The Lewis County Public Utility District (PUD) is faced with a decision this summer that could impact power costs in the area for the next 20 years.
The decision will dictate how the utility purchases power from the Bonneville Power Administration (BPA) and requires the utility district to balance initial cost with potential risk factors and long term changes in the market.
During the Lewis County PUD Board of Commissioners meeting on Tuesday, July 1, the district's staff, including General Manager David Plotz and Power Resources Manager Luke Canfield, presented recommendations on how the district should proceed in its contract negotiations with BPA.
The board of commissioners must decide on one of three power products and move forward with signing the contracts by the end of July. Once a product is chosen, the contract with BPA is a 20-year commitment with just one opportunity to change course in that time.
In their presentation, utility district staff first presented the costs and risks associated with each product. They ultimately recommended a product called “block” that allows the district to purchase blocks of power to meet its expected needs. Staff also spoke about other factors that should be considered while making the decision, such as the utility district’s need for the flexibility to use its own power generating resources such as the Cowlitz Falls Dam, and the potential impacts of the new Western Resources Adequacy Program that will set minimum requirements on a district's power.
“Keep in mind we went with that overarching idea of, what are we doing about the risk? What are we doing about controlling costs as we grow in the future? And what are we doing in terms of our own (ability) to manage our future as a utility?” Plotz said. “They’re all pointing us toward block with shaping.”
If the commissioners selected the block product, it would be a departure from the utility district's current product, which is called slice/block. Using the slice/block product, the PUD purchases small set blocks of power as a baseline. But to meet its full needs, the district has to get supplemental power from federal energy facilities by purchasing a percentage of the facilities’ output.
Since a utility purchases a percentage of power generated from a federal facility, there is no guarantee that the power will meet the district's needs. During low water years, when dams are not generating as much power, this can lead to the district having to purchase additional power at a higher cost. Staff pitched the product as providing a lot of flexibility and independence but coming with a high level of risk.
During his portion of the presentation, Canfield pointed to the block with shaping product as the staff's pick because of lower risk factors, a high level of independence and flexibility and an opportunity for optimization and cost saving.
In the end, he described the staff's recommendation to move away from slice/block in favor of the block product as playing to the districts strengths, saying he feels confident in the district’s ability to predict its consumers needs and the load on the district, but less confident in its ability to predict the output of federal power plants and dams based on weather conditions.
“What we do believe is if you remove that and shift that risk back to Bonneville,” Canfield said, “now the real variable we’re looking at in our hedging program is our load variability. That's something we understand at a much deeper level.”
Using the block product, the utility would buy preplaned blocks of power from the Bonneville Power Administration. While some utilities may simply buy a constant and steady amount of power at all times, district staff recommends taking advantage of a product feature called shaping that allows it to decide how much power will be used when.
This would allow the utility to focus the power they have purchased in certain months or weeks or even during peak hours of the day, but they have to predict those needs ahead of time. This might mean the district purchases more power for winter months or for the evening hours when more people are home.
The third option the commissioners could still consider is the “load following” product, which reduces risk even more than the other options but could cost the PUD more money in the long run. With this product, BPA agrees to predict and supply a district's power needs with exceptions made for a utility's own power generation. According to PUD staff, the product essentially offloads the risk of predicting power output and the district's needs to BPA, but comes with a bigger price tag and less flexibility.
Part of the district's focus on flexibility and independence comes from two new changes to the power landscape. First, the creation of the Western Resources Adequacy Program, which is a power sharing program that will allow utilities with surplus to share it with utilities in a deficit in times when power is scarce and needed.
To do that, the program sets minimum power requirements that a district has to meet. PUD staff predict that the program could create a power marketplace where districts with a surplus can sell that power for a profit and, as a result, lower costs.
According to Plotz, the PUD has signaled it will participate in the program, but that decision is non-binding for the time being.
Another long-term consideration is a major change to the role of the Cowlitz Falls Dam in Lewis County, which is owned and operated by the PUD. Since the dam was built, Lewis County PUD has had a contract with the Bonneville Power Administration where BPA takes 100% of the power generated by the dam and in exchange pays for all the operation and management costs.
However, Bonneville Power Administration notified the utility district this spring that it would not re-up the contract in 2032, meaning both the power generated by the dam and the costs associated with its operation will return to the PUD.
