Regional Electricity Future
Regional Snapshot
Two decades of strong investments have made energy efficiency* the region’s third-largest source of electricity. The 2,500 average megawatts (aMW) in energy savings -- enough to power two-and-a-half cities the size of Seattle --satisfied nearly one-quarter of the region’s load growth between 1980 and 2001. In the last five years, the Northwest has developed 780 megawatts of wind power, with another 1,000 megawatts either approved or in the permitting process.
| * "Energy Efficiency" and "Conservation" are used interchangeably in this paper. However, the term conservation has occasionally carried a connotation of "doing without." We do not believe energy efficiency means huddling in a dark, unheated house for the sake of the environment; instead, it means getting the same or more useful benefit with less energy use. |
The tremendous economic value of conserved energy and locally generated wind power became dramatically apparent during the energy crisis of 2000/01. The reduced demand and the availability of a local resource saved the region hundreds of millions of dollars that would have been spent on high-priced electricity.
Past clean-energy accomplishments indicate the robust potential for developing renewable resources and energy efficiency. Both the Tellus Institute study, mentioned earlier, and the Northwest Power and Conservation Council identify 2,800-3,500 aMW of additional cost-effective energy savings that can be realized over the next 20 years. Tellus also identifies more than 8,000 MW of new cost-competitive renewable energy.
The Bonneville Power Administration is the biggest player in the Northwest electricity game and has been the region’s primary driver of energy-efficiency and renewable-energy development. BPA provides about 45 percent of the electricity for Washington, Oregon, Idaho and Western Montana, drawing on 31 federally owned dams, one nuclear plant and several wind-energy projects. BPA also owns and operates about three-quarters of the region's high-voltage electric grid, comprising 15,000 miles of power lines.
But BPA is facing significant challenges, both financial and power related. Since the energy crisis of 2000-01, BPA has raised power rates nearly 50 percent. BPA faces continued revenue and reserve fluctuations depending on uncertain surplus power sales and market prices. Rate hikes have eased Bonneville’s financial situation but they have not created financial stability. Bonneville has failed to secure enough revenue to meet the agency’s salmon restoration responsibilities. The agency’s energy conservation and renewable energy development obligations are at risk. Overcoming this crisis while preserving BPA’s long-term benefits is a key element of the Citizens Energy Plan.
One of Bonneville’s challenges presents a unique opportunity to supporters of a clean energy future. BPA is conferring with utilities and other regional stakeholders about a new system for allocating federal power post-2006, while preparing for power contract negotiations with its utility customers. The Citizens Energy Plan calls for contract commitments to and dedicated funds for salmon restoration and development of energy efficiency and renewable energy. Besides reducing our over-reliance on the hydrosystem, these programs are vital to BPA’s long-term health.
The Northwest Power and Conservation Council provides a second major opportunity to work for a clean and affordable energy future. The1980 Northwest Electric Power Planning and Conservation Act requires the Council to forecast regional loads and the means of meeting demand for 20 years in a series of regional power plans. As the Council prepares the 5th Power and Conservation Plan, the Energy Matters Campaign must make sure it identifies clean, reliable and affordable electricity and energy efficiency to serve our communities, businesses and industries.
Meanwhile, endangered salmon and steelhead in the Columbia and Snake river basin have reached a critical point. Federal efforts have not brought wild stocks from the brink of extinction (let alone to harvestable levels). The 2000 Biological Opinion has been neither fully funded nor adequately implemented; a federal district court judge declared the BiOp insufficient to protect wild salmon. The Energy Matters campaign calls for immediate, effective action to stop the slide toward extinction. Clean-energy alternatives to hydroelectricity will take the pressure off the Columbia and Snake rivers, bring back wild salmon and save the fishing and recreation industries that depend on them.
Priority Opportunities
Bonneville Power Administration – Power Issues
Dedicated Revenue for Public Purposes - Establish a dedicated revenue stream through specified tariff(s) for investments in energy efficiency, low-income weatherization, renewable energy resources and restoration of salmon runs in the Columbia and Snake river basins.
Power Contract Guarantees for Efficiency and Renewables – Ensure that federal power allocation contracts guarantee acquisition of all cost-effective energy efficiency and sustained, orderly development of new renewable resources by both BPA and its customers.
Adequate Financial and Supply Reserves - BPA must maintain adequate financial reserves to ensure timely U.S. Treasury payments, prevent using river operations as a fiscal relief valve, and protect funding for fish and wildlife restoration, efficiency and renewables development. The region needs enforceable power supply adequacy standards to assure development of new resources as necessary.
Northwest Power and Conservation Council
Accurate Efficiency and Renewable Energy Analysis in the Fifth Power and Conservation Plan – Ensure that the Fifth Power and Conservation Plan identifies all the opportunities for cost-effective energy savings in the region and accurately characterizes and values the costs and benefits of new renewable resource development.
Model Conservation Standards for Appliances and Equipment - Work with the Council to establish a Model Conservation Standard for 11 appliances and other types of equipment not covered by federal efficiency standards, and to encourage state adoption of such standards.
Transmission
Remove Barriers to Clean Energy Development with Equitable Transmission Policies - The rules governing the BPA transmission system and those covering any new Regional Transmission Organization must support development of intermittent resources. Transmission rights must not discriminate against these resources, nor unduly favor existing generation. RTO governing principles must include evaluation of non-wires alternatives when addressing transmission constraints and system needs. In addition, the RTO must provide accurate price signals and a robust short-term market to facilitate demand-side management, local ("distributed") generation and intermittent renewables. Finally, any RTO governance structure must be responsive to the public interest.
Transmission Providers Must Charge Fair Rates – Transmission providers should not penalize renewable resource-based generators for differences between estimated and actual production.
Include Appropriate Integration Costs in Utilities’ Integrated Resource Plans – Utilities purchasing renewable resources with variable output must accurately evaluate the costs of incorporating the new resource into their system.
Least-Cost Planning for BPA Transmission Business Line - Incorporate least-cost planning principles, including full and fair evaluation of non-wires alternatives, into Transmission Business Line decisions regarding transmission constraints and needs.
Policies to Deliver Regional Electricity Goals
BONNEVILLE POWER ADMINISTRATION – Power Issues
Dedicated Revenues for Public Purposes
Current Status: BPA invests up to $22 million annually in new renewable resources through a revolving fund and the conservation and renewables discount (C&RD). BPA invests $4 million annually in low-income weatherization programs administered at the local level by community action agencies. BPA invests approximately $120 million in energy efficiency programs through a variety of programs including the Northwest Energy Efficiency Alliance, C&RD and Conservation Augmentation. The Independent Scientific Advisory Board has approved $250 million in specific fish and wildlife restoration projects, though BPA has budgeted only $139 million. The 2000 Biological Opinion calls for even greater investments in order to restore salmon populations. Current rates do not generate enough revenue to allow BPA to fund these programs.
Recommendation: Establish a specific tariff that collects funds from BPA power and transmission customers. Revenue must be sufficient to administer comprehensive regional and local efficiency programs designed to capture all cost-effective conservation, low-income weatherization and market transformation opportunities from Bonneville's customers as well as to support sustained orderly development of new renewable resources. The tariff portion dedicated to salmon recovery should be governed by fish managers and tribes. The purpose of this tariff is to insulate these long-term investments from the financial exigencies of the power market.
Power Contract Guarantee for Efficiency and Renewables
Current Status: BPA investments in energy efficiency programs and development of renewable resources have been on a roller coaster of commitment. Some years the investments are high and in other years they are low. And now BPA is considering limiting its role in acquiring new generating resources for its customer utilities. Stable and sustainable long-term investment levels will allow BPA and the region to capture the full economic and environmental benefits of these investments.
Recommendation: Power sales contracts should specifically obligate BPA and its customers to meet all regional load growth with efficiency and renewable resources. Regional targets for conservation (175 aMW) and renewables (175 aMW) should be established and included in power sales contracts, divided proportionately by total utility load. BPA must be responsible for achieving the aMW targets for their portion of the obligation and the aMWs necessary to make up for any unmet utility obligations. Each utility should be held accountable for the aMW goals for the portion of the obligation for which they are responsible.
Adequate Financial Reserves
Current Status: Currently BPA sets its rates high enough to have adequate reserves only for average conditions. If the region suffers a drought or gets poor power prices for the agency's surplus power sales, BPA faces the threat of missing its annual US Treasury payment. Missing a payment is considered political suicide, so BPA instead reduces funding for what it considers its "discretionary" obligations such as conservation and renewables and stops salmon-friendly hydro operations such as spilling water over the dams to help out-migrating smolts.
Recommendation: It is critical that funding for fish, renewables and energy efficiency not continue to be the "shock absorber" for BPA's financial problems. A separate tariff that produces dedicated revenues for public purposes is the best solution. To protect spill and flow needed for salmon, the region needs to have an enforceable agreement with tribal and state/federal fish managers that guarantees flow and spill mandates of the Biological Opinion (whose targets have almost never been met).
NORTHWEST POWER AND CONSERVATION COUNCIL
Accurate Efficiency and Renewable Energy Analysis in Fifth Power and Conservation Plan
Current Status: The 1980 Northwest Power Act requires the Council to develop a regional power plan that forecasts regional loads and the means of meeting demand over a 20 year period. Such a plan is to be adopted every five years. The Council is drafting the Fifth Power and Conservation Plan for finalization by winter 2004. Historically, the Council has conservatively estimated the potential for energy efficiency and development of renewable energy resources. Current draft fifth plan efficiency estimates appear solid; however, the supply side analysis does not accurately value the costs and benefits of renewable resources.
Recommendation: Ensure that the supply-side scenario analysis includes the following: value of a fixed-price resource with supply reliability, cost for future environmental regulation, value of Renewable Energy Credits and appropriate valuation of integration and transmission costs.
Model Conservation Standards (MCS) for Appliances and Equipment
Current Status: In 1980’s the Power Council established MCS for building energy codes. These standards stimulated the states to adopt state energy codes. The Council has not developed MCS in over ten years.
Recommendation: Use this important authority as established in the Northwest Power Act to adopt Model Conservation Standards for 11 appliances and equipment not covered under federal law. The MCS can encourage state adoption of such standards, which will most likely stimulate adoption of federal energy efficiency standards for these important appliances and equipment.
TRANSMISSION
Remove Barriers to Clean Energy Development with Equitable Transmission Policies
Current Status: In 2000, the Federal Energy Regulatory Commission (FERC) called upon the investor-owned utilities (IOUs) to establish independent entities (regional transmission organizations, RTO) to manage wholesale transmission of electricity. In the Northwest, investor-owned utilities, BPA, independent power marketers, public utilities, and two public-interest groups have been working on a proposal for two years. Within the last six months, NWEC helped broker a compromise proposal, called Grid West, that moves the region toward an independent grid management entity.
Recommendation: The status quo has serious deficiencies, but turning the region's system over to federal FERC control or into a cookie cutter organization with no acknowledgement of the Northwest system is not the right answer. A properly designed grid management entity could provide significant benefits, but a poorly designed one could set back the goal of a clean and affordable energy future.
NWEC supports an independent transmission organization with the following characteristics: (1) Governance which reflects the public interest, including meaningful regulatory control to prevent market abuses; (2) planning and expansion process which evaluates non-wires alternatives on an equal basis with transmission upgrades; (3) good price signals to incent new generation and energy efficiency at the right time and in the right locations; (4) fair pricing and interconnection rules for intermittent resources and DSM; and, (5) providing a transparent short-term market in generation and transmission rights so that small generators and DSM can provide benefits to the system.
The Grid West proposal appears to incorporate many of our criteria mentioned above. Effective development and implementation of rules creating Grid West will be a focal point in the next two years.
Transmission Providers Must Have Fair Rates
Current Status: In July 2002, BPA issued a one-year modification to its transmission rate tariff exempting wind power generators from BPA’s generation imbalance charge.
Recommendation: Solidify a permanent solution in the next BPA General Transmission Rate Case. BPA must adopt a rate tariff that prohibits punitive generation imbalance charges from being assessed against wind and solar generators. Other transmission utilities and eventually RTO West must adopt BPA’s solution for deviations between estimated and actual production.
Appropriate Integration Costs Included in Utility Integrated Resource Plans
Current Status: There are some additional costs to adding intermittent resources into a utility’s supply portfolio. Because wind power is a relatively new resource in the Northwest, some utilities are overestimating the cost of integrating the wind resource into their system. BPA and PacifiCorp are currently using costs of 0.6-0.8 cents per kilowatt-hour for integration charges. Other utilities in the region are using much higher cost estimates. In January 2004, BPA developed a wind integration product for public utilities that charges $4.50/MWh to create a firm flat wind resource. This will significantly advance wind resource development in the region.
Recommendation: Work with utilities and regulators/governing boards to ensure the true costs of integrating wind into a utility system are properly evaluated and considered. (RTOs in the east say integration is even cheaper, closer to 0.3 cents/kWh.)
Least-Cost Planning for BPA Transmission Business Line
Current Status: Showing national leadership, BPA agreed to adopt least-cost planning principles for the Transmission Business Line. BPA will evaluate all non-wires alternatives as solutions to transmission system needs. Non-wires alternatives include energy efficiency, load management and distributed generation. BPA has an advisory group evaluating non-wires alternatives.
Recommendation: In addition to doing a full and fair evaluation of non-wires options, BPA must implement those measures that provide the least-cost solution to a particular transmission constraint or system need.