Electricity Surplus? Depends on Independent Power Impacts

Columbia Basin Bulletin
February 22, 2007

Does the Pacific Northwest electric power system have a surplus supply of electricity for the next 10 years or does it currently have an electricity deficit the size of a nuclear power plant?

The answer depends on one key variable, officials from the Bonneville Power Administration said this week.

That variable is the more than 3,000 average megawatts of independent electric power generation sources that have been built in the Northwest but are not contractually committed to serve Northwest consumers.

Whether and when this generation or alternative sources are purchased by Northwest utilities will likely determine whether the Northwest experiences reliability or price volatility problems.

Supply and demand for electricity is a fundamental driver of potentially rapid increases in electricity prices as well as the possibility of blackouts. Such problems are more likely to occur during dry conditions in the hydro-rich Northwest when periods of extended hot or cold weather occur.

Independent power producers often are not connected to regional utilities through contracts, but rather, sell their energy into the power marketplace up and down the West Coast through short-term transactions with utilities and power marketers. Utilities, conversely, typically build generation or buy into long-term contracts to directly serve a dedicated customer base. These utilities may supplement their supplies with independent power when they hit periods of peak consumption or when their own plants are undergoing maintenance.

BPA's recently released 2006 Pacific Northwest Loads and Resources Study "White Book" and the Northwest Power and Conservation Council's Fifth Power Plan show modest regional power surpluses through 2016, but the forecasts assume the 3,360 average megawatts of generation from the region's independent power producers would be available to serve Northwest consumers under critical water conditions. This generation represents about 15 percent of the region's total power supply. Absent this supply, the near-term Northwest energy outlook would be about 1,300 average megawatts deficit.

"The bottom line is that the Northwest should not gamble on its energy future. Adequate power supplies are necessary to fuel the region's economy," said Steve Wright, BPA administrator. "Given the lead time needed to develop new energy infrastructure, now is the time to be making critical decisions about our electricity future."

Wright said if the region runs into a supply and demand crunch as it did in 2000 and 2001, it could force the Northwest to compete with other Western markets for independent generation supplies, resulting in price volatility.

Even if the power is available to the region, it would likely be costly, leading to higher rates for Northwest consumers.

Wright also noted that some regional utilities had difficulty meeting their consumer loads during the July 24, 2006, heat wave that hovered over the West Coast.

"We need an adequate energy infrastructure -- generation, energy efficiency and transmission lines -- to avoid another energy crisis in our region," said Wright.

BPA's portion of the regional electricity picture, is forecast to have energy shortfalls beginning in 2007 -- two year's earlier than BPA's last White Book forecast. During the next 10 years, the deficits will vary from a low of 24 average megawatts in 2007, to a high of 260 average megawatts in 2011 under critical water conditions. Load obligations -- or demand for electricity -- on the federal system over the next 10 years are forecast to vary from 8,151 to 8,467 average megawatts. The federal system comprises 31 federal dams and one nuclear plant.

"While regional forecasts display an electricity surplus, many individual utilities are looking at near-term deficits and consequently are considering or making power supply acquisitions," Wright said. "This apparent conundrum is explained by the existing generation that is not contractually committed to the Northwest."

BPA will adopt new policies this spring that will guide the agency in negotiating proposed new 20-year contracts. Current contracts expire in 2011.

"For the past few years, we have been working with our customers and other regional stakeholders to determine what role they would like BPA to play as supplies tighten," said Wright. "Do they want to rely on BPA to meet their load growth or will they arrange for their own power supplies? Regardless, we need to work swiftly to secure our region's energy future."

The White Book assumes continued electricity production from the lower Snake River dams. Removal of these dams would substantially exacerbate the supply and demand picture and result in significant cost and reliability challenges for Northwest ratepayers.

The 2006 White Book is available online at www.bpa.gov/power/whitebook2006