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Huge balancing cost in Northwest -- Threat of 400% rise in charges

Less than a year after imposing a $3/MWh charge on wind plant owners to cover the costs of balancing wind power connected to its system, the Bonneville Power Administration (BPA) has proposed a fourfold increase that would go into effect in October and last for two years. BPA, a US federal agency that operates the grid for most of the regulated Pacific Northwest power market (map next page), pitched the $12/MWh levy as part of its rate case for the 2009-2011 fiscal period.

"They've proposed a rate that shocked everybody," says Stephen Hall, an attorney for Stoel Rives, which represents the Northwest Wind Group, a coalition of wind developers and regional stakeholders. "Wind is certainly willing to pay the fair cost of balancing. But Bonneville, in our opinion, has overstated both the amount of reserves needed to balance wind and the cost of those reserves."

bargaining tool

Some see the proposed 400% increase as a bargaining tool and believe a much lower rate is inevitable. "A $6 charge goes down a lot easier if you start it at $12," Hall says. "The fact that it's cynical probably doesn't mean that it's not true."

A main point of contention with BPA's proposal is that wind generators say they have become increasingly more accurate at forecasting and scheduling wind than BPA's calculations allow. "That's probably the biggest issue among many," says Ken Dragoon of Renewable Northwest Project, a clean energy advocacy group. "Once we recognised that the schedules weren't all that accurate, and that Bonneville's new integration cost was going to be dependent on the accuracy of the schedules, we made a fairly concerted effort to improve scheduling practices."

Dragoon says that while more than half the balancing costs as calculated by BPA are tied to wind forecasting, wind plant operators have begun hiring teams of staff meteorologists on a round-the-clock basis. "If the schedules are precise, a large fraction of the integration costs would go away," Dragoon says. "We'll never get to one hundred per cent accuracy, but we've been getting a lot closer." While BPA acknowledges overall improvements in scheduling, its rate proposal contains forecasting averages through July of 2008 -- before major improvements were made.

Also at issue is the amount of wind generation BPA expects to see on its lines. The current $3/MWh rate has been in effect since October, when roughly 1400 MW of wind was in its system (Windpower Monthly, May 2008). At that time, the agency anticipated seeing 2900 MW of wind online by October 2009. But while BPA crossed 2000 MW last month, approaching 2900 MW this year seems unlikely in the current economic climate. "They've assumed quite a high amount of wind coming onto their system," Dragoon says. "We've challenged that and they've responded somewhat, although probably not as far as we might agree."


Another issue is the amount of embedded costs BPA factored into its calculations. A significant part of the agency's case includes paying off federal dams, fish and wildlife mitigation efforts, and fixed operations and maintenance on the area's vast hydro system, Dragoon says. "They overcharged in various ways," he says. "They just took a percentage of all those things and stuck it into this rate."

Opponents of the rate hike also raise questions about depending heavily on the region's abundant hydropower for balancing, arguing that BPA could curtail thermal units when the wind is blowing to save fuel costs. "We also think that the balancing could be done much less expensively if Bonneville would look outside its own system," Dragoon says. "There are opportunities for them to do that, but they haven't done any of them."

BPA's system serves an average peak load of 14,000 MW with a total generating capacity of 39,000 MW, meeting the needs of 12 million people in all or part of seven western states. The agency is not able to make comments on the active rate case due to legal considerations.

Ripe for settlement

The charge for wind balancing is a relatively new concept because wind only recently reached a penetration level significant enough to cause concern. "BPA currently has one of the highest, if not the highest, levels of penetration of wind," Hall says. "So they're among the first ones to see this issue."

But Hall also believes the issue will die down as forecasting and other operational methods improve. The BPA case, however, will be decided before any such advances come fully into play. Although a final rate is due July 21, industry watchers say a settlement in the interim is likely.

"Frankly, as controversial as this has been, it's ripe for a settlement," Hall says. "The parties can get there because if the number is unacceptable, then there may be appeals and further litigation. And it's in no one's interest to tie up more time. But $12 is simply unacceptable -- it's a non-starter."

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