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Costs of Power Crunch Seep Quietly through Economy by Bill Virgin Seattle Post-Intelligencer, February 15, 2001

But accurately assessing how region's prosperity might be affected is difficult

More than two-thirds of the cost of producing industrial gases like oxygen, nitrogen and argon is the electricity needed to run the giant refrigeration units that separate and condense them.

That's not a problem as long as prices are cheap and stable, and a year ago no one in the industrial gas business thought they would be otherwise, said Daniel Byrne, president of Seattle-based Byrne Specialty Gases, which distributes products to hospitals and biotech companies, among other customers.

Then the West Coast power crunch sent power prices soaring, forcing some gas producers to idle local plants. It's less expensive for them to truck in products made elsewhere, but now Byrne must explain to unhappy customers the 50 percent transportation surcharge on their bills. Most understand, he said.

"They've seen their electric bills," he said. "They didn't like it, but it's real."

The power crunch isn't just aggravating because of higher costs, Byrne added. There's also the management time of talking to customers and adjusting accounting procedures. And there's what he calls the "angst factor: Do we have our hands around it?"

Lots of businesses and consumers are asking themselves the same thing as the economic impact of the power crunch sweeps the West Coast.

Aluminum workers at idled smelters from Tacoma to the Columbia River to Spokane are feeling the bite. So are dairy farmers who need electricity to run milking machines, coolers, water heaters, pumps and lights. The Washington State Dairy Federation says a 20 percent increase in power costs translates into a $300 to $400 a month increase for the average dairy operation.

Will these shocks empty wallets and wreck the regional economy?

"In the broader economy, households and the commercial sector, it's a little harder to discern (the impact) because electrical costs still represent a smaller portion of the overall budget," said regional economist Dick Conway, who has seen the impact himself. Cash-strapped Seattle City Light may not extend his consulting contract.

The impacts vary not only according to how much energy businesses actually use, but whom they buy power from, and whether they signed fixed-rate contacts or decided to take the risk of shopping for power on the open market.

Birmingham Steel, which has a mill near West Seattle, elected not to gamble.

"It was too much risk for us." said Ray Lepp, vice president and general manager of the company's West Coast operations. "I'm in the steel business, I'm not in the electricity business."

But those on fixed-rate contracts only delay the impact of higher power rates. As City Light and other utilities raise rates or impose surcharges, "These increases are really starting to become a burden," Lepp said.

Weyerhaeuser Co. hasn't been affected by the price spikes yet, because it buys little power on the spot market. But as spokesman Frank Mendizabal noted, "We have to renegotiate a lot of those contracts later this year. The (market) climate at the time will affect the rates we'll pay."

Higher household power costs also will be a cumulative burden on the economy. If the average household bill goes up $50 a month, that's $600 a year. Multiply that by the roughly 1.3 million households in the four-county Puget Sound region, Conway said, and that's $780 million -- or about 0.6 percent of the region's estimated annual personal income. It's about the same as shaving 1 percentage point from employment rates.

It's difficult to predict the precise hit to the economy, however. There's so much else going -- the lingering secondary impacts of aerospace job cuts, the dot-com implosion, the weakening U.S. economy.

"If we slowed to 0.5 percent (from the current 1.7 percent regional employment growth rate), we really wouldn't know if it was due to energy costs or problems with the national economy," Conway said.

Given that aerospace isn't yet adding a significant number of jobs, technology's growth is slowing, and the rest of the nation is teetering on the brink of recession, "These high energy costs aren't helping our cause," he added.

There are long-term economic implications to the power crunch as well. While new generation and conservation will eventually bring prices down, few expect prices to return to levels that gave Washington some of the nation's lowest industrial and commercial power rates.

"A number of industries will have to think about whether the Northwest will be a viable place" to operate, Tacoma Power Superintendent Steve Klein said.

"A lot (of companies) are here because the overall mix of costs has worked for them," added John Savich at the Washington State Office of Trade and Economic Development. "If suddenly our power costs are less attractive, it changes that mix."

Bill Lotto, executive director of the Lewis County Economic Development Council, predicted that "when things settle down, we will still have an advantage in power rates, but the advantage will have declined somewhat to quite a bit from where it was five years ago."