Portland prepared to enter secret deal with Portland General Electric

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

Portland is considering putting taxpayer dollars at risk to sell hydroelectric power, and it won’t tell the public exactly how much it stands to make — or lose — from the arrangement.

The city council will review a proposal Wednesday under which Portland General Electric would buy power from the city for more than the market rate—but only if the city tells no one how much how much PGE pays.

A risk analysis presented to council at a work session last week said the city probably will make money but could lose up to $800,000 over the next three years, if Portland has extremely dry weather.

The money to cover any losses would come out of Portland’s general fund, which pays for city services including homeless and affordable housing initiatives, parks maintenance and police and fire salaries.

PGE spokesman Steve Corson said the nondisclosure agreement is necessary to keep a competitive advantage in the energy market. Water bureau officials told the city council such secrecy is common for deals between public utilities and cities.

But energy consultant Robert McCullough said federal rules require energy companies to publicly disclose what they’re spending on power each quarter to prevent market manipulation. Those override any local agreements.

Once those disclosures are made in federal filings, "There is nothing secret here at all," McCullough said. "An everyday inconsequential transaction is now top secret. One has to wonder why."

Corson argued that those filings won’t put PGE at a competitive disadvantage because they happen after the power is already purchased and the reports aren’t as detailed as a purchase contract would be.

Deputy City Attorney Karen Moynahan said PGE has nondisclosure agreements with several utility districts. But David Peters, the water bureau’s principal engineer who oversees the hydroelectric operations, said he has not seen any.

Portland Mayor Ted Wheeler questioned in a work session last week how the city’s consultants could be sure nondisclosure is common. The deal, he said, reminded him of the shrouded deals he experienced working in private equity.

"It sounds like poker," Wheeler said.

Still, Wheeler supported the deal as of Tuesday afternoon, mayoral spokesman Michael Cox said.

Commissioner Dan Saltzman said Tuesday he also plans to support the arrangement, saying his past concerns over the bureau’s failure to collect competing proposals were assuaged.

Water Bureau Commissioner Nick Fish was not available for comment Tuesday, according to his chief of staff Sonia Schmanski.

"The limited confidentiality of certain deal points – which were shared with members of council – was necessary to secure an above-market contract price," Schmanski said in a statement.

A City Budget Office analysis said the bureau expects to make $3 million to $8.5 million over the life of the 15-year deal, but that depends on whether the city can accurately predict how much power its plant produces each year. PGE will pay above-market rate for a certain amount of power promised by the city each year, but the city will have to pay the electricity company damages if it fails to produce that amount.

The damages would come out of the city’s general fund until Portland’s Bureau of Hydroelectric Power makes enough in reserves to cover the cost.

Portland’ Chief Financial Officer Ken Rust said at the work session that the hydroelectric facility has always been backed by the general fund, although it has not yet had to draw on it.

He compared the arrangement to that of the Portland Parks & Recreation Bureau’s golf fund, whose profits also depend in part on the weather.

This year, the city paid $800,000 from the parks bureau’s budget to bail out the city’s golf courses after an unexpectedly wet season left the typically self-sustaining courses in the red, the Portland Mercury reported.

The water bureau analysis predicted the city has more than a 99 percent chance of making a profit from selling power to PGE over 15 years.

But McCullough said predicting how much water will fall and then move through the plant in a given year is very challenging, especially with climate change. He said his firm sends helicopters to investigate the snowpack in the Canadian Rockies in order to assess how much hydroelectricity the Columbia River could produce in a given year.

"There is absolutely no possible way the city of Portland would be able to forecast these issues with any precision," McCullough said.

Corson acknowledged that it’s challenging to predict hydroelectric power production.

"Unexpected things happen," he said. "That really is subject to Mother Nature."

For decades, the city paid PGE to maintain and operate its hydroelectric facility at the Bull Run reservoir, then sold the power to the utility. The city made an average $300,000 profit each year.

But PGE decided to cease operations when its contract is up later this month, forcing Portland to find a new operator to keep its federal operating license and continue selling power.

Before securing a buyer, the city council agreed last month to pay up to $8 million over five years to a Washington-based agency, Energy Northwest, to operate the plant. The city council will consider three other contracts Wednesday. It will evaluate paying PGE $1 million over the next five years to continue to transmit the power over its power lines. It will examine paying Eugene Water & Electric Board $420,000 over five years to schedule when the plant releases power.

Whether or not the city can make money off of selling hydroelectric power to PGE will depend on how accurately it bets on water, Fish said at last week’s work session.

"Ultimately, we have to make a judgment about our tolerance for risk," Fish said.

–Jessica Floum

503-221-8306

Multnomah County Circuit Court Judge Eric Bloch said he’d provide a ruling as soon as he can.

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