Public-sector power in the Pacific Northwest has used up all of its surplus federal hydroelectric supplies and now is scrambling with its private-sector counterparts to line up adequate supply portfolios for the future, Bellevue, WA-based Puget Energy CFO Erick Markell told a session Wednesday at the Lehman Brothers Energy/Power Conference in New York City. Meanwhile Puget’s utility, Puget Sound Energy (PSE), faces the need to replace or extend expiring purchased power agreements with various public utility districts (PUD).
A current common thread running through both the public- and private-sector utilities in the region is the shared “shortage” of power, Markell said. Both sectors have to find new sources, and Puget has its eye on other existing nonhydro generating facilities it might acquire.
“Public power is an integral part of the Northwest power system, and some of the culture of power issues there,” Markell said in response to questions from analysts. “What is changing in the world of public power is the overall system surplus of hydro has essentially been all allocated. The focus in the discussions within the PUD community and between the PUDs and investor-owned utilities (IOU) is where does the system go in terms of allocating future hydro supplies.”
The question is how new “marginal supplies” are brought into the portfolio, and the public-sector utilities are just at the beginning of that dialogue, according to Markell, who outlined PSE’s plans for adding a lot more solar, wind and natural gas-fired generation to its portfolio over the next 10 years as its replacement needs grow from the current 400 MW level to 1,600 MW.
“How will they [PUDs] meet their future needs if they’re not going to be met with large hydro?” Markell asked rhetorically. “Will it be thermal generation? If so, what kind? Some of the PUDs as a consortium are advocating an integrated gasification combined-cycle [clean coal] project. I’m not sure where the dialogue [among PUDs] will go; others, in the meantime, look to BPA [Bonneville Power Administration] to provide for their needs.”
In response to a question about some of the PUDs going private and Puget Energy acquiring them, Markell said PSE is “already short of power, and to take on new customers like that would make us even more short. We have to be very, very careful about that.”
Part of PSE’s challenge in making up for an increase in “expiring” power supply contracts will be trying to extend some of the contracts, or in the case of nonutility generators, considering buying their small generating facilities, Markell said. He called out as another major challenge PSE’s need to meet a $500-700 million annual utility capital investment program in the coming years.
“We also have the ability to self-build natural gas-fired generation, or to buy existing gas-fired generation that is out there and available. We did that successfully two or three times already, and we are very close to all the available assets in the Northwest marketplace. We have done a lot of diligence on a lot of different assets. We have a good handle on how to fill our [future power supply] gap.”
In terms of expiring hydroelectric contracts, Markell said those are coming from PUDs in the Mid-Columbia River area; the contracts give the public-sector entities the right to withdraw power to meet their native needs as demand surges. “I don’t see that reversing,” he said, noting that energy efficiency programs are projected to make up about 25 MW annually of the future needs.
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