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Low Snowpack, High Rates Could Spell Trouble for Utilities by Steve Ernst Puget Sound Business Journal, January 6, 2003

The bottom lines of many Northwest utilities may be in for another bruising year in 2003.

Another El Niņo is brewing in the southern Pacific Ocean that could bring droughtlike conditions to the Northwest and may limit water flows on the Columbia River.

A below-average water year on the Columbia would be bad news for both the Bonneville Power Administration and a legion of Northwest utilities that count on hydroelectricity to meet their generation requirements and provide a healthy revenue stream.

Water passing through the BPA's 29 federal dams generates the bulk of electricity consumed in the Northwest. But perhaps more importantly, surplus power from BPA's dams is sold by the agency and other utilities on the wholesale market to generate much-needed revenue. The BPA and most of the region's utilities could use extra revenue to pay down debt accumulated during the energy crisis.

"This is really shaping up to be an abysmal water year," said Gary Zarker, superintendent of Seattle City Light. "It appears it's going to be pretty tough next summer to manage the hydro-system and still meet water levels for fish, while maximizing revenues," he said.

A dry autumn and low snowpack in the mountains are not what the BPA needs, either. The federal power marketing agency is looking to fill a $1.2 billion budget shortfall, and low runoff in the spring and summer may limit the amount of power it can sell.

The BPA shortfall will hang over all Northwest utilities this year. The agency is threatening to raise the rates it charges utilities and to cut spending on conservation and investments in renewable energy programs.

The good news for 2003 is that power supplies in the Northwest should remain healthy, according to the Portland-based Northwest Power Planning Council.

The probability of electricity shortages in 2003 is no greater than 4 percent, below the 5 percent standard accepted by the utility industry, the council reports.

But that could change next winter.

The probability of shortages during the winter of 2003-04 increases to 7 percent, according to the council's analysis. And it rises to 15 percent for the winter of 2004-05.

The reason for the potential shortage is that both development of new power plants and energy conservation are lagging behind the growing demand for electricity.

"We could be headed right back into the problems we faced in 2000," said Tom Karier, chairman of the power committee at the Northwest Power Planning Council, in a prepared statement.

Meanwhile, a debt crisis is looming for many national energy companies that may help slow construction of power plants in the Northwest.

The industry has an estimated $25 billion of debt coming due in 2003. Most Northwest utilities won't be affected by this cash call, but 40 percent of utility holding companies and half of merchant power generators in the country may have their credit ratings downgraded, according to Fitch Inc., a New York-based credit rating service.

The cash crunch may affect power plant construction in the region, if large energy companies are unable to secure financing for plants, and could create a even greater chance of electricity shortages in the future.

The Federal Energy Regulatory Commission is also expected to remain in the headlines in 2003.

The commission will be trying to figure out what went wrong in California's botched attempt at deregulation, while simultaneously pushing plans to create a national, wholesale electricity market.

"It's just amazing that there is still a force alive that will be continuing to push deregulation," said Steve Klein, superintendent of Tacoma Power. "I think you'll see more indictments and plea bargains associated with market manipulation and price fixing," he said. "But I think that they will all be for a visual effect. I see a withering of the political will to actually require or force these entities that did wrong to actually pay back the parties that were affected."