The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Bonneville's Balancing Act
In the Pacific Northwest, you either spill water or spill wind.
Back in 1941, when Woody Guthrie sang the praises of the Grand Coulee dam (“to run the great factories for old Uncle Sam … Roll on, Columbia, roll on”) , he likely never imagined that its owner, the Bonneville Power Administration (his songwriting patron), might someday be forced to give away its clean, green hydropower for free, or even pay customers to agree to take it.
Yet that is exactly where BPA could find itself today, due to the interplay of high water runoff, weak local load, and a huge, sudden influx of wind-powered generating capacity in the Pacific Northwest.
That prospect arises under one of the most complex cases to be brought before the Federal Energy Regulatory Commission in years. In essence, the wind industry has asked FERC to rule that if BPA wants to continue to play its traditional New Deal role in bringing cheap power to the people, while simultaneously promoting irrigation, agriculture, flood control, recreation, fish and wildlife, and other environmental aims, it will need to do so under modern-day market precepts—which, under certain conditions of stream-flow dynamics and electric supply and demand, might imply a zero or even negative price for its hydro output.
The immediate culprit isn’t wind, however, but greater volumes of spillway discharge. This increased “spill” creates high levels of TDG—“total dissolved gas”—and the dangerous resulting GBT (gas bubble trauma, when gas bubbles invade the tissues of aquatic organisms) that can prove fatal to the health of fish (especially salmonids) native to the Columbia River System.
Jason Sweet, a fishery biologist for BPA, explained the problem in testimony he gave in June in the aforementioned case now pending at FERC:
“When water is spilled from a dam it entrains air as it plunges to the spilling basin or plunge pool at the base of the dam. The momentum of the fall carries the water and entrained gases to great depths … and under increased hydrostatic pressure, the entrained gases are driven into solution, causing supersaturation of dissolved gases…
“When TDG levels exceed equilibrium and become supersaturated, the potential … for gas bubble disease or gas bubble trauma increases …
“As the levels of TDG increase, the incidence and severity of GBT also increase[s]…” (see, Affidavit of Jason C. Sweet, pp. 3, 7, FERC Dkt. EL11-44, filed July 19, 2011).
This need to boost the spill can occur especially in late spring, from mid-May to mid-June. That’s when high-volume runoff from melting snowpack conspires with the reduced load requirement that typically attends this shoulder season. That, in turn, forces BPA to run a lesser volume of water though its power generating hydroelectric turbines—a situation exacerbated in recent years by a growing wind power sector that displaces BPA’s traditional hydropower, creating the same effect as if the new wind resources had actually shrunk BPA’s load even further.
And moreover, this growing wind industry tends to behave differently from more traditional fossil-fired thermal