The prospect of a new presidential administration and Congress passing a greenhouse gas (GHG) emissions law next year make it imperative that Northwest utilities sign new 20-year contracts with the federal Bonneville Power Administration (BPA) in order to lock in prices, said a former BPA chief administrator.
A new presidential administration alone should be incentive enough, said Randy Hardy, the former head of BPA who is now an energy consultant. He moderated a panel discussion last Monday at the “Buying and Selling Power in the West” conference in Seattle.
Following the panel discussion, Hardy told NGI that only about half of the public- and private-sector utilities share his sense of urgency, and besides, the whole contract renewal process, which has been delayed several times over the past 12 months, is “so immensely complex” that he doesn’t think that BPA can get new deals in place by the end of this year without ramrodding through something that makes everyone unhappy to some extent.
A Puget Sound area representative for BPA, Stuart Clark, echoed Hardy’s concerns about the federal regional electricity marketer/transporter for the Columbia River hydroelectric system becoming stalled by a new administration, no matter which party gains the White House. “One of the first things that a new administration does is instruct all the federal departments not to do anything in the first months of the transition period,” he said.
Wholesale and retail electricity prices are likely to be much higher in the post-2010 period, and unsigned BPA contracts will come at a much higher long-term price, starting about that time. But one of the outcomes of the Pacific Northwest energy players wanting real price signals is that Bonneville is proposing to move to tiered rates in which customers wanting additional supplies beyond the federal agency’s allocation will have to buy their own additional power or have BPA do it at whatever the prevailing prices are, Hardy said.
He thinks that the push by next year for federal GHG emissions limitations and a cap-and-trade system will ultimately drive up wholesale natural gas prices and ultimately electricity costs. Just like the prospects for a post-carbon world, current BPA power on average goes for $27/MWh, while the five-year forward market cost is $60-65/MWh, Hardy said. A new GHG law and cap-and-trade system would send those same five-year futures prices to the $90-100/MWh level in 2011, he thinks.
New federal legislation “will encourage the development of new renewables — wind, solar and other promising new technologies — and regardless of the details of the legislation, it will inevitably preclude or seriously hinder coal development, which means we have to rely on natural gas as our baseload resource for electricity, along with wind and solar for everything else,” Hardy said. “That will certainly encourage more renewables, but it will also send power prices at the margin absolutely through the roof.
“When you start using natural gas as your baseload power supply — and liquefied natural gas is not going to be here that soon to save us because it can’t be developed fast enough — you will likely see greatly increased power prices at the margin in 2009 and ’10.”
Hardy said everyone in the industry can theorize what kind of effect that will have on the Northwest region — economically and politically. He thinks it could renew calls in Congress to reallocate the cheap 7,300 MW of federal hydroelectric supplies.
The chairman of the Oregon Public Utility Commission, Lee Beyers, who spoke earlier in the day at the Law Seminars International conference, took issue with Hardy from the standpoint of Oregon’s utility ratepayers. He argued that following a federal appellate court decision in May that struck down a settlement BPA had with the region’s private-sector utilities, those companies’ residential and small farm customers no longer are getting any benefits from the federal hydroelectric supplies. Thus they can’t “be any worse off” if Congress steps in and tries to reallocate the BPA electricity, Beyers said.
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