For Immediate Release:

Thursday, April 19, 2001

Thank you Bob [ Bob Watt, Chamber President ] for that kind introduction. Bob, you've done a great job leading the Chamber on the issues facing our region. I want to commend you, Kerry and the entire board for your leadership on everything from transportation to energy. I had a chance to talk with some of you last month during the Chamber's trip to Washington, D.C., and today I'm happy to have this chance to talk to so many chamber members here in the state.

The chamber's vision is to "create a thriving region in a competitive world." After the past few months, that seems like a tougher challenge than it used to be. Between the earthquake, Boeing's announcement, the drought, the energy crisis, and the slowing economy, it's been a rough few months for us. We pick up the paper and read about layoffs and plant closings in our state.

In times like this, it's easy to assume the worst, but it's more important to prepare for the best. Our city and our state have been through challenges like this before. Back in 1889, Seattle was changed forever by the Great Fire, but community leaders cleared the debris and started to rebuild. Their efforts transformed a town into a city and laid the foundation for much of the progress we enjoy today. We've had challenges like this before, and we've come together to solve them. The energy crisis is no different.

Today I want to talk about the energy decisions we face as a region including some that only a few people are focused on at the moment. I don't want to spend much time talking about the causes of this crisis. We're all familiar with the contributions played by the drought, the growing demand for energy, the lack of new power sources, and California's failed deregulation. What I do want to focus on are the choices we have before us. If we make the right choices today and tomorrow, good things will happen. I'd like to talk about both short and long term choices. Let me start with four immediate issues before us.

CONSERVATION
First, we've got to make conservation a way of life. According to the Energy Information Administration, Washington state is the ninth highest user of electricity per capita. California on the other hand ranks 50th. So we're using a lot of energy per person and much more than California. Now certainly our energy-intensive industries account for some of the difference, but not all of it.

Recently, Seattle has made some progress on conservation. According to Seattle City Light, since April, customers have cut energy use by 9 percent. That's just under the 10 percent reduction Governor Locke has called for. Let me give you just one example of the dramatic difference conservation can make. In most of our homes and business, we use incandescent light bulbs, but there is a better alternative, and it looks like this. This is a compact flourescent light bulb. With this bulb, you will use 33% less energy. It's available today, and you could change these bulbs throughout your house. Conservation isn't just something that we support as individuals. It's something the federal government has to show leadership on.

I'm concerned about how the Bush Administration is treating conservation. President Bush's budget cuts renewable energy programs by 26 percent and cuts research on renewable energy by 48 percent. Last week, the White House went with a weaker efficiency standard on central air conditioners than the last administration proposed. If President Bush had gone with the higher standards, he could have eliminated the need for an additional twelve 400-megawatt power plants by 2030. So conservation has to be the first solution on everyone's list both in our homes and offices and in the Administration.

SITING NEW PLANTS
Second, we've got to site new plants. Even without the problems in California, our population and our energy demand have grown dramatically, but we haven't added any significant new power in the last decade. That means we've got to site new plants quickly in keeping with community and environmental concerns.

PRICE CAPS
Third, I believe we need temporary price caps. It's the only way to bring some stability to the volatile energy market. I understand that some of you may disagree. Overall, I don't want the government to use a heavy hand in regulating markets, but a temporary price cap is the only short-term tool we have to stabilize the market.

Next week, Senator Feinstein, Republican Senator Gordon Smith of Oregon, Senator Cantwell and I will introduce a bipartisan bill to help establish temporary price caps.

Some say that price caps will discourage the construction of new generation, but everyone agrees that if price controls were implemented they should exempt new generation. Others say we should let the market correct itself. Unfortunately, that hasn't happened so far. If we keep waiting, there will be far fewer industries left to benefit from the new market.

I do want to say one other thing about price caps that you may not have heard about. In a way, the Federal Energy Regulatory Commission (FERC) has already imposed limited price caps. Last month, FERC ruled that any wholesalers who charged California utilities more than $273 per megawatt-hour during certain periods had to either refund the charges or justify their high rates.

When I heard about that decision, I wrote to the Commission and asked why their refund program excluded Washington's utilities. Just during the month of January, Seattle City Light paid between $290 and $600 per megawatt-hour for electricity, but FERC offered no relief to Washington state. So FERC has already said that any charge above $273 per megawatt hour is unjust and unreasonable for California. I think they're right, but I think the price should be set lower, and I think it should apply to all of us on this power grid not just California. On Monday, I sent a letter asking FERC to investigate predatory pricing in the Washington state market.

CURTAILMENT -- IMPACT ON THE ALUMINUM INDUSTRY
The last short term issue I want to mention is curtailment. This issue has really surprised and concerned a lot of people including myself especially in the past week. BPA is faced with a very difficult decision: Either keep the aluminum industry operating at full throttle by charging everyone dramatically higher rates or idle the industry and keep rates lower for everyone else.

Facing this decision, BPA has asked aluminum companies to idle their plants for the next two years. That will save consumers huge rate increases, but it has consequences. It will reduce the payroll and tax base in vulnerable communities across our state at least temporarily and perhaps permanently. Either way, it's going to have a ripple affect throughout our state.

In the past, we've faced questions about supporting one industry at the expense of others. This decision, however, is of a much higher magnitude. It affects families who are trying to put food on their tables and communities that depend on this important industry.

I want you to know that I am committed to trying to preserve as much of the aluminum industry as we can by working with the DSIs and BPA.

The curtailment issue raises other questions. Beyond the aluminum industry, many of us are wondering what's next? What's the next industry that's going to come off the grid to hold down prices for everyone else? What do ratepayers want to pay out of their pockets to keep these jobs in our state? Those are tough, tough questions we need to address. To me, they really illustrate how bad things have gotten.

So those are the short-term decisions -- conservation, siting new plants, temporary price caps, and curtailment.

Now I want to turn to the long range decisions. These are things we are not adequately focused on right now, but that could have a tremendous impact on us in the years to come. I'm going to mention regional transmission organizations, deregulation, diversifying our energy sources, and who will build the new generation in our state.

CONCERNS ABOUT REGIONAL TRANSMISSION ORGANIZATIONS
First, I want to talk about how we move power from wholesale generators to retail utilities. Today, generators like BPA and Puget Sound Energy own and control their transmission lines.

When a generator in Montana wants to move power to Vancouver, that generator needs to work with all the different companies that own the transmission lines between Montana and Washington state. That takes a lot of coordination. And each time power moves across a different line, a fee is added.

Federal energy regulators think they have a more efficient way to move power. They want transmission lines to be controlled by one regional organization not by several different generators. They want to create a regional transmission organization (RTO).

RTO West, the RTO for our region, would consolidate the management of electricity transmission over seven states. BPA and Puget Sound Energy would continue to own their transmission lines, but this new entity, the RTO, would control how power moves across transmission lines throughout the West.

An RTO is an interesting idea, but it's not fully cooked and it might not make sense here given our region's unique power structure. Unfortunately this isn't just an idea. It's already taking shape. I'm concerned that it's moving forward very quickly with little public input.

Back in December of 1999, FERC told all transmission-line owners that they needed to start creating RTOs. Since then, BPA, investor-owned utilities, public power, and other stakeholders have been negotiating the creation of RTO West.

I'm concerned that the RTO is moving forward without any public discussion of its cost, benefits and impact on prices. I'm not dismissing the RTO idea out of hand, but I do have four concerns.

First, there are going to be significant costs. Estimates range from $30 - $100 million a year. Certainly, these costs will be passed onto consumers in higher energy bills.

Second, we have no evidence that this system will serve the Northwest better than our current system. Yes, there are weak points in our transmission system today. We know of at least 40 major bottlenecks in energy transmission. We need to clear up those bottlenecks by investing in new transmission. We know about those problems now, and we shouldn't wait for the creating of an RTO to address them.

The benefits of moving to an RTO are vague and hard to quantify. RTOs may make sense in some parts of the country where there are dozens of different transmission line owners. But in the seven states of our proposed RTO, just one generator, BPA, controls 80 percent of transmission lines. So an RTO wouldn't have significant benefits here and could even delay our work clearing up existing bottlenecks.

Third, it's not clear how an RTO would affect energy prices, and I'm afraid we may be making the same mistake California made. California had a generation problem when it moved to deregulation. Today, it's paying the price. I don't want us to make a similar mistake on the transmission side. Today we know that we have major bottlenecks in energy transmission. If we move to a market-driven transmission system in the face of these bottelnecks, we may end up paying the same price as California. We don't need higher prices to show us that we have transmission problems. We already know we need to invest in transmission. We shouldn't wait for an RTO to fix our transmission problems. We should fix them today.

Finally, this proposal is moving forward much faster than I would like. It could dramatically change our power system, and there's been little opportunity for public discussion about its impact. While direct stakeholders have talked about it, the general public, the media, and many elected officials don't know about the possible impact of an RTO West. We're in the middle of a crisis right now. I just don't think it's prudent to race forward with this plan until we've had more time to iron out the details and understand the costs.

DEREGULATION
Now that I've talked about RTO's, I want to move on to a second long term issue we must address: deregulation. There is still an effort to deregulate energy markets even with the problems we're seeing in California and other states. Montana has already experienced negative results from its deregulation effort. In fact, the state legislature is busy trying to lessen the impact. Oregon's deregulation law will soon come into effect, but again, the state legislature is considering delaying the implementation date.

I am very relieved by this pause in the deregulation push because I seriously doubt the wisdom of treating energy the same way we treat cable or telephone service. To me, energy is so vital to every aspect of our economy that we cannot afford and don't want the dramatic and unforeseen fluctuations in energy prices that come with deregulation. Energy affects everything from our economy to salmon recovery, trade, and air quality.

Low-cost, public power built this region. Today it is still a major engine. I don't want that engine to stall one year and overheat the next. I want it to function with stability so it can continue to power our region. I fail to see how a deregulated market will not result in continuous boom and bust cycles. Generators will have no incentive to create new generation until prices are high.

For a state so heavily served by cost-based rates of BPA and public utilities, it is hard for me to imagine less expensive and more stabile prices under a deregulated market. I sincerely hope Washington state takes a long, wait-and-see approach to the deregulation debate.

DIVERSIFYING OUR ENERGY SOURCES
I want to turn to a third long term decision. How much do we want to depend on just one source of energy? I'm concerned that we're moving from an over-dependence on hydropower to an over-dependence on natural gas, and natural gas is limited in transmission, production and reserves.

I believe we need to expand capacity from renewables like wind, biomass, solar, and geothermal sources. Wind is especially attractive because it can be brought online quickly, and farmers can generate income from land used for wind farms. Our state is taking a major step forward in wind generation near Walla Walla. When it's completed, the Stateline Wind Power Project will be the largest wind farm in the country.

We also need to continue to invest in fuel-cell research and development. On the more controversial side, many people are asking us to take another look at nuclear energy. I'm sure those debates will be lively.

WHO WILL BUILD THE NEW GENERATION?
There's a final long-term issue we need to address. Who do we want building the new generation in our state? I hope it's the public and private entities that are currently serving our ratepayers. I don't think we want new plants opening up here just to send all of their power to California.

SUMMARY
So those are the decisions before us both immediate and long term. To emerge from this crisis, we need to make immediate decisions about conservation, siting new plants, temporary price caps, and curtailment. We also have to consider how our future energy supply would be affected by Regional Transmission Organizations, deregulation, and diversifying our power supply. The choices we make will have consequences, and we've got to start discussing the issues that are currently under the radar screen.

PRINCIPLES
As I look at these decisions, I'll keep in mind four principles. We need to protect BPA's affordable power to our region. We need temporary price caps and aggressive conservation. We need to diversify our energy sources. And we need federal tax incentives to spur alternative energy.

In closing let me say that, if we make the right decisions today and tomorrow, decades from now we will have a better energy system than we have today. Conservation will be the norm. We won't be held hostage by dramatic changes in one source of power, and we'll have a stronger, more empowered community. We will know that we came together to solve a problem. And doing that on energy could give us the momentum to tackle so many other issues in a thoughtful, cooperative way. Thank you for being part of this critical discussion, and I'm looking forward to hearing the other panelists and to answering your questions.