Electricity Prices May Climb Again
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% below normal at Columbia River dams, according to the Bonneville Power Administration, the federal agency that sells power from 31 dams 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, he said.
California’s failed deregulation plan caused rolling blackouts that left millions of customers without power. Gov. Gray Davis eventually agreed to have the state sign $43 billion in multiyear supply contracts to keep the lights on as California’s biggest utilities were pushed to insolvency by high wholesale power prices.
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.
Wholesale power for delivery in Northern California has averaged $46.65 a megawatt-hour this year, almost double its average at this time last year.
Higher prices may be coming, according to utilities and industrial customers. Puget Energy Inc., owner of the largest electric utility in Washington, has said profit will be pinched because of higher power costs. The British Columbia Power & Hydro Authority is limiting power sales to save water behind its dams.
Bonneville Power predicted in December that water flows through its dam in The Dalles, Ore., will be 25% below normal this year. That suggests water will be low throughout Bonneville’s system of dams along the Columbia River and its tributaries, agency spokesman Mike Hansen said.
The forecasts are “abysmal,” Hansen said. An unofficial, mid-January update showed flow at Dalles Dam was lower than forecast, he said.
Puget Energy last month cut its profit forecast for this year by about 14% because dry conditions in the Pacific Northwest will increase power costs.
Avista Corp., which sells electricity 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.
To be sure, some analysts expect power prices to stay well below the peaks reached during the California crisis.
“The difference is there’s a slower economy and better hydro conditions in California,” said D.A. Davidson & Co. analyst James Bellessa, who covers Avista and other utilities.
California hasn’t had the drought conditions affecting the Pacific Northwest. In the state’s Sierra Nevada mountain range, precipitation was about 20% above normal as of late January, said Bruce McGurk, senior hydrologist at PG&E; Corp.’s Pacific Gas & Electric, California’s largest utility.
Changes to the California market since 2001 also may help avoid jumps in prices. The state’s failed deregulation plan forced utilities to buy much of their power in the spot market, eventually causing Pacific Gas & Electric to file for bankruptcy protection. The utilities now have more of their supplies lined up under long-term contracts.
Duncan, the ConocoPhillips research chief, said changes in the power market may prevent a replay of the crisis. “But that’s untested,” he said. “The supply-demand balance in the West is on a knife edge.”
