Comments for the 2010 Seattle City Light Integrated Resource Plan
by Andrew Silber, April 7, 2010
The Integrated Resource Plan (IRP) process is a time for Seattle City Light (SCL) to look at our long-term vision and see if it connects to our values and our vision of the future. We are standing on the shoulders of giants who built an incredibly strong foundation. It is our responsibility to maintain and expand the vision of J.D. Ross and others who built one of the nation’s finest utilities. Now is the time to ask if we are living up to that tradition.
In many areas we are meeting this commitment:
- Strong conservation and efficiency programs
- Maintaining greenhouse gas neutrality
- A healthy fish population in the Skagit
- Establishment of the Rate Stabilization Fund
- Development of the Asset Management System
There are other areas where we could be doing a better job of continuing the vision.
Plan for the bad years and the good years will take care of themselves
From the 2008 IRP
“In addition to an annual average basis, City Light must also have sufficient resources on a monthly, weekly and hourly basis. Since City Light is a winter peaking utility, the winter months are of most concern. City Light’s annual peak demand most often occurs in January. The 2008 IRP relies on a measure of resource adequacy that ensures that the utility has a 95% confidence level of meeting loads in any given January. Low generation capability is usually due to drought conditions in the Pacific Northwest. High customer demand is usually due to extremely low temperatures in the winter. The greatest threat to City Light’s resource reliability is the combination of low water and high customer demand for power.”
These difficult years are not just difficult for SCL, but for our entire region. If we are having resource adequacy issues it’s likely that the region is having resource adequacy issues. Everyone will be hitting the market at the same time, driving up the price of electricity on the spot market to painful levels. This situation (exacerbated by companies gaming the system to their advantage) happened earlier this decade and cost this utility and others dearly.
Rather than accept a 95% confidence level of meeting loads, SCL should focus on how to meet loads during these difficult years. Our customers expect nothing less. Relying on the markets as a fallback in drought years is a risky proposition, a risk that is not currently quantified. In the past our vast hydro system could manage even in a bad year, but as the region’s appetite for electricity grows and our capacity stagnates, the risk grows.
When looking at acquiring new non-hydro resources (including conservation), the significant value they would have in the cold, drought years must be included. At the margins there may be resources that are not cost-effective for 19 years, but pay for themselves on one cold week in January.
In order to justify planning around the bad years, we must estimate the cost of relying on the marketplace during these bad years. This is a difficult and assumption ridden process, but a low-precision estimate is better than no estimate at all.
Obtaining Energy from Smaller Renewable Projects
In the past the size of projects that SCL has built has always increased; from the Cedar and Tolt projects, to the Skagit dams and finally to the Boundary dam. But the era of building large dams has passed and it’s unlikely that SCL will again build a large project like Boundary.
But new resources will be needed, driven by climate change, load growth and our relationship with BPA. Since BPA makes up such a large percentage of our supply, changes in our BPA contract is an especially large risk. It is likely that a carbon cost will come into play soon, which will make relying on the market very risky. As coal plants begin to shut down other sources of power will become more attractive, and therefore more expensive.
SCL hasn’t built a new generator since 1967 and only signed a few long-term contracts (e.g. Stateline Wind and Columbia Ridge landfill). Even though our need now is not pressing, SCL needs to start investing again in new resources. These projects will help SCL regain the expertise that will be needed to add production capacity.
These projects will initially be small compared to our loads (e.g. a 750 kW dairy gas digester, a 50 MW wind farm). SCL is particularly well suited to integrate wind because of the hydro projects that we own and operate. Since the main purpose of these projects is to develop expertise and hedge against long-term risks, it only makes sense for us to own them, not to enter into a long-term contract.
The voluntary renewable energy programs, Green Up and Green Power, could be a mechanism to bring some of these smaller and particularly green projects along despite their higher cost. For instance, dairy gas digesters improve air and water quality and remove methane from the atmosphere, making them greenhouse gas negative, as opposed to solar or wind which are greenhouse gas neutral. These small projects often are not developed because of difficulties raising capital. Our direct participation by signing power purchase agreements or becoming equity partners may be much more effective than just buying renewable energy credits.
Long-Term Contracts vs. Owning: What Would J.D. Ross Do?
The IRP process with a 20 year horizon is going to prefer contracts with 20-year duration over owning. Over the last 40 years all of our production growth has been in contracts, not in developing resources that we own. But if we take a longer vision, it’s likely that it’s better to own than rent. As Independent Power Producers snatch up the prime sites for renewable energy production, it will become more and more expensive to meet our demand.
If one looks at the decision to build the Boundary project in this light, it’s clear that our current low rates are based on logic that would not happen today. Just as current rate payers are benefiting from investments that were made to build the Skagit and Boundary projects, future rate-payers will suffer for our lack of investment.
Most utilities think of Demand Response (DR) in terms of smoothing out peak loads, which has a high value. Since the constraint for SCL is energy and not power (i.e. we can increase output from the dams to meet demand, but eventually we run out of water) DR has less value when viewed in terms of smoothing peak loads, though it does have some in cases where transmission or substation loads are near critical levels. The value for SCL is not in reducing loads when demand is high, but in increasing it when demand is low and power is cheap.
Here’s how it might work:
- SCL directly owns a wind farm and typically adjusts the output of the hydro system to balance the output of the wind turbines.
- At some point the hydro system can go no lower; maybe it’s already at zero flow or constrained by flood or fish concerns.
- SCL sends commands to deep freezers to go colder, hot-water or space heaters to go hotter.
- This might be the only energy that a deep freezer or hot-water heater needs for the entire day.
- When the wind farm output decreases or demand increases, the temperature settings return to normal. We’ve stored the energy in cold food and hot water and homes.
This model doesn’t make sense for shaped output like we get from the Stateline project, but the region’s ability to shape power is limited. The amount of intermittent resources we can shape ourselves is significant and at a very low cost. The first portion of shaping (i.e. reducing output from our dams) is free. The DR elements needed to go further will be more expensive, but have additional benefits (e.g. to reduce demand during an outage, allow us to sell more or buy less power when the market is high). The value of DR will be particularly valuable during drought years as will the intermittent power that it allows us to integrate.
Due to the sound management that SCL has enjoyed for most of its history, none of these issues are a crisis. I’ve just outlined some suggestions that will help us maintain our reliability, low-rates and environmental stewardship for generations to come:
- Prepare for the worse, not the cheapest on a typical year
- Don’t count on the market to deliver cheap power on a drought year
- Start developing new power sources
- Take a longer term view
- “What would J.D. Ross do?”