With still almost two months in which water levels could be reversed upward before the summer in the Pacific Northwest, power industry observers are predicting more reliance on natural gas-fired electric generation and higher overall wholesale power costs in the region, while California and parts of the Southwest prepare to head off any peak demand problems this summer, mostly due to infrastructure bottlenecks rather than a shortage of generation capacity.
So goes the odd climatic stew simmering at the end of winter: Western Canada bulges with near-normal snowpack feeding the northern end of the Northwest water levels, while the mid-section of Washington, Idaho and Oregon is already declaring drought conditions and high power prices, and farther south California boasts a snowpack that is above normal and 170% of what it was last year at this time.
"California should be less reliant on power coming down from the Pacific Northwest this year," said Fitch Ratings' Scott Andreson, who follows the power industry in the West. "They usually use a bit of power from the Pacific Northwest during their summer peaking period in California, but the added supplies in-state should help offset the lower snowpack in Washington-Oregon-Idaho.
"It is not that the Northwest isn't getting adequate rainfalls; the problem comes from the mild temperatures, meaning there is no snowpack building up and the water is coming down now. However, even though the state of Washington declared a drought emergency, there are a few months left when they could get [late] snowpack."
Analyses by Fitch and other observers, such as the Northwest Power Planning and Conservation Council, don't envision a shortage of supplies in the Northwest, but they do predict that large wholesalers, such as the federal Bonneville Power Administration (BPA) will have less supplies available for resale, which could impact their overall revenues. However, some think that the lower hydro supplies will drive up their price, thus, boosting the wholesalers' revenues to help mitigate against the need for steep rate increases later in the year.
Forward prices for power in the region are running as much as $20/MWh above last-year's prices, according to some analysts, who see an added 20 MMcf/d of natural gas being burned to make up for the lower hydro supplies.
"It is important to note that we do have a 'Stable' outlook for the Northwest although it is a situation of critical water conditions and the utilities in the region are in more 'resource balanced' under a critical water conditions scenario," Andreson said.
Along with dealing with the hydro shortage this summer, BPA and its affiliate Energy Northwest also are dealing with the consequences of trying to be the "provider of last resort" in recent years, said Fitch's Alan Spen. "Bonneville is essentially an 8,000 MW system, and one of the difficulties they got into in recent years was that when there was more power needed, they took on the responsibility of going out and buying power for customers beyond the 8,000 MW level and paid very exorbitant prices.
"Many of those contracts are now running off, and I think that will help them, and what we're hearing from Bonneville is that if they follow through in the future, they will just commit to the 8,000-level that they have control over and not go out and contract for others. It puts a lot of stress on them, and they don't have to do it."
Spokane, WA-based Avista Corp. is expecting its hydro supplies from two main rivers to be about 40% of normal unless there is a dramatic change in the weather in the next few weeks, said Avista's chief spokesperson, who added that the skies were clear and the ground was dry Tuesday. He would not give an estimate on how much added natural gas the Avista system will burn this summer, but the utility is expecting it to be more than last year, and for every megawatt of thermal power, the cost is about $45/MW above the cost of hydro supplies, the spokesperson said.
"We're looking at having to replace about 150 MW of hydro, and we'll do that from our natural gas-fired plants or by purchasing supplies on the open market, if that is cheaper," the spokesperson said.
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