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Shedding Light by Jonathan Brinckman and Gail Kinsey Hill The Oregonian, January 28, 2001

There isn't enough electricity to meet the needs of the West.

False.

According to the Western Systems Coordinating Council, which oversees the reliability of the Western electric grid, there is enough electricity to cover demand, but just barely.

The most recent analyses for the Northwest find the region almost perfectly in balance -- which means there's just enough electric power available to meet consumer and business needs, given normal use and normal weather. If anything out of the ordinary happens -- a cold snap or a malfunctioning generator, for example -- the region could slip into shortages and, at worst, calls for rolling blackouts.

Right now, the Northwest's biggest problem is the weather. As the winter progresses, the likelihood of a sudden deep freeze lessens. But a lack of snow and rain could crimp the hydro system's ability to generate electricity at normal and adequate levels.

More than 75 percent of the Northwest's power comes from hydro-powered dams.

On paper, California has enough power to meet it's electricity needs, drawing from in-state generators and imported power from the Northwest. But, all kinds of abnormal conditions have rained down on the region. Many large generators are down for repairs; natural gas, which powers many of the plants, is in short supply; imports are hard to find.

What's more, California has run into problems getting the power to the right spot at the right time. A bottleneck in a high-voltage transmission line that sends electricity from Southern to Northern California has, at times, prevented adequate flows of energy to customers in the San Francisco area.

Deregulation created California's energy crisis.

False.

But, it sure made the situation worse.

California's efforts to open the electricity market to competition proved disastrous, true, but deregulation wasn't the only debilitating factor. A complex set of circumstances contributed to the current mess.

In the last five years, California's population and its business base have grown significantly, but no new electric generating plants have been built to deal with the increasing demand. Uncertainties over deregulation and extensive permitting procedures kept further investments at bay.

Last May, two years after the state's deregulation law went into effect, wholesale prices began their climb. By midsummer, prices were through the roof, supplies tight, energy markets in chaos, and major utilities Pacific Gas & Electric Co. and Southern California Edison careening toward insolvency.

Deregulation did play a role in the utilities' financial problems. By deregulating wholesale prices and capping retail prices, the state set up a system that ultimately forced PG&E and SoCal Edison to sell electricity for less than they paid for it.

Now, just about everyone, from Gov. Gray Davis to utility executives to federal regulators, agrees that California must dismantle deregulation and devise a better, more flexible plan -- one that focuses on conservation in the short-term and generation in the long-term.

If California's economy crashes, the nation's will falter.

Maybe.

California, the nation's most populous state and the world's seventh-largest economy, wields incredible financial clout. Economists, federal monetary officials, business executives, financial analysts and political leaders are monitoring California's predicament, well aware that a fiscal debacle would have widespread repercussions.

Consider the precarious standing of California's largest utilities, Southern California Edison and Pacific Gas & Electric. If the companies go bankrupt, ratepayers, investors and an untold number of entangled parties will feel the hit.

What's more, the nation's economy has slowed considerably, in part because energy problems are bothering everyone. The general weakening could increase the nation's vulnerability to California's travails.

Even so, it is unlikely that California alone would pull the entire nation into recession. In the early 1990s, when California's economy hit the rocks, for example, the nation cruised forward in what was to be -- and remains -- the longest expansion ever.

The West Coast is another matter. Regionally, California knows no match. It's gross state product accounts for almost 13 percent of the national total; Washington's and Oregon's, 2.2 percent and 1.2 percent, respectively. While the Northwest benefited from California's last slump, this time the sweep of the energy crisis brushes all Western states toward a like economic path.

Already, the crisis has taken its economic toll in Oregon and Washington. Aluminum smelters have shut down, wood products companies have cut back and a variety of other manufacturers have retrenched. Retail rates for electricity and natural gas already have jumped, with further increases all but certain.

Still, despite the gloom, the dominant economic buzzword remains "slowdown," not "recession."

With electricity prices so high, power providers are making a killing.

True.

Some are, anyway.

Under deregulation, California utilities sold off much of their generation. Now, caught between the soaring wholesale prices and a cap on customer rates, they clearly count themselves among the losers.

Companies with plenty of electricity to sell are among the big winners. Dynegy Inc., Enron Corp., Duke Energy and Mirant Corp. (formerly Southern Energy Inc.) all have reported stellar earnings recently. The gains were driven, at least in part, by soaring wholesale electricity prices in the West.

Closer to home, Portland General Electric has benefited from sales to California and elsewhere in the West. In its most recent earnings report, PGE reported revenues of $728 million for the three months ending Sept. 30, a 78 percent jump from the like period a year ago. Earnings climbed a healthy 33 percent, to $32 million from $24 million.

The company attributed the revenue surge "largely to a significant increase in the price of energy sold in the wholesale market, caused by increased demand for higher-priced power." Wholesale revenues increased 180 percent -- to $466 million from $166 million -- "as PGE sold on the wholesale market excess power purchases."

Yet, fortunes could quickly change. Some electricity providers complain that sky-high fuel costs, especially natural gas for the gas-fired turbines, are crimping profits. And the volatility of prices makes it increasingly risky to buy and sell energy. Even today's winners can become tomorrow's losers.

The Bonneville Power Administration has sacrificed endangered fish to send power to California.

False.

But check in again this spring.

The BPA, a federal marketer of power generated by Northwest dams, operates under environmental directives designed to protect salmon. Provisions of the Endangered Species Act require the agency to maintain reservoirs and river flows at particular levels at particular times of the year.

The BPA can violate the federal requirements if it declares an emergency and gathers the approval of a variety of interests. It did so Jan. 18, releasing more water from federal dams than normally allowed, generating much-needed electricity and averting a potential shortage.

No fish were harmed, because no fish were migrating. Spawning beds for Columbia River chum, a type of salmon listed as threatened under the Endangered Species Act, lie below Bonneville Dam, but the extra dose of water kept the eggs well-covered and safe.

But, the release drained water from inland reservoirs, including Grand Coulee in Eastern Washington and Dworshak in Idaho. An unusually dry winter already has kept these reservoirs below levels that the National Marine Fisheries Service says are needed to guarantee that spring and summer river flows will be high enough for other endangered species, including spring chinook and steelhead, to make their journey to the ocean.

If, in the next month or so, snow and rain falls in exceptionally ample quantities, the reservoirs will receive the replenishing moisture they need to aid fish migrations. If not, the salmon's chances of survival diminish.

BPA officials maintain that California isn't affecting the equation. In fact, it may be helping. The BPA has shipped critical megawatts to California in recent weeks, but on power exchange bases that requires California to return equal amounts of electricity within 24 hours and another like amount within two weeks.

On Jan. 18, when the BPA violated federal fish protection rules, it was not sending power to California. BPA officials say they will not make that kind of a tradeoff. The extra generation was needed to meet Northwest demand.

These energy problems are unique to the electricity industry.

False.

It's a double-whammy, at least. In addition to electricity, natural gas prices have soared. Some of the reasons are the same: squeezed supplies and transportation bottlenecks.

Though dams are the energy source of choice in the Northwest, many other generators are powered by gas-fired combustion turbines. In California, Stage 3 emergencies -- declared when reserves shrink to dangerously low levels and rolling blackouts become likely -- almost always are accompanied by complaints about exorbitant natural gas prices and inadequate pipeline capacity.

Natural gas and electricity company officials blame each other for driving up prices.

At the consumer level in Oregon, natural gas prices have gone up more than electricity prices, so far. All three of the state's natural gas providers -- Northwest Natural Gas, Cascade Natural Gas and Avista Utilities -- increased rates by 20 percent to 30 percent in October. Avista shoved up rates another 29 percent last week.

Consumers don't like their oil heating bills either. As winter began, heating oil was going for about $1.50 a gallon, up 50 percent from a year earlier.

Aluminum companies are opportunistically closing down smelters and reaping windfall profits by reselling cheap power from the federal Bonneville Power Administration.

True and False.

Aluminum smelters, huge electricity users, have further confused an already perplexing situation. Late last year, smelters in Oregon and Washington began shutting down potlines, explaining that exorbitant electricity prices made profitable production impossible.

More recently, aluminum officials have announced deals with the BPA under which smelters will remain idle until at least Oct. 1 and the unused electricity will be resold. The companies involved in the deals include Kaiser Aluminum in Spokane and Tacoma; Golden Northwest Aluminum in Goldendale, Wash., and The Dalles; and Columbia Falls Aluminum in Montana.

The companies aren't simply pocketing all the cash, however. In reconfigured agreements with the BPA, laid-off workers continue to receive wages and benefits, and companies commit to energy-efficient capital investments. The BPA buys the power back -- for more that the fixed price set in 1995 but for less than the current market -- thereby gathering up critical reserves.

Aluminum companies consume almost 20 percent of the electricity marketed by the BPA. Those 1,800 average megawatts should come in handy in the months ahead.

Oregon and Washington residents are being asked to conserve energy to bail out California.

False.

The governors of Oregon, Washington and Idaho are among the many voices calling for energy conservation, not because California is starved for power, but because the Northwest faces its own electricity crisis.

A recent analysis of the possibility of a winter shortage in Oregon, Washington, Idaho and Montana pegged available generation for January at about 24,000 average megawatts, almost precisely the estimate of what would be needed to keep the lights on. That's a discomforting balance; energy planners want at least a 5 percent reserve margin, or 1,200 average megawatts, to serve as a buffer should emergencies arise.

In short, the region can ill afford a cold snap or a broken-down generator or any unusual event that would send utilities scrambling for emergency power. The BPA shipped power to California in recent weeks but wrangled a deal that required California to return double the amount sent. Some utilities, including Portland General Electric, also have sent power across Oregon's southern border. But only when there was a surplus to sell, PGE officials stress.

The sales by PGE, indeed, carry premium prices, but the extra revenue prevents rates from rising as quickly as they otherwise might, PGE officials point out.