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Locke Proposes Tax Breaks as Energy Crisis Deepens by Lynda V. Mapes, staff reporter Seattle Times - January 25, 2001

Gov. Gary Locke announced a sweeping energy policy yesterday intended to soften the blow of a regional energy crisis.

The proposed legislation, backed by Republicans and Democrats, includes more than $7 million in tax breaks to spur use of renewable energy sources and hold down power rates for customers on low or fixed incomes.

But there is only so much the package can do to provide short-term help. Nature will bat last in a regionwide situation that could worsen if more rain and snow don't arrive this winter. And the signs of strain keep piling up:

• Wall Street is getting the jitters. Moody's Investor Service recently put Seattle City Light's bond rating on a watch.

  The utility went about $110 million in the hole at the end of the year; it had to buy more power on the open market because of low water levels in its reservoirs. Rate increases, both enacted since then and proposed, are intended to cover some of those losses, but the utility anticipates borrowing $200 million to $300 million this year.

  The higher its bond rating, the lower the interest rate. In a worst-case scenario a poor bond rating could affect electricity rates.

• Locke issued a stern statement to Wall Street yesterday, urging a cool head and awareness that Washington is not plagued by the same energy woes as California. If investors turn their backs on Washington, it will hamper construction of new power plants and other investments, he said.

  "We don't want our utilities to have guilt by association with California," said David Danner, Locke's top energy adviser.

• Locke is mulling declaration of an energy alert to allow him to short-circuit environmental review on a diesel-generator farm for Tacoma Power. The 30 generators would allow the utility to create enough power to serve 28,000 homes.

  Because of low water levels in reservoirs, Tacoma Power has been forced to buy 30 percent of its power on the market, resulting in a 43 percent temporary surcharge on residential bills.

• The Bonneville Power Administration, which supplies power to 45 percent of the region, has spent $250 million, or more than a quarter of its cash reserves to buy power on the spot market to serve customers. The reason is a squeezed Columbia River hydropower system, whose water supply is only 68 percent of average for this time of year.

• The low-water conditions hand the BPA a tough choice: It could draw down reservoirs now and possibly jeopardize salmon nests and the supply of water needed to flush young fish to sea in the spring. Or it could continue to draw down cash reserves instead, jeopardizing financial stability.

The federal agency has already responded with a proposed rate increase of about 30 percent come October.

Industrial customers, such as aluminum companies, could be facing increases of 40 percent to 60 percent.

Meanwhile, Locke yesterday proposed a range of solutions to the energy crunch.

He wants a stricter energy-efficiency standard for new public facilities built with state taxpayer money. Energy audits in state buildings would also be required.

The governor also is pushing for more diverse energy sources. First, Locke wants to require utilities to draw some of their power from alternative sources, including solar and wind.

He also wants to see a sales-tax exemption for equipment that can provide very small amounts of power from the sun or wind. Currently, only facilities that generate 200 kilowatts or more are exempted from the tax.

To encourage conservation at home, Locke proposes energy-efficient lighting, appliances and other items be exempt from state sales taxes.

Locke also wants a tax exemption for the purchase of pollution-control equipment for older natural-gas power plants. The equipment could help the plants operate longer.

And beginning in July 2004, Locke wants to create a tax incentive to encourage some industrial customers, including aluminum plants, to generate their own electricity. That could take some load off the BPA. The tax break would be tied to maintaining jobs at the plants.

Electricity and natural-gas suppliers would get a tax credit if they gave rate discounts to residents who qualified for energy-bill assistance.

Lawmakers from both sides of the aisle pledged support for much of the package, and they put it on a fast track. Hearings are to begin next week.

Still, Republicans balked at the plan to require utilities to draw from alternative power sources, saying the state shouldn't tell utilities how to run their business.

"We are going to take a close look at that one," said Rep. Larry Crouse, R-Spokane, co-chairman of the House Technology, Telecommunications and Energy Committee.

Crouse also said Republicans want incentives to bring new power generation online quickly. Back again this year is a bill vetoed by Locke last year that would grant a tax exemption for construction of new plants.

A coalition of environmental and citizens groups praised Locke's emphasis on conservation but called for him to go further.

The coalition wants a law requiring utilities to spend at least 3 percent of their revenues on conservation, low-income energy assistance and weatherization.