WA: No quick fix for rising cost of power

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July 19, 2000

No quick fix for rising cost of power Market forces, power plant shortage contribute to volatile prices, panel told

Bert Caldwell - Staff writer

Spokane _ The Northwest's convulsed energy markets will get worse before they get better, panelists told a Northwest Power Planning Council committee Tuesday in Spokane.

The market that finally emerges may not have room for some of the industries that have employed thousands for decades, they said.

The council, with representatives from Washington, Idaho, Montana and Oregon, shares responsibility for assuring the region has enough resources available to meet the demand for power.

During the final days of June, electricity was so scarce that prices reached unprecedented levels -- up to 50 times the early summer norm.

The council was asked by Washington Gov. Gary Locke and Montana Gov. Marc Racicot to expedite a study of the factors that brought about the meltdown.

"Clearly, the high prices result to a large degree from the convergence of high natural gas prices, unusually high summer temperatures, planned and unplanned disruptions at generating facilities and late snow melt," Locke wrote Friday.

"However," he added, "I am concerned that other factors are contributing to the extreme volatility in the wholesale market, including possible problems with the California power exchange and the lack of accurate price signals to sellers and purchasers."

The committee's study is to be completed by Sept. 30.

Until a few years ago, almost all electricity was sold at fixed prices. Deregulation, at least at the wholesale level, has freed buyers and sellers to strike their own deals.

The transition has not been smooth.

Tom Karier, Eastern Washington's representative on the council, asked Tuesday: "Is this a speed bump on the way to a better deregulated market, or is this the future?"

The answer is both, said Jim Harding of Seattle City Light.

He said the underlying cause of recent events was a lack of power. Deregulating markets was easy, he said. Creating competition was difficult.

The region did not have incentives to encourage new generating plant construction until prices began their rapid climb in May, Harding said.

Like many others in the Northwest, he said, Seattle City Light preferred to shop for electricity in a very accommodating wholesale market and passed up megawatts available from the Bonneville Power Administration. Seattle City Light even sold its interest in the Centralia Generating Station.

Now, Harding said, the utility is buying some power at 10 cents per kilowatt-hour and selling it for 2 cents. "That's not a good business model," he said.

Avista Utilities, which lost $90 million last quarter trading in electricity, was not represented at the meeting in the Hotel Lusso.

Spokeswoman Catherine Parochetti said the company was not able to make the appropriate officials available on short notice. The special committee meeting was arranged last week.

Enron North America Vice President Tim Belden said the conditions that prevailed at the end of June will linger for some time.

He predicted spot prices for power will keep climbing -- to more than $50 per megawatt -- until 2002, when new generating plants come on line. But at least as far out as 2005, where his projections terminate, the spot power market will not approach the $23 per megawatt or less that prevailed through the 1990s.

Murray Margolis, head trader for PowerEx of Vancouver, British Columbia, said electricity users, loathe to again find themselves in a bind, have purchased supplies months out even though prices remain high.

Although some have raised questions about how well the wholesale market was working during the most critical hours of late June, Margolis said liquidity was good and all parties met their obligations.

"There was no evidence of the market failing," he said.

But Kaiser Aluminum Vice President Pete Forsyth said the company did not find the market at all liquid when it moved to sell electricity made available when it shut down some production capacity in Tacoma and Spokane.

He said the Northwest is "half pregnant" with deregulation, with some able to buy power for 2 cents per kilowatt-hour while others pay twice that much.

Forsyth said reconciling that disparity is one of the fundamental challenges facing the region, where high electricity prices could jeopardize aluminum smelters, mines and other energy-intensive industries.

"If they had to contract at current rates, they could not stay in business," said Don Quander, who represents the Montana Industrial Customers.

Quander said his members support deregulation, but don't understand the circumstances that brought about such a rapid change in the market.

"A year or two years out, it doesn't look any better," Quander said. "Consider that this is a real crisis

http://www.spokane.net/news-story.asp?date=071900&ID=s827849&cat=section.Spokane



-- Martin Thompson (mthom1927@aol.com), July 19, 2000

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