11.02.01

Senator Maria Cantwell Outlines Positions to the Federal Energy Regulatory Commission Meeting in Seattle

Calls for increased borrowing authority for BPA, improved transmission infrastructure

WASHINGON, DC - U.S. Senator Maria Cantwell (D-WA) today sent a letter to the Federal Energy Regulatory Commission (FERC) on the unique nature of the Northwest energy system. The FERC is scheduled to hold a meeting in Washington state today to discuss Northwestern energy issues.

In Cantwell's letter she addresses the importance of BPA borrowing authority, a regional transmission organization, diversification of generation resources, and the hydro relicensing process.

The text of the letter follows:

The Honorable Pat Wood III The Honorable Nora Mead Brownell Federal Energy Regulatory Commission 888 First Street Northeast Washington, DC 20426

Dear Chairman Wood and Commissioner Brownell,

I want to welcome you and thank you for convening this conference in the great State of Washington. I regret that I cannot, due to a scheduling conflict, join you for today's critically important discussion of Western energy infrastructure issues. Still, I hope you will take this opportunity to learn about the truly unique nature of the Northwest power system, which has long been the engine driving our diverse regional economy.

As you know, Northwest consumers have been severely harmed over the past year by skyrocketing energy prices throughout the West. Originating with California's failed experiment with partial electricity restructuring and exacerbated by this region's second-worst drought on record, the Western energy crisis has made us painfully aware that the health and efficiency of our power markets have a direct impact on jobs, paychecks, our environment and quality of life.

One of the daunting realities we face in Washington state is that, despite the fact we have already endured retail rate increases and job loss numbering in the tens of thousands, the worst is not yet over. While Western energy markets have now stabilized--thanks to the Federal Energy Regulatory Commission's (FERC) long-overdue move to cap wholesale electricity prices, as well as aggressive conservation and curtailment efforts-the fallout from this crisis continues. It was not until last month that the Bonneville Power Administration (BPA), which markets about 70 percent of the power consumed in Washington state, put in place its 46 percent wholesale rate increase. Clearly, many of my state's residents will feel the impacts of this crisis most acutely when they start receiving their utility bills during our winter peak heating season.

The events of the past year leave no doubt that a discussion of Western energy infrastructure is of critical importance-if not long overdue. I also believe there are a number of essential facts that distinguish Pacific Northwest energy markets from those in other regions of the country, and I believe these circumstances must be recognized as we look for ways to meet our growing infrastructure needs.

In particular, the Northwest is unique because of the prominent role of public power. The region's PUDs, co-ops and municipal utilities serve about a third of our load, and even more-about 55 percent-in Washington state. And perhaps most important is the presence of BPA, a federal power marketing agency. In addition to its role as the Northwest's most important source of wholesale power, it is also the region's dominant transmission provider. As a result, the Northwest has been blessed with a system of low-cost, reliable power that has fostered a diverse economy that benefits all of our region's interests-commercial, residential and agricultural.

I believe this region must not depart from the fundamental principle of cost-based service that has provided such a boon to all sectors of our economy. As a member of the Senate Committee on Energy and Natural Resources, I will continue to work with other members of the Northwest delegation to ensure our region retains the benefits of the Bonneville system.

But as we look to the future, I believe the Northwest must also recognize the changing demands on this system and the changing national landscape around it. To this end, I believe that the Bush Administration and Congress must authorize BPA an additional $2 billion from the U.S. Treasury, to finance investments in the regional transmission system, federal generating projects and energy efficiency programs over the next five to 10 years. It is also important to note that Bonneville would repay Treasury on an annual basis, with legally-required, market-determined interest-from revenues it collects from Northwest ratepayers.

BPA would use the majority of the increased borrowing authority-about $1.3 billion over 10 years-to make much-needed upgrades to the region's transmission grid. BPA owns and operates about 75 percent of the Northwest's high-voltage transmission system and, while economic growth and the changing nature of energy markets have led to a steadily increasing need for capacity-with traffic on the system increasing at a rate of 2 percent per year for much of the last decade-no major transmission lines have been built since 1987. As a result, the Northwest grid is increasingly inadequate, which is jeopardizing regional reliability and the ability to move power from generating plants to populated areas.

In light of September 11th's tragic events, I believe it's also important to note that this has made the system less secure. As the capacity of the transmission grid has been used by load growth, the system's vulnerability to unexpected events has grown. Increased demand has pushed capacity on the existing system to the limit-already resulting in the curtailment of 700 megawatts (MW) over one pathway connecting coal plants in Montana to population centers in Washington state, and forcing BPA to plan to curb energy deliveries to the Puget Sound region this winter because of congestion on yet another route. As this demonstrates, the grid has lost much of the flexibility necessary to sustain operation under the loss of key pathways or substations.

In order to bolster the reliability and security of the Northwest power system, BPA has identified 26 transmission projects, for completion over the next five to six years. The improvements would reduce congestion at existing bottlenecks within the region, reinforce the system to ensure minimal conformance with reliability standards for major population centers and allow for continued growth.

The first nine high-priority projects, for which BPA would begin construction this year, would add 3,600 MW of additional transfer capacity to the grid as well as make improvements necessary to maintain the Pacific Direct Current (DC) Intertie at 3,100 MW. Without the needed upgrades, capacity on this pathway-which provides for the critical exchange of energy between the Northwest and California-would be downgraded to 1,100 MW due to reliability concerns.

I will continue to work with Sen. Murray, Rep. Dicks and other Northwest members on securing this borrowing authority, and I hope the Administration will recognize its importance in ensuring the reliability of the Western grid.

As we look to the future, I also believe these infrastructure improvements are key in determining the success of any regional transmission organization (RTO) envisioned for the Northwest.

As you know, stakeholders in this region have been actively engaged in an effort to produce an RTO proposal, known as RTO West. These discussions have at times stalled over how to deal with issues such as congestion management and pricing. I believe many of these issues would be decidedly easier to remedy were the region assured that BPA would be able to maintain the adequacy of its transmission infrastructure.

I would like to note that I am supportive of efforts to explore an RTO for the Northwest that would provide tangible net benefits to consumers. I also believe, however, that FERC must not preempt these discussions by mandating a West-wide RTO or prescribing a one-size-fits-all approach across all regions of the country. As with many issues we have dealt with during this trying year, I believe it is imperative that the Commission instead recognize the drastic differences between regional energy markets as it contemplates wholesale transmission policy.

On the supply side of the infrastructure equation, I hope you will also recognize that the Northwest is marked by its reliance on hydroelectric power. About 60 percent of this region's firm energy generation derives from hydro, while the number is even higher-78 percent-for Washington state itself. While the relatively inexpensive nature of hydropower has traditionally driven our power costs far below those in other regions, it also renders us susceptible to drought.

Thus I believe that diversification of our generation, including the development of new renewable and distributed resources, is a crucial in ensuring the adequacy of our supply. I believe FERC-consistent with the work of other standard-setting organizations--will play an important role in the development of reliability, interconnection and net metering rules, which will encourage the mass development of affordable renewable and home-energy generation technologies.

Yet another ramification of the Northwest's reliance on hydropower is the fact that we face many challenges associated with management of our natural resources and endangered species. In this regard, I believe there is a delicate balance we must strike in ongoing discussions regarding reform of the FERC hydro relicensing process. I believe we can reach a solution that will both streamline an unnecessarily lengthy process and protect our environment and endangered salmon stocks.

While I regret I cannot participate in this important conference, I encourage you to listen to the Northwest perspective on infrastructure issues represented today by my friend Gov. Locke, our utilities and regulators. I look forward to continuing this discussion of an issue so crucial to the citizens and economy of Washington state, and working with you to ensure that the unprecedented events of the past year are not repeated.

Sincerely,

Maria Cantwell U.S. Senator

cc: Commissioner Linda Key Breathitt Commissioner William Massey