May 25, 1997 in Nation/World

No Shock: Deregulation Won’t Lower Bill Competition Could Slash Power Rates In Some Areas, But Not In Northwest

Bert Caldwell And Karen Dorn Steele S Staff writer

Your local electric company may not be a monopoly for long, but don’t count on utility competition to lead to big cuts in Washington and Idaho power bills.

Energy deregulation could slash power rates for millions of consumers in high-cost regions like New England and California by next year.

In the Northwest, where electricity rates already are among the lowest in the nation, reductions likely will be more modest.

Potential savings for ratepayers range from nothing, as some deregulation critics claim, to 10 percent, as the president of Washington Water Power Co. in Spokane predicts.

“Northwest customers already have a good deal which others out there are willing to take away,” said Curt Rich of the National Rural Electric Cooperative Association.

Deregulation allows electric companies to compete for customers, much like long-distance telephone companies do now.

Customers would continue to get their power from the same wire they always have. The difference would be who gets paid for the electricity, and how much.

Some large industrial companies, such as Kaiser Aluminum Corp., already shop for power. But deregulation hasn’t reached individual households in Washington and Idaho.

The Northwest economy was built on cheap hydropower. With so much at stake, utility executives, consumer groups and legislators are approaching deregulation cautiously.

“This is a high-stakes proposition,” says Randy Hardy, head of the Bonneville Power Administration.

Ever since the first dams stemmed the waters of the Columbia River and its tributaries, the region’s power system has spun economic gold.

Cheap hydropower attracted aluminum smelters that employ thousands and helped make Boeing Co. an aerospace titan.

Pumps lifted water that turned barren benches and scabland into an agricultural power. And households miles from neighbors were illuminated by kilowatts considered too cheap to meter.

The average cost of a kilowatt-hour in Washington and Idaho is 4.1 cents, lowest in the nation. In Oregon and Montana, the cost is 4.7 cents.

Residents of many other states pay two or three times as much. Fed up with steep bills, those ratepayers are pushing deregulation.

Deregulation already has transformed the trucking industry and telephone service. Airline deregulation spawned low-cost carriers like Southwest Airlines and $89 round trip airfares from Spokane to Seattle.

The natural gas industry was deregulated in the mid-1980s. According to some estimates, consumers paid as much as $50 billion less for gas in 1995 than they would have if prices remained at their 1984 levels.

Economists predict electricity deregulation soon will save $50 billion a year - with the potential to double that in the future.

That’s a lot in an industry with revenue approaching $200 billion.

But deregulation creates losers as well as winners. Just look at communities that lost rail or airline service to the free market.

Customer choice spreads

Congress is considering several bills that would allow customers to buy electricity from any willing seller.

California residents will have that choice Jan. 1. Montana will open the market next year for industry, and for residents in 2002.

Washington and Idaho legislators backed away from similar measures, instead authorizing committees to study the impacts of deregulation.

“It’s the largest issue we’ve faced in maybe the last 10 or 20 years,” said Sen. John Hansen of Idaho Falls.

Hansen said Idaho lawmakers are suspicious of deregulation advocates, many of whom are from areas where electricity is expensive.

“They look at the world much differently than we do,” he said.

They also don’t understand the trade-offs required when water must be managed for agricultural uses as well as hydropower, he said.

“That’s unique to a very few states,” Hansen said.

He pointed to communities that lost airline service after deregulation to see the downside of a free market.

“Competition works great if you have competition,” he said. “We don’t want to be too quick to remove responsible regulation.”

It’s misleading to portray deregulation as a way to save individual customers money, said Rich, of the National Rural Electric Cooperative Association.

“This isn’t about customer choice for mom and pop. It’s really about cheaper sales of industrial power and shifts of low-cost power to high-cost regions,” he said.

“Big industrial customers have already benefited. Their average bill will go down, while the average household bill will go up.”

Nancy Hirsh, of the Northwest Conservation Act Coalition, also worries that individuals won’t see big cost savings.

“I’d never support customer choice for its own sake,” said Hirsh, whose coalition represents 80 consumer, labor, environmental and utility groups. “I don’t think small consumers will see a benefit from making their own selection of power companies.”

But if people can band together to purchase power in groups, residential customers could benefit, she said.

And if deregulation encourages household energy audits and discourages polluting and expensive coal and nuclear plants, customers could win big, she said.

Pete Forsyth, vice president for Kaiser Aluminum Corp., dismisses the worries.

“The notion that the big guys benefit and the small guys don’t, I don’t buy,” he said. “A competitive environment spurs people on to think more creatively.”

The uncertainties of deregulation concern some Washington state legislators.

Spokane Rep. Larry Crouse said hearings in Olympia on deregulation bills convinced him there was too much officials do not know.

“How is it going to affect residential and small business people, considering the fact we are a low-cost region?” he asks. “I don’t mind people benefiting, but not at the expense of others.”

Crouse also wonders what would happen to high-priced generating plants that can’t compete with natural gas-fired turbines.

The region’s only nuclear plant, the massive Washington Public Power Supply System Plant No. 2, is struggling to be cost-competitive with the rest of the market.

If deregulation frees consumers to shop elsewhere, there may be few takers for that high-cost electricity.

Crouse will co-chair a legislative committee that will study deregulation over the next few months. But action could be years away, he said.

“I’m not going to let Congress rush me into making mistakes,” Crouse said.

BPA under pressure

Deregulation threatens the dominance of the Bonneville Power Administration, the agency that markets power from federal dams on the Columbia and Snake rivers. Those dams generate 40 percent of the electricity used in the region.

Some deregulation advocates in Congress want to sell off the BPA, but the Northwest congressional delegation is opposed.

For decades, BPA was the region’s low-cost provider. But debt associated with the collapse of the Washington Public Power Supply System construction program in the 1980s and the costs of preserving salmon runs have pushed rates higher in recent years.

Meanwhile, Congress and the Federal Energy Regulatory Commission have taken the first steps toward breaking down the monopolies that controlled power generation and distribution - including BPA’s.

New power suppliers entered the market, and new regulations opened the transmission system to all comers. Suddenly, there was competition where none had existed.

Aggressive utilities like Washington Water Power Co. picked off some of BPA’s choice customers.

Aluminum smelters, for example, have thrived in the new market.

Forsyth of Kaiser Aluminum said the company purchased power from as many as 10 different suppliers in the past 18 months.

Once an exclusive customer of Bonneville’s, Kaiser now buys more electricity from WWP, he said.

The shift to an open market saves Kaiser about one cent per kilowatthour, Forsyth said. For a company that uses more electricity than the city of Spokane, the savings are $35 million a year.

“A free market works,” he said.

Many public utilities that once depended on BPA also have turned elsewhere for power, at least in part.

The public utility districts of Clark and Snohomish counties buy substantial amounts of power from non-Bonneville suppliers.

Even the tiny municipal utility that serves Cheney began buying 15 percent of its power from WWP six months ago under a five-year contract that Director Tony Richardson says will save residents several hundred thousand dollars.

Utilities move ahead

While Northwest lawmakers debate deregulation, public and private utilities prepare for competition.

As soon as this summer, utilities from Washington to Colorado may agree to put their transmission lines under the control of a single, independent operator.

Dubbed InDeGO, for independent grid operator, the plan would allow members to make the most efficient use possible of the system. Buying and selling power among utilities would be easier. So would sales to utilities in places like California.

One potential problem: Some officials say they don’t have the technology to track the thousands of separate transactions that could occur each day between buyers and sellers a thousand miles apart.

Harvey Spiegel, senior vice president for transmission at Bonneville, said the number of utilities, brokers and other businesses using BPA’s grid has grown sevenfold in just a year. Transactions have quadrupled, taxing the agency’s ability to keep up, he said.

But operators of a similar system in California think they have found the solution in software written by a division of Itron Inc., the Spokane-based maker of automated meter-reading equipment.

Also undetermined is whether, and how, Bonneville can participate in InDeGO. The agency owns 70 percent of the transmission lines in the Northwest, including vital connections to the California market.

Administrator Hardy said he doesn’t know if control of those lines can be surrendered without changes in the laws that created BPA.

Setting rates for users of Bonneville’s lines also raises sensitive issues.

Bonneville must continue to repay its $6.8 billion debt to the U.S. Treasury, as well as service $7.1 billion in WPPSS debt.

The agency has two revenue sources - power sales and charges for use of its grid. If power sales provide less cash, transmission tariffs must provide more.

But Hardy said competitors would oppose rate hikes because they would have to pass those costs on to customers, who may decide to buy from someone else.

There are other pitfalls.

Environmentalists are reluctant to let Bonneville forgo revenues that may be needed for weatherization, salmon restoration and other conservation efforts.

Conservation programs already are declining as utilities squeeze costs to remain competitive. In 1994, the BPA spent $175 million on conservation programs. It’s half that now, and will fall to $30 million by 1999.

A regional task force recommended utilities dedicate 3 percent of revenues to conservation and other public purposes, such as wildlife restoration.

With so many questions unanswered, the region should move carefully toward deregulation, says energy consultant Merrill Schultz.

“We’ll have to reinvent regulation,” said Schultz, whose father was a BPA chief engineer.

Electric power is too important to rush into a massive restructuring of the industry, he said.

“It’s an essential and it probably would behoove us as a society to take as long dismembering this system as it took to build it.”

, DataTimes ILLUSTRATION: Graphic: Electricity payments

MEMO: This sidebar appeared with the story: COMING MONDAY Getting ready: Washington Water Power Co. and other utilities are creating new companies and agreements in anticipation of deregulation.

This sidebar appeared with the story: COMING MONDAY Getting ready: Washington Water Power Co. and other utilities are creating new companies and agreements in anticipation of deregulation.

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