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No Move Toward Price Caps at Power Summit by Solveig Torvik Seattle Post-Intelligencer - December 21, 2000

But Locke warns 'aggressive action' a possibility

Gov. Gary Locke and Oregon Gov. John Kitzhaber came home from the Western governors' energy summit in Denver yesterday without the short-term, emergency fixed regional price caps they had sought to help contain skyrocketing electricity prices.

But Locke told the Seattle Post-Intelligencer that Federal Energy Regulatory Commission officials who attended the meeting "indicated that if things don't stabilize within a week, they're prepared to take more aggressive action."

Last week FERC imposed a so-called "soft" $150 per megawatt-hour price cap in California, but sellers who can justify it may charge more. Locke and Kitzhaber have said they don't want a soft cap but a fixed one to avoid market prices that have gone as high as $5,000 per megawatt-hour; $35 per megawatt-hour was typical before the market exploded after California's deregulation of its wholesale electricity market.

Locke and Kitzhaber had hoped to persuade the other Western governors to join them in asking FERC to immediately impose a regional fixed cap. Instead, the governors of Colorado, Wyoming and Utah balked, and the governors of Montana and Idaho did not attend.

Some of the governors wanted more information about how the temporary price cap would affect the market and a better understanding of "why the prices are so high and who's profiting from it" before agreeing to a cap, Locke said.

Even so, Kitzhaber told the P-I, "We think we accomplished a great deal. We pushed it up on their radar screen. They're beginning to appreciate that it's a regionwide issue and needs a regionwide response."

"We all know we've got to have more generation of electricity and more emphasis on conservation," Locke said. But he acknowledged that price caps "send the wrong signal to people who want to invest in generating capacity."

Energy Secretary Bill Richardson, who attended the meeting and urged the governors to agree on a regional price cap, extended for one more week his order to Northwest generators to sell electricity to California. Some of them had refused to do so without cash up front before Richardson issued the original order, credited with preventing a blackout in California last week.

Locke said the California officials at the meeting "made the case that they need the power. The real issue is what happens in January and February when we are running short in the region."

"They have to return that power to us within 24 hours at twice the amount," Locke said, but it would be at off-peak times rather than at times of peak demand in the Northwest.

California officials at the meeting "assured us that they will not able to provide any electricity to the Bonneville Power Administration during January and February," Locke said. "That's a particular concern to us."

"California has to get its house in order," he added.

Members of Congress from California have been agitating to force BPA, which is obliged to sell its electricity within the Northwest first, to sell it on equal terms to all Western states.

Because of the Golden State's ongoing shortage, Locke said he fears Californians "may be eyeing BPA more intensely than ever before and hoping to turn it into a Westernwide asset instead of just for the Northwest." He said Northwest officials are working on a strategy for the upcoming session of Congress to stave off yet another attempt to deregionalize the BPA, which for decades has been under semipermanent siege from those outside the Northwest who covet its cheap electricity.

The trouble in the wholesale energy market that is just now being felt in the Northwest began months ago, said Dave Warren, director of energy policy for the state Office of Trade and Economic Development. "In May of this year, things started to go crazy," even though May traditionally is a low demand month for electricity.

One factor was that water behind dams on the Columbia/Snake river system ran out faster than BPA officials anticipated, he said. Another was that a number of generating plants that feed the vast Western regional grid operated by BPA went off line, some for suspicious "'unscheduled" maintenance.

The odd thing about last summer's energy shortage in California is that the demand actually was less than the summer before, he said. Yet in 1999, California did not experience the shortages that occurred in 2000.

California investigators are looking into whether generators took equipment off line to drive up market prices, he said. No wrongdoing has been proven, he added, but "the people who own the generators are showing very fat balance sheets coming out of the summer."

Some critics have suggested that some Washington businesses such as Georgia-Pacific and Bellingham Cold Storage, which had to lay off workers because their electrical bills went off the charts, simply hadn't managed their energy risks well.

But Warren said that although the companies didn't "buy a hedge" against rising energy prices, no one could have foreseen how high the wholesale market would go. "You could not anticipate your risk. These are astronomical," he said. "It's like paying $200 or more for a gallon of gas."

Nor is the energy shortage the state's fault, as some critics have charged, Warren said.

He stressed that the state and local governments have approved permits for generating plants that combined would provide 2,500 to 3,000 megawatts, but the owners of the permits have chosen not to build them.

"It's not that the state is in the way," Warren said.

To cope with high demand and scant supplies, the state is urging utilities to adopt conservation by such tactics as "peak shaving," he said. That's accomplished by having customers defer use of energy-hungry tasks during peak demand hours of 6 a.m. to 9 p.m. and 4 to 8 p.m.

Puget Sound Energy is embarking on a four-month test of peak shaving, PSE spokeswoman Dorothy Bracken said. Consumers will be told that the charge for electrical use in peak hours will be higher than at times of low demand, she said, so they can more closely estimate and control their electrical costs.

"We're wanting to see if consumers will react to price signals," she said.

Warren said the state also is trying to help generators bring wind power on line. "We figure there's about 3,700 megawatts of cost-effective wind energy available in Washington. It's a very cost-effective addition to the portfolio."

Ground will be broken next month on the state's first wind farm, the $300 million Stateline Wind Project, to be built by a subsidiary of Florida Power and Light on Vansyckle Ridge near Walla Walla. A year from now, the 200-megawatt project, operated by FPC Energy LLC, will be providing enough electricity to serve 60,000 homes, according to Robert Kahn, a consultant for the company.

The site was chosen because of its dependable winds, Kahn said. "The other reason it's attractive is it doesn't have a lot of bird habitat. We can interfere with bird life, and it's not a good thing," he said.

"It will be striking testimony to renewable energy," he added. "There will be 450 wind turbines along that ridge."