BELLEVUE BREAKFAST ROTARY CLUB

 IN THIS ISSUE:

Vol. 15, No. 43, April 21, 2003

The Energy Industry

President & CEO of Puget Sound Energy Steve Reynolds came by for an “informal chat” about what the future holds for the energy industry. He was high on Rotary, saying, “You are incredibly generous. However, you should save some of your raffle winnings for yourself … to improve your dress! (observation on the flip-flops and khakis; see Tribute to Dick Brown).

President Reynolds opened with, “I like to do a fairly informal presentation when I have the opportunity to speak. I’d like to give you a ‘Primer on Energy’ – the industry that brought you Enron!”

Puget Sound Energy was described as a “switch hitter,” providing to its customers both natural gas and electric service. Forty-five percent of PSE’s power is generated from a dam somewhere … less than 5% from dams in Western Washington. We’re talking small dams … 35% of our hydro output comes from dams in the mid-Columbia and a big chunk from the State of Montana coal-fired plant. The balance of our need is from gas-fired electric generation … along the Coast range. So, primarily, our source of power is from hydro.”

Reynolds,. Edberg
Sharon Edberg thanks Steve Reynolds for his presentation.

When we think of “cheap power,” the cheapest energy anywhere in North America has consistently been the Pacific Northwest. “But, there’s a catch. We’ve got to have a good, wet year to keep the system working. The hydro system we depend on so heavily is built out. Our region has a problem because we’ve nearly exhausted the means to provide more power.”

Reynolds said that “tons of issues still are to be resolved. High prices came with deregulation. Up and down Interstate 5, the future was to have been built by a number of unregulated generators. Several have not been finished. The capital is not available to finish projects that we counted on for the next couple of years.”

Natural gas is imported from British Columbia and Rocky Mountain states. This source is a reasonable short-term answer in terms of providing power. But, there was a $280 billion cap loss in the energy sector in the last two years. These are interesting times. Who will finish these power plants? What are the energy challenges ahead?

Reynolds asked us “to give some thought to our energy future. We need to re-rationalize our thinking. We will have to rethink how we continue to sustain low-cost energy. I believe that energy does jump-start the economy. Puget Sound Energy would prefer to see an end to de-regulation. We need to pick up unfinished projects under some kind of regulation. If we don’t put these projects into production, we’ll be subject to buying power from all parts of the country … that will not make our users happy.”

Reynolds noted that there’s been a “change over time with the notion that de-regulation would work. The model hasn’t worked. It’s a Humpty Dumpty problem for us all.” In response to a question about the aluminum industry, Reynolds observed that this industry and many other manufacturers require cheap electricity. Bonneville Power has given price breaks in the past, but not anymore.

Asked about wind farms and fuel cells, he observed that the West is the most renewable area in the country, but the wind doesn’t always blow. “People don’t want a wind machine in their backyard. Wind currently can be produced for 6 cents per kilowatt hour. The cost needs to come in at 3 cents if it’s to be an acceptable alternative.”

Speaking of primer, the question was asked: “How do you buy power?” Reynolds responded, “Every energy system is different. There are times when you have too much power and you can sell the surplus. Or, you can be short and you go out to a wholesale marketplace to buy surplus power. It’s just like a commodity … purchases are made day-ahead, month-ahead, and even in the year-ahead market. Weather accuracy determines how much power we’ll need … a big consideration is how much water we need for fish. In the Northwest, colder weather means you’re short on power. That’s when we get on the phone to shop power. In our offices, you’ll see a group of our staff pouring over weather forecasts in order to determine what our power needs may be.”

Reynolds commented that trading companies, like Enron, thrive on the present economic climate. “In the next five years in our area, the demand will be high in winter and less in the summer, because we rely on such a small need for air conditioning. Our peak is different. The colder it gets, the more power we use. It’s been predicted we’ll have a 3,000 megawatt shortfall in next 5 years.”

And, as for nuclear, “We’ve seen such a checkered past in completing projects that nuclear is just too risky.”

No question that the Club went away with a better understanding of the complicated world of power generation, distribution, and use. Thanks to Steve Reynolds for his clear message. Seems the next chapter is: What are we going to do about it?

Thanks to Will Einstein for his introduction.

For his presentation, President Reynolds received a certificate noting that the BBRC has purchased 240 doses of polio vaccine in Rotary’s campaign to eradicate the disease by 2005.

 

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