Spike in Power Rates Threatens Western Businesses With Electrocution
From the copper mines of Butte, Mont., to aluminum plants near Portland, Ore., companies across the West are laying off workers because of skyrocketing electricity costs.
Rising gasoline prices are tame compared with electricity rates, which have climbed to more than 40 times normal levels in the last few weeks.
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 so far this month.
Could the power rates be electrocuting the economy?
Not yet, because job losses appear to number no more than a few thousand. And consumers aren’t likely to feel the pinch anytime soon, since most of them purchase power under fixed contracts.
“My guess is residential consumers will not see much impact unless their utility must buy power quickly on the open market,” said John Harrison of the Northwest Power Planning Council in Portland, Ore.
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, last month warned that a looming power shortage could cripple the San Jose area’s economy.
Rising computer use is a major reason electricity demand is growing by about 2% a year, without comparable increases in power generation, officials said.
“The high-tech industry is consuming more and more power,” said group spokeswoman Michelle Montague-Bruno. “We need reliable supplies here.”
So far, layoffs in the West are concentrated in old-fashioned heavy industries that use a lot of power. For instance:
* Kaiser Aluminum Corp. in mid-June announced it would lay off 400 workers at plants in Tacoma and Spokane. “Market prices for power are at levels never before experienced in this region,” company president Raymond Milchovich said.
* Montana Resources Inc. shut down its copper concentrator in Butte on July 1 because it cannot afford the current electricity price, and planned to close its copper mine soon, said Ron MacDonald, a lawyer for the company. Montana Resources employs 350 workers. It faced an increase from about $35 per megawatt to $625.
“It’s impossible for us to run a business with those kinds of losses on a monthly basis,” MacDonald said.
As a result, U.S. Sen. Max Baucus (D-Mont.) asked the Justice and Energy departments to investigate the price jumps.
* Vanalco Inc. announced it was shutting down most of its aluminum smelter in Vancouver, Wash., and laying off 450 workers.
* Georgia-Pacific West Inc. of Bellingham, Wash., recently shut down its operations for two days, idling 600 workers, because of power costs. Bellingham Cold Storage, a seafood processor, sharply cut operations and laid off 270 workers. U.S. Sen. Slade Gorton (R-Wash.) has blamed the California Power Exchange, which buys about 75% of the power delivered to that state, for some of the rising prices.
* Rising electricity prices were one of several factors cited by Alcoa Inc. in closing its Troutdale Reduction Plant in Oregon, which will cost 525 workers their jobs by Oct. 1.
There’s no single cause for the electricity 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.
Also, the unplanned outages of major power plants in Washington, Wyoming and Montana knocked out enough power recently to supply three cities the size of Seattle.
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.
That’s essentially what happened to Spokane-based Avista Corp., prompting the utility to announce it had lost $90 million in the second quarter and could lose $50 million the rest of the fiscal year. Much of that is due to rising power prices.
Gruber also noted that companies with long-term electricity contracts are not suffering from rising prices. Only those that buy from the spot market are paying top rates. And those same companies benefited from extremely low electricity rates earlier, Gruber said.
The planning council contends that 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.
As a result, the council is predicting a 24% chance that the power supply will be inadequate to meet future needs in the Northwest during winters.
The last 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.
“This is the state of the power system throughout the West Coast,” Johansen said. “Power supplies are having difficulty keeping up with demand, and our transmission systems are stressed out.”
