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Cheapest electricity in the entire country

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Rocky Reach Dam is one of six dams on the Columbia River operated by the local public utility districts.

The mid-20th century forefathers of North Central Washington public power looked into the future and got it right.

Business, industry and families continue to benefit from their vision of a business model that supplies the cheapest electricity in the country.

In fact, local electricity rates are so low they don’t even cover the cost of providing the power. So how do the Chelan, Douglas and Grant County PUDs do it?

Surplus power makes it possible.

With a total of six major dams between them on the Columbia River and Lake Chelan, as well as smaller irrigation-ditch power plants, the PUDs generate more electricity than local homes and businesses need.

They use what they need to keep local lights on and production lines running. They sell the surplus on the wholesale power market to buyers all over the region for the extra revenue they need.

The Chelan County PUD expects to earn some $60 million this year on surplus energy sales. The Grant County PUD is forecasting $42 million, and the Douglas County PUD, $19.6 million.

The utilities use these revenues to fill in the cost gaps and keep local rates low.

In fact, Chelan PUD officials estimate that electric rates would have to nearly double if they were expected to cover the cost of providing and delivering power.

Absent the surplus electricity, our rates would have to be a lot higher than they are right now,” said John Janney, general manager of Chelan PUD.

Prices on the wholesale market for surplus power have been depressed as the country struggles to pull out of recession.

Utilities can plan for it, Janney said, but continually declining prices could put pressure on rates.

We can’t protect against that 100 percent,” he said.

Under current annual growth projections, both Chelan and Douglas PUD officials have said they don’t expect to reach a supply/demand balance until beyond 2030, possibly far beyond.

Grant PUD officials, faced with the arrival over the last five years of a half-dozen large and power-hungry computer server farms, are already looking at developing new energy sources to supplement production at their Wanapum and Priest Rapids dams.

Both small-scale nuclear power — formerly dubbed “Project X” — and natural gas have been on that utility’s radar in recent years.

In the more immediate future, the biggest challenges to keeping rates low, they say, come from rising costs to protect fish and habitat, administer power-reliability regulations and replace aging turbines and generators at dams.

Fish costs

Salmon survival studies, tracking, hatchery operations and capital costs associated with federally mandated fish-and-habitat work take huge bites out of the utilities’ bottom lines.

Last year alone, the PUDs collectively released more than 13.6 million salmon, steelhead and some trout into the region’s rivers and streams.

From 2007 to 2009, while Grant County PUD was building the $68 million fish bypass at Wanapum Dam, fish-protection costs averaged $51.3 million annually, according to PUD data.

Over that same period, Douglas PUD paid an annual average of $7.3 million and Chelan PUD averaged about $50 million a year.

The totals for Grant and Chelan include lost revenue from federal requirements to spill water through the dam to aid in fish passage.

Reliability costs

Federal standards designed to gauge and ensure that the country’s power supply is reliable — that the lights stay on most of the time — are also cost-intensive for the utilities.

During a recent meeting in Wenatchee of the Northwest Power and Conservation Association, an industry lobby group, Douglas County PUD General Manager Bill Dobbins said that tracking and administering these standards cost the utility about $500,000 a year in staff time.

The Chelan and Grant PUDs, both larger utilities, pay an estimated $1.1 million and $1.5 million in a typical year to track the standards.

The 133 standards encompass 1,513 requirements, each with its own procedure, Dobbins said.

Penalties for noncompliance can be as high as $1 million per day.

Yes, it is challenging, because the standards are changing. They change often, particularly in the cyber world,” said Carol Wardell, the Chelan PUD’s lead attorney who oversees compliance. “It’s also challenging because some standards are not ones the utility industry may think are necessary. We still have to comply, even if they don’t necessarily make good sense for our system.”

These costs come even though all three utilities already have very high records of reliability — in excess of 99 percent in Chelan County alone.

Keeping it modern

Dam turbines, generators and other equipment wear out over time and need to be replaced or rehabilitated. Cost totals have lots and lots of zeros in them.

Work to modernize the powerhouses to the Rock Island and Lake Chelan dams has cost the Chelan PUD about $137 million in recent years.

Grant PUD plans to seek $800 million in new financing over the next five years to cover projects and upgrades associated with its new 44-year license to operate Wanapum and Priest Rapids dams.

The Douglas PUD last year submitted its application for a new license for Wells Dam and expects to hear back from federal regulators next year.

The application contains $2.9 billion in associated projects over the life of a new, 50-year license. Rehab work at Wells has cost $50.4 million so far.

Upgraded generators produce more electricity with the same amount of water, making it possible for the PUDs to increase revenues.

Uncertainties

Hydropower is widely accepted as a renewable source of power, but as the Northwest’s traditional and dominant source of electricity, it doesn’t count toward quotas designed to diversify the state’s renewable mix.

Washington state’s voter-approved “renewable portfolio standard” requires utilities with at least 25,000 customers to supply 15 percent of their demand using qualifying renewable sources of energy, like wind or solar, by 2020.

The Chelan and Grant PUDs, each with about 50,000 customers, are subject to the quotas. Officials from both utilities worry that one day they could be forced into green-power investments that aren’t needed to cover local demand and produce power at a higher costs.

On the revenue side, the region’s carbon-free hydropower faces both challenges and opportunities.

The federally subsidized expansion of wind farms is adding energy to the market during times of peak hydro production — late spring and early summer.

The surplus energy drives wholesale market prices down, sometimes even into negative numbers.

Negative-pricing could mean the PUDs have to pay other utilities to take their dams’ surplus power generation.

But it also means that PUDs can benefit by powering down and “buying” — being paid to take — the surplus generation of other utilities.

The impact of negative pricing has been minimal, so far, on the PUDs.

Opportunities could exist for PUDs with surplus generation to earn extra revenue by using their surplus to “balance” the fluctuations in wind generation.

Right now, the Bonneville Power Administration has done most of this, but it’s reached its capacity this year, with record mountain runoff already flowing down through Columbia River dams.

As power users become more focused on their environmental impact, hydropower could one day be more cost-effective at market than carbon-based power.

It could make our generation more valuable, because it doesn’t have carbon attached to it,” Chelan PUD’s Janney said.

Reach Christine Pratt at 509-665-1173 or . Follow her on Twitter at @CPrattWW.