This power crisis is getting very nasty, very quickly

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Sunday, December 17, 2000, 06:19 a.m. Pacific

Stephen Dunphy / Times staff columnist A big shift in Northwest power

This power crisis is getting very nasty, very quickly. Tacoma residents are staring an 86 percent increase in electrical bills in the face while power companies and some of their biggest customers square off against each other.

California faces rolling blackouts and accuses Seattle City Light of being one of several suppliers refusing to send them power because it's worried about being paid. City Light says it just didn't have any excess power to spare.

This energy crisis could get out of hand and become that unforeseen factor that brings the long-running economic expansion in the state to an end.

"Without action to bring wholesale power costs down to just and reasonable levels, the prosperity we have worked so hard to achieve during the past decade could be undermined in a matter of weeks or months," Gov. Gary Locke said last week.

The lights will not be going out in the Northwest. There is power available to meet most needs. When unusual circumstances occur, the region's surplus-power supply quickly disappears.

Unusually high demand, low water flows for hydro plants, spilling water for fish runs or an unexpected outage at a generating plant are some of the factors that create problems. Experts say the region can handle one of those factors, but add one additional factor and problems occur. Recently, we've had as many as three of those factors at once. With high demand and not enough supply, what gives is the price of electricity on the spot market. It has soared as much as 10,000 times the average price this year. The fallout will be rough.

California accounts for roughly 13 percent of the total U.S. economy. Problems there could spread throughout the country, tipping an already vulnerable economy into recession.

Oil prices soared earlier this year, pushing up inflation indexes. The Federal Reserve became worried and there was speculation the Fed would increase interest rates to stem the tide. Higher energy prices could do the same thing. The only problem is that the Fed might be forced to raise interest rates at a time when a softening economy means it should do the opposite. If rates increase, so would the chances of a recession.

An electricity surplus has been a fact of life in the Northwest since the 1930s and has shaped the region's economy for generations. Power and water brought aluminum mills here during World War II and semiconductor-chip plants to Oregon in the 1990s.

It is likely that some sort of controls will be placed on wholesale power. California has a cap of $250 a megawatt hour, although that cap became rather loose last week because no one was selling at that price.

Power rates, once some of the lowest in the nation, an advantage in countless ways, are clearly headed higher and for good. We will all feel the sting as power rates begin to even out at much higher levels across the country.

When natural gas was deregulated, a more national market for the gas began forming. Regional price differences began to disappear. The same thing is likely to happen with electricity.

New generation is clearly needed. A number of factors slow the creation of new plants: environmental concerns, permitting, costs. An increase in natural gas has pushed the cost of energy generated by a gas-driven turbine to more than $40 a megawatt hour. That may seem like cheap power if conditions continue as they have. Eventually the market will reach an equilibrium again with new power supply filling the new demand.

But the marginal cost of power will be higher and for some companies operating on tight margins, that increase in costs may be the breaker. Small saw mills, paper plants, aluminum smelters - the economic foundation of a generation - could be lost for good.

http://seattletimes.nwsource.com/cgi-bin/WebObjects/SeattleTimes.woa/wa/gotoArticle?zsection_id=268448455&text_only=0&slug=bizdunphy17&document_id=134254289



-- Martin Thompson (mthom1927@aol.com), December 18, 2000

Answers

you can start to FEEL that iceberg brushing up against the US economy now.

-- jax (jax@borg.com), December 19, 2000.

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