The BPA Power-Salmon Crisis: A Way Out

Michael C. Blumm and Daniel J. Rohlf

Michael C. Blumm is Professor of Law at Northwestern School of Law of Lewis and Clark College and Co-Director of the Northwest Water Law and Policy Project. Daniel J. Rohlf is Clinical Professor of Law at Northwestern School of Law of Lewis and Clark College and Director of the Pacific Environmental Advocacy Center.

[31 ELR 10726]

The electricity crisis of 2001 produced more than rolling blackouts in California, skyrocketing prices throughout the West, and calls from the Bush Administration to open up the Arctic National Wildlife Refuge to oil and gas development. It also revealed that the historic imbalance between hydropower generation and salmon protection in the Columbia Basin remains a fixture of life in the Northwest.

When the U.S. Congress passed the Northwest Power Act more than two decades ago, it directed the Bonneville Power Administration (BPA) and other federal agencies managing river flows in the Columbia Basin to put fish and wildlife protection on par with the generation of hydroelectric power.¹ The Ninth Circuit Court of Appeals interpreted this promise of parity to give fish and wildlife "equal footing" with hydropower.² However, as recent events again demonstrate, the BPA and other federal water managers have never embraced this balance.

Even the listings of Columbia Basin salmon under the Endangered Species Act (ESA) beginning in 1991 have been unable to alter the dominance of hydropower in dam operations. Under the terms of the ESA, the National Marine Fisheries Service (NMFS) has broad authority to write biological opinions (BOs) that specify federal actions necessary for salmon protection and restoration.³ Whereas in other settings the NMFS' BOs essentially constitute the last word in agency decisionmaking, the BPA and other Columbia Basin hydrosystem operators have too often deviated from the measures the NMFS has found necessary for salmon survival and recovery.

The winter of 2000-2001, one of the driest on record in the Columbia Basin, has provided a stern test for the salmon restoration measures outlined by the NMFS in its most recent BO, released by the agency in December 2000. Tellingly, the BPA's actions under these challenging circumstances have provided clear evidence of the continued hegemony of hydropower interests. Beginning less than a month from the date the NMFS signed its BO, the BPA has declared a series of power "emergencies." Pursuant to these declarations, the BPA has increased hydropower production at Columbia and Snake River dams through winter-time releases of water stored in upstream reservoirs and by routing all spring-time river flows through the dams' power turbines rather than allowing some water to pass through spillways. However, these operations significantly increase mortality of juvenile salmon migrating to the sea by reducing stored water available to augment river flows and reduce water temperatures during the spring and summer fish migrations, and by forcing the migrating salmon to pass dams by going through the often-lethal generator turbines rather than riding flows safely over the dams' spillways.

The BPA's actions have not been desperate attempts to meet power demands. Rather, the BPA decided to increase its power generation because the agency had spent as much as $ 50 million in a week to purchase power on the spot market to meet its power supply obligations. In other words, emergencies declared by the BPA have largely been of a financial rather than physical nature; the agency has acted to increase hydroelectric generation to the detriment of salmon because the BPA cannot purchase power on the wholesale market at a price it wishes to pay.

Though the Northwest Power Act explicitly provides that the BPA must set its power rates to recover the agency's costs⁴—including the price tag of salmon recovery⁵—the agency has thus far refused to consider financial tools to help solve its power "emergencies." For example, the BPA could have immediately initiated the process for increasing its existing power rates in January 2001, when the agency declared the first "emergency." It could also explore ways to borrow additional funds for power purchases or, as Oregon Gov. John Kitzhaber suggested, skip its annual $ 730 million debt service payment to the U.S. Treasury.⁶ However, the BPA apparently finds more economically and politically palatable a scenario under which the agency places its own and its customers' accounting ledgers above the needs of threatened and endangered salmon and steelhead.

Are such operations consistent with legal protections for these fish? Unfortunately, the NMFS has remained virtually silent as salmon recovery measures outlined in its new BO have gone unmet. That document does authorize deviations from prescribed water management operations "due to unforeseen power system, flood control, or other emergencies … as a last resort and should not be used in place of the long-term investments necessary to allow full, uninterrupted [31 ELR 10727] implementation of the required reservoir operations."⁷ The BO allows water being stored for spring and summer flow augmentation to be drafted "during winter power system emergencies," subject to the promise that it "should be replaced as soon as possible, to the maximum extent."⁸ However, the BO does not define what constitutes a "winter power system emergency."

More details on operations under extraordinary circumstances are set forth in an interim protocol on emergency operations developed in September 2000, by the technical management team, the interagency body responsible for making management recommendations for hydrosystem operations. The NMFS' BO subsequently endorsed this protocol, which distinguishes "emergencies" from "planned risks," cautioning that even an "extreme circumstance … is not necessarily an emergency even though it was sudden and urgent, and caused an immediate action to be taken."⁹ The protocol does recognize three categories of emergencies: "generation" emergencies, "transmission" emergencies, and "other" emergencies, but none of those categories fits easily within what might be termed the BPA's declared "financial" emergency.¹⁰

On March 30, 2001, the BPA released "criteria and priorities" for operations of the hydrosystem in 2001, which elaborate on the circumstances under which the agency believes it may ignore certain salmon recovery measures in order to maximize power generation.¹¹ These criteria set forth benchmarks describing three related threats to power system "reliability" that the BPA will employ in deciding whether to declare power "emergencies." The BPA was careful to attempt to couch each of these in terms designed to fit into the protocol's concept of a "generation" emergency. First, an "insufficiency of electrical generation to meet Pacific Northwest near-term demand" can lead to an emergency declaration.¹² This appears to have a distinct financial element, as "a quick rise in prices" of electricity on the spot market can serve as evidence of shortages in the BPA's ability to meet near-term demand.¹³ The second criterion triggers when "the probability of insufficient generation to meet loads exceeds 5% for any of the next 12 months."¹⁴ The document does not specify, however, how the BPA will calculate this probability or what role the market price of power plays in this calculation. The final emergency trigger is explicitly tied to the BPA's bottom line: if the BPA's probability of having no cash reserves exceeds 20% in any of the subsequent 12 months, the BPA will curtail fish recovery actions in favor of maximum hydropower generation.¹⁵

In essence, these criteria for declaring power "emergencies" put a price on Columbia Basin salmon and steelhead—precisely something Congress intended not to do when passing the ESA. While the first two standards are ostensibly linked to power system "reliability," they are worded broadly enough to allow the BPA to ramp up power production at the expense of fish at least in part due to the agency's concerns about its pocketbook. But are the BPA's financial concerns really a legitimate threat to the reliability of the Northwest's power grid? The BPA's proposal for its new power rates supplies a good indication of the answer.

In ongoing proceedings to set its new power rates to go into effect in October 2001, the BPA is seeking to mitigate its financial risks by proposing a mechanism that automatically raises the agency's power rates under certain circumstances. However, in contrast to the risk-averse criteria that allow the BPA to declare "emergencies" and avoid fish protections, the BPA's rate proposal accepts much more financial risk to the agency in order to avoid triggering rate increases; the BPA proposes to hold power rates steady unless the agency faces a greater than 50% chance of going broke sometime in whatever remains of that fiscal year. In other words, the BPA has and will continue to suspend salmon measures in favor of power generation well before its proposed rate mechanism would trigger an increase in the wholesale price of electricity, suggesting two very different BPA definitions of how its financial health affects power system "reliability."

This BPA double standard has three important implications. First, the BPA's willingness to accept more financial risk when its customers' wallets are on the line—as opposed to when the BPA weighs its finances against the needs of listed salmon—shows that the agency is using the need to maintain power system "reliability" as largely an excuse to justify so-called emergency operations under which salmon recovery takes a backseat to money. Second, if the BPA finalizes its proposed rate structure, the agency will often be able to avoid automatic rate increases for its customers because the fish "emergency" criteria will be met well before the rate increase trigger; in effect the BPA will thus shift a significant portion of its cost burden onto fish rather than its customers during low water years or times of high market prices. Finally, these differential approaches to fish protections and customers' power rates are likely to place the BPA in violation of the Northwest Power Act's charge to put salmon recovery on an "equal footing" with power generation.¹⁶ Moreover, the legal authority on which these decisions rest is suspect because they seem to conflict with the U.S. Supreme Court's conclusion that federal agencies may not ignore ESA requirements because of economic cost concerns.¹⁷ The ESA does include a process for exempting agency actions, but the BPA did not attempt to invoke these procedures.¹⁸

Thus, it is hardly clear whether the BPA has the authority, as Idaho Department of Fish and Game Manager Steve [31 ELR 10728] Pettit put it, to "trade economics for fish."¹⁹ But the federal power agency's action is quite consistent with its long history of shortchanging Columbia Basin salmon. In the 1970s, the BPA claimed it lacked authority to alter project operations to protect salmon, although the agency found "implied" authority to engage in a disastrous $ 7 billion nuclear power plant program for which regional ratepayers continue to pay for stillborn plants.²⁰ In the 1980s, the BPA unsuccessfully attempted to undermine the process of setting salmon goals for the Columbia Basin Fish and Wildlife Program.²¹ And in the 1990s, the agency's inflated estimates of fish and wildlife costs enabled it to broker a "cost cap" that limited its fish and wildlife financial exposure.²² Not surprisingly, the costs the BPA actually incurred turned out to be far lower that those it estimated. The BPA's lower-than-expected expenses lasted until this year, when open-market electric prices soared.

Although the BPA never offered to increase fish and wildlife funding during the years in which the costs were less than expected, it moved quickly this year to tap fish flow storage and spill for power generation when electricity prices allowed the agency to claim that using water for spring and summer salmon flows would be too expensive. This is hardly a surprising development: salmon protection has always been an inconvenience or worse to an agency that seeks to emulate its corporate customers by appointing its senior officials to the title of "vice president" rather than the more typical governmental post of "assistant administrator."

Ironically, the BPA has demonstrated time and again that its view of itself as a business entity does not go much further than its officials' titles. In its last power sales contracts, the BPA not only agreed to serve the voracious energy appetites of direct service industrial customers (primarily aluminum plants), but included a contract provision that allows these large customers to turn around and resell on the open market the low-cost power they purchase from the BPA. This has proven to be remarkably shortsighted. For example, the Kaiser Aluminum smelter near Spokane recently shut down, selling on the open market for up to $ 555 per megawatt hour the power it purchased from the BPA for just $ 22.50 a megawatt hour, a markup of over 2,400%. The company made so much money that it was willing to be pressured by federal and local officials to pay its employees their regular wages, wages that had been the subject of a bitter 20-month strike and lockout that ended only in October 2000. According to the New York Times, Kaiser made some $ 47 million by not operating the plant near Spokane in December alone.²³

Other aluminum smelters have reaped similar rewards. All told, the BPA's industrial customers made a staggering total of $ 1.2 billion from reselling their power in just over four months between October 2000 and early February 2001.²⁴ The BPA has thus far said this remarketing of power is acceptable so long as its industrial customers use part of this windfall to continue to pay their workers and invest in upgrading their plants and in financing new power-generating capacity.

While aluminum companies have made piles of money by selling BPA-supplied power rather than producing aluminum, the BPA has teetered toward insolvency by being forced to purchase power in a market driven to dizzying prices by the California energy fiasco. Salmon suffer the consequences when the BPA tries to escape its own poor planning by increasing power production with water that should be managed to benefit fish. Only Oregon Governor Kitzhaber has followed this money trail in an effort to find a solution to the Northwest's power crisis that does not entail sacrificing salmon. Governor Kitzhaber recently suggested that the region lobby Congress to allow the BPA to skip its scheduled $ 730 million payment to the U.S. Treasury this year. In doing so, the governor challenged President Bush to fulfill his campaign pledge of saving salmon by means other than breaching the federal dams on the lower Snake River.²⁵ Skipping a treasury payment would also be consistent with past BPA assurances that the agency would take such action before resorting to operations inconsistent with the NMFS' BO. But most regional politicians are reluctant to seek a waiver of repayment, even for a year, out of fear that the political cost of doing so might be loss of the Northwest's preferential right to low-cost federal Columbia Basin hydropower. Kitzhaber has continued to pressure the BPA to improve conditions for salmon in 2001. On April 25, 2001, the governor called on the agency to spend more money purchasing power on the open market in order to allow spill at dams to improve fish passage.²⁶ The next day Kitzhaber also prodded the BPA to provide greater funding for measures designed to attempt to mitigate impacts on salmon caused by the deviations from the NMFS' BO, calling the BPA's proposed $ 10 million mitigation proposal "a joke."²⁷

Beyond 2001, the expiration of current BPA power contracts provides a key opportunity for a fairer and longer lasting resolution to federal fish and money woes. Although [31 ELR 10729] industrial users are flexing their political muscles in an effort to force the BPA to subsidize their power rates, the BPA and the region as a whole should emphatically resist such a move.

One of the reasons the BPA began making industrial power sales was that the contracts made a portion of the industrial power interruptible in times of shortage, thereby providing the BPA with a market for its "excess" power while essentially supplying the region power reserves. But when the industries threatened to abandon the BPA in the mid-1990s to purchase power in what was then a glutted, low-price market, the BPA negotiated away the interruptible portion of the contracts. The agency also slashed its conservation budget in an effort to keep industrial rates low. Six years later, those decisions have proved to be extremely shortsighted.

While the BPA recently signed new contracts with aluminum companies that provide these users guaranteed supplies of BPA power, the BPA has yet to set the price of this power. These companies are pushing a rate proposal that would amount to a massive subsidy from other BPA power customers since the smelters would be forced to shut down if they were forced to pay a standard rate base on the BPA's actual costs. This audacious proposal would dramatically increase the rates of all other BPA customers, risking damage to the Northwest economy, simply to benefit the aluminum plants. More important for the environment, it would continue the financial pressure on the BPA to slip out of its commitments to salmon when power supplies are tight. Thus there is simply no good reason to provide aluminum companies with subsidized power rates.

To avoid the mistakes of the recent past, any industrial contracts issued by the BPA should be subject to the same prices that other BPA customers pay and should again be made interruptible to satisfy both power demands and salmon needs on an equal basis. After all, salmon and hydropower are, according to the Northwest Power Act's legislative history, the "coequal partners" of the federal system of dams.²⁸

The events of 2000-2001 have made clear that it is the BPA's industrial contracts, not salmon flows, that the region cannot afford. The courts have afforded the BPA considerable freedom to interpret its statutory obligations.²⁹ The BPA should use this authority to ensure that new industrial power rates do not threaten to bankrupt the power system, provide the opportunity for windfall profits through remarketing power, or threaten the remaining salmon runs with extinction. Moreover, it is hard to see why the BPA's industrial customers should enjoy a price advantage over its utility customers. The prices that the BPA receives from its utility and industrial customers must be sufficient to fund not only extensive conservation programs but also new nonhydropower-generating resources that will allow a reconfigured power system to be built around restoring salmon. If the industrial customers resist provisions reestablishing interruptibility and imposing prices equivalent to utility power, they are free to seek power elsewhere. With a power shortage throughout the West, there is little question the BPA could market the power at favorable rates if its industrial customers resist the new conditions. But given the BPA's cozy relationship with its industrial customers and its long history of dismissing salmon as an equal partner in the operation of the power system, the public will have to demand that the BPA properly condition the new rates.

Industrial power rates equal to those of other BPA customers would help to avoid power/salmon conflicts in the future, but they won't save salmon in the crisis year of 2001. On March 7, 2001, the BPA administrator made headlines by suggesting that the BPA's financial emergency necessitated halting all salmon-aiding measures in hydrosystem operations for the year.³⁰ The BPA claimed that meeting the NMFS' BO operations could leave it $ 100 million in debt, but that ignoring the BOs could save $ 550 million.³¹ Sacrificing the salmon was depicted as the only rational economic choice. But no consideration was given to suspending the industrial customer contracts due to the power/fish emergency. The BPA no doubt has the authority to do this, and if the courts later determined that the BPA owed damages, it could pay them from the increased power sales it could make at market prices.³² The power/salmon crisis would suddenly disappear.

Large industrial power users have become power brokers, not power users. It is an untenable situation when aluminum companies reap windfall profits, while salmon—the signature natural resource of the Northwest—suffer de facto ESA exemptions based on the BPA's response to power costs and poor planning. The NMFS' BO approved in December 2000, eschewed breaching the four lower Snake River dams in favor of alternatives, including higher spring and summer river flows and spill at dams to increase juvenile salmon survival. Those flows and spills cannot in the future—as they are today—be sacrificed to reduce power costs.

Over two decades after Congress promised parity between salmon and hydropower, the BPA continues to assume that salmon may be sacrificed to subsidize hydropower generation and the agency's greedy customers. That era should have ended long ago. It is time to bring a halt to it now before more salmon extinctions are the result.

1. 16 U.S.C. §§ 839-839h. See H.R. REP. No. 96-976, pt. 1, at 49, 56-57 (1980), reprinted in 1980 U.S.C.C.A.N. 5989, 6015 (hydropower generation and fish and wildlife protection to be "coequal partners"; federal water managers to treat fish and wildlife "on par" with other purposes of federal Columbia Basin dams), discussed in Michael C. Blumm, Beyond Mitigation—Restoring Federally Damaged Salmon Runs Under the Columbia Basin Fish and Wildlife Program, 14 ELR 10011 (Jan. 1984).

2. Confederated Tribes & Bands of the Yakima Indian Nation v. Federal Energy Regulatory Comm'n, 746 F.2d 466, 473, 14 ELR 20593, 20596 (9th Cir. 1984).

3. 16 U.S.C. § 1536(b), ELR STAT. ESA § 7(b). See DANIEL J. ROHLF, THE ENDANGERED SPECIES ACT: A GUIDE TO ITS IMPLEMENTATION AND PROTECTIONS (Stanford Envtl. Law Society 1989).

4. See 16 U.S.C. § 839e(a)(1). The BPA sells power only at the wholesale level to public utilities, investor-owned utilities, and large industrial customers such as aluminum smelters.

5. See id. § 839b(h)(8) and (h)(10).

6. See Jim Lynch, Kitzhaber Asks for Slack on BPA Debt, THE OREGONIAN, Feb. 8, 2001, at A1.

7. NMFS, BIOLOGICAL OPINION ON OPERATION OF THE FEDERAL COLUMBIA RIVER POWER SYSTEM 9-62 (2000) [hereinafter POWER SYSTEM BiOP].

8. Id.

9. TECHNICAL MANAGEMENT TEAM, INTERIM PROTOCOL FOR EMERGENCY OPERATION IN RESPONSE TO GENERATION OR TRANSMISSION EMERGENCIES 2-3 (2000), cited with approval in POWER SYSTEM BiOP, supra note 7, at 9-28.

10. Id.

11. The BPA and other federal hydrosystem operators set forth the principles they intend to employ to govern system operations in a document published March 30, 2001. See BPA, FEDERAL AGENCIES' CRITERIA AND PRIORITIES FOR 2001 FCRPS OPERATIONS (2001).

12. Id. at 2.

13. Id.

14. Id.

15. Id.

16. See 16 U.S.C. § 839b(h)(11)(A)(i). That section requires that the BPA operates the hydrosystem "in a manner that provides equitable treatment" for salmon and power production. See also supra note 1.

17. Tennessee Valley Auth. v. Hill, 437 U.S. 153, 172-73, 187, 8 ELR 20513, 20517, 20521 (1978).

18. 16 U.S.C. § 1536(g)-(h), ELR STAT. ESA § 7(g)-(h).

19. Fish Managers Fear Power Needs Will Short Salmon, NORTHWEST FISHLETTER, Jan. 31, 2001, at http://www.newsdata.com/enernet/fishletter/fishltr17.html.

20. See Michael C. Blumm, Hydropower Versus Salmon: The Struggle of the Pacific Northwest's Anadromous Fish Runs for a Peaceful Coexistence With the Federal Columbia River Power System, 11 ENVTL. L. 211, 221-22 n.43 (1981) (alleged lack of BPA authority); see also id. at 256-57, 298 (need to "prove" damage to fish and wildlife from power operations before the BPA would take action); Michael C. Blumm, The Northwest's Hydroelectric Heritage: Prologue to the Pacific Northwest Electric Power Planning and Conservation Act, 58 WASH. L. REV. 175, 221-25 (1983) (discussing Phase I of the BPA's "Hydro-Thermal" Power Program).

21. The BPA alleged that funding a goals study was "unacceptable to BPA management" and "not consistent with ratepayers' interests" because it would have amounted to "funding advocacy" inconsistent with "sound business principles." Quoted in Michael C. Blumm, Implementing the Parity Promise: An Evaluation of the Columbia Basin Fish and Wildlife Program, 14 ENVTL. L. 291-92 n.58 (1984). The Northwest Power Planning Council subsequently removed the BPA's authority over the goals study.

22. Memorandum of Agreement Among the [U.S.] Departments of Army, Commerce, Energy, and [the] Interior Concerning the Bonneville Power Administration's Financial Commitment for Columbia River Fish and Wildlife Costs (Sept. 16, 1996), discussed in Michael C. Blumm et al., Beyond the Parity Promise: Struggling to Save Salmon in the Mid-1990s, 27 ENVTL. L. 21, 103-07 (1997).

23. Sam Howe Verhovek, Lack of Power in the West Proves a Boon for Some, N.Y. TIMES, Dec. 29, 2000.

24. E-mail from Audie Huber, Policy Analyst, Confederated Tribes of the Umatilla Reservation, to Michael Blumm (Feb. 13, 2001) (transmitting figures from the BPA's Power Purchasing Section).

25. Lynch, supra note 6.

26. See Gov. John Kitzhaber, Remarks to the Northwest Power Planning Council (Apr. 25, 2001).

27. Jonathan Brinckman, Columbia Water Likely Will Be Spilled for Salmon, THE OREGONIAN, Apr. 28, 2001, at A11.

28. H.R. REP. No. 96-976, pt. 1, at 49, 56-57 (1980), reprinted in 1980 U.S.C.C.A.N. 5989, 6015.

29. Association of Pub. Agency Customers v. Bonneville Power Admin., 126 F.3d 1158, 28 ELR 20141 (9th Cir. 1997) (upholding the BPA's 1995 industrial power contracts).

30. Jonathan Brinckman, Water Shortage May Force BPA to End Fish Aid, THE OREGONIAN, Mar. 8, 2001, at A1.

31. Id. at A12.

32. See Association of Pub. Agency Customers, 126 F.3d at 1158, 28 ELR at 20141.