Is the Era of Low-cost Power
by Erik Olson
It's a question worrying ratepayers who are absorbing Cowlitz PUD's largest rate hike in a decade, especially because they're used to paying some of the cheapest power rates nationwide.
Cowlitz PUD's 18 percent rate increase went into effect Tuesday, marking the utility's third hike in the past three years. The average residential power user's monthly bill will rise from $90 to $106, leaving many to wonder if they'll ever see rates come back down.
"I feel like it's just going to keep going the other direction -- up," Bob Dashiell, a retired Reynolds Metals Co. aluminum worker from Longview, said last week while stopping at the PUD to pay his bill.
In the short term, Dashiell's fears seem justified. The renewable energy market has collapsed, the PUD recently lost its cheapest power source and demand is slowly overtaking supply for the utility's second-cheapest energy source -- Bonneville Power Administration hydropower. A renewable power initiative voters approved in 2006 is expected to sharply drive up rates during the next eight years.
All these factors are putting big pressure on power purchases, the PUD's biggest cost. And utility officials say they have no choice but to push those increases down to retail consumers.
"I wish there was an easier button to push," PUD General Manager Brian Skeahan told a packed auditorium at a rate hearing last month. Rates outpace inflation
Many ratepayers are thinking the same thing. For three decades, Cowlitz PUD's power rates increased twice as fast as the rate of inflation, as measured by the Consumer Price Index. And that's not including the monthly base charge the PUD tacked on for residential users two years ago, which has grown to $7.
"It's becoming a little much," Robert Tatum, a temporary laborer from Kelso, said as he dropped off his power bill payment last week.
Tatum said he has signed up for the PUD's energy assistance program, which will delay the PUD's 18 percent rate increase until April for qualifying low-income, disabled and senior residents. After that, Tatum said he'll have to seek more work to pay for rising expenses at home, where he lives with his wife and two young children.
Randy Peck, a Longview business owner, said the rate increase couldn't come at a worse time, when businesses are struggling and unemployment remains stubbornly above 11 percent countywide.
"It happens to take place when everything else is tight. Again, the little guy is having to bear the brunt of the increase," Peck said last week.
Loss of wind sales, low-cost hydro
The biggest culprit for this most recent rate increase is the crumbling market for wind energy, once heralded as a reliable cash cow for the PUD.
Since September 2007, when the PUD's Harvest Wind project in Klickitat County went online, Cowlitz has sold $68.13 million worth of wind power, all to California utilities. A second PUD wind energy project, White Creek, went online in 2009. Tthe PUD used revenues from Harvest Wind and White Creek to pay off debt and blunt pressure for rate increases.
Those sales contracts are now gone, although the PUD is planning to sell about $9 million in wind energy next year on the open market, down from $20 million in 2011. Because of a new state law, California utilities are developing their own renewable energy, leaving sellers such as Cowlitz PUD holding the bag.
In 2016, PUD wind power sales are expected to drop to zero. That's because the PUD will need to use that wind energy instead to meet the standards of voter-approved Initiative 937, which requires 9 percent of the electrical use for large utilities to come from renewable energy. Because the law excludes hydropower as renewable energy -- a sore spot for Cowlitz officials -- the PUD will need to substitute its own wind power for a portion of its BPA hydropower, even though BPA power costs half as much. So utility officials, who consider the situation absurd, expect another big rate hike in 2016 when I-937 provisions take effect.
In 2020, the I-937 renewable standard will rise again, this time to 15 percent. Cowlitz PUD will either need to develop more renewables or buy it from someone else, likely causing rates to spike again, utility officials said.
"That market has changed, and now we're on the other side of that equation," Skeahan told ratepayers at the hearing.
Since 2008, two years after I-937 was approved, lobbyists for utilities statewide have begged state lawmakers to amend the initiative to prevent big rate increases.
The effort ground to a halt this year because the state's budget woes dominated the session.
PUD spokesman Dave Andrew said he expects I-937 relief to re-emerge during the session in 2012, when the initiative's first trigger, 3 percent renewables, will kick in.
Lost in the discussion of wind power and its future is Cowlitz's loss of a reliable, low-cost power source that's kept rates low in the past. This year, Grant PUD in Central Washington ended its power sales contracts from its Priest Rapids and Wanapum dams on the mid-Columbia to Cowlitz PUD, ending a 50-plus year relationship between the two utilities. The two dams provided about 6.5 percent of Cowlitz's total residential energy needs.
The rural farming community has attracted high-tech, energy-hungry server farms to relocate near the sprawling wheat and potato fields, which has forced Grant PUD to use its hydro power at home. For Cowlitz, that translates to a $3 million hit in annual power costs to buy more expensive BPA power.
"It's because of this low-priced hydro resource that we had, that we just don't have anymore. Cowlitz PUD customers have benefitted, for 50 years plus, from the decisions made in the 1950s," Andrew said.
Heavy reliance on Bonneville
Cowlitz PUD buys about 90 percent of its power from the federal Bonneville Power Administration, which means the utility is handcuffed when the BPA raises its wholesale rates. Other Pacific Northwest utilities also typically raise their rates in response to BPA wholesale increases. Despite these upward blips, BPA power still is among the cheapest nationwide.
In the early 2000s, the double whammy of the Enron energy price manipulation scandal and a low water year (which means utilities can't generate and sell as much excess hydropower on the open market) forced rate increases of 30 percent and 45 percent in consecutive years for Cowlitz PUD rate payers.
Also, the BPA has spent $12 billion since the 1990s to protect endangered salmon, placing added pressure on wholesale rates, which are usually passed down to other utilities.
In all these cases, ratepayers across the region raised a ruckus, but the fact remains that Cowlitz and other Northwest utilities have been the envy of other regions for decades. Thanks largely to low-cost hydropower, Washington boasts the sixth-lowest power rates in the country, nearly 30 percent lower than the national average.
Within the state, Cowlitz ratepayers also enjoy a good deal. Before this most recent increase, Cowlitz's rates averaged $90, nearly 33 percent below the state average, according to PUD figures. Compared to the rest of the country, Cowlitz rates are about 40 percent lower. The county also saw a seven-year period of stable rates from 2002 to 2009, including a 3.13 percent decrease in 2004.
Ted Sprague, president of the Cowlitz Economic Development Council, said low power rates have historically been a top recruitment tool to lure industries to the area.
Most recently, the Cameron family of Pennsylvania listed low-cost power as the primary reason for building a wine bottle manufacturing plant at the Port of Kalama in 2008. Although the facility abruptly shut down without selling any bottles, most people considered the plant a big win for the area, and another company, Bennu Glass, is planning to restart it, albeit with natural gas because Cameron's electric melter had fatal technical problems.
"Our low-cost hydro has brought a lot of industries into this region, energy-dependent industries. When businesses were fleeing other parts of the country, they were coming out here to the Pacific Northwest," said Mike Hansen, a spokesman for the Bonneville Power Administration.
On the other hand, when power costs became too high, industries fled. Energy-intensive aluminum smelters, such as the former Reynolds Metals Co. plant in Longview, flocked to the Northwest when power was cheap, but the plants were shuttered when costs went up.
Sprague said he's been prepared for a rate increase. He no longer emphasizes energy costs as much while pitching Cowlitz County to industries. However, most companies recognize that they will still pay less for power in the Pacific Northwest than in other regions, he said.
"Our advantages have not evaporated because of this 18 percent increase," Sprague said.
A new power purchase plan
So is low-cost power going away in the future, regionwide? No, according to Hansen.
Recognizing that the BPA could no longer meet load growth for its 135 members utilities, including Cowlitz PUD, the federal agency developed a new contracting system to preserve low-cost hydro and give utilites greater control over their slice of the power pie, Hansen said in October.
Also, the BPA is setting aside 8,000 megawatts of base power regionwide, which it distributes to member utilities below market rates, Hansen said.
Cowlitz PUD officials say the new contracts will give them greater ability to sell excess hydropower power to offset costs during high water years. The risk, they say, is that the PUD would be forced to seek more costly power during low water years.
In the long run, rates might be adjusted -- up or down -- more frequently, Andrew said. But utility officials insist it's the best way for ratepayers to get the best bang for their buck.
"We plan conservatively, so it should minimize the negative ebbs," Andrew said.
Renewables: The View from Other Public Utilities by Christine Pratt, The Wenatchee World, 11/5/11
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