Grand Coulee Dam and the Columbia Basin Project usa final Report: November 2000

3.1.7  Benefits from Small Scale Hydropower 
 
In addition to producing agricultural commodities, the CBP also produces hydropower on its irrigation 
canals. Both the Butler and Reclamation Reports foresaw the development of such small 
hydropowerplants, and imagined that they would be used for supplemental pumping to lands at elevations 
greater than the canals. The Reclamation Report expected “power plants and transmission lines at suitable 
places along the canals of the distribution system for the generation and distribution of about 26 000 
kilowatts of seasonal power” (USBR, 1932: 79).  
 
There are currently seven small hydroelectric plants within the project area, which vary in size from a 
rated capacity of 2.2MW to 92MW (USBR, 1994b). The seven plants together averaged an annual energy 
generation of 546 910MWH from 1990 to 1994 (USBR, 1994b). As envisioned in the Butler and 
Reclamation Reports, they run seasonally, during the irrigation season (April to October) when the water 
is flowing through the canals.  
 
Rather than using the power for supplemental pumping in the CBP, however, the power is being sold to 
the cities of Seattle and Tacoma. These cities agree to purchase the power generated and pay operation 
and maintenance costs during the capital repayment period (McDaniel 1999), plus an incentive of 1.6 
mills for each kWh generated. The profits earned from this operation are used to reduce the operation and 
maintenance costs of the irrigation districts. CBP farmers receive a benefit of between $0.98 and $1.42 
per acre, depending on the irrigation district.
23
   
 
3.1.8  A Qualitative Benefit-cost Appraisal of CBP 
 
Data in the planning documents produced in the early 1930s make it possible to develop the outlines of a 
contemporary benefit-cost analysis, albeit in qualitative terms. For example, the “without project” net 
benefits associated with dryland agriculture have been provided and accounted for in the 1932 
Reclamation and Butler reports. Those reports also contain the investment costs and the net financial 
returns that could be expected from the irrigation project itself. The result, if organised in a cash flow 
format, would be sufficient to compute the net present value (NPV) or the internal rate of return (IRR) of 
the project in financial terms.  
 
What is missing, in terms of a contemporary analysis, is the accompanying economic benefit-cost 
calculations. To economists, financial prices are the market prices used by private individuals and firms 
to make their business decisions. Economic prices, on the other hand, are determined by the value of 
resources to the economy as a whole when they are employed in their highest and best use. It is for this 
reason that they are sometimes called “economic efficiency prices”.
2425
 
 
Differences between market and economic prices may arise in a variety of ways. The presence of 
imperfect markets in which there are major monopolistic or monopsonistic elements is one such way. 
Another example occurs in the presence of external effects, ie, effects are not accounted for in market 
transactions. External effects are especially significant in the environmental area, where there are no 
markets that adequately value such costs to society as groundwater pollution or the destruction of 
downstream fisheries. 
 
The major source of difference between market and economic prices, however, is almost invariably 
public policy. Governments choose, for a variety of reasons, to distort prices from their economic 
efficiency values to achieve what are regarded as desirable policy objectives. What adjustments would 
have to be made to the market-based analysis of the CBP (in the 1932 reports) to calculate the net 
present values of the project from an economic efficiency perspective? Some important sources of 
market distortions have already been pointed out — subsidies to construction and energy costs paid by 
CBP farmers — and others will be described in later sections. But 1932, the Reclamation and Butler 
reports show that the attainment of economic efficiency was not the policy objective with the highest 
priority. The early planners of the Grand Coulee Dam and the Columbia Basin Project believed that the 

Grand Coulee Dam and Columbia Basin Project 
 
         28 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission 
 
social goals served by bringing irrigation water to the Columbia Plateau were worth the subsidies to 
farmers that they were proposing.  
 
Judgments about the efficacy of investments in the CBP (and the priority given in the feasibility study to 
market rather than economic returns) must therefore rest on an appraisal of the extent to which the social 
policies pursued by the government achieved their objectives. The results are mixed. A key social 
objective was to bring irrigation water to more than one million acres of land so that families working 
small plots of land could settle it. As noted above, only about half of the lands projected to receive 
irrigation water have actually been irrigated, about 20% of which have had significant drainage 
problems.  
 
The vision of rural communities made up of small family farms also did not survive. As Section 3.1.3 
indicates, changes in agricultural technology and the competitive pressures of post-war agriculture made 
it impossible to maintain the original acreage restrictions. Although most farms are still operated by 
families, their size and capital intensity generate incomes consistent with similar investments elsewhere 
in the economy. Pitzer comments: 
 
It is fair to ask what the project might be like today had the original planners achieved their 
goals. It would be a collection of family farms ranging from forty to eighty acres, none of them 
capable of supplying their owners with a satisfactory living. The area would be a rural slum. It 
is for the best that this aspect of the project failed. 
 
Identifying the actual beneficiaries of the CBP is itself not straightforward. A 1974 Ph.D. dissertation 
states that CBP benefits were unevenly distributed; 25% of the tenant-operators, who both owned and 
rented land, received 75% of the benefits, while the bottom 10% received no net benefits (Pitzer, 1994: 
366–7, 479).  
 
The identification of true CBP beneficiaries is also complicated by the fact that, after 1968, and in 
practice for a decade before that, land markets in the CBP have functioned, albeit imperfectly (Pitzer, 
1994: 307). As a consequence, the value of construction, drainage, and power subsidies to land owners 
has long ago been capitalised into the value of land, just as the Butler Report predicted. Newcomers (or 
those seeking to expand their holdings) have had to purchase land on the basis of its asset value, a value 
derived from its expected contribution to farm income. To them, and to those who rent land, there is no 
“benefit” from the CBP’s subsidies; they have paid for the expected value of the subsidies when they 
purchased or rented land. Only those who owned land that appreciated as a result of the subsidies are 
true beneficiaries of the project in the sense that they have earned above-market capital gains. (The 
reverse would be true, of course, if the subsidies were removed. Land prices would decline substantially 
as values reflected the asset’s reduced earning power. Those who purchased land in which subsidies are 
embedded would be hit hardest. It is only in this sense that they are beneficiaries of the continued 
payment of subsidies.) 
 
The entire CBP experience illustrates the difficulties of merging an administratively managed system 
with a market economy over long periods of time. Pitzer notes that, in many instances, there was not 
enough planning to deal effectively with many of the CBP’s problems, drainage being an excellent case 
in point (1994: 366). However, his concluding comment, given the magnitude of the unforeseen changes 
that would take place, is more to the mark. “Despite the unprecedented planning, the project needed 
more, although it is possible that there could never have been enough.” (Pitzer, 1994: 366) 
 
3.2 Hydropower 
 
3.2.1  Projected vs. Actual Costs for Grand Coulee and its Powerplant  
 
As mentioned previously, GCD is a key project of the hydroelectric power system in the Columbia River 
Basin. The construction of GCD and its associated electrical plant was carried out in two stages, 

Grand Coulee Dam and Columbia Basin Project 
 
         29 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission 
 
separated by nearly three decades. The first stage included the dam and two powerhouses. It began in 
1933 and was completed in 1951. The second stage, consisting of the so-called, “Third Powerplant,” 
began in 1966 and was completed in 1975. 
 
Compared to CBP, which was constructed after World War II, construction of GCD and the first two 
powerhouses was considerably more efficient. As shown in Table 3.2.1, the initial estimate, developed 
by the Corps, was for a total construction cost of $149 million in $1932 (USACE, 1933: 748). 
Projections made by Reclamation in its report on the cost of the dam and powerhouses increased the 
figure somewhat to $168 million (USBR, 1932:81). Ultimately, the government allocated $179 million 
to GCD and the first two powerplants, in part to compensate for the inflation of the last several years of 
the project.  
 
Table 3.2 1. Cost of Constructing Grand Coulee Dam 
 
Predicted (millions of dollars) 
Actual (millions of dollars) 
 
Nominal 
1998 $ 
Nominal 
1998 $ 
Corps of Engineers (1932) 
149 
1 772 
 
 
Bureau of Reclamation (1932) 
168 
2 004 
 
 
US Government (1935-1943) 
179 
2 043 
163 
1 850 
Sources: USACE, 1933: 748; USBR, 1932: 8; Pitzer, 1994: 212.  
 
Pitzer observes:  
 
In all, the bookkeepers claimed that through June 30, 1943, Grand Coulee Dam cost $162,610,943. 
As the government had allotted $179,477,675, the balance on hand, which went back to the treasury, 
was over $16 million. In post-World War II years, such an occurrence would be astounding. (1994: 
212) 
 
This assessment may have been somewhat premature, as the cost in 1943 did not include the cost of 
finishing the right powerhouse, installing the nine generators that it contained, and completing the 
switchyard required for power distribution. But estimating the costs of building GCD turned out to be 
easier than assessing the cost of a settlement projects as vast and complex as CBP. Construction of GCD 
was nothing terribly original; it followed accepted dam building practices (Pitzer, 1994: 213). However, 
its size alone was sufficient to require innovative and cost-saving construction methods. 
 
In terms of subsequent costs, GCD repairs were required almost immediately after operation 
commenced, revealing a series of costly design errors. Pitzer notes: 
 
Workers performed other tasks at Grand Coulee through the late 40s and early 50s besides adding 
the generators. Despite the experiments during construction, operation revealed unforeseen design 
flaws. (1994: 257) 
 
Chief among the flaws were the large pits dug in the spillways from the force of the descending water 
and substantial erosion of riverbanks downstream. The cost of the repairs ran into the millions, with 
riverbank erosion still being a problem in the 1990s.  
 
In 1932, Reclamation’s planners estimated the cost of GCD and the left and right powerhouses to be 
about $2 billion in $1998. The actual cost of GCD and its power complex is carried on Reclamation’s 
books at $270 million in nominal dollars (USBR, 1998c: 1).
26
 Assuming that the additional $107 million 
in nominal dollars was spent evenly over ten years after the project’s initial completion, the total cost in 
$1998 was $2 670 million or approximately 33% more than envisioned by the early designers. (The 
actual cost was 45% above the estimate rendered in 1943.) This suggests that, while early construction of 
GCD may have been done within budget, the inflation of the post-war period plus unforeseen costs 
raised the total cost of the project substantially beyond early estimates made by the Corps and 
Reclamation. GCD’s Third Powerplant involved a massive remodelling of the right side of the dam. It 

Grand Coulee Dam and Columbia Basin Project 
 
         30 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission 
 
was built in order to take greater advantage of water that was stored in Lake Roosevelt after the spring 
runoff and to generate power from the water to be stored upstream by the dams built as part of the 
Columbia River Treaty. Although it would ultimately prove to be an economic success, the Third 
Powerplant was plagued by cost overruns and labour disputes throughout its construction.  
 
There is a much better basis for comparing predicted versus actual costs of the Third Powerplant than 
GCD and CBP because Reclamation was required to prepare a detailed benefit-cost analysis. According 
to the 1967 Definite Plan Report for the Third Powerplant, the cost of the project components would 
require the funds shown in Table 3.2.2.  
 
Table 3.2.2 Estimated Construction Costs for the Third Powerplant 
Facility 
Construction Cost (millions of dollars) 
 
1967 $ 
1998 $ 
Powerplant 322 
1 
571 
Switchyard 67 
 
325 
Tour centre 
  1 
    7 
Total 390  1 
903 
Source: USBR, 1967: ii. 
 
On the benefit side, project analysts established that sufficient demand for the power generated by the 
facility existed, especially with the completion of negotiations that would permit surplus power from the 
Northwest to be sold to power distributors in the Southwest. By far the major portion of the benefits was 
to come from the sale of hydropower, but there were other, smaller, benefits in the form of flood control 
and recreation, as shown in Table 3.2.3. 
 
Table 3.2.3 Benefits of the Third Powerplant 
Purpose 
Predicted Benefits (millions of dollars) 
 
1967 $ 
1998 $ 
Power 46.3 
225.7 
Flood control 
1.5 
7.2 
Recreation 0.4  1.9 
Total 48.2 
234.8 
Source: USBR, 1967: ii. 
 
Amortising the cost of the project over 100 years at a 3 1/8% interest rate yields an annual cost of about 
$66 million in $1998. When operating expenses are added, the annual cost figure is approximately $74 
million. The benefit-cost ratio, assuming that the forebay would be built so as to permit future 
expansion, is 3.18:1. 
 
Comparison of projected expenditures with the actual costs reported in a Reclamation financial 
statements suggests a significant underestimation of the costs of the project. The financial statement 
(USBR, 1998c) reports total expenditures of $730 million in nominal dollars. Assuming that the money 
was spent in roughly equal instalments over the nine years of the project’s construction, the resulting 
cost estimate is approximately $2 930 million as opposed to the predicted $1 900 million, an overrun of 
approximately 55%. 
 
In spite of the large cost overrun, if the 1967 benefit-cost calculations for the Third Powerplant had been 
redone using actual costs instead of estimated costs, the result would still have yielded a benefit-cost 
ratio of about 2:1 instead of 3.18:1.
 27
 The estimated benefits of additional hydropower were such that 
The Third Powerplant would have remained economically feasible even with substantially higher costs. 
 
3.2.2  Influence of World War II on Hydropower 
 
At the time construction began on GCD in 1933, the demand for power was substantially lower than the 

Grand Coulee Dam and Columbia Basin Project 
 
         31 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission 
 
amount that would be generated by the dam. Indeed, as late as 1937, critics of the dam expressed strong 
doubts that the demand for power would materialise at anything approaching the rates predicted by 
project boosters. However, the creation of local public utility districts and rural electrification 
programmes during the 1930s provided markets for the power generated at the Bonneville and Grand 
Coulee dams, and many people expressed enthusiasm for the concept of public power sold at "postage 
stamp" rates (ie, low uniform wholesale rates across the entire region). It was thought that such rates 
would promote wide use of the abundant hydroelectric power that would soon become available. When 
the “Bonneville Project” (the precursor to BPA) was created in 1937 to market and transmit power from 
Bonneville Dam, it sold power to publicly owned utilities at these postage stamp rates. Indeed, the 
Bonneville Project Act of 1937 include the following major policies: 
 
(1)  encourage the widest possible use of electric energy; (2) operate for the  
benefit of the general public, and particularly domestic and rural consumers;  
(3)  preserve the preference and priority for public bodies and co-operatives; (4)  
provide for uniform rates or rates uniform throughout prescribed transmission areas; and (5) 
set wholesale rates on the basis of actual costs as determined by specific guidelines (Norwood, 
1981: 64). 
 
By 1938, Roosevelt had turned his attention to increasing the nation’s electric power supply in 
preparation for a possible war effort, and BPA played a significant role in Roosevelt’s planning efforts. 
In 1940, an executive order directed BPA to market the power output from GCD, as well as Bonneville 
Dam (Norwood, 1981: 124). 
 
As the prospect of war became increasingly real, few had concerns about whether there would be 
demand for the power generated by GCD (and the Bonneville Dam which had been brought into service 
in 1938). As the US prepared for war, the availability of low-cost power in the US Northwest made it the 
obvious place to build power-hungry aluminium production facilities needed in producing warplanes. 
The federal government established a programme in which the Defence Plant Corporation built 
aluminium plants and leased them to private companies. As of mid-1942, industrial loads for war 
production accounted for 92% of BPA’s commitments to provide electricity (Norwood, 1981: 123). 
Power consumption increased in 1943, when a new “mystery load” appeared from the Atomic Energy 
Commission’s work in producing plutonium-based atomic weapons at Hanford Reservation in Richland, 
Washington. BPA also provided power for shipyards at Portland, Oregon and Vancouver and Seattle, 
Washington for plants that used aluminium to manufacture airplanes. 
 
Activities of the War Production Board greatly influenced BPA’s ability to transmit power in the region 
and Reclamation’s ability to bring additional generators online at GCD. The Board controlled where and 
how scarce materials were to be used. Partly as a consequence of the board’s decisions, BPA’s 
transmission system expanded rapidly from about 140 circuit miles (225km) of line in mid-1940 to over 
2 500 miles (4 000km) by mid-1944. However, by the end of 1944, construction of new lines had fallen 
dramatically. Wartime priorities for use of materials also stalled completion of the generators at GCD. 
 
After the war, the Defense Plant Corporation sold its aluminium plants inexpensively to invite 
competitors to Alcoa, which had long held the dominant position in the aluminium reduction and 
fabrication field (Norwood, 1981: 135). As a result, four large companies came to establish a major 
presence in the region: Alcoa in Wenatchee and Vancouver, Washington; Kaiser Permanente in Tacoma, 
Washington; Reynolds in Longview, Washington and Troutdale, Oregon; and Harvey Metals at The 
Dalles in Oregon. During the late 1940s, these companies were able to negotiate favourable rates for 
both firm and “interruptible power”
28
 from BPA.  
 
During the post-war years, BPA focused on retaining electro-metal and electrochemical plants that had 
come into the US Northwest during the war. It also focused on responding to the accumulated demand 
for customer service transmission facilities, particularly for rural electrification (Norwood, 1981: 145). 
During the 1940s and '50s, BPA was particularly successful in responding to the key elements in its 
original charter, namely to "encourage the widest possible use of all electric energy that can be generated 

Grand Coulee Dam and Columbia Basin Project 
 
         32 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission 
 
and marketed" (White, 1995: 72). The low-cost hydroelectric power marketed by BPA dramatically 
transformed the economy of the US Northwest.  
 
3.2.3  Predicted vs. Actual Power Generation and Capacity 
 
The Reclamation and Butler Reports differed in their projected estimates of power output for GCD. Both 
reports specified that the high dam at GCD would have a powerplant with an installed capacity of 1 575 
000kW (USACE, 1933: 714; US Congress, 1932: 17). The powerplant would have consisted of fifteen 
105MW capacity generators. In the Reclamation Report, the estimated mean annual firm power output 
was predicted to be 7 008 000 000 kWh.
29
 Reclamation’s engineers projected 800 000 kW of continuous 
firm power (USBR, 1932: 79). The Reclamation Report estimated that 2 260 000 000 kWh would be the 
mean annual amount required for pumping (USBR, 1932: 95). This report foresaw a pumping plant 
consisting of twenty 33 000 hp (24 618kW) motors, each connected to a pump with 800 cfs (22.7m
3
/s) 
capacity, for a total pumping capacity of 16 000 cfs (453m
3
/s) (US Congress, 1932: 161). 
 
The actual capacity and generation of power at GCD have far exceeded estimates. The actual rated 
capacity of the dam began to exceed predicted capacity from the start. This occurred because the 
installed generators had a capacity of 108MW, instead of the predicted 105MW. Other factors 
incrementally increased the dam’s capacity, including the installation of six pump-generator units in the 
1970s and 1980s, which added 314MW of capacity. Moreover, the stators of the original 18 units were 
rewound between 1966 and 1984, adding 306MW of capacity. These increases, however, are dwarfed by 
construction of the Third Powerplant, an addition unforeseen by both the Butler and Reclamation reports 
of 1932. The six units in this newer plant have added 4 215MW of capacity to the dam. Figure 3.2.1 
shows the predicted versus actual increase in hydroelectric generating capacity over time at GCD. 
 
Power generation for GCD has also been much higher than expected. This increased generation is due to 
several factors. For example, higher capacity than predicted made it physically possible for GCD to 
generate much more power than project planners envisioned. However, the chief factor in these higher 
generation figures is that demand for power has been much greater than predicted. Both the Reclamation 
and Butler reports expressed concern over how quickly GCD power could be absorbed. The Reclamation 
Report, which had less conservative estimates of absorption, predicted that it would take 15 years after 
the completion of GCD for the power market to absorb the predicted annual firm output of 7 008 million 
kWh. (USBR, 1932: 81, 142). Planners could not have foreseen that this output would be exceeded 
within eight years, when GCD produced about 8 383 million kWh in 1948. As mentioned, the outbreak 
of World War II led to a rapid increase in power demand. The most dramatic manifestation of this 
demand came with the installation at GCD of two generators intended for Shasta Dam in 1943 (Pitzer, 
1994: 252). The demand for power to support war-related activities in the US Northwest was great 
enough to justify this extraordinary measure. From 1943 onward, the combination of low rates, power-
intensive industries, and population growth has provided a ready market for GCD power. Figure 3.2.2 
illustrates the predicted versus actual generation of power at GCD over time. 
 
 
 
 
 

Grand Coulee Dam and Columbia Basin Project 
 
         33 
 
This is a working paper prepared for the World Commission on Dams as part of its information gathering activities. The views, conclusions, and 
recommendations contained in the working paper are not to be taken to represent the views of the Commission