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NW Fishletter #227, March 8, 2007

[2] Economists Flunk Enviro Report On Economics Of Dam Breaching

A panel of independent economists that provides reviews for the Northwest Power and Conservation Council has thoroughly panned a report that says the region could save money by taking out the lower Snake dams.

The panel says the report, titled Revenue Stream, underestimates the cost of replacement power by so much that it "invalidates" the report's conclusion.

The Independent Economic Analysis Board was asked by Council members to take a look at the report, which was released last November.

The panel submitted its scathing review to the Council last week, noting that the report was not the product of peer review or an open public process, and that "many of the sources of the report came from other reports that were also not products of open process and peer review.

The IEAB said the report contained several other major methodological failures, including not discounting future benefits and costs of dam removal, and questionable accuracy of agency fish budgets.

Perhaps its biggest flaw, the board said, was reliance on a 2004 report by Idaho-based economist Don Reading that estimated huge benefits from a fully restored recreational fishery.

The panel panned Reading's report in 2005 for his pie-in-the-sky estimates. It found that Reading "had made a number of methodological errors which seriously biased his benefits upward." Reading had said fishing benefits could top $500 million a year.

The panel said the report's estimates of benefits to commercial fishermen were open to question as well, since they were not peer-reviewed. The numbers came from the Institute of Fisheries Resources, a group associated with one of Revenue Stream's sponsors, the Pacific Coast Federation of Fishermen's Association.

The economists said it might be time to do a follow up to the Corps of Engineers' EIS on impacts of removing the four lower Snake dams that would fix weaknesses in that huge analysis, and reflect the "many changes" in the economy, transportation systems, power generation and the state of fish recovery efforts.

But the panel failed to mention the misuse of a 2004 report commissioned by American Rivers, one of Revenue Stream's own sponsors, which was used to peg the costs of upgrading railroads to be between $18 million and $231 million. The consulting firm that completed the study actually estimated that costs of changing over from barge transportation to rail could add up to more than $1.4 billion. The consultants complained at the time about their work being misrepresented by their client.

Other cost estimates were lowballed as well. BPA spokesman Scott Sims said the lower Snake dams generate $400 million to $550 million in power every year, which is about three times the cost of replacement power cited in Revenue Stream if the dams were breached. BPA said when accurate numbers were used in the calculation, net benefits claimed in the report become a net cost of $1.5 billion to $3.8 billion over 10 years.

The Revenue Stream estimate came from a 2002 Rand report, and from numbers developed by the Northwest Energy Coalition. The panel said it was unclear whether the report's estimate of replacement power included transmission and ancillary costs, which would likely be even higher than for combined-cycle combustion.

In a Feb. 28 press release, Steve Weiss, senior policy associate for the NW Energy Coalition, said the IEAB made a "major error" by assuming the hydropower would be replaced by fossil-fueled gas turbines, "something that never would be considered given the high cost of natural gas relative to efficiency and wind power."

In a footnote to Revenue Stream, the authors said updated information from a 2000 NWEC report called "Going With the Flow" was used to develop the upper limit of their estimate of the cost to replace power from the dams, with more that 80 percent coming from conservation, and about 18 percent from wind power.

But the IEAB pointed to a 2002 review of the earlier RAND report by NPPC staffer Terry Morlan that found conservation and renewables would not reduce the cost below that of combined cycle generation. The board said that upper bound in Revenue Stream "appears to incorporate" some of the same conservation cost assumptions from the RAND report.

But Weiss neglected to mention that wind power is notoriously unreliable and generally needs some type of expensive backup to ensure reliability. During last year's heat wave in July, regional wind power facilities barely generated 12-15 percent of their capacity simply because there was no wind.

BPA said the lower Snake dams not only produce more than 1,000 average megawatts a year, up to 15 percent of its total power supply, but they are also "helpful to fill in behind intermittent sources of power such as wind and provide the region with electricity reserves that help maintain overall system reliability." -B. R.

The following links were mentioned in this story:

Review of the SOS Revenue Stream Report, Feb. 25, 2007

Revenue Stream

NW Fishletter 223, Nov. 20, 2006

NW Fishletter 224, Dec. 20, 2006

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