Jun 19 - McClatchy-Tribune Regional News - Rob Pavey The Augusta Chronicle, Ga.

With drought years stacking up and wet years becoming sparse, the federal agency that markets hydropower from Army Corps of Engineers dams might have to rethink its contracting procedures.

The Southeastern Power Administration, which sells electricity from Thurmond Dam and other corps projects, is already having to buy replacement power to meet obligations to hundreds of electric cooperatives that depend on low-cost electricity.

So far this year, it has bought 12,000 megawatt hours -- or roughly $960,000 -- in alternate power, said Douglas Spencer, the administration's hydraulic engineer.

The purchases are necessary when low lake levels -- and conservation measures that limit releases through dams -- prevent adequate generation.

"We started buying a little in April, had none in May and it really picked up in June," he said. "It's a little higher than usual for this point in the year. We don't usually get this much into it until summer is here."

Alternate power purchases during droughts have become a recurring necessity for SEPA, which sells power to 494 utilities that represent 13 million customers.

Some of the worst years were 1988-89, when low water prompted SEPA to buy $15.5 million in replacement power.

The effect of recurring droughts, and the corps' adherence to drought management plans, is likely to play a role when SEPA renegotiates many of its long-term contracts in 2016.

"If we have a significant number of dry years, we get behind in our repayment and we have to raise our rates," Mr. Spencer said. "At the same time, in wet years, you can get ahead and we have to come down."

Stan Simpson, the Army Corps of Engineers' district water-control manager, said drought-management plans that further limit releases through dams during dry weather also will play a role in SEPA's future contracts.

"Every time they update, which will be soon, they have to take into consideration the impact of our drought plan," said Mr. Simpson, who discussed the issue recently during a two-state water committee meeting in South Carolina.

"They have to look at it purely from economics, and we look at it in terms of conservation."

HOW IT WORKS

--Electricity from Army Corps of Engineers dams is marketed by the Southeastern Power Administration, an arm of the U.S. Department of Energy.

--SEPA, with revenues of more than $200 million a year, sells power to 494 utilities and electric cooperatives representing 13 million customers in 11 states.

--The proceeds are used to cover production and transmission costs, and to repay the U.S. Treasury for the costs, plus interest, of hydropower dams and lakes.

--During wet years, plenty of power is generated. During droughts, when low water reduces generation, SEPA must buy power elsewhere -- often at higher prices -- to fulfill its contracts.

--The financial impact of recurring droughts, and the corps' drought-management plans, could play a role when SEPA renegotiates many of its contracts -- and prices -- in 2016.