S. Hrg. 104-642 ^ COLUMBIA RIVER BASIN HSH AND WILDLIFE J2>^ PROGRAM-SALMON RECOVERY ''''f4.AP 6/2: S. HRG. 104-642 Colunbia River Basin Fish and Uildl... HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION SPECIAL HEARING Office of Management and Budget Bonneville Power Administration Nondepartmental witnesses Printed for the use of the Committee on Appropriations U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1996 For sale by the U.S. Government Printing Office Superintendent of Documents. Congressional Sales Office. Washington, DC 20402 ISBN 0-16-053676-6 [A S. Hrg. 104-642 ) ^ COLUMBIA RIVER BASIN HSH AND WILDLIFE PROGRAM-SALMON RECOVERY 4. AP 6/2: S. HRG. 104-642 lunbia River Basin Fish and Uildl... HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION SPECIAL HEARING Office of Management and Budget Bonneville Power Administration Nondepartmental witnesses Printed for the use of the Committee on Appropriations U.S. GOVERNMENT PRINTING OFFICE 26-104 cc WASHINGTON : 1996 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN 0-16-053676-6 COMMITTEE ON APPROPRIATIONS MARK O. TED STEVENS, Alaska THAD COCHRAN, Mississippi ARLEN SPECTER, Pennsylvania PETE V. DOMENICI, New Mexico PHIL GRAMM, Texas CHRISTOPHER S. BOND, Missouri SLADE GORTON, Washington MITCH McCONNELL, Kentucky CONNIE MACK, Florida CONRAD BURNS, Montana RICHARD C. SHELBY, Alabama JAMES M. JEFFORDS, Vermont JUDD GREGG, New Hampshire ROBERT F. BENNETT, Utah HATFIELD, Oregon, Chairman ROBERT C. BYRD, West Virginia DANIEL K. INOUYE, Hawaii ERNEST F. HOLLINGS, South Carolina J. BENNETT JOHNSTON, Louisiana PATRICK J. LEAHY, Vermont DALE BUMPERS, Akansas FRANK R. LAUTENBERG, New Jersey TOM HARKIN, Iowa BARBARA A. MIKULSKI, Maryland HARRY REID, Nevada J. ROBERT KERREY, Nebraska HERB KOHL, Wisconsin PATTY MURRAY, Washington J. Keith KE^fNEDY, Staff Director Mark Van de Water, Deputy Staff Director James H. English, Minority Staff Director Subcommittee on Energy and Water Development PETE V. DOMENICI, New Mexico Chairman MARK O. HATFIELD, Oregon THAD COCHRAN, Mississippi SLADE GORTON, Washington MITCH McCONNELL, Kentucky ROBERT F. BENNETT, Utah CONRAD BURNS, Montana J. BENNETT JOHNSTON, Louisiana ROBERT C. BYRD, West Virginia ERNEST F. HOLLINGS, South Carolina HARRY REID, Nevada J. ROBERT KERREY, Nebraska PATTY MURRAY, Washington Staff Mark D. Walker W. David Gwaltney Lashawnda Leftwich (II) CONTENTS OFFICE OF MANAGEMENT AND BUDGET Page Statement of Alice Rivlin, Director 1 Statement of Hon. Mark O. Hatfield 1 Hearing procedure 3 Prepared statement of Alice M. Rivlin 5 Statement of Hon. Frank Murkowski 8 Prepared statement 10 Statement of Hon. J. Bennett Johnston 58 Statement of Hon. Slade Gorton 62 Statement of Hon. Patty Murray .'.7.^^^^^^;^^. 63 Statement of Hon. Conrad Burns .^m.,,....,,,^^. 65 Prepared statement Tr^^TnTTTr^^.,^^^^^,;^^^^^.. 65 Statement of Hon. Larry Craig . . . . .t:777T77777.tt.^tttttttttt ,^„.^^.^.,^c„^.„. .7^~~7. . GG~ Statement of Hon. Dirk Kempthorne 68 Prepared statement 69 DEPARTMENT OF ENERGY Bonneville Power Administration Statement of Randall Hardy, Administrator 73 Prepared statement 77 Questions submitted by Senator Mark Hatfield 100 NONDEPARTMENTAL WITNESSES Statement of Ralph Cavanagh, director, Natural Resources Defense Council ... 145 Prepared statement 147 Statement of Warren Seyler, chairman, Spokane Tribe of Indians 148 Prepared statement 150 Statement of Mark Crisson, director of utilities, Tacoma Public Utilities 151 Prepared statement 153 Statement of Richard E. Dyer, senior vice president, Portland General Elec- tric Co 154 Prepared statement 156 Statement of Richard G. Holder, chairman and chief executive officer, Reyn- olds Metals Co 158 Prepared statement 160 Statement of K.C. Golden, policy director. Northwest Conservation Act Coali- tion 161 Prepared statement 165 Statement of Donald Sampson, chairman, Umatilla Indian Tribe, State of Oregon, Columbia River Treaty Tribes 172 Prepared statement 175 Statement of Jim Baker, Northwest salmon campaign coordinator. Sierra Club 178 Prepared statement 181 Statement of Glenn Vanselow, Ph.D., executive director. Pacific Northwest Waterways Association 191 Prepared statement 193 Statement of DeWitt Moss, director. North Side Canal Co 194 Prepared statement 197 (III) COLUMBIA RIVER BASIN FISH AND WILDLIFE PROGRAM— SALMON RECOVERY WEDNESDAY, MARCH 15, 1995 U.S. Senate, Subcommittee on Energy and Water Development, Committee on Appropriations, Washington, DC. The subcommittee met at 2:05 p.m., in room SD-192, Dirksen Senate Office Building, Hon. Mark O. Hatfield (chairman) presid- ing. Present: Senators Hatfield, Gorton, Bennett, Bums, Johnston, and Murray. Also present: Senators Stevens, Baucus, Craig, Kempthome, and Murkowski. OFFICE OF MANAGEMENT AND BUDGET STATEMENT OF ALICE RIVLIN, DIRECTOR ACCOMPANIED BY T.J. GLAUTHIER, ASSOCIATE DIRECTOR FOR NATU- RAL RESOURCES, ENERGY, AND SCIENCE statement of HON. MARK O. HATFIELD Senator Hatfield. The meeting will come to order. Today the Subcommittee on Energy and Water Development, the Appropriations Committee, will receive testimony fi'om a variety of witnesses on issues relating to the Bonneville Power Administra- tion and Columbia River basin. The importance of these interrelated topics to the Pacific North- west cannot be overstated, and, therefore, I have invited all my Senate colleagues from the region and Alaska to participate in to- day's proceedings. The Columbia River is the stuff from which legends are made. The story of the Columbia is the story of the Pacific Northwest. The river's reputation has reverberated through the American mind, first as a river of unimagined natural wealth, teeming with salmon, steelhead, and other species; as a river whose bounty sus- tained generations of native Americans over thousands of years; and later as a river whose resources and might were harnessed by man to help build the economic and social structures of the 20th century. Perhaps it is inevitable that these two episodes of the history of the Columbia basin would someday collide in the American mind, and that the two symbols representing these eras, the salmon and (1) the Bonneville Power Administration, would ultimately meet in the Halls of Congress and begin yet another chapter in history. The situation today is this: We face a double crises — the demise of both of these symbols of the Pacific Northwest. We all know that the salmon reached the crisis stage with the endangered species listings 2 years ago. What is not as well understood, however, is that the Bonneville Power Administration also faces the greatest crisis in its history. We all share the desire to rebuild the salmon runs. Simply, it is the right thing to do. Likewise, we all should share the desire to see that Bonneville survives. The collective benefits reaped from the generation of hy- dropower for the past 60 years are immeasurable. We should not be in a hurry to throw away that portion of the region's legacy. Through a legislative twist of fate in 1980, salmon and Bonne- ville became entangled in a budgetary bureaucracy. Fish and wild- life mitigation in the Columbia basin became dependent on the rev- enue-generating capabilities of Bonneville Power. The Northwest Power Act of 1980 established the Columbia basin Fish and Wildlife Program and directed that Bonneville reve- nues be used to fund it. Depending on your perspective, the ar- rangement is either a blessing or a curse. It's a relationship not unlike that of a mail order bride and her newly acquainted husband, incompatible, yet dependent. Today, we find ourselves at a crossroads. The region needs to save its salmon runs and ensure the long-term viability of the Bon- neville Power Administration. On the one hand, the Federal hydro system has had a role in the decline of the salmon. On the other hand, it is a primary source of hard currency that will pay for re- covery measures. It is in the region's best interest to see that both survive. Until recently, many believed that Bonneville could absorb the cost of salmon recovery, meet all of its statutory and financial re- sponsibilities, and remain a competitive supplier of electricity in the region. That scenario now, however, is very much in doubt. For a variety of reasons, extending far beyond the cost of salmon recovery, Bon- neville is losing its competitive edge. A series of unfortunate events, some self-inflicted, some not, have rearranged Bonneville's role in the Northwest electricity market. The WPPSS nuclear plant debacle, 8 consecutive years of drought, widely fluctuating aluminum prices, the deregulation of the utility industry, access to low-cost natural gas, and other fac- tors have created a very real competitive and financial crisis for Bonneville. With each passing day it becomes more likely that legislation will be necessary to ensure Bonneville's viability over the long term. The question, though, is: What will the legislation look like? There has been talk of cost caps and other approaches during the last few weeks. Whether a cost cap is a good idea remains to be seen. We will discuss that and other proposals today. The purpose of today's hearing is to discuss these issues and look for possible solutions. We are hoping our witnesses will provide new analyses and ideas over which we may ponder in the search for answers. I am pleased by the administration's announcement yesterday that it will provide some short-term relief to Bonneville. We must bear in mind, however, that those measures are not the final an- swer. They will ease the pressure on Bonneville this year and the next, but do little to address the more serious underlying problems. We will seek to work with the administration to identify further meas- ures that may become necessary to ensure solid long-term stability for Bonneville. HEARING PROCEDURE Before I turn to the next step, I would like to just outline a cou- ple of points of procedure. To increase our efficiency, most of our witnesses have been organized into panels. Let me assure you that appearing on a particular panel does not require you to agree with the views of everyone else on your panel. All views and statements will be considered individually. When your panel is called, please come to the witness table as quickly as possible. We will be pressed for time, and with the ex- ception of Ms. Rivlin and Mr. Hardy, it will be necessary to limit oral testimony to 5 minutes each. We will use the timer. The green light means start, the yellow light means you have 1 minute left, and the red light means your time is up. With that in mind, let me ask my colleagues if they will accom- modate the timeframe in which Ms. Rivlin is appearing. Let us hear from her, and if there are any questions to be propounded, then the members of the committee will propound those questions. Then following Ms. Rivlin, we will ask for opening statements from the members of the panel. Is that satisfactory with my colleagues? With that in mind, the Director of the Office of Management and Budget will offer her testimony. I hope we will also keep our ques- tions very brief and to the point, to be answered by Ms. Rivlin fol- lowing her testimony. We are very grateful for your appearance here today, Ms. Rivlin. STATEMENT OF ALICE RIVLIN Ms. RiVLlN. Thank you very much, Mr. Chairman. I am very pleased to be here. I think I can stay within your 5-minute limit, if you will allow me to place my full statement in the record. Senator Hatfield. It will be so included. Ms. Rivlin. I will summarize it very briefly. This is, as you have noted, a piece of a long and difficult problem in which many inter- ests and values have to be balanced. The salmon runs are not only an integral part of the culture and the life of the Pacific Northwest, they are also a very important part of the economy. The dramatic drops in the fish population in recent years are well known, and they have caused much concern. Several power administrations and institutions in the Pacific Northwest have tried to find a way to restore the salmon popu- lation without unduly interfering with the rest of the economy, es- pecially the economy that depends on power. As you noted in your opening statement, Mr. Chairman, for a long time many have presumed that Bonneville could absorb the costs of restoring the salmon population. But in 1994, the Government acted on an emergency basis to as- sume part of the cost of additional spills and flows. At the time, that action seemed necessary to protect the salmon, and a $19 mil- lion credit was extended to Bonneville based on section 4(h)(10)(c) of the Northwest Power Planning and Conservation Act. With the recent release of the National Marine Fisheries Serv- ice's 1995 biological opinion, Bonneville is facing additional costs. We need to find another way to come back to this next chapter of the problem and look at how to share the costs. The administration expects the amount of additional costs to Bonneville and the Treasury in fiscal year 1996 will be about $140 million. This figure includes $32 million of direct program ex- penses, $54 million of replacement power purchases, and $54 mil- lion of foregone revenues. By fiscal year 2001, we expect the costs of complying with the re- covery plan to rise to about $200 million. Last month, the administration agreed to help defray the costs of the 1995 biological opinion. We have talked to all of the con- cerned agencies and worked back and forth on various options. Yes- terday, we were pleased to announce that we had reached a conclu- sion which we believe will substantially assist the region in meet- ing these costs. What is involved here? On average, our proposal will, over the next 2 years, provide a $60 million-per-year credit against Bonne- ville's Treasury payments. Assuming average levels of water availability, our proposal will yield a total credit of more than $200 million over the next 5 years. Based on these actions, Bonneville believes the incremental costs of the 1995 biological opinion can be covered without a further in- crease in its recently announced 5-percent rate increase. Bonneville will cover these incremental costs in a variety of ways. Roughly, $30 to $40 million a year will be derived through administrative and other cost savings which Bonneville believes it can achieve. Beginning in the current fiscal year, permanent annual credits under section 4(h)(10)(c) of the Northwest Power Act, will be pro- vided for Bonneville's direct fish and wildlife expenses. These cred- its will amount to $25 to $35 million a year. In each of the fiscal years 1995 and 1996, section 4(h)(10)(c) cred- its for Bonneville's power purchase costs related to its fish and wildlife program will also be available. We believe this action is ap- propriate considering the immediacy of the program requirements and the time that it will take Bonneville to implement its cost sav- ings and other programs. We expect this action to result in about $30 million for each pf those 2 years. Finally, Bonneville will, to the extent necessary, reduce its build- up of cash reserves. This action will increase the likelihood of Bon- neville having to reschedule a portion of its annual treasury pay- ment in future years. If such an event occurs, Bonneville will re- schedule its debt consistent with existing Treasury policy. The administration believes these actions will make a major con- tribution toward our shared goal of achieving healthy salmon stocks in the Columbia basin and maintaining a stable power sys- tem in the region. PREPARED STATEMENT Mr. Chairman, this concludes my remarks on the administra- tion's efforts to develop a solution that reverses the declining salm- on runs in the Snake and Columbia River systems. I would be pleased to answer any questions that you may have. Senator Hatfield. Thank you. [The statement follows:] Prepared Statement of Alice M. Rivlin Mr. Chairman, members of the Subcommittee, thank you for inviting me today to discuss the Administration's proposed salmon restoration effort that we all be- lieve is so important to the Northwest. As you know, the Administration has devoted significant time and resources to reach consensus on this proposal. The decision we are announcing today represents the best efforts of many people in the several Federal agencies involved in this issue in the Northwest. BACKGROUND Columbia and Snake River salmon are a significant part of the Northwest culture, a symbol of the spirit and beauty of the region. Salmon are critical economically to the Northwest. They are the basis for a large and once prosperous commercial and sport fishing industry. But, the decline of salmon in the Northwest has resulted in banning offshore coho fishing and in sharp restrictions on fishing for other species. In 1988, the regional salmon fishery supported 60,000 jobs and $1.2 billion in in- come. Today, reports suggest that 90 percent of these jobs and incomes have been lost. We all have heard the stories about the plentiful runs of Chinook, Sockeye, and other salmon species that have provided food and livelihood for the region over the years — including, especially. Native Americans living there. Though these plentiful salmon runs still exist in other rivers along the Northwest coast, primarily in Can- ada and Alaska, they are now declining in the Columbia River basin. Most authori- ties believe the emergence of other land and water resource applications on the Co- lumbia and Snake Rivers and its tributaries caused the decline in salmon runs. Be- fore the region's development began over 150 years ago, upwards of 16 million adults returned to spawn in the Columbia basin each year. Today, fewer than 3 mil- lion return; most of these migrate to hatcheries. Scientists cite many reasons for the decline of these fish. But, four factors play the major role: (1) The reduced acreage and quality of water habitat; (2) construc- tion of many dams for hydroelectric production; (3) over-production of hatchery fish and a crowding out of wild fish, thereby producing weaker species; and (4) excessive coastal and ocean harvest. Previous Administrations backed the goal of protecting and restoring salmon in the Columbia River basin. Since the Mitchell Act hatcheries were put in place in the 1930's and 1940's, all Federal agencies in the region have devoted significant resources to maintaining salmon runs. Millions of dollars have been spent on juve- nile salmon dam bypass and collection facilities and on fish ladders for returning adults. In addition, operational changes have been made to increase flows and spills of water in the spring and summer. Several million acre-feet of water are used for this purpose each year. We have pledged to address these issues through the National Marine Fisheries Service (NMFS), Bonneville Power Administration (BPA), and other Federal agen- cies in the region. Responding to a March 28, 1994 finding by a Federal District Court that the Federal government was not taking sufficient action to ensure the survival of salmon, the Administration determined that it would assume, on an emergency basis, some of the cost of additional spills and flows needed to assist Co- lumbia and Snake River salmon migration. To do this, we used the provisions of section 4(h)(10)(c) of the Northwest Power Planning and Conservation Act. This pro- vision permits BPA to allocate fish and wildlife program expenses incurred on be- half of other project purposes (e.g., navigation and flood control) to the Treasury. BPA was allowed to take a $19 million credit against its payment to Treasury for fiscal 1994 Corps of Engineers and Bureau of Reclamation operations and mainte- nance costs. Today, the Federal government pays over $100 million a year to study, maintain, and restore salmon in the Columbia and Snake Rivers. Through its customers, BPA is paying about $200 million a year — not counting purchase power and foregone rev- enues resulting from reduced water availability. When these latter costs are in- cluded, the total cost to BPA and its ratepayers is over $300 million. This represents about 11 percent of Bonneville's estimated 1996 operating outlays. Additional costs are expected over the next several years. As many of you know, pursuant to the Endangered Species Act, the NMFS recently issued its 1995 Biologi- cal Opinion. The opinion outlines the effort required to avoid jeopardy to the three listed salmon stocks and prevent further harm to declining but unlisted stocks. The opinion requires even more changes in the way the river activities are conducted, including new flow levels, increased water spills, some reservoir drawdowns, changes to hydrogeneration, flood control and other activities. These changes all will be carried out to protect salmon survival, and they will have a cost on top of govern- ment program costs already being spent each year. In tne future, there will be other changes as well. NMFS is expected to issue a Recovery Plan later this month that will address the other factors affecting salmon, such as habitat, harvest, and hatcheries. The Plan is intended to improve the condi- tion of listed and unlisted salmon resources. ADMINISTRATION PROPOSED COST SHARING Now, I want to address the 1995 Biological Opinion, which primarily affects hydrogeneration and the BPA, in more detail. We expect the amount of additional costs to BPA to be about $140 million in fiscal 1996. This figure includes $42 million of direct program expenses, $54 million of replacement power purchases, and $54 million of foregone revenues. We expect these costs to rise to $200 million by fiscal 2001. Last month, the Administration agreed to help defray the costs of the 1995 Bio- logical Opinion. We have completed our analysis of program costs and options that were being discussed by all the Federal agencies involved in developing the opinion. I am pleased to announce that we have reached a conclusion, which we believe will substantially assist the region in meeting these costs. On average, our decisions will provide Federal credits to the region of about $60 million per year for each of the next two years. Assuming average levels of water availability, it will yield a total credit of more than $200 million over the next five years. Based on these actions, BPA believes the incremental costs of the 1995 Bio- logical Opinion can be covered without a further increase in its recently-announced five per cent rate increase. The specifics of how incremental salmon recovery costs will be covered are as fol- lows: — About $30-$40 million a year will be derived through administrative and other cost savings which BPA can achieve. — Beginning in fiscal 1995, annual credits on a permanent basis under section 4(h)(10)(c) of the Northwest Power Act will be provided for BPA's direct fish and Wildlife expenses. These credits will amount to about $25-$35 million a year. — In each of fiscal 1995 and 1996, section (4Mhi(10)'c) credits for BPA's power-pur- chase costs related to its fish and wildlife programs will also be available. We believe this is appropriate due to the immediacy of the program requirements and the time it will take BPA to implement its cost savings and other programs. We expect this action to result in about $30 million for each of these two years. — Finally, to the extent necessary, BPA will reduce its build-up of cash reserves. This may make it more likely that BPA will have to reschedule a portion of its annual Treasury payment in future years. If such an event occurs, BPA will re- schedule its debt consistent with existing Treasury policy. The Administration believes these actions will make a major contribution toward our shared goal of achieving healthy salmon stocks in the Columbia basin and main- taining a stable power system in the region. Mr. Chairman, this concludes my remarks on the Administration's efforts to de- velop a solution that reverses declining salmon runs in the Columbia and Snake River system. I would be pleased to answer any questions that you may have. Senator HATFIELD. I will now call on our colleagues. For those of you who have just arrived, I have asked the colleagues to withhold their opening statements until we can have the questions pro- pounded to Ms. Rivlin and then let her depart for some other com- mitments she has. So I will start with Senator Gorton. Senator GORTON. As I understand your testimony, Ms. Rivlin, the funding offsets, $60 million, and then maybe $30 million a year, will all come through section 4(h)(10)(c) of the Northwest Power Act in the next 4 or 5 years. Ms. Rivlin. That is right, but there are two different pieces in it. There are Senator GORTON. But that is the Ms. Rivlin. That is right. Senator GORTON [continuing]. Source of it. Ms. Rivlin. Right. Senator Gorton. So you are not going to recommend any appro- priated funds. Ms. Rivlin. Right. Senator GORTON. And the net results of this help will be simply that those amounts each year will be subtracted from what would otherwise be the debt payment that Bonneville will make to the Federal Treasury. Ms. Rivlin. That is right. It is a credit against their debt pay- ment. Senator GORTON. So the net impact of that is that instead of these costs being imposed simply on the customers of the Bonne- ville Power Administration, they will be spread out over all the people of the United States in the form of that much larger a na- tional debt. Ms. Rivlin. That is right. Senator GORTON. OK. Do you, in making your decisions, and I recognize you are from the Office of Management and Budget, but have you attempted to make any independent determination as to whether the total amount of money being spent here, together with the $300 million-plus that is already being spent by Bonneville on salmon restoration, is the most efficient way of utilizing money for salmon restoration in the Pacific Northwest. And will this get us the most salmon for the amount of money that we are spending, or have you just simply accepted a framework and you are figuring out how to pay for a framework, the validity of which you have not judged? Ms. Rivlin. No; we have not done any independent studies. Our analysis is based on the National Marine Fisheries Service's bio- logical opinion, and it is their opinion that part of the recovery plan requires these changes in the operation of Bonneville. Senator Gorton. You are accepting their proposition Ms. Rivlin. That is right. Senator Gorton [continuing]. And just trying to figure out a way to pay for it. One of the great difficulties that Bonneville is having at the present time is its own customers, that its costs are being forced to the point at which, for many customers, they are not nec- essarily competitive. Every week I have some group or organization in my office that says, we are on the verge of leaving Bonneville, or we have already left Bonneville for independent power producers, and that any in- 8 crease in costs to Bonneville, whether it is reflected in this year's rate increase or not, causes them to have less confidence as far as the future is concerned, and perhaps to look elsewhere for their power. A number of utilities have already signed contracts to have their power needs served from other sources, and obviously this has an adverse impact on BPA's fmancial condition. Has the administration, have you, projected what kind of income the Federal Government is likely to get out of Bonneville in the fu- ture. Have you taken this competitiveness factor over the next sev- eral years into account and the policies that you are advocating for us here today? Ms. RiVLlN. Yes; I think the estimates of Bonneville's situation take the likely revenue stream into account. But the problem we are addressing today is not of the Pacific Northwest economy or of the long-term viability and financial health of Bonneville. The problem we are addressing today is that of additional costs for the fish management plan, and deciding what the Federal Gov- ernment's obligations are to share these costs so they will not be- come an undue burden on Bonneville's customers. Senator GORTON. So it would be fair to say that you do not have any independent opinion on whether or not Bonneville's future competitiveness is going to be harmed either by this addition or by its present burdens. Ms. RiVLlN. What we are saying, and I believe that Bonneville agrees with this, is that we have a plan for sharing these costs, which will not lead to additional rate increases beyond what Bon- neville has already announced. The plan does not, in our view, put Bonneville in a less competitive position than it was in before. Senator GORTON. Thanks. Thank you, Mr. Chairman. Senator HATFIELD. Thank you. I have been notified that Senator Murkowski would like to make a brief statement, enter matters into the record, and depart. So in order to accommodate Senator Murkowski, I would ask him STATEMENT OF HON. FRANK MURKOWSKI Senator Murkowski. Senator Hatfield, I very much appreciate that, and I appreciate the opportunity here. I will be very brief. First, I would like to note that I share the legal and fiscal con- cerns that have been expressed here, and as chairman of the En- ergy Committee, which you serve on, I want to assure you of my interest in working with you. As you know, we have set a meeting on Bonneville Power Administration refinancing for March 21. Let me just mention one thing about the fisheries, from our point of view in Alaska. The National Marine Fisheries Service is proposing to perma- nently reclassify, as you know, the Snake River fall chinook salmon from threatened to endangered. We believe the reclassification is driven by environmental politics, not science, and we believe sci- ,entific evidence simply does not support it. Submitted with my formal statement is a complete explanation prepared by the Alaska Department of Fish and Game. We in Alas- ka think we know something about raising salmon. We have had record runs for 10 of the last 14 years. Last year we harvested 197 million fish. And I can remember in territorial days, when the Fed- eral Government was the manager, we had only 30 to 40 million fish, and we were closing our season to maintain the runs. In southeastern Alaska, the Alaska experience continues to be very good. We have 2,500 anadromous streams. Twenty-two of those are in decline, and nine of those are in logged areas, and 13 are in wilderness areas. So we have a pretty good record of mixing fish production and other uses. I want to emphasize, Mr. Chairman, that I am not arguing against efforts to help these Columbia and Snake River fish. I fully understand the importance of doing so. My point is the science. We are not using sound science for the Snake River fall chinook. That fact affects Northwest rate payers as well as fisherman all the way to Alaska, and creates questions about the basis for ac- tions taken on other stocks on the Columbia River. My main reasons for the statement that sound science is not being used are as follows. First, in 1992, when stocks were listed as threatened rather than endangered, the National Marine Fish- eries Service justified its decision by pointing to a considerable in- crease in the number of adult fish migrating past lower Granite Dam in 1991. Today the Agency wants to ignore both its previous position, and the fact that those numbers have continued their up- ward trend. The number dropped somewhat last year from the year before, but it is still the sixth highest in the last 15 years. Furthermore, the average number of fish, that is, the average number returning yearly over a given period of time, is also in- creasing, and that is good news. The second reason that I claim we are not using sound science, involves the function of the Endangered Species Act. The act is meant to protect species, sub species, and distinct populations, be- cause they may have unique value either ecologically or as a source of genetic material. For the Snake River fall chinook salmon, however, protection is given only to fish that spawn naturally, not bred from those fish collected by the Lyon's Ferry Hatchery Program. And that makes simply no sense at all. The hatchery stock is the most genetically pure Snake River fall chinook. Natural spawners are known to be infiltrated by strays from other areas. In fact, there are some who say the naturally spawning group may be so diluted that it should not even qualify for ESA protec- tion either as a sub species or a distinct population. If any group should be counted tow ard the genetic preservation goal of the Act, it should be the more pure stock. Finally, Mr. Chairman, by not counting former hatchery fish, that means the number used to determine Endangered Species Act status is artificially deflated. The result is even greater restrictions on fisherman and river users. In our State of Alaska, fisherman last year saw the chinook har- vest reduced by 23,000. Mr. Chairman, that was a loss worth mil- lions of dollars, to allow a total of just 23 Snake River chinook salmon to pass by, and most or those 23 probably died anyway. 10 It is estimated that as few as three fish might actually have reached the spawning grounds the others were probably either caught or lost in the dams. This year even greater restrictions are proposed for Alaska, and that will have even greater economic impact. So I say again, Mr. Chairman, this makes no sense to only count natural spawning stock, but not the genetically pure hatchery fish, when recognizing the hatchery fish would make a real difference in the debate. PREPARED STATEMENT Mr. Chairman, this brief review was necessarily incomplete. I would refer those interested to my full statement and supplemental material, which is about 50 pages, and which I submit to you for the examination of your professional staff. I appreciate the courtesy extended to me today. Senator HATFIELD. Thank you, Senator Murkowski. [The statement follows:] Prepared Statement of Senator Frank H. Murkowski ~" Mr^hHirrnan: I appreciate the invitation to participate in this hearing. The use and productivity of tne Columbia and Snake River systems are matters ofenormous concern to me both as a Senator from Alaska and as Chairman of the Committee on Energy and Natural Resources. For the purposes of this hearing I plan to focus on specific interests of the State of Alaska, but 1 do not want that emphasis to be interpreted as a lack of interest from the authorizing Committee in resolution of the issues on these systems. The requirements under the Columbia River Treaty, the Pacific Northwest Elec- tric Power Planning and Conservation Act, various treaties and other obligations to Indian Tribes in the Northwest and the effect of requirements under the Endan- gered Species Act, Clean Water Act, and other legislation on the operation of the Bonneville Power Administration and Bureau of Reclamation facilities are matters of great concern to the Energy and Natural Resource Committee. Activities under all these agreements and obligations also have a substantial impact on the Pacific Salmon Treaty we have with Canada, and that is also a matter of great impor- tance— not only to the people of Alaska, but to those from Oregon, Washington, and elsewhere who depend on Alaska salmon fisheries for their livelihoods. I intend to work closely with the Chairman of this Committee, who also sits on the Energy Committee, and with other Members of the Pacific Northwest delega- tions in examining these issues. Senator Craig, the Chairman of the Subcommittee on Forest and Public Land Management has already begun a series of oversight hearings into the operation of our National Forests, particularly in the Northwest. 1 also expect that subcommittee will soon begin to look at the operation of Reclamation facilities. Finally, as the Chairman knows, we have scheduled a hearing on S. 92, his legis- lation on Bonneville refinancing, before the Energy Production and Regulation sub- committee. Senator Nickles will chair the session starting at 10:00 a.m. on March 21. Today, however, I want to focus my comments not on the hydroelectric system, but on a related issue with serious implications for power, transportation and agri- culture in the Northwest, and for fisheries in Alaska. One of the forces driving today's issue is the status of various salmon stocks listed under the Endangered Species Act. Of these listed stocks, one of the most important is the Snake River fall chinook. The National Marine Fisheries Service now pro- poses to change its status formally from "threatened" to "endangered," which will have serious consequences for Alaskan fishermen as well as for dam operations and other river uses. I am here today to advise you, Mr. Chairman, and the other members of the com- mittee, that I feel strongly that the proposed revision in listing is not justified by the scientific evidence. In fact, I believe the relisting proposal is driven NOT by le- gitimate environmental concern — but by the worst kind of environmental politics. I intend to submit for the record a complete scientific explanation of why endan- gered status is not appropriate for the Snake River fall chinook. This document was 11 prepared by the Alaska Department of Fish and Game as a formal comment on the relisting proposal — and as anyone who looks at the record of that agency will under- stand, the Alaska Department of Fish and Game knows something about scientific management of salmon. Alaska's harvests of Pacific salmon have hit new highs dur- ing 10 out of the last 14 years, with last year's catch reaching an all-time record of 197 million fish. While these phenomenal returns owe something to favorable nat- ural conditions, they are also indicative of well-planned, well-carried-out manage- ment. I will summarize the Department's findings in a moment, but first let me inject a very important note of caution, lest my comments be taken out of context by mem- bers of the environmental community or the media. It should be clearly understood by all that I recognize the deeply depressed status of many Columbia and Snake River salmon stocks. I am not arguing against the Endangered Species Act, or against efforts to help the salmon of these rivers regain their historic abundance. In fact, as an Alaskan I understand very well the importance of these stocks, includ- ing the fact that healthier stocks in the Columbia and Snake rivers mean healthier fisneries in Alaska as well as the Northwest, healthier economy and fewer burdens on electricity rate-payers and other river users, and a healthier relationship with our Canadian partners in the Pacific Salmon Treaty. As an Alaskan, therefore, I WANT more fish in the Columbia and Snake rivers. Sound science is the key. But I submit, Mr. Chairman, that sound science is NOT being used in the relisting of the Snake River fall chinook salmon, and that failure not only affects your Pacific Northwest ratepayers, but also calls into question the science used elsewhere in the Columbia and Snake system. Now, Mr. Chairman, allow me to summarize the details: The effort to list Snake River fall chinook began in 1990. In 1992, after careful scientific review and ample public comment, the National Marine Fisheries Service listed the stock as "threatened." In 1994, the agency took emergency steps to tempo- rarily classic the stock as "endangered," and it is now proposing to make the latter action permanent. These classifications hinge not on the numbers of individual creatures, as many think, but on the likelihood of a stock becoming extinct within a particular time frame. In this case, the number of wild fish returning to the river has increased sub- stantially since 1990, and the likelihood of extinction within 100 years has fallen dramatically. In 1992, the National Marine Fisheries Service strengthened its choice of "threat- ened" status by noting that the 1991 count of 318 adult fish passing Lower Granite dam was a "considerable increase" over the 78 fish level which existed when the list- ing discussion began in 1990. And today, we can look back and see that the number of returning adults continued to increase— 549 in 1992 and 742 in 1993. The 1994 return was 441 fish, still the sixth highest return since 1980. Furthermore, the av- erage number of fish returning is also increasing: from 377 during the period 1980- 90, to 512 fish in 1990-94. Mr. Chairman, these statistics are GOOD news, not bad. Yes, Snake River fall chinook are still in trouble. But things are not getting worse, they are getting bet- ter. What has changed for the worse is the agency's attitude. Where in 1992 it made a rational decision based on observed data, it is now relying on unfounded specula- tion that things will get worse despite the facts. That, Mr. Chairman, is NOT good science. Finally, let me touch on one other area with respect to these fish. The Endangered Species Act is intended to preserve species, subspecies and distinct populations, on the theory that they may have some unique value either ecologically, or in the case of subspecies and distinct populations, as a source of genetic material which would otherwise be lost to the species as a whole. Stocks such as the Snake River fall chi- nook are treated as subspecies. For the purposes of the Endangered Species Act, however, the agency separates Snake River fall chinook into two groups: fish which make it past Lower Granite dam to spawn naturally in the river, and fish associated with the Lyons Ferry hatchery, for which the most genetically "pure" fish were collected and removed from the spawning population well below Lower Granite dam. Only the fish spawn- ing above Lower Granite are given Endangered Species Act protection. First of all, if both groups were counted toward Endangered Species Act goals, it is evident that the numbers of "Snake River fall chinook" would be considerably higher than the agency now insists. However, we have already seen that the agency is no stranger to manipulating numbers. More important questions are raised by the fact that the fish allowed to spawn naturally have also been most heavily infiltrated by strays from elsewhere in the river system. 12 First, if our purpose in providing the protection of the Endangered Species Act is to preserve the unique genetic make-up of the subspecies, then why are we apply- ing the protection ONLY to the population segment with the weakest claim to that genetic makeup? Given the considerable degree of straying known to have occurred — the mixing ef- fect of which has been INCREASED by removing "pure" fish before they reach the spawning grounds — does the naturally spawning group even QUALIFY for the pro- tection of the Act? Or is it a hybrid created in part by past National Marine Fish- eries Service policy? And if, after all, the hybrid is entitled to the Act's protection, then how can we in good conscience — and good science — fail to both protect and COUNT the geneti- cally more authentic group that is associated with the hatchery? Mr. Chairman, I am not going to get into the motives that may have led us to this point. That is a discussion for another day. But motives aside, the FACT is that the scientific process with regard to Snake River fall chinook is flawed — deeply flawed. The FACT is that those flaws are having an extraordinary effect both on fisher- men in Alaska, who have had their chinook salmon harvest reduced by 23,000 in order to allow 23 fish to pass by — most of which were subsequently killed by other factors which the Endangered Species Act has failed to control. And the FACT is that the river-dependent ratepayers and users of the Pacific Northwest are also affected by the same flawed science. In closing, let me stress once again: Columbia and Snake River salmon stocks are unquestionably in deep trouble, we should do everything we can to restore them, and there are any number of reasons why doing so is well-worth the cost. But in fairness to all those from the Pacific Northwest and Alaska who are being asked to shoulder the burden of those costs, we MUST ensure that our programs are based on sound science. Today, with respect to the Snake River fall chinook salmon, that is not the case. Thank you again, Mr. Chairman, for your interest and your patience. I would like to submit this copy of the State of Alaska's February 22, 1995 comments on listing the Snake River fall chinook as an endangered species for the Committee's perma- nent record of these proceedings, and I stand ready to work with you and the other Members from the Northwest on resolving these issues. 13 LETTER FROM FRANK RUE, OFFICE OF THE COMMISSIONER, THE DEPARTMENT OF FISH AND GAME, JUNEAU, AK February 22, 1995 Mr. William W. Stelle, Jr. Northwest Regional Director National Marine Fisheries Service 7600 Sand Point Way N.E. Bin CI 5700 Building 1 Seanle, WA 98115 Dear Mr. Stelle: This letter is written in response to your February 12 invitation to concerned parties to comment on Federal Register Notice, 59 FR 66784, December 28, 1994, announcing the National Marine Fishery Services's determination to reclassify listed Snake River chinook salmon from threatened to endangered. Alaska's primary interest in this action is with the Snake River fall chinook salmon stock. Actions taken by the National Marine Fishery Service (NMFS) relative to Snake River fall chinook salmon have the potential to greatly affect our Southeast Alaska salmon fishery where this stock is harvested at a very low rate. Past actions taken by the NMFS due to concern over this stock have had significant effects on the Southeast Alaska economy and life style, and we are concerned about future NMFS actions, as these actions may also affect future jobs and families in Alaska. Our interest is in ensuring that any decision regarding the reclassification of Snake River fall chinook follows sound biological principles and be rigorously justified using the best available scientific and commercial data. Fishery scientists of the Alaska Department of Fish and Game have reviewed the information included in the notice, gathered additional information, and developed an analysis of the NMFS intended action. The report developed by these fishery scientists is anached to this lener. Our analysis led to two conclusions. First, the best available scientific and commercial data indicates that the change of Snake River fall chinook from threatened status to endangered status is not appropriate because the status of the currently defined ESU has improved since listing and the likelihood of extinction has diminished considerably. And second, the Snake River fall chinook ESU itself needs redefinition to include Lyons Ferry hatchery fish. Thank you for the opportunity to provide comments on this proposed federal action. Sincerely, Uiji^ U^^^ypr' Frank Rue Commissioner ANALYSIS OF SNAKE RIVER FALL CHINOOK SALMON BACKGROUND Chinook aalmon Oncorhynchua tshavytMch* *r« r.*tlv. to the Columbia River and its largest tributary, the Snake River. Three rune of chinoolt salmon are recognized in the Snake River based upon entry time of adults into fresh water (spring, summer, and fall). Historically, the Snake River supported the largest run of fall chinook in the Columbia Basin. Fall chinook were widely distributed throughout the Snake River and many of its tributaries. Fall chinook spawned and reared from the confluence of the Snake and Columbia rivers upstream some 615 miles to Shoshone Falls, Idaho. The most important spawning 14 grounds (Evermann 1896) were from river mile 328 (near Huntington, Idaho) to river mile 607 (near Auger Falls, Idaho). Fall Chinook were prevented from migrating above river mile 456 in 1901 because of the construction of Swan Falls Dam (Parlchurst 1950). An average of about 72,000 fall chinoolc annually returned to the Snake River between 1928 and 1949 (Irving and BJornn 1981). Annual abundance of Snake River fall Chinook subsequently declined to an average of about 29,000 fish during the 1950s (Irving and Bjornn 1981), but none the less, the Snake River remained the most important production area for fall Chinook in the Columbia River basin (Fulton 1968). The construction of Brounlee Dam at river mile 285 in 1958, Oxbow Dam at river mile 273 in 1961, and Hells Canyon Dam at river mile 247 in 1967 blocked upstream passage of Snake River fall chinook and thus prevented the stock from reaching what had before been the major spawning and rearing areas (Van Hyning 1968). Snake River fall chinook spawning and rearing habitat was further reduced during the 1960s and 1970s by the construction of four dame in the lower portion of the river even though these dams provided upstream passage devices. The four dams were: (1) Ice Harbor Dam at river mile 10 in 1961; (2) Lower Monumental Dam at river mile 42 in 1969; (3) Little Goose Dam at river mile 70 in 1970; and, (4) Lower Granite Dam at river mile 108 in 1975. As a result of the extensive hydrodevelopment of the Snake River, the freshwater spawning and rearing habitat available to Snake River fall chinook has been reduced to a small fraction of what was available historically. The remnant population of Snake River fall chinook remaining today is believed to spawn in the 100 miles of the Snake River between Hells Canyon Dam (river mile 247) and the pool above Lower Granite Dam (river mile 108; pool is 39 miles in length); although deep water spawning in the tailraces of the four lower river dams is believed to occur. Counts of fall Chinook at Lower Granite Dam since 1975 (ODFW £ WDF 1991 & 1992) when it was constructed have ranged from 780 in 1980 (450 adults and 330 jacks) to 2,585 in 1986 (784 adults and 1,801 jacks). Reproductive potential of the population as measured by adults passing Lower Granite Dam decreased from a level of 1,000 in 1975 to 335 adults in 1990. On June 7, 1990, NMFS received an Endangered Species Act petition to add Snake River fall chinook salmon to the list of threatened and endangered species from Oregon Trout, with co-petitioners Oregon Natural Resources Council, the Northwest Environmental Defense Center, American Rivers, and the Idaho and Oregon Chapters of the American Fisheries Society. NMFS published a notice on September 11, 1990, announcing that the petition presented substantial scientific information indicating that the listing may be warranted and a status review of fall chinook was initiated. In June 1991, NMFS published a status review for Snake River fall Chinook salmon (Waples et al. 1991) and a proposed rule to add Snake River fall chinook to the endangered species list with the status being listed as threatened (June 27, 1991; 56 FR 29547). The following spring, NMFS announced its final decision to list Snake River fall Chinook as threatened on the endangered species list (Vol. 57, No. 78, April 22, 1992). On August 18, 1994, NMFS took emergency action to reclassify Snake River fall chinook from threatened to endangered status. This emergency rule expires on April 15, 1995. On December 28, 1994, NMFS announced intent to permanently reclassify Snake River fall Chinook as endangered (59 FR 66784) and requested comments. This document was prepared to provide NMFS with comments from the State of Alaska on the permanent reclassification of Snake River fall chinook from threatened to endangered status. WHAT IS MEANT BY THREATEVED AND ENDANGERED? The Endangered Species Act defines the terms endangered species and threatened species as follows. The term 'endangered speciea" meArts a.ny species which is in danger of extinction throughout all or a significant portion of its range other than a species of the Class Insecta determined by the Secretary to constitute a peat whose protection under the 15 provisions of this Act would present an overwhelming snd overriding risk to mAn. The term 'threatened species' meajis Any species which is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range. NMFS made an attempt to better define these terms relative to listing decisions concerning salmon through a paper by Thompson (1991). Under the recommendations ■•ction, Thompson (1991) states: Likewise, the various analytic approaches can provide useful information with a minimum of time and data. As an example of how such approaches can be used, the density-independent diffusion model and estimation procedures described by Dennis et al . (in press) will be considered below in some detail. In discusBing the Dennis model, Thompson goes on to say: Finally, implementation of this or any other model requires choosing p* and c* values. Actually two sets of threshold values are required in the context of ESA, since the Act defines two levels of jeopardy (endangered and threatened) , As noted in the Introduction, it is unfortunate that the ESA does not define endangerment with much precision. In the absence of further guidance , perhaps the best decision for "endangered" p* and c values is to accept the conventional wisdom chat sets p* = 0.95 and f •• 100. In other words, at the 'endangered' level, HVP is the population size that gives a 95\ chance of extinction over the next 100 years. While the ESA is decidedly vague regarding the definition of endangerment, it does give some indication of how 'threatened' p" and t" values should relate Co their 'endangered' counterparts . Since a threatened species is defined as one which is 'likely Co become endangered within the foreseeable future,' one need only interpret the terms 'likely' and 'foreseeable future' to relate 'threatened' HVP to the 'endangered' MVP. A reasonable interpretation of a 'likely' event would be one which has at least a 50% chance of occurring . Quantifying 'foreseeable future' is not so straightforward, but perhaps something like 10 years would be satisfactory . In other words, the 'threatened' HVP is the population size that gives a 50\ chance of reaching the 'endangered' MVP within 10 years. This provided a fraine of reference for the KHTS initial decisions concerning the status of various salmon stocks including Snake River fall Chinook at the time this stock was added as a threatened species to the endangered species list. THREATENED VERSOS ENDANGERED STATUS The basic question is whether status of Snake River fall chinook has changed since Waples et al. (1991) evaluated stock statue and NMFS provisionally decided in 1991 to list this stock as a threatened species, a decision that NMFS subsequently reaffirmed with a final listing decision in 1992. Waples et al. (1991) evaluated a number of factors' in considering the level of risk faced by Snake River fall chinook salmon in 1991 and concluded that: the current population occupies a fraction of its former range, the remaining (and historically, the moat productive) habitat having been inundated by reservoirs or blocked by dams. Waples et al. (1991) concluded that adult returns of Snake River fall chinook declined by three to four orders of magnitude from pristine levels. Waples et al. (1991) specifically recognized that the estimated number of wild spawners in 1987, 1989, and 1990 were the second, fourth. 16 and first lowo«t on record, respectively; and that in 1990 just 78 wild fish were estimated to have passed Lower Granite Dam, only 31% of the number in the next lowest year (1987). Waples et al. (1991) evaluated the use of two time series of data for applying the Dennis model to SnaJce River fall Chinook in an effort to determine extinction likelihood, and concluded that a statistically significant change in growth rate parameters of the population occurred for runs that returned following construction and operation of the four lower river dams (about 1980; the first year for which almost all returning adults had to outmigrate through Lower Granite Dam as juveniles). Because a time series used to estimate extinction probabilities that spans a fundamental change in parameters affecting the population can give misleading results, Waples et al. (1991) leaned heavily on the 1980-1990 estimates of "natural" fall chinooVc crossing Lower Granite Dam and concluded based ui?on application of the Dennis model to this data set that the probability of extinction within 100 years was 10.8%. This probability of extinction (based upon recent population trends) was less than the 95% probability of extinction level suggested by Thompson (1991) as a minimum viable population threshold for endangered status. However, other considerations and the higher probability of extinction associated with using a longer time trend in a second Dennis model led NHFS staff to conclude that a threatened listing decision was in order. Waples et al. (1991) concluded their stock status report with the following statement: In light of the above factors, and further conaidering that a) drought conditions have likely adversely affected juvenile survival in several recent years, reducing the prospects for recovery in the near future as these year classes return as adults and b) there is clear evidence that stray hatchery fish of non- Snake River origin pose a serious threat to the genetic integrity of the wild population, the BRT concluded that Snake River fall Chinook salmon face a substantial risk of extinction if present conditions continue . Following the Waples et al. (1991) paper and a proposed rule by NMFS to add Snake River fall chinook to the endangered species list with the status being defined as threatened (June 27, 1991; 56 FR 29547), various reviewers to the proposed rule stated that fall chinook should be listed as endangered rather than threatened. On April 22, 1992, NHFS responded to this very pointed criticism in the final rule and specifically stated : The threatened species designation in the proposed rule was based on an assessment of the best available scientific and commercial information , taking account of efforts to protect the species. In making its final determination , NMSS considered the 1991 estimated escapement of 318 wild adult fall chinook salmon above Lower Granite Dam. This represents a considerable increase over the 1990 estimated escapement of 78 adults. Further, starting in 1991, all hatchery-produced fall chinook from the Snake and Umatilla Rivers were tagged in order to separate adult hatchery and wild fish at Snake River dams. Tagged hatchery fish will be prevented from ascending further upstream, while wild fish will be allowed CO proceed. This measure will be significant in reducing any introgression of the Snake River gene pool with Columbia and Snake River hatchery-produced fall chinook salmon. Furthermore, at Lyons Ferry Fish Hatchery, the practice of taking wild fish for brood stock has been stopped. Despite the need for caution in using the moat recent years figure in determining a trend, this increase approaching previous escapement levels typical of the 1980s may be attributable, at least in part, to the protective measures already undertaken . Consequently, HMFS is issuing a final determination to list the Snake River fall chinook salmon as threatened under the ESA. A very notable change in the NMFS approach to Snake River fall chinook and the listing status determination question is apparent in the two 1994 Federal Registers (emergency status change rule dated August 18, 1994, and the proposed permanent reclassification dated December 28, 1994). Rather than relying upon a reasoned, objective analysis of 17 available scientific and convnercial data as in the previous administrative record, NMFS changed its approach and is now relying predominantly upon: (1) preseason projections of the 1994 return of fall Chinook to the mouth oif the Columbia River; (2) guesses relative to the 1995 return; and (3) a new characterization of wild escapements that have accrued since listing as being "low." Specifically, the December 28, 1994, Federal Register states: AJter the listing of Snake River fall Chinook salmon as a thr»at0ned species in 1992, adult counts at Lower Granite Dam during 1992 and 1993 remained at low levels. In-season estimates for the 1994 return indicate that the situation has not substantially improved . This lack of overall improvement during recent years, exacerbated by the low returns of 1994 and expected low returns in the next few years, indicates that the Snake River fall Chinook salmon faces an imminent threat of extinction throughout all or a significant portion of its range. The projected adult return of listed Snake River fall chinook salmon to the Columbia River during 1994 iM 803 fish, the second lowest on record (Columbia River Technical Staffs (CRTS) 1994). As discussed in CRTS (1994) and summarized in NMFS (1994), the number of listed Snake River fall chinook returning in 1994 ia expected to be below replacement level (i.e., fewer progeny th^n parents); spawners have not replaced themselves In 7 or 8 of the last 9 years . Although final count data from the 1994 return will not be available until February 1995, a tentative forecast of the 1995 run size suggests that the return will be about 60\ of that expected in 1994 (NMFS and USFVS 1994). While it ia impossible to make specific projections for returns of fall chinook over the next 3 to 5 years, it ia possible to comment generally on the prospects for decreasing run sizes. The number of offspring from the 1991 brood is apparently quite small based on the record low return of jacks in 1993. Therefore, the 5 year-old component of the 1996 return is likely to be low. There was sufficient escapement in 1992 and 1993 to allow for increased returns after 1995, but success of these runs will depend largely on improvements in migration passage and ocean survival conditions . Although risks associated with small population sizes are also applicable to Snake River fall chinook salmon, currently there is no evidence of multiple , naturally spawning subpopulations of this species. Still, the primary risk Co Snake River fall chinook salmon remains the continued low numbers of spawning adults, and genetic and demographic risks will increase if the population remains at depressed levels for a number of consecutive years. Thus while in 1992, NMTS describes the count of 318 wild fall chinook over Lower Granite Dam as representing'* considerable increase over the 1990 estimated escapement of 78 adults,' in 1994, NMFS describes counts of 549 and 742 wild fall chinook over Lower Granite Dam in 1992 and 1993, respectively as escapements that 'remained at low levels.' The estimated wild escapement past Lower Granite Dam in 1990 was 78 fish, the lowest on record since 1980 when as Waples et al. (1991) documented, a statistically significant change in growth rate parameters of the population occurred. Since 1990, wild escapement past Lower Granite Dam has bean estimated at 318, 549, 742, and 441 fish which represent the twelfth highest, third highest, first highest, and sixth highest escapements, respectively, of wild Snake River fall chinook during this 15 year j>eriod. The average escapement of fall chinook salmon past Lower Granite Dam from 1980 through 1990 was 377 fish; while the average for 1991 through 1994 was 512 fish, a 36% increase. The facts are that the estimated number of wild fall chinook passing above Lower Granite Dam has increased by a factor of about one third over the levels that escaped prior to listing and since the change in growth rate parameters to this population occurred as a direct result of loss of habitat and increase in migration difficulty due to dam construction. Additionally, the escapement of wild fall chinook above Lower Granite Dan in. 1994 was not the second lowest on record as the preseason 1994 forecast indicated (and as the December 28, 1994 Federal Register uses 18 as best available scientific data), but was instead ranked number 11 of 20 since 197S (when Lower Granite Dam was installed), and ranlced number 6 of 15 since 1980 (the first year for which the majority of the adults had to circumvent all four lower river dams during their juvenile downstream migration). Given the currently restricted spawning and rearing habitat, the 1994 escapement of wild fall chinook was within the range of escapements expected it hardly approached a record low level as stated in the December 28, 1994 Federal Register. Further, the record low count in 1993 of 39 jaclcs which was used as a rational in the December 28, 1994, Federal Register to predict a low run of adults in 1994 and a continued low run of adults in 1995, hardly resulted in a dismal return of adults in 1994. In fact the second lowest count of jac)cs passing Lower Granite Dam (102 jacks) occurred in 1992 and was followed one. year later with an adult return of 742 fish (the highest count since 1980; rank 1 of 15) and an adult return two years later of 441 fish (the sixth highest count since 1980; rank 6 of 15). Thus, the basic question as to whether status of Snake River fall Chinook has changed since 1990 and whether or not this change justifies a change in the listing status has not been adequately substantiated by the information presented in the December 28, 1994, Federal Register. NMFS in announcing its decision to reclassify Snake River fall Chinook from threatened to endangered failed to use the best available scientific and commercial data. Further, NMFS has substantially changed their characterization of the value of escapement increases since 1990 in an arbitrary and capricious manner. To properly address the change in listing status question, an objective analysis is required. INFORMATION NEEDED TO DETERMINE THE NEED FOR A CHANGE IN THE LISTING OF SNAKE RIVER FALL CHINOOK Several analyses necessary to make a biologically sound determination concerning the need to reclassify the Snake River fall chinook from threatened to endangered were absent from the December 28, 1994 Federal Register announcement. The following factors should be analyzed prior to any change in the listing of the Snake River fall chinook. Escapement An objective analysis should include the basic data concerning escapenckents of fall chinook through 1994. The basic data presented should include estimates of both "natural' fish and strays in the escapements. And to the extent possible, hatchery production should be separated from 'natural' production so that trends in the "natural' population can be more fully evaluated. Because of the way the evolutionartly significant unit (ESU) is currently defined, the key question is whether or not "natural' escapements have increased over levels prior to listing. A change in status to the more conservative endangered level of ESA listing would be in order if natural escapements decreased relative to pre-listing levels. Likelihood of Extinction An objective analysis should compare the status and risk of extinction for fall chinook through 1990 to the status and risk of extinction for extinction based upon time series ending in 1990 versus time series ending in 1994 will indicate whether the likelihood of extinction has: • decreased, indicating a change in status is not warranted; • stayed the same, indicating a change in status is probably not warranted; or, • increased, indicating a change in status is warranted. 19 Probability of Paraittenc* with R«Bp«ct to SuryiTkl An objectiva analysis of tha currant status of Snaka Rivar fall chinook should also consider tha naw information recently developed in conjunction with the IDFG v NMFS litigation settlamant negotiations relative to the probability of persistence with respect to survival under recent and various alternative hydro system management configurations. The key question here is whether changes in the management of the hydro eyatem are placing the stock of fall Chinook in more jeopardy (indicating a change in status may be warranted) or are placing the stock in less jeopardy (indicating a change in status is not warranted) . Spawnar-Racrult Relationship An objective analysis should include investigation of tha effects of spawner density on recruitment of Snake River fall Chinook. A spawner- recruit relationship developed for escapements past Lower Granite Dam is needed to assist in quantifying the level of escapement appropriate for this stock under present conditions. Prior analyses have concluded that escapements should increase above recent levels, but an objective analysis is generally lacking relative to how much increase is appropriate given the diminished availability of habitat for Snake River fall Chinook since 1975. This spawner-recruit relationship should be limited to escapements enumerated since 1975 since the progeny of these escapements had to negotiate all four of the lower river dams and these spawnera and their recruits had to reside in the reduced freshwater spawning and rearing hcOsitats available following construction of all major Snake River dans. This relationship (a Ricker function) has the potential to be far more informative than the spawner to spawner relationship developed by Dygert (1994) and Roler (1994) because it will help to determine if production of fall Chinook is dependent upon spawner density as is typically the case for anadrocnous salmon populations. Further residuals in the modeled spawner-recruit relationship can be used in conjunction with other variables to better understand the factors currently limiting production of Snake River fall Chinook spawning and rearing in the wild. Forecasts of Adult Returns An objective analysis should include evaluation of the accuracy of forecasts to predict future years returns of Snake River fall chinook before these forecasts are uaed to make listing status changes and before too much faith is placed in these forecasts for other ESA related management actions. Hatchery Strays and Genetic Integrity An objective analysis of the current status of this ESA protected stock should also address the "species" question. In determining if Snake River fall chinook qualify as a species under the ESA, Waples et al. (1991) concluded with the following statement Although Che NNFS Horchuest Region Biological Review Team (BRT) concluded that, historically. Snake River fall chinook salmon were an ESCI , it is not so clear whether this is still the case. One viewpoint is that introgreasion from Columbia River hatchery strays has caused the Snake River population to lose the qualities that made it 'distinct' for ESA purposes . Evidence in support of this viewpoint includes genetic and tagging data documenting effects of straying on Lyons Ferry Hatchery brood stock, estimates that in 1990 a high proportion of fish passing Lower Granite Dam and found on nearby spawning grounds were hatchery strays, and the lack of any positive information documenting the continued existence of 'pure' wild fish. However, given that 1) an EStJ was present until at least the early 1980s, f) substantial straying of upper Columbia River hatchery fish has occurred only within the last generation , and 3) no direct evidence exists for genetic 20 change co wild fall Chinook salmon in Ch» Snake River, the BRT felt it voiild be premature Co conclude that the ESO no longer exists . Since 1990, four years of additional data are available concerning strays past Lower Granite Dan and the question of whether or not this Btock of salmon still meets the NMFS standard of a "species" from an ESA standpoint should be addressed in the status review. Further, the historic stock of Snake River fall chlnook is currently represented by two groups of fish: (a) fish associated with Lyons Ferry Hatchery, fish not presently protected under the ESA' because they are not classified as being in the Snake River fall Chinook salmon ESU by NMFS; and (b) progeny of fish spawning in the wild in the Snake River, fish which are protected under the ESA b«cause they are the fish defined by KHFS to be in the Snake River fall Chinook salmon ESU. Fish readily cross between the ESA protected portion of the population and the ESA uoprotected portion of the population across generations due to brood stock collections and straying. Up-to-date genetic information concerning introgression of Columbia River strays on the "natural" population should be suimarized, analyzed, and presented. Models should be developed of the likely "genetic pool" of fish defined as "naturals" based upon various assumptions concerning the fitness of Snake River strays and Columbia River strays as they enter the spawning grounds used by the "naturals'. Key questions and points that need to be addressed by a change in status review of the Snake River fall Chinook salmon ESU include: • Is it logical to have both a protected and an unprotected portion of the remnant endemic stock of Snake River fall Chinook? • Is it logical to have put into place a system of ESA mandated protection where members of the population move into and out of the ESU across generations and hence move in and out of the protected class? • la it logical to apply ESA mandated protection to the portion of the stock that likely least resembles the historic endemic stock? • Should the ESU be modified and redefined to include Lyons Ferry Hatchery fish? And if so, is this modified ESU threatened or endangered? • Does the protected portion of the stock (or as an alternative, both portions of the stock) still meet the species standard or has introgression resulted in a hybrid stock that no longer meets the ESU criteria for ESA protection? • Should the appropriate ESU be Snake River-Upper Columbia River fall Chinook? And, if so, is this potential ESU threatened or endangered? DISCUSSION Escapeaant The longest continuous set of complete data concerning abundance of Snake River fall Chinook are the counts of these fish as they passed over Ice Harbor Dam; counts are available from 1965 through 1994 (Table 1; Figure 1). Counts of adult fall chinook over Ice Harbor Dam decreased ten-fold from levels of about 10,300 per year from 1965-1974 to levels of about 1,300 per year from 1975-1979. These reductions reflect the stock reduction associated with construction of the full set of lower river dams. Counts for the period 1980 through 1990 (pre- 21 listing and post dam construction effects) averaged about 2,800, about double the counts during the 197S-1979 period. During this period (1980-1990), an egg bank program for Snake River fall Chinook eventually led to the release of fall Chinook at Lyons Ferry Hatchery, and resulted in the counts at Ice Harbor Dam reflecting not only the escapement of naturally spawning fish upstream of this dam but the returns to the upstream hatchery as well. Counts of Snake River fall Chinook passing Ice Harbor Dam during the period 1991 through 1994 averaged about 3,500; about three-fold the average counts during the period 1975-1979 and about 25% above the levels counted during the 1980-1990 period. Counts of fall Chinook passing Ice Harbor Dam during the period 1991-1994 also represent a combined assessment of both natural spawners and returns to the Lyons Ferry Hatchery. Part of the brood stock development program for the Snake River egg bank and the continued developcsent of brood stock for Lyons Ferry Hatchery involved taking fish ('mining') immediately upstream of the counting station at Ice Harbor Dam (Table 2; Figure 2). Between 1976 and 1990, from 162 to 1,613 of the Snake River adult returns were "mined" for brood stock. This resulted in the abundance of natural spawners being depressed by annual levels that ranged from 7% to 53% as the run progressed upstream (Table 1; Figures 3, 4, and 5). "Mining" was confined to known hatchery fish from 1991-1993; in 1994, no fish were "mined" at this downstream location. Counts of fall Chinook passing Lower Granite Dam have been made since 1975 (Table 3). Total counts of fall chinook passing Lower Granite Dam since 1975 have ranged from 575 fish in 1990 (385 adults and 190 jacks) to 2,585 fish in 1986 (784 adults and 1,801 jacks). Abundance of adults during the 1975-1979 period averaged about 640 fish; abundance of adults from 1980-1990 averaged about 620 fish; and, abundance of adults from 1991-1994 averaged about 860 fish or almost 40% higher than the earlier periods before Snake River fall chinook were added to the endangered 8(>ecies list as a threatened species. Coded wire tag technology provided a tool during the early 1980s to identify individual stocks of salmonids. Use of this tool since 1983 in the Snake River has provided estimates of the number of chinook counted past Lower Granite Dam that were hatchery strays (Tables 3 and 4). Subtraction of the number of strays from the total count of fall chinook at Lower Granite Dam has allowed estimation of the numbers and proportions of the escapements that were the progeny of "natural" spawning (non-hatchery spawned fish). Abundance of non-hatchery spawned adult Chinook passing upstream of Lower Granite Dam during the eight- year period 1983-1990 is estimated to average about 330 fish; whereas, abundance of these fish since ESA listing (1991-1994) is estimated to average about 510 fish or about 55% higher than the pre-listing average. The effect of downstream brood stock "mining* on the estimates of "natural" spawners passing Lower Granite Dam can be made based upon simple proportions (Table 1). "Natural" escapements, adjusted for downstream brood stock "mining" since 1983, essentially removes the effects of the egg bank program and the Lyons Ferry Hatchery from the Lower Granite Dam count. Abundance of non-hatchery spawned adult Chinook passing upstreaim of Lower Granite Dam during the eight-year period 1983-1990 after adjustment for brood stock "mining" is estimated to average 456 fish; whereas, abundance of these fish since ESA listing (1991-1994) is estimated to average 512 fish, an increase of about 12% over the pre-listing average. This 12% increase reflects the change in abundance of "natural" spawners before and after ESA listing without the confusing effects of the egg bank and hatchery program. Thus, the escapement data, both with and without adiuatment for the confueinq affects of the egg bank and hatchery program, do not euppcrt changing the status of Snake River fall chinook from thraatened to endangered. A summary of the total Snake River fall chinook population whether they were spawned in the wild or spawned in a hatchery is provided in Tables 5 and 6 and in Figure 6. 22 Likelihood of Extinction The probability that Snake River fall chlnook aalmon would become extinct was estimated to be 10.8% by Waples et al. (1991) uaing an exponential diffusion model (Dennis et al. 1991). This estimate was made using natural escapements from 1980 to 1990 above Lower Granite Dam and employed a five-year averaging routine. Since that report, no one has been able to duplicate those results (see Cramer and Neeley 1993); and, many of the assumptions behind the analysis and the analytical technique itself may be suspect. In addition, there are four additional years of recent escapements which should help better aBsese the trend in escapements and project future stoc)( abundances. We developed a more robust method of evaluating trends in eecapements and estimating the probability of extinction of Snake River fall chinook within 100 years (by 2089). This method (termed the bootstrap method) employs a bootstrapping technique which randomly selects a ratio of observed escapement by age that has resulted from a given escapement 3, 4, and 5 years before. This method makes no assumption on underlying statistical models, incorporates the age structure of the population into the analysis, and uses a nonparametric error structure. Four time series of data were compared using the bootstrap method: (1) escapements from 1980-1990; (2) escapements from 1975-1990; (3) eecapements from 1980-1994; and, (4) escapements from 197S-1994. The two time series ending in 1990 represent the information available at the time Snake River fall chinook were first listed. The two time series ending in 1994 represent the information available today and differences in the likelihood of extinction between these ending dates reflect the changes in extinction probability or the change in risk that the listed stock faces. The two time series starting in 1980 reflect the time period when the stock was affected by all Snake River dams during their life cycle; whereas, the time series starting in 1975 reflect a changing period in terms of affects of dams on the listed stock. A fifth evaluation was conducted using the bootstrap method. The fifth comparison weighted the ratios from parent escapements to 1991-1994 age specific escapements so that these ratios were twice as likely to be randomly chosen as other earlier ratios. This took into account that changes initiated to protect Snake River fall chinook salmon after 1990 would continue and thus ratios calculated using escapements in these years would be more likely to occur than ratios in previous years. For each simulation in the bootstrap method, the age composition of 1975-1982 and 1994 escapements were randomly selected from the estimated age compositions of the 1983-1993 escapements. The ratios of: (1) escapement in year i to the age 3 escapement in year i*3 for the years 1975-1991; (2) escapement in year i to the age 4 escapement in year 1*4 for the years 1975-1990; and, (3) escapement in year i to the age 5 escapement in year l-*-5 for the years 1975-1989 were calculated to provide the set of ratios to randomly choose from to produce age specific escapements from the parent escapements. Thus production, by age, from a give escapement was randomly selected from historical production ratios. The escapements use^ in the bootstrap method are presented in Table 7 and are taken from "Dygert (1994) and Matylewich (personal communication) The age compositions of the escapements were taken from Roler (1994). The bootstrap method, used 1,000 simulations. Probabilities of achieving specific escapements were estimated as the proportion of times that the 1,000 simulations reached these escapements in the year 2089. The bootstrap selection process can best be described by illustrating the process with an example (Tables 8 and 9). Table 8 demonstrates how 23 the age composition* are randomly assigned to years that have no age composition data and how production ratios are calculated. The escapement in 1975 is the parent escapement of age 3 fish returning in 1978, ag« 4 fish in 1979, and age 5 fish in 1980. Since no age composition data is available for 1978, a year with age composition data is randomly chosen (1985) and that age composition is assigned to 1978. Thus 5.4% of the escapement in 1978 (640 fish) is calculated to be comprised of age 3 fish, or 34.6 fish. This results in an estimate of 1,000 fish escapement in 1975 producing 34.6 age 3 fish in 1978, or a parent escapement to age specific return escapement of 0.0346. In a similar manner, the ratio of the 1975 parent escapement to 1979 age 4 return escapement is 0.3610 and the ratio of the 1975 parent escapement to the 1980 age 5 return escapement is 0.1170. This process is continued for parent escapements through 1989 for age 5 returns, 1990 for age 4 returns, and 1991 for age 3 returns. The random selection of age composition for years with unltnown age composition is repeated for each of the 1,000 simulations. Table 9 demonstrates the forecast procedure for one simulation. A parent escapement in 1992 will produce age 3 fish in 1995. Randomly, one of the age 3 parent to age specific return escapement ratios (0.0679) is chosen, which when multiplied by the 1992 escapement, yields an age 3 escapement of 37.3 fish. Li)(ewise, the parent escapement in 1991 of 318 fish, after randomly choosing an age 4 parent to age specific return escapement ratio of 0.8510, will produce 270.6 for the age 4 e8cap>ement, and the parent eBcap>ement in 1990 of 78 fish, after randomly choosing an age 5 parent to age specific return escapement ratio of 0.1420, will produce 11.1 in the age 5 escapement. This results in a total escapement of 319 fish in 1995. This process is continued through the year 2089 to produce a simulated escapement of 899 fish. If the escapement had decreased to the specified level of extinction (either 1 or 30 fish) the simulation is terminated and the population is considered extinct. We also applied the exponential diffusion model (Dennis et al. 1991) to the same four time series to estimate extinction likelihoods because that is the method Waplea et al. (1991) used when Sna)ce River fall chinoo)c were first listed. Waples et al. (1991) used running averages with the exponential diffusion model; we used the actual escapements. Running the exponential diffusion model provides a comparison to the results of the bootstrap method and creates a linJc to earlier evaluations of the extinction risk that Snake River fall chinook salmon face. The outlook for the Snake River fall Chinook salmon population using escapement data truncated in 1990 is very pessimistic using either the bootstrap method (Table 10 and Figures 7-11) or the exponential diffusion model approach (Table 11). The results from the bootstrap analysis estimates that the probability of extinction is 97.0% or 98.3% (depending if the 1975-1990 or 1980-1990 data set is used, respectively) if extinction is defined as 1 fish. If extinction is defined as 30 fish (see Crammer and Neeley; 1993 for an explanation of the rational of this value) then all simulations using the data through 1990 resulted in the abundance falling below the extinction criteria. Using the exponential diffusion model with data only through 1990, the probability of the population abundance falling below extinction levels of 1 or 30 always exceeded a probability of 99%. However, if the 1991 through 1994 escapement data is included in the analysis, the outlook for the Snake River fall chinook salmon population is substantially more optimistic. In the bootstrap analysis, none of the simulations resulted in population abundances approaching 1 fish at the end of 96 years. In fact, the probability of reducing the population to 30 fish or less was 0.3%, 5.0%, and 4.4% for the 1980-1994 data series, the 1975-1994 data series, and the weighted analysis using the 1975-1994 data series; respectively. None of these probabilities meet the criteria for an endangered species as specified by Thompson (1991). In fact, there is less than an 8% chance of the population being fewer than 300 fish in 2089, less than a 22% chance of the population being fewer than 1,000 fish in 2089, and over one-half of the 24 sifliulationB resulted in populations being greater than 5,000 fish in 2089. The exponential diffusion model also demonstrated markedly better forecasts using data through 1994. The probability of the escapement reaching 1 fish by 2089 decreased from over 99% to 35% using data from 1980-1994, and to 53% using data from 1975-1994. The saiiie reduction in probability of extinction, when extinction is defined as 30 fish, was estimated to be 68% and 82%; respectively. The addition of the 1991-1994 escapements considerably improves the assessment of the status of the Snake River fall chinook salmon stock. The 1993 escapement of 742 Chinook salmon was the largest since 1975 and the 1991-1994 4-year average escapement of 512 fish was the largest 4- year average since 1977-1980. These recent large escapements, compared to the previous 10 years, are evidence that the trends in stock abundance are not nearly as bleak as previously thought. These data do not support changing the status of Snake River fall Chinook from threatened status to endangered. Probability of Paraistence with Respect to Survival The Biological Requirements Work Group (BRWG) formed as a result of the IDFC V NMFS litigation settlement negotiations has been modeling Snake River fall Chinook under various alternative hydro management scenarios. The State and Tribal Fishery Agencies Analytic Team (STFA), a component of the BRWG, submitted a report entitled Preliminary Summary of fall Chinook Model Results for 1995 Biological Opinion to NMFS on February 10, 1995, which provides modeling results obtained as of that date (STFA 1995). These results include estimates of the probability of persistence of Snake River fall Chinook with respect to survival. The BRWG defined 300 spawners as a critical minimum escapement level for Snake River fall Chinook. The STFA identified 70% as a 24 year or shprt-term probability level and 90% as a 100 year or long-term probability level that is equivalent to the historic probabilities used in the spring/summer Chinook assessment; these values provide useful benchmarks in understanding STFA fall Chinook modeling results. The STFA estimated that the proportion of yearly escapements at or above 300 for a 24 year period was 0.38 and 0.39 with depensation and without depensation; respectively, based upon recent runs and recent hydro management conditions (BY 80-88). The STFA estimated that the proportion of yearly escapements at or above 300 for a 100 year period was 0.09 with or without depensation based on recent runs and recent hydro management conditions (BY 80-88). In other words, the proportions of Snake River fall chinook escapements exceeding the threshold value of 300 is projected to be under 40% in the short-term and under 10% in long-term if hydro management conditions remained as they were during the 19808. These short-term and long-term probabilities are substantially less than the 70% and 90% STFA suggested benchmark levels, indicating that the stock was in jeopardy in the 1980s and would remain in jeopardy under these 1980 type hydro management conditions. The STFA conducted similar modeling for Snake River fall Chinook for a variety of other hydro system management scenarios under discussion in the IDFO V HMFS litigation settlement negotiations because management of the hydro system is currently being altered to benefit listed salmon 8p>ecies and clearly, the hydro system will not be allowed to continue to operate under the 1980-1988 base level conditions. The hydro system management scenario, as outlined in the 1994-1998 biological opinion, was used as one of the hydro system management scenarios. Depending upon depensation and a variety of assumptions concerning transport benefits and predator control effectiveness, the STFA estimated that the proportion of yearly escapements at or above 300 for a 24 year period ranged from 0.44 to 0.95 based on the 1994-1998 hydro biological opinion with 4 of the 8 (50%) model cases exceeding the short term benchmark level of 70%. Comparative probabilities for these 8 model runs over a 100 year period resulted in probabilities ranging from 0.11 to 0.96 with 2 of the 8 (25%) model cases exceeding the long term benchmark of 90%. 25 This indicatea chat the probabilities of the Snake River fall Chinook run having escapements in excess of 300 fish is considerably higher than was the case based on recent years; and, the level of jeopardy is reduced over the recent year model runs. Assuming that reasonable and prudent alternatives are implemented to benefit listed salmon under the final biological opinion for the hydrosystem, which will be issued as a result of the lOFC v. NHFS judgement, the probabilities of Snake River fall chinook escapements exceeding 300 fish will increase over the levels modeled with the original 1994-1998 biological opinion. Indeed, when the STFA used hydro management options as defined under the Detailed Fishery Operating Plan (DFOP 1993) with 16 options under a variety of assumptions concerning depensation, transport benefits, and predator control effectiveness, the STFA estimated that the proportion of yearly escapements at or above 300 for a 24 year period was always 1.00 (always exceeded the benchmark level of 70%) and the proportion of yearly escapements at or above 300 for a 100 year period was also always 1.00 (always exceeded the benchmark level of 90%). It is uncertain exactly how the hydro system will be managed in coming years, but it is likely that alternatives will be implemented that will increase the probability that escapements will exceed 300 fish. Hence, Snake River fall chinook are in less jeopardy now than was the case at the time of listing (the model results associated with recent BY 80-88). The STFA model results do not support chanaino the status of Snake River fall Chinook from threatened to endangered. The status of Snake River fall Chinook is projected to improve over conditions in place at the time of listing because of altered and improved hydro system management. Spawner-Racruit Relationthip Two spawner-recruit relationships were developed for the Snake River fall Chinook salmon stock. The first relationship was developed using only natural adult escapements estimated to pass over Lower Granite Dam and the second relationship was developed using all adults counted over Lower Granite Dam. Escapement data used ia provided in Table 3 (column 1 for naturals and column 6 for the total escapements). Estimates used to apportion escapements by age were taken from Roler (1994) for the 197S-1993 escapements and the 1983-93 average was used for the 1994 escapement. Total returns (recruits) were calculated in adult equivalents (A£Q) for both catches and escapements. Returns in the escapement were calculated back to the river mouth by dam conversion rates included from the CTC Chinook model IDL file which agree favorably with those conversion rates documented in NM7S (1994). Catches were calculated by exploitation rate analysis (ER) provided in the Pacific Salmon Commission chinook model (CTC 1994) for ocean and terminal catches. The Pacific Salmon Commission chinook (PSC-C) model does not include in-river test fish catches or some subsistence and ceremonial catches. Consequently, 30% was added to in-river catches provided in the PSC-C model to account for these catches. The PSC-C model exploitation rates are based upon coded wire tag analysis, out-putting total ER, ocean ER, and terminal ER. Total AEQ return is calculated from ESC/l-ER. Consequently, total returns were calculated as escapement to the river mouth plus terminal catches plus ocean catches, with both terminal and ocean catches adjusted to AEQs. Simple Ricker spawner-recruit relationships were fitted to the paired sets of spawners and total returns. The estimated average AEQ return for the 1975-1989 brood years was 2,949 fish, composed of an escapement to the river mouth of 1,573 fish, an ocean AEQ catch mortality of 849 fish, and an in-river AEQ catch mortality of 527 fish (Table 12). Parent year escapements averaged 485 natural spawners. Ocean mortality averaged 29% and in-river mortality (from fishing and dams) averaged 56% of the total AEQ return and averaged 78% of the return to the river mouth. Return per spawner averaged 6.7, which is high for a population with high out-migrant mortality (i.e., even with 91% to 96% downstream mortality, an average 26 of almost seven fish survived to die from fisheries or dams; or, escaped to spawn). This implies that some of the non-natural spawners were at least partially successful in producing progeny. The return per spawner for the 197S-1989 broods, when all spawners over Lower Granite Dam are included, was estimated to average 5.0 (Table 13). The estimated returns plotted against natural spawners shows a wide fan- shaped pattern (figure 12). There is little evidence of density dependence as the largest escapement (1,000 spawners) produced an estimated three recruits per spawner. The estimated returns plotted against all Lower Granite Dam spawners is similarly shaped. In both spawner-recruit relationships, the estimated curve is very flat and similar levels of returns are predicted to result from various spawning levels. Horishima (1994) indicates this is typical (from simulation studies) of extreme downstream mortality. It is possible that it is a product of errors in age composition and catches. There are no data points below the replacement line in either of the two spawner-recruit relationships. If recent escapements were on the right hand side of the spawner recruit relationship where density dependence was operating, data points below replacement would be expected, particularly given the level of downstream mortality that occurs. If the data are accurate, the estimated number of parents needed to produce a maximum sustained yield return is 440 natural adults or 472 total spawners counted over Lower Granite Dam. Another way to determine an appropriate escapement goal (other than an HSY escapement) would be to choose an escapement level that maximires coturns. The number of spawners predicted to produce maximum returns are 516 naturals or 570 total spawners over Lower Granite Dam. Recent year escapements are on the order of these estimates. The shape of the spawner-recruit curves indicates that at spawner densities observed, there does not appear to be a strong density dependent spawning or rearing limitation for Sna)ce River fall chinoo)c salmon. Further, recruitment is not below replacement even with the high levels of migration corridor mortality. Based on these analysis it seems lilcely that escapements on the order of double the indicated HSY levels (around 1,000 adults counted over Lower Granite Dam) would produce strong returns. In an attempt to determine if the estimated returns were correlated with marine survival and river flows, a multiple regression with three independent variables (escapement, marine survival, and river flow) was run against the returns using both the natural escapements and the total adult escapement past Lower Granite 0am. The marine survival index was taken from CTC (1994) and was for the Salmon River Chinook salmon stoclt, a north Oregon coast stocJc that has a similar ocean distribution pattern to Upper Columbia River brites and Lyons Ferry Hatchery fish. River flows were for the Snake and Columbia rivers during July and August. The multiple regressions improved the modeled fit of the spawner-recruit relationships somewhat, indicating that even with confounding errors, marine survival (surrogate - Salmon River Chinook marine survivals) and river flows were affecting recruitment. Residuals for the second spawner-recruit relationship (all adults counted over Lower Granite Dam) were plotted (Figure 13). The residuals are ordered and correlate somewhat with the marine survival estimates for Salmon River chinook ( R^ = 0.25). The residuals are positive at the beginning of the time series and negative at the end of the time series (positive meaning the returns were higher than predicted from the spawner-recruit curve). Because of time limits due to the deadline for responding to the December 28, 1995, Federal Register, we could not expend the level of research this topic deserves; particularly with regard to residuals analysis and comparing other variables to these residuals. We recommend that the topic be further investigated as it likely will bear fruit useful to ESA managetnent related activities for the Snake River fall Chinook population. 27 PorACABts of Adult Ratums The primary justification NMFS uses in the Federal Regieter dated December 28, 1994, for changing status of Snake River fall chinoolc salmon from threatened to endangered status are forecasts of abundance in 1994 and 1995. Consequently it is prudent to evaluate how well prior forecaatB of Snake River fall Chinook have performed. The following provides such an evaluation: Projection of Natural Actual Escapement Over Escapement Over Differences Year Lower Granite Dam Lower Granite Dam Number Percent 1993 457 742 +285 162% 1994 299 441 -t-142 147% The forecast track record for Snake River fall Chinook is short in terms of duration. Both projections significantly underestimated the actual escapements past Lower Granite Dam. Use of projections that have so significantly underestimated actual escapements as the basis for changing the listing status of Snake River fall chinook is not consistent with the Endangered Species Act requirement to use the best available scientific and commercial data when making listing decisions. Hatchar7 Strays and Oenatic Integrity Coded wire tag technology was developed during the late 19708. This technology has provided fishery scientists with a tool to identify origins of returning anadromous salmonids. Releases of hatchery spawned Chinook at various Columbia Basin facilities were first coded wire tagged during the late 1970b and returns of these fish during the early 1980s provided the first estimates of straying rates of these hatchery spawned fish. Adult Snake River strays in the escapement past Lower Granite Dam were first documented in 1983 and straying of Snake River hatchery fish past this dam have occurred each year since then (Tables 3 and 4 and Figures 4 and 5). Snake River hatchery strays were estimated to represent more than 10% of the total escapement past Lower Granite Dam during 10 of the 11 years between 1983 and 1993 (Table 4) and these fish were estimated to represent more than half of the total escapement during the years 1987 (67%) and 1990 (52%). Adult Columbia River strays in the escapement past Lower Granite Dam were first documented in 1984 and straying of Columbia River hatchery fish past this dam have occurred each year since then (Tables 3 and 4 and Figures 4 and 5). Most of the Columbia River strays were from juvenile fall chinook salmon stocked in the Umatilla River, although hatchery fish from other Columbia River system hatcheries have also strayed past Lower Granite Dam and entered the Snake River spawning grounds. Columbia River hatchery strays were estimated to represent more than 10% of the total escapement past Lower Granite Dam during 4 of the 10 years between 1984 and 1993 (Table 4) and these fish were estimated to represent more than 20% of the total escapement during the years 1989 and 1990. The potential affect of such high hatchery stray rates on the Snake River spawning grounds, both from Snake River hatcheries and from Columbia River hatcheries was an issue of concern when Snake River fall Chinook were first listed under the Endangered Species Act as a threatened species. Additionally, contamination by Columbia River hatchery fish of the brood stock used at Lyons Ferry Hatchery was a concern at the time Snake River fall chinook were listed. Waples et al. (1991) cited the proportion of Columbia River hatchery strays entering the brood stock at Lyons Ferry Hatchery as 4%, 18%, 39%, and 25% in 1987, 1988, 1989, and 1990; respectively. In 1990, a genetic control program was implemented. "Mining" for Lyons Ferry Hatchery brood stock at Ice Harbor Dam and at Lower Granite Dam was confined to fish with coded wire tags (hatchery spawned fish). Before gametes of these fish were mixed with other gametes, their tags 28 were read and only those fish with Lyoni Terry Hatchery codee were allowed to enter the Lyons ferry brood stock from 1990 on. Eggs and sperm taken from non-Lyons Ferry tagged fish were transferred to a downstream "mongrel" hatchery. Further, the mixed ancestry fish from the Lyons Ferry Hatchery brood stock spawned in 1989 were all marked with coded wire tags and returns from this tagged lot of fish have not been allowed into future generations of the brood stock. Also, the fish released from Lyons Ferry Hatchery and the fish released in the Umatilla River (the predominant population of Columbia River strays) since that time were all marked with coded wire tags to better enable an assessment of future straying. An effort has been made to trap as many fish as possible at Lower Granite Dam and remove those fish with coded wire tags in an attempt to control straying of hatchery fish on the spawning grounds. This program has only been partially successful because the Lower Granite trap is not 100% efficient; and further, strays frora other Columbia River hatcheries are not 100% coded wire tagged. As a result, the straying rate for Snake River hatchery fish past Lower Granite Dam reached its lowest level in 1993 (4%) while the straying rate of Columbia River hatchery fish has only been partially abated (see Mundy 1994 for a detailed description of the results of this effort). In 1993, more Columbia River hatchery strays (167 fish; 18% of the total escapement) migrated past Lower Granite Daa than did Snake River hatchery strays (43 fish; 4% of the total escapement). Further, because of the success of this program in stemming the Snake River hatchery strays, the potential effect of Columbia River hatchery strays altering the gene pool has increased (i.e. the relative contribution of Columbia River strays on the population of fall chinook spawning in the wild has increased) . Although the escapement numbers used to represent "natural" spawners in the ESU have been adjusted to account for both Columbia River and Snake River hatchery strays, the potential effect of this straying on the "gene pool" has not been adequately evaluated. Use of the escapement estimates of "natural" fish only in evaluations of escapement trends past Lower Granite Dam only partially addresses the potential problem. These estimates of the "natural" escapement are only realistic if hatchery strays are entirely unsuccessful in reproducing themselves (i.e., their fitness is zero). If fitness is anything other than zero, the effect of straying is cumulative. In other words, the proportion of "stray" genes in the population at any one time is a function of both fitness and the additive level of straying that continues to occur each year. A simple dilution model was developed to better evaluate the effect of straying on the "natural" escapement gene pool. The starting assumption was that no straying of Snake River hatchery fish occurred prior to 1983 and no straying of Columbia River hatchery fish occurred prior to 1984. Although these are the first years when straying was documented, it must be remembered that prior to this time, coded wire tag technology was not available to detect strays. It seems likely that strays, both from the Snake River hatchery program (Hagerman Hatchery) and from the Columbia River hatchery program (various hatcheries) likely entered the Snake River spawning grounds prior to 1983. Thus the dilution model will likely underestimate true effects. A second assumption used in the dilution model was that random mating occurred ^unong all fish in the escapement. Annual stray rates as documented in Table 4 were used along with an assumed age composition for returns of 30% age 3, 56% age 4, and 14% age 5. Fitness values of 0.0, 0.5, and 1.0 for all hatchery strays and for just Columbia River hatchery strays were used through this time series dilution model to predict the composition of the current gene pool . The additive effects of continued straying on the gene pool if fitness of strays is other than rero is readily apparent from this simple dilution model (Table 14 and Figure 14). If both Snake River and Columbia River hatchery strays are a concern, fitness values of 0.5 and 1.0 result in the 1994 gene pool being composed of only 24% and 10% "natural" genes; respectively. If only Columbia River hatchery strays are a concern, fitness values of 0.5 and 1.0 result in the 1993 gene pool being composed of only 78% and 62% "natural" genes; respectively. It seems unlikely that fitness of strays is zero and it seems unlikely 29 that straying of hatchery fish above Lower Granite Dam was merely coincidental with the advent of coded wire tag technology. Consequently, it seems likely that at least some level of introgression of the gene pool called "naturals" has occurred due to straying of hatchery fish. Thus the gene pool of progeny of fish that spawn in the wild today is likely different than it was a few years ago. A similar dilution model was developed for the Lyons Ferry Hatchery brood stock (Figure 15). Results indicate that the current brood stock is likely more similar to the prior "natural" stock than is the current population of fall Chinook spawning in the wild and this is because of the efforts at the hatchery to protect the genetic integrity of the brood stock. Although there is a clear potential for introgression of the Snake River fall Chinook gene pxsol by Columbia River hatchery strays, the question of fitness of these strays remains somewhat open. Waples et al. (1991) provided genetic data showing the relationship of Snake River fall Chinook to other Columbia River Chinook populations as well as showing how allelic frequencies of Snake River fall chinook were potentially converging with Upper Columbia River fall chinook populations. Since the initial listing decision, fall chinook salmon spawning in the Snake River have been genetically sampled along with outmigrating juveniles and Lyons Ferry hatchery fish. Although results from much of this research have not been published and made generally available, the researchers involved with these studies have verbally told Alaska Department of Fish and Game staff that: • Samples of fall chinook adults returning to the Snake River, including strays, have an increased genetic affinity to the Columbia River cluster of populations. • Samples of juveniles collected from the Snake River cluster with the historic Snake River fall chinook group rather than with any other group. • The genetic distances, albeit small, between Snake River and Columbia River fall chinook, observed by NMFS in the 1970s, generally persist through 1994. • Rare genotypes endemic to the Snake River fall chinook population persist in the 1994 juvenile collection. • Stray chinook from the Columbia River apparently have not shifted the frequencies of the Snake River outmigrants, nor have they swamped rare endemic genotypes. • Snake River fall chinook rare genotypes have not been lost due to bottlenecking. • The available genetic data indicates that the Columbia River strays have not contributed substantially, at least yet, to the Snake River gene pool. • Although the Snake River fall chinook ESU is facing challenges from straying and bottlenecking, the ESU remains basically intact through 1994. • Lyons Ferry Hatchery is the reserve for genotypes for the ESU and Lyons Ferry Hatchery fish should be included in the ESU. The dilution modeling results and comments from geneticists studying potential introgression of the Snake River fall chinook salmon ESU indicate that it would be prudent to add the Lyons Ferry Hatchery brood stock into the Snake River fall chinook salmon ESU. The following factors also support the inclusion of the Lyons Ferry Hatchery brood stock. 26-104 - 96 - 2 30 • Th« Lyon« F«rry H«tchory brood atock o£f«r» th« potential of restocking wh»t remains of the Snake River fall Chinook* • natural habitat while maintaining genetic integrity. Preaumably, the exclueion of the Lyone Ferry Hatchery brood atock atema from the view that the protectiona of the ESA ahould extend only to listed species in the wild, not species that have been removed from natural ecoayateae. However, the habitat of the Snake River fall chinook has been draatically altered and the remaining freahwater spawning and rearing habitat ia but a fraction of what waa available historically. The progeny of "naturally" spawning fish are currently protected under the ESA, even though they are routinely removed from the wild and transported through the river migration corridor by truck or barge. There ia no aound biological reaaon to exclude fish with the same genetic lineage from the protectiona of the Act, merely because they spawned and reared in the "unnatural" habitat of the Lyons Ferry Hatchery. • The exclusion of the Lyons Ferry Hatchery brood atock leads to an illogical result, by splitting a distinct population into a protected and an unprotected class. • The exclusion of the Lyons Ferry Hatchery brood stock leads to an illogical result, by creating a situation where members of a distinct population segment move into and out of the ESU across generations. Consequently, progeny of the distinct population segment may or may not be afforded protection under the ESA, depending upon where they reproduce. • The exclusion of the Lyona Ferry Hatchery brood atock meana that the segovent of the population that is most similar to the historic population segment is not protected under the ESA, while a population that may be leas similar to the historic population aegment ia protected. The level of genetic diatinctneaa (genetic diatance, see Waples et al. 1991) between Snake River fall chinook and Columbia River fall chinook is small, but apparently this difference ia peraisting in the face of Bubatantial atraying. Further, the Snake River historically provided unique chinook habitat. For these reasons, although it may be prudent to retain a distinct population segment of Snake River fall chinook salmon, the focus and intent should be that fall chinook retain an important role in the ecology of the Snake River ecosystem. The protected population should include Snake River hatchery fish and fish that spawn naturally in the Snake River. Because the Snake River habitat has been so altered by the construction of daAs, adaptive evolution of the chinook population inhabiting thia area will likely take place. In that vein, the paat and continued straying of Columbia River fall chinook and the mixing of these fish with the endemic Snake River fall chinook population may in the end be beneficial as the population evolves and adapts to this severely altered ecosystem. Although the question of changing the statua of Snake River fall chinook from threatened to endangered waa addressed in this document from the standpoint of the currently defined ESU, best available scientific and commercial data indicates that the BSU itself need* redefinition. Subsequent to redefinition of the ESU, the question of whether or not the revised ESU should be included on the endangered species list; and, if so, at what level, threatened or endangered, needa to be evaluated and anawered baaed upon beat available acientific and commercial data. CONCLUSIONS The beat available scientific and commercial data indicatea that the change in atatus of the currently defined Snake River fall chinook aalmon ESU from threatened to endangered ia not appropriate. Status of the currently defined ESU has improved since listing and the likelihood of extinction has diminished. 31 We have identified six factors we believe need to be analyzed and considered prior to any reclassification of Snalce River fall chinook. Highlights of our analyses are as follows: 1. Escapeaent The recent year average of non-hatchery spawned adult Chinook passing upstream of Lower Granite Dam (1991 to 1994) is SIO fish. This is 55% higher than the 1983 to 1990 average of 330 fish. After the effect of "mining" has been accounted for, the 1991-94 average of 512 fish is 12% greater than the 1983 to 1990 average of 456 fish. By either analysis, the population has increased since first being listed as threatened. 2. Likelihood of Extinctioo We analyzed the probability of extinction using both the original Dennis extinction model and a bootstrap model, and compared performance between pre-listing and post-listing time periods. The outlook using data through 1990 is very pessimistic for either model, with the probability of . extinction being greater than 97%. The addition of data through 1994 considerably improves the assessment of the stock. Over 50% of the simulations using the bootstrap method resulted in populations greater than 5,000 fish in 100 years. The Dennis model responded similarly with the probability of extinction (extinction < 30 fish) dropping to 68%. 3. Probability of Persistence with Respect to SMrviral The STFA analyzed the probability of persistence for the draft 1994-98 hydro biological opinion. Depending upon the assumptions in it, they concluded that the proportion of yearly escapements at or above 300 for a 24-year period ranged from .44 to .95. Further, the DFOP plan assembled by the States and Tribes estimated that the proportion of yearly escapements at or above 300 for a 24-year period is always 1.00. Although it is uncertain how the hydro system will be operated, it seems certain that the hydro system management, once defined, will increase the probability that escapement will exceed 300 fish. 4. Spairaer-Recruit Relationship A Ricker spawner-recruit relationship was derived from the data. If the data are accurate, a total of 440 "natural" adults or 472 total spawners are needed to produce maximum sustained yield under the present conditions of reduced habitat availability and quality. The number of spawners that would produce the maximum return are 516 "naturals" or 570 total spawners over Lower Granite Dam. However, given that 1) there are measurement errors and confounding environmental influences in the database; 2) there is little evidence of density-de];>endent mortality shown; and, 3) the estimated return per spawner was 3:1 for the 1975 observed escapement of 1000 spawners, we conclude that escapements on the order of double the MSY (1,000 fish) would produce strong returns. Recent year escapements are on the order of these estimates. 5. Forecasts of Adult Returns In proposing a change in status, NMFS has used the 1995 forecast as evidence for changing the listing. Past forecasts for Lower Granite Dam escapement are only available for 1993 and 1994. The forecasts were substantial underestimates (62% in 1993 and 47% in 1994). The continued use of forecasts by the agency when they have been shown to be so significantly in error in the past, is not consistent with the ESA rquirement to use the best available scientific and commercial data. 6. Hatchery Strays and Genetic Integrity Hatchery strays from both the Columbia and Snake Rivers have been documented since 1983. We evaluated the effect of straying on the natural escapement gene pool. If both Snake and Columbia River hatchery strays are a concern and fitness values of .5 and 1.0 are used, the 1994 gene pool is composed of 24% and 10% "natural* genes. A similar analysis on the Lyons Ferry hatchery brood stock indicates that the 32 current brood stock is likely more similar to the pre-dam "natural" stock than is the current population spawning in the wild. We also conclude that because the habitat has been so altered by hydro development, adaptive evolution of the Chinook population inhabiting this area will likely take place. Further, we believe that the status of the currently defined ESU has improved since listing and the likelihood of extinction has diminished and that it is the ESU itself that needs to be redefined. LITERATURE CITED Chinook Technical Committee (CTC) . 1994. Pacific Salmon Commission, Joint Chinook Technical Committee, 1993 Annual Report. Report TCCCHINOOK (94)-I. 12/6/94. Vancouver, B.C. Cramer, S. P. and D. Neeley. 1993. Evaluation of delisting criteria and rebuilding schedules for Snake River spring/summer Chinook, fall Chinook, and sockeye salmon. Recovery Issues for Threatened and Endangered Snake River Salmon Technical Report No. 10 of 11. Bonneville Power Administration. DOE/BP 99654-10. Dennis, B., P. L. Hunholland, and J. H. Scott. 1991. Estimation of growth and extinction parameters for endangered species. Ecological Monographs 6l!llS-143. Evermann, B. W. 1896. A preliminary report upon salmon investigations in Idaho in 1894. U.S. Fish Comm., Bull. 15:253-284. DFOP. 1993. Detailed fishery operating plan with 1994 operating criteria. Prepared jointly by the Columbia Basin Indian Tribes and the State and Federal Fish and Widlife Agencies, November 1993. Dygert, P. 1994. Letter to Don Swartz, TAG Chairman. National Marine Fisheries Service. May 17, 1994. 11 pp. Fulton, L. A. 1968. Spawning areas and abundance of chinook salmon 0/icor/iync/)us tshAwytscha, in the Columbia River Ba8in--Pa8t and present. U.S. Fish Wildl. Serv. Spec. Sci. Rep. Fish. 571:1-26. Irving, J. S. and T. C Bjornn. 1981. Status of Snake River fall Chinook salmon in relation to the Endangered Species Act. Prepared for the U.S. Fish and Wildlife Service. Unpubl. ManuBcr., 55 p. Available Idaho Cooperative Fishery Research Unit, University of Idaho, Moscow, id 83843. Morishima, G. S. 1994. Affidavit in support of tribal TRO RE: utility of spawner replacement analysis. U.S., et al. vs. Oregon, et al. CIVIL NO. 68"513 MA. 8/24/94. 28 p. Mundy, P. R. 1994. Affidavit of Phillip R. Mundy in support of tribal TRO RE: Management of Snake River fall Chinook and Lyons Ferry Hatchery; August 23, 1994. Submitted to the U.S. District Court for the District of Oregon. 17 pp. NMFS. 1994. Biological opinion under section 7 of the Endangered Species Act on the 1994-98 operations of the Federal Columbia River Power System ( SS/X. F. 1 . i. ] . Oregon Department of Fish and Wildlife and Washington Department of Fisheries. 1991. Status Report, Columbia River fish rune and fisheries, 1960-1990. 154 pp. Oregon Department of Fish and Wildlife and Washington Department of Fisheries. 1994. Status Report, Columbia River fish runs and fisheries, 1938-1993. 271 pp. 33 Parkhurst, Z. E. 1950. Survey of the Columbia River and its tributaries — Part VII. Snake River from above Grande Ronde River through the Payette River. U.S. Fieh. Wildl. Serv. Spec. Sci. Rep. Fish. 40, 95 p. Roler, R. 1994. Analysis of Snake River fall Chinook parent brood replacement in the escapement past Lower Granite Dam. Columbia River Laboratory Progress Report 94-21. Columbia River Laboratory, 16118 N.E. 219th ST., P.O. Box 999, Battle Ground, Washington 98604. 16 pp. State and Tribal Fisheries Agencies Analytical Team (STFA). 1995. Preliminary summary of fall chlnook model results for 1995 Biological Opinion. Unpublished Manuscript dated 2/10/95 submitted to NMFS. Thompson, G. G. 1991. Determining minimum viable populations under the Endangered Species Act. NOAA Technical Memorandum NMFS F/NWC-198. U.S. Dept. Commerce, NOAA, NMFS. 78 pp. Van Hyning, J. M. 1968. Factors affecting the abundance of fall Chinook salmon in the Columbia River. Oregon State University, Ph.D. thesis, 424 p. Waplea, R. S., R. P. Jones Jr., B. R. Beckman, and G. A. Swan. 1991. Status review for Snake River fall Chinook salmon. NOAA Technical Memorandum NMFS F/NWC-201. U.S. Dept. Commerce, NOAA, NMFS. 73 pp. Table 1. Proportion of chinook passing Little Goose and Ice Harbor Da-s used for Lyons Ferry brood stock and adjustments to natural escapements over Lower Granite Dam (located upstream) due to the brood stock "mining", 1965-1994. Adult Fall Chinook : Counted % Passage Brood Adult Fall Chinook Over Ice Harbor Dam and Allowed Stock Natural Escapements Removed fnr Brood Stock Past lower Dams Adjust. Factor Past Lower Granite Dam Vpar Counted Removed % Removed Unadiusted Adiusted 1965 8,200 0 0 100% 1.00 NA NA 1966 12, 800 0 0 100% 1.00 NA NA 1967 14,000 0 0 100% 1.00 NA NA 1968 19,500 0 0 100% 1.00 NA NA 1969 13,600 0 0 100% 1.00 NA NA 1970 9,000 0 0 100% 1.00 NA NA 1971 9,300 0 0 100% 1.00 NA NA 1972 7, 500 0 0 100% 1.00 NA NA 1973 6,700 0 0 100% 1.00 NA NA 1974 2,400 0 0 100% 1.00 NA NA 1975 1, 900 0 0 100% 1.00 1 ,000 1,000 1976 1, 100 0 38%1 62% 1.61 470 757 1977 1,200 395 33% 67% 1.49 600 894 1978 1,100 368 33% 67% 1.49 640 954 1979 1,200 439 37% 63% 1.59 500 795 1980 1,200 394 33% 67% 1.49 450 671 1981 770 407 53% 47% 2.13 340 724 1982 1,600 473 30% 70% 1.43 720 1,030 1983 1,800 619 34% 66% 1.52 428 651 1984 1,700 663 39% 61% 1.64 324 531 1985 2. 046 589 29% 71% 1.41 438 618 1986 3, 104 212 7% 93% 1.08 449 485 1987 6,788 1,613 24% 76% 1.36 253 344 1988 3,847 1,076 28% 72% 1.39 368' 512 1989 4,634 1,179 25% 75% 1.33 295 392 1990 3,470 1,092 31% 69% 1.45 78 113 1991 4, 500 36l2 0 100% 1.00 318 318 34 Adulc Fall Chinook Counted Over Ice Harbor Dam and Removed Cor Brood Stock Year Counted Removed % Removed % Passage Brood Allowed Stock Past lower Adjust. Dams Factor Adult Fall Chinook Natural Escapements Past Lower Granite Dam Unadjusted Adjusted 1992 4,636 1993 2,805 1994 2,087. 256': 129^ 0 100* 100% 100% 1.00 1.00 1.00 549 742 441 549 742 441 ^ Brood stock removal in 1976 took place at Little Goose Dam rather than Ice Harbor Dam; 430 adults counted, 162 removed (38%) . 2 Removal of fall Chinook for Lyons Ferry brood stock from 1991 through 1994 has been selective; only fish with missing adipose fins (coded wire tagged) have been removed; and hence, there has been no effect on upstream passage rate of "natural" fish spawning above Lower Granite Dam. Table 2. N'umber cf fall Chinook associated with the Saal^.'S ?.iver egg ba.-.!- program from 1975-1983 and with the Lyons Ferry Hatchery from 1S34- 1994. •'■ Lyons Ferry Kalama Collected Collected Hatche ry Falls at I :e at Lowe r Tot a 1 Volunteers Adults Jacks Hatchery Harbor Adults Dam Granite Jacks Adults Ja Dam cks Brood Adults ock Year Adults Jacks cks 1975 0 0 0 0 0 0 0 0 0 0 1976 0 0 0 0 162^ 7 0 0 162 ? 1977 0 0 0 0 395 > 0 0 395 7 1978 0 0 0 0 368 > 0 0 368 7 1979 0 0 0 0 439 > 0 0 439 7 1980 0 0 208 ■> 394 ' 0 0 602 1981 0 0 561 7 407 > 0 0 968 > 1982 0 0 98 ■> 473 > ■ 0 0 571 1983 0 0 86 J 619 ' 0 0 705 ' 1984 0 0 220 10 663 9 7 0 0 883 107 1985 6 4 070 952 0 589 9 3 0 0 1,547 4 160 1986 245 1 125 576 0 212 2 ] 0 0 1,033 1 147 1987 1,654 543 0 0 1 613 4 7 0 0 3,267 590 1988 327 1 053 0 0 1 076 ; 0 0 1,403 1 059 1989 704 670 0 0 1 179 D 0 0 1,883 670 1990 521 602 0 0 1 092 3 49 0 1,662 602 1991 863 675 0 0 361 7 L 37 0 1,261 746 1992 898 176 0 0 256 7 L 178 26 1,332 273 1993 714 157 0 0 129 D 118 4 961 161 1994^ 475 507 0 0 0 C 1.8 7 141 662 648 NOTE: Since 1990, brood stock used at Lyons Ferry Hatchery have been screened (CWTs examined) and those found not to be of Snake River origin have been shipped to the Klickitat Hatchery in an effort to protect the genetic integrity of the Lyons Ferry brood stock. The estimated portion of Columbia River strays entering the Lyons Ferry brood stock was 4%, 18%, 39%, and 25% in 1987, 1988, 1989, and 1990, respectively (Waples et al 1991). All juvenile progeny from adults spawned in 1989 were marked prior to release amd returns from this year class are being prevented from entering the brood stock in future years. Thus the entry of Columbia River strays into the Lyons Ferry brood stock have been effectively prevented from the 1989 brood year forward. ^ Source: Waples et al (1991) and Mundy (1994) . ^ Collected at Little Goose Dam (Waples et al 1991) . Source for 1994' data: Larrie LaVoy (personal communication). 35 Table 3- Escimaced number of fall chir.ook passing Z.ower Granite Dam, IS'S- 1994. Lyons Columbia Total Lower Granite Dam Counts Natural^ Ferry^ Hagerman River Adult Adult^ Jark^ Total Year Escaoement SCravs Stravs SCravs Escaoement Count Count Count 197S 1, ooo' 0 0 0 1,000 1,000 1,200 2, 200 1976 470' 0 0 0 470 470 830 1,300 1977 600* 0 0 0 600 600 1,300 1, 900 1978 640* 0 0 0 640 640 850 1,490 1979 500* 0 0 0 500 500 940 1,440 1980 450* 0 0 0 450 450 330 780 1981 340* 0 0 0 340 340 1,400 1, 740 1982 720* 0 0 0 720 720 1,500 2,220 1983 428 0 112 0 540 540 980 1, 520 1984 324 0 310 6 640 640 730 1, 370 1985 438 0 241 12 691 691 1, 500 2,191 1986 449 64 261 10 784 784 1, 801 2,585 1987 253 575 69 54 951 951 385 1, 336 1988 368 192 9 58 627 627 329 956 1989 295 206 0 205 706 706 276 982 1990 78 174 0 83 335 385 190 575 1991 318 202 0 70 590 630 397 1,027 1992 549 100 0 19 668 855 102 957 1993 742 43 0 167 952 1,170 39 1,209 1994^ 441 ?^ 0 162« 603 785 249 1,034 ' Source: Dygert (1994); note : these estimates assume no straying of non- hatchery fish and are not adjusted for hatchery straying prior to 1983. All juveniles released from Lyons Ferry Hatchery have been marked with CWTs during the past few years and all returns in 1994 have CWTs. 2 Source: Waples eC al (1991) and Dygert (1994); strays from Umatilla, Priest Rapids, and Yakima (and perhaps other hatcheries) are included in this category. The majority of Che Columbia River strays have been from Umacilla releases; all juveniles released inco Che Umacilla have been marked with CWTs during the past few years and all returns of Chis scock in 1994 have CWTs. The Umatilla releases have occurred since 1983; poor acclimation of juveniles prior Co release and lack of sufficienc wacer for spawning concribute to increased straying of these hatchery fish. The brood source for Umatilla releases are fall Chinook migrating over Bonneville Dam after August, the same time frame Chat Snake River fall chinook migraCe past this structure . ^ Source: ODFW & WDP (1991 & 1994) . * Hatchery strays may have passed Lower Granite Dam prior Co 1983, but there is no basis for estimating numbers due to lack of hatchery fish being coded wire tagged prior to this time; source: Waples eC al (1991). ' Source for all 1994 data: Mike Matylewich (personal communication). Total hatchery strays over Lower Granite Dam in 1994 estimated to be 162 fish; Che number of Lyons Ferry versus Columbia River strays unknown «C this time . Table 4. Frsporticr. of fall chinook passing upstrea-n cf Lower Gra.-.ite Da- that have been documented to have been Snake River a.".d Columbia River strays and that are presumed to have entered the spawni.ig population, 1983-1994.^ Adult Natural Adult Snake Adult Columbia Total Escaoement River Strays River Strays Escapement Year Number Percent Number Percent Number Percent Number Percent 1983 428 79* 112 21% 0 0% 540 100% 1984 324 51% 310 48% 6 1% 640 100% 1985 438 63% 241 35% 12 2% 691 100% 36 1986 449 57% 325 42V 10 IV 784 lOOV 1987 253 27V 644 67V 54 6V 951 lOOV 1988 368 59V 201 32V 58 9V 627 lOOV 1989 295 42V 206 29V 205 29V 706 lOOV 1990 78 23V 174 S2V 83 25V 335 lOOV 1991 318 54V 202 34V 70 12V 590 lOOV 1992 549 82V 100 15V 19 3V 668 lOOV 1993 742 78V 43 4V 167 18V 952 lOOV 1994 441 73V 1622 27V (max) 162^ 27V (max) 603 lOOV NOTE: Incerprecation of this information is complex and Che effect of straying is cumulative and dependent upon fitness of strays. If fitness of strays is equal to fitness of natural spawners, then the proDortion of the gene pool composed of natural spawning fish in the first year of the series (62V) is further decreased by each of the following years by the added proportion of addixional strays into the spawning population in subseqpjent years. Thus, unless fitness of strays is an extremely low value (close to zero) , the composition of the gene pool of the fish called "natural spawners" at the current time is primarily composed of progeny of strays, not progeny of "natural spawners". ' Hatchery fish likely strayed above Lower Granite Dam prior to 1983; however, no estimates of this potential straying are available because coded wire tag technology used to document this phenomena was not available nor used on potentially straying hatchery populations of fall chinoo)c prior to this time. 2 The 1994 estimate of strays entering the escapement past Lower Granite Dam has not yet been split into the Sna)ce and Columbia River components. Table 5. EstiT.ated r.umfcer of fall chinock passing Lower Granite Dam ar.d for Lyons Ferry Hatchery brood stoc)<, 1975-1994. Egg Ba.ik Prog ram/ Fall Chinoo)c Allowed Brood Stock Used at Past Lower Granite Dam Adults Jacks Total Lvons Adults Ferrv Hatchers Jacks Total f Totals Year Adults Jacks Total 197S 1,000 1,200 2,200 0 0 0 1,000 1,200 2 200 1976 470 830 1,300 162 7 > 632 1977 600 1, 300 1, 900 395 > 995 1978 640 850 1,490 368 > 1,008 1979 500 940 1,440 439 > 939 1980 450 330 780 602 > 1,052 1981 340 1,400 1,740 968 > 1,308 1982 720 1, 500 2,220 571 ' 1,291 1983 540 980 1,520 705 ' 1,245 1984 640 730 1,370 863 107 97 3 1,503 837 2 340 1985 691 1,500 2,191 1,547 4 160 5,70 7 2,238 5,660 7 898 1986 784 1,801 2,585 1,033 1 147 2,18( ) 1,817 2, 948 4 765 1987 951 385 1,336 3,267 590 3,85 7 4,218 975 5 193 1988 627 329 956 1,403 1 059 2,46 2 2,030 1, 388 3 418 1989 706 276 982 1,883 670 2,55 5 2,589 946 3 535 1990 335 190 525 1,662 602 2,26 I 1,997 792 2 789 1991 590 ? ? 1,261 746 2,00 7 1,851 ? •J 1992 668 ? y 1,332 273 1,60 5 2,000 •> ■> 1993 952 , ? ■> 961 161 1,12 2 1,913 ■> ? 1994 603 ■> ■> 662 648 1,31 3 1,265 ? 7 37 Table 6. NuiTiers of fall Chinook chac were progeny of fish sca-vnmg m the wild chac passed above Lower Granice Dam in cheir accempc Co recurn CO Che upstream spawning grounds adjusted to account for the Lyons Ferry brood stock "mining" program at downscream dams added to the number of fish chac were progeny of fish spawned at hatcheries which were prevented from migrating past Lower Granite Dam and returning co che upstream spawning grounds added co che number of fish Chac were progeny of fish spawned ac haccheries which were allowed to migrate past Lower Granice Dam in their atcempc Co recurn Che upsCream spawning grounds.' Progeny of Hatchery Spawned Fish Progeny of Fish Lower Fish Allowed Past Spawned in the Wild and Granice Lower Granite Dam Allowed Past Lower Granice Dam Dam Snake Columbia Nacural Adjusced Trap River River Year Escapemenc AdiusCment EscimaCe Removals SCrays Strays 0 1,000 0 0 0 +2872 757 0 0 0 +294 894 ' 0 0 0 +314 954 0 0 0 +295 795 0 0 0 +221 671 0 0 0 +384 724 0 0 0 +310 1,030 0 0 0 +223 651 0 112 0 +207 531 0 310 6 +180 618 0 241 12 +36 485 0 325 10 +91 344 0 644 54 +144 512 0 201 58 +97 392 0 206 205 +35 113 50 174 83 0 318 40 202 70 0 549 187 100 19 0 742 >^18 43 167 0 441 >32 162 max 162 max 1975 1,000 1976 470 1977 600 1978 640 1979 500 1980 450 1981 340 1982 720 1983 428 1984 324 1985 438 1986 449 1987 253 1988 368 1989 295 1990 78 1991 318 1992 549 1993 742 1994 441 G rand :otal Total 0 1 ,000 0 757 0 894 0 954 0 795 0 671 0 724 0 1 ,030 112 763 316 847 253 871 335 820 698 1 ,042 259 771 411 803 307 420 312 630 306 855 428 1, ,070 344 785 ' All daca included in Chis cable refers Co adulc fish. 2 The brood stock "mining" in 1976 Cook place aC Liccle Goose Dam rather Chan Ice Harbor Dam. Table 7. Escapeme.TC and age composicicn daca used to estimate exci."cf.c.-. probabilicies for Snake River fall Chinook salmon. Nacural Age Composition of Escapemenc Year Escapemenc Three Year Olds Four Year Olds Five Year Olds 1975 - 1982 age composicion escimaces noc available 11.4% 84.6% 4.0% 8.6% 91.0% 0.3 9.1% 86.3% 4.6 55.9% 36.1% 8.0 8.7% 89.7% 1.6 S.4% 67.9% 22.6 7.8% 80.7% 11.5 12.8%- 75.6% 11.5 29.9% 56.0% 14.2 16.8% 71.6% 11.7 6.7% 85.1% 8.2 1994 age composicion escimaces not available Data sources: Dygerc (1994) for escapements through 1993, Mike Matylewich (personal communication) for escapemenc in 1994, Roler (1994) for age composicion escimaces. 1975 1,000 1976 470 1977 600 1978 640 1979 500 1980 450 1981 340 1982 720 1983 428 1984 324 1985 438 1986 449 1987 253 1988 368 1989 295 1990 78 1991 318 1992 549 1993 742 1994 441 38 \S6 « < i?5 " o -, 3 O. < C0OOO3O0COOO0OO ooooooooooooooo K^ O'H (Nr^ s^^ vtfsOin ooos v«>0si-%«}u^saOi-)r«r^< oooooooooooooooo oooooooooooooooo ^r>400--ioO'H9^9v<-«0'4<-<^a> 0^4wn-^r«v(Br*«<^al9sa)fn•-ltn nrNoa)>«ffkr««0(N«r^irtr^o%,-)^ OOOO0«O»nCDi/>a>CDV^IN*^ o«rt«(No<<*<««-^^ins«avr>iF4««v ^^'^▼'^oww^wi^^inrnin^ntn Okn^O<^^OOtf^oooor0«r4aD9«9soo«too^nr>^ vOin^r«nr4i-i^(n*««tr-M^v< pr-»^-»ririci mwir*^ ) «> O <-• n r^ • «r^«9tOf^r«m9 0 U a « o -o o ■-• ^ « iJ o U K oc • o a\ O (^ O f^ <^ n r^ » > 9N tft «\ 9^ • a k 9t ^ 9t 9\ • O 39 Table 10. ?rob*bilici«8 of excir.ccion based en ch« fcoocscrap c.odel. Probability of Excinccion Years Used and Extinction Criteria in Analysis 1 Fish 30 fish Probability That in 2089 the Escapement Will Be Less Than 300 fish 1.000 fish 5,000 fish Truncated Data: 1980-1990 98, .3% 100, .0% 1975-1990 97 .0% 100, .0* Data: 1980-1994 0 .0% 0 .3* 1975-1994 0 .0% 5 .0* 100.0* 100.0* 0.1* 7.3* 100.0* 100.0* 1.1* 18. 9* 100.0* 100.0* 5.6* 44 . 8* Weighted Recent 1975-1994 (W) Table 11. Probabilities of extinction based on the diffusion model. Probability of Extinction Years Used and Extinction Criteria in Analysis Mean Variance 1 Fish 30 fish Truncated Data 1980-1990 1975-1990 -0.15932 -0.15944 0.30644 0.24285 99.34* 99.65* 99. 97* 99.65* Recent Data: 1980-1994 1975-1994 ■0.00135 ■0. 04094 0.42883 0.3S128 35.05* 53 .16* 68.17* 82.37* 40 Table 12. Natural spa-rfner- recruit relatior.Ship statistics. Natural In -river Ocean Escapement to Total Return per Year Escaoement A£0 Catch AEO Catch River Mouth AEO Return Soawner 197S 1,000 530 1 ,158 1,307 2,995 3.0 1976 470 382 1 ,402 2,092 3,876 8.2 1977 600 315 1 ,202 3,075 4, 592 7 . 7 1978 640 261 529 3, 130 3,921 6 . 1 1979 500 232 746 2,080 3,058 6.1 1980 450 203 593 778 1,574 3.5 1981 340 705 776 1,223 2,705 8.0 1982 720 465 458 691 1,614 2.2 1983 428 1 ,332 1 ,766 2,273 5,371 12.5 1984 324 987 1 ,069 1,494 3,550 11.0 198S 438 825 801 1,090 2,716 6.2 1986 449 407 640 561 1,608 3 .6 1987 253 715 396 1,032 2,143 8.5 1988 368 250 485 1,399 2,133 5.8 1989 295 290 715 1,370 2,375 8.1 1990 78 313 403 872 1.588 20.4 Averaq?? 48? 52-' 94? 1,573 ?,?4? 6 , 7 Total spa-vner-recruit relationship statistics. Natural In -river Ocean Escapement to Total Return per Year Fscaoement AEO Catch AEQ Catch River Mouth AEO Return Soawner 1975 1, 000 530 1 ,158 1, 307 2,995 3.0 1976 470 382 1 ,402 2,092 3,876 8.2 1977 600 315 1 ,202 3,075 4,592 7.7 1978 640 261 529 3, 130 3,921 6.1 1979 500 232 746 2,080 3,058 6.1 1980 450 203 593 778 1,574 3 .5 1981 340 705 776 1,223 2,705 8.0 1982 720 465 458 691 1,614 2 .2 1983 540 1 ,332 1 ,766 2,273 5,371 9.9 1984 640 987 1 ,069 1,494 3, 550 5.5 1985 691 825 801 1,090 2,716 3 .9 1986 784 407 640 561 1,608 2.1 1987 951 715 396 1,032 2,143 2.3 1988 627 250 485 1, 399 2,133 3.4 1989 706 290 715 1,370 2,375 3.4 1990 335 313 403 872 1. 588 4.7 Averaces 644 527 849 1,573 2, 949 5.0 41 rable 14. Dilution effects en the ger.e pool of Snake River fall cr.L-czk salmon labeled as "natural spauners" prior to 1983 due to estimated numbers of strays entering into the escapements since 1983 under various assumptions concerning the "fitness" of the two types of strays. ^ Estimated Proportion of the Gene Pool Composed of "Natural Spawners"' (heading abbreviations: (N) = "naturals; (S) = stravs; F = "fitness" Snake River and Columbia River Only Columbia R. Strays Stravs Included in the Stray Category Included as "Stravs" F(N) - 1.0 FCN) - 1.0 F(N) - 1.0 F(N) - 1.0 F{N) . 1.0 F(S) ■ 0.0 F(S) . 0.5 F(S) = 1.0 F(S) - 0.5 F(S) ~ 10 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100* 100% 100% 100% . 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 88% 79% 100% 100% 67% 51% 100% 99% 78% 63* 99% 98% 70% 54* 99% 99% 35% 20* 97* 94% 54% 34* 95* 90% 44% 25* 83* 70% 23% . 10* 85* 75% 32% 16* 92* 85% 44% 24* 91* 85% 34% 17* 78* 62% 24% 10% The simple dilution model used to derive these estimates assumed the gene pool was 100% "natural spawners" prior to 1983 when coded wire tag data technology first provided estimates of hatchery strays passing Lower Granite Dam. The model assumes random mating; stray rates as defined in Table 4 were used; age composition of escapements were assumed as follows: 30% age 3, 56% age 4, and 14% age 5. A fitness value of 1 . 0 assumes that strays reproduce as successfully as "naturals". A fitness value of 0.5 assumes that strays are only half as successful at spawning as are "naturals" and a fitness value of 0 assumes that strays are unable to successfully reproduce. 1975 100% 1976 100% 1977 100% 1978 100% 1979 100% 1980 100% 1981 100% 1982 100% 1983 100% 1984 100% 1985 100% 1986 100% 1987 100% 1988 100% 1989 100% 1990 100% 1991 100% 1992 100% 1993 100% 1994 100% 42 25.000 c o O £ (0 Q o n 03 I CD O 20,000 15,000 10.000 5,000 Ice Harbor Dam OperationaJ in 1 961 1 st Lyons Ferry Hatchery Returns ESA Petiton Br St Dev. Hatted ESA Listing 1965 1969 1973 1977 1981 1985 1989 1993 Adults ■Jacks' Figure 1. Number of fall Chinook counted past Ice Harbor Dam since 1965, the year in which the major Snake River dams became operational, and years associated with ESA and hatchery events. 43 3,000 — 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Ice Harbor Dam "Mining' ;||:; Egg Bank Returns Lyons Ferry Volunteers \\\ Lower Granite Dam Removals Figure 2. Number of adult Snake River fall chinook associated with the egg bank program from 1975-1983 and with the Lyons Ferry hatchery from 1984-1994. 44 1 ,000 - •♦-' 800 - c CD E (D Q. 600 - (0 O " U) LJJ 400 - 200 - 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1.000 - Counts Adjusted to Take into Account Brood Stock "Mining" 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Figure 3. Estimated number of "natural" fall Chinook passing Lower Granite Dam based on unadjusted (upper) and adjusted counts (lower). 45 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 "Natural" G Snake R. Strays D Columbia R. Strays □ Unallocated Strays Counts Adjusted to Take into Account Brood Stock "Mining" 1.000 C 800 E g. 600 (0 o LU '♦oo 200 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 ■ "Natural" D Snake R. Strays D Columbia R. Strays G Unallocated Strays B Brood Stock "Mining" Figure 4. Estimated number of "natural" and stray fall Chinook passing Lower Granite Dam; unadjusted (upper) and adjusted (lower). 46 c (D E 0) Ql CO o CO LLI 1,200 - 1.000 - 800 - 600 4O0 200 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 •Natural" F"] Snake R Strays FH Columbia R. Strays ^ Unallocated Strays ^^ Lower Dam "Mining" [ [ L. Granite Removals Figure 5. Estimated number of "natural" and stray fall Chinook passing Lower Granite Dam adjusted for brood stock "mining" and Lower Granite Dam "removals". 47 4,000 — br 3.000 — 2,000 — 1 ,000 - 187S 1978 1M0 1982 1M4 1986 1988 1990 1992 1994 Escap«m«nt Pact L Granite D. Egg Bank & Lyon* Ftrry H. Figure 6. Number of adult tall Chinook counted past Lower Granite Dam and the number of adult fall Chinook associated with the egg bank program plus Lyons Ferry Hatchery (adult reproducing population). 48 Figure 8. Cumulative Probability of Achieving a Given Extinction Level Using 1975 - 1990 Data 100% 80% 60% 40% 20% Q(y -U-l.l.l I I I I I 1 1 I I I I IJ .1 1 l.lJ.Li I I J I I i 1 1 l_l 1J.1_L 1 30 Extinction Level i i I I I 1 I I I I I I Ul J 300 1000 5000 Figure 9. Cumulative Probability of Achieving a Given Extinction Level Using 1980 - 1994 Data 100% 80% p r o b a b i I 40% 60% 20% Q(y^ I I I I I I I I I r r I r I I I I I I I I I I I I I I I I I I I I 1 I I I I I I t-TT 11 1 30 300 1000 5000 Extinction Level 49 Figure 10. Cumulative Probability of Achieving a Given Extinction Level Using 1975 - 1994 Data 100% 80% 60% 40% 20% 0% I I I I I I I I I I I I I I 30 1_1_I_L 1_1_1_L 1 I.I I I I I I I LI L 1 300 1000 5000 Extinction Level Figure 11. Cumulative Probability of Achieving a Given Extinction Level Using Weighted 1975 - 1994 Data 100% 80% 60% 40% 20% 0% I I ' Extinction Level 1000 5000 50 Figure 7. Cumulative Probability of Achieving a Given Extinction Level Using 1980 - 1990 Data 100% 80% 60% 40% 20% 0% ] I I I I LJJ.i-Lja.L I J.llJ. 1 I 1 1 I i I I J I.LLl_ia_l.Ll I I.I I I I 1 M I 1 I I 1 I 1 30 300 1000 5000 Extinction Level 51 Snake River Fall Chinook 6000 5000- E 2 4000 2 3000- ^ 2000- 1000- 98 W Tie m ■» /w'^. m ____^^^^ 90/ 86 se /Z_ "^^ " 200 400 600 800 Natural Adult Spawners LGD 1000 1200 Snake River Fall Chinook 6000 200 400 600 800 Ail Adult Spawners LGD 1200 Figure 12. Estimated total returns in adult equivalents versus parent year spawners for escapement of natural (A) and all (B) adult Chinook salmon spawners past Lower Granite Dam. 52 Snake River Spawner-Recruit Residuals by Brood for Ricker Cur\/e e? 2500 I 2000 ^ 1500 Q -1500+' 1975 1977 1979 1981 1983 1985 1987 1989 YEAR Figure 13. Residuals of predicted returns for estimated returns versus escapement of all spawners past Lower Granite Dam, 1975-90 brood years. 53 2 100 - 1980 1982 1984 1986 1988 Year of Spawning ■1990 1992 1994 Stray Fitness = 0.0 G Stray Fitness = 0.5 n Stray Fitness = 1.0 1980 1982 1984 1986 1988 Year of Spawning 1990 1992 1994 ■ Stray Fitness = 0.0 Q Stray Fitness = 0 5 D Stray Fitness = 1.0 Figure 14. Composition of the gene pool of the fall Chinook escapement past Lower Granite Dam based on a simple dilution model with various assumptions concerning fitness of strays. 2 100 o 80 E 60 o o 40 "5 20 Only 54 Escapement Past Lower Granite Dam Colurribia River Strays are Assumed to be "True" Strays 1980 1982 1984 1986 1988 Yea/' of Spawning 1990 1992 1994 Stray Fitness = 0.0 Q St/ay Fitnass = 0.5 D Stray Fitness = 1.0 ■a 2 100 80 o a. E 60 40 20 Lyons Ferry Hatchery Brood Stock 1980 1982 1984 1986 1988 Year of Spawning 1990 1992 1994 ■ Stray Fitness - 0.0 Q Stray Fitness -= 1.0 Figure 15. Composition of the gene pool of the fall Chinook escapement past Lower Granite Dam and the Lyons Ferry Hatchery based on a simple dilution model with various assumptions concerning fitness of strays. 55 Senator Hatfield. Now we will return to the format of questions for Ms. Rivlin. Senator Stevens. Senator Stevens. Mr. Chairman, my question really comes from the same basis as my colleagues. I note with interest that you have adopted an administration program that will, I gather, lead to about a $200 million credit to Bonneville Power. That will save, I am told, the average user about $36 a year. The result of the action of the National Marine Fisheries Service that Senator Murkowski has just talked about will result in the re- duction in the income of the southeast Alaska fisherman 100 times that, $3,600, almost $4,000 per permit holder will be the loss, based on the actions of the National Marine Fisheries Service that mandates the reduction of fishing in our area, even though, as Sen- ator Murkowski mentioned, the net result of that action is that only two or three fish are estimated to get to the spawning grounds. Now, I came to ask you the question: Is it possible that the ad- ministration will look to the impact of the action that is being taken now in order to restore the Snake River salmon on the Alas- ka fisherman, too? I mean as a practical matter, we would be bet- ter off — the problem is the power, not the fishermen. The dams are what harm the fish runs, not the fishermen in Alaska, and yet the fishermen in Alaska are now under an order from your administration not to harvest fish in southeast Alaska, although the total amount that goes through in the time when they are forbidden from taking salmon is about — the total I am told will be 12 fish. Now, it is just preposterous, but it is true. Our people are going to lose 100 times in terms of income what you are saving the rate- payers in the Pacific Northwest by your announced action of the credit. Are you going to look into the impact on everybody or just in terms of the ratepayers to Bonneville Power? Ms. Rivlin. The subject of today's hearing is the impact on Bon- neville Power ratepayers. But there are a lot of costs here, and cer- tainly the costs to fishermen are very important. I assure you we are cognizant of that. Senator Stevens. I do not want my colleague and I to be mis- interpreted as being opposed to what you are doing to help the peo- ple of the Pacific Northwest, but we do not think that it is a fair proposition. Over one-half of the permit holders for those salmon fishermen are people who are Bonneville power users. They live in the winter- time in the Pacific Northwest. I think that somehow or other there ought to be some equity in terms of the administration's approach, particularly with, these orders that have no real impact on saving the fish runs. I do not want to prolong it, Mr. Chairman. But I do hope that, Ms. Rivlin, you will examine the material that was sent us by the department of fish and game. We think that there is no plan to reduce the impact on the southeast Alaska fishermen. 56 There is a plan to reduce the impact of the cost of compliance on Bonneville Power. We just do not think it is fair. Thank you. Ms. RiVLiN. We will Senator Hatfield. Thank you, Senator. Ms. RiVLlN. We will note that and certainly think about it. Senator Hatfield. Senator Murray. Senator Murray. Thank you, Mr. Chairman. First, I want to thank you. Director Rivlin, and the Chief of Staff of the President for recognizing the seriousness of the situation with BPA in committing to help our region solve these very dif- ficult problems. I do have an opening statement. I will save it, Mr. Chairman Senator Hatfield. Yes. Senator Murray [continuingl. For your time constraints. I just have one question, basically, for you. I want to clarify the terms of the agreement that we reached yesterday. Specifically, I am interested in section 4(h)(10)(c) of the Power Act. You have offered to approve BPA's use of 4(h)(10) for direct fish costs in perpetuity. Under your interpretation, that amounts to over $30 million annually, and you also agreed to permit use of the provision for lost power revenues and power purchases for 2 years. At the end of those 2 years, we are going to have to revisit this issue, which means there is the possibility that — does this mean to you that there is a possibility that that 2-year period will be ex- tended if the circumstances warrant? Ms. Rivlin. It would be hard to say at this time. Senator. We thought the current situation was urgent, and that it warranted taking action for 2 years. Our proposal to allow BPA to use section 4(hX10)(c) to cover lost power revenues and power purchases is not permanent. It was de- signed to meet the immediate cost situation and allow Bonneville to adjust and put in place the cost savings, which they believe are very real, to help pay for these costs. It is possible that this issue would have to be revisited at the end of 2 years. Senator Murray. OK. I appreciate that. And, again, thank you for working with us on this very difficult problem. Ms. Rivlin. Thank you. Senator Hatfield. Thank you. Senator. Senator Burns. Senator Burns. Mr. Chairman, I would just put my statement in the record, and I have no questions for the Director. We can just move right along. Senator Hatfield. Thank you. Senator Craig. Senator Craig. Mr. Chairman, thank you very much. And, Ms. Rivlin, thank you for being with us this afternoon. One brief question: I, too, want to reflect my appreciation for the admin- istration's responsiveness to this very imminent problem we face in the Pacific Northwest. In doing that, I do not want my comment and/or question to you to leave you thinking that I am treating lightly your action, be- cause I am not. But what I am suggesting to you is that it does not help a lot in the overall context of Bonneville's viability long term. Bonneville 57 has to look at 5-year contracts if it is going to compete in the en- ergy marketplace. This is a 2-year proposal, and we are looking at the biological opinion of National Marine Fisheries Service, and they are suggest- ing a substantial increase annually, $160 million, and up to $280 million by the year 2000, and this is not the end of it yet. This is just this particular proposal. Based on a case that we think can and has to be made in the preservation of Bonneville, is this administration going to be re- sponsive in assisting us in trying to accommodate a much longer- term approach toward resolution of this problem, and does not just include Bonneville, but includes others in the region, which in- cludes other power producers in the region, who do not have the luxury of being bailed out of their problems by the Federal Govern- ment being driven by a law that has brought us to the table today. Ms. RiVLIN. I do not think this is the end of this story, nor is it the complete story. We certainly want to be responsive to the broader cause and longer-run implications. Let me just say, however, that while part of this agreement is a 2-year agreement, part of it is also permanent — the direct cost portion. Thus, we believe we have contributed to the solution of the long-run problem of Bonneville. Senator Craig. Ms. Rivlin, we have created an environment not just with the Endangered Species Act, but with some deregulatory efforts that we have all been a part of on the Energy Committee over the last several years to create a much more competitive mar- ketplace out there, that Bonneville is going to have to be as respon- sive as any other producer of power as it can. Are you willing to look at other alternatives or other approaches that we may come up with to create greater competitiveness in the marketplace, so that Bonneville can be a competitor? Ms. Rivlin. Senator, we are willing to look at anything. We very much want to be part of the conversation. Senator Craig. Thank you, Mr. Chairman. Senator Hatfield. Senator Baucus. Senator Baucus. Thank you, Mr. Chairman. Senator Hatfield. Do you have questions for Ms. Rivlin? Senator Baucus. Yes; thank you very much. Mr. Chairman, I want to thank you, and do thank you very much for holding this hearing. Director Rivlin, I thank you for the effort that you have under- taken to try to solve, at least on a short-term basis, the problems of potential rate increases in the Bonneville system. You worked hard, you and Mr. Hardy, of Bonneville, and I per- sonally thank you very, very much. I think you have come up with a good solution, that is one that will assure all ratepayers in the Pacific Northwest, at least in the lower 48, I cannot speak to Sen- ators Stevens and Murkowski, that there will be no rate increase over the next 2 years above the earlier increase that was an- nounced by Bonneville several weeks ago, due to reasons other than salmon recovery, and I thank you very much for that. I would like to followup a little bit with a point raised by Senator Murray, namely, what is next. I would like you to tell us now some ideas you have as to what we could do to be sure that this contin- 58 ues, that is, it does not just last 2 years and we are kind of back in the soup again. What are some of your thoughts or some of the points that come to mind, or some of the areas that you are working on to help as- sure us that there will be a little more certainty, because one thing we do not want is on-again-off-again ratepayers. The users need to know with some certainty what their projected power bills are going to be, and if it looks like this is just 2 years, and whoops, we are back up again, it is not going to give people very much comfort. So what are some of the things you are thinking of that give us some comfort that this is going to be longer than 2 years? Ms. RiVLlN. We want to work with you over that 2-year period to see what the experience is. Certainty that cannot be guaranteed in this business. As you know, even the costs under the agreement we have laid out today are somewhat uncertain. These costs depend on rainfall, water flows, and all kinds of things. But we clearly want to work with you to see what the expe- riences of the first 2 years show us. We also want to work with you to see the extent to which Bonneville is able to achieve the cost savings that they are projecting here, and to see what the power cost projections look like 2 years from now. Senator Baucus. Well, it is clear that salmon recovery is going to be a major issue with us Ms. RiVLiN. Yes. Senator Baucus [continuing]. Over the long term. Ms. RiVLiN. For a long time. Senator Baucus. What if Judge Marsh, for example, reaches a decision that the NMFS' biological opinion is insufficient, that it must be greater salmon recovery efforts, which presumably will cause additional costs? Can you assure us that you will work to find a solution that still maintains the status quo over the next 2 years, at least? Ms. RiVLIN. I can absolutely assure you we will work with you. We will work with you on whatever the situation is. But that is a very speculative question. We do not know what the judge might do or what the implications might be. But the administration is very eager to work with the whole Pa- cific Northwest delegation, and the citizens of the Pacific North- west, to balance the values and interests and come to the right so- lution. Senator BAUCUS. Well, I appreciate that, and I, again, com- pliment you and the rest of the administration for a good solution. Thank you. Ms. RiVLlN. Thank you. Senator Baucus. Thank you, Mr. Chairman. Senator HATFIELD. Thank you, Senator Baucus. Senator Johnston. STATEMENT OF HON. J. BENNETT JOHNSTON Senator JOHNSTON. Thank you, Mr. Chairman. Mr. Chairman, I have an interest in this, mainly because I think it shows the un- workability of the Endangered Species Act. We are spending, I think, total resources, in the neighborhood of about $500 million a 59 year, including the Corps of Engineers and all those involved in the salmon recovery, and that, to me, is absurd. Hundreds of millions have already been spent, and I do not know precisely what the solution is, but I am working with Senator Gor- ton to see if we cannot solve this, and, generally speaking, I will be following your lead on this as I do on most everything, Mr. Chairman. I mean I just think this thing has gone all out of rhyme and reason. Mr. Chairman, if I may, I just want to ask one question that very much deals with this jurisdiction. It does not deal with this issue, but since Ms. Rivlin is here, I want to talk about nuclear waste for just a moment. As you know, the budget calls for $631 million this year, but only $200 million in new budget authority appropriations is provided. That is, there is a shortfall of $431 million in the energy and water appropriation budget, because it depends on legislation of the other $431 million which would never be passed. Now, I want to make the administration fully aware that we are headed for a train wreck of very major proportions. I want the word to go out. I hear that there is a letter coming down from the administration against the legislation I introduced, and you are under funding this program by $431 million. If that happens, mark my words well, it will be my recommenda- tion that we repeal the nuclear waste tax, give it to the utilities to build 80-something sites around the country, 34 States, I think, which you can imagine will be highly popular with 34 States. Now, it seems that everybody has treated this nuclear waste problem as Bennett's problem, my problem, and it is not the ad- ministration's problem, or it is the utilities problem. I can tell you it is the administration's problem, and it is a big train wreck. I mean if the administration thinks that they can just say, well, we are not for your legislation, that we are going to underfund this thing $431 million, we are going to walk away, and Nevada is going to be happy, and everything is going to be OK, it is not going to happen. It is going to be an awful Vesuvius eruption all around this country. Mark my words well, I say, certainly as your friend, and admirer, and supporter, and certainly a friend of this administration, on this issue there will be no quarter given. Incompetence will be called in- competence, if that is the way it comes out, and it will be — as I say, there will be 34 States that will be very unhappy, because there is no solution offered. All we have is some legislation coming down. Do you think we can find $431 million in this budget? This budg- et having been cut, it cannot be done. You can respond if you would like. I really just put that out as a word to the wise, and you are very wise, and Mr. T.J. Glauthier is very wise as well, and good friends all, but I really want you to carry the message back, or act on the message. Ms. Rivlin. I will carry it. Senator. I hear you. Senator JOHNSTON. My legislation provides for a budget treat- ment which solves the problem, as did legislation in the last Con- gress. You all did not like that. We could have solved the problem easily, as part of reconciliation. 60 It was done. It was through the committee. It would have been fixed, Q.E.D. We chose not to do that. And the proposal you have now is no proposal at all. It simply will not work, and everybody is just acting as though it will, and it will not. A word to the wise. Ms. RiVLlN. Thank you. Senator HATFIELD. Thank you, Senator Johnston. Senator MURRAY. Mr. Chairman, could I just respond, in case Senator Johnston is leaving I will respond on the nuclear waste issue at another time. But I did want to respond to one comment that he made that this is a result of only ESA. I just want to remind you and all the members of the committee that the laws we live under in the Pacific Northwest in regard to salmon include the ESA, but also the Northwest Power Act, the Magnuson Act, tribal treaties. Clean Water Act. It is a number of pieces of legislation that impact us. Senator HATFIELD. Thank you. Senator Kempthorne, we have accommodated Ms. Rivlin by hold- ing our opening statements until she leaves, and using this oppor- tunity to propound questions to her, if you have questions. Senator Kempthorne. That was not Senator Johnston's opening statement? Senator JOHNSTON. Opening and closing. [Laughter.] Senator Hatfield. We make certain accommodations. Senator KEMPTHORNE. Mr. Chairman, I will hold then on the opening comments. Senator Hatfield. All right. Senator KEMPTHORNE. I have no questions of Ms. Rivlin. Senator Hatfield. Ms. Rivlin, I have perhaps three questions. I expressed in my opening statement that it was a good signal from the administration when it announced yesterday its desire to help offset some of these increasing costs. Ms. Rivlin, in the President's budget request for 1996, he has urged that the Mitchell Act funds be transferred from the National Marine Fisheries Services budget and that the Bonneville Power Administration be required to provide the money previously sup- plied by the Mitchell Act funds. Now, correct me if I am wrong. This suggests that you support providing additional funds in 1995-96 and 1996-97, on the one hand. And on the other hand, you propose to take away a major portion of that funding. You also suggest that $40 million of the $60 million in funding offsets proposed by the administration's budget is to come from future reductions in Bonneville's oper- ational costs. Sometimes in our budget process we call that funny money, since these cost savings from operations are only a projected — not a guaranteed — source of funding. Second, the last administration that proposed Mitchell Act fund- ing was the Bush administration during its final budget year. I be- lieve that funding, was set at $10 million that year. President Clin- ton, in his 1st year, followed suit and proposed $10 million. So correct me if I am wrong. If you breakdown that $60 million, one-half of that money is to come from continued cost reductions by Bonneville. You are adding another $10 million, if you use the same figure as the Mitchell Act. Then there is a range of $10 to 61 $18 million you are going to pick up from Bonneville's appropria- tions as well. I'm not really sure how much you are making as a contribution. Ms. RiVLlN. Your arithmetic is correct, Mr. Chairman. The action with respect to the Mitchell Act is part of a broader view of trans- ferring responsibilities to power authorities, hatcheries, and other people. Senator Hatfield. Thank you, I think. [Laughter.l Ms. Rivlin, there is a second question. Ms. Rivlin. That was already there. We are talking about the in- cremental costs of the new biological opinion. So I think if we are talking about that Senator Hatfield. Yes. Ms. Rivlin [continuing]. It is a question of how to share that. Senator Hatfield. Well, let me put that into context, too. Since 1980, Bonneville ratepayers have ponced up under rate schedules $1.5 billion for fish mitigation. In 1996, the administration has cranked into their budget re- quest $300 million. Now, the biological opinion and NMFS is say- ing add another $130 million to $170 million. So let's bear in mind that ratepayers are still picking up $100 million of that incremen- tal increase, as well as now being burdened with funding the Mitchell Act. Do not forget, the Mitchell Act came with the generic legislation creating Bonneville. It was a Federal Government contract to help mitigate fish in that whole project. Let me ask you a question. Let us turn to some language of the Northwest Power Act, section 4(h)(10)(c). It says, in effect, that to the extent that Bonneville's annual Treasury payments have covered costs actually attributable to other beneficiaries of the Federal hydro system, that Bonneville is entitled to be reimbursed by the Treasury for these costs. Now, that was adopted in 1980. How often has Bonneville been reimbused since 1980? The answer is never. So I will propound the question for the record and give you the answer. I would not expect you to know that answer, because you are the budget director and I know you know a great deal of detail, but there are some details that would not be expected. Are you now considering, from the standpoint of the long term, not for the next 2 years, although I think there would be reason to do so, beginning to credit Bonneville prospectively for these costs under section 4(h)(10)(c)? Ms. Rivlin. Well, it certainly is a fair question and one that should be addressed as we reexamine this whole question. Part of the costs are now being shared by the public at large, including the people in the region. Senator Hatfield. Would you also agree that the section 4(h)(10)(c) credit does permit reimbursement to Bonneville now from previous years' payment? Ms. Rivlin. I am not an expert on this section of the law. We can certainly look into it. Senator Hatfield. Do you have someone who would like to af- firm that? 26-104 - 96 - 3 62 Mr. Glauthier. We are not prepared to make a statement about previous years, but I would like to expand on Dr. Rivlin's state- ment. The other users include the Federal Government. The Federal Government is the owner, of course, of the Corps dams and the Bureau of Reclamation dams, so the allocation that Dr. Rivlin announced earlier is an allocation to these other uses and users. That is the permanent portion of the announcement that Dr. Rivlin made. For the next 2 years, that additional allocation also sees to the same additional uses and users. Senator Hatfield. But should not Bonneville already be receiv- ing contributions from these other beneficiaries? Mr. Glauthier. In the past, the allocation was not made. Last year, we made the allocation for the emergency spill program and as Dr. Rivlin has just announced, we are accepting that as an ap- propriate action from this year forward. Senator Hatfield. Which, in effect, are really credits already owed to the ratepayers. Mr. Glauthier. We are accepting that from this point on. We are with you there. Senator Hatfield. Thank you very much. Are there any further questions? If not, thank you, Ms. Rivlin, for your time here today. We are looking forward to continuing our working relationship, and I would hope that you would look at all possibilities for the long term and not just these Band-Aids that we are now engaged in, and especially when there are other sources for assistance. Ms. Rivlin. Thank you, Mr. Chairman. This is a hard problem, and we Senator Hatfield. Yes; I know that. Ms. Rivlin [continuing]. Look forward to working with you on it. Senator Hatfield. Thank you very much. Now, I will return to Senator Gorton for any opening statement. STATEMENT OF HON. SLADE GORTON Senator Gorton. Mr. Chairman, this is a vitally important hear- ing on an issue of a central weight and to the health of the Pacific Northwest regional economy. The issue is the recovery of endan- gered runs of salmon and the impact that recovery has on the com- petitiveness of the Bonneville Power Administration. As it has over the past several years, the issue will continue to take up much of the time and energy of the region, its people, and decisionmakers. On the announcement of the final biological opinion a few weeks ago. Will Stelle, the Regional Director of the National Marine Fish- eries Service, said, and I quote, "If there are baby salmon in the Snake River, today is a good day for you." He is right, but we need to consider the impact of this biological opinion on more than just baby salmon. We must consider the im- pact on local economies built up along our river system using the water in that river, on Bonneville competitiveness, irrigated agri- culture, river users, recreational activities, fisherman, and many other people. 63 Like people throughout the Pacific Northwest, I want more salm- on in our river system. This is a goal we all share. Differences emerge, however, as we decide how to reach the goal. The administration determined in its final biological opinion that Bonneville will pay upward of $500 million, that's half a billion dol- lars a year, in fish-related costs. Roughly 1 week from today, the administration will put forward its draft recovery plan for the en- dangered runs of Snake River salmon, a plan I suspect would im- pose even more costs on our regional economy. Mr. Chairman, although I am not a biologist, I do believe that there has to be a less expensive way for us to achieve our mutual goal of more fish in the entire river system. This is where our dif- ferences begin. I cannot, however, entirely fault the administration for its costly biological opinion or its soon to be released draft recovery plan for salmon, because the administration's actions are driven by the En- dangered Species Act. I believe that in order to fundamentally change the situation we face today, we must change the Endan- gered Species Act itself. As each of us in our Northwest congressional delegation fights to find ways to keep Bonneville competitive, saddled under these heavy fish costs, it is crystal clear that each of us now is struggling with the fundamental flaw in the act and in related acts, the con- sideration of the economic and social impacts of species protection on people, their families, local and regional economies. I will be working this year to correct this fundamental flaw in the Endangered Species Act, and hope to work with my Northwest colleagues in this effort. The critical question before us today is whether or not Bonneville can remain competitive in the region, while paying upward of $500 million a year in fish costs. Other questions include: Will cus- tomers, as many have expressed to me over the past year, continue to look for other power sources, leaving Bonneville even more vul- nerable? Working together, how do we craft a short-term solution to cap Bonneville's fish-related costs without passing these costs off to other users of the system? Bonneville, obviously, is not the only producer of power on the Columbia River system. Does the administration intend to make additional requests of the appropriations committee to fund costs associated with this opinion? Mr. Chairman, we are going to find some of the answers to these questions from the witnesses who are before us today, and working together, I hope we can come up with an equitable and effective so- lution. Senator Hatfield. Thank you. Senator Gorton. Senator Murray. STATEMENT OF HON. PATTY MURRAY Senator MURRAY. Well, thank you. Chairman Hatfield. Thank you for calling this hearing today and working us through this process. Perhaps the ides of March is a most appropriate day to be focusing on this issue. 64 The issues we are considering today are critical to the quality of life and economic vitality that we enjoy in the Pacific Northwest. Questions of salmon recovery, energy policy, and economic growth are tied together in the question of Bonneville Power's long-term future. I want to touch on three issues, first, the role of Bonneville in the past, present, and future. As an agent of Government, BPA is an agent of public policy. It exists to work toward certain policy goals that serve the interests of the Pacific Northwest and North- westerners. It has been this way always. The BPA is, today, a child of the new deal. Whether we are developing renewable resources, promot- ing energy conservation, helping fish and wildlife, or bringing elec- tricity and irrigation to the rural west, BPA has always been a ve- hicle to achieve the public policy goals of our constituents and of our Nation. I believe this role, the role of the Federal agency, is appropriate and should continue. I do not want to see BPA disadvantaged in the markets. I do not want to see it sold in part or in whole, and I do not want to see its flexibility to serve the region's multiple interests under- mined. I want to see a Bonneville that is healthy for the long term, and able to respond when our region needs help, which brings me to salmon recovery. I know, Mr. Chairman, that we are here to discuss BPA finances, so I will not get into any specific recovery issues; however, I think it is important to point out that the hydrosystem issues are but one part of the overall picture. I and other leaders from the region have been calling for a com- prehensive recovery plan that addresses all aspects of the salmon life cycle. That means addressing habitat, hatcheries, and harvest, in addition to the hydro issues. The hydro issue tends to get most of the attention, and as we move forward I hope everyone keeps in mind that we must not waste action taken to address one phase of recovery by ignoring others. Finally, a word about the administration's work to help bring the Federal Government into the cost equation. We have worked very hard with the White House to point out the complexity of this issue in our region, and I think yesterday we made some real progress in addressing the need to give BPA the flexibility it needs to re- spond to the public's demands. However, I also wish to say that I recognize it is only an interim solution. The interim use of section 4(h)(10)(c) buys us some time to make a comprehensive look into BPA finances and figure out how to keep it competitive for the long run, and hopefully, we have always bought some time for the fish in the region as well. Mr. Chairman, I thank you very much for calling this hearing, and I look forward to working with you and coming to some solu- tions with this very important regional issue. Thank you. Senator Hatfield. Thank you, Senator Murray. Senator Burns. 65 STATEMENT OF HON. CONRAD BURNS Senator BURNS. Thank you very much, Mr. Chairman. I want to thank you for holding this hearing. I think we are most fortunate at this juncture of dealing with this problem of having you as chairman, because you bring to the table much institutional knowledge, you were here from the very start of even the formation of the ESA, and your knowledge of the Columbia River, and, of course, the upper reaches of that Columbia River. And why I am very interested in this, because much of the water that comes down the Columbia River starts in the State of Mon- tana, especially, it feeds the river called the Snake. We are very, very mindful of Bonneville and its power, because we have industries in western Montana that are solely dependent on the electricity rate from this power source. And I ask that my formal statement can be put in the record. I want to just sum up here the problem that we see coming from the State of Montana. The fires of 1988 and 1994 dealt us another problem inasmuch as we cannot hold our snow pack as long into the summer as we once could. Last year. Hungry Horse was just a puddle. Then came the request that they wanted 1 foot of water off of the Flathead Lake. Now, some folks couch that in a request as saying it had to do with the erosion on the north end of Flathead Lake, and I know different, because the water was needed to flush downstream. We have a real problem, as that water is just as important held in the State of Montana as it is if it goes on downstream, and espe- cially when used in the recovery of an endangered species that you can buy in any can in any grocery store in America. That is not to say that we are not concerned about the reestab- lishment of the salmon in the Columbia River. We are very con- cerned about that. But we also have another species that may be in conflict with that, and it is called the Montana bull trout, which right now is susceptible for listing. And that deals us more trouble in the State of Montana. PREPARED STATEMENT So with that, I am anxious to hear from Mr. Hardy, the time, the hour is here, but that is our concern. But we are also mindful, and want to cooperate, and want to be part of the solution to this prob- lem that we have on the Columbia River, because it is vital to the State of Montana, also. Mr. Chairman, we thank you very much. Senator HATFIELD. Thank you. Senator Burns. [The statement follows:] Prepared Statement of Senator Conrad Burns Thank you Mr. Chairman for caUing this very important hearing on the recovery efforts of the salmon in the Snake and Columbia Rivers. Although neither of these rivers flow through my state, this is an extremely important issue to the land and people of Montana. For much of the water which is being proposed to aid in the recovery of the salmon, comes from the streams and lakes in Montana. 66 In Montana this is not so much of a salmon problem, as one of economics and a threat to another species, the bull trout. You see Mr. Chairman some of the water that feeds the Snake and ultimately the Columbia River comes from the mountain streams of western Montana. We don't see one cent of economic value from the salmon, but we do feel the economic pinch of the removal of our water. Water, which in years like the one we are now experiencing in the northern rockies, we cannot afford to lose. For the past several summers the rivers in Montana have been running extremely low due to the effects of a lack of winter moisture. Later in the year, the streams run low as a result of excessive draws of water from downstream users. Last year the water level in several of our lakes was at its lowest level in history. This exam- ple was very much the cause of flushing salmon down river, in a program that has nad very little measurable effect on the recovery of this species. Mr. Chairman, the movement of water down river is extremely important for the western portion of Montana. The benefits that can be derived from the water re- sources are immense. All one needs to do is look at a map of the state and see that this is a recreational haven for many, both in and out of the state. Yet the federal government continues to intervene and draw from this economy the very basis of its' existence. When the lakes and reservoirs of the area are drawn down the popu- lation in the area has no summer opportunity for economic development. Tnis steady draw on the resources of the area has cost the local economy and the federal treasury millions of dollars, much in the way of excessive prices for higher electric rates. This is money which in this time of economic belt tightening that we could have and should have saved. Another economic issue is the cost that this proposed action will have on the transportation system on the river. In Montana the base for our economy is the ag- riculture industry. Reports show that the producers in Montana ship upwards of 80 percent of their crops out to the Pacific rim countries through ports located on the Columbia River. If by flushing water down the river the water levels are drastically reduced, the operators transporting these commodities will increase their rates and thus the cost to the producer. Again placing an economic hardship on the federal budget. These are people who are struggling to afford the cost of doing the business of feeding and clothing this nation. Unfortunately this is not the end of the hardships that the National Marine Fish- eries plan has placed on the state of Montana. I am sure that they are aware of the strains that this will place on a native fish species on our state, the bull trout. The more water which is flushed down the river will increase the stress on this spe- cies. Reducing the chances the state is undertaking to recover this valuable popu- lation, and adding to the high cost of the project. Mr. Chairman the costs associated with this action, which is being proposed by the National Marine Fisheries Service is too high, for what the scientific data has detailed as a return. The proposal for the action has placed misguided confidence in the unsupported conclusions of the benefits of massive flow increase, spill and reservoir drawdowns on the recovery of the Northwest salmon. It is my belief, and that of a number of authorities that more science needs to go into this recovery ef- fort before a final plan can be detailed. So many times the public accuses Congress of jumping without looking, and we have an opportunity here to do just the opposite. Let's take the time to appraise and assess the impacts as well as the benefits before we allow this plan of action to begin. Mr. Chairman, I would again like to thank you for taking the lead on this issue and providing the committee with an opportunity to get to the bottom of the costs associated with this plan for salmon recovery. As my state is the least effected by the recovery yet the most effected by the cost of the program as is it proposed I will stand strong against any and all efforts to draw additional water from our streams. I look forward to the testimony of the panels here today to provide the rea- soning behind this costly and questionable proposal. STATEMENT OF HON. LARRY CRAIG Senator Hatfield. Senator Craig. Senator Craig. Mr. Chairman, I, too, join with the members of this committee in thanking you for bringing this issue to the atten- tion of the Congress. I think you have brought it at a time when clearly we must focus, as we have not in the past, in attempting to drive a solution to a problem that is very perplexing in the Pacific Northwest. 67 I remember several years ago when you convened the original salmon summit, and I applauded you at that time, but it was obvi- ous, following that effort, that this was an issue that politics, and not science, would allow to lie down. Since that time, we have seen the rest of the story. And the rest of the story is that we are now at a point where the cash cow of salmon recovery in the Pacific Northwest is about to be drained dry. And that cash cow is the Bonneville Power Administration. You and I and everyone else here understand the Regional Power Act and what it caused to happen, and what it allowed, or insisted, or required Bonneville to do. While I think all of us were respective and supportive of that po- sition, we watched as rates went up and as costs went up in rela- tion to salmon recovery, and all of us said, gee, I do not know if we can afford another one of those. And yet with the announcement of the biological opinion by the National Marine Fisheries Service several weeks ago, all of a sud- den added to that $350 million a year annualized cost driven by the Power Act is now a potential $160 million more a year, maybe $280 million additional by the year 2000. That's better than one- half a billion dollars a year, and frankly, it is too darn much. We now put in jeopardy the Bonneville Power Administration's ability to be a producer and a competitor in the Pacific Northwest, and it is a tragedy if we allow that to happen, and I know you won't, nor either will I. But I would hope that we use this time and place, Mr. Chairman, to focus in a micro way, and something that we can never get our hands around in another way, and that is the issue of the Endan- gered Species Act and its impacts. Because we can measure very clearly its impact on Bonneville, we can say, "Oh, look at the dramatic impact it is having here and the potential crippling of this major power producer in the North- west." We are measuring that today, and we will measure that in the future. That is part of the intent of your hearing to scope that and ultimately to try to drive potentially a solution. But let me suggest that it is only one measurement. We are not going to measure the impact on the investor of utilities, but we should. Now, this hearing is not for that. We are not going to measure the impact on irrigation, agri- culture, transportation, but it is phenomenal and it is going to get greater unless you and I and the rest of these Senators sitting around this dias from the Pacific Northwest drive a solution to this problem. I think we are now attempting to, at least, understand it in a way that may cause us to come together for a solution, because I do believe we are at a time in which it can be legitimately asked how much are we willing to pay for the salmon. That has been her- esy, political heresy, up until this time. We have all wanted to save the salmon, and that has been a sin- cere statement on the part of all of us who serve in the formation of public policy. But we have finally come to a time where we have to look our- selves squarely in the eye, Mr. Chairman, and say and at what 68 cost; certainly, not at the destruction of Bonneville. I would hope not at the destruction of the irrigated economy of the State of Idaho. I would hope not at the destruction of the transportation systems in the slack waters of the Columbia and the Snake, which you have helped to build. But we are verging on that, and we have to, if we only allow ourselves to stay at the whims of a judge, we may well march on down that trail. If not, I would hope that you and I and the rest of us can come together to look at the big picture, and the narrow picture, and all of the pieces, and this is but one piece that we are looking at today, to begin to fashion a solution that maintains the productivity of the multitude of the economies of the region, along with the hopes of saving the salmon, I say the hopes of saving the salmon, but it is now legitimate that we, at least from my opinion, ask and at what price. Thank you. Senator Hatfield. Thank you, Senator Craig. Senator Kempthorne. STATEMENT OF HON. DIRK KEMPTHORNE Senator Kempthorne. Mr. Chairman, thank you very much. May I note, too, just for those that are here and see some of us coming and going, it is not discourtesy, it is the nature of being double and triple booked in other locations as well, other committees. I want to thank you, Mr. Chairman, for holding this hearing. I share with you a common commitment to restoring the endangered salmon stocks. I believe that we also share a common commitment to recovery measures that will actually help the salmon and still take into ac- count the economic and other needs of people in Idaho, Oregon, and Washington, and I would like to make just a few points. First, the market situation for hydropower is radically different today than 10 or even 5 years ago. It is a highly competitive mar- ket, and Bonneville Power must be able to compete in that market. Hydropower should be required to pick up and pay for the exter- nal environmental costs of its activities. Other power producers have been asked to do this, but it is not appropriate to interpret every mitigation or recovery option as something that should be bank rolled by hydropower and its ratepayers. The costs absorbed by hydropower should be directly related to its contribution to the salmon's endangerment and what they are asked to do should be well grounded in science or specifically de- signed to fill gaps in our scientific knowledge about what recovery methods will work. Unfortunately, the Federal Government is inclined to experiment with Idaho water, for example, spill regimes, and drawdowns in a way that prevents us from learning from these experiments. It does this with little regard for the costs of these experiments to the people of the Northwest, and while shutting the door on meaningful information that points us in other directions. Second, we sometimes forget in Washington the effect that Fed- eral policies have on real people. I recently received a letter from 69 the general manager of the Raft River Rural Electric Cooperative and the president of the Idaho's Co-op's Council. Bud Tracy projects that the current and proposed fish and wild- life costs could add $500 million to BPA costs. That means that $132 of an average person's $1,000 power bill are fish recovery costs. For irrigators who have power bills of $100,000 or more, they will be paying $13,200, up from the $9,300 that they paid last year. I think that we all would agree that agriculture is a risky busi- ness and profit margins are often small. Adding $3,200 to a farm- er's cost without any assurance that these costs will benefit salmon is not the right policy. Finally, I would like to suggest to this com- mittee that we must become more creative in our approach to help- ing the salmon. Technological innovation has been a time-tested method that Americans have used to help us solve our problems. We should do so here. A number of hydropower engineers across the country are convinced that the time is ripe for breakthroughs in turbine design that can produce a turbine more friendly to fish that inadvertently pass through them, new ideas for surface collec- tion, and bypass for light and sound guidance, and improve trans- portation within our region. Technological innovation can be our ally in achieving these twin objectives, which at times seem so incompatible. I would urge this committee to pursue this course with all due speed, and offer my commitment to work with you toward this objective. PREPARED STATEMENT I would also note that the third panel coming up today is Mr. DeWitt Moss, from Jerome, ID, who is truly one of the very knowl- edgeable individuals with regard to water issues and is both prag- matic and a practitioner on good sound thoughts concerning this. Mr. Chairman, I would ask that my full statement be made part of the record. Senator Hatfield. It will be made part of the entire record. [The statement follows:] Prepared Statement of Senator Dirk Kempthorne Mr. Chairman, thank you for your invitation to participate in this hearing on the salmon recovery efforts, and its cost to the Pacific Northwest, and Bonneville Power Administration in particular. You and I share a common commitment to restoring endangered salmon stocks. Historically, they have been an important source of food and recreational opportunity. Today, as yesterday, they are also part of our unique identity. I believe we also share a common commitment to recovery measures that will ac- tually help the salmon and still take into account the economic and other needs of people in Idaho, Oregon, and Washington. Being able to assure an adequate, consist- ently reliable, and affordable energy supply to Pacific Northwest households, agri- culture, and industry is part of that equation. The witnesses testifying today are especially equipped to address the energy is- sues underlying the salmon recovery debate. I do not intend to cover ground that can be better addressed by those on the front line of our regions energy concerns. I would, however, like to make several points. First, the market situation for hydropower is radically different today than ten, or even five, years ago. It is a highly competitive market, and Bonneville Power (BPA) must be able to compete in that market if it is to remain a viable entity and meet its repayment obligations to the federal government. Already, I am personally aware of several instances where present BPA customers are seeking alternative sources of electricity to replace and/or supplement their contracts with BPA. As a 70 result, the National Marine Fisheries Service (NMFS) and other federal agencies need to realize that BPA is not really a deep pocket. Yes, hydropower should be required to pick up and pay for the external environ- mental costs of its activities. Other power producers have been asked to do this. But it is not appropriate to interpret every mitigation or recovery option as something that should be bankrolled by hydropower and its ratepayers. The costs absorbed by hydropower should be directly related to its contribution to the salmon's endangerment, and what they are asked to do should be well- grounded in science or specifically designed to fill gaps in our scientific knowledge about what recovery methods will work. Unfortunately, the federal government is inclined to experiment with Idaho water, spill regimes, and drawdowns in a way that prevents us from learning from these experiments. It does this with little re- gard for the costs of these experiments to the people of the Northwest and while shutting the door on meaningful information that points us in other directions. I speak here of various efforts to "deep six" the Iwamoto studies on smolt survival through the reservoirs and to ignore what happens to salmon during the ocean phase of their life cycle. Second, we sometimes forget in Washington the effect that federal policies have on real people. Time and again, I have heard discussions that dismiss a rate-in- crease driving policy because it allegedly only results in a single digit percentage increase for the average household, or so many dollars a month. I recently received a letter from the General Manager of the Raft River Rural Electric Cooperative and President of the Idaho Coops Council. He was distressed about the effect on Bonneville Power rates of this Administration's Biological Opin- ion covering hydropower operations. His coop serves an area that has never been home to spawning anadromous fish. Based on the current BPA fish and wildlife budget of $350 million, augmented by the additional Administration request of $148 million, he projected the cost to indi- viduals and to irrigators. Remember, irrigated agriculture is the economic mainstay of the communities in the counties served by Raft River. If there is no irrigated agri- culture, these communities may become the ghost towns of the 21st century. While a person with a power bill of $1,000, is paying $132 a year for salmon re- covery under the new biological opinion, the cost to an irrigator is substantially rreater. Bud Tracy's irrigation customers, who have an annual power bill of 100,000, will pay $13,200 per year for salmon recovery efforts, or $2,200 per month during their six month irrigation season. This is an increase from $9,324.00 pres- ently, or $1,864.00 a month. Agricultural production is not one of the most certain occupations. So, we are add- ing almost $4,000 to the annual production costs of Idaho farmers, without any as- surance that these costs will benefit salmon, and when drought conditions have been present for seven years. Mr. Chairman, I ask unanimous consent that the letter from Bud Tracy be in- cluded in the hearing record. It outlines the likely economic effect on customers of different types and size. Finally, I would like to suggest to this Committee that we must become more cre- ative in our approach to helping the salmon. Technological innovation has been a time-tested method that Americans have used to help us solve our problems. We should do so here. A number of hydropower engineers across the country are con- vinced that the time is ripe for breakthroughs in turbine design that can produce a turbine more friendly to fish that inadvertently pass through them. New ideas for surface collection and bypass, for light and sound guidance, and improved transpor- tation are within our reach. While it is politically correct to speak of tearing down the dams and returning to natural river conditions, the real solution to benefit salmon is one that will aid salmon recovery while recognizing the genuine needs of the people in the Pacific Northwest to earn an income and raise their families. Technological innovation can be our ally in achieving these twin objectives, which at times seem so incompatible. I urge this Committee to pursue this course with all due speed and offer my commit- ment to work with you towards this objective. 71 Letter From Bud Tracy Raft River Rural Electric Cooperative, Inc., Malta, ID, March 13, 1995. Hon. Dirk Kempthorne, Congress of the United States, Washington, DC. Hon. Senator Kempthorne: The impact of the Endangered Species Act (ESA) to our area through the hsting of the Northwest Salmon alone, possibly has and will have as concentrated affect on the Mini-Cassia area as anywhere. It is important to recognize and acknowledge up front that "none" of the anad- romous fish ever made it as far up stream as our county and the neighboring Minidoka county due to natural God made barriers. Our state was established, and its local economy developed, with an irrigated ag- ricultural base. In the early 1960's the Bonneville Power Administration (BPA) agreed to bring preference power (PF) to Southern and Eastern Idaho (the upper Snake River drain- age). A large portion of Cassia and Minidoka Counties are served with BPA's PF power through the following utilities: City of Burley, City of Declo, City of Albion, Unity Light & Power Co., South Side Electric Lines, Inc., Raft River Rural Electric Co-op., East End Mutual Company, LTD., City of Heyburn, Farmers Electric Co., Rural Electric Company, City of Rupert, City of Minidoka, Riverside Electric Com- pany. In addition to the public entities, the balance of the counties are served by the investor utilities Idaho Power Company (IPCo) or Utah Power (UP & L). Thus with such a predominate Hydro base in our area the Endangered species Act (ESA) listing has placed an exorbitant burden on the local economy as well as the unprecedented attack upon our water and water rights. With the assumption that the surface and ground water resources are a conjunctive resource the release of any Upper Snake Water will jeopardize not only the surface but continue to de- plete the underground aquifer. Assuming the rule of thumb that for every $25 million BPA requires in revenue the wholesale cost to the preference utilities increase by 1 percent. With the BPA fish and wildlife budget at $350 million and the National Marine Fish and Wildlife Service (NMFS) biological opinion recently released asking far an additional $148 million, the cost of "fish alone" to the wholesale cost of electricity has an economic impact of over 20 percent. Now what does that really mean in the real world of our rate payers and what effect will this have upon their ultimate cost of power. In our Cooperative the average annual residential bill in 1994 was $1,106.34. Their fish cost would be approximately $12.53 per month. The average irrigation bill was $10,802.42, their fish cost would be appoximately $244.61 per month. Another way to look at this would be to say our total wholesale cost for BPA power in 1994 was $5,070,726.28. The cost of the present $350,000,000 Fish and Wildlife budget. Raft River's share of this would be approximately $709,900. This would be $705.67 per member per year or $58.81 per month. With the additional Biological Opinion costs of $148,000,000 the total cost to Raft River Rural Electric per member, per year or $83.67 per member per month. As you are fully aware averages can be confusing and misleading. With this in mind please consider the following. Real Examples: Example No. 1: A small irrigator with an annual bill of $3,000 his fish cost would be $67.93 per month. Example No. 2: A large irrigator with an annual bill of $400,000, his fish cost would be $7,400 per month. The first and obvious impact is on the farmers with an increased production cost. However, the ultimate impact is born by the entire infrastructure of the Burley-Ru- pert Area. Their mere existence is dependent upon water and agriculture. Therefore, away of life from local hot dog and hamburger shops, to banks and clothing stores will be asked to pay the price. Which will, with out a doubt, have to pay the ultimate price with the loss of their business. When this commences there will be a domino effect which will have the death spi- ral effect on local and county government by reducing property values which will be the final blow. With respect to the total State of Idaho as President of the Idaho Cooperative Utilities Association, I can without reservation express the same impact is happen- ing all through the State, as well as impacting all of the local Cooperatives and Mu- nicipalities. 72 This outcome will simply destroy an economy and the lives of rural families. Let's reconsider the human species in the reauthorization of the ESA. I sincerely believe that to place greater value on a species other than human is wrong. After all what and who are we protecting it for? Sincerely, Bud Tracy, General Manager. DEPARTMENT OF ENERGY Bonneville Power Administration statement of randall hardy, administrator opening remarks Senator Hatfield. As we turn now to Mr. Hardy, the Adminis- trator of the Bonneville Power Administration, let me just add one further fact. In setting up this meeting today, I invited each of the colleagues from the States of Washington, Idaho, Montana, and Alaska to sub- mit suggested names of witnesses, and I believe that we have been able to accommodate not only specific requests, but have many im- portant categories of parties represented in this hearing. We regret, the timeframe being what it is, that we could not have more. Tremendous interest in the outcome of this hearing today has been expressed by our House colleagues from all of our States, and there may be a similar hearing organized by some of the House col- leagues at a later time. But we would have loved to have been able to accommodate all of our colleagues: House colleagues, as well as our Senate col- leagues, but we were not able to do so. Mr. Hardy, you may proceed to either make a summary state- ment, and if you want, to answer questions. Mr. Hardy. Yes, sir; Mr. Chairman, I would like to ask that my full statement be entered in the record. Senator Hatfield. It will be. Mr. Hardy. And I will summarize it. I will speak briefly from a handout that I think each of you have. Mr. Chairman, as you observed in your opening statement, Bon- neville today faces the greatest challenge in its entire 58-year his- tory, and I include in that period the WPPSS period and other peri- ods which, at the time, seemed awfully formidable. That challenge is summarized in this graph, with our competi- tiveness picture and how our competitiveness has changed over the last 15 years. The bottom line is, essentially, the cost of Bonne- ville's power. You will notice that line is pretty stable. It has not gone up all that much over the last 15 years. What has changed is the top line, which is the cost of alternative generation. Fifteen years ago, when the Power Act passed, Bonne- ville's wholesale rate was about 10 mills, and the cost of a new nu- clear or a coal plant was 70 mills or 80 mills. We had plenty of room to raise rates, and customers simply did not have other choices. Today our wholesale rate is 27 mills, and the avoided cost of new generation is somewhere between 25 mills and 30 mills. In fact, (73) 74 this graph is 3 months old, and we are probably already at the crossover point where alternative sources of generation are below or at least equal to our wholesale rate. This situation is a product of three factors, first, low natural gas prices; second, a west coastwide surplus of electricity borne by a de- fense restructuring in California, and a number of other factors; and third, the opening up of transmission access nationwide, and particularly in the west coast. This situation in particular, has made low-cost coal-fired power in the desert Southwest, Wyoming, Utah, and other places available in this region at costs that are competitive with our current rates. We announced a 5-percent rate increase as a preliminary pro- posal some 3 weeks ago. I am not even sure we can sustain that level of rate increase without losing significant additional cus- tomers. We have tried to deal with this problem in a number of ways. Between last year's budget submittal and this year's budget sub- mittal that you now have under consideration, we have cut almost $250 million a year on average for the next 5 years. But that was not enough. Three weeks ago we identified another $250 million a year on average worth of cost reductions that we believe we will have to undertake to stay competitive. These reductions involve a 1,000-person staff reduction at Bonneville and possibly additional staff reductions. The 1,000 person reduction is a 20-percent downsizing for BPA. The additional cost reductions involve significant cuts, particularly in the generation and transmission budgets. I am sure we will get into some of those significant reductions in the questions. But, basically, in the last 15 months or so we have identified one- half a billion dollars a year worth of cost cuts over the next 5 years that we are aggressively pursuing. The next couple of pages list for you some of the offers that our customers have been receiving. They reference Senator Gorton's ob- servation about the number of people who visited his office, and I think have visited all of your offices. Let me just cite a few offers to give you an example of the competition we have. Kootenai Electric Co-op of northern Idaho has an offer on the table from ENRON. Who is ENRON? ENRON is the largest natu- ral gas company in the United States, and is an active marketer- broker in the Northwest. That offer starts at a rate below Bonne- ville's current rate of 27 mills, and escalates by a modest percent each year. Clark County PUD, our fifth largest customer, has already made a decision to build a combustion turbine and offload one-half of its load from our system. And I now have pending a request from Clark to go to zero, to offload its entire 375 megawatts worth of load by the end of 1996. Inland Power & Light, our second largest cooperative customer outside of Spokane, has received an offer from the Washington Water Power Co. to offload one-half of its load from Bonneville, again at a price that starts below our current rate, much less any potential rate increase, and escalates by roughly 3 percent a year. 75 In addition, back in November, we bid on a solicitation from Pub- lic Resource Managers, who is putting together a portfolio of re- sources for a number of our customers. We offered a price that started at 29 mills, just 2 mills above our existing rate, and we did not even make the short list of selectees, that PRM published that it was going to negotiate with last week. There is a general pattern in all of these offers. Competitors, whether they are PacifiCorp, or Washington Water Power, or ENRON, or other marketer-brokers, are offering our customers 5- year, and in some cases 10-year contracts, that start below our cur- rent rate, and escalate just slightly above our rate at the end of the period. Now, these are just the offers we know about. I suspect, and we have received some information to this effect, that, in fact, there are a number of offers out there that start and end below our cur- rent rate in the 5-year marketplace. That is the pattern and that is what we are trying to deal with. We have tried to respond to that challenge in four or five dif- ferent ways. I have mentioned the cost cuts and how we are pro- ceeding with them. We intend to keep the 2-year rate proposal as low as possible. We announced a 5-percent rate increase as a pre- liminary proposal 3 weeks ago. That number is going to go down. It has to go down if Bonneville is going to stay competitive, and we are working to make that happen. We have indicated an intention to offer a 5-year rate proposal in the next 45 to 60 days. I will be frank and tell you I am not quite sure how I am going to get to a 5-year rate proposal, but I know I have to get there if we are to be competitive and if we are going to compete with the kinds of offers that I have just described. We will jise cost cutting, 4(h)(10)(c), credits, and the debt re- scheduling tools that Dr. Rivlin talked about in an effort not just to pay for the additional salmon cost increment, but also to keep Bonneville competitive more generally. We will move to simplify our existing contracts. That is why we announced, along with the budget cuts 2 weeks ago, the decision to shelve our tiered rates proposal. This decision was made pri- marily because the tiers had collapsed and there was no longer a market-based tier two, but also because the decision greatly sim- plified our ability to offer new power sales contracts. We will move to more tailored power sales contracts for individual customers rather than the omnibus negotiation that we have engaged in so far. Let me turn a little bit to fish. Bonneville is dedicated to restor- ing the salmon runs. We are currently spending at a clip of roughly $300 million to $350 million a year, and as many of you have ob- served, that is going to go to roughly $500 million a year over the next 3 to 4 years. I should emphasize, however, that fish is not the biggest section of our budget. It is about 10 percent now, and with the inclusion of the 1995 biological opinion costs, it will grow to 13 or 14 percent. There are other sections, for example, the WPPSS debt service, and operations and maintenance of transmission systems, that are larg- er. 76 However, fish is far and away the fastest growing segment of our budget. Fish expenditures have changed from 1991 to 1995 and are projected to increase through 1998. It is no accident that the three Snake River stocks were Hsted in November 1991, and that cost escalation that has occurred from 1991 to the present has been about $200 milHon a year from 1991 to 1994. As many have observed, the cost will go up another rough- ly $160 million over the next 3 to 4 years. We are grateful for the administration's help with 4(h)(10)(c) that Dr. Rivlin announced, and that we announced formally yesterday. The 4(h)(10)(c) credit will be of significant assistance, but as many of you observed, and as Dr. Rivlin observed, it is not a long- term solution. It needs to be a bridge to something else. It buys us some time, both for the salmon and for our own competitiveness problem. Basically, absent some action on your part, Bonneville has three tools to deal with this problem. One tool is 4(h)(10)(c), whatever as- sistance we can get; the second is the cost cutting that I just an- nounced, and further cost cutting, if necessary; and the third is es- sentially debt rescheduling by missing a portion of our planned Treasury payment, or at least in this case, lowering the probability that we will meet the planned Treasury payment each year. Those tools and modest contributions from new revenues, which are problematic in today's marketplace, are the tools we have. Those are the tools we will use to manage ourselves to a stable 5- year rate level, but that begs the question of what is the long-term solution, which is the purpose of today's hearing. I have two final notes. First, because of good water and because of the 4(h)(10)(c) assistance, we are in relatively good shape for making our fiscal year 1995 planned Treasury payment. I think we have a good probability of making the payment, and I am not worried. Fiscal year 1996 is more problematic, but, again, with 4(hX10)(c) assistance, that will be helpful, and if we get a de- cent break on water conditions, I am optimistic we can make that planned Treasury payment as well. Finally, Mr. Chairman, I will conclude by saying, as is obvious, we are in a very competitive market. We will do whatever it takes to meet the market, because that is what is necessary for us to re- main viable in the fashion that Senator Murray and others have described, and execute the missions that we have. But that may not and probably will not be enough. That is the purpose of today's hearing, and I am optimistic that you and other members of the delegation will help us as we work toward solu- tions for the longer-term issues. Thank you, Mr. Chairman. [The statement follows:] 77 PREPARED STATEMENT OF RANDALL W. HARDY Mr. Chairman and Members of the Subcommittee, it is a pleasure to come before you to present the FY 1996 budget for the Bonneville Power Administration (Bonneville). The Subcommittee's attention and support continue to be essential as we work to address the challenges we face in the Northwest. The Bonneville Power Administration is at a historical pivot point that will, depending on our response, determine the future of this agency. After five-and-a-half decades of virtually no competition, Bonneville now finds itself in a deregulated, highly competitive marketplace At the same time, new decisions on Columbia Basin endangered salmon will influence how the hydro system is operated. Bonneville's response is to move decisively to manage the challenges these events pose. Today, I will first discuss the competitive environment we are facing and the tools we are using to remain competitive. I will then discuss the increasing financial pressures of added costs. Finally, I will comment on our current financial situation as of the end of the first quarter of FY 1995, our current budget, and some of the more important events now affecting Bonneville For 58 years, Bonneville has been a "can do" agency, adapting to the Northwest's changing needs, from rural electrification to establishing one of the leading energy conservation programs. Bonneville's ability to change remains its greatest strength. This attribute takes on new importance today as Bonneville undergoes what may be its most crucial transformation Bonneville's ability to adapt successfully is fundamentally important to the Northwest economy and environment. Our low-cost, non-polluting power has brought new business and industry into the region. In the rural Northwest, Bonneville power has transformed arid expanses into rich croplands. This same reliable power is a major factor in the region's economic expansion A productive and growing Northwest economy depends on Bonneville. A financially healthy Bonneville is also key to funding the region's fish and wildlife enhancement and energy conservation efforts. In today's competitive utility marketplace, Bonneville must first succeed as a business if it is to serve its wide-ranging regional mission and meet its Federal responsibilities COMPETITIVE MARKETPLACE Utility deregulation has fostered a strong independent wholesale electric power production industry nationwide. In the Northwest, as elsewhere, this industry offers Bonneville customers an ahemative. This competitive climate was accelerated with the National Energy Policy Act of 1992, which opened transmission access, not only within the Northwest, but also to utilities among regions. The costs of new power sources have dropped sharply in recent years, causing the gap between Bonneville's costs and the cost of alternative power sources to narrow dramatically. Ten years ago our price advantage was over 400 percent. We believe that recently this gap has been narrowing rapidly as independent power producers and others enter the Northwest wholesale market. I have attached a number of charts and graphs to my testimony to elaborate on my testimony. Please see Attachment 1 on the avoided cost of alternative generation. In addition, uncertainties about Bonneville's future costs, especially salmon restoration costs, have led some customers to conclude Bonneville might not be competitive in the very near fiature That could be true were Bonneville to take no action. Two years ago we took a hard look at the position of our agency. Following business-as-usual, our projections, using current rate levels, showed Bonneville's costs would exceed revenues, annually, by $600 million in just ten years. There was no question that we would have to change the way we do business. Bonneville's Competitiveness Project is the agency's vehicle for creating the necessary change. Bonneville believes the key to its success is for it to be a customer-focused, cost-conscious, results-oriented, market-driven government organization. 78 It is important to note that the overall goal of Bonneville's Competitiveness Project is to allow Bonneville to more efficiently and effectively accomplish its mission as outlined in organic statute, not to change the mission itself Bonneville remains committed to the integrity of the region's environment and natural resources, to conservation as the energy resource of first choice, and to providing high quality transmission and other services. Our cojnpetitiveness has a direct relationship to our ability to fulfill our mission, including regional utility, social and environmental responsibilities. There has been a perception by some that Bonneville's focus on customers is an abrogation of our fish and wildlife and other environmental responsibilities. If anyone has a stake in Bonneville's continued success, it is those who are dedicated to preserving the region's fish, wildlife, conservation and renewable resource programs Bonneville's customers have alternatives to Bonneville power. Without revenues from the power side, it will be difficult, if not impossible, to continue to fund the region's fish, wildlife, conservation and renewables programs A healthy economy and a healthy environment go hand in hand One supports the other. A viable Bonneville is critical to the entire region ~ environmental concerns as well as business and industry. SUSTAINING REVENUES To ensure that we can meet all our regional responsibilities, we believe we must move to stabilize rates to keep our existing customers and attract new revenues as well. Bonneville is looking at how different price increases affect Bonneville's ability to keep customers and thus sustain revenues. We believe this sustainable revenues analysis, based on actual offers being made to our customers, shows that because our customers can choose alternative power suppliers at competitive prices, even small rate increases can lead to a loss of existing customers sales Total revenues may increase somewhat, especially in the short run with small rate increases less than 5 percent However, Bonneville believes that as rate increases move much above 5 percent, this changes. Larger rate increases could modify Bonneville's revenue base by driving existing customers away Our customers have many alternatives to turn to for their power needs Some, like Clark Public Utilities, Grays Harbor Public Utility District, and Snohomish Public Utility District, have already decided to diversify their power purchases from sources other than Bonneville. Many other customers are being pursued by investor-owned or public utilities, independent power producers, power brokers, and marketers As of March 1, 1995 Bonneville has received formal requests fi'om six utilities to decrease their current purchases from Bonneville by 472 megawatts. This reduction may result in lower power purchases and lower valued product sales, but final decisions are yet to be made An irony of the marketplace is that some of our competitors are also our customers and exchanging utilities under the Residential Exchange Program Virtually all of our customers, both utilities and industries, are being approached by our competitors. For example Washington Water Power is proposing a 10-year arrangement to serve about half of the load of Inland Power and Light about 27 average megawatts, Bonneville's second-largest co-op customer. The price is potentially competitive with Bonneville's current priority firm rate and escalates at 3 percent a year. The City of Canby has signed a similar contract for service to most of its 13 average megawatt load with Portland General Electric. Idaho's Kootenai Electric Co-op has been offered by ENRON a contract to serve all of Kootenai's 27 average megawatt load at prices which start near Bonneville's current priority rate. In addition, a number of Northwest generating utilities and other West Coast suppliers, including PacifiCorp, BC Hydro, PGE, San Diego Gas and Electric (through its Enova subsidiary), and the Eugene Water and Electric Board, in addition to independent power producers, are offering to serve current Bonneville customers 79 Most of these offers have a similar pattern; they start at or below Bonneville's current wholesale rate of 27 mills and escalate by a fixed percentage for five to ten years. They thus start as extremely competitive prices and offer predictability for several years. As more customers leave, the amount of revenue produced declines. It's clear we need to consider our competitive position when we set our prices. PROSPECT OF THE CALIFORNIA MARKET Some critics have suggested that Bonneville is overstating the competitiveness issue If Bonneville cannot compete in the Northwest, they have said, there is always the California market. The assumption that the California market is our salvation is well-intentioned, but does not reflect current reality. California today has less expensive or the same alternatives to Northwest power, and it no longer enjoys the economic boom that once supported large extra-regional power imports The reality is that the same low-cost independent providers that are competing for Bonneville's customers in the Northwest also are competing in the California markets. As a result of slow load growth, several California utilities also have substantial power surpluses well past the year 2000. These surpluses are depressing prices to historic lows, as utilities opt to sell power at prices below fully allocated cost rather than letting such resources sit idle It's not a case of Bonneville's 3-cent power versus a California utility's 8-cent power Bonneville is competing against other generating utilities and independent suppliers in that market who also offej 2.5 to 3-cent power and against prices forced down by the current surplus, a condition likely to persist for several years. That does not mean there are not effective and positive arrangements to be forged with California We are moving to maximize the working arrangements between the Northwest and California to provide more seasonal energy exchanges and sales. The competitive market has reduced but certainly not eliminated the economic value of these arrangements. The statutory limit on marketing further reduces the value of these arrangements. BONNEVILLE COMPETITIVENESSES CRITICAL Bonneville's competitiveness is critical to the Pacific Northwest economy The agency provides nearly half of the electric power and three-fourths of the high-voltage transmission in a very electricity-dependent region. Bormeville's competitiveness is critical to its customers because the competitiveness and survival of many of the 1 50 utilities and large industrial customers the agency serves in the region are closely linked to Bonneville's rate levels. Likewise, business and industries serviced by these utilities depend on an economic power supply. Bonneville's competitiveness is critical to the envirorunent because Bonneville funds conservation activities, and we presently invest roughly $300 million per year on fish and wildlife (not including additional fish mitigation measures recently proposed by the Northwest Power Planning Council, U.S. Fish and Wildlife Service, or National Marine Fisheries Service), in addition to tens of millions for clear air, clean water, and hazardous waste cleanup. Further, Bonneville's competitiveness is important to the nation's taxpayers because of the annual payments Bonneville plans to make to the U.S. Treasury. For FY 1996-2000, Bonneville's projected annual Treasury obligation is on average about $860 million. 80 COMPETITIVE TOOLS Bonneville has three tools to stay competitive: controlling costs, improving services, and increasing revenues from a variety of sources We have proposed a Business Plan to restructure our entire business approach. The plan is our guide for adjusting to the new environment by managing financial risks, reducing agency costs, and increasing our customers' satisfaction In late February, all of Bonneville's key executives met to assess agency marketing and business strategies. We concluded that escalating competition in the marketplace is getting tougher and will continue to get tougher before the playing field levels out. We agreed that in order to meet the competition, further cost reductions would be needed, and we have the tools, the talent, and the will to do it. We fijrther concluded that our overall marketing strategy outlined in the Business Plan is sound and we will continue to keep the course CONTROLLING COSTS We are continuing to take aggressive actions in managing our costs. Thanks to internal cost management, we avoided triggering an interim rate adjustment last October despite a third year of very poor water conditions. Despite significant and unexpected new costs for power purchases related to drought and fish mitigation--$500 million more than budgeted in the last three years, Bonneville's total operating expenses stayed level for the last three years. Cost cutting and efficiencies have resulted in reductions of about $240 million a year on average from Bonneville's planned operating expenses for fiscal years 1996-2000. Please see Attachment 2 for a comparison of total operating expenses from the FY 1995 Congressional Budget Submission and the 1995 Rate Case data. Preliminary spending levels for 1995 Rate Case data includes updated assumptions and more cost reductions than are included in the FY 1996 Congressional Budget. These cuts will total at least $1 billion by the end of the decade As the competition gets tougher and market prices drop, we recognize that even more stringent steps will be needed to close the gap between expenses and revenues To the extent possible, over the next five years, we will seek an additional $1.3 billion in cuts—this is an average of an additional $250 million annually These additional cost reductions are expected to be included in the final Business Plan set for release in June By the end of this month we will have reduced our workforce by about 350 Bonneville employees from the time we initiated the Competitiveness Project. We expect to reduce Bonneville contractors by about 200 by the end of FY 1995. We are on target to meet our goal of reducing the overall workforce by 1,000 workers by the end of FY 1997. This overall 20 percent reduction is divided equally between contractors and Bonneville employees It is likely that the S 1 3 billion cost reduction goal will further increase this number Further examples of cost-cutting and efficiency include: terminating two partially completed nuclear plants, in cooperation with the Bureau of Reclamation, improving Grand Coulee Dam generation efficiency, thereby adding revenues in power sales, altering a major maintenance project; early cleanup of the Ross Complex Superfund Site, and negotiating an agreement in principle to resolve delivery of the Canadian Entitlement downstream benefits under the Columbia River Treaty, thus saving alternative resources costs and the costs of building a new transmission line Regarding additional cost cutting, all elements of the budget are being considered In particular, we are looking at resource acquisition projects. Further, and as a result of recent management decisions, all current generating resources on line and under development are being reviewed in order to achieve savings of about half their costs In addition, transmission capital investments will be significantly reduced 81 Regarding Washington Nuclear Project No.2, (WNP-2) preliminary analysis indicates, that given decommissioning costs of about $450 million, it is significantly more cost-effective to manage WNP-2 costs down to 25-27 mills in the near term In addition, reliability analysis shows the plant is important for fall-winter capacity. However, should the plant fail to manage to cost targets, termination will be re-examined. REINVENTION/IMPROVING SERVICE Bonneville has completely reorganized its work force to focus on customer service Prior to the re-organization, we had no sales force. Now the agency is mobilized around account executives who have direct contact with individual customers and who are empowered to respond quickly and creatively. The feedback from our customers has been overwhelmingly positive about this new service-oriented focus As part of the Administration's FY 1996 proposal to reinvent government, the Department of Energy is preparing legislation to make Bonneville a wholly-owned government corporation under the Government Corporation Control Act This would increase Bonneville's flexibility over personnel, procurement, financial, budget, and litigation functions to allow Bonneville to compete more effectively in electric power markets. Bonneville has already obtained administrative relief from significant barriers in these areas as a National Performance Review reinvention laboratory. This legislation would make permanent the relief obtained administratively as well as relieve the agency from additional administrative burdens which are statutory in nature. IMPROVING REVENUES Bonneville's Draft Business Plan identifies several means to protect and increase revenues Cost cutting is not the sole means to close the revenue gap. Bonneville is committed to building revenues through enhancing current products and existing markets, as well as seeking new markets. By unbundling products and services, we can offer custom-tailored packages and ensure that customers pay only for goods and services they need, rather than for one bulk product At the same time, Bonneville's marketing department is developing new products and services that will benefit customers and enhance our revenues. Initially, Bonneville proposed instituting tiered rates as a competitive tool, however, in light of the rapidly evolving marketplace and customer concerns, has decided to temporarily shelve tiered rates. Three key factors contributed to this initial decision, which we expect will be confirmed in contract negotiations. First, the market itself Prices have collapsed to the point where the difference between tiers is insignificant Second, a major goal of tiering is to send a market signal to invoke energy conservation. It is now clear that, even without tiering, customers are moving to develop conservation programs. We are confident that the Northwest Power Planning Council's Regional Power Plan conservation targets can be achieved. Finally, given current conditions, the complexity associated with implementing tiered rates appeared to be a disincentive for doing business with Bonneville and at odds with our objective to stay customer focused This decision responds directly to our customers and new market realities. Steps outlined in the Draft Business Plan, which we now expect to finalize in June, are essentia! to maintaining our competitive position. Failure to act will lead to significant rate increases over the next decade If we lose customers and revenues, we jeopardize our ability to fulfill legislative mandates which include our broader commitments to fish and wildlife, energy conservation, renewable resource development and other Northwest values, and meet our annual obligation to the US. Treasury of about $860 million on average for FY 1996-2000. SALMON RESTORATION We believe the costs of restoring depleted salmon is one of the major factors in defining whether Bonneville remains competitive Restoration of salmon stocks is possibly the most difficult issue confronting the Northwest. Over the past 1 5 years, Bonneville has incurred costs exceeding $2 billion for all of the fish and wildlife mitigation programs. In the last four years, these aggregate 82 annual costs, including opportunity losses, have more than doubled, from $150 million to about $350 million. Currently, about 1 of every 10 dollars of Bonneville's operating expenses for FY 1995 is targeted for fish and wildlife expenditures Please see Attachment 4 on BPA Fish & Wildlife Investment, This Administration supports developing healthy Columbia Basin salmon stocks and maintaining a financially healthy Bonneville. Bonneville's annual fish and wildlife investment estimate for FY 1996, including purchase power and foregone revenues, ranges from about $280 to $355 million, depending on water conditions. It does not take into account additional fish mitigation measures recently proposed by the Northwest Power Planning Council, U.S. Fish and Wildlife Service, or National Marine Fisheries Service. The 1994 Columbia River Basin Fish and Wildlife Program adopted by the Council in December 1994 and the Biological Opinion issued by the National Marine Fisheries Service earlier this month on operation of the Federal Columbia River Power System call for increased augmentation of flows during juvenile fish migration, increased spill, and additional structural changes at hydroelectric projects to potentially improve fish passage. All of these efforts result in increased expenditures or lost revenues by Bonneville. They could add approximately $100 million to $200 million in annual costs. Please see Attachments 4 and 5 relating to such costs This would result in total fish and wildlife expenditures of about 13 to 14 percent of Bonneville's total operating expenses. FOCUSING ON FISH RESULTS Bonneville is moving ahead to meet its commitment to the region's fish and wildlife We are forging creative exchanges and power arrangements with other regions, developing innovative water agreements, and implementing changes in hydroelectric operations that will maximize fish survival and minimize costs. This is occurring despite a prolonged drought that has compounded the salmon crisis, giving us less water to work with. In each of the last three years, we have had to import more electric power than we export. For some time, the lack of definitive biology has been an obstacle in salmon recovery efforts Bonneville is actively carrying out fish restoration measures and assuring that results be monitored and evaluated. Ultimately, this will allow us to prove the effectiveness of measures and increase the base of scientific knowledge, thus providing a benefit to all involved parties. CURRENT FINANCIAL STATUS Bonneville's financial performance over the past several years is a testament to the uncertainty and volatility of the hydro-based environment under which we operate The early years of the nineties were times of positive net revenues and a strengthening financial position. The last several years have challenged Bonneville as never before. When I last appeared before this committee, Bonneville was projecting in its FY 1995 Congressional budget a financial reserve level at the end of FY 1995 of $351 million, which was a decrease of $284 million from the $635 million that had been projected in the FY 1994 budget This year's Congressional budget projects a final reserve level for FY 1995 of $87. 1 million This downward trend has been due to the long-term impact of the drought conditions, projected low aluminum prices, and actions we are initiating to protect and restore endangered species of salmon As of the first three months of FY 1995, Bonneville is estimating year end reserves of $169 milbon due to improved stream conditions and increased aluminum prices This reserve projection, however, does not take into account fish mitigations costs that will be paid in the early months of FY 1996, or'potential additional fish costs. 83 BONNEVILLE TREASURY PAYMENTS In keeping with this Subcommittee's direction, one of our most important priorities is to assure that Bonneville's payments to the U.S. Treasury are made in full and on time. During FY 1994 Bonneville made its full armual Treasury payment of just under $700 million for the eleventh straight year. At the close of FY 1994, Bonneville's cumulative principal and interest cash payments on the taxpayer's investment in the Federal Columbia River Power System totaled about $9 billion, of which $6.29 billion has been for interest and $2.61 billion has been for principal The total Federal investment yet to be repaid as of the end of FY 1994 was $10. 1 billion. In spite of the difficulties we continue to experience, we anticipate, based on our end of First Quarter FY 1995 estimates and receipts, being able to make our FY 1995 Treasury payment of over $1 billion in full and on time. About $1 56 million of this payment results from the early retirement of debt with receipts from the sale of capacity to non-federal participants in the Third Alternating Current Intertie. DEBT FINANCING STRATEGIES Through the Draft Business Plan, Bonneville is exploring initiatives with its customers and constituents to reduce its level of debt financing in order to both delay the exhaustion of the borrowing authority caps and improve Bonneville's debt-equity position. The initiatives are to identify additional reductions in capital spending through the application of a capital budgeting process, revenue finance about $30 million in capital investments each year beginning in FY 1996; to the extent allowable, shift costs from the Transmission/Fish and Wildlife borrowing authority to the Conservation borrowing authority, and utilize third-party financing of capital investments when possible. The Senate Committee on Appropriations, in its 1995 report on the Energy and Water Development Appropriation Bill, requested that Bonneville present a preferred strategy for rectifying its high degree of financial leverage. Bonneville addressed this concern through the development of the capital spending initiatives mentioned above and through reductions in capital spending developed in its Draft Business Plan. The draft plan and the FY 1996 Congressional Budget submittal included a reduction in capital spending of about 32 percent for the period FY 1996-2002, compared to the FY 1995 Congressional Budget submittal. To remain competitive in the current business environment, Bonneville will vigorously pursue any additional opportunities for further reductions in capital spending that may arise. FISCAL YEAR 1996 BUDGET IN BRIEF Since its programs are funded by sales of power and associated services, reimbursements, and proceeds of bond sales to the Treasury, Bonneville has not requested or received annual appropriations. Bonneville's FY 1996 budget estimates total obligations of $3,496 million and capital transfers/debt reduction of $200.8 million. In support of Bonneville reinvention goals, the agency has modified portions of the expense side of its budget structure to simplify programs and more closely align programs to the responsible organization structures. The budget has also been summarized in the old structure to assure continuity with the Congressional Committees during the transition period. Structural changes to Bonneville's capital budget program include combining Transmission System Development with Transmission System Replacements to create a unified Transmission Services program. The environmental capital components of the former Transmission and Replacement Programs have been combined with Fish and Wildlife capital investments to establish a comprehensive Environmental Fish and Wildlife program. Marketing, Conservation and Production incorporates Energy Conservation and Renewable Resources investments Operating expense program structural changes include combining the traditional Energy Resources, Power Marketing and Scheduling into a combined Marketing, Conservation and Production. Transmission Services expenses combine System Maintenance and Operations with Engineering FY 1994 FY 1995 FY 1996 Actuals Estimate Estimate 108.1 153.4 842 192.0 1996 223 1 22.2 26.1 25.3 34.6 40.7 32.1 128 13.4 13.3 156 146 0 3853 4478 3780 3853 4478 378.0 (44.9) 1/ 201 5'/ (270 4) 1/ 340.3 6493 1076 2,908.4 3,024.9 3,1180 1727 502 2 2008 84 The following table provides detail under the new structure for fiscal years 1994 through 1996: (Dollars in Millions) CAPITAL INVESTMENTS Marketing, Conservation & Production Transmission Services Associated Projects Environment/Fish & WildUfe Capital Equipment Capitalized Bond Premiums SUBTOTAL CAPITAL OBLIGATIONS Borrowing Authority to Finance Capital Obligations Borrowing authority To Finance Other Obligations TOTAL BORROWING AUTHORITY Expensed and Reimbursable Capital Transfers BONNEVILLE TOTAL 3,466 4 3,974.9 3,696 8 ^/ Borrowing authority to finance other obligations represents the use of or the building up of deferred borrowing. The Department of Energy budget overview displayed net budget authority for Bonneville. The table below portrays how those numbers are derived from borrowing authority and offsetting collections (dollars in millions): Appropriations Transferred to Other Accounts (Mitchell Act Hatcheries Funding) Total Borrowing Authority Spending Authority fi-om Offsetting Collections (Adjusted) Total Budget Authority 3,244.7 3,553.3 3,496 0 Offsetting CoUections n.077 0) r3.406 2^ (3 603 3^ Net Budget Authority 167.7 147 1 (107 3) From 1937, when it was created, through FY 1994, Bonneville has returned about $1 1 billion in cash payments to the Treasury for interest, amortization, and operations and maintenance of the Federal facihties of the Federal Columbia River Power System During FY 1996, we anticipate paying $747.1 million to the Treasury, of which $200 8 million will be applied to the principal on debt owed to the taxpayer, $41 1.9 million will be interest, and the balance of $134 4 million will reimburse the Treasury for appropriations provided to the Army Corps of Engineers, the Bureau of Reclamation, and the US Fish and Wildlife Service for annual hydroelectric and fish hatchery facilities operation and maintenance expenses In addition to its payment to the Treasury in FY 1994 FY 1995 FY 1996 Actuals Estimate Estimate (141) 340 4 1 649 3 1 107 6 2,904 3 2,904.0 3,4025 85 FY 1996, Bonneville will make an initial annual settlement payment directly to the Confederated Tribes of the Colville Reservation of about $15.3 million, pursuant to the Confederated Tribes of the Colville Reservation Grand Coulee Dam Settlement Act, Public Law 103-436 Due to the capital intensive nature of Bonneville's role as a wholesale electric utility, reliable and cost-effective sources of capital are critical to the success of Bonneville's mission. A vital factor to this success in the next decade will be Bonneville's ability to respond in a timely and flexible manner to unforeseen risks and new opportunities, while also providing for program and rate stability To be successful, Bonneville will need to maintain reliable and cost-effective capital fbnding through the U.S. Treasury. Using current capital program estimates, the borrowing authority limit established by the 1974 Federal Columbia River Transmission System Act ($1 .25 billion) and increased by the 1983 Energy and Water Development Appropriations Act (an additional $1.25 billion, for a total of $2.5 billion), will be reached during FY 1998, absent further action. This borrowing authority may be used for all Bonneville investments, including new transmission line development and system replacements, fish and wildlife facilities, and direct funding of Bureau of Reclamation and Corps of Engineers additions, replacements and improvements An additional amount of borrowing authority was established by the 1980 Pacific Northwest Power Planning Act to fund conservation and renewable energy investments ($1 25 billion, for a total Bonneville bortowing authority limit of $3.75 billion) Using current conservation capital program estimates, this limit will not be reached until after FY 2000. Almost one third ($1,01 1 .8 million) of Bonneville's FY 1996 budget is earmarked for the gross cost of the Residential Exchange Program. The 1980 Pacific Northwest Power Planning Act established the residential exchange in order to extend the benefits of the Federal power system to all residential and small farm electric power consumers in the Pacific Northwest. The gross cost of the Residential Exchange Program is offset by revenues from the exchanging utilities of $808.0 million, resulting in an estimated $203.8 million net cost of the Residential Exchange Program in FY 1996 The FY 1996 budget also provides $158.1 million in direct obligations for transmission services, $79 9 million for environmental and fish & wildlife activities, $73.5 million for conservation resources, and $265.3 million for power marketing, scheduling, and spot power purchases. MITCHELL ACT HATCHERY FUNDING Legislation that modifies 16 U.S.C. 755-757, is proposed to authorize Bonneville to fund the operation and maintenance of "Mitchell Act" facilities through the transfer of fijnds to the National Oceanic and Atmospheric Administration (NOAA). Curtently, the NOAA is responsible for funding these facilities. Under this change, the region is provided an increased role in the management of these hatchery facilities in order to better protect fishery resources affected by dam construction. The additional cost of $14.1 million per year for FY 1996-2000 is included in the President's Budget as a negative appropriation transfer to NOAA Revenue estimates have also been assumed to increase to cover these proposed additional costs DIRECT LOANS FOR CONSERVATION As part of reinvention, Bonneville is reaffirming its conservation goals and substantially changing the way it approaches acquiring conservation The Draft Business Plan supports the Northwest Power Planning Council's goal for regional cost-effective conservation and focuses on decentralizing the region's conservation efforts by 1996. Much of the direct responsibility for meeting the Northwest Power Planning Council's conservation goals will shift to our customers A direct loan program is an important transition tool for meeting the Northwest Power Planning Council's conservation goal and for helping to assure Bonneville's competitiveness The loan program will provide a return of fiinds to Bonneville for its conservation services while at the same time helping utilities meet their conservation targets established in the Northwest Power Planning Council's Plan. Part of the conservation goal will still be met by Bonneville funded programs that aim for electricity savings on a broad scale. 86 Bonneville has included in this budget provisions in our appropriations language markup approving access to our authority to issue direct loans This authority was granted in the Pacific Northwest Power Planning Act, which gave Bonneville $1.25 billion for conservation and renewable resource loans and grants. Bonneville has issued direct loans in the past and, since this is a pre-existing authority, Bonneville believes, based on preliminary contacts with the 0MB and CBO, that issuing loans once more will not pose budget deficit scorekeeping problems for the Congressional committees. To assure planning certainty for conducting the Conservation program, Bonneville has included appropriations language in the budget to allow $29 million in conservation loans during FY 1996. PERFORMANCE MEASURES Included in the FY 1996 Congressional Budget Submission are seven performance measures based on those measures included in the agency's FY 1994 Annual Management Report They address the key areas of Bonneville's business, including 1) fulfillment offish and wildlife responsibilities, 2) status of Treasury repayment, 3) meeting customer load, 4) transmission system performance, 5) system safety, 6) Bonneville conservation resource costs and 7) rate competitiveness Bonneville is continuing to evaluate and refine its business strategies, objectives and success indicators as a fundamental part of its Competitiveness Project OTHER SIGNIFICANT EVENTS POWER SALES CONTRACTS Bonneville's customers want more tailored contracts and they want simplicity in both rates and contracts. We are committed to provide this. We are moving away from the complicated "omnibus" power sales contracts of the past. Negotiations with customers on long-term power sales contracts began in September, with customers and interest groups participating in the discussions Although tiered rates have temporarily been put on hold, unbundled products are being introduced and customer needs are being addressed in the light of the new business environment Proposed agreements in principle have been developed for most major issues, and a drafl summary of the proposed contract principles and key issues should be ready for comment soon. Bonneville intends to offer new contracts by early fall, to be effective in October 1996 Customers who prefer to continue to purchase power under their existing contracts may do so until those contracts expire in 2001. 1995 RATE CASE Bonneville is on a course to stabilize its rates through the end of the decade. It is increasingly apparent that customers value stability as well as competitive price. Bonneville will make a major commitment to five-year rate stability at price levels consistent with our preliminary rate proposal However, due to poor water conditions, added generation expenses and increased salmon recovery costs, we have announced a 5 percent proposed rate increase for 1996-97 This increase is needed to give us a reasonable probability of making our Treasury payment and building financial reserves. Key factors affecting our rates include the protracted drought, increased fish costs, generation debt service and additional generation costs Bonneville is offering customers what we believe to be an innovative expanded approach in its new rate case Recognizing that many customers put a premium on price stability, Bonneville is offering customers a choice of a two-year rate schedule or a five-year rate schedule While prices may be different, both will be competitive with the market. Bonneville has reviewed the proposals competitors have put before customers and is prepared to offer products and services that are not only price competitive, but also more reliable and more stable. Bonneville is well aware that in the new marketplace, the highest rates do not necessarily generate the most revenue. Now that our customers have alternatives, it is clear that as our prices go up, Bonneville customers have the option to move to other suppliers It would make little sense to set rates so high that customers are driven away. That would impair our ability to meet our costs, including those related to our fish and wildlife and conservation obligations. 87 LOOKING TOWARD A HEALTHY FUTURE Bonneville's response to market pressure will be a critical issue as we move forward We are not idle-rather we are taking aggressive actions to remain competitive. Of paramount concern will be finding ways to stabilize costs to keep the agency financially viable. To the extent our competitiveness is threatened, we will need to join with others to find innovative ways to achieve this goal. If the uncertainties Bonneville faces seem large, they are definitely not insurmountable Bonneville started two years ago to change direction. Today, we are well down the path to meeting the challenges posed by competition. Thanks to an excellent and dedicated work force, support fi-om the Department of Energy, as well as usefijl advice fi^om customers and others, Bonneville is moving toward its fijture aggressively. The Draft Business Plan, corporate reorganization, downsizing, cost cutting, the potential for becoming a government corporation, and program reinvention are all concrete moves to ensure Bonneville remains a viable and valuable contributor to the Pacific Northwest well into the 2 1 st century. The actions we have taken in the last two years and will complete in 1995 are major steps toward a new Bonneville-one that is leaner, faster, more flexible, and more service oriented-both toward customers and our social obligations. The facts are that our costs are going down and our work force is being reduced We are responding quickly to customer needs. We are committed to becoming a cost-conscious, results- oriented and market-driven organization. And, we are committed to effectively meeting our environmental obligations. I am confident that the Bonneville that will emerge ft^om our current competitiveness and reinvention activities will be a stronger, healthier agency that will be well positioned to deal with the challenges of the future. I look forward to our continued good relationship with this Subcommittee as we experience this change process together. In the final analysis, we must do whatever it takes to meet the market, including even more aggressive cost cutting, development of new markets, and securing assistance with costs fi-om the Administration. These are major steps in what will be a long and difficult transition, but steps that we must take to succeed in today's new, intensely competitive utility marketplace Thank you for the opportunity to testify today. 88 ATTACHMENT NO. 1 AVOIDED COST OF GENERATION VS. BPA AVERAGE RATE NUCLEAR based on actuatcoftis of Washington Public Power Supply COAL baMd on btuoiet by Kala. Englntertng Po»«f Corp amor^ olhan GAS bas«d on ifudlct by Fkjof Danl«l tnc , amomg other* Major uncertaintities requiring resolution are repayment reform and fish costs ATTACHMENT NO. 2 Total Operating Expenses 1/ 3300 O = 2700 2300 2100 ._■•; -;., ■■ -:'y?-^-'i^.''^'-^^i\.':^:: ■■■^^k;^^^'--;- -b ^ ' ■'. ■tf ' ;■;;•(..; ,jg:'H:-7r..>^^ ■■■ ' _-^— "^ ^^^^-"-^^^ ^.:>; '^^^<^:^--''—:: -"-^^ ,. ■••*** ^ ■ FY 1995 Congressional Submission 1995 Preliminary Rate Case Proposed Reductions from Strategic Planning 1997 1998 1/ Total Operating Expenses include BPA O&M. other entities O&M. non-federal debt service, net Residential Exchange. Interest, and Depreciation Does not include projections (or 1995 Biological Opinion, 89 ATTACHMENT NO. 3 Bonneville Projected Total Operating Expenses - FY 1995 BPA Transmission and Other Expenses 37% Federal Resources 15% Fish and Wildlife* 10% Conservation 3% Non Federal Energy Resources 35% •Does not include projections for 1995 Biological Opinion 90 ATTACHMENT NO. 4 BPA FISH & WILDLIFE INVESTMENTS Tha sduBl cosi «mI vary b«a«<^ ^ Cononggnf a(nalrTOTMI Cp^atoftal flexib' te n^ptoOng u BPA a ■ ta Tl/T to rrxKiry pn^Kl i»«A bna ■») >()tl t«v«* O^ and •()• bvymJ V K#rv« r«t r*ti«M rstH h« »v7«^Md from W (n»«rt 1 $ lcf« krAitor vmim. s [TCtgtYp* Iwtng of >t#taca byT>H. aniFiMtVig ml dwl(^ fof LSM Owwcto*tfx JDA to MOP. ^1W3k*— ifl. Mxtac* byrvu (d< tutrw lots. «ilng ba»*t m>dAcaaor« il IH8 and JO*. «id TI^ toM I THt b • ^0(4^ asbrnti vna nduan BPA t^^rmn ci (Mvar^. frpcHMirg and •v^Xabon aa& tor ii»miim n ff« »niliJ t^r HotV^tma f^«w( f^rrwig Ct«Ba«ough«tf)mMacrfthan3MMffi«MllMn«:wMrvntf^i>vii«fu*r«qk>fWTwt Hm«sw. dM«adfMB and rvnwwa n nandJDAip>*«ycnMl<»v««cltMn ILSNc •n*fgr coui tt(»«Jd daovM* ^ afj^nsarnaWr llOOmftvt ar 4 cents per kilowatt hour compared with 2 7 cents for gas), have you looked at the possibility of terminatmg WNP-2 as part of your costs cutting efforts'' Answer Yes We have Essentially, as part of the cost cuts that we have identified in the generation budget, we have told the Supply System, given the figures to just cited that they need to get their costs, their operating cost of that plant dowr from their current 34 mill level to 25 mills to 27 mills in the next two years 1 would obser\e further that we can get more cost savings by that approach then we can by a termination approach 107 Question It is my understanding that most of the costs imposed by the NMFS Biological Opinion for the FY 1995 river operating season are actually borne by BPA during FY 1996 Is this true'' Answer Yes, some of the costs will occur in fiscal year 1996 as energy is purchased to return water used for fish flow augmentation to the reservoirs. Using hydro regulation models that relied on many possible water year conditions that could occur for 1995, Bonneville estimated that on average, 40 percent of the costs could occur in fiscal year 1996 Question Is any money included in the Administration's budget request for fiscal year 1996 to offset Bonneville's fish and wildlife costs'!* Answer The Administration's fiscal year 1996 budget request does not include an offset to Bonneville's fish and wildlife costs However, last month, the Administration agreed to provide some relief to Bonneville's increasing fish and wildlife investments through implementation of authorities granted under section 4(h)(10)(C) of the Pacific Northwest Electric Power Planning and Conservation Act Implementation of the Act's authorities will allow Bonneville to recoup about S30 million per year of its direct fish expenses that are allocated to non- power purposes, and an additional estimated $30 million each year in fiscal years 1995 and 1996 to offset purchased power costs related to fish Question Last July Congressman George Miller, former Chairman of the House Natural Hesources Committee, sent a letter to Secretary O'Leary concerning BPA's efforts to receive some financial relief under section 4(h)(10)(C) of the Northwest Power Act To ensure the official record for the hearing is complete, please provide the Subcommittee with a copy of Congressman Miller's letter, and the Administration's response to it Answer 1 will provide the material for the record 108 LETTER FROM HAZEL R. O'LEARY The Secretary of Energy Washington. DC 20585 December 5, 1994 The Honorable George Miller Chairman Comnuttee on Natural Resources U S House of Representatives Washington, DC 20515 Dear Chairman Miller: Thank you for your letter of July 11, 1994, questioning the Bonneville Power Admmistration's interpretaljon of authonties under section 4(h)(10)(C) of the Pacific Northwest Electric Power Planning and Conservation Aa (Art), 16 U S C { 839b{h)(10)(C) Bonne\nlie Adimnistialor Randall W Hard\' has provided the Dqjartment with a memorandum that sets forth a detailed legal analysis in support of BonneMlle's inicrprctaDon of section 4(h)(10)(C) The Department's OfBce of General Counsel has conducted a careful examination of the legal analysis contained m the Administrator's memorandum and agrees with Bonneville's interpretation of section 4(h)(10)(C) and that the Administrator has statulor\ authority to allocate to non-power project purposes a share of the replacement power costs Bonneville mcurs through implementation of flow and spill mitigation measures However, the Office of General Counsel also agrees with the enclosed views of the Office of the Solicitor, Department of the Intenor, that the Northwest Power Act is a unique statute appl>'uig only to Bonneville and that Bonneville's interpretation of 4(h)( 1 0)(C) ■■ should not, and Mill not, serve as a precedent on how power purchase costs generally are allocated at federal water resource facilities that are governed by different laws " Enclosed is the memorandum from the Bonneville Admmistrator and answers to the specific questions posed at the end of your letter The legal analysis conducted b> Bonneville as expressed m the Administrator's memorandum, as well as Bonneulle's June 6, 1994, legal opuuon, have also been examined in the Office of the Solicitor of the Intenor, the Army General Counsel, and the Army Corf« of Engineers' Office of Chief Counsel They defer to Bonneville's inierpreialion of section 4(h)(10)(C) Enclosed are copies of the advice received from these other agencies Thank you again for this opportunirv to respond to your concerns Sincerely, 109 BACKGROUND PAPER Chairman Miller agrees that the cost of certain Bonneville Power Administration (BPA) fish mitigation measures are allocable on a non-reimbursable basis to all project purposes. Nonetheless, he questions whether the same rationale should apply to replacement power costs BPA incurs when fish flow measures are implemented. Changes in dam operations for authorized project purposes, such as navigation, flood control, and irrigation, can and do change the amount of power which can be generated. They can force BPA to purchase power to meet its load. Those purchase power costs are entirely borne by ratepayers. There is no allocation of those purchase power costs to other project purposes. However, the Northwest Power Act (Act) changed how the Federal Columbia River Power System (FCRPS) is operated and how the cost offish flow measures are allocated. The Act required the Pacific Northwest Electric Power and Conservation Planning Council (Council) to create a Fish and Wildlife Program (Program), and to include fish flow measures in the Program. 16 U.S.C § 839b(h)(6)(E)(ii). Fish flow measures include spill to move outmigrating salmonid smolts past dam structures and turbines, as well as flow augmentation to move smolts downstream between dams more quickly. See, e.g.. Volume 11 of the Council's, 1992 Columbia River Basin Fish and Wildlife Program— Strategy for Salmon 23-30. In operating and managing the FCRPS, the Corps of Engineers (Corps), the Bureau of Reclamation (BOR), and BPA must exercise their responsibilities by "taking into account at each relevant stage of decisionmaking processes to the ilillest extent practicable, the program adopted by the Council." 16 U.S.C § 839b(h)(l l)(A)(ii). In compliance with the Act, these Federal agencies have implemented the Program's fish flow measures, as well as additional fish flow measures recommended by the National Marine Fisheries Service. Congress saw that implementation of fish flow measures would reduce the amount of hydroelectric power generated by the FCRPS, and that such reductions would compel BPA to purchase replacement power to serve its load. Consequently, Congress authorized BPA to purchase replacement power to ensure implementation offish flow measures. 16 U.S.C §§ 838i(b)(6)(iv), (b)(12), see H.R. Rep. No. 976, 96th Cong., 2d Sess., pt. n, at 54 (1980). Congress realized further that BPA's purchase of replacement power necessitated by implementation of the Program's fish flow measures would be expensive, so it required the Council to consider the burden of those measures on the ratepayers by taking into account certain principles regarding the financial impact and the source of funding for those measures. One principle is that "[c]onsumers of electric 110 power shall bear the cost of measures designed to deal with adverse impacts caused by the development and operation of electric power facilities and programs only." 16 U.S.C. § 839b(h)(8)(B) (emphasis added). Another principle is that "[m]onetary costs and electric power losses resulting from the implementation of the Program shall be allocated by the Administrator consistent v^th individual project impacts and system-wide objectives of this subsection." 16 U.S.C. § 839b(h)(8)(D) (emphasis added), see also H R. Rep. No. 976, 96th Cong , 2d Sess., pt. 11, at 45 (1980) While these principles are directed to the Council, they are flilly consistent with and support BPA's interpretation of its obligation under section 4(h)(10)(C) that it must allocate its replacement power costs for fish flow measures among all project purposes. The monetary costs incurred in implementing flow and spill measures are BPA's replacement power costs. These are fish mitigation costs which meet the same factual and legal tests as BPA's expenditures for hatcheries, habitat restoration^ fisheries research, and other Program measures. Therefore, section 4(h)(10)(C) of the Act requires BPA to allocate replacement power costs for fish flow measures among all project purposes to the same extent it allocates its other expenditures for the protection, mitigation, and enhancement offish affected by development and operation of the FCRPS. The floor debate statements of Representative Lujan do not alter BPA's statutory duties under section 4(h)(10)(C). Representative Lujan's statements were broad descriptions of the overall effects of the Act. To take his statements as absolutist and technically precise would be at odds with some of the major purposes of the Act. It would also conflict with numerous specific, unambiguous provisions of the Act, all of which ensure that ratepayers shall have a reliable economic power supply and bear the costs only of mitigation of the Federal hydroelectric impacts on fish and wildlife See, e_g., 16 U.S.C. §§ 839(2), b(h)(5) and b(h)(8)(B) The House Interior Committee report specifically states that section 4(h) will provide a system for ensuring "fish and wildlife obligations are fijlfilled while simultaneously assuring the region an economical and reliable power supply" H.R Rep No 976, 96th Cong., 2d Sess., pt. II, at 37 (1980). BPA's interpretation of section 4(h)(10)(C) is consistent with past interpretations of cost allocation law. The Corps' Digest of Water Resources Policies and Authorities. EP 1165-2-1 (Feb. 15, 1989), and the Interagency Agreement on Cost Allocation (March 12, 1954) between the Department of the Interior, the Department of the Army, and the Federal Power Commission, state that joint project costs shall be allocated among all project purposes, and separable project costs shall be allocated to the purposes they serve. The agreements do not state or imply that the cost of a flow measure benefiting fish to the detriment of power cannot be shared jointly To the contrary, the Corps decided that until benefits gained and benefits foregone could be determined from experience, it would Ill allocate the costs of a flow enhancement experiment jointly, to all project purposes, because the flow was deemed necessary as a result of the existence of the Federal dams generally, not any particular project purpose or specific project feature. Corps, Report on Methodology and Recommendations For Allocating Costs Associated With Drawdown of John Day And Lower Granite Reservoirs (February 5, 1994). In summary, my review of the pertinent sections of the Act, especially section 4(h)(10)(C), 16 U.S.C. 839b(h)(10)(C), and the accompanying report of the House Interior Committee, H.R. Rep. No. 976, 96th Cong., 2d Sess. pt. II, at 45 (1980), leads me to conclude that Congress directed the BPA Administrator to allocate between BPA ratepayers and the taxpayers all fish mitigation expenses incurred by the Administrator in the exercise of his responsibilities under section 4(h) of the Act. These expenditures include replacement power costs related to spill and flow measures for the purpose offish mitigation, to the extent that such expenditures exceed the hydro power share of the Federal Columbia River projects. Relying on the existing accounting procedures for the FCRPS, I have determined that the BPA ratepayer share of such costs is approximately 73 percent of all system-wide fish mitigation measures, including replacement power purchases. The remaining 27 percent of these costs are for non-power purposes and are non- reimbursable. Section 4(h)(10)(C) requires me to allocate those mitigation costs and credit BPA's Treasury debt in an amount equal to the non-power share of those costs. 16 U.S.C. § 839b(h)(10)(C); see H.R. Rep. No. 976, 96th Cong., 2d Sess, pt. II, at 45 (1980). Accordingly, I conclude that BPA's allocation of the replacement power costs related to fish flow measures is in accordance with the authorities granted under the provisions of the Act. I have shared the analysis contained in this memorandum with the Department of the Interior's Solicitor, the Department of the Army's General Counsel, and the Army Corps of Engineers' Office of Chief Counsel. They defer to BPA's interpretation of section 4(h)(10)(C). Copies of the advice received fi-om these agencies are enclosed. The specific questions Chairman Miller posed at the end of his letter are addressed in Enclosure A. Enclosures 112 Enclosure A 1. Have any of the PMAs, without express direction from Congress, ever allocated any purchase power costs to a project purpose other than power? If so, please describe each instance, the amount of purchase power costs allocated to non-power purposes, and the legal basis for such an allocation. None of the PMAs has allocated purchase power costs to a non-power project purpose absent explicit stamiory direction. Besides section 4der the Endangered Species Act. Chairaan Killer's letter eigrees generally that section 4(h)(lC}(C), 16 O.S.C. I B39b(hH10)(C), of the Northwest Power Act perwits BPA to allocate fish aitigation costs to r^sn-power purposes. Bvit he points out that allocation of purchase power costs to non-power purposes has been done only by federal power marXeting agencies pursjant to an explicit directive from Congress. BPA, he continues, has no control over flows and thus can sell power that can be generated only once other project purposes are aet. If BPA has' signed contracts in excess of that output. Chaiman Killer states it is BPA's responsibility to purchase the additional power to aeet the contract obligations. He also points out that BPA has not supported its position in its legal opinion. In addition to BPA'S June 6, 1994 legal opinion and Chaiman Miller's letter, we have reviewed the BPA reply to the Killer letter orovidjed to us by BPA's General counsel's Office. After considering these docusents and the relevant sections and legislative history of the Northwest Power Act, we understand the basis for BPA's conclusion that it has authority to allocate the purchase power costs In question to be as follows: o Under the Korthwest Power Act, 16 U.S.C. e3ai(b)(6)Civ), BP& can imrchase power on a short-term basis to aset BPA's fish ■itigation obligations under the Korthwest Power Act. o The Korthwest Poweir Planning Council (UPPC) nust develop a Fish and Wildlife Prograie to "protect, aitigate and enhance fish au>d wildlife." 16 U.S.C. 839(b) (b) fl) CA) . Ilie prograa Buet include provisions for flow aeasures, iA±. at (6)(r}(ii).' Flow «©asurBs include spill, where water is sent over spillways instead of through turbines at daas in the sigratory pathway of salnon. o BPA oust use its funds and authorities to "protect; aitigate and enhance fish and wildlife to the extent affected by the devalopnent and operation" of any hydro project in Colujiasia River Basin "consistent with the . . . program" developed by the KPPC. 16 U.S.C. 839b(hH10) CA). Under this section, one of the aitigation aeasures for which BPA would use its 124 funds and authorities would be flow/spill aeasurea thAt mr« consistent vlth flo^'/spill aeasures developed by KPPC under 839Ch)(6HBHii). o The HorthKest Power Act directs KPPC to "consider" specific "principles" when it develops its fish program. 16 O.S.C. 839b(h)(8). One principle addresses sonstary costs 839b(h)(8)(D) (eKphasis added): Monetary costs' and electric power losses resulting frox inpleaentation of the proqrea shall be allocated by [BPA] consistent with individual project inpacts and systeawide objectives of [16 U.S.C. a39b(h)]. o BP^ nay allocate aaourrts expended for "each activity" under the XPPC plan "to the various project purposes.** 16 U.S.C. 839b(h)llO)(C). o BPA treats costs it incurs when the flow seasures of the NPPC fish program are inpleaented as the purchase power costs incurred whan water is spilled instead of put through turbines at dans in the salaon's aigratory patlway. o Under the "principle" enunciated under 839bCh) (8) (O) , the cost for power purchase is a "Bonetary cost ... resulting froa lepleaentation of the progras" that "shall be allocated" by BPA, as would be costs for hatcheries. o Put in ter»B of 839b(h) (10) (C) , purchase power costs for flow/spill nitlgation aeasxires are an "anount expended" for an "activity" under the NPPC prograa, wtiich in this Instance would be the flow/spill aitigation aeasures. It ie Loportant to clarify here that, as discussed belcTW, the only category of purchese pcJtfer costs allocable by BPA are those incurred for fiab and wildlife aitigation aeasures. With this understanding of BPA's position in "aind,^ and with particular note that the natter of controversy raised in Chairsan Miller's letter relates only to allocation by BPA of power purchase costs incurred under the fish eltigation provisions (section 4(h)) of the Horthwest Power Act, we agree BPA has stated a reasonable interpretation of its authority to allocate some power purchase costs. We also believe, however, that BPA's interpretation should not, end will not, eerve as a precedent on how power purchase costs generally are allocated at federal water resource facilities. First, tl\B authority to allocate does not rest upon an interpretation that BPA is exercising BPA authority oyer flow decisions. Chairman Killer's main concern appears to be that decisions concerning flows froa federal daas m the Colunbia River Basin are nsi nade by BPA, but by the corps of Erngineera ^ He have shared our understanding of BPA's legal reasoning with staff of -the BP.\ general counsel's office, who have indicated our understanding cocports with that office's position. 125 and the Bureau of Reclftwition. Thus, to the extent the NPPC progran includes flow measures, these aeBSures would be inplenented by the operating agencies, not BPA. We do not believe BPA is interpreting the Northwest. Power Act's oosts allocation authority to include control by BPA over dan operations, including operations taken for fish aitigation, and we would resist any such interpretation. Rather, we understand BPA to argue that it uses its funds, not its a\3thority,* to inplement fflov seasures when it incurs power purchase costs ^ a result of those flow measures. BPA relies on a particular •action of the Northwest Power Act, 16 D.S.C. f 83Sb(h) (10) f A), which directs BPA to use its funds aa well as its authorities to "protect, mitigate and enhance fish and wildlife" as support for its position. Second, BPA general counsel staff have stated to us that purchase power costs incurred, for reasons other than flows isplexented pursuant to section 4(h) of the Northwest Power Act would, under current law, be allocable only by the federal hydropower operating agencies (the Corps of Engineers and Bureau of Reclaaation). Sisilarly, we perceive no intent by BPA to seek to expand applftfation of its authority beyond the confines of section 4(h}(10}(C) of the Northwest Power Act, i.e., the authority to allocate only those co^ts incurred when perforaing fish and wildlife aitigation efforts consistent »ith the NPPC progra».* Third, given that BPA's authorities extend only to costs it inciu-s under section 4(h) of the Northwest Power Act, the statutes and regulations that govern allocation of other power costs (soae of which were cited in Chaiman Miller's letter) will continue to govern other allocations aade by the operating agencies. The operating agencies and BPA have a long history of coordinating the allocation of costs under these authorities. This relationship will allow the Corps, EPA and Rscliiaatian to consult and coordinate allocations where the issue of whether a power purchase cost is properly deemed a fish aitigation aeasure is a close one. Finally, Chairman Miller has correctly pointed out that federal power sarketing agencies have allocated power purchase costs only when expressly authorized by Congress. The recently enacted Grand Canyon Protection Act, for exaople. unequivocally saJtes the costs of certain purchase power costs non-reiabursable . S£B Reclaaation Projects Authorization and Adjustaent Act of 1992, Pub. L. No. 102-575, Title XVIII, 10« Stat. 4600, 4672. The * BPA does use its authority under 16 V.S.C. S 838i(b)(6) (iv) to incur power purchase costs. Also, with regard to operations for hydropower production, including aeasures taken for spLll, the operating agencies coordinate closely with BPA on decisions to release water for power production. Recently, soae actions by the hydropower agencies to assist fish aigration were taken pursuant to the Endangered Species Act. Our understanding ia that, since the listing of Snake River salnon under the ESA, BPA has deoied the actions it takes and costs it incurs to coaply with the ESA are per se consistent with the NPPC progran, thus allowing the costs of these aeasures to be allocated pursuant to section 4(h) (10) (C). under this interpretation, BPA would have very broad authority to use its funds and authorities to iapleiaent any fish protection aeasures aandated under the SSA as well as those authorised under the Northwest Power Act. 126 Northwest Power Act is, adsittedly, not as explicit ae this. Nevertheless, recognizing that BPA is primarily reBpoJisible for interpreting the extent and nature of Its authority under the Act, BPA'3 reading of the statute is reasonable, linited as it is to allocation of purchase power costs incurred for flow/spill seasures iDplesent^d by Reclamation or the Corps that are consistent vitb the NFPC fish and wildlife progran. Please contact our office if you vould LiJce to discuss this issue further. MEMORANDUM FROM HARVARD P. SPIGAL June 6. 1994 Harvard P. Splgal, General Counsel - AP // Memorandum suBjea Interpretation of Section 4(h)(10)(C) of the Northwest Power Act* Randall H. Hardy Administrator and Chief Executive Officer - A IHTROOOCTION The Corps of Engineers (Corps) and the Bureau of Reclamation (Reclamation) have agreed to Increase spin and augment flow In the Columbia and Snake Rivers. This spill exceeds levels proposed by the National Marine Fisheries Service (NMFS) in Its 1994-1998 Biological Opinion.!' Spill was Increased as an experiment to determine whether It would assist survival of threatened and endangered salmon populations. The Bonneville Power Administration (BPA) estimates the additional net power cost of spin to BPA In Fiscal Year 1994 will be up to $20 million through June 20, up to an additional $2^ million through July 31, and an additional J22 million through August 30, for a total of up to $73 million. Further measures proposed to meet the Biological Opinion flow targets could cost BPA an additional $90 million. These expenditures exceed the $351 million already budgeted for BPA's Fish and midlife Program Implementation, the Biological Opinion actions, and annual Treasury payments for hydroelectric project operation and maintenance associated with fish mitigation, as discussed below. This unanticipated and unprecedented increase In BPA's fish and wildlife mitigation spending threatens to force BPA to defer a portion of Its annual Treasury payment or to trigger an Increase In electric power rates, or possibly both. BPA proposes to administratively reduce Its financial burden for this additional spill and flow. Authority supporting such action Is expressly set forth In section 4(h)(10)(C) of the Pacific Northwest Electric Power Planning and Conservation Act, 16 U.S.C. § 839b(h)(10)(C) (Northwest Power Act). -' NMFS prepared Its Biological Opinion under section 7 of the Endangered Species Act. 16 U.S.C. §§ 1531-1544 (ESA). It addresses operation of the Federal Columbia River Power System through January 31, 1999. 127 DISCUSSION I. Pickaround and History of Hydroelectric Project Purpose Allocations anri BPA's Obligation to Repay the Powpr Purpose Share of Those Allocation;; ^n the Treasury Section 4(h)(10)(C) of the Northwest Power Act directs BRA to treat expenditures In excess of the power share of a hydroelectric project's cost as "payments for other project costs for which BPA Is responsible under law." H.R. Rep. No. 96-976. 96th Cong. 2d Sess.. pt. 2, at 45 (1980). To understand how this accounting proylslon works. It Is Important to understand how the power purpose share of hydroelectric project costs Is determined and repaid, and the project costs for which BPA Is responsible under existing law. A. BPA Is Obligated to Recover Its Costs and Repay the Federal Investment in the Hvdropower System Through its Rates. Congress established BPA in the Bonneville Project Act of 1937 to market power generated at the Bonneville Dam, and to construct transmission lines to deliver that power to wholesale purchasers. 16 U.S.C. §§ 332-8321. The BPA Administrator's authority to market power expanded over the years as other Federal dams were built in the Pacific Northwest by the Army Corps of Engineers (Corps) and Bureau of Reclamation (Reclamation). S££, e.g. . Flood Control Act of 1944, 16 U.S.C. § 825s; Exec. Order No. 8526, 5 Fed. Reg. 3,390 (1940); i££ also. Aluminum Co. of Am. v. Central Lincoln Peoples' Util. Dist.. 467 U.S. 380, 386 n.5 (1984). The combined generation and transmission facilities became known as the Federal Columbia River Power System (FCRPS). With the passage of the 1974 Federal Columbia River Transmission System Act. 16 U.S.C. §§ 838-838k (Transmission System Act), the Administrator was, with minor exceptions, "designated as the marketing agent for all electric power generated by Federal generating plants in the Pacific Northwest" constructed by the Corps and Reclamation. 16 U.S.C. § 838f. Today, BPA markets power from 30 Federal hydroelectric projects. The projects for which BPA Is designated as the power marketing agent are generally multiple-purpose projects. This means the projects serve multiple purposes such as power production, navigation, recreation, flood control, irrigation, fish and wildlife enhancement, and other miscellaneous purposes.^' BPA Is not responsible for recovering all project costs. Rather, with the limited exception of Irrigation assistance discussed below, BPA's responsibility for project cost recovery extends only to recovering costs properly allocable to the FCRPS. These costs are sometimes referred to as reimbursable costs because BPA reimburses the Treasury for the Federal investment allocated to the FCRPS. ^' BPA's statutory ratesettlng directives express BPA's responsibility for project cost recovery. Section 7 of the Bonneville Project Act directs BPA to establish rates for the sale of power to recover "the cost of producing and ^' S££. e.g. ■ Bonneville Project Act, 16 U.S.C. § 832; Act of August 4, 1939, 43 U.S.C. § 485h(a)-(b); Federal Hater Project Recreation Act, 16 U.S.C. §§ 4601-12. 13, 18; Flood Control Act of 1962, 16 U.S.C. § 460d. 33 U.S.C. §§ 701n, 701r-l. 701s; S.' Rep. No. 2258. 87th Cong., 2d Sess. 141 (1962); Flood Control Act of 1950, 33 U.S.C. §§ 701-1 £l seq.: River and Harbor Act of 1945, 33 U.S.C. §§ 545b, 603a; Act of August 30, 1935, ch. 831, 49 Stat. 1028. 1039; Columbia Basin Project Act, 16 U.S.C. §§ 835 £i seo.: Hungry Horse Dam Act, 43 U.S.C. §§ 593 £i ifii..; Reclamation Act of 1902, 43 U.S.C. §§ 371 £i seo.: Reclamation Act of 1939, 43 U.S.C. §§ 485 £i seo.: H.R. Rep. No. 1507. 80th Cong., 2d Sess. 2 (1948). ^' Conversely, non-reimbursable costs are project costs for which BPA has no reimbursement obligation. Such costs generally benefit only a nonpower purpose. 128 transmitting such electric energy. Including the amortization of the capital Investment over a reasonable period of years." 16 U.S.C. § 832f. Section 7 requires that the rates be "based upon an allocation of costs made by the Federal Power Commission" and that, with regard to costs of the Bonneville Project, "the Federal Power Commission may allocate to the costs of electric facilities such a share of the cost of facilities having joint value for the production of electric energy and other purposes as the power development may fairly bear as compared with such other purposes." Id. Section 9 of the subsequently enacted Transmission System Act provides that power marketed by BRA shall be sold under rate schedules drawn "having regard to the recovery ... of the cost of producing and transmitting such electric power. Including the amortization of the capital Investment allocated to power over a reasonable period of years" and certain Irrigation costs. 16 U.S.C. §§ 838g, 8381(b)(9). 4' This language Is virtually identical to language In Section 5 of the Flood Control Act of 1944. S££ 16 U.S.C. § 825s. Section 7(a)(1) of the Northwest Power Act Incorporates the ratemaklng requirements of the Transmission System Act and the Flood Control Act, and also provides that BPA's rates shall be established and revised "to recover. In accordance with sound business principles, the costs associated with the acquisition, conservation, and transmission of electric power. Including the amortization of the Federal Investment In the Federal Columbia River Power System (Including Irrigation costs required to be repaid out of power revenues) over a reasonable period of years and the other costs and expenses Incurre'd by the Administrator pursuant to this Act and other provisions of law." 16 U.S.C. § 839e(a)(l). ^' The references In the Transmission System Act to Irrigation costs, and In the Northwest Power Act to "Irrigation costs required to be repaid out of power revenues," (16 U.S.C. § 839e(a)(l)). refer to the exception to the rule that BPA's rates recover only project costs properly allocable to power production. This exception Is comnonly referred to as "Irrigation assistance." A number of statutes enacted during the last fifty years authorized Reclamation projects In the Pacific Northwest, and directed BPA to establish its rates to repay project costs assigned to Irrigation water users, but beyond their ability to repay. S££. e.g.. 43 U.S.C. § 615v (The Dalles Dam). Some statutes specifically direct BPA to repay such costs from net revenues, after power features are repaid and within the repayment period prescribed by law. Other project authorizations, while not as specific, were based on Reclamation feasibility studies which established power's allocation of Irrigation costs beyond the water users' ability to pay and power's payment of that obligation from net revenues. Reclamation determines the amount of Irrigation assistance the FCRPS must provide. This determination Is based on Reclamation's estimates of the Irrigators' ability to repay. The Irrigators' ability to pay Is determined by Reclamation using a representative farm budget with certain adjustments. Each year. Reclamation submits updated Irrigation data to BPA. BPA Includes this Information In Its repayment studies and as part of Its audited FCRPS financial statements. 5^ Costs of the Bonneville Dam were allocated In 1945. On the basis of studies by the Federal Power Commission staff and other data, the Chief Engineer of the Army Corps of Engineers prepared and submitted a report dated June 15, 1945, entitled, "Bonneville Project and Transmission System, Allocation of Costs." The Commission, based on the report, made a determination as to portions of the Bonneville Dam's costs allocable to power purposes. 4 F.P.C. 950, 952 (1945). Allocation of costs of some other projects — the McNary, Lower Granite, Little (5oose, Lower Monumental and Ice Harbor projects — were made or confirmed by the Commission because authorizing legislation for the projects required that their power be delivered to the Secretary of Energy for disposition In accordance with laws relating to the disposition of power from the Bonneville Project. River and Harbor Act of 1945, 33 U.S.C. §§ 545b. Those laws Include the cost allocation directive of section 7 of the Bonneville Project Act. 129 B. The Allocation of P^n^(>ct Tn^t^ Allocation of project costs among the varying project purposes Is a practice that has developed historically. Generally, allocations of costs of prolects constructed pursuant to the Reclamation laws are made by the Secretary of the Interior. 43 U.S.C. § 485h(a)-(b), and allocations of costs of Corps prolects are made by the Secretary of the Army.i' In other cases, as noted earlier Section 7 of the Bonneville Project Act provided that BPA's rate schedules 'be based upon an allocation of costs made by the Federal Power Commission 16 U.S.C. § 832f. An Inter-Agency Committee on Water Resources was formed to determine the appropriate allocation of project costs. By the "Interagency Agreement on Cost Allocation of March 12. 1954," among the Departments of the Interior and Army and the Federal Power Commission (now the FERC) , the "Separable Costs-Remaining Benefits" (SCRB) method was adopted for most cost allocations of multi-purpose project costs (the agreement does allow for the use of two related, alternative methods In certain circumstances). That document, the Pronnsed Practices for Economic AnalvsU of River Basin Prolects (the "Green Book"), prepared by the Inter-Agency Committee on Hater Resources (May 1958), and the Corps of Engineers' manual EM 1160-2-101, Cost Allocations for Multiple Purpose Projects, are now the primary guides to allocations prepared by the Corps. The aim of the SCRB method Is to allocate costs among project purposes so that each purpose shares equitably In the savings resulting from combining the purposes In a multi-purpose project. The cost allocation procedures used by Reclamation for Its projects differ somewhat from those of the Corps. Reclamation allocations are prepared and approved by Reclamation, after consultation with the Corps and BPA; FERC Is not Involved In approving Reclamation allocations. Reclamation uses the "Alternative Justifiable Expenditure Method." one of the three methods considered acceptable for allocating costs according to the Interagency Agreement on Cost Allocation of March 12, 1954. The method differs from the SCRB method only In that It Identifies specific costs of various functions rather than their separable costs (In effect classifying a larger share of costs as joint). The object of the various methodologies Is to allocate costs to each project purpose by assigning the cost of the various features of the project to these purposes. The methodologies distinguish between specific and joint features of projects. Where a feature serves one purpose the assignment Is simple. For example, navigation locks are only used for navigation. Thus the locks are considered specific features, and their costs are allocated to the purpose of navigation. Since navigation does not generate revenue sufficient to repay the cost of navigation features, all costs are assigned to the taxpayer. In contrast, a specific feature serving a power purpose only, such as a powerhouse, produces substantial revenue and Is repaid by the ratepayers. Other features, like the dam structure, spillway, and reservoir, benefit all users and are joint features repaid by all project purposes. Thus, for BPA, the total repayment cost for a project is the sum of the power specific costs, the power share of joint costs, and any other costs assigned to power, such as Irrigation assistance. C. Congress Did Not Prescribe a Fixed Schedule of Renavment of Costs Allocated to Power. Once costs have been allocated to power, the BPA ratesetting directives discussed above prescribe cost recovery. No fixed schedule of repayment Is stated; rather, BPA Is directed to establish Its rates to recover amortization of the capital Investment allocated to power "over a reasonable period of years." S££. e.g. . 16 U.S.C. § 838g. The details of the repayment policy have been established through administrative Interpretation of the basic statutory requirements. The traditional repayment approach was described by Congress in connection with construction of the Grand Coulee Third Powerhouse: 130 The repayment studies are based upon year-by-year forecasts of system revenues and costs over the repayment period. Revenues are applied first to pay the costs of operation, maintenance, replacements, and Interest. All remaining revenues are applied to repay the capital Investment In commercial power facilities, and Irrigation assistance as it falls due. Accordingly, there is no annual schedule of capital repayment. The test of the sufficiency of revenues Is whether the capital investment can be repaid within the overall repayment period established for each power project, each Increment of Investment in the transmission system, and each block of Irrigation assistance. Hence, repayment may proceed at a faster or slower pace from year to year as conditions change. Annual operating costs and revenues, of course, may vary from year to year, as they are affected by extremes of weather conditions, streamflows, current economic conditions, changing markets, and the absorption of new projects Into the system. H.R. Rep. 1409. 85th Cong.. 2d Sess. 10 <1966); see also. 112 Cong. Rec. 8,423 (Apr. 19, 1966) (Rep. Asplnall). The current administrative Interpretation, which has Its antecedents In prior policies and historical practice. Is embodied In the Secretary of Energy's order RA 6120.2. The order requires that BPA establish Its rates to repay the Federal Investments properly allocable to power within the average expected service life of the facility or within 50 years, whichever Is less. BPA develops a repayment schedule both to comply with Investment due dates and to minimize costs over the repayment period. Costs are minimized In accordance with RA 6120.2 by repaying the highest Interest-bearing Investments first, to the extent possible. Adherence to this schedule would result in some Investments being repaid before their due dates, while assuring that all Investments will be repaid by their due dates. D. The Bonneville Fund Is Available to the Administrator For Expendlturp-: BPA Deems "Necessary or Appropriate," Once BPA sets Its rates and earns revenues based on those rates, the revenues are deposited In the BPA fund. Section 11 of the Transmission System Act established in the Treasury of the United States a single fund — the BPA fund— consisting of all BPA receipts from all sources. Including trust funds, bond sales, and power and transmission revenues. 16 U.S.C. § 8381(a). The Administrator has broad authority to make expenditures from the fund so long as they are "necessary or appropriate to carry out the duties Imposed upon the Administrator pursuant to law. . . ." IjL § 8381(b). The Transmission System Act also lists examples of purposes for which BPA may expend its funds, Including (1) making such payments to the credit of the Reclamation fund or other funds, or to the credit of miscellaneous receipts of the Treasury as are "required by or pursuant to law to be charged to and returned to the general fund of the Treasury for the repayment of the Federal investment in the Federal Columbia River Power System from electric power marketed by the Administrator," and (2) "making such payments, as shall be required to carry out the purposes and provisions of the Pacific Northwest Power Planning and Conservation Act . . . ." 16 U.S.C. § 838i(b). Priority of payments from the BPA fund are to be made in accordance with the directives of section 13(b) of the Transmission System Act and paragraph 8(c)(3) of RA 6120.2. II. Sertlon 4(h)(10)(A) of the Northwest Power Act Directs the Adm1n1str3tnr fn ikp the BPA Fund to Protect. Mitigate, and Enhance Fish and HildlifP in thP Columbia River Basin. With regard to expenditures authorized from the BPA fund, one of the "purposes and provisions" of the Northwest Power Act is set forth in section 4(h)(10)(A). It provides: 131 The Administrator shall use the Bonneville Power Administration fM? Iri InH ^r^'H^^'l^^ '' available to the Administrator under this Act and other laws administered by the Administrator to ^if^V: K^lr*!' ^?'^ ^"''^"" ^^^^ »"'l wildlife to the extent affected by the development and operation of any hydroelectric project of the Columb a River and Its tributaries In a manner consistent ** fg/^he Plan If m existence, the program adopted by the Council ii/ under this subsection, and the purposes of this chapter Expenditures of the Administrator pursuant to this paragraph shall be in addition to. not In lieu of other expenditures authorized or required from other entitles under other agreements or provisions of law. 16 U.S.C. § 839b(h)(10)(A). This Is the funding authority BPA uses when it purchases replacement power needed as a result of providing additional spill or flows for fish. S££ also 16 U.S.C. § 8381(b)(6)(1v). As Indicated 1n the "Introduction" to this Opinion, those costs have Increased precipitously this fiscal year. Hhlle this provision grants the Administrator broad authority In how BPA protects, mitigates, and enhances fish and wildlife, It and accompanying provisions of the Northwest Power Act set limits on that authority as well. One Important limitation Is that "[cjonsumers of electric power shall bear the cost of measures designed to deal with adverse Impacts caused by the development and operation of electric power facilities and programs on 1 v . " 16 U.S.C. § 839(b)(h)(8)(B) (emphasis added). Thus, while BPA may Initially finance measures that mitigate simultaneously for both power and non-power impacts, ratepayers should not bear the full cost of such measures. In addition, the Administrator may not use the BPA fund In lieu of "other expenditures authorized or required from other entitles under other . . . provisions of law." 16 U.S.C. § 839(b)(h)(10)(A). Thus, where BPA. the Corps, and Reclamation are spilling or otherwise releasing water to mitigate for the impact of the dams' reservoirs, and those reservoirs serve all project purposes, then the allocations done pursuant to statute serve as "other provisions of law" that require other purposes to share such mitigation costs. The ratepayers are not authorized to bear such costs alone. Finally, BPA has a duty to provide the Pacific Northwest with "an adequate, efficient, economical and reliable power supply." 16 U.S.C. § 839(2). and to do so while keeping rates to consumers as low as possible "consistent with sound business principles." liL § 838g(l). Allowing BPA to absorb the full cost of fish mitigation measures that benefit all project purposes Increases the risk of rate Increases and missed or delayed annual Treasury payments, thus threatening BPA's ability to fulfill these statutory mandates. ^' The Council Includes two representatives from Washington. Oregon, Idaho, and Montana. 16 U.S.C. § 839b(a)(2), (a)(2)(B). The Council develops the Fish and Wildlife Program with advice from the Region's tribes, fish and wildlife management agencies, utilities, and the public. LL. § 839b(a)(l). (g)(3). The Council must develop the Program mindful of the fact that "[mjonetary costs and electric power losses resulting from Implementation of the program shall be allocated by the Administrator consistent with individual project Impacts and system-wide objectives of this subsection." JjL § 839b(h)(8)(D). BPA uses the Program as a guide In fulfilling Its statutory duty to protect, mitigate and enhance fish and wildlife affected by the development and operation of federal hydroelectric projects In the Columbia River Basin. For Instance, the Program calls for additional spill and flow augmentation to protect listed and nonllsted species. While BPA does not have to Implement the specific measures found In the Program. BPA must act consistently with the Program. M,. § 839b(h)(10)(A) . In addition, the Corps. Reclamation and BPA must exercise their responsibilities with respect to operating federal hydroelectric projects on the Columbia River system by "taking Into account at each relevant stage of the decisionmaking processes to the fullest extent practicable, the program adopted by the Council. . . ." LL § 839b(h)(ll)(A)(11). 132 III. Section 4(h)(10)(C) Provides the Mechanism for BPA to Recover Expenditures For Fish and Wildlife Mitigation Made on Behalf of the Non-Power Purposes of the Federal Hydroelectric Projects In the Columbia Basin. Hhen the Administrator exercises his authority to expend funds for a measure to mitigate fish or wildlife under the Northwest Power Act^ , section 4(h)(10)(C) of the Act directs BPA to assign those costs among the Federal hydroelectric projects. The section states: The amounts expended by the Administrator for each activity pursuant to this subsection shall be allocated as appropriate bv the Administrator. In consultation with the Corp? of Engineers and the Hater and Power Resources Service, among the various hydroelectric prolects of the Federal Columbia River power System. Amounts so allocated shall be allocated to the various project purposes In accordance with existing accounting procedures of the Federal Columbia River Power System. 16 U.S.C. § 839b(h)(10>(C) (emphasis added). This section grants BPA discretion to decide which hydroelectric projects should be assigned the costs of fish and wildlife measures. Central Lincoln Peoples' Util. Dist. v. Johnson. 735 F.2d 1101. 1124 (9th Cir. 1984). BPA must consult with the Corps and Reclamation, but the Administrator makes the final decision. 16 U.S.C. § 839b(h)(10)(C). Hith regard to the allocation of fish and wildlife expenditures to the various project purposes, the Interior Committee Report states: The allocation of particular costs to Individual projects and among different project purposes, as Is required by existing law, Is preserved In this subparagraph to avoid establishing any precedent of a different allocation result. Thus, power. Irrigation, navigation, recreation and other project purposes will continue to bear only their established shares of the total costs attributable to the protection and mitigation measures. All expenditures by BPA are to be made on a reimbursable basis vis-a-vis other project purposes, although BPA win have the flexibility to treat expenditures In excess of Its allocated share as being payments for other project costs for which BPA Is responsible under existing law. H.R. Rep. No. 976, 96th Cong.. 2d Sess.. pt. 2 at 45 (1980) (emphasis added). This Is consistent with the Ad Hoc Pacific Northwest Power-Fisheries Committee report. The Ad Hoc group, working with Representative Lujan. drafted section 4 of the Act. 126 Cong. Rec. 9845-46 (Sept. 29. 1980) (Ad Hoc group's proposals adopted as amendments "with only a few modifications"); S££ aisfl H.R. Rep. No. 976. 96th Cong.. 2d Sess.. pt. 2 at 43 (1980). The Ad Hoc group stated that section 4(h)(10)(C) would provide BPA "the flexibility to treat expenditures In excess of its allocated share as being payments for other project costs for which BPA Is responsible." Report of Ad Hoc Pacific Northwest Power-Fisheries Conmlttee 7 (Aug. 11. 1980). The Commerce Committee Report adopted the Ad Hoc Committee language verbatim. Sag H.R. Rep. No. 976, 96th Cong, 2d Sess., pt. 2 at 45 (1980). Congress and fish and power Interests agreed BPA had the authority to "treat expenditures In excess of Its i^ BPA's actions should be taken under section 4(h)(10)(A) of the Northwest Power Act to assure Its ability to offset Treasury payments. If BPA were to act under the authority of another statute, section 4(h)(10)(C) might not apply. In the case of additional spill and flow augmentation for fish, however. BPA Is using Its section 4(h)(10)(A) authority to protect and mitigate listed and non-listed species. 133 allocated share as being payments for other project costs for which BPA Is responsible under existing law." X^L; i££ also Stephen Brown, Note, Breathing Life Back Into a Drowned Resource: Mitlnatlno Wildlife Losses In the Columhia P^sln Under the Northwest Power Art 18 Envt'l L. Rev. 571. 594 (1988). Consequently, the Administrator may choose to finance a measure that addresses the Impacts from many Federal dams, and assign that system-wide measure to be financed through a slggle hydroelectric project, so long as that assignment has a rational basis. ^' The Administrator may also locate that system-wide measure at one project, yet under section 4(h)(10)(C) authority assign the measure to another project. BPA may then subtract from Its Treasury payment any amounts exceeding the power purpose share of the project to which the measure Is assigned. As discussed above, allocation of project costs to particular projects and the purposes of those projects requires many technical determinations. As a legal matter, however. It Is the clear object of Northwest Power Act sections 4(h)(8)(B). (8)(D), (10)(A), and (10)(C) to ensure that power customers effectively bear only an appropriate share of fish and wildlife expenditures. This can be accomplished by treating BPA's expenditures In excess of power's allocated share as payments "required by or pursuant to law to be charged and returned to the general fund of the Treasury for the repayment of the Federal investment In the Federal Columbia River Power System from electric power marketed by the Administrator." 16 U.S.C. § 8381(b)(10); i££ also H.R. Rep. No. 976. 96th Cong.. 2d Sess., pt. 2. at 45 (1980). IV. Section 4(h)(10)(C) Is Applicable to Past. Present, and Future Expenditures BPA Makes to Mltloate for Nonpower Purposes of the Federal Hvdroelectric Projects In the Columbia Basin. Section 4(h)(10)(C) applies to both site-specific measures located at particular hydroelectric projects, and to system-wide or nonslte-speclfic projects that mitigate for overall Federal Columbia River Power System impacts. The assignment directive exists regardless of whether the expenditure has been made In the past or will be made In the present or • future. However, this directive does not apply to foregone revenues. A. Section 4(h)<10)(C) Allocation Provision Applies to Replacement Power Costs. Replacement power costs are considered fish mitigation costs according to two provisions of the Northwest Power Act. Section 8(a) of the Act, which amends section 11(b)(6) of the Transmission System Act. gives BPA the authority to purchase power "on a short-term basis to meet the Administrator's [section 4(h) fish and wildlife] obligations." 16 U.S.C § 8381(b)(6)(1v) . Similarly, section 8(b) of the Act, which amends section ll(b)(12) of the Transmission System Act, allows BPA to make payments "as shall be required to carry out the purposes and provisions of the [Act]." hL § 8381(b)(12^. The Interior Committee Report on section 8(b) explains BPA can use the BPA Fund to make short-term power purchases to enable BPA to meet Its obligation under the fish and wildlife provisions of this bill (e.g., to buy power to replace power generating capability that may be lost through a spill for fish passage purposes at a Federal dam). This Is designed to reduce conflicts between fisheries agencies and BPA customers by ensuring BPA can meet Its obligation to each. ^' The Administrator may assign the measure to a hydroelectric project where the power purpose allocation Is 100 percent of the project costs, such as the Bonneville Dam second powerhouse. Or. the Administrator could assign the measure to a project with a power purpose allocation of 50 percent, such Bonneville Dam's first powerhouse. Because the project purpose allocations for each dam are set by statute or by established pre-Act methods, the Administrator has no discretion to change them. 134 H.R. Rep. 976.. 96th Cong.. 2d Sess.. pt. 2. at 54 (Sept. 16. 1980). Replacement power costs fall comfortably Into the plain language of these provisions. Such costs are Incurred on a short term basis, usually from May to June, July or August. BPA Incurs these costs when It replaces generating capability lost as a result of spill for fish. The costs enable BPA to fulfill both its contractual obligations to supply power and Its fish obligations. Therefore, replacement power costs should be allocated pursuant section 4{h)(10)(C). That the purchase of replacement power furthers the power purpose of the project Is of no consequence. Rather, the focus Is on the actions taken to benefit fish: spill and flow augmentation. The cost of that mitigation is the cost of SPA'S replacement power. According to current allocation methodologies, the cost of spill and flow augmentation Is a Joint cost to be shared among all project purposes. °' This Is consistent with a fundamental principle of Regional Act mitigation: consumers of electric power should pay only for power's share of the costs. 16 U.S.C. § 839b(h)(8). B. Section 4(h)(10)(C) Also Should Be ApplJPd to BPA's Past Payments for Fish and Wildlife Hltioation In Excess of the Power Purpose Share pf that Mitigation. Since passage of the Northwest Power Act, BPA has spent $270 to $325 mllliofvL^' on f^sh and wildlife mitigation not attributable to the power purposes of Columbia River Basin Federal hydroelectric projects. This figure does not include lost revenues which total approximately. $79 million. The measures funded are too numerous to list^^, but all have been funded as either a part of the Council's Fish and Wildlife Program or consistent with the Program. Consequently, section 4(h)(10)(C) applies to the sums already expended. Prior years' expenditures In excess of the power share of mitigation should be treated In a future year as BPA payments required to be made to the Treasury because Congress Intended BPA's customers to "bear the cost of measures designed to deal with adverse impacts caused by the development and operation of electric power facilities and programs only." 16 U.S.C. § 839b{h)(8)(B). 2/ i££ generally. Corps, Draft Report on Methodology and Recommendations For Allocating rnsts Associated With Drawdown of John Day and Lower Granite Reservoirs 5 (Dec. 1993). When allocating fish mitigation measures to project purposes, the Corps assigns the measures to the responsible or causative purposes of the project in the same way as other project costs. IsL (citing Water Resources and Development Act, 33 U.S.C. § 2283(c)). The Corps has not found that any particular project purpose has caused the need for flow enhancement measures such as reservoir drawdown. liL. at 6. The cost of such measures Is a Joint cost shared among all project purposes according to the existing al locations. i^^ BPA does not always identify the reasons replacement power is needed, so BPA can only approximate Its expenditures for replacement power needed as a result of fish mitigation. •U-/ Prior to taking action under section 4(h)(10>(C). the Administrator would assign site-specific measures tliat serve the site where they are located to the hydroproject where they are located. Offsite, site-specific, or system-wide measures that benefit the entire Federal Columbia River Power System can be assigned to a specific hydroproject or be addressed using a weighted methodology that accounts for the size, output, and project purpose allocations of each hydroproject in the system. S££ generally. BPA Office of Financial Management Memorandum, attached. Both of these proposals are supported by section 4(h)(10)(C) and the provisions of the Act requiring mitigation on a system-wide basis. S££ 16 U.S.C. §§ 839(b)(h)(10)(A) . (h)(1)(A); 5££ iiiQ, H.R. Rep. No. 976. 96th Cong., 2d Sess.. pt. 2, at 38. 135 No schedule for payment reduction Is prescribed. Hhen BPA takes credit for such costs Is a discretionary matter left to the Administrator, and can be determined during the normal ijudgetary process. S££ section I.e., iUDIA. C- SeCtIgn 4 Doe'; Not Annlv t() Lost RevPmiP. BPA loses revenues by providing spill and flow augmentation because water • spilled over a dam's spillway does not generate electric energy. There appear to be no tenable legal arguments for applying section 4ff> |^ p^^p Prior to the passage of the Northwest Power Act, BPA lacked express authority to directly fund fish and wildlife mitigation at Federal hydroelectric projects. Congress appropriated funds to finance mitigation measures at the projects. The appropriations language generally specified the site of the measure, and BPA repaid the Treasury for the power purpose share of the expenditure based on existing project purpose allocations for that site. BPA funded less than 100 percent of the cost of such measures, unless the appropriations language assigned the measure to a hydroelectric project with a 100 percent allocation for the power purpose. After passage of the Act, Congress continued to authorize and appropriate funds for mitigation measures at Federal hydroelectric projects. In addition. BPA began to exercise its express mitigation funding authority, but BPA did not meet Its section 4(h)(10>(C) obligation. Hhere BPA funded mitigation through the BPA Fund, not appropriations. It did not use Its section 4(h)(10)(C) authority. V. Imnlpentlna Section 4(h)(10)(C) Section 4(h)(10)(C) Instructs the Administrator to use "existing accounting procedures" when making assignment determinations. 16 U.S.C. § 839b(h)(10)(C)l^'. This Is most readily accomplished when site-specific measures serve the site at which they are located. Greater difficulty Is encountered with respect to offslte. site-specific, or system-wide measures serving the entire hydrosystem. For these measures, the Administrator may assign the measure to a particular hydroelectric project or projects on a case-by-case basis. 16 U.S.C. § 839b(h)(10)(C). BPA also could develop a formula for allocating costs to projects based on existing accounting procedures. The formula should reflect the nonpower purpose share of the entire hydroelectric system. Whether BPA elects to use a formula or simply assign system-wide measures to specific hydroelectric projects on a case-by-case basis. It Is Interpreting and Implementing the Northwest Power Act. Accordingly, rulemaking is not required under the Administrative Procedure Act, 5 U.S.C. §§ 500-576. S££ ML. Diablo HosD. Dist. v. Bowen. 860 F.2d 951, 956 (9th Cir. 1988) (policies "merely clar1fy[1ng] or explalnCIng] existing law or regulations" are exempt from rulemaking procedures because they are interpretive rules). 1^' The accounting procedures BPA used in the accompanying Memorandum by the Office of Financial Management are Identical to those existing In 1980. 136 CONCLUSION Shortly after passage of the Northwest Power Act In 1980. BPA debated how to fulfill Its section 4(h)(10)(C) obligations. BPA did not act because It believed the amounts then being expended were de minimus, and thus did not Justify the effort to make the assignments. However, the duty to assign a measure to a hydroelectric project and allocate the measure's costs to the various project purposes Is not discretionary, and the significantly Increasing annual cost of fish and wildlife mitigation compels reexamination of SPA'S prior practice. The magnitude of such costs has now placed at risk the Administrator's statutory obligation to provide "an adequate, efficient, economical and reliable power supply." 16 U.S.C. § 839(2), and to do so while keeping rates to consumers as low as possible "consistent with sound business principles." 16 U.S.C. § 838g(l). Congress designed section 4(h)(10)(C) to assure that BPA ratepayers would pay only for the fish and wildlife costs associated with the power purpose of the Federal dams from which they benefit. Other provisions of BPA's enabling legislation support this outcome. Any expenditures In excess of this amount were to be absorbed on a non-relmburseable basis by the United States and be treated as payments for other project costs for which BPA Is responsible under existing law. This obligation covers all fish and wildlife mitigation measures BPA has implemented since adoption of the Northwest Power Act. and measures BPA Implements now or In the future, including purchases of replacement power. This Is Inclusive of ESA expenditures, provided that such expenditures are consistent with the Council's Program. This obligation does not cover lost revenues. BPA can assign system-wide measures to specific hydroelectric projects, or calculate what the system-wide nonpower purpose share of such measures would be. BPA can then reduce Its Treasury payments by an amount equal to the mitigation BPA funded on behalf of the non-power purposes. Beyond coordination with other affected Federal entitles, there are no administrative or legal actions necessary before BPA Implements section 4(h)(10)(C). Attachment Development of System-wide Fish and Wildlife Percent of Joint Costs Allocated to Power The Northwest Power Act, Section 4(h)(10)(C), assigned the Administrator authority to decide which hydro-project should be assigned the costs of fish and wildlife measures. This authority is applicable to both site-specific measures located at particular hydro- projects, and for system-wide or non-site specific projects that mitigate for impacts of the FCRPS as a system. An allocation for a system-wide fish and wildlife program should be developed by BPA. ANALYSIS Table F^, WP-93-FS-BPA-07, which is labeled as Document D for this study, is the source for the percent of joint costs allocated to power to each specific multi-purpose facility. Three options were studied to develop a system-wide allocation: Document A - The established joint allocation percentages for power were applied to the distributive share of each projects cumulative MWH produced. This applicauon recognizee the connection betwecL the productivity of a project to generate revenue that is used to pay for fish and wildlife measures. This results in a 27% non-power allocation. 137 Document B - Each multi-purpose Federal project was weighed equally against the established joint allocation percentage for power. This is the method the Corps of Engineers applies to the expenditures of the System Operation Review (SOR) Progaml •This results in a 30% non-power allocation. The inequity between a small multi- pupose project like Cougar and a large multi-pupose jproject like Bonneville is difficult to defend. Document C - The established joint allocation perccatagcs for power were applied to th6 distributive share of each projects plant in service. . This application weighs the ■ established joiint allocation percentage for power based on the capital cost BPA has incurred per projecL This results in a 23 % non-jxjwer allocation. Although Bonneville is a large producer, little weight is given to it because of the low cost of construction in the I930's. RECOMMENDATION \. The allocation described in Document A is recommeded. The ability for BPA to pay for Fish and Wildlife programs is based on revenue and borrowing authority which are affected by the productivity of the generation projects. — w>. — ■ — DOCUMENT A MWH X fiscal Year Project ( -1000 JT% = 1992 Bureau Proiect Boise 5,871 0.000643 8.70 Columbia Basin ^ - 710.836 0.38654 43.20 Hunory Horse 36,275 0.031963 '~>0.00 Minidoka-Palisades 21,576 0.00038 ' 1.40 Yakima 19,878 0.00573 22.90 SUBTOTAL 794,436 0.43'^ y Corns Projects Albeni 67732 0.016606 97.50 Bonneville 1 489'308 0.061519 5C.00 Bonneville II ' 0 0 100.00 Chief Joseph 465479 0.122076 100-00 Cougar 22251 0.001287 23.00 Detroit-Big Cliff 69520 0.00708 40.50 Dworshak 24S890 0.054699 87.40 Green Peter-Foster . 57279 0.007129 •49.50 Hills Creek 22779 0.001403 24.50 Ice Harbor 185132 0.03659 78.60 John Day 386886 0.075395 77.50 Libby 282925 0.055491 78.00' Little Goose 214463 0.050314 93.30 Lookout Point-dexter • 77484 0.00604 31,00 .Lost Creek ■23751 0.000328 5.50 Lower Grariite ■ 267.964 0.066303 .98.40 Lower Monumemal 232751 0.055073 94.10 McNary 452934 0.092594 81.30 The Dalles 389344 0.07244a 74.00 SUBTOTAL 3976872 0.782375 TOTAL 4,771,308 0.722914 138 DOCUMENT B Plant in' Service X. JT.%. Rscal Year 1992 Bureau Project Boise Columbia Basin Hungry Horse Minidoka-Palisades Yakima 0.0174 0.0864 0.14 0.0028 0.0458 8.70 43.20 70.00 1.40 22.90 SUBTOTAL Coros Projects Aibeni Bonneville I Bonneville II Chief Joseph Cougar Detroit-Big GTiff Oworshak . Green Peter-Foster Hills Creek . . Ice Hart or .. John Day Ubby Little Goose Lookout Point-dexter Lost Creek Lower Granite- Lower Monumental ■ McNary The Dalles SUBTOTAL TOTAL 0.29 .1 0.051316 97.50 n 0.026316 50.00 0.052632 100.00 0.052632. 100.00 0.012105 23.00 6.021316 40.50 o:o46 87.40 0.026053 49.50 0.012895 24.50 0.041368 78.60 0.040789 77.50 1 6.041053 . 78.00 6.049105 93.30 O.CM6316^ 31.00 6.002895 5.50 6.051789 98.40 . 0.049526 94.10 0.042789 :, 81.30 0.038947 74.00 19 . 0.675842 24 ' 0.595958 DOCUMENT C Project Ri If Rau Project Boise Columbia Basin Hungry Horse Minidoka-Palisades Yakima SUBTOTAL rnrps Projects AlbenJ BonnevJIlp 1 Bonneville U Plant in X Hscal Year Service JT%= " 1992 11.122 0.000816 8.70 1.072.760 0.390737 43.20 81,321 0.047995 70.00 14,330 0.000169 1.40 6,514 0.001258 22.90 1.186.047 0.44 35641 0.008078 76190 0.008856 734345 0.170712 97.50 50.00 100.00 139 project Chief Joseph Cougar Detroit-Big Cliff Oworshak. Green Peter-Foster Hills Creek Ice Harbor John Day tibby Little Goose " Lookout Point-dexter Lost Creek Lower Granite Lower Monumental McNary The Dalles SUBTOTAL TOTAL Plant in X Fiscal Year Service JT%= ■ ■ 1992 554660 0.128941 100.00 20349 0.001088 23.00 41428 0.0039 40.50 304019 0.06177 87.40 50123 0.0b576B 49.50 17549 0.001 24.50 138255 0.025262 78.60 455552 0.082074 77.50 473993 0.08594.7 78.00 203203 0.044073 93.30 47636 0.003433 31.00 27066 0.000346 5.50 , 327236 0.074855 ; 98.40 • 222993 0.04878 94.10 278598 0.052654 81.30 292816 0.050372 74.00 4301652 0.85791 5,487,699 0.767799 •Pfoiect DOCUMENT D Bureau Project ■ Boise Columbia Basin . Hungry Horse Minidoka-Pafisades Yakima 8.7 43.2 70.0 1.4 22.9 Q^ros Projects Albeni Bonneville I ' Bonneville II Chief Joseph Cougar . betro\t-Big CTiff ' Dworshak Grean Peter-Foster* Hills aeek Ice Harbor John bay Libby Little Goose'- Lookout Point-dexter Lost Creek . . Lower Granite ■ Ijower Monumental - •McNary • .. ThebaUes ' ^ ^ " 97.5 50.0 100.0 . 100.0 23.0 40.5 87.4 49.5 24.5 78.6 77.5 78.0 93.3 31.0 s.'s ■ 98!4 94-1 . 8V,3 74.0 i/ Plant c6stt VMll'not change once a final plantiaItoc3tidh4^ in place. 140 Question It is my understanding that the US /Canada Treaty has provided major benefits to the U S And Canada over the years Would you please describe what the Treaty provided and what these benefits are"^ Answer The Treaty required Canada to construct and operate 1 5 5 million acre-feet of storage in Canada for power and flood control benefits in Canada and the United States The United States was also permitted to build Libby, which backs water about 40 miles into Canada, on the Kootenay River in Montana with 5 million acre-feet of storage This more than doubled the storage in the Northwest at that time Operation of the Treaty projects virtually eliminated the threat of devastating floods on the Columbia River The United States paid to Canada $64 4 million in 1964 for one-half of the estimated flood control benefit through 2024. The operation of Canadian Treaty storage provides very important power benefits to the United States by reshaping the flow of the Columbia River to meet demand for electricity in the Northwest Canada, under the Treaty, is entitled to one-half of the estimated increase in downstream power benefits in the United States due to the operation of Canadian storage, termed the Canadian Entitlement, and computed in accordance with procedures outlined in the Treaty Current estimates of the Canadian Entitlement are up to 1,400 megawatts of capacity and 550 average megawatts of energy Question Is implementation of the Treaty voluntary*^ Answer No The Treaty has a minimum term of sixty years that started in 1964 and continues until at least 2024 Either country may terminate the Treaty, except for certain provisions, after 2024, with at least 10 years notice Question How much latitude does the US have in coming up with Annual Operating Plan and Detailed Operating Plans under the Treaty'' Answer The Treaty requires that the Entities prepare an Assured Operating Plan for Canadian Treaty storage for the sixth succeeding operating year in accordance with Annexes A and B of the Treaty The Treaty requires that the Assured Operating Plan be prepared on the basis of optimum power and flood control benefits in the United States and Canada. Treaty Article XIV 2 (k) permits the Entities to prepare and implement Detailed Operating Plans that may produce results more advantageous to both countries than those that would arise from operation under the plans referred to in Annexes A and B The Entities typically develop and implement Detailed 141 Operating Plans that are based on the Annual Operating Plan and contain revisions as mutually agreed Question It is my understanding that BPA, as the US Entity under the Treaty, has been negotiating new agreements and plans related to the Treaty Would you describe them please'' Answer: At the time the Treaty was signed in 1964, Canada did not have a demand for its Entitlement A group of United States utilities formed the Columbia Storage Power Excliange corporation to purchase the Entitlement from Canada for a period of 30 years This purchase expires in phases beginning in 1998 through 2003 At that time, the United States Entity must deliver the Entitlement to Canada at a point near Oliver, British Columbia, unless the Entities agree to other arrangements pursuant to the Treaty. in 1994, the United States and Canada negotiated principles for proposed agreement for delivery and disposition of the Canadian Entitlement The major components of the proposed agreement provide that: First, the United States will deliver Canada's Entitlement over existing lines rather than over a new high- voltage line which otherwise would have to be built, probably from Grand Coulee to Oliver, British Columbia, Second, the United States will permit Canada to dispose of all or a portion of the Canadian Entitlement in the United States, and Finally, the United States will purchase through September 15, 2024, that portion of the Canadian Entitlement capacity that exceeds 950 megawatts for $180 million, U S This capacity, estimated to be as much as 450 megawatts, would otherwise be delivered to Canada The Entities are currently negotiating the Entity, Entitlement capacity buy down, and transmission agreements to implement the principles The disposition of the Canadian Entitlement in the United States will be authorized by an exchange of notes between the United States and Canadian governments The United Stales Entity and Bonneville are also negotiating renewal of the Pacific Northwest Coordination Agreement and the Canadian Entitlement Allocation Agreements, two other agreements related to the Treaty. Under the proposed Canadian Entitlement Allocation Agreements, non-Federal dam owners with projects located downstream of Treaty storage will finance the $180 million Capacity Entitlement capacity buy down in satisfaction and settlement of their obligation to deliver Entitlement capacity to the United States Entity for deliver^' to Canada An evaluation of the environmental impacts of the delivery of the Entitlement, the Canadian Entitlement Allocation Agreements, and the Pacific Northwest Coordination Agreement are being conducted in accordance with the National Environmental Policy Act. No final decisions respecting these agreement will be made until these processes have been concluded 142 Question: Why are the Pacific Northwest Coordination Agreement and the Canadian Entitlement Allocation Agreements involved with our ability to implement the Treaty"^ Answer: The projects in the United States that benefit directly from the operation of Canadian Treaty storage, and thus have shared the obligation to deliver the Canadian Entitlement, are situated on the Columbia River downstream of Treaty storage There are eleven dams located on the Columbia River downstream of Treaty storage Six of the dams are Federally owned The other five dams are owned by public utility districts in the State of Washington, and their output is divided among a host of publicly-owned and investor-owned Northwest utilities These non-Federal project owners generate approximately 25 to 30 percent of the Canadian Entitlement The Canadian Entitlement Allocation Agreements are the agreements through which the non-Federal projects' shares of the Canadian Entitlement obligation are determined and delivered to the United States Entity Because the Treaty assumes a coordinated United States operation of hydroelectric resources, the Pacific Northwest Coordination Agreement is an important vehicle to fully realize the benefits envisioned by the Treaty The non- Federal dam owners argue that they cannot realize the power benefits from the Treaty unless operation of the hydroelectric projects in the United States is coordinated through the Pacific Northwest Coordination Agreement or similar agreement Without such coordination, these project owners assert they will not agree to deliver approximately 30 per cent of the Canadian Entitlement that they generate and will not sign the Canadian Entitlement Allocation Agreements, which could increase the percentage of Canadian Entitlement which Bonneville must deliver to Canada to satisfy the total obligation These contracts permit the harmonious and productive use of the freaty benefits and they as.aire that the obligation of the United States to Canada is appropriately shared between Federal and non-Federal beneficiaries Question: We have heard that legal challenges have been made to the renegotiation of these proposed agreements Would you describe them please"^ Answer On December 22, 1994, a coalition of environmental groups led by Idaho Rivers United, as well as the Yakima Indian Nation, served a 60 day Notice Of Intent to sue under the Endangered Species Act against Bonneville, the U S Army Corps of Engineers, the Bureau of Reclamation, and the National Marine Fisheries Service The Notice of Intent states that Bonneville and the other Federal agencies violated the Endangered Species Act by, among other things, failing to consult with the National Marine Fisheries Service over effects on the listed salmon of the delivery of the Canadian Entitlement, the renegotiation of the Canadian Entitlement Allocation Agreements, the renegotiation of the Pacific 143 Northwest Coordination Agreement, and the overall operation of Treaty storage water A similar Notice of Intent to sue was previously served by the State of Oregon The 60 day notice has passed, and at this time, no lawsuits have been filed However, on February 6, 1995, the same environmental coalition led by Idaho Rivers United, filed suit in the Ninth Circuit Court of Appeals alleging violations of the Northwest Power Act and the National Environmental Policy Act These parties allege that Bonneville failed to fully consider fish impacts of the return of the Canadian Entitlement, the Canadian Entitlement Allocation Agreements, and the Pacific Northwest Coordination Agreement during the course of negotiating these agreements There are no alleged violations of the Endangered Species Act Bonneville filed a motion to dismiss the petition for lack of jurisdiction because, among other things, these agreements are still being negotiated and Bonneville has not made any final decisions subject to judicial review Question What is the impact of these lawsuits on your negotiation of these proposed agreements and on your ability to comply with the terms of the Treaty'^ Answer: Notwithstanding the legal challenges involving these particular agreements, the United States Entity is expected to take action necessary to perform its Treaty obligation, including making arrangements for the delivery of the Canadian Entitlement If the obligation to Canada cannot be performed as currently being negotiated because of constraints due to United States law, the United States will consider alternative methods of satisfying the Treaty obligation. Although the United States' obligation to Canada would remain even after a failure to execute new Canadian Entitlement Allocation Agreements and Pacific Northwest Coordination Agreement, such a failure would increase the cost to Bonneville, and its ratepayers, of complying with the Treaty. For example, the non-Federal project owners have considered financing the $180 million in consideration for satisfaction of their obligation to return their share of the Canadian Entitlement capacity obligation The non-Federal project owners have advised Bonneville that they have been advised by legal counsel that the financing is not possible given the expectation of Endangered Species Act and other litigation which might challenge the validity of the agreements If Bonneville must proceed with other financing arrangements to make the $180 million payment to Canada because the non-Federal project owners are unable to obtain financing due to threatened Endangered Species Act litigation, Bonneville may have to arrange for alternative, third party financing or borrow the $180 million from the Treasury, or negotiate alternative arrangements for meeting the United States' Treaty obligation to Canada Bonneville would prefer to avoid these outcomes 144 Question: Can the problems raised by these lawsuits be solved administratively'' Answer Bonneville will explore whether some arrangement can be identified which would enable the non-Federal project owners to finance the $180 million necessary for the capacity "buy down," notwithstanding the threat of Endangered Species Act and other potential litigation Question: Would it be helpful for Congress to direct implementation of the Treaty, and negotiation of these related contracts and plans, notwithstanding the statutes relied upon in these lawsuits'' Answer Senator Hatfield, we believe it is premature for Congress to consider legislative mechanisms for implementation of the Treaty to insure that both Treaty and environmental responsibilities are satisfied NONDEPARTMENTAL WITNESSES Natural Resources Defense Council statement of ralph cavanagh, director Senator Hatfield. I would like to now invite the third panel, Mr. Mark Crisson, the director of utilities at Tacoma Public Utilities; Mr. Richard E. Dyer, senior vice president, Portland General Elec- tric Co.; Mr. Richard Holder, president and CEO of the Reynolds Metals Corp.; Mr. K.C. Golden, Northwest Conservation Act Coali- tion; and Mr. Ralph Cavanagh, Natural Resources Defense Council. Let me also say that we have invited a gentleman from the fourth panel, Mr. Warren Seyler, who is the chairman of the Spo- kane Indian Tribe, in Washington, because both Mr. Seyler and Mr. Cavanagh have a 5 o'clock plane. So we are going to let you gentlemen go first, so you can make your plane. Mr. Cavanagh. Thank you, Mr. Chairman. Mr. Chairman, my name is Ralph Cavanagh, from the Natural Resources Defense Council. I think it is a good moment to inject one note of optimism in these proceedings, and I would like to do it. I have worked for the last 16 years with utilities from every State in the region, Mr. Chairman, and I remember when I started we were in the same kind of a crisis, different context. Then it was over electric resource needs for the region. We have done, I think, an extraordinary job in resolving those conflicts, in moving ahead together on solutions, and I know, Mr. Chairman, that you share our pride in the fact that last year was the best in the history of the region in energy efficiency achieve- ment. Bonneville and the investor-owned utilities, alone, scored over 130 average megawatts, just over 2 cents a kilowatt hour better than any of the other numbers on Administrator Hardy's chart. Those were good investments and good solutions. Our challenge is to do the same here. In that spirit, I want to offer part of some of the new suggestions for solutions that you and your colleagues have been asking for, and I want to do it in the context of making Bonneville more com- petitive. I believe, and it is my job to know something about the western power markets, that Bonneville is potentially the most formidable competitor in the wholesale power markets, bar none. I know it is the most feared south of the Oregon border. The principal reason for the problem, and there is a problem, is that Bonneville enters that arena with both hands tied behind its back by a 30-year-old Federal statute that is no longer, in our view, appropriate. (145) 146 Let me summarize very briefly what the Bonneville problem is. Administrator Hardy has laid out for you scenarios under which customers leave the system and abandon some part of the power that they have been purchasing from Bonneville. The normal response in a competitive market is to try to find other customers, and as the marketplace opens up, Bonneville has more potential customers available to it. But Bonneville, because of that 30-year-old statute can only make short-term sales when it is finding a customer out of the region. If it is selling in the region, anytime you buy from Bonneville, you become a kind of Typhoid Mary that is automatically subject to Federal statutory restrictions on your own resale out of the re- gion. This is if you are a Bonneville customer in the Northwest. And no matter who you are, Bonneville has to go through extraordinary paperwork requirements documenting the sale, and none of these restrictions are applicable to any of Bonneville's competitors. Now, in an era generally hospitable to free trade it seems like somebody forgot about Bonneville, and we think it is time to do something about that. We also acknowledge that that solution has to be respectful of the regional tradition of public preference, it has to be respectful of Bonneville's obligations to its existing customers, and, in gen- eral, the solution has to be one that works essentially for all of the major interests in this room. What we put on the table, and I will just close on the proposal, and I want to emphasize it is only that, and we look forward to fur- ther discussion, is that in situations where a Bonneville customer abandons the system and signs a long-term contract with someone else, that Bonneville ought to be able to resell that power in the marketplace after giving all the public preference customers a chance to go ahead and step in and replace that departing buyer, if they want to. Senator Hatfield. Other than a spot market. Mr. Cavanagh. Absolutely, Senator. In other words, the problem we are dealing with is that when Bonneville has to go to the spot market, it loses a penny a kilowatt hour pretty much automati- cally, compared to what it could make in an open market. And the difference that makes, just to summarize for Adminis- trator Hardy, some of Bonneville's internal resource projections are looking at a possibility of 1,000 average megawatts of load leaving. The difference between the spot market and the free market, in terms of those resales, is easily on the order of $100 million a year. It seems to me, again, that if we can find a way to let Bonneville resell abandoned power in the free market, as opposed to this arti- ficially constrained market, all Bonneville customers stand to bene- fit. So that is what we would like to urge this committee and our col- leagues at this hearing to work on as part, not all of, heaven knows, but part of the solution to making Bonneville more competi- tive and letting it find solutions to the fish problem comparable to those we found on the efficiency side. 147 PREPARED STATEMENT We offer that for discussion. We offer it in recognition of the fact, Mr. Chairman, that all of us have a stake in a more productive and competitive Bonneville, and we hope to be able to bring those solu- tions forward with you in the months immediately ahead. Senator Hatfield. Thank you, Mr. Cavanagh. [The statement follows:] Prepared Statement of Ralph Cavanagh This statement presents the views of the Natural Resources Defense Council (NRDC). NRDC is a national, nonprofit environmental organization with more than 6,500 members from the four Northwest states. Since 1979, I have directed NRDC's Northwest projects, and I have spent much of that time working with the Bonneville Power Administration (BPA) and many of its utility and industrial customers. My colleagues and I have focused particularly on the energy-efficiency, renewable en- ergy and fish and wildlife provisions of the Pacific Northwest Electric Power Plan- ning and Conservation Act ("the Regional Act"). I believe strongly in the Regional Act's mandates and will be glad to respond to questions about them, but my focus today is on a different set of statutory provi- sions. NRDC has concluded that outmoded federal restrictions are frustrating BPA's ability to compete in regional power markets, to the detriment of all within reach of the agency's generation system. Those restrictions mean escalating costs for cur- rent and prospective BPA customers and the millions of people whom they serve. Let me begin by summarizing briefly the restrictions to which I refer, most of which can be found at 16 U.S.C. §837b. Assume that a BPA customer leaves the agency to sign a long-term contract with another supplier, as some apparently in- tend. BPA's capacity to find another buyer for the abandoned power is hobbled in at least three significant respects: (1) if the purchaser is located outside the North- west, BPA must constrain the sale's term to five years for capacity and sixty days for energy; (2) if the purchaser is a Northwest customer, that customer's rights to make parallel sales outside the region are automatically restricted; ^ and (3) BPA must make complex and time-consuming demonstrations that the power sold is "sur- plus" and cannot be "conserved" for future use by Northwest buyers. In an increas- ingly fluid and open wholesale market, these are anachronistic and burdensome shackles. None of the numerous utilities and independent suppliers that compete with BPA face comparable restrictions. What difference does this disparity make to BPA and the region? Consider the following market data: BPA's competitors are offering long-term contracts in the 3- 3.5 cents per kilowatt-hour (kWh) range; the price of short-term "nonfirm" power re- cently has been at or below 1.8 cents/kWh; ^ BPA's average rates for its own long- term sales to industries and publicly owned utilities are now about 2.7 cents/kWh. BPA now thinks it is at risk of losing about 1000 average megawatts (aMW) of load to other suppliers over the next two years; if so. then for every V2 cent per kilo- watt-hour that BPA's resale prices are depressed by statutory restrictions, BPA and its remaining customers will lose about $44 million per year.^ As the market figures show, the difference between short-term and long-term markets today is at least one cent per kilowatt-hour; yet whenever a BPA customer leaves, the agency is forced to seek replacement revenues solely from the least lucrative portion of the market- place. Almost everyone loses under this system. Customers outside the region are de- prived of valuable products and services. Customers inside the region who stay on the BPA system pay higher rates, because BPA cannot fully replace lost income. BPA management, fearing a "death spiral," cuts back on all long-term investments, including many that are essential to meeting Regional Act goals and delivering re- gionwide benefits. At the top of that list are energy efficiency improvements, renew- able energy resources, and fish and wildlife restoration. ' The statute restrains BPA sales to Northwest customers that could be said to be using the BPA power as "replacement, directly or indirectly, within the Pacific Northwest for hydroelectricity delivered for use outside that region by a non-Federal utility." 16 U.S.C. §83b. 2 For the week of February 27 to March 3, Clearing Up reports peak non-firm prices in the range of 1.35-1.8 cents per kilowatt-hour. Off-peak prices were in some instances below one cent per kilowatt-hour. Clearing Up, March 6, 1995, p. 2. 3 Each average megawatt represents 8,766,000 kilowatt-hours. 148 I am here to outline a simple and nondisruptive response to this problem. Our proposal is respectful of the region's strong tradition of public preference, and of BPA's existing obligations to all its Northwest customers. We also recognize that all who care about the Regional Act's environmental goals have a stake in BPA's capac- ity to meet or exceed its revenue targets. And we acknowledge the inexorable trend toward increased competition in regional power markets. There is no inconsistency between the Regional Act and greater competition — unless EPA is denied a reason- able opportunity to compete. I also emphasize that this proposal is not intended to preempt discussion of other options for replacing lost revenues from departing BPA customers, some of which almost certainly will surface at today's hearing. All these alternatives need a full airing, and the best solution may well involve elements of more than one. This hear- ing begins a process of negotiation among all affected interests, which should result in more open and productive power markets. We offer for your consideration, and those of our regional colleagues, the following provisions of a new Northwest Power Act to Promote Wholesale Competition: 1. BPA would continue to provide first call on all available federal power from whatever source to public-preference customers in the Pacific Northwest to meet their firm power load requirements as defined by section 5(b) of the Regional Act and the Bonneville Project Act. BPA would also meet its obligations, if any, to pro- vide requirements service to investor-owned utilities under section 5(b), and any service obligation to existing DSI customers up to their contract demand under sec- tion 5(d). 2. If BPA were left with surplus federal firm power because of abandonment of that service by a public-preference customer, it would offer first to sell the surplus firm power on a one-time basis through additional long-term sales to Northwest public preference customers. Any such customer who wished could make additional purchases up to the limit of the firm surplus, provided that it were willing to pay the price established for comparable BPA transactions with other public preference customers. 3. Any surplus federal firm power remaining could be sold without restrictions to any customer, subject to its ability to take delivery of and pay for the power. BPA would be authorized to negotiate flexible pricing and terms. Items 1 and 2 above would be deemed to satisfy the current statutory tests to determine whether power is needed to meet the "energy requirements" and "firm power load requirements" of Northwest customers, and deemed also to satisfy the current tests for "surplus power" under Regional Act §9(c) and Public Law 88-552. I reemphasize again that this is an initial proposal, offered in a constructive spirit for discussion with other participants. A remarkably wide range of otherwise dispar- ate interests have a stake in a healthy and productive BPA. No one can or should guarantee competitive success for the agency, but we hope that its management and others can unite around creating a more open marketplace for BPA products and services. Spokane Tribe of Indians statement of warren seyler, chairman Senator Hatfield. Mr. Seyler. Mr. Seyler. Thank you, Mr. Chairman, and members of the sub- committee. It is an honor for me to appear before you today. My name is Warren Seyler, and I am chairman of the Spokane Tribe. I am also chairman of the Upper Columbia United Tribes. The Spokane Tribe is historically a fishing tribe, and while we now rely primarily on timber for revenue, for tribal revenue, fish- ing is a primary concern, for both its cultural and economic value. The Spokane Tribe is one of four tribes located on the head- waters of the Columbia River above Lake Roosevelt in the States of Washington and Idaho. Funding provided by Bonneville Power Administration has been helpful to the UCUT Tribes in establish- ing mitigation programs. The BPA, as part of the Federal Government, has a trust respon- sibility to the Indian nations to preserve our natural resources, particularly the fisheries. 149 We have heard rumors of a possible privatization of BPA and would oppose such a move. In our view, a private power company could not be chartered with a trust mandate to Indian people that would have no incentive to participate in mitigation. Beginning in 1939, the Grand Coulee Dam blocked salmon runs to the Spokane territory. The tribe received no mitigation for this loss until a hatchery was constructed on the reservation by BPA as partial mitigation for salmon losses. The tribe is now stocking over 2 million salmon and 500,000 rainbow trout from the hatchery into Lake Roosevelt, and is also managing a wild population of walleye pike in the lake. We are not at all sure whether our resident fish will survive the efforts to save the salmon, although we do not oppose such efforts. Recent events threaten the habitat of our resident fish. Efforts to save the anadromous fish may lead to the destruction of the fish in Lake Roosevelt, because the Government is using a variety of untried and unproven methods to ensure that the smolts can re- turn downriver. The newest method is flushing at the dam sites with a release of large amounts of water. We are concerned that this method for insuring the migration of smolts will, in turn, endanger resident fish by reduction of the lake levels and by depletion of nutrients necessary for the survival of the fish. Mr. Chairman, there are reports that the Northwest Power Plan- ning Council's Fish and Wildlife Program is proposing to release 8.25 million acre feet of water from the upper Columbia River basin as part of its efforts to protect the anadromous fish popu- lations. The National Marine Fisheries Service, in its recently issued bio- logical opinion concerning hydrosystem operations by BPA, Corps of Engineers, and Bureau of Reclamation proposed that these agen- cies release 10.2 million acre feet of water from the upper Colum- bia basin. Our biologists inform us that water releases of this magnitude will cause resident fish in Lake Roosevelt to be flushed through Grand Coulee Dam and will reduce nutrient levels in the lake. Nutrient levels are of critical concern, because the productivity of the reservoir is dependent upon nutrients. Lower nutrients mean lower plankton productivity, resulting in poor fish growth. Either level of proposed water releases would be too high, in our view. We simply do not have sufficient information on the impact of such releases. Thus, while the Government, through NMFS, the Corps of Engineers, BPA, and BOR, is using untested methods to try to save anadromous fish, it may well be doing so at the expense of the resident fish. The Spokane Tribe is dependent both on recreational and eco- nomic reasons to preserve the resident fish. Even if the results for the lake fish are not as dire as we fear, any damage, if reversible, will certainly take years to correct. The UCUT Tribes respectfully request funds to study the effects of recent mitigation efforts on the fish in Lake Roosevelt, as well as resident fish in the Box Canyon of the Pend Oreilles River, Lake Couer d'Alene, and the Idaho portion of the Kootenai River. 150 PREPARED STATEMENT This kind of study will benefit not just the tribe, but all of the people living in the region. I also request for permission to submit additional information for the record of this hearing. Senator Hatfield. We will be very happy to receive it, Mr. Seyler. [The statement follows:] Prepared Statement of Warren Seyler Mr. Chairman and Members of the Subcommittee, it is an honor for me to appear before you today. My name is Warren Seyler and I am Chairman of the Spokane Tribe which is located in Eastern Washington. The Tribe has over 2,000 members and the Reservation is 156,000 acres. The Spokane was historically a fishing tribe and, while we now rely primarily on timber for tribal income, fishmg is a primary concern, for both its cultural and economic value. The Spokane Tribe is one of four Tribes located on the headwaters of the Colum- bia River above Lake Roosevelt in the States of Washington and Idaho. The Tribes make up the Upper Columbia United Tribes (UCUT) organization which in turn contracts with the Department of the Interior for many of the mitigation programs necessary to protect resident fish populations. As you know. Lake Roosevelt was cre- ated by the construction of the Grand Coulee Dam, one of the largest dams in the world. The Dam flooded many hydropower sites on the Spokane River, as well as tribal fisheries that had been in use by the Tribe for centuries. Funding provided by the Bonneville Power Administration has been helpful to the UCUT trices in establishing mitigation programs. The BPA, as part of the Federal government, has a trust responsibility to the Indian nations to preserve our natural resources, particularly the fisheries. We have heard rumors of a possible privatiza- tion of BPA and would oppose such a move. In our view, a private power company could not be chartered with a trust mandate to Indian people and would have no incentive to participate in mitigation. Beginning in 1939, the Grand Coulee Dam blocked salmon runs into Spokane ter- ritory. The Tribe received no mitigation for this loss until a hatchery was con- structed on the Reservation by BPA as partial mitigation for salmon losses under the Columbia River Basin Fish and Wildlife program, developed by the Northwest Power Planning Council under the auspices of the Northwest Power Planning and Conservation Act of 1980. The Tribe is now stocking kokanee salmon and rainbow trout from the hatchery into Lake Roosevelt and is also managing a wild population of walleye pike in the Lake. We are not at all sure whether our resident fish will survive the efforts to save endangered salmon. Recent events threaten the habitat of our resident fish. In addition to blocking former spawning areas, hydroelectric dams kill juvenile salmon migrating towards the Ocean. Some of the fish are killed outright as they pass through turbines. Oth- ers have trouble finding their way through the dams and reservoirs which slows down their migration, reducing their survival once they reach the ocean. As a result, several stocks of the remaining salmon in the Snake River are listed as endangered. Efforts to save this anadromous fish may lead to the destruction of the fish in Lake Roosevelt because the government is using a variety of untried and unproven meth- ods to ensure that the smolts can return downriver to the Pacific. The newest meth- od is "flushing" at the dam sites with a release of large amounts of water. We are concerned that this method for insuring the migration of the smolts will in turn en- danger resident fish by reduction of Lake levels and by depletion of nutrients nec- essary for the survival of the fish. Mr. Chairman, there are reports that the Northwest Power Planning Council's Fish and Wildlife program is proposing a release of 8.25 million acre feet of water from the Upper Columbia basin as part of its effort to protect the anadromous fish populations. The National Marine Fisheries Service in its recently issued biological opinion concerning hydrosystem operations by BPA, Corps of Engineers and Bureau of Reclamation proposed that these agencies release 10.2 million acre feet of water from the Upper Columbia basin. Our biologists inform us that water releases of this magnitude will cause resident fish in Lake Roosevelt to be flushed through Grand Coulee Dam and will reduce nutrient levels in the Lake. Nutrient levels are of criti- cal concern because the productivity of the Reservoir is dependent upon nutrients. Lower nutrients mean lower plankton productivity resulting in poor fish growth. Either level of proposed water releases would be too high in our view. We simply do not have sufficient information on the impact such releases would have on exist- 151 ing fish populations to support the release of such quantities of water. Thus, while the government, through NMFS, the Corps of Engineers, BPA and BOR, is using untested methods to try to save anadromous fish, it may well be doing so at the expense of the resident fish of Lake Roosevelt upon which the Spokane Tribe is de- pendent both for recreational and economic reasons. Even if the results for the Lake fish are not as dire as we fear, any damage, if reversible, will certainly take years to correct. The UCUT tribes respectfully request funds to study the effects of recent mitigation efforts on the fish in Lake Roosevelt, as well resident fish in the Box Canyon of the Pend Oreilles River, Lake Couer d'Alene and the Idaho portion of the Kootenai River. This kind of study will benefit not just the Tribe but all of the peo- ple living in the region. We have two additional requests. The first is that an appropriate Committee of the Congress hold hearings on this subject, preferably in Spokane, Washington, and the second is for permission to submit additional information for the record of this hearing. Senator Hatfield. Let me say to both of you, Mr. Cavanagh and Mr. Seyler, we will submit some questions to you that we would have used this time to ask, so you better get on your way and get out to the airport. Mr. Seyler. Thank you very much. Senator Hatfield. Thank you. Tacoma Public Utilities statement of mark crisson, director of utilities Senator Hatfield. Let us go back now to the panel as we had originally announced it. Mr. Mark Crisson, the director of utilities at Tacoma Public Utilities. Mr. Crisson. Yes; thank you, Mr. Chairman. Good afternoon. I would begin by requesting that my entire statement be entered into the record of this hearing. What I would like is to present an abbreviated version of that in my records this afternoon. Senator Hatfield. Thank you. Mr. Crisson. I am Mark Crisson, the director of utilities for the city of Tacoma. I am here today as a spokesman for both my utility, which is among Bonneville's 10 largest customers, as well as over 100 other consumer-owned utilities in the Northwest. Public power has a huge stake in the outcome of your hearing on the costs of salmon recovery, and Bonneville Power Administra- tion's future competitiveness. Since the first Federal dams were built in the 1930's, the cus- tomers of consumer-owned utilities have relied on Bonneville as their major supplier of power. Most public utilities receive all of their wholesale power from Bonneville, and even those of us with our own generation rely on Bonneville to supply a large share of our load. In our case, Mr. Chairman, we receive about 50 percent of our power requirements from Tacoma, about 300 megawatts annually. This partnership between the Federal system and the public has been a cornerstone of our region's prosperity and growth. Over the past months, a number of us have contributed our time and energy to working with Bonneville to try to sort out some of the issues that threaten its future competitiveness, and you have heard a lot about that from Administrator Hardy, but we keep com- ing back to one overriding concern, and that is the impacts of what we view to be radical salmon recovery measures, which are threat- ening to put Bonneville out of business. 152 Please do not misunderstand. We support environmentally re- sponsible fish and wildlife protection. In the past, we participated in your salmon summit, enjoying your views. Senator Hatfield, and other Northwest leaders in support of the plan developed by the National Marine Fisheries Service's independent recovery team, led by Dr. Donald Bevan. We ask you to urge the National Marine Fisheries Service to adopt this plan as a formal plan for salmon recovery. The recovery team's plan focuses on much more than just river passage. Their plan is comprehensive, and if implemented, will work as a long-term solution for salmon over the entire Columbia River basin. With respect to the fish survival at the dams, the recovery team's plan includes measures that provide for safe migration of both ju- venile and adult salmon, without requiring the dismantling of the hydropower system and the attendant rate impacts. We are calling on you to keep that from happening, because the Federal hydropower system is clearly among our region's foremost assets. Public power continues to support salmon recovery programs that are based on good science, but salmon recovery must be both balanced and effective. Current Federal mandates to drastically change river operations are threatening Bonneville's competitive position and the decades- long relationship the Government has with public power. Ultimately, Bonneville's ability to fund fish recovery will be con- strained by the competitive market price of power, and to remain competitive, Bonneville must control its costs. I cannot overemphasize this last point. My past experience in the private sector and my more recent experience with my commercial and industrial customers confirms that in the competitive market, particularly a competitive commodity market, such as the whole- sale power market, there is simply no substitute for controlling costs. But Bonneville currently has no control over these fish measures that affect hydrogeneration and drive up its costs. While public power has no desire to abandon Bonneville, some of us are being driven away due to uncertainty about Bonneville's fu- ture power rates. Moreover, we cannot commit to paying uncom- petitive power rates, particularly when they are caused by these fish measures. We are being forced by our own retail competitive pressures and direct feedback from many of our customers to look to the market- place for our power supply, because of both concern about Bonne- ville's future and competitive offers from other suppliers. Consequently, we urge the Federal Government to continue its commitment to public power and to the promise of an efficient, eco- nomic, affordable, and reliable power supply, without abandoning this commitment to the salmon. Once a sustainable cost-effective salmon solution is adopted, we commit our support to its implementation and funding. However, this support is dependent on the Government's commitment to good science and a reasonable limit on fish recovery costs borne by the operators of the coordinated hydropower system. 153 Any limit on fish recovery costs must include all impacts on the operators of the coordinated system, including non-Federal parties. In our view, Congress must address the level of statutory respon- sibility Bonneville has to fund salmon recovery directly. Bonneville simply does not have unlimited ability to absorb all costs being as- signed it currently for salmon mitigation. Further, we urge you to resist any proposals to transfer fish costs to transmission or other nonpower revenue sources. We do not sup- port attempts to correct the funding problems by simply shifting the burden to other payment mechanisms such as exit fees or transmission rates. On the last point, Mr. Chairman, what I would like to do is take this opportunity to enter into the record of this hearing a copy of this letter, which is addressed to President Clinton. It is being hand delivered today to the White House. It is signed by all of the Northwest investor-owned utilities, several of the major publicly owned utilities, and the direct service industries. What it stresses is with respect to the point on transmission that Bonneville should provide open access at rates that do not bear costs to subsidize a generation system. Senator Hatfield. We will include that in the record. PREPARED STATEMENT Mr. Crisson. Thank you, sir. Let me just conclude by saying that I appreciate the opportunity today to discuss these vital issues with the committee, and public power extends its commitment to work with you to save the salmon, and assure the continued viability of the Bonneville Power Administration. Thank you. Senator Hatfield. Thank you, Mr. Crisson. [The statement follows:] Prepared Statement of Mark Crisson Thank you Senator Hatfield. I am Mark Crisson, Director of Utilities for the City of Tacoma. I am here today as a spokesman for my utility and over 100 other consumer-owned utilities in the Northwest. Public power has a huge stake in the outcome of your hearing on the costs of salmon recovery and Bonneville Power Ad- ministration's future competitiveness. We are concerned that because of run-away salmon costs, BPA will no longer be able to provide predictable and reliable supplies of power at stable and competitive rates. Since the first federal dams were built in the 1930's, the customers of consumer- owned utilities have relied on the Bonneville Power Administration as their major supplies of electricity. Most public utilities receive all of their wholesale power from BPA, and even those of us with our own generation rely on Bonneville to supply a large share of our load. This partnership between the federal system and the pub- lic has been a cornerstone of our region's prosperity and growth. Over the past months, a number of us have contributed our time and energy to helping Bonneville Power Administration sort out the issues that threaten its future competitiveness. We keep coming back to one overriding concern — the impacts of the radical salmon recovery measures are threatening to put BPA out of business. Without certainty of electricity generation from the coordinated hydropower sys- tem, the Northwest's electricity supply is less reliable and more costly. The Colum- bia River system's hydro projects are operated in a coordinated manner that in- creases the overall benefits to Northwest citizens. In turn, we are all affected when massive operational changes are mandated in an ill-advised and unscientifically based attempt to restore the weak salmon runs. Don't misunderstand, we support environmentally responsible fish and wildlife protection. In the past we participated in your Salmon Summit and joined with you. Senator Hatfield, and other Northwest leaders in support of the plan developed by 154 National Marine Fisheries Service's independent Recovery Team, led by Dr. Donald Bevan. We ask you to urge NMFS to adopt this plan as the formal plan for salmon recovery. The Recovery Team's plan focuses on much more than just river passage. Their plan is comprehensive; and, if implemented, will work as a long-term solution for salmon over the entire Columbia River Basin. With respect to fish survival at the dams, the Recovery Team's plan includes measures that provide for safe migration of both juvenile and adult salmon — with- out requiring the dismantling of the hydropower system and the attendant rate im- pacts. We are calling on you to keep that from happening, because the federal hy- dropower system is clearly among our region's foremost assets. Public power continues to support salmon recovery programs that are based on good science. But salmon recovery must be both balanced and effective. Current fed- eral mandates to drastically change river operations are threatening BPA's competi- tive position and the decades-long relationship the government has with public power. Ultimately, Bonneville's ability to fund fish recovery will be constrained by the competitive market price of energy. To remain competitive, BPA must control its costs. Bonneville now has no control over fish measures that effect hydro generation and drive up costs. While public power has no desire to abandon BPA, some of us are being driven away due to uncertainty about Bonneville's future power rates. More- over we cannot commit to paying uncompetitive power rates particularly when they are caused by irresponsible and unwarranted fish protection schemes. We are being forced by our own retail competitive pressures to look to the marketplace for our power supply because of both our concern about BPA's future and the competitive offers from other suppliers. We urge the federal government to continue its commitment to public power and to the promise of an economic, efficient, affordable and reliable power supply with- out abandoning its commitment to the salmon. Once a sustainable, cost-effective salmon solution is adopted, we commit our support to its implementation and find- ing. However, this support is dependent on the government's commitment to good science, and a reasonable limit on fish recovery costs borne by the operators of the coordinated hydropower system. Any limit on fish recovery costs must include all impacts on the operators of the coordinated system, including the non-federal par- ties. Further, we urge you to resist any proposals to transfer fish costs to transmission or other non-power revenue sources. We do not support attempts to correct the find- ing problems by simply shifting the burden other payment mechanisms; such as, exit fees or transmission rates. Congress must address the level of statutory respon- sibility BPA has to find salmon recovery directly. BPA does not have unlimited abil- ity to absorb all the costs being assigned it for salmon mitigation. In conclusion, public power urges you to consider the following key points: (1.) Congress must oppose radical river operation schemes and urge immediate adoption of the Recovery Team's plan. (2.) BPA's competitiveness will be determined by the marketplace. BPA customers are not a bottomless deep-pocket for finding a fish program that is essentially an unfunded federal mandate. BPA's limited ability to fund fish recovery must be con- sidered and accommodated. (3.) The impact of salmon recovery is a region- wide issue, not just a problem for BPA. The region's salmon, economy and power supply are all at stake, and there must be a comprehensive, sustainable fix that balances all three. (4.) Transferring costs to transmission or other non-power services is not an ac- ceptable solution. Thank you for the opportunity to discuss these vital issues with you today. Public power extends its commitment to work with you to save the salmon and assure the continued viability of the Bonneville Power Administration. Portland General Electric Co. statement of richard e. dyer, senior vice president Senator Hatfield. Mr. Richard E. Dyer, senior vice president of Portland General Electric Co., who has stepped into this situation on very short notice. Please convey to your president, Mr. Richard Reiten, not only our regrets of his inability to be here, but for the reasons, and that we are very sorry to hear about his father's health situation. 155 Mr. Dyer. Thank you, Mr. Chairman. In fact, Mr. Reiten sends his regards and regrets that he cannot be here today. For the record, I am Richard Dyer, a vice president of Portland General Electric Co. If I may submit for the record my written com- ments and just summarize a few points in the interest of time, I will do that. Senator Hatfield. We will be very happy to receive the full statement. Mr. Dyer. Let me note also for the record that my testimony is supported by the investor-owned utilities of Pacific Northwest. PGE is Oregon's largest electric utility, providing service to a population base of over 1.3 million people and many of Oregon's largest employers. Two years ago our company made a very tough decision, which was a decision to permanently close our largest generating re- source, the Trojan Nuclear Power Plant. We did that because fu- ture operating costs of that plant were projected to exceed the cost of replacement power. Today we serve 40 percent more customers than we did a decade ago, and with 25 percent fewer employees. Our utilities in the Northwest had to make equally difficult deci- sions, cutting back hundreds of employees, merging with competi- tors, selling off subsidiaries, and reducing dividends to sharehold- ers, which I might note in political terms is our equivalent of Bon- neville stiffing the Treasury. Mr. Chairman, my first observation is that like the rest of us, BPA will continue to struggle and ultimately may falter if they cannot regain control of their costs. This is not a question of wheth- er salmon recovery should be funded. What I am saying is that fish costs are Bonneville's fastest grow- ing expense, and must be addressed in some fashion. We have a situation where their costs are growing almost un- checked, and at the same time, have biological opinions that reduce their output. In a competitive environment, that is not a winning equation. My second observation is that what has catalyzed this need to control costs is emergence of new, rapidly constructed, low-cost, and highly efficient electric generation. This new generation is being coupled with energy marketers who wheel that power long distances to end-use markets. So what are we to do with Bonneville's escalating fish costs? Some of the questions are: Who should pay? How does Congress deal with Bonneville's competitiveness, when everyone, including our companies, are under the same competitive pressures? First, I would like to offer a recommendation that imposing a fish tax on Bonneville's transmission system is unacceptable. It penal- izes electric customers who must use BPA's transmission lines, even though they are not buying power from Bonneville. It also reduces the economic efficiency of the transmission sys- tem, which is being used to benefit fish through power exchanges with California. It also ignores our history under the Bonneville Transmission Act, whereby non-Federal parties have been encouraged to allow Bonneville to construct key transmission lines linking generating projects with non-Federal load centers. 156 Now, the point here is that Bonneville markets about 45 percent of the electric generation in the Northwest, but controls a near mo- nopoly of 80 percent of the bulk transmission system. My second point is that any legislation proposing a cap on fish costs should recognize that a cap for BPA raises complicated issues of equity for non-Federal parties who are similarly impacted a salmon recovery plan. Fish costs are a regional concern, and must be addressed with a regional solution. I might just note quickly that all of the numbers you heard ban- died about today only describe the affects on the BPA system, and there are significant affects on non-Federal operators as well. These are some of the unintended consequences. I might point out that there are many non-Federal hydro projects in the Northwest located below Federal storage reservoirs. When the water stored in these projects is released, primarily in the spring and summer to help migrating fish rather than through- out the year, the impacts to our hydro projects is staggering. The situation, for example, in 1995 is that non-Federal hydro projects located in eastern Washington and western Montana, which are physically disconnected from the problems facing Snake River chinook and sockeye salmon in Idaho, will have realized a greater loss of seasonal hydro generation than all of the Federal projects located on the Snake River. Mr. Chairman, we recognize the need to help Bonneville with its short-term financial problems, and, at the same time, assure that Federal and non-Federal electric customers benefit from falling electric prices. Meeting our obligation to restore the Northwest's most important cultural heritage, healthy populations of wild salmon, is everyone's goal, but I also believe that nurturing the emerging competitive in- dustry in electricity markets is a benefit to the whole region as well. PREPARED STATEMENT I am confident that in the end an appropriate balance can be achieved, and our utilities are committed to work with you to find that balance. Thank you. Senator Hatfield. Thank you very much, Mr. Dyer. [The statement follows:] Prepared Statement of Richard E. Dyer Mr. Chairman, Portland General Electric is Oregon's largest electric utility, pro- viding service to a population base of over 1.3 million people and many of Oregon's largest employers. We own and operate a diverse set of generating resources, but also have the largest non-federal ownership of the Pacific Northwest Intertie, which allows us to exchange significant quantities of electricity at the wholesale level with entities in California. The reality of meeting a large payroll, servicing debt obligations, keeping cus- tomers satisfied, and meeting regulatory and environmental requirements is not unique to Bonneville. We are also dealing with the challenges of a competitive elec- tric industry. The investor-owned utilities of the Pacific Northwest are positioning to compete in an environment of open transmission access and retail wheeling. So, we know what Randy Hardy is facing. 157 CHANGE IS HAPPENING TO ALL OF US Mr. Chairman, there are two observations I would like to share with the Commit- tee as we move forward with a discussion about Bonneville and the Northwest's en- ergy future. Two years ago, PGE made a tough decision to permanently close our largest gen- erating resource — the Trojan nuclear power plant — because future operating costs were projected to exceed the cost of replacement power. Today we serve 40 percent more customers than we did a decade ago with 25 percent fewer employees. Other utilities have had to make equally difficult decisions — cutting back hundreds of em- ployees, merging with competitors, selling off subsidiaries, and reducing dividends to shareholders, which in political terms is our equivalent of Bonneville's stiffing the Treasury. So why am I telling you this? Mr. Chairman, my first observation is that like the rest of us, BPA will continue to struggle, and ultimately may falter, if they cannot regain control of their costs. This is not a question of whether salmon recovery should be funded. What I am say- ing is that fish costs are Bonneville's fastest growing expense, and this cost must be addressed in some fashion. My second observation, Mr. Chairman, is that what has catalyzed this need to control costs in the utility industry is the emergence of new, rapidly constructed, low cost, and highly efficient electric generation. This new generation is being cou- pled with energy marketers who wheel that power long distances to end-use mar- kets. By way of illustration, in the 1980's we projected marginal energy costs (that is the next new unit of electricity) to fall between 60 and 70 mills by 1995. Increased competition and declining natural gas prices have instead dropped marginal costs to between 30 and 35 mills — nearly a 50-percent reduction. Mr. Chairman, as I mentioned earlier when discussing our decision to close the Trojan plant, the situa- tion now facing Bonneville and all of us in the region, is the confluence of two forces — rising operating costs due to the cost of salmon restoration measures — jux- taposed against the declining costs of new generating resources available to Bonne- ville and its competitors. FISH COSTS AND BONNEVILLE What then are we to do with Bonneville's escalating fish costs? Who should pay? How does Congress deal with Bonneville's competitiveness when everyone is under the same pressures? I don't have the answers, but I would offer you two rec- ommendations that I'd like to discuss briefly. First, imposing a fish tax on BPA's transmission system is unacceptable. It penal- izes electric customers who must use BPA's transmission lines even if they aren't buying power from Bonneville. It reduces the economic efficiency of the transmission system which is being used to benefit fish through power exchanges with California. It ignores our history under the BPA Transmission Act whereby non-federal parties have been encouraged to allow BPA to construct key transmission lines linking gen- erating projects with non-federal load centers. Mr. Chairman, BPA markets about 45 percent of the electrical generation in the Northwest, and it owns a near monopoly of 80 percent of the bulk transmission sys- tem. Many non-federal projects, including coal plants, natural gas plants, and hy- droelectric plants, are located far from the areas being protected for salmon, but they use Bonneville transmission lines to move the power to the consumer. If the contention is that the federal hydro projects have contributed to the salmon prob- lem, wouldn't we want to encourage the use of the other generating facilities that are not part of the ESA debate? Is this tax being proposed simply because there is no other transmission provider? The Columbia Basin's hydroelectric system is now providing huge surpluses of en- ergy during spring and summer months. Pushing fish costs on to the BPA trans- mission system reduces the attractiveness of using power exchanges with California as a mitigating tool to defray the costs of these seasonal shifts in hydroelectric gen- eration. Finally, a fish tax on transmission contradicts the Northwest Power Act and Na- tional Energy Act's stated goal of promoting fair and open access to transmission systems. Instead of encouraging willing utility buyers and sellers of wholesale power to maximize the use of the existing generating resources, I am afraid it would en- courage building new electric generation for no other reason than to avoid the use of the transmission system altogether. Mr. Chairman, my second recommendation is that, any legislation proposing a cap on fish costs should recognize that a cap for BPA raises complicated issues of equity 26-104 - 96 - 6 158 for non-federal parties who are similarly impacted by the Salmon Recovery Plan. Fish costs are a regional concern and must be addressed with a regional solution. My concern about equity is one of unintended consequences. There are many non- federal hydro projects in the Northwest located below federal storage reservoirs. When the water stored in these projects is released, primarily in the spring and summer to help migrating fish rather than throughout the year, the impacts to our hydroelectric projects is staggering. I am not a fisheries biologist, but think for a minute how you would deal with the equitable resolution of a situation where in 1995, non-federal hydroelectric projects located in eastern Washington and western Montana — which are physically disconnected from the problems facing Snake River chinook and sockeye salmon in Idaho — will have realized a greater loss of seasonal hydro generation than all the federal hydro projects located on the Snake River? Our customers are going to ask, "Why does Congress consider compensation to off- set BPA fish costs when we must bear the full brunt of those costs?" In pursuing a cap on BPA fish costs, the Senate should also quantify precisely what these non- federal impacts might be and develop a process whereby federal and non-federal parties receive the same protection. I am certain that the impacted utilities will as- sist you in this analysis. CONCLUDING REMARKS Mr. Chairman, we need to help Bonneville deal with its short-term financial prob- lems and at the same time assure that federal and non-federal electric customers benefit from the falling energy prices I described earlier. Meeting our obligation to restore the Northwest's most important cultural herit- age— healthy populations of wild salmon — is everyone's goal, but I also believe that nurturing — this emerging competitive electricity market benefits the whole region as well. I am confident that in the end the appropriate balance can be achieved and both of these goals realized. Mr. Chairman, you have never shied away from dealing with the region's most difficult problems. I commend and thank you for tackling this one. I appreciate the opportunity to share my views and would be happy to answer any questions. Reynolds Metals Co. statement of richard g. holder, chairman and chief execu- tive officer Senator HATFIELD. Mr. Richard Holder, the president and CEO of Reynolds Metals Co. Mr. Holder. Thank you, Chairman Hatfield. For the record, I am Richard Holder, chairman and chief execu- tive officer of Reynolds Metals Co. I thank you for the opportunity to discuss salmon protection, which, by the way, I support, and the impact on BPA and its customers. Reynolds Metals Co. is one of 10 companies that produce alu- minum, titanium, and other metals and chemicals in the North- west. We are collectively known as the Direct Service Industries, DSI, because we have historically been permitted to buy our power di- rectly from BPA. As a group we contribute $2.3 billion to the re- gion's economy, and employ 10,500 people. We have been an economic force in the Northwest for over 50 years and we hope to remain strong regional contributors into the next century as well. At full production, the 10 Northwest aluminum plants produce over 40 percent -of all aluminum made in the United States. Alu- minum producers are leaders in the Northwest in balancing both environmental and economic interests through recycling and en- ergy conservation programs. 159 But our companies are facing tremendous competitive challenges from regulation and rising power costs which jeopardize the viabil- ity of the Northwest aluminum industry. We provide about 30 percent or $560 million of BPA's power rev- enues. Our plants are the only customers who buy continuous blocks of power, both day and night, 365 days per year. This unique characteristic of our power load avoids the need for shaping or other expensive aspects of tracking the ups and downs of a more typical customer group. In addition, a quarter of our load may be dropped when EPA lacks sufficient power to serve everyone, allowing BPA to avoid building costly backup generation. Power costs are a significant fac- tor in our total cost of producing aluminum. Our continued economic contribution to the region depends on maintaining affordable, reasonably stable, and predictable power rates for our industry, since our survival is ultimately determined by the worldwide price for aluminum. And it is, indeed, a global business today, with one price for aluminum worldwide. From the early 1940's to the early 1980's, BPA was an economic supplier of power to the aluminum industry. But today, BPA's rates are already one-third higher than the global average for our industry. Let me put that into perspective. We are paying, on average, 18 mills worldwide in power costs, as supplied to the aluminum industry. So at 27 mills, the current rate today, it is already considerably above the world average, as far as our costs are concerned, and puts BPA in the upper quartile on a cost basis. So there is already pressure today on us from a cost standpoint. The series of rate increases that began in the eighties have seri- ously eroded, as a result of the numbers I just quoted, BPA's com- petitive edge. BPA has, indeed, been working hard to contain costs, but that constructive effort has more lately been imperiled by major cost burdens. BPA is being required, under the ESA, to provide fish pro- tection measures that, if not in some way controlled, will end BPA's historically competitive position. The aluminum industry recognizes BPA's duty to be environ- mentally responsible, and likewise, recognizes that this duty cre- ates legitimate ratepayer burdens. But our fundamental concern is that these cos^"« are now being incurred with little regard for eco- nomics or science. We are deeply disappointed that the recommendations of the 2- year study by the highly respected scientists, commissioned by NMFS, and led by Professor Donald Bevan, have been set aside. This recovery team study was released last year, and was the basis for the agency's formal recovery plan for salmon. But instead, far more drastic and costly measures that were rejected by the re- covery team are largely being adopted by NMFS. If the Federal agencies mandating fish recovery follows a more scientifically based salmon management plan, we could achieve the Northwest Power Act's vision of recovering salmon runs while re- taining the advantage of the region's great hydropower resource. We believe the plan developed by the recovery team is both bal- anced and effective. We urge you to support this plan as the plat- 160 form for salmon recovery. It will provide a long-term solution and can be achieved without endangering BPA and its customers. In addition to the direct economic problems facing BPA and the region, there is a growing interest in shifting some of the economic burden to other revenue-gathering mechanisms, such as trans- mission or exit fees. In no way will the DSI's support any schemes to shift unjustified fish costs to transmission access charges or other devices designed to preempt competition. In conclusion, we fear there are painful consequences for the Northwest economy if the ESA regulatory agencies continue to look to BPA as the endless deep pocket for fish recovery, this, despite the fact that many factors have contributed to the salmon's decline. But the power marketing agency and its customers plainly shall not have to offset other factors, such as overfishing, poor hatchery practices, spawning habitat destruction, and uncontrollable ocean conditions that have collectively depressed Northwest salmon runs even in coastal rivers where there are no Federal hydrosystems to blame. Mr. Chairman, we appreciate your leadership that you are pro- viding and the understanding you are bringing to finding a solution to this very emotional issue. PREPARED STATEMENT We certainly pledge our support to work with you toward a bal- anced and credible solution that serves both the environment and the economy. Thank you, sir. Senator Hatfield. Thank you, Mr. Holder. [The statement follows:] Prepared Statement of Richard G. Holder Thank you Senator Hatfield. I am Richard Holder, Chairman and Chief Executive Officer of Reynolds Metals Company. Thank you for the opportunity to discuss salm- on protection — which I support — and the impact on the Bonneville Power Adminis- tration and its customers. Reynolds Metals Company is one of 10 companies that produce aluminum, titanium and other metals and chemicals in the Northwest. We are collectively known as the Direct Service Industries because we have historically been permitted to buy our power directly from the Bonneville Power Administration. As a group, we contribute $2.3 billion to the region's economy and employ 10,500 people. We have been an economic force in the Northwest for over 50 years and we hope to remain strong regional contributors into the next century as well. At full produc- tion, the 10 Northwest aluminum plants produce over 40 percent of all aluminum made in the United States. Aluminum producers are leaders in the Northwest in balancing both environment and economic interests through recycling and energy conservation program. But our companies are facing tremendous competitive chal- lenges from regulation and rising power costs which jeopardize the viability of the Northwest aluminum industry. We provide about 30 percent or $560 million of BPA's power revenues. Our plants are the only customers who buy continuous blocks of power, both day and night, 365 days of the year. This unique characteristic of our power load avoids the need for shaping or other expensive aspects of tracking the ups and downs of a more typical customer group. In addition, a quarter of our load may be dropped when BPA lacks sufficient power to serve everyone, allowing BPA to avoid building costly backup generation. Power rates are a significant factor in the cost of producing aluminum. Our continued economic contribution to the region depends on maintaining afford- able, reasonably stable and predictable power rates for our industry — since our sur- vival is ultimately determined by the world-wide price of aluminum. 161 From the early 1940's to the early 1980's, BPA was an economical supplier of power to the aluminum industry. But today, BPA's rates are already one-third high- er than the global average for our industry. The series of rate increases that began in the 1980's has severely eroded BPA's competitive edge. BPA has been working harder to contain costs, but that constructive effort has more lately been imperiled by major new cost burdens. BPA is being required under the Endangered Species Act to provide fish protection measures that — if not in some way controlled — will end BPA's historically competitive position. The aluminum industrv recognizes BPA's duty to be environmentally responsible, and likewise recognizes that this duty creates legitimate ratepayer burdens. But our fundamental concern is that these costs are now being incurred with little regard for economics or science. We are deeply disappointed that the recommendations of a two-year study by highly respected scientists, commissioned by the National Ma- rine Fisheries Service (NMFS) and led by Professor Donald Bevan, have been mostly cast aside. This Recovery Team's study was released last year and was to be the basis of the agency's formal Recovery Plan for salmon. But instead, far more drastic and costly measures that were rejected by the Recovery Team are largely being adopted by NMFS. If the federal agencies mandating fish recovery followed a more scientifically based salmon management plan, we could achieve the Northwest Power Act's vision of recovering salmon runs while retaining the advantage of the region's great hydro- power resource. We believe the plan developed by the Recovery team is both bal- anced and effective. We urge you to support their plan as the platform for salmon recovery. It will provide a long-term solution and can be achieved without endanger- ing BPA and its customers. In addition to the direct economic problems facing BPA and the region, there is a growing interest in shifting some of this economic burden to other revenue-gather- ing mechanisms, such as transmission or exit fees. In no way will the DSI's support any schemes to "shift" unjustified fish costs to transmission access charges or other devices designed to pre-empt competition. In conclusion, we fear there are painful consequences ahead for the Northwest economy if the ESA regulatory agencies continue to look to BPA as the endless deep pocket for fish recovery — this despite the fact that many factors have contributed to the salmon's decline. But the power marketing agency and its customers plainly should not have to offset other factors — such as overfishing, poor hatchery practices, spawning habitat destruction and uncontrollable ocean conditions — that have collec- tively depressed Northwest salmon runs even in coastal rivers where there is no Federal hydro system to blame. Senator, we appreciate the leadership you are providing and the understanding you are bringing to finding a solution to this emotional issue. We pledge our support to work with you toward a balanced and credible solution that serves both the envi- ronment and the economy. Northwest Conservation Act Coalition statement of k.c. golden, policy director Senator Hatfield. The last person on this panel is Mr. K.C. Golden, the Northwest Conservation Act Coalition. Welcome. Mr. Golden. Thank you, Mr. Chairman. My name is K.C. Gold- en. I am the policy director for the Northwest Conservation Act Co- alition. The coalition is a regional alliance of over 70 public interest groups and public utilities, including among our membership both some of BPA's customers and a broad cross-section of, to use Mr. Dyer's analogy, BPA shareholders, as it were, the public of the Northwest. We want to be clear from the outset that we testify today as be- lievers in Bonneville's mission under the regional act and in Bonne- ville's ability to accomplish that mission. I think that skeptics both within the region and here are begin- ning to question whether Bonneville's mission is still appropriate, and whether Bonneville is capable of implementing that mission. We answer both those questions with an enthusiastic yes. 162 Mr. Chairman, you began this hearing, I believe, on a very auspi- cious note, by reminding us of something that is easy to forget in these times, we in the Northwest are the beneficiaries of an ex- traordinarily bountiful and productive Columbia River system. And in the midst of allocating fish costs, I think there is a temp- tation to look at BPA as a heavily loaded financial camel, as it were, that is about to have one more straw added. We believe it is time to step back from the financial issue of the moment and look at the system in historical perspective. This sys- tem was originally designed, if you will, to produce abundant anad- romous fisheries. It is imminently well suited to that task. It was subsequently engineered by human beings to become a re- newable energy dynamo for the Northwest economy. It is immi- nently well suited to that task as well, and it can do both. It also generates revenues that support prudent investments in maximizing the economic and biological productivity of that system over time. It can do that as well. And it can also, while doing the aforementioned things, produce ample sustainable revenue that will allow BPA to fulfill its finan- cial obligations reliably. The good news here again is we do not need to pit these core Northwest values, these functions of the river system, against each other. The Columbia River system is bountiful enough to do them all. What it cannot do, what it was never designed to do, is to act as the vehicle onto which the region unloads its staggering nuclear debt, and delivers that obligation back to the Federal Treasury. This function, which BPA is, in effect, performing now, has abso- lutely nothing to do with Bonneville's mission, unlike the other functions that I mentioned, nor with the natural or human engi- neered capabilities of the river system. We raise this issue not to divert attention from fish costs, but to focus attention on how we can put the costly WPPSS chapter of our energy history behind us, so that we can move on with a more promising mission for Bonneville. We cannot put it behind us until we allocate these costs fairly. Presently, we are not doing so. We are allowing these costs to be shifted, on an ad hoc basis, from customers who have options to customers who do not, and ultimately we are exposing the Federal Treasury to those costs, because pretty soon the customers who do not have options, as they absorb larger proportions of these obliga- tions, are going to work real hard to find options, and the only backup in the end is the Federal Treasury. The consequences of this unfair allocation of these obligations are hard to overstate. I think two general forms of outcomes are pos- sible if we continue in this way. As some customers allude these financial obligations, others will follow suit, again, inevitably exposing the Federal Treasury to these costs. In the unlikely -event that we succeed in hoisting this responsibil- ity on to the taxpayers, I find it highly improbable that we will con- tinue to enjoy any legitimate claim to preferential access to the fruits of the system. We will, to put it bluntly, lose the system. 163 Alternatively, if BPA does succeed in jettisoning enough of its mission to make room to avoid everyone else's nuclear obligations, it will have eliminated most of the functions that distinguish it as a uniquely valuable public entity. I would submit that this is singularly counterproductive behavior in an era where many are beginning to question whether BPA should continue to survive as a public entity. This current ad hoc shifting of costs is not, I want to emphasize, competition. It forces BPA to operate at an unfair competitive dis- advantage against competitors who are, when you think about it, offering the illusory service of immunity from WPPSS, immunity from the consequences of financial actions. We will submit our preliminary thoughts to the committee today, and I would ask that they be entered into the record, on how to accomplish this equitable allocation Senator Hatfield. They are accepted. Mr. Golden. Along with other recommendations as to how we might relieve financial pressure on Bonneville without undermin- ing its mission. We will also submit letters from the Washington Utilities and Transportation Commission, the Washington State Energy Office, the Washington members of the Power Planning Council, Oregon members of the Power Planning Council, and a handful of utilities in the Northwest who believe that solving this stranded investment problem is the single most important thing we can do to make Bon- neville competitive for the long haul. I would like to close by describing a little bit about how I think Bonneville must approach the challenges ahead, especially the long-term challenge of demonstrating why it continues to be a uniquely valuable public entity. BPA can only rise to this challenge by more decisively fulfilling its mission. Reducing waste and bureaucracy is obviously an important first step in rising to that challenge, a step we all support, and a step that we applaud Bonneville for undertaking rather aggressively. But Bonneville cannot rise to this challenge while abandoning those parts of its mission that serve the mission best. Bonneville cannot rise to this challenge while it dismantles its only successful resource acquisition effort, an energy efficiency pro- gram that delivers saved energy to the regional grid at about one- half the long-term costs of constructing new generating resources. It cannot rise to this challenge while reducing the reliability of its world-class integrated transmission system. It cannot rise to this challenge while, in order to prop up uneconomic nuclear oper- ations, it scales back or abandons its renewable resource pilot projects, projects that are designed to help the Northwest keep the renewable edge that has made our power system the Nation's most reliable and economical one. Nor can BPA rise to the occasion if it pits its own bottomline against the bottomline of consumers of the region, as it has, by eliminating funding for efficiency programs that keep our energy dollars where they belong, in consumers' pockets. If Bonneville's survival depends on the proceeds of consumers' wasted energy dollars, then Bonneville's survival, I think, will be- come increasingly problematic. 164 And finally, it cannot rise to this challenge if it treats its statu- tory mission as a cost of doing business, or as an impediment of doing business. Bonneville's mission under the regional act is the reason for Bon- neville doing business, and the only plausible reason for Bonneville to continue to operate as a public entity. PREPARED STATEMENT It is what distinguishes Bonneville as a uniquely valuable re- gional institution that serves the Northwest with a great deal more than kilowatt hours, and we will do everything in our power to help it continue to fulfill that mission. Thank you very much. Senator Hatfield. Thank you, Mr. Golden. [The information follows:] 165 PREPARED STATEMENT OF K.C. GOLDEN, POLICY DIRECTOR, THE NORTHWEST CONSERVATION ACT COALITION April 28, 1995 ^ Senator Mark O. Hatfield, Chairman c/o Mark Walker, Staff Director Committee on Appropriations Senate Dirksen 131 United States Senate Washington D.C. 20510 Dear Senator Hatfield: NCAC is pleased to provide the following responses to your questions following the March 15 hearing of the Subcommittee on Energy and Water Development. Your continuing leadership on these issues gives us confidence that we can navigate this crossroads successfully and emerge with a healthy BPA that delivers lasting economic and environmental benefits to the people of the region. 1 . What is your view of Bonneville's competitive position? Declining costs of wholesale power and growing competition have clearly narrowed the gap between BPA's rates and the market. This narrowing has n^i been caused by increased BPA costs. Drought, aluminum markets, and fish recovery notwithstanding, BPA's rates have stayed flat in real terms since 1984. The market, however, has clearly moved quite dramatically. Nonetheless, largely because of its virtual immunity to fuel price risk, BPA is well- positioned to be the lowest cost wholesale supplier in the long-term. Current offers below BPA rates are not an indication of the price of new resources on the market, as they largely represent temporary surpluses that are newly available on the western grid. When the Northwest and Southwest systems recently formed a westwide transmission group, a substantial quantity of reserve power was freed up due to synergies between the region's opposing seasonal peaks. This power is now being offered as "system sales" at firesale prices. The price of a new, gas-fired resource, combined with the services that are presently bundled in the BPA preference rate, is still significantly higher and more volatile than BPA's rates. Attachment A, "Comparison of BPA and Independent Power Options," shows that the "equivalent delivered" cost of power from a public-utility financed combined cycle gas-fired power plant including all of the associated services that BPA provides is substantially higher than the BPA rate. Although the market price for wholesale power has dropped, BPA's competitive challenges are political, not economic. BPA's raw, unfettered revenue-producing capability, constrained only by the laws of physics and economics, vastly exceeds its revenue requirements. However, we have made choices which both constrain BPA's revenue- producing ability and obligate those revenues toward certain purposes. These choices include both public and regional preference, other project uses which limit power production, postage stamp rates, below cost power for direct service industries, virtually free power for the Bureau of Reclamation, repayment of unproductive nuclear debt, above- market operating costs at WNP-2, the costs of protecting wild salmon, investments in efficiency and renewable resources, and a variety of others. Without passing judgment upon any of these choices, we reiterate that it is these choices, not market or technological forces beyond our control, that dictate BPA's competitive position. If BPA is to remain competitive, we should re-examine these choices - not one at a lime, but systematically, so that we end up with a BPA that uses its financial wherewithal toward the combination of purposes that best serves the people of the region. As we suggested in our original testimony, we believe that BPA can fulfill its most important statutory purposes and remain the most attractive wholesale power supplier in the region. In particular, it can: produce abundant, affordable power, operate the river so as to allow for successful salmon migration; make investments that preserve the Northwest's 166 "renewable edge" by maximizing the productivity of existing supplies and introducing new renewables into our resource mix; operate the high-voltage transmission grid in ways that encourage the achievement of the Regional Act's objectives; and meet its financial obligations reliably. These, we believe, are BPA's core functions. BPA's most troubling financial problem, and the function that bears qq relationship to either BPA's mission or the capabilities of the Columbia River System, is nuclear costs. We speak to this issue extensively in our original testimony. As we indicated there, we do not believe that BPA can (or should) survive if it abandons its core functions in order to assume its customers' bad debts, debts that were incurred on their behalf and at their behest. Neither can BPA survive if it allows itself to be used as the vehicle for transferring customers' nuclear debts to federal taxpayers. We reiterate that customers' attempts to elude these financial obligations are 1121 "competition;" they are quite simply an effort to eat the meal without paying the bill. If customers wanted to exercise competitive choices to avoid nuclear costs, they should have done so before the costs were incurred. FERC's recently issued NOPR on stranded costs sets forth a national policy that supports a determined BPA effort to ensure fair allocation of these costs. BPA can and should thrive financially if it fairly allocates these obligations and uses its unique abilities to implement the mission that Congress outhned in the Regional Act. 2. What is your reaction to limiting BPA's fish and wildlife costs based on the success of BPA as a power supplier? As noted above, we do not believe that fish and wildlife costs are the most significant source of financial pressure on BPA. Furthermore, unlike nuclear debt, fish and wildlife recovery is a fundamental part of BPA's mission. So, our first reaction is that fish and wildlife costs are being given a priority beyond their significance with respect to BPA's entire financial picture. Having said that, we believe that it may be appropriate to provide some certainty with respect 10 the fish and wildlife costs that BPA bears. Limiting direct, out-of-pocket expenses on salmon recovery measures may be acceptable cuid desirable, particularly if control of the associated program measures is transferred outside of BPA. However, we would not include either power purchases or foregone revenues as direct expenses. We believe that the Columbia River System's hydro-producing capability must be defined as consistent with river operations that support successful salmon migration. When asked about the costs to the power system associated with irrigation withdrawals, BPA said, "We've grown accustomed to those withdrawals." They are part of the baseline, so that it does not occur to BPA to calculate and publicize the cost of power purchases or lost revenues attributable to irrigation. The same should be true of river operations that allow for salmon survival. Furthermore, limiting costs associated with power purchases and foregone revenues would send an inappropriate economic signal to BPA. The first priority should be to reduce these costs. Limiting these costs blunts BPA's incentive to reduce them. As NfRDC's "Changing the Currents" study indicates, the opportunities to use western power markets, maintenance scheduling, voluntary water transactions, and interruptible contracts to reduce the costs of changing river operations are enormous, and largely untapped. These initiatives, which more closely align the river's power-producing capability with western energy needs, should be at the heart of the salmon recovery strategy. BPA controls the operational decisions that make these cost-reducing initiatives possible. Only if it bears the costs of these decisions is it likely to make them in a cost-minimizing manner. A cap on fish costs would create enormous incentives for all parties to "spin" the costs to their advantage. Instead, we should be creating incentives that direct BPA's ingenuity toward minimizing the costs by using its marketing function to economically align power needs and river operations. In addition to more effective marketing, we might be able to lower these costs significantiy by relieving BPA of much of the operational responsibility for salmon recovery. We would be sympathetic to proposals in which BPA gets greater cost certainty in exchange for less control of salmon recovery efforts. Recovery measures associated with out-of-pocket expenses, such as habitat restoration and dam modification. 167 can be orchestrated more etficiently by an entity with fewer conflicting interests than BPA. However, river operations are largely in BPA's control and are likely to remain that way. Costs that caii oe mitigated through operational and marketing changes should stay with BPA as long as BPA maintains control of operations and marketing. Finally, we applaud the thinking behind the link between BPA's success and the resources available for salmon protection. We all have a stake in BPA's success, and this would give substance to that stake. However, salmon protection consistent with the Regional Act is part of BPA's core mission. We cannot accept a formulation in which BPA does its job after it "succeeds" financially. To us, BPA succeeds only by doing its job. If it can't do that and survive financially, then one has to question the rationale for its survival. Salmon protection, energy efficiency, and renewable resources are BPA's reason for doing business, not just a cost of doing business, and certainly not just a bonus when BPA does well financially. We do agree that superior financial performance ought to be reinvested in superior performance in pursuit of the Regional Act's goals. However, acceptable performance in reaching the Act's goals (including full and timely implementation of the Council's Power Plan and Fish and Wildilife program) is the standard that BPA must attain under all circumstances. 3. Is there a cost too great to save a species? Our organizatioii takes no position with respect to how economic considerations are factored into species protection. While the question is an interesting one from the perspective of the Endangered Species Act debate, it is not critical for the Columbia River salmon debate. Salmon are not snail darters. The ESA protects all species, on the grounds that biological systems are woven together in complex ways and all life forms serve purposes beyond their own survival. However, one need not subscribe to that logic in order to favor heroic effons to save salmon. Salmon are much more than an "indicator species" or a link in a biological chain. They are of intrinsic and incalculable cultural, economic, and spiritual value to the region. That is why they are covered by a variety of laws and treaties designed to ensure their protection regardless of the fate of the ESA. We should cenainly not have a "sky's, the limit" attitude to salmon protection that results in poor program design, wasted resources, and inadequate results. But neither should we balk at costs for effective programs that are well within the means a region that enjoys the nation's most affordable power system. Again, the resources devoted to "spinning" the costs and delaying the implementation of even the most basic and widely-supponed recovery measures would be much better spent devising operations and marketing plans that minimize salmon recovery costs. 4. a)Have you done an independent assessment of the market for renewable power? NCAC's Renewable Northwest Project (RNP) estimates that, in addition to the projects underway today (a total of about 145 aMW), the market would have to grow by 50 to 75 aMW per year to provide a base for a sustainable and competitive renewable energy industry in the Northwest. This would translate into a cumulative total of 450 to 600 aMW of renewables by 2001 (again, including current projects). * In its 1991 plan, the Northwest Power Planning Council did an assessment of the possible growth in the market for renewables (using stricdy economic criteria) and concluded that 646 aMW of wind and geothermal energy would be built by the year 2010. Some of this comes on line as early as 1999, but the bulk of it doesn't materialize until after 2005.^ The US DOE has predicted that wind energy will provide 1% of the nation's electrical production by 2010, up from about 0. 1% today. In the Northwest, that would translate into about 190 aMW, or roughly 580 MW of capacity. Barron's magazine wrote favorably about wind power's long-term growth potential for investors (7/15/94), and Shell Oil is finding that renewables fit very prominently in its draft planning scenarios (Scientific American, September 1994). 4. b)What is the cost of power from wind and geothermal energy? Costs depend on a variety of different factors including: project size, resource quality, location, ownership, tax status, financing (size, rate, source, length of loan), and project life. Project costs 168 cover a wide range and are very project specific. The numbers below are ranges for an initial, commercial-scale project of average resource quality and 20- year financing. A minimum commercial scale project is generally 25 MW for wind, and 30 MW for geothermal. The low range of costs for wind projects include the tax credits, while the high range value excludes the credits. Resource Costs (0/kWh) Average Lifetime First Year (real 1995$) (nominal) Wind 3.1-4.2 5.0-6.5 Geothermal 3.9 - 5.1 5.0 - 8.0 The vjcuuicniiai j.y - j.i j.v - o.u 4. c)What are the best ways to promote development of renewable energy resources? T\ following is a partial list of activities that could promote renewable energy development. 'The analysis considered demand growth based on Council's medium projections, the need for replacement power for retired plants (e.g. Trojan), and developers' assessment of what defines a piinimum critical mass for a competitive market. ^Source: 1991 Council Power Plan; Vol. II, Part 2. Chapter 10. Per a conversation wiih Jeff King, Senior Analyst at the Council, the most reprc.sentaiivc scenario for today's realities was the scenario that assumed no new coal or nuclear plants and considered medium high load growth. Referencing the medium high growth, in effect, takes into consideration the need for replacing Trojan's output. • Build regional capability by implementing current renewable energy commitments and RFPs. This would include BPA's 4 pilot projects, PGE's green FLFP, and the Columbia Hills wind project. • A NPPC established regional, and utility-specific, renewable megawatt goal or assignment in order to build a broad base of experience and make sure all share in the effort. This set aside would be based on the environmental and portfolio benefits of renewables. • Specifically account for environmental costs in the selection of resource options. Provide a required mechanism to internalize the unaccounted costs of pollution and lost habitat. • Require the use of renewable RFPs by utilities in resource selection. • Define renewables as clear and verifiable ways to obtain Clean Air Act credits. • Continue to promote effective competition at the wholesale level making sure that utilities face the same rules as independent power producers. • Continue to promote more open and fair transmission access, prioritizing access to renewables. • Continue the lOU wind production tax credit, and establish a longer-term, stable appropriation for public utilities' production credit. • Lower or eliminate the royalty tax on steam for geothermal energy. The payment is based on 10% of the value of the steam used in geothermal plants and contributes 5% in additional costs. • Ensure that deregulation of the electrical market does not mean the loss of environmental protection. FERC should allow States to include environmental and consumer protection in their regulation of retail and wholesale utilities. • Set a small ( 1 mill) wire charge for each unit (kWh) of electricity sold to establish a fund to renewable energy development. Developments would have to competitively bid for the financing to make sure that the most cost effective projects are built. This would be similar to the current British system to promote non-fossil alternatives. Have BPA do its four pilot projects as condition for corporation or debt restructuring legislation. This would retain the limited base in the Northwest and keep half of the current market alive. • Encourage State regulators to work widi utilities to overcome the local barriers to utilities. In particular, encourage the States to create clear recovery mechanisms for utilities that invest in renewables as the markets deregulate. 169 • Require all energy generators to include some percentage of renewable energy. The percentage could start low, and grow over time, and developers could by and sell credits toward the achievement of the appropriate percentage, much as pollution credits are marketed under the Clean Air Act. 5. If regional utilities leave the BPA system, can we expect to regionalize conservation and renewable resources development costs through BPA rates? This question must be answered in its financial context, which includes the following additional questions: Can we expect to finance the above-market operating costs of WNP-2 through BPA rates? Can we expect to fund uneconomic fossil fuel development through BPA rates? Can we continue to allow BPA's customers to abandon their nuclear debts with impunity by paying for those debts through BPA rates? Can we continue to immunize the Bureau of Reclamation from the cost of power by failing to charge BPA rates? These questions are not meant to be argumentative or rhetorical; our ability to pay for things through wholesale rates is indeed hmited. What are our priorities? The first purpose of the Regional Act is "to encourage, through the unique opportunity provided by the Federal Columbia River Power System: conservation and efficiency in the use of electric power, and the development of renewable resources within Pacific Northwest" (emphasis added). This remains a vitally important purpose that will be impossible to achieve without BPA's active participation and commitment. TTie "unique opportunity" presumably refers to the ability of the FCRPS to generate revenues sufficient to repay its costs and support investments that maximize its long-term productivity. The choice before BPA is whether to seize that opportunity or squander it in favor of acting as the receptacle for the region's bad nuclear debt. If it chooses the latter, it will have relinquished the primary defense against privatization. We believe that regional utilities wall leave BPA only if, in contradiction to FARC's policy on stranded costs, those utilities can leave their bad debts behind when they go. Once again, it is only the illusory and counterproductive promise of immunity from nuclear debt that makes BPA's competitors possible. Even if some of BPA's customers pursue that phantom promise, the market for the output of the FCRPS remains strong. Gaining unfettered access to that market will probably entail forfeiting any claim to retaining the benefits of the FBS in the Northwest. That appears to be a logical and perhaps fair consequence of some customers' success in eluding nuclear debt, but it does not seem to us a happy outcome for the citizens of the Northwest. We also believe that BPA can reduce its conservation costs through a variety of measures that we have proposed repeatedly in "conservation reinvention" discussions. However, we do not believe that regional conservation and renewable resources can or should be achieved as the result of the independent actions of 130 wholesale customers. Intelligent management of the FCRPS is fundamentally a regional enterprise, not the sum of what BPA's wholesale customers decide to do. We suppon the proposition that regional conservation and renewable resource development would benefit from greater buy-in and commitment on the part of BPA's customers. That is why we've been staunch supporters of the CARES project and conservation program designs such as Energy Smart design that allow BPA's customers almost unlimited fiexibility to tailor programs to meet local needs. We do not, however, believe that BPA can successfully pass the baton to customers simply by dropping its end. We are particularly disturbed by BPA's apparent intention to abandon conservation funding this October, without having implemented SDy of the reforms (such as tiered rates and contract commitments) designed to encourage greater customer responsibility. This is in flagrant violation of BPA's FY 95 appropriations language on conservation reinvention. Worse, it virtually guarantees a precipitous decline in conservation performance starting this fall. Recognizing the urgency of this imminent collapse in regional conservation potential, a number of utilities are proposing an interim, FY 96 conservation solution to BPA that would dramatically reduce BPA's costs while sustaining conservation momentum next 170 year. Although we feel that this proposal represents a dramatically-reduced and inadequate level of regional investment (given the Act and the Plan's directives to acquire all cost- effective conservation), we believe that a rapid compromise is necessary in order to avert long-lasting damage to the region's conservation infrastructure next year. Their proposal will be forwarded to the Committe within the week. The first priority must be to ensure that the region's conservation and renewable resource efforts do not fall apart in FY 96. At a bare minimum, BPA should adopt the utilities' proposal for FY 96 and follow through on its commitment to implement the four renewable resource pilot projects. In the next several years, BPA should work to implement a system for funding investments that produce important, system-wide benefits through an equitable charge on the distribution system. This would ensure that these investments, which benefit all end-users, are paid for equitably by all end- users. BPA should encourage this development not by mandating it, but by matching its customers' investment so that retail utilities can leverage regional investment through their own participation. Finally, BPA should play a very active role in funding regional programs with regional scope - so-called "market transformation" programs that are either more costly or impossible for iridividual utilities to run. We will submit more detailed recommendations on how BPA can maximize the effectiveness of its conservation and renewable resource investments in a more competitive environment within the next two months. In the mean time, it is imperative that we sustain regional momentum in FY 96. BPA can afford to do so, and the region can't afford not to. 6. Your testimony supports WPPSS costs beirg paid directly by BPA customers. In what WO)' would these costs be allocated? On the basis of the original net billing agreements? If on some other basis, please describe. To clarify, our testimony supports the proposition that BPA's customers should not be able to elude WPPSS costs by choosing an alternative power supplier, since these costs are not avoidable. BPA customers pay for WPPSS costs now, through their wholesale rate. While we are still examining the recent FERC NOPR to assess the most promising ways to continue to recover those costs, the basic principle is to make that proportion of BPA's rates that represents unproductive nuclear investments (and possibly others, if appropriate) non- bypassable. We believe that the most equitable way to determine the allocation would be, at least roughly, as we do now. That is, allocation would be based on customers' load on BPA, as of some recent historical period but no later than September 30, 1995. In principle, we believe an explicit allocation should be as close as possible to the implicit allocation that exists now, to minimize the friction associated with dramatic shifts. Using the Tier 1 allocations that were calculated for tiered rates would seem an appropriate place to start. 7. Your testimony supports the use of transmission charges to recover stranded investment from customers departing BPA. Mr. Hardy's testimony indicates that approximately half of BPA 's customers are not seized by BPA transmission. How do you propose to deal with this problem? Our testimony does not rule out the use of transmission charges to recover stranded investment, but neither does it single out transmission charges as the most appropriate vehicle. Again, we are evaluating alternative mechanisms in hght of the recent F^RC NOPR. We are inclined to think that contract charges may be the best vehicle, but they will require skillful negotiation on BPA's part, much as private utilities are negotiating to ensure recovery of their stranded costs. The unilateral waivers that BPA granted recently are a bold step in the opposite direction. With respect to transmission, few if any BPA customers "are not served by BPA transmission." Some take their deliveries through an intermediary system, but in virtually 171 all cases, the power does travel over BPA lines at some point in the transaction. Most alternative suppliers will have to wheel over BPA lines to reach BPA customers. 8. What is your reaction to placing a limit on BPA spending for fish and wildlife which is tied to BPA 's annual operating revenues? See question 2. Thank you again for the opportunity to offer these additional responses. We hope we can be of further assistance as you address these issues in the coming months. Sincerely, , (\ ^^cMdi K.C. Golden Policy Director 172 Senator Hatfield. As you have noticed, we have members who have other obhgations, who have been in and out to participate in this hearing. I want to give them each an opportunity to submit questions to you gentlemen, and we will submit our questions to you in writing, and hope that you can respond within a relatively fast period of time, a couple of weeks maybe, and to thank you for your journey here, and for your contribution. I will now then excuse this panel and ask the last panel to come to the table, Mr. Donald Sampson, chairman of the Umatilla Indian Tribe, the State of Oregon; Mr. Jim Baker, of the Sierra Club; Glenn Vanselow, Pacific Northwest Waterways Association; and DeWitt Moss, the North Side Canal Co., Jerome, ID. I understand that Mr. Baker is also in the situation of catching a plane. Mr. Baker. I have rearranged my schedule, Mr. Chairman. Senator HATFIELD. Thank you. Mr. Baker. I will go with the order that was set up in advance. Thank you. Senator HATFIELD. Let me also, if I could, explain to you all a situation that has arisen. We have the first appropriations bill on the floor, and it now finds itself in certain jeopardy, so I am going to ask to be excused, and Senator Gorton of Washington State will complete the hearing, after I hear — at least I will get in perhaps two witnesses. At this point, also, I would like to introduce into the record a let- ter from the Northwest Power Planning Council, in which the coun- cil has undertaken a review of the subject of this hearing. Mr. Angus Duncan is the chairman of this Northwest Power Planning Council. I would like to have his statement on behalf of the council entered into the record. I would like to read two sen- tences. Bonneville is an integral part of the region's power supply and a critical tool for financing regional energy conservation and fish and wildlife initiatives. It is possible for these combined obligations to cause Bonneville's power supply to be no longer economical in relation to competing supplies. If a significant number of utilities de- cide to seek other supplies of electricity, Bonneville might no longer be able to col- lect sufficient revenue to meet those obligations. I think that illustrates at least the position of our Northwest Power Planning Council. Columbia River Treaty Tribes statement of donald sampson, chairman, umatilla indlan tribe, state of oregon Senator Hatfield. Mr. Sampson, we have you listed as No. 1, Mr. Baker as No. 2. Since he has rearranged his schedule, we will let you proceed. Mr. Sampson. Thank you, Mr. Chairman. It is good to see you again. Senator Hatfield. It is nice to see you. Mr. Sampson. Members of the committee, Senator Gorton, I would like to summarize my written statement, and ask that you include the entire statement as part of the record. Senator Hatfield. It will be accepted. 173 Mr. Sampson. I come from Pendleton, OR. My Indian name is Pukt Ahowalaugh, and I come from Wallula, which is where the Columbia and Snake come together. It is an honor for me to be here to present testimony on behalf of the Umatilla, Warm Springs, Yakama, and Nez Perce Nations. In the spring of 1855, these four tribes negotiated treaties with the United States, in which each tribe reserved and the United States guaranteed the tribe's right to take salmon. I heard people say earlier that they are facing the biggest crisis of Bonneville Power in 54 years. Our tribes face the greatest chal- lenge "and crisis in the thousand upon thousand upon thousand years of our history in this country. Our leaders who signed the treaties only 140 years ago believed that they signed a sacred, solemn contract between nations. This is the first and foremost contract with America. It is the supreme law of the land. Through this contract the tribe reserved the lands and the re- sources upon which our economies were based and are based. No- body here has talked about the devastation to our economy over the past 200 years. Our ancestors believed in the United States' good faith pledge, and trusted that the terms of the treaties were secured to the In- dian people for all time. It is ironic that I am here today to testify about the uncertain financial well-being of the Bonneville Power Administration, which has generated billions of dollars of power revenues from the Colum- bia River, while the salmon runs dwindle to their lowest in history. This year, for the first time in my peoples' history, there may be no salmon for our spring salmon ceremonies. Senators, an emergency exists that penetrates to the core of trib- al culture and religion. Our salmon are headed for extinction, un- less serious measures are taken. Shortly after our treaties were signed, over 1.5 million salmon re- turned to the Snake River. Last year, 800 returned. In about 2 weeks, juvenile salmon will begin their seaward migration. Ap- proximately 7.5 million juvenile spring chinook will migrate in 1995. In 1996, it is projected only 1.5 million will migrate, and 1997 will be worse. It is paramount to the salmon survival and to the Indian people that we protect the juvenile salmon to the fullest extent possible. Senator Hatfield, because of the severity of the crisis this spring, our tribe sent a letter to President Clinton seeking a declaration of emergency. The tribes have restoration plans for the Snake River tributaries, but our efforts will be for naught if the salmon perish in the Federal hydroelectric system. Our tribal governments have heard the many messages that we cannot fix the problems and save the salmon. I disagree with these messages. Senator Hatfield, you know the track record of the Umatilla Tribe on salmon recovery. With your leadership and support, we successfully put water and salmon back into the Umatilla River. This is a river where the salmon have been gone for 70 years, where stream flows dry up for 6 months every year, and where the conflict was as contentious as any in the Northwest. 174 Today, spring chinook, fall chinook, coho, and steelhead return annually. This basin is a shining example in the Columbia that salmon and the economy can thrive side by side, and we thank you for your help. Many are concerned about the costs, but salmon costs pale in comparison to the debt that BPA is saddled with due to failed nu- clear plants, the WPPSS nuclear project. Now, BPA is burdened by a $7.1 billion debt, which is growing every day. And what did the BPA get in return, one nuclear plant that is too expensive to oper- ate and too costly to shut down. Bear in mind that the Columbia treaty tribes did not ask for WPPSS; the Northwest utilities did. BPA customers have enjoyed the cheapest power in the Nation at the expense of salmon. All of BPA's major customer classes continue to enjoy huge sub- sidies that keep BPA at the risk of failing to meet its Treasury pay- ments. The annual subsidy to the Direct Service Industries, pri- marily aluminum smelters, is estimated at $170 million, while rev- enues to aluminum companies have recently increased over 400 percent. The annual subsidy to investor-owned utilities through residen- tial exchange is estimated to be $210 million, and BPA is pre- vented from competing on the open market through restrictions in favor of the Northwest preference. BPA's lost revenues due to water withdrawals for irrigation are approximately $300 million annually. All of these economic issues should be put on the table for an independent review. Various interests have proposed auctioning BPA off to the high- est bidder to pay off the debt. These are reckless proposals. The solution is to reform BPA, not sell off BPA. And the solution must, consistent with the United States' promises to the tribes, provide fiscal resources to protect salmon. Less than 2 weeks ago. Senate bill 481 was introduced. That bill would cap the fish and wildlife costs BPA may incur in any fiscal year. The bill would also prevent BPA from recovering fish and wildlife costs through transmission charges. The bill puts BPA's WPPSS debt ahead of its fish and wildlife obligations. These priorities are not consistent with the spirit in which the tribes entered treaties, and the treaties were not made subject to WPPSS debt and wholesale power subsidies. The Columbia River treaties were optimistic in 1980, when the Congress passed the Northwest Power Act. It calls for protecting the treaty rights of the tribe, improving salmon survival at hydro- electric projects, and providing flows of sufficient quality and quan- tity between dams, and to improve salmon production, migration, and survival. Importantly, a section of the act provides that BPA shall use its funds and authority to mitigate, protect, and enhance fish and wildlife to the extent affected by the development. BPA has not asked the tribes for the interpretation of the cost allocation provisions of the Northwest Power Act. I ask that the ad- ministration and Congress seek the tribes' views on cost allocation procedures before adopting any permanent changes. 175 For 1995, however, the matter is clear, Congress and the admin- istration must do whatever is necessary to ensure the protection of this year's juvenile salmon migration. Senator Hatfield. Could you please summarize now your re- maining testimony Mr. Sampson. Yes. Senator Hatfield [continuing]. Please, Mr. Sampson. You have gone over your time. Mr. Sampson. I am sorry. The next months are critical to the salmon and my people. We must provide the water the salmon need this spring. Structural solutions like drawdowns and new sur- face bypass systems will not be available in 1995. Regardless of which set of structural measures is chosen, all four tribes are deeply committed to the restoration of harvestable salm- on runs to all of the tribes usual and accustomed fishing places. In conclusion, I would like to again underscore the commitments of the United States in the 1855 treaties. As has often been essen- tial in the past, the tribes will resort to litigation, if necessary, to defend our treaty fisheries. Numerous decisions of the Federal courts have confirmed our rights to take salmon and to have salm- on to take. These rights have existed since time immemorial, but they are now threatened, because there are so very few salmon. Please en- sure that salmon are restored. PREPARED STATEMENT I thank you for the opportunity to present our tribe's views. Senator Hatfield. Thank you, Mr. Sampson. [The statement follows:] Prepared Statement of the Columbia River Treaty Tribes It is an honor for me to be here today to present testimony on behalf of the Con- federated Tribes of the Umatilla Indian Reservation, the Confederated Tribes of the Warm Springs Reservation of Oregon, the Confederated Tribes and Bands of the Yakama Indian Nation, and the Nez Perce Tribe. In the spring of 1855, these four tribes negotiated treaties with the United States, in which each tribe reserved, and the United States guaranteed, the tribes' rights to take salmon. As a representative of the Indian people of the Columbia River, who since time immemorial have drawn their sustenance from the River and its salmon, I must im- press upon you the importance of our treaties. Our leaders who signed the treaties only 140 years ago believed that they signed a sacred, solemn contract between na- tions. Through this contract, the tribes reserved the lands and resources upon which our economies were and are based. The treaties also preserved our sovereignty over these lands and resources. Our ancestors believed in the United States' good faith pledge and trusted that the terms of the treaties were secured to the Indian people for all time. It is ironic that I am here today to testify about the uncertain financial well-being of the Bonneville Power Administration, which has generated billions of dollars of power revenues from the Columbia River, while the salmon runs dwindled to their lowest in history. This year for the first time in my peoples' history, there may be no salmon for our spring salmon ceremonies and root feasts. The treaties promised more to my people. Senators, an emergency exists that penetrates to the core of tribal culture and re- ligion. Our salmon are headed for extinction, unless serious measures are taken. Shortly after our treaties were signed, over 1.5 million salmon returned to the Snake River. Last year, less than 2,000 spring chinook salmon returned to the en- tire Snake River Basin. Worse still, the 1995 spring chinook run is expected to be 40 percent less than last year. The year that Bonneville Dam was completed, 72,000 176 fall Chinook returned to the Snake River. Last year, 800 fall chinook returned to the Snake River. In about two weeks, juvenile salmon will begin their seaward migration. From the Snake River, our scientists estimate that approximately 7.5 million juvenile spring chinook salmon will migrate downstream in 1995. These are the juvenile salmon produced from 1993's adult returns. Because the adult returns were so poor last year, the numbers of juvenile spring chinook salmon that will migrate downstream in 1996 is expected to be only 1.5 million. In 1997, the juvenile numbers are likely to be worse. It is paramount to the salmon's survival and to the Indian people that we protect the juvenile salmon to the fullest extent possible on their way to the ocean this year. The tribes have restoration plans for the Snake River tributaries, but our efforts will be for naught if the salmon perish in the federal hydroelectric system. Our trib- al governments have heard the many messages that we cannot fix the problems and save the salmon. I disagree with these messages. Senator Hatfield, you know the track record of the Umatilla tribe on salmon re- covery. With your leadership and support, we successfully put water and salmon back in the Umatilla River. This is a river where the salmon had been gone for 70 years, where streamflows dried up for six months every year, and where the conflict was as contentious as any in the Northwest. The federal investment in Umatilla salmon restoration is paying dividends to both Indian and non-Indian people. Spring chinook, fall chinook, coho, and steelhead now return annually. Unfortunately, the measures necessary to protect the salmon are jeopardized by the mistakes oi the past. The Columbia River hydropower system was not designed and built with juvenile salmon migrations in mind. Thus, remedial measures are costly and these costs are only beginning to be fully appreciated. Yet, these salmon costs pale in comparison to the debt that BPA is saddled with due to failed nuclear Elants. By the time Congress enacted the Northwest Power Act in 1980, the region ad already embarked on the disastrously expensive WPPSS nuclear projects. Now BPA is burdened by a $7.1 billion dollar WPPSS debt, which is growing every day. And what did BPA get in return, one nuclear plant that is too expensive to operate (37 mils) and too costly to shut down (14 mils). When considering BPA's financial condition and its ability to pay for salmon miti- gation, please bear in mind that the Columbia River treaty tribes did not ask for WPPSS; the Northwest utilities asked for WPPSS and were the intended bene- ficiaries of WPPSS. For decades, BPA's customers have enjoyed the cheapest power in the nation at the expense of the salmon. "Too cheap to meter" was the rallying cry for the WPPSS boosters. BPA's customers now want to abandon BPA, the WPPSS debt BPA incurred on their behalf, and the financial obligations to restore the Columbia River salmon. At the same time, all of BPA's major customer classes continue to enjoy huge subsidies that keep BPA at risk of failing to meet its treas- ury payments. The annual subsidy to the Direct Service Industries, primarily alu- minum selters, is estimated at $170 million. Since the administration interceded and Russia decreased aluminum production, revenues to aluminum companies have recently increased 400 percent. The annual subsidy to the Investor Owned Utilities through residential exchange is estimated to be $210 million and BPA is prevented from competing on the open market through restrictions in favor of Northwest pref- erence. BPA's lost revenues due to water withdrawals for irrigation are approxi- mately $300 million annually. All of these economic issues should be put on the table for an independent review. Recently, various interests have proposed auctioning BPA's assets to the highest bidder to pay off BPA's existing debt. "These are reckless proposals that do not take into account the federal government's obligations to restore salmon to the Indian people of the Columbia River. The tribes often disagree with BPA's management, particularly on fish and wildlife issues. But the solution is to reform BPA, not sell off BPA. And, the solution must, consistent with the United States' solemn promises to the tribes, provide sufficient fiscal resources to fully protect and restore the salm- on. Less than two weeks ago, S. 481 was introduced. That bill would cap the fish and wildlife costs BPA may incur during any fiscal year to not more than 20 percent of the gross annual power revenues, exclusive of residential exchange revenues. The bill would also prevent BPA from recovering fish and wildlife costs through trans- mission charges. In effect, the bill puts BPA's WPPSS debt ahead of its fish and wildlife obligations. These priorities are not consistent with the spirit in which the tribes entered their treaties with the federal government. The treaties were not made subject to WPPSS debts and wholesale power subsidies. The Columbia River treaty tribes were optimistic in 1980, when Congress passed the Northwest Power Act, that a means for restoring Columbia River salmon was 177 at hand. The Act contains sound provisions. It calls for protecting the treaty rights of the tribes, 4(h)(6)(C), improving salmon survival at hydroelectric projects 4(H)(6)(E)(i), and providing flows of sufficient quality and quantity between aams to improve salmon production, migration, and survival 4(h)(6)(E)(ii). The Act speaks directly to the issue of allocating costs. Consumers of electric power are intended to bear the costs of measures designed to deal with the adverse impacts caused by development and operation of electric power facilities, 4(H)(8)(B), monetary costs and power losses shall be allocated by the Administrator consistent with individual project impacts, 4(H)(8)(D), and amounts shall be allocated to project purposes in accordance with existing accounting procedures for the FCRPS, 4(h)(10)(C). Impor- tantly, 4(h)(10)(A) provides that BPA shall use its fund and authorities to protect, mitigate and enhance fish and wildlife to the extent affected by the development and operation of any hydroelectric project of the basin. BPA has not asked the tribes for their interpretation of the cost allocation provi- sions of the Northwest Power Act. Yet, a debate is ongoing within the administra- tion on cost allocations and the outcome of this debate will significantly affect the salmon, the Indian people, and tribal salmon restoration programs undertaken pur- suant to the Northwest Power Act. I ask that the administration and Congress seek the tribes' views on cost allocation procedures before adopting any permanent changes. For 1995, however, the matter is clear. Congress and the administration must do whatever is necessary to ensure the protection of this year's juvenile salm- on migration. While protecting the juvenile migration is vital, it is not the only salmon measure that must be taken in 1995. For years, the tribes have had salmon restoration projects ready for implementation throughout the watersheds of the Columbia River Basin above Bonneville Dam. Had these measures been implemented in a timely fashion, the consequences of the measures now needed to protect the salmon would not be so severe. The tribes have long advocated habitat protection, restoration, and the careful use of artificial propagation to restore salmon to our watersheds and usual and accustomed fishing places. As you know, we were successful in the Umatilla Basin, but much work remains to be done. In this regard, we were pleased with the addition of $5 million to the administration's budget in fiscal year 1995 that is allowing Snake River fall chinook supplementation to move forward. Timely completion of this measure will benefit interests from Alaska to Idaho. Yet, tribal projects in the Grande Ronde, Clearwater, Yakama, Hood River, and Klickitat, to mention a few, are languishing for lack of federal support. Unfortunately, BPA management of fish and wildlife expenditures has hindered effective implementation of the many measures in the Council's program. For in- stance, the Nez Perce and Yakama tribal hatcheries are still on BPA's drawing boards. These measures were adopted in the Council's 1982 fish program. More money has been spent on planning these facilities than it would have cost to build them. As a result, BPA is pushing a "bow wave" of unfunded fish and wildlife meas- ures that is roughly equal (approximately $80 million in fiscal year 1996) to its cur- rent fish and wildlife funding commitments (approximately $83 million in fiscal year 1996). The tribes and the region must have accountability for the investment of taxpayer and ratepayer funds. The best accountability measures are completed projects and increased salmon runs. BPA's processes for moving the money "to the ground" must be simplified to reduce costly delays. For instance, we have learned that it takes significantly longer and costs nearly twice as much to use BPA administered funds to screen an irrigation diversion compared to using Mitchell Act funds to screen a similar diversion. Although Congress did not intend to make BPA a super fish and wildlife agency, BPA has acquired one of the largest staffs of fishery laiologists in the Columbia Basin. In contrast, the success of the Dingle/Johnson, PittmanvTlobert- son programs administered by the U.S. Fish and Wildlife Service demonstrates effi- cient procedures are available for administering major funding programs. For sev- eral years we have questioned whether another federal agency, under the Economy in Government Act, might more efficiently administer BPA's fish and wildlife fund- ing responsibilities consistent with the Northwest Power Act. We urge your support in this regard. The next months are critical to the salmon and my people. Utmost care must be taken to protect the 1995 migration of juvenile salmon. This means the region and the nation cannot afford to quibble over costs of providing flows and spills in 1995. We must provide the water the salmon need this spring and summer. Structural solutions, like drawdown and new surface bypass systems will not be available in 1995. Regardless of which set of structural measures is chosen, all four tribes are deeply committed to the restoration of harvestable salmon runs to all of the tribes' usual and accustomed fishing places. The tribes' salmon restoration measures, in- 178 eluding supplementation and habitat actions in each of the tribes' ceded areas, can move lorward immediately. In conclusion, I would like to again underscore the commitments of the United States in the 1855 treaties of the four tribes. During the treaty negotiations, the tribes were told that the treaties secured our fish and asked to rely on the promises of the United States' treaty negotiators. As has often been essential in the past, the tribes will resort to litigation if necessary to defend their treaty fishing rights. Nu- merous decisions of the federal courts have confirmed our rights to take salmon and to have salmon to take. These rights have existed since time immemorial, but they are now threatened because there are so few salmon remaining. Please ensure that the salmon are restored. Thank you for the opportunity to present the tribes' views. Sierra Club statement of jim baker, northwest salmon campaign coor- DINATOR Senator Gorton [presiding]. Mr. Baker. Mr. Baker. Thank you, Mr. Chairman and Senator Kempthorne. For the official record, my name is Jim Baker, and I serve as Northwest salmon campaign coordinator for the Sierra Club, staff- ing our Columbia basin field office in Pullman, WA. As you know, Mr. Chairman, I was a CETA participant in the regional salmon summit that Senator Hatfield organized in the winter of 1990 and 1991. I have previously testified before you. So it is my personal pleasure to appear today. The Sierra Club is deeply grateful for the opportunity to testify before the Senate today. You have my fairly substantial written statement, which I would ask to Senator GORTON. It will be included in the record. Mr. Baker [continuing]. Be included in the record, and I will try to summarize it very briefly, indeed. More than ever, the Sierra Club remains confident that the Co- lumbia and Snake Rivers can produce both fish and power, can sustain both a strong salmon recovery, and a viable competitive Bonneville Power Administration. Our confidence is based upon four main reasons. Reason No. 1, at $121 million annually to implement the strat- egy for salmon adopted by the Northwest Power Planning Council, the cost of salmon recovery, even if borne entirely by BPA, is work- able and affordable. Saving the salmon would result in an increase of just $2 per month for the average residential electricity consumer in the Northwest, hardly a bankbreaker. BPA need only apply its business acumen and creativity to make salmon recovery so workable and affordable. In this regard, I want to praise Bonneville for seeking and signing seasonal energy ex- change contracts with California and the Southwest. Conservationists also welcome Administrator Hardy's announce- ment at a recent meeting that the EPA is actively considering diur- nal and seasonal, in other words, flow-based pricing, which would be good both for the salmon and for Bonneville's business. Reason No. 2, other costs, especially the WPPSS dead load are driving BPA's competitive prices, but Bonneville can ease its finan- cial squeeze by holding its customers to their power sales contracts with the agency, charging an exit fee to cover the fair share of WPPSS debt from those who leave BPA service anyway, and/or in- 179 corporating WPPSS debt and other costs into BPA transmission rates. Reason No. 3, there are other lost revenues to BPA over and above fish flows, such as irrigation withdrawals and navigation lockages, which, in fairness, and for BPA's competitiveness, need to be recovered or addressed. Exercise of Section 4(h)(10)(c) of the Northwest Power Planning Act, as in the administration's proposal today, is a good start. Reason No. 4, the cost of salmon extinctions would run much, much higher. While I would like to talk at some length about all four points, I will devote the balance of my testimony this evening to this last one. The debate in this hearing and in the public, generally, has con- centrated on the cost of salmon recovery under the Endangered Species Act and the Northwest Power Planning Act. The Northwest conducts such a narrow debate at great peril, be- cause the stakes are much higher. Already, salmon declines have shut down harvest of chinook and coho off of Washington and northern Oregon, crippling the salmon fishing industry, sport, com- mercial, and tribal, that used to generate $1 billion annually, and used to maintain 60,000 jobs directly in the Northwest economy. Commercial boats and sport anglers have headed north, either exporting income to Canada, or competing with Alaskan operators, and in any case, putting greater and greater pressure on North Pa- cific fisheries, due to the collapse of Northwest salmon runs, par- ticularly in the critical Columbia/Snake watershed. The Pacific Salmon Treaty with Canada has also collapsed, set- ting of an international fishing war with no end in sight. Last year, Canada charged those Northwest fishing boats bound for Alaska $2,000 per round trip through British Columbia waters. This year the fee will probably go up to $10,000. Finally, salmon extinctions would cause the United States to ab- rogate its treaty signed in 1855 with the sovereign American In- dian tribes. In the still pending United States v. Oregon case, three consecu- tive judges. Bolt, Bellini, and Marsh, in three consecutive decades, have now ruled that by guaranteeing salmon fishing to the tribes in perpetuity, the 1855 treaties place an affirmative obligation on the United States to put actual fish in the river for the tribes to catch. Now, Mr. Chairman, I cannot and I do not speak for the tribes; however, given the consistency of these rulings, it seems a fair and reasonable conclusion that following salmon extinctions, the courts would order reparations paid to the tribes in amounts that would be substantial, annual, and forever, because extinctions are forever. How substantial? In a settlement last year with the BPA over hydropower rights, the Paulville tribe, in Washington State, re- ceived $50 million, lump sum, plus $15 million annually, indexed to BPA power rates, in perpetuity. If that is the price for an out-of-court settlement over hydropower rights, then salmon extinctions and reparations for breaking the 1855 treaties would surely pull down a far heavier chunk of change. 180 Those who think that salmon recovery sounds too expensive should ponder the much higher cost of salmon extinction. Fortu- nately, Mr. Chairman, our region need not take the expensive path to salmon extinctions. PREPARED STATEMENT The Columbia can work for fish and power, applying its consider- able creative challenge and business acumen, BPA can build an af- fordable road leading to salmon recovery for the Northwest, and a viable competitive future for itself. Thank you for the opportunity to testify before the committee today, and I welcome your questions in written or in verbal form. Senator Gorton. Thank you, Mr. Baker. [The statement follows:] 181 PREPARED STATEMENT OF JAMES M. BAKER Good afternoon, Mr. Chairman and Senators. For the record, my name is Jim Baker, and. I serve as Northwest Salmon Campxaign Coordinator for the Sierra Club, staffing our Columbia Basin Field Office in Pullman. Washington. Over the past seven years, 1 have held similar positions with two other organizations, Friends of the Earth and Northwest Conservation Act Coalition, thereby receiving the opportunity to serve as a seated participant in the regional Salmon Summit which you organized, Mr. Chairman, in the winter of 1990-91. Then and now I have remained confident that the Columbia River can produce both abundant salmon and low-cost electricity, sustain both the fishing and the hydropower industries of our region, meet our legal requirements to save salmon runs while keeping the Bonneville Power Administration viable and competitive, maintain a high standard of living and the high quality of life that salmon not only symbolize, but actually embody, in the Pacific Northwest. I remain confident that our region can enjoy both fish and power for four reasons. 1 .) Salmon recovery costs are actually workable and affordable. If BPA applies some creativity and business acumen, the agency's costs for salmon recovery will not become a fatal burden. As this committee has heard again today, the majority of Bonneville's salmon costs are lost revenues due to shifting hydroelectric generation from the winter to the spring in order to provide fish flows. Every competent economist and realtor will tell you that the value of anything, whether a home or a kilowatt-hour, is what a willing buyer will pay for it. By definition, BPA's lost revenues for fish flows have not undergone this simple test of the marketplace. So any dollar value attributed to fish flows is guesswork, which depends entirely on the assumptions going into the estimate. Last year the Sierra Club, Natural Resources Defense Council, and American Rivers published Changing the Current in which, among other topics, we reviewed Bonneville's estimates of its costs to meet power demands while implementing a salmon recovery similar to that adopted by the Northwest Power Planning Council. Attached to my testimony please find a copy of the executive summary of Changing the Current. In our report, we specifically looked at three different estimates for power costs provided by BPA itsell" in the Co!umbia JRiuer System Operation Review (SOR). These three different methods are: the CT Replacement in which Bonneville builds and maintains combustion turbines (CTs) to fill any energy deficits, the Power Purchase in which the agency buys replacement power on the open market, and the Power Market Decision Analysis Model (PMDAM) in which BPA purposefully works with British Columbia and the U.S. Southwest to supply all power requirements with the lowest possible costs. In the SOR, BPA gave the following estimates of power system costs in order to implement salmon recovery: Estimate Method Total BPA Cost (1993 $ million per year) CT Replacement 160 Power Purchase 66-88 PMDAM 21 182 Mr. Chairman, this extremely wide range of cost estimates illustrates how easily BPA and the Northwest can view salmon recovery as a competitive disadvantage or a business opportunity. In this regard, it is important to note that the PMDAM computer projection showed a net benefit of some $50 million annually across the entire West Coast grid. It is also important to note that, if BPA followed the CT Replacement method in the real world, the agency would pursue the ludicrous business strategy of constructing combustion turbines which would operate just 2.5 months during the next 50 years -- an average of 1.5 days in each year! Nonetheless, in the draft SOR. Bonneville uses cost estimates from the CT Replacement method. Clearly by Bonneville's own reckoning, the agency can -- with some creative cuid astute business strategies such as those identified in the PMDAM -- make salmon recovery workable and affordable for the Pacific Northwest. In this regard. I would praise BPA for seeking and signing seasonal exchange contracts with California utilities over the past four years. And conservationists welcome announcements during recent meetings with BPA Administrator Hardy that the agency is actively considering diurnal and seasonal pricing for electricity. Such llow-based prices just make good business sense for Bonneville and for salmon recovery. Turning to overall costs, our Changing the Current report concludes that implementation of a salmon recovery plan similar to the "Strategy for Salmon" adopted by the Northwest Power Planning Council would cost BPA less than $120 million annually, and the average residential consumer of Bonneville electricity less than $2 per month -- hardly the bank-breaking doomsday expense as claimed again in some testimony before this committee today. 1 must emphasize that we did not create the numbers in our report: they come from the multi-agency Columbia River System Operation Review, the System Configuration Study by the US. Army Corps of Engineers, and related agency documents. So the Congress should maintain some healthy skepticism and request an explicit statement of the assumptions and justifications going into any and every estimate of salmon recovery costs. In point of fact, BPA by its own ledgers is actually writing checks for fish and wildlife expenses which total less than $100 million annually. 2.) Other costs are diriving BPA's financial crisis. Meanwhile, BPA each and every year is writing several fold larger checks to pay off its debt on WPPSS nuclear power plants that have never generated and will never generate one kilowatt-hour. Fish and wildlife costs compare very favorably indeed to this crushing debt load of $8 billion from WPPSS and other sources. WPPSS debt has now become a financial crisis as customers threaten to leave BPA and shirk their repayment responsibilities onto the agency's remaining customers. BPA should close the exit door, or at least charge a fee to cover their fair share of WPPSS debt if and when customers decide to depart from Bonneville service. In addition, BPA should incorporate all its costs, especially debt repayment as well as fish and wildlife, into its transmission rates: wire charges create an insurmountable barrier to abandoning WPPSS debt. In a similar vein, some BPA consumers, particularly the Direct Service Industries (DSIs), receive below-cost rates - an expense borne by other customers at great competitive disadvantage to Bonneville. The DSI subsidy runs to $180 million annually. Either the DSIs should pay their fair share in 183 power rates, or BPA should charge an exit fee if and when the companies close their World War II era plants and thereby fail to provide the jobs and incomes for which the Northwest has paid this considerable subsidy. In its BPA at a Crossroads report last year, the BPA Task Force of the House Natural Resources Committee identified $150 million in annual savings for the agency. I would respectfully refer this committee to the BPA Task Force report, and to the testimony of my colleagues, K. C. Golden of the Northwest Conservation Act Coalition and RaJph Cavanagh of the Natural Resources Defense Council, for detail on what really drives the current BPA financial crisis and how to turn the agency's fortunes around. 3.) There are other lost revenues to BPA. For full fairness, those who would criticize the cost of fish flows must also acknowledge other lost revenues to BPA. According to one estimate, each acre-foot of water withdrawn in southern Idaho for irrigation deprives Bonneville of some 2000 kilowatt-hours of hydroelectric generation at a lost revenue in excess of $50. Running water through the navigation locks instead of the turbines at the four federal dams on the Lower Snake River waterway alone costs Bonneville some $25 million annually. I am not suggesting that BPA or the Congress shut down southern Idaho irrigation or the Columbia-Snake federal waterway -- or fish flows! -- in order to maximize hydroelectric production. Quite the opposite, I conclude that it is unfair and unproductive to fixate exclusively on lost revenues for BPA to provide fish flows. Several Northwest industries -- not just fishing -- cause Bonneville to lose hydropower generation and revenues. At the minimum, those who live in glass houses should pay their fair freight before casting stones. A new allocation under section 4.(h)(10)(C) of the Northwest Power Planning Act would only go part way in charging that fair freight. 4.) The cost of sahnon extinctions would run much, much higher. Mr. Chairman, whatever the expense of salmon recovery, it pales in comparison to the staggering cost that the Pacific Northwest faces in the extinctions of wild salmon stocks. The debate in this hearing and before the public generally has focused on the costs of sabnon recover\' plans under the Endangered Species Act and the Northwest Power Planning Act. Our region conducts such a narrow debate at great peril; the stakes are much higher. • Losses in the Northwest and Alaska fishing industry. First of all, artificial production in hatcheries can not and will not maintain our Northwest legacy of salmon for future generations. Unless hatchery operators infuse wild genes into each brood cycle (at a minimum rate of 2-3 percent), artificial production of salmon quickly collapses due to in-breeding and other ills. So no wild salmon, no hatchery salmon, no salmon at all. That means inevitably the loss of a Northwest-based fishing industry, historically one of the pillars of our regional economy. According to one study, salmon fishing -- sport, commercial, and Tribal -- generated $1 billion annually and maintained 60.000 jobs directly in the Northwest economy. The fishing industry pumped these dollars-and-cents benefits into coastal communities and the tniire region until regulators last year shut down Chinook and coho harvest oM ihe Washington and northern Oregon coasts. As salmon disappear in Oregon, Idaho, and Washington, Northwest boats and sport anglers have reluctantly journeyed north to Alaska for opportunities to harvest and stay in business. The Magnuson Act keeps the oceans off of US. 184 shores open to all American fishing boats. So the number of, and the competition among, harvesters in Alaskan waters will only increase -- to the detriment of both the resource and the industry -- if Northwest salmon continue to decline. • Fishing war with Canada. In 1985. the United States and Canada signed the Pacific Salmon Treaty for the good of both the fish and fishing in both nations. The treaty's premise is simple, fair, and effective: everytime a US. fishennan catches a Canadian salmon, a Canadian fisherman will catch a US. salmon, and vice versa. Consequently the treaty works if and only if both nations produce enough salmon. As a result. Canada and the US. put mutual commitments into the Pacific Salmon Treaty to build up fish production. British Columbia, particularly on the Fraser River, has done so. But after signing and ratifying the treaty, the U.S. has allowed salmon numbers in Northwest watersheds, particularly in the critical Columbia /Snake Basin, to slide even further downward. The Canadians routinely point out that, while they left the Fraser River free-flowing for fish, the Americans had built 13 hydroelectric dams on the mainstems of the Columbia and Snake Rivers -- dams which are grinding salmon runs inevitably into extinction. As a direct result, bilateral talks to re-negotiate the Pacific Salmon Treaty broke down in 1994. Last summer Canada charged a $2000 fee on US. fishing boats for round-trip passage passed through British Columbia waters bound for Alaska. The Canadians have threatened to raise the fee to $10,000 in 1995. No end to this international salmon fishing war is in sight. To reach a new Pacific Salmon Treaty with Canada, the US. must offer either substantial cash compensation, or a credible plan to restore salmon runs in the Northwest. The latter would benefit both nations. • Abrogation of 1855 Treaties. Finally, in 1855, the wars with the sovereign American Indian Tribes ended in the Pacific Northwest with the signing of several treaties. So central were salmon in the Tribes" culture, religion, and way of life that the 1855 Treaties guaranteed to the Native Americans the right to salmon fishing at "accustomed sites" in perpetuity. With salmon numbers already slipping in the 1960s, Tribes began testing their 1855 Treaty rights with lawsuits which were consolidated in the federal courts as U.S. v. Oregon -- still pending to this day. In each of the next three decades (1974. 1985, and 1994), three different US. District Judges (Boldt, Belloni, and Marsh) who successively held jurisdiction over the case ruled that the 1855 Treaties legally obligate the United States to put actual salmon in the rivers for the Tribes to catch. In other words, salmon extinctions would abrogate the 1855 Treaties. Given three consecutive rulings in three consecutive decades, the court would order reparations paid to the Tribes. These costs of salmon extinctions would be substantial, annual, and forever -- because extinctions are forever. How substantial? Mr. Chairmcm, 1 can not and do not speak for the Tribes. But in a 1994 out-of-court settlement of hydropower rights associated with Grand Coulee Dam, the Colville Tribe of north central Washington State received a lump sum of $50 miUion -- plus $15 million annually from BPA indexed upward with the price of electricity in perpetuity. It seems a fair and safe conclusions that for all the Tribes, salmon are far more sacred than hydropower rights. 185 Conclusion So those who think salmon recovery is too expensive should ponder the much higher cost of extinctions. The decline of scilmon in the Pacific Northwest means doUar-and-cents losses in our commercial and sport fishing industry, environmental degradation, bad faith in our treaty obligations to Canada and to the region's sovereign Tribes -- possibly leading to staggering reparations. The stakes around salmon extinction are very high indeed. From this perspective, the greater danger to Bonneville's competitiveness as a viable business enterprise comes from looming extinctions - not from salmon recovery costs. The top priority for BPA should become saving the Columbia /Snake salmon runs. The worst uncertainty for the agency and its customers tlows from a Biological Opinion for federal hydropovver operations recently released by the National Marine Fisheries Service -- computer modeling of which shows a continued decline of the endangered salmon. The best hope for BPA and the Northwest lies with fulfilling at long last the promise of a Columbia hydroelectric system re-built to work for both power and salmon. Thank you very much, Mr. Chairman, for the opportunity to testify before the committee today. And I welcome your and your colleagues' questions. CHANGING THE CURRENT REPORT Good news for wild salmon and Northwest ratepayers Energ)' aiid construction costs to modify hydropower dams — aiid give wild salmon a fighting chance to survive natttrally in the Colimibia and Snake Rivers — are far lower than originally thought. E ver since Snake River sockeye and chinook were listed under the Endangered Species Act in 1991, the debate over what actions to take to lessen the huge toll taken on these runs by the hydropovver system has hinged largely on the issue of cost. For regional decision-makers this issue is a significant one. They must weigh the political liability of higher utility rates to cover the costs of change in the hydrosystem versus the legal and political liability of additional wild salmon extinctions, "on our watch." Although ratepayers and regional decision-makers have a legitimate concern that a restoration program be affordable, we must be able to fairly evaluate what the costs of salmon recovery mea- sures are likely to be. Thus far, the agencies operating the dams have estimated how much salmon measures would cost the region if imposed on an otherwise unchanged energy and water system. The federal hydropower agencies have ignored the great inefficiencies in the current system. They have not sought to identify ways that current electricity marketing and water management could, and would, be modified to create the most cost-effective match between the needs of migrating salmon and other uses of the river. As a result, they have greatly over-estimated the costs of modify- ing Columbia and Snake River hydrosystem operations. They have presented decision-makers with flawed informa- tion that could rob this region of cost-effective solutions to a higltly-charged public policy issue. The fact is that human use of water and energy in the Columbia River system can be shaped to better match the spring and summer flows that wild salmon need. This report identifies affordable strategies for accomplishing this. Key Findings ol Report ■ Cost increases tor average Northwest ratepayers would be about $1 20 lo $2 a month— far lower than initial estimates, and in line with what ratepayers have said they would be wilitng to pay to save endangered salmon runs from extinction. Shitting BPA hydrogeneraHon away trom winter months into spring and summer lor the sake ol water tlows tor salmon is an aftordable energy strategy— one that matches the water needs ot migrating tish with opportunities tor BPA lo market excess summer capacity when power demand is highest throughout the western power grid Scope of Rrport This report looks at real-world strategies for modifying electricity marketing, water management, and construction 186 Reducing hydropower subsidies for special inlefests such as aluminum manufacturers ($179 million), and power subsidies to pump water tor irrigated agriculture ($50 million), could help pay (or salmon restoration measures— and reduce wasteful water and energy use that the subsidies promote The region can afford to rebuild Columbia Basin salmon runs' costs to lessen the cost of measures to improve wild salmon survival. The report looks specifically at ways the federal hydropower agencies can accommodate a combination of reser\'oir drawdowns, increased river flows, and adequate water to safely pass juvenile migrants over dams' spillways. These are the measures that state and tribal fisheries profes- sionals believe will provide the greatest improvement in survival for salmon. They are also the measures that some utilities and commercial river users have sought to portray as "too expensive" to Northwest ratepayers. This report is not an attempt to quantify all costs associ- ated with salmon recovery, nor to imply that the specific regime of drawdowns, flow, and spill analyzed here is the exact right combination of these elements, or that alone these measures will solve the impending crisis for Northwest salmon But the report rs intended to illustrate an impor- tant point often missing in the debate over salmon recovery, that there are affordable strategies for minimizing the costs of these key measures. Specific salmon recovery measures examined in this report (see below for details) is the "spill- way-crest drawdown" option analyzed by BPA in its 199-1 System Operation Review, with added cost analysis for increased levels of "spill" recommended by fisheries agencies The choice of thiis scenario was based primarily on the availability of data, and because it gener- ally reflects actions recommended by state and tribal fish agencies. This report analyzes the following salmon measures. Annual drawdown of the lour lower SnaKe reservoirs to "spillway crest," approximately 30 feet lower than current water levels, or roughly one-third of the way down the dam. from April 16 through June 1 5 each year. Operabon of the John Day reservoir m the Columbia River at minimum operating pool, the lowest level that all functions of the dam (including navigation and power producton) are designed to be fully operational, or about S-8 feet below current levels, during spring and summer each year, I Snake River "flow augmentation' of one million acre feet per year I In addition, thii report considers me costs of sufficient "spill" at the Snake River dams to move at least 80 percent of migraong smolts safely over tfie spillway, around the turbines for a period of lour montfis each year, and sufficient "spill" at the Columbia River dams to send the highest percentage possible of migrating smolts safely over the spillway without exposing fish to unaaeptably high nsk of nitrogen gas bubble disease," also lor four months out of the year Real-World Scenarios to Mmimtze Electricity Costs Implementing the spillway-crest drawdown scenario would shift hydropower generation from the winter, when it is most valuable in the Northwest to the spring and summer, when it is less so. The cost of replacing this lost winter hydropower generation must therefore be considered part of the cost to the region of implementing salmon recovery measures. In the System Operation Review, BPA unrealistically overestimates this cost. BPA's estimate of aruiual electrical system costs of $160 million presumes that all lost hydro- power capacity is replaced by building new natural gas- fired turbines, even though this results in building enbre power plants that would be needed or\ly two and a half monthsf!) out of every 50 years. This is obviously not a realistic assumption. Taking Full Advantage of the Western Power Cnd BPA also analyzes a more realistic scenario which assumes that lost hydropower will be replaced by purchasing excess power from other generating sources as needed, which is in fact an established practice and one that a costwer Columbia can reliably meet the travel time objective set by the region's biologists — and we can end the failed practice of loading small salmon into barges. Unless and until we give young migrat- ing fish a safe, in-the-river pas- sage to the sea, other eflbrts such as improvements in fish habitat, will not be effective and will not recover these endangered and de- clining wild fish runs. Fishing plays a role, but not the key role in salmon decline WITHOUT QUESTION, over-fish- ing took place in the past. Today, 213 however, there is efTectively no lega] in-river catch on three of the four Snake River saJmon species now listed under the Endangered Species Act. And over this cen- tury, there has been significant, and steadily increased, regulation of commercial fishing in the Co- lumbia and Snake Rivers. For mixed-stock runs, where wild and hatchery fish swim up- stream together, harvest prac- tices must change so that hatch- ery-bred fish are caught and wild salmon continue safely to their spawning grounds. There are ways to reach this goal including marking all hatchery fish, re-allo- cating harvests under the U.S7 Canada fisheries treaty, and con- verting to new harvest methods. Instead, the utility industry has argued vehemently for a steep reduction, or even morato- rium, on commercial fishing, di- verting attention from the role that hydropower dams have played in wiping out salmon. Hatcheries create more problems than they solve SINCE WORLD WAR II as the dams have taken a greater and greater toll on salmon runs, hatcheries were built to supply fish for harvest. However, hatch- eries too often produce weak, dis- eased fish which are genetically inferior to their wild ancestors. Hatchery production narrows ge- netic diversity, which greatly im- pairs the ability of a species to survive over time. Inter-breeding of native and hatchery salmon de- grades the wild runs. While hatcheries can play a role in producing fish for harvest, they are no substitute for the long-term assurance of healthy wild salmon runs. Habitat protection is key — but must go hand in hand with fixing the dants EROSION from clearcutting in prime watersheds has muddied rivers and silted-in salmon spawning gravel beds throughout the Northwest. Heavy cattle graz- ing of streamside range areas has trampled the life out of salmon habitat in the Columbia Basin. Any regional salmon recovery effort must include significant re- ductions in short-sighted natural resource uses that destroy pro- ductive fish habitat. However, making the Columbia and Snake Rivers safe for salmon must underpin all efforts to preserve and restore high-quality fish habitat. We can and must modify the dams and their opera- tion before it is too late THE DRAMATIC decline of wild salmon runs in the Pacific North- west has reached a crisis. It ia high time for action to save this vital part of our Northwest heri- tage, environment, and economy. For the past thirty years, the federal hydropower agencies and the utility industry have tried ev- erything but making the river work for fish. They have failed. That is why Gsh advocates and conservationists have pro- posed physical and operational modifications to the Snake and Columbia mainstem dams in or- der to provide a safe, in-the-river migration for juvenile salmon. We can have a river system that works for fish, energy, and our other needs. But it calls for commitment to change the cur- rently destructive operation of the Columbia and Snake River dams. With businesslike investments we can make these rivers work for wild salmon and for us all! REFERENCES Columbia Basin Fish and WildlLTe AuUiorily. The Biological and Technical Jusiificaiionfor the Flow Proposal of the Columbia Basin and Fish and Wildlife Aulhorily 1991. Pal Ford, Ed "Northwesl Salmon al Ihe Crossroads." High Country News, Special Edilion, April 22, 1991. Joel R. Hamilton, Michael Martin, and Ken Casavanl. Ihe Effect of Lower Snake River Resertoir Drawdown on Barge Transporta- tion: Some Observations. Univer- sity Task Force on Salmon and Ihe Columbia River System. Pacific Northwesl Cooperative Extension, undated (1991). Daniel D. Huppert David L. Fluharty, and Elizabeth S. Kenney. Economic Effects of Management Measures within the Range of Potential Critical Habitat for Snake River Endangered and Threatened Salmon Species. University or Washington, School of Marine Affairs with assistance by National Marine Fisheries Service, Economics Technical Cootmittee. Submitted June 4. 1992. WiUa Nehlsen, Jack E. WilUams, and James A. Lichalowicb. "Pacific Salmon at the Crossroads; Slocks al Risk from California. Oregon, Idaho, and Washington." American Fisheries Society, Fij^^nVj. March-April, 1991. Northwesl Power Planning Council. Strategy for Salmon. October 1992. Oregon Rivers Council. The Ecorwmic Imperative of Protecting Riverine Habitat in Ihe Pacific Northwest. Research Report No. 5. January, 1992. Ray J. White. "Why Wild Fish Matter: A Biologist's View." TrtHit Unlimited, Trout. Summer, 1992. 214 Young Salmon Need To Migrate In Rivers — Nol In Tiiicks and Baiges! .. , J? Sierra HACIHC NORTHWEST Wll I) SALMON CAMPAIGN Northwest Office 1516 Melrose Ave. Seattle WA 98122 (2061 621- 1696 Columbia Basin liranch Office Route 2, Box 303 A Pullman WA 99163 15091332-5173 Barging Doesn't Work Millions ol Smolls Bargud Thousands ol Reluming Adulls ri ihai 'smdl year) riio Idaho Oapanmeiii ol Fish and Game has compiled nialtun thai domonstialos an i.'ivo/so relationship belvwoc number ol small salmon smells ihat are barged and Iho nu ol adulls Ihal rolum trom each 'smolt year ' Fur the last 15 years the US Army Corps of Engineers has collected tiny, migrating juvenile salmon and physically hauled them downstream in lank trucks or barges around the eight huge federal dams that span the lower Columbia and Snake Rivers Yes, they have "taken fish out of wa- ter" and put them on trucks and barges rather than undertake changes to the dams and their op- eration to make the hydropower system less deadly for fish Not only is it a ridiculous "so- lution" to transport fish In barges, but it simply has not worked — it has not reversed the march to ex- tinction of wild salmon in the Co- lumbia and Snake Rivers A new analysis indicates that the barging and trucking program may actually be more detrimental to wild salmon than negoti- ating the lethal corri- dor of dams and res- ervoirs. And, the data that the Army Corps of Engineers has al- ways used to justify the barging program has been shown by a team offish biologists to be seriously flawed. This new informa- tion, plus fifteen years of barging ex- perience while salmon populations have continued to col- lapse toward extinction, has now led fisheries agencies to question the effectiveness of the barging program they once supported SALMON ADVOCATES and conser- vationists have long believed thai to save threatened and endan- gered wild salmon in the Colum- bia and Snake River basin, fish barging must end Instead of us- ing the fish barging program to create the illusion offish "protec- tion,"' the Array Corps of Engi- neers must begin modifications to the mainstem dams and their op- eration in order to provide safe, in-lhe-river migration fur finger- ling salmon. Why hauling salmon downstream doesn't work — and will never work Under the Corps' fish barging program, migrating juveniles are captured at upstream dams ^ l,ower Granite and Little Goose in the Snake River — and loaded into trucks and barges for the one- or two-day trip to below Bonneville Dam. This creates se- rious problems, especially from a fish's point of view: Physical Stress— At each dam, the fish are sucked into the pow- erhouse intakes where about half of them are diverted into a by- pass channel inside the dam Then the fish are shunted at high pressure through a l/'l-mile long pipeline to a facility where they are "de-watered" so that they can be sorted by size They are then placed in holding tanks and fi- nally are crowded into trucks or The Sicn-j Clut) Wild Salmon Cainpjign socks Id prcilcci and rcsiorc wild salmon runs ihriHighoui ihc Pacific Nuilhwcsl. Younij Salimin Need To MiKrale In Kivcry— Nol In Trucks and narges is one nl J scries iif Sicna Club discussiim papers on rcslofauon of wild salmon. Wnllcn by Jim Baker. Sicna Club Columbia Basin Branch Ollicc and Julia Rcilan, Sierra Club Nonhwcst Office; with cdiiorial assistance by Lorri Botli and Kalherinc Ransel. American Rivers Norlhwesi Ollice; Tim Sicarns ami Pal Ford. SOS. Save Our Wild Salmon. © Copyrnjhl Sieiia Club. May I'W V Primed on recycled pj|)cr. 215 ti:irgP9 for the trip downstream It takes only common sense to predict the oiilcoiiie Oaptiiring and handling tiny fish in this way inflicts injuries and puts Iheni under severe physical stress that Miakcs them much mure suscep- tible to predators, disease, and the natural risks of life in the ocean. The impact appears to be es- pecially severe on wild salmon be- cause they are totally unaccus- tomed to man-made environ- nioiiLs, crowded holding tanks, and physical handling Disease — In the truck tanks or barge holds, the juveniles are faced with a crowded, alien world. Action Agenda FOR COLUMBIA AND SNAKE RIVER WILD SALMON I KEEPTMEFISMINTIIE WATER'— We must get juvenile salmon past the dams, power turbines, and slackwater reservoirs safely — without barging or trucking them down to the sea. Sending (Ingerling salmon downstream by loading them onto boats is outrageous, and besides, it doesn't work I RUN THE RIVER MORE LIKE A RIVER— At peak spring migration times we must manage the dams and reservoirs so that young salmon are carried quickly to the sea. This means temporarily drawing down the Lower Snake River reservoirs and sending more water downstream through the Columbia in order to achieve biologically necessary smolt travel time. Increasing water speed during juvenile migration will greatly reduce the death toll on fingerlings that now drift slowly in the slack water of the reservoirs, falling victim to predators, disease, and disorientation. SMART ENERGY AND WATER USE PLANNING ARE BEST BUYS' — Lowering the Snake River reservoirs during the peak juvenile migration and sending more water down the Columbia will require some modifications from business- as-usual. But there are workable, cost-effective ways to accomplish these vitally necessary changes. Energy effi- ciency, fuel switching, seasonal exchanges on the regional power grid, and improved water conservation for irrigators are all smart investments and will help bring back once teeming numbers of wild salmon SAVE OUR WILD SALMON' - Hatchery fish are no substi- tute for wild salmon Healthy populations of wild salmon are essential to maintain the genetic diversity and survival instincts that will assure long-term success of salmon in the Northwest. Maintaining and restoring fish habitat and watersheds are clearly essential. In these closely confined condi- tions, disease can spread much more efficiently. (Anyone with small children in day-care will understand this principle.) Hatchery fish almost always carry diseases such as BKD (bac- terial kidney disease) and the holding tanks in the barges create a prime opportunity for disease to spread Studies by the National Fisheries Research Center I Elliot and Paschol have documented that BKD infections can occur during collection and barging, and that this disease is especially deadly to threatened and endan- gered wild chinook and sockeye. Imprinting — Furthermore, fish taken out of the river and loaded onto a barge do not experience the same "imprinting" process that helps them find their way back as adults. Scientists don't fully un- derstand how a tiny salmon "maps " its route downstream so that it can return to the exact same place years later to spawn and die. But there can be little doubt that being transported for hundreds of miles in the "black box" of a barge or tank truck is a huge interruption of this awe in- spiring natural ability. WHAT MATTERS MOST is the bot- tom line: Fifteen years of captur- ing and transporting smells has not reversed the precipitous de- Na(UiM«« Poa*' Ctvif^ig Coortoi 216 cime of wild salmon The barging piotrram has created just another unnatural, technological ordeal for tiny salmon already struggling to survive in greatly altered river conditions If barging has failed to help salmon, why continue?!? liecausp continuing the (Corps' (ish "mass transportation ' pro- gram— if it worked — would re- quire fewer changes to business- as-iisual, various river users who benefit from the status quo have continued to promote the pro- gram. Most notably these propo- nents include the direct service industries (DSIs), mainly alumi- num smelters drawing cheap fed- eral electricity directly from the Bonneville Power Administration, many of the region's utilities, and the Pioneer Ports River Alliance, a coalition of the Snake River sea- ports of Lewiston, Clarkston, and Whitman County. They promote three fish barg- ing "myths". MYTH#1 Barging is good for fish! ■ The Corps of Engineers has long claimed that the barging pro- gram helps salmon in the Colum- bia and Snake Rivers They sup- port the claim with two "life- Cycle" studies conducted in 1986 THE DAMS ) Bonnevill«. 1938 2 The Dalles. 19S7 3 John Day. 1968 i McNary. 1953 5 Ice Harbof. 1961 6 Lower Monumenlat. 1969 7 Lillle Goose, 1970 8 Lower Granile. 1975 The eight lederal main-slem dams take tfte greatest toll on threatened and endangered Snake Rrver salmon Other dams have per- manently blocked vast areas ol salnxin habi- tat (dark shading). and 19H9 on spring chinook. 'I'liese studies showed, according to the Corps, positive "transporta- tion benefit ratios of I 6: 1 and 2.5 1 This means, they say, that for every naturally migrating fish that returned as an adult, 16-25 barged fish returned. However in December 1992, a panel of fisheries experts from the US Fish and Wildlife Service. Idaho Department of Fish and Game, Washington Department of Fisheries, ('olumbia Basin Fish and Wildlife Authority, and Fish Passage Center re-evaluated the data in the life-cycle studies and identified serious flaws in the Corps' conclusion of positive ben- efit from barging. Chaired by Fred OIney of the US Fish and Wildlife Service, the panel found gross miscount- ing of fish, tagging smolts and counting adults at the dams not at spawning grounds (which is the relevant indicator of a suc- cessful return), and data that were mishandled or so limited that they are statistically invalid A significant problem cited by the OIney panel was the Corps' failure to differentiate between wild salmon and hatchery fish. This is the critical issue because wild salmon are the threatened and endangered creatures. And the physical stresses from han- dling and crowding appear to be severe on wild fish. The OIney panel pointed out that most of the fish counted in the Corps' two studies were in fact hatchery fish. Where the panel was able to differentiate be- tween wild and hatchery stocks, the data indicated a negative transportation benefit ratio for wild salmon! The final report of the OIney panel concluded. It is apparent that |fish| transportation Is not a sub- stitute for provision of good innver migration conditions for many of the salmon stocks evaluated in the ICorps'l studies. For some stocks it appears that trans- portation may have been detrimental to fish survival. MYTH #2 Fish are 'safe' in a barge. ■ The Corps of Engineers' asserts that 95% or more of their trans- ported smolts are released alive. Barging proponents use this as proof, they say, that salmon are fine in a barge so it must be some- thing else that threatens them, "ocean conditions, " for example. However, the 95% survival statistic completely ignores the delayed effects of barging. Salmon smolts may indeed survive the 1- 2 day ordeal and "swim away, " only to die in the Columbia estu- ary or the ocean from injuries and physical stress inflicted by cap- ture, crowding, handling, and ex- posure to disease. To blame "ocean conditions" is deliberately misleading It is especially foolish because both barged and non-barged fish must face the same ocean condi- tions. Yet it appears that barged fish return from the ocean at a much lower rate than fish that successfully make the down- stream journey in the river The Idaho Department of Fish and Game has compiled data indicat- ing that when greater numbers of fish are barged, fewer adults from those "smolt years" return to spawn (see chart on front) Another delayed effect of barging and trucking may be that adult salmon are unable In sue cessfully find their way hack up- stream. The Corps of Engineers" "life-cycle" studies did not even track whether barged fish could 217 suL'L'i.>.s.stiilly iiiaku llii'ir to ihuir iialal slrt-aiu TlIK bftV, SUHVIVAI. Mlaliblic ib Imtl) (Iccirplive am) irrolc'vaiit Tin; law, and common si-iisu, tell us llial iiiilunil loiiililiiiiis — nut arliricially eniinieeiod environ- nionLi — are needed lo assure spe- cies survival MYTH #3 We'll build a better fish trap. ■ Proponents uf barging argue that all we need to do is make it work better. Yet just lo replace the adults which spawn in central Idaho, to bring the population curve up to level from its current downward trend, the transporta- tion benefit ratios would have to rise to 7:1 or 10:1 — a three- or four-fold improvement over the "best" results in the Corps' two studies And lo achieve salmon restorations in the Snake Basin, biologists would want lo see the ratio between 20: 1 and 30: 1 In a program that the Corps has already been working to im- prove for fifteen years, such huge leaps forward are little more than a fantasy. Nevertheless, schemes such as net-pen barges and new smelt capture devices have been proposed. Two decades ago the Washing- ton Department of Wildlife tried a net-pen barge to transport steel- head smolts (far less fragile than salmon) on the Chehalis River. They cancelled the experiment when the nets lore scales off the fingerlings in massive numbers Net-pen barging in the Snake and Columbia would prove an expen- sive disaster too A new smoll collector above the eight niainslein dams and res- ervoirs should also be rejected Even if intractable engineering obstacles could be overcome, it would slill not solve the key prob- vay Ij.ick i leins: ll wijulil iiul capture all mi- j grating lingerlings It would nut I help snidlls coming mil of down- stream Inbularies ll wuuld nut separate wild from halchery fish, ' and il would iiol eliminate inju- I ries or stress from capture. Stop barging and make the rivers safe for salmon. The cockeyed notion of taking fish out of rivers and loading them onto barges was instituted as a desperate, temporary measure fif- teen years ago when il became clear that the Columbia and Snake River hydropuwer system was deadly for small salmon: The huge reservoirs fatally slowed migration to the sea and passage through the massive power tur- bines was lethal The barging program was de- signed to avoid these problems, but not solve them. In doing so, the Army Corps of Engineers cre- ated a whole new set of obstacles that have proven equally, perhaps more deadly for wild salmon Now that fisheries agencies that once supported the barging program are challenging its effectiveness, it's lime to end this unnatural charade Common sense and a millen- nia of evolution tell us that fish belong 1/1 the river. The Endan- gered Species Act requires that threatened and endangered spe- cies be protected in their natural habitats. And the Northwest Power Planning Act specifically calls for river "fiows as necessary" for the survival of salmon in the Snake and Columbia Rivers. It's time to modify the dams and their operation so that we recreate a semblance of the natural condi- tions that salmon need for sur- vival. This can best be done by in- creasing river velocity with a package of fiow augmentation REFERENCES Coluinhij Ba^in Fish and WilJIilc Aulhorily, AU lltn. Tiuiibponjlioii Review Giuup "Review of Salmon jiiiJ Slecihead Transporlalion SluUie^ III die roluiiiliij and Snake Rivcis, l'J«4 lo IW) • And cover iiiemoraii- duin Deeeinher .11. 1992. Eliiol and Pa.scho. "Juvenile Fibli TranbiHinalitm, Inipacl ol BKD on Survival ol Spring/Summer ChiiUKik Slocks " Nauunal Fisheries Research Cenier. 198'). 1990 Annual Rcporu,. Idaho Deparlincni of Fish and Gaiiic Vaniius reports, comnicnls arid analyses. 1992. Niirtliweii Conservation Ai I Hepori "Science Team Takes Suong Issue WiUi Effecliveness of Barging " Jan 22, 1993 Northwest Power Planning Council Siruiegy for Salmon. Oclober. 1992. Nonhwcsl Resource InfonnaUon Cenier. Inc. leslunony subinilied lo the National Marine Fishenes Service on US. Army Corps of Engineers application for a permil to transport salmon in 1993 under Section 10 of the Endangered Species Act. United Stales Anny Corps of Engi- neers Columbia Hiver Salmon Miugaiion Analysis: System Con- figiiraiiun Study: Phase l-Interim Siaiiii Hepon. Technical Appendix U: Anadioinous Fish Collection and Conveyance, Snake and Columbia Rivers Technical Appendix E: Existing Sysiein Improvements. Novemlier. I9