Energy crisis powers Eastern Washington boom
Consider the Sheikdom of Chelan, as Chelan County PUD has come to be nicknamed in some utility circles.
The Chelan PUD pulled in $58.3 million in net revenues in 2000, more than triple the previous year's revenue, and more than 10 times what was typical in the past.
The good times kept rolling this year. Net revenues for the first six months were $43.6 million, up from $25.2 million in the first six months of 2000.
Grant County PUD also made a bundle, with $88.8 million in net revenues last year, more than double its best previous year.
Second-quarter financial reports released last month provide the first clear picture of how utilities around the region fared over the course of the energy crunch, which began last summer and didn't ebb until June.
Some utilities, such as Seattle City Light, Tacoma Power, Snohomish PUD and even Avista in Spokane, took a beating; each has raised rates or sought rate increases to repair the damage.
But the reason for Chelan and Grant county PUDs' windfall is simple: They harness the mighty Columbia River, generating far more electricity than they need for their customers.
That gives them surplus power they can sell on the wholesale market. And during the West Coast power crunch, that was a sweet deal indeed.
For some on the East Side — long used to watching the economy boom west of the mountains while their farmers go broke — the bonanza is refreshing.
"For us to get a windfall is perhaps long overdue," said Dennis Johnson, mayor of Wenatchee. "It's very enjoyable to see, in print, that money was actually made."
And not only by the utility: Some of its employees also cleaned up.
Two Chelan County PUD employees earned more than $285,000 in salary and bonuses in 2000 for their savvy wholesale-power sales, and another $50,000 in the first three months of 2001, megabucks in a county with a median household income of $38,348 in 1999.
"Those bonuses are controversial. It's been a big topic of conversation," Johnson said. "I'm not sure it was a wise decision. It's just such a new concept in public service. Here at city government we go beyond at times but not for a bonus, but because that's our job."
The incentive pay has since been capped twice. But general manager and CEO Roger Braden doesn't begrudge his top guns. "They hit a home run," Braden said. "Last year, all year, and the first six months of this year have just been extraordinary."
Douglas County PUD, with one dam on the Columbia, doesn't have a comparable capacity to sell surplus power on the open market. But Manager Bill Dobbins said he's not jealous.
"We are not coveting our neighbors' windfall. Our job is to provide low-cost service to our customers. Nowhere in there do I read, `Make lots of money.' "
Not that the utility didn't though, now and then. Dobbins remembered one standout sale to Avista last December for about $2,000 per megawatt hour, or about 100 times the going rate for power before the market exploded.
Both Grant and Chelan county PUDs have two major dams on the Columbia, the fourth-largest drainage system in North America.
Chelan County PUD is a sagebrush powerhouse: It is the Northwest's largest publicly owned hydropower generator, and it ranks second nationally only to the New York Power Authority. Grant's generating capacity is just a bit smaller.
Chelan County PUD could light a city nearly the size of Detroit, but has a local customer base of just 40,000 people and one aluminum plant. Its Rocky Reach Dam is an awesome machine. Metal covers atop its giant turbines vibrate with power as the dam wrings every possible kilowatt of energy out of the river.
Chelan's own customers use only 37 percent of the dams' output and they pay, on average, just 3 cents a kilowatt hour, a price customers anywhere else in the country would think is a misprint.
Most of the rest of Chelan County PUD's power is sold in the Northwest, to a total of 7 million customers of public and private utilities buying power wheeled over a 16,000-mile power grid.
Four investor-owned utilities guaranteed the PUD's original debt in the 1950s to build the dams: Puget Sound Energy, the PUD's largest single customer; Avista, an affiliate of Spokane-based Washington Water Power; and PacifiCorp and Portland General Electric in Portland. Together they buy most of the PUD's power at cost.
Chelan's soaring wholesale-power revenues have been a boon to its customers.
The utility paid down $20 million in debt, picked up the salaries for 400 aluminum workers shut out of the shuttered Wenatchee aluminum plant, cut a proposed rate increase in half and eliminated further scheduled rate increases for years to come, and banked $50 million in cash reserves.
The utility is also putting $15 million into wiring its service area from Leavenworth to Chelan with fiber-optic cable, a project it never would have undertaken on that scale without the power-revenue boom, Braden said.
The cable will bring cutting-edge information technology to farm country, years ahead of many communities on the wired West Side. Johnson said he hopes the network will enable the county to attract jobs and further diversify its economy beyond agriculture.
Chelan County PUD has also been looking into other ways to make power and to avoid running short, which would force it to buy power. Despite the abundance of the mighty Columbia, when the river runs low and temperatures drop, the utility can be forced into the wholesale market.
To reduce that risk, the utility last winter invested more than $50 million in 26 diesel-fueled generators — and paid 54 employees $647,000 in bonuses to get them up and running by March 15, when power prices were still high.
The generators cranked for a while but shut down as power prices fell.
The Chelan PUD is looking at other ways to generate power too, including temporarily raising the head of its Rocky Reach dam a foot.
Electricity is generated by the weight and pressure of water turning a turbine; increase that force by raising the height of the drop from the top of the dam to the turbine, and more power is generated.
Even the tumbling waters at the base of the fish ladders at Rocky Reach and Rock Island may be tapped with small hydroelectric turbines. And the utility is looking into burning agricultural products, including that most ubiquitous fuel in one of America's apple capitals, apple pulp.
The West Coast energy crisis has cooled, with wholesale power prices dipping below $100 a megawatt hour in June for the first time all year and falling below $40 at times since then. That's double what they were two years ago, but a far cry from the triple-digit prices that punished purchasers throughout much of the past year.
Now the crisis has shifted to a blame game, with power purchasers around the West, including some Northwest utilities, seeking refunds of what they claimed were exorbitant wholesale prices. A federal judge is reviewing the case.
Both Chelan and Grant county PUDs are listed on Tacoma Power's list of utilities that may have overcharged it, each by a total of $2.2 million for power sales from last October until May. Tacoma has yet to file a formal refund complaint.
Bill Dearing, power manager for Chelan PUD, defends its actions.
"We weren't gouging. What we were doing was just the normal business of the day. It was the prices that were different," Dearing said.
Some days, the utility was a power purchaser, paying as much as $3,322 a megawatt hour in the volatile wholesale market. But on balance it was a net seller, for prices as high as $500 a megawatt hour.
Braden believes public utilities are outside the jurisdiction of the review, ordered by the Federal Energy Regulatory Commission. He argued any refund action in the Northwest will just amount to utilities trading money, with a net flow of cash to California.
Braden doesn't dispute making "a whole lot of money." But Sheikdom of Chelan? Kuwait on the Columbia?
"We are just a sleepy country utility."
Lynda V. Mapes can be reached at 206-464-2736 or lmapes@seattletimes.com.