By Jennifer Langston
Herald Writer
Snohomish County residents are paying more for electricity this winter than nearly everyone else in the state.
And while the county’s customers are seeing their biggest bills ever, market prices for electricity have dropped to normal levels after huge spikes last winter.
After raising rates by more than 50 percent in 2001 to weather the energy crisis, Snohomish County PUD now charges more for residential electricity than almost any other public or private utility in Washington.
Customers could see their bills shrink somewhat if the federal Bonneville Power Administration reduces its rates in April. But they’ll still be stuck with several expensive, long-term energy contracts the PUD signed in early 2001 during the height of the energy crisis.
PUD officials say they made the best decisions they could while on an 18-month roller coaster ride that few could have accurately predicted. But with the benefit of hindsight, some recognize that the timing of certain choices couldn’t have been much worse.
"For a number of months it was a very good decision," said John White, assistant general manager for the PUD. "Certainly, if we think about it now, we wish we could find a way to get these contracts at lower prices."
In 2000, just a week before energy prices started a steep climb, the utility sold its share of the Centralia coal-burning power plant — a polluting energy source that has been blamed for the haze over Mount Rainier.
It then signed a contract to keep receiving that energy, which represents about a tenth of what the PUD needs, through the end of 2000. But it waited on locking in purchases beyond that date, hoping prices would drop in the fall, as they normally do.
Instead, energy prices on the open market soared to unprecedented levels. The PUD finally signed four long-term contracts to replace the Centralia power in early 2001, shortly after shortages in California and the Northwest’s drought had driven prices sky high.
The contracts were good deals at the time, since they sheltered the utility from having to pay even more exorbitant prices on the open market. But that market bottomed out a few months later, saddling the PUD with longstanding energy bills that now seem expensive by comparison.
One of those contracts was with Enron, which the PUD has now terminated in light of the company’s bankruptcy. That will save the utility about $2 million a month, although PUD officials are not sure whether Enron will eventually contest the loss.
But the PUD still intends to spend $73 million this year for about 75 megawatts of energy it is committed to buy through the other three long-term contracts. When it still owned the Centralia plant, it was paying only $22 million a year for the same amount of energy.
It will pay the BPA $200 million for more than 600 megawatts of energy this year.
PUD commissioner Kathy Vaughn, who urged staff to look earlier at purchasing energy from an environmentally friendly gas-fired plant and other alternatives before prices spiked, said she thought the utility’s delay in locking up long-term contracts ultimately cost its customers money.
"I think there were opportunities for us to do things differently," Vaughn said. "We found ourselves trying to replace … energy in December of 2000, which was precisely the worst time of the storm."
This winter, some PUD customers are getting rid of electric heaters and installing gas fireplaces to try to lower their bills. Others had to cut back on Christmas to save money.
Scott Schroeder, a firefighter who lives in Everett, turns the thermostat down to 55 degrees every night. His kids gravitate to the heating grate first thing in the morning.
They’ve done everything they can to conserve electricity in their 1929 Craftsman bungalow — insulating walls, replacing windows, installing an automatic thermostat. Each year, his consumption drops.
Yet, his two-month electricity bill just topped out at $451, up from about $300 a year ago. It’s not a tragedy, since he and his wife both work, but it’s still quite a bite.
"I’ve never had trouble making the power bill, at least not yet," he said. "But it’s up where my mortgage payments were when I just started out."
Norma McCurdy, a retired saleswoman who lives with her husband in Everett, said she doesn’t pretend to understand the complexities of energy markets.
But to her mind, there’s something screwy when you use less electricity each year but your bill keeps climbing.
"I can’t really fault (the PUD), but at the same time I don’t know exactly how they do what they do," she said. "If they make mistakes, we pay for it, but there’s no way an ordinary person can tell."
PUD officials say they still believe selling their share of the Centralia coal plant in May of 2000 was a good decision. The plant needed expensive upgrades to meet air-quality laws, and its owners face unknown liability costs for a coal mine cleanup.
But Vaughn said she thought the PUD should have moved more aggressively on replacing the power it had been getting from Centralia.
That summer, the PUD board was briefed about potential shortages and price spikes that summer.
"I’ve had a lot of gut feelings since I took this job," she said. "Since the time we made a decision to sell Centralia, I had a gut feeling it was time to move on to replace it … but I didn’t get anywhere."
Both Seattle City Light and Tacoma Power, which sold their shares in Centralia at the same time as the PUD, entered into contracts to cover their gaps in power from the sale in fall 2000.
Seattle City Light signed up to take energy from a new gas-fired plant in Klamath Falls, Ore., at a rate of $56 a megawatt/hour. A few months later, the Snohomish PUD ended up paying an average of $110 a megawatt/hour for its contracts.
But the Seattle contract didn’t start until June 2001, forcing the utility to spend hundreds of millions of dollars on the open market to cover its shortages from the Centralia sale and poor hydropower production in the first part of the year.
Tacoma Power ended up finalizing a swap in October 2000 with another power producer to cover its needs in 2001 from the Centralia gap. The shortages it experienced during the drought were largely because its own hydropower projects performed poorly.
"We were looking at the prices and thought we needed to do something about the Centralia hole," said George Whitener, power manager for Tacoma Power. "We felt we had waited long enough, because everybody was hoping prices would come down. But at that point, prices were already so dysfunctional there was a lot of risk as to the way it would go."
PUD staff worked for several months after the sale of the Centralia plant interest to see if BPA would replace the power at a favorable rate. The federal power supplier said no that summer, said the PUD’s White.
Then — because prices usually go down in the fall — PUD staff decided to wait and see if the market would bottom out before they sought to purchase power somewhere else.
The market did drop briefly that fall, but then in November, average prices skyrocketed suddenly from $100 to $500 a megawatt/hour.
The PUD eventually became daunted by that volatility and decided to enter into long-term contracts to shelter itself from having to buy on the open market, White said. "We knew that riding this roller coaster would be detrimental to our customers," he said.
By then it was January, and the only way the PUD could get an acceptable rate was to agree to contracts running five to eight years with the different power providers.
During the second half of last year, energy prices on the open market dropped back to historic levels of $20 to $30 a megawatt-hour. Now the PUD is locked into paying prices that are four times more expensive.
Although it now seems painful to have signed those contracts at that particular moment, locking the power in made some sense at the time, said Tony Kilduff, a risk manager for Seattle City Light.
Conventional wisdom said prices were going to remain high for much longer. Some predicted the drought would continue. Hardly anyone guessed that the market would collapse as early as June, he said.
Seattle City Light looked at entering into some long-term contracts in the first part of 2001, he said. It was saved largely because snags delayed the signing until it became clear the market was dropping.
"We ran into problems and didn’t end up signing those contracts, which I’m very happy about right now," Kilduff said.
He said people need to remember in their Monday morning quarterbacking that utilities were dealing with a market they’d never seen before. The magnitude of the price spikes was the equivalent of living at sea level all your life and then running into the Himalayas.
Although there was a short window in fall 2000 that history now shows would probably have been a better time to purchase power, it was nearly impossible to know whether to gamble on prices going up or down from there.
"You have to have nerves of steel to pull the trigger on something like that when there’s so much uncertainty," Kilduff said. "In that few months when chaos was reigning … it’s very hard to know what a good decision is because all of the rules get tossed out."
You can call Herald Writer Jennifer Langston at 425-339-3452 or send e-mail to langston@heraldnet.com.
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