Hydropower in Northwest Faces Costs and Competition

Water from America's rainiest skies pours off the mountains of the Pacific Northwest, powering giant turbines and producing relatively cheap hydropower.

And low-cost electricity is likely to remain a staple for residents here.

But the federal Bonneville Power Agency (BPA) - which produces half the electricity for four states in the region - is facing a serious cost squeeze. It's operating costs are rising, pushed up by a fattening bill for protecting salmon and other wildlife. At the same time, rival utilities, generating power with low-cost natural gas, are threatening to lure away customers.

Scrambling to keep its clients, the BPA announced plans earlier this month to lower its rates.

''Their offer is in the ballpark,'' says Mark Crisson, director of Tacoma Public Utilities, referring to BPA rate cuts proposed July 10. The municipal utility currently buys about 40 percent of its power from Bonneville. ''They've done quite a bit in the last year or so'' to trim costs, he says.

Created in 1937 to market power from dams in the Columbia River, the BPA cannot afford to lose customers, analysts say. It needs to keep money flowing in to cover its huge fixed costs - a $16-billion debt and escalating price tag for helping endangered salmon and other wildlife affected by the dams.

''We must and will continue to pursue cost and quality control,'' BPA administrator Randy Hardy said in announcing the rate cuts of as much as 13 percent.

As Mr. Hardy struggles to put Bonneville back on solid financial footing, he faces pressure not just from market forces but also from a host of interest groups: environmentalists, utilities, farmers, and aluminum companies that depend on low-cost power to keep their smelters open.

Coupled with the economic crisis, the BPA faces shifting currents in the nation's capital, where congressional Republicans have raised the idea of privatizing the power system. For that to occur, the economic issues must be resolved first, analysts say.

In an effort to control the biggest wild card - skyrocketing fish-protection costs - Sen. Mark Hatfield (R) of Oregon last week inserted a cap on BPA salmon costs into an energy bill. The limit would go into effect in October 1996 unless some other agreement is reached that limits Bonneville's exposure to the issue. Fish and wildlife costs, now about 20 percent of the BPA's budget, must be controlled regardless of whether privatization occurs, many observers say.

But the ''fish cap'' idea draws criticism from the Northwest Conservation Act Coalition, representing environmental and consumer groups in the region. Spokesman Jim DiPeso says the builder of the dams should remain responsible for any damage to fish habitat.

An even bigger cost, about one-third of the agency's budget, is the almost $7 billion in debt left over from its failed effort to build four nuclear power plants for the region. The project, known ironically as ''whoops'' (for Washington Public Power Supply System) was a financial disaster. One plant came on line, but now loses money and may need to be mothballed.

THE fish and nuclear issues together have helped push Bonneville's power rates up ninefold, from 0.3 cents per kilowatt hour in 1979 to 2.71 cents per kwh (wholesale) today.

Mr. DiPeso contends that BPA customers who had ''signed up'' to buy nuclear power should not be allowed to avoid their share of the costs. If they want to reduce purchases from the BPA, they should pay ''exit fees'' for their share of the WPPSS debacle. Utilities in the region are fighting this idea.

He bristles, meanwhile, at the BPA's plans to curtail conservation subsidies to the region's utilities. Support for energy-efficiency programs is part of the BPA's mandate under the 1980 Northwest Power Act, he says. And in the current market, utilities don't want to make up-front investments in conservation, despite the long-term payback, he adds.