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General Manager’s Message: Power Supply Update

Ensuring our members have ready and reliable access to affordable power is something your Cooperative invests considerable time pursuing. There are many reasons for this. Financially, the cost of power represents nearly half of our total cost of doing business. In other words, nearly 50 cents of every dollar collected in rates is used to purchase or produce power used by our members. Electric power is also a very unique commodity. It cannot be affordably stored (or inventoried), it is produced and consumed in the same moment of time and it cannot be seen. Furthermore, advancements in distributed generation technology and its integration with the electric grid are rapidly transforming power supply markets. Perhaps most crucially, electricity is also a commodity we have come to depend upon greatly. For these reasons, I felt it appropriate to devote this blog post to the management of power supply. 

BPA and Hydropower 
As a not-for-profit member-owned cooperative, KEC has the right to purchase federal hydropower from the Bonneville Power Administration (BPA) at cost. This power is clean, renewable, economical and dependable. It is among the least expensive power resources in the nation and is carbon-free. Currently, 97% of our power supply comes from BPA. Unfortunately, the federal hydro facilities are both capacity constrained and aging. This means we are purchasing as much power from them as we can, and our load growth must be served by other resources. It also means the low cost we pay for hydropower continues to increase as BPA reinvests in its infrastructure. Later this summer, BPA will notify their customers (like KEC) of a change in rates that will become effective on October 1, 2017. The increase is anticipated to be approximately 6%, which would translate to a 2.6% increase in the rates our members pay. 

In addition to this, some environmental groups have filed a suit alleging that the federal hydro facilities are being operated in violation of the National Environmental Protection Act and are harming listed salmon. The 9th Circuit Court recently ordered a review of federal hydro operations and their impact on salmon. This assessment will cost approximately $81 million over the next five years and will be primarily paid for by those who purchase power from BPA, including our members. As part of this assessment, the judge also ordered increased spill estimated to cost BPA customers approximately $40 million annually beginning in 2018. This ruling alone will increase rates of all customers served by public power utilities in the Northwest by an extra $1 for every $100 currently paid. These are alarming trends which BPA and KEC’s affiliated trade associations are working hard to reverse. 

Non-Federal Power Supply
Since the hydro facilities are producing at capacity, KEC must serve all load growth from non-federal resources. Currently, this represents 3% of our total power supply requirements. While this seems like a small amount, it is growing each year for two reasons. The first is obvious: load growth associated with new homes and businesses offset by reductions gained from energy conservation investments. The second reason is less obvious. As the federal hydro system ages and as operations are constrained by environmental concerns, less power is produced. In the last six years alone, these factors have reduced the output of the federal hydro system by 3.6%. This is equivalent to the annual power requirements of 178,000 homes or sufficient power for four and a half utilities of KEC’s size. 

While this is a concerning trend, its impact on our rates has been pretty small. With the cost of natural gas currently suppressed, KEC has been able to secure non-federal power supply through 2019 at rates well below BPA’s rates. We anticipate securing similar rates through 2024 in the near future. These rates are guaranteed, are not subject to increase and provide some price stability against BPA rate pressures.

Fighting Creek Operations
KEC also owns and operates the Fighting Creek Landfill Gas-to-Energy resource. This plant converts the methane produced by the decomposition of trash interred in our local landfill into electrical power. Annually, it produces enough clean power for more than 800 homes, which is equivalent to 2% of our total power supply requirements. Because the cost of purchasing power from BPA and the market is currently so low, KEC sells the output to others as a renewable product. Over the next 12 years, operating the plant in this manner will cost about $4 million less than using it to directly serve load. That said, Fighting Creek’s operating costs have been higher than originally forecast. Among the many reasons for this are curtailments in operations due to transmission line outages caused by forest fires; curtailments resulting from an oversupply of renewable power on the grid during hours of light loading; and a reduction in the amount of methane available for production. The latter is the result of a change in the way trash is interred in the landfill and was unforeseen by Kootenai County and KEC. Because of these factors, Fighting Creek’s performance has been appreciably worse than our original operational forecast. While it is customary for a generation facility’s costs to exceed revenues in the initial years of operation, these costs have been higher, and will produce losses lasting longer, than originally foreseen. KEC has recently completed an operational assessment of operations and has implemented a plan which should ensure long term viability. Under this 12-year operational plan, Fighting Creek should produce approximately $375,000 in value for our members, providing our revised fuel supply and engine runtime forecasts hold true over this timeframe. 

Demand Management
This past year, KEC implemented a voltage control system that helps reduce the demand charges BPA assesses its customers during the heaviest loading hours of the month. The system predicts when those charges will be incurred and slightly lowers our distribution voltage at those times. This reduces our system losses during these critical hours and reduces our demand charges assessed by BPA by approximately $200,000 each year. To ensure voltage is not reduced too much, the voltage control system periodically polls metering devices along our lines to ensure the system voltage is maintained within standards established by the industry. 

Community Solar and Member-Owned Solar
For members interested in solar power, KEC will soon be offering two alternatives. The first is a community solar project affording interested members an opportunity to purchase solar power without having to locate it on their property or to assume responsibility for operating and maintaining it. The second is a solar kit members can purchase and have installed on their side of the meter. Members interested in either of these self-generation options are encouraged to contact our office for more information.

KEC works hard to be an energy partner our members can trust and count on. Advocating your interests before BPA and legislatively remains one of our primary focuses. We also recognize that providing exceptional service to our members often means being invisible to them. For some of our members, doing a good job frequently means providing a service that is dependable, affordable and only thought about when interrupted. For others, it’s helping them learn how to use power more efficiently or becoming more self-reliant. Regardless of your needs, we are here to help.  

Doug Elliott, General Manager

Note: Some members have expressed interest in contacting their elected officials in an effort to convey their perspectives on these matters. If you are interested in voicing your opinion on these matters and their impact on keeping rates affordable, we’ve created an information sheet to help.

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