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High power rates in West jolting economy
Blame placed on growing demand coupled with low river flows; deregulation; lack of new power facilities
by The Associated Press
Companies across the West are laying off workers because of skyrocketing electricity costs. Rising gasoline prices are tame compared to electricity rates, which climbed to more than 40 times normal levels in the first two weeks of June.
Usually between $20 and $30 per megawatt hour, wholesale prices spiked to more than $1,000 per megawatt hour in late June before settling down a bit in early July.
Job losses so far appear to number no more than a few thousand and consumers aren’t likely to feel the pinch soon, since most of them get power bought under fixed contracts. But for many industrial users, electricity is likely to remain expensive and in limited supply this summer.
The Silicon Valley Manufacturing Group, which represents high-tech companies, warned that a looming power shortage could cripple the San Jose area’s economy.
Rising computer use is a major reason electricity demand is rising by about 2 percent a year, without comparable increases in power generation, officials said.
So far, layoffs in the West are concentrated in old-fashioned heavy industries that use a lot of power.
There’s no single cause for the electricity cost increases.
Reasons include hot weather in California and the Northwest that increased demand, while production at hydroelectric dams is lower than normal because of low river flows.
Deregulation of the electricity market — allowing buyers and sellers to seek the best deal — is also having a big impact, said Larry Cassidy, chairman of the Northwest Power Planning Council.
Perry Gruber of the Bonneville Power Administration, the federal agency that markets much of the Northwest’s electricity, said another cause is electricity futures traders who sold more low-cost power than they could deliver, and now must pay top rates to buy enough power to meet their obligations.
Gruber also noted that companies with long-term electricity contracts are not suffering from rising prices. Only those who buy from the spot market are paying top rates. And those same companies benefited from extremely low electricity rates earlier, Gruber said.
Prospects for more Northwest plants slim The planning council contends the Northwest needs more electrical generating plants, but prospects for building them are slim because deregulation has eliminated guarantees that utilities will be repaid for their investments. No new plants have been built here for a decade and the council is predicting a 24 percent chance that power supply will be inadequate to meet future winter needs in the Northwest.
The past week saw wholesale prices drop below $100 per megawatt hour, in part because cool weather reduced demand, but it is unclear if they will stay there.
“We have made it through the short-term problem,” said Judi Johansen, administrator of the BPA.
But she warned that high prices may become common.
“Power supplies are having difficulty keeping up with demand, and our transmission systems are stressed out,” Johansen said.
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