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Home / Washington Business - April 2006 / Chair's Corner: Washington Set Up for Another Perfect Electrical Storm |
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Chair's Corner: Washington Set Up for Another Perfect Electrical Storm |
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Written On: April 2006 |
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Written By: by Creigh H. Agnew - Chair, Board of Directors |
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In 2000, the West Coast faced an unprecedented energy crisis. Many of us turned down our heaters, switched to energy-conserving lighting, and found other ways to reduce energy consumption. Manufacturers, like Weyerhaeuser, installed diesel generators and aggressively pursued any conservation measure likely to reduce the energy drain. Many manufacturers curtailed operations and some companies closed permanently.
Energy experts now see that the 2000 crisis came from "a perfect storm" that arose from the failed electric restructuring in California, market manipulation by a few, and reduced hydropower capacity caused by drought conditions. Energy costs skyrocketed, flailing the bottom lines of businesses. The crisis and resulting rate shock caused more than 5,000 people to lose their jobs, mostly in heritage industries like pulp, paper and aluminum manufacturing. The facilities that closed will likely not restart, and the pre-2000 power rates that helped us operate competitive businesses may never return.
Weyerhaeuser constantly looks for ways to control energy costs in its Washington facilities. We burn sawmill and pulping residuals in our boilers to produce heat and power. We’ve also become aggressive energy conservers. Our newsprint manufacturing facility in Longview has reduced its energy usage by more than 30 percent. But power costs to operate this facility have increased by 560 percent since it was built in 1979 and product prices haven't kept pace. We aren't alone. The current regional energy policy, practices and rate pricing cannot be sustained by Washington’s manufacturing sector.
Unfortunately, more energy storms are on the horizon.
• Hydropower capacity remains constrained by litigation and fish-mitigation requirements.
• High natural gas prices have led to the cancellation of planned, new-generation facilities.
• The federal Office of Management and Budget is proposing that the Bonneville Power Administration pre-pay on its federal treasury debt by $924 million over 10 years — at the expense of the Northwest ratepayers.
• Washington voters will likely be asked in November to vote on an initiative that mandates what type, how much and at what price some Washington utilities must acquire and use resources for energy generation.
Business and political leaders can influence some of these threats. BPA is proposing a 12 percent rate increase in 2007-09 to cover actual cost increases. If the OMB pre-payment proposal is implemented, it would represent an additional rate increase of 10 percent for a total increase of 22 percent for Northwest ratepayers. Washington’s competitive position would be seriously threatened by this proposal. Businesses elsewhere would then be able to add low energy costs to their other current advantages of low costs for labor and taxes. The business community needs to engage our Congressional delegation, the governor, OMB and BPA, and educate them about the serious effects of these threats and gain their support to avert them.
It is also critical to become familiar with the cost implications of Initiative 937, the Renewable Energy Mandate which — if it qualifies for the November ballot — does the following:
• Requires utilities to provide 15 percent of their power from specific renewable energy sources by 2020.
• Narrowly defines the renewable resources that comply with the mandate.
• Does not credit large-scale hydropower as a qualified renewable resource and purposely excludes many forms of biomass, including by-products of forest products manufacturing, as renewable resources.
• Only affects utilities serving more than 25,000 customers, an unfair competitive constraint.
Consumers would be unprotected from utilities that are allowed to pass on all costs associated with acquiring the mandated resources. The only limitation is an annual spending requirement of 4 percent of total retail revenues for purchasing eligible renewable resources.
The Legislature has previously rejected renewable mandates because of potential damage to the manufacturing sector. While other states enacted renewable mandates, they included one significant feature that differs from the proposal facing Washington voters — every other state includes hydropower as an eligible renewable resource. To comply, Washington state utilities may be forced to buy high-cost renewable resources for local consumption, and sell our low-cost hydropower to California to finance those purchases.
It is vital that we get involved in the federal and state processes that will determine the outcome of this impending perfect storm.
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