City Light warns of new rate boost amid grim reports on energy crunch Northwest utilities could be stuck if two in California go bankrupt

Friday, January 19, 2001

By KERY MURAKAMI and BILL VIRGIN SEATTLE POST-INTELLIGENCER REPORTERS

Seattle City Light warned customers that their electric rates may go up another 7 percent in October, bringing the total increase this year to 36 percent.

Tacoma Power -- which already has raised rates 50 percent -- warned its customers that it will run out of cash by March or April and may have to borrow $100 million to keep operating.

And yesterday's grim power news may get even grimmer. Industry experts warned that Northwest utilities -- and ratepayers -- could be on the hook for hundreds of millions of dollars of unpaid power purchase bills if two ailing California utilities file for bankruptcy.

Craig Gannett, partner in the Seattle office of Davis Wright Tremaine and former senior counsel to the U.S. Senate Committee on Energy and Natural Resources, said yesterday that Northwest utilities are owed "several hundred million dollars" for power purchases by Southern California Edison and Pacific Gas & Electric, two California utilities teetering on the verge of bankruptcy.

The two California companies owe another $300 million to B.C. Hydro's marketing subsidiary Powerex, said its president and chief executive, Ken Peterson.

Gannett advised those who are creditors of the two utilities to line up legal advice now.

"The two California utilities have killer bankruptcy counsel; they'll eat you alive if you're not ready," he said.

Answered Peterson, "We did that last week."

One of those on the hook to the California companies is the Bonneville Power Administration, which has been involved in swaps in which it gets back two megawatts for every megawatt it sends to California to help that state in peak demand times. Acting Administrator Steve Wright said BPA is supposed to get the first megawatt back within 24 hours of the exchange.

Wright said BPA has been repaid half of the additional power it is owed. "The likelihood is we'll get that (the rest) back," he said.

But Gannett warned that if California doesn't repay its obligations under the exchange agreement, BPA could face difficulties refilling Columbia River reservoirs to meet the twin obligations of generating power and providing sufficient water for salmon migration.

A spokesman for Puget Sound Energy declined to say if the Bellevue-based utility has any exposure to unpaid bills by the California utilities.

Idacorp, parent of Idaho Power, has previously announced its exposure to the California situation is between $30 million and $40 million. Seattle City Light, Tacoma Power and Snohomish Public Utility District said they have little or no unpaid bills owed by the California utilities.

Even without the prospect of bankruptcies in California, BPA is signaling that higher prices lie ahead for the electricity it sells.

Seattle City Light, which already has put a 10 percent rate increase in place, had recommended a 19 percent boost in March. It said yesterday it will ask for another 7 percent increase on top of that in October.

The increase is necessary, city officials said, because BPA has asked for a 30 percent increase in the price it charges City Light for electricity when a new contract goes into effect Oct.1.

An unusually dry winter has reduced the power generated by City Light's hydroelectric dams, forcing the utility to buy more power on the open market.

Seattle City Council members said yesterday they may not spread the rate boost evenly as a way to encourage conservation. Large electricity users may be charged more while those who use little energy could get price breaks.

Those who use huge amounts of electricity would see a 25 percent increase.

People who use an average amount of electricity would see a slightly lower first round of increases. Those who practically live in the dark would save about $14 annually.

"Our goal in the coming months is to conserve 10 percent of our electricity. So we should structure our rates to encourage conservation by our high-end users," said Councilwoman Heidi Wills, chairwoman of the Energy and Environmental Policy Committee.

http://seattlep-i.nwsource.com/local/rate19.shtml

-- Martin Thompson (mthom1927@aol.com), January 19, 2001