Canadian Columbia River Basin Forum Stephen Oliver VP Generation Supply Bonneville Power Administration November 10, 2005

2 Outline Northwest and BPA Overview The Increasing Value of Hydroelectric Power Increasing Demands for More Flexible Operations Operational Requirements in Support of Fisheries The Future of the Columbia River Treaty

3 The Bonneville Power Administration Congress created the Bonneville Power Administration (BPA) in 1937 to market and transmit the power produced by Bonneville Dam. BPA’s functions: Assure the adequate, economical, efficient, and reliable power supply for the Pacific Northwest. Acquire resources necessary to meet load. Ensure transmission access, public preference, and regional preference to customers. Operate and maintain the Pacific Northwest high voltage transmission system. Mitigate for the effects of the Federal Columbia River Power System (FCRPS). Serve as Chair of the U.S. Entity, Columbia River Treaty

4 Federal Columbia River Power System The U.S. FCRPS includes 31 hydroelectric projects with 209 turbine-generating units. (21 Corps of Engineers projects and 10 Bureau of Reclamation) in Washington, Oregon, Idaho, and Western Montana. Over 22,000 MW of nameplate capacity and about 8,600 aMW of hydro energy production with average water Ninety-four percent (94%) of the FCRPS generating capacity is in12 projects. Seventy percent (70%) of BPA power comes from hydro. Over forty percent (40%) of the U.S. PNW Region’s power comes from BPA.

5 The Increasing Value of Hydroelectric Power

6 Last year saw the largest gain in global oil demand since Worldwide demand increased 2.6mbbl/day. China's demands lead the increased consumption. Their share was 940 kbbl/day, or 36% of the global increase. This is only the second time in history that a single country increased oil consumption by more than 900kbbl/ day in the course of a year. The last time was the U.S. in The U.S. was second behind China in oil consumption growth last year, increasing kbbl/day. This year's oil global consumption growth is below the pace of last year, but still very strong.

7 The Increasing Value of Hydroelectric Power The value of hydro power capacity has also grown as result of: 1. deregulated market demand for more responsive resources and creation of ancillary services markets; and 2. the ability to integrate and respond to non- dispatchable renewable resources such as wind and solar.

8 Consequences of the Increased Hydro Power Value Any operation or transaction decreasing energy production (spill), or de-optimizing the value of energy production (shaping) will become far more costly and contentious. Treaty Supplemental Operating Agreements and non-treaty storage agreements may become more difficult to accomplish due to increased uncertainty over future non-power requirements, market prices, and transmission constraints. Allocation of rights to hydroelectric production capability will become more contentious.

9 Increasing Demands for More Flexible Operations Transmission system redispatch to address existing system constraints GridWest (or alternative) system operations and new markets (energy balancing, congestion) requirements Wind (and other resource) integration needs New power products that offer greater independence (Slice)

10 Operational Requirements in Support of Fisheries In sharp contrast to growing market demands for greater flexibility, the growing demand from fisheries interests are: Spill more water for juvenile fish bypass; Shape system flows into spring and summer, and out of winter peak periods in support of juvenile migration; and Reduce (flatten) daily peaking operations to provide improved rearing and spawning conditions.

11 Changes in FCRPS Hydro Generation due to Fish Requirements (2004 NOAA BiOp) (Average of 50 water conditions)

12 Operational Requirements in Support of Fisheries Comparison of Fish & Wildlife Costs vs. PF Rate

13 Operational Requirements in Support of Fisheries Environmental, fisheries, and tribal interests acted to enjoin 2005 spring and summer operations. This resulted in court ordered increased spill at a cost of approximately $70-75 million. Legal proceedings defining 2006 operations are occurring at this time. Increased spring and summer spill and flow to support greater in-river migration are the focus. Parties are also asserting in various venues that a restricted peaking operation on main stem Columbia generation would be beneficial. The potential for alterations in Canadian Treaty storage project operations to enhance spring and summer flows is being discussed.

14 The Future of the Columbia River Treaty Canada and the U.S. have a long, very positive and successful history of working together to implement the Treaty in a manner that has created the greatest mutual benefits. Columbia River Treaty was designed to assure power and flood control benefits in Canada and the U.S., but had the foresight to allow mutually beneficial operations for other benefits. Entities are confident they will continue to create the greatest mutual benefits, within Treaty requirements, until at least Treaty may be terminated on or after 16 September 2024, with 10 years advance notice, by either: Canadian Department of Foreign Affairs, with concurrence of British Columbia, or The U.S. State Department. It is reasonable to expect that prior to 2014 the Entities will be asked for their opinions on termination

15 The Future of the Columbia River Treaty If the CRT is terminated in 2024: BC will continue to operate Mica, Arrow, and Duncan, and the U.S. will operate Libby, for benefits within the country of ownership (subject to Boundary Waters Treaty). Canadian Entitlement will cease to exist, and the U.S. will retain all incremental power at downstream U.S. projects from the operation of Canadian storage, and Canada will continue to retain all incremental power downstream due to the operation of Libby. Canadian Entitlement in 2023 estimated at average annual MW energy and MW Capacity The value of 500 average annual MW of energy at $75/MWh is about $329 (US)million/year.

16 The Future of the Columbia River Treaty Whether or not CRT is terminated in 2024: Canada must continue to operate Treaty reservoirs for U.S. flood control needs if requested by the U.S.. However the U.S. must compensate Canada for any operating costs and economic losses due to requested flood control operations. U.S. Army Corp of Engineers will determine the U.S interests for continued flood control operations. If the CRT is NOT terminated in 2024, U.S. continues to provide the Canadian Entitlement, and Canada continues to operate storage for downstream power and flood control benefits unless otherwise agreed. Canada or U.S. may desire to renegotiate payment amounts for downstream power benefits, and operational arrangement for other benefits.

17 Conclusions Rapidly escalating carbon based fuels prices, combined with new market demands for increased operational flexibility, have dramatically increased the value of hydroelectric facilities. The ability to optimize hydroelectric production must be reasonably balanced with fisheries mitigation actions that may reduce hydropower capability and operating flexibility. Canada and the U.S. must be steadfast in our efforts to continue to derive the greatest mutual benefits from our joint operation of the river through the Columbia River Treaty. Considering the future of the Columbia River Treaty post-2024 will be complex, and demands a thoughtful approach and analysis well in advance of 2014.