SEATTLE -- The City of Seattle has solidified its energy future through two crucial new power supply contracts, Mayor Paul Schell and City Councilmember Heidi Wills announced today.
“These are very good long-term deals for City Light customers, both in terms of rates and reliability,” Schell said. “They will save a considerable amount of money compared to buying power from the wholesale market.”
The contracts, with the Bonneville Power Administration for 10 years and the City of Klamath Falls for five years, help ensure a long-term power supply and move Seattle toward independence from the volatile wholesale power market.
Wholesale power prices, driven by high demand, tight supply and California deregulation, spiked to more than $1,000 per megawatt hour this summer – $25-$30 is normal – and punched a $55 million hole in City Light’s power budget. The Seattle City Council today adopted a temporary rate increase to fill the budget hole.
“The rate increase is a short-term response to high power costs,” Wills said. “The new contracts are part of an overall strategy to reduce our need for wholesale power and hold rates down over the long term.”
Under the agreement with BPA, City Light for the first time in history will get a “slice” of the federal hydroelectric system – about 5 percent of the power generated by BPA. The actual amount of power will fluctuate, depending on rainfall. City Light also accepts the risk of reduced power output caused by meeting fish-protection regulations on the Columbia River system. City Light will pay the same percentage of BPA’s system costs, including any budget overruns and debt payments to the U.S. Treasury.
“By taking a slice of the federal hydroelectric system, we are acknowledging BPA’s economic and environmental value to the region,” said City Light Superintendent Gary Zarker. “We are becoming a partner in preserving the BPA system as a Northwest resource.”
The contract also gives City Light a “block” of BPA power. A block is a firm amount of power shaped to a monthly net requirement.
All together, City Light will buy 493.8 average megawatts for the first five years of the contract and 608.2 average megawatts for the second five years. The contract runs from Oct. 1, 2001 to Sept. 30, 2011. City Light’s cost over the 10 years is estimated at about $1.2 billion. Based on price forecasts, the contract could save City Light as much as $878 million compared to purchasing power from the wholesale market.
Under the agreement with the City of Klamath Falls, City Light will purchase 100 megawatts from a combustion turbine fired by natural gas, giving the largely hydro-dependent utility a firm source of power during periods of low water and drought.
The 500-megawatt turbine is being developed jointly by the City of Klamath Falls and PacifiCorp Power Marketing of Portland. Klamath Falls is in southern Oregon, with good access to natural gas pipelines and the main electrical transmission line between California and the Northwest.
City Light will begin receiving power from the turbine as soon as it begins commercial operation, scheduled for July 2001. The total value of the contract depends on natural gas prices over the next five years, but City Light estimates a total cost of about $182 million. That represents a projected savings of about $22 million over the market price of electricity during that time period.
The Klamath Cogeneration Project is one of the cleanest fossil fuel plants in the U.S. in terms of greenhouse gas emissions. Mayor Schell and the City Council have further stipulated that carbon emissions attributable to Seattle's share of the turbine be fully mitigated. City Light is already working on a package of mitigation strategies.
Mayor Schell and the City Council have stipulated that carbon emissions attributable to Seattle’s share of the turbine be fully mitigated. City Light is already working on a package of mitigation strategies.
“The new power supply contracts, combined with our city-owned hydroelectric generators, conservation programs and renewable resource initiatives, give us a very bright future,” Zarker said. “We will meet the growing demand for our product, and we will do it cleanly and affordably.”