Tom Karier is a professor of economics at Eastern Washington University and the author of "Intellectual Capital." He was a Washington state representative on the Northwest Power and Conservation Council for 20 years and worked on treaty issues for Washington governors from 2012 to 2018. The opinions in this article do not necessarily represent Washington state or the governors.
There was a time when advocating for termination of the Columbia River Treaty was considered radical, or at least a little reckless. That time has passed. If the goal is to secure a new agreement with Canada governing international water flows in the Columbia Basin, the only alternative for the United States is to terminate the old treaty.
Why do I think this? It is impossible to imagine a new agreement that makes Canada and the U.S. both better off relative to the old treaty. The reason is simple: Canada is doing great under the old treaty. There is no path that improves Canada's position that does not leave the U.S. worse off. There is, however, a strategy that will make both countries better off relative to no treaty and that is why the U.S. must terminate the treaty now.
The treaty formula that determines the amount of energy and capacity Bonneville Power Administration and the mid-Columbia PUDs must deliver each year to Canada (the Canadian Entitlement) is archaic and out-of-date. Even from the start it did a poor job of limiting the Canadian Entitlement to half the downstream power benefits attributable to the Canadian treaty dams. It contains odd and arbitrary assumptions about useable energy, the base system and critical periods, which barely made sense in 1964 but make even less sense in today's dynamic power market.
The value of the Canadian Entitlement, which varies with power prices, was reported to be worth C$202 million in 2019, and has ranged from C$111 million in 2016 to C$360 million in 2001. Because of many changes over the decades—including the intertie with California, renewables, energy conservation and special dam operations for fish—that formula now grants Canada almost all the downstream benefits.
But even if the Canadian Entitlement equaled only half the downstream benefits, it would still be too much. The original framers of the treaty decided that 60 years of U.S. payments would be enough and allowed either country to issue a termination order as early as 2014, which would take effect 10 years later. Were the original framers correct; was 60 years enough? According to my calculations, when all U.S. power payments are added up and adjusted for inflation and the interest rate, it is apparent the U.S. fully paid for construction costs of the three Canadian dams by 2002. Since then we have paid almost 40 percent over that price, and the amount continues to accumulate every year. Sixty years was more than enough time to compensate Canada for building the dams north of the border.
But these underestimate the value of U.S. payments because that power is worth more than the market price. The power delivered is carbon-free hydropower, which can be ramped up to meet system peaks and is flexible enough to balance intermittent renewables. Markets aren't sophisticated enough yet to capture the full value of these additional attributes. If they were, the overpayment would be even higher.
It should also be noted that in addition to U.S. payments, Canadians capture upstream benefits from the treaty in the form of reduced flood risk and higher power generation. For example, power produced at Mica and Arrow dams would not be possible if not for the treaty. A complete analysis, including all benefits and costs, has not been done but if it were, it would show the Columbia River Treaty has been a financial bonanza for Canada.
Almost seven years ago a broad confederation of U.S. federal agencies, Northwest states and tribes submitted a recommendation to the U.S. State Department asking it to negotiate a new Columbia River agreement that would help salmon and the broader ecosystem, provide flood risk management, and fix the Canadian Entitlement. That regional recommendation gave the U.S. State Department until 2015 to reach an agreement or else evaluate "other options." Not everyone was ready to endorse termination in 2013, but it was certainly one of the "other options," and now appears to be the only option if we are to achieve a new agreement.
The Canadians are not to blame. They agreed in the original treaty that either country could issue a termination notice as early as 2014. It's not their fault the State Department has failed to exercise that right. If the State Department insists on giving Canada hundreds of millions of dollars of valuable Northwest power every year, why should they object? And more importantly, why should they agree to a new deal that ends this lucrative arrangement? They are, in economic terms, rational actors. Canadians may be disappointed when the treaty is terminated, but not surprised. They understand the economics of the Canadian Entitlement as well as we do in the Northwest.
I recall asking a State Department official in 2013 when the U.S. would issue a notice of termination. He dismissed the concept and referred to it as the "nuclear option." I suggested he not use that term in public to describe termination unless he wanted to sabotage negotiations before they began. Why, I asked him, would he send the signal that the U.S. had no intention of terminating the treaty by referring to it as something abhorrent? And why would he expect Canadians to sign on to a new agreement if they suspected they could keep the old treaty indefinitely? He looked befuddled.
The State Department has run through plenty of excuses for not terminating the treaty. Initially officials claimed they needed time to consider the Northwest recommendation. From December 2013 to May 2018 they contemplated the six-page recommendation. Then they needed time to negotiate an agreement, which they have been doing since May 2018.
I recently checked with the lead negotiator at the State Department, Jill Smail, to see if she had anything to report. All I received was assurance that they "continue to seek common ground." I have heard the State Department does not support termination now because they do not want to offend our Canadian partners in the middle of negotiations. This misses the obvious point that continuing the treaty ensures there will be no agreement because the U.S. can't offer Canada anything better than the old treaty.
The stakes are even higher than hundreds of millions of dollars of clean hydropower. The flood control component of the treaty will automatically expire in 2024, leaving the U.S. and Canada without a serious plan to address flood risk in Washington and Oregon. This part of the new agreement needs to be developed now. And a new agreement offers the opportunity for operations that benefit salmon and steelhead, which are of critical importance to both countries. By delaying termination of the old treaty, the State Department has delayed a new agreement, thus increasing the risk to American citizens and to endangered salmon and steelhead.
The State Department could have declared in 2014 that it intended to issue a notice of termination for the Columbia River Treaty unless it reached a substantive agreement with Canada in six months. That would have accelerated negotiations and possibly avoided the necessity of actually terminating the treaty. At the very least it would have saved unnecessary entitlement payments beginning in 2025 worth hundreds of millions of dollars.
Before the Northwest can strike a deal with Canada, we need to first strike a deal with the U.S. State Department. The best and perhaps the only leverage the Northwest has on this federal agency is our congressional delegation. More than once, elected federal officials from Oregon, Washington, Idaho and Montana have risen above partisan and regional politics to unite in defense of Northwest interests. In fact, the delegation had to prod the State Department to start treaty negotiations in 2018 or it would still be reviewing Northwest recommendations.
It is time for the delegation to again intervene and insist that the State Department terminate the old Columbia River Treaty and get serious about negotiating a new agreement. The major barrier to a new agreement that optimizes power production, reduces carbon emissions, minimizes flood risk and benefits critical salmon populations for citizens of both countries is the old treaty and the U.S. State Department that stands behind it.