Bonneville Power Administration Business Information, Profile, and History

Company Perspectives:

As a public agency operating for public purposes, BPA encourages people to get involved in its activities and issues. BPA believes public involvement helps its managers make better decisions. BPA responds to multiple interests and regional concerns and makes its public policy decisions in an open public forum. There are many ways to get involved.

History of Bonneville Power Administration

Bonneville Power Administration (BPA), a United States federal agency created in 1937 by the Roosevelt administration and Congress, markets wholesale electricity and transmission to public and private utilities as well as some large industries in the Pacific Northwest region of the United States. The bulk of the energy that BPA sells comes from the Columbia River and its tributaries. BPA is part of the United States Department of Energy. The agency supplies approximately half the electricity used in the Northwest and operates many of the region's high-voltage transmissions. Conservation plays an important role in BPA's practices; BPA invests in research and development of alternate energy sources regularly and works with salmon conservation groups to secure the safety of the Northwest's salmon population. BPA is not tax-supported and recovers all of its costs through the sales of electricity and transmission.

Late 1930s and Early 1940s: Developments During the New Deal

Faced with the reality of insufficient rainfall, a sore need for work, and the possibility of producing a large amount of electricity, on July 16, 1933, President Roosevelt authorized the $60-million Grand Coulee Dam project that would bring electricity to 11 states and distribute much-needed water to farming communities. Another dam, the Bonneville Dam that passes through the Cascade Mountains between Oregon and Washington, was also under construction during this time period. Before the two projects were completed, Congress and President Roosevelt wisely anticipated the need to market and regulate the power that these new power sources would generate. The Bonneville Power Administration (BPA) was created in 1937 to address this need. Some of BPA's early goals were to bring electricity to small farms, rural areas, and small communities that were not being served by private utilities.

These two dams produced an extremely large amount of electricity; the Grand Coulee Dam itself is the third largest producer of electricity in the world. The large amount of electricity in BPA's control allowed them to carry out the job assigned to them by the Roosevelt administration--to sell affordable electricity to the small communities and to extend their service territory over all of Washington, Oregon, Idaho, and western Montana. Eventually, BPA's service territory increased to include small portions of California, Nevada, Utah, Wyoming, and eastern Montana.

1950s-1960s: Organized Distribution of Power

While the dams were under construction, BPA built a network of transmission lines that would distribute the electricity the dams produced. The first line built connected the Bonneville Dam to Cascade Locks, which was three miles from the dam. Throughout the 1940s, 1950s, and 1960s, BPA constructed interconnected networks and loops of high-voltage wire that reached out to connect BPA's service territory.

Dispatchers who coordinated and monitored the power flowing through these lines oversaw electricity distribution. Eventually BPA constructed transmission lines that ran far south into California and the Southwest, and north to connect with lines in Canada.

1970s-1980s: Nuclear Power Plants

During the 1970s, BPA joined forces with the Washington Public Power Supply System (WPPSS) and four private utilities--Puget Sound Power & Light Co, Washington Water Power Co., Portland General Electric, and Pacific Power & Light Co.--to finance the construction of three nuclear plants to generate additional energy for the Pacific Northwest. All of the nuclear plants being constructed during this time period (not just the three guaranteed by BPA) were plagued by high construction costs and declining demand for power. These factors caused BPA, in September 1984, to recommend delaying the construction of two of the nuclear plants they were tied to. A spokesman for BPA told the Wall Street Journal in 1984, "We anticipate a delay of at least 27 months. We're not going to need the power as soon as we thought. If we bring those two plants on line too soon, we'll have power we can't sell. And that's a good way to lose money."

The private utilities affected by the delay of construction reacted to this announcement, and others like it, in outrage. The four private utilities quickly filed suit, claiming that the closing down of these nuclear power projects caused their companies considerable loss. BPA strove to find a settlement with the four companies; one proposal discussed was that the private utilities would be guaranteed by BPA the same amount of electricity they would have gotten from the stalled nuclear plants. In exchange, the lawsuit the utilities launched would be dropped.

BPA and the four private utilities signed an agreement on September 19, 1985, to settle the $2-billion suit. The agreement allowed that BPA would supply the private utilities with the same amount of power (roughly) for the same estimated price that they would have paid for the operating of a nuclear power plant if it had been finished as scheduled. In exchange, BPA received the option to purchase the private utilities share of the nuclear project and the suit brought against them was dropped. Many public utilities were dismayed by this settlement, arguing that the four private utilities were let off the hook for their nuclear obligations and that they received cheap power at the expense of public utilities.

The high price of the botched nuclear project added to the factors that forced BPA to raise electricity rates. Aluminum plants, lumber, and plywood industries were particularly hard hit by the raised electricity prices as their industries were already in decline.

1980s and Early 1990s: Electricity Bills Rise as Conservationism Grows

The federal Northwest Electric Power Planning and Conservation Act of 1980 insisted that BPA assess conservation and renewable energy resources. BPA, in response, took into consideration many studies in conservation. One study, launched in 1983 by the Hood River Conservation Project (HRCP), retrofitted 2,989 homes. The result showed an averaged energy saving of 15 percent. Groups studying the Pacific Northwest's salmon species announced in November 1991 that sockeye salmon were an endangered species. This finding affected BPA in a major way, as the announcement of an endangered species in one of the BPA's primary hydroelectricity generating waterways caused them to allow for more water to remain in the waterways, cutting the amount of power that was produced. BPA announced, soon after the endangered species announcement, that electricity rates would rise five to 15 percent and that they intended to replace the lost energy with conservation measures and the purchase of power from regions outside of the Pacific Northwest.

Not surprisingly, the announcement that BPA would raise electricity rates was met with extreme dissatisfaction from both industrial and private customers. Customers complained that BPA was too free spending with rate payers' money and that the power authority was overstaffed. BPA responded by shaving a few percentage points off the expected increase and explained, more in detail, why the rates needed to be raised. The explanation included a discussion of the lack of rainfall the region had seen in the past six years, the fact that BPA charged aluminum companies variable rates depending on the price of the metal (the metal price was set extremely low), and finally the Endangered Species Act, which caused BPA, according to executive assistant administrator Steven Hickcock, to "operate the system differently. We're flowing the river more for the convenience of fish than for the needs of energy users."

In response to their customers' outrage at the increasing electricity rate, BPA froze hiring and launched an efficiency study aimed at reorganizing the agency. The study was scheduled to take place over two years. The agency also found it necessary to slash expenses to balance BPA's sluggish revenue stream. The cuts took place in three areas: a 50-percent reduction in administrative expenses, travel, and training; a 25-percent cut to programs including salmon recovery and energy conservation; and the termination of the two WPPSS nuclear plants that BPA had delayed construction on earlier. Puget Sound Business Journal reported that, "although the cuts sound dramatic, they affect only a small percentage of the agency's costs." The Journal went on to state that, "Only 23 percent of BPA's annual expenses--about $500 million a year--are for daily operations. The remaining third of the agency's annual expenses go to payments on its debt to the U.S. Treasury, depreciation and rate supports for residential and farm customers."

Mid- to Late 1990s: More Rate Hikes

Chief administrator at BPA, Randy Hardy, announced that he would seek special legislation to help make large-scale changes in the way the BPA was run, aiming to turn the bureaucratic agency into an efficient organization modeled after corporate America. Hardy also announced BPA's plan for tiered rates beginning in 1995. In the past, BPA offered virtually the same rates to customers no matter what the agency's actual cost of delivering the power to a specific location was. With the new plan, BPA proposed to empower the agency to charge according to its own costs. The tiered rates system also allowed BPA to charge different rates depending on how the electricity was generated. However, due to a variety of factors, the tiered rate structure was shelved soon after it was announced. BPA continued to scrutinize all of their projects and facilities in an effort to trim off any extra fat.

Aluminum and other manufacturers received welcome news when BPA proposed in July 1995 a wholesale power rate cut that would reduce electric bills by 12.7 percent. BPA was moved to propose this radical shift in pricing when Kaiser Aluminum & Chemical Corp. proposed shifting some of its business away from BPA to Washington Water Power Co.. Another surprising move by BPA occurred when they agreed to allow their industrial customers to purchase 250 megawatts of electricity from other sources. In October 1996, the customers were able to purchase even more of their electricity (up to 25 percent) from other sources. By allowing their industrial customers to do this, BPA bought itself a little more flexibility with their dwindling energy resources. BPA was strapped to generate and purchase enough power to supply their industrial and private customers, pay off their debt, and conserve enough water to assure the Pacific Northwest's endangered species a chance at recuperation. Something in BPA's supply cycle had to give, and the industrial customers were the most logical first choice, due to the rates that BPA was contractually obliged to give them.

1990s: Is Sharing a Good Thing?

When BPA agreed to swap power with California in 1992 they believed that the agreement was a win-win situation. A one-year swap was made with four California utilities for more than 600 megawatts of energy to be sent south during the summer, air-conditioning season. California would return the energy later in the year to heat the Northwest's homes during the colder winter season. However, BPA came under fire for this arrangement. Pacific Northwest customers feared that they would find themselves short on power when the need arose. Californians worried that BPA was profiting unduly from their need.

In fact, the supply of power that BPA shared with California contributed to the drain of the Pacific Northwest's hydroelectric reserves. Nine years after the arrangement, in 2001, BPA had not yet received any power from California to hold up their end of the agreement, which contributed to the Pacific Northwest's energy deficiencies during the 1990s and into 2001. The deal turned completely sour when, in 2001, California found themselves in dire need of power. BPA refused to supply power to the ailing state unless California prepaid for the electricity.

2000: Fiber Optics and Other Inventive Technologies

When BPA was founded in 1937, one of its original missions was to bring utility services to rural areas. By joining with Washington Public Utility Districts (PUD) Association to bring fiber optic cables to the communities they serve, BPA kept the original spirit of their agency alive.

Like many corporations during the 1990s, the agency saw an opportunity to capitalize on the growing environmental awareness of many of its customers while at the same time advancing the viability of sustainable energy technologies. BPA sold its first "green power" to Tacoma Power in April 2000. Green power is generated from renewable sources and costs more than other electricity. A portion of the sale of "environmentally preferred power" was designated to the Bonneville Environmental Foundation to help restore Northwest watersheds and develop additional renewable energy projects. One source of environmentally preferred power BPA is researching is solar power. In May 2000, BPA pledged $900,000 over five years to the Regional Solar Radiation Data Center. BPA has been funding research projects around solar data since the early 1980s with the hope that solar energy might someday be as successful as hydropower. Wind energy is another alternate energy source on which the BPA has set their sights. BPA planned to invest in multiple wind power projects; the power administration hoped that wind power would prove to be one of their most important power solutions.

Another alternative energy technology that BPA has been involved with is fuel cells. A fuel cell is a device that converts the energy of a fuel--hydrogen, natural gas, methanol, gasoline, etc.--and an oxidant--air or oxygen--into useable electricity. BPA entered into an agreement with IdaTech, a developer of fuel cell systems and fuel processing technology, to purchase 110 fuel cell systems. In June 2000, IdaTech delivered the first batch of ten of the fuel cell system units that BPA agreed to purchase. This initial delivery was part of a testing phase, aimed at introducing fuel cell systems to home and small commercial applications by 2003.

BPA showed that their interest in technology wasn't limited to new electricity advances when they launched an Internet auction site aimed at providing incentives to high-volume customers to conserve energy during periods of short-capacity and high price.

2001: Rates Rise as Supply Dwindles

After watching the mistakes that California made in their energy market, BPA felt it necessary to take decisive action in securing enough power for the Northwest. In January 2001, they made the announcement that, "BPA is on a path to wholesale rate increases averaging 60 percent over the next five years unless the region can find a way to cut costs." The region jumped to action and an agreement on a new five-year rate structure was reached in February with BPA's utility customers. The dwindling power supply also reinvigorated BPA's conservation-education efforts. The agency announced in June 2001 that wholesale customers had to commit to reduce their power demand by another 1,000 megawatts if they wanted to avoid a 150-percent rate hike.

Despite BPA's rate increase and conservation efforts, the power administration declared a power emergency in April 2001, a move that allowed the company to bypass the Endangered Species Act and forgo spilling water over dams to help salmon. Instead, BPA sent the water through turbines to generate electricity. There was an immediate backlash by conservationists and fish and wildlife rights agencies against BPA's decision. In June 2001 BPA responded with a promise to fund 11 high-priority projects designed to provide immediate aid to endangered fish in the Columbia Basin.

All of the efforts that the BPA put into conservation worked to reduce the amount that the power administration would have to raise rates--the agency found that it was only necessary to raise the rates 46 percent, instead of the expected 250-percent increase.

2001-02: Signs of Recovery

With the aid of increasing rainfall, the closure of several aluminum plants that had demanded large amounts of electricity from BPA, successful conservation efforts, wind-generated power, and new power plants, the Northwest's power supply began to recover in 2001. Throughout the ups and downs of the energy industry in the 1990s and early 2000s, consumers in the Pacific Northwest have remained highly conservation conscious, putting pressure on BPA and other organizations, and BPA has continued to research and invest in renewable energy.

Principal Competitors:The AES Corporation; Dynegy Inc.; Reliant Energy, Inc.

Chronology

• Key Dates:
• 1933: Construction begins on Grand Coulee and Bonneville Dams.
• 1937: Congress and Roosevelt Administration create Bonneville Power Administration to market the energy produced by the Grand Coulee and Bonneville Dams.
• 1940s-1960s:BPA constructs networks and loops of high-voltage wire to connect BPA's service territory.
• 1980: The passage of the Northwest Electric Power Planning and Conservation Act forces BPA to assess and implement conservation and renewable energy resources.
• 1991: Sockeye salmon species are declared an endangered species, causing BPA to drastically alter its hydroelectricity practices, which results in the production of less power and forces BPA to raise electricity rates.
• 1992: BPA enters into a power-swap agreement with Southern California.
• 2000: BPA's investments and research into renewable energy resources begin to show results.
• 2001: BPA launches education and marketing programs and offers incentives to urge customers to conserve energy.
• 2002: BPA's wind power facilities show positive results in the Northwest.