Power rates trigger pink slips Companies pay 40 times normal rate; consumers not impacted yet

Nicholas K. Geranios; The Associated Press

SPOKANE - From the copper mines of Butte, Mont., to aluminum plants near Portland, companies across the West are laying off workers because of skyrocketing electricity costs.

Rising gasoline prices are tame compared to electricity rates, which have climbed to more than 40 times normal levels in the past two weeks.

Usually between $20 and $30 per megawatt hour, wholesale prices spiked to more than $1,000 per megawatt hour in late June before settling down a bit so far this month.

Could the power rates be electrocuting the economy?

Not yet, because job losses appear to number no more than a few thousand. And consumers aren't likely to feel the pinch anytime soon, since most of them get power bought under fixed contracts.

"My guess is, residential consumers will not see much impact, unless their utility must buy power quickly on the open market," said John Harrison of the Northwest Power Planning Council in Portland.

But for many industrial users, electricity is likely to remain expensive and in limited supply this summer.

The Silicon Valley Manufacturing Group, which represents high-tech companies, last month warned that a looming power shortage could cripple the San Jose area's economy.

Rising computer use is a major reason electricity demand is rising by about 2 percent a year, without comparable increases in power generation, officials said.

"The high-tech industry is consuming more and more power," said group spokeswoman Michelle Montague-Bruno. "We need reliable supplies here."

So far, layoffs in the West are concentrated in old-fashioned heavy industries that use a lot of power. For instance:

* Kaiser Aluminum Corp. in mid-June announced it would lay off 400 workers at plants in Tacoma and Spokane. "Market prices for power are at levels never before experienced in this region," company President Raymond Milchovich said.

* Montana Resources Inc. shut down its copper concentrator in Butte on July 1 because it cannot afford the current electricity price and plans to close its copper mine soon, said Ron MacDonald, a lawyer for the company. Montana Resources employs 350 workers. It faced an increase from about $35 per megawatt to $625.

"It's impossible for us to run a business with those kind of losses on a monthly basis," MacDonald said.

As a result, U.S. Sen. Max Baucus (D-Mont.) asked the Justice and Energy departments to investigate the price jumps.

* Vanalco Inc. announced it was shutting down most of its aluminum smelter in Vancouver, Wash., and laying off 450 workers.

* Georgia-Pacific West Inc. of Bellingham recently shut down its operations for two days, idling 600 workers, because of power costs. Bellingham Cold Storage, a seafood processor, sharply cut operations and laid off 270 workers. U.S. Sen. Slade Gorton (R-Wash.) has blamed the California Power Exchange, which buys about 75 percent of the power delivered to that state, for some of the rising prices.

* Rising electricity prices were one of several factors cited by Alcoa Inc. in closing its Troutdale Reduction Plant in Oregon, which will cost 525 workers their jobs by Oct. 1.

There's no single cause for the electricity increases.

Reasons include hot weather in California and the Northwest that increased demand, while production at hydroelectric dams is lower than normal because of low river flows.

Also, the unplanned outages of major power plants in Washington, Wyoming and Montana knocked out enough power recently to supply three cities the size of Seattle.

Deregulation of the electricity market - allowing buyers and sellers to seek the best deal - is also having a big impact, said Larry Cassidy, chairman of the Northwest Power Planning Council.

Perry Gruber of the Bonneville Power Administration, the federal agency that markets much of the Northwest's electricity, said another cause is electricity futures traders who sold more low-cost power than they could deliver and now must pay top rates to buy power to meet their obligations.

That's essentially what happened to Spokane-based Avista Corp., prompting the utility to announce it lost $90 million in the second quarter and could lose $50 million the rest of the fiscal year. Much of that is due to rising power prices.

Gruber also noted that companies with long-term electricity contracts are not suffering from rising prices. Only those that buy from the spot market are paying top rates. And those same companies benefited from extremely low electricity rates earlier, Gruber said.

The planning council contends the Northwest needs more electrical generating plants, but prospects for building them are slim because deregulation has eliminated guarantees that utilities will be repaid for their investments. No new plants have been built here for a decade.

As a result, the council says there is a 24 percent chance that the power supply will be inadequate to meet future needs in the Northwest during winters.

The past week saw wholesale prices drop below $100 per megawatt hour, in part because cool weather reduced demand, but it is unclear if they will stay there.

"We have made it through the short-term problem," said Judi Johansen, administrator of the BPA.

But she warned that high prices may become common.

"This is the state of the power system throughout the West Coast," Johansen said. "Power supplies are having difficulty keeping up with demand, and our transmission systems are stressed out."

) Associated Press

07/09/2000

http://www.tribnet.com/frame.asp?/news/top_stories/0709b12.html

-- Martin Thompson (mthom1927@aol.com), July 09, 2000

Answers

When enough power is disrupted, for technical reasons, to supply power to a city three times the size of Seattle, how can they go on denying that there might be a y2k connection to all of this?

-- Uncle Fred (dogboy45@bigfoot.com), July 10, 2000.

Beware the Dog Days of Summer. July has barely started, and, traditionally these Dog Days run from mid-July until mid-August.

Looks like this power generation thing, or lack thereof, might get real interesting, and put the oil shortages on the back page.

-- Billiver (billiver@aol.com), July 10, 2000.

A climb of 40 TIMES in the price of power, over just the past TWO weeks? (That makes oil price increases sound like a mere blip.)

Hard to believe. This situation could get all out of hand before Summer is over.

-- JackW (jpayne@webtv.net), July 10, 2000.

Our power bill is now up over $200 a month. Will it go to $1,000 by fall? If so, panic time is getting very close for a lot of people.

-- LillyLP (lillyLP@aol.com), July 10, 2000.

That's a good question. I wonder how long it will take to pass these staggering increases along to the consumer - us.

Anybody know, or care to take a guess?

-- Wellesley (wellesley@freeport.net), July 10, 2000.

Did anybody notice that it said there was a 24% chance that Northwest power companies would be unable to meet the heating needs of their regions for heating in the winter?

That seems to me like a pretty high liklihood.

Worse yet, these emergencies, when first reported, are always underestimated as to their true impact.

-- Loner (loer@bigfoot.com), July 10, 2000.

Good post, Martin.

-- (Dee360Degree@aol.com), July 10, 2000.