By Douglas Werme
Published: December 01. 2011 4:00AM PST

The city of Bend is facing criticism from a wide-ranging group of concerned citizens on the proposed surface water improvement project. As a geologist with 30 years’ experience in the energy business, I thought I would look into the energy costs used in the city’s analysis. I found that assumptions used are now outdated and require a complete reanalysis. The very source of the city’s data, the Northwest Power and Conservation Council, has issued a major revision to its predictions.

The city commissioned a 50-page report comparing the cost of the proposed surface water project to water supplied by wells. Energy costs are central to the analysis. Electricity costs have a double-barrelled impact on the comparison in that wells will require electricity to run the pumps while the surface water alternative could generate electricity that can be sold. The study the city relies upon assumed electricity prices will triple in 17 years.

Eighty percent of the planned new electrical generating capacity in the U.S. will use natural gas. The market price of electricity from any source, whether it is from hydro, wind or a conventional power plant, will be tied to the price of natural gas.

In 2008, oil prices shot up to $100 a barrel, and natural gas peaked at more than $13 per million BTU. At that time, it seemed reasonable to predict climbing costs for all forms of energy. Now, oil is again above $100, but natural gas is not $13 — it is $3.10. The reason for this is that advances in producing gas from fractured shales have yielded a huge flow of natural gas. Recently, oil has also been produced from fractured shales, with large amounts of associated gas as a byproduct, which will be sold at whatever price the market will offer.

The city used electrical price projections predicting a steady climb from $50 per megawatt hour to $150 by 2028. Wholesale power actually declined last summer to $30.04. The Northwest Power and Conservation Council issued a report earlier this month revising its energy cost predictions. It cites a fundamental shift in the entire energy supply, and propose a scenario with flat natural gas prices through 2030 and suppressed electricity prices.

Within a few years, the costs to pump water from the ground will be 70 percent lower than the city assumed. The revenues from a hydro project would be 70 percent less than assumed.

The groundwater option will clearly be the better choice. In spite of the monumental changes in the energy costs, the city employees and City Council continue to defend their outdated analysis.

There should be no repercussions to changing plans based on this new energy situation; indeed, it would be the responsible action for our city management to take. I certainly did not foresee the magnitude of the energy revolution, nor did most of the industry. Larger projects than our water system are being modified. Massive facilities under construction were initiated to be terminals to import liquefied natural gas into the U.S. They are not even finished, and the supply picture has changed so dramatically that they are being scrapped or converted to export terminals.

To quote economist John Maynard Keynes: “There is no harm in being wrong, especially if one promptly finds out. When the facts change, I change my mind. What do you do?”

Our City Council needs to acknowledge the new economic reality: that the ground water supply option is best for Bend.