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Estimates Brighter for Power by Lynda V. Mapes, staff reporter Seattle Times - June 6, 2001

Northwest still has problems, but outlook for supply is good

The grip of the region's energy crunch is loosening, with better power reliability forecast for summer, lower regional rate increases come fall, and more supply coming online sooner than was predicted weeks ago.

"Things are looking better than they were," said Mark Crisson, director of Tacoma Public Utilities. "In fact, I think there is going to be a huge overreaction to the situation in terms of new supply. If we had had anything close to a normal water year, we wouldn't even be having this conversation."

The Bonneville Power Administration (BPA) has received applications for transmission of between 25,000 and 30,000 megawatts of new generation. That's up to six times what BPA says is needed to close a power shortage exposed by the region's drought this year, the second worst in history.

Most proposals are for natural-gas-fired plants. "There isn't a site in the Northwest with a source of gas and transmission capacity that isn't being looked at," said Ed Mosey, spokesman for the BPA.

Most of the new generation applied for won't be built. But the glut of proposals indicates the shortage will ease. "What we have is a two-year problem, exacerbated by the drought," Mosey said.

Problems began last summer when wholesale power prices jumped because of California's failed experiment with deregulation.

The situation worsened during winter when wholesale power prices climbed as high as $550 a megawatt hour as a drought began in the Northwest. With less water to generate hydropower, regional utilities were forced to buy power on a wildly inflated wholesale market.

The Northwest energy crunch, however, has not eased:

• Thousands of aluminum and other industrial workers across the region have been idled because high power costs shut plant doors. In some cases, aluminum companies closed plants because they could make more money reselling their power.

• More than 270 diesel generators are running around the clock throughout Washington, with more to come as utilities and industries seek to avoid high power costs by generating juice. But diesel generation comes with added air pollution.

• Salmon listed as endangered or threatened under the Endangered Species Act are being killed. Water that is supposed to help flush fish toward the sea instead is going through turbines to make electricity.

• Ratepayers are paying more. Tacoma Power put a 50 percent surcharge on rates in January and says that it doesn't intend to remove it.

Seattle City Light has enacted residential rate increases totaling 37 percent since January. Nobody expects lower City Light rates until at least 2003, when a $250 million debt to buy power is expected to be paid off.

Snohomish PUD ratepayers are paying 35 percent more since January, and rates aren't expected to come down.

And public utilities across the region, including Seattle City Light, expect to increase rates again in October to reflect the wholesale rate increase that BPA will pass on to them.

A federal agency, the BPA markets power from 29 hydropower dams in the Columbia River Basin and one nuclear plant near Richland. Increases to retail customers will depend on how much BPA power is used by public utilities.

The picture in the Northwest never has been as dire as in California, and continues to improve, both in the short and long term.

The Northwest Power Planning Council announced May 25 that power supplies are expected to be reliable throughout the summer, with no risk of blackouts. Chances of blackouts also are small next fall and winter. But that depends on the weather: If the drought continues, high prices, shortage and even blackouts are possible.

Reduced demand, spring snowmelt runoff - which boosts water supplies for power generation - and new generation sources also have dented wholesale prices.

The benefit from high runoff is temporary, however.

Runoff levels are unusually high for this time of year, with mountains going bare one month ahead of schedule, said Scott Pattee, water supply specialist with the Natural Resources Conservation Service at the U.S. Department of Agriculture. Stream flows and run-off will drop ahead of schedule, reducing water supplies for salmon, irrigators and power generation.

Wholesale power costs are changing, with prices sliding to $80 and less a megawatt hour at times in recent weeks, instead of the monthly average price of $282 a megawatt hour that fueled rate increases at the beginning of the year. The price change reflects the reduction in demand and increase in supply. The long-term energy picture also is improved.

BPA is expected to announce today a tentative rate increase for public utilities of more than 100 percent in the first year of a five-year contract period, unless demand continues to be reduced. In April, the agency warned of at least 250 percent price increases for rates that go into effect Oct. 1.

Rate increases will be lower, BPA officials said, because some utilities have agreed to reduce power demands. BPA officials said the agency faced a shortage of 3,000 megawatts to meet demand come October. If utilities didn't voluntarily reduce the amount of BPA power they expected, BPA would have to go to the wholesale market to meet demand at inflated prices, driving up wholesale rates.

The BPA also asked major industrial users to unplug, with workers paid wages and benefits by the agency to stay off the job.

In all, BPA officials say they have commitments for more than 2,000 megawatts in promised demand reduction. The agency will set proposed rates by June 22. Those rates then undergo review by the Federal Energy Regulatory Commission.

The agency is pushing Kaiser Aluminum and Golden Northwest Aluminum to drop an additional 550 megawatts of load.

Puget Sound Energy and Idaho Power, both investor-owned utilities, are in negotiations about dropping a total of 400 megawatts of demand.

Bonneville also is negotiating a total 500 megawatts of supply reduction from more than 120 public utilities. If those reductions occur, BPA's rate increase will be in double digits, according to Mosey.