Washington Hydropower Pinched by Cheaper Rivals

FOR decades, customers have taken for granted the cheap hydropower from 30 federally owned dams on the Columbia River and its tributaries. The federal agency that sells the power also has taken for granted its central role in the region.

Today, these certainties are giving way, though power still costs less here than elsewhere in America. The Bonneville Power Administration (BPA) is having to reinvent itself.

``We are trying to get ourselves more competitive,'' says Randall Hardy, administrator of the BPA. Bonneville is caught between its own rising costs for protecting endangered salmon and private-sector competition, bolstered by low natural-gas prices and a more open market created by the 1992 Energy Act.

The danger is that power from the BPA may gradually lose its cost advantage over utilities and other suppliers.

``We still have an advantage, but our margin has shrunk significantly,'' Mr. Hardy says. Fish-protection costs have risen from $150 million in 1991 to $350 million this year, or 15 percent of the agency's budget.

Already, Clark County Public Utility District in Washington State is building a gas-fired turbine that will displace about half the power it now buys from Bonneville. If more of the agency's customers (mainly utilities) follow suit, Bonneville may have to raise prices. The BPA now provides more than 40 percent of the power used in Washington, Oregon, Idaho, and Montana.

To deal with the competition, Hardy is negotiating with customers for a new two-tiered rate structure, which is intended to keep the bulk of power from Bonneville's existing plants inexpensive and customers buying. This ``tier 1'' power, priced around 2.77 cents per kilowatt hour, could meet about 90 percent of customers' current demand from the BPA. ``Tier 2'' would represent the cost to BPA of building new plants or buying from new or outside sources, and might cost 3.5 cents per kilowatt hour. Tier 2 would compete directly with private-sector sources.

``The negotiations are going very, very slowly,'' says Lon Peters, an economist for the Public Power Council, which represents 115 utilities in the talks with Bonneville.

Defining the line between the two tiers and ensuring that no second-tier costs filter down into the first-tier rates are two sticky issues for customers. The negotiations in Portland, Ore., nearly faltered last week. There was talk of postponing two-tier rates. The parties, which began negotiating seven weeks ago, hope to conclude the framework by year-end so the new system can go into effect Oct. 1, 1995.

Steve Weiss, a consultant negotiating for a coalition of environmental and public-interest groups, says the two-tier system might penalize regions where power demand is growing fastest, since they would have to buy more power at second-tier prices.

Mr. Weiss says he also worries that the plan will encourage new power needs to be met by now-cheap natural gas, rather than by conservation and renewable sources, which he says are wiser in the long run.

When the BPA needs extra power, it is required by law to give preference to conservation and renewables over building new plants when feasible. Other utilities, which may win new business because of the BPA's high second-tier rates, do not have to follow these guidelines, Weiss says.

``We're concerned about the proliferation of gas-fired plants,'' adds John Harrison, a spokesman for the Northwest Power Planning Council, a four-state commission created in 1980.

Hardy says the two-tier system will encourage conservation efforts by utilities wanting to avoid buying tier-2 power.

Even under a two-tier plan, the BPA may have trouble keeping first-tier prices low. That is because the cost of measures to improve salmon survival in the Columbia River system could keep rising dramatically. ``That's one of the things that we're frankly worried about,'' Hardy says.

The Columbia River system once supported a thriving salmon industry. But virtually no fishing for several endangered varieties was allowed this year.

Bonneville is cutting its work force by 15 percent over the next two years. But Hardy says if salmon-related costs rise further, the federal government and its taxpayers are ``going to have to pick up a significant chunk of these costs.''