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Reducing Market Exposure Cassandra Sweet Con.Web, December 20, 2002

PGE Draft Resource Plan Favors Long-Term Contracts, Additional Renewables

Getting power directly from the plants that produce it and using more renewable energy are at the heart of Portland General Electric's draft integrated resource plan.

The renewables piece, however, has encountered some criticism. Industrial customers contend PGE shouldn't pay for above-market costs of new renewables beyond Oregon's public-purposes charge, while the Northwest Energy Coalition believes the investor-owned utility relies too much on natural gas-fired resources and uses inflated wind power costs.

Signing long-term contracts and tolling agreements, purchasing an equity share in one or more generation facilities and building its own power plant also are on PGE's list of possibilities for rounding up resources to serve customers.

Just as PGE wants to expand its use of long-term contracts and buy equity in one or more power plants, the utility wants to reduce its exposure to wholesale energy markets. Maintaining a "load-resource energy balance over the year" is PGE's favored strategy over "deliberately going long or short" and having to depend on the market either to buy or sell power, according to the plan.

Stability Favored
PGE's preference for longer-term resource supply arrangements came partly from customers, who said they favored stable prices and planned energy supplies, said Mike Mikolaitis, PGE's general manager of power supply engineering and strategy. "Price management, with regard to price volatility and the significant change from year to year, was a big problem" for customers, he said, particularly those who use between 30 kilowatts and 1 megawatt. "We tried to factor that into our planning."

The result is a draft plan that focuses on owning or contracting for resources that "have an honest-to-goodness plant behind them, through a purchase or tolling agreement," Mikolaitis said. PGE wants to get away from buying power from brokers, traders or short-term marketers, he said, and therefore it plans to move "to a longer-term commitment with the ability to lock in the price."

Despite a recent economy-related slowdown in customer energy use, PGE expects its loads to grow an average of about 2 percent a year through 2051. In this light, following through with development of the company's planned 650-MW Port Westward gas-fired plant in Oregon makes sense, according to the plan. "We haven't made a commitment yet to build the project," Mikolaitis cautioned. "We'll have to compare Port Westward to all the other potential alternatives."

A Renewables Target
Although a number of variables remain undecided in PGE's resource plan, the utility has set its sights on two targets: acquiring 40 average megawatts of renewable energy by 2010, and realizing 25 aMW from efficiency upgrades at its existing power plants.

Adding more renewables means lower costs from transporting natural gas and fewer headaches from environmental concerns about burning fossil fuels, the company said in its plan.

PGE plans to purchase renewable resources both from subsidized funds--the 3-percent public-purposes fee established with Oregon's electricity industry restructuring--and from straight resource acquisition budgets. Meanwhile, the utility is trying to persuade customer representatives that going beyond this subsidy and buying renewable energy at prices within $5 per megawatt-hour (0.5 cents per kilowatt-hour) of the cost of non-renewable resources is a good deal, particularly since a growing number of customers appear willing to pay a premium to develop green energy resources.

Skepticism on Renewables
Industrial Customers of Northwest Utilities, however, is skeptical of PGE's plan to pay above-market prices for renewable power outside its subsidy. "The 3-percent public purpose charge was to support the above-market cost of renewable resources ... and that's all customers are obligated to pay for," said ICNU executive director Ken Canon. "To the extent PGE wants to do something beyond that and above market, they should do it on their own and not charge ratepayers."

The Northwest Energy Coalition, however, said PGE's integrated resource plan relies too much on gas-fired power resources. The group criticized PGE's renewable resource plan, as well as its forecast of natural gas prices.

In comments filed last month with the Oregon Public Utility Commission, the coalition criticized PGE's estimate that gas prices would remain between $2.50 and $3 per million British thermal units, whereas PacifiCorp, in a similar integrated resource plan, concluded that gas prices would be more like $4 to $6 per million Btu (see related story). A new Alaska pipeline or more liquified natural gas import facilities would be needed to keep gas prices low, and gas price volatility has driven investors away from such projects, the coalition said in its comments. "Certainly the 2002-2007 prices for 12-month strips that we have seen recently argue that a cost of at least $3.50-4.00 would seem more reasonable than PGE's lower estimates," wrote NWEC's Steve Weiss.

The coalition also criticized PGE for inflating the price of wind power, compared to PacifiCorp. PGE estimated wind resources to cost between 6 cents/KWh and 7.5 cents/KWh, eventually dropping to 4.5 cents/KWh in 20 years. (The utility estimated gas-fired generation power costs at 4 cents/KWh). PacifiCorp, by contrast, estimated wind power would cost between 3.3 cents/KWh and 6.2 cents/KWh, averaging about 4.75 cents/ KWh--"quite a difference in the early years," Weiss wrote.

He criticized PGE for basing its integrated cost calculations for wind on a figure provided by Bonneville Power Administration, which, he said, the agency later admitted was inaccurate and would be recalculated. PacifiCorp conducted its own integrated cost calculations for wind and arrived at the lower figures.

The Oregon Office of Energy, meanwhile, agreed with ICNU that PGE should not charge customers for above-market renewable resource costs. In comments filed with the OPUC last month, the OOE also urged PGE to look more closely at gas price volatility, and at PacifiCorp's analysis of wind integration costs, among other factors.

OPUC staff is expected to issue a draft recommendation on PGE's resource plan by the end of the month; a final staff recommendation and a commission meeting are planned for early 2003.

Related Sites:
PGE's draft integrated resource plan