Monday, February 12, 2001, 09:22 a.m. Pacific

Tiny co-ops face huge power bills

by Lynda V. Mapes Seattle Times staff reporter Jeff T. Green / The Seattle Times Kirk Kramer unloads feed at his Flying Shield Ranch, which he says hasn't made money in four years because of low wheat prices. Yet this fall his annual power bill will go from $3,000 to at least $6,000. For more than 60 years, low-cost public power has supported farms, ranches and rural areas of the state no investor-owned utility would bother to serve.

Tiny utilities like Nespelem Valley Electric Cooperative, in Okanogan County, with fewer than four customers per mile, owe their existence to cheap power from the Bonneville Power Administration. Founded in 1939, the co-op is the smallest in the state and was one of BPA's first customers.

Bonneville was created in 1937 with a congressional mandate to provide low-cost power to public utilities first. Sales within the Northwest come second. After that, anybody else gets BPA surplus power only, and they pay market rates for it.

But shock waves from California's energy crisis - spiraling prices on the wholesale market - have helped put BPA in a financial crunch. Come Oct. 1, the federal agency may raise its wholesale electric rates anywhere from 95 percent to more than 452 percent, far more than the agency announced just two weeks ago, according to BPA estimates.

Worst-affected by the rate increases will be utilities like Nespelem Valley, a so-called "full-requirements" customer that gets its every kilowatt from BPA. More than 89 of those utilities across the Northwest, including 53 in Washington, will bear the full brunt of BPA's rate increases in October.

Yet the bigger threat isn't necessarily the soaring rates: It's losing the Northwest's unique access to BPA's low-cost public power.

The agency's financial troubles mean it will struggle to make its payment to the U.S. Treasury in October; other regions of the country long interested in gaining access to the Northwest's power are watching closely.

The peril to Northwest ratepayers is real, said Randy Hardy, administrator of BPA from 1991 to 1997.

"The risk is greater because of the extreme financial problem Bonneville is in," Hardy said. "And now you have an increased threat.

"It's not just the folks from the Midwest and the Northeast that want our power. You've got California. They are looking for a solution to their problem and the best one is to take the benefits of Northwest preference."

Rate boost `not collectable'

Nespelem is a two-lane town, with no traffic light, and blacktop that runs out to dirt lanes. The Nespelem Valley Electric Cooperative boasts a staff of seven who do everything from reading meters to repairing line slung over 400 square miles.

About 300 of the utility's approximately 1,000 customers already have trouble paying their bills.

"Oh, give me a break," said co-op manager Bill Miller, when asked about BPA's possible rate increases. "I don't know what would happen, it's uncollectable. A lot of people would be shut off."

Okanogan County is already hard-hit by low market prices for crops, from apples to wheat. The utility also provides power to about a third of the Colville Indian Reservation, where unemployment ranges from 40 percent to 50 percent.

"It just makes my heart cringe," said Kathy Wormer, a 65-year-old retiree living on a fixed income. Like the rest of Nespelem Valley's customers, her bills would go up by an estimated $675 over the course of the year beginning in October, based on BPA's previously announced increase of 95 percent.

Rancher Kirk Kramer, 40, works 300 head of beef cattle and grows 800 acres of wheat on his second-generation family farm in Okanogan. He said the farm hasn't made money in four years because of low wheat prices. Yet his power bills would at least double, from $3,000 to $6,000 in the first year of the BPA rate increase.

"It's just one more thing," said Kramer, director of the Nespelem co-op's board of directors. "We are just trying to get by on winging it."

He resents that California utilities by law cannot pass on rate increases to customers, which he says short-circuits the incentive to conserve. Meanwhile, Washington power rates are skyrocketing.

"They are down there sucking the power up and we will be the first ones to pay for it," Kramer said. "California consumers are not paying for this, but the people of Washington are. And we are about as far from a California lifestyle as you can get."

The possible rate increases at BPA range from a worst-case scenario of 452 percent in the first year of a five-year increase, to a low of 0.7 percent. No one expects the increase to be either that high or that low.

The rates ultimately will depend on how much power BPA has to buy during the five-year contract period beginning in October, and how much it has to pay for it.

The increase will affect virtually everyone in the Northwest because higher rates will be passed on by utilities. Seattle City Light, for example, will buy 41 percent of its power from BPA come October, more than double the current amount.

Snohomish County PUD will buy 80 percent of its power from BPA in October, up from 50 percent now.

"I am extremely concerned about the impact of a rate increase," said Steve Wright, administrator of BPA. "My highest priority is trying to figure out how to get this increase to something more manageable so we don't devastate the economy of the Northwest."

`A lot of crummy choices'

Market prices for power are the single biggest driver of the rate increase, and the thing BPA can do the least about, Wright said.

In the short term, officials say all the federal agency can do is pray for rain and ask customers to conserve.

By October, the agency needs to come up with 3,000 megawatts of power it doesn't have the resources to generate. BPA is oversubscribed for two key reasons:

Public utilities that turned to the open market in 1995, when electricity was cheap, want back on BPA's grid come October. Bonneville, by law, must take them. That's about 2,000 megawatts of power BPA wasn't counting on serving.

Bonneville also committed last year to providing 1,500 megawatts of power during the next five years to aluminum companies.

The only way BPA can reduce its fat rate increase is to reduce the amount of power it has to buy on the market to meet those obligations.

There are only a few ways to do that, and they all cost money.

"We face a lot of crummy choices when you get right down to it," Wright said.

Among them:

Spend agency dollars to buy back power from industrial customers, especially heavy users such as aluminum companies, food-processing plants and pulp and paper mills. Even irrigators who run electric pumps to get water to their crops are being approached.

Sign some longer-term contracts with generators in order to buy less power on the spot market.

Encourage as much conservation as possible. The agency is expected to announce a conservation effort next week in which it will pay its utility customers to initiate conservation programs. The agency will offer utilities a dollar off their BPA bill for every dollar they invest in power obtained through conservation or renewable energy sources, such as wind.

One option Wright doesn't want to pursue is deferring the agency's annual treasury payment of more than $700 million. Oregon Gov. John Kitzhaber proposed such a move last week. "In trying to solve our short-term problem we should not create a long-term problem by putting the fundamental value of the system at risk," Wright said.

"We have something that is worth a lot. And lots of other people see that value sitting on the table. It behooves us to protect it."

Roots of crisis are complex

There is no easy fix because a combination of circumstances put the BPA in this position.

The region is facing the lowest spring runoff in 70 years, reducing the amount of water BPA can use to generate power.

Though California deregulated its utility markets in 1995, the effects of that change were masked in the Northwest during five years of heavy rainfall. BPA had abundant surplus power to sell to California.

But this year's drought has exposed not only the bottoms of Washington reservoirs, but the fact that California doesn't have enough power to serve its customers, even in winter.

The situation may only get worse come summer, when BPA will face a hard choice: Use scarce water to provide power for California, which may still be in crisis. Or use scarce water to push endangered salmon to sea and cool water temperatures in the Columbia River.

That seasonal spill of water for salmon is worth about $2 billion the BPA could make selling power. BPA needs the money, California needs the power, the fish need the water.

The coming conflict between endangered fish and power is a combustible one, both in Washington and beyond its borders if the lights go out in California to save fish.

"You think it's bad now?" Hardy said. "Wait 'til summer. This thing hasn't even gotten started yet."

Lynda Mapes can be reached at 206-464-2736 or lmapes@seattletimes.com.

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-- Martin Thompson (mthom1927@aol.com), February 12, 2001