Paying the price for power
Thousands lose their jobs as the BPA buys out energy-guzzling plants, and the short-term fix could cost the Northwest's economy for years
Sunday, May 20, 2001
By Gail Kinsey Hill of The Oregonian staff
For 61 years, workers at Portland's Atofina Chemicals pumped saltwater into vats, shot massive doses of electricity into the briny brew and churned out industrial chemicals.
Then, two months ago, the steady hum of electricity abruptly ceased. The layoffs of 131 employees began.
"We're a dying breed," said Robert Rader, 47, a beefy man with mild blue eyes and big, thick hands. After 20 years as a chemical worker, the last nine with Atofina, Rader reluctantly turned his back on his $55,000 annual salary and began his search for a new career.
Runaway energy prices cost Rader and his co-workers their jobs. They cost Atofina a decades-old operation.
Throughout the Northwest, thousands of workers, even entire industries, face similar fates. In many cases, the cutbacks come with urging -- and cash -- from the Bonneville Power Administration, a sharp change in policy for an agency historically dedicated to industrial growth.
Already electricity-induced layoffs have seeped beyond a tight group of energy-intensive industries such as chemicals and aluminum into foundries, food processors and agriculture.
Wholesale electricity prices took off in May 2000 as utilities rushed to find enough megawatts for a growing West. California's botched energy policies worsened the situation. Now, with summer approaching and no short-term solutions in place, California faces the disturbing prospect of wave after wave of rolling blackouts.
Despite near-drought conditions and a strained hydrosystem, the Northwest should squeak through the months ahead blackout-free, the region's power planners predict. But the region will pay a high price to keep the lights on, from company shutdowns to environmental compromises to lifestyle changes.
Summer will test an unprecedented tradeoff of jobs for electricity. Although plant shutdowns ease the strain on stretched power supplies, the consequences of laid-off workers and curtailed production threaten to shake up the Northwest's economy for years to come and upset the region's manufacturing base.
Manufacturers hit first
"I don't know where it will end. It seems to be getting worse." Robert Rader, Atofina Chemicals
In a midmorning meeting on March 31 at Atofina's industrial waterfront site, company officials gave employees the news: When the shift ends, so will production.
Rumors had circulated for weeks. Even so, workers cringed at the tone of finality.
"A lot of people were in a state of shock," said Rader, president of International Chemical Workers Local 109.
Atofina, the subsidiary of a French conglomerate and the last chemical processing company of its kind in the Northwest, had been a money-maker and a solid competitor. But electricity costs accounted for more than 60 percent of operating expenses, and it couldn't tolerate a predicted doubling, even tripling, of rates scheduled to take effect in October.
"There was nothing anyone could do about it," Rader said. "We were all helpless to stop it."
Atofina fed directly off the BPA, the Portland-based federal agency that markets 46 percent of the electricity for Oregon, Washington, Idaho and part of Montana. It sucked up a steady flow of 102 megawatts, 24 hours a day, seven days a week -- enough power to continuously light two cities the size of Salem.
The electricity came cheap. BPA taps into the Columbia-Snake River Basin's vast hydropower system and sells the electricity at the cost of generation, no markup. But BPA also buys some electricity on the wholesale market, from utilities, traders or other power providers. Last spring, when market prices shot up, BPA looked into the future and saw a financial abyss.
Desperate to avoid paying the soaring wholesale prices, BPA began repurchasing electricity it had contractually committed to industrial customers.
First, the agency zeroed in on aluminum smelters, prodigious consumers of electricity. The smelters buy a constant 2,000 megawatts from BPA, and at peak production consume a similar amount from other suppliers.
Then, BPA turned to the likes of Atofina.
"It was cheaper for us to buy out large industrial users than to buy on the market," said Steve Hickok, BPA's chief operating officer.
The agency wanted the power so much it spent $500 million in the repurchase agreements. It claimed it would have spent more than $1 billion if it had continued to serve all customers and buy on the market.
In many cases, the agreements require idled companies to pay workers full wages and benefits. Atofina is still cutting paychecks. So are some, but not all, of the aluminum smelters.
The checks ease the short-term financial pain for workers but leave them worried about the future.
"It helps," said Joe Garcia, who worked 32 years for Northwest Aluminum in The Dalles before he and 200 others lost their jobs in January. "But, I'm a welder. I need to work."
BPA's success in gathering up scarce reserves of power took the edge off worries of summer shortages. A report to be released in early June is expected to show that buyback programs by BPA and others are largely responsible for improved summer assessments of electricity supplies.
As fears of a shortage fall, job losses mount. In Oregon alone, layoff announcements since last summer, required of companies with more than 100 employees, involved more than 7,000 workers, more than double the prior year's tally. The economy is slowing, and the state doesn't separate energy-related layoffs from other causes. But employment officials say rising electricity and fuel costs definitely are taking their toll.
"When you put energy costs on top of everything else, some companies just can't take it," said Sue Nebrija, a unit leader with the Department of Community Colleges and Work Force Development. "It's the straw that breaks the camel's back."
Farmers risk crops
"When it's in your blood, it's pretty hard not to farm." Keith Rupprecht, third-generation farmer, Warden, Wash.
Keith Rupprecht's grandfather farmed in Sherwood, Keith's father in Hillsboro. Crowded out of fast-growing Washington County in 1995, Keith took root in Eastern Oregon, amid gently rolling hills near Warden, Wash., where he grows alfalfa, wheat and potatoes.
Rupprecht relies heavily on irrigation that taps into Grand Coulee Dam and a turbine-driven pumping system. But this year, he's letting 275 acres, or more than 75 percent of his holdings, go dry.
Instead of working the land, he's pocketing $90,750 from BPA. He recieves another $18,000 from the local utility district.
"It penciled out for us," said Rupprecht, who, along with about 670 farmers in the Columbia Basin Project, cut their irrigation allotments in exchange for $330 an acre from BPA and $65 an acre from the utility district. "For us, it's a way to keep our farm going."
BPA targeted this agricultural stronghold for its rich source of megawatts. Reducing the amount of water pumped from Grand Coulee Dam's Lake Roosevelt 300 feet uphill into Banks Lake frees a stream of 100 megawatts of electricity, April through September. That's enough power to light 100,000 homes for the same six months.
At first, BPA offered farmers $260 an acre to keep fields dry.
"Everyone said, 'Forget it, it's not worth it,' " Rupprecht said.
Then BPA increased the bid to $330 and interest ignited. Farmers camped out in parking lots of irrigation districts the night before applications became available. Concerned about economic repercussions to the communities, BPA limited the deal to 15 percent of the area's farmland, or 91,000 acres.
Most farmers who signed up with BPA are taking only part of their land out of production. Even on the dry acreage, they're hoping for partial harvests, eked out by spring rains.
BPA isn't the only one cutting deals with irrigators. PacifiCorp, headquartered in Portland and serving electricity customers in six Western states, expects to sign up about 185 farmers for a program that will reduce electricity demand by 50 megawatts during peak summer months of July and August.
"I hate to see someone, whose livelihood is farming, not farming," said Bruce Griswold, PacifiCorp's director of energy contracts. "But that's the situation we find ourselves in."
Rippling through the economy
"The whole town is basically based on agriculture. You pull out 90,000 acres and the effects just go on down the line." Bob Parrish, Saddle Mountain Farm Supply, Othello, Wash.
From the direct hit on farmers and heavy industry, electricity prices splatter out into all kinds of other businesses, from food processors, tractor dealerships and feed stores to foundries, parts suppliers and truckers.
"Anything prolonged is going to hurt us all," said Bob Parrish, owner of Saddle Mountain Farm Supply in Othello, Wash., a farm town in Eastern Washington's Columbia Basin.
Parrish sells balers and other equipment to hay farmers. He's hoping that the extra money BPA has put in their pockets will keep them spending, but he admits he's anxious about the future.
"We're going to have to ride out this year and see what happens," he said.
A secondary shakeout already has begun among manufacturers. Portland foundry Consolidated Metco found itself caught between a drop in aluminum suppliers and declining product orders from truck-makers such as Freightliner. It announced plans to lay off 50 workers.
"I'll make it somehow," said Barbara DeWilde, 56, who was laid off March 16, "but you get tired of just trying to make it."
Economists expect job losses to spread even further, into retail and service-oriented businesses, as laid-off workers curb spending and retrenched companies postpone investment. Oregon's unemployment rate already stands at 5.2 percent and Washington's at 5.7 percent, both above the national rate of 4.5 percent.
Oregon economists aren't calling for a recession. And they're careful to point out differences between today's economy and that of the late 1970s and early 1980s, when high fuel prices battered the nation.
"It certainly raises some substantial concerns about what the rest of this year and next will bring," said Art Ayre, labor economist with the Oregon Employment Department.
Why they did it
"BPA's initial purpose was economic development. Now it's an explicit de-industrialization of the West." Brett Wilcox, owner of aluminum smelters in The Dalles and Goldendale, Wash.
BPA officials concede their actions are unprecedented and repercussions uncertain. But high energy prices left them little choice, they say.
"Our conclusion is, it's the best of the bad choices we're faced with," says Stephen Oliver, BPA vice president.
Oregon's major utilities, PacifiCorp and Portland General Electric, are repurchasing electricity from some industrial customers, in a smaller-scale version of BPA's buyback programs. But utility officials say the strategy, which gives each the ability to shed from 150 to 200 megawatts of electricity during summer emergencies or price spikes, won't cost anyone a job.
"We're not crazy about being a party to layoffs," said Brian Soth, director of retail energy products for PGE. "When we talk to our customers, we emphasize we really don't want to do it on the backs of employees."
Usually utilities are avid economic boosters, if only because more activity means more electricity consumption and more revenue. BPA's roots lie even deeper in development. Cheap power and federal largess lured heavy energy users to the region. And economic visions that turned a desert to fertile farmland drove the construction of Grand Coulee Dam.
Yet, the more electricity policies run counter to the agency's historic intent, the more anxious workers and industry executives become. In January, Brett Wilcox, owner of Goldendale Aluminum in Goldendale, Wash., and Northwest Aluminum in The Dalles, became the first to sign an agreement with BPA to silence smelter potlines, pay workers and invest in new electric power generation.
Now, he's balking at signing a new pact that would extend shutdowns and worker compensation for up to two additional years.
Only one smelter, Alcoa's Intalco plant in Ferndale, Wash., has agreed to the longer closures.
BPA isn't backing down.
"I think we'll preserve more jobs by what we're doing," says Stephen Wright, acting administrator of BPA.
The alternative, he says, is to dramatically raise rates for everyone, then stand back for an even bigger economic hit.