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Local News : Tuesday, April 10, 2001
BPA asks aluminum makers to go dark
By Craig Welch Seattle Times staff reporter
The Bonneville Power Administration made a desperate plea yesterday, offering to pay the Northwest aluminum industry to go dormant for two more years and begging utilities to slash power use by up to 10 percent over the same period.
Such dramatic cutbacks are the only way to hold off wholesale power-rate increases of 250 percent or more - figures that could translate to at least a doubling of retail costs for some electricity users, BPA acting administrator Steve Wright said.
The request underscores just how difficult the region's power woes are to solve.
The behemoth power supplier has only two months before it submits a plan to the Federal Energy Regulatory Commission on how it will reduce demand over coming years. That means public utilities can't just strive to conserve; they'd have to commit, in writing by June, to do it for the next two years.
And that may be a promise many cash-strapped utilities lack incentive to make.
If some commit to cutting back and others don't, BPA rates would still rise substantially. Even if everyone cut back, BPA spokesman Ed Mosey said, wholesale increases are expected to be 50 percent or more.
More troubling, if a utility agrees to buy less from BPA and then finds itself unable to conserve as much as predicted, it would have to purchase the rest on the sky-high open market.
"Unless you can find it to save, it's just not a good business option," said Julee Cunningham, spokeswoman for the Snohomish County Public Utilities District.
"We have to watch out for our customers. The shocking part of the BPA situation is that even if it were to go up 250 percent, it's still a better deal than the market."
Utilities have to weigh all that against BPA's financial stress - the California utility that filed for bankruptcy protection last week owes it $100 million - which in turn fuels moves by those outside the Northwest to gain access to BPA's cheap power.
Meanwhile, some analysts said yesterday that BPA's willingness to pay smelter operators not to produce was another nail in the Northwest aluminum industry's coffin.
BPA is willing to negotiate only as much as the companies find necessary to help compensate their employees for their joblessness - not what the companies are making in profit now, Wright said.
What has brought BPA to this point is this: The current drought means BPA can generate only about 8,000 megawatts of power - including the 1,500 it had committed to aluminum makers - if it wants to conserve enough to provide power next winter. But users who left the grid in 1995 to seek cheap electricity on the open market return this fall, and BPA, by law, must accept them.
As a result, demand is now far greater than BPA can supply, so the quasi-federal government agency, as of Oct. 1, will be forced to get 3,000 megawatts from the open market. There, California's deregulation fiasco has helped drive the price of a single megawatt hour from $25 to $325 in less than a year.
BPA produces power for about $23 a megawatt hour.
BPA already has contracted to buy 1,000 megawatts, but the remaining 2,000 would cost so much it would send all of BPA's rates up.
"An increase of this magnitude would have widespread economic consequences," Wright said. "With such an increase, we'd surely see more businesses close and more job losses, with people of lower incomes suffering disproportionately."
Wright said he expects power markets to return to normal within three years, when more generation comes on line. In the meantime, BPA is not defining how it wants utilities to cut back use. Utilities can pay businesses to generate their own power or use conservation.
But no one expects it to be easy.
Seattle City Light ratepayers, for example, aren't meeting the utility's conservation goal. As of yesterday, Seattle ratepayers had conserved about 13 percent of the utility's goal one-quarter of the way through the year.
Beginning in October, Seattle City Light plans to buy 41 percent of its power from Bonneville, about double what it does now, to reduce its own need to buy power on the spot market, which cost $84 million last month alone.
Still, "We think we can give power back to BPA and help them out and still have enough power for ourselves," said utility spokesman Dan Williams.
Tacoma Power, which will get 57 percent of its power from Bonneville beginning this fall, is not so sure. Currently, a call for ratepayers to reduce demand by 20 percent has resulted only in a 12 percent cutback.
"And we sent people a real strong signal," said spokeswoman Sue Veseth. "We added a 50 percent surcharge on our rates Dec. 20."
Mosey acknowledged many of the 53 utilities in Washington that get all of their energy from BPA "can't find any reduction. It's going to be pretty tough."
And aluminum smelters, most of which will be shut down already this summer, "aren't too happy" about being asked to stay off-line until fall 2003, Wright said.
Perhaps most unhappy is Kaiser Aluminum, the Northwest company that was least cooperative with BPA.
Aluminum companies are locked into old rates and allowed to resell their power. While most negotiated with BPA to share the windfall, Kaiser shut down and resold the power, pocketing more than $300 million.
"We took the path that was permitted by our contract and behaved in full compliance with our contract," Kaiser spokesman Scott Lamb said. "We lived up to the letter and spirit of our existing contract."
Now, BPA won't offer Kaiser the same payment-for-shutdown deal, and may even consider withholding power altogether when the company's contract expires in September.
"Then we will have some interesting conversation," Lamb said.
Craig Welch can be reached at 206-464-2093 or email@example.com.
Seattle Times staff reporter Jim Brunner contributed to this report.
-- Martin Thompson (firstname.lastname@example.org), April 10, 2001