Randall Hardy

Administrator

Bonneville Power Administration

BPA's central role in the Northwest has no counterpart among the other PMAs proposed for privatization. We hold approximately 45 percent of the market share, serve 85 percent of our customers' load, and provide rate benefits for 85 percent of all Northwest residential consumers.

By contrast, the other PMAs have less than 10 percent of the market in their respective regions. Because of its preeminence in the region, privatization of BPA would have serious ripple effects in the Northwest economy and could destabilize industries with national importance.

Given these circumstances, I offer five strong arguments against BPA privatization:

First, BPA's statutory requirement for cost-based rates remains the best assurance for long-term, low-cost rates in Northwest. Low-cost electric rates form the cornerstone of the region's economy, which has few natural advantages.

Second, as a public institution, BPA is uniquely able to make long-term investments that benefit the region. Development of the Columbia River hydro system occurred primarily because of BPA's ability to incur

short-term costs for long-term gains. Other prominent examples include construction of four major interties to California and three major hydro projects in Canada under the Columbia River Treaty.

Third, coordination with Canada is integral to maximizing the region's hydro system benefits. No private entity could negotiate a treaty with another government nor administer the existing treaty with its critical water storage arrangements.

Fourth, BPA's federal missions to provide leadership and funding for fish and wildlife mitigation, energy conservation and renewables development are unique obligations. There is, for example, no counterpart to our annual $500-million fish and wildlife program.

Fifth, retaining BPA as a federal institution will likely provide the greatest financial benefits to taxpayers. The new costs associated with privatization (e.g., refinancing the $16-billion existing BPA debt, and allowing for profits and paying taxes) must be covered in rates. Yet BPA's rates are already market-constrained. To make the sale profitable, the federal government would have to 1) substantially discount the price from what BPA would otherwise pay to the Treasury, or 2) retain the responsibility and/or liability for BPA's $7 billion of nuclear debt and its rapidly growing Endangered Species Act fish obligations. While the federal government may receive a lump sum in the near term from a sale, in each subsequent year and overall, federal taxpayers would see less money than if BPA were not sold.

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