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Power Switch Flips Priorities in Northwest by Al Gibbs The News Tribune, July 16, 2000

No longer can businesses take cheap electricity for granted, and effects will be long-lasting

Larry Landry used to arrive at his office in the morning and check on the energy efficiency of the Pioneer Chlor-Alkali plant he runs on Tacoma's Tideflats.

Not any more.

Since the cost of electricity spiked to dozens of times normal in May and June, the first thing Landry does is log onto Web sites to survey the amount of water behind Grand Coulee Dam and the spot price of electricity on the Mid-Columbia and California-Oregon Border power exchanges.

"It doesn't seem to be at a point where it will break anybody's back," he said. "But I know there are people out there who are seriously concerned."

They should be.

For a variety of reasons, dramatic hikes have occurred this summer in the usually low price that Northwest businesses, industries and residents pay for power.

Manufacturing plants have shut down, temporarily or longer-term; once-profitable utilities have lost so much money they're struggling to break even; and a whole battalion of executives from utilities to industries that located in the Northwest because of cheap power now see the area's economy as increasingly fragile.

"Fragile's a good word for it," said Landry, whose plant is Tacoma Power's largest single consumer of electricity.

"Right now we're working on a lot of creative things that will separate those who survive from those who don't."

Built on cheap power

Cheap electricity has been the heart and lungs of the Northwest's economy for more than half a century.

Hydroelectric dams churned out electrons for less than a penny a kilowatt. Giant high-voltage transmission lines link a dozen West Coast states, allowing the Northwest to sell power to California and the desert Southwest for summer air conditioning and, in essence, buy it back for winter heating here.

Aluminum smelters, Boeing aircraft assembly plants, chemical refineries and lumber mills flourished because cheap hydropower provided a competitive advantage.

"Certain industries are located here because of low electric rates," said Seattle economist Dick Conway. "And (inexpensive power) has kept the cost of living low."

Until now.

Since Congress deregulated the electric power business at the wholesale level and states like California went to an open market, where electricity is traded like any other commodity, the world of power has been turned upside down.

In late May, when a heat wave hit the Southwest and air conditioning demand peaked while two nuclear power plants in California were shut down, the price of electricity skyrocketed to $750 a megawatt, as high as California law allows.

Landry shut down half the production line at Pioneer, which produces chlorine, caustic soda, hydrochloric acid and calcium chloride.

He took the plant down entirely for a couple of days in early June, again because of the high price for electricity, which can make up as much as 75 percent of Pioneer's production costs.

He kept the plant's 160 employees busy performing maintenance and other chores.

Kaiser Aluminum Corp., however, laid off 400 workers - 280 in Tacoma - and reduced production at plants in Tacoma and Spokane.

Electric utility Avista Corp., of Spokane, lost more than $90 million buying and selling electric energy for its customers, and may lose another $50 million before the year ends, the company said in an unprecedented announcement.

Members of California's Independent System Operators, which controls that state's electric energy market, voted in late June to lower the cap on market prices to $500 a megawatt hour - normal is $20 to $50 - and warned utilities that own power stations not to slow down their generators during hours of peak use to drive market prices higher and make more money.

"I'm sure there's some greed involved here," said Tacoma utilities director Mark Crisson.

How did it come to this?

So how did the Northwest get to this point? Bonneville Power Administration chief executive Judi Johansen has warned of a 3,000-megawatt capacity shortage and the Northwest Power Planning Council predicted that the region has a one-in-four chance of blackouts under certain winter weather conditions. What became of a decade of surplus power?

Simply put, the Northwest's population has grown faster than the amount of electricity available to keep the region's lights on and its factories humming.

Few large new power stations have been built, and those that were are hundreds of miles east of the Interstate 5 corridor where most population growth occurred.

Efforts to save salmon runs on the Columbia and Snake rivers cost the region about 1,000 megawatts of lost electrical generation, about as much as Seattle consumes.

Low water on the region's rivers this summer has cut another 3,000 to 4,000 megawatts from the supply, according to Bonneville estimates.

The explosion of computers has put a small but important additional demand on an already stressed energy system.

Deregulation, anticipated by some to actually lower energy prices, sent utilities and private generating companies the message that they might make only a tiny profit from operating power stations that would cost hundreds of millions of dollars to build.

While companies have the government permits needed to build new natural gas-fired plants, few are under construction.

Even if new plants get built within a few years, they'll be more expensive to operate because the price of Canadian natural gas that turns the generators has increased dramatically in the past year.

With salmon runs endangered, it would probably be impossible to construct new hydroelectric dams, and new nuclear plants are a political no man's land.

Environmentalists point to renewable resources like wind and solar power and to energy conservation, but those alternatives would generate or save only a fraction of the capacity needed to assure a reliable power supply.

And these options are far more expensive.

The Northwest isn't alone in this dilemma. Federal Energy Secretary Bill Richardson this spring toured the entire nation and found electric reliability problems everywhere he looked.

A committee he appointed to survey the situation provided no solace at all.

"They implied that things may get worse before they get better," Richardson told a Seattle conference in May.

Solutions, if there are any, should come from the Northwest, most of the people involved believe.

"It's up to all the regional players," said Pete Forsyth, Kaiser Aluminum's Northwest vice president for external affairs.

That's not a very comforting view. Various factions involved in the region's energy supply and consumption have fought with each other for decades.

Some battles became so fierce that Congress stepped in to settle the matter. These days officials profess that that's the last thing anybody wants

"If we start to poke at each other, there is less chance of solving the problem in the region," Forsyth said.

"We've all got too much at stake to be pulling out guns."

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