At the halfway point between the West Coast energy crisis of 2001 and the next major electricity contract renewal year of 2011, a federal power marketing agency is proposing a policy change that could affect rates in the Pacific Northwest for generations and become a national model for energy development.
Northwest hydropower is one of the cheapest energy resources in the nation – about half the current market rate for electricity. The Bonneville Power Administration – which sells power in all of Washington, Oregon and Idaho and parts of California, Nevada, Utah, Wyoming and Montana – announced this summer it wants to change the way it charges utilities for its wholesale power, to keep rates low.
Bonneville proposes to make hydropower a separate resource while charging utilities a different rate for any additional power they want from the federal agency. Currently, utilities pay a blended rate that adds in the cost of developing resources or buying additional power to meet load growth.
In exchange for the low hydropower rate, utilities would take full responsibility for building the power plants or generating the extra electricity needed to meet growing demand past 2011 – instead of the federal government.
Utilities could still rely on Bonneville to get them extra power, but they would have to pay higher “tiered” rates – which Bonneville hopes will provide utilities with more incentive to either find ways to conserve electricity or generate it themselves.
“The thing I find exciting about this is a chance for the Northwest to control its own destiny,” said Bonneville chief Steve Wright.
But the Citizens’ Utility Board of Oregon warns the proposal could raise rates for many residential customers and farmers, especially in Oregon, a state dominated by large investor-owned utilities that already generate some of their own power – unlike small public utilities supplied by Bonneville.
Bonneville is presenting the plan as a rate decrease, but the regional trend is to raise rates among residential customers of investor-owned utilities, said Jason Eisdorfer, an attorney for the utility board.
Eisdorfer called the proposal a significant departure from the policy laid out by Congress in the Northwest Power Act of 1980. That law calls for Bonneville to acquire resources for the public, he said. Under the Bonneville proposal, finding new power sources will be up to the utilities.
Bonneville markets hydroelectricity from a system of 31 federal dams on the Columbia and Snake rivers, and one nuclear plant in Washington state. It amounts to about 40 percent of all the power supplied in the how big? region, along with seasonal exchanges with California.
But that percentage will keep shrinking as demand for power grows because no one expects any more huge dams will ever be built, forcing the region to explore alternatives such as wind turbines, solar power, coal gasefication and geothermal energy, while facing steep price increases for the other main alternative, natural-gas-fired generators.
“Overall, I think the agency is doing the right thing – both for itself and for its customers – and for the region as a whole,” said Pat Reiten of PNGC Power a consortium of 15 rural electric cooperatives that serve seven Western states – making it the fourth-largest customer of Bonneville..
What Wright and Bonneville want to avoid is the kind of trap that ensnared Bonneville during the 2001 crisis. Prices skyrocketed when customers who had pressured the agency to allow them to buy lower cost electricity on the open market in the late 1990s suddenly returned for cheap power when wholesale prices spiked over 400 percent. It drove up prices for everybody by forcing Bonneville to buy extra power on the volatile spot market.
“We don’t want another West Coast energy crisis,” Wright said.
To ensure stability, Bonneville also wants to return to long-term contracts spread over 20 years after the current crop of shorter contracts left over from the energy crisis expire in 2011.
The Bonneville proposal, open to public comment through October, has gotten generally favorable reviews. It will be up to Wright to decide whether to put it into effect, a decision he hopes to reach by January.
“I think the majority of utilities I’m aware of are comfortable with the concept,” said Bob Titus, energy services director for the city of Ellensburg, Wash.
But the proposal does pose the risk of upsetting the effort to balance rate increases evenly among states – especially Washington and Oregon. Washington is heavily dominated by dozens of small publicly owned utilities while two large investor-owned utilities cover most of Oregon.
Public utilities have benefited in the past from a program called the residential exchange that has spread the cost of developing new generating resources between Bonneville and the large investor-owned utilities, Eisdorfer said. The 2011 Bonneville plan would shrink the value of the residential exchange, he said.
The utility regulatory commissions of Oregon, Washington, Idaho and Montana sent a letter to the Northwest congressional delegation early this month warning the Bonneville proposal would reduce the share of federal hydroelectric system benefits to the residential and small farm ratepayers served by investor-owned utilities such as PacifiCorp and Portland General Electric.
But the congressmen say the proposal offers the region a chance to show energy policy leadership for the rest of the nation during a critical transition to multiple alternative and renewable generating resources.
“We led the country until the late ’90s, when we had all the ‘BS’ about deregulated markets and that sort of false path we went down,” said Rep. Peter DeFazio, D-Ore., a veteran of political battles over energy policy.
“I look at this as the rekindling of Northwest leadership,” DeFazio said.
ON THE NET
Bonneville Power Administration: http://www.bpa.gov
by William McCall, Associated Press