historical streamflow records in both geographical areas suggests that on occasion the Northwest had drought conditions while portions of California (i.e., Northern California) had average or above-average water supplies. On other occasions, California has had drought conditions while the Northwest had average or above-average water supplies. Dry years in both regions have not always coincided. However, there have been many occasions where both the Northwest and Northern California simultaneously experienced drought conditons. For example, in the past 84 years of record (1895-1978), 4 of the 5 drought years in California were also dry in the Northwest. 25-181 0-83-18 NORTHWEST POWER PLANNING COUNCIL STATEMENT BEFORE THE SUBCOMMITTEE ON MINING, FOREST MANAGEMENT, of the COMMITTEE ON INTERIOR AND INSULAR AFFAIRS July 11, 1983 Mr. Chairman, I am Robert Saxvik, Vice-Chairman of the Council. The Council is pleased to provide its perspective on the difficult issue of expanded energy transfers between the Northwest and the Southwest. In addition to this opening statement, we have provided answers to the set of questions which the subcommittee has given us. The Council's plan supports a sale of surplus power that would benefit both the Northwest and the Southwest. The plan has also called for the creation of additional nonfirm markets within the Northwest in order to make better use of nonfirm energy that currently has low value when sold down the Intertie. The Council believes that both of these actions are consistent with each other and both will provide significant economic and environmental benefits to Northwest ratepayers. The question of expanding the Interie capacity between the Northwest and the Southwest is affected by, and affects, both the sale of surplus firm energy and the existing nonfirm energy market. The Council has two primary concerns in regard to the proposed sale of firm surplus resources from the Northwest to the Southwest. One concern is whether such a sale increases or decreases the risk faced by Northwest ratepayers. This is why the adequacy of callback provisions under such a sale is of crucial importance. The second general issue has to do with resource mix. Resource mix questions revolve around consistency of proposed sale resources with the Council's plan, the cost-effectiveness of those resources, and the issue of whether the Northwest will be incurring additional environmental costs when it is exporting energy. Risk, both of over building and of underbuilding resources, was a major focus of the Council's plan. The Council has developed the concept of options, in which a resource is brought through the developmental and licensing stages, to the point of construction and then, in essence, put on the shelf until it is clearly needed. The remaining construction time is the period in which the largest portion of the money is spent on the resource. The procedure is designed to minimize the risk of overbuilding by bringing the major point of decision as close as possible to the point when the power is needed. One of the variations of the options concept is a so-called "sales option" in which a resource is completed ahead of regional need and sold outside the region while recovering its full incremental costs, until need dictates that it be called back to serve in-region loads. Clearly, the crucial element in this process is the callback provision embodied in the resource sale contract. Absent adequate callback provisions, such a sale would simply be additional load to be met by regional resources. The risk rises to the extent that the sale is not just of resources which are currently under construction, but of new resources which are built specifically for inclusion in the sale as sales options. While the Council's plan assumed the completion of WPPSS 1, 2 and 3 on schedule, events are continuing to cast some doubt on that outcome. The risks associated with the completion of these plants need to be taken account of in a proposed sale. The second issue of importance to the Council concerns the resources that are used for the sale. Resources for a proposed sale should be both cost effective and otherwise consistent with the Council's plan. In addition, the Council is concerned that any use of a sales option not be to the detriment of the Northwest environment. The primary resource that the Council would view as appropriate for inclusion in a firm surplus sale, if any resource is needed beyond those currently under construction, would be conservation. Aggressive development of Northwest conservation by weatherizing and otherwise improving the efficiency of Northwest homes and businesses would provide double benefits to the Northwest while minimizing environmental costs to the Northwest. The first benefit comes from weatherizing Northwest homes and businesses faster than currently scheduled. That would mean lower electric bills for Northwest ratepayers sooner. The second comes from relief from the revenue burden of having to pay for existing resources that are not needed. From the Northwest perspective, expansion of the current Intertie capacity would likely provide significant benefits. Those benefits include removing some of the institutional constraints in the Northwest revolving around competition between firm resources and nonfirm sales for Intertie space, and, even in the absence of a firm surplus sale, allowing greater use and higher revenues from the existing nonfirm energy available as water conditions permit. This completes my opening statement and I would be pleased to answer any questions you may have. NORTHWEST POWER PLANNING COUNCIL ANSWERS TO QUESTIONS BY THE SUBCOMMITTEE ON MINING, FOREST MANAGEMENT, Response. The Council has not yet done an in-depth analysis of the costs and regional impacts of a firm, long-term sale of surplus energy. The Council has, however, performed some preliminary analysis of this issue. It showed that sale of the surplus at levels covering incremental resource costs would be beneficial to Northwest ratepayers. This was also the case when the surplus was extended by employing resources whose incremental cost was less than the sale price. However, that analysis assumed knowledge of the load and thus the amount of the surplus over the planning horizon. The risks attached to such a sale due to not knowing what the load will be are less easily quantifiable and would be crucial in the Council's evaluation of the sale. The Council has some analysis of these risks underway. A central element of the Council's plan is minimization of risk (of overbuilding or underbuilding resources) through the use of options. Options represent a sort of insurance policy in which regional money is expended on early program development or resource design, siting and licensing. This allows the actual construction decision to be postponed as late as possible and as close to the time of need as possible, when the most is known about the potential need for the resource. If this sale is to work as a "sales option," increasing the flexibility of the Northwest b. C. to deal with uncertain future loads, the nature of the callback provisons are critical. Specific terms and conditions of such an agreement between the Pacific Northwest and the Pacific Southwest have not, at this time, been developed. When more detailed specifications concerning the amount of power, the terms of the sale, the callback provisions, and the price at which the energy would be sold become available, the Council can analyze the benefits of a sale and determine whether modifications to the plan are needed. The plan pledged the Council's support in developing a sale of firm surplus power, which the Council expects to be beneficial to Northwest ratepayers. Northwest sales of nonfirm surplus energy to California? Response. The Council's plan makes no recommendation as to price or terms of service for sales of nonfirm energy by the Northwest to the Southwest. It does recognize that, under current pricing practices, large amounts of nonfirm energy will be sold under some water conditions to the Southwest at prices that do not reflect their potential value to the recipients. This has occured at the same time that Northwest industry has encountered rapidly rising electricity prices. Because of the large variability of nonfirm energy availability, especially in the spring, there can be conditions in which water is either spilled or energy exported at low prices to benefit industry in the Southwest. In recognition of this, the Council has adopted a policy of expanding in-region markets for currently low priced nonfirm energy. To the extent that nonfirm energy can be used directly in Northwest markets, for instance in displacing fossil fuel in bi-fuel industrial boilers, the use of the regional electric power system is made more efficient and the value of the nonfirm energy is retained in the Northwest rather than exported to the Southwest. In addition, the creation of additional direct markets for nonfirm energy in the Northwest would enable the Northwest to capture the value of water that must be spilled in some years for lack of a market. Expansion of the current capacity of the Intertie would help to achieve the latter goal as well. Expansion of Northwest-California transmission capacity? Response. The Council's plan did not explicitly deal with any expansion of Intertie capacity. The Council recognizes that expansion of the existing Intertie capacity may be desirable as part of a surplus firm sale for a variety of institutional reasons having to do with continued access to nonfirm markets by various parties in both the Northwest and Southwest. |