Also, we were particularly imaginative in our application in our use of treaty and nontreaty storage to enable British Columbia Hydro to receive interconnection ratings from time to time. This was, again, because of cooperation between the two systems. Finally, other creative flexibility and contract interpretation and new operating arrangements also helped British Columbia achieve this record year in export of power.

So, I beg to differ with the good Ambassador in his conclusion, because I don't think that the circumstances bear out that allegation. In fact, Bonneville was the grease on the wheel, as I say, for the export policies and strategies of British Columbia Hydro in the last several years.

Chairman HATFIELD. Mr. Johnson, just to sort of go back and pick up a couple of pieces on this, is it not true, as I understand the situation, that BPA owns, in effect, or controls the only interconnection between British Columbia Hydro and the United States as far as exports of power into the United States is concerned?

Mr. JOHNSON. Largely, yes. There is an ownership by Portland General Electric and Bonneville in the southern portion of the intertie, but the northern portion of the intertie is owned and controlled by Bonneville.

Chairman HATFIELD. It is not as if they have alternative systems through which they could export their power. They really are basically dependent upon that kind of access to export their power to the United States?

Mr. JOHNSON. At this time; yes.

Chairman HATFIELD. Then you are saying that you have been working to facilitate those hydro exports during this period of time when there has been a record high export by British Columbia over any other exporting systems in the whole country of Canada?

Mr. JOHNSON. That is correct.

BRITISH COLUMBIA FUTURE POWER INVESTMENTS

Chairman HATFIELD. Let me take that one step further. I understand also, Mr. Johnson, that British Columbia is planning to invest in new resources, additional resources for what would be called long-term export, and that at the present time, British Columbia is expecting to again transmit those new power developments through the BPA transmission lines; is that correct?

Mr. JOHNSON. That is correct.

Chairman HATFIELD. In other words, they have so much confidence in the future, based upon their current record, that they are going to invest in expansion and on transmission lines, by the way, which I might just gratuitously add, which are paid for by the Northwest ratepayers.

How far down the road is British Columbia in completing this new, long-term power development that will utilize BPA transmission lines for export to the United States?

SITE C RESOURCE DEVELOPMENT

Mr. JOHNSON. Mr. Chairman, it was in August of last year that Premier Bennett announced that it was his plan to build site C on the Peace River in Canada. He had reasons for doing this, but that was the first announcement that a sale of major resource would be made over a long-term period of time, up to 20, 25 years. Bonneville and other Northwest utilities, public and private, sent a letter to the Premier and to the chairman of British Columbia Hydro expressing an interest in that. We felt that this was creative, and we wanted to have an opportunity to assess the possible acquisition of that resource or participation in it.

We have commenced discussions with Canada and also with utilities in California and with utilities, public and private, in the Pacific Northwest. We have had many meetings beginning in late fall last year and continuing up through the present. We have been attempting to bring parties together to assess this opportunity. Through the pursuit of common interests, we can find benefits that then can be shared through not only the Pacific Northwest and Canada, but in California, as well. We have made it abundantly clear that there are certain actions that would be required precedent to this outcome.

This great success in the exporting of existing surpluses is within the framework of existing intertie capacity. So these are the conditions that we have advised the parties must be agreed upon before any consideration can be given to exporting a new major resource through the Pacific Northwest into California: First, that the intertie capacity between the Pacific Northwest and the Pacific Southwest must be increased to 7,900 megawatts, including completion of the third ac California transmission project. Development of that project has been ongoing, now, for the better part of 2 years, and it is advancing at this time.

The second condition is that contracts must be executed between Bonneville and other Northwest utilities and California utilities having an interest in the third ac California transmission project.

Third, environmental analysis pertaining to intertie development and long-term intertie access policy must be completed. Fourth, Bonneville's interest with regard to certain obligations must be preserved. In other words, if there, in fact, is going to be a firm path granted across the Pacific Northwest between Canada and California, we must first be assured that Bonneville's ability to repay its obligations to the U.S. Treasury are not impaired, that Bonneville is protected from adverse impacts on other ratepayers of systems served by Bonneville; and finally, the operation and planning in the Federal Columbia River power system, pursuant to applicable law, is conducted in an economic and efficient manner.

BRITISH COLUMBIA POWER EXPORTS

Chairman HATFIELD. Mr. Johnson, could I give you my layman's summary of where we are on that and see if I am correct? It appears to me that there has been a rather satisfactory and, I would say, rather successful access up to this point by British Columbia to export power through

the BPA transmission system into the United States; that the success of that arrangement has been further demonstrated by a public announcement by the Premier or other officials that there are plans to invest in expansion of resources to continue meeting that market within the United States through the Bonneville transmission lines. Bonneville, in turn, of course, has been involved in developing these transmission interties into California. We have been selling surplus power in that California market, and that has been part of our budgetary program to help make it possible to pay back to the Federal Treasury our investment in generation and transmission facilities and you have given the status of your repayment in your statement.

Now, as I understand the picture, then, there would be, in effect, a type of preference given for the continuation of selling any Northwestern power, surplus power, into the California market, but there certainly would not be any bar to the acceptance of additional Canadian power over those transmission lines. But if the market becomes saturated, which I doubt very much it will be in terms of building that second intertie into California, then and only then would there be some slowdown in any export from British Columbia into the American market, because that market is being saturated or being provided by the surplus within the Northwestern United States.

Is that an accurate description of the situation where we are as far as British Columbia is concerned and their future long-term development and resources?

Mr. JOHNSON. Mr. Chairman, I think that is a fair summary of where we stand at the present. The present existing intertie capacity is being effectively and efficiently utilized, not only by our own sources, but as I said, those in Canada, with existing operating resources. If there are to be existing resources built like site C, we must have additional capability.

MARKETING COOPERATION

Chairman HATFIELD. Then I come back to a puzzle, I guess. Could you speculate a bit as to why the Canadian Ambassador to the United States would, if quoted correctly, would at least imply, if not explicitly state, that there was somehow a sort of a threat here or at least a lack of cooperation in the ability of British Columbia to export its power based upon your statement here today and the record of that exporting that has been going on and that which could be planned for the future? I am puzzled as to why the Ambassador would make this kind of statement. Can you explain this?

Mr. JOHNSON. I don't think I can put myself in his shoes. I would, perhaps, suggest that he is looking through the eyes of and the province of British Columbia and its Premier, Premier Bennett, who is very anxious to stimulate the economy and create jobs in this work project, site C, that would be built ahead of need. They would need transportation to get to the U.S. border, but they don't have any control over how the power would be handled south of that. It might be a signal to our friends in California that, "We would like to make the sale, and if addi

tional transference is necessary, that would be a call we could make in the Northwest, as we certainly have." But our friends in California would have to recognize and appreciate this, as well.

Chairman HATFIELD. Then you would say you are not standing in the way and the record and statistics would prove that the Bonneville Power Administration is no bar to the exporting program of British Columbia?

Mr. JOHNSON. No; I think all anyone would have to do is look at the facts.

Chairman HATFIELD. After that great international incident, we will move along to our next witness [Laughter.]

ADDITIONAL QUESTIONS FOR THE RECORD

Thank you, Mr. Johnson.

Additional questions will be submitted to you for the record. If you could respond to those as quickly as possible, it would be most helpful. [The questions and answers follow:]

Question:

QUESTIONS SUBMITTED BY CHAIRMAN HATFIELD

WPPSS Supply System

Although rates now are stabilizing, in your

testimony last year, you indicated that rates are 600 percent more than in 1979. How much of the increase is attributable to WPPSS?

What percent?

Answer: WPPSS costs are recovered from the Priority Firm (PF) rate which has increased about 500 percent above its 1979 level. WPPSS costs currently represent about 65 percent of BPA's Federal Base System resource costs. Nearly all of this amount has been added to BPA's costs since 1979. After accounting for other costs, such as transmission and the residential exchange, the increase in WPPSS costs account for about 50 percent of the increase in the PF rate between 1979 and the present.

Question: Both WPPSS 1 and WPPSS 3 have been delayed, and your Resource Strategy indicates that the possibility of construction restart through 1992 appears less likely. What conditions have changed to warrant this modified view?

Answer: There are two reasons for this modified view concerning the construction restart date. First, the 1986 Resource Strategy used July 1985 load projections for the region which show a decline in both the medium and low long-term forecasts from those shown in the 1985 Resource Strategy. Second, there is an increased uncertainity that the forecasted loads will actually occur. uncertainity of these loads is reflected in the larger spread between the high and low forecasts.

The

Question: With regard to WPPSS 3, BPA has a 70% interest and recently entered into an out-of-court settlement. Please briefly describe the settlement and what impact it will have on the potential restart of WPPSS 3.

It

Answer: The settlement accomplishes several objectives. avoids adverse effects on other BPA customers, minimizes rate impacts, avoids influencing restart or termination of WNP-3 construction, requires minimal commitment of BPA's nonfirm energy resources, avoids any requirement that BPA acquire a resource, and shares appropriately the risks involved with operating a nuclear plant.

BPA's responsibilities under the settlement agreement are:

To provide the private utilities with electric power equivalent to the capability associated with their share of the investment in WNP-3 to date;

To begin providing the power on January 1, 1987, the estimated date WNP-3 would have begun producing energy if it had been completed on its last construction schedule prior to the delay;