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Learning
Our Lessons From California
This article, provided by the Oregon Rural Electric Cooperative
Association (ORECA), describes the effects of deregulation of the
electric utility industry.
Since
deregulation, the State of California has made headlines with
power supply shortages and price spikes for electricity. A
megawatt hour that sold for $50 just a few years ago went as high
as $522.55 on the spot wholesale market last summer. In general,
wholesale electricity prices have risen tenfold in the past year.
This cost is being passed on to some California consumers through
higher rates, surcharges and assessment fees on their utility
bills. California’s flawed deregulation plan and the power
supply shortage has, and will continue to, influence the rates of
all utilities in the Pacific Northwest.
What exactly
happened in California? The idea of deregulation is that
wholesalers of energy would compete to supply utilities with
power. This competition, in turn, would bring the price down. In
California, utilities have been forced to compete for power
that’s in scarce supply, driving the cost up as a result.
California deregulated on the assumption that demand for
electricity would be gradual. California overlooked their economic
development efforts and the resulting high tech boom. Demand for
power tripled in a much shorter time than anticipated, and supply
was not available. Secretary of Energy Bill Richardson stepped in
and mandated that the Bonneville Power Administration (BPA) sell
power to California. This action, coupled with other significant
factors is having a devastating affect on the price of BPA
power–the primary power supplier for Oregon’s co-ops.
The Western
Governors’ Association believes that California isn’t alone in
dealing with energy supply and pricing issues. Indeed, the
governors held an emergency meeting on December 20th in Denver,
Colorado to address these same concerns. As a result of that
meeting, the governors have asked the Federal Energy Regulatory
Commission to investigate what happened to cause such shortages
and price spikes. The governors are developing an immediate action
plan to increase the supply and availability of electricity. In
the interim, they have developed an aggressive conservation
strategy and are asking all western state governments to take part
starting January 1, 2001. You will be hearing much more from
Oregon’s Governor Kitzhaber in the coming months about
electricity issues.
Oregon
consumers have one simple question on their mind: "How do we
prevent this from happening here?" We may not be able to.
However, for the customers of Oregon’s electric cooperatives,
they do know that their locally controlled co-op will make
decisions about power supply and delivery that are in the best
interests of their customers. For these customers, the answer is
simple–protect local control.
Past articles
have touched on the importance of local control. Local control
means that you, as a member of a consumer-owned utility, have the
right to elect a board of directors from your community to set
rates, policies and procedures for your co-op. In contrast,
private power companies are regulated at the state level by the
Public Utility Commission (PUC).
In the wake of
what’s happened in California, local control is more important
than ever to the future of Oregon co-ops. All decisions about your
co-op are made by people who actually live in your community. Your
neighbors make the decisions–not a PUC Commissioner or a
bureaucrat in Washington, D.C.
Second, local
control means controlled operation and maintenance costs. If we
lose local control, we have no say in added regulation mandated by
the PUC or other outsiders. More regulation means added costs paid
by you through your co-op.
Finally, local
control means full disclosure to you, the consumer. In California,
no one seemed to know what was going on until it was too late. The
end result is going to be that consumers will pay more to bail out
companies, a government and a regulatory commission that made bad
decisions. As a co-op member, you have the right to participate in
the decision-making process by attending co-op board meetings and
annual meetings, or contacting a director or the Salem Electric
office .
With the start
of the Oregon State Legislative Session, we need to make sure our
legislators understand how important local control is to the
continued success of Oregon co-ops. Local control may be up for
discussion by policy makers and industry experts alike. We need to
ask our legislators to protect local control for co-ops whenever
the topic arises. Check the ORECA website at www.oreca.org for
updated information on electricity restructuring discussions
throughout the 2001 Legislative Session.
Over the past
two years, Oregon’s consumer-owned utilities have organized a
grass roots network called Power of Community. Our grass roots
movement was designed to build a coalition of support to maintain
local control of Oregon’s co-ops by their locally-elected
governing boards.
More than
5,000 of you have signed up to participate in the program. First
and foremost, we thank you for your support! Now, we are asking
you to contact your legislators with a positive message about
local control.
If you are a
Power of Community member, you should receive a letter from ORECA
sometime this month. We need you to contact your state legislators
about the importance of local control. Please plan to participate
in this exercise and contact your elected representatives. It only
takes a few minutes to do so; and the results of your effort could
ensure that local control is around for years to come.
If you are not
a Power of Community member, please take a minute to fill out the
form below and mail it to the address provided. Or, you may sign
up on-line by visiting our website at www.oreca.org and clicking
on the Power of Community icon.
If states
continue to deregulate and the electric utility industry changes,
we will see some backlash from the power supply markets in price
and availability. However, if we protect local control, your co-op
will do everything possible to minimize the effects of these
changes on you–the customer.
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February 2001
California’s failed experiment with electricity
deregulation has received tremendous media coverage throughout the
country. Many of our members are concerned about the effects
California’s problems will have on Salem Electric’s rates for
electricity. Salem Electric’s rates will be increasing, and the
increase will probably be substantial. While California’s mistakes
will make a healthy contribution to that increase, their problems are
not the only ones causing rates in the Northwest to go up.
California’s
mistakes, resulting in enormous increases in the market rates, affect
the Northwest because we buy from the same market. Although Salem
Electric buys all of its power from the Bonneville Power
Administration—BPA often has to augment its resources with power from
the market. This winter they have been paying prices far above historic
market prices upon which they have based their cost projections.
There are other
issues causing increases in BPA’s operating costs and therefore,
increases in the price they will charge us for power. Electricity
deregulation gained momentum in the Northwest during a brief period when
market rates were lower than the cost-based rates charged by BPA. During
that time some of BPA’s full-requirements customers removed up to 30%
of their load from BPA so that they could purchase power from the
market. While some savings were achieved early on, the market soon
returned to normal with BPA’s cost-based rates again below market
rates. All of BPA’s utility contracts expire this fall. Virtually all
of those who took part of their load away are opting to put it back on
BPA and power must be found to meet those returning loads.
BPA projected, in
December, that runoff would be 75 percent of normal this winter. The
actual number, through mid January, has been 68 percent. Less water
behind the dams means more purchases of power from the market and a
substantial increase in BPA’s cost.
What does this mean
for Salem Electric’s ratepayers? We don’t know yet. A few months ago
BPA projected a minimal increase for this fall. Since that time their
estimates have increased dramatically. An increase of 50% or more in
BPA’s wholesale rates is not out of the question. That would mean an
approximate 25% or greater increase in the rates Salem Electric charges
its members. This number is subject to change on an almost
minute-by-minute basis. If the remaining winter weather gets and stays
wet — it could go down. If it remains dry, it could go up. The same
goes for deregulation related issues. Continuing problems in California
could further affect our rates.
We will keep you
updated as the year progresses. Soon our website will include more
current information on this issue. If you have any questions, give us a
call.
Robert J. Speckman
General Manager
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