Bush BPA plan could wallop electric rates, CFAC

Hungry Horse News

Politicians, utility managers and industry leaders across the Pacific Northwest were caught flat-footed by a Bush administration proposal that could result in a 30-to-50 percent hike in Bonneville Power Administration wholesale power prices.

But their reaction has been swift and united in opposition to the proposal.

The proposal could mean stiff hikes for residents and could be detrimental to industries like the Columbia Falls Aluminum Co.

The President's 2006 budget, released Feb. 7, calls for bringing BPA's cost-based power prices in line with market prices -a jump that could go from about $31 per megawatt-hour now to as high as $50.

Sen. Conrad Burns called the proposal "a flat-out bad idea."

"This would have a devastating effect on consumers in Montana and the Northwest," Burns said. "Costs are already increasing to manufacturers and the public due to drought, and this plan would make the burden even worse on consumers. I will not let it stand."

Rep. Denny Rehberg quickly sent a letter off to Office of Management and Budget director Joshua Bolten criticizing the proposal.

"The Pacific Northwest has consistently been one of the region's hardest hit by our nation's economic woes of the last several years," Rehberg said.

Rehberg recalled skyrocketing power prices during the 2000-2001 West Coast energy crisis, which began with California's experiment in electrical deregulation but soon spread across the region, shutting down industries, businesses and irrigation pumps.

"That experience gave Northwest consumers a taste of market rates and the havoc those rates could wreak on the Northwest economy," Rehberg said. "The rate increases persist today, and we do not want our constituents exposed to that kind of devastation again."

CFAC weathered the last energy crisis-but the reduction pots lay idle for more than a year, and half the plant's employees were permanently laid off.

"CFAC, like many farms and families, is struggling to make ends meet," said CFAC general manager Steve Knight. "If this proposal had been enacted a few years ago, it would have been extremely difficult for us to hold on through the high-priced power markets that exist today."

CFAC and two Alcoa smelters in Washington are all that remains of 10 Pacific Northwest plants that once produced more than half the aluminum in the U.S. - and all three are operating at reduced capacity.

CFAC currently pays the BPA about $34 per megawatt hour to run one of the company's five potlines. In the past, CFAC officials have said the smelter could not operate profitably if wholesale power prices exceed $30 per megawatt hour.

"The BPA is a quasi-government agency and should not be in the business of making a profit," Knight said. "This money would be leaving the Northwest, and that would be a huge drain to our local economy. We cannot afford to pay California-based electricity prices. Balancing the budget is a good thing, and it should be done without crippling local economies like ours."

Higher power prices would also impact the local timber industry. Dennis Robinson, general manager of Plum Creek's MDF plant in Columbia Falls, said Plum Creek spends about $18 million for electrical power at its manufacturing plants in the Flathead, Mission and Tobacco valleys.

"The last time Flathead Electric Cooperative raised its prices here, our power costs went up 40 percent," said Robinson, who sat on the Co-op's board of trustees several years ago. "Another big increase would significantly affect our ability to compete. The federal dams on the Columbia River were built to encourage business and industry."

Flathead Electric Cooperative general manager Ken Sugden estimates the Bush proposal could cost the Co-op $15 million to $20 million per year above what it's spending now on power purchases.

The Co-op had hoped to transfer about half its load from a fixed-price contract with PacifiCorp to a long-term BPA contract in 2006, saving Co-op members about $12 million per year.

"Instead of members seeing on average an $18 per month drop on their bills, they could see a $24 increase if the Bush proposal goes through," Sugden said.

The Bush budget proposal calls for capping price increases at 20 percent a year at four federal Power Marketing Administrations (PMAs) - the BPA, Georgia-based Southeastern, Oklahoma-based Southwestern and Colorado-based Western. The profit would go to the federal government to compensate taxpayers for years of backing low-interest Treasury loans to the BPA.

"The general taxpayer has helped subsidize the cost of PMA power produced by electricity wholesalers," a Bush administration budget document says. "Reducing subsidies to electricity wholesalers is consistent with the administration's fiscal policies, and this proposal will create a more level playing field for the nation's electricity suppliers and encourage appropriate energy conservation."

Bruce Measure, one of Montana's two representatives on the Northwest Power and Conservation Council, takes issue with the administration's claim that U.S. taxpayers subsidize the BPA.

"Pacific Northwest rate payers have paid for the federal dams over and over again," he said. "The BPA has always made its Treasury payments."

Measure said the Bush proposal came as a "major surprise for everyone in the power industry."

"The only people who may have known about it ahead of time are the energy traders who have been pushing this type of thing for a long time but had backed off following the Enron debacle," he said.

Sugden recalled the last time the White House proposed changes in how the BPA sold power. Just like this time, the idea emerged from the Office of Budget and Management, he said, but the director was John Stockman and Ronald Reagan was president. And just like last time, the proposal didn't make much sense, he said.

"I don't see how this will benefit consumers," Sugden said. "Somehow they believe market-based prices will be below cost."

Rehberg said the Bush proposal could cost the Pacific Northwest economy $480 million in 2006 and $2.5 billion over the next three years. Imposing higher power prices in the Pacific Northwest is unfair, he said.

"It is totally unacceptable to artificially jack up power costs in the Northwest in an effort to reduce the trillion dollar-plus federal deficits," he said. "Power costs in the Northwest did not cause the deficit and should not be used to bail the federal government out."

The likelihood of the Bush proposal making its way through Congress is uncertain. Among the vocal opponents is Sen. Pete Domenici, R-N.M., chairman of the Senate Energy and Natural Resources Committee.

Measure called the administration's plan "more posturing than reality."

"President Bush can't be serious," Measure said. "He would have to undo numerous federal acts that govern how the Power Marketing Administrations operate, and it would double or triple energy costs for rate payers in states that supported him in the last election."