BPA proposal to compensate wind generators

The Bonneville Power Administration has announced a proposal for compensating wind energy producers that are served by the federal power marketing agency’s transmission grid for periodically reducing their output when necessary to keep the electricity supply from exceeding demand during high river flows.

If BPA decides to proceed with the compensation proposal, the agency will also propose in a rate case to split the cost of the compensation approximately equally between users of BPA’s Federal Base System and wind energy producers in its grid. The proposal comes after months of discussions with key stakeholders to find an equitable solution to oversupply. The proposal is based on concepts developed in those conversations.

Although the discussions are ongoing, BPA is releasing its proposal for public review now so the agency can meet a March 6 deadline for filing the proposal with the Federal Energy Regulatory Commission.

FERC in a Dec. 7 order said that Bonneville’s “redispatch and negative pricing” policy was contrary to the law and gave the agency 90 days to rewrite the policy.

The FERC order said the new policy “results in non-comparable transmission service that is unduly discriminatory and preferential. Accordingly, Bonneville may not extend its current environmental redispatch policies or implement new environmental redispatch policies that result in noncomparable transmission service.”

A month ago Bonneville and other hydro power interest filed requests that FERC schedule a hearing on the issue and, ultimately, rescind its order. FERC granted the rehearing request but said it did so only to stall for time. Law requires that the commission respond to such requests within 30 days.

“In order to afford additional time for consideration of the matters raised or to be raised, rehearing of the Commission’s order is hereby granted for the limited purpose of further consideration, and timely-filed rehearing requests will not be deemed denied by operation of law,” the Feb. 6 FERC order said.

The petition, filed in June, to FERC came from a group of owners of wind facilities in the Pacific Northwest that said that Bonneville was “using its transmission market power to curtail wind generators in an unduly discriminatory manner in order to protect its preferred power customer base from costs it does not consider socially optimal,” the FERC order said.

Parties also petitioned the U.S. Court of Appeals for the Ninth Circuit to overturn BPA’s record of decision regarding the redispatch and negative pricing policy. Those petitions to the appeals court have been stayed until April 4, or pending final action by FERC on any request for rehearing or clarification in the related matter, whichever occurs later.

Meanwhile, BPA says it will continue to work with regional stakeholders to find a solution.

The terms of the newest proposal would run through 2015. The proposal would address the risk of a possible oversupply of energy when hydroelectric power produced by high runoff of water combines with wind generation in low-demand periods such as late at night. Electricity supply must constantly match demand to maintain the reliability of the electric grid.

“This is an important step toward resolving a Northwest issue in a way that works for the Northwest,” said BPA Administrator Steve Wright. “We’re focused on seeking solutions based on regional input that maintain reliability, protect fish and support renewable energy while equitably sharing costs.”

The risk of electricity oversupply depends on runoff conditions and BPA expects reductions in wind generation will be unnecessary in about one of every three years.

Reducing hydroelectric generation during high flows sends more water through dam spillways, increasing dissolved gas levels that can harm fish, including migrating wild salmon and steelhead that are protected under the Endangered Species Act.

To control gas levels, BPA maximizes hydroelectric generation in such circumstances and offers low cost, or free, replacement power to coal, natural gas and other thermal power plants, as well as to wind generators, asked to reduce generation during times of oversupply.

Thermal plants typically shut down and save fuel costs. But, most wind energy producers continue operating because of the revenue they receive from production tax credits, renewable energy credits and contracts that depend on continued wind generation.

Under the new proposal, BPA would first work with the U.S. Army Corps of Engineers and Bureau of Reclamation to manage federal hydroelectric generation and spill water up to dissolved gas limits. Bonneville would then offer low-cost or free hydropower to replace the output of thermal and other power plants, with the expectation that many would voluntarily reduce their generation to save fuel costs.

If electricity supply still exceeds demand, BPA would then reduce the output of remaining generation within its system, including wind energy, in order of least cost. BPA would compensate the affected generation for lost revenues, including renewable energy credits and production tax credits, subject to audit. The negative pricing policy in effect last year did not call for Bonneville to provide funding to make up for lost credits.

On average BPA expects to compensate wind producers about $12 million per year for lost revenues related to reduced electricity generation, although the total could range from nothing to more than $50 million in extreme conditions, the agency says.

The Northwest River Forecast Center’s runoff projection for Columbia/Snake river basin for January to July 2012 is currently 87 percent of average, as measured at The Dalles Dam on the lower Columbia. Lower runoff reduces the likelihood of an oversupply of electricity this spring, but conditions can change rapidly.

Under the proposal, BPA would cover costs of curtailing wind generation this spring from its transmission reserve account until a rate can be established to recover the costs.

The agency would initiate a new rate case in which it would propose dividing compensation costs roughly equally between users of BPA’s Federal Base System and wind energy operators within BPA’s system.

For information, visit www.bpa.gov/go/oversupply.

Columbia Basin Bulletin