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To Purchase Power On the Open Market
Senate Bill 1149 restructured Oregon's two investor-owned electric utilities, Portland General and Pacific Power. Non-residential customers have the choice of purchasing power from their utility under a "standard offer," similar to a regulated rate, or purchasing power from an independent supplier on the open market. The bill, initially scheduled for October 2001, took effect March 2002.
State agencies explored the possibility of aggregating their loads and purchasing power at lower rates on the open market. The Oregon Department of Energy was asked to provide the staff support for this effort. The Office had worked with the Department of Administrative Services to purchase a limited amount of power on the open market two years earlier during Portland General's Customer Choice pilot program.
PGE and Pacific Power made presentations to the agencies about their standard offers and how restructuring would work in their service territories. Several energy suppliers and consultants also made brief presentations about their services. The Oregon Department of Energy collected data on energy use in state facilities, and had telemeters installed on several facilities to collect data on 15-minute intervals to help in load profiling. We examined the experiences of other states. A consultant was hired to help prepare bid and contract documents and evaluate bids. As it turned out, however, their services were never used. Finally, the Oregon Department of Energy surveyed potential suppliers to see their interest and requirements in bidding on a load of aggregated state agencies.
Based on this review, the Oregon Department of Energy recommended that state agencies accept their local distribution utility's standard offer. The agencies unanimously agreed it was not in their best interest to pursue purchase of power on the open market at this time. The main reasons for the recommendation are summarized as follows.
  • There was a strong sense that the market in Oregon wasn't ready. There were too few suppliers to provide any meaningful competition. Most of the suppliers were looking at markets California, Pennsylvania, and Texas. Oregon was too small to draw their attention. In addition, we were unable to learn enough about their records of service to confidently make such a major decision. There were signs that several suppliers were having trouble financially and were withdrawing from markets rather than expanding.
  • Deregulation was new, and we believed the market needed to shake itself out before we plunged in. Deregulation offers more potential benefits to large customers, so it seemed more appropriate to let the large industrial customers go first and learn from their experiences.
  • Suppliers were looking to provide power to users with loads of 1 megawatt or more at individual sites. They were not interested in delivering power to multiple aggregated users.
  • The probability of getting rates that offered substantial savings seemed low. At best, we felt we might wring small savings from open access. In addition, Oregon's restructuring law calls for departing customers to get a credit or charge to compensate remaining utility customers for the stranded value or cost of unused resources. The credit or charge is based on the difference between the market price and the utilities' average rates, and would cause the costs of power purchased on the open market to converge on the costs of utility power, thus mitigating potential savings. Finally, consultant fees, attorney general fees, and staff and administrative costs would further negate any potential savings.
  • Open access is inherently risky. Public agencies, because of the public trust they hold, should be cautious. We didn't feel the small probability of realizing significant savings was worth the risk of higher prices or supplier default. As public agencies, we felt we stood to lose more from a bad deal than from not wringing the best deal from power suppliers.
  • The decision to leave the utility and enter the open market may be irreversible. It would be lengthy and difficult to return to a cost-of-service rate once a customer has opted-out. The agencies were not ready to take that step based on the risk and uncertain benefits of open access.
  • State facilities don't offer an attractive load to suppliers. For most facilities, peak use occurs Monday-Friday, 8a.m.- 5 p.m., precisely when system loads are greatest. In addition, state facilities don't have a lot of potential to shift loads to off-peak hours.
State agencies and the Oregon Department of Energy will review the current recommendation concerning power purchasing at regular intervals.
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