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PUD says I-937 fueling surge in electricity costs

by MARK ST.J. COUHIG
Sequim Gazette


Those served by the Clallam County Public Utilities District (PUD) may soon be faced with significant increases in their electric bills, thanks to I-937, Washington’s Energy Independence Act.

Officials with the PUD say the increases are largely unnecessary and stem from definitions in state law that can and should be revised.

 

They and many of their fellow utilities, along with local governments and business organizations, are seeking the changes.

 

Their efforts are certain to be met by energetic opposition from environmentalists — and from other utilities.

 

The dispute arises from provisions found in I-937 that require utilities to both conduct aggressive energy conservation efforts and to purchase significant — and growing — amounts of renewable energy.

 

The vast majority of Clallam electricity is provided by hydropower purchased from the Bonneville Power Administration and is drawn from the Grand Coulee Dam on the Columbia River. Bonneville, a federally run power generation agency, provides cheap, plentiful and constant energy, said PUD spokesman Mike Howe.

 

“It’s golden,” he said.

 

While in the real world freshwater hydropower is renewable energy, it is specifically excluded from that definition in I-937, which was approved by 52 percent of Washington voters in 2006.

 

The initiative requires utilities with 25,000 or more users to greatly increase the amount of “renewable” energy they purchase. The portion of the load hit 3 percent in 2012 and will rise to 9 percent in 2016 and 15 percent in 2020.

 

The initiative defines renewable energy sources to include wind, solar, geothermal, landfill and sewage gases, wave and tidal power, along with certain kinds of biomass.

 

Pushing up the price

Howe said the utility currently purchases electrical power from Bonneville for about 3 cents per kilowatt. Renewable energy costs 9 cents or more per kilowatt, he said.

 

Howe says the economic issue is greatly exacerbated because while the percentage of renewable energy that must be purchased is growing rapidly, the demand for energy is growing very slowly. The slow growth in demand is attributed both to the poor economy and to other provisions in I-937 that require utilities to invest in energy conservation.

 

By contract, the power from Bonneville must be purchased whether it is used or not.

 

As a result, the Clallam PUD may soon be paying for energy twice — the unused energy from Bonneville and the 3-percent-and-growing amount of energy the utility is required to purchase from other sources.

 

“The lower you keep growth, the more you eat into the cheap energy,” Howe said.

 

Ted Simpson, president of the PUD Board of Commissioners, explained the issue on PUD’s website, “Not only is low-cost clean hydropower not considered renewable under the Act, but if we experience minimal load growth, we are still required to replace that very affordable clean power with power that is 3-4 times more costly.”

 

Howe puts it bluntly, saying the PUD is buying the renewable energy simply to meet the demands of the law.

 

But the issue is even more complicated because in fact the Clallam PUD isn’t purchasing “energy,” but instead is purchasing “Renewable Energy Credits.” RECs, as they’re commonly called, are the tax credits offered by local or larger governments to encourage the construction of renewable energy sources.

 

Howe says the PUD purchases these credits because they’re cheaper than renewable energy and can be used to meet the renewable energy requirements.

 

But that leaves the PUD short of energy to meet the slowly growing demand. To do that, the PUD may purchase additional energy from Bonneville or another source of energy. This “Tier II” energy is more expensive than the “Tier I” energy, but still much cheaper than the renewable energy required by the initiative. Renewable energy is so expensive that often a purchase of both Tier II energy and the RECs is cheaper.

 

Under the current economic conditions, which Howe points out, “change constantly,” that may be the best option.

 

Currently the PUD is spending $210,240 a year on credits. “In 2016, we’ll pay $131,400 for 8,760 credits and in 2020, $850,000,” Howe said. “And we’ll need more than that.”

 

He repeated, “We’re simply buying it because of the mandates.”

 

Howe said the commissioners run the PUD as a business would be run, attempting to find the best resources at the best price in order to hold down rates.

 

He also says it’s further frustrating because the designers of the law were simply hoping to support their preferred technologies. Providing affordable energy to those struggling to pay their bills should be the priority, Howe said.

A hard fix to find

Like many of the other utilities in the state, the Clallam PUD has invested in renewable energy projects to meet the requirements of I-937. It lost $300,000 when a planned wind farm in Pacific County was cancelled due to environmentalists’ concerns over the hazard the turbines provided to marbled murrelets, a sea bird.

 

Other utilities have completed their projects and have excess energy they need to sell to pay the bills.

The Lewis County PUD is one, for example, said Howe. They spent $40 million on a wind energy project.

They likely will be fighting to keep the law as is, Howe said.

State Rep. Kevin Van De Wege said he’s familiar with the law and that fixing it shouldn’t be difficult — but will be.

 

“You’d think that would be the simplest thing, wouldn’t you? It’s just common sense,” he said. “But it will be fought by other utilities, environmentalists and other energy producers.”

 

He added, “It’s hard to take just a piece of this and rework it. We need to redo the entire thing — to deal with the current economy, the current energy situation.”


But, he said, I-937 is an explosive issue. “I’ve never seen anything blow up like it did the last time we worked on it.”

 

As for the current session of the Legislature? “I don’t expect to see anything signed into law,” he said.
 



In the chart, the pale blue area indicates the amount of electricity the PUD has contracted to purchase from the Bonneville Power Administration. This is the cheapest electricity and it must be paid for whether it is used or not.

The dark blue area shows the portion of electricity the PUD must purchase from “renewable resources.” This energy costs three to four times as much as the Bonneville energy.

 

The green line represents predicted customer demand.

 

Because the amount of energy required to be purchased from renewable resources outstrips growth, the PUD will be required to purchase more electricity than it requires.

 

That will put upward pressure on utility rates in two ways:

 

 1) The PUD will purchase the more expensive renewable energy as required by the law. (It’s also possible the PUD will purchase a combination of “Renewable Energy Credits” and cheaper power from another source to meet the requirements. That may be cheaper, said Mike Howe, a spokesman for the Clallam PUD.)

 

2) The PUD also will pay for all of the electricity it is under contract to purchase from Bonneville, but won’t use all of it. The amount of excess, but paid-for, electricity is indicated by the red line.

 

Clallam PUD officials are asking the Legislature to amend the law to require that only the amount of electricity actually required above the Bonneville-provided energy should be purchased from renewable sources.

 

Reach Mark Couhig at mcouhig@sequimgazette.com.
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