Time to expand our energy thinking for the future

By Rich Riazzi, General Manager

7/20/2009

Here in the Mid-Columbia region, we’ve been content for more than 70 years to rely on our clean, renewable hydropower to meet most of our energy needs. The Columbia River and Lake Chelan have served us well in Chelan County, bringing us the second lowest electric rates in the nation. We’ve come to expect that privilege can last forever.

But significant changes in the energy world are taking place all around us.

Intermittent renewable resources such as wind and solar are developing rapidly in our state, changing the way we think about transmission, reliability, environmental and social responsibility, and the cost of energy in our region. To maintain reliability over the long term, intermittent resources need to be integrated into the electric grid with more flexible generation resources such as hydro and natural gas. But what happens periodically when supply exceeds demand? Which resources get built? Which resources are turned off? Who decides? Climate change legislation being passed at the state and federal levels will require new ways of thinking about how we produce energy and how we consume it.

As we have seen this year in Chelan County, the unlikely convergence of low water, low power prices and a struggling economy is putting significant strain on our PUD budget, demonstrating the risks in our business plan. We rely on normal snowpack and high wholesale energy prices to cover the operating losses for the utility services we provide to our customers. This model introduces significant rate uncertainty for our customers.

While we expect to be generating more than enough energy for our local use for decades to come, we must look at the changing energy world to see how we might fit in most beneficially for our customer-owners. This PUD needs to stay financially strong to continue enhancing the economy and quality of life in Chelan County, and it’s likely to require additional revenues to do that.

Without surplus wholesale electric revenue, retail electric rates for the PUD would have to be about double current levels in order to cover all of the District’s operating gaps. We’re not proposing that, but if wholesale revenues decline to the degree that they have this year, that could be a reality that needs to be faced.

The PUD is looking at options that might eliminate some of the natural volatility in water flows and wholesale prices and the resulting fluctuations in PUD revenues. Meanwhile we’re also adding a “new” source of generation by upgrading and modernizing our hydro units at all three dams so we can get more energy from the same water.

We don’t know the magnitude of the coming changes in federal regulations, conservation requirements, renewable resource requirements, environmental rules or critical infrastructure protection standards, but we do know that it will be more expensive to do business – increasing upward pressure on costs. As a public utility, we’ll be asking our customer-owners to play a part in deciding what’s the best course for the future, given all the change that is occurring.