Major utilities share the pain of energy debacle.

Byline: SCOTT MABEN The Register-Guard

THE EUGENE Water & Electric Board found itself on the losing end of a tumultuous energy market last year, and it had plenty of company.

Most major utilities in the Northwest are reeling from the staggering wholesale price run-up, severe drought and plunge in power use that capped the heady, deregulated energy markets of the 1990s.

"Nobody has ever faced a market like we saw last year," said Dick Watson, director of power planning for the Northwest Power Planning Council.

"We certainly had low water years in the past and tight power supplies," Watson said. "But you weren't looking at the extraordinary market prices we saw last year. And utilities were nowhere near as dependent on the wholesale market as they are today."

Fearing summer shortages, many were compelled to pay the high market prices.

"A lot of utilities around the region made the judgment that the first priority is to keep the lights on here," Watson said. "They thought, `We don't know what the situation will be, so we have to pony up and take a chance.' '

Three public utilities in Washington - serving the Seattle, Tacoma and Vancouver areas - are among those that took a bath in the energy debacle.

Seattle City Light may be in the worst shape of any Northwest utility. In 2000 and 2001, it spent $590 million for power above what it had planned to pay.

"Our own generation was down and we had to go to the market for the extra power," spokesman Dan Williams said. "The costs were just staggering."

Like EWEB, City Light pleaded with federal energy regulators to step in and restore calm in Western markets. But intervention was late in coming.

"So the generators and the traders that were making obscene profits were able to continue doing that at the expense of ratepayers here and in Eugene and many other places along the West Coast," Williams said.

City Light ended up borrowing $185 million in short-term notes and raised residential rates 54 percent. It's now $1.4 billion in debt and facing at least three years before it's back in the black.

The Seattle City Council, which oversees the utility, has asked an auditor to review City Light's debt, financial performance and oversight. The utility is conducting its own internal review, Williams said.

"What we're finding so far is about 99 percent of our financial problem was drought and high prices, and those were totally out of our control," he said. "It was just an incredible turnaround and exactly at the wrong time. We just got whipsawed by it."

Next door, Tacoma Power officials decided to get ahead of the crisis as much as possible, power superintendent Steve Klein said.

The utility, serving 146,000 customers in Tacoma, neighboring cities and parts of Pierce County, began reacting in December 2000, when drought forecasts signaled a rough road ahead.

"From our perspective, we had to take serious action then even though there was a probability it could still rain a lot in January, February and March," Klein said. "We'd rather err on the side of being out too early rather than waiting until it's too late."

Tacoma managers developed a strategy that included a 50 percent surcharge on retail rates for the first nine months of 2001, spending $130 million in reserves and borrowing $35 million.

They also launched an aggressive conservation campaign that reduced power use 12 percent, and they set up the largest array of diesel generators in North America, capable of generating 48 megawatts.

"When the dust settled, our diesel farm saved us $9.25 million," Klein said.

After the rate surcharge expired last fall, Tacoma Power still raised rates 32 percent - the first permanent increase since 1995.

Vancouver-area residents saw their rates increase more than 40 percent last year as Clark Public Utilities absorbed a steep Bonneville Power Administration wholesale rate increase and sought revenue to start paying off a $100 million loan.

Like EWEB, the Clark County utility entered into some high-priced power supply contracts. It also leased 50 one-megawatt natural gas generators, which it lashed together in the parking lot next to its combustion-turbine gas plant in west Vancouver.

Clark, which draws about half its power from gas-fired generation, took a hit from sharp spikes in natural gas prices in late 2000 and early 2001.

The utility also bought two months of power for $62 million - a whopping $325 per megawatt-hour - from Kaiser Aluminum.

"It was not a good time to be on the market, as we all learned," spokesman Mick Shutt said. "But we had adequate power for our customers, which is the No. 1 objective."