Two mills feel pinch of high electricity rates, but alternatives are slow to come

Oregon City's Blue Heron Paper Co. laid off 80 employees recently and SP Newsprint Co. in Newberg shut down part of its operations for a day not long ago because of soaring electricity costs.

They had opted to buy electricity at fluctuating market-based rates, which at the time looked like a better deal than the high regulated rates offered by Portland General Electric.

But in recent weeks the market rate has risen to as high as $120 per megawatt-hour, prompting the cutbacks.

Market prices have increased in response to high natural gas prices and a cold spike in the East, said PGE spokesman Scott Simms.

'By and large, most of the customers who chose market-based options understood there was a potential upside and downside,' Simms said.

Under Oregon's restructuring law, a diluted form of deregulation that was implemented a year ago, large commercial and industrial customers have three options: They can buy power from utilities at traditional rates; buy it from them at market-based rates; or cut their ties and find an alternative supplier.

Customers that represent about 10 percent of PGE's kilowatt-hour load now purchase at market-based rates. So far, none have chosen alternative suppliers, due partly to a PGE certification process.

Blue Heron, SP Newsprint and other PGE customers risked the volatile open market because they felt the utility's regulated rates were too high, said Ken Canon, executive director of Industrial Customers of Northwest Utilities.

'They understood they were taking a risk,' he said. 'There were a number who were put in the unenviable position of looking at PGE's traditional rate and saying, 'That will make it tough to operate.' '

Hunting for alternatives

The restructuring legislation was designed to increase competition and give large business customers more options. But now, businesses complain, they feel trapped: Regulated rates are too high, and new competition hasn't yet materialized as hoped.

For Blue Heron and SP Newsprint Ñ mills whose electricity costs make up a large percentage of their operating costs Ñ the long-term solution is to leave PGE. Blue Heron hopes to find an alternative supplier soon.

Pamela Lesh, PGE's vice president of regulatory and federal affairs, said that losing two large industrial customers means PGE will have more electricity available for other customers.

SP Newsprint soon will begin generating its own electricity on-site at costs much below market, said Scott Conant, regional controller of SP Newsprint Co.

'Some time ago, senior management determined that exposure to energy costs could force a shutdown at the mill,' Conant said. 'SP felt compelled to make the necessary investments in order to reduce the uncertainty associated with volatile utility prices.'

Over the course of 2003, PGE's traditional rates probably won't be lower than market prices, said Mike Siebers, president of Blue Heron.

Siebers believes Blue Heron will only see lower prices once it finds an alternative supplier. But, he said, the company has encountered obstacles in that quest.

First, there aren't many alternative suppliers. 'The Enron debacle and fallout to other energy marketing companies has left the marketplace pretty high and dry of competition,' he said.

Moreover, PGE's certification process has proven to be a roadblock, he said, for those few alternative suppliers that are operating in Oregon.

Competitors stymied

Companies like Strategic Energy, Avista Energy and Epcor Merchant & Capital must jump through two hoops before they can compete for customers in the state. First, they must be certified by the Oregon Public Utility Commission. And they must win the approval of the utility whose customers they wish to serve.

PGE requires suppliers to be certified because they need to exchange data electronically with such companies, Lesh said.

'We have some pretty strict requirements on electronic data exchange,' she said.

There also is the so-called '48-hour rule.' Suppliers and industrial customers complain that PGE in late 2002 posted its price options, then gave customers just 48 hours to make a decision on which way to go.

'PGE would rather see customers stay with them than go with someone else,' said one supplier's representative, who did not wish to be named.

Lee Sparling, administrator of OPUC's electric and natural gas division, said the commission is trying to find a way to make competition work better in Oregon.

Lesh said PGE is willing to change the 48-hour rule, as long as the change isn't costly to the customers that remain with PGE.

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