---------------------- Forwarded by Cooper Richey/CAL/ECT on 05/01/2001 11:57 AM ---------------------------
To:	Cooper Richey/CAL/ECT@ECT, Sean Crandall/PDX/ECT@ECT, Elliot Mainzer/PDX/ECT@ECT
cc:	 
Subject:	NY Times article


If you were wondering what power traders at Chelan make....


---------------------- Forwarded by Bill Greenizan/CAL/ECT on 05/01/2001 11:58 AM ---------------------------


Bill Greenizan
05/01/2001 11:57 AM
To:	Derek Lynn/CAL/ECT@ECT
cc:	 
Subject:	NY Times article

National Desk; Section A 
River's Power Aids California And Enriches the Northwest 
By BLAINE HARDEN 

05/01/2001 
The New York Times 
Page 1, Column 5 
c. 2001 New York Times Company 
GEORGE, Wash. -- Doing something nice for California has never been a priority here in the Columbia River Basin, where high-voltage power lines lope across irrigated fields of alfalfa, potatoes and wheat. 
Politicians from California, as farmers in this area will explain at great length, have been scheming for decades to siphon off the basin's cheap electricity and water. 
Californians, however, have been noticeably less irritating as of late. Having fouled up electricity deregulation six ways from Sunday, they are skidding into the summer air-conditioning season desperately short of power. In the last year, much of their salvation has come from the Columbia River, whose monstrous dams are the largest hydroelectricity machines in North America. 
All along the river, from Portland, Ore., to British Columbia, utility companies, aluminum makers and farmers have joined to help save California -- but at a staggering price. Charging whatever California's dysfunctional power market will bear, people in this narrow stretch of the Northwest have created a kind of Kuwait along the Columbia. 
With their record profits, some public utilities are wiring the emptiness of Eastern Washington with fiber optics, buying diesel generators to make still more power and paying Wall Street-style wages to electricity traders -- while making sure that their electricity rates remain among the cheapest in North America. Just north of the border in British Columbia, a state-owned utility luxuriated in its California windfall by mailing out rebate checks to 1.6 million customers. 
Their good fortune, though, has come with a measure of ambivalence and may well be short-lived. A severe drought is already hurting farmers across the region. If it continues, utilities along the river will have to buy power and may be punished by the same market forces that gave them a windfall. 
''This is not nice money,'' said Alice Parker, a retired farmer who heads a group that promotes irrigation in the Columbia Basin. ''It is something that is offered to us not to use water so Californians can run their air-conditioners.'' 
Nice or not, a whole lot of money flooded into the Columbia Basin. 
North of here in sparsely populated Chelan County, a publicly owned utility that has two dams on the Columbia made three times as much money last year than it ever had before. With just 35,000 local customers, the utility last year had a $58.2 million profit. It paid its two top power traders $285,000 each, an astonishing income in a county where per capita income is less than $25,000 a year. The utility refuses to reveal the traders' names for fear their children might be kidnapped. 
The chief operating officer of Chelan County Public Utility District acknowledged that increases in the cost of power were ''huge'' and ''obscene.'' But the executive, Charles J. Hosken, added, ''We would be imprudent if we did not maximize this market for our customer owners.'' 
Next door in equally sparse Grant County, a public utility that also owns two dams on the Columbia has made even more money maximizing the market. It had a record $88.8 million in profits last year -- more than double its best previous year. 
Grant County Public Utility District, which has just 40,000 retail customers, is using its windfall to help build a $70 million fiber optic network for local residents. It has also bought 20 diesel generators to guard against power shortages and, if possible, exploit the power gold-rush. The utility estimates that those generators could add $50 million to profits in the coming year. 
Like Chelan, Grant is using its profits as a kind of drought insurance to insulate its customers from high market prices for electricity, when, as now, local needs exceed generating capacity in the river. Power rates in Grant and Chelan Counties are about one-fifth as much as in New York City. 
Grant County's utility has rejected, for the time being, the idea of giving a share of its profits to its customers. 
''How would it look if Grant County gives away rebates while so many people are paying more for electricity?'' asked Lon Topaz, director of resource management for the utility. ''It would be lousy politics.'' 
An Upside-Down Economy 
The second-worst drought on record in the Columbia River Basin has combined with California's deregulation mess to further distort the energy market. Drought has not only helped increase the price at which electricity can be sold on the spot market -- 10 to 20 times as much as last year's price -- it has strengthened a compelling bottom-line rationale for conservation. Every megawatt not purchased and used in the Northwest (often at locked-in, long-term prices that are a fraction of the current market rate) can be sent south to California. For many utilities, conservation spells local savings and a long-distance bonanza. 
As a result, a regional economy built on half a century of cheap hydropower has been stood on its head. Irrigation farmers here are being paid up to $440 an acre not to farm. 
Similarly, aluminum companies are collecting about $1.7 billion this year by not making aluminum. Companies like Alcoa have earned profits that delight Wall Street, while keeping about 10,000 workers on their payroll, by reselling hydropower that they bought in the mid-1990's under a cheap long-term contract. 
Even residential customers are being offered a chance to make a few dollars from the power crunch. Avista Utilities has announced that it will pay its customers in Washington and Idaho 5 cents for every kilowatt they do not use, if their consumption falls more than 5 percent below last year's level. 
For utilities in the Northwest, by far the largest profits from California's electricity crisis have been secured in British Columbia. A number of private American utilities have also benefited from California's troubles. 
BC Hydro, a utility owned by British Columbia with dams on the Columbia and Peace Rivers, is the first corporation in the history of the province to exceed $1 billion in profits, as measured in Canadian currency ($712 million in United States currency). 
To celebrate, the provincial government ordered BC Hydro to do something it had never done before. The utility mailed each of its customers a check for $130. BC Hydro also guaranteed them no increases in electricity rates, which have not gone up for seven years. 
''We are just happy to be lucky that we have reservoirs and dams that were built by people of great foresight,'' said Brian R. D. Smith, chairman of BC Hydro. 
When reminded that a March study by the California Independent System Operator, which runs that state's power grid, accused BC Hydro of market manipulation and profit gouging, Mr. Smith was less happy. 
''All they do is scream and shout and they won't pay you the money they owe you,'' he said, arguing that his company has gone out of its way to help California in its hour of need. Gouging has nothing to do with it, he said, adding that it was California's ''awful mess'' in deregulating power markets that fueled BC Hydro's record profits. 
A Good Deal for Farmers 
In the beginning, that is to say when federal money began transforming the Columbia from the world's premier salmon highway into a chain of adjustable lakes, no one paid much attention to electricity. The river possessed a third of America's hydroelectric potential, but there were not enough people in the Northwest to use more than a fraction of it, and long-distance high-voltage transmission lines did not exist. 
The main intention, when New Deal dollars began raining on the Northwest in the 1930's, was to create family farms. Grand Coulee Dam, the biggest dam in North America and by far the largest hydroelectric plant, was primarily designed as a water-delivery device for farmers. 
Since then, as 6,000 miles of tunnels and concrete canals were built to shuttle water around in sagebrush country, each 960-acre farm in the Columbia Basin Federal Irrigation Project was blessed with at least $2.1 million in federal infrastructure subsidies, according to the Bureau of Reclamation, which built it. 
In addition, farmers are guaranteed access to cheap water from the Columbia and the right to buy all the electricity they needed to pump that water out of the river -- at $1.50 a megawatt. A megawatt of electricity currently sells for $375 to $400 on the spot market. As Paul Pitzer, a Columbia Basin historian, has written, farmers here have always felt that ''no price is too high to pay for their water so long as someone else is paying the bill.'' 
This year, though, the price finally became unbearably high for the Bonneville Power Administration, a nonprofit agency that markets electricity from 29 federal dams on river. The agency calculated that if it could persuade farmers in the project not to irrigate 90,000 acres of land, water left in the Columbia would produce electricity worth as much as $129 million (if it had to be purchased at current market prices). 
In a buyout that is without precedent in the Pacific Northwest, Bonneville is paying 800 farmers a total of $30 million. The farmers receive $330 for each acre they do not farm. On top of that, Grant County's public utility is paying many of the same farmers about $100 an acre not to farm their land. 
On April 13, about 20 irrigators gathered for lunch at the Martha Inn Cafe here in George to discuss the buyout. Since farm prices are low this year, they agreed that it was a good deal. 
Still, the farmers, who do not like to be reminded of the federal subsidies that keep their irrigation system afloat, said they worried about the precedent they set when they traded water for cash. 
''This has to be a temporary deal,'' said Tom Flynt, 52, who normally farms 900 acres but has taken 150 acres out of production because of the buyout. ''If anybody thought this would affect their water rights, there would be no takers.'' 
Several farmers said they did not like the idea of their water supporting the lifestyles of urban people, especially Californians, who, those who were interviewed said, do not appreciate the food that the farmers put on their table. 
''We feel that Americans are making decisions with their mouths full,'' said Tricia C. Lubach, a marketing consultant whose husband is an irrigation farmer. ''Not too long ago they didn't worry about where the power comes from. Someday they may think about where the food comes from.'' 
A 'Wonderful Energy Fit' 
A couple of hundred miles northwest of George, in a penthouse conference room that overlooks Vancouver harbor, Mr. Smith, the chairman of British Columbia's most profitable company, explained in mid-April what a pain it was selling electricity to Californians. 
''People say to me what are you doing selling power to those ungrateful Californians,'' he said. It does not help, he added, that the state is behind on its bills by about $300 million. 
Still, neither BC Hydro nor the provincial government can afford to lose California's money. The utility has become a cash cow for the provincial budget, which in the last decade has received more than $3.7 billion from BC Hydro. 
''We have a wonderful energy fit,'' Mr. Smith said, referring to BC Hydro's power-trading relationship with California, if not to Californians themselves. ''We have oversupply in the summer when they have got high demand, and we have got undersupply in the winter when they have got stuff to give to us.'' 
BC Hydro has acknowledged that it massages its hydropower system to sell power when it is most needed -- and most expensive -- in California. The utility closes the faucets on its dams at night during the summer, storing water while meeting local electricity needs with cheap off-peak power brought from across the West. In the morning, when prices peak, it opens the faucets and zaps electricity off to California. 
''We spill water during the day,'' Mr. Smith said. ''Why? Is it because we can make more money? No. It's because that is when everybody wants electricity, for God's sake.'' 
Questions about profit gouging on the part of dam-dependent utilities in the Northwest may soon be moot. Drought has reduced the Columbia River runoff so far this year to about half of what is considered normal. 
The shortfall dovetails with higher costs for natural-gas-fired power plants and a growing gap on the West Coast between demand for electricity and capacity to generate it. 
''Absent being successful in getting loads down, we could be looking at quadrupling of the power rates,'' said Paul Norman, head of power operations at Bonneville. 
Unless conservation increases or the drought eases, Mr. Norman warned that by late summer, the Northwest's era of cheap power could come to a sudden and painfully expensive end.