July 17, 2013 Wenatchee, WA Kevin M. Nordt Grant PUD 1

o Columbia River Overview o What is the Columbia River Treaty? o Treaty Provisions & Benefits o The Future – Why are discussing this now? o Treaty Review Process – “Stop or Go”? o Mid-C perspective on an uncertain future 2

o 4 th Largest river in North America o Highest hydropower producing (`37,000 MW) river in US o 1214 miles in length o Drainage area 259,000 square miles o Canada has 15% of basin area but contributes ~35% of average annual flow at The Dalles o Highly variable discharge o Flow at Canadian border varies from 14,000 to 555,000 cubic feet per second (cfs), large variation. o Flow at The Dalles can vary from 36,000 to 1,240,000 cfs a ratio of 1:34 o Low storage to runoff ratio versus other major rivers 3

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o Multiple purposes must be considered in river operations and appropriately balanced. o Power, flood control, irrigation, navigation, environmental, recreation and cultural resource requirements. o Complex network of power projects exists. o Projects within basin are operated as a system to meet regional needs. o Done through PNCA on US side of border but what about coordination with Canada? 6

o An agreement with Canada guiding development and operation of water resources in the river basin for the benefit of flood control and power needs. o Canadian Treaty led to storage development and operating protocols that were created to reduce flood flows and increase generation at U.S. projects by shifting energy from low value time periods to high value time periods. o First implemented in

o 1944 – International Joint Commission (IJC) under 1909 Boundary Waters Treaty, asked to investigate development in Canada. o 1948 – Flood element of water resource studies got heightened impetus from major floods from Trail, BC down to Vanport, OR (30,000 displaced, over 50 died). o 1959 – Report of IJC, setting framework for allocating benefits and use of added storage. 9

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o Canadian Treaty storage reduces flood flows, reduces spilled energy, shifts energy from relatively lower value time periods to higher value time periods. o Canadian Treaty motivated significant infrastructure development such as incremental hydropower capacity and the California – PNW interties. 11

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o Canada to construct and operate three dams (Mica, Arrow/Keenleyside, and Duncan) with 15.5 million acre-feet (Maf) of storage in the upper Columbia River basin in Canada for optimum power generation and flood control in Canada and the U.S. o U.S. constructs and operates Libby Dam with 5 Maf of storage on the Kootenai River in Montana for flood control and other purposes. Libby creates benefits downstream in Canada and the U.S., with no payment requirements. o U.S. and Canada to share equally the downstream power benefits produced in the U.S from the operation of Canadian Treaty storage. 14

o Canada must operate 15.5 Maf of their Treaty storage for optimum power generation downstream in Canada AND the United States. o U.S. to deliver electric power to Canada equal to one-half the estimated U.S. power benefits (Canadian Entitlement) from the operation of Canadian Treaty storage, worth about $250-$350M/yr. 15 o Whose entitlement? B.C. Government owns Canadian Entitlement. o BPA (on behalf of the U.S. Entity) delivers the power based on daily schedules set by B.C. o Owners of five Mid-Columbia non-federal hydro projects deliver 27.5% of Canadian Entitlement to BPA for delivery to B.C.

o Canada must operate 8.45 Maf of reservoir storage (increased to 8.95 Maf in 1995 due to reallocation of Mica/Arrow storage) under a flood control operating plan. o Canada must also operate all additional storage on an on-call basis (as requested and paid for). Not used to date. o The U.S. paid Canada $64.4 million for one-half the present worth of the expected future U.S. flood damages prevented from 1968 through o This U.S. purchase of 8.45 Maf of flood control operation expires in 2024, even if there is no Treaty termination. Vanport Flood 1948 Portland Flood

o U.S. Entity - The Administrator of BPA (Chair) and Division Engineer of the Northwestern Division USACE (Member) implement the Treaty. (E.O. No , by President Johnson September 16, 1964) o Canadian Entity is B.C. Hydro and Power Authority. o PEB- Permanent Engineering Board monitors results and helps reconcile technical or operational issues. 17

o The Treaty has no specified end date; however, either nation can terminate most of the Treaty provisions after September 2024, with a minimum of 10 years’ notice. o Whether above provisions are terminated or not, the current assured flood control operating procedures will end in o These known and potential changes, after 2024, create much uncertainty around the long term operation of the Columbia River system. 18

o Flood Control o If Treaty continues, it still reverts to “Called Upon” flood control in 2024, which U.S. requests only for potential floods that cannot be adequately controlled by U.S. storage. o All US flood control space must be used prior to a call o Uncertainty about the flood control protection level post o Canada must be consulted prior to a called upon action, and it is no greater degree of flood control than prior to o U.S. must pay for operating costs and any economic losses in Canada due to the called upon operation. 19

Power: o If Treaty Continues– Still coordinated annual planning of an optimum U.S. and Canadian power operation, and associated certainty in planning and ops. o U.S. continues to deliver Canadian Entitlement. o If Treaty Terminiated- B.C. operates Mica, Arrow, and Duncan for its own benefit (subject to Boundary Waters Treaty), except for Called Upon flood control. o The U.S. continue to coordinate with Canada on the operation of Libby. o Canadian Entitlement ceases to exist. 20

 Complex analysis of pros, cons, cost/benefit and other impacts of Treaty Termination; Continuation; or Variation.  Power: initial look shows 50/50 is no longer captured by both sides. U.S. sending 400aMW to 500aMW (over 1300 MW capacity) to Canada, but retaining only 60aMW to 80aMW of value.  Flood: Paying for “Called Upon”, price per request? But, baseline and risk difficult to model.  Ecosystem/Other: another set of issues brought into the discussion this time around; along with several others such as navigation, recreation, irrigation, cultural, water supply, etc. 21

 U.S. Entity – BPA and Army Corps of Engineers  Sovereign Review Team to help in review and develop recommendation. ◦ 11 federal agency reps ◦ 4 state reps ◦ 5 tribal reps  Sovereign Technical Team – Iteration 1 and Iteration 2 modeling/studies.  Public Stakeholder Sessions  U.S. Entity to make recommendation to State Department by September

 Secretary of State and President: decide to maintain, terminated, modified, amended or supplemented by a diplomatic instrument.  Amendment would also need U.S. Senate approval. 23

 The post-2024 period increases the uncertainties facing project operators.  The Treaty assured operation provides a high degree of certainty but it comes at a significant cost – the Canadian Entitlement.  Areas of potential uncertainty:  Impacts of “called upon” flood control & “effective use”  Impacts to firm energy production associated with assured low water Canadian draft  Resource mix impacts on entitlement calculation  Treaty scope expansion  Finding a fair & equitable balance going forward is important. 24

◦ The Treaty, while not perfect, has done an excellent job in enhancing benefits to the entire basin and both countries. ◦ The year 2024 brings significant changes with potentially large impacts to the operation of the Columbia River. ◦ The potential changes to the Treaty, post-2024, raise policy and analytical challenges which are substantial. ◦ Each of us in the Northwest power markets should be aware of the potential impacts that may arise from future changes to the Treaty. 25

 Thanks to the following for assistance with reference material used herein: ◦ BPA ◦ Robert Cromwell, SCL ◦ Scott Corwin, PPC 26