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Power Crisis Shorts out Expectations

by Chris Mulick, Herald staff writer
Tri-City Herald, July 2, 2000

Not even the electric soothsayers with the darkest forebodings of Northwest energy shortages could say they told you so.

By all accounts, the West Coast's two-month streak of spiking wholesale power prices, culminating with last week's jarring crescendo, has been more revealing than a Sharon Stone movie.

It's the stuff of a power planner's nightmares -- searing temperatures, soaring electricity demand and power plant failure. Couple that with power traders eager to make a fistful of cash by peddling only a drop of juice in an already power-thirsty region and you've got a numbing tale.

There were no blackouts, but tell that to the 2,100 Washington industrial workers temporarily put on the streets while the plants where they work sit dark and idle to avoid massive power bills.

And then there's the kicker. All predictions for power shortages have assumed they would come during a long, dry, winter cold spell when there would be little water rushing through turbines generating power at the Northwest's hydroelectric dams.

In a typical June, Northwest rivers swell with snow melt, producing a glut of power during a month of moderate temperatures. Electricity can't be found cheaper anywhere.

Not this year.

"We have never had an event like this one," said Dick Watson, power planning director for the Northwest Power Planning Council. "We usually have water coming out of our ears in June. It's really unprecedented."

Some say the events of the last two months -- and especially the last week -- should stimulate plans for new power plant construction. But most are skeptical that it will.

Bad breaks come in bunches

Kennewick's Perry E. Smith simply couldn't believe news reports that power last week was being sold for dollars a kilowatt hour. As a Benton Public Utility District customer, he pays a mere two cents per kilowatt hour -- a full nickel once distribution costs are added.

"It doesn't look like someone knows where the decimal point goes," he said after seeing reports that electricity was being sold on the open market for $7.50 a kilowatt hour. "It's ridiculous."

But true. In fact, prices hit $11 a kilowatt hour. Smith estimated his monthly bill as a homeowner would have topped $15,000 if he had to pay the $7.50 rate.

"I'd like to have a dam on a big river," Smith concluded.

It was a lousy week for electricity buyers but a great one for sellers. Those who did have power to sell jumped on their chance to rake in more green than a hay baler. Buyers, mostly private utilities and large industrial consumers, rolled out their bankrolls.

But analysts say the unprecedented energy prices were only partially explained by slim to nonexistent energy surpluses. It was a confluence of unusual events that fed a shakeup of the usually stable early summer Northwest market, they say.

To begin with, it's been a slow start to what is supposed to be an average water year. But this year's runoff is late, still frozen in mountains north of the border. And that means there's less water to spin turbines at Northwest dams.

"We've just had a crummy water year," said Gary Saleba, a Bellevue power consultant.

As such, the Bonneville Power Administration, which sells all the electricity produced at the Northwest's dams, was buying from the market in June when it usually is selling.

Then came the sun. Unusually warm temperatures, which had long worn out their welcome in California, pushed the mercury into the 90- and 100-degree ranges last week.

Still, those factors by themselves wouldn't usually create power shortages or such steep price spikes.

But the unplanned outages of Energy Northwest's 1,150-megawatt nuclear plant at Hanford, which produces enough power to serve Seattle, and three regional coal plants arrived at the same time. The outages not only took 4,000 megawatts off the grid but gave sellers in the market reason to boost their asking prices to unheard-of levels.

The Bonneville Power Administration, the federal power marketer that sells all the power produced at the region's federal dams, spent $10 million within 10 minutes of the nuclear plant outage to replace the 1,150 megawatts it was supposed to be producing. It ultimately spent at least $25 million on the market, at one point forking out as much as $10 a kilowatt hour, just to get through the week.

All told, it was a rare and unusual combination of events that put the region on the edge.

"It's an aberration," Saleba said. "We've got Jupiter, Mars and Venus all lined up."

Short term price peaks won't be enough

Bonneville and the planning council, which oversees power planning and fish recovery efforts, have been talking about power shortages for a few years. And to some degree, last week illustrates just how narrow power margins are, they say.

"This is an example of a lack of supply for power," said BPA spokesman Perry Gruber. "If we had more plants online, we wouldn't be having these kinds of prices."

But power plant developers will want more than a two-month hot streak before they start pushing dirt around.

"We look at markets with a long-term perspective," said Roger Garratt, PG&E Corp.'s project manager for another proposed gas-fired power plant in Hermiston.

Though Garratt said recent price spikes have made an impression, plant builders want to see high prices throughout the year, not just in spurts. And with Washington, Idaho and Oregon sporting the cheapest electricity in the nation, there are plenty of more attractive markets for developers. Residential ratepayers in the Northeast, for example, pay more than twice as much for their power as those in the Northwest.

"There are definitely better places to build right now," said Mike Warwick, a Portland-based consultant who advises governments on energy issues for the Battelle Memorial Institute, a nonprofit research corporation.

In fact, the Northwest still is considered downright risky for plant builders, said Jeff King, resource analyst for the planning council.

That's because Northwest market prices are driven by the arbitrary factor of how much water is running through turbines.

"The 800-pound gorilla is the Columbia River system," Warwick said. "If there's a lot of water in the system, that drives prices down."

Still, there has been plenty of developers, including PG&E, willing to announce plans to build new power plants. About 6,000 megawatts of new generation capacity has been announced, Warwick said.

But analysts say that doesn't mean much. Announcements often are designed to either convince banks to finance the projects, appease stockholders or scare other developers out of the market.

"There's a lot of skepticism about whether those will get built," Warwick said. "You always have to look at announcements with a pretty good-sized grain of salt."

The Northwest has almost all the components developers need before they start construction. There is plenty of water the plants need for cooling, the energy market is liquid and there is adequate transmission capacity. But though Warwick agrees with developers who say the price will be right down the road, it isn't now.

"You can't allow a project this important to be influenced by immediate market conditions," said Steve Becker, a spokesman for Avista Utilities, whose sister company is building a new power plant in Rathdrum, Idaho. "You've got to take a long-term view. We believe this is a long-term phenomenon."

Ultimately, the events of the past few months aren't likely to have much of an impact on power plant construction, Saleba said.

"I don't see these prices stimulating any new generation," he said. "It might hasten the stuff that's already on the board."

Related Pages:
Power Switch Flips Priorities in Northwest
Investing in our energy future
Power Shortage Sparks Questions
Puget Sound Region on Brink of Blackouts
BPA puts squeeze on utilities

Chris Mulick
Power Crisis Shorts out Expectations
Tri-City Herald, July 2, 2000

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