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Industries Seek Energy Rate Relief by Solveig Torvik Seattle Post-Intelligencer - December 14, 2000

Companies want costs to be 'just and reasonable'

The Boeing Co. and some of the state's other large industrial users of energy today will ask the Washington Utilities and Transportation Commission for emergency relief from the high electrical rates Puget Sound Energy is charging during the region's ongoing energy shortage.

"We have to have immediate relief," said the companies' attorney, Melinda Davison. "We're asking them to impose just and reasonable rates," she said. The companies claim Puget is enjoying windfall profits at their expense.

PSE vice president for external affairs Tim Hogan called the windfall charge "a mischaracterization." He countered that the companies mismanaged their energy risks.

One of Davison's clients paid $60,000 for one day's worth of power Dec. 11, 1999. A year later, that customer faced a projected cost of $6 million for the same amount of power for the same day, she said.

Puget Sound Energy responded with a filing of its own to the WUTC. It asked the commission to determine how the costs the companies are seeking to avoid should be spread among other customers if the industrial users' petition succeeds.

"We do not want to harm any other customers. If Puget can show us that we need to pay some kind of surcharge to keep other customers whole, we're prepared to do that," Davison said.

Hogan said the companies are trying to get out of an agreement that "they demanded be put in place in 1996 that set their electric rates based on the wholesale price of electricity. As a condition of the 1996 agreement, those customers indicated that they never again would come back and ask to share in the benefits of the pool of power resources that PSE was reserving for its other customers. This arrangement saved the industrial customers millions of dollars in energy costs."

The industrial customers' move was "an obvious attempt to make all PSE customers pay for the failure of those customers to properly manage their energy risks," Hogan said. PSE, the state's largest energy utility, supplies more than 1.2 million residential, commercial and industrial customers.

The WUTC complaint, triggered by the unprecedented cost of electricity, comes as U.S. Energy Secretary Bill Richardson, in a separate matter, ordered the Bonneville Power Administration to block Kaiser Aluminum's controversial resale of BPA power from its Mead plant at expected net proceeds of $52 million. Kaiser closed the plant last week because it was more profitable to resell the power than use to produce aluminum.

"I have instructed Bonneville to explore all necessary actions to prevent Kaiser from remarketing this power," Richardson said Tuesday.

BPA spokesman Ed Mosey said his agency is pushing Kaiser to reinvest the profit in the Mead plant and to compensate workers. If that doesn't happen, he added, BPA will penalize Kaiser in the next contract is signs for BPA power, which is to go into effect Oct. 1, 2001.

Kaiser said it is "surprised and disappointed" by Richardson's criticism because the company has contractual right to resell the federally subsidized power at market rates.

Meanwhile, Boeing, Equilon (formerly Texaco), Tesoro (formerly Shell Oil) refineries near Anacortes, C and C Containers of Tumwater and Georgia-Pacific of Bellingham, and Air Products of Puyallup and Air Liquide near Anacortes today will ask Washington state regulators to require Puget to put them on a different pricing schedule that will lower the rates Puget charges them. (Air Products and Air Liquide operate air separation plants that provide industrial gases to refineries and Boeing, oxygen to hospitals and nitrogen to apple farmers.)

Industrial customers who would have paid roughly $42 per megawatt-hour for Puget's power on a fixed-rate schedule for last Tuesday instead faced projected costs of $3,331 per megawatt-hour, Davison said.

WUTC spokeswoman Marily Meehan said the industrial group's complaint alleges that Puget has been buying low and selling high to the large industrial customers, a charge Puget denies.

"Mind you, this whole group came before the commission five years ago asking to go on the spot market because it was lower than the fixed rate Puget was offering. Now that the rates have gone through the roof, they're coming back to ask to be on a fixed schedule," Meehan said.

"This is not a situation of a windfall profit for us. We face the same market these customers face," PSE's Hogan said. He added that only seven of the 20 industrial customers that make up the affected class have joined in the petition for lower rates. The Port of Seattle and King County declined to join.

Tomorrow, the Federal Energy Regulatory Commission will consider a petition filed by Puget last October to put rate-cap protection on the Northwest energy market, Hogan said. The Northwest market is connected to the deregulated, wildly fluctuating California market, he said, so any remedies put in place there also must extend to the Northwest.

The companies want the WUTC to examine the tariff schedule the commission imposed five years ago as the market was moving toward deregulation. The complaint also asks that the commission examine whether the way Puget Sound Energy is applying the tariff is consistent with the commission's intent and state energy policy.

Boeing spokesman Dean Tougas acknowledged that five years ago Boeing and other companies "were looking for open access to the energy market." But since the Legislature had not deregulated the energy market in Washington, the commission lacked authority to do give it to them.

Instead, he said, the commission gave the companies a transitional tariff, dubbed "schedule 48," as a compromise. It was supposed to "approximate the risks and benefits of open access," Tougas said.

"Essentially the customers were expected to share the risk and benefits of the open access that utilities enjoyed," Togas said.

Until the past couple of months, Boeing has been fairly sharing risks and benefits under terms of the schedule 48 contracts, Tougas said. But the circumstance over the past couple of months -- when wholesale prices have skyrocketed on the spot market -- has caused Boeing officials "to wonder whether that's still the case," he said.

"It appears there may be an inequality here," Tougas said. "It may be that Puget Sound Energy is reaping benefits beyond what's just and reasonable."