Federal rule change could endanger region's cheap power


Olympia, WA - 1/7/03 - This is the first installment of a three-part series on the future of the Northwestís struggling economy by the Gannett Co.ís three newspapers in the Northwest: The Olympian and The Bellingham Herald in Washington and the Statesman Journal in Oregon.

•Sunday: The jobless rates in Washington and Oregon have topped the nation for more than a year. If the two states are to take advantage of the nationís economic recovery when it comes, experts say they must be prepared to improve their business climates.

•Monday: Businesses are getting creative as they try to deal with a growing transportation crisis that costs the Puget Sound economy an estimated $1.5 billion a year. Some look to Portland for answers.

•Tuesday: The region faces major obstacles in its economic recovery, including a lack of confidence in its leaders, increasing global competition and, perhaps, the very culture of the Northwest.

The Northwest economy has been fueled for decades by an abundance of low-cost power from the region's hydroelectric dams on the Columbia and Snake rivers.
But some say the competitive energy edge enjoyed in this corner of the country is in peril. The result, some fear, would be to take away one of the region's few advantages in an increasingly competitive economy.

"The bottom-line problem today is higher-cost power in a region that has grown economically on the backs of hydroelectric power," said Steve Reynolds, Puget Sound Energy president and chief executive officer.

"Those hydro-generating abilities are tapped, but we need to continue to have low-cost electric generation capability for the sake of our economy."

Some think two proposals being floated by the Federal Energy Regulatory Commission pose the biggest threat to the region's low-cost power.

One calls on the Western states to form a Regional Transmission Organization to take over control of the existing power grid, a grid now controlled by the Bonneville Power Administration and region utilities.

The second FERC proposal, known as "standard market design," would change how power prices are regulated, leading utilities to purchase access to the transmission grid on the open market.

Each federal initiative has generated a firestorm of opposition from the region's utility officials, consumer groups and political leaders.

They contend FERC is rushing into uncharted waters, ignoring some of the lessons learned from the failed energy deregulation schemes in California and other states.

"Electricity is fundamental to our region's economy," said Steve Loveland, manager of the Springfield Utility Board in Oregon. "Our citizens can't afford any more rate increases or changes that result in disruption or failure of service."

In defense, FERC officials said their proposals will replace a patchwork of transmission systems, stimulate investment in transmission lines and new power plants, and give customers more options.

"Our goal is to promote economic efficiency in electricity for the benefit of all Americans," said FERC Chairman Pat Wood III.

But here in the Northwest, many think the transmission system isn't broken and doesn't need fixing.

"In Washington, we have a healthy bilateral energy market in which utilities and generators arrange their own power contracts," Gov. Gary Locke said. "There is no need for a central market that can be manipulated by unscrupulous power traders."

The FERC proposals are receiving bipartisan opposition in Western and Southern states where federal power market suppliers -- BPA and the Tennessee Valley Authority -- already are in place. Most of the support comes from the Northeast and Midwest, where transmission lines are congested and access is restricted.

Some 24 members of Congress from Western states signed a Sept. 12 letter to Energy Secretary Spencer Abraham, suggesting the FERC rules would raise electric rates, harm customers and increase opportunities for price gouging.

At this point, it's still not clear if the mounting political opposition to standard market design is enough to derail it.

"It will be decided by the courts, if FERC pushes it," Danner said.

Each side on the issue has dueling reports on whether it would benefit or harm consumers.

A study FERC commissioned earlier this year estimated potential annual savings of $358 million to consumers and businesses in the West, if an RTO West is formed.

A group of public utilities and industries in the region did its own analysis in April, concluding a new regional board overseeing transmission could cost consumers in the West $500 million a year.

Olympian business editor Chris Clough contributed to this report.


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