Mar. 26, 2001

Officials May Call for Delay of Deregulation of Oregon's Electricity Market

By Jeff Mapes

Ever since the energy crisis hit the Northwest, utility Commissioner Ron Eachus and Oregon Senate President Gene Derfler have quashed any attempt to halt Oregon's march to partial deregulation of the state's electricity market Oct. 1.

The political odd couple -- Republican Derfler is a Main Street businessman, Democrat Eachus a one-time anti-war protester -- have scoffed at and simply out-muscled critics who worry the state is headed for a California-style disaster with deregulation.

But the duo could hold back the rising tide of nervousness for only so long. Last week, Eachus sent a Derfler aide an e-mail broaching the idea of delaying the partial deregulation for at least a few months. Eachus said this would at least politically separate the impact of any deregulation from big Bonneville Power Administration rate increases that would take effect Oct. 1.

"If that would satisfy everybody, I think that would be a fair way to do it," Derfler said.

Although it is too early to know whether the idea will fly with legislators, it shows Oregon's move to restructure the electrical business in the state is not a done deal. Instead, legislators may soon begin an intense debate about Oregon's energy future that could affect anyone who pays an electric bill.

Supporters of Oregon's partial deregulation say it's vastly different from the failed California approach, and they say it's crucial to move ahead with the plan to help the state develop new supplies of energy -- both conventional and renewable. Many opponents concede Oregon's plan is different, but they worry that moving to deregulation in the fall would only further increase prices in a volatile market.

When the Legislature passed Senate Bill 1149 in 1999, electrical deregulation was sweeping the country -- 24 states passed some form of deregulation -- and experts would have regarded it as unthinkable that California was less than two years from rolling blackouts.

Still, with Northwest power rates among the lowest in the country, there was little voter interest in deregulation.

Instead, the Oregon bill was spawned by an unusual coalition: businesses that thought they could shop for cheaper power; independent power generators who wanted access to a new market; and consumer and environmental groups that wanted to wrest control of such things as energy conservation and low-income energy aid from the utilities.

The result was a deregulation law unlike any other. Large commercial users won the right to buy from competing energy suppliers, and consumer and environmental groups gained a 3 percent "public purposes" fee to fund conservation, alternative energy and low-income assistance.

The architects of SB1149 also sought to protect residential and small-business customers by having them stay with their utilities and receive regulated rates. Oregon wouldn't have any marketeers hawking electricity like long-distance phone service, at least not in the short term.

In addition, the bill exempted the state's consumer-owned utilities, which cover about 25 percent of the market. Only the customers of Oregon's two big private utilities -- Portland General Electric and PacifiCorp -- would be affected.

When the twin catastrophes of California's failed deregulation and the drought hit Northwest energy users about the time the Oregon Legislature began its new session, there were immediate cries to jettison the new law.

But Derfler, who took over the Senate presidency this year, tamped down dissent, and many legislators and lobbyists initially were unwilling to take him on.

The coalition behind the bill hung together, and the lobbyists involved in putting the new law together expressed confidence it would go into effect as scheduled.

The continued instability in the electricity markets, however, continued to raise doubts about Oregon's deregulation.

The BPA, which markets about half of the Northwest's electricity, warned utilities to expect big rate increases starting Oct. 1, when the old BPA contracts expire. BPA spokesman Ed Mosey said the agency is trying to hold the increases to utilities below 100 percent.

Most of the agency's power goes to public utilities, whose customers could be facing retail rate increases of 50 percent, Mosey said.

At the same time, PGE and PacifiCorp customers also can expect rate increases. PGE expects to ask the utility commission for a "significant rate increase" to take effect Oct. 1 because of high power costs, said spokesman Scott Simms. PacifiCorp on Friday asked for a 24 percent rate increase for May through July while the commission studies what kind of rate increase to grant in August.

Although these increases are not connected to Oregon's deregulation plan, "in the public mind there is a connection," said Senate Majority Leader Dave Nelson, R-Pendleton, "and that has political consequences."

On top of that, Oregonians don't think much of energy deregulation as a result of the California experience. A Feb. 8-13 survey done for PGE and circulated among legislators showed that 69 percent of Oregonians opposed the state's deregulation plan.

"This polls right up there with the gas tax," Rep. Carl Wilson, R-Grants Pass said.

The poll, however, did show much less concern when the plan was instead described as "restructuring" of the electricity industry -- a word that Eachus and Derfler prefer to use.

Still, several legislators and groups are talking about delaying the law for at least two years, which Derfler says would kill it.

Those calls for delay received a powerful boost earlier this month when the Oregon Rural Electric Cooperative Association called for putting deregulation off until the energy market stabilizes.

The state's 17 electric cooperatives are relatively small -- together they represent no more than 12 percent of the Oregon market -- but they represent the heart of the Republican caucuses that run the two chambers. Nelson and House Speaker Mark Simmons, R-Elgin, are two of the many rural Republicans who have given the cooperative complaints a sympathetic ear.

"What we strive for and desire is a stable wholesale market . . . and we don't have that now," said Rick Crinklaw, general manager of Lane Electric Cooperative. "We worry that throwing anything into that market has the potential to add instability and volatility."

Although the cooperatives don't have to deregulate, they say they worry many business users would jump into the market and compete for tight energy supplies.

Derfler and Eachus counter that few large users would want to leave their utilities until the market quiets down. They said they're more worried about the negative consequences of throwing the future of the new law into doubt.

Eachus said Oregon would lose a powerful tool for energy efficiency and the development of alternative energy if the 3 percent public purposes fee didn't start.

Also, power generators "would be real reluctant to make an investment in Oregon" if they're unsure about the rules of the game, Derfler said.

In response, the cooperatives say the overall supply shortages in the West ensure that plenty of new generation would be built in the region. Some critics have suggested the 3 percent fee go into effect while the rest of deregulation is put off.

The coalition behind the new law has stepped up its own lobbying by telling legislators that the cooperatives are operating on unfounded fears. "I dare say one inch of rain will have more say on the wholesale markets" than the start of partial deregulation, said Gary Conkling, who represents Industrial Customers of Northwest Utilities.

In his e-mail, Eachus suggested the Legislature give the Public Utility Commission authority to delay the start of the new law for a few months. That way, he said, the power industry would be sure partial deregulation is on its way and the coming rate increases would be clearly separated from the impact of the new law.

Bill Wyatt, chief of staff for Gov. John Kitzhaber, said a delay of 60 to 90 days "makes some sense . . . just to make sure people don't get confused" about the cause of the rate increases.

The idea may attract some wavering legislators, but opponents described the idea as nothing more than cosmetic.

"You possibly take care of the political problem," said Sandra Flicker, the cooperative association's lobbyist, "but do you take care of the supply problem? No."

Rep. Robert Ackerman, D-Eugene, who has a series of bills attacking deregulation, said he's convinced opponents are getting closer to shutting down the new law.

"I think they're on the political run," he said. "They're trying to distance themselves from California, and I don't think they can."

copyright 2001 The Oregonian