Western Governors Meet on Electric Deregulation Crisis

 

A meeting in Portland, Oregon last week could help shape a state policy response to the nation's latest energy headache -- the electric deregulation crisis. Although the crisis is rooted in California's flawed electric deregulation plan, it has other causes as well and it is starting to have adverse economic consequences in several Western states.

California's energy crisis is spilling beyond its borders, causing other states to put their utility deregulation plans on hold as they confront what could be the first ripples of an economic downturn worsened by unpredictable power shortages and soaring energy rates.

Utility companies throughout the West are hiking rates wherever possible to cover the cost of higher wholesale electricity prices. The price of natural gas and other energy sources used to fire power-generating turbines are rising as well, exacerbating the problem.

Rising energy costs are squeezing some industrial consumers so much they are implementing temporary layoffs and shutdowns, or shifting production to other facilities. In Washington and Montana, more than a dozen mining, metal processing, paper and chemical plants have been forced to close or cease some operations.

The situation was a big topic of discussion at a meeting of the Western Governors' Association in Portland, Oregon Feb 1-2. The meeting was to have taken place later this year, but it was moved up because of the region's energy crunch.

Some governors didn't wait to take action, however. Washington Gov. Gary Locke is using his executive powers to impose strict conservation measures. He has ordered a 10 percent reduction in electricity usage and natural gas consumption statewide and is spending $100,000 in emergency funding to finance an investigation by state Attorney General Christine Gregoire into recent rate increases.

"We want the facts. Energy prices have become obscene and I want to find out what is driving them so high," Locke said in a statement.

Washington shelved its own deregulation plans two years ago. But the state has been slammed by escalating wholesale electric prices and water shortages that have affected the ability of its hydroelectric plants to generate enough power.

Locke "believes this is not going to be cured overnight," says Dana Middleton, the governor's communications director.

Following Washington's lead, the western states of Colorado, Wyoming, Nevada and New Mexico are all rethinking whether to move ahead with their deregulation plans. In the East, Arkansas, West Virginia and North Carolina have put their plans on hold as well.

Idaho, the only western state that has yet to embrace deregulation, may never take it up, says Randy Lobb, an administrator with the Idaho Public Utilities Administration.

"It was way back on the back burner before California, and now it's even further back," said Lobb, who is concerned that even without deregulation, Idaho's energy problems may get much worse before they get better.

Although the state's two major electric utilities still have adequate power to meet demand despite a dry winter that has left power-generating water supplies low, some smaller companies in the state are having a difficult time coping with higher bills. State officials in Boise say the impact on the state's overall economy has not been serious up to this point. But they are concerned that a power shortage this summer could affect thousands of people who rely on Idaho's huge recreation industry for their livelihoods. They fear the state's vast ranch and farm industry could also suffer.

"If the economic impact is not being felt now, it certainly could be in the summer," said Mark Snider, press secretary to Idaho Gov. Dirk Kempthorne. "Our utility companies say they can meet demand for now. They have capacity. But we don't know what things will look like this summer."

Because of water supply problems, Idaho has had to purchase some additional power from outside of the state at much higher costs than normal. A combination of the California crisis and lower than average snowfall, which has depleted water resources throughout the northwest, has driven up prices on the wholesale market.

The higher costs and concerns about possible shortages prompted the Idaho Power Co. to warn in a recent letter to its nearly 400,000 customers that it might seek a 24 percent rate increase in April if things don't improve. The company has spent $120 million more since last May than it had projected to purchase additional power.

The company may not have to implement the entire rate hike proposal, but chances are, said one state utilities official, it will have to pass along a hefty chunk of it to avoid the kind of problems that have plagued California in recent weeks.

"We are feeling the impact (of California's problem) and the way we're feeling the impact is through competition for excess generation," said Lobb.

Idaho normally generates enough excess electricity to sell to its western neighbors But Lobb noted that Idaho Power has had to purchase electricity over the past year at prices 400 percent higher than usual. Washington and Oregon, where water levels are also low, have been forced to purchase outside power as well.

"It's hard to distinguish whether its just a California problem or just the result of low water supplies driving up the market...It's probably some of both. There's just a lot of competition (in the West) right now for a limited power supply," Lobb added.In a bizarre twist to the power crisis, some major northwest metal producers have curtailed their operations or shut down completely to become profit-making electricity brokers by selling the power they get under cheap, long-term contracts.

With the blessing of the federally owned Bonneville Power Administration, about a dozen aluminum smelters in Montana, Washington and Oregon have laid off most of their workers with full pay and benefits. They will make more money selling their electricity back to BPA or on the open market than processing ore.

Columbia Falls Aluminum Co. in Montana is one of those companies. It's nearly 600 employees have been sent home with pay until at least October while the company makes a killing on the electricity market. The company pays BPA about $22 per megawatt hour. It plans to sell its excess power at prices now running $125 to $500 per megawatt hour.

"If it stayed at $500 while we sell our power, this would be a really good deal for us," Steve Knight, the company's general manager, told the Associated Press.

The profit the company expects to make will be used to finance plant improvements and job training in anticipation of restarting operations next year. The downside for many employees, however, is the facility will resume production at only half capacity. Some folks will likely end up losing their jobs, adding their names to a growing list of people who have been hurt by the nation's latest energy woes.

 
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