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Return to Previous PageLeft In The Dark: Deregulation Stripped Incentive For Power Plants

By Russell Sadler
Mail Tribune

The Northwest Power Planning Council estimates there is one chance in four that a dry, cold winter will create a power shortage in the Pacific Northwest during the next four years. Despite years of successful energy conservation in the region, population growth is pushing up demand for electricity. Deregulation has created such uncertainty over the future of the utility industry that no one has any incentive to build the large-scale, base-load power plants that guarantee reliable electricity supplies.

A dry, cold winter that reduces hydroelectricity and increases electricity demand for heating could require the region’s utilities to cut off power to industrial customers and even cut off some residential customers if the shortage is severe enough. The Power Planning Council says the region needs another 3,000 megawatts of generating capacity to return, the industry’sntraditional reliability standards. It would take at least a decade and cost nearly $1 billion to build a 1,000 megawatt generating plant today.

In the bad, old days of utility regulation, utilities had an incentive to build large, central generating plants because regulatory authorities guaranteed a market for the power and a 12 percent return on investment. That kind of return considered chicken feed in today’s inflated stock market where speculators routinely demand returns beyond 25 percent.

Loose the regulatory bonds on utilities, said the think tank economists. Eager entrepreneurs will step into the free market and build power plants to sell electricity to all comers! Competition will lower rates for everyone! Congress passed deregulation legislation, forcing vertically integrated utilities into three separate businesses – wholesale generation,wholesale distribution over long distances and retail distribution to residential, commercial and industrial customers.

A funny thing happened on the way to the free market. No one came but the hustlers. Consumers reacted to the chance to “choose your own utility with a yawn. A few sharp operators bought up aging dams and thermal generating plants to sell electricity to industrial customers by wheeling their power over transmission lines owned by others. Deregulation created a whole layer of middlemen who must be fed by ratepayers.

Legislators in Oregon and Washington refused to buy into this silly congressional scheme because the region already has the lowest electric rates in the country and all studies showed Northwest electric rates would increase under deregulation. In Oregon, the best lobbyists could get was deregulation of the wholesale industrial power business that would bring lower rates to their clients at the expense of higher rates for residential customers.

Traditional utilities are unwilling to build large new power plants because they have no idea how they will pay for them if Congress and state legislatures continue changing the rules of the game. With the exception of Pacific Kiamath’s cogeneration project in Oregon, there are no new generating facilities under construction in the entire Northwest.

According to economic theory, eager investors should be waiting in line to build new small-scale gas turbine generating plants for industrial customers and sell fuel cells for on-the-spot generation for commercial electricity users like restaurants and laundromats. It’s a quaint 19th-century theory, mugged by a brutal gang of 21st-century facts.

The Northwest needs power plants that generate megawatts and cost billions, instead of the economists’ fantasy of cute cottage industry plants that generate kilowatts and cost millions, to restore traditional industry standards of electricity reliability.

The last time the region had a brawl over this issue it was in the mid-1970s between folks like Washington’s then-Gov. Dixie Lee Ray, who argued the only solution was to build more nuclear power plants, and Oregon’s then-Gov. Bob Straub, who argued for a combination of new plantsnand stringent energy conservation measures. Ray’s forces argued the people of the Northwest would not return to the Stone Age that “hippie” conservationists demanded. The conservationists returned the governor’s scorn by nicknaming her Dixie Death Ray.

Ray’s forces got their way. Portland General Electric built the Trojan nuclear power plant in Oregon and the Washington Public Power Supply System – aptly nicknamed Whoops! began the construction of a series of nuclear power plants in Washington. Cost overruns and new energy from conservation brought a halt to the WPPSS projects. Some were never completed, leading tonthe largest municipal bond default in American history. Corrosion and high maintenance costs forced PGE to shut down and dismantle Trojan before the bonds sold to build it were paid off.

Ironically, new thermal generating plants built by Pacific Power and Light and aggressive energy conservation measures for residential, commercial and industrial customers saw the region’s utilities through doubling of the Northwest’s population between 1970 and 2000. There is little blood left in that turnip.

The Northwest Power Planning Council says the region is already 3,000 megawatts in the hole. More large-scale generation will be needed. The region’s population is expected to double again in the next 30 years. The blizzard of building power plants and the financial troubles of 30 years ago should be a warning against mindless construction in similar circumstances 30 years later.

The ideologically driven effort to dismantle the nation’s system of electric utilities without a practical alternative system to replace them is paralyzing the continuing effort to provide reliable electricity supplies in the Northwest and now threatens shortages. Perhaps the states should sue the think tank economists for malpractice.

Mail Tribune
Medford, OR
February 6, 2000

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