Power rates up by 86%? SURCHARGE: Tacoma utility says it needs that to get through winter

Al Gibbs and Martha Modeen; The News Tribune

Tacoma Power has proposed charging its residential customers an unprecedented 86 percent surcharge to help pay for electricity prices.

Those prices have become so high that power superintendent Steve Klein likened them to "Martians landing at Cheney Stadium."

Commercial and industrial customers will see even larger increases if the City Council approves the surcharge next week, as it is expected to do.

Such a surcharge - in effect a temporary rate increase - could cost the average Tacoma Power residential customer between $70 and $100 a month.

The surcharge's full impact would double revenues to the city-owned utility, and would raise more than $80 million between Dec. 20, the day it is proposed to take effect, and the end of September, when it would end.

"I could provide justification to go even higher," Klein said Tuesday, "and this is no guarantee" that the state's second-largest municipal utility can get through the year financially intact.

"I could present a 200 percent (surcharge) as reasonable."

City Council members wondered aloud how some residents will be able to afford to heat their homes this winter. Nearly half the city's residents are at or below low-income levels.

"This is an extremely big hit," Councilman Bill Evans said.

"As I sit here and hear of the dreaded assumptions, I'm wondering what the poor people are going to do," said Councilwoman Bil Moss, a former member of the Utility Board.

Other utilities in the region have imposed similar surcharges - but nowhere near as steep as Tacoma's proposal.

Seattle City Light imposed a 10 percent surcharge a few weeks ago, and the Bonneville Power Administration has said it will boost charges 15 percent next Oct. 1. Puget Sound Energy's rates are frozen until next December.

Two related forces at work on the West Coast have caused what Klein called a "really big pain to us the last three weeks."

A long dry spell has lowered hydroelectric dam reservoirs to a critical level where the hydro plants can't be run as hard as they normally would at this time of year. Reservoir levels are half of normal, and streamflows into them are only 30 percent of normal.

Tacoma Power and other utilities have had to purchase electricity on the open market to make up the difference.

But that purchased power, which once sold for $20 to $50 per megawatt hour, can now sell for thousands of dollars because electricity is scarce in California, which trades power with the Northwest on a seasonal basis.

Tacoma Power could end up spending $2 million to $7 million a day buying power to sell to customers for only $450,000 at current rates.

The region's electricity emergency response team only Tuesday reversed its warning that scarce power and an "Arctic Express" cold spell could cause power blackouts.

More such warnings could come.

"Winter has not officially begun, and the months ahead that are traditionally coldest in the Northwest - January and February - are still ahead," said Rich Nassief, director of the Northwest Power Pool, which coordinates the region's energy resources.

Tacoma will supplant part of its hydro power with 40 diesel generators that can provide about 35 megawatts of electricity at a cost of about $150 a megawatt hour. The units are expected to be on line in Tacoma's Tideflats within a month to six weeks.

Utilities director Mark Crisson said he was "speechless" when he learned of the financial crisis at a utility that only weeks ago had $130 million in reserves in the bank.

"We're in a territory that's new and pretty disconcerting," he said.

The utility's financial health is its greatest concern.

"If we don't do anything, the financial security of your most important asset is in danger," Klein told members of the council and utility board at a Tuesday study session.

Tacoma Power's biennial budget calls for keeping at least $40 million in reserves, essentially a rainy-day fund.

The fund also keeps bond analysts and independent power producers happy. Without an adequate reserve fund, Klein said, the utility couldn't raise money for capital improvement projects in the bond market and might not even be able to buy power from producers who could become concerned whether they'd be paid for their product.

So far, Tacoma Power's customers haven't helped by reducing their consumption, which would allow the utility to reduce the amount of electricity it must buy from high-priced markets.

"The price signal has not been getting through to the consumer," Klein said.

But the surcharge could change all that.

Klein said he was "pretty optimistic" that Tacoma's electric consumption can be cut 15 percent through energy conservation measures such as lowering home temperatures, reducing store lighting and using less electricity during hours of peak demand when energy prices are highest.

Records, however, don't bear him out.

Conservation reduced power demand by only 7 percent in 1997 when a deep drought caused the same conditions Northwest utilities are now experiencing.

The City Council heard first reading of an ordinance imposing the surcharge Tuesday night.

The City Council will vote on the surcharge next Tuesday. Councilman Mike Crowley said he expected the council to approve it. Other council members expressed similar sentiments.

"As much as I'd like to vote against this, we have to have some alternative, and I haven't seen any other alternatives," said Councilman Doug Miller.

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* Staff writer Al Gibbs covers regional energy matters. Reach him at 253-597-8650 or al.gibbs@mail.tribnet.com.

http://www.tribnet.com/

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