Updated: Thursday, July 6, 2000

SHUTDOWNS FORESEEN Power price surge far over the line, major users claim

HELENA (AP)  Some of Montanas largest users of electricity found more questions than answers Wednesday about what some called the extravagant and unprecedented rise in regional power prices. During a meeting at the Capitol with Gov. Marc Racicot and Sen. Max Baucus, D-Mont., industry representatives were mystified about the steep climb in rates and worried about the impacts on their businesses if the trend does not reverse itself.

Since we dont know whats causing prices to be at that level in the first place, we dont know what it will take to bring them down, said Don Quander, a Billings attorney representing the dozen biggest electricity customers in the state.

Business executives hinted of shutdowns and layoffs if the price does not begin to drop sharply.

John Etchart, one of Montanas two members on the Northwest Power Planning Council, said that organization expects a report on the regions soaring price of electricity July 18 when it meets in Spokane, Wash.

Baucus said he wants the issue discussed next week in a meeting among congressional delegations from Montana, Idaho, Oregon and Washington and Judy Johansen, administrator of the Bonneville Power Administration.

Those attending Wednesdays meeting at the Capitol acknowledged that a combination of increased demand because of hot weather and low supply because of drought and power plant problems have contributed to the rising cost of electricity.

But they said those factors do not explain such large increases.

Bob Boschee, manager of the Smurfit-Stone Container paper mill west of Missoula, said he could understand a 50 percent increase, but not the 400 percent and 500 percent jumps in the last few weeks.

With these prices for power, we cannot sustain operations for long, he said.

Electricity that cost $25-$30 per megawatt carries a price of $300 to $400, Boschee said. Those rates cannot be justified by the market and have offset cost-cutting his plant has done over the last 12-18 months to remain competitive, he added.

The plant, which employs 600, has no plans to reduce or shut down operations, but that could change, he said.

Montana Resources Inc., which shut down its copper concentrator in Butte last Saturday because it cannot afford the current electricity price, plans to close the mine at the end of this week, said Ron MacDonald, a lawyer for the company.

The mill faced an increase from about $35 per megawatt to $625.

The business would lose $3.1 million a month if it continued to operate instead of suspending work until cheaper power can be found, MacDonald said.

Its impossible for us to run a business with those kind of losses on a monthly basis, he said.

Ralph Denoski, manager of the Holnam Inc. cement plant at Trident, said he has seen a 125 percent in his power rates and he believes those producing electricity in the region are boosting prices beyond what can be explained by supply and demand.

MacDonald said he sees skullduggery in the big price increases. Boschee said the fact that some large lumber and aluminum plants in the Northwest have shut down because of the high power costs should be resulting in lower prices as demand has fallen.

Racicot acknowledged that some producers may be exercising opportunism but said that is not an unusual business practice.

Jim Stromberg, vice president for power management at the Columbia Falls Aluminum Co., said Northwest electric prices are being driven by a lack of competition in the wholesale market. But, even that would not explain such huge, sustained increases, he said.

None of those at the meeting blamed power rates on Montanas decision to deregulate the electric industry in 1997.

Copyright 2000 Associated Press. All rights reserved

http://www.billingsgazette.com/region/20000706_r1power.html

-- Martin Thompson (mthom1927@aol.com), July 06, 2000

Answers

With all these aluminum and lumber companies shutting down in the Northwest due to the high price of electrical power, you've got to wonder how long it will take before the ripple effect penetrates the entire U.S. economy.

-- Uncle Fred (dogboy45@bigfoot.com), July 06, 2000.

I think that a lot of the price increase can be laid at the foot of deregulation. Once power companies had to fend for themselves in a market economy with a product that cannot be stored, tremendous price increases were not far behind. Any person with even a rudimentary knowledge of how power is generated, distributed and used should have foreseen this. Companies must generate base power and peak power to meet consumer demand. The product (electricity) must be generated as it is required (used) and cannot be stored. The next steps will be either blackouts during peak demand periods because it is uneconomical to generate such power (can't pay stockholders or make profits) or large rate increases to the homeowners.

This is what comes from deregulating a fundamental part of our infrastructure. I hope lots of people kept the generators they bought for Y2K, they just might come in handy.

-- Dave Hall (dhall@enteract.com), July 06, 2000.