Washingtons energy prices near rest of U.S.

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Sunday, November 12, 2000, 12:00 a.m. Pacific

State's energy prices near rest of U.S.

by Thomas Lee Seattle Times business reporter Washington residents - who long have enjoyed some of the lowest utility rates in the nation - are grumbling about this year's energy bills. And for good reason:

The state's energy costs have been rising faster than the national average.

"It's perfectly fair to say we are losing our advantage," said Arne Olson, the state's energy economist. "We're catching up" to the rest of the country.

Adjusted for inflation, residential energy costs in the United States are cheaper than they were 30 years ago.

But the price gap between Washington and the U.S. is closing, especially for electricity. And with recent spikes in heating oil and natural-gas prices, experts say Washington consumers could soon be paying just as much for energy as the rest of the country, if not more.

Data compiled by the federal Energy Information Administration up to 1999 show:

Over a 20-year period, Washington electricity prices rose 32.9 percent; across the U.S., they fell 24.9 percent.

Although heating-oil prices in Washington have dropped 44.3 percent since 1979, the national average fell faster: 53.2 percent.

Natural-gas prices in Washington have dropped more sharply than the national average, 45.3 percent vs. 10.6 percent, but a volatile wholesale market this summer forced the state's major gas companies to raise rates up to 27 percent.

Energy prices are volatile and can be difficult to explain. Energy supply and demand also differ from region to region, making trends hard to track.

For instance, West Coast oil prices tend to be higher because of high transportation costs and regional supply problems. In Washington, last year's Olympic Pipe Line explosion has hampered efforts to transport oil from Eastern Washington refineries.

And natural-gas prices in the Northwest tend to be cheaper because the region was the only market for British Columbia gas companies.

But experts agree on one trend: The days of cheap, abundant electricity in the Northwest may be over.

Since 1983, the state's electricity prices have been closing in on the national average. In 1980, Washington electricity was $25 cheaper per million Btu (British thermal units) than the national average. By 1990, the gap had closed to $13. Last year, electricity in Washington cost only $9 less than it did nationwide.

The reason is one of simple economics: Supply is not meeting demand.

The state has long enjoyed the benefits of cheap hydroelectric power - 57 percent of the region's power comes from dams on the Snake and Columbia rivers. The vast majority of that electricity, 40 percent, is produced by the federal Bonneville Power Administration, which sells the power to public utilities and industrial companies far below market rate.

For over a decade, the dams produced more power than was needed, keeping prices significantly lower than the rest of the country.

But today, the reverse rings true. Soaring power demand has outstripped capacity, forcing some utilities to purchase electricity on the volatile wholesale market, which is what happened to Seattle City Light last summer when prices spiked dramatically in California.

For the Northwest to maintain its price edge, experts say two things need to happen.

First, the region needs to build additional power plants, which would reduce the utilities' need to buy power on the market. BPA, which is operating at full capacity, estimates the region needs to produce an additional 3,000 megawatts of electricity just to meet current demand.

But utilities, struggling to compete in a newly deregulated industry, have been reluctant to build expensive power plants and are taking their chances on the market.

"We're very much at a transition point," said Dave Warren, assistant director of the state's energy-policy staff and a strong proponent of building new plants. "I think this summer proves that people should be more concerned about stable prices than lower prices."

The state is reviewing permit applications for four natural gas-fired power plants, which are considered cleaner than coal-burning plants.

Second, the region needs to protect its access to BPA power. Under a federal preference law, BPA sells most of its capacity to the region's public utilities at cost. Any surplus power is sold to out-of-state utilities at market value.

This practice has enraged California's congressional delegation. The state's utilities last summer paid dearly for BPA surplus power, and passed those costs on to California consumers. Led by Democratic Sens. Dianne Feinstein and Barbara Boxer, California is calling on the Clinton Administration to lift the preference law.

Jim Litchfield, an energy consultant based in Portland, said the issue is critical to the Northwest. As long as BPA remains the linchpin of the Northwest's hydroelectric system, he said, the region's electricity prices will always be cheaper than the rest of the country.

"We have benefits in this region which would offset wholesale prices, which are extremely volatile and increasingly expensive," said Litchfield.

The future of deregulation also plays a part. While utilities can compete to buy and sell on the wholesale market, Washington still regulates residential prices. But as this summer price spikes in California demonstrated - and Seattle City Light customers learned through recent rate increases - Washington is not immune from market fluctuations.

"I doubt the Northwest prices will rise to the level of the rest of the country," said Jude Node, editor of Clearing Up, a newsletter that tracks energy prices. "But what happens in California will have a big effect on what will happen here."

Anjan Bose, Dean of the Engineering College at Washington State University and expert in electricity deregulation, said Washington retail prices are already so cheap that they will inevitably rise as other states deregulate their markets.

"Our prices will go up towards the national average," he said. "Our prices will not have too many places to go down, even if deregulation is good for the rest of the country."

http://seattletimes.nwsource.com/cgi-bin/WebObjects/SeattleTimes.woa/wa/gotoArticle?zsection_id=268448480&text_only=0&slug=prices120&document_id=134246475

-- Martin Thompson (mthom1927@aol.com), November 13, 2000


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