by Mark Gabriel
The first pathway on our Strategic Roadmap 2024 focuses Western clearly on business, operational and technical excellence. I appreciate employee and customer support as we continue to discuss the ‘big rock’ issues that drive our rates today and will continue to do so in the future.
For too long now, when metaphorical rock slides occur, we spend too much time removing the ‘small rocks’ from the roadway, and leave the big rocks to be dealt with later, or for someone else to handle down the road. It is time that we focus our attention on the big rocks. To have the right discussions on the major opportunities and challenges facing Western and the electricity business, it is crucial we are all speaking from the same place.
Throughout our industry, we are all facing the same issues:
Increasing system intermittency
More wind, solar and storage
Changing market conditions due to regulations—how quickly will coal be exiting markets? How much gas will be built and when?
Prices that move from negative to multiples of what we are used to in the same day
Increasing regulation on hydropower limiting operations at critical times
Threats to base loading of hydropower resources in favor of ancillary services
Here are 10 big-rock questions we should ask ourselves:
From a rates perspective
1. What is Western doing to look at the major costs drivers such as the $1.5 billion in debt at interest rates greater than 4.5 percent? Interest makes up somewhere between 13 and 20 percent of our rates.
2. Given the potential of dramatic spot-market volatility, what should we collectively be doing to better manage purchase power and wheeling costs? PPW has ranged from 27-61 percent of rates cost. How will we stabilize finances in volatile times?
From an asset management perspective
3. Is Western investing sufficiently, given the risk and age profiles of our equipment?
4. Is Western prepared for a dramatic increase in intermittency and the system management changes that will occur?
From a human capital perspective
5. How is Western managing an aging or close-to-retiring workforce?
6. How will Western compete for talent in a market with greater technical demands and higher pay than what the federal system can offer?
From a sustainable funding perspective
7. Given the continued decline in appropriations, will Western be able to manage the 10-year plan requirements?
8. Will customers be able to pass along costs in this changing environment?
From a markets perspective
9. How will Western have to operate its system in the world of markets and what will this do to costs?
10. Given the move to Southwest Power Pool, the consideration of the Northwest PowerPool, the California energy imbalance market and other pressures, how will Western respond to protect its customers’ rights and the availability of federal hydropower?
Let us not lose sight of the real drivers of system reliability, access to at-cost federal hydropower, human capital, operating in different markets and being good stewards of the environment and the limited financial resources we all share.
This year, I want to focus on the big-rock issues, figure out the opportunities ahead and work to find ways to manage the 90 percent of costs that affect rates.