Steve Wright’s Perspective on the State of the Electricity Industry

Chelan PUD general manager and former BPA administrator talks about reducing GHG emissions, least-cost planning, and the impact of California's energy policies on the Northwest

steve wright.jpg

Steve Wright, general manager of Chelan PUD, gave a wide-ranging overview of the state of the electric utility industry at the Council’s September meeting. Before joining Chelan in 2013, Wright served as the chief executive officer and administrator at the Bonneville Power Administration.

The Importance of Least-Cost Planning in Efforts to Reduce Greenhouse Gas Emissions

Among his many observations was that reducing greenhouse gas emissions will inexorably drive electricity policy.

“The most significant change happening in the electricity industry is that we are moving away from least-cost planning to reliably meet load…Today, we’re driven by goals for greenhouse gas emissions reductions,” he said. But, our approach has been rather haphazard. “We need an analytical approach to least-cost planning for GHG emissions reductions.”

He noted that, “As hard as least-cost energy planning is, least-cost planning for reducing GHS emissions is even harder because of the interactions between sectors and regional differences."

It’s also challenging because you are trying to reconcile two different objectives—meeting load reliably and lowering emissions. But, he said, if we understood where the overlap is between those two, we’d be in a much better position to pick the low-hanging fruit that achieves both our economic and environmental objectives.

The framers of the Act “created a methodology for making good decisions that was timeless…It brought together our environmental and economic objectives that have broad support across the political spectrum.”

Maybe, he said, the Council would be a good place for thinking about this kind of work. The Seventh Power Plan is a sound foundation for considering least-cost approaches. The problem is that the Council receives its funding from BPA ratepayers and this a much bigger effort that requires support beyond Bonneville preference customers. So in this respect, he felt it would be a stretch for the Council.

He added that from the work they have done at Chelan, hydropower and energy efficiency are the two strategies that accomplish both objectives of reliably meeting load and achieving GHG reductions at least cost.

“I’d also say that it’s hard to imagine a least-cost path to deep decarbonization that doesn’t involve substantial efforts to electrify cars and buildings.”

The Need for Hydropower Renewal in the Policy Arena

A question Wright said he is often asked is, why is hydropower not considered a renewable? While acknowledging the reasoning behind this, Wright said “I believe hydropower is being taken for granted in the public policy world.”

California’s move to a 60 percent renewable portfolio standard that doesn’t include hydropower and a 40 percent zero emissions standard that specifically excluded imports of hydropower from the Northwest meant that there was no place for hydropower in that equation, said Wright.

He noted that Northwest hydropower meets about 5 percent of California’s load, lowering their emissions by 6 to 7 million tons and saving hundreds of millions of dollars for consumers.

Although that provision was removed from the legislation at the end of July, concerns remain about how the issue will be treated in the future.

Additionality Principles

A significant number of big commercial customers want to acquire their own renewable resources, and principles are being drafted by a variety of different groups on what criteria should be used.

“One of the principles is called additionality—that you have to bring something new to the table, you have to build a new resource in order to meet these criteria,” said Wright. “And those criteria currently exclude hydropower.

“So again, we have another piece of the market that’s being walled off from hydropower,” said Wright.

He believes that additional criteria should be added to the additionality principles, such as tax credit policy (which doesn’t apply to hydropower); research and development (very little investment toward hydropower); and hydropower relicensing (it takes 10 to relicense a hydropower project compared to two years for other resources).

“So these policies poorly reflect the importance of hydropower in meeting our economic and environmental objectives,” he said.

Reliability Benefits of Hydropower

“The public is demanding greater reliability as we move to a digital economy.”

Hydropower, noted Wright, is the one generating resource available today that can provide the host of services needed to ensure reliability, from peak capacity, flexible capacity, and everything else in between. “It’s something that’s fundamentally misunderstood in the public policy world,” Wright said. “But things are changing.”

The system was built primarily between 1930 and 1975; it’s an aging resource in need of substantial reinvestment. Refurbishment is expensive, and the decision to refurbish is compared against market prices.

“When you’re doing the analysis, there are three values to electricity that you compare against (which applies to energy efficiency as well): energy, capacity, and carbon. And all three are currently undervalued in the marketplace.

“With energy, the market is doing a fantastic job of creating efficiency, but the production and investment tax credits confound the market,” said Wright. “We’re seeing increasing amounts of negative prices as we add more variable resources that rely on tax credits on the system.”

The negative price phenomenon will change as the tax credits expire, but given the current policy, it’s going to be a decade or more before that happens, he said.

In the capacity world, the electricity markets around the country and the West do a poor job of valuing capacity, swinging between over and under valuing it because of a lack of storage. “Currently, we’re in a period of undervaluing it.”

Recalling the trauma of the West Coast energy crisis, he said, “I remember really well what it was like to be in a period when prices were too low, and it led to substantial underinvestment.

“Current market prices provide generally inadequate revenue to support investment in newer, refurbished capacity for peak or flexibility purposes.

“Assuring adequate flexible capacity is a concern for me as the marketplace evolves, in terms of being able to maintain reliability and avoid price excursions.”

Noting that even in 2008, people realized this would be a problem as variable resources like wind generation was being built.

“We’ve seen this coming for a while, and yet we didn’t realize how quickly it would happen. There is an incredible, rapid acceleration of variable resource development across the West, particularly solar, and it’s a radical change in system operations.”

It turns the conventional understanding of system operations upside down, as loads go up at night instead of down.

“There is a reliability risk, especially in addressing the period of the evening up ramp,” said Wright. “The question is, will we have adequate flexibility and can we put it in place quickly enough.

 “So we really need policies that ensure adequate investment in flexible capacity.”

The third value stream is carbon. The California cap and trade is the only market in the West. Its prices are less than $15 a metric ton and that is too low to achieve meaningful reductions, he said.

Given the goal to reduce greenhouse gas and if a pricing policy is going to be used, then creating larger, more liquid markets would be the most economically efficient approach.

“I’d say consideration should be given to expanding California’s cap and trade program to other Western states because that gives you a bigger, more liquid market and a way to achieve least-cost.

“Now, when we talk about this, people say, low prices sounds really good to most consumers, and it is if they can be sustained. But if it leads to underinvestment the consequences can be severe.

“The most scaring event of my career was the West Coast energy crisis…but when you’re in that moment, there’s not much you can do. What needed to happen was more action in advance of that moment.

“We were at risk in the late 1990s, we were unable to act on it. Being short on supply is expensive and very, very destabilizing, and planning should be calling attention to this risk.”

He went on to say that the primary impact on wholesale power markets today is driven by policymaking in the state of California. It’s a big share of the Western power market, and when they make decisions it moves everything.

“We should be thinking today about what we want our relationship to California should be, and we have three options: status quo; create more integration; or less integration. Ultimately, we hope this will lead to a broader discussion about how we work together to meet our environmental and economic objectives in California and the Northwest.” 

Can We Have Hydropower and Salmon?

“I think the answer is yes,” said Wright.

“Here’s one thing we know for certain: at the end of the last century there were 1 million people living in the Pacific Northwest; today there are 11 million.

“The habitat has been altered; it has been altered in a lot more places than in the mainstem of the Columbia and the Snake.

“It’s true there is more data on inriver mainstem survival than there is on habitat restoration. But, just because we have more data on mainstem survival, it should not diminish our valuation of the benefits of offmainstem habitat restoration where the research is catching up.”

He pointed out that the hydrosystem is the primary funding source for addressing the degradation to the habitat caused by humans in the Northwest.

“Just my view,” Wright said, “it would be a mistake to claim no reasonable certainty for biological benefits to habitat restoration.

“Because if we go down that path, it would be very tempting to severely limit the funding for habitat restoration.”

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