Governors call for 'energy summit'

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Governors call for 'energy summit' Locke-Kitzhaber request follows order to sell power in California

Monday, December 18, 2000

By SOLVEIG TORVIK SEATTLE POST-INTELLIGENCER STAFF

The governors of Oregon and Washington have invited Energy Secretary Bill Richardson and the chairman of the Federal Energy Regulatory Commission to convene an emergency "energy summit" in the Northwest this week to try to stabilize the wildly fluctuating wholesale market for electricity.

As of yesterday, the summit had not been scheduled, but Richardson has indicated a willingness to attend, according to Bonneville Power Administration spokesman Ed Mosey. It was unclear if FERC Chairman James Hoecker would show up.

Oregon Gov. John Kitzhaber initiated the invitation to Richardson last Thursday -- a day after Richardson ordered Northwest electric utilities to sell power to California to prevent blackouts there. Some Northwest suppliers had refused to do so unless they were paid cash up front by California utilities, several of which are nearly bankrupt in the wake of deregulation of that state's energy market.

Kitzhaber complained in a letter to Richardson that his order was issued "unilaterally and without any consultation with the other Western states -- particularly those that come under the Northwest Power Act."

Richardson's order created a situation that "can only lead to significantly increased cost to retail customers," Kitzhaber warned. Kitzhaber said it may mean the entire West is short of power throughout a cold, dry winter.

"Some of this power was purchased at a very high price on the open market, and these utilities may well suffer a significant financial loss on this transaction, let alone the risk they take of providing power to a system that may not be able to repay them at all," he added.

Southern California Edison and Pacific Gas and Electric have incurred debts of $8 billion during the run-up in California's prices, but they cannot pass the costs on to their customers who are protected by a rate freeze.

Kitzhaber and Washington Gov. Gary Locke want FERC to impose a rate cap on prices in Washington and Oregon similar to the one FERC enacted last Friday for California. It's a "soft" cap of $150 per megawatt hour, which means sellers who can justify higher prices may be permitted to charge more.

Without a similar cap here, prices are likely to remain sky high. A megawatt hour that once sold for $35 recently was offered for as much as $5,000.

However, the soft $150 cap was poorly received in California by Gov. Grey Davis, consumer advocates and other critics who called it too timid a remedy for a crisis of the magnitude California is undergoing.

And the chief of the California Independent System Operator, Kellan Fluckinger, cautioned in the Los Angeles Times that "none of the changes today create any megawatts."

Price caps alone are not the answer to a crisis rooted in a structural flaw in the deregulatory mechanism in California, Kitzhaber told Richardson.

The Oregon governor called for a regionwide, integrated strategy to be worked out at the summit to resolve the crisis that California's failed experiment with electrical deregulation has created for the entire West. California must buy one-fourth of its electricity outside the state.

By capping rates at $150 per megawatt hour, "FERC unwound deregulation in the state of California," Mosey said.

The utilities now can use their own resources and not have to sell them into a pool. And they can sign fixed, long-term contracts, which should have the effect of bringing prices down in California, Mosey said.

Mosey said that FERC's action in California "should drive prices down" in the Northwest. But he added a caveat: Sellers who have a choice of selling in California where the prices can go as high as $150 per megawatt hour may not choose to sell in the Northwest if prices here are less.

"What the governors are concerned about and what we're concerned about is we don't have a cap here in the Northwest, and this is our heavy-use season. What about us? Is that going to leave our prices high? What's to prevent our prices from going above the capped prices?"

"We have to see what effect it has on the market next week," Mosey added."We'll be seeing if they decide to hold us hostage up here."

And the weather's role in all this?

"It's looking a lot better. We're getting a lot of rain," Mosey said. More snow is falling in the headwaters of the Rockies and in the Cascade ranges that feed the vast river system that functions as the lifeblood of the Northwest's economy.

"We're getting more rain. We're hopeful we're going to catch up on what we lost in November," Mosey said.

http://seattlep-i.nwsource.com/local/ener18.shtml

-- Martin Thompson (mthom1927@aol.com), December 18, 2000


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