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February 2, 2001 Caught in the Electrical Fallout By GARY LOCKE

LYMPIA, Wash. — If pragmatic action isn't taken soon to fix the broken electricity market threatening the economy of the West, our national prosperity could be seriously harmed. And the federal government — not just California and the neighboring states now finding themselves forced to share its problems — must be involved in the solution.

In the State of Washington, we elected not to deregulate our retail electric power industry. We continue to expect utilities to serve their customers with low-cost power while earning a fair rate of return. But now, caught in the fallout of California's energy meltdown, we, too, are facing potential shortages, skyrocketing prices and escalating debt.

We are on the same electric grid — regional power market and transmission system — as California. (More than a dozen Western states are on this grid.) Usually this helps everyone: Washington sells power to California in the summer, for example, helping it keep its air conditioners running, and buys from California in the winter to keep our homes warm.

But the current unexpected and serious power generation shortage in California drives prices through the roof for us, too, affecting our utilities, businesses and citizens. Some utilities in Washington are now paying more than 10 times what is normal for power at this time of year.

Adding to Washington State's burden is an unusually dry winter. Too little rain has fallen to fill the reservoirs behind our dams. In some areas, like Lake Roosevelt, behind the Grand Coulee Dam, we haven't seen water levels this low for 25 years. Even if we get normal rainfall for the rest of the season, this year's mountain snow pack — which melts to feed our reservoirs in spring and summer — will be at 50 to 70 percent of normal. And if we divert too much water from our rivers for power generation, we use supplies needed for migrating salmon and agricultural irrigation.

The utility that serves Tacoma has instituted a 50 percent surcharge for power, and the one that supplies Seattle has passed 28 percent price increases. Customers north of Seattle face a 35 percent rate now and probably another increase later. The impact of these rising prices ripples through our economy: industries have already curtailed operation because of these rising costs. And Washington is not alone. The Idaho Power Company recently announced it may increase prices 24 percent, and some utilities in Utah and Arizona also expect sharp increases.

Independent power producers bought many of the generating plants that California's deregulation required its utilities to sell, and these producers were expected to build new plants to keep pace with demand. The legal obligation of regulated utilities to serve, however, does not transfer to the independent, competitive generators. This market structure provides inadequate incentives to construct new plants — or, worse, perverse incentives not to generate electricity, since if supplies stay short, prices will stay at high levels. Independent power producers are realizing huge profits in this West Coast crisis and stand to continue to do so, at the expense of the region, through the summer and perhaps into the next year or two.

Both political parties and both state and federal governments had a hand in creating the deregulation that has disrupted our power market, and government at all levels must set aside partisanship as we confront the results. The Bush administration must help solve the crisis or risk letting it spin out of control. This is not a "normal" market where the integrity of price signals needs to be protected. This is a highly distorted market where intervention is needed. And because interstate commerce is involved, only the federal government can supply this intervention.

President Bush and his energy secretary, Spencer Abraham, should put pressure on the Federal Energy Regulatory Commission to stabilize the market immediately by putting temporary price controls on wholesale electricity. They should also ask Congress to expand the federal assistance that helps low-income people pay their electric bills.

California, of course, must work to solve the debt problems of its utilities and renew the financial integrity of its system. But as it struggles to restore stability, our entire region needs protection.

Washington State is doing its part. I have issued an energy supply alert that mandates a 10 percent reduction in energy consumption by all governments in the state. I've asked for the same reduction by citizens and businesses. The energy alert also allows companies to fire up their own diesel generators now, with the requirement that they offset additional particulate emissions with investments in clean air contributions later.

We in the Northwest cannot protect ourselves from a crisis we did not cause and a deregulation experiment we did not want. Even the most fervent free-market advocates should recognize that there must be short-term steps taken now to stabilize the market. And only the federal government can provide the immediate help we need.

Gary Locke, a Democrat, is governor of Washington.

http://www.nytimes.com/2001/02/02/opinion/02LOCK.html?printpage=yes

-- Martin Thompson (mthom1927@aol.com), February 02, 2001