Learn the intertwined history of BPA and direct service industries

Among BPA’s diverse customer base, which ranges from public utility districts to tribes, direct service industries (DSI) are a unique customer type that share a substantial history with BPA. At one time, DSIs were foundational to the agency’s core business and consumed 2,500 average megawatts, enough electricity to power over 2 million homes.

Fueled by low-cost hydropower, these entities were critical to the industrial boom of the 20th century and played a pivotal role in helping to shape the unique history of the Northwest. Now, only one customer remains. Read on to learn more about the intertwined history of BPA and DSIs and why this customer base has vanished.

What are DSIs and why were they so important to BPA in the early years?

DSIs were a group of industrial manufacturers that operated plants in Oregon, Washington and Montana. These companies purchased wholesale power directly from BPA rather than buying from a local host utility. Their plants used primarily electricity-intensive industrial processes to make products such as aluminum, steel, paper, chemicals and ferroalloys.

Industrial customers were drawn to the Northwest due to the abundance of hydropower and direct access to ports necessary for shipping abroad and locally. With BPA able to provide low-cost, reliable power, many of these customers looked to the agency to meet their energy demands. Companies such as the Aluminum Company of America, also known as Alcoa, and Kaiser Aluminum established mills across the region.

In the 1940s, World War II fueled an economic boom and drove the expansion of DSIs. The Northwest became a major hub for the construction of warships and airplanes, which required a tremendous amount of readily available aluminum, steel and other metals needed for construction.

The State of Washington became central to the construction of naval ships. Published in January 1943, the War Production Washington periodical says, “No State has been more profoundly affected economically by the expansion of war industries than Washington . . . The immense amount of low-cost power made available by Bonneville and Grand Coulee have been responsible for the State’s new position in the field of aluminum manufacture . . . .”

The manufacturing boom spurred population growth as the prospect of numerous jobs and livable wages drew tens of thousands to the Northwest. According to the periodical, “In the two-year period 1940-1942, Clark County increased at the phenomenal rate of over 40% and adjoining Cowlitz County increased over 11%. Shipbuilding and aluminum production are responsible for this increase.” The Northwest entered an age of prosperity.

As time progressed, BPA’s relationship with industrial customers was solidified under the 1980 Northwest Power Act. U.S. Congress formally recognized industrial customers as “direct service industries” to which BPA had the option to sell low-cost, rate-based power to these companies. Even as it recognized DSIs, though, Congress took additional steps to limit their future expansion as a BPA customer type to preserve access to hydropower for the benefit of the public and utilities across our service territory.

BPA also saw a mutually beneficial relationship with these companies as they provided a steady stream of revenue. In 1992, the agency received $448 million in revenue from its DSI, accounting for 25% of the agency’s total revenue.

In addition, BPA received other system benefits such as operating reserves. When a disturbance occurred on the transmission grid resulting in an unexpected loss of generation, BPA could rely on DSIs to temporarily reduce their scheduled load. In return, this reduction would allow BPA to better balance the amount of energy consumed with the amount of energy produced, which is imperative to managing a transmission grid.

What happened to the DSI customer base?

In 1995, DSIs reached their height, with 35 different customers consuming an average of 2,500 megawatts per year. Nearly 30 years later, only Port Townsend Paper Company remains.

Global competition has greatly impacted the ability of DSIs to sell their products. As foreign countries have intensified their production of industrial exports over the past 70 years, companies like Alcoa have lost to the competition in the NW. As recently as 2019, Alcoa shuttered their Intalco plant in Ferndale, Washington, unable to generate a profit with the influx of cheap aluminum on the market.

What is the future of the DSI?
“The Northwest Power Act prohibits BPA from selling electricity to any new DSIs, leaving Port Townsend as BPA’s last and final remaining DSI customer,” says Mark Miller, the DSI power account executive. Recognizing the importance of the hydro system to Northwest utilities, Congress wanted to prevent new entities from gaining access to this valuable resource. Only customers with contracts with BPA at the time of the Act would be considered DSIs and new DSI would not be permitted.

The energy that was once used to serve DSI load has now shifted to meet the needs of BPA’s public preference customers, which are mostly consumer-owned power utilities. The Northwest has seen growth in population resulting in additional energy needed to power homes and businesses. Additionally, BPA can sell extra energy in a secondary wholesale market.

“BPA will continue to seek new opportunities and customers to market its valuable surplus energy to,” said Miller. “Success in a secondary power market means downward rate pressure for our public preference customers, which translates to lower rates for their consumers.”

BPA remains committed to providing high quality power products to its customer base, especially as the region moves forward post the era of Regional Dialogue contracts and into the future with Provider of Choice.