California’s Electricity Woes Power Up Northwest
As California searched last summer for surplus electricity to keep its air conditioners humming, the Bonneville Power Administration stepped forward to help.
How much did the marketing agency charge for each of the 489,000 megawatt-hours it shipped south, power generated by the massive federal hydropower dams in the Northwest?
If you guessed $22.39, the amount BPA charges public utilities in Seattle, think again. The average price was three times that. And at the height of the power-marketing frenzy, Bonneville got $750 a megawatt-hour, 33 times what public utilities and private firms in the Pacific Northwest were paying.
As power generators throughout the West profited from California’s energy appetite last year, so too did Northwest customers: BPA netted $400 million from sales to the Golden State, which helped hold down rates for private electricity users here who already pay the lowest rates in the nation--half of what Californians pay.
And major aluminum, steel and chemical companies across the region--which not only pay lower rates but also have the right to purchase certain allotments of energy produced by the federal dams--stand to pocket $1.8 billion in the next few months by reselling or exchanging their shares so Bonneville can help California out of its crisis.
How long, Northwestern politicians wonder, can the region hold onto the exclusive benefits of a multibillion-dollar network of 29 federal dams on the Columbia and Snake rivers--legendary edifices such as Bonneville and Grand Coulee?
How long, others ask, should it be able to?
California’s two Democratic senators--Dianne Feinstein and Barbara Boxer--have questioned the fairness of locking in low power rates “for a select group of consumers, to the detriment of tens of millions of others whose taxes also paid for the facilities that generate and manage that power source.”
Said David Luken of the Edison Electrical Institute, a coalition of investor-owned utilities: “It would be as if California took all the revenues from offshore oil and used it to hold down gasoline prices in Los Angeles.”
Critics estimate that BPA routinely sells its power to customers in the Northwest for about $1 billion a year less than it could earn at market rates. Last year, the gap spread to about $3 billion. The BPA is the major reason homeowners in Seattle are paying 5.4 cents a kilowatt-hour for electricity; Southern California Edison customers pay 10.2 cents.
After suspending sales to California late last year because the power the BPA was able to generate in the face of an extreme drought was needed in the Northwest, the agency briefly resumed sending electricity south last month--dispatching between 600 to 1,000 megawatts an hour for about eight days between March 7 and March 21.
Although officials would not disclose the negotiated price, the market rate for power then ranged from $210 to $350 a megawatt-hour.
Despite the windfall sales to California, however, the BPA has its problems. With contracts to deliver much more power than it can generate, BPA has said it would have to institute rate increases totaling $3 billion a year or more unless it can wean substantial blocs of customers off of federal power.
The belt-tightening threatens the region’s aluminum industry and ratepayers in Washington state, Oregon, Montana and Idaho--some of whom already have seen their electric bills rise 50% or more over the last few months.
The looming fiscal emergency is so severe that Oregon Gov. John Kitzhaber recently proposed seeking a temporary reprieve from most of BPA’s annual $732-million debt repayment. That is money to reimburse federal taxpayers, who funded the region’s massive system of concrete and generators.
Most Northwestern political leaders are loath to miss a Treasury payment--as many believe that would leave the agency ripe for plunder.
That is the region’s greatest fear: that California’s hefty congressional delegation will make a grab for the agency’s power.
The debate over who controls BPA--and who benefits from it--promises to emerge as a key question before Congress as the West’s energy woes continue.
Several Northwestern legislators have proposed buying BPA back from the federal government in an attempt to lock in benefits for regional ratepayers. Congressional lawmakers last year countered with a proposal to force Bonneville to sell low-cost power to private utilities in California. Some also proposed auctioning BPA power at market rates--ending the cost-based, regional-preference formula.
BPA contracts with about a dozen users--companies such as Alcoa, Kaiser and Reynolds--that have guaranteed the energy-intensive aluminum industry access to a fifth of Bonneville’s power at rates lower than those paid by other customers have come under particular scrutiny.
The contracts are so lucrative that Kaiser is expected to earn up to $500 million this year by shutting down its factories and remarketing its BPA power allocation.
BPA cites the aluminum industry’s value as a reliable, steady-load buyer--as opposed to residential utilities, whose fluctuating loads are harder to serve.
But Seattle energy analyst Kevin Bell calls the industry contracts “an incredibly bad deal.” Unable to generate enough power to meet its commitments, the BPA has been forced to buy power on the open market at 40 cents a kilowatt-hour, supply it to firms such as Kaiser for 2 cents, and watch Kaiser sell it again for 40 cents.
It is, in fact, only the recently deregulated electricity market that has made BPA power an attractive deal. In the mid-1990s, clients were flocking away from Bonneville to cheaper generators. Aluminum companies at the time agreed to prices that were higher than what was available elsewhere, gambling that the market price would go up.
“If we’re going to talk about why Bonneville has preferential rates in the Northwest, shouldn’t we also talk about why California has preferential rates for federal power in California?” said acting BPA administrator Steve Wright. “Federal policy is, in general, the indigenous electrical power resources in a region are dedicated to the loads in that region. The power from Hoover Dam goes to the people in the Southwest. The Central Valley Project goes to people in Northern California.”
Bonneville for years has enjoyed a mutually beneficial power exchange with California. Although the agency often profits from surplus power sales to California, the majority of the power it has sent south over the years has been either at low, long-term rates to such cities as Burbank, Glendale and Pasadena, or as part of an exchange program in which California returns twice as much as it borrows.
And while Bonneville ratepayers profited from the brief period of sky-high wholesale power rates last summer, its sales represented less than 1% of the California power market and probably had the effect of lowering, not raising, overall market rates, BPA officials said.
Indeed, Bonneville often sold power to California at less than its own cost-based rates during the first two years of deregulation after 1998.
And Northwestern legislators point out that the hydropower dams, for all their advantages, have come at considerable cost to the region: Two wild rivers now are throttled. The price for trying to bring back endangered salmon has reached nearly $4 billion so far, most of it borne by BPA ratepayers.
The question of sharing the hydropower bonanza outside the Northwest never came up until the 1960s--with the construction of two major power arteries linking Bonneville’s transmission grid with California. The 846-mile-long link between Celio, Ore., and Sylmar is the world’s biggest direct current power line.
Before agreeing to the transmission links, Northwestern politicians insisted on a “regional preference” for BPA power, giving the Northwestern states first crack at power generated on the Columbia.
It is no different today.
“Unless we control the destiny of Bonneville, we’re not going to control the Northwest region,” said Oregon state Senate President Gene Derfler, who has proposed a regional takeover of BPA. “California is definitely a threat at this point. They would take our power, all of it, and say, ‘Thank you.’ And what are we going to do about it? They have 52 congressmen; the Northwest states have 15.”
