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Bonneville Power Proposes New Approach for Compensating Non-Hydro Generators During Oversupply by Staff Columbia Basin Bulletin, March 9, 2012

The Bonneville Power Administration on Tuesday announced a proposed new approach to addressing situations when too much energy is available for delivery to power customers through a Pacific Northwest transmission system that the federal power marketing agency largely controls.

Such an event occurred this past spring when a brimming Columbia-Snake river system caused Bonneville at times of low power demand, such as at night, to require thermal and wind generators to curtail production so that the full capability of the Federal Columbia River Power System's hydro projects could be used.

The goal was to channel as much water through hydro turbines as possible so that spill levels at the dams could be reduced. In times of high river water volume, such as during spring meltdown of the basin's mountain snowpack, "involuntary" spill is often required to pass water downstream. Cascading spill stirs up "total dissolved gas" in river water that can at higher levels cause harm to migrating salmon and steelhead and other aquatic organisms. Water moving through turbines does little to boost dissolved gas levels.

A new BPA policy in place last spring offered to provide free of charge power to replace the curtailed non-hydro generation, but did not reimburse lost revenues incurred by, particularly, wind generators who gain state and federal tax credits for adding "renewable" energy to the system.

Bonneville's policy was challenged by wind generators with the Federal Energy Regulatory Commission, which in a Dec. 7 order said that Bonneville's "redispatch and negative pricing" policy was contrary to the law. FERC 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 later Bonneville and other hydro power interest filed requests that FERC schedule a hearing on the issue and, ultimately, rescind its order. That request is still pending.

Meanwhile, BPA filed March 6 at the 90-day deadline a request that FERC approve a one-year policy, to be in place from March 31, 2012 through March 30, 2013, to address FERC's concerns, and oversupply situations.

"The Oversupply Management Protocol retains the displacement tool necessary for Bonneville to meet its environmental responsibilities but differs from Bonneville's Interim Environmental Redispatch Policy in significant respects, all in an effort to meet the Commission's charge that Bonneville 'reconcile the provision of comparable service that is not unduly discriminatory or preferential with its organic statutes,'" according to BPA's March 6 compliance filing with FERC."

"Most critically, the protocol provides significant compensation to renewable generators for the costs they incur from being displaced," the BPA filing says.

In oversupply situations, which usually happen in the springtime when there is a lot of water in the Columbia River system, some generators must be turned off. As the transmission grid operator, BPA is required to develop a method for determining which generators must be turned off first.

BPA's plan allows for displacing generators after all other reasonable actions are taken, including potential arrangements with upstream dam operators in Canada to hold back water.

While BPA operates the transmission grid, it also is responsible for generation units. In times of high water, federal system operators must run the federal hydroelectric plants in order to comply with environmental regulations to protect fish, according to a March 7 BPA press release.

The plan submitted FERC is based on input from regional stakeholders, according to BPA, which markets power generated in the federal Columbia-Snake hydro system. In formulating the proposed plan, BPA sought to balance multiple competing interests by equitably sharing oversupply costs and limiting total cost exposure.

BPA's objective was to create a set of rules that is fair to all parties and that can help to avoid protracted litigation, the press release says.

BPA received almost 90 comments on the proposal after releasing it for public comment on Feb. 7.

Members of the Northwest congressional delegation as well as the secretary of Energy urged BPA and regional parties to craft a local solution to the oversupply issue.

The latest proposal comes after months of discussions with key stakeholders to find an equitable solution, BPA says. The proposal is based on concepts developed in these discussions.

"We have heard and responded to the calls for a solution developed in the Northwest," said Steve Wright, BPA administrator. "While the time frame we had to deal with did not provide opportunity for a broad settlement, our filing today is based on extensive conversations with and comments from parties interested in achieving an equitable solution."

The protocol would be part of BPA's transmission tariff. BPA has been working with customers and other stakeholders for almost a year to update its transmission tariff covering all terms and conditions for transmission service from BPA. BPA intends to file the broader tariff with FERC later this month.

The protocol addresses the risk of energy oversupply when hydroelectric power produced by high runoff of water combines with wind generation in low-demand periods. Electricity supply must constantly match demand to maintain the reliability of the electric grid.

To control gas levels, BPA maximizes hydroelectric generation during these periods and offers the output at low cost or for free to coal, natural gas and other thermal power plants, as well as to wind generators.

Thermal plants then typically shut down and save fuel costs. However, most wind energy producers continue operating because their revenue from production tax credits, renewable energy credits and contracts depends on continued wind generation.

Under the new protocol, BPA would first work with the U.S. Army Corps of Engineers and Bureau of Reclamation, agencies that operate mainstem Columbia-Snake River dams, to manage federal hydroelectric generation and spill water up to dissolved gas limits. BPA 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 verification by an independent evaluator.

Under the protocol, BPA would cover costs of compensating generators this spring from its transmission reserve account until a rate can be established to recover the costs.

BPA will initiate a new rate case in which it will propose dividing compensation costs roughly equally between users of BPA's federal base system and generators eligible for compensation from BPA.

The petition to FERC challenging BPA's redispatch and negative pricing policy was filed in June by 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.

For more information, go to www.bpa.gov/go/oversupply