Water, gas shortage to boost U.S. West power prices Updated 5:42 PM ET March 8, 2001 By Spencer Swartz SAN FRANCISCO (Reuters) - Water and natural gas, used to generate over half the power in the western United States, have slumped to record low levels, threatening to send the region's already soaring energy prices even higher, analysts said Thursday.

"There is no question...power prices this summer are going to go a lot higher in the West if the hydro situation doesn't improve and given where gas supplies are," said Paul Patterson, a utilities analyst at Credit Suisse First Boston.

Regional policymakers are scrambling to head-off a replay of last summer, when a huge supply/demand imbalance in California's electricity market triggered price spikes throughout the region and kept California on the brink of blackouts for weeks on end.

Power and gas prices -- respectively double and triple levels seen just a year ago -- have taken a huge financial toll on households and businesses across much of the West.

And higher energy costs are the last thing the region needs on top of a slowing national economy, tighter credit, slumping consumer confidence, and an inventory overhang in many business sectors.

Power prices in the day ahead spot market in the west have skyrocketed, fetching about $300 per megawatt hour for electricity from dams on the Columbia River, or 10 times the price a year ago.

ENERGY SHORTFALL

In California alone, the nation's most populous state, power officials have projected a shortfall of 5,000 megawatts (MW) of electricity this summer -- enough to put five million homes into darkness.

To close the impending power supply deficit, the governors of California, Oregon and Washington have stepped up calls for conservation measures, like running clothes driers in the evening rather than the daytime and using "low-flow shower heads" that use less energy and water.

This week, 27 members of Congress, nearly all Democrats from western states, asked President George W. Bush to cap wholesale power prices in the region to slow rising energy bills this summer and ease the region's economic slowdown.

But so far the Bush Administration has dismissed the caps as unnecessary meddling in the open market, instead touting a long-term national policy to build up energy supplies.

In late February, California Gov. Gray Davis asked state regulators to find 33 potential sites to build small generating facilities known as "peakers" to add enough generation to power around a million households by summer.

But the proposed solution to boost badly needed generation hinges almost entirely on power plants fired by natural gas.

LOW GAS SUPPLIES

And this week gas storage reserves held in Western storage facilities fell to their lowest level on record, pointing toward tight summer supplies priced at a hefty premium.

Gas stocks in the West and nationwide have been stretched drum-tight the past year due to dwindling gas field production, an early winter, and breakneck demand from the power industry and others anxious to take advantage of the fuel's efficiency and environmental benefits over dirtier fuels like coal and oil.

For California, tight gas supplies is a major concern because the state relies on gas to generate over a third of the state's electricity.

Adding to its energy woes, the state is also likely to see a steep drop this summer in hydropower imports from the dams in the Pacific Northwest, which typically cover close to 11 percent of California's power needs.

The Northwest has seen one of the driest winters on record, with reservoir levels at 25-year lows, and will have little surplus electricity to ship to California.

And when California's hydro imports fall, the law of scarcity takes over, stirring competition for scant gas supplies among the region's power generators, businesses and homes -- and driving prices even higher.

California wholesale gas prices, currently $12.25 per million British thermal units, were a mere $2.86 a year ago.

DRY NORTHWEST

Meanwhile, the energy outlook for the Northwest, which during normal rainfall years gets about 75 percent of its power from its huge hydro facilities, is grim.

A drought declaration in the Northwest -- which would force tough choices between feeding hydropower plants, irrigation, and saving endangered salmon -- could be less than two weeks away if the wet weather does not soon return, regional analysts said.

Two weeks ago, Washington Gov. Gary Locke met with state officials and the Bonneville Power Administration, the federal government's regional hydropower authority, to assess the crisis and prepare a water rationing program.

The need for rationing seemed more likely following a report Wednesday by federal hydrologists that forecast spring runoff through key dams on the Columbia River at a mere 55 percent of normal this summer.

http://search.excite.com/r/sr=news|ss=natural+gas;http://news.excite.com:80/news/r/010308/17/utilities-california-prices

-- Martin Thompson (mthom1927@aol.com), March 09, 2001