Columbia River Calling

Understanding the Canadian Entitlement

A frequent topic of discussion in the reviews of the Columbia River Treaty is the Canadian Entitlement.  The sharing of the downstream power benefits is part of what makes the Columbia River Treaty unique and a great example of countries working together to optimize the benefits of a river and then share those benefits.  However, it can also be a confusing topic since most of us do not work in hydropower world.  Here is a summary of what the Canadian Entitlement is and why it is a frequent focus of Treaty conversations.

What is the Canadian Entitlement?

The Canadian Entitlement is 50% of the projected additional downstream power benefits that the US must return to Canada at the border as part of the Treaty agreement to jointly operate dams in Canada for US flood storage and hydropower optimization. These downstream power benefits are “the difference in the hydroelectric power capable of being generated in the United States of America with and without the use of Canadian storage” (CRT Article VII). Another way to put it, is that the Canadian Entitlement is 50% of the potential benefit of increased power production due to the additional storage in Canada resulting from the Treaty and coordinated operations of the various dams and reservoirs in the basin.  The Canadian Entitlement is returned to Canada in the form of energy* and capacity.**  The BC Treaty review states that “over the last ten years (2000-2010) the average annual Canadian Entitlement has been approximately 1320 megawatts capacity (about 11% of BC Hydro’s total capacity) and approximately 4540 gigawatt hours of energy.”

*Energy in this case is electricity.

**Capacity is the ability to generate or transmit electricity. For the Canadian Entitlement this is the maximum amount of power that Canada can request over a single hour.

How it is calculated?

As mentioned above, the Canadian Entitlement is 50% of the projected additional downstream power benefits.  The Canadian Entitlement is calculated based off a negotiated formula and the Assured Operating Plan (AOP) that the US and Canadian Entities develop six years prior to the operation year (so the Entitlement for this year was determined in 2008).  The AOP projects what their studies estimate flows (and therefore hydropower potential) will be.  The same year that the AOP is developed, the Entities create a report called the Determination of Downstream Power Benefits that calculates the Canadian Entitlement.

Who contributes to it?

Those dam owners/operators that benefit from coordinated river operations contribute to the Canadian Entitlement. This includes the federal government (i.e., Bonneville Power Administration, US Bureau of Reclamation, US Army Corps of Engineers) as well as utilities.  Chelan County PUD, Douglas County PUD and Grant County PUD (known as the Mid-Columbia PUDs) contribute approximately 27.5 percent of the power delivered.

Where does it go?

The Province of BC owns the Canadian Entitlement.  Today, it is sold by Powerex to either BC Hydro or utilities in Alberta or United States at market value.  The money earned then goes into the general revenue account of the Province. To direct some of those monetary benefits to the Canadian portion of the basin, the Columbia Basin Trust was established in 1995 and received $276 million for power project construction, $4 million for an endowment, and $2 million a year from 1995-2010 for operations.

Why do the US and Canada cite different values?

The Province of BC sold the first 30 years of the Canadian Entitlement to a group of US utilities for $254 million (US dollars).  That agreement expired in 1998 and now the Province receives the Canadian Entitlement.  Depending on your source of information, the Canadian Entitlement (since 1998) is valued between $100- $350 million (US dollars) per year.  There are a few reasons why there is such a large range in the values cited:

  • Variations in flow – As the projected river flows vary from year to year so will the projected amount of additional power benefits.
  • Energy prices – Dollar values placed on the Canadian Entitlement reflect the price Canada receives from selling the energy. As energy prices fluctuate for any number of reasons so will the monetary value of the Canadian Entitlement.
  • Consideration of flexibility and reliability in monetary evaluation – The US likes to highlight the flexibility aspect of the Canadian Entitlement. Specifically, how Canada can choose which hours of the following day that it wants anywhere from zero to a maximum agreed upon amount of power (in 2013 it was 1,321 MW) to be delivered. The US believes that this flexibility coupled with the reliability of the delivery increases the value of the power source.
  • Cost to replace the energy – Some estimates of the value of the Canadian Entitlement consider what it would cost Canada to replace the energy source. For example, BPA estimated that it would cost British Columbia $250-$350 million each year to replace the Entitlement with a new gas generating resource.

What are areas of disagreement on the topic of the Entitlement?

The US and BC disagree on the purpose of the Canadian Entitlement as a benefit-sharing strategy.  In its fact sheet on the Canadian Entitlement, the US Entity states that:

“The U.S. Entity’s view is the Canadian Entitlement and the flood risk management payment were designed to produce a value that reflected an appropriate total payment to Canada for the cost of Treaty dams by the time the Treaty could be terminated in 2024. While the Treaty authors did their best to forecast conditions far into the future, their 1960s-era calculations overestimated regional growth in the demand for electricity and did not anticipate modern constraints on the operation of the dams to protect threatened and endangered species.  Also, they could not have anticipated the significant regional development of conservation and renewable energy resources and other electricity market factors, all of which influence the value of power in the region. In short, the U.S. Entity believes that over the life of the original Treaty, the U.S. will have fully compensated Canada for its investments in Treaty dams.

This presents a view that the Canadian Entitlement is intended to compensate Canada for the Treaty dams.  Canada on the other hand also views the Canadian Entitlement as a means to balance the ongoing dam/reservoir impacts on BC residents and the other benefits received by the US as a result of the altered timing of river flows (e.g., flows more amenable to safe navigation and increased water availability in the summer for irrigation).

The US and Canada also disagree on whether or not the Canadian Entitlement should be adjusted to more accurately reflect the actual amount of downstream power benefits after considering actual US operations.  The AOP and Determination of Downstream Benefits calculate the theoretical flow river and value of the Canadian Entitlement.  The river flow calculations are refined as time progresses and more information is available about what the actual river flows will be.  The various operating plans under the Treaty set the flows that Canada must deliver at the border and use that to calculate the projected power generation.  However, after receiving the flows, the US deviates from the operations laid out in the plan in order to comply with various domestic laws.  This means that the dams and reservoirs are often not being optimized for power generation, but for other benefits.  Therefore, less power may be produced, but the US still must honor its commitment and return the energy and capacity projected six years prior.  The US would like to adjust how the Entitlement is calculated to reflect how it actually operates its dams and reservoir.  If these adjustments were made, the US believes the value of the Canadian Entitlement would be about 10% of what it currently is.

Canada believes that the US’s decision to adjust river flows for other purposes, such as protection of endangered species, is a domestic decision that should not impact the international arrangement.  Canada’s position is that it upholds its obligations under the Treaty to deliver river flows at the border according to the various operating plans and should not be penalized if the US chooses to use those flows in ways that are different from the operating plans that optimize power generation.

Why is the Canadian Entitlement a frequent topic of discussion in the Treaty reviews?

  • Terminating the Treaty is one way to end the Canadian Entitlement – The Canadian Entitlement only continues as long as coordinated operations under the Treaty continue. This means that without the Treaty, the US would keep the energy and capacity it currently returns to Canada.  Though it is important to note that the two nations disagree on how much that energy and capacity there would be since they disagree on how Canada might change it operations and the flows across the border with the Treaty in place.  It is also important to note that while upwards of $350 million is a lot of money, the US-Canada relationship is worth a whole lot more and termination is unlikely.
  • Various interests view the current approach to the Canadian Entitlement as inequitable – The Treaty review is a perfect time to express one’s views of how or why the Canadian Entitlement is inequitable in hope to make benefit sharing more equitable. Disagreements about the Canadian Entitlement are not new, but now there is a much more public venue for talking about them–on both sides of the border.
  • Cheap, renewable power is important to both nationsCheap electricity rates attract a lot of businesses to the US Pacific Northwest that benefit the regional economy. Likewise, BC utilizes hydropower to help drive its economy. Hydropower is also critical to BC’s efforts to reduce its greenhouse gas emissions and reaching public sector carbon neutrality.
  • Allocation of the Canadian Entitlement – I mentioned above that several utilities in the US contribute to the Canadian Entitlement. How much they contribute is based on agreements they have with the Bonneville Power Administration.  Those agreements end in 2024.

Sources of information:

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