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Utilities, Consumers are Preventing Another Generation Gap

by Bert Caldwell
The Spokesman-Review, July 20, 2006

Two events occurred almost simultaneously Monday that would have been unthinkable six years ago. One, sweltering Californians demanded a record 46,561 megawatts of electricity. That's enough to supply about 50 Seattles.

Two, the Bonneville Power Administration announced it will reduce the price of electricity sold to Northwest public utilities by 4 percent. When the federal agency began its rate-making process several months ago, officials had expected an increase.

Because transmission lines tie California and the Northwest together, it follows almost as surely as supply follows demand that high electricity usage in Fresno can increase prices in Walla Walla. That's certainly the way things worked in 2000, when another heat wave toasted Californians. As they cranked up the air-conditioning, so too did utilities competing for electricity bid up prices for what little power was available up and down the West Coast. Northwest utilities with drought-depleted hydropower resources joined the frenzy.

Enron Inc. and the like made the situation worse by tying up transmission lines and shutting down generating plants, but the underlying problem was too little electricity. The result was wholesale power prices that periodically exceeded $1,000 per megawatt-hour, compared with normal levels of less than $30.

Monday, wholesale prices in California during the late-afternoon hours of peak demand were all of $60 per megawatt-hour.

Obviously, much has changed.

In California, they junked much of a disastrous energy deregulation plan that forced utilities to buy much of their power as needed, instead of locking in supplies ahead of time at lower prices. Less than 5 percent of the power used in the state is now purchased on the "spot" market.

Also, $4 billion has been invested in transmission grid upgrades, and 8,300 megawatts of new generating capacity is available.

Northwest utilities have been busy as well. Since 2001, more than 5,700 megawatts in generating capacity has been added. Transmission bottlenecks have been eliminated by running new wire between Spokane and Grand Coulee Dam, for example.

The Northwest Power and Conservation Council says the region has a comfortable level of reserves for the next decade.The catch, as always, is what kind of water years we have. That 5,700 megawatts is welcome, but Grand Coulee alone has more than 10 times the generating capacity, although daily output is far less.

And to further separate apples from oranges, let's be clear that the peak California demand we are talking about on a single Monday afternoon in July is not the same as a Bonneville rate that will not be implemented in the Northwest until October. The plan allows for increases under several circumstances if the agency's financial stability is threatened.

Nevertheless, considering how tightly the energy fortunes of all West Coast states are interconnected, the reversals of fortune over the last few years are noteworthy. Bonneville customers like Kootenai Electric Cooperative and dozens of businesses and governments successfully leaned on the agency to come up with a rate plan that put rates in the $27 per megawatt-hour range for the next three years. With luck, and snow, that should stick.

Also worth mentioning, and this is true nationwide, is the contribution conservation is making to keep supply and demand aligned, and not incidentally, to avoid blackouts during extreme conditions. California state government offices were told to cut electricity use by 25 percent during the hours of peak demand. In New York City Tuesday, consumers cut demand by a remarkable 650 megawatts by dimming lights and taking other steps to ease the load.

Every power plant not built to meet new consumer demand helps keep rates down. The Northwest will not be adding any cheap hydropower. Plants fired with coal, natural gas or uranium will almost certainly never be as inexpensive to operate, a reality more Northwest utilities will have to face up to now that they will have to buy however much electricity their consumers use over and above what Bonneville can deliver. Keep the lights on, but use the dimmer switch.

Bert Caldwell
Utilities, Consumers are Preventing Another Generation Gap
The Spokesman-Review, July 17, 2006

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