Policy Study

Toward Accountability and Efficiency

Reform of the Bonneville Power Administration

Executive Summary

The U.S. electric industry’s increasingly competitive structure is likely to have important ramifications for the Pacific Northwest. The gradual interconnection of local utilities, the growing significance of independent suppliers of electricity, and the increasing use of wholesale power markets have the potential to reduce the cost of power and increase service reliability. As a federal agency not directly accountable to the region’s electric consumers and producers, the Bonneville Power Administration’s (BPA) structure is likely to prevent the Pacific Northwest from realizing the benefits emerging from this trend.

The BPA was established by Congress in 1937 to market and transport power generated by the Bonneville Dam on the Columbia River. The agency’s early objective was to promote economic development by supplying “affordable” electricity to a group of preference customers. Over time, the BPA’s status as a federal government agency and its access to interest-rate subsidies has enabled it to develop an extensive transmission network and play a dominant–often counterproductive–role in the Pacific Northwest’s electric industry.

The BPA’s practices and policies have generated a number of adverse effects. The BPA’s failure to price electricity to reflect the cost of securing additional supplies has encouraged overconsumption of electricity, discouraged conservation, and artificially stimulated the expansion of financially and environmentally costly power capacity. In addition, as a result of not paying off its federal debts, the BPA and the other federal agencies involved in the Federal Columbia River Power System owe the U.S. government an estimated $9 billion in cumulative investment. The Bush administration’s National Energy Strategy has proposed a debt repayment program for the BPA and other federal power marketing administrations in order to ensure that the full federal cost of providing power is covered.

The fundamental changes taking place in the U.S. electric industry and the Pacific Northwest’s growing demand for power make it particularly important that the BPA’s practices and structure be reassessed. Reforms which would make the BPA more compatible with emerging competitive trends in the U.S. electric industry and make the agency more accountable to the region’s electric consumers and producers include:

  • allowing BPA preference customers to resell electricity to those who value it more highly;
  • transferring the ownership of the BPA’s transmission system to the region’s electric power consumers and generators; and
  • removing artificial and counterproductive incentives for conservation and instead relying on efficient market pricing of electricity for promoting wise use of energy.

These reforms would enable the Pacific Northwest to gain greater control over the agency’s power marketing decisions and provide the region with greater access to economically and environmentally low-cost electricity. They should benefit not only the BPA’s preference customers, but the region’s electric retail customers, independent power generators, and groups interested in promoting conservation and preserving the environment as well.