Electricity Prices Plummet in Seattle Area

By Alwyn Scott, The Seattle Times -- June 13

It's summer and electricity is once again dirt-cheap in the Pacific Northwest.

Ironically, that's potentially a big problem for Washington utilities.

With summer runoff from the mountains surging into hydro dams, utilities were able to buy a megawatt-hour of power -- enough to supply hundreds of homes -- for as little as $1 at the first of the month. Power for peak daytime hours was down to $4 a megawatt-hour.

Those are the lowest prices seen in the Northwest since the mid-1990s -- well below the $25 to $35 typical for this time of year, and a tiny fraction of the $300 a megawatt-hour paid during the California energy crisis last year.

Any wholesale power bargains won't get passed on to ratepayers, however. Washington utilities are keeping retail rates high to pay back huge debts taken on during the energy crisis. And some utilities that hoped to sell at high prices and make money now are in the unfortunate position of selling into a depressed market.

The price drop has gotten the attention of bond-rating agencies. City Light took on $600 million in new debt last year after the California crisis struck, and it remains on watch for a credit-rating downgrade on its $1.7 billion in borrowing.

"It is a credit concern," said Kathryn Mock, a bond analyst at Standard & Poor's, who recently reaffirmed City Light's A+ rating. "When a high percentage (above 20 percent) of (City Light's) revenues are coming from wholesale sales, we look at the assumptions behind it."

City Light's current forecast calls for it to earn about $126 million, or 18 percent, of its total revenue from wholesale power sales this year. At recent price levels, those projections are way off. But Carol Everson, finance director at City Light, says she isn't worried about the price decline because it could so easily reverse itself. Prices rallied during the past two days.

"Now is not the time to say we're in deep trouble," she said. "If prices stayed low after the runoff, I would be concerned. But I'm not concerned at the moment."

City Light is planning to sell surplus power for an average of $25.63 a megawatt-hour this year.

Each $1 drop in the power price can cost the utility $4.5 million in revenue, if it is sustained. But City Light already has sold $83 million worth of power this year, two-thirds of its forecast, so it would take a long sustained drop in prices to cause it to fall short.

"It's always better to sell it at $4 than to spill runoff from the dams" without generating electricity, Everson said.

"In spring runoff season, that's the choice you have. That's why it's always better to sell in advance."

Tacoma Power is $700,000 short of what it expected to make in June from selling wholesale power, said George Whitener, the utility's power manager. The wholesale market makes up about 15 percent of Tacoma Power's revenue.

"Our projections of the market were higher than what we're currently seeing," said Whitener, "so it will definitely have an impact on our ability to meet those projections used to set rates."

Snohomish Public Utility District is less vulnerable to low prices. It expects to earn $15.5 million, or 3 percent of total revenue, from wholesale sales this year.

So far, it has banked $10 million of that. But it is still paying an average of $105 a megawatt-hour for multiyear contracts signed during the crisis.

Besides the runoff, which has been 10 to 20 percent greater than normal this year, a couple of other factors are pushing prices down. Fewer Californians were turning on air conditioners last week due to a spell of cooler weather, contributing to a power surplus. Brush fires have interrupted some transmission lines used to carry cheap Northwest power south.

And energy dealers are said to be backing away from complex power trades that stretch across transmission systems because of concern about investigations into power-trading following Enron's collapse.

That has made it harder for Northwest utilities to sell over long distances and has bottled up cheap power in the Northwest.

"Right now traders are pretty wary of doing anything that isn't plain vanilla," said Arthur O'Donnell, editor of California Energy Markets, a San Francisco-based industry newsletter.

Prices have been rising this week, to between $5 and $18 a megawatt-hour, he said, but are still far below normal.

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(c) 2002, The Seattle Times. Distributed by Knight Ridder/Tribune Business News.