Tuesday, December 19, 2000 Power Sales to California Heat Tempers in Northwest

By KIM MURPHY, Times Staff Writer

SEATTLE--Skyrocketing energy prices and California's recent demands for the cheap federal hydropower that fuels the Pacific Northwest's $4-billion-a-year aluminum industry have unleashed widespread resentment in Washington state and Oregon--which are just beginning to feel the downside of the deregulation movement. Both states, whose residents traditionally have enjoyed some of the cheapest prices in the nation, face the same soaring rates that are plaguing California. And Energy Secretary Bill Richardson's order last week to ship Northwest electricity southward comes as a cold, clear autumn renders the region's own power picture uncharacteristically bleak. "We are really at the risk of having California and its problems drag down the rest of us," Oregon Gov. John Kitzhaber said last week. "I think it's outrageous that Oregon would have to conserve just to sell power to California."

In the surreal new economics of the Western power grid, it turns out, companies like Kaiser Aluminum can make more money by temporarily shutting their plants and selling the surplus electricity than by simply making aluminum. Over the last few months, Kaiser has made more than $135 million selling its surplus power--opening a new debate over who really owns the Northwest's traditionally cheap electricity.

Kaiser's decision to close its smelters near Spokane and Tacoma and sell some of its subsidized electricity to help meet California's power demands will mean laying off hundreds of workers who recently returned to work after a two-year strike. Employees with more than 10 years' service will continue to draw a salary, but many others could be cut off after Jan. 31. "I'm frustrated with the whole thing. I don't see how they can sell their power just . . . to make money, when I'm a single parent and I just don't know what I'm going to do to make ends meet right now," said Austin Waggy, who was laid off from Kaiser's aluminum smelter near Spokane.

Power-Sharing Is Nothing New Power-sharing with California is nothing new. For years, excess power generated by dams on the abundant rivers of the Northwest has moved south in the spring and summer, when river flows are plentiful. California typically repays the favor in the winter, in fact paying back twice the power it borrows. The crunch came this winter as both regions experienced heavy power demands in a deregulated market that has sent electricity prices soaring. The result: Northwest officials who had urged their citizens to conserve were faced--as a result of the Energy secretary's order--with the politically unpleasant task of sending that conserved electricity to California. Moreover, a region that has imposed drastic and highly controversial logging and building limits to protect the salmon could see many of those efforts jeopardized this spring if the federal hydropower system is forced to lower its reservoir levels too far--thus endangering the migration.

And perhaps most controversial--because it has been so immediately visible--is the move to re-market federally subsidized power by companies like Kaiser, part of a select group of industrial users able to buy cheap power directly from the Bonneville Power Administration. Soaring demand in California and unprecedented prices for electricity have turned that contractual right into an extremely valuable commodity. The Pacific Northwest has always enjoyed a special relationship with the BPA, the federal agency that markets power generated by 29 dams on the Columbia River system. Hydropower from the dams traditionally has been provided to Northwest utilities at low rates--both because the region is giving up its free-flowing rivers to generate the power and because the influential Northwest congressional delegation keeps the deal in place.

The aluminum industry has been part of the arrangement since the dams were built in the pre-World War II years, when there was a clear national need for aluminum to build airplanes and an obvious benefit in locating their power-intensive facilities near generation sources. Currently, about 2,000 megawatts of BPA's total of 8,970 megawatts per hour is allocated to 10 aluminum companies and eight other steel and chemical companies that are also big electrical users. Dan Russell, president of the Spokane local of the United Steelworkers of America, said the union expects Kaiser to pay employees full wages throughout the time the plant is shut down, not only until Jan. 31. "They stand to make $500 million in the next 10 months just selling power. They can easily afford to apply some of it to their employees," Russell said. He said the present agreement will keep about 70% of the work force at full pay. "There's another 30% out there that are going by the wayside. . . . It kind of stinks."

Kaiser Casts Itself as a Good Citizen Kaiser officials point out that the company is acting as a good corporate citizen by conserving electricity in the industrial sector when it is most needed to light homes and Christmas lights in California.

"We have no desire to energize California. We want to keep the power in the Northwest. But somebody has to respond to the national request to move energy to California," said Pete Forsyth, Kaiser's vice president for Northwest regional affairs. "It's going to come at somebody's expense," Forsyth said. "And yet an industry that has the right and the contractual ability to sell power is being told, 'Don't do that; you're making too much money.' "

In fact, Northwest industries took a big gamble when they cut the deal with BPA that gave them access to the low-cost power. In 1996, when the current contract was signed, BPA power was far from a bargain. Utility customers were flocking to lower-cost providers that had sprung up under deregulation, and BPA sought to hang onto the big, easy-to-serve industries that were among its best customers. To persuade them to sign a long-term contract, BPA offered industrial users like Kaiser the right to resell their electricity if market prices escalated. The catch: Industries had to contract to buy a certain amount of power, even if it turned out they didn't need it--and even if BPA's power proved to be more expensive than other sources could provide. While Kaiser stands to make a windfall over its power allocation, so does BPA: Kaiser sold the electricity back to the utility at $25 million below the market rate.

"Back in '96 [when the industry contract was being negotiated], the market was level at best, if not heading down," said BPA spokesman Mike Hansen. "Nobody saw that in the fifth year of these five-year contracts that the market was going to skyrocket out of control like it has. People need to understand that it was a buyers' market in '96, and we needed to sign these people up in order to pay our own bills." The new contract, scheduled to take effect Oct. 1, allocates only 1,500 megawatts to the direct-service industries and does not permit any resale. Forsyth said the new contract will provide Kaiser with 20% less power at prices that are 35% higher.

The new contract terms are expected to cost Kaiser $45 million a year, a cost the company hopes to hedge against with the electricity sales. "The survival of the industry could be at stake," Forsyth said. Copyright 2000 Los Angeles Times

http://www.latimes.com/cgi-bin/print.cgi

-- Martin Thompson (mthom1927@aol.com), December 19, 2000

Answers

Page 3A

Cost of energy crisis saps the West Power woes are also felt elsewhere By Patrick McMahon USA TODAY

TACOMA, Wash. -- As governors met Wednesday in Denver to tackle an escalating energy crisis in the West, the city of Tacoma was living it.

Tacoma Power slapped a 50% surcharge on its 146,000 customers in this port city south of Seattle. One by one, electric utilities across the Pacific Northwest are paying vastly more for power and jacking up consumer rates to compensate.

''This month, I had to choose between paying my power bill or paying my rent,'' says Teri Hudman, 47, an unemployed artist in Tacoma. She and her husband live on $1,000 a month after taxes.

''Next month, I will be looking at eviction.''

Throughout the West, the days of cheap public power are gone, and utilities are scrambling to buy electricity at 10 to 100 times what they paid even a year ago.

Californians face renewed threats of rolling brownouts, and the state's two largest utilities say they are on the verge of bankruptcy because legislators have prohibited them from passing on $8 billion in energy costs to ratepayers.

Along the Pacific Coast, Christmas lights and some streetlights are being dimmed, businesses are closing for extra-long holidays and many residents are alarmed.

Dustin Rollins and his girlfriend, Jennifer Larson, both Red Cross workers in Tacoma, say they are impressed with Tacoma Power's conservation efforts and financial help for low-income residents. But if something isn't done to stop ''these ridiculously high increases,'' Rollins says, ''I think it's going to come down to food or electricity for a lot of people.''

The trouble isn't confined to the West:

* Scores of residents in the Washington, D.C., area are seeking emergency aid to pay natural gas heating bills 50% higher than last year's.

* Businesses in Maine are bracing for sharply higher electricity costs after Central Maine Power Co. said it would seek an emergency rate increase. But Energy Secretary Bill Richardson said the Northeast could avoid a residential crunch because home-heating oil supplies so far are adequate.

Meeting with five western governors in Denver, Richardson extended for a week a requirement that electricity suppliers sell energy to California.

''Naively, perhaps, those of us in the Northwest thought ourselves immune to power shortages, but the energy emergency that started this summer continues and threatens to engulf the entire West,'' Oregon Gov. John Kitzhaber said.

The problem is a power grid strained by high demand and faltering supplies. In Washington and Oregon, dams that provide hydroelectric power face a water shortage, and some power plants are off-line for maintenance. California, which usually supplies 10% to 20% of the Northwest's winter power, has none to spare.

Tim Levin of Fremont, near Silicon Valley, says he canceled a vacation in March because he can't afford ''Christmas for the kids, $800 a month in utilities and a trip. Something's gotta give.''

Levin, 47, a Web site designer, says he's worried about an energy crisis.

''You're always hearing the government tell you to conserve,'' he says. ''But when your bills shoot up that high, you've got to figure this thing is for real.''

Californian Patrick Dorinson guarantees that the threat is legitimate.

''There's a national electricity shortage; it's just manifesting itself here first,'' says Dorinson, a spokesman for the Independent System Operator, which controls the electricity grid for much of the western USA.

He says the new high-tech economy, along with substantial population increases throughout the West, has outstripped power supplies.

''Seven of the 10 fastest-growing states are in the West,'' Dorinson says. ''And the businesses that come here aren't building smokestacks that run on fossil fuels. The new economy runs on electricity, and a lot of it.''

A typical, three-story building, Dorinson says, uses about 2 megawatts of power a day. But in Silicon Valley, filled with energy- gobbling computer equipment, those same buildings eat about 50 megawatts a day.

''Now multiply that by the number of high-tech businesses cropping up, and you begin to see the problem,'' he says. ''There's a downside to a booming economy, and this is it.''

Compounding the problem, he says, is an outdated power transmission system. The system is much like a highway on which electricity runs from region to region and state to state. But transmission lines, Dorinson says, haven't been updated in more than a decade and are ill- equipped to handle the huge amounts of juice flowing through them.

''It's like an hourglass,'' he says. ''All of that sand is trying to squeeze through a tiny bottleneck. It's just not effective.''

California's troubles have been mounting since the state deregulated the electricity system. Under a 1996 law, California's investor-owned monopoly utilities began a gradual transition to deregulation.

The companies were required to sell off power-generating assets, such as dams and power plants, and purchase electricity on the open market. The goal was to lower prices to consumers through competition.

But skyrocketing demand for power and limited supplies have sent market prices sharply higher. At the same time, the utilities have been forced to operate under a rate freeze.

Pacific Gas & Electric, with 4.5 million customers in northern and central California, and Southern California Edison, with 4.2 million, have sought permission from state regulators and the federal courts to pass wholesale electricity charges on to their ratepayers.

For years, Nancy Kemp considered her wood-burning stove a decorative item in her San Diego bungalow. Now it's become a primary source of heat.

''I didn't even know where to buy logs until this fall,'' the 44-year- old private-school teacher says. ''But I became an expert in good wood.''

She turned to log-lugging after her October electricity bill topped $400, more than twice what she paid last year.

''That's more than my car lease,'' Kemp says. ''I'd rather put on sweaters and do a little heavy lifting than pay those prices.'

http://www.usatoday.com/usatonline/20001221/2934744s.htm

-- Martin Thompson (mthom1927@aol.com), December 21, 2000.

Locke Lashes Out At Energy Profiteering December 21, 2000 By KOMO Staff

OLYMPIA - Gov. Gary Locke on Thursday condemned out-of-state electricity companies that he says are unfairly profiteering off Washington's energy customers.

"Once again, we're waking up to obscene, manipulative and extortionist electricity prices in Washington, charged by out-of- state power generators," said Locke, who attended an energy summit in Denver on Wednesday with Energy Secretary Bill Richardson and four other Western governors.

Locke said he is convinced that out-of-state companies, particularly in the Southwest and California, are manipulating prices.

Electricity that normally costs $30 per megawatt hour is now selling for $500 to $1,200 per megawatt hour, Locke said. Meanwhile, some electricity generating plants in California are lying dormant for unexplained reasons.

'It Is Pretty Obvious'

"It is pretty obvious there is price manipulation going on," Locke said. He said high energy costs are resulting in a "massive transfer of wealth, not only out of Washington but out of the West," and threatening Washington's prosperity.

The governors asked the Federal Energy Regulatory Commission to investigate the cause of California's skyrocketing electricity prices, who benefits from the prices and whether any generating capacity has been withheld.

FERC will also prepare a report on the potential consequences of a regional price cap, and that report should be ready within 10 days, Locke said.

'Stop The Bleeding'

Locke, along with Richardson, California Gov. Gray Davis and Oregon Gov. John Kitzhaber, believes temporary, regional price caps are the best solution. Davis has suggested a temporary but firm limit of $100 per megawatt hour.

"We need immediate action now to stop the bleeding," Locke said.

Davis, Locke and Kitzhaber are all Democrats. The three Republican governors at Wednesday's conference -- Utah Gov. Mike Leavitt, Wyoming Gov. Jim Geringer and Colorado Gov. Bill Owens -- are not convinced price caps are the answer.

Geographical Split

The reasons for the split are more geographical than political, said Dave Warren, director of the Energy Division in the Washington State's Department of Community, Trade and Economic Development. The coastal states, Washington and Oregon, do more power-trading and sharing with California than the inland states and are thus more affected by California's problems.

Usually, Washington gets 15 percent to 25 percent of its electricity in January and February from California power generators. This year, California has no energy to spare.

Without price caps, Locke said Washington will have to cut back its electricity usage. Big customers might need to shut down, at least during peak hours, and the state might impose voluntary or mandatory electricity rationing.

Locke urged Washington residents to conserve energy during peak hours -- don't run the clothes dryer, turn off lights you're not using, and limit hot water use. Peak hours are 5 to 9 p.m. and 6 to 9 a.m.

http://www.komotv.com/news/story.asp?ID=8336

-- Martin Thompson (mthom1927@aol.com), December 21, 2000.