Chelan PUD weighs key decision on regional power market

WENATCHEE — Chelan County PUD commissioners received an update Aug. 3 on rapidly changing western electricity markets, with staff saying the district is approaching several key decisions that could influence how it markets surplus hydropower and participates in regional energy markets for years to come.

Among the most immediate is an Oct. 1 deadline for the district to decide whether to participate in Markets+, a regional day-ahead electricity market administered by the Southwest Power Pool.

"That's a date that we have in our calendars," Director of Energy Operations Planning and Trading Jeff Johnson told commissioners. "It's something that we're monitoring very closely."

Johnson said participation requires affirmative action by the board and remains tied to the district's involvement in the Western Resource Adequacy Program, or WRAP, which coordinates electric capacity among western utilities to ensure enough power is available during periods of peak demand.

WRAP has seen several utilities submit notices to leave the program, including Seattle City Light, prompting commissioners to ask whether those departures could affect Chelan PUD.

Commissioner Carnan Bergren asked whether additional departures could increase the district's obligations or costs.

Johnson said the impact is expected to be minimal.

"Our expectation is that there'll be no impact to Chelan PUD from a liability standpoint," he said. "Potentially a moderate or minimal increase in costs because ... there are fewer participants."

The more significant challenge, Johnson said, is that WRAP's reserve requirements change how the district can market its surplus hydropower.

Because Chelan PUD must hold generating capacity in reserve to meet reliability requirements, a larger portion of its hydroelectric portfolio cannot be sold under long-term contracts or into daily energy markets.

"We're going to better evaluate how we utilize these values and what we do going forward," Johnson said, noting the district is incorporating those changing market conditions into its budgeting and long-range planning.

The discussion also highlighted the continuing transition following the early termination of Chelan PUD's long-term power sales agreement with Alcoa. Johnson said the district has already replaced part of that position through new slice contracts but continues looking for additional opportunities to better market the remaining power.

General Manager Kirk Hudson said staff has negotiated three replacement contracts since the Alcoa agreement was terminated.

"Any one of those by itself is a big effort, let alone doing three at the same time," Hudson said.

Hudson also said the changing market is prompting the district to reconsider one of its long-standing portfolio strategies. Chelan PUD has historically targeted having 40% to 50% of its power sales under cost-based contracts, but current market conditions may warrant a different approach.

"We're seeing some significant changes in the market that would cause us to question whether we have the right allocations," Hudson said. "So we may likely be back with you all in the future talking about whether or not that is the right mix."

Commissioners also discussed changing runoff patterns in the Columbia River Basin after this year's unusual rain-on-snow events produced average water volumes through July despite a below-average spring runoff.

Johnson said there is growing evidence that runoff is occurring earlier in the year, but he cautioned that more data is needed before concluding that winter rain is replacing mountain snowpack as the dominant source of seasonal flows.

"It's something the industry is dealing with right now as we get into macro environmental changes," Johnson said. "What does that look like for those districts? Hydro position, what does that look like economically and then also ecologically?"

No action was taken on the energy resources update. Staff expects to return to commissioners before the Oct. 1 Markets+ participation deadline.

Andrew Simpson: 509-433-7626 or andrew@ward.media