Last month, customers of Central Electric Cooperative, the Redmond-based rural electricity provider, received a letter from CEO Dave Markham with some surprising news. Despite a near record snow pack that left reservoirs overflowing and created a surplus of cheap hydropower, customers could expect a nearly eight-percent increase in their monthly bills come October when the coop's two-year contract with the federal Bonneville Power Agency expires.
The simple explanation: Too much of a good thing. In short, wrote Markham, a surplus of hydropower and an influx of new generation from wind farms had pushed down prices for power sales that help subsidize the CEC's rates.
While there are many factors in the rising cost of power, the rate hike, which was finalized last week by the federal government, highlights the difficulty of integrating wind power into the existing electrical grid and how the cost is trickling down to residential ratepayers.
The challenge of managing wind power output in conjunction with the federal government's vast hydroelectric system along the Columbia River system, has been a topic of academic and policy-level discussion since early last year when it became evident that the growth of wind power was outstripping any previous projections. Currently, there is roughly 3,500 megawatts of wind production capacity in the Northwest grid, roughly the equivalent of three new nuclear power plants. By 2013, that number is expected to jump to nearly 6,000 megawatts. Over the past few months, however, the discussion has moved from academic to economic after wind power producers filed a formal complaint seeking millions of dollars in compensation from the federal power marketing agency, a cost that would be passed on to Bonneville's customers, including CEC.
There is also concern that the increased generation from wind will push down prices on the wholesale power market, which has historically represented a lucrative revenue stream for the Bonneville Power Administration (BPA), the agency that markets and sells all of the region's hydropower to customers like Central Electric Cooperative. When BPA has a surplus of power, usually due to favorable water conditions, it sells that additional energy on the open market at retail prices. The profits from those sales are one of the major reasons that BPA is able to keep its wholesale prices in check for customers like CEC.
But when there is too much surplus power, prices begin to drop. That means fewer subsidies for BPA's wholesale customers like CEC.
"There's a sweet spot in the middle, a range of near average hydro conditions that have a stable effect on rates," said Jeff Beaman, CEC's member services director.
This spring, there was more power in the grid than customers needed and the prices plummeted to nothing. BPA asked utilities to idle their gas and coal-fired plants, and replaced the balance with hydropower at no cost. But in June, with demand low due to unseasonably cold weather and the ongoing recession, the federal government couldn't hold back any more water in the Columbia River reservoirs. In years past, it would have simply spilled the excess supply over the tops of the dams to relieve the pressure, but federal environmental regulations designed to protect endangered salmon and steelhead precluded spilling more water. The BPA turned to wind power producers in May, ordering them to cut off power production.
Wind power producers were incensed at the unilateral decision to curtail their production. While the BPA provided surplus hydropower to the wind power industry's commercial customers, which are primarily investor-owned utilities like PacifiCorp and Pacific Gas and Electric, the wind industry pointed out that the decision cost it several million dollars in state and federal renewable energy tax credits, which are one of the primary economic incentives for wind power developers and typically only honored when a renewable energy project is actually generating electricity.
"We feel like this situation is not about grid reliability and it's not about fish protection. It's that [BPA] is using its control to seize transmission rights for their own use," said Paul Copleman, a spokesman for Iberdrola Renewables, a Portland-based wind developer that has more than 1,000 megawatts in the Northwest power grid and is the lead complainant in the FERC case.
Rather than idle wind power generation during times of surplus electricity, the wind industry has pushed for BPA to sell power at a loss in markets beyond the Northwest, primarily California. It's an approach that the wind industry says is common in other areas where the federal government is in the business of managing transmission systems. In a so-called "negative pricing" scenario, BPA would pay out-of-state utilities to take its surplus during the temporary period of oversupply, typically during the spring runoff.
That would allow the wind industry to continue to send power to its customers and claim the millions in tax credits that it missed this spring. The existing transmission system, however, limits just how far and wide BPA can send power during times of surplus production. While there has been a fair amount of discussion about the need to upgrade the transmission system to handle the additional capacity in the Northwest and the growing demand in the California market, the cost estimate is in excess of $5 billion. Even so, there's no guarantee that other markets will take the power, said Doug Johnson, a BPA spokesman.
Johnson said that despite the surplus power in BPA's system this spring, there was additional transmission capacity in the lines to California. What was lacking was demand for the power.
"California was basically in the same position," Johnson said.
The only option would have been to pay California utilities to idle their production and take the power that they were turning away. Not surprisingly, BPA and its wholesale customers weren't interested in subsidizing Californians in order to provide the capacity for the wind industry.
"We were introducing a cost for which [our customers] would receive no benefit, which we don't think is the best way to go," Johnson.
But if the wind industry is successful, BPA's customers could end up paying, regardless. And by some accounts, they could end up paying significantly more to cover the lost tax incentives.
While there are no hard numbers, it's likely that the BPA could have subsidized power sales for pennies on the dollar, said Rachel Shimshak, executive director of the Renewable Northwest Project, a Portland-based non-profit that advocates for increased reliance on renewable energy. Her group crunched some of the numbers in a negative pricing scenario and estimated that subsidizing out-of-market sales would have added about 15 cents to the average customer bill this past spring. More importantly, Shimshak said that any temporary losses that BPA would have suffered would have been offset by increased generation over the course of the summer.
"The truth about last season is that there was a tremendous amount of hydro and while it presented some challenges during the spring snowmelt, now you have full reservoirs to sell from into a much better market over the summer," Shimshak said.
In reality, the decision to idle wind power during the surplus affected only a small portion of the total wind power production on the system and for only limited times over the course of several weeks, usually at night and on weekends when demand for power was at its lowest. A BPA review of its own policy found that total wind power output was just seven percent lower than its scheduled production between late May and late June, the first four weeks that the policy was in effect.
Wind power advocates, however, say that the decision to scale back wind output this past spring could have a chilling effect on the renewable power industry in the Northwest. That's bad news for an area of the country that has wooed billions of dollars in renewable energy investment in the past half decade, said Iberdrola's Copleman.
"Fair and non-discriminatory behavior benefits everybody. When you use monopoly control to take a away our transmission rights, you create a dangerous precedent for the sanctity of contracts that chills the investment climate in renewables that have been incredibly successful in the Northwest in creating jobs and bringing an economic benefit to that part of the country," he said.
If there's acrimony over this past spring's policy to curtail wind power, there's also a commitment to work collaboratively to find a solution, stakeholders said. In June, wind power representatives, utilities and federal power managers met in Portland to discuss the challenges facing the system and discussed a range of approaches, including finding ways to move more power out of the regional system to other markets, including Canada, as well as storing power and dumping power.
"This a brand new dynamic and we're looking for every option to avoid it," said BPA's Johnson.
In the meantime, when the wind blows and the water flows, the Northwest will continue to wrestle with what to do with too much of a good thing.