Cost of capital is often a contentious issue in utility ratemaking. This is due, in part, to the inexact nature of the tools available to financial analysts and the considerable room for divergent...
Money, Power and Trade: What You Never Knew About the Western Energy Crisis
of the Plains Indians. The Celilo Falls trading hub is only vaguely remembered, yet it may well symbolize the possible demise of the western power market.
The healthy benefits of trade that have been bestowed on the West's power consumers are now threatened as confusion, mismanagement, fear, greed, and parochial interests govern decision-making. Trade is essential to the western power system, because the transmission network was designed to take advantage of diversity in seasonal load and generation costs. For the first two decades after the North-South Intertie was built, the bulk of trade was arranged through long-term exchanges and the sale of "economy," or surplus hydroelectric power. Through this trade, utilities in the South would make power available to utilities in the North during the winter, and the flow would reverse in the summer. The interconnection also allows consumers and generators to take advantage of significant differences in variable cost. The West's transmission lines traverse vast empty spaces to connect population centers with far-flung generation. Unlike many of the power pools of the eastern and midwestern United States, the Western power system has distinct directional flows. %n1%n The benefits of exchange and trade are substantial (em the pieces fit together like a jigsaw puzzle, allowing individual utility seasonal peaks to be smoothed and cost reduced.
Now reconsider that warning from the BPA and how the NPCC reacted. %n2%n
Bonneville's analysis had demonstrated that the Pacific Northwest could be expected to run substantial deficits (em that is, to rely on imports (em from October 1999 to March 2000, unless water conditions were well above average. It seems as if everyone in the Western Systems Coordinating Council (WSCC) was planning on importing power during peaks, but no one planned for exports. The WSCC is not just interconnected, it is interdependent (em much more so than the relatively self-sufficient systems in other areas of the United States. When trade collapses, each sub-region of the WSCC must rely on its own resources; apparent abundance gives way to forced outages and capacity constraints.
Meanwhile, California represents less than half of the electricity load in the western states, but serves at the same time as the lynchpin of regional trade. California sits at the geographical hub connecting the winter-peaking system in the North with the summer-peaking system in the South. Moreover, the significance of California's role in western power markets has grown over the last decade, as the state has become more and more dependent on out-of-state imports to keep its system in balance. Thus, when the California power market tottered on the edge of collapse, the entire western market suffered.
With western markets joined at the hip, the siting council in Washington state saw it as prudent to block turbine construction. Put another way, the council concluded that local residents should not be expected to bear the environmental costs of a new merchant plant that would simply sell power for the highest price, presumably to residents of California.
Yet both that decision and its underlying reasoning are chilling. In an interconnected market, reduced supply means higher prices