Say it aint so! These guys are going to get smoked with NG prices holding high and being driven higher by lack of hydro.
California Power Prices May Surge on Northwest Hydro Drought
By Gene Laverty
Seattle, Feb. 17 (Bloomberg) -- California electricity prices may surge this summer, reaching levels last seen during the state's power crisis two years ago, as drought in the Pacific Northwest limits hydroelectric generation.
The lack of snow and rain means flows will be at least 25 percent below normal at Columbia River dams, based on a forecast from the Bonneville Power Administration, the federal agency that controls more than a third of the hydropower used in Washington, Oregon, Idaho and western Montana. Some meteorologists are forecasting even lower flows.
``Hydro is going to be a disaster this year,'' said Jim Duncan, head of research for energy trading at ConocoPhillips, the third largest U.S. oil company. A lack of hydropower could contribute to a repeat of the ``out of control'' prices experienced in California in 2000 and 2001, Duncan said.
California's failed deregulation scheme caused rolling blackouts that left millions of customer without power. Governor Gray Davis eventually agreed to have the state enter into $43 billion in multi-year supply contracts to keep the lights on as the state's biggest utilities were pushed to insolvency by high wholesale power prices.
At some Western electricity hubs, power prices climbed as high as $3,000 a megawatt hour during the crisis, which left the California economy weakened and the nation skeptical about the viability of electricity industry deregulation.
Forecasts
This year, wholesale power prices already reflect some concern about the limited hydroelectric generation. Next-day power at Washington's Mid-Columbia trading point, a benchmark for the Northwest, touched $51.82 a megawatt hour last week, the highest since August 2001, according to Bloomberg data.
Higher prices may be coming, according to utilities and industrial customers. Puget Energy Inc., owner of the largest electric utility in Washington, has said profits will be pinched because of higher power costs. The British Columbia Power & Hydro Authority is limiting power sales to save water behind its dams. A zinc miner has said it may shut a plant in British Columbia.
Bonneville Power predicted in December that flow through its dam in The Dalles, Oregon, will be 25 percent below normal this year. That suggests water will be low throughout Bonneville's system of 31 dams along the Columbia River and its tributaries, said Mike Hansen, spokesman for Bonneville.
The forecasts are ``abysmal,'' Hansen said. An unofficial, mid-January update showed flow at Dalles Dam was lower than forecast, ``which means it's only going down,'' he said.
Saving Water
A forecast released a week ago by the Northwest River Forecast Center, part of the National Oceanic and Atmospheric Administration, said flow at the Dalles Dam is likely to be 30 percent below normal through July.
British Columbia Power has been importing electricity and running its hydroelectric turbines less to conserve water in its reservoirs at the source of the Columbia River.
The province-owned utility, normally the second-biggest exporter of electricity to the U.S. after Hydro-Quebec, considers it ``prudent business'' to save water as a hedge against higher prices this summer, spokeswoman Elishia Odowichuk said. The utility may have to curtail exports this summer to insure it can meet its own needs, Odowichuk said.
``We did a reading in January that said reservoir levels were well-below normal,'' said Odowichuk.
Puget Energy last month cut its profit forecast for this year by about 14 percent, because dry conditions in the Pacific Northwest will increase power costs.
Power Costs
Avista Corp., which sells electric service to more than 30,000 customers in Washington and Idaho, has said it faces higher expenses for power plant fuel because its hydroelectric dams have less water than usual.
Teck Cominco Ltd., the world's largest zinc miner, may shut a smelter in British Columbia near the U.S. border and sell the power it saves in the U.S. as it did in 2001, Chief Executive Officer David Thompson said in a conference call this month.
Teck owns a hydroelectric dam that produces power for the smelter. With the price of zinc at 36 cents a pound, selling electricity will be more profitable than producing the mineral if rates rise above $80 to $90 a megawatt, Thompson said.
Making a similar calculation, many aluminum producers in the Pacific Northwest idled plants after prices soared two years ago.
To be sure, some analysts expect power prices will stay well below the peaks during the California crisis.
``The difference is there's a slower economy and better hydro conditions in California,'' said James Bellessa, an analyst with D.A. Davidson & Co. who covers Avista Corp. and other utilities in the Northwest.
`Untested'
California has not shared in the drought that has affected the Pacific Northwest. In the state's Sierra Nevada mountain range, precipitation was about 20 percent above normal as of late January, said Bruce McGurk, senior hydrologist at PG&E Corp.'s Pacific Gas & Electric, California's largest utility.
The redesign of the California market since 2001 may also help avoid price spikes. The state's failed deregulation plan forced utilities to buy much of their power in the spot market, eventually bankrupting Pacific Gas & Electric. The utilities now have more of their supply under long-term contracts.
Duncan, at ConocoPhillips, said changes in the power market may prevent a replay of the power crisis. ``But that's untested,'' he said. ``The supply demand balance in the West is on a knife edge.'' |
