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Thinking twice about deregulation Mail Tribune / Bob Pennell Ron Howard explains how water from Lost Creek Lake flows through the large pipe in the background to drive Lost Creek Dam�s electricity-generating turbines. The hydroelectric dam�s two power plants generate 49 megawatts � enough to power 49,000 homes. The dam�s power is sold to Bonneville Power Administration, which in turn sells it to customers throughout the Pacific Northwest. Opening up Oregon�s electricity market to competition has been touted for years as a boon for consumers rich and poor. Then, just months before the plan�s kickoff date, California�s deregulated system ran out of juice. Now some Oregon lawmakers want to delay the process � or pull the plug. By Dani Dodge When Oregon legislators headed down the path to energy deregulation two years ago, they envisioned continued low rates and new choices for customers. They vowed weatherization programs for the poor. They expected the Northwest�s abundant power supply to keep the lights on. But blackouts in California bruised their bravado. "California has made the market worse and given everything labeled deregulation a bad name," said Ron Eachus, the chairman of the Oregon Public Utility Commission. "And it�s made a lot of people very nervous." Some are so concerned that they want to pull the plug on deregulation, among them Ashland�s Republican Sen. Lenn Hannon, co-chairman of the powerful Ways and Means Committee. Bills to delay and repeal deregulation are written and ready to go to committee. Other legislation � including a bill Sen. Jason Atkinson is shepherding to committee this week � attack the supply shortage without derailing deregulation. "This train�s already on the tracks," said Atkinson, a Jacksonville Republican. "They might as well get on board." Eachus and other supporters of deregulation insist that Oregon�s law � SB1149 � is substantially different from California�s. Instead of forcing utilities to sell off their generation resources as deregulation required in California, Oregon utilities can keep their power plants. Instead of throwing residential customers to the mercy of the markets, Oregonians can opt for a regulated electricity rate. Eachus sternly rebukes those who would even dare call it "deregulation." "It�s �restructuring,� " he says with exasperation. Whatever you call it, unless SB1149 is repealed or delayed, it goes into effect Oct. 1. What happens then At that point, residential customers will have the choice of continuing to buy electricity at regulated rates, taking a chance on getting a better deal with a market price, or choosing a "green" option, an electricity package that includes a higher percentage of renewable energy sources like wind and solar. Businesses will be able to make their own deals for energy with anyone who wants to provide it. Also on Oct. 1, rates will go up. But the increase has little to do with deregulation. Instead, the culprit is an unstable electricity wholesale market � the demand for electricity is outstripping supply, and a dry winter has left little snowpack to power hydroelectric power plants. Pacific Power, which supplies electricity to most of the Rogue Valley, estimates its residential customers will see a 14.9 percent increase � in addition to the 3 percent increase residential customers absorbed this week. Even Ashlanders � who won�t be deregulated because the legislation exempts publicly held utilities � will be hit with increases. Ashland�s electricity supplier, Bonneville Power Administration, predicts increases of 50 percent or more. Some don�t see the point of throwing electric deregulation on top of an energy crisis. "To play around with people�s electricity when you don�t know what (deregulation) will do isn�t a good idea," said Rep. Alan Bates, an Eagle Point Democrat who sits on the House committee that considers utility legislation. "If it�s not broken, why fix it?" History of a movement Oregon�s first push toward deregulation came from the federal government in the early 1990s. At the time, most Oregonians were happy with a regulated system. Because of plentiful hydropower and investments in energy efficiency, Oregonians enjoyed the third-lowest electric rates in the nation. But in 1992, Congress passed the Energy Policy Act, which allowed nonutilities for the first time to produce and sell power on a wholesale market. It was the latest step in the movement that deregulated airlines and telephone service. As a result, investor-owned utility companies shied away from building new generation plants because they knew they may not be able to recoup their costs in a deregulated system, said Bob Jenks, executive director since 1993 of the Citizens� Utility Board of Oregon, a consumer group representing residential electric customers. Utilities began relying on the wholesale market to meet the growing demand for power. Now, almost three-quarters of new power plants are being built by independent power producers, Eachus said. By the mid-1990s, large industrial and commercial businesses realized that they could save big bucks by buying directly from these independent producers, as opposed to their utility. They clamored for options. "It was primarily Associated Oregon Industries and large power consumers who pushed it, such as Boise Cascade and the aluminum industry, who buy cheap power," said Hannon. In 1997, a legislative committee was set up to address just one bill: electric deregulation. But what had seemed like a simple process of opening up the market got bogged down when environmentalists and consumer advocates weighed in. "There was an expectation going in it was full-scale California-style deregulation," Jenks said. "We said under no conditions will we consider putting that system on small customers." Negotiations were long and hard, and before a consensus was reached that gave some protection to residential customers, the session was over. Legislators never even voted on a proposal. PGE gets involved In 1998, Portland General Electric proposed its own deregulation plan to the Public Utility Commission. The commission rejected the plan, saying the Legislature needed to make that policy call. By the time legislators met again in 1999, deregulation was a foregone conclusion. A coalition that included legislators, utility representatives, industry and consumer groups and environmentalists began meeting. The Citizens� Utility Board proposed the framework for SB1149, calling it the Fair and Clean Energy Plan. "In essence, (residential and small commercial) customers get the same deal they get today, plus some additional options," said Jenks. For the most part, there was little dissent. Deregulation supporters saw it as a step toward a free market. Environmentalists were placated with the deal�s "green" options and more investment in renewable energy. Money was mandated to go to low-income groups. Public power utilities, such as Ashland�s, were among the few voices in opposition. They were concerned if they began losing their big customers to a free market, their systems could collapse. Legislators tried to calm their concerns by exempting them from the regulations. "The political reality was you had to exempt the (public power utilities)," Eachus said. "But they only represent 30 percent of the load." Deregulation passed the Republican-controlled Legislature in a 55-34 vote. Among the dissenters were 14 Republicans, including Hannon, Rep. Rob Patridge from Medford and Rep. Carl Wilson from Grants Pass. Democratic Rep. Judy Uherbelau of Ashland also voted against SB1149. California�s influence By the time the Legislature met again in 2001, the climate had changed. Daily headlines detailed the abject failure of a deregulation system in California that was bankrupting utilities, sending rates through the roof, and leaving customers literally in the dark. Worse yet, the California energy crisis was sucking power out of Oregon and the Northwest, setting up the rest of the region for trouble. Those who opposed deregulation in 1999 are even more dead-set against it now. "Can we still pull the plug? Yes," said Hannon. "Should we? Absolutely." Hannon expressed concerns that deregulation will fuel the power shortage, causing rolling blackouts that are much more likely to hit areas like Southern Oregon than urban areas like Salem and Portland. "I�m the first to say government regulation needs to be reduced," Hannon said. "But there are some places that government needs to be involved � including electricity and transportation." The business community also has expressed concern. Buzz Thielemann, a 27-year veteran of Pacific Power who is now an energy consultant, said medium-sized businesses will be hurt most by deregulation. They don�t have the clout to swing good deals with independent power producers, and yet don�t have the protection of a PUC-regulated rate. "One of the arguments is residential won�t get hurt because they can stay on the tariff," Thielemann said. "But that doesn�t help if the person is laid off." As the wholesale power market spiraled out of control, the anti-deregulation argument was amplified. Rep. Bob Jenson, a Pendleton Independent and a retired community college teacher, wrote a bill to delay deregulation by two years. "If California had happened two years ago, there�s no chance deregulation would have passed in this body," Jenson reasons. "The argument of being cautious makes pretty good common sense to this country boy." Anti-deregulation bills Cottage Grove Democrat Tony Corcoran has introduced two bills in the Senate. One repeals SB1149 outright, and the other repeals all but the portion of the bill that funds public projects and renewable energy development. He said deregulation will mean higher costs for rural customers because they will have to pay for their more expensive transmission lines. "I�m looking at this from a rural consumer view. There�s nothing in this for rural consumers," he said. "This is about the Association of Oregon Industries wanting to position themselves as wholesale marketers and doing it for the benefit of just a few of their members." But derailing SB1149 is unlikely. It�s not even certain the anti-deregulation bills will get a hearing. Current Senate President Gene Derfler, R-Salem, is known as the "father of deregulation." As Senate president, he assigns bills to committees. Legislative insiders say he�s unlikely to assign any anti-SB1149 bill to a committee where it has a chance for success. On the House side, all energy bills are going through the Smart Growth and Commerce Committee before they can get to the House floor. The committee�s chairman, Portland Republican Bill Witt, is a big supporter of deregulation and actually shepherded the bill through the House. The committee chairman decides which bills get heard, and which never see the light of day. And when it comes to delaying or repealing SB1149, Witt says: "Likely, I wouldn�t even hear it." "It�s a big mistake to delay it," Witt said. "There are other state groups that are looking to the Oregon model as the way to do this." "Huge second thoughts" Supporters insist that slowing or halting deregulation would actually worsen the energy crisis. Without the promise of an open market, independent power producers are less likely to build new power plants in Oregon, they say. And without additional generation, the lack of energy will continue to drive up costs and diminish supply. But Corcoran insists that people � even Republican leaders � are having "huge second thoughts." If anti-deregulation bills don�t get a hearing, Republican leaders may face the wrath of panicked constituents. "If it didn�t get a hearing, there would be public outrage," Corcoran said. Deregulation supporters are targeting their legislative efforts on dealing with the energy shortage � which would be the true cause of any crisis in the state, they say. Atkinson, the Senate�s majority whip, said he�s pushing through legislation to bring power sources on line faster. "If we can vote on them within the next 10 days, we can have some of the stuff into the Northwest power grid by June," he said. "I�ve been asked to drop everything and baby-sit this bill." One bill would add 1,000 megawatts of new power by winter through a combination of means, including conservation and the use of temporary generators. It also would require PGE and Pacific Power to give a "safe-harbor" rate to business customers. The rate would closely resemble the price a business would have paid without electricity deregulation. "If we manage this right, we will be the regional leader in power production," Atkinson said. "But more important than that, Oregon will save the day for the market." Klamath Falls� experience If a Klamath Falls pilot project is any indication, electricity customers won�t necessarily make big changes after Oct. 1. In 1998, Pacific Power allowed residential and small-commercial customers in Klamath Falls to choose from a portfolio of options similar to the one that will be offered statewide come October. In the first six months of the pilot, 1,800 of 30,000 eligible customers signed up for a new option. The rest stayed with a PUC-regulated rate. The largest percentage of those who chose a new option � 80 percent � gambled on a market-rate program. But after those free-marketers ended up paying more for electricity than they would have under PUC rates, about half dropped out of the program. About 270 people paid 10 percent extra to buy "green" power. "What we learned out of the program is most of (those who chose a new option) were interested in playing the market to reduce their bills," said Monte Mendenhall, the regional community manager for Pacific Power. The shortage is the issue The unusual alliance of power producers, the PUC chairman and the Citizens� Utility Board director all agree that the power shortage � not the power legislation � will be the critical issue in the next year. And they insist deregulation will help instead of hurt. "The way we�ve restructured it makes it a good idea to do when you�ve got tight supply," Eachus said. "When you�ve got tight supply � that�s the worst time to be stuck with one option." Jenks said the best thing to do at this point to protect customers from price hikes is to pray for rain. "If there�s suddenly water in the system, the wholesale market will drop like a rock," he said. "It�s at the point now that when I open the paper in the morning, I check the state�s rainfall before I check sports scores." Electric rates may rise further Pacific Power is proposing cost increases to begin Oct. 1. The company expects to ask for the increases whether or not deregulation goes forward. Proposed increases: - Residential � 14.9 percent; - Small commercial � 7 percent; - Large commercial � 14.9 percent; - Irrigation � 14.9 percent; - Large industrial � 4.2 percent. The differences in the increases are partly due to deregulation, because the legislation no longer allows larger customers to subsidize the smaller ones. This is the first step toward a system in which each customer class pays the full cost of service. Pacific Power executives say the need for the increases is driven by rising wholesale electricity prices, distribution cost improvements and inflation. What will happen Oct. 1? - There will be no impact from deregulation for people served by publicly owned utilities like Ashland�s, but it�s a whole different story for the majority of Oregonians served by two investor-owned utilities, Pacific Power and Portland General Electric. For them: - Utility bills will look different. Instead of just listing the month�s usage and cost, the bill will state separately the cost of generation, transmission and distribution of energy. The bills also will show customers the fuel mix and emission impacts of the electricity they are buying. - Their bill will reflect an additional 3 percent charge to fund low-income energy assistance and other public projects such as renewable energy development. - Residential customers will get a portfolio of options that will include a cost-of-service rate option similar to the current PUC-regulated rate, a market-based rate, and a "green" choice that includes a higher percentage of renewable resources. - Small commercial business owners will have options similar to the residential customers, although their rates may be slightly different. The Public Utility Commission is still considering how big a business can be and still be get the regulated rate, although it currently applies only to businesses that use less than 30 kilowatts. Depending on its size and energy usage, a mom-and-pop convenience store could fall on either side of 30 kilowatts. - Larger businesses and industrial customers will be able to shop around for best electricity deals from energy suppliers. They also can take a PUC-approved "standard offer" from their local utility which is based on market rates, combined with lower-priced power from the investor-owned companies. Reach reporter Dani Dodge at 776-4471, or e-mail [email protected] Mail Tribune Home | Ottaway Newspapers, Inc. | Dow Jones & Co., Inc. | Privacy | Contact Us Copyright � 2001 Mail Tribune, Inc.