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Benton PUD Seeks Answers to Surplus by Chris Mulick, Herald Olympia bureau Tri-City Herald, January 2, 2004

The Benton PUD is commissioning a study to help determine what to do with its interest in two gas-fired power plants that so far have been a financial drain on the utility.

The PUD hasn't yet needed the power they could generate, leaving it with about 50 percent more power than the utility's customers use on average. Unable to sell the power to a third party at prices high enough to break even, managers are hoping an independent voice will come up with some new ways to make money on the plants while the utility's service territory grows into them.

"There may be some ideas out there we haven't thought of," said Randy Gregg, Benton PUD's power management director. The PUD hopes to choose a consultant in time to have a report back by early April.

The utility knew it would have plenty of extra power when it rearranged its power portfolio in 2001. Before that, the utility paid the Bonneville Power Administration to balance its supply.

The utility also has a 27-megawatt gas-fired power plant in Finley and rights to 50 megawatts generated at a 250-megawatt power plant at Frederickson near Tacoma.

But expected power demands have not materialized, and the PUD hasn't needed the plants to serve its own customers' needs.

Bonneville's wholesale rates spiked shortly after Benton PUD arranged to buy output from the Frederickson plant and build its $20.5 million Finley facility. Retail customers began curtailing their electric use after the PUD passed on those costs.

Reductions in energy usage by fertilizer giant Agrium also hurt.

That leaves the PUD with an average of 100 megawatts to spare during an average water year. By comparison, the utility consumes about 190 megawatts on average, though that amount varies widely depending on the time of the year.

Electric demand in the utility's service territory is expected to grow by less than 1 percent a year, leaving the PUD with much left over.

"We knew we'd be long but not to the extent we have been," said Jim Sanders, PUD manager.

Franklin PUD has a nearly identical power portfolio but doesn't have nearly as much electricity to spare. Though it also built its own small-scale power plant in Pasco and bought output from the Frederickson facility, the utility's major industrial customers have maintained their usage, and the west Pasco housing boom has boosted demand.

"At the time we made the decisions, they made sense," said Ken Sugden, Franklin PUD manager.

Benton PUD's Finley plant is designed to meet peak demands, preventing the utility from having to buy power off the market when prices are spiking during a Siberian express-like event. But the Mid-Columbia hasn't had such severe weather since the plant was built.

Market prices haven't been nearly as volatile as they were when the utility decided to build the plant anyway. At the time, managers believed they also could run the generator when wholesale power prices spiked to help cover construction costs.

But the plant runs so little the utility assumes it won't run at all in its annual budget. In the meantime it's stuck with annual payments through 2021 to retire the plant's construction debt. This year's payment totaled almost $1.1 million. That figure will jump to near $1.9 million beginning in 2005.

It originally was expected electric demand would grow fast enough to require the utility to begin using about half the plant's output on average to serve its own needs in 2004. But with demand softening, the utility doesn't expect to need the plant's power at all until 2005 or 2006.

In the meantime, profits have been slim for power marketers since the energy crisis subsided, and the PUD hasn't been able to sell the Frederickson plant's power at prices high enough to pay for the $600,000 in monthly costs. Most of that is owed to the plant's owner whether or not the facility is generating power.

Generally, plant operators decide whether to run the plant on a day-by-day basis depending on whether they could make money by operating it a day ahead of time. It ran for only three days in November, and December is shaping up to be a lousy month as well.

Some customers believe the PUD may be able to make better use of the two plants.

"Those are effectively sunk costs," said Darryll Olsen, a consultant with the Columbia-Snake River Irrigators Association, which asked for the study.

The utility needs an independent voice to indicate whether it would be best to retain plants' power for PUD use or sell all interest in the plants in a "salvage operation," Olsen said.