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Puget Sound Energy Plans 150-MW Wind Power Solicitation Mark Ohrenschall Con.Web, September 29, 2003

Seeking Wind Power

Washington's largest utility is eyeing wind power.

Puget Sound Energy issued a draft request for proposals Aug. 25 for approximately 150 megawatts of wind energy capacity, as a power purchase and/or utility ownership. The investor-owned utility plans to issue the final wind RFP in early December. It hopes to have wind-generated electrons delivered by mid-2004.

This solicitation stems from Puget's least-cost plan, which identified the utility's need for an additional 436 average megawatts of electric resources in 2004, rising to more than 1,000 aMW by 2011 and nearly 2,500 aMW by 2023.

"We have the need for resources and our strategy is to meet that need through a balanced and diversified portfolio, as well as being aggressive with conservation and renewables," Puget resource planning manager Charlie Black told Con.WEB.

In addition to the wind RFP, Puget proposes to issue solicitations over the next year for thermal resources (including coal), other renewables, cogeneration and seasonally shaped power. Another wind RFP is possible in 2004 or 2005. Puget also plans to acquire 203 aMW of energy conservation from 2004 through 2013.

The IOU wants renewables to comprise 10 percent of its electricity supply by 2013.

Least Cost Planning

Puget's draft RFP outlines the context for the wind solicitation.

"The overall strategy for least cost resource planning at PSE is to develop a diversified, balanced electric resource portfolio that meets customer needs, results in reasonable energy supply costs and protects against market risks, such as those recently experienced in the region," it states. Puget's quest for added resources is driven by growing customer loads, reduced hydropower and gas-fired combustion turbine generation, and expiring power purchase contracts.

The utility's preferred resource blend for 2004-2013 is predominantly fossil-fueled--primarily combined-cycle gas-fired power (both year-round and seasonal), but also including coal. Those sources comprise almost 1,200 MW of the nearly 1,600 MW of new resources envisioned by Puget over the next decade. About 400 MW of renewables and conservation make up the remainder.

"This diversified approach provides an important means to avoid the concentration of risks that could result from relying exclusively on a single resource technology to meet all of the need," according to a summary of Puget's resource acquisition program.

In addition to diversity, Puget's strategy takes into account the utility's seasonal needs, namely the imperative for new resources to meet winter demands.

Puget also considers it better to acquire new resources in a series instead of simultaneously, to help spread risks and incorporate updated information.

First up is the wind RFP.

Black told Con.WEB several factors are pushing the wind solicitation timing, including bonus tax depreciation available for wind project capital spending by 2004, the marketplace presence of several other potential Northwest wind purchasers, and Puget's ambitious renewables goals, which equal about 270 aMW of energy, or 900 MW of nameplate wind capacity, in the next decade. "We really need to get going" to meet that target, Black said.

Wind RFP Particulars

Puget's draft RFP identifies the utility's interest in "approximately 150 MW of nameplate capacity from wind power resources." Minimum proposal size is 25 MW.

Potential projects must be located in Washington, Oregon, Idaho or Montana, "with preference given to sites within PSE's service territory that contribute to economic development of the host community consistent with local community preferences." Puget's primary service territory lies in Western Washington, but it also has customers in Central Washington's Kittitas County, site of three proposed large wind projects (see Con.WEB, July 16, 2003 ). Black said wind projects directly interconnecting to Puget's system could avoid added wheeling costs and some ancillary services expenses, while showcasing to customers a tangible renewable resource.

The IOU also expresses a preference for new wind projects beginning commercial operation by year-end 2004. Other utilities or their subsidiaries are welcome to bid.

Proposers can offer power purchase agreements and/or arrangments for Puget project ownership. "All other factors being equal, ownership is of significant interest to PSE and long-term power purchase agreements (up to 20 years or longer) are preferred over short-term," the RFP states.

Utility ownership possibilities include PSE buying and operating the project as it enters commercial production (or leaving operations to the proposer), PSE purchasing development rights and handling design, procurement and construction, or joint development/ownership. Black said utility ownership could offer more control over the resource, along with potential financial and contractual advantages.

Puget's draft RFP lists an estimated 20-year levelized cost of 4.28 cents per kilowatt-hour under Puget ownership, and 4.43 cents/KWh under a power purchase agreement. Black called this "our starting generic assessment" of potential wind costs.

The wind energy can be delivered to Puget as produced; firmed and delivered at a later date; or seasonally shaped to match the utility's needs, according to the RFP. The utility wants the wind-associated environmental attributes to "accrue to [its] ownership and beneficial use."

Puget's solicitation outlines a two-phase evaluation process.

"In the first stage, proposals will be screened to identify the most desirable wind resources on a stand-alone basis as measured against criteria such as cost, location and other thresholds," the RFP states. "In the second stage, the most beneficial projects identified in the first stage will be further evaluated as part of PSE's overall portfolio to identify those which perform best (from a cost-effectiveness, environmental, technical intergration, risk and other bases) in relation to PSE's existing and future resource mix." Selected project(s) would then be further discussed and negotiated for agreement(s), although Puget retains the right to choose no proposals for negotiations or contracts.

The RFP schedule calls for a 60-day comment period on the draft solicitation (ending Oct. 24), Washington Utilities and Transportation Commission approval by Nov. 4, final RFP issuance on Dec. 3, a response deadline of Jan. 9, selection of short-listed proposals by Feb. 2 and letter[s] of intent to move toward a final contract executed by March 19.