the hydrosystem: flow augmentation, spill, and 
transportation, in fairness to the ocean, to give you kind of 
an idea of how this all needs balance with each other.
    There's been a lot of studies looking at the relationship 
between flow and survival. We find that survival--to plot the 
year-to-year survival with the year-to-year flow, there is a 
relationship.
    The higher--the wetter the water year, the more survival 
you have going through the river; the more fish come back. If 
you look within a season, if you see how the flow changes from 
the beginning of the migration through the end, there is no 
relationship we've been able to find in the hydrosystem between 
flow and survival.
    We've talked about water augmentation. This does not affect 
flow. It's not a significant factor that we can show any 
impact. In fact, it could be--in some situations, water 
augmentation warms the system, and it could be detrimental to 
the fish.
    The point on ``spill'' is spill has a very small impact. It 
has a theoretical impact. But compared to other measures we can 
take, it's very expensive and very ineffective. Transportation 
is the most effective way that we have to get fish through the 
river.
    This year, we have--for every one fish--for every ten fish 
that come back through in-river routes, we have 15 fish that 
come back through transportation. The river transport studies 
show that this is a good way to move fish; we should continue 
to do this.
    Now, the final point I want to make is that the ocean is a 
factor. It's a big factor. In 1995, we had a quarter percent of 
the fish come back. This year we have on the order of 2 to 3 
percent. This is a--a tenfold factor, in a relative sense, a 
thousand percent increase in survival because of the ocean. Our 
hydrosystem factors, in a relative sense, might give us a 1 to 
10 percent increase.
    Now, my final point, then, if we understand and factor in 
what the ocean does, we have some flexibility in how we operate 
the hydrosystem. We don't--I believe we do not have to make 
draconian measures in the hydrosystem when ocean systems exist.
    And I'll conclude my testimony with that.
    Mr. Calvert. Thank you, Doctor.
    [The prepared statement of Mr. Anderson follows:]

Statement of James J. Anderson, Associate Professor, School of Aquatic 
             and Fishery Sciences, University of Washington

    My name is James Anderson; I am an Associate Professor in the 
School of Aquatic and Fishery Sciences at the University of Washington. 
My research over the past two decades has involved Columbia River 
salmon and the influence of the hydrosystem and climate on the survival 
and productivity of the stocks. I wish to thank the Power Water 
Subcommittee for this opportunity to testify on the current science and 
status of fish populations in the Columbia River system.
Background
    I first appeared before this committee in June of 1995 and 
testified on the state of Columbia River salmon (Anderson 1995). That 
spring the salmon run in the Columbia River was the lowest ever 
recorded. In my testimony I explained how scientists were finding that 
throughout the North Pacific marine populations were correlated with 
decadal-scale patterns of ocean temperatures and currents. I suggested 
that the very low salmon populations were in part due to climate 
change. The young salmon smolts were entering a warm ocean in which 
food was scarce and warm-water predators were abundant. I concluded 
that the fate of the endangered salmon was strongly determined by what 
happened in the ocean (See Anderson 2000 for summary). At that hearing 
the committee also heard from witnesses claiming that the fish were 
doomed to extinction unless the Snake River dams were removed. The 
hearing encapsulated an ensuing scientific debate, reduced to whether 
the salmon's decline was nature's fault or the dam's fault.
    Now, six years later the region is face with a near record drought, 
the value of the water has raised the cost of salmon recovery to 
billions of dollars, and the largest spring chinook run in 40 yrs has 
just returned to the Columbia. The question is no longer whether the 
ocean is major contributor to population variations. The question now 
is what is the real value of recovery measures in terms of fish 
survival. In my testimony I review the status of the stocks and the 
scientific information on the effectiveness of current hydrosystem 
actions to aid fish survival.
Salmon population status
    Returns of wild salmon are not yet available for this year, but the 
counts at dams, which include both hatchery and wild fish, indicate a 
good year for 2001 following on the good returns from 2000. Over 
360,000 spring chinook passed Bonneville dam this spring. On the peak 
day, twenty seven thousand fish passed Bonneville, which is nearly 
three times the entire spring run in 1995. illustrates how incredible 
the difference was between the two years. This year the run is five 
times larger than the ten-year average. Last year 177,000 spring 
chinook returned, which was one the largest run in 20 years.
[GRAPHIC] [TIFF OMITTED] T2516.035


    Figures 2 through 8 show the daily counts of adult salmon returning 
to the Snake and the mid-Columbia and put the recent runs in a 
historical context spanning 40 years. The Snake River chinook 
population was low in the early 1980s and throughout the1990s. It 
increased in 2000, and this year the run was the largest on record.
[GRAPHIC] [TIFF OMITTED] T2516.036


    The Snake River sockeye exhibited a decline in the early 1980s and 
reached near extinction levels in the 1990s. However, the captive brood 
program and improved ocean conditions are likely factors attributable 
to the small increase in 2000 ().
[GRAPHIC] [TIFF OMITTED] T2516.037


    Snake River steelhead population was low in the 1970s and has 
increased largely through a hatchery program. Currently, the wild run 
is about 10% of the hatchery run ().
[GRAPHIC] [TIFF OMITTED] T2516.038


    In the Mid-Columbia, the chinook were also low in the 1970s, but 
have improved over the last two years presumably because of improving 
ocean conditions ().
[GRAPHIC] [TIFF OMITTED] T2516.039


    Mid-Columbia sockeye returns were low in the1990s but improved in 
2000 ().
[GRAPHIC] [TIFF OMITTED] T2516.040


    The mid-Columbia steelhead run has been small for 40 years. It was 
especially low in the mid 1990s and increased in 2000. The run is 
essentially maintained as a hatchery program ().
[GRAPHIC] [TIFF OMITTED] T2516.041


    The passage of chinook at McNary Dam characterizes the total Snake 
and Columbia River runs. Note the double peak each year. The first peak 
represents the Snake River spring chinook and the second peak is mostly 
composed of Hanford Reach fall chinook. The total run was low in the 
1970s and the 1990s. Again, this year's return is the highest in the 
record ().
[GRAPHIC] [TIFF OMITTED] T2516.042


    Finally, to put the 2001 drought into perspective, the daily flow 
at McNary Dams between 1962 and 2001 is illustrated in . Three 
significant droughts have occurred: 1973, 1977 and 2001. In these years 
the spring runoff peak is essentially missing from the daily record.
[GRAPHIC] [TIFF OMITTED] T2516.043


    Several general characteristics are noteworthy in these records. 
First, the returns represent both hatchery and wild stocks with wild 
fish dominating the runs in the early part of the record and hatchery 
fish dominating in the recent years. Second, the records demonstrate 
that salmon populations vary on decadal scales and between years. 
Stocks were generally higher in the 1960s and 1980s and lower in the 
1970s and 1990s. Year-to-year variations in all stocks are 
considerable. It is not uncommon for a stock to increase or decrease by 
a factor of two to three from one year to the next.
Status of Salmon Science
    In my testimony six years ago I presented information that the 
ocean was a significant factor in determining the survival of salmon 
populations. This hypothesis was not controversial to many ecologists, 
but it was largely ignored by Columbia River fishery managers, who 
attributed the decline of the stocks to the hydrosystem. Today, with 
six additional years of research coupled with a significant change in 
the ocean there is acceptance that the year-to-year and decadal scale 
variations typified in the figures above cannot be attributed to any 
single factor; be it the ocean currents, sea surface temperatures, 
coastal winds, river flows, or dam operations. Because many factors are 
beyond our control, fishery managers have focused on hydrosystem 
operations as primary recovery measures: flow regulations, river 
temperature regulation, and dam operations. The strategy assumes that 
managing the hydrosystem within specified physical standards will 
improve fish survival and facilitate fish recovery.
    However, because of the increasing value of the water and concerns 
as to the effectiveness of control measures, the strategy of operating 
the hydrosystem according to physical standards alone is not 
sufficient. Managers need to base the physical actions in terms of the 
resulting biological impacts on the salmon and especially in terms of 
survival. The effectiveness of actions needs to be put in the 
perspective of their contribution to the overall life history of the 
fish. I will briefly discussion the major hydrosystem actions and their 
effectiveness.
                           flow augmentation
    A significant question during this drought concerns the 
effectiveness of flow augmentation in improving fish survival. To 
address this question it is important to first realize that a 
relationship of seasonal flow and smolt survival within a year, or a 
relationship of flow and survival between years, does not imply flow 
augmentation will increase survival. Flow augmentation is produced by 
scheduled releases from storage reservoirs and by limiting municipal 
and agricultural withdrawals. Flow augmentation does not change the 
yearly averaged flow; it only reshapes the runoff over the season. Flow 
augmentation has a small and variable impact on the natural seasonal 
flow, temperature and turbidity, because the natural patterns are 
driven by the unregulated tributary runoff while flow augmentation is 
mostly from storage reservoirs.
    Based on flow and smolt survival research, a relationship has been 
found between yearly-averaged flows and the survival of chinook and 
steelhead passing through the hydrosystem. However, the same research 
demonstrates that seasonal flows are not correlated with hydrosystem 
survival. Because flow augmentation makes up a small portion of the 
seasonal flow, it too is not correlated with smolt hydrosystem 
survival.
    A relationship between seasonal flow and survival of fall chinook 
migrating from Hells Canyon to Lower Granite Dam has been observed in 
studies. Here again, the contribution of flow augmentation to this 
seasonal flow is small and the potential impact on survival is not 
measurable. Furthermore, there is a reasonable possibility that flow 
augmentation from the Hells Canyon dam complex may in some years 
decrease fish survival (Anderson, Hinrichsen and Van Holmes 2000). The 
research indicates that the natural seasonal patterns of flow, 
temperature and turbidity are correlated, so simple correlations any of 
these variables with smolt survival does not identify which one may 
affect survival. Based on fish bioenergetics, increased temperature 
will increase smolt mortality and since water releases from Hells 
Canyon can increase the Snake River temperature, augmentation can 
increase mortality. Furthermore, in these studies fish travel time was 
uncorrelated with flow, so it has no effect in reducing smolt exposure 
time to predators.
    Simply put, flow survival studies conducted over 8 years indicate 
that the impacts of flow augmentation on smolt survival are not 
measurable at best, may be neutral, and in some situations may decrease 
survival. Potential impacts of flow augmentation on survival can be 
estimated with models. However, the benefits were not estimated in the 
NMFS Biological Opinion.
                         dam passage and spill
    Studies on smolt dam passage indicate benefits for smolts passing 
dams in spill water compared to passing through bypass systems and 
turbines. However, recent model analyses show the benefits of spill are 
small. Not spilling at Columbia River dams this year decreases the 
total passage survival of Snake River smolts from about 50% to 49%; a 
difference of 1%. The net change for Mid Columbia smolts is about 10% 
and for lower Columbia River smolts is about 3% (NWPPC 2001).
    Considerable progress has been made on identifying the impacts of 
hydrosystem operations on the upstream migration of adult salmon (Bjorn 
et al 2000). Of concern is the effect of spill. Periods of high spill 
appear to delay salmon passage and increase fall-back across the dams.
                             transportation
    The vast majority (80 to 98%) of salmon smolts from the Snake River 
reach Bonneville tailrace in barges. Ninety-eight percent of the fish 
survive the barge trip, but after release the fish die at a higher rate 
than smolts that have arrive at Bonneville tailrace via in-river 
migration. If this differential mortality of transported fish relative 
is equal to the mortality of smolts passing through the river, then 
barging has no benefit over in-river passage. In normal and low water 
years it is believed that barging is better for Snake River salmon and 
this is the preferred strategy for this year. Barging mid-Columbia 
salmon is less effective because the fish must migrate through several 
of dams before they reach McNary Dam, from which can be transported.
    Ultimately the efficacy of transportation depends on the level of 
differential mortality. Few reliable estimates are available and it 
appears to vary between species, over the season, and from year-to-
year. Furthermore, the reason why transported fish die at a greater 
rate than fish that have passed through the hydrosystem is unclear. 
Hypotheses, focusing on stress in transportation, suggest it may be 
possible to improve the transportation system, making it the preferred 
passage route.
                             ocean effects
    Over the past six years a number of studies have correlated ocean 
variables and marine populations. For example, Alaskan and west coast 
salmon have an inverse relationship with decadal scale cycles in ocean 
currents and temperatures (Hare, Mantua and Francis 1999). Between 1977 
and 1998 ocean conditions, characterized by the Pacific Decadal 
Oscillation (PDO), favored Alaskan salmon and were detrimental to west 
coast salmon. In 1998, the PDO reversed and correspondingly west coast 
salmon stocks increased while many Alaskan stocks declined. Studies in 
the Oregon coastal waters confirm a recent and significant increase in 
the abundance of salmon food (Peterson 2000). An article in the Seattle 
Times noted ``This is the third spring in a row that scientists working 
out of Newport have encountered a fertile Pacific, a trend that began 
in one of the wettest Northwest years on record and has continued even 
as onshore weather patterns this year set the stage for a severe 
drought (H. Bernton, Seattle Times staff reporter, May 09, 2001) 
[GRAPHIC] [TIFF OMITTED] T2516.044


        combined effects of ocean and hydro operations on salmon
    An important step in setting hydrosystem performance standards and 
selecting recovery actions is to recognize and adjust for the 
considerable influence that ocean and climate cycles have on salmon 
populations. The improved ocean conditions over the past three years 
have benefited both wild and hatchery stocks and are a major factor in 
the record returns of spring chinook. The data suggest ocean factors 
outweigh the effect of hydrosystem operations. Comparing smolt to adult 
survival from the 1995 outmigration to the 1998 and 1999 outmigrations, 
the survival has increased from 0.25% in 1995 up to about 2% in 1998-
1999 period. This 1000% increase in relative survival can creditably be 
attributed to the increased productivity in the ocean. In comparison, 
the relative change in survival with spill and flow augmentation have 
been estimated to be on the order 1 to 10%. This comparison to the poor 
conditions in the mid 1990s is relevant because virtually all estimates 
of salmon extinction and recovery probabilities assume the ocean 
remains in the extreme poor state of the 1990s.
    A recent paper on recovery options concluded that even dam 
breaching would not recover the stocks under the conditions that 
existed for brood years 1990-1994 (Kareiva, Marvier, McClure 2000). 
However, the paper did not mention that the years used in the analysis 
represented some of the warmest years on record (See the PDO in ). If 
the analysis were revisited, including both good and bad ocean 
conditions, the conclusions would be significantly different. In fact, 
an analysis in the Plan for Analyzing and Testing Hypotheses (PATH) 
demonstrated that with a regime shift back to cool ocean conditions, 
the stocks would recover without changes to the hydrosystem (Marmorek, 
Peters, Parnell 1998). The majority of PATH participants rejected this 
hypothesis as unrealistic, with little chance that the smolt-to-adult 
survival could rise above 1%. However, the recent shift in the ocean 
follows the analysis assumptions, and if the ocean survival persists 
through this decade, the PATH analysis suggests the stocks would 
recover without aggressive the hydrosystem operations. However, most 
analyses on salmon recovery to date consider scenarios that require 
draconian measures to save the stocks from extinction. Conspicuously 
absent are analyses that include ocean cycles.
    I am not suggesting that salmon will recover irrespective of 
societal efforts. Such a stance would be irresponsible. But to 
implement performance measures without regard to their benefits in 
relationship to the status of the ocean is equally irresponsible. 
Science, in service of salmon recovery and management, must assess the 
impacts of physical actions in terms of their biological effects on the 
stocks. The science must quantify biological performance through 
monitoring, and where the data is insufficient, through biologically 
realistic models. Furthermore, the science must seek to understand the 
mechanisms by which the environment affects salmon survival.
    The improved ocean conditions give salmon a temporary reprieve from 
extinction. But, eventually the ocean will warm again and with or 
without a drought, the competing demands for the water will be great. 
If we continue to increase our understanding of salmon ecology and if 
we begin to realistically assess the benefits of recovery actions, we 
may be able to meet the coming challenge. However, if we forgo learning 
and disregard quantified analyses in making decisions, salmon 
management could face a failure of public trust and salmon recovery 
would be jeopardized.
References and Notes
    Anderson, J. J. 2000. Decadal climate cycles and declining Columbia 
River salmon. In Sustainable Fisheries Management: Pacific Salmon. 
Edited by E. Knudsen et. CRC Lewis Publishers, Boca Raton. p. 467-484. 
(www.cbr.washington.edu/papers/jim/victoria.html)
    Anderson, J. J., Testimony presented before the Subcommittee on 
Water and Power of the US House of Representatives Committee on 
Resources. June 1995 Washington D.C.
    Anderson, J. J., R. A. Hinrichsen and C. Van Holmes. 2000. Effects 
of Flow Augmentation on Snake River Fall Chinook. In Comments on Idaho 
Water Users on the draft All-H paper by the Federal Caucus: 
Conservation of Columbia Basin Fish-Building a conceptual recovery 
plan. Submitted on behalf of the Committee of Nine and the Idaho Water 
Users Association. March 16 2000.
    Bjorn et al 2000, Migration of adult spring and summer chinook 
salmon past Columbia and Snake River dams, through reservoirs and 
distribution into tributaries, 1996
    DART. 2000. Data Access in Real Time. (http://
www.cbr.washington.edu/dart/dart.html)
    Hare, S. R., N. J. Mantua and R. C. Francis. 1999. Inverse 
production regimes: Alaskan and West Coast Salmon. Fisheries 24(1):6-
14. (www.iphc.washington.edu/Staff/hare/html/papers/inverse/abst--
inv.html).
    Kareiva, P. M. Marvier, M. McClure 2000, Recovery and Management 
options for spring/summer chinook salmon in the Columbia River Basins, 
Science 290(3) 977-979.
    Marmorek, D.R., C.N. Peters and I. Parnell (eds.) 1998. Plan for 
Analyzing and Testing Hypotheses (PATH): Final Report for Fiscal Year 
1998 (ESSA Technologies, Vancouver, Canada, 1998
    Peterson, W. T. 2000. RECENT SHIFTS IN ZOOPLANKTON ABUNDANCE AND 
SPECIES COMPOSITION OFF CENTRAL OREGON. Beyond El Nino. PICES 
conference (North Pacific Marine Science Organization). 
(pices.ios.bc.ca/elnino/abstracts.htm)
                                 ______
                                 
    Mr. Calvert. Mr. Rob Walton.

STATEMENT OF ROBERT G. WALTON, ASSISTANT MANAGER, PUBLIC POWER 
                            COUNCIL

    Mr. Walton. Thank you, Mr. Chairman, members of the 
Subcommittee.
    Thank you very much for this opportunity to testify about 
job management and energy availability in the Pacific 
Northwest.
    My name is Robert Walton. I'm the Assistant Manager of the 
Public Power Council, a regional association representing the 
consumer-owned utility customers of BPA.
    Our members include municipal and cooperative utilities and 
PUD's in five states. You've mentioned Snohomish PUD, Tacoma 
City Light, Eugene Water and Electric Board. Those are some of 
our members.
    I submitted written testimony to you, including analysis by 
the Northwest Power Planning Council staff on the power supply 
situation and the biological impact of reduced spill.
    I'd like to depart from those written comments in my 5 
minutes and summarize my perspective on the short- and long-
term issues that we face.
    In the short term, as many of the speakers have described, 
the drought has put tremendous pressures on the Federal 
agencies in the region. I see a tug-of-war, which is pretty 
clear, over the issue dozzer, which is how to use the water in 
the Columbia River this year.
    Pulling in one direction are the fish advocates. And you've 
heard from the Yakima tribal leader, Randy Settler, today. And 
there are others who argue that we should support the out-
migrating smolt by spilling water--spill--spill water, to 
implement the Endangered Species Act, the Federal trust and 
treaty responsibilities, and nontribal harvest.
    Pulling in the other direction are members of the power 
community and many members of the--the economic sector in the 
region.
    Mr. DeFazio said earlier that the public won't tolerate an 
unreliable power system; this isn't India. That's exactly why 
we're arguing against spill this year. Many people consider the 
water in this drought, in this energy crisis too valuable to 
spill.
    And some of the evidence suggests that the biological 
benefits from spilling this year are not sufficient to warrant 
the high cost.
    As Dr. Anderson suggested, we have a record run this year 
of spring chinook. And it's interesting to note that the 
harvest rate on the salmon in the river--which includes the 
nonlisted and the listed species--has gone up this year from 9 
to 15 percent.
    So in our written comments, PPC supports the declaration of 
emergency--the--operating the Federal system to meet load 
supporting--supports the criteria to maintain a reliable system 
and would support the extraordinary measures that Mr. Wright 
described.
    We certainly support the responsibility of the power system 
to mitigate the impacts that the dams have on fish and 
wildlife.
    In the longer term, I'd like to offer my perspective on 
some failures that I see interestingly in common between energy 
policy and salmon management policy. I think both can be 
described as being stuck in the middle between alternative 
courses of action.
    The result in both salmon and energy policy is irrational 
decisions that are being made that take us in neither 
direction.
    I'd like to quote from--from my written testimony from a 
passage that was published in May 1994 by the first National 
Marine Fisheries Service Recovery Team, the so-called 
``Debbon'' (phonetic) team--quote, ``There is no directed 
authority or accountability to ensure effective management of 
the overall system.''.
    By the way, they're talking about fisheries' management, 
but I'd like you to think in terms of both fish and power.
    The bottom line is a classic situation. Among a myriad of 
agencies and interests, no one, really, is in charge. 
Institutional, jurisdictional, state, and Federal boundaries 
make rational overall fisheries management decisions 
impossible. Each agency has its own area of designated 
authority and responsibility and gets its own funding and sets 
its own goals, leading to its own special projects and agenda, 
all of which are budget-dependent.
    It seems to me in the fish arena, we have a--we're stuck in 
the middle between two potential salmon management strategies. 
One, as advocated by National Marine Fisheries Service, would 
have us manage their tiny populations of naturally spawning 
native wild fish. If so, it seems to me that there's a very 
difficult opportunity--chance that the Federal agencies will be 
able to meet their--their obligations to provide harvest to the 
tribal and nontribal fishermen.
    If this continues to be our salmon policy, it's hard to 
justify killing these salmon for fun and profit. As an 
alternative, they could manage for the state-of-the-art use of 
artificial production hatcheries to produce the kind of fish 
that can spawn naturally or in hatcheries to try to build the 
fish runs that are capable of harvest.
    On the energy side, I don't think I need to tell members of 
the Subcommittee--you've already stated it very eloquently 
today--we're stuck in the middle between a regulated system 
that had a clear assignment of responsibility, a clear 
obligation to serve, a clear obligation to maintain reserves, a 
clear obligation to keep the rates down and, on the other side, 
as some people have described it, the genius of the 
marketplace, with a deregulated system. We're stuck in between 
the combination of both the--the--the power and the fish 
policies--is that the regional execs are being asked to make 
decisions right now in the short term--spill or not spill--
when, in fact, the long-term policies behind both fish and 
power strategies, in my mind, are not clear enough to lead us 
to long-term success.
    Thank you.
    Mr. Calvert. Thank you.
    [The prepared statement of Mr. Walton follows:]

 Statement of Robert G. Walton, Assistant Manager, Public Power Council

    Mr. Chairman, Members of the Subcommittee: thank you very much for 
this opportunity to testify about Drought Management and Energy 
Availability in the Pacific Northwest. These are very timely and 
important subjects for the Subcommittee to consider and I appreciate 
your interest and attention.
    My name is Robert Walton. I am the Assistant Manager of the Public 
Power Council (PPC), a regional association representing the consumer-
owned utility customers of the Bonneville Power Administration (BPA). 
PPC's members include municipal and cooperative utilities and public 
utility districts (PUDs) in 5 states. These consumer-owned utilities 
purchase power and/or transmission from BPA and provide the largest 
share of BPA's income, which is used to fund BPA's treasury payments 
and the fish and wildlife program, along with other programs and 
obligations.
    As the entities that pay the bills, we have a direct interest in 
scrutinizing BPA's operations and expenses regarding power generation 
and fish and wildlife mitigation. But as consumer-owned utilities, we 
do not merely seek to keep the lights on and reduce costs. We also 
reflect our customers' interest in a healthy environment with thriving 
fish and wildlife populations. What we seek is cost-effectiveness, 
program accountability and demonstrable results.
    My testimony today addresses two issues.
     LHow will Federal agencies operate the Federal Columbia 
River Power System (FCRPS) this year: spill water over dams to increase 
survival of salmon or use that water to maintain a reliable electrical 
power system?
     LGeneral concerns about a lack of accountability in the 
management of salmon and electrical reliability.
PPC's Recommendation to the Federal Agencies Regarding Operation of the 
        Columbia River
    PPC commends the Federal agencies for assigning top priority to 
maintaining power system reliability and public safety. We recommend 
the agencies continue to utilize the provisions in the Biological 
Opinion that allow for emergency operations of the Federal Columbia 
River Power System.
    In particular, PPC supports the declaration of a power emergency 
and continued implementation of the April 13 draft operating plan for 
the Federal Columbia River Power System (FCRPS). (See letter to BPA 
Acting Administrator Steve Wright on May 10, Attachment A.) Although 
the Biological Opinion calls for extensive ``spill'' to aid salmon 
migration, the draft operations plan determines the amount of water 
spilled for fish based on the volume forecast for water runoff in the 
system. Due to the extremely low runoff forecasts to date, the Federal 
agencies would not spill any water this year under the current 
criteria.
Top Priority for Water Stored in the FCRPS Should Go to Maintaining the 
        Reliability of the Pacific Northwest Power System
    The Federal agencies have established criteria to ensure the region 
can meet power demand in the near term and next winter. For example, 
criterion 2 in the Federal agencies' operating plan established a goal 
of maintaining a 5% loss of load probability in future months. PPC 
supports this criterion, but is troubled that the drought and West 
Coast energy situation may make it impossible for the agencies to 
maintain that level of reliability. In fact, the region is working hard 
to maintain a reliability in the 20% to 26% range. To PPC, a 20% chance 
that the region would fail to meet load this winter is not consistent 
with a reliable power system.
    Faced with a goal of 5% loss of load probability and analyses that 
indicate a 20% or higher loss of load probability, PPC concludes that 
the prudent course of action for the Federal agencies is to store as 
much water as possible in the FCRPS to meet future load.
    Without the declaration of a power emergency and implementation of 
the current operating plan, the Federal agencies would be forced (under 
the 2000 Biological Opinion) to spill water over the dams instead of 
running it through the generators. The Northwest Power Planning Council 
has estimated (see Attachment B) that this water, if run through the 
generators, would produce over 6600 mw-months of energy in the Federal 
system. PPC supports the conclusion reached by Council and BPA staff 
that the loss of this amount of energy would do serious harm to the 
region's energy supply, increasing the risk of blackouts in the 
Northwest.
    PPC's member utilities are participating, along with Investor-Owned 
Utilities, the Governors and many others in the region, in a widespread 
effort to reduce electrical load and increase electrical generation. 
There are some signs of progress in these efforts. The potential 
consequences of a power system failure in the middle of winter, 
however, are so onerous that PPC urges the Federal agencies to err on 
the side of ensuring the reliability of the power system.
The Impact that Spilling Water would have on the Economy of the Pacific 
        Northwest
    In addition to reducing power system reliability, spilling large 
amounts of water would cost the region a lot of money. The Council 
estimated the value of power that could be generated if spill were 
eliminated to be more than $ 1 billion (see Attachment B). These are 
costs that would ultimately be borne by the region's ratepayers.
    BPA's utility customers face the prospect of a wholesale rate 
increase this October estimated to be between 80% and 250% over current 
levels. The impact of such an increase could have devastating impacts 
on the region's economy, resulting in the loss of thousands of jobs and 
economic harm to the region's residential customers. If Federal 
agencies were forced to spill water for fish, the additional costs 
would add to the size of the rate increase, resulting in additional 
economic displacement in the region.
The Impact that Elimination of the Spill Program this Year would have 
        on Salmon
    BPA's customers understand and support the obligation to mitigate 
for the impact of the dams on fish and wildlife in the Columbia Basin. 
However, we haven't always supported the specific measures that have 
been implemented. The power industry has been skeptical about the 
biological benefits of flow augmentation and spill for years. In times 
of high energy prices, the cost-effectiveness of spilling water to 
increase survival of juvenile salmon has been particularly suspect.
    PPC's decision to support elimination of spill this year is based 
in large part on recent preliminary analyses by the Power Planning 
Council Staff (see Attachment C). Using a National Marine Fisheries 
Service (NMFS) model and data, the Council analyses suggested that 
relatively few adult salmon would be lost as a consequence of 
eliminating the 2001 spill program. One of the major reasons for this 
is the fact that NMFS has decided to put most of the fish in barges, 
not left in the river this year. The analyses suggested that 
elimination of spill would cause a modest decrease in survival of the 
juvenile fish in the river, but the impact on the entire outmigration 
was only a few percent. After considering the low ocean survival of 
these fish, the analyses suggests the impact of eliminated spill would 
result in the loss of a relatively small number of adult salmon.
    A number of scientists for fisheries agencies and tribes have 
criticized the Council staff's preliminary analysis. Some of their 
criticisms may have merit, but even if the preliminary analyses are off 
by an order of magnitude or more, point seems to be the same: we could 
significantly reduce the reliability of the region's power supply and 
increase the cost of electricity in the current situation, but save a 
relatively small number of salmon in the process. From a power system 
perspective, it would be imprudent to spill water this year, given the 
apparent ranking of costs and benefits.
Who is in Charge of Keeping the Lights on and Managing the Salmon?
    In May, 1994, seven experts appointed by NMFS released their report 
entitled: ``Snake River Salmon Recovery Team: Final Recommendations to 
National Marine Fisheries Service.'' In the report (page III-1), they 
stated:
        There is no directed authority or accountability to ensure 
        effective management of the overall system. The bottom line is 
        a classic situation: among myriad agencies and interests, no 
        one really is in charge. Institutional, jurisdictional, state 
        and Federal boundaries make rational overall fisheries 
        management decisions impossible. Each agency has its own area 
        of designated authority and responsibility, gets its own 
        funding, and sets its own goals--leading it to its own special 
        projects and agenda, all of which are budget dependent. For 
        example, in the early 1980s, the NPC developed a water budget 
        with hopes that rigorous data would be collected to test and 
        enhance its effectiveness. For more than a decade, the critical 
        data have not been collected.
    Unfortunately, this six year-old quote still rings true in 2001, 
but now it also seems to make an important point regarding the 
management of electrical power as well as salmon resources.
    As the Pacific Northwest and the West Coast face increasing 
challenges to maintain electrical power system reliability, the quote 
from the recovery team applies: no one is in charge of keeping the 
lights on. That is, no single entity or person is has the 
responsibility to ensure that the lights stay on in the region and 
along the West Coast. BPA, NMFS and other Federal agencies are making 
decisions to generate or spill on the Columbia River, but they don't 
have responsibility for all the electrical power control areas in the 
region. Neither FERC nor the Department of Energy appears to have clear 
responsibility to maintain a reliable power system. Individual 
utilities may have an obligation to serve, but not beyond their service 
territories. Certainly the independent power producers don't have a 
responsibility to keep the lights on.
    Regarding the management of salmon, the Endangered Species and 
Northwest Power Acts, trust and treaty relationships to tribes, 
international treaties and other statutes all apply to the Federal 
agencies. As the recovery team stated in May, 1994, no one entity has 
taken charge of managing the salmon resource. One result of this 
situation is a failure to establish clear goals or a definition of 
success in terms of salmon recovery.
    We would like to offer one example of the current situation. It is 
a fact that the number of salmon and steelhead species listed under the 
Endangered Species Act in the Northwest is increasing, and some of 
those species are in serious decline. However, a significant portion of 
ratepayer money directed at salmon recovery over the last 20 years has 
been spent on developing a huge hatchery program. The result? This 
year's return of spring chinook above Bonneville Dam is the largest in 
over 60 years, but most of the fish are of hatchery origin. As the 
following graph shows, this year's return is about five times higher 
than the ten-year average.
[GRAPHIC] [TIFF OMITTED] T2516.001


    This large number of salmon ought to be good news, but it isn't 
exactly a success story, because there is no way to harvest the 
hatchery fish without killing fish protected by the Endangered Species 
Act. As a result, salmon managers are faced with the choice of either 
killing the hatchery salmon to keep them from spawning (assuming they 
can identify the hatchery salmon) or having them spawn in the same 
waters as the protected salmon and thereby changing the genetic makeup 
of the protected salmon. This is one of several consequences of a 
failure to establish clear lines of responsibility.
    PPC would like to participate in and support a reliable and 
affordable electrical power system as well as a successful salmon 
rebuilding effort. Without clear lines of responsibility and 
accountability, however, success is much harder to achieve.
    Thank you for this opportunity to testify before your Subcommittee.
                              attachment a

May 10, 2001

Mr. Stephen J. Wright, Acting Administrator
Bonneville Power Administration
905 N.E. 11th Avenue
Portland, OR 97232

RE: To Spill or Not to Spill

Dear Steve:
    The choice of whether to spill at Federal dams in May forces the 
Federal agencies to manage competing risks. PPC believes the agencies 
should continue to assign top priority to maintaining power system 
reliability and public safety.
    Specifically, PPC believes that the agencies should continue to 
operate the Federal Columbia Power System pursuant to the declared 
power emergency and implement the criteria in the April 13 Draft Plan. 
The criteria in the plan are objective and reasonable, especially in 
light of the substantial risk that BPA will not be able to meet its 
power obligations.
    Grant PUD recently asked FERC to approve a temporary emergency 
variance of the interim spill requirements at Grant's projects. 
Specifically, Grant makes this request so that the District can make 
that generation available for critical regional energy needs, for the 
purpose of displacing generation at other hydro projects where spill 
may be more effective in passing fish this year than at the District's 
Priest Rapids Project and/or for the purpose of facilitating other 
power and fishery measures in this unusual low water year.
    At this point, PPC sees the Grant proposal as the only compromise 
available to the Federal agencies in their attempt to balance in-river 
survival with power system reliability. Therefore, PPC supports the 
proposal--if it is approved by FERC.
    We appreciate your efforts to implement the criteria in the April 
13 Draft Plan while looking for ways to minimize costs and risks to 
ratepayers.

Sincerely,

C. Clark Leone
Manager
                              attachment b
                           Executive Summary
    The ongoing drought has focused concerns about the adequacy of the 
region's power supply for the coming summer, fall and winter. 
Operational strategies for the Columbia/Snake river hydropower system 
are a key component of managing through this year with the objectives 
of:
     LSatisfying electricity demand through this spring and 
summer;
     LAchieving reasonable summer flows for salmon migration;
     LNot significantly worsening fall and winter reliability 
and the ability to meet Biological Opinion (BiOp) reservoir target 
elevations in 2002; and
     LLimiting the impacts of wholesale power purchase costs on 
the region's economy and the financial condition of the region's 
utilities.
    To assess the options available to the region, the Council has 
analyzed several alternatives for the operation of the power system 
over the coming year. The analysis was done in two stages. The first 
focused on this spring and summer for two water scenarios--1977 water 
and 1944 water. These years bracket the current runoff volume forecast 
for 2001. For each of these water years, several operating strategies 
were evaluated. They include: running the hydropower system to the 
Biological Opinion constraints for spill and flows; maintaining spill 
while drafting the system deeper to meet loads; and three strategies 
that involve significant reductions in spill combined with limited use 
of deeper drafts, with the objective of achieving BiOp reservoir 
elevations by the end of August. The analysis looked at such metrics as 
the amount of curtailment that could be experienced, the cost of 
purchased power to address any curtailment, end-of-August reservoir 
elevations, and spring and summer flows.
    The second stage of the analysis focused on the operation of the 
system through the fall and winter with the starting elevation of the 
reservoirs in September being the primary variable. This analysis was 
done probabilistically with uncertainty about fall and winter water 
conditions, temperatures and forced outages of thermal units. The 
analysis looked at the probability and magnitude of load loss during 
the winter period and April 2002 reservoir elevations.
    The conclusions drawn from this analysis are:
     LOperating the hydropower system to the BiOp targets for 
spill and flows would lead to either significant curtailments and/or 
very large purchased power costs this summer.
     LOperations this spring and summer that leave reservoirs 
at the end of August at elevations significantly below BiOp elevations 
expose the region to significantly increased probability of power 
supply inadequacy next winter. In addition, such operations would 
result in a significant probability that April 2002 reservoir 
elevations will be well below BiOp elevations, thereby reducing spring 
flows for salmon.
     LThe only alternatives we see that both avoid curtailments 
and/or large purchased power costs this summer AND return reservoirs to 
BiOp elevations by the end of August involve substantial reduction in 
spill and limited drafting of reservoirs beyond BiOp elevations. 
Reductions in spill can be restored by purchases, reductions in load 
and additional generation. Alternatives that significantly reduce spill 
have the additional advantage of reducing market prices this summer and 
bringing additional income into the region in the form of dollars, 
returned energy next fall and winter, or both.
     LDecisions need to be made now, but they can be revisited 
periodically as the spring and summer unfold. The spill season begins 
in April. By that time, we will have relatively little additional 
information about how the rest of the spring and summer are going to 
unfold. From the power supply standpoint, a prudent approach would be 
to significantly reduce spring spill. If conditions improve through the 
spring, it may be possible to restore some spill. If, instead, we were 
to opt to maintain spill or reduce it only slightly in the spring and 
if conditions do not improve, that spill energy would be lost to the 
system and would necessitate more stringent and potentially very 
expensive measures later on.
     LThe potential for power supply problems this summer and 
next winter and the probable high cost of power call for continued and 
increased attention to implementing load reduction, conservation and 
new generation.
                              introduction
    The runoff forecast for 2001 continues to degrade. The January-
through-July forecast released March 15th is 57.6 million acre feet 
(MAF) at The Dalles Dam. 1 The mid-March forecast for runoff 
volume at The Dalles compared with the eight lowest years in the 60-
year historic record is shown in Figure 1. The most often quoted 
forecast assumes 75 percent of normal precipitation for the last two 
weeks of March and 100 percent of normal precipitation from April 1st 
on. However, alternative forecasts are made for higher and lower 
percentages of normal April-July precipitation. As Figure 1 shows, if 
the April through July precipitation is 75 percent of normal, the 
runoff volume would be less than the 1977 volume, the lowest on record. 
While National Weather Service personnel to whom we have talked do not 
believe April through July precipitation that is 50 percent of normal 
is very likely, the possibility of runoff as low or somewhat lower than 
1977 is quite possible.
---------------------------------------------------------------------------
    \1\ The April ``early bird'' forecast has come in at 55.7 MAF.
    [GRAPHIC] [TIFF OMITTED] T2516.002
    

    These conditions raise obvious concerns about whether the Northwest 
power system can meet loads through this summer and next winter and 
satisfy the other demands placed on it.
Objectives
    In view of the very poor water conditions facing the region and the 
continuing power crisis in California, the Council has undertaken an 
analysis with the objective of identifying strategies that:
     LSatisfy electricity demand through this spring and 
summer;
     LAchieve reasonable spring and summer conditions for 
salmon migration, given the circumstances;
     LDo not significantly worsen fall and winter reliability 
and the ability to meet Biological Opinion reservoir target elevations 
in 2002; and
     LLimit the impacts of wholesale power purchase costs on 
the region's economy and the financial condition of the region's 
utilities.
Tools
    The tools that the region has at its disposal to meet these 
objectives are:
     LUse of ``emergency'' hydro. Emergency hydro is defined as 
additional energy that can be generated by drafting reservoirs below 
elevations intended to increase the likelihood of meeting spring and 
summer BiOp flows for salmon. The risk in using emergency hydro is that 
we may take reservoirs so low that summer flows are affected and end-
of-August elevations have a significant adverse effect on fall and 
winter reliability.
     LReducing spill. Spill is water that is passed over the 
dams, not passed through turbines. Consequently, spilled water produces 
no energy. Spill is an element of the BiOp and is also an element of 
the FERC-sanctioned agreements governing the operation of non-Federal 
projects on the Columbia. The risk in reducing spill is the possible 
impact on survival of in-river downstream juvenile migrants. 
2
---------------------------------------------------------------------------
    \2\ Most smolts in the Snake River will be barged this year, but 
some remain in-river. There is no barging in the Columbia main stem 
upstream of McNary.
---------------------------------------------------------------------------
     LPurchase of imported power. To the extent that we can 
purchase power, potential deficits can be reduced or eliminated and 
water can be retained in the reservoirs. The availability and price of 
imports is problematic this year. Physically, there ought to be imports 
available in off-peak periods. However, this year the price may be 
prohibitive. The costs of purchased power work their way into retail 
rates with adverse impacts on the regional economy. In addition, 
Bonneville's financial position is particularly vulnerable this year. 
High purchase power costs could imperil Bonneville's ability to make 
its Treasury payment and maintain necessary operating reserves through 
the fall.
     LAdditional in-region ``emergency generation.'' Several 
utilities in the region have or are in the process of installing 
emergency generation. These are typically groups of diesel fuel or 
natural gas-fired reciprocating engines--``Diesel Farms.'' Others have 
turned to small, single cycle gas turbines, some older used units, 
others new. In addition there is some ability to utilize existing 
industrial and large commercial backup generation. These are relatively 
small in utility terms, but can add up in aggregate. To the extent 
these units can be acquired and operated at costs less than the cost of 
purchased power, they can offset expensive purchases or use of the 
other alternatives. The downside is the potential air quality impacts 
associated with these typically comparatively high emissions units.
     LVoluntary or purchased load reduction. This can take 
several forms. One is investment in traditional conservation--the more 
efficient use of electricity. This has the advantage of reducing 
electricity use while not impacting productivity or lifestyle. 
Certainly a lesson of the past year is that sustained investment in 
conservation is important. However, there is relatively little that can 
be implemented by this summer. The other approach is curtailment--
reducing or eliminating some uses of electricity. This can be 
voluntary, such as elimination of unnecessary decorative lighting and 
signage; turning off lights and appliances when not is use, and so on. 
Or it can be purchased curtailment. The most prominent example of this 
has been the aluminum industry, where most plants are now being paid 
not to operate. The amount of the payment is less than the cost of the 
power to serve them. This approach has other applications as in 
irrigated agriculture and other industries.
                          analytical approach
    In this analysis, the Council used its GENESYS model of the 
Northwest power system. That model is described in detail in the 
Council's March 2000 power supply adequacy study. 3 GENESYS 
treats the region as a whole, but does simulate the transmission 
constraints into the region and between the Eastern and Western parts 
of the Northwest. Individual utilities or control areas are not 
modeled. The region modeled included all of Montana, Oregon, Idaho, and 
Washington so that results could be directly compared with information 
from the Northwest Power Pool. Regional loads were reduced to account 
for the recent reductions in direct service industrial (DSI) load. It 
was assumed that there was approximately 500 megawatts of DSI load 
still operating. Further reductions in DSI load are possible. In 
addition, there are some additional industrial closures that may not be 
reflected in the analysis. The model also incorporates known 
``emergency'' generation such as the ``diesel farm'' installations that 
several regional utilities have undertaken. The potential for imports 
from outside the region--British Columbia, California and the Desert 
Southwest--is represented by seasonal supply curves that are estimated 
from available data and consultations with informed persons in the 
affected regions.
---------------------------------------------------------------------------
    \3\ Power Supply Adequacy
---------------------------------------------------------------------------
Stage 1 -- March through August 2001
    The analysis was approached in two stages. The first concentrated 
on the March-through-August period. The analysis began with the 
reservoirs at their actual March 1st elevations. Typically in analyses 
of this sort, important variables like hydro conditions, temperatures 
and, therefore, electricity loads, and forced outages of power plants 
are treated probabilistically. Several hundred simulations or ``games'' 
are run where the water conditions, temperatures and forced outages are 
sampled according to their probability of occurrence. By analyzing the 
results of these hundreds of games we can estimate the probabilities of 
load-resource imbalances and meeting reservoir elevation and river flow 
targets. However, because there are so few years in the 60-year record 
of hydro conditions with runoff volumes like the current forecast and 
only one with a lower runoff, we have chosen to do scenario analysis 
using 1944 and 1977 water conditions. The analysis is limited to 
monthly energy analysis due to difficulties in modeling sub-daily 
operations with this year's reservoir and water conditions. Average 
temperatures and expected operation of thermal units were used. 
4 The actual maintenance schedules of thermal generating 
units are now commercially sensitive information and not easily 
obtained. For this analysis, planned maintenance of thermal units was 
scheduled into May, June and early July as has historically been the 
case.
---------------------------------------------------------------------------
    \4\ The monthly output of thermal units was discounted by their 
forced outage rates.
---------------------------------------------------------------------------
    The first stage looked at various operating strategies for the 
spring and summer primarily involving emergency hydropower and 
reductions in spill. Purchases were not evaluated explicitly because of 
the uncertainty of the availability of purchases this spring and summer 
(California is experiencing rolling blackouts as this is being written, 
a time when peak loads in the state are approximately 60 percent of 
what can be expected this summer) and their expected extremely high 
cost. However, depending on availability, purchases could substitute 
for spill reduction or could be used to restore reservoir levels after 
emergency hydro operations. Council staff is attempting to get 
information regarding aggregate firm import commitments that Northwest 
utilities may have. The analysis will be updated if this information 
becomes available. The analysis focused on the level of potential 
curtailment, the effect on spring and summer flows, and the end-of-
August reservoir elevations.
Stage 2 -- September 2001 through February 2002
    The second stage of the analysis focused on the ability of the 
region to meet loads through the ensuing fall and winter for different 
reservoir elevations at the beginning of September. For this part of 
the analysis, a set of hydro conditions corresponding to the lower two 
thirds of the water years (runoff volumes less than 114 MAF) were used. 
This is because there appears to be a correlation, albeit very weak, 
between the January-through-July streamflow volumes and the volumes in 
the ensuing August-through-December period. This correlation is shown 
on Figure 2.
[GRAPHIC] [TIFF OMITTED] T2516.003


    The model was run in its full stochastic mode, i.e., multiple games 
with water conditions, temperatures and, therefore, loads, and forced 
outages on thermal units determined randomly. In addition, a limited 
amount of imports was assumed to be available during off-peak periods.
                                results
Stage 1 -- March through August 2001
    Operation of the system for the March-through-August period was 
analyzed for several different scenarios for 1944 and 1977 water 
conditions. For each year, a ``Base Case'' was run that corresponds to 
operation of the system according to the BiOp. In addition, a ``Maximum 
Emergency Hydro'' case was run that maintains spill and drafts 
reservoirs as necessary to meet load, using up to 10,000 megawatt-
months of emergency hydro. Finally, three different spill reduction 
cases were run with a limited amount of emergency hydro (up to 1,000 
megawatt-months) used as necessary to meet load while at the same time 
maintaining end-of-August reservoir contents very close to BiOp 
elevations (within 1 or 2 percent).
    The spill reduction cases were:
     LSpill reduction 4--No spill at Federal projects;
     LTargeted spill--Morning and evening spill at John Day and 
Bonneville, no spill at other projects, Federal or non-Federal;
     LSpill reduction 5--No spill at any projects.
    The amount of energy involved in spill is quite large. Figure 3 
shows the availability of spill energy across the spill season for the 
spill reduction 4 and 5 cases.
[GRAPHIC] [TIFF OMITTED] T2516.004

                             summer summary
    For each of these cases several measures were evaluated:
     LThe total curtailment across the period;
     LThe cost of imports IF the curtailment could be offset by 
purchases, assuming a $250/MW-hr price;
     LThe approximate amount of spill energy used;
     LThe August 31 system content below BiOp elevations; and
     LThe amount of ``retained'' energy. The retained energy is 
the amount of spill energy available over and above that needed to meet 
load and restore system contents to BiOp elevations at the end of 
August.
    This information is summarized in Table 1. Also shown is a result 
from the second stage of the analysis: the probability of unserved 
demand at some level across the 2001-2002 winter months. This will be 
discussed in a later section.
[GRAPHIC] [TIFF OMITTED] T2516.005

    Several things are readily apparent from Table 1. The first is that 
operating the system to the BiOp to spill and meet flow targets is not 
an option. To do so would leave very large unserved load (curtailments) 
with either 1944 or 1977 water. If it were possible to purchase 
imported energy to meet those deficits, the cost could easily exceed $1 
billion, and it is not at all clear that purchases of this magnitude 
would be available.
    A second observation is that by using maximum emergency hydro--
drafting the reservoirs deeper--while maintaining spill could, with 
1944 water, avoid summer curtailments. With 1977 water, there would be 
some remaining curtailment, but of a magnitude that might be managed 
with additional load reduction and some purchases. However, in this 
instance the curtailment occurs in August when imports might be 
especially hard to acquire. In both cases, the August 31st reservoir 
content is well below BiOp elevations. This has implications for 
reliability later in the fall and winter, as indicated by the higher 
loss-of-load-probability in the last column of Table 1. This question 
is examined in Stage 2 of the analysis.
    The final observation is that with the combination of significant 
reductions in spill and some use of emergency hydro, it is possible to 
effectively eliminate curtailment in the 1944 water case and return 
reservoirs to their BiOp elevations by the end of August. In addition, 
there is an appreciable amount of retained energy in the system. For 
1977 water, the combination of significantly reduced spill and limited 
use of emergency hydro does not eliminate curtailments but reduces them 
to much more manageable levels while returning reservoirs to BiOp 
elevations. The curtailments largely occur in May and June, coinciding 
with the period during which most planned maintenance on thermal units 
is assumed to be occurring. If water conditions this year approach 1977 
conditions, the region could need to look to further steps to avoid 
curtailment. As in the 1944 water case, there is some energy retained 
in the system, although much less. We have looked at additional 
scenarios that do not reduce spill quite as much and compensate by 
using additional emergency hydro. However, unless we are willing to 
accept August 31 reservoir contents that are well below BiOp, the 
amount of reduction in spill has to be significant.
    This retained energy could be used to restore some spill, fill 
reservoirs somewhat higher at the end of the summer or to generate 
additional power. 5 If this retained energy were used to 
generate electricity it could generate additional revenue to offset 
high power prices. Alternatively, it might be exchanged with California 
on an X Megawatt-hours-for-one basis, with much of the returned energy 
coming the following winter when it could help address potential power 
supply problems. In either event, some of the benefit could be set 
aside to fund fish mitigation measures that might offset some or all of 
the effects of a one-time reduction in spill.
---------------------------------------------------------------------------
    \5\ The degree to which this water can be used to increase 
reservoir levels is limited because of limited inflows to reservoirs 
high in the system late in the summer.
---------------------------------------------------------------------------
    It should also be recognized that introducing the amount of 
additional energy associated with spill into the market will have the 
effect of reducing market prices. To analyze the potential effect, two 
short-term price studies were done using the AURORA model. One run used 
the hydro generation associated with full spill, the other used the 
hydro generation associated with no spill, both for 1944 water. The 
average market price differential between the two runs was $56/
megawatt-hour. This would reduce the revenues that Bonneville and other 
Northwest utilities might receive from reducing spill and selling 
additional energy. But purchasers of power on markets throughout the 
West would benefit from lower prices. 6 If we assume that 10 
percent of the electricity consumed during the April-through-August 
period is secured through short-term markets as opposed to long-term 
contracts, the value of this reduction in price would be $1.2 billion.
---------------------------------------------------------------------------
    \6\ Those like Bonneville who could have spill energy to sell would 
still have increased revenues, just not as great as current market 
prices might suggest.
---------------------------------------------------------------------------
                        spring and summer flows
    Also of concern is the effect of the operational strategies on 
spring and summer flows. Figures 4 and 5 show the percent change in 
flows from the BiOp operation for spring and summer at McNary and Lower 
Granite for 1944 and 1977 water respectively.
[GRAPHIC] [TIFF OMITTED] T2516.006


    Spring flows are generally increased from BiOp levels for the 
operating strategies modeled because each involves some emergency 
drafting. Summer is a different story. The system is trying to refill 
reservoirs that provided emergency energy earlier in the summer, thus 
reducing summer flows. This is particularly so for the ``maximum 
emergency hydro'' example. Generally, summer flows in the Snake are 
most at risk. In the reduced spill cases, some of the summer flows 
could be restored by generating with the retained spill energy or by 
spilling.
Stage 2 -- September 2001 through February 2002
    This part of the analysis was focused on reliability concerns 
through the fall and coming winter. Of particular interest was to 
assess the effect of lower end-of-August reservoir elevations on the 
ability to meet load. Three cases were examined:
     LReservoirs at BiOp elevations at the end of August;
     LReservoirs starting at the elevations corresponding to 
the use of emergency hydro only for 1944 water conditions (79 percent 
of BiOp elevation); and,
     LReservoirs starting at the elevations corresponding to 
the use of emergency hydro only for 1977 water conditions (72 percent 
of BiOp elevation).
    It should be pointed out that the last two cases are essentially 
surrogates for starting the reservoirs at elevations significantly 
below BiOp levels. For example, additional drafting for higher summer 
flows could have the same effect.
    As noted earlier, this part of the analysis was carried out 
probabilistically using random draws of water conditions, forced 
outages of thermal units and temperatures which, in turn, are used to 
determine loads. A reduced set of water years was used to reflect the 
fact that there appears to be a weak correlation between the 
unregulated volumes in the fall and winter and the unregulated volumes 
in the preceding eight months. For this analysis, it was assumed that a 
very limited amount of imports was available beginning in October, 
primarily during off-peak periods. This reflects the experience of this 
past winter. We would hope that with additional generation scheduled to 
come online in the Southwest this summer, more imports might be 
available at an affordable price. Faced with curtailment, the 
simulation uses emergency hydro up to a total of 10,000 megawatt-
months, limited by physical and operational constraints. In the absence 
of imports, the emergency hydro is restored to the extent possible by 
running in-region thermal units harder and purchasing imports.
                 winter 2001-2002 power system adequacy
    The first question was the probability of curtailment occuring at 
some time during the winter season, the months of December 2001 and 
January and February 2002. This is shown in Figure 6.
[GRAPHIC] [TIFF OMITTED] T2516.007


    When starting at BiOp reservoir elevations, in 20 percent of the 
300 winters modeled, there was some level of unserved load, with the 
maxiumum seasonal unserved load being over 3,000 Megawatt-months. This 
is not indicative of a reliable system and is consistent with the 
results of the Council's March 2000 study, which found a 24 percent 
probability of unserved load in 2003. In this year's analysis we have 
lower loads and some additional resources, both of which should improve 
reliability. However, this is conteracted by also having reduced import 
capability and lower average hydro capability because we are drawing 
from the lower two-thirds of the set of water years.
    The amount of power needed to bring the loss of load probability 
down to 5 percent was found to be approximately 2,500 megawatts. This 
could achieved through of some combination of additional generation, 
imports, conservation and/or voluntary or purchased load reduction.
    For the lower reservoir starting elevations, 39 to 45 percent of 
the winters experience some unserved load with average unserved loads 
of 800-900 Megawatt-Months in those winters and maximums reaching over 
5000 Megawatt-months.
    January is the worst of the winter months. To get a better sense of 
the magnitude of shortfalls that could be experienced, we looked at the 
average daily unserved load for that month. This is shown in Figure 7.
[GRAPHIC] [TIFF OMITTED] T2516.008


    For the case with reservoirs starting at BiOp elevations, 
approximately 7 percent of the 9,300 January days simulated (300 games 
times 31 days), had some level of unserved load, with the maximum daily 
average reaching about 8,000 Megawatt-days. Starting the reservoirs at 
the lower elevations increases the percentage of days to 13 and 15 
percent with the maximums reaching 10,000 to 11,000 Megawatts-days.
                    spring 2002 reservoir elevations
    The other effect of lower reservoir starting elevations is on April 
2002 reservoir elevations. These elevations are established to ensure 
being able to provide spring flows for downstream salmon and steelhead 
migrants. In the BiOp, approximately 12 MAF of water by April 15th is 
targeted for providing spring flows. On average, starting reservoirs in 
the fall at the lower elevations results in approximately 2 MAF less 
water in storage by April than when the reservoirs begin the fall at 
BiOp elevations. In the worst case with the lower starting reservoir 
elevations, April storage volumes are over 6 MAF lower. The duration 
curves of reservoir content (shown as difference from BiOp contents) is 
shown on Figure 8 for the case where reservoirs are started in 
September at their low 1977 water elevations.
[GRAPHIC] [TIFF OMITTED] T2516.009

                              conclusions
    Several conclusions can be drawn from the results of this 
analysis.:
     LOperating the hydropower system to the BiOp targets for 
spill and flows would lead to either significant curtailments and/or 
very large purchased power costs this summer.
     LOperations this spring and summer that leave reservoirs 
at the end of August at elevations significantly below BiOp elevations 
expose the region to significantly increased probability of power 
supply adequacy problems next winter. In addition, such operations 
would result in a significant probability that April 2002 reservoir 
elevations will be well below BiOp elevations, thereby reducing spring 
flows for salmon.
     LThe only alternatives we see that both avoid curtailments 
and/or large purchased power costs AND return reservoirs to BiOp 
elevations by the end of August involve substantial reduction in spill 
this spring and summer and limited drafting of reservoirs beyond BiOp 
elevations. Reductions in spill can be restored by purchases, 
reductions in load and additional generation. Alternatives that 
significantly reduce spill have the additional advantage of reducing 
market prices this summer and bringing additional income into the 
region, either in the form of dollars or returned energy next fall and 
winter.
     LDecisions need to be made now, but they can be revisited 
periodically as the spring and summer unfold. The spill season begins 
in April. By that time, we will have relatively little additional 
information about how the rest of the spring and summer are going to 
unfold. From the power standpoint, a prudent approach would be to 
significantly reduce spring spill. If conditions improve through the 
spring, it may be possible to restore spill. If, instead, we were to 
opt to maintain spill or reduce it only slightly in the spring and 
conditions do not improve, that spill energy would be lost to the 
system and would necessitate more stringent and potentially very costly 
measures later on.
     LThe potential for power supply problems this summer and 
next winter and the probable high cost of power call for continued and 
increased attention to implementing load reduction, conservation and 
new generation.
                              attachment c
                             march 30, 2001
                                 draft
                              issue paper:
Analysis of 2001 Federal Columbia River Power System Operations on Fish 
                                Survival
                              introduction
    The Columbia River Basin is now facing a severe drought. The 
current forecasts predict that this will be at least the second worst 
water year in the 72-year historical record, and there is a possibility 
that this year may in fact set a new record for low flow conditions.
    The poor water conditions, a growing BPA financial problem, and 
looming energy concerns are causing the region to look for alternatives 
to meet anticipated energy needs. Changes to the operations of the 
Federal Columbia River Power System (FCRPS) will most likely be needed 
to optimize power production and help offset the growing Northwest and 
West Coast power crisis.
    Reductions in spill designated for juvenile fish passage have been 
considered as one way to help meet energy demand. While spill 
reductions may help ease the difficult power situation, it is unclear 
how these reductions may affect juvenile fish survival. To help answer 
this question, Council staff examined the possible relative biological 
effects of various spill and transportation alternatives on Columbia 
basin fish survivals. While there are many unlisted hatchery and 
naturally spawning populations in the Columbia Basin, the Council 
analysis focuses solely on ESA-listed stocks.
    The 2000 Federal Columbia River Power System Biological Opinion 
(2000 Biological Opinion) uses a combination of strategies to help 
juvenile salmon and steelhead migrating out to the ocean pass through 
or around each hydroelectric dam. There are four possible routes: (1) 
through a juvenile bypass system, which intercepts fish with screens 
and routes them through a specially designed passage in the dam; (2) by 
opening the spill gates, which routes the fish over the spillway but 
decreases the water available for generating electric power; (3) 
through the turbines, which is not a preferred route due to reduced 
survival; and (4) by intercepting fish and transporting them in barges 
to a release point below the hydroelectric system.
    This Issue Paper focuses on three questions:
     LGiven full implementation the 2000 Biological Opinion for 
2001 water conditions, how will additional spill reductions at FCRPS 
dams change the total system survival of migrating ESA-listed 
juveniles?
     LHow will juvenile transportation at McNary Dam affect the 
survival of the Upper Columbia ESA-listed stocks?
     LHow will adult returns be affected by changes in spill 
and fish transportation operations?
    The analysis that follows is a preliminary staff analysis of these 
questions. The Council seeks comment on this analysis and will consider 
these issues further at its April 24, 25, and 26 meeting in Spokane, 
Washington. Those wishing to comment may submit written comments to 
Mark Walker, Director, Public Affairs Division, Northwest Power 
Planning Council, 851 SW Sixth Avenue, Suite 1100, Portland, OR 97204 
or [email protected] through April 20, 2001.
                           summary of results
    In analysis included in the 2000 Biological Opinion, the National 
Marine Fisheries Service (NMFS) used its spreadsheet model to project 
the survival of salmon passing through the hydrosystem. This model, 
known as SIMPAS, is used in this analysis to estimate the relative 
effects of various spill and transportation alternatives on juvenile 
salmon survival.
    The following are the results of this analysis.
    When compared to full implementation of the 2000 Biological Opinion 
under 2001 water conditions, spill reductions at FCRPS dams:
     LHave little to no effect on the total system survival of 
Snake River spring/summer chinook, Snake River steelhead or Snake River 
fall chinook.
     LDecrease total system survival for Upper Columbia spring 
chinook, Upper Columbia steelhead and Middle Columbia steelhead to the 
highest extent compared to other ESU's. These stocks are not 
transported and pass through several dams.
     LHave less effect on the total system survival for Lower 
Columbia chinook and Lower Columbia steelhead because 1) most of the 
these listed populations are geographically situated below Bonneville 
Dam and 2) the Lower Columbia chinook and steelhead only pass one FCRPS 
dam (Bonneville Dam).
    When compared to full implementation of the 2000 Biological Opinion 
under 2001 water conditions, full transportation at McNary Dam with no 
spill at FCRPS dams:
     LIncreases Upper Columbia spring chinook total system 
survival under all alternatives.
     LIncreases Upper Columbia steelhead total system survival 
under most conditions.
    For the alternatives examined, estimated adult losses for listed 
fish range from:
     LZero adults lost for Snake River steelhead (0.0 percent 
of total return) to
     L53 to 2,535 Upper Columbia spring chinook adults lost 
with no transport at McNary Dam (12.7 percent of total return).
                                caveats
    Staff believes that this analysis focuses on the attributes most 
important to this year's decision. While not all the relevant factors 
have been measured or identified, this analysis focuses on the relative 
effect of various alternatives. Parameters that are assumed to be the 
same among various alternatives effectively ``cancel out'' in a 
relative analysis. Nevertheless, the reader should be aware that:
    (1) This analysis focuses primarily on juvenile fish survival 
through the dams. It does not include any consideration of the 
potential effect of migration delays resulting from fish holding at 
dams before entering the juvenile bypass system. While this behavior 
has been observed in some circumstances, the Council is not aware of 
any empirical measurements demonstrating the effect this behavior has 
on the survival of juvenile fish to maturity.
    (2) This analysis also does not include any consideration of the 
benefit to adult fish migration resulting from reduced spill. While it 
has been observed that the number of adult fish entering the ladders at 
a dam often increases when spill is terminated, the Council is not 
aware of any empirical measurements demonstrating the effect of this 
behavior on the survival or fitness of adult fish migrating upriver.
    (3) This analysis does not consider the effects of reducing spill 
at the non-Federal dams located in the mid-Columbia region. The SIMPAS 
model does not include information on the survival of juvenile fish 
through those dams.
    (4) The survival estimates shown in this issue paper are survivals 
through the hydrosystem. These estimates include all mortalities that 
occur to juvenile fish during this phase of their migration, even 
mortalities that would occur naturally in the absence of the 
hydrosystem. No attempt has been made in these estimates to 
differentiate mortalities that result from the hydrosystem from 
mortalities that result from other sources.
                       summary of recommendations
    This issue paper does not attempt to weigh the value of additional 
electrical power generation versus the value of increasing the survival 
of juvenile fish through spill. However, in the event that it is 
determined that spill should be decreased, the staff offers the 
following recommendations for the 2001 juvenile migration season:
     LStop spill at Ice Harbor and McNary dams.
     LMaximize transportation at all FCRPS collector dams, 
including McNary.
     LUtilize surface sluiceway spill at dams to pass juveniles 
wherever possible and beneficial.
     LIf water is available for spill, focus spill to optimize 
benefits to Middle Columbia steelhead and to a lesser extent remaining 
inriver Upper Columbia spring chinook and steelhead.
     LAlthough major changes in the fish passage structures at 
the dams are unlikely to be accomplished this year, the U.S. Army Corps 
of Engineers should immediately accelerate development of surface-
oriented bypass systems which, in effect, allow juvenile fish to have 
the advantages of spill without the large impact on power generation.
                    simulated passage model (simpas)
    Council staff used the SIMPAS model to analyze the relative effects 
of various spill and transportation alternatives on fish survival in 
the Snake River and upper Columbia River basins. 7 SIMPAS is 
a spreadsheet model developed by the NMFS Hydro Program staff that uses 
empirical fish passage data to estimate relative juvenile survival 
through the hydrosystem for various alternatives. The model was used by 
the Federal Biological Effects Team to help develop the 2000 Biological 
Opinion and is currently used to analyze the relative consequences of 
hydropower operational changes on the survival of listed stocks.
---------------------------------------------------------------------------
    \7\ A description of SIMPAS and model documentation can be found in 
Appendix D of the 2000 Biological Opinion.
---------------------------------------------------------------------------
    Question 1. Given full implementation the 2000 Biological Opinion 
for 2001 water conditions, how will additional spill reductions at 
FCRPS dams change the total system survival of migrating ESA-listed 
juveniles?
    To address Question 1 the staff analyzed four different spill 
alternatives:
    Base Case -- Full implementation of the 2000 Biological Opinion at 
all Federal dams based on projected 2001 water conditions. This 
includes:
     LNo spill at Lower Granite, Little Goose and Lower 
Monumental dams
     LFull transport of juveniles at Snake River collector dams
     LNo summer spill at McNary Dam with full transportation
    Alternative 1 -- Base Case plus:
     LNo spill at Ice Harbor Dam
     LNo spill at McNary Dam
    Alternative 2 -- Alternative 1 plus:
     L24 hour spill reduction to 20percent of total flow at The 
Dalles Dam.
     L24 hour spill reduction at Bonneville Dam to 50 kcfs.
    No Spill Alternative
     LNo spill at FPRPS dams
    Average of Low Flows -- Projected 2001 spring and summer river 
flows were estimated using a weighted average of the 8 lowest water 
years (1929, 1930, 1931, 1937, 1941, 1944, 1973 and 1977) of a 61-year 
historical record. In the event that 2001 is even lower than these 
averages, it is possible that inriver survival may decline further and 
thus the relative benefit of transporting fish, where possible, may 
increase. Table 1 shows average river flows used in the analysis.
[GRAPHIC] [TIFF OMITTED] T2516.010


    Delayed mortality of transported juveniles- The 2000 Biological 
Opinion estimates differential post-Bonneville Dam mortality (D value) 
of transported fish. The D value is defined as the ratio of the post-
Bonneville survival of transported fish to the post-Bonneville survival 
of fish that remain inriver. If the D value is greater than 1.0 then 
transported fish have a post-Bonneville survival rate that is higher 
than inriver fish. If the D value is less than 1.0, then transported 
fish have a post-Bonneville survival rate that is lower than inriver 
fish. A D value of less than 1.0 may be caused by a variety of causes 
including the delayed effects of the transportation and collection 
process.
    To more accurately reflect the total system survival and the 
delayed mortality that may occur after transport, the Council staff 
adjusted transported fish survivals using the D values contained in the 
2000 Biological Opinion. The D values used are summarized in Table 2.
[GRAPHIC] [TIFF OMITTED] T2516.011

                                results
    Using SIMPAS, the Council staff estimated total system survival to 
below Bonneville Dam for each ESA stock using the various alternatives. 
Staff chose to use total system survival over inriver survival because 
it better reflects the effects of spill reductions given the number of 
stocks being transported. Total system survival to below Bonneville Dam 
is calculated by summing the percent survival of transported fish with 
the percent survival of fish remaining inriver. In the spill analysis, 
only Snake River fish are transported. Where fish are not transported, 
inriver survival equals total system survival.
    Table 3 summarizes total system survival to below Bonneville Dam 
for the various stocks and alternatives. Starting with 1,000 juveniles, 
the table shows how many fish survive to below Bonneville Dam. Total 
system survivals for Snake River stocks represent survival from Lower 
Granite pool to below Bonneville Dam. System survival for Upper 
Columbia stocks represent survivals from McNary pool to below 
Bonneville Dam. Middle Columbia survivals represent survival from John 
Day pool to below Bonneville. Finally, Lower Columbia survivals 
indicate survival from Bonneville pool to below Bonneville Dam.
[GRAPHIC] [TIFF OMITTED] T2516.012


    To understand and encompass the range of effects that reducing 
spill has on total system survival, the Council staff compared the Base 
Case to the No Spill alternative. Table 4 shows the change in number of 
juveniles surviving to below Bonneville Dam.
[GRAPHIC] [TIFF OMITTED] T2516.013

                                results
     LStopping spill at Ice Harbor and McNary dams has little 
effect on the total system survival of any listed stock. The only 
stocks that are slightly affected are the Upper Columbia spring chinook 
and steelhead, which have a 0.4 percent decrease in survival.
     LBecause most Snake River listed stocks are transported, 
decreasing or eliminating spill at FCRPS dams has little to no effect 
on Snake River stocks. Total system survival of Snake River spring/
summer chinook decreases by 0.2 percent, Snake River fall chinook 
decrease by 1.0 percent, and there is no decrease in Snake River 
steelhead.
     LLower Columbia chinook and steelhead survivals are less 
affected by eliminating spill at all dams (decreases of 2.8 percent for 
chinook and 2.8 percent for steelhead) because these stocks only pass 
one hydro project, Bonneville Dam. 8
---------------------------------------------------------------------------
    \8\ It should also be noted that because most of the Lower Columbia 
ESUs are geographically located below Bonneville Dam, fewer Lower 
Columbia listed fish are affected by dam passage. Furthermore, NMFS has 
not determined which, if any, Lower Columbia chinook or steelhead 
stocks that are found above Bonneville Dam qualify as ESA-listed 
populations. The 2000 Biological Opinion states that causes for the 
decline of these two ESUs are primarily related to habitat and hatchery 
impacts.
---------------------------------------------------------------------------
     LElimination of spill at all dams has the greatest impact 
on the survivals of Upper Columbia spring chinook and steelhead 
(decreases of 11.3 percent and 10.5 percent respectively) and Middle 
Columbia steelhead (a decrease of 10.3 percent). These stocks are not 
transported and pass through several dams.
    Question 2. How will juvenile transportation at McNary Dam affect 
the survival of the Upper Columbia ESA-listed stocks?
    Upper Columbia spring chinook and steelhead survivals are affected 
the most by eliminating spill at the lower river FCRPS dams. Because 
McNary Dam has fish transport facilities, a possible way to increase 
Upper Columbia fish survivals is to collect juveniles at McNary and 
transport them to below Bonneville Dam. To help determine the 
usefulness of this approach, staff looked at total system survival from 
McNary pool to below Bonneville Dam for the base case 2000 Biological 
Opinion alternative and the no spill alternative with full transport at 
McNary Dam. High and low transportation effects (D values) were used 
from Table 2 to estimate total system survival. Table 5 summarizes the 
findings.
[GRAPHIC] [TIFF OMITTED] T2516.014

                                results
     LUnder full transportation at McNary Dam, total system 
survival for Upper Columbia spring chinook increases using both low and 
high D values. Increases in total system survival range from 10.4 
percent to 67.0 percent.
     LTransportation at McNary appears to benefit Upper 
Columbia steelhead under most but not all conditions. Transportation at 
McNary does not benefit steelhead for lower D values. Total system 
survival changes for Upper Columbia steelhead range from ``13.7 percent 
to 58.8 percent.
    Question 3. How will adult returns be affected by changes in spill 
and fish transportation operations?
    Council staff estimated the number of adults lost or gained from 
the changes in operations by listed stock. The alternatives studied 
assumed no transportation and full transportation at McNary Dam under 
spill and no spill conditions. High and low D values from Table 2 were 
used for transportation benefits. The number of juveniles arriving at 
the various dams was obtained from the 2001 NMFS juvenile outmigration 
memo. 9 A summary of the number of listed juveniles arriving 
at various locations is shown in Table 6.

    \9\ Memo from Michael Schiewe to Donald Knowles, ``Estimation of 
Percentages for Listed Pacific Salmon and Steelhead Smolts Arriving at 
Various Locations in the Columbia River Basin in 2001.'' March 22, 
2001.
[GRAPHIC] [TIFF OMITTED] T2516.015


    The adult estimates were calculated by multiplying the number of 
juveniles lost or gained by an estimated smolt to adult ratio (SAR) for 
each stock. A general range of SARs was estimated by taking upriver 
SARs contained in the April 2000 NMFS white paper on transportation 
10 and back calculating adult survival to below Bonneville 
Dam. Tables 7 through 9 include the range of SARs used and summarize 
the results.
---------------------------------------------------------------------------
    \10\ NMFS. ``Summary of Research related to Transportation of 
Juvenile Anadromous Salmonids Around Snake and Columbia River Dams.'' 
April 2000.
[GRAPHIC] [TIFF OMITTED] T2516.016

[GRAPHIC] [TIFF OMITTED] T2516.017

[GRAPHIC] [TIFF OMITTED] T2516.018

                                results
    Under the given assumptions, when comparing the surviving number of 
adults under base case 2000 Biological Opinion operations to the no 
spill alternative:
     LFor all transportation and spill scenarios, very few 
adults are lost for Snake River stocks. A range of only two to 22 
spring chinook, zero steelhead and five to 47 fall chinook adults are 
estimated to be lost. The number of adults lost are 0.2 percent, 0.0 
percent and 0.9 percent respectively of the total number of surviving 
adults.
     LFor all transportation and spill scenarios, Middle 
Columbia steelhead may lose as many as 705 adults or 11.5 percent the 
total number of surviving adults.
     LUpper Columbia spring chinook with no transportation at 
McNary lose as many as 2,535 adults or 12.7 percent of the total 
returning adults. With transportation at McNary, there is actually an 
increase of up to 1,722 (6.9 percent, low D value) to 14,394 (38.4 
percent, high D value) spring chinook adults.
     LUpper Columbia steelhead with no transportation at McNary 
lose up to 1,179 adults or 11.8 percent of the total number of returns. 
With transportation at McNary, Upper Columbia steelhead lose up to 358 
adults (3.7 percent) with low D values and gain 6,610 adults (37.5 
percent) with high D values.
                            recommendations
    Based on the results of the analysis the Staff makes the following 
recommendations:
     LDo not spill at Lower Granite, Little Goose, Lower 
Monumental, Ice Harbor or McNary dams. Spill at Lower Granite, Little 
Goose and Lower Monumental is eliminated under full implementation of 
the 2000 Biological Opinion. Spill at Ice Harbor Dam is of little value 
because most Snake River juveniles have been transported so few fish 
remain in the river. McNary spill is of lesser importance because its 
juvenile bypass system is fairly effective in routing juveniles away 
from turbines.
     LMaximize transportation at all FCRPS collector dams, 
including McNary. Maximum transport of juveniles at the Lower Snake 
dams is already called for under full implementation of the 2000 
Biological Opinion. Transporting juveniles at McNary makes sense 
because it increases Upper Columbia spring chinook survival under all 
conditions and Upper Columbia steelhead survival under most conditions. 
McNary transport also makes sense because of the potential in 2001 for 
poorer inriver migrating conditions. If transportation takes place it 
should be fully evaluated for its benefits. The information gained will 
be useful for guidance in future years, particularly under poor water 
conditions.
     LUtilize surface spill at dams to pass juveniles wherever 
possible and when benefits are likely. In general, surface spill at 
dams is effective in passing juveniles with much less water than via 
the spillway. For example, studies at The Dalles sluiceway (which uses 
low flow surface spill) indicate that approximately 43 percent of 
inriver fish pass via the sluiceway when there is no spillway spill. 
11
---------------------------------------------------------------------------
    \11\ Rock Peters, Corps of Engineers, Personal Communication.
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     LIf water is available for additional spill, focus spill 
to optimize benefits to Middle Columbia steelhead and to a lesser 
extent remaining inriver Upper Columbia spring chinook and steelhead. 
If spill takes place at all, it should be employed at Bonneville, The 
Dalles and John Day, to benefit the Middle Columbia steelhead. For the 
most part, this listed stock will not be transported and must pass the 
lower three mainstem dams. Spill could take place during dusk and in 
the early morning to optimize fish passage.
     LAlthough major changes in the fish passage structures at 
the dams are unlikely to be accomplished this year, the Corps should 
immediately accelerate development of surface-oriented bypass systems 
which, in effect, allow juvenile fish to have the advantages of spill 
without the large impact on power generation. It is evident that the 
current method of producing spill by opening a gate 40-50 feet below 
the surface of the reservoir is a relatively inefficient way to provide 
passage to juvenile salmon and steelhead, which are near the surface.
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    Mr. Calvert. I'll ask Dr. Anderson a question, because 
maybe this has all been related to the entire panel here.
    Obviously, it's a concern that we all share, that--that the 
salmon population has increased and that we don't consciously 
do anything that would irreparably harm that resource.
    However, your testimony is interesting in that you believe 
that we can possibly have additional electricity this summer 
without irreparably harming the fish population by utilizing 
the technologies that have been operating here for the last 
number of years, large technology.
    Is that--is that correct, when I say that?
    Mr. Anderson. Particularly for the spring runs, the ones 
that, unfortunately, have come up through the river already--
have gone down through the river--barging work is tremendous. 
We have good data for that, for the summer run. The fall 
chinook come through later on. We really don't have good 
information on how well that's going to work. Unfortunately, as 
a scientist, I can give you a mixed answer. We have a tendency 
to do that.
    With barging, we have the capacity to improve it for some 
of the runs. So I think that it is something that needs to be 
considered. We need to continue to look at the data, that yes, 
we have more flexibility.
    Mr. Calvert. I'm a believer in science rather than--you 
know, outcome-produced science rather than real science to make 
sure that we are doing the right thing.
    Ms. Patton, I congratulate you on the work on wind and 
solar. I used to be Chairman of the Energy Environment 
Committee. We've done a lot on renewable energy. I will say 
that--you know, I know that people like to make fun of 
California right now, but we have a significant amount of 
renewable energy in California. People will be surprised to 
know that the largest amount of wind is in California. It 
happens to be in my home county, Riverside County. The largest 
utilization of solar in the United States is in California. The 
largest utilization of geothermal in the United States is in 
California. But obviously, that's--that's not enough to make up 
for the shortfall that we're experiencing.
    But what's important in the interrelationship that Dr. 
Anderson is describing--even with the additional 400 megawatts 
we have on-line, that only makes up about half of the loss--
from the biological opinions, as I understand it--in the 
shortfall of water.
    And in fact, it's not assisting the salmon population. 
That--that has a direct effect on Mr. Lepp, because if, in 
fact, we're spilling water for no good purpose--in effect to 
increase salmon population--.
    Your company--and I don't know how you'll get through this 
summer--I hope you do--you know, I--we need a strong steel 
industry in this country, and your increased power rates--$6 
million, I think you mentioned--.
    Mr. Lepp. I said it was just the last increment. It's 
already gone up over 12 million.
    Mr. Calvert. Obviously, you can't keep your doors open with 
that type of situation.
    So it's important that we get the science together to--to 
make sure this, in fact, is--is the case and we can continue to 
maintain fish population--and actually increase fish 
population, as we experienced this year. And let's not do 
something that has this--unintended consequences as losing an 
industry such as yours. And obviously, that is something we 
certainly don't want to do.
    Yes, Ms. Patton.
    Ms. Patton. I just wanted to respond briefly, that right 
now, the--there is no spill for salmon, and--.
    Mr. Calvert. Has there been some spill--.
    Mr. Smith. Just this week.
    Ms. Patton. Just this week. There have been some 
arrangements for a very small amount of smolt, but there is no 
spill for salmon.
    I would also mention--and in another capacity, I'm the Vice 
President of the Board of Save our World Salmon--that it's--the 
peer-reviewed science coming out of the Army Corps of 
Engineers' past study showed that, in fact, the--the--the 
barging was not the best way to save salmon, quite clearly, and 
that we will need a more natural river in order to make the 
salmon come back.
    Mr. Calvert. Obviously, there is a disagreement with that.
    Ms. Patton. There is. I'm not a scientist, so I can't 
review that credential. I just want to refer you to the Army 
Corps of Engineers' science, the--the past analysis.
    Mr. Calvert. I guess in conclusion--and my time has come 
up--is that we do have more fish this year. That's the happy 
news.
    Ms. Patton. And there was more spilled when those fish went 
to sea. It wasn't just ocean conditions.
    Mr. Calvert. More fish is good, then.
    So that's--I'll give it to Mr. Smith.
    Mr. Smith. Thanks.
    I think I just have two questions, one for Ms. Patton and 
one for Mr. Walton.
    On the--I'm very encouraged by your remarks on renewables 
and focusing on engineer efficiency, not just, you know, doing 
less with less--I mean doing more with less--and the 
opportunities that are out there. And the more I read about it, 
it's really quite exciting. The technology, I mean, not--
obviously, this isn't my field of expertise, so I'm sure that 
there is more than I know about.
    But just from what I know about, from biomass fuel cell and 
a variety of energy efficiency plans, there is a massive amount 
of things that we can do.
    And the primary reason why we haven't done them to the 
degree that we have is because--well, fossil fuels are cheaper, 
if you look at it from just the standpoint of buying it; that--
they used to be cheaper. They, in some cases, still are.
    But I think the issue is really sort of getting us to look 
at the full cost of a fossil-fuel based energy system.
    Now, if you look at it, it's simply what you're paying at 
the pump or what you're paying on your electricity bill. You're 
not looking at the impacts on the environment and the full 
impacts that--not to mention the fact that we are dependent on 
fossil fuels. We will be dependent on foreign sources. That's 
where they are. Certainly, that's where oil is, at any rate.
    So shifting to renewables and shifting to these alternative 
sources is absolutely critical. But a lot of people will look 
at it and say, ``Well, yeah. Yeah. We can do a little bit here 
and a little bit there, but it's never really going to amount 
to much.''.
    I wonder if you can just comment briefly on it. If we made 
the investment in REE, in tax credits, in setting standards--
like cafe standards or standards for air conditioners--if we 
really committed ourselves to it, what--how dramatic a shift 
can we have in what we use for energy?
    Ms. Patton. I think there is no question that we could meet 
all of our electricity demand with clean renewables and energy 
efficiency. 133,000 average megawatts of wind supply is enough 
and is way more than we're using now and way more than our--and 
you would never want to--to do that, you know, monolithic. You 
would want to have a diverse supply, obviously.
    But there is no question that the kinds of things you're 
talking about--biomass fuel cells coming on board and the 
ability to have a more resilient system with that kind of 
distributed generation and clean renewables means that we have 
a way to have a clean, affordable energy future that's based on 
renewable energy.
    And as some people have said, with regard to the age of 
petroleum, the Stone Age didn't end because we ran out of 
rocks. And we're not--the Petroleum Age is not going to end 
because we ran out of oil. It's going to end because we have 
much better alternatives.
    Mr. Smith. Mr. Walton commented on the deregulation 
situation, and it's sort of popular, accepted fact right now 
that the energy problems that we have cannot really be the 
fault of deregulation because we haven't really deregulated. We 
just sort of regulated in a different way. And there is a 
certain amount of truth to that, particularly if you look at 
the retail side of it.
    Certainly in California, one of the reasons that the crisis 
got worse and became a credit crisis was because the prices 
were not passed on to the consumers for the longest time. 
Retail consumers had no incentive, really, to decrease their 
demand because that was still regulated.
    But on the wholesale side of the equation, isn't it 
fairly--wholesale and also in generation--isn't it somewhat 
fair to say that we have pretty much a deregulated power system 
in terms of--you know, no one's required to generate power, no 
one's required to build new generation, and they can charge 
pretty much whatever they want on the wholesale market? I could 
be wrong here. So I'm just asking.
    But isn't it fairly--you know, isn't it fair to say that we 
do have a deregulated wholesale system, and aren't we really 
sort of seeing the limitations of taking that approach?
    As someone who has to do with the public utilities and 
being very involved in it--and I'm just kind of curious about 
your comments on that.
    Mr. Walton. Steve Klein said earlier that Tacoma didn't 
take a stand either way, and neither did PPC. But I think 
you're right, that--particularly with the advent of the 
interdependent power producers, there was a large sector of 
unregulated generation in the system.
    As Congressman DeFazio has pointed out numerous times, 
however, one of the things that troubles me is the loss of the 
obligation to serve. And I think taken, for instance, as a West 
Coast system, it's--it's very troubling that nobody is in 
charge of West Coast reliability, no one entity. Not FERC, not 
the Secretary of Energy, not Bonneville has--has the job of 
trying to keep the lights on everywhere.
    The fact that some of the generators can sit back and wait 
for higher prices and don't have an obligation to serve puts 
the utilities in an extremely uncomfortable position.
    So I think that we may be part of the way toward 
deregulation, but that's why I refer to it as being kind of 
high-centered in the middle. You're not getting the, quote, 
``genius of the marketplace'' as advocates of deregulation 
would have us.''
    Mr. Smith. Well, why not--if I could explore that for just 
a moment--on the wholesale situation? I mean, if there is no 
obligation to serve, you can charge whatever you want to charge 
in the wholesale market, why aren't we getting the genius of 
the market? I mean, why isn't it working?
    Mr. Walton. Congressman, I'm far from an expert on this, 
and there are people in the room--and probably members of your 
Subcommittee--better to answer that question than I.
    But it certainly seems to me that the California experiment 
failed to connect the different parts of the market together. 
It was far from--from free.
    PGE--PG&E and Southern California Edison, as I understand 
it, were both forced to buy high and sell low. That's not a 
free market. I'm worried that Bonneville can be put in the same 
position if we don't watch out up here. And certainly, the 
transmission system, as you've also pointed out, isn't far 
enough along to allow the free exchange.
    Other speakers today have also pointed out that what used 
to work well on the West Coast--where California could send us 
power when we needed it and vice versa--has been severely 
curtailed due to the California experience and the drought.
    So there are a number of things that have combined, as Dr. 
Karier mention--the ``perfect storm'' analogy--has all come 
together at once.
    Mr. Smith. Thank you.
    Mr. Calvert. Mr. DeFazio?
    Mr. DeFazio. Thank you, Mr. Chairman.
    Ms. Patton, I didn't quite catch you. You said--you 
captured 1,500 megawatts of conservation back in the early 
'90's before Randy Harvey panicked and cut off all the funding 
of BPA.
    Now, was that 1,500 megawatts caused by coercion, or was 
it--what were the techniques used? Was it sky-high prices so 
people were desperate?
    Ms. Patton. No. It was, in fact, a combination, a small 
amount that came from good energy codes based on cost-
effective--.
    Mr. DeFazio. Mandates?
    Ms. Patton. 200 megawatts of that.
    Mr. DeFazio. That was a mandate.
    Ms. Patton. That was a mandate.
    But they were also set at what was (inaudible) at the 
market price. They were not set at the marginal cost of energy. 
Most of that 1,500 megawatts came in as a result of utilities 
joining with their customers. The customers paid some of the 
costs of a new efficiency improvement, and the utilities paid 
another part of it to make it cost-effective to everybody so 
that you had zero-interest loans for residential organizations, 
rebates on an efficient (inaudible) industrial motors, you 
know, the kinds of heating ventilation and air-conditioning 
design (inaudible) new commercial buildings so that we had a 
sharing of the cost. And it made it a good deal for everybody. 
But they were not coercions. They were voluntary. And they 
were-- and there was opposition.
    Mr. DeFazio. And it was at 2 to 2 and a half cents?
    Ms. Patton. That's right.
    Mr. DeFazio. Which, in today's market, would be--.
    Ms. Patton. A dream.
    Mr. DeFazio. --a dream?
    What's your price on the 2,400 average megawatts you 
predicted?
    Ms. Patton. I have to conduct a full analysis of that from 
the Power Council. What they looked at with their 1,500 
megawatts, which they did the full analysis on, was an average 
of 1.7 cents a kilowatt hour.
    Mr. DeFazio. Is that 1,500 available now?
    Ms. Patton. Yeah. I mean--.
    Mr. DeFazio. At 1.7 cents a kilowatt hour?
    Ms. Patton. Exactly. And the whole reason is lost by not 
investing over this last period of time--is enormous, 
especially given the current--Seattle City Light continued to 
invest in conservation and--as did PG&E Water and Electric.
    Mr. DeFazio. And wouldn't that be a bit of a problem with a 
tiered rate structure--to take those utilities which raised 
private funds in the private markets, bonded, and vested--if we 
were suddenly to say to them, ``Well, you, like everybody else, 
those who have done nothing''--which some utilities have done--
``will see a 25 percent penalty rate on your consumption''?
    Ms. Patton. Not support those tiered rates. Right.
    Mr. DeFazio. And so you're saying there's 2,400 megawatts 
out there? Could you give a price? I'd be interested in a 
price.
    Ms. Patton. Again, a specific one (inaudible) Seattle and 
looked at--any energy jurisdiction which is done with regard to 
conservation of energy stock saw another 250 average megawatts 
at 1.8 to 2.1 cents a kilowatt hour.
    So I think we're in the range of (inaudible) cents a 
kilowatt hour for even that 2,400--.
    Mr. DeFazio. Okay. And today, in the wholesale market and 
energy--I have trouble always coming up with my conversions--
but it's selling at about 50 cents a kilowatt hour?
    Ms. Patton. Yeah. You just--.
    Mr. DeFazio. Right. So you substitute 2 cents conservation 
for a 50-cent purchase? The conservation provides a permanent 
benefit? The 50-cent purchase keeps the lights on for the next 
millisecond?
    Ms. Patton. Yeah, as well as more homes and businesses.
    Mr. DeFazio. It doesn't sound like it's too tough of an 
equation.
    Mr. Lepp, this--the two-tiered rate--you gave a number, but 
I don't know how that related to a percentage increase. You 
said you had a 53 percent rate increase, and you said a tiered 
rate would cost you 6- to $10 million. What would it be? 
Another doubling of your rate or--.
    Mr. Lepp. It would be another 50 percent.
    Mr. DeFazio. Another 50 percent on your rate.
    And would it be similar for every other industrial 
customer, every other business except for DSI's--is that 
correct?--that tiered rate?
    Mr. Lepp. In Seattle City Light's area, it depends on the 
proportion of the power that they pull from Bonneville. And in 
the past--
    Mr. DeFazio. Right.
    But any BPA customer who is a business would see those 
sorts of rate increases under the tired rate?
    Mr. Lepp. Right.
    Mr. DeFazio. And then finally, to Mr. Walton.
    That was great testimony. A lot of witnesses comment on 
what people have said before. But you comment on what other 
witnesses said before you. It makes for a much more interesting 
sort of discussion.
    You were put to the--the question by Mr. Smith on the issue 
of deregulating one side and not the other.
    Are you familiar with Montana's situation? In Montana, they 
did deregulate both sides for business; isn't that correct?
    Mr. Walton. Yes.
    Mr. DeFazio. And as I understand it now, all of their heavy 
industry--or virtually all of their heavy industry--is closed 
or closing, and many of the small businesses are threatened 
with closure, and the State is desperately trying to find power 
because they deregulated both sides, unlike California.
    And so what happens in the case of Montana, as I understand 
it--and correct me if I'm wrong--is PP&L of Pennsylvania--
Pennsylvania Power and Light--bought all of the generation from 
Montana Power, and they are now able to get higher prices 
outside the state of Montana; so Montana, which had the sixth 
lowest rate in the United States of America and 150 percent 
surplus in terms of power generation, now has a point at which 
its businesses cannot afford to buy power and is saying that 
they're deficient in power because the power is being sold for 
a higher price elsewhere. Is that essentially an encapsulation 
of that situation?
    Mr. Walton. Mr. DeFazio, I believe it is, with the 
exception that the cooperatively owned utilities in Western 
Montana, the Bonneville customers--some of them had the extreme 
foresight to purchase presubscription contracts. So they're 
looking pretty good.
    I think your description of what happened to Montana Power 
was accurate, as I understand it. And I also followed, from a 
distance, the fact that the legislature had a special session. 
And the question for them was would they give the Public 
Services Commission the authority to oversee the sale, by 
Montana Power, of their assets.
    And it's my understanding that they didn't have much 
authority. So Montana Power essentially got to pick the 
purchaser. And so this thing has kind of snowballed. And I 
think that's turned into an example--another example of how not 
to proceed with energy costs.
    Mr. DeFazio. And that in the one area the people most 
frequently say is the outstanding success of deregulation--
Pennsylvania--are you familiar with the fact that, Pennsylvania 
has capped rates in a deregulated--so-called ``deregulated 
environment''--that less than 10 percent of the customers have 
chosen the thing that we were all told they wanted--which no 
one in California wanted either--which was customer choice--and 
that, in fact, of course, Pennsylvania is also blessed with the 
fact that the part of PJM which has mandatory scheduling 
authority as a regional transmission organization--and finally, 
of course, that their economy is depressed, so they have a 
little bit of a surplus of power right now?
    But everybody is kind of worried about what happens when 
the rate caps come off in 4 years. But right now it's a 
success. Deregulation of the rate caps is a success in 
Pennsylvania, sort of.
    Thank you very much.
    Mr. Calvert. Mr. Larsen?
    Mr. Larsen. Thank you, Mr. Chairman.
    Ms. Patton, I'm glad you're here today. (Inaudible) a 
reminder that the impacts that were seen from the energy crisis 
in the Northwest has a direct impact on consumers and 
homeowners and (inaudible) folks on your list, all the 
opportunity council members, Puget Sound Council of Senior 
Citizens, the Washington State Association of Community Action 
Agencies. These are groups that are serving low-income, 
moderate-income people throughout the Northwest.
    So I'm glad that you're here. And I wanted to give you a 
very brief opportunity--not to cover all the recommendations--
but--in the ``what Congress can do'' section--but do you have 
three or four that you think would have the best, most 
immediate impact on low-income, moderate-income individuals?
    Ms. Patton. Well, the first one is the continued 
Congressional support, Federal support for low-income 
organizations. That's incredibly important. We've been working 
on this in this region really hard, and I will have to commend 
Bonneville for the one thing that Bonneville continued to do 
when it was cutting its conservation (inaudible).
    One of the major things they continue to do is more 
slashing of conservation by 80 percent--was to fund low-income 
organizations. It's incredibly important for low-income 
households to have more efficient trailers and more efficient 
homes to live in--and so strong support for that, strong 
support also for energy assistance, because low-income 
households are being hit, of course, much harder by the entire 
rate even though utilities are working--the utilities in this 
region are doing a good job. I think they're trying to work 
with that situation, but Federal support is critical.
    Mr. Larsen. Dr. Anderson, did you talk a little bit earlier 
about how you would factor (inaudible) oscillation into drought 
management and, therefore, it hurts availability?
    Mr. Anderson. That's a good question. There are efforts now 
to understand how we want to predict that. Looking back in the 
hundred-year record, we do see these clear, distinct signals of 
ecosystems throughout the Pacific, throughout the (inaudible).
    So one of the things we could factor in--to state that 
these cycles are going to continue with global warming, I guess 
that's--that's not a good scientific approach, of course.
    The other more scientific way to do this--there's some work 
that's going on right now showing that a number of factors 
added together give the ability to predict over the short term 
a couple of years.
    Also, we have scientists--scientists are out studying the 
plankton off the coast. What we're finding is when the ocean is 
fertile, the fish survive well. So a monitoring scheme that is 
going on right now can give us information that's going to say, 
``Things are good this year. Let's give ourselves a little bit 
of slack somewhere else in the system.''.
    I think that as research goes on, we will increase our 
ability to predict, maybe in a couple months, maybe in a year 
or two. But right now we're not using any of this information. 
We're not factoring in the ocean at all. Any information we do 
have, we'll probably make decisions on the hydrosystem.
    Mr. Larsen. I think it's like anything else. We need to be 
careful, as well, about saying, ``It's only PDO,'' and--and 
looking at that as only one factor. And it's quite a myriad of 
factors.
    Mr. Anderson. Right. And they're beginning to--they--they 
have a four-factor analysis right now that--that's--is looking 
encouraging. They are doing something like this for 
hurricanes--a fellow named Robert Gray--who has done very well 
predicting hurricanes. But--.
    Mr. Larsen. Mr. Lepp, good to see you again. And I just 
shudder when I read headlines like I read in the Seattle PI 
today because my--in Bellingham, I see headlines like that day 
in and day out, with companies shutting down, possibly, and 
Birmingham Steel possibly being up for sale--which, you know, 
you just--provides uncertainty in the community here.
    I don't know if there is a question in there, but more just 
to say that it's another clear example of the impacts the 
energy crisis is having on the Northwest.
    And if you have anything to add to that, feel free.
    Mr. Lepp. Well, you know, there are 19 North American steel 
companies that have gone bankrupt in the last 18 months. And 
part of it, I know, from my standpoint of the products we 
sell--our price today is the same as it was in 1972. So we have 
survived our ability to--to maintain efficiency and keep 
looking for that--that edge.
    And you know, this--this circumstance here is really--is 
really (inaudible). We were nicely profitable going into it, 
and this thing just--just wiped us out--well, this plus the 
gas. Our gas price has tripled since October of last year. 
That's another part of this.
    And we--we export a third of our products, which is 
probably--I would say probably the only American steel plant 
that does that. There's not many exports of steel other than 
what we do. We do a commodity product, so we've got to be 
really, really efficient. And we are. We are really proud of 
our efficiency. But I just can't--it creates a hurdle we just 
can't clear, as much as we'd like to.
    And we're not going to compromise our environmental 
programs; our safety programs; and those things that are near 
and dear to us, to our employees. So those stay intact, and we 
keep doing what we can do to survive.
    Mr. Larsen. Thanks for your comments, sir. Thank you.
    Thank you, Mr. Chairman.
    Mr. Calvert. I want to thank this panel for your testimony 
and answering our questions.
    I want to thank Mr. Smith, his hospitality here in 
Tacoma--.
    And to the audience for your willingness to come on this 
Saturday and sacrifice part of your weekend.
    With that, this hearing is adjourned.
    [Whereupon, at 11:50 a.m., the Subcommittee was adjourned.]

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