Portland on Track to Pay $8 Million for Hydroelectric Plant Operations with Risk of Losses

Portland has two dams at the Bull Run drinking water reservoir, where a hydroelectric facility generates power.(

Portland is prepared to pay a Washington energy agency at least $8 million to operate a hydroelectric project at a city-owned Bull Run facility for the next five years with no guarantee that the city will make a profit. It’s possible that taxpayers would actually lose money on the deal.

The City Council was scheduled to vote on the contract Wednesday but postponed the item by one week after The Oregonian/OregonLive questioned the Water Bureau about potential risks and benefits.

For decades, Portland paid Portland General Electric to operate and maintain the facility, then sold the utility the resulting electricity. The city made an average of $300,000 in annual profits from this agreement for the last four years.

But that deal expires in August, and PGE decided to stop operating the hydropower plant. The power company doesn’t have the same nearby staff and facilities to assist with operations that it did when it started running the facility in 1982, PGE spokesman Steve Corson said.

“It’s no longer that same no brainer for us,” he said.

Corson said PGE still intends to purchase power from the project, which produces up to 36 megawatts of power per hour.

Commissioner Nick Fish’s Portland Water Bureau oversees management of the Bureau of Hydroelectric Power responsible for the project. The utility office has asked the City Council to okay an $8 million, 5-year agreement with Energy Northwest to operate the facility.

The operating and maintenance contract is one of four new contracts the city must finalize to ensure continued operations and power sales from the plant, according to city documents. The city must also pay contractors to coordinate the delivery of power and to keep up transmission of the power. The only aspect the city stands to profit from is selling the power, which it is still negotiating with PGE.

The water bureau asked the council to consider the $8 million agreement on July 5, three weeks before bureau leaders planned to bring the council a proposed sales agreement. Fish introduced the $8 million plan at the early July meeting, which Mayor Ted Wheeler did not attend.

Water bureau officials insist the city will profit from the operating agreement.

But because the city has yet to finalize a sales deal with PGE, “it is uncertain whether the (hydroelectric project) will have sufficient revenue from power sales to cover the estimated total cost,” a financial analysis by the City Budget Office concluded.

Bureau officials refused to acknowledge the uncertainty identified by the budget office, saying revenue “will” exceed expenses over the life of the contract.

Bureau officials said they asked the council to OK the $8 million deal before PGE agrees how much it will pay for the electricity to give Energy Northwest time to hire and train employees in time to start operations in September.

“We let (the city) know…we’ll need 60 days to hire people to run the project and basically ramp up the operations,” Energy Northwest spokesman John Dobken said. “We’re already within that 60 day window on that, so I don’t know if that’s driving them to move quickly on it.”

David Peters oversees the hydroelectric project as a principal engineer for the Water Bureau. He told the council on July 5 that negotiations with PGE have “been going positively.” They “indicate we’ll have a positive outcome through the life of this contract,” he said.

However, energy consultant Robert McCullough said the price of energy next year is the “lowest price in history” due to a surplus of energy. Wind and solar power continue to increase, and most experts believe energy costs will continue to trend downward, he said.

In reaching its deal with Energy Northwest, however, the city relied on its own estimates showing that, in every possible scenario, it will reap substantially more from electricity sales in 2021 and 2022 than it did this year.

“It’s unlikely the city of Portland will make out like bandits because PGE will have many options,” McCullough said. “It makes perfect sense for PGE to say to Portland, “‘Sure we’ll buy your power. Look at how low the prices are all over the region.’ ”

If PGE purchases the same amount of power next year that it has over the last four years at the rate that McCullough says wholesale power buyers are paying in the coming year, Portland will lose $300,000 next year, an analysis by The Oregonian/OregonLive shows.

Peters on Tuesday presented projected revenues to the Portland Utility Board, a citizen body that oversees the bureau. The figures he provided, which vary as widely as from $2.1 million to $4.9 million in the same year, estimate the city would lose more than $3 million over the next five years in the worst-case scenario or make around $9 million in the best-case scenario.

Peters, in a statement provided by Water Bureau spokeswoman Jaymee Cuti, wrote that the high, low and median sales estimates he presented to the utility board “represent the modelled range of revenues that could be anticipated under the conditions of the proposed contract. The model incorporated information about the historical generation and market prices…We cannot predict future weather or market conditions, which is why we have a range based on what we have experienced in the past.”

“The financial forecast is still a work in progress,” Peters added. “Output from the forecast will be available by the time we present to council.”

Peters said the bureau is “still working to create a narrative of the risk,” which he said the bureau will provide to council July 26, a week after the council is scheduled to vote on the contract.

The City Budget Office’s financial analysis this week noted: “If revenue is not sufficient to cover unmet hydropower liabilities, then the general fund may be liable under the new agreements.”

Commissioner Amanda Fritz urged the water bureau to make sure they protect the general fund during last week’s meeting.

“That should be a bottom line in your negotiations,” Fritz said. “The general fund should not be at risk to bail out these operations.”

–Jessica Floum

503-221-8306

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