Quick Fact: Future Power Purchase Strategy
OPALCO is negotiating terms of a new contract (2028) for power purchases through our power contractor with the Bonneville Power Administration (BPA – our power supplier). OPALCO has been a full requirement (contracted to buy all power from BPA) and preferential customer (1980 NW Power Act) of BPA since the early 1950s. The current contract with BPA has been in place since 2008.
As climate consequences force decarbonization of our energy world, the region is scrambling to build clean, renewable resources and upgrade the infrastructure to deliver the power. OPALCO is concerned about resource adequacy, reliability, increased power costs and care of our sensitive marine environment.
OPALCO will always depend on the Federal Columbia River Power System (BPA) for a foundation of firm, clean power at a reasonable cost but is also planning to build local energy resilience for the islands in the form of microgrids (renewable generation + energy storage) and, as a member of PNGC, has the buying power of 16 electric co-ops to develop additional renewable generation in the region.
Let’s be clear: while there is a lot of effort, good strategic thinking, funding and policy-making going into solutions, no one has the future power supply for the region – or the islands – all figured out yet. The transition to a carbon-free energy supply will take lots of time, money and political will – and it will be bumpy. OPALCO is a very small player in the big pond of regional power and, even with its innovative plans, strength in partnerships and can-do history, it will be ambitious to develop enough power for emergency back-up and essential services in population centers. And, in OPALCO’s case as a non-profit cost-of-service rural utility, success in developing local energy resiliency is completely dependent on grant funding.
Resource Reality Check:
- Northwest regional load is projected to double by 2050 due to the electrification of transportation and heating.
- This doubling of load will likely present significant problems early on, due to the combination of NIMBYism (not in my backyard) and very long lead times to develop new generation resources (public support, financing, solar, wind, land, permits, transmission).
- Until new capacity is brought online, the region will likely not be able to keep up with growing demand compounded by extreme weather events – the sum of which is forecast to cause rolling blackouts in the region.
To prepare for resource shortfalls in the region, OPALCO is evolving its near-term strategy to ensure reliable affordable service for its members. This strategy requires front-loading investment to rapidly prepare for potential rolling blackouts. That investment will eventually be rewarded as load rapidly increases in the coming decades. OPALCO’s strategy incorporates three key initiatives:
- Develop local solar and storage capacity to mitigate outages and market price extremes – and to prepare for electrification of transportation including electric hybrid ferries.
- Increase grant funding and RUS capital investment, to bridge the increased load/revenue gap.
- Work within the region to bulk up our collective resources in advance of energy market disruption.
Recommended approach for our power provider:
- Secure the most favorable Tier 1 pricing, a bulk contract, locking up as much BPA hydro power as possible, while trying to avoid as much market risk as possible.
- Forecast power requirements in excess of bulk contract with BPA that would require additional contract purchases and potentially new resources for generation.
- To mitigate potential extreme market pricing volatility, the power provider will go to market with an RFP to discover what options are present outside of BPA. This provides great market insight and potential ability to contract for or build new generation and storage resources prior to 2028 and beyond.
- Advocate the formation of a Regional Transmission Organization (RTO) that includes and serves the PNW region, influencing stakeholders on local, State and Federal permitting regulations and guidelines to accelerate development of transmission and renewable resources.
- To mitigate market price extremes during supply/demand discontinuities, focus on leveraging the Joint Operating Entity (JOE) transmission routing of power among its member utilities, to optimize the load/generation geo-diversity of member service territories.
- Pursue state and Federal grants as possible to build new generation, battery storage (to offset peak charges), grid reliability, transmission, etc., and help support grant submittals for local projects.
- Development of a comprehensive Integrated Resource Plan (IRP) that incorporates the existing IRPs of all PNGC members, creating a very clear picture of loads on an hourly basis (individually and collectively), and model scenarios for high, normal, low weather years and for load growth expectations. Individual member models can be aggregated to clearly understand potential daily and seasonal collective energy shortfalls, to plan for wheeling, BPA, and market purchases.
- Build Information Technology (IT) systems that provide instantaneous power demand statistics so they can manage member needs on an instantaneous basis. (Encourage other regional utilities to do the same).
- Complete long-range capital and financial plans as needed for matching funds required in grant submittals.
BPA Concept Paper on 2028 Contract:
In July, 2022, BPA published a draft Concept Paper (https://www.bpa.gov/-/media/Aep/power/provider-of-choice/bpa-provider-of-choice-concept-paper-final-july-2022.pdf) to begin the discussion with regional customers about the 2028 contract. The concept paper has several elements that OPALCO would like to see addressed, in a nutshell, are asking BPA to support the efforts of Washington State’s Clean Energy Transformation Act (CETA) for decarbonization of the region – to do all it can to mitigate the growing climate emergency – and to remove any barriers to utility and consumer developed renewable power. Specific comments include:
- Remove local renewable generation caps for utility projects and consumer generators.
- Eliminate disincentives for local renewable generation, utilities should be able to keep Tier 1 status even when producing their own clean energy. In the current BPA proposal, investments in renewable resources would serve to decrement a utility’s Tier 1 allocation while investment in EE resources would serve to augment Tier 1 resources (if credited as headroom). This makes no sense, is inherently unfair, and reduces the incentive for PNW utilities to invest in non-federal power supply resources. Only resources dedicated to load by utilities themselves should be counted as Dedicated Resources for purposes of defining Net Requirements. Conservation is a resource and as such should not be treated differently than other statutorily promoted resources to meet load.
- BPA to help utilities meet CETA mandates by increasing the accuracy of reporting statistics.
- Encourage BPA to have Tier 1 and Tier 2 be cost based rates and avoid “opportunity-cost based pricing.” To the extent additional purchases are required to augment the federal system, these costs should be blended into the overall Tier 2 rates to reflect the actual cost of power.
- It is not consistent with the statute that some preference customers are able to sell off excess BPA power at a profit while at the same time, other preference customers are not allowed access to cost-based BPA power supply, when it is available, to meet their full net requirements. The statute is clear that cost-based rates apply to net requirements, and this extends to AHWM needs.
- Encourage BPA to expand/augment their system to meet net requirements at cost based rates in order to meet the demand regional power and avoid reliability issues – or or adopt policies enabling BPA customers to do so themselves. The BPA system needs to be sized to meet all preference customer net requirements, defined as both capacity and energy, at the onset of the next contract. We see ample evidence that energy-only resources can cost-effectively be integrated by leveraging existing federal system capacity rather than selling it off to non-preference (and often out of region) off-takers. If additional capacity resources are needed to meet net requirements, they can either be blended into the Tier 1 or Tier 2 price. Either way, the price should reflect the actual cost of the BPA system and any additional resource procurement. We are not advocating a full return to buy and meld as was done in the past, this approach would augment the federal system at the start of the next contract with the TRM methodology remaining unchanged for duration of the next contract.
- The idea that BPA can only acquire resources to meet load after the load has materialized makes no sense. This is not the way resource planning is done and leaves BPA customers subject to the volatility inherent in the wholesale market. In addition, should the federal system output be reduced for any reason, BPA needs to be prepared to replace that power. Reasonable advanced planning and procurement is required.
- Treatment of Transmission costs for non federal resources: Pancaked rates for transfer customers will continue to make non-federal resource development cost prohibitive for transfer customers – a significant impact to more than half of BPA’s customers. BPA has said that capacity will be the region’s biggest challenge and we need to know now how it will be apportioned to preference customers. Any excess capacity in the federal system should be available to preference customers to meet net requirements obligations at cost.
- Focus should be on current and future conservation activity (rather than past activity) and self-funded conservation in granting Tier 1 headroom – this creates a more equitable approach and creates incentive to continue conservation. The new contract net requirements should be exclusively based on actual need net of dedicated resources. However, there is merit to the BPA proposal to focus on a conservation adjustment based on forward looking, self-funded EE achievements. This is a reasonable way to promote continued investment in conservation. Therefore, we support the BPA proposal to base any adjustment to net requirements to account for conservation based on the 2022-2026 self-funded EE achievements.
- BPA should express its commitment to meet all preference customer net-requirements at actual cost incurred. All BPA preference customers with preference eligible load in FY2026 are entitled to the same statutory right to the Tier 1 power rate from the federal system to meet their net requirements. As such, a reallocation of available power based on current loads is warranted at the start of the next contract. We support the BPA proposal to establish net requirements for the next contract based on 2026 loads.