The Council was established to respond to a very different world than the region faces today. Some of the Council's past roles are less important, or even unnecessary, in this new world. Other roles seem to have continuing relevance during the transition to a new industry structure and, possibly, beyond.

In developing this draft power plan, the Council faced challenges that are far more significant than any it has faced in the past. Technological and regulatory changes are sweeping the energy industry and are certain to affect the industry's basic structure. To the extent that effective electricity markets can be facilitated, the Northwest stands to gain greater economic efficiency in its power system more quickly than could be accomplished by regional planning. Regulation and planning are, at best, approximations of what can be achieved by a well-functioning market. Thus, the focus of this plan is on understanding the coming changes, explaining them to the public, and opening a discussion of ways that the region might facilitate an orderly transition to an effective competitive market.

At the same time, new approaches need to be identified to achieve some of the goals of the Northwest Power Act that may not be achievable in a competitive marketplace. Energy efficiency, renewable resource development and environmental protection are all goals of the Act that are unlikely to be strongly supported by a competitive industry.

8-A. Goals of the Northwest Power Act

As the Pacific Northwest Electric Power Planning and Conservation Act (the Act) was being debated, it was thought that the region was facing impending power deficits. The resources that utilities planned and began to build to meet those deficits were large, expensive, environmentally controversial and took many years to site and construct. Those on which construction was begun had the consequence of raising power rates from the federal system by more than 500 percent, even though most were never completed.

The Power Act put in place an ambitious experiment in regional planning. It was a balancing of interests that integrated power generation, system reliability, environmental concerns, energy efficiency, and the costs of new and existing resources. It sought to involve the public in making decisions about the composition of electricity resources that would meet the region's future electricity needs.

The specific purposes of the Act are, among others:

  • To encourage conservation and efficiency in the use of electric power;
  • To encourage the development of renewable resources;
  • To assure the region of an adequate, efficient, economical, and reliable power supply;
  • To provide for the participation and consultation of the states, local governments, consumers, customers, users of the Columbia River system and the public at large in:

– the development of regional plans and programs related to energy conservation, renewable resources, other resources, and protecting, mitigating and enhancing fish and wildlife resources;

– facilitating the orderly planning of the region's power system;

– providing environmental quality; and

– the protection, mitigation and enhancement of the fish and wildlife, and their habitat, of the Columbia River Basin.

To carry out the power-related purposes of the Northwest Power Act, Congress gave the Council explicit responsibilities. The Council is to develop and periodically revise a regional, long-term conservation and electric power plan. That plan is to incorporate:

  • Priority for cost-effective resources with first priority given to conservation, second to renewable resources, third to resources using waste heat or that have high conversion efficiency, and fourth to all other resources;
  • An energy conservation program including model conservation standards;
  • Recommendations for research and development;
  • A methodology for determining quantifiable environmental costs and benefits;
  • A demand forecast of at least 20 years and a forecast of the resources required to meet Bonneville's obligations;
  • An analysis of reserves and reliability requirements; and
  • The Columbia River Basin Fish and Wildlife Program. [ 16 USC §839 b(e)-(f).]

In developing this plan and in regional power policy generally, the Council is to ensure "widespread public involvement." [ 16 USC §839 b (g).]

The acquisition of conservation and other resources by the Bonneville Power Administration is to be consistent with the Council's plan. The Council can choose to subject proposals for major resources (over 50 megawatts for five years or more) to a test of consistency with its plan. If the Council finds a resource inconsistent with its plan, and Bonneville still wishes to acquire it, the administrator must get specific congressional authorization. [ 16 USC §839 d(c).] This is the Council's most important authority over Bonneville's resource acquisition, and even this authority is indirect.

When the Act was passed, it was anticipated that Bonneville would back the acquisition of resources for the whole region – for investor-owned utilities as well as for publicly owned utilities. As a consequence, although the authority of the Council's planning is limited to Bonneville, it was anticipated that it would influence the resource acquisitions of investor-owned utilities. As it turned out, investor-owned utilities did not place significant loads on Bonneville. Nonetheless, the adoption of integrated resource planning rules by the region's state utility regulators and the involvement of the Council in the development of utility integrated resource plans meant that the Council has had significant influence beyond the limits of its direct authority.

8-B. The Council's Power Planning Innovations

The region's first electricity plan was completed by the Council in April 1983, just a year and a half after the Council was formed. That first plan was probably best known for its planning innovations. The 1983 plan set the standard for utility least-cost integrated resource planning. In it, the Council developed a number of planning methods that continue to be prominent in utility integrated resource planning today.

  • The Northwest's power plans are developed from the perspective of the entire regional society. The costs that the plans sought to minimize were all costs of power, whether paid by utilities, their customers, or environmental costs that are not actually paid in dollar terms.
  • The planning process relies heavily on the participation of both direct stakeholders and the general public. Advisory committees provide a means for interest groups to provide input to and review the work of the Council and its staff. Extensive public hearings provide the opportunity for the public to review and influence the directions of the Council's plans.
  • At the heart of integrated resource planning is the consistent evaluation of both generating resources and improved efficiency of energy use. The Council fully integrates efficiency resources into the planning process. Conservation supply estimates are developed to be consistent with energy demand forecasts. Conservation resources compete directly with generating resources in developing a least-cost mix of choices. The costs of resources, both supply-side and demand-side, affect the forecasted price of, and demand for, electricity.
  • The Council's plans focus on the inherent uncertainty of the future. In the Council's first plan, there was no medium or best-guess forecast of future electricity use, but rather a range of four forecasts with an assumed probability distribution. This focus on uncertainty shifts planning objectives from meeting a best-guess forecast of electricity requirements to developing a risk-averse strategy for meeting an uncertain future requirement.
  • The concept of resource "options" was introduced as an important opportunity to reduce the lead time of electricity resources and, thus, help respond to uncertain future resource needs without making huge investments in new power plant construction. The most familiar form of an option would be a pre-designed and pre-sited power plant, that is not completed until the time the plant is needed. This concept was ground-breaking in an era when the lead time for new generation was as long as 10 years.
  • An "action plan" was included to chart an explicit course for the plan's implementers to follow for the first couple of years following the plan's adoption. The action plan is critical to achieving the goals of the plan, and it provides a means of tracking progress and identifying problems.

8-C. The Future Role of the Council

The Council's direct authority over the operation of the region's power system has always been limited, and is likely to be applied even more rarely in the future. For example, if Bonneville is not acquiring new resources, the Council's review authority under the Act will never be exercised. Bonneville currently has a surplus of electricity. As a consequence, it may not be acquiring resources in the near term. Any guidance the plan provides for Bonneville's resource acquisition is thus essentially moot for the time being.

In the past, the Council's plans have not relied on regulatory authority for their impact. With respect to the region's investor-owned utilities, the role of the Council's plan has always been indirect and, at best, limited. Wholesale competition and the potential for retail competition appear to be weakening what have been the primary vehicles for Council influence – the state utility commissions' requirements for integrated resource planning and conservation. As the utility industry evolves in the direction of greater competition, it is quite possible those requirements will not be retained.

Similarly, the plan's influence over the public utilities also has been indirect. In large part it has been exercised through Bonneville, although in several instances the Council has worked with the utilities themselves. Many publicly owned utilities actively embraced integrated resource planning and conservation and worked with the Council in their own planning processes. Some did not. In the future, integrated resource planning and conservation may be problematic for the publicly owned utilities for most of the same reasons that affect the investor-owned utilities.

More fundamentally, in a competitive market, is there still a need for the kind of long-term, regionwide planning and broad public involvement that have typified the Council's work? In the future, the development of new resources will likely be the function of an unregulated, competitive wholesale market in which integrated resource planning, as we have known it, will not play a major role. Planning will most certainly take place, but it will be the kind of planning carried out by competitors seeking a market niche in which they can be successful.

The authority of the Council's plan and the relevance of traditional planning will probably be much more limited than has been the case in the past. Some of the mechanisms that enabled the Council and its plan to influence the actions of regional power actors may be less effective. However, there may still be activities the Council can carry out that will be of value to the region. The questions for the Council and the region are:

  • Are there power-related functions that the Council already performs or could perform under its current mandates that will be useful to the region in a more competitive electricity industry? In particular, are there functions the Council can fulfill that can provide appropriate public policy guidance for the transition to a more competitive electricity industry?
  • Are there new functions that the Council should be authorized to carry out?

Council Functions under the Northwest Power Act

There are a number of activities the Council carries out or could carry out with no changes in the Northwest Power Act that may be of value in a competitive electricity industry. In most instances, these are activities the Council and its staff already perform in the course of developing and, subsequently, trying to facilitate implementation of the regional power plan. They include:

  • Providing up-to-date information on future electricity demands, new generating and efficiency technologies, system operations and market forecasts;
  • Serving as a broker for information exchange among utilities and others;
  • Working at federal and state levels to resolve legal and institutional barriers to accomplishing regional goals;
  • Providing impartial analysis of issues with a long-term regional perspective;
  • Serving as a focus for analysis of the interactions between power and fish;
  • Representing the interests of states and the public in power issues; and
  • Being a regional convener of forums to resolve issues.

Providing Energy Information

The information the Council develops in the course of its planning – forecasts of electricity demand, analysis of new resource costs and availability, and so forth – has been useful to the utility industry and others for their own planning and decision-making. This information could continue to be useful in the future. Some in the industry will be deciding whether to purchase electricity from the market. Others may be developing resources for the power market and facing considerable risk in the process. Everyone will need to know the rules they face and which resources would be the best choices. Futures markets and other financial instruments can distribute financial risk, they cannot eliminate it. The efficient functioning of markets depends on quality information and accurate interpretation of that information.

The Council could focus its information activities to facilitate the transition to and operation of the market. To be of value in a fast moving competitive market, information will have to be produced and revised more frequently than has been the case in the past.

There will, of course, be other providers of such information. Consultants, for example, will produce resource assessments and forecasts, but business imperatives will lead them to restrict access to their information, if they can. Is there value in having an independent entity, such as the Council, develop this sort of information and disseminate it broadly?

Brokering Information

The Council has frequently functioned as an information broker – facilitating the exchange of information among utilities and others about problems and solutions of mutual concern and bringing together potential participants in transactions. Some of this brokering the Council has carried out through its publications, meetings and conferences, or through financial support of similar functions carried out by others. The Council's brokering has frequently been most effective in bringing together those who might not otherwise talk to one another on a regular basis – utilities and local governments, for example. This kind of information exchange may remain valuable, but may also become more difficult, if competition between utilities and other participants in the market for electricity becomes prevalent.

Again, others can and do perform this function. The Public Power Council, the Northwest Public Power Association and the Pacific Northwest Utilities Conference Committee, for example, have also performed this role for their members and will probably continue to do so to some degree. As the market becomes more competitive, market intermediaries will likely emerge who will perform some broader information brokering functions. Nonetheless, there may be a continuing role for the Council, with its regionwide reach, to bridge the inevitable communication gaps.

Facilitating Regional Goals at Federal and State Levels

The Council has frequently worked at federal and state levels to resolve legal and institutional barriers to the accomplishment of regional goals. The Council's status as representative of the governors of the four Northwest states gives its recommendations unique weight, both within the region and at the federal level, where the region's congressional delegation has been generally supportive.

The Council was the catalyst for the adoption, implementation and enforcement of energy-efficient building codes in several Northwest states and local communities. The Council facilitated conservation activities, such as the Manufactured Housing Acquisition Program, which helped establish more efficient federal standards for manufactured housing. The Council also supported action on national appliance efficiency standards.

These kinds of activities, which helped transform industries and markets to become more efficient, are likely to continue to be important in the future.

Impartial, Long-term Analysis of Issues

One of the Council's primary strengths has been its ability to focus relatively impartial analytical attention on power issues the region faces. The Council takes a long-term perspective on the region's energy system, a focus that is more likely to be neglected by competitors preoccupied with near-term concerns. The Council also takes the perspective of the region as a whole, which can identify issues and solutions that might be missed by parties whose private interests are more narrowly focused. The need for the Council to continue to provide a long-term, regional perspective was voiced repeatedly by a wide range of interested parties during consultations the Council held in the course of developing this draft plan.

As the region makes the transition to a more competitive electricity industry, there will be many issues about that transition on which an independent analytical perspective will be valuable to the region. One might question the continued usefulness of the Council's analysis once the competitive electricity market has matured; commodity markets, such as those for shoes or corn flakes, raise few issues of public policy that require independent analysis.

However, the electricity industry will not be completely deregulated. The areas that are regulated will continue to be public concerns. Moreover, the importance of electricity to the economy and environment of the Northwest, and the fact that so much of the region's electricity is generated by a public resource – the Columbia River system – make it likely that there will be continued value in an independent source of analysis of the region's energy system.

Analyzing the Interaction Between Fish and Power

The significance of the operation of the Columbia River hydropower system to the Northwest's overall power system, as well as to the region's fish and wildlife resources, would argue for an ongoing role for an organization like the Council, which is required to balance these resources. Given the contentiousness of the issues, the high stakes involved and the technical sophistication of the analysis required, the Council's ability to analyze the effects of different hydropower system operational regimes should continue to be of value for the foreseeable future. There has also been the suggestion that the Council should undertake an even broader analysis of the multiple uses of the Columbia and its watershed.

Representing the Interests of the States and the Public

The Council was established in part to give the Northwest states and the public a greater voice in decisions about the region's power system. This was largely because electricity is so important to the economy and environment of the Northwest. In addition, the fact that much of the Northwest's power industry is federally owned and has monopoly status has given the public a particular interest in decisions that affect the industry. This public interest is likely to continue while the industry makes the transition to competition. There will be many issues in that transition about which the states and the public will want to have a voice. In such cases, the Council's regional perspective can make a significant contribution.

In the longer run, the Council's role in representing the states and public will depend on the nature of the market that evolves. A fully competitive market should enable consumers to influence industry decisions through customer choices. As noted above, however, a continued public policy content seems likely. In addition, a continued significant federal presence in some form in the regional power system seems likely, although not certain. This in itself would argue for some vehicle like the Council to represent the interests of the four states and the public.

Convening Forums to Resolve Regional Issues

The Council, representing the governors of the Northwest states, has the ability to convene regional forums to work for the resolution of regionally important issues. This ability will be particularly important in the transition to a competitive electricity industry. How the structure and regulation of the electricity industry evolve will, determine in large part, the degree to which the benefits of competition are achieved and how they are distributed. And while the Northwest is clearly part of a wider electricity market, a vital element of that market will be supplied by the resources of this region. There will be many issues of importance to the region that will have to be resolved on the way to more widespread competition. The Council is well situated to convene the stakeholders for the resolution of such issues. In the longer run, the ultimate nature of the market for electricity and the degree of public policy content of issues will dictate the need for this kind of activity. It seems likely there will be some continuing need for such a function.

New Roles for the Council?

New roles for the Council will depend, in large part, on how the region and the electricity industry adapt to the emergence of competition. For example, will the region find that new mechanisms to fund and implement conservation and renewables are necessary? If so, some entity may be needed to plan and possibly administer those mechanisms. Whether the Council is the appropriate entity is another question, but its expertise and regional purview have significant advantages.

There will inevitably be new needs that arise as the industry's transition proceeds. When these needs align with the Council's strengths – strong analytical capability, regional purview, multipurpose scope, the influence of the governors of the Northwest states – the Council should be a candidate for accomplishing them. Many of the new power-related roles for the Council would require legislation at the federal level and/or in the states. For that reason, the validity of potential roles will appropriately be subjected to intensive public scrutiny.

No Role for the Council?

It would be disingenuous to suggest that the power system of the Northwest could not function without the Northwest Power Planning Council. No other region has an equivalent institution. The power systems in those regions appear to function reasonably well, although in few others is there a public resource equivalent to the Columbia River's power system.

Inevitably, the move to a competitive electricity industry will lessen the influence of regional planning in favor of entrepreneurial strategy. The transition is also likely to lessen consideration of public values in decision-making and possibly even diminish the sense of the Northwest as a region. The policy question the Northwest must resolve is whether there needs to be a continuing means for reflecting the region's values in power decisions and, if so, whether the Council is the appropriate institution to facilitate that process.

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