BPA rates could go up 95%
ECONOMIC TURMOIL: Ratepayers may begin feeling effect this fall
01/26/2001
Al Gibbs; The News Tribune
The Bonneville Power Administration could nearly double the price it charges utilities and industries for electricity beginning this fall.
Such an increase could potentially throw the Northwest into economic turmoil, shutting down manufacturing plants, slowing already snail-like job growth and cutting into household budgets.
The federal power marketing agency Thursday suggested it might have to boost rates by 95 percent during its next budget year, an unprecedented price hike that would, in essence, remove about $2.5 billion from the region's economy.
"Unless the region finds ways to bring costs down, steep rate increases are unavoidable," said acting BPA administrator Steve Wright. "The fundamental problem is unprecedented high market prices."
"This is an incredible event," said Tacoma Power superintendent Steve Klein.
Klein wouldn't comment on what size rate increase Bonneville's price spike might trigger locally, but Tacoma Power will get 57 percent of its electricity from Bonneville beginning Oct. 1 when new rates take effect, indicating a 60-percent rate boost is possible.
Puget Sound Energy's rates are frozen until at least next year, but smaller local utilities that get substantially all of their energy from Bonneville might have to at least double the price their customers pay to keep their lights on.
"This could be the event that triggers something bigger than a recession," said Larry Landry, whose Pioneer Chlor-Alkali plant on Tacoma's Tideflats has been hammered by open energy market prices that have spiked to dozens of times normal since May.
"It's a big hit," agreed Seattle City Light head Gary Zarker, who estimated he will need an increase of 10 percent to 20 percent.
His utility has already raised rates nearly 30 percent this year.
"It's most important that we keep Bonneville financially whole," Zarker said. "It's not the time to abandon them."
The exact size of the increase won't be known until July, when Bonneville completes the formal process called a rate case it must conduct to change its prices.
Bonneville executives, in a press release Thursday, said the rate hike would average 60 percent over five years. But the release didn't mention that the first-year increase of 95 percent over current base rates would be followed by a further 93 percent increase over the current base in late 2002.
The rate would go up 58 percent in 2003 and 35 percent in succeeding years.
Only a fundamental change in West Coast energy markets that have zoomed to hundreds of times normal since May could make those increases smaller, the BPA's Wright said.
Although Bonneville was created to market the hydroelectric power generated by federal dams on the Columbia and Snake Rivers, in recent years the demand for its low-cost power has exceeded the rivers' supply, forcing the BPA to seek power from other, more expensive sources.
The problem is even greater this year, as record dry weather hasn't refilled hydroelectric reservoirs while dam operators have had to spill water to help endangered salmon.
Beginning Oct. 1, Bonneville will have to purchase about 3,000 megawatts of power that lately has been selling for $200 to $300 a megawatt-hour at markets across the West Coast, in Washington and Oregon as well as in California. If the 95 percent hike is actually enforced, Bonneville would sell that power for about $40 a megawatt-hour.
"All of us are hoping we see a remedy for this wild market," said John Elizalde, Bonneville's sales and customer service manager for Western Washington.
Elizalde said he is optimistic that new generating plants scheduled to begin operating in the next few years would add supplies to a tightly stretched market and reduce prices.
"As we see the market moderate, surely we will be able to change these rates," he said.
Lower rates may not come soon enough for manufacturers like Pioneer's Landry, whose parent company has missed three debt payments since December.
"This could easily shift production elsewhere," said Landry, whose company also owns plants in Nevada and Texas.
Kaiser Aluminum, for example, has shut down its aluminum production mills in Tacoma and Spokane, and company officials have said they can't afford to reopen them at power prices greater than they now pay.
"We're very concerned about rates," said Kaiser spokeswoman Susan Ashe.
The entire Northwest will suffer, said Seattle economist Dick Conway, although he said impacts will vary depending on location, industry and other factors.
"This could cut already weak employment growth and make us vulnerable to a recession," he said.
Tacoma's Klein resorted to gallows humor to characterize his view of the possible size of Bonneville's rate hike.
In December, faced with the specter of asking Tacoma's ratepayers for a 100 percent surcharge, Klein said discovering the depth of the problem was akin to finding that Martians had landed at Cheney Stadium.
Thursday he added: "Reinforcements are landing now."