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River's Power Aids California and Enriches the Northwest by Blaine Harden New York Times, May 1, 2001

GEORGE, Wash. — Doing something nice for California has never been a priority here in the Columbia River Basin, where high-voltage power lines lope across irrigated fields of alfalfa, potatoes and wheat.

Politicians from California, as farmers in this area will explain at great length, have been scheming for decades to siphon off the basin's cheap electricity and water.

Californians, however, have been noticeably less irritating as of late. Having fouled up electricity deregulation six ways from Sunday, they are skidding into the summer air-conditioning season desperately short of power. In the last year, much of their salvation has come from the Columbia River, whose monstrous dams are the largest hydroelectricity machines in North America.

All along the river, from Portland, Ore., to British Columbia, utility companies, aluminum makers and farmers have joined to help save California — but at a staggering price. Charging whatever California's dysfunctional power market will bear, people in this narrow stretch of the Northwest have created a kind of Kuwait along the Columbia.

With their record profits, some public utilities are wiring the emptiness of Eastern Washington with fiber optics, buying diesel generators to make still more power and paying Wall Street-style wages to electricity traders — while making sure that their electricity rates remain among the cheapest in North America. Just north of the border in British Columbia, a state-owned utility luxuriated in its California windfall by mailing out rebate checks to 1.6 million customers.

Their good fortune, though, has come with a measure of ambivalence and may well be short-lived. A severe drought is already hurting farmers across the region. If it continues, utilities along the river will have to buy power and may be punished by the same market forces that gave them a windfall.

"This is not nice money," said Alice Parker, a retired farmer who heads a group that promotes irrigation in the Columbia Basin. "It is something that is offered to us not to use water so Californians can run their air-conditioners."

Nice or not, a whole lot of money flooded into the Columbia Basin.

North of here in sparsely populated Chelan County, a publicly owned utility that has two dams on the Columbia made three times as much money last year than it ever had before. With just 35,000 local customers, the utility last year had a $58.2 million profit. It paid its two top power traders $285,000 each, an astonishing income in a county where per capita income is less than $25,000 a year. The utility refuses to reveal the traders' names for fear their children might be kidnapped.

The chief operating officer of Chelan County Public Utility District acknowledged that increases in the cost of power were "huge" and "obscene." But the executive, Charles J. Hosken, added, "We would be imprudent if we did not maximize this market for our customer owners."

Next door in equally sparse Grant County, a public utility that also owns two dams on the Columbia has made even more money maximizing the market. It had a record $88.8 million in profits last year — more than double its best previous year.

Grant County Public Utility District, which has just 40,000 retail customers, is using its windfall to help build a $70 million fiber optic network for local residents. It has also bought 20 diesel generators to guard against power shortages and, if possible, exploit the power gold-rush. The utility estimates that those generators could add $50 million to profits in the coming year.

Like Chelan, Grant is using its profits as a kind of drought insurance to insulate its customers from high market prices for electricity, when, as now, local needs exceed generating capacity in the river. Power rates in Grant and Chelan Counties are about one-fifth as much as in New York City.

Grant County's utility has rejected, for the time being, the idea of giving a share of its profits to its customers.

"How would it look if Grant County gives away rebates while so many people are paying more for electricity?" asked Lon Topaz, director of resource management for the utility. "It would be lousy politics."

An Upside-Down Economy

The second-worst drought on record in the Columbia River Basin has combined with California's deregulation mess to further distort the energy market. Drought has not only helped increase the price at which electricity can be sold on the spot market — 10 to 20 times as much as last year's price — it has strengthened a compelling bottom-line rationale for conservation. Every megawatt not purchased and used in the Northwest (often at locked-in, long- term prices that are a fraction of the current market rate) can be sent south to California. For many utilities, conservation spells local savings and a long-distance bonanza.

As a result, a regional economy built on half a century of cheap hydropower has been stood on its head. Irrigation farmers here are being paid up to $440 an acre not to farm.

Similarly, aluminum companies are collecting about $1.7 billion this year by not making aluminum. Companies like Alcoa have earned profits that delight Wall Street, while keeping about 10,000 workers on their payroll, by reselling hydropower that they bought in the mid-1990's under a cheap long-term contract.

Even residential customers are being offered a chance to make a few dollars from the power crunch. Avista Utilities has announced that it will pay its customers in Washington and Idaho 5 cents for every kilowatt they do not use, if their consumption falls more than 5 percent below last year's level.

For utilities in the Northwest, by far the largest profits from California's electricity crisis have been secured in British Columbia. A number of private American utilities have also benefited from California's troubles.

BC Hydro, a utility owned by British Columbia with dams on the Columbia and Peace Rivers, is the first corporation in the history of the province to exceed $1 billion in profits, as measured in Canadian currency ($712 million in United States currency).