A visit to the Bonneville Power Administration

Last week I accompanied a group of legislators from Montana, Idaho, Washington and Oregon on a tour of the Bonneville Power Administration (BPA) headquarters in Portland Oregon; and to one of their transmission distribution systems in Vancouver, Washington. The BPA is the largest generator and distributor of electricity in the Pacific Northwest.

The BPA plays a big role in Montana's economy, too. They operate the Hungry Horse and Libby dams near the Montana towns of the same name, own and operate a 250 KV transmission line from Colstrip to Spokane. and market power to Montana electrical cooperatives and private utilities on a cost-plus basis.

The BPA was created as a federal government agency in 1937 to run the power generation facilities at Grand Coulee and Bonneville dams; themselves built by the Federal Government. Today the BPA administers 31 federal dams in the Northwest. The physical operation of the dams is contracted out to the private sector. BPA owns 75 percent of the transmission lines in the Northwest, and leases about half of their transmission capacity to Co-ops and Investor Owned Utilities.

What piqued my interest the most was the Trading Floor in the Portland office. That's where contracts for electricity delivery with public and private utilities are bought and sold. It is much like a very specialized stock exchange. There are long term—over one month, short term (Month Ahead), and spot markets (Day Ahead), as well as a real time (Hour Ahead) spot market. The short term and real time markets are the busiest, providing short notice delivery of electricity to utilities who find them selves caught short.

Electricity is traded in a basic unit of 25 Megawatts; for comparison 12 megawatts is about the amount of energy consumed a year per capita in the United States (energysavingnow.com). Historically the buyers have been utility companies, but that is changing as what are called "non-asset" companies—that is, companies with no generating or distribution infrastructure—have come in as traders.

The most infamous example of that kind of company would be Enron, which started out as a natural gas pipeline company.

Another major trading entity is the banking industry. We were told that we legislators could rest assured that even though banks and non-asset companies were major players in the buying and selling of electricity contracts that the Enron led electricity crisis of 2001 would not happen again. Take that for what you will.

As important as generating energy is the control of the flow of water of the Columbia River system. What happens upstream affects the ability to generate power downstream as well as the management of fisheries, so water storage and release at upstream reservoirs is monitored carefully. All of this action occurs in the Portland office and is transmitted electronically to the operations centers at the dams. There is not a lot of leeway for error.

Although the beginnings of damming the Columbia preceded Roosevelt's New Deal policy, the concept was embraced and heavily supported by Roosevelt. The BPA was a New Deal project created to run the system in the Northwest. When Grand Coulee and Bonneville were being built there was skepticism that the enormous amount of power they would generate would ever be needed in what was then an area pretty scant of population. But whether by design or happenstance the availability of cheap electricity enabled the Northwest to become the major aluminum center for the WW II war effort. Now that electricity here is no longer cheap, many aluminum factories have shut down, freeing about 25,000 megawatts of power for other uses.

As I was absorbing all this information I began to wonder what the Northwest United States would look like if the dams had never been built by the federal government. The dams provided water for irrigation in a desert land, and the electric power brought the aluminum industry. The aluminum factories created thousands of long-term jobs to draw people here, not to mention the thousands of short term jobs created by the construction of the dams. Elsewhere, the construction of Hoover dam in Nevada gave birth to some of the largest engineering and construction companies of today—Bechtel, Morrison Knudson, and Kaiser.

It's often said that government spending does not create new money, but you have to wonder what the economy in the area would be like if the federal government hadn't built the dams on the Columbia River system, and the BPA and the Rural Electrification Administration hadn't been created to distribute it.